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Contents

Preface xxxviiAcknowledgments xxxix

PART I. INTRODUCTION AND CONTRACTFORMATION 1

1 Introduction to Contracts 5

A. Contracts and Promises 51. What Is a Promise? 6

Manifestation of Intention 6To Act or Refrain from Acting 7Commitment Has Been Made 7

2. Determining Intent: Basic Rules of Interpretation 83. Contract Formation 10

Contractual Promise 10Gratuitous Promise 11

B. The Contracts Analytic Framework 121. How the Study of Contracts Differs from Other Subjects 122. Analytic Frameworks and Rules 133. Contracts Analytic Framework 13

Contract Formation: Is There a Deal? 14Defenses and Excuses 14Contract Interpretation and Implication 14Breach, Conditions, and Anticipatory Repudiation 15Remedies 15Third Parties 15

C. Policies: Freedom of Contract vs. Equity and Fairness 161. Freedom of Contract 162. Equity and Fairness 16

D. Sources of Contract Law 171. Common Law of Contracts 17

Primary Authority 17

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Secondary Authority 172. Uniform Commercial Code Article 2 Sales 183. Other Sources 19

International Sale of Goods 19Statutory Sources for Specific Types of Contracts 19Agreement by the Parties 19

E. About This Coursebook 201. A Modern Approach to the Case Method 202. Structure of a Chapter 203. Importance of Writing 21

Key Concepts 22Problem Solving and Analysis 22

2 Contract Formation: Consideration 25

A. Consideration and the Bargain Theory 251. Consideration as the Gatekeeper 252. Diagramming the Deal 263. Policy: Functions of Consideration 27

B. Consideration: Proving the Rule 271. Bargained for Exchange 28

Some Definitions 28Putting It Together 29Multiple Motives 30

2. Legal Value 30Detriment to the Promisee 31Benefit to the Promisor 32

C. Additional Characteristics and Issues 321. Form of Consideration: Promise or Performance 32

Bilateral Contracts: Promise in Exchange for a Promise 32Unilateral Contracts: Promise in Exchange for Performance 32

2. Consideration Provided to Third Parties 333. Gifts/Gratuitous Promises 34

Exception: Executed Gift 34Rebuttable Presumption: Promises Between Family

Members Are Gratuitous 354. Alternatives to Consideration 35

Promissory Estoppel 35Restitution 36

Case Law: Hamer v. Sidway 37Case Law: Dougherty v. Salt 40


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3 Conditional Gifts 45

A. Overview 45

B. Conditions — A Short Introduction 46What Is a Condition? 46What Is an Event? 46What Is a Conditional Gift? 46

C. Distinguishing Between Conditional Gifts and GratuitousPromises 47

Legal Value 48Bargained for Exchange 48Enforceability of a Promise for a Conditional Gift 49

D. Distinguishing Between Consideration and Conditional Gifts 49

Case Law: Pennsy Supply v. American Ash 50Key Concepts 54Problem Solving and Analysis 54

4 Adequacy and Other Characteristicsof Consideration 57

A. Overview 57

B. Adequacy of Consideration 59Case Illustration: Wolford v. Powers, 85 Ind. 294 (1882) 601. Gross Inadequacy 612. Nominal Consideration 61

Proving the Pretense of a Bargain 62Exceptions to Nominal Consideration: Option Contracts 63

3. Mutuality of Obligation 63

Case Law: Batsakis v. Demotsis 64

C. Illusory Promises 671. The Rule and the Rationale 672. Exceptions to the Illusory Promise Rule 673. Option Contracts as a Planning Device 684. UCC: Requirements Contracts/Output Contracts 68

Output Contracts 69Requirements Contracts 69Limits on Variations in Quantity 70

D. Past Consideration 711. Overview 712. Understanding the Rationale 71

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E. Moral Obligation 731. Overview 73

Love and Affection 73Other Moral Obligations 74Case Illustration: Doe v. Roman Catholic Archdiocese

of Indianapolis, 958 N.E.2d 472 (2011) 742. Exceptions 74

Promises to Pay Debts Barred by Statute of Limitations 75A Debt Discharged by Bankruptcy 75Debts of a Minor Reaffirmed upon Age of Majority 75Promissory Restitution 75

Case Law: Plowman v. Indian Refining Company 76Key Concepts 81Problem Solving and Analysis 81

5 The Preexisting Legal Duty Rule 85

A. Preexisting Legal Duty Rule 851. Overview 852. Types of Preexisting Legal Duties 86

Preexisting Public Duties of Public Officials 86Preexisting Public Duties of Private Parties 87Preexisting Contractual Duties 88Case Illustration: Lingenfelder v. Wainwright Brewery Co.,

103 Mo. 578 (1891) 88

B. Contract Modifications 881. Unenforceable Contract Modifications 882. Enforceable Contract Modifications 90

Additional or a Different Type of Consideration 90Settlement of an Honest Dispute 91

3. Exceptions to the Legal Duty Rule 92A Fair and Equitable Modification in View of ChangedCircumstances 92Promissory Estoppel 92Modification Under the UCC 92

4. Specific Types of Modification 92Mutual Rescission 93Novation 93Accord and Satisfaction 93

Case Law: Alaska Packers’ Assoc. v. Domenico 94

C. UCC Contract Modification 971. No Consideration Needed for Modification 972. Good Faith Requirement 98

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D. Choice of Law 981. Understanding the Statutory Language 992. Choice of Law: Mixed Goods and Services 101

Factors to Consider 101Case Illustration: Mayo v. Caldwell, 547 N.Y.S.2d 207,

209 (1989) 102Minority Jurisdiction: Gravamen Test 103

Case Law: Gross Valentino Printing Co. v. Clarke 103Key Concepts 106Problem Solving and Analysis 107

6 Promissory Estoppel 109

A. Overview 109

B. Proving the Rule 1101. Promissory Estoppel — Analytic Framework 110

Was There a Promise? 110Did the Promisee Take Action (or Forbearance) in Reliance

on the Promise? 111Should Promisor Have Reasonably Expected the Promise

to Induce Action or Forbearance? 111Can Injustice Only Be Avoided by Enforcing the Promise? 111Should the Remedy Be Limited? 112

2. Detrimental Reliance as a Contracts Principle 113

C. Charitable Subscriptions 114

Case Law: Wright v. Newman 115Case Law: Feinberg v. Pfeiffer Co. 119


7 Restitution 127

A. Restitution Overview 127

B. Quasi-Contract 1291. Overview 129

Enrichment 129Injustice 130

2. Limits: Officious Intermeddler (Volunteer) Doctrine 1303. Limits: Gratuitous Benefit (Gifts) 1314. Special Scenarios 131

Ineffective Contract 131Family Scenario 132Saving Lives and Property 132

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Case Law: Watts v. Watts 133

C. Promissory Restitution 141Preventing Injustice 141

Case Law: Webb v. McGowan 142Key Concepts 145Problem Solving and Analysis 145

8 Introduction to Mutual Assent 147

A. Overview 147

B. Objective Theory of Mutual Assent 1481. Overview 148

Case Illustration: Ray v. William G. Eurice & Bros.,201 Md. 115, 125 (1952) 149

2. Exceptions to the Objective Standard 149Both Parties Have the Same Subjective Interpretation 149One Party Knows of the Different Interpretation Used by

the Other Party 150Case Illustration: Bull Motor Co. v. Murphy, 270 S.W.3d

350 (2007) 150Each Party Has a Different Interpretation and Both

Interpretations Are Reasonable 151Case Illustration: Raffles v. Wichelhaus, 159 Eng. Rep.

375 (1864) 151

Case Law: Lucy v. Zehmer 152Key Concepts 159Problem Solving and Analysis 159

9 Offer 161

A. Overarching Rule 1611. The Offer Defines the Terms 1612. The Role of the Parties 1613. Distinguishing Preliminary Negotiations 162

B. Proving the Rule 1621. Manifestation of Present Intent to Enter a Bargain 163

Case Illustration: Owen v. Tunison, 158 A 926 (1932) 1632. Stated in Certain and Definite Terms 1643. Communicated to an Identified Person or Persons 1644. Reasonable Understanding of Offeree that a Contract

Will Result If Accepted 164

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C. Certain and Definite Terms 1651. Parsing the Rule 1652. Essential Terms 165

Time of Performance 166Price to Be Paid 166Case Illustration: Douglass v. Panama, Inc., 504 S.W.2d

776 (1974) 166Scope of Work/Property Transferred 167Case Illustration: Manley v. Athan, 915 S.W.2d 792, 793

(Mo. Ct. App. 1996) 1673. Agreement to Agree/Open Terms 167

D. Special Issues in Offer 1681. Advertisements and Price Quotes 168

Overview 168Exceptions 169

2. Family Contracts and Social Engagements 169

E. UCC Approach to Offer 170Intent 170Certainty 171

Case Law: Lonergan v. Scolnick 172Case Law: Leonard v. Pepsico 175


10 Acceptance and Other Responses toan Offer 185A. Acceptance Requirements 185

1. Overview 1852. Proving the Rule 186

Manifestation of Assent 186Case Illustration: CX Digital Media, Inc. v. Smoking

Everywhere, Inc., 2011 WL 1102782 (S.D. Fla.Mar. 23, 2011) 186

Terms of the Offer 187Manner Invited or Required 187

B. Acceptance by Promise or Performance 1881. Overview 188

Bilateral Contracts 188Unilateral Contracts 189

2. Acceptance by either Promise or Performance 189

C. Termination of the Power of Acceptance 1901. Rejection 1912. Revocation 191

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3. Counteroffer 192Sub-Issue: Counteroffer or Mere Inquiry? 193

4. Lapse of Time 193Case Illustration: Akers v. J. B. Sedberry, Inc., 39 Tenn. App.

633, 286 S.W.2d 617 (1955) 1945. Death or Incapacity 194

D. Special Issues 1951. Auctions 1952. Silence as Acceptance 195

Offeree Agrees that Silence Is Acceptance 196Past Business Dealings Establish that Silence Is Acceptance 196Exercise Dominion over Consideration 196

3. Mailbox Rule 197Overview 197Special Situations 197Exceptions to the Mailbox Rule 198Mailbox Rule and Email 199

Case Law: Normile v. Miller 199Key Concepts 206Problem Solving and Analysis 207

11 Irrevocable Offers 211

A. Overview 211

B. Option Contracts 2121. The Nature of Option Contracts 2122. Proving the Rule 212

Effect of Counteroffers and Rejection 212Exercising the Option 213Consideration Requirement 213Case Illustration: Berryman v. Kmoch, 559 P.2d 790 (1977) 214Option Contracts and the Mailbox Rule 214

C. Conditional Promises and Conditional Contracts 215

D. Promissory Estoppel 2161. Overview 2162. General Contractor — Subcontractor Cases 216

Bidding Process 216Mistakes in the Bidding Process 217

E. Part Performance of Unilateral Contract 2181. Overview 2182. Proving the Rule 219

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3. Limits and Issues 219Only Pure Unilateral Contracts 219Only Offeror Is Bound 220Preparation for Performance 220Case Illustration: Ragosta v. Wilder, 592 A.2d 367 (1991) 220

Case Law: Drennan v. Star Paving Co. 221

F. UCC Merchant’s Firm Offer 2251. Overview 2252. Proving the Rule 225

Merchant Requirement 226What Qualifies as a Writing? 226What Qualifies as a Signature? 227Three-Month Limit 227Consideration and Option Contracts 228

Case Law: Mid-South Packers v. Shoney’s Inc. 228Key Concepts 232Problem Solving and Analysis 232

12 Mutual Assent and the Battle of theForms 237

A. Overview 237

B. Common Law Approach 238

C. UCC §2-207 Introduction 2401. Differences between Common and UCC §2-207 2402. Analytic Framework Overview 241

D. Acceptance With Varying Terms 2421. Has a Contract Formed? 2432. Are the Additional or Different Terms Incorporated into

the Contract? 243At Least One Party Is Not a Merchant 243Both Parties Are Merchants 243

E. Conditional Acceptance 2441. Has a Contract Formed? 2442. Are the Additional or Different Terms Incorporated into

the Contract? 245Implying Reasonable Terms 245

Case Law: Krack v. Metal-Matic 246Key Concepts 251Problem Solving and Analysis 251

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13 Statute of Frauds 253

A. Overview 2531. History of the Statute of Frauds 2542. Modern Adoption 2543. Policies and Controversy 2544. Proving the Rule 255

B. Is the Agreement within the Statute? 2551. Marriage Provision 256

Case Illustration: Dienst v. Dienst, 141 N.W. 591 (1913) 2562. Over One-Year Provision 256

Must Expressly State Time Over One Year 256Special Case — Employment for Life 257Exception — Full Performance by One Party 257

3. Land Sale Contract 257Exception — Part Performance 257

4. Executor Payment of Estate’s Debts 2585. Sale of Goods of $500 or More 2586. Suretyship Agreement 258

C. Does the Writing Satisfy the Statute? 2591. Overview 2592. Proving the Rule 259

Any Writing 260Contents of Writing 260Signature 260The Party to Be Charged 261

3. Miscellaneous Issues 261Multiple Documents 261No Communication or Delivery Requirement 261Written Repudiations 261Court Documents 262Timing 262

D. Exceptions to the Statute 2621. Promissory Estoppel 262

Success in Courts 263Limited as Justice Requires 263Case Illustration: Alaska Democratic Party v. Rice, 934

P.2d 1313 (1997) 2632. Full Performance by Both Parties 2643. Full Performance by One Party (Over One-Year Provision) 2644. Part Performance (Land Sale Contracts) 2655. Part Performance (Other Contracts) 265

Case Law: Crabtree v. Elizabeth Arden 266

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E. UCC Statute of Frauds 2701. Is the Contract Within UCC §2-201(1)? 2702. If So, Does the Writing Satisfy the Requirements

of §2-201(1) or §2-201(2)? 271Writing Requirements Generally — §2-201(1) 271Merchant’s Confirmatory Memo — §2-201(2) 271

3. If Not Sufficient but Within the Statute, Is the ContractEnforceable Because of an Exception In §2-201(3)? 272

Specially Manufactured Goods — §2-201(3)(a) 272Admissions Exception — §2-201(3)(b) 272Part Performance Exception — §2-201(3)(c) 272Case Illustration: Songbird Jet Ltd., Inc. v. Amax, Inc.,

581 F. Supp. 912, 922-23 (1984). 273

Case Law: Buffaloe v. Hart 273Key Concepts 278Problem Solving and Analysis 278

PART II. DEFENSES AND EXCUSES 281

14 Defenses: Incapacity 287

A. Overview 287

B. Minor Incapacity 2881. Proving the Rule 288

Definition of a Minor (Infant) 289Voidable Only by the Minor 289Disaffirming After Reaching Age of Majority 289Case Illustration: In re The Score Bd., Inc., 238 B.R.

585 (1999) 289Restoring Consideration 290Case Illustration: I.B. ex rel. Fife v. Facebook, Inc., 905

F. Supp. 2d 989, 996 (N.D. Cal. 2012) 290Minority Rule: Liability for Tortious Conduct 291

2. Exceptions: Enforceable Agreements 291Necessities of Life 291Case Illustration: Webster Street Partnership, Ltd. v. Sheridan,

220 Neb. 9 (1985) 291Statutory Exceptions 292

Case Law: Halbman v. Lemke 293

C. Mental Incapacity 2971. Proving the Rule 297

At Contract Formation 297

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Tests for Mental Incapacity 298Exception: Necessities 299

2. Effect of Incompetency 299Voidable by Incompetent 299Reaffirmation 299Restoration/Restitution 299

Case Law: Farnum v. Silvano 300

D. Intoxication 3031. Similarities with Mental Incapacity 3032. Court Cases 304Case Illustration: Hunt v. Golden, 271 Or. 321 (1975) 304


15 Defenses: Duress and Undue Influence 307

A. Overview 307

B. Duress 3081. Two Types of Duress 3082. Proving the Rule 308

Element #1: Inducement 308Element #2: Improper Threat 309Case Illustration: Fuhrman v. California Satellite Sys.,

179 Cal. App. 3d 408(1990) 310Element #3: No Reasonable Alternative 311

3. Physical Duress 311Rationale 311Void as a Matter of Public Policy 312

4. Economic Duress 312Typical Fact Pattern 312Policy Concerns 313Economic Duress is Voidable, Not Void 313

5. Third Person Coercion: Knowledge Requirement 313

Case Law: Totem Marine v. Alyeska Pipeline Service Co. 314

C. Undue Influence 3201. Inducement 3202. Unfair Persuasion 3203. Undue Susceptibility 321

Weakness of Mind 321Relationships of Trust 322

4. Inequitable Result 322

Case Law: Odorizzi v. Bloomfield School District 322

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16 Defenses: Misrepresentation andNondisclosure 333

A. Overview 3331. Misrepresentation 3332. Nondisclosure 3343. Remedies for Misrepresentation and Nondisclosure 334

B. Defense of Misrepresentation 3351. Misrepresentation 335

Facts vs. Opinions 335Case Illustration: Schott Motorcycle Supply, Inc. v. Am.

Honda Motor Co., 976 F.2d 58 (1st Cir. 1992) 3352. Fraudulent Misrepresentations 3363. Material Misrepresentations 337

What Is Material? 3374. Inducement 3395. Justifiable Reliance 339

Case Law: Foster v. Cross 340

C. Defense of Nondisclosure 3441. Overview 344Case Illustration: Caples v. Steel, 7 Or. 491, 494-95 (1879) 3452. Synthesizing a Rule 3453. Circumstances Leading to Nondisclosure 346

Disclosure Required by Statute 346Intentional Concealment 346Relationships of Trust and Confidence 347Duty to Disclose in Order to Prevent or Correct a Mistake 347

Case Illustration: Bursey v. Clement, et. al., 118 N.H. 412 (1978) 347

Case Law: Hill v. Jones 348Key Concepts 353Problem Solving and Analysis 353

17 Unconscionability 355

A. Overview 3551. Historic Roots 3562. Policy Considerations 3563. Unconscionability Must Exist at Contract Formation 3564. Remedies 357

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B. Procedural Unconscionability 3571. Gross Inequality in Bargaining Power 3582. Unfair Surprise 358

C. Substantive Unconscionability 3591. Overly Harsh Allocation of Risks 3592. Great Price Disparity 360

Case Law: Williams v. Walker-Thomas Furniture 361Case Law: Capili v. The Finish Line, Inc. 365


18 Public Policy and Illegality 375

A. Overview 3751. Types of Contracts against Public Policy 3762. Balancing Test: Analytic Framework 376

Importance of Enforcing the Contract 376Importance of Furthering the Public Policy 377

3. Rescission vs. Partial Enforcement 377Case Illustration: Keene v. Harling, 61 Cal. 2d 318 (1964) 3774. Availability of Restitution 378

Generally Not Available: In Pari Delecto 378Case Illustration: The Highwayman’s Case, Law Review

Quarterly 9 L.Q. Rev. (1893) 378Exceptions: When Restitution Is Available 379

B. Contracts Involving Illegality 380

C. Contracts that Restrain Trade 3811. Overview 3812. Reasonability Factors 382

Legitimate Interest of the Promisee 382Hardship to the Promisor 382Injury to the Public 382

3. Extent of Restraint 3824. Striking or Modifying Restraints: Blue Pencil Rule 383

Case Law: Hopper v. All Pet Animal Clinic, Inc. 384

D. Impairment of Family Relations 3921. Contracts that Prohibit Marriage 392

Unreasonable Restraints 392Reasonable Restraints 393

2. Contracts Affecting Custody of a Child 393Case Illustration: U.S. v. King, 840 F.2d 1276 (1988) 393

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E. Contracts that Violate Licensing Laws 394Case Illustration: Harness Tracks Sec., Inc. v. Bay State Raceway,

Inc., 374 Mass. 362 (1978) 394


19 Mistake 399

A. Overview 399

B. Mutual Mistake 4001. Analytic Framework 4002. Made a Mistake 4003. Basic Assumption 4014. Material Effect 4015. Bears the Risk 404

Allocated by Agreement 404Conscious Ignorance 404Allocated by the Court 404Case Illustration: Nelson v. Rice, 198 Ariz. 563

(Ct. App. 2000) 405

Case Law: Lenawee County Board of Health v.Messerly 406

C. Unilateral Mistake 4121. Overview 4122. Unconscionable 4133. Knowledge of Mistake or Fault in Causing the Mistake 414

Knowledge of the Mistake 414Case Illustration: Info. Int’l Associates, Inc. v. United States,

74 Fed. Cl. 192, 206 (2006) 414Fault in Causing the Mistake 414

Case Law: Donovan v. RRL Corp. 415Key Concepts 423Problem Solving and Analysis 423

20 Changed Circumstances 427

A. Overview 427Case Illustration: ConAgra, Inc. v. Bartlett P’ship, 248

Neb. 933 (1995) 427

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B. Impossibility 4281. Early Common Law: Strict Liability 428

Case Illustration: Paradine v. Jane, 82 Eng. Rep. 897 (1647) 4282. Development of Modern Approach to Impossibility 429

Case Illustration: Taylor v. Caldwell, 122 Eng. Rep.309 (1863) 429

3. Modern Approach to Impossibility 4304. Proving the Rule 430

After Contract Formation 430A Supervening Event Occurs Without Fault 430Impossibility of Performance 431Basic Assumption that the Event Would Not Occur 431Allocation of Risk 431

5. Remedies 432Rescission and Restitution 432Partial Impossibility, Partial Enforcement, and Reformation 432

C. Impracticability 4331. Proving the Rule 4332. What Is ‘‘Impracticable’’? 433

Case Illustration: Mineral Park Land v. Howard, 172Cal. 289 (Cal. 1916) 434

Case Illustration: Transatlantic Fin. Corp. v. United States,363 F.2d 312 (1966) 434

Case Illustration: Publicker Indus. Inc. v. Union CarbideCorp., 1975 WL 22890 (1975) 435

D. Frustration of Purpose 4361. Proving the Rule 4372. Substantially Frustrated 437

Case Illustration: Krell v. Henry, 2 KB 74 (1903) 437

E. Typical Scenarios 4381. Destruction of Thing 4382. Death/Incapacity of a Person 438

Case Illustration: In re the Estate of Sheppard, 789N.W.2d 616 (2010) 439

3. Government Action 439

Case Law: Opera Company of Boston, Inc. v. Wolf TrapFoundation for the Performing Arts 440


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PART III. INTERPRETATION AND IMPLIEDTERMS 449

21 Parol Evidence Rule 453

A. Overview 453

B. Defining Terms 454What Is Parol Evidence? 454What Is a Total Integration? 455What Is a Partial Integration? 455What Is Contradictory Evidence? 455What Are Consistent Additional Terms? 456Case Illustration: Snyder v. Herbert Greenbaum & Associates,

Inc., 38 Md. App. 144 (1977) 456

C. Analytic Framework 4561. Determining Integration 457

Classic Jurisdiction (Minority Rule) 458Modern Jurisdiction (Majority Rule) 458Terms Naturally Omitted 460Outcomes: Three Possibilities 460

2. Admissibility of Evidence 461Procedural Issues: Role of the Judge and the Jury 461

3. Exceptions 462Evidence Offered to Interpret an Ambiguous Term 463Subsequent Agreements (Oral or Written) 463Showing of Fraud, Mistake, Duress, Undue Influence or

Other Voidability 463Case Illustration: Italian Cowboy Partners v. Prudential

Insurance Co. of America, 341 S.W.3d 323 (2011) 463Collateral Agreements with Separate Consideration 465Case Illustration: Gem Corrugated Box Corp. v. Nat’l Kraft

Container Corp., 427 F.2d 499 (2d Cir. 1970) 465Oral Condition Precedent to the Formation of aContract 465

D. UCC Parol Evidence Rule 466

Case Law: Gianni v. R. Russell & Co. 467Case Law: Lee V. Joseph E. Seagram & Sons, Inc. 469


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22 Interpreting Ambiguous Terms 481

A. The Analytic Framework 481

B. Identifying Interpretation Issues 4821. Do the Parties Have a Dispute Over the Meaning of a Term? 4822. Is the Term (or Contract) Ambiguous? 484

Overview 484Patent vs. Latent Ambiguities 485Reasonable Susceptibility Test 486

C. Primary Rules of Interpretation 4871. Language of the Express Terms 488

Ordinary Meaning 488Case Illustration: Whittington v. Eli Lilly and Co., 333

F. Supp. 98 (1971) 488Technical Meaning 489According to the Surrounding Circumstances 489Construed as a Whole 490

2. Course of Performance/Conduct 4903. Course of Dealing 4914. Trade Usage/Custom 491

Trade Usage as Customary Practices 492Case Illustration: Robinson v. United States 80 U.S.

363 (1871) 492Trade Usage as Technical Definitions 492Case Illustration: Hurst v. W.J. Lake & Co. 16 P.2d 627

(Or. 1932) 492Case Illustration: Ermolieff v. R.K.O. Radio Pictures 19

Cal. 2d 543 (1942) 493

D. Secondary Rules of Interpretation 4931. Preference to Interpret Contracts as Valid, Lawful, and

Reasonable 493Case Illustration: Entremont v. Whitsell, 13 Cal. 2d 290,

296–97 (1939) 4942. Conflicts Between Clauses 4943. Ejusdem generis (Latin for ‘‘Of the Same Kind’’) 495

Case Illustration: 242-44 E. 77th St., LLC v. GreaterNew York Mut. Ins. Co., 815 N.Y.S.2d 507 (2006) 495

4. Interpretation against the Drafter (Contra proferentem) 495Case Illustration: Grove v. Charbonneau Buick-Pontiac,

Inc., 240 N.W.2d 853 (1976) 496

Case Law: Frigaliment Importing v. BNS Int’l Sales Corp. 497Key Concepts 501Problem Solving and Analysis 501

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23 Implied Terms 505

A. Overview 505

B. Supplementing the Contract with Implied Terms 5061. Overview of the Common Law 506

Case Illustration: Beal v. Las Vegas Sav. Bank, 66 N.M.480 (1960) 507

2. UCC Gap Fillers 507Implying Reasonable Price Provisions 508Implying Reasonable Time Provisions 509

C. Implied Obligation of Good Faith and Fair Dealing 5091. Common Factual Scenarios 5102. Definition of Good Faith 510

Case Illustration: Sons of Thunder v. Borden, Inc.690 A.2d 575 (1997) 511

3. Implied Obligation of Reasonable Efforts 512Case Illustration: Wood v. Lucy, Lady Duff Gordon,

66 N.M. 480 (1960) 5124. Special Case: Satisfaction Clauses 513

Case Law: Locke v. Warner 514

D. UCC Article 2 Implied and Express Warranties 520

Case Law: Bayliner Marine Corp. v. Crow 523

E. Implied Warranty of Habitability 527

Case Law: Mease v. Fox 528Key Concepts 531Problem Solving and Analysis 532

PART IV. Breach, Conditions, andRepudiation 535

24 Breach of Contract 537

A. Overview 537

B. Levels of Breach 5391. Partial Breach/Substantial Performance 539

Case Illustration: Jacob & Youngs, Inc. v. Kent, 230N.Y. 239 (1921) 540

2. Material Breach 541Right to Suspend Performance and Opportunity to Cure 541

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Case Illustration: Volvo Trucks North America v. WisconsinDepartment of Transportation, 323 Wis. 2d 294 (2010) 542

How Much Time Does a Breaching Party Have to Cure? 542‘‘Time Is of the Essence’’ Clauses 542

3. Total Breach 543

C. Determining the Materiality of the Breach 5431. Amount of Benefit Received 544

Case Illustration: O. W. Grun Roofing & Const. Co. v. Cope,529 S.W.2d 258 (1975) 544

2. Adequacy of Damages 5453. Forfeiture Suffered by Breaching Party 5454. Likelihood of Cure 5455. Lack of Good Faith and Fair Dealing 545

D. Discharge of Duties 546Full Performance 546Tender of Performance that Is Rejected 546Agreement by the Parties 546Valid Defense or Excuse 546Occurrence of a Condition 547Total Breach by the Other Party 547

Case Law: Milner Hotels, Inc. v. Norfolk & WesternRailway Co. 547

E. UCC Nonperformance Rules 5531. Seller’s Nonperformance 553

Nondelivery 553Failure to Make Perfect Tender 553Breach of Warranty 553Anticipatory Repudiation 554

2. The Perfect Tender Rule 554Policy Goals 555Rejection and Reasonable Time Requirement 555Revocation of Acceptance 555Seller’s Right to Cure 555Exception: Installment Contracts 556

3. Buyer’s Nonperformance 557Wrongful Rejection of Goods 557Case Illustration: Neumiller Farms, Inc. v. Cornett, 368

So. 2d 272 (Ala. 1979) 558Failure to Make Payment 558Anticipatory Repudiation 558

Case Law: Ramirez v. Autosport 558Key Concepts 564Problem Solving and Analysis 564

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25 Conditions to Performance 567

A. The Basics of Conditions 567Conditions and Duties 567Conditions Can Lead to Harsh Consequences 568Express Conditions vs. Constructive Conditions 570

B. Characteristics of Express Conditions 5701. Distinguishing Promises from Conditions 570

Unconditional Promises 570Conditional Promises 571Implied Duty of Good Faith 572

2. Condition Precedent vs. Condition Subsequent 572Condition Precedent 572Condition Subsequent 573

C. Analytic Framework 5741. Did the Parties Intend to Include an Express Condition

In the Contract? 5742. Has the Condition Occurred? 5753. If the Condition Has Not Occurred, Has the Condition

Been Excused? 576Express Waiver 576Case Illustration: Clark v. West, 193 N.Y. 349, 86 N.E. 1

(1908) 576Estoppel 577Wrongful Hindrance by the Party with the Conditional

Duty to Perform 577Case Illustration: Cantrell-Waind & Associates, Inc. v.

Guillaume Motorsports, Inc. 62 Ark. App. 66 (1998) 577Avoidance of Disproportionate Forfeiture 577

D. Constructive Conditions (Implied by Law) 578Overview 578Substantial Performance and Constructive Conditions 579

Case Law: Oppenheimer & Co., Inc. v.Oppenheim, Appel, Dixon & Co. 580

Case Law: J.N.A. Realty Corp. v. Cross BayChelsea, Inc. 585


26 Anticipatory Repudiation 595

A. Overview 595

B. Analytic Framework 596

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1. Has a Party Repudiated the Contract? 596Before Performance Is Due 596Unequivocal and Definite Statement 597A Good Faith Dispute Is Not Necessarily a Repudiation 598Case Illustration: Convergent Group Corp. v. County of

Kent, 266 F. Supp. 2d 647 (2003) 598Conduct as Repudiation 598Special Case: Insolvency 599

2. Rights of Non-Repudiating Party 599Remedies Issue: Suspending Performance and Mitigation 600

3. Retraction of Repudiation 600

Case Law: Difolco v. MSNBC 601

C. Request for Adequate Assurances of Performance 606Reasonable Grounds for Insecurity 607Case Illustration: Turntables, Inc. v. Gestetner, 52

A.D.2d 776 (1976) 608Demand for Adequate Assurances of Performance 608Failure to Provide Adequate Assurances Is a

Repudiation 609

Case Law: Hawa v. Moore 609Key Concepts 612Problem Solving and Analysis 612

PART V. Remedies 615

27 Introduction to Remedies and theExpectation Interest 619

A. Overview of Themes 6191. Expectation Interest or Benefit of the Bargain 6202. Substitutional Remedies vs. Specific Remedies 6203. Legal Remedies vs. Equitable Remedies 6204. Money Damages Are Favored 6205. Purpose Is to Compensate, Not Punish 6216. Theory of Efficient Breach 621

B. Three Interests (Theories) of Recovery 6221. Overview 6232. Expectation Interest 623

Money Damages 623Specific Performance 624

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3. Reliance Interest 6244. Restitution Interest 6245. How Do the Interests Differ? 625

C. The Expectation Interest and Money Damages 6261. Types of Damages 627

General Damages (Direct Damages) 627Consequential Damages (Special Damages) 628Incidental Damages 628

2. Limits to Avoid Overcompensation 629Certainty 629Causation 629Foreseeability 629Mitigation (Avoidable Consequences) 629

D. General Damages (Direct Damages) 6301. Measure of General Damage 630

E. Consequential Damages (Special Damages) 633Lost Profits Arising from Collateral Contracts 634Breach Causes Plaintiff Liability to a Third Party 634Injury to Person or Property Caused by the Breach 635Loss of Use Damages 635Plaintiff Incurs Fines or Government-Imposed Fees

Because of the Breach 635

F. Incidental Damages 636

G. Adjustments and Offsets 638Prepayments and Other Performance 638Breach Results in Cost Savings 639Breach Results in Gain for Non-breaching Party 639Key Concepts 640Problem Solving and Analysis 640

28 Certainty, Causation, and Foreseeability 643

A. Overview 643

B. Certainty 644Amount of Accuracy Needed 644Certainty and Lost Profits 644Case Illustration: Connoble v. Clark, 38 Mo. App. 476 (1889) 644New Businesses and Evidence of Loss 645Case Illustration: El Fredo Pizza, Inc. v. Roto-Flex Oven Co.,

199 Neb. 697 (1978). 645Impact of Uncertainty 646

Case Law: Kenford Co. v. County of Erie 647

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C. Causation 649Case Illustration: Vanessa Redgrave v. Boston Symphony,

855 F.2d 888 (1988) 650Case Illustration: Fowler v. Campbell, 612 N.E.2d 596 (1993) 650

Case Law: Cannon v. Yankee Products Co., Inc. 651

D. Foreseeability 655Test for Foreseeability 656General Damages 656Consequential Damages 657Impact of Unforeseeable Consequences 657

Case Law: Hadley v. Baxendale 657Case Law: Brown v. Vermont Justin Corp. 660


29 Mitigation 667

A. Overview: The Mitigation Principle 667Reasonable Efforts to Mitigate 668No Actual ‘‘Duty to Mitigate’’ 668Burden of Proof 668Unsuccessful Efforts 669

B. Effect of Mitigation on Damage Awards 6691. General Damages and Mitigation 6692. Consequential Damages and Mitigation 6693. Incidental Damages and Mitigation 669

Case Law: Rockingham County v. Luten Bridge Co. 670Case Law: Lewis v. Mobil Oil Corp. 674

C. Lost Volume Seller 678Burden of Proof 680

Case Law: C.L.C. Corp. v. Ragtime, Inc. 680Key Concepts 683Problem Solving and Analysis 684

30 Real Estate, Employment, andConstruction Contracts 687

A. Overview 687

B. Real Estate Contracts 688

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1. General Damages for Real Estate Contracts 688Differences between Seller Breach and Buyer Breach 688

2. Establishing Fair Market Value and Certainty 689Subsequent Sale within Reasonable Time 689Case Illustration: Roesch v. Bray, 46 Ohio App.3d 49 (1988) 689Comparable Transactions (‘‘Comps’’) 690

3. Recovery of Down Payment 690Seller Breach 690Buyer Breach 690

4. Consequential Damages 690Lost Profit 690Loss of Use 691

5. Incidental Damages 6916. Specific Performance 6917. Real Estate Leases and Mitigation 692

Case Law: Smith v. Mady 692

C. Employment Contracts 6951. Employee Breach 695

Expectation Interest 695Case Illustration: Handicapped Children’s Education Board

of Sheboygan County v. Lukaszewski, 112 Wis. 2d197 (1983) 696

Consequential Damages 697Incidental Damages 697Specific Performance 697

2. Employer Breach 697Expectation Interest 697Issue: What Period of Time? 698Case Illustration: Havill v. Woodstock Soapstone Co. 865

A.2d 335 (2004) 698Consequential Damages 699Incidental Damages 699

3. Employment Contracts and Mitigation 699Reasonable Efforts 699Substantially Similar 700Case Illustration: Parker v. Twentieth Century-Fox Film

Corp., 3 Cal.3d 176 (1970) 700Burden of Proof 701

Case Law: Roth v. Speck 702

D. Construction and Service Contracts 7051. Contractor Breach General Damages 705

Reasonable Cost to Complete and/or Repair 705Diminution in Value Exception 705Economic Waste or Windfall 706

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Contractor Substantially Performed 706Intentional, Willful Breaches 706Case Illustration: McKee v. Wheelus, 85 Ga. App. 525 (1952) 706Covenant is Incidental to the Main Purpose of the Contract: 706Case Illustration: Peevyhouse v. Garland Coal & Min. Co.,

1962 OK 267 (1962) 707Aesthetic Considerations 707Case Illustration: Landis v. William Fannin Builders, Inc.,

193 Ohio App.3d 318 (2011) 7072. Awarding Both Cost to Repair and Diminution in Value 708

Case Illustration: Marchesseault v. Jackson, 611 A.2d 95(Me. 1992) 708

3. Specific Performance 7094. Contractor Breach: Consequential and Incidental Damages 709

Injury to Person or Property 709Lost Profits 710Case Illustration: Alpine Indus., Inc. v. Gohl, 30 Wash.

App. 750 (1981) 710Loss of Use 710Case Illustration: Doughty v. Simpson, 190 Ga. App.

718 (1989) 711Extra Living Expenses 711Incidental Damages 711

5. Contracting Party Breach 711General Damages 711Adjustments to General Damages Measure 712Prepayment 712Mitigation 712

Case Law: Eastlake Construction Co. v. Hess 713Key Concepts 719Problem Solving and Analysis 719

31 UCC Remedies 723

A. Overview 723

B. Buyer’S Remedies When Seller Breaches 7241. Types of Damages 7242. Money Damages: Two Analytic Frameworks 7243. Recover any Price Paid — UCC §2-711 7254. Cover Damages — UCC §2-712 725

Good Faith 726Without Unreasonable Delay 726Reasonable Substitute 726Cover and Consequential Damages 726

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5. Market Damages — UCC §2-713 727Cover or Market? 727Determining Market Price 728

6. Warranty Damages — UCC §2-714 729Non-conformity 729Notice Requirement 729

7. Incidental Damages — UCC §2-715(1) 7298. Consequential Damages — UCC §2-715(2) 730

Mitigation 7319. Cancellation — UCC §2-711(1) 731

10. Specific Performance — UCC §2-716 731

Case Law: AM/PM Franchise Assoc. v. Atlantic-Richfield Co. 733

C. Seller’s Remedies When Buyer Breaches 7391. Overview 739

Consequential Damages Generally Not Available 7402. Resale Damages — UCC §2-706 740

Notice 740Good Faith and in a Commercially Reasonable Manner 741Resale and the Expectation Interest 741Special Case: Unfinished Goods 741

3. Market Damages — UCC §2-708(1) 742Part Resale/Part Market Damages 742Preference to Mitigate 742

4. Seller’s Expected Profit — UCC §2-708(2) 743Lost Volume Seller 743Case Illustration: Rodriguez v. Learjet, Inc., 24 Kan.

App. 2d 461 (1997) 743Partially Manufactured Goods 744Intermediary Who Has Yet to Acquire Goods 744

5. Seller Action for Price — UCC §2-709 7446. Seller’s Incidental Damages — UCC §2-710 744

Case Law: Sprague v. Sumitomo Forestry Co. 745Key Concepts 750Problem Solving and Analysis 750

32 Other Damages 753

A. Overview 753

B. Punitive Damages 754Case Illustration: White v. Blue Cross and Blue Shield of

Greater New York, 146 Misc. 2d 125 (1989) 754

Case Law: Walker v. Signal Companies, Inc. 756

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C. Emotional Distress Damages 7611. Bodily Injury in Addition to Emotional Distress 762

Case Illustration: Sullivan v. O’Connor, 363 Mass. 579, 587,296 N.E.2d 183, 189 (1973) 762

2. Serious Emotional Distress Was a Likely Result 763Cases Involving Disposal of Dead Bodies 764Case Illustration: Christensen v. Superior Court, 54 Cal. 3d

868 (1991) 764Other Cases Allowing Emotional Distress 764Case Illustration: Windeler v. Scheers Jewelers (1970) 8 Cal.

App. 3d 844 765Case Illustration: Agredano v. United States, 82 Fed. Cl. 416,

448–49 (2008), rev’d, 595 F.3d 1278 (Fed. Cir. 2010) 765

Case Law: Erlich v. Menezes 766

D. Attorney’s Fees 776By Statute 777Court Rules 777By Agreement 777Collateral Litigation 777Bad Faith 777

E. Liquidated Damages and other Agreed Remedies 7781. Overview 7782. Proving the Rule 779

Does Not Operate as a Penalty 779Difficult to Estimate Damages 779Reasonable Forecast of Anticipated or Actual Harm 779

Case Law: Vanderbilt University v. Dinardo 780

F. Prejudgment and Post-Judgment Interest 785Prejudgment Interest 785Post-Judgment Interest 786

G. Alternative Award: Nominal Damages 786Case Illustration: Freund v. Washington Square Press,

34 N.Y.2d 379 (1974) 786


33 Specific Performance and Other Injunctions 791

A. Overview 791

B. Rule Basics: Specific Performance 7921. Inadequacy of Money Damages 792

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Uncertainty in Money Damages 793Difficulty in Procuring a Substitute 793Case Illustration: Houseman v. Dare, 966 A.2d 24 (2009) 793Unlikely That Damages Can Be Collected 794

2. Certain and Definite Terms 794Case Illustration: Bettancourt v. Gilroy Theatre Co., 120 Cal.

App. 2d 364 (1953) 7953. Feasibility 795

C. Other Limits 7961. Unfairness and the Relationship to Defenses 796

Case Illustration: Wollums v. Horsley, 93 Ky. 582 (1892) 7962. Unclean Hands 7973. Laches 797

Case Law: Dover Shopping Center, Inc. v. Cushman’sSons, Inc. 798

D. Issues for Different Types of Contracts 8001. Sale of an Interest in Real Property 800

Buyer’s Remedy 800Seller’s Remedy 801Case Illustration: McCollam v. Cahill, 766 N.W.2d

171 (2009) 8012. Contracts for the Sale/Transfer of Goods 801

Specific Performance for the Buyer — UCC §2-716 801Case Illustration: Sedmak v. Charlie’s Chevrolet, Inc.,

622 S.W.2d 694 (Mo. Ct. App. 1981) 802Specific Performance for the Seller — UCC §2-709 802

3. Personal Services Contracts 803No Specific Performance 803Prohibitory Injunctions 803Issue: What Is a Personal Services Contract? 803

4. Construction Contracts (and Other Service Agreements) 804

Case Law: ABC v. Wolf 804Key Concepts 811Problem Solving and Analysis 811

34 Alternatives to Expectation: Relianceand Restitution 815

A. Overview 815

B. Reliance Interest 8161. When to Use Reliance Damages 8162. Types of Reliance: Essential vs. Incidental Reliance 817

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Case Illustration: Security Stove & Manufacturing Co. v.American Railway Express Co., 51 S.W.2d 572 (1932) 817

3. Losing Contracts 8184. Certainty, Foreseeability, Causation, and Mitigation 819

Case Law: Gruber v. S-M News Company 819

C. Restitution Interest 8221. When to Use Restitution 8232. Restitution for Non-Breaching Party 823

Must Be a Total Breach or Repudiation 824Not Available if Non-Breaching Party Has Fully Performed 824Case Illustration: Oliver v. Campbell, 273 P.2d 15 (1954) 824

3. Types of Restitution 824Specific Restitution 824Market Value Restitution 825Case Illustration: IT Corp. v. Motco Site Trust Fund,

903 F. Supp. 1106 (1994) 8254. Measuring Market Value Restitution 826

Case Law: United States v. Algernon Blair 827

5. Restitution for Breaching Party 829

Case Law: Freedman v. Rector, Wardens and Vestrymenof St. Mathias Parish 830


PART VI. Third Party Rights 839

35 Third Party Rights 841

A. Third Party Rights 8421. Formation Requirements 842

Intended Beneficiaries 843Incidental Beneficiaries 843

2. Rights of the Third Party and Promisee 844Lawsuit: Third Party Beneficiary (C) v. Promisor (A)

and/or Promisee (B) 844Lawsuit: Promisee (B) v. Promisor (A) 845

3. Defenses and Modification 845Promisor’s Defenses 845Modification and Vesting 845

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4. Special Case: Government Contracts 846Illustration 1 846Illustration 5 846

Case Law: Zigas v. Superior Court 847

B. Assignment of Rights 8521. What Rights May Be Assigned? 853

Public Policy Favors Free Assignment of Rights 853Materially Changes the Obligor’s Duty or Increases Risk 853Assignment Prohibited by Law 854Assignment Is Validly Precluded by Contract 854

2. Formation Requirements 8553. Revocation of Gratuitous Assignments 8554. Rights of the Parties 856

Lawsuit: Assignee (Z) v. Obligor (X) 856Lawsuit: Assignee (Z) v. Assignor (Y) 856

C. Delegation of Duties 8561. What Duties May Be Delegated? 857

Case Illustration: Price v. Pan-Am. Motor Corp., 217 Ill.App. 526 (1920) 858

2. Formation 8583. Rights of the Obligee 858

Can an Obligee Refuse to Accept the Performance of theDelegate? 858Lawsuit: Obligee (Y) v. Obligor (X) and/or Delegate (Z) 859

Case Law: Sally Beauty Co. v. Nexxus Products Co. 859Key Concepts 865Problem Solving and Analysis 865

Appendix: Test Yourself Answers 000Index 000

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