Contracts Outline Fall 2014

Table of Contents:1. FORMATIONA. MUTUAL ASSENTB. OFFERC. ACCEPTANCED. FORM CONTRACTSE. PARTIAL AGREEMENTS2. ENFORCEABILITYA. CONSIDERATIONB. RELIANCEC. UNJUST ENRICHMENTD. STATUTE OF FRAUDS3. TERMSA. PAROL EVIDENCE RULEB. INTERPRETATIONC. WARRANTIES4. DEFENSESA. MISCONDUCTB. MISTAKEC. CHANGED CIRCUMSTANCES5. CONDITIONSA. EXPRESS CONDITIONSB. CONSTRUCTIVE CONDITIONS6. REMEDIESA. EXPECTATION INTERESTB. RELIANCE INTERESTC. RESTITUTION INTEREST

Important Terms: Contract: promise or set of promises for breach of which law gives remedy, or performance of which the law recognizes as a duty.Promise: Manifestation of intent to act or refrain from acting in a wayAgreement: Manifestation of mutual assentBargain: Agreement to exchange promises for a performance or to exchange performances

Law protects three interests:Expectation: interest after contract comes into existenceReliance: expectation of performance or inaction that often leads a party to change positionRestitution: the benefits one party receives at the expense of another

1. FORMATIONA. Mutual Assent meeting of the minds-Necessary to protect liberal autonomy, freedom of contract-Contract Law = protecting parties reliance interests (not imposing obligation like in Torts)-Contract Law = protects people who dont have common practices (outliers)1. Objective Theory: In determining whether the parties have reached mutual assent, what matters is not what each party subjectively intended. Instead, a partys intentions are measured by what a reasonable person in the position of the other party would have thought the first party intended, based on the first partys outward manifestation.i. Relatively new development from roughly around the industrial revolution; legal doctrine shifted from subjective theory to objective theory. Rise of credit economy = objective theory because subjective theory dampens ability to extend credit, for banks to collect, etc.ii. Shift occurred because Objective theory=objective proof, subjective theory=ambiguityiii. Objective theory protects reliance in contractsiv. Objective theory allows for clear delineation of whether the contract is enforceable or notv. Objective theory provides a way to protect those who maintain/change positions or rely on something based on outward manifestations of intentvi. By admitting evidence under the objective theory, are you upsetting one partys reliance?1. If yes, exclude; if no, include.vii. Objective theory allows for lawyers to argue their side.viii. Lucy v. Zehmer: one consequence of applying the objective theory: even a contract entered into subjectively jokingly is enforced.ix. Embry v. Hargadine, McKittrick: Under the objective theory, if P had a reasonable basis for believing that he was entering into a contract, then his reliance should be protected.2. Modified Objective Theory: A party is bound by the other partys meaning if the first party either knew or had reason to know of the second partys meaning while the second party did not know or have reason to know of the first partys interpretation.i. Oswald v. Allen: In this case over the purchase of Swiss Coins, court found there was no subjective (or objective) mutual assent, no meeting of the minds as to what Swiss Coins really meant.1. MOT: when a term of a contract is ambivalent and understood differently, there cannot be a contract unless one of the parties should have been aware of the other partys understanding of the term. (R.2d 201).B. Offer: A manifestation of intent of the parties to allow a contract to come into existence without any additional action on the part of the offeror.1. Offer must have: i. Language of a promiseii. Definiteness as to essential termsiii. Be communicated to offeree2. In determining whether an offer has been made, consider:i. Languageii. Circumstancesiii. Prior practice and relation of partiesiv. Industry customv. Method of communication (mailbox rule, etc.)1. Nebraska Seed: consider the outside circumstances to make an argument that an offer has or has not been made. Just because a letter says its an acceptance doesnt preclude it from being an offer if it satisfies the requirements of being an offer.2. Leonard v PepsiCo3. Revocation: you can (consistent with the obj. theory) have the offeree acquire the knowledge that the offeror no longer intends to be making the offer (revocation). i. Dickinson v. Dodds: Rule is that promises to keep an offer open until a certain time will be just a promise UNLESS made binding by consideration and acceptance necessary to form a binding agreement (must be bargained for).1. HOWEVER, had Dickinson been a sale of widgets, it would have been governed by the UCC, and the certain time provision is enforceable even without consideration because THE UCC SAYS SO. 2205.2. 1103; 2102; 2104; 2105; 2205ii. Different ways:1. Revocation (by offeror)2. Death or insanity of either party3. Intervening illegality4. Rejection / Counteroffer (by offeree) 5. Expiration of specific date / lapse of time6. Impossibility / destruction of subject matter in contract4. Preliminary Negotiations: Distinguished from offers because parties have no intent to be bound.5. Advertisementsi. Generally, ads are not offers but considered to be solicitations to make offers. Stores dont want to end up with multiple liabilityii. Advertisement: is an offer if it is clear, definite, explicit, and leaves nothing open for negotiation; acceptance will complete the contract (no further action on the part of the advertiser/offeror)see Lefkowitz.1. Lefkowitz: i. Test: whether the facts show that some performance was promised in positive terms in return for something requested.ii. Offer: where the offer is clear, definite, and explicit, and leaves nothing open for negotiation; acceptance will complete the contract.C. Acceptance: Once an offer is accepted, a contract is formed and mutual assent is established. Offeree has four options after receiving an offer:i. Accept, bringing contract into existenceii. Reject, preventing contract, terminating offeriii. Make counter-offer, rejection of original offer + new offer iv. Do something else (e.g., make inquirylegally inconsequential)

Three Means of Acceptance Under the UCC 2-606:1. After a reasonable opportunity to inspect, manifest to seller that goods conform, OR are acceptable in spite of non-performance2. Failure to Reject within reasonable time after reasonable opportunity to inspect.3. Act inconsistently with sellers ownership (play with toys).

2. Mirror image rule: i. The terms of an acceptance must mirror the terms of the offer. ii. See below, 2-207 and Battle of the Forms.3. Rule: Learning that intent to make an offer no longer exists, the offer (or counteroffer) also ceases to exist (and vice versa)i. Mailbox Rule (Restatement 63): Unless the offer provides otherwise, an acceptance completes the manifestation of mutual assent as soon as it is put out of the offerees possession. Although an offer is effective upon receipt, an acceptance of a bilateral offer is effective the moment its posted. It holds, even if the acceptance never actually reaches the offeror. Must be correctly addressed and have right amount of postage to be enforceable when it goes into the mailbox. Only applies if the offeror authorizes the use of the mail as acceptance expressly or by mailing the offer itself. Same rule applies to telegrams. Mailbox rule doesnt apply to option contracts. (option contracts are accepted only upon receipt) UCC 1-201(38): an offer can be accepted by any reasonable means. If unreasonable means are chosen, the acceptance is still valid when dispatched, as long as the offeror receives it no later that he would have via reasonable means. E-mail is NOT an invited mode of acceptance for an offer that was sent by US mail.4. Unilateral contract: i. Acceptance is based on the condition of performance. Occurs when the offeror expects action instead of promise. Acceptance by performance, NOT a promise to perform)ii. Generally, the only unilateral contract cases are when the offeror has no interest in a promise but only in the performance (commission or reward contractsIll give you $100 if you find my cat)iii. Completion: if the performance is not completed, then the offeror is not bound by the unilateral contractiv. Because the offeror is the MASTER of the contract, the offeror is the one whose intent determines whether a contract is bilateral or unilateral.v. Petterson v. Pattberg (D promised property at discount if P paid off mortgage)1. Court finds that an offer to form a unilateral contract was revoked prior to acceptance5. Partial Performance Doctrinei. Precludes offeror in unilateral contract from revoking offer within a reasonable amount of time where offeree manifests assent by entering the contract upon performance.ii. Restatement 45: When offeree begins performance, part performance creates an option contract (irrevocable offer).1. An option is an irrevocable offer. Offeror invites an offeree to accept by rendering a performance (unilateral contract) and the offeree begins performance, then it becomes an option (irrevocable).2. Contract is not yet accepted, so offeror is not obligated until full performance is rendered.6. Acceptance by Silencei. Silence can be an acceptance; in particular contexts, silence might be a manifestation of intent to accept (under obj. theory). This is usually occurs only when there is something unique about the facts/context.ii. General rule: (Restatement 69) offeror cannot insist upon silence as a means of acceptance UNLESS he manifests an intent to be bound, one of these 3 ways:1. (a) Where offeree takes benefits of offered services or exercises dominion (uses) over what the offeror offers, having had an opportunity to reject.2. (b) Where offeror gave offeree reason to understand that silence would be an acceptable means of acceptance, and the offeree, in remaining silent intends to accept the offer. (ex: Book of the Month)3. (c) Previous dealings between the parties indicate that silence will be acceptance D. Form Contracts: UCC 2-204: General Contract Formation: if you intend to have a contract, you have onevery forgiving provision)i. Contract for sale of goods can be made in any way that sufficiently shows agreement, including conduct by both parties that recognizes its existence.ii. Can still have a contract for sale, even if the moment of its making is undefinediii. Even though one or more of its terms are left open, the contract doesnt fail for indefiniteness if: PARTIES intended to make a contract, and THERES a reasonably certain basis for giving an appropriate remedy.

3 ways of making a contract:1. Offer and acceptance2. Oral agreement followed by written confirmation3. Behavior of the parties

2. Click-Wrap: hitting the button that says I agree to the license terms in order to get the software in the first placeso clicking=manifestation of assent/intenti. Specht v. Netscape: technically browse-wrap. Offerees not bound by inconspicuous terms buried in a contract.ii. Key here is to APPLY THE OBJECTIVE THEORY. 1. For Plaintiff: What matters objectively is not whether or not the P agreed to the terms; its whether or not the D had notification that the P was accepting the terms. If we let the D win when P did not KNOW about the terms, it will frustrate the reliance of the P.2. For Defendant: If we let the P win, when the plaintiff KNOWS about the terms, we will be upsetting the reliance of the D.3. The goal here is to MAXIMIZE RELIANCE. We would pick the interpretation that would least frustrate reliance.iii. Duty to Read Rule doesnt necessarily apply in these situations, because a REASONABLE PERSON treats electronic screen differently from piece of paper.3. Adhesion: Standard Form Contracts, i.e. Take it or Leave it.i. Carnival Cruise v. Schute and Caspi v. Microsoft: Highlight common problem with form contractsii. Why do we use them? Easier to understand, non-discrimination, prevents recontractingiii. In order to solve this problem, apply objective theory. Both courts in CC and Caspi found that the offerees WERE bound to the terms in the form contract.iv. What should we do, since it seems that we are violating mutual assent/freedom of contract by enforcing this?1. Restatement 2d 211: Doctrine of Reasonable Expectation: we find that there is a contract, despite the apparent absence of mutual assent, but that contract will include only the terms that the contracting party would reasonably expect to be there.4. Shrink-Wrap: software boxed in shrink-wrap; by retaining this software, you agree to the terms in the license: so keeping it = manifestation of assent/intenti. Pro CD v. Zeidenberg (phone book on CD, shrink wrap license says you cant sell it)5. Battle of the Forms: 2207i. Mirror Image Rule: demands that an acceptance precisely match an offer in order for a contract to be formed; otherwise, it is a counteroffer.ii. Diluting the mirror image rule:1. Last Shot Rule evolved to permit enforcement of contracts based on performance: terms will be whatever terms are contained in the most recent piece of paper (Still formalistic thoughUCC attempts to avoid an unfair advantage)a. Form contracts placed strain on traditional rules of offer and acceptanceforced to use new methodsb. Battle of the Forms: one company that used form contracts dealt with another company that also used form contracts; result was often an exchange of conflicting forms that just got stuffed into filing cabinets and werent read until a dispute arose.6. Fluid Acceptance 2204

E. Partial Agreements1. Preliminary Agreementsi. Empro v. Ball-Co: 1. Letters of Intent are sometimes enforceable: R. 2nd 27 Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.2. EVERYTHING turns on the intent of the parties.2. Agreements to Agreei. UCC 2-305: Comment 1: this article rejects the formula that an agreement to agree is unenforceableand rejects also defeating such agreements on the ground of indefiniteness.ii. Sun Printing: Cardozo writes opinion ruling for the seller because this is an incomplete agreement. This is an agreement to agree. There are too many open terms and the legal system does not enforce this type of agreement.iii. If the parties dont specify terms in the contract (and there are no applicable gap-fillers), the court cannot enforce it.1. Major factual issue: the price term in this case. Parties specified cap and rangethe max price is Canadian newspring market pricebut not a specific price.a. Arguments FOR and AGAINST interpreting this as an open term2. Cardozo says the price term is okay, but the duration provision is still too open.a. No party has manifested mutual assent about the duration.3. Spann disagrees: If the parties agree to reasonable price and unspecified duration term, theyre willing to settle for any reasonable term. If P is willing to go along with any reasonable duration set by the D, then there is mutual assent.a. Counter: Court could say that, but then it would be giving the option to the buyer to speculate against the interest of the seller, depending on market price of paper at the time.iv. TODAY, this case would be governed by the UCC, which has gap-filler provisions. Parties minimally specify what they want, but UCC allows court to make insertion of reasonable terms in the event of absence of these terms.1. ~Tort Law?!~3. Indefinite Agreementsi. R 2d 34 (P. 401)1. Terms can be certain even if some things are left undecided.2. Part performance may remove uncertainty/establish that the K is enforceable3. Direct quote: Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed.ii. 204 (P. 401)1. Court will supply omitted essential term which is reasonable in the circumstances.4. Gap Fillersi. 2204(3); important! (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.ii. 2305; Open Price Termsiii. 2306; Output, Requirements, and Exclusive dealingsiv. 2307; Delivery termsv. 2308; Place of deliveryvi. 2309; Time provisions1. when the goods should be delivered: reasonable time2. when the contract comes to an end: reasonable timevii. 2310; Time of Payment Due: ON DELIVERYviii. 2311; When contract requires selections or cooperation with the other party, MUST proceed in GOOD FAITH.

2. EnforceabilityA. CONSIDERATION1. Historyi. The reason we have the theory of consideration is because of Economics/Adam Smitha. We only enforce contracts with economic gain/exchange, not simply due to moral obligation, etc.2. Consideration: LEGAL BENEFIT FOR DETRIMENT part of a bargained-for exchange.i. Tests:a. If you can put the promise in ifthen form, it MAY be supported by consideration.b. If you cant put the promise in ifthen form, it WILL NOT be supported by considerationii. Johnson v. Otterbein: No consideration because Ds agreement was a gift (a gift with a condition, but a gift nonetheless).a. DONATIVE intent, not BARGAINING intent. Its not part of a bargained for exchange.iii. Hamer v. Sidway:a. Even though consideration can be a benefit for the promisor, FOCUS ANALYSIS ON DETRIMENT/SACRIFICE on the part of the PROMISEE.i. Court rejects Ds argument that the detriment/sacrifice of the promisee (abstaining from drinking/gambling) was really a benefit BECAUSE it doesnt matter if something is beneficial or harmful to the promisee, it only matters if there is a constraint on his/her liberal autonomy.b. Detriment Analysisi. Conflict (arguments either way) about whether there is consideration when:1. You were planning on taking on the detriment anyway2. You are promising to do something illegaliv. Consideration Test:a. Identify promise, promisor, and promisee.b. Then, apply conjunctive test:1. Promise must involve detriment to promisee, and 2. The detriment was bargained for; and3. The promise was bargained for.c. If yes to ALL THREE, the promise is supported by consideration.v. Adequacya. R 2d 79:i. If the requirement of consideration is met, there are no additional requirements; we do not second-guess the adequacy of considerationb. Peppercorn Theory, p. 646i. We do not second-guess the adequacy of considerations in an exchange. We let the parties decide what things are worth and we dont oversee the values of the things that we exchanged. c. Norman & Snells versus Dyeri. Norman and Snells ends up not enforcing the contract, claiming that the thing under considerationa promissory notewas valuelessthus no consideration.ii. Dyer ends up enforcing the contract, going the opposite way from Norman because there is consideration even if you relinquish an invalid claim in exchange for settlement. 1. This must be the law because otherwise, you could never settle a claim!iii. In both circumstances, the promisee is relinquishing something of no value, yet we get different results. vi. Nominal Considerationa. Very smallone pennyvii. Recited Considerationa. I hereby pay you one penny to do something.viii. Both nominal consideration and recited consideration usually do not work because they are inconsistent with the notion of bargaining intent and more consistent with donative intenta. UNLESS we are dealing with an option, because in an option context we think that mere formality is sufficient.3. Modification i. Pre-Existing Duty Rulea. PEDR: The contract was already made and the work that the promisor agreed to do was work s/he had already agreed/had an obligation to perform.b. PEDR exists so that the promisee cant abuse the agreement at the expense of the promisor. Intended to prevent extorted modifications of contracts.c. Stilk v. Myrick: is there extorted contract modification in this case?i. Yes: sailors extorters, captain extortedii. No: they were voluntary terms. How to argue to enforce new contract?1. This new contract should be enforced because PEDR doesnt apply here2. PEDR does apply, but there is an ADDITIONAL duty (extra work), not covered by the duty in the FIRST CONTRACT, that we should honor.d. We MANIPULATE the PEDR in order to make the case come out how we want.i. Dont enforce contract, duty was used up in first contract.ii. Enforce contract, define PEDR so narrowly that it excludes the work that the sailors will have to do.e. Alaska Packers v. Domenico: court invokes PEDR to rule that the contract modification is unenforceable (v. similar to Stilk)i. District Court applied the detriment to the wrong partysaid it was enforceable because D suffered a detriment.ii. On appeal, this was corrected. No detriment to P, NO consideration.1. Opposite Argument: New agreement is supported by consideration because there is a new detriment to promisee: their right to refuse to do work and be sued for breach of contract. Ps Position: you can sue me for breach, or I will relinquish my right to make you sue me for remedy, and Ill give you an alternate remedy.2. The nets were strange/old. If they dont talk about the net in the original agreement, the fact that they are strange indicates a NEW duty. A NEW detrimentusing defective nets or fixing.3. Another way around PEDR: mutual rescission (takes initial duty away, brand new contract)f. Extorted Modification vs. Legitimate Modificationi. Distinction based on promisees bargaining power: if promisee has more leverage to extort a modification. Circumstances change: positions of parties and their relative bargaining power change after an agreement is signed.1. In essence, contract law allows initial extortion (e.g., fishing company) and doesnt allow second extortion (e.g., fishermen).2. If we dont do this, people wont make contracts. Capitalist economy.ii. Unanticipated Difficultiesa. Brian Construction v. Brighenti: Unanticipated excess work cropped up in a contract in which P hired D to do construction work. P offered D more money to do the extra work, and sued when D left before work was completed. i. Restatement 89: See below@!!!! iii. Good Faith Modifications a. R 2d 89i. Promise modifying a duty not fully performed is binding if1. Modification is fair/equitable in light of unanticipated difficulties2. Falls under statute3. To the extent that justice requires enforcement in view of material change of position in reliance on the promise.b. Under UCC 2209i. YOU DONT NEED ANY OF THAT STUFFii. 2-209(1): An agreement modifying a contract w/in this article needs no consideration to be binding.iii. None of the aforementioned stuff about PEDR matters under this provision.iv. UNDER UCC, COMMENT 2GOOD FAITH IS SUBSTITUTE FOR CONSIDERATION.B. RELIANCE1. Promissory Estoppeli. In the absence of consideration, we will sometimes enforce a promise if we think reliance requires enforcement. Main Tenet: you cant deny a promise that was a valid promise. This is an on-contract remedy.ii. Promissory Estoppel Applies when:a. Reliance: promisee RELIES on promise.b. Foreseeability: promisor FORESEES reliance by promisee.c. AND where enforcement of the promise is necessary to avoid injustice, it will be enforceable (R 2d 90)iii. Reliancea. Feinberg v. Pfeiffer Co.: P retiring (promisee, act of reliance) was enough to invoke promissory estoppel to make sure her former employer (promisor) keeps its promise of giving money to her (promise).b. Point of Contention: whether the reliance that counts has to be detrimental or not (retiring, getting free money is not a detriment).c. Differences between 1st and 2nd restatements:i. What constitutes reliance?ii. Language removed in 2nd: definite and substantialiv. Foreseeabilitya. Is it foreseeable that the legitimate reliance would occur? v. Avoid Injusticea. Fairly subjective. Spann doesnt like because equity=bad.2. Reliance on an Offeri. Drennan v. Star Paving: Court invokes PE because it treats an offer like a contract/option.ii. FOR applying PE:a. Reliance was foreseeable, and must be enforced to avoid injusticeb. A bid is a special promise: an offer that is relied uponc. UCC 2-205: firm offersd. R 2d 87: option contracti. 87(1) Essentially adopts UCC1. ii. 87(2) Goes even further1. An offer which the OFFEROR should REASONABLY EXPECT to induce action or forbearance of a substantial character on the part of the offeree before acceptance, and which DOES INDUCE such action or forebearance is binding as an option contract TO THE EXTENT NECESSARY TO AVOID INJUSTICE.iii. Were distorting a lot of law to enable promissory estoppel/enforcement on relianceiii. AGAINST applying PE:a. You shouldnt apply PE doctrine to an offer. It did not ripen into a contract.b. Reliance is there, but it is not foreseeable that someone would completely RELY on the offer, since it was JUST AN OFFER.i. The NATURE of an offer is such that it isnt foreseeable that someone would rely on an offer prior to accepting it.c. The court is acting as if this is an option. If you want an option, you have to MAKE it an option. This was not made an option explicitly.3. Reliance on Negotiationsi. Hoffman v. Red Owl Stores: D never made an offer, only negotiations. P left negotiations to buy/operate a grocery store and sues for damages he incurred in reliance.a. P was able to recover for his reliance on Red Owls offer; thus, promissory estoppel CAN be applied to negotiations.b. Spann highlights this as an example of a court trying to do something equitable; however it may be doing the opposite.c. See Also: discussion on restitution damages, final section.4. Charitable Contributionsi. Allegheny v. Chautauqua Bank: PE doctrine not applied in this case because (Cardozo) says banks actionsputting money in account for memorial fundis not detrimental reliance.a. Better argument: R 2d 90(2): promissory estoppel is applicable to gift subscriptions, even though theres no reliance, even if theres no proof that the promise induced the action or forbearance. b. Cardozo stretches this further, from negotiations in last case to gifts in this case.C. UNJUST ENRICHMENT1. Past Considerationi. Past Consideration is not valid consideration sufficient to create an enforceable contract, unless the parties agreed prior to performance that compensation would be given later.a. Past Consideration doesnt work because the detriment to the promisee has to be the detriment thats bargained for. If you arent bargaining for the detriment (because it happened in the past), then theres no consideration. ii. BLL: WE DO NOT ENFORCE CONTRACTS BASED ON PAST CONSIDERATION.2. Moral Obligationi. Mills v. Wyman: (sick son case) Court does not enforce promise of father of sick son to pay for for his care from P. Ds promise occurred in the past so there is no consideration; and since we dont enforce Ks based on moral obligation, there is no basis for enforcement.ii. BLL: WE DO NOT ENFORCE CONTRACTS BASED ON MORAL CONSIDERATION/OBLIGATION.iii. Exceptions: We will enforce the promise if, in the situation,a. There is some kind of legal obligation to payb. That legal obligation now becomes discharged through operation of law i. Debts barred by statute of limitationsii. Debts incurred by infantsiii. Debts of bankruptsc. AND the promisor reaffirms the promise.3. Material Benefiti. Unjust enrichment exists where the defendant has received a benefit from the plaintiff and it would be inequitable for defendant to retain the benefit without compensating plaintiff for its value.ii. Cotnam v. Wisdom: court says who is receiving restitution doesn't matter;a. SPANN says it does matter, because of the injustice prong of PE.4. Restitution i. You have to restore a material benefit conferred on a promisee/promisor if the contract was not performed, so as to prevent unjust enrichment.ii. OFF-CONTRACT REMEDYa. NO interest in what would have happened IF the contract WAS enforced.iii. Instrumental goal: PREVENT. UNJUST. ENRICHMENT.a. Qualitatively different from:i. Consideration: based on gains of trade to protect expectationii. Reliance: which protects relianceiv. Components of RESITUTION CLAIM:a. ENRICHMENT: there must be some sort of enrichment conferred.b. INJUSTICE: the enrichment must be unjust.c. EFFECT OF CONTRACT: often there will be a contract in the vicinity.5. Quasi-contract recoveryi. Contract implied in lawii. Even though the parties did not agree, we impose this agreement to prevent unjust enrichment.iii. Price term of the contract The reasonable value of the services rendered (Quantum Meruit).iv. Distinguish with contract implied in fact: An actual contract in which parties indicate by conduct their intent to form a contract.

D. STATUTE OF FRAUDS1. Scopei. Definitiona. A generic statute that requires a writing in order for a contract to be enforceable.i. It does not require that a contract itself be in writing, just that there must be a written memorandum/memorial of the contract.1. The writing need not be signed by both parties, as long as the person who is denying the contract (the party to be charged) has signed it.b. However, satisfying the statute of frauds DOES NOT necessarily mean you have a contract, and not satisfying SOF DOES NOT mean you dont have one.ii. Goals:a. Evidentiary: to make sure parties had a contract; to prevent fraud and perjuriesb. Promote deliberation before entering into a contractc. Is it a good idea? Bad Idea?i. Good idea: We care more about type 1 fraud (pretending there is a contract when there isnt) than type 2 (pretending there isnt a contract when there is) because type 1 is easy to guard against by requiring some writing.ii. Bad idea: it will produce fraud and perjuryall those contracts that WERE legit contract but didnt have a writing will produce fraud because some defendant will fraudulently/perjurously say that there was no contract when there really was. Also, rule is unrealistic/impractical.iii. Modern Trenda. Interpreting SOF narrowly so as to enlarge the scope of contracts that are enforceable.b. R 2d 110 (p. 484)forbidding enforcement UNLESS written memo exists.c. There are so many loopholes that a good lawyer should always be able to get around SOF.iv. SOF Analysisa. Whether contract is within the SOFi. Traditional SOF contracts include: 1. Contract of EXECUTOR answering for a duty of his decedent; suretyship contracts (answer for debt of another); 2. Contracts in consideration of MARRIAGE (if the promise does not INDUCE marriage, the contract is not bargained for exchange, and therefore there is no consideration and not within the SOF; if you marry my son, I will make you president of the companyconsideration is part of the deal so it is NOT within the SOF);3. Contracts conveying INTEREST OF LAND; Contracts NOT PERFORMABLE WITHIN ONE YEAR from the making of the contract (when complete performance is IMPOSSIBLE within one year; performance/discharge depend on parties intent)4. Contracts for Sale of Goods Under UCC 2201: APPLIES FOR CONTRACTS OVER $500; between MERCHANTS; IF AND ONLY IF WRITTEN CONFIRMATION IS SENT WITHIN A REASONABLE TIME AND THE RECIPIENT HAS REASON TO KNOW ITS CONTENTS AND FAILS TO GIVE A WRITTEN NOTICE OF OBJECTION WITHIN 10 DAYS OF RECEIPT, this is sufficient as writing (comment 3).ii. Whether statute is satisfied (whether there is an adequate writing)1. Restatement requires: contract parties involved in document; a document showing that they made the contract; identifying the subject matter of the contract; stating the essential terms; plus signature (e-signature increasingly accepted). SIGNATURE ONLY NECESSARY BY ONE PARTY DENYING THERE IS A CONTRACTTHEN THAT SIGNATURE IS REQUIREDparty to be charged2. 2201 requires: evidence of a contract for sale of goods; specific quantity term (recovery is limited to the amount stated); signed or authenticated by party to be charged. Need not include specific or formal terms, or even be complete (these can be substituted with gap fillers). iii. Whether there is an exception for your case.1. Common law: part performance of any part of the contract would allow enforcement of the entire contract.2. UCC 2201: (3) Exceptions: specially manufactured goods; admission from party to be charged that they made a contract (enforceable only up to quantity of goods admitted); partial performance exception (must be full performance, or full performance to a severable part, in which case the contract is only enforceable to the severable partmany courts allow part performance or payment of a single item to satisfy this; comment 2: only for goods that have been accepted or for which payment has been made and accepted).b. Boone v. Coe: A party may not recover damages for breach of contract that is voidable under the statute of frauds.c. SOF precludes both reliance and expectation damages, because they are on-contract remedies (unless the case/court treats reliance as off-contract remedy). Does not preclude restitution, because that is an off-contract remedy.2. Exceptions (See Riley v. Capital Airlines)i. Part Performance Exception: contract is fully enforceable if its been partially performed, even though its not in writing.a. Helps prevent unjust enrichment. Also, its evidence of a real contract (just as writing is).b. UCC 2201(3)(c): enforcement only to extent payment has been made & accepted OR goods have been delivered & acceptedc. MERE PREPARATIONS DO NOT COUNT AS PART PERFORMANCE.ii. Custom Goods Exception: custom goods are evidence that there really was a contracta. Once the manufacturing process has begun or goods have been procured, theres a reliance interest we want to protect.b. UCC 2201(3)(a): applies to goods specially madeiii. Admissions Provision Exception: deal is enforceable if the party against whom its enforced admits to having made it (but not beyond quantity of goods admitted).a. Example: Dec 2003 exam seller admits oral contract in e-mail to buyer.iv. Promissory Estoppel: promisor makes promise that promisee reasonably relies on, he is bound to contracta. R 2d 139: reliance must be substantial (= reliance must lead to detriment that cannot be avoided except by enforcement of the promise)3. Writingi. Schwedes v. Romain: example of a wrong casea. The writing must be signed by the party to be charged only (the D), not by the P.b. Court is mistakenly thinking the contract itself has to be in writing, rather than realizing all you need is a writing, a memorandum of the contract, to satisfy SOF.ii. Court in Schwedes finds that the Part Performance Exception doesnt apply because the part performance they were trying to claim was preparation, not actual performance.4. Signaturei. A MODIFIED contract that is within the SOF is enforced even if there is only a writing for the original contract and not the modified contract. (Cloud Corp v. Hasbro)a. Judge Posner: original quantities enforced, but not the large quantity in the modified contract. An electronic signature is sufficient. (There are now e-sign statutes, etc. that make it clear e-sigs work.)b. REASONING HERE: Facts suggest that the mutual intent of the parties WAS TO ENTER INTO A CONTRACT.c. This contract would probably have been enforceable even without a signature: exceptions.

3. TERMSA. Parol Evidence Rule1. Parol Evidence Rule: governs admissibility of extrinsic (not explicitly described in written agreement) evidence of a prior or contemporaneous agreement THAT IS INTEGRATED.i. Admissibility is barred if it contradicts or varies the terms of a valid written instrument.a. We have this rule because we dont want written contracts to be undermined by oral testimonywe want the stability of knowing that what the piece of paper says is true.ii. Difference between SOF and PERa. SOF about enforceability; PER about termsiii. Exceptions to PERa. When a contract doesnt have an integration clause and/or doesnt contain all the terms of the contract.b. We care about this because:i. Intent of the partieswhether they intended the writing to be final or not.c. If the writing is not a total integration, the PER does not apply!2. Total integration/A totally integrated writingi. A writing that the parties intend to be the final and complete embodiment of their agreement.ii. In order to figure this out, we LOOK at the piece of paper. If it LOOKS completehas a merger/integration clause, if it looks like all the terms are closed/not open to interpretation/negotiationthat is strong evidence that the parties intended it to be final.iii. Finality:a. Crucial requirement is that the parties have regarded the writing as the final embodiment of their agreement.iv. Completeness:a. The only criterion of the completeness of the written contract as a full expression of the agreement of the parties is the writing itself. Thompson v. Libbey.v. IF THE WRITING IS TOTALLY INTEGRATED, YOU CANNOT CONTRADICT OR SUPPLEMENT THE WRITING.3. Exceptionsi. Even if the parties had a totally integrated writing, if the parol agreement is a collateral agreement or outside the scope of the integrated writing, parol evidence of additional consistent terms is admissible. ii. Partial Integration: The parol evidence rule does not apply to subject matter that does not contradict and is not addressed in a complete writing representing a partial integration.iii. TO DETERMINE WHETHER PARTIES INTENDED THE WRITING TO BE A PARTIAL OR TOTAL INTEGRATION:a. LOOK at the parol evidence and decide if this is what the parties intended to put inside the scope of the writing.b. This intent must be sought in the conduct and language of the parties and the surrounding circumstances. The document alone will not suffice. Brown v. Oliveri. Contradicts the Four Corner Rule in Thompson v. Libbey.ii. The court wants to see more parol evidence before deciding whether to admit it because this is more consistent with the freedom of contract. (Liberalization)iv. Collateral Agreement (i.e., capable of being expressed in a separate agreement)a. An agreement outside the SCOPE of the integrated writing, because one of the parties did not intend the writing to include this other (collateral) term.v. Tests for Partial Integrationa. R 2d 216 (p. 467): i. (1): Default seems like partial integration, unless the parties SHOW it is total.ii. (2)(a): Collateral agreemtniii. (2)(b): Naturally test1. If the parties would have naturally excluded the term from the agreement, parol evidence is admissible. (Conversely, if they would have naturally included it, and they did not put it in, clearly it was intended to be kept out.)b. UCC 2202 (+ comment 3): Certainly testi. Exclude evidence if parties would have certainly put the term in writing.1. Logic here: if it certainly shouldve been put in, and it wasnt, clearly it was intended to be kept out.4. Exceptions and Ambiguityi. Parol evidence is admissible if it is offered to support an interpretation or to resolve an ambiguity to which the writing is reasonably susceptible.a. The writing has to be reasonably susceptible to that interpretation.b. The writing has an ambiguity that requires interpretation.ii. Plain Meaning Rulea. If the court determines that the contract has a plain meaning, no extrinsic evidence that would contradict its interpretation will be admitted.b. Criticism:i. Freedom of contractii. Overriding parties intent is not something to do lightly.iii. Even if there is an unambiguous integration, all relevant extrinsic evidence is admissible on the issue of meaning, including evidence of subjective intention and what the parties said to each other with respect to meaning. Pacific Gas and electric Co. v. G. W. Thomas Drayage & Rigging Co. (indemnity clause, third party only)iv. The parol evidence rule should have no effect on the question of interpretation (the meaning of the language)v. Reasonably Susceptibility Testa. You can admit parol evidence, even in a contract that is fully integrated, in order to clarify an ambiguous term that is reasonably susceptible to ambiguity/misinterpretation. (Rejection of lower courts plain-meaning interpretation in Pacific Gas v. G.W. Thomas)vi. Latent Ambiguitya. Interpretation/Ambiguity exception is triggered by a latent ambiguity.b. The language does not look ambiguous at first, but when parol evidence is introduced, the ambiguity emerges.vii. Criticism:a. Allowing parol evidence for interpretation/clarification of ambiguity purposes will undermine the parol evidence rule. Trident Center v. Connecticut General Life Insurance Co.b. Loophole for restrictions of PER: people can use this practice to admit PE whenever they want, claiming that anything is an ambiguity. viii. Issue: should you admit PE to interpret terms? Or should you apply plain meaning?a. Clash between two different cases/judges5. International Sale of Goodsi. When dealing with contracts for the international sale of goods, the CISG applies (casebook p. 477-80) which eliminates the parol evidence rule. All relevant evidence of the parties intent must be considered to determine the contract terms.B. Interpretation1. Subjective Theoryi. Raffles v. Wichelhaus: Peerless boat case where seller meant one boat, buyer said he meant another. No K b/c there was no meeting of the mindssubjective intent of each party was different.a. Pros: indiv. autonomy and voluntary action.b. Cons: Hard to enforce, unfair2. Modified Objective Theoryi. R 2d 201 (p. 383): If there is an ambiguity or misunderstandinga lack of SUBJECTIVE MUTUAL ASSENTas per the contract, or something else that causes the parties to have NO meeting of the minds, we will:a. Enforce it if the misunderstanding is someones fault (e.g., someone knew or should have known that there was a misunderstanding)b. NOT enforce it if there is no one to blame for the misunderstandingc. We only want to modify the objective theory when IT DOES NOT UNDERMINE THE MAIN GOAL OF THE OBJECTIVE THEORY: reliance protection.ii. Oswald v. Allen:a. If we blame the coin seller for the ambiguity in the term Swiss Coins, then we enforce it. b. If we find no one to blame, we dont enforce it.i. This is contrary to the objective theory, but we enforce it anyway and modify the object theory since we are not undermining the main goal of reliance protection in modifying the theory.iii. This does not violate the Parol Evidence Rule because it invokes the exception to parol evidence for clarifying ambiguity or interpretation as opposed to ADDING a term.3. Contexti. One Issue: between COUNTERING a term and CLARIFYING a terma. Sneaking a COUNTER parol evidence into consideration by saying it is CLARIFYING is clever, sneaky. Dress it up IN A WAY THAT CAUSES THE JUDGE TO SOLVE THE DOCTRINAL AMBIGUITY IN YOUR FAVOR.ii. When the language is vague, we ought to rely on industry custom to figure out what the parties intended the meaning to be. Weinberg v. Edelstein (meaning of dress)iii. Rev. UCC 1303/Old UCC 1205; 2208a. Express terms > course of performance > course of dealing > usage of trade.b. Business custom, going from the most specific > most general, can tell you what the terms of the contract mean.c. UCC PER (2-202) INVITES the above analysis of business custom:i. Parol evidence may be explained or supplemented (a) by course of performance, course of dealing, or usage of trade.ii. UCC authorizes us to use business customs to interpret terms of the contract.iv. Weinberg v. Edelstein: Lack of mutual assent about dressesambiguous or vague term.a. Under MOT: Where there are ambiguous terms, in order to determine whether/how to enforce the contract, we must consider if it is anyone elses fault. If it is, we will enforce it against the person whose fault it is.4. Good faithi. Illusory Contracts and the Good Faith Obligationa. Illusory contract: appears to be a contract at first, but in fact only one party is obligated to do something. There is a lack of mutuality of obligation that makes the contract void (same as doctrine of consideration).b. Eastern Air Lines v. Gulf Oil: Gulf says contract is void because it is commercially impracticable and there is lack of mutuality.i. Gulf Claims Lack of Mutuality of Obligation (consideration): this contract is illusory, because it SEEMS like a real contract, but only ONE PARTY is obligated to do anything (in this case, seller must sell as much fuel as buyer needs; buyer not obligated to do anything). 1. Court disagrees, says that is not a reason to void the contract because Eastern Air Lines is obligated to buy the amount they would normally buy in good faith. For them to stop buying fuel would breach the good faith obligation. Because there is a good faith obligation, there is no lack of mutuality (consideration).c. UCC 2306i. Imposes the good faith obligation on contracts.ii. UCC supplies the good faith requirement even though the parties did not put it in the contract.iii. (1) Output and requirements should occur in good faith.1. Solves consideration problem: Detriment to the promisee.2. Solves indefiniteness problem: Able to assess the requirements or outputs (reasonableness).iv. (2) Exclusive dealing contracts require the use of best efforts to supply the goods and promote their sale.1. Comment 2: When one party is speculating at the expense of the other party, it not likely to be in good faith.2. Shut down to curtail losses is not good faith reason to discontinue orders, thereby putting buyer in breach3. Cf. Here, the quantity term is all.d. Wood v. Lucy: Imposing of good faith reasonable efforts is invented by Cardozo.ii. Meaning of Good Faitha. EVERY CONTRACT has a good faith obligation under both R 2d and UCCi. R 2d 205 (p. 812)1. Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.ii. UCC 1203: every contract/duty in this Act imposes an obligation of good faith in its performance or enforcement.1. Supported by Revised UCC 1304 (rev); 1201(20) (rev)2. Supported by Old UCC 1201(19); 2103(1)(b) iii. CANNOT DISCLAIM GOOD FAITH: 1302(b) (rev); 1102(3)1. However, you CAN prescribe standards for the measurement of good faith if not manifestly unreasonable.b. Good Faith Obligation applies to performance, not negotiation.C. WarrantiesWarranty: a promise in a contract, potentially imposed by law.

1. Implied Warranties (Step-Saver v. Wyse)i. Implied Warranty of Title: UCC 2-312a. There is, in a contract for sale, a warranty by the seller that THEY TITLE CONVEYED SHALL BE GOOD, AND ITS TRANSFER RIGHTFUL; and that THE GOODS SHALL BE DELIVERED FREE FROM ANY SECURITY INTEREST OR OTHER LIEN OR EMCUMBERANCE OF WHICH THE BUYER AT TIME OF CONTRACTING HAS NO KNOWLEDGE.b. Applies to both merchants and non-merchantsc. General disclaimers are ineffective. Implied warranty of title can only be disclaimed by an express provision.ii. Implied Warranty of Merchantabilitya. UCC 2314: goods must pass without objection in the trade, be of fair and average quality, etc.b. Implied in every contract, imposed by the UCC.iii. Implied Warranty of Fitness for a Particular Purposea. UCC 2315: seller must have reason to know buyers purpose and that buyer is relying on sellers skill/judgment to furnish appropriate goods; also, buyer must IN FACT be relying on this (not just theoretically).2. Express Warrantiesi. UCC 2313: In order for an express warranty to govern, it must be an affirmation of fact/promise that relates to the goods and becomes a part of the basis of the bargain between the parties. Express warranties can be created by:a. An Affirmation of fact or promiseb. A Description of the goods, which is made a part of the basis of the bargainc. A showing of a sample, which is made part of the basis of the bargain.ii. Only applies to facts/promises statements, NOT opinion/value statementsiii. Applies to merchants AND non merchants.a. GENERALLY, according to comment 1 of 2-313, express warranties are not disclaimable.iv. ONLY IF the assert of fact/promise is a part of the basis of the bargain (if the buyer is RELYINGsee belowon the statement), does it become an express warranty.v. Reliancea. Opinion/Puffing versus Facti. Royal v. Lorraine: court distinguishes between two different express warranties by finding that one was opinion and one was fact.1. Statement of opinion concerned anothers products (paper, ink costs); statement of fact concerned the printers themselves2. Reasoning: protecting reliance. It is more reasonable to protect reliance as per someones statements/warranties about their own products than about something extraneous.b. CBS v. Ziff-Davis: determining whether the financial information provided to CBS from D was relied on, and whether CBSs own financial investigation disproves reliance.i. It did not disprove reliance. Believing a warranty relying on a warranty, and vice versa.ii. Dissent: objects because it says that doing own investigation meant they relied on their own investigation, not Ziff-Daviss provided info.vi. After court determines whether there are candidates for express warranties in a contract, they must decide whether they were indeed part of the contract (consideration), apply to the present situation, and whether they can be enforced.3. Disclaimersi. UCC 2316a. (1) Disclaimer must be reasonable; (2) to exclude merchantability, you must MENTION merchantability, and in case of writing, it must be conspicuous; to exclude FITNESS, you must MENTION fitness, and it must be by writing/conspicuous; 3(a): General language can be used to exclude implied warranties (as is); 3(b): No implied warranties for defects that reasonable inspection wouldve shown; 3(c): implied warranties can be excluded by course of dealing, course of performance, or usage of trade; (4) limits warranties.b. Schneider v. Miller: as is provision on a used car makes it plain there is no warranty, implied or express.

4. DEFENSESA. Misconduct: REQUIRES SCIENTER (bad state of mind). 1. Fraud: lying that is relied upon. (Do not confuse with promissory estoppel.) Usually applies to misrepresentation of fact and does not apply to opinion statements.i. Elements of a fraud claim:a. Misrepresentationi. Applies to misrepresentations of fact, not opinion/prediction/estimate (most of the time)b. Scienteri. Guilty knowledge/bad state of mindii. Example: If you make a promise and know you are not going to keep it.c. Materialityi. Proof theres been some sort of reliance that matters to the K.ii. Vokes v. Arthur Murray: Dance lessons case; court found that P could void the contract because misrepresentations of Ps dancing ability were fact, not opinion.a. R 2d 169: A statement of a party having superior knowledge (expert) may be regarded as a statement of fact even though it would be considered an opinion if the parties were dealing on equal terms.b. We care about whats going on in the parties minds, even under the objective theory, because we have to judge what a reasonable person under the circumstances would do.2. Nondisclosurei. Caveat Emptor (buyer beware)a. Laidlaw v. Organ: Nondisclosure may not constitute fraud in some cases, and thus nondisclosure may not be grounds for voiding a contract.b. Based on belief that both parties have equal access to the same information, thus nondisclosure is not fraudother party could have researched to find out the war was over.c. Creating incentives to self-protect, at the expense of mutual assent.d. Will prevent remedy unless there is active concealment of defects or misrepresentation.ii. Active Concealmenta. Taking active measures to hide information is fraud and therefore basis for rescission.iii. Active Fraud of Nondisclosurea. If you are asked something and do not respond, and the other party relies on your nondisclosure under the circumstances, then that is fraud and therefore basis for rescission.b. Produces the same result as the modified objective theory: Swiss Coinsiv. Bargaining Spherea. Inside the bargaining sphere, there is no justification for relying on opinion/puffing, but outside this sphere, the law will intervene.i. Ex: In a house deal, seller not disclosing shoddy paint on house vs. buyer not disclosing that the house sits on an oil field.ii. Bargaining sphere distinguishes licit from illicit bargaining tactics (fraud).3. Duressi. COMPULSION by threat, accompanied by scienter.ii. Duress Claim containsa. Wrongful threatb. No reasonable alternative to compliancec. If a. and b. are satisfied, you can rescind on grounds of duress.iii. Austin Instrument v. Loral: Duress can be both personal and economicthe economic duress here deprived the P of its free will to contract with other subcontractors.a. Dissent: he could have just breached and contracted with other subcontractors, then sued for damages.iv. Free Willa. Wrongful threat must take away the free will of the party.4. Undue Influencei. Taking an unfair advantage of anothers weakness of mind, or taking a grossly oppressive and unfair advantage of anothers necessities or distress.a. Undue influence exercised over a contracting party is inconsistent with freedom of contract, which is why it is grounds for rescission.ii. Test for Undue Influencea. If there is a mismatch in power/influence between the negotiation parties in a way that causes us to think that one party has used its power and influence in a way that is inappropriate. OCCURS WHEN THE SERVIENT PERSONS FREE WILL HAS BEEN SUPPLANTED BY THE DOMINANT PERSONS.iii. Factors (from Odorizzi v. Bloomfield School Dist.)a. Discussion of the transaction at an unusual or inappropriate time;b. Consummation of the transaction in an unusual place;c. Insistent demand that the business be finished at once;d. Extreme emphasis on untoward consequences of delay;e. The use of multiple persuaders by the dominant side against a single servient party;f. Absence of third-party advisers to the servient party;g. Statements that there is no time to consult financial advisers or attorneys.iv. Lemonade Hypo: Spann has lemonade. Youre dying of thirst in the desert. Spann offers lemonade for $1,000,000. You accept.a. Is this rescindable?i. Yes, because there is a reduced capacity because you are dying of thirst, weakened state. There is dominance on the part of Spann. He is exerting excessive pressure by taking advantage of reduced capacitythe fact that youre dying of thirst.ii. No, because no one would build a lemonade stand because any contract they enter into would involve undue influence. b. What if the price is a dollar? Spann=mad because the price should not have anything to do with it if it is actually undue influence.5. Unconscionability: EXTREME or OPPRESSIVE unfairness.i. Not triggered by the mere inequality of bargaining power.ii. UCC 2-302a. (1) Contract/any clause of contract that may be unconscionable can be so but it must have been at the time it was made. Court may refuse to enforce the contract, or just to not enforce the unconscionable clause, or it may so limit the clause as to avoid an unconscionable result.b. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable, the parties shall be afforded a reasonable opportunity TO PRESENT EVIDENCE as to its COMMERCIAL SETTING, PURPOSE AND EFFECT to aid the court in making the determination.iii. Restatement 2d 208: TESTa. Absence of meaningful choice on part of 1 of the parties (procedural prong) ANDb. Contract terms that are unreasonably favorable to the other party at the time the contract was made (substantive prong)c. Williams v. Walker-Thomas: At common law, unconscionable contracts are unenforceable.iv. Arguments For and Against Unconscionability Doctrinea. For: it protects freedom of contract by making sure that there is meaningful choiceb. Against: undermines freedom of contract by allowing anyone to come up and say there was unconscionability if they have buyers remorseB. Mistake1. Mutual Mistake: SHARED erroneous assumption about a material fact, WITHOUT scienter.a. Sherwood v. Walker: A mutual mistake regarding the substance of the subject mater of a contract may render that contract unenforceable. In a mutual mistake case, it is important that the mistake goes to the essence of the agreement.i. If mistake relates to the WHOLE of the contract, rescission is allowed.ii. If mistake relates to quality (value) of the thing bargained over, rescission is not allowed.ii. Parties may RESCIND on basis of mutual mistake, UNLESS such a mistake is otherwise allocated by the parties in their risk allocation.iii. Risk Allocation:a. Current law tends to correspond to R 2d 152 and 154i. 152: When mistake of both parties makes a contract voidable1. When it has a material effect on agreed exchange of performance, K is voidable unless affected party bears risk of mistake2. To determine whether it has a material effect, take account of any relief by way of reformation, restitution, or otherwise.ii. 154: When one party bears the risk of a mistake1. If risk is allocated to him by agreement2. He is aware that he has limited knowledge but thinks its sufficient to make a contract anyway3. The risk is allocated by the court on grounds that its reasonable to do so under the circumstancesiii. Looking at how the parties allocated the risks rather than substance/quality/value of the contract termsb. This is a formation doctrine. i. If we determine that parties did not allocate a risk in question (in Sherwood v. Walker, the possibility of the cow being pregnant), then no mutual assent exists; if we apply the Mutual Mistake doctrine, it is as if the parties did not have a contract.c. This doctrine is invoked rarely precisely because there is the danger that you are upsetting the risk allocation of the parties.2. Unilateral Mistake: UNSHARED erroneous assumption about a material fact.i. Unpalpable=no scienter; failure of mutual assent b/c two parties have diff. assumptions; palpable=motivated by scienter, subset of fraud.ii. Elements of Unilateral Mistake (R 2d 153):a. D makes a mistake about a basic assumption upon which D made the contractb. The mistake has a MATERIAL effect upon the agreed exchange of performances that is adverse to Dc. D does not bear the risk of the mistake (risk was not allocated to him in negotiation)d. The effect of the mistake is such that enforcement of the contract would be unconscionable (i.e. one party would suffer BIG loss)iii. Grounds for Rescission when:a. Enforcing against mistaken party would be unfairb. Avoidance would impose no substantial hardship on the other partyC. Changed Circumstances1. Impossibilityi. Permits rescission of a contract where the performance of the contract has become OBJECTIVELY impossible (i.e. no one can perform it) and impossibility was NOT the fault of one of the parties.ii. IMPOSSIBILITY under COMMON LAW: a. A defense that excuses performance of a contract if the performance of a contract is rendered IMPOSSIBLE.b. Reason: mutual assent. There is an implied condition in the contract, agreed to by mutual assent, that it will only be completed if it is POSSIBLE.c. Must be objective impossibility, not subjective impossibility.d. The impossibility MUST NOT be the breaching partys fault.iii. Features of Impossibilitya. MAIN FEATURE: Parties didnt intend to allocate the risk in the event that performance became impossible.i. If the risk of impossibility was allocated to a party, that party cant rescind.b. Advances freedom of contractc. Applies to subsequent eventsnot antecedent events (thats mistake, see above)d. Requires mutual mindsets.e. Event must be so unexpected that the parties didnt think of it at the time of contracting, or if they did, that they did not consider it to be a realistic likelihood.f. Requires an unforeseen event: one the parties themselves did not contemplate as a real likelihood.iv. Taylor v. Caldwell: when a music hall burned down, both parties assumed the existence of the music hall as a condition on performance, therefore we must rescind.v. Impossibility Under UCC: 2613; 2614a. 2-613: Casualty to identified goodsi. If contract requires goods and the goods are destroyed/damaged without fault of either partyii. A) If total loss, the contract is avoidediii. B) If partial loss, buyer can avoid contract or buy goods at reduced agreed-upon price (consistent with the risk allocation).b. 2-614: Substituted performance:i. If one of the means of delivery is impossible, you must accept a commercially reasonable substitute.2. Frustrationi. Doctrine of frustration triggered by decrease in the value of performance to the promisee. Performance is still possible, but the counter-performance has lost its value.a. Outgrowth of mutual assent. The parties were not trying to allocate THAT risk when they made the contract. It was not in the scope of what the parties were contracting about.b. Krell v. Henry: A partys purpose is frustrated when events occur which destroy this purpose, even though performance of the contract is not possible. Frustration is grounds for rescission.ii. Test for rescission under Frustration:a. Risk of the frustrating event was not reasonably foreseeable (depends on how the parties allocated the risk).b. The value of counter-performance has now been totally or nearly totally destroyed.3. Commercial Impracticabilityi. Three Step Test:a. Something unexpected must have occurredb. Risk must not have been allocated to a party by agreement or customc. Contingency must have rendered performance commercially impracticable.ii. R 2d 261, 263iii. Commercial Impracticability under the UCC: 2615; 2616a. 2-615: Excuse by failure of presupposed conditionsi. (a): Delay or non-delivery is not breach if performance has been made impracticable by occurrence/non-occurrence of basic assumptionii. (b): If seller can partially perform, he must do so in a fair and reasonable manner.iii. (c): Seller must notify buyer of delay or non-delivery.b. 2-616: Procedure on notice claiming excusei. Drafters of code are making it easier to get out of a contract.ii. This has not worked.iii. Courts havent bought this. You rarely win under 2-615.iv. This only applies to sellers, but there is a common law doctrine of impracticability so buyers arent prohibited from doing this.v. We have to ask if drafters just didnt focus on buyers, or wanted to preempt their rights.vi. UCC 1-103 says that code is adopted against backdrop of common law, unless code displaces the common law rule.5. CONDITIONSA. Express Conditions Condition: A provision in the contract, or an event, that makes the duty under a contract contingent rather than absolute. Means of allocating risks. Conditions precedent A condition that must exist or occur before a duty to perform a promise arises. Conditions subsequent A condition that discharges a duty of performance that has arisen. Concurrent conditions Conditions that have to occur simultaneously. The type of condition affects the burden of proof. P has the burden of proof for conditions precedent. D has the burden of proof for conditions subsequent.1. Strict Enforcementi. Express Condition: an event in contract that makes the duty of a party to perform contingent rather than absolute; EXPRESS because it is something the contract EXPRESSLY says is a condition.ii. Express conditions are STRICTLY ENFORCED in contract law.a. Rationale: if you go to the trouble of putting a condition in a contract, we are going to enforce itplain meaning. Even when it looks like doing so might produce silly results. We care MORE about the enforcement of express conditions than such a result.iii. Subsequent vs. Precedent vs. Both (Concurrent)a. Subsequent: discharges a duty to perform that does in fact exist. Duty you previously had to perform is discharged.b. Precedent: duty never arises unless condition is fulfilled.c. Concurrent (Both): each party must meet a condition.2. Promise versus Conditioni. Howard v. Federal Crop Insurance: A condition is mentioned in one section of the contract and not another; court held that because it is not mentioned in the second section, it does not apply to that section. Thus, in that context, instead of a condition, it is a promise; the company can institute a counterclaim to recover for damages relating to the breach of the promise, but it is not a breached condition, therefore they must still fulfill the insurance contract.a. If it is a close question, we should view it as a promise rather than a condition, because if we view it as a promise we protect our goal to make people stay in contracts/avoid forfeiture. ii. Chirichella v. Erwin: Dispute over whether the language in the contract imposed a condition precedent (move into new house before Ill sell you old house) or merely allowed them to delay settlement for a reasonable period of time (while new house is completed). Court held that language was intended to delay settlement.a. Reasoning: We want to avoid forfeiture. The obligor, house seller, didnt move into his new house because he was displeased with the workmanship, so even if the risk they were allocating was him being homeless, there was no risk of this happening.b. Spann: we are erecting an edifice that seems designed to mitigate the harshness of the strict enforcement of express conditions doctrine.iii. How to tell if language in contract is promise or condition:a. RISK ALLOCATION!b. Consider, under objective theory, the intent of the parties: how were they allocating the risk? To whom, if anyone, did the contract allocate the risk of the purported promise/condition?i. Restatement 227:1. An interpretation is preferred that will reduce the obligees risk of forfeiture, unless the event is within the obligees control or the circumstances indicate that he has assumed the risk.2. If we are debating between whether a duty is imposed on an obligee that an event occur, or that the event is made a condition of the obligors duty, or that the even is made a condition of the obligors duty and a duty is imposed on the oblige that the event occur, we prefer the FIRST interpretation (duty imposed on oblige that event occur) if it is within the obligees control.3. In case of doubt, an interpretation under which an event is a condition of an obligors duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform.3. Waiver & Estoppeli. Clark v. West: Court finds that D waived their condition (that P abstain from alcohol in order to get higher compensation), holding that 1. A waiver is a voluntary abandonment or relinquishment of some right or advantage and 2. A condition precedent (which this was) can be waived.a. Reasoning: D was bargaining for Plaintiffs writing and not for Ps abstention. ii. MODERN rule: Restatement 84 a. Waiver of a condition is binding unless 1. The occurrence of the condition was a material part of the agreed exchange, and promisee was under no duty that it occur and 2. Uncertainty of the occurrence of the condition was an element of the risk assumed by the promisor. b. If such a promise is made before the time for the occurrence of the condition has expired, and the condition is within the control of the promisee or a beneficiary, the promisor CAN make his duty against subject to the condition by notifying the promisee or beneficiary of his intention to do so, IFi. Notification is received while theres still reasonable time to cause the condition to occur under K terms or extension; ANDii. Reinstatement of the requirement of the condition is not unjust because of a material change of position by the promisee or beneficiary (no reliance upset)iii. The promise is not binding apart from the rule state above (a).c. NOTE: this is DIFFERENT than what happens in the contract is MODIFIED. Waiver modification. iii. UCC 2-209, 2-2084. Excusei. JNA Realty v. Cross Bay Chelsea: D forgot to renew lease and would have suffered substantial loss (in comparison to P) if he were kicked out of property, because he made substantial improvements to it. Court ruled that because the mistake was a good faith mistake, he is entitled to equitable relief for his mere negligence, since his loss would be out of proportion to the gravity of his oversight.ii. R 2d 229: Excuse of a Condition to Avoid Forfeitureiii. If it causes disproportionate forfeiture, a court may excuse non-occurrence of a condition, unless its occurrence was a material part of the agreed exchange.a. Rule: The non-occurrence of a condition should be EXCUSED to prevent forfeiture, so long as its occurrence wasnt a material part of the agreed exchange. (Also requires that such a loss be disproportionate to the harm that would be suffered by the beneficiary if the condition were excused)B. Constructive ConditionsConstructive Condition: a condition the law implies or constructs when a court finds that one partys performance is a condition on another partys obligation to perform. (Also called dependent covenants.) We find dependent covenants depending on the intent of the parties; if they intended a performance to be contingent upon another partys duty to perform, it will be a constructive condition. Court decides based on objective manifestation/evidence of intent.1. Substantial Performancei. Unlike express conditions, which are strictly enforced, constructive conditions can be satisfied by substantial performance.ii. Jacob & Youngs v. Kent: Reading Pipe case; although the wrong pipe was installed (constructive condition required reading pipe), the court ruled that there was substantial performance of the house construction contract, therefore D could not rescind.a. Cardozo seems to justify it by saying that it prevents forfeiture, but be careful about using this as just an equity argument.i. LEGAL justification: it reflects the intent of the parties: the parties would have been fine with substantial performance; this was their intentto get the house built, not to get a particular type of pipe.b. Justification for substantial performance: Even though you can try to argue that substantial performance is inconsistent with freedom of contract (in that it relegates the contracting party to receive something less than what it bargained for), substantial performance only makes this particular condition satisfied; there is STILL A BREACH that the nonbreaching party can collect damages for.iii. Substantial performance can only apply when you are dealing with a negligent breach, not a willful breach.iv. Bottom Line: conditions are harsh. They can produce forfeiture, and there are a number of ways to mitigate that harshness; you can interpret it as not being a condition, or even if it is a condition, you can use doctrines of waiver, estoppel, excuse, substantial performance to prevent forfeiture.2. Material Breachi. Material Breach: breaches of contract that also constitute the nonoccurrence of a condition; stated differently, when the breach of contract is also the breach of a condition/nonoccurrence of a condition.a. Direct opposite of substantial performance. You cannot have both.b. Effect of material breach: nonbreaching party gets the option to rescind OR sue for damages; in other words, they can proceed ON contract (sue for damages) or OFF contract (rescind).ii. B&B Equipment v. Bowen: P is trying to get out of employment contract with D without having to hand over stock they bargained over. P claims that D, in not performing his job, made a material breach, so they could rescind. 3. Partial versus Total Breachi. How can you tell who materially breached in a confusing case like Lane v. L.B. Foster?a. Look at what risks the parties were allocating, then decide on that whether there was a material breachii. Total vs. Partial Breacha. Corresponds to the way that the nonbreaching party elects to proceed on-contract.i. Option 1, Partial Breach: pretend its a breach (nonmaterial) and parties continue dealing with each other. If P does a bad job, D can sue damages.ii. Option 2, Total breach: D stops dealing with the P breaching partyterminates the relationship. Because they committed a material breach, they will now proceed with someone else, will continue on-contract recovery but NOW measure of damages will be determined by the extra money spent contracting with someone else. You can ONLY do this if the breach is a material breach.iii. BOTTOM LINE: AFTER A MATERIAL BREACH (THE NONOCCURENCE OF A CONDITION), NONBREACHING PARTY HAS TWO OPTIONSa. IF NONBREACHING PARTY RESCINDS AND PROCEEDS OFF CONTRACT, THATS ONE OPTION.b. IF THEY PROCEED ON CONTRACT, THEY CAN TREAT THE BREACH AS PARTIAL OR TOTAL.i. IF THE BREACH IS TREATED AS PARTIAL, THE NONBREACHING PARTY CONTINUES WITH THE BREACHING PARTY AND JUST RECOVERS DAMAGESii. IF IT IS TREATED AS TOTAL, RELATIONSHIP IS TERMINATED, HIRES SUBSTITUTE, AND RECOVERS FOR EXPECTATION DAMAGES4. Perfect Tender Rule: UCC 2-201: The failure to make perfect tender is a breach that constitutes rescission. Relevant Sections: 2601; 2602; 2605; 2606; 2607.a. See Ramirez v. Autosport, 11/12/14.ii. Cure, 2508a. Rejection rescission; right to REJECT is subject to 2-508, which gives the seller the opportunity to cure its defective performance. Subjective though, with terms like reasonable time and reasonable groundsb. Would the Ramirez van seller have been able to cure?i. If they can prove that even though they kept extending the delivery date, it was a reasonable time; and that there were reasonable grounds to believe that the van was acceptable when the van was delivered (it wasnt).c. Acceptance: must be done by notice, failure to reject, using goods as your own.iii. Revocation of Acceptance, 2608a. If the buyer accepts (by one of the methods above), they cannot REJECT the goods; that can only occur if you dont accept them.b. You CAN revoke your acceptancei. UCC 2608: gives the power to revoke acceptance, which has the same effect as rejecting the goodsii. We have this distinction because the effect is the same but whether you can do it is DRAMATICALLY different. You can reject goods for ANY defect in tender; the buyer may revoke acceptance only when the non-conformity substantially impairs its value to him.iii. 2601=reject; 2608=revokeiv. Determine substantial impairment by considering:1. If the contract has not been substantially performed (UCCs way of referencing the substantial performance doctrine)2. UCC is sneaking substantial performance through a backdoor loophole.c. Thus, PERFECT TENDER RULE IS UNDERMINED BY 2-508 AND 2-608.iv. Anticipatory Repudiation, 2609; 2610; 2611a. Hochster v. De La Tour Doctrine: we are going to treat anticipatory repudiations as present breaches.i. Arguments in favor: frees people to pursue other jobs, buy different goods, etc.not wasting human capitalii. Argument against: if the breach is still anticipatory, maybe it wont happen. Circumstances can changeb. 2610; 2611: Gives provisions for anticipatory repudiation (2-610) and for retraction of anticipatory repudiation (2-611)c. Sea Colony: Dispute over whether P breached by cancelling, or D breached by re-selling the apartment after Ps prior material breach. i. Court of appeals holds that it was NOT an anticipatory repudiation on the part of P, because it was not a clear repudiation; if we are even going to call it a repudiation, it is conditional on whether D will give him his deposit back. Thus, by selling the condo, D committed a material breach. P can then proceed, either on- or off-contract, for damages.d. Scott v. Crown and UCC 2609: If you dont know whether the other party is going to perform their part of the contract, you are in a precarious position. YOU DONT HAVE TO RISK committing a material breach yourself. IF you send out a demand for adequate assurance, and you failed to receive adequate assurance, you are free to make the breach and it wont be a material breach. The failure to provide assurance IS A BREACH.i. However, there must be REASONABLE GROUNDS for insecurity.1. Ambiguity opportunity #1.ii. Your demand cannot be excessive, and you cant ask for more than you were entitled under the contract.1. Isnt all demand going to be excessive/more than youre entitled under the contract?2. Ambiguity opportunity #2.iii. Then, you have to determine if the response to your request is adequate/proves that they will perform.1. Ambiguity opportunity #3.e. RESULT: this well-intended doctrine in 2-609 doesnt really help.v. Installment Contracts, 2612a. CANT reject installment contracts under PTR, but you CAN reject under substantial impairmentb. 2-612 broadens the category of installment contracts.c. This doctrine is highly indeterminate; you can manipulate it in order to advance your objective.

6. REMEDIESA. Expectation Interest1. Expectation Damages: protecting the expectation interest; put the nonbreaching party in the position they would have been in had the contract been performed.a. In construction (MAY be installment under UCCissue!) contracts, expectation damages can be calculated using the cost of completion rule or diminished value in the market price of the property caused by the breach (from Jacob & Youngs, R 2d 348).b. DIMINISHED VALUE doctrine: Groves: IF BREACH IS WILLFUL/FRAUDULENT, you cannot sue for substantial performance. What this diminished value rule is: JUST THE SUBSTANTIAL PERFORMANCE DOCTRINE.i. Groves Dissent: If your goal here is to prevent economic waste, why do you care whether the breach is willful? If you want to avoid economic waste, youre not going to award cost of completion, youre only going to award diminished value.c. COST OF COMPLETION doctrine: restore expectation damages for whatever it would have cost to complete the work.ii. Cost of Completion vs. Diminished Value: which to award? a. Determined by whether there is economic waste in awarding the damages.b. Cost of completion is appropriate measure of damages for the same reason that we do not second-guess the adequacy of consideration. When two parties make a deal, theyre exchanging stuff for whatever subjective value it has to them. Peppercorn theory, etc., has to do with how we dont substitute our impressions of value that the parties have. Here, we know that the P wanted flat land, enough to pay $60,000 for it, who are we to step in and say no, since the value you lost in the land by not re-grading is only $12,000, were only giving you that?c. Diminished value is the best measure of damages, because it doesnt make senseits economically wastefulto pay $60,000 in order to improve the value of the land by $12,000.i. Counter: its not economic waste; it doesnt necessarily mean that the plaintiff values it at $12,000; he values it at $60,000 because thats how much he paid. The only way he can get what he bargained for is to pay him back the $60,000.d. THIS ALL TURNS ON THE RISKS THAT THE PARTIES WERE ALLOCATING: was the plaintiff wanting to re-grade the land so he could sell it at a higher price? Or re-grade the land for personal value (presumably, $60,000)?iii. Efficiencya. Theory of efficient breachi. Efficient breach is something that results in an increased overall utility/welfare.ii. Pareto Efficiency: If a party breaches, and is still better off after paying damages to compensate the victim of the breach, the result is Pareto superior, that is, considered as a unit, the parties are better off because of the breach and the breach makes no party worse off.1. Someone could be made better off w/o making someone else worse off.2. Therefore, the party who will benefit from the breach should breach.iii. Kaldor-Hicks Efficiency: As long as an action generates enough surplus (increased utility, enough money) that you could compensate the injured party and youre better off, it is efficient whether or not you compensate the injured party.1. We dont care about distributional consequences.iv. Consequential Damagesa. Foreseeability 2710; 2715: i. Expectation Damages are available ONLY IF they are foreseeable.ii. Hadley Rule: Expectation damages given for either damages that are NATURALLY ARISING or were WITHIN THE CONTEMPLATION OF THE PARTIES at the time of contracting. These are what are foreseeable to the parties, in their heads, if the contract is not performed.1. Restatement 351 codifies this.iii. If the damages are foreseeable, you can make the efficient breach calculation. Hadley rule is necessary in order to do an efficiency calculation.1. 2-710: sellersONLY get incidental damages after buyers breach.2. 2-715: buyersafter seller breach, they get CONSEQUENTIAL damages too, if they were within your contemplation (somebody gave you notice of them). Only buyers, not sellers, get this. The court will only award consequential damages if the non-breaching party gave notice to the breaching contract the possibility of the consequences.(a) Foreseeable consequential damage(b) Injury to person or property proximately caused by breach of warranty.b. Certaintyi. Speculativeness Rule: P will ONLY get non-speculative expectation damages. This means that the P may be undercompensated (see 2).1. Chicago Coliseum Club v. Dempsey: Court denies lost profits that Plaintiff claims he is entitled to; reasoning is that even if we assume they were sufficiently contemplated, we were not certain how much profit would have been generated. Too speculative, we arent going to give it to you.2. Certainty Rules is necessary in order to do the efficient breach calculation for defendants. To the extent that the certainty rule now means the P will be undercompensated, because he is only getting the certain damages rather than the full (speculative + certain) damages, that plaintiff is undercompensated.v. Mitigationa. Common Lawi. Rockingham Cty v. Luten Bridge Co.: Appeals Court reverses judgment for the plaintiff, saying that P breached their duty to mitigate damages. Because they had notice about the breach, they were obligated to mitigate the damages (aka stop working on the bridge).1. Duty to Mitigate: negative dutyyou have a duty to NOT pile up unnecessary damages following breach. 2. Positive dutyyou should go out and make reasonable efforts to stop damages.3. Justification: we want to avoid economic waste. ii. Mitigation Duty allows us to minimize the cost of breach, but we do so without undercompensating the P, BECAUSE P GETS FULL EXPECTATION.1. However, Duty to mitigate deprives people of nonmonetary/subtle or intangible components of their expectation. In this sense, they ARE undercompensated.iii. Positive Duty to Mitigate:1. Parker v. 21st C. Fox: Conflict determining what qualifies as positive mitigationshould you have to pursue inferior options?2. Differing points of view; yes, you have to pursue inferior options, because you can sue for damages of difference between the inferior option and the original option. OR: no, you dont, because thats a blatant affront to freedom of contract.b. Lost Volume Sellersi. Lost Volume Seller Duty to mitigate does not apply.1. If both sales could have been made, i.e., the two sales are not mutually exclusive lost volume seller.2. If another sale would have occurred (may not be economically feasible even if possible). ii. 2718(2)1. Buyers restitution2. The buyer gets the deposit back, minus [what seller is allowed to keep (either 20% of contract value or $500, whichever is less) and any other damages the seller is allowed to recover under the UCC]

c. UCC [ 1305]i. UCC provides: index/ preferred remedy / formula / special situationsd. Sellers [ 2703; 2706; 2708(1); 2708(2)]i. UCC 2-703: Index Remedies available to sellersii. UCC 2-706: Preferred remedy Resale1. If the buyer breaches the contract, the seller can resell the goods in a commercially reasonable manner.2. Where resale is made, the seller may recover the difference between the resale price and the contract price.3. Built-in duty to mitigate damagesiii. UCC 2-708(1): Where the preferred remedy is not implemented1. Where the seller does not resale, the measure of damages is the difference between the market price at the time and place of delivery (breach) and the contract priceiv. UCC 2-708(2): Special case about sellers Lost volume seller provision1. In some circumstances, sellers would be lost volume sellers, who would have been able to make both sales volume of sale is reduced to 1 because of breach.2. If the resale was not mitigating, the seller can recover for the profit of the second sale + incidental damages under 2-710.e. Buyers [ 2711; 2712; 2713; 2714]i. UCC 2-711: Index Remedies available to buyersii. UCC 2-712: Preferred remedy Cover (buying substitute goods)1. Where the buyer (non-breaching party) covers, the buyer is awarded the difference between the contract price and the cover price (purchasing comparable performance).iii. UCC 2-713: Where the preferred remedy is not implemented1. Where the buyer does not cover, the measure of damages is the difference between the contract price and the market price at the time and place of the sellers breach (time and place where the buyer would have covered)iv. UCC 2-714: Breach of warranty provision the buyer accepts non-conforming goods1. Where the buyer accepts the goods even though they dont conform to the contract, the buyer will be awarded damages for breach of warranty (the difference between what was promised and what was received).v. UCC 2-715: Buyers get incidental damages and consequential damages2. Specific Performancei. Equitya. Specific performance is an equitable remedy which you can only get if legal remedies are inadequate; even then, court has discretion, these are not awarded as a matter of course. Court balances equities in order to figure out whether it should give specific performance. i. This is due to the coercive nature of specific performance; we dont want to violate autonomy unless we see good reason to.ii. Landa. Loveless v. Diehl: Specific damages are appropriate here because this is a land contract, and land is viewed as unique. i. Supreme Court reverses because it finds the legal remedy is inadequate: the P would end up losing $4,000; the other deal to sell the property wasnt illegalii. What about efficiency?1. Coase theorem: It doesnt matter whether you award specific performance or not, or who gets control over the resource; the market will adjust and produce the efficient outcome. Whether we give P $1,000 damage award and keep land with seller; or whether we award SP, each one will end up with whats economically most efficient, because the person that loves it the most will get the land.2. Subject to one important qualification: transaction cost. If it turns out the transaction costs are high enough to prevent parties to bargain their way to an efficient outcome, or even if theyre able to, they wont because its not important enough to them, then it DOES MATTER whether you award SP or a legal remedy.iii. Coase kind of renders law useless, but if it is still useful, it can be used to lower transaction costs.iv. Compare with Pareto, Kaldor-Hicks theories of efficiency.iii. Goodsa. [ 2709; 2716)]iv. Personal Servicea. Specific performance is absolutely prohibited with personal service.3. Liquidated Damagesi. Wassenaar v. Towne Hotel: Court held that where a stipulated damage provision was a valid liquidated damages provision, the doctrine of mitigation did not apply.a. Reasonableness factors of whether the stipulated damages were a reasonable forecast of just compensation for the breach, and whether the harm was difficult to accurately estimate. The damages were reasonable, according to the courtii. 2718(1);iii. 2719Allows parties to impose limitations to remedies if they want to.B. Reliance Interest

1. Reliance damages: Damages needed to put P (non-breaching party) back in the position he would have been in had the contract never been made; restoring the status quo ante; standard remedy for tortsi. On-contract remedy: Reliance damages as a subset of expectation damages.ii. Off-contract remedy: Goal of reliance damages is to restore the status quo.2. Reasons for reliance damages in the absence of expectation damagesi. Expectation damage = profit (expectation) + reliance expenditures (reliance)ii. If you cant get the profit because it is too speculative, the court will give you reliance expenditures, which is a non-speculative subset of your expectation. 3. Pre-contractual Reliancei. Where P has incurred expenditures before the contract was signeda. Cannot recover. Chicago Coliseum Club v. Dempseyi. Pre-contractual reliance cannot be said to have been made in reliance on the contract because the contract was not in existence.b. Can recover foreseeable reliance damages. Anglia Television Ltd. V. Reed i. Once the contract came into existence and was breached, the non-breaching partys reliance interest is frustrated.4. Hadley Rulei. Essential reliance expendituresa. Reliance expenditures made in preparing to perform the contract, or in actually performing it (akin to general damages in expectation damages).ii. Incidental reliance expendituresa. Reliance expenditures made on the anticipation that the contract would be performed, but which do not relate directly to performance (akin to special damages in expectation damages).5. Rest. 2d 349 (p. 123)i. Rest. 2d 349. Damages Based on Reliance Interesta. As an alternative to the [expectation interest measure of damages], the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract b