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Author:  	Anonymous
School:		University of Texas School of Law
Course:		Contracts
Year:		Fall 1995 and (most of) Spring 1996
Professor:	Robert Hamilton
Book:		Contracts, 2nd Edition, by Hamilton, Rau, & Weintraub

Contracts
Professor Bob Hamilton
Book Used: Hamilton, Weintraub & Rau
Coverage:  Fall 1995 & Most of Spring 1996
Prescott M. Caballero

Chapter I: Enforcement of Promises
Monetary Recoveries
I.  Expectation Damages
A. General Measure:   Injured party will be awarded his expectation interest, the benefit of his bargain.
1.  Court attempts to put plaintiff in as good a position as if contract had been performed by defendant.  
a) 	Most often this may be expressed by the difference between the Kp and the costs saved by plaintiff.
b) 	Or the profits made if the contract is performed + the costs incurred before the defendant's breach.
c) 	Illustration:  O contracts P to build house for $100k.  P figures his costs to be 80k.  O Br/k after P spent 50k.  P damages = Kp (100k)-Costs saved(30k)=70k; or = profits(20k) + costs incurred(50k)=70k.
d) 	Hawkins v. McGee-Damages = Difference between a good hand and the hand resulting from operation.
2.  Efficient Breach:  Breach is deterred only if the gain to promissor does not exceed the loss to promissee.
3.  Sometimes, the court will award the diminution in value from a Br/K, rather than the cost to complete performance.
a)  Peevyhouse v Garland:  Cost to do repair work=29k.  Without work 's farm is worth $300 less.
If cost to complete calculation were used  would get 29k.  Held it would constitute economic waste to award  the cost of completion. Where benefit to  is clearly disproportionate to cost to  then diminution in value should be awarded.  The cleanup was incidental to the main purpose of K, which was fulfilled.  (Note the breached performance must also be incidental to the main purpose of the K.)
b)  This theory of economic waste often comes into play in construction contracts where the defect is minor.
Jacob & Youngs v Kent:  Constr. K called for Reading Pipe, not used architect refused payment.  Builder sued.  J/, not a material breach.  Thus, builder entitled to damages offset by any damages to architect.
c)  Some courts will be influenced by whether the breach was willful, as well as intentional.  This may lead courts to award cost of completion rather than diminution in value.  Groves v John Wunder Co.  [Hamilton says that the willfulness of breach does not usually enter into damage calc. (9/8/93)]
4.  Fuller and Purdue said that this measure is most useful when promises are made in a business/commercial context.  Its less useful in medical cases and cases in a non-commercial field.(see Sullivan under reliance damages) 
B.  Limitations on Expectation Damages
1.  Generally, if a  can avoid a measure of damages by a reasonable effort, without undue risk, expense, or humiliation, he can't recover if he fails to make such an effort.  Courts wish to treat a breaching party fairly.
2.  Duty to Mitigate.  If  doesn't avoid his avoidable damages, then he simply loses ability to recover them.
a)  Rockingham County v Luten Bridge:  Luten was informed of breach & continued work.  Kp(10k), costs at time of 's Br/K(1.9k), cost to finish(7k)  Thus  should get profit on job(1.1k) + cost to date(1.9k)=3k
- may not learn of 's repudiation and pile up damages.
b)  This duty leads to tricky situations in cases of personal service Ks.  Courts tend to be lenient to s and not enforce a duty to mitigate by accepting substantially different positions.
i)  Hussey v. Holloway:  Employer Br/K with .   was to pay her $18/wk.  Court held that  would not have to take a job of substantially different character to mitigate damages.  
ii)Hamilton's hypos:   could have collected 18/wk from  and still worked cocktail waitress job, if 2nd job was during a time she would not have worked for .  Essentially Hussey sold her asset(9-5 as trimmer) to Holloway.  Thus, if she capitalized on the asset she sold to , then her damages should be offset.
-If Steinbrenner fires manager of Yankees, does manager have to take job with Padres to offset.  No, moving to a different city would not be a job of the same general character.  
iii)  Parker v. Twentieth Century-Fox Film Corp-  (Shirley McClaine) was offered lead in a huge musical.   Br/K, offered  role in a Western for same salary.  Held:  refusal of western was not a failure to use reasonable efforts to mitigate 's damages.  J/ for full Kp of musical.
iv)  Olds v Mapes-Reeves:  Client hires Contr. who hires subcontractor to do marble work for 3k.  Contr. Br/k with subcontractor and was liable for expectancy.  Subcont then did work for client-profit = $335.23.
Is this mitigation of contractor's damages.  Held No.  If subcont could do 'both' jobs then he is entitled to his expectancy, and may keep his profit on Ks occurring at the same time.  
-Rule for these situations:  Pertinent facts are whether there is a plentiful supply of labor available to  then no mitigation.  If you do all work yourself you cant expand to cover multiple contracts, so you are more like  in Hussey.
3.  Lost-Volume seller exception:  In cases where a buyer breaches, & seller resells for same price, the mitigation formula can be modified to allow seller to get profit from breached K, if seller can establish that he is a lost volume seller.
a)  R.E. Davis v Diasonics:  Buyer paid 300k down payment on machine, then repudiates.  Buyer entitled to 300k less $500[2-718(2)(b)].  Seller resold for same Kp.  Under 2-706 Seller would get no damages, no offset.  Court Held- no hierarchy between 2-706 & 2-708.  Thus, if seller can establish that it could have profitably produced the breached unit, then it would be entitled to its lost profit under 2-708(2), and this award would mitigate buyer's recovery.
b)Nobs v Koppers: Facts-  bought 1000 tons at 445/ton=445k total cost.  K to sell to  for 540k.  Profit = 95k   Br/K,  never procures cumene so no action for price(2-709)or resale(2-706)  Court awarded lost profits under 2-708(2)  Nobs wanted 2-708(1) to apply since market price had fallen since Br/k.  Court held 2-708(2) applies where 2-708(1) does not put seller in as good a position.  They cite 1-106 to say that  cannot be put in a better position than if K had been performed.  Also, seller not entitled to recover consequential damages.
-Hamilton has a problem with not awarding the 75k lost volume discount in this case.  For cases like this, the rewrite of UCC 2-710 will allow seller to collect consequential damages from the buyer.
4.  Other UCC obligations to mitigate damages:
a)  Cover:  Dura-Wood v Century Forest Ind:  CF Br/K to sell wood ties to DW.  DW middleman had K with Smith.  DW covered under 2-712.  2-712 entitles buyer to Cost of cover-Kp plus Conseq. & Inc. damages under 2-715.  Here DW covered by producing ties internally.  Court said it was OK to do this, but here DW could have minimized its total costs by covering ties on open market.  Thus DW gets no potential profits from using its own industrial facilities to effect cover.  No consequential damages.
-Hamilton's reasons for not allowing internally produced cover.   might be better off if cover is affected through a third party.   would be able to pile up damages by including all sorts of internal costs in cover.
b)  Problems of Hazy wording in UCC-Question: if you cover, can you still collect under 2-713(Kp-Market Price)? White and Summers say buyer should be limited to 2-713 if he does cover, since you don't want to put buyer in a better position than if K was performed.  
i)  Interior elevator v Limmeroth:  Buyer partially covered after  sold 5138 bushels short.   needed 4337 to fulfill its own K.   sought Market price - Kp(2-713) * 5138.  Held  only partially covered, & thus, may sue under to 2-713 for damages.  (see 2-713 note 5)
c)Reason Companies should be careful of what they warrant their products to do
i)  Chatlos v. Natl. Cash Register:   bought comp. from NCR for 46,020.  Tr Judge found value accepted machine = 6k.  found value of machine as warranted $207,826.  J- $201,826.  Applying 2-714(2) Breach with regard to accepted goods.  Seller could have limited its liability using 2-719.
d)  Overstreet v Norten Labs.   supplied  with vaccine to prevent equine disease which causes foals to abort.  Tr ct found  had given an implied & express warrant (2-313 & 2-314) that vaccine would prevent disease.  J-P on value of lost foals.  Appeal,  must establish causal link between his reliance on drug and loss of foals.  Link would allow collection of damages under 2-715.  Majority probably will only allow nominal dams.  Reversed with directions to establish question of proximate cause.  Hamilton says if  had a K to sell foals it could get lost profits of K under 2-715(2)(a)
i) Notes on p.50 problem:
e) Anticipatory Breach problems, & duty to mitigate.
i)  Cargill v Stafford- repudiate K 8/24.  Final date of performance 9/30.   urged performance,  repeated repudiation 9/6.  Damages determined in 2-713(1): at time buyer learned of breach. 
problem lies in 2-610(a) aggrieved party may await performance for a commercially reasonable time.  After this buyer would have to cover to mitigate & fix 's damages (unless buyer had a valid reason for not covering.)
5.  Foreseeability:  Generally, s will only be liable for those damages which are reasonably foreseeable.
a)  Rules derived from Hadley v. Baxendale:  Famous British case which is universally accepted in the US.
i)   sent a broken mill shaft via a common carrier to get fixed.  Shaft was late being delivered, 's mill was shut down for days.   sued to recover lost profits from mill as consequential damages.  Court applied the following Rule for damages.   gets only those damages fairly and reasonably considered to be either:
a)  "Arising naturally, i.e., according to the usual course of things, or"
b)  "arising from the special circumstances under which K was made, if these circumstances were communicated by the plaintiff to the defendant."
ii)  In Hadley, court held that the 's lost profits fell under second branch(which  didn't know about) and were thus unrecoverable.  Only damages awarded was the cost of the shipping service.  
iii)  In U.S., first rule considers direct or general damages.  Second rule covers special or consequential damages.  Hamilton asked whether Hadley was contrary to Hawkins v McGee rule (expectancy)? Answer, partially.  Its more of a limitation on the rule.  It allows us to exclude grossly disproportionate damages, like in the for want of a nail story.  Hamilton, this should be a question of Law for the judge.  Judge should have told jury in Hadley that lost profits were not to be considered.
a)  Hypos for Hadley application:  Cab driver guarantees to get banker to a flight after banker tells him that he'll lose a $10m deal if he misses flight.  Lost deal recoverable? Probably yes.  Cabbie should have said I can't guarantee it.
b)  You get a job in San Antonio, you buy used car with 60-day warranty.  it breaks down on way to San Antonio, you lose job.  Can you sue car dealer for lost job.  No these aren't within contemplation of the parties when K was made.
iv)  A liberal version of the Hadley rule is embodied in damage provisions of UCC.
2-706, 2-708, 2-712, 2-713 equals first branch, 2-715(2)consequential damages = second branch.
b)  Tacit Agreement Test:  Morrow v. First National Bank:  Bank did not have safety deposit boxes ready for .  's house robbed of coins, which could have been safe at bank.  Held for . No liability for consequential damages, unless  had knowledge of 's special requirements, and  tacitly agreed to assume responsibility.
This test is rejected in UCC 2-715 comment 2 and by Restatement § 351.  Only applies in Arkansas.
c)  Application of Hadley rules:  Telegraph cases (Kerr S.S. Co. v. Radio Corp. of America)- Shipper lost profits on cargo cause of a screw up in telegram.  RCA not liable under second rule of Hadley.
d)  Restatement § 351 accepts Hadley rule, but feels its a little too broad.  Thus, they added the escape clause 3 to give judges leeway in limiting liability for damages that are too disproportionate.  
6.  Limitation of expectancy to those damages whose amount can be proven with reasonable Certainty.
a) This requirement mainly comes up with regards to claims for lost profits.  Ferrel v. Elrod:  Br/K to lease premises to  for a new business.  Damages awarded included lost profits for 9 month delay.    contended that these damages could not be determined with reasonable certainty, court disagreed.
b)  The UCC has liberal certainty requirements, § 1-106 rejects notion that damages should be calculated with mathematical precision.
7.  Punitive Damages as an Extension of Hadley principles: In some cases (very rarely), where the breach of contract also constitutes a tort.  This is most often seen in cases where an insurance company incorrectly repudiates a claim.  Ainsworth v. Combined Insurance Co.   was awarded $6m punitive damages on 's denial of a $9k claim.  Usually these tort damages are issued when  can be said to be acting in bad faith.  Courts will award these damages to punish companies, and to deter them from operating like this in the future.  
a)  Breach of a good faith covenant will sometimes bring down punitive dams. on .   denies contract even exists.  Seamans v Standard Oil.
b)  Other Ks where punitive damages awarded:  Western Union screws up a funeral notice, undertaker screws up (water seeped into casket), wedding dress late, wrongly ejecting customers from trains or hotels.  These are all cases where mental anguish is viewed as appropriate for making exception to rule against these damages.    See Restatement § 353.
c)  Courts are wary of awarding this since they don't want to deter efficient breaches, make the business community too cautious.  
II.  Reliance Damages
A.  Generally when expectation damages are not suitable to compensate the  reliance damages may be more appropriate.  This measure attempts to put  in the position he would have been had there been no K.  Often these damages are awarded when the profits for an expectancy recovery would have failed due to certainty requirement.  However, expectancy and reliance are not true alternatives, since in both cases  is enforcing the contract.
B.  The modern view is that a  may recover for both essential & incidental reliance.  Restatement § 349 comment a.
1.  These concepts are a parallel to the two rules of Hadley.  They were developed in the Fuller 7 Purdue article.
a) Essential reliance:  Like first rule of Hadley, any expenditures necessary for  to fulfill the K itself. Ex. Costs incurred on bride before breach in Luten.
b) Incidental reliance:  2nd Branch of Hadley: Expenditures made by (other Ks, advertising costs, etc) relying that the original K.  Like Hadley  would have to show that this reliance was reasonable and foreseeable.
2.  Reliance where lost profits are too speculative
a)  Security Stove & Mfg. Co. v. American Railway Express Co.:  sent new stove to a convention in AC, and hired   to ship it.   did not get all parts there.  Ct. awarded  reliance expenditures including sum paid to , plus incidental costs(fare of president, rental of booth, hotel room, etc.), because profits from potential sales were too speculative.  Under expectancy,  would have recovered squat.  Reliance allows alternative recovery.
b)  Hamilton hypo:  You lease a large apartment, and thus ordered a large sofa.  Landlord Br/k, can you recover sofa down payment?  Yes, if you state that you relied on K, and if L.L. subjectively contemplated that you would order large furniture in reliance on K.  
c) Are reliance expenditures made before the K recoverable?
i)  Anglia Television v. Reed:  Expenditures made by  before  signed K were recoverable.  Hamilton felt this decision was proper.
ii) Dempsey case: Cost of signing other figher before K with Dempsey not recoverable.  Hamilton says this case was too stingy.  First, he did not feel that the profits were too speculative.  Once,  was relegated to seeking reliance, Hamilton feels that  should have recovered cost of signing other fighter.
3.  Reliance awarded in suits on medical contracts.  In Sullivan v. O'Connor:  contracted to provide a good nose to  in 2 operations.  Even after 3rd, nose was worse than before.  Court ruled restitution would be too meager (fee paid to ) & expectancy too excessive (Hawkins recovery)  Thus, ct. awarded fee paid to , difference between present nose & nose before the operation, pain and suffering exceeding what they'd have normally been in this type of operation.  Hamilton says in these contexts this is a better measure of damages than the Hawkins rule.
4.  Freund v. Washington Square Press:   had K with publisher to publish book within 60 days of manuscript delivery.  Publisher Br/k after 60 days, returned manuscript.   sought royalties, denied.  No money for restitution, Hamilton says lawyers fucked up & should have sought reliance for cost of 's labor.
	5.  Incidental and Essential reliance can be had under UCC 2-715.
C.  Limitations on Reliance Damages
1.  Reliance damages may not exceed the original K price.  Courts don't want to award more than expectancy damages.  Most courts will however put the burden of proof in this case on .  
2.  Also reliance damages are measured usually by the costs to the , not value to .
III.  Restitution
A.  Generally, the restitution interest is the value to the  of the 's performance.  The general goal of restitution as it developed at common law was the prevention of unjust enrichment.  These suits can be on the contract or suits in quasi-contract.  In restitution recoveries, it does not matter how much the  was injured by 's breach or how much it cost the  to confer that benefit on .  
B.  Restitution as a remedy for BOK.  Usually this is an option when one party is performing his obligation, and the other party commits a material breach.  Then the  may rescind the K and recover restitutionary damages.  (note this is an alternative to expectancy, but the modern view is that restitution does not need to be based on rescission.
1.  Bollenback v Continental Cas. Co.:   had insurance policy from 1954 until 1963 when he made a claim.   mistakenly said policy lapsed in 1959 for non-payment.  Held 's mistake repudiated the K in 1959, and under restitution,  entitled to all premiums paid since 1959.  
2.  Restatement 2d § 373(1)says injured party receives rest. for any benefit conferred on  by way of performance or reliance.  However, if  has fully performed, and  only owes money, the most courts don't allow restitution,  limited to his expectancy. § 373(2)
3.  Restitution for innocent party will usually not be limited to the original K price.  
a)	Illustrations: A has K to sell  land to B for 100k.  B pays 20k, B gets back 20k Restitution even if it was a losing K and land was only worth 70k.
b)	A has K with B to work for 50k for 1 year.  B wrongfully fires A.  A gets reasonable value of her services.  This could be < = or > original Kp.
c) Hamilton's Restitution Hypos: i)  You rob bank(money accidentally in account)  You could be sued because you impliedly promised to repay (Slade's Rule)
ii)  As in ill. b above, it is disastrous for party on profitable side of K to breach.
iii)  In Ill. a), if land had been worth 110K, then  could have recovered restitution and expectancy (20k restitution and 10k profit on original K)  This is allowed in UCC 2-711 as well.  RESTITUTION IS AN ALTERNATIVE MEASURE OF DAMAGES, & CAN COMBINE WITH OTHER DAMAGE MEASURES. 
d) UCC rules for rejection and cure:   Ramirez v. Autosport:   traded in old van and got shitty new one which they refused.  Issue of UCC provisions for rejection & cure.  2-106(2) defn. of goods conforming to K. 2-601(a) buyer may reject goods that don't conform.  Buyers rejection doesn't necessarily discharge K.  Within time set for performance, seller has a right to cure 2-508(1)  If rejection occurs after time of performance, seller still has a further reasonable time to cure if he believed reasonably that the goods will be acceptable with or without a money allowance. 2-508(2)  After acceptance, buyer may revoke only if non-conformity substantially impairs value of goods to him 2-608, however burden is now on buyer 2-607(4)  2-608 comment 1: Revocation of acceptance = rescission.  Held :Thus, buyer may still request cancellation of K [§ 2-106(4)] or seek damages under 2-711.  This is wrong, according to Hamilton.  2-711 says buyer may cancel and seek damages.
C.  Restitution awarded in suits in Quasi-Contract.
1.  These cases occur where there 1) was never a contract but  deserves some recovery 2) the K was formed but it is unenforceable 3) cases where the  breached or 4) where  breached but  may not recover on the K.
2.  Generally courts will either award restitution or reliance damages in quasi-contract cases., although there is a tendency to award restitution.
3.  Recovery where no K was formed.
a)  Doctor rendered first aid to dying man.  Dr. sued man's estate for the reasonable value of his services.  Held:  entitled to restitution.  'Quantum Meruit'-As much as he deserves. Cotnam v. Wisdom.  
Underlying theory:  We want to encourage doctors to take such action and to be helpful.  
b)   cannot recover for benefits conferred on owner, if he is a sub-contractor hired by a contractor, who later goes bankrupt.  Schneider v Delwood Center.
i)  Hamilton Hypos:  Painter paints this guy's house without owner's permission.  Can he recover?  No. 
 The painter made a mistake.  Owner of house cannot be made to pay for somone else’s mistake.  If you
 saw him begin, and didn’t say anything, you would have to pay, though.
ii)  you send suit to get dry cleaned, they repair it, charge you $20.  You have to pay, implied K.
iii)  Usually you don't pay meddlers for duties performed in non-emergency situations.
iv)  A plumber drives by your house, sees water gushing out the front door, presumes a problem.  Plumber enters house as door is unlocked, fixes a busted pipe, leaves bill for $50.  Can he recover for his fee?  No, it was not necessarily an emergency.  Plumber is an officious intermeddler.
d)  Statute of Frauds voids K.  Boone v. Coe:   went to Texas in reliance on an oral lease promise by .  Void under Statute: lease Ks over 1 year.  J-.   could still recover restitution interest for amount he enriched , but here defendant received no benefit.  No recovery.  If K had been in writing  could have recovered incidental reliance damages.
	1.	
e)  Michigan Central R.R. v. State:  Mutual mistake led to a conversion by State of 's coal.   had to replace this coal at full market price of 6.85/ton.  State only liable for its Kprice of 3.40/ton.  This is because its the government and a mistake by .  Ham. said if this was a private company or better coal they'd be liable for market price.
4.  Cases where the  breached.  In these cases, the  may still recover his restitution interest, but this recovery will be limited in that it may not exceed the contract price.  
a)  Briton v. Turner:  Guy makes K to work 1 year & then get paid $120.   Br/K after 9 1/2 months.   gets reasonable value of his labor - minus loss he caused to , but this may not exceed the original Kp.
Specific Performance
A.  Generally, the usual remedy for Br/K is monetary damages.  However, in old common law courts, when the remedy at law was inadequate. equity courts would step in and award specific performance as a remedy.  There has been a traditional tendency to award sp. perf. only in extraordinary circumstances.  Sp. Perf. was usually granted where the damages were too speculative to be calculated or where damages are simply not a substitute for 's performance.
B.  Limitations on granting Specific Performance.
1.  Sp. Perf. will not be granted unless damages aren't adequate to protect the injured party.  This will usually occur when injury suffered can't be estimated with sufficient certainty, or where money can't purchase a substitute.
2.  Sp. Perf. also will not be granted if the K's terms are not definite enough for the court frame an adequate order.
3.  If it will be very difficult for court to enforce or supervise, specific performance will not be given.
C.  Land sale Contracts:  These Ks are the ones where courts are most likely to grant sp. performance.  When  has contracted to convey a particular piece of land a court will usually find it unique and order sp. performance.  Also, sp. performance in these situations would be easy to supervise and enforce.  They will do this even when the buyer has already contracted to resell the land (Restatement § 360 comment e)  This will allow buyer to meet his obligations and avoid litigation.
1.  Courts will usually also order sp. performance if the buyer breaches before seller conveys.  Reason: damages would be difficult & speculative to prove.
D.  Personal Service Contracts:  Courts will almost never order sp. performance in for a personal service contract.  This goes for both employers and employees.  There is a tendency to view this as a form of involuntary servitude. Thirteenth Amendment problems.
1.  ABC v Wolf:   breached good faith provisions of K.  However pulic policy considerations preclude equitable relief in this situation.  ABC can only get monetary damages.
E.  Sale of Goods:  At common law, it was very difficult for a buyer to obtain sp. performance with regards to a sale of goods.  Usually only awarded if goods in question were unique and could not be obtained elsewhere.
1.  The UCC is more liberal in its rule for specific performance.  Under 2-716, the buyer may obtain specific performance.  Comment 1 shows that the intent of UCC was to have sp. performance granted more liberally than at common law.  It doesn't reject test that damages must be inadequate, but this will be found more easily than at common law.  
a)  Uniqueness:  This section will still cover rare objects and heirlooms where monetary damages would be inadequate, but comment 2 expands scope of uniqueness definition.  Output and Requirements Ks involving particular sources or markets are now covered, and sp. performance will be granted.  2-306(1)  Laclede Gas Co. v Amoco Oil Co.
i)  What if Laclede made K to buy all Amoco's propane.  Could seller get specific performance? Usually not.  2-703 note 1 says specific performance is usually not available to seller.  Hamilton says this was an oversight, and will be corrected in next draft.
Agreed Remedies
A:  Generally, the parties to a contract may make an explicit agreement as to what remedy should be awarded if one party breaches.  These are liquidated damages.
B.  Rules for enforcement of liquidated damage provisions.
1.  The amount fixed must be reasonable relative to the anticipated or actual loss from breach: and
2.  The harm caused by the breach must be uncertain or very difficult to calculate accurately.  
C.  Policy Against Penalties:  Judicial policy is against enforcing clauses that are classified as penalties. Reasons Why:
1.  Penalties lead to windfalls for .
2.  Parties are usually expecting to fulfill K, but less sophisticated parties may not appreciate risk, & thus undervalue the costs of the penalty clause.
3.  Sophisticated parties should be able to evaluate risks, and so penalty clauses increase price of all business.
D.  Reasonableness of amount: Clauses will only be enforced if the amount specified is reasonable.
1.  The traditional view was that you measure the reasonableness of the clause at the time the K was formed.  Hamilton says this is still the way to determine reasonableness.  Consequences:  1) If  actually suffered much less damage, but it was reasonable, then it will be upheld. 2)  Or if amount set was too large, even if 's damages actually turn out to be that high, the clause will still be ruled a penalty.
2.  This view has been modified in the UCC & the Second Restatements.  
a)  Where damages are smaller than forecast, and the forecast was reasonable at the of the K.  Then the clause will be enforced. [Same as Traditional view].
b)  If a clause is originally unreasonable, but 's actual damages turn out to be as high, it will be enforced.
3.  Situations where there is actually no loss at all.  According to the rules above, if the clause was originally reasonable, then this should be enforced.  Restatement Second § 356, comment b says that if there is no loss, clause should not be enforced.  Hamilton thinks this is wrong.  
a)  Southwest Engineering Co. v. U.S.:   entered into contracts to build aids at airfields for US (), penalties applied per day beyond contract time.   withheld payments from , even though  suffered no loss.  Held for .  Clause enforceable despite small or negligible actual losses.
4.  The most typical clauses that get struck down are those stipulating a single amount for any breach trivial or major.  These are referred to as shotgun or blunderbuss clauses.  
a)  Lake River v. Carborundum:   installed a new bagging system at 's request, and in order to make a profit it insisted on a minimum guarantee of 22,500 tons in 3 years.  No matter when the  breached, the  would get much more than its profits if the K had been fufilled.  Thus this is a penalty and will be struck, Lake river is relegated to its common law damages.
E.  Proof of Loss Difficult:  Most courts will take into account the difficulty in estimating or prooving actual damages.  This is viewed as one factor in determining whether the clause is not a penalty.  UCC 2-718(1)  
1.  California and Hawaiian Sugar Co. v Sun Ship:  Sugar company() had a liquidated damages provision providing for 17k/day late charges on a tug provided by .  Court held that these were two sophisticated parties, and this was reasonable in light of the difficulty of determing C&H's potentially tremendous consequential damages.  The court distinguished § 356 com. b by saying here there were two defaulters and it would not be fair to let one of them off scot-free.   entitled to liquidated damages, despite its small actual loss.
F.  Clause acting as a limit on probable recovey:  This acourrs when the liq. damage clause operates to benefit of  and acts as a limitation on liability.  
1.  Mahoney v. Tingley:   put money down on property. and then refused to buy.  K had clause allowing  to get specific performance, or keep down payment(earnest money)   sold to another after 's Br/K, and tried to say liq. damage provision was penalty.  Held for , no penalty.  Hamilton says that if there is an option to seek liq. damages or normal damages, this would automatically be unenforceable.
G.  UCC liquidated damage provisions & limitations on consequential damages.
1.  UCC 2-718 is in accord with the modern view that liquidated damage provisions are ok only if the amounts is reasonable in light of actual or anticipated harm and the difficulties in prooving loss. UCC 2-719 provides for the limitation of remedy.  2-719(2) Says if a limited remedy fails of its essential purpose, remedy may be had as provided in this act.  2-719(3) says consequential damages may be limited or excluded, unless the exclustion is unconscionable.  There is controversy about whether cl. 2 is independant of cl. 3.  The question can be framed as follows: If the limitation or exclusion of consequential damages is not unconscionable when the K was made(cl. 3), must it be held unenforceable if the limited remedies provided in K fail of their essential purpose(cl. 2)?  In Kearney & Trecker Corp. v Master Engraving Co.: The court answered the above question no.  The courts are split on this issue, but Hamilton says that the two clauses should be read independantly when the K is between two sophisticated parties, and thus the limitation of consequential damages would rarely be unconscionable.

Chapter II:  Kinds of Promises the Law Will Enforce
I.  Reasons for Enforcing Promises:  Either begin with the premise that all promises are generally enforceable with a few exceptions, or that all promises are generally unenforceable with exceptions where enforcement is desirable.  The latter view was held by the common law courts, and it is the view that has gradually won out.  This led the courts to adopt the term consideration as a term of art.  A promise was not binding without consideration.  At the core of this concept of consideration, was the idea that the parties had to come to a bargain.  Thus, it covers most economically vital commercial agreements, but it provides no grounds for the enforcement of gratuitous promises.  
A.  Enforceability and Form:  Fuller first set out the functions of formalities in K law.
1.  Evidentiary:  A formality performed pursuant to an agreement would at its most basic level provide evidence of the nature of the agreement, and the obligations of the parties in the agreement.  This could be done with a writing, attestation, notary, or the old formal Roman stipulatio. 
2.  Cautionary Function:  A formality has the added benefit of acting as a check to inconsiderate action by one or both parties.  At common law the seal worked well to do this.  
3.  Channeling Function:  Formalities can provide a simple external test of enforceability.  It provides a way for people to channel their desires and goals into legally effective expressions. 
4.  Seal outmoded:  At common law a gratuitous promise made under a seal would be legally binding.  The seal provided for all the consideration that was necessary.  Today the effect of the seal has passed, and in most states a gratuitous promise made under a seal would not be enforceable.  
a)  Pennsylvania is only state to enact the Model Written Obligations act.  Although Hamilton thinks a promisor should be bound if he writes that he intends to be legally bound, he thinks the PA statute goes to far since it lacks the externally enforceable test that the old seal provided.  Thus, it is rife for abuse.  
B.  The Bargain Principle:  In cases where an exchange of values is contemplated, a quid pro quo, then there will be consideration, and the promises will be enforceable.  This mutuality inherent in a bargaining process is indicative that the parties were in a frame of mind showing adequate consideration.  By recognizing consideration in bargain contracts, the court is sanctioning a system where society's maximum utility is encouraged.  
C.  Social and Family Relations:  Exchange in social contexts differs from exchange in commercial situations, since social exchange entails unspecified obligations.  The general rule is that legal remedies for breach of K are less important where the parties have a continuing relationship.  Ex.  Mom promises to give son (12 years old) allowance, then reneges.  This is not enforceable.  
II.  Contract as Bargain:  The Requirement of Consideration
A.  Generally, for a promise to be supported by consideration, the promissee's detriment must have been bargained for by the promisor.  This requirement prevents the enforcement of promises that are really promises to make gifts.  Conditional gifts, however, will be enforceable if the fulfillment of the conditions was a detriment by the promissee that was of benefit to the Promisor.  This benefit could be said to be bargained for.  However, the benefit does not have to be an economic one.
1.  Hamer v. Sidway:  Uncle promised to pay nephew 5k if he stopped drinking and smoking for six years.  Consideration was met since nephew refrains from exercising a legal right due to inducement from Uncle.  However, since nephew did not make a promise, the K was not enforceable until performance.
a)  Williston's Tramp Example:  Rich guy tells tramp, "If you'll step around the corner, I'll get my tailor to set you up with a new coat."  Tramp's stepping around corner is not a detriment No enforceable K.  Gift Promise.
2.  Kirksey v. Kirksey:  Wife of 's dead brother was asked by  to come down and see me I'll give you a place to live.  No consideration.  Mere gratuity.  If  had attempted to show that she gave up her place in reliance on 's promise, she might have an alternate basis of enforcement.
3.  Holmes:  Key principle is reciprocal conventional inducement between consideration and promise.  Bilateral.
4.  Duncan v. Black:   gave  an IOU for money he said he'd pay him since the  did not get the full cotton allotment the  said he'd get.   sued to recover on IOU.  Held for .  Forbearance of a legally invalid claim is no basis for consideration.  
a)  Restatement § 74 sets up the test in cases like this.  If claim is doubtful, because of uncertainty & made in good faith than forbearance to assert claim would be consideration.  Thus, if you put cockroach in Coke, and called Coke and said, "I won't sue if you pay me $500.", this forbearance would not be consideration, since it was made in bad faith.  
b)  You get girl pregnant, and she says I won't tell, if you'll promise to pay 100/month until kid is 18.  Looking at time settlement was made, courts decided this was made in good faith, on an uncertain claim.  Man charged duress, but lost anyway.
B.  Adequacy of Consideration:  Normally courts do not inquire into the adequacy of consideration in determining whether to enforce promises.  In pure donative transfers, the court refers to them as having a "want of consideration."  However, where there was a bargain, the court does not inquire into the adequacy of consideration.
1.  Batsakis v. Demotsis:  In famine/war ravaged Greece,  agreed to lend  500,000 drachmae ($25.00) in 1942, in return for a note promising to pay $2,000 after the war.  Held for .  This was a bargained for exchange at time K was made, it is irrelevant if it looks unfair with benefit of hindsight.   got exactly what she bargained for.  UCC § 2-105 definition of goods covers money when money is treated as a commodity.
a)  Hamilton:  The  took very real risks in above case.  He gave up value for a paper that would have had no meaning if Axis had won war.  There is a danger of judges playing god, and reforming Ks to fit their own sense of fairness, there is no general rule to allow judges to do this.  It leads to an impossible task of line drawing.
b)  Only area of Anglo-American K law that consistently voids bargained for Ks, is in Admiralty law with regard to salvage situations.  There is a strong policy to promote salvage of stranded ships.  Post v. Jones.
2.  Defenses to enforcement of unfair contracts.  Misrepresentation, fraud, duress.  Also, the UCC has unconscionability clause to prevent enforcement § 2-302.
3.  Mitchell v. C.C. Sanitation Co.:   was injured in accident, and then signed two releases for s.  Held for , gross inadequacy of consideration.  Hamilton says situations of this type are usually considered to be duress.  Threat of loss of job if papers aren't signed is usually duress.  Courts will usually say a situation is not duress, where one party is merely exercising its commercial bargaining power.  
a)  Examples on duress.  You go to bank, money is tight, bank says it'll loan you $$ if you transfer all funds to the bank.  No duress.  
b)  Selmer v. Blakesdale:  Hard core bargaining, not duress.  Stress of business conditions is not duress.
c)  FDIC v. Linn:  's bankrupt, sought to void agreement with  because of duress.  Bankruptcy is not duress, and the lender has right to exercise its powers to collect debts.
d.) Threats to bring tort or criminal action even when claims have some merit will be duress. Berger v. Berger.
e)  Duress has come to mean a threat which is unrelated or out of proportion to what is being requested (like the threat of termination in the Mitchell case)  Restatement Second, § 176.
4.  Enforcement with regard to nominal consideration.
a)  Schnell v. Nell:   sued by  on agreement to pay money to 3 people in his wife's will.  Held for , no consideration given in document, or consideration was only nominal.  Hamilton says this is a pure donative transfer.  Clearly says binding promises to make a gift are not enforceable.  Also, recitation of nominal consideration is unlikely to firm up a gift promise.
b)  Newman and Snell's State Bank v. Hunter:   sued  (widow) on a promissory note she gave to bank in return for her husband's note to bank for $3700.  Husband was insolvent at his death.  Held for .  Exchange of worthless note for 's note was no basis for consideration.  Court felt it was unreasonable for bank to get this kind of windfall.  Widow gave only nominal consideration, in an impulsive frame of mind, courts are unlikely to enforce manifestly unfair agreements like this.
c)  Seyferth v. Groves & Sand Ridge R.R. Co.:   gave  an option K on land, for nominal consideration of 1 dollar.   sued to stop  from working on property.  Held for .  Nominal consideration is good in an option K.  Hamilton says this is because what is being bargained for is time, which is hard to value.  Also, if the option is exercised, the deal goes through, and this deal was set on a rational commercial basis for the benefit of both parties.  Restatement Second § 87 would enforce option K even if nominal consideration is just recited, and is never paid.  These option Ks are thus irrevocable at least for a short reasonable period..  UCC 2-205 (Firm Offers) builds on principles in this case.  Hidden in there is issue of who is considered a merchant under the UCC.
d)  Distinctions in nominal consideration cases.  In Seyferth, the transaction is not donative, its not unfair, its not impulsive.  Enforcement serves a genuine social purpose.  Not all courts follow the Restatement rule, but Hamilton hopes this position wins out. 
III. 	Reliance on a Promise as a Basis for Enforcement
A. 	Promissory estoppel: The essence of promissory estoppel is the idea that the maker of a promisor may be bound by that promise, even though it is not supported by consideration, IF the promisee relies on the promise to his detriment, and IF the promisor should have reasonably foreseen this reliance.  This is totally different from the consideration doctrine, which is designed to enforce promises which are “bargained for.”   
1. 	If one gratuitously undertakes to perform something, he is subject to liability to promisee IF:
a. 	Personal injury results, OR
b. 	Harm is suffered by promisee's reliance on the undertaking.
Hypo:  P had three houses and relied on D’s letter which said that D had renewed P’s fire insurance policy.  Three years later, one of P’s houses burned down, and P learned that the policy did not cover that particular house.  The court held that P may hold D liable, if he proves he reasonably relied on the promise.  Colonial Savings Association v. Taylor
2. 	Promissory estoppel is often applied to enforce promises to make gifts that induce detrimental reliance, even between family members.
Hypo:  P’s grandfather, promised her $2000 so she would “not got to work any more.”  Immediately, P quit her job.  He died one year later, and P brought suit against D’s estate for the money.  D’s estate argued that the $2000 offer was a “gift for nothing in return.” The court held that P justifiably and foreseeably relied on her grandfather’s promise of payment, by giving up her job.  This reliance made the note enforceable and operated to “estop” the executor from denying that the note was given for valid consideration.  Rickets v. Scothorn
3. 	Promissory estoppel has also been applied to situations where there have been promises by employers to pay pensions and other fringe benefits.  
Hypo:  D promises P a pension when she retires.  She retires shortly after this promise is made, apparently at least in part in reliance upon it.  She does not seek other employment and is eventually stricken with cancer, making further employment impossible (if she were too old, she could also argue she could not gain further employment).  The court held that the promise to pay the pension is binding under promissory estoppel since the employee has reasonably and detrimentally relied upon it.  Her reliance came in choosing to retire, since she was already at such an age (57) that finding another job would have been impossible even had she not gotten sick.  Feinberg v. Pfeiffer 

NOTE:  P immediately retired upon D’s promise.  If she had worked some additional period, after the promise was made, this additional work will be considered consideration.  
B. 	The Restatement 90 has been instrumental in shaping the doctrine of promissory estoppel:
1. 	“A promise 
a. 	which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and 
b. 	which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.  The remedy…may be limited as justice so requires.”  R 90, Second Restatement.
2. 	NOTE:  R90 in the Second Restatement, unlike in the First Restatement, does not require the action or forbearance on the part of the promisee have to be of a definite and substantial character.
IV.  Promises as Consideration: The Problem of Mutuality
A.  Consideration in Unilateral Ks: In unilateral Ks, the offeree’s act is consideration for the offeror’s promise.  Thus, in unilateral K cases, the only consideration problem is whether the offeree’s act constituted a detriment of the sort required by the consideration doctrine.
B.  Mutuality in Bi-Lateral Ks:  Generally, for a contract to be enforced requires a mutual exchange of promises.  This is the normal rule in bilateral contracts.  Each party’s promise acts as consideration for the other party’s return promise.  The requirement of mutuality means that each promise must be binding for either to be binding .  The test of bindingness is that a promise is something that circumscribes the promisor’s future freedom of action.
1.  Early Hamilton Principles (1/24/94):  When A promises to lease to B, B promises to pay A rent.  If A also included an option to purchase, there need be no additional promise.  B’s promise to pay rent constitutes sufficient consideration for any number of sub-promises by A.
2.  The defense of lack of consideration requires us to examine types of promises made by s to determine whether they constitute valid consideration.  
3.  There is no requirement that the two promises be of equal weight.  A an agreement that the lessee will give 10 days notice of termination will support a lessor’s promise to lease to lessee for 1,000 days.  (Linder case)
C.  Option/Requirements Ks:  This is a fairly typical consideration problem.  One party says I agree to sell you any amount of product X that you may need for one year, and the other accepts.  The offeree really has not promised to do anything, and hence, his promise was illusory.  There are two ways this kind of problem could be handled.  Either the court may view each order sent by the offeree as a binding unilateral K or it could be remedied by past performance.  Hamilton says that the offeror should be able to give notice and escape before an order is made.  Witham v. Great Northern Railway.
1.  Loudenback v. Tenn. Phosphate Co.:  Buyer () agreed to buy its entire consumption of rock from seller () for five years.  Buyer bought on open market for 1 1/2 yrs., and then tried to buy from seller.  Seller refused, and buyer sued.  Held for seller.  Only consideration for seller’s promise to sell was buyer’s promise to buy only from this seller.  By buying on open market,   breached his implied obligation to proceed in good faith and discharged the contract.  Hamilton says this shows how output and requirements Ks can force parties to manufacture in uneconomical ways (1/25/94) 
2.  Oscar Schlegel Manufacturing Co. v. Peter Cooper’s Glue Factory:  This was a requirements K where seller agreed to supply  (jobber) with glue at 9¢/lb.  Due to war induced price rise, the  tried to order an unreasonably disproportionate amount.   refused to ship,  sued.  Held for .  There was no K, since  did not agree to buy squat, and hence there was no mutuality of consideration.  This was the common law approach, when dealing with this unreasonably disproportionate standard.  Under the UCC these Ks are enforceable (i.e. they have mutuality) under UCC §2-306(1)  Where the buyer buys more than an estimate, the enforceability is governed by the unreasonably disproportionate standard.  
3.  Empire Gas v. American Bakeries Co.:  This case shows how to apply UCC 2-306(1), when the buyer in a requirement K orders no products at all.  American Bakeries () signed a requirements K with  to buy 3000 gas conversion units “more or less”.  They then decided to buy none at all.  J Posner affirmed for .  §2-306 does allow a buyer in a requirements K to reduce amount ordered even to zero, but only if he meets the 2-306 obligation of proceeding with his business in a good faith manner.  Good faith is the test on the downside. 
D.  Alternative Promises:  The Restatement 2d § 77 rule is that, where a promisor reserves to himself the choice of several alternative performances, the promise made is only enforceable if each alternative performance would have been consideration had it been bargained for alone.  ( § 76 says that a promise conditional on performance by the promisor is an alternative performance promise as defined under § 77)  
1.  Scott v. Moragues Lumber Co.:   promised to charter boat to  if he bought it.   bought boat, and chartered to a third person.  He defended by saying that contract lacked consideration, since he was not bound to purchase boat.  Held for .  The  did circumscribe his freedom of action somewhat.  Each of these alternatives could have been bargained for separately (i.e. not buying the boat was a detriment, and buying plus leasing to Morague was a detriment Murray, p. 212)  Thus, this is not an illusory promise.
2.  Notice of discharge as an alternative promise:  Sometimes a provision allowing one party to promise to proceed or give notice of termination of the agreement will be considered as having adequate consideration and hence not be illusory.  In Torncello v. U.S. there was a clause allowing the govt. to terminate the ’s work at its convenience.  The court ruled for the , when the govt. exercised this alternative, saying that the govt. had the obligation to explain a change in conditions that allowed it to exercise the clause as a risk-shifting device, rather than a device allowing an alternative making the promise illusory.
E.  Implied Promises:  Courts may find implied promises in contracts.  Thus, where one party has the right to terminate the agreement at his option, courts will imply a promise of giving reasonable notice (see UCC §2-309)  These  implied promises most often come up in so-called Exclusive Dealings cases, where the courts will imply that the one party has an obligation to use his best efforts to sell, supply, promote, buy, etc.  the other’s products.
1.  Wood v. Lucy, Lady Duff-Gordon:  This was a contract where  could put Lucy’s () label on designs and split the profits with her.  She then put her label on other products and  sued.  She argued that  was not obligated to do anything and so the K failed for lack of mutuality.  The court said that the  impliedly promised to use his best efforts to sell her designs.  Thus, there was mutuality of promises and consideration was present.  This rule was codified in UCC §2-306(2)  
a)  Since this K was complicated, Hamilton said that the more specific agreements become, the more drafting problems occur.  It gets harder to imply duties to satisfy mutuality when the K is complex.  In a brokerage agreement, the broker has an exclusive right to sell home for first 90-120 days.  Broker’s implied promise to use best efforts to sell the house is very vague.
2.  Bloor v. Fallstaff Brewing Co.:  Explicit best efforts clause in K.   hindered ’s sales volume to increase its own profits.  While this was OK to consider its own interest, it clearly breached the UCC’s best efforts obligation.
3.  Dealership Agreements:  The problem of implied promises often comes up in Manufacturer/Dealer arrangements, and franchisor/franchisee agreements.  In Corenswet, Inc. v. Amana, there was an arrangement allowing Amana to terminate the dealership K with only 10 days notice.  As we saw with the lease example above, this notice will make the K binding for at least 10 days, and hence it could have been separately bargained for, and thus, the requirement of mutuality was met.  Amana gave the notice and the court ruled for them.  Hamilton says that in situations like this where there are two sophisticated parties, neither UCC §1-203 (Good Faith) nor §2-302(Unconscionable K or clause) has any place overriding the notice of termination without cause provisions of a K.  Hamilton says that 2-302 deals in situations of unfair surprise or oppression.  
a)  Auto dealers had even less power than Corenswet traditionally.  Thus, they got legislature to pass protecting legislation.  This has worked well in forcing GM, etc. to act in good faith in terminating dealerships.  Very little litigation.  
b)  Franchisees are in a more untenable position in that they usually occupy a more marginal economic position.  Many states have passed no termination without good cause legislation and the like.
4.  Employment At Will:  The traditional doctrine is that employment Ks that don’t state a time period are considered terminable at will.  There have been many exceptions created over the 20 years.  
a)The employment promise case often involve what Hamilton refers to as sloppy sentimentality.  Example:  Mabley & Carew Co. v. Borden:   was promised that death benefits would be provided to whomever she designated.  The note making this promise contained alternative provision to revoke at any time without notice.  This lack of notice made the K illusory.  The court showed how far it could stretch by ignoring this aspect and finding for the .  They said her working until her death was sufficient consideration.  This is B.S.  This is purely a case of historical interest rather than any present perspective.  
b)  If an employee is fired for not doing something that would be against the law, then courts will often intervene to make an exception to the at will doctrine.  TX Supr. Ct. did this.  The Main issue is: how broad should this public policy exception be?  This type of problem was the basis for the Belline Case.  The fired employee ratted on a manager guilty of minor misconduct.  Majority said this public policy supported protecting employees who did this.  
c)  Legislatures have passed statutes giving just cause protection to employees.  Also, judges sometimes find contractual bases for exceptions (like situations where it says employee is probationary for first six months, this implies after 6 months employee can’t be fired without just cause), and sometimes use promissory estoppel doctrine to make exceptions.  
d)  Hamilton thinks that Epstein’s assertion that there is no inequality in bargaining power between employers and employees is a load of crap.
V.  Pre-Existing Duty as Consideration; Modification and Discharge of Contractual Duties
A.  Pre Existing Duty Doctrine:  One who promises to do so something he is already legally obligated to do, has not incurred a sufficient legal detriment for this new promise to constitute consideration.  This doctrine was announced in the case Stilk v. Myrick and still holds today.
1.  The case which Lord Ellenborough used to formulate this rule was Harris v. Watson.  In that case a sailor out at sea refused to go up into rigging during a storm unless he was promised an extra £5.  This additional compensation was not awarded for good reason, as the sailor had already agreed to undertake these risks and duties before going out on the voyage.  This makes perfect sense.  In most other cases its not clear cut.
2.  Even in Stilk, Ellenborough concedes that the case would have had a different outcome, had the crew been free to leave at Cronstadt, or if Captain had capriciously fired the two sailors.  This shows that the sailors pre-existing duty was not as broad as it was made to appear.  
3.  The problem with this rule in employment context is that a sophisticated party can easily escape its effects.  For example, if you work as an associate for 8 weeks at 1000/wk, and Partner loves your work and promises to  pay 1500/wk, you can avoid doctrine by agreeing to work 2 extra days.  
4.  Hamilton says a strict application of the doctrine can result in a great deal of injustice (i.e. its primarily a trap for the unwary)  Also, the rule is overinclusive.  Cases like Harris are fine, the rule covers the extortion cases nicely.  Problem is in cases where an unexpected change in conditions makes modification of the K the more fair option.  UCC §2-615 makes some allowance for this, and allows a seller to suspend performance entirely..  2/2-7/94
5.  Some courts have upheld these renegotiated Ks saying that the party is forbearing his option to breach the first Kontract.  This argument is specious and would encourage breach.  It would allow parties to extract more money from employers.  
6.  Austin Instr. Corp. v. Loral: good example of unfair renegotiation.  Seller forced substantial price increase on buyer who had to have parts to perform his K with the Navy.
7.   Cases of Police officers seeking to collect rewards are often handled as pre-existing duty cases.  This is not the correct analysis according to Hamilton, we just don’t want money availability to warp police services.  
8.  Restatement §73 codifies the rule applied in these cases.  It adds however, that where the performance is slightly different even though similar consideration will be found as long as the new promise does not differ in a way that is a pretense.  
9.  Another way to get around doctrine is to say, “We release you, you release us.  Now lets Renegotiate.”
B. 	Rule in Foakes v. Beer:  Agreements to modify a debt owed are subject to the rule in Foakes v. Beer.  The rule is that you may not discharge a debt, by paying a lesser amount.  There has been no rule more criticized than this one.  Hence, this rule has been quite narrowly construed.  This rule only applies to amounts that are liquidated (i.e. undisputed)  If debtor agrees to pay in a different medium, pay at a later date, give additional security with the part payment, or refrain from bankruptcy proceedings, consideration will be found.  
1. 	Frye v. Hubbell:  Court suggests that since the rule has been so infrequently that it “might more logically be abandoned.”  The case cites Jaffray v. Davis, in which notes for half of the debt were given to settle the claim.  Court holds that partial payment may not constitute valid consideration between parties.
2. 	Sugarhouse Finance Co. v. Anderson:  P had a judgment for $2423.86 against D.  Upon having judgment enforced, D claimed he needed to settle for less, or otherwise, he might have to file bankrupcy.  Parties settle for $2200.  After receiving check from D, the P was asked not to cash it until D could obtain a loan.  P later returned check and called off the settlement.  Court holds in favor of D saying that P could only move to by levy of execution against property the D already owns.  
3. 	Fuller, Consideration and Form:  A difference exists between releasing a claim and creating a claim by a promise.
C.  Modification & Recission of Ks:  The traditional common law rule was that no modification was enforceable without consideration.  This rule has been changed to a considerable extent by the Restatement 2d and the UCC.
1. 	Modification Example: Blakeslee v. Board of Water Commissioners of Hartford:  The  was confronted with unforeseen circumstances, which caused him to have to halt work.   promised additional cash so  could proceed, and  subsequently resisted payment saying the modification was not supported by consideration.  Held for , the modification was necessary due to the arising of circumstance unforeseen at the formation of the K.  This type of no consideration modification is allowed under Restatement 2d, § 89(a)  Court says these type of renegotiaions are permissible because the parties could have agreed to terminate the agreement.  To the extent they agree to do otherwise and to do business, the contract should be enforceable.  
a) 	Goebel v. Linn affirms this notion.
b) 	Levine v. Blumenthal:  
c) 	Nash v. Atlantic White Tower System, Inc.
d) 	Williams v. Roffey Bros. & Nichols (Contractors) Ltd.:  
e) 	J. E. Maintiendrai Pty Ltd. V. Quaglia & Quaglia	
2. 	The UCC allows similar non-consideration modification, recission and waiver under §2-209.  This section totally contravenes the common law principle of consideration being necessary to modify Ks.  
a) 	
ffdf

US for use and benefit of Crane Co. v. Progressive Enterprises:  Crane told Progressive that its costs had increased, and hence forced Progressive to pay higher price.  When Progressive then would not pay, the court held that under UCC §2-209(1), the modification was valid.  This case says Hamilton shows that the UCC could allow some mild distortion in sales Ks.   Hamilton says to refer to White and Summers’ discussion of this section.
b) 	UCC 3-303, Note 1:
c) 	UCC 2-209 is very complex.  Subsection 2 is a merchant specific rule, and combined with section 3 protect against false oral allegations.  Section 4 allows parties to waive the agreement despite their attempt to modify not satisfying sections 2 or 3.
3. 	Unliquidated Debts:  The traditional common law rule was that if a person accepted a “part payment” of an unliquidated debt, where the check was marked, “Paid in full” then the debt was discharged.  The tender & acceptance of a disputed sum was consideration for the release of the duties of the parties.  As long as the creditor cashed the check, it did not matter that he put words of protest in, the rest of the debt was discharged.  State Department of Fisheries v. J-Z Sales Corp.  Hypo:  What would happen if when making a Visa card payment, one wrote, “Paid in full” on the check?  The debt would not be discharged because the memo would not have been written in good faith.  Reference UCC 2-306 on liquidated disputes which says no unreasonably disproportionate quantity may be demanded.
a)  Tanner v. Merril:  Payment by  of salary minus travel expenses settled all claims between parties.  The payment of the portion not in dispute was consideration for the employee giving up claim for disputed part.
The “Full Payment” Check:  Hamilton said the paid in full check is on a collision course with the US banking system.  No one reads what is on checks.  Revisions to UCC will change this rule, but currently UCC §1-207 retains the common law rule of accord and satisfaction with regard to unliquidated claims and paid in full checks.  See UCC 3-311, Comment 5.
c) 	Executory Accords:  When lawyers reach a settlement agreement to dispose of a tort claim, is this agreement now governed by K law?  Usually no.  Satisfaction (payment and acceptance) is necessary, and until this is made courts thus won’t enforce these executory accords.  
d) 	Wheeler v. Wheeler:  
4.  Waiver:  In Ks where there is a condition that must occur before the K is binding, and you continue to perform, despite the lack of the condition occurring, you may not hold the right to discontinue.  This is because you would have waived that right, and created reliance by continuing.  Restatement 2d § 84.
a)  Ill 3.: A employs B to build a house, promising to pay therefor $10,000 on the production of a certificate from A’s architect C.  B builds, but work has trivial defects.  C refuses to give certificate.   A says, “my architect rightfully refused you, but the work is ok, so I’ll pay you full price.”  A is bound to do so, and can’t restore the conditional requirement.  
D.  Pre-Existing Duty and Third Parties:  Famous case of Di Cicco v. Schweizer:  A (Blanche Schweizer) and B (Count Oberto Giacomo Giovanni Francesco Maria Guinelli) were engaged to marry.  A’s father, C, promised B an annuity of $2500 if he married A.  They married, and C made payments for 11 years, but failed to pay on the 12th.  A & B sued C, and C defended by saying that since B was already engaged to A, no consideration existed since B had a legal duty to marry A.  B won despite his pre-existing duty to marry A.  Cardozo said that A and B forbore their right to call off the marriage, and this furnished consideration.  
1.  Ill. 12 Rest 2d § 73:   A drives B’s horse in race.  C promises A a bonus if A wins.  A’s driving the race is consideration for C’s promise, but B would get bonus due to Restatement Agency § 388.  
2.  Hamilton said we don’t want third parties interfering with contractual relationships.
VI.  “Past” Consideration and Moral Obligation
A.  General Rule:  A moral obligation is not consideration for a promise.  This was illustrated in Mills v. Wyman.   cared for ’s sick son.  Afterwards, the  said he compensate .  He then refused.  Court ruled that this moral obligation was not consideration for ’s promise to pay.  
1.  Hamilton identified the problems with these cases.  1) Promise may have been made without real thought as to consequences, 2) No bargained for exchange, 3) No reliance on part of promisee.  
2. 	There are a number of exceptions categories to this rule:  Debts barred by Statute of Limitations, Debts of Infants, and Debts of people in Bankruptcy.  The justification for these exceptions is that these obligations were real, and thus we may make them enforceable again.  
3. 	Hamilton noted that a new promise to a pay a debt where the statute has run automatically starts the statute running again.
4. 	Intention of promisor should be determining criterion.  The court’s ruling will turn on the extent to which a promise was clear based upon action taken by the promisor after he made the promise.   Webb v. McGowin:   saved ’s life, who promised an annuity for  and paid it for 9 yrs.  Court held these payments should continue.  In Harrington v. Taylor, there was a similar situation, but the  only made 1 small payment.  Court held for .  These can be resolved, because its clear the promise was intended in Webb, and not intended in Harrington.  However, Hamilton says that the court’s rationale in Webb was a “stretch.”
5. 	Talbert v. Talbert:  (This case is tortious, not contract.)   D attempted to commit suicide by inhaling carbon monoxide.  The case turns on the wrongfulness of the D’s conduct in its tendency to cause the rescuer to take the risk involved in the attempted rescue.
6. 	Glannis v. Proctor & Gamble:  P wrote an unsolicited letter to D suggesting it come out with a new line of soap called “Blue.”  Subsequently, P&G came out with “Blue Cheer.”  P sued claiming unjust enrichment.  Court held for D on the basis of “considerable doubt” whether the P would be able to sustain her burden of prood at trial.  
7. 	Restatement 2d § 86 states that promises to pay for a past act are binding due to benefit received by promisor.  This section holds for business/economic decisions, which don’t have the dangers of emotional floods like the Webb & Harrington cases.  
Chapter III:  Intention, Interpretation, Implication and Related Mysteries
There are two central questions asked in this chapter: 1)  Was a Contract created at all? 2)  If so, what are its terms?
A.  Contract Creation; Intentions of the Parties; Objective vs. Subjective Interpretation:.  The debate about whether the objective or subjective intention of the parties to a K should control has raged for the last 100 years.  The original view proposed by Williston, was that the plain meaning of the parties words should control.  The later view espoused by Corbin is that the party’s subjective understanding and intentions should have some role in determining the meaning/existence of a K.  This is the position adopted by the Restatement 2d.
§§ 19(2), (3):
(2) The conduct of the parties is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.
(3)  The conduct of a party may manifest assent even though he does not in fact assent.
§ 21
Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but  a manisfestation of intention that a promise shall not affect legal relations may prevent the formation of a contract.  
1.  The discussion in this chapter started with jest promises.  There is no mutual benefit or societal gain from the enforcement of jest promises.  If A and B enter into an apparent K to sell a watch, but they are both subjectively (internal beliefs) joking, no K is formed.  If A is joking, and its apparent to bystanders (test for objective manifestation) that A is joking, but B takes him seriously, still no K is formed.  When A is joking, but both the bystanders and B believe A is serious, then a K is formed.  A’s subjective intent would not matter here.  Caveat, when both are joking and bystanders realize this, the objective theory alone cannot justify the proper result of no K.  This illustrates the proposition that neither the objective nor the subjective theory of intentions can answer all interpretation questions by themselves.  This blend of intentions is important in determining whether the parties intended to and did in fact form a binding K.  
a)  Homan v. Earle:  Betrothal situation where man’s subjective intent not to marry woman does not matter.  The objective manifestation of his actions were enough to get woman to believe he intended marriage.  Even his words were not enough to outweigh the woman’s understanding of the situation.  The totality of the conduct is crucial.  Also, the man knew the woman believed he intended to marry her, so he had a duty to cure her of this misapprehension.  
b)  Embry v. McKittrick Dry Goods Co.:   thought the  intended to extend his employment K for another year, when  demanded he receive a new K or he’d leave.   said he had not agreed to anything yet.  The jury was asked to determine from the parties intentions and conduct, if a K had been formed.  This case stands for the proposition that, despite the ’s subjective intentions, his objective representations to the  control.   should have known  would assume he had a K.  Hamilton emphasized that subjective intent is rarely externally demonstrable.  Hamilton also said that there need be no meeting of the minds.  Hamilton says that a meeting of the minds is better stated as, “At one point in time, both minds had the same idea.”
c)  Tolmie v. UPS:   asked if good cause firing provision would follow him if he took a management position.  He was assured, “its even harder to fire management.”   was then fired.  Held no new K formed.   was still an employee at will.   could not reasonably rely on this statement.  Hamilton said that in employment situations, there is a presumption against finding implicit contracts.  This is all very fact sensitive.
d) 	Overall, objective interpretation prevails, but subjective intent is often relevant.
e) 	Hotchkiss v. National City Bank of New York:
f) 	Ricketts v. Pennsylvania R. Co.:  The correctness of the objective standard for evaluating K formation is evaluated, the view imposed by the first Restatement of Contracts.
g) 	Kabil Developments Corp. v. Mignot:  People should be able to testify as to what their subjective beliefs were at the time of the alleged K formation.

2.  Is a contract formed where parties attach different meanings to terms?
a)  Konic International v. Spokane Computer:  Sellers agent quoted a price of “fifty-six twenty” meaning $5,620.  Buyer’s employee thought it was $56.20, and ordered the good.  Because the price was a material term, and because both parties understandings were reasonable, the court found no K to have been formed.  If the mistake had been discovered before the surge protector were shipped, then Konic would have been liable for at least lost profits under UCC §2-708 (lost volume seller), says Hamilton.
b)  Raffles v. Wichelhaus:  Ex Ship Peerless.  Two ships Peerless (I and II) leaving port, one in Oct. and one in Dec.  This case illustrates the principle of the Second Restatement position.  A meant the Oct. ship and B meant Dec.  Since both understandings were reasonable, the court ruled that no K had been formed.  Hamilton says that the person with the superior knowledge may not take advantage of the other party’s limited knowledge.  (I.e.  If A knew that B might have reason to be confused about which ship A meant, and A was in the better position to have this information, then it is incumbent upon A to let B know or to clarify.)   
c) 	London County Council v. Henry Boot:  Both parties knew the other party meant the opposite meaning.  Court did not care, they gave force to the more plausible meaning.  Hamilton said that problems like Peerless may always be resolved by the court saying one reading is more plausible.  
d) 	Words may have no inherent value.  Hamilton says that words that have a very particular meaning in a trade may an entirely different meaning to a lay person.  
e) 	The Restatement Second § 20 discusses how to handle the effect of ambiguity in terms:
(1)  There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
(a) neither party knows or has reason to know of the meaning attached by the other; or
(b) each party knows or has reason to know the meaning attached by the other.
(2) The manifestations of the are operative in accordance with the meaning attached by one of the parties if
(a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or
(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know of the meaning attached by the first party.
e)  The main rule here is that the party, who is more at fault, runs the risk of having the opposing parties interpretation found to be binding.  This is handled by the second part of § 20.  The first part says that no K is formed if neither party is at fault or they are equally at fault.  (As in Peerless and London County Cases, but as in London Boot the court may ignore the parties meanings and enforce the more plausible one)  
f)  The Restatement Second has also taken the position that parties may assign meanings to words that differ from their generally accepted meaning.  This differs from the First Restatement, where Williston held that no K was formed if parties attached meanings for words different from their accepted understanding.  The danger with this view is that a K will be enforced that neither party intended.  The Restatement Second protects the trade practices of individuals.  Hamilton says that the general consensus is that the Second is better from a policy standpoint.  
3.  Generally, courts prefer to resolve ambiguities through interpretation rather than find no contract using the Peerless analysis.  Thus, whichever party is more persuasive tends to win these disputes. 
a)  Frigalment v. B.N.S. Inter. Sales Corp:  Dispute revolving around meaning of the word chicken.  Case stands for the general rule that in these ambiguity cases the decision will often turn on who the  is, since the  has the burden of persuasion that his meaning is more plausible.  The case also discussed trade usage of the term.  Even though ’s reading was the common one in trade, N.Y. law had a high burden for forcing this usage on an ignorant party, like the .  Hamilton says that individuals should be bound by trade usage terms, irrespective of their experience in, or knowledge of, the field.  Distinguish from Peerless:  In Peerless, each party only knew of one ship (and was, in short, reasonable in their perceptions); in the present case, both parties knew of different meanings for the word, “chicken.”   
b)  The modern view of when trade usage is binding is not nearly as high a burden of proof as Judge Friendly applied in Frigalment.  Friendly said that the plaintiff had the burden of proof of showing why the narrower version of “chicken” should be used.
c) 	U.S. Naval Institute v. Charter Communications:  Dispute over phrase, “ not to publish until Oct. 1.”  The trade usage for this phrase made what  did okay.  Naval Institute was not familiar with the trade usage, but J. Leval felt they should be bound by it.  Hamilton said in these situations as the lawyer for Naval Institute, you must seek clarification of the terms.  If the Naval Institute’s lawyer had asked if this meant no sales at all before Oct.1, and Charter’s attorney said yes, then  could no longer rely on the trade usage.
i) 	“Contra Preferendum”: means that in standard form contracts, ambiguities in language will be construed against the party whose form it is.
ii) 	The rule of law is that it is irrelevant whether or not a party is knowledgeable of the trade usage, because it engaged in the business ignorantly and the other pary had no way to know it.   had no reason to know that it should treat the agreement with  any differently than it would with any other party.
4.  Course of Dealing, Course of Performance and Usage of Trade:  The UCC and the Restatement Second have flexible provisions for interpretation in the light of trade customs.  These have replaced the old common law custom provisions.
a)  Course of Dealing Refers to the conduct of the parties in previous transactions between them.
b)  Course of Performance refers to the parties conduct in the current transaction.
c) 	Trade Usage is the generally understood meaning in that profession.  The UCC holds even newcomers to an industry standard to the industry’s trade usage.  [UCC §1-205(2)]  
d) 	De Kalb Bank v. Purdy:  Hamilton says that this case is a modern illustration that parties often enter into transactions with reference to usage of trade to define what the terms of the contract mean.
e) 	According to both Restatement Second § 203 and UCC 1-205 and 2-208, there is a hierarchy of importance in using these provisions to resolve ambiguous meanings:
i)  Express Terms:  Any express terms are given greater weight than course of performance, dealing and usage of trade.
ii)  Course of Performance:  is given greater weight than course of dealing and usage of trade.  
iii)  Course of Dealing:  is given greater weight than usage of trade.
iv) 	Usage of Trade:  The UCC says expressly that the parties’ agreement should be construed broadly to include express terms, plus all of the above interpretive devices.  They go towards what the agreement is as well as to what it means.  (UCC §2-204)
f)  Hamilton said that these sections show the extent to which courts have been willing to let trade usage contravert the normal meaning of words.  Also, shows that the Restatement writers don’t have the view that words have any inherent meaning.  Finally, these provisions of the Restatement don’t decide cases, they just are used to justify the results reached by judges.
5.  Ambiguity and Vagueness in Ks:  This note refers to cases where two parties with similar bargaining power sit down to draft a contract.  It is not possible (or even desirable) to draft clauses dealing with all possible contingencies.  It would cost too much and might force parties to fail to agree to the main point of the K.  Hence litigation, when it arises, has to deal with three general categories of problems with the document:
a)  Blind Spots:  potential problems not addressed in document due to concentration on one problem.
b)  Unpredictable future events.  Oil shocks, new technology.
c)  Failure to handle remote but predictable contingencies.  May be left out, or referred to obliquely by such phrases as “reasonable reduction in price”, or “equitable adjustment.”
d)  Need for flexibility:  Some Ks have provisions that from time to time prices or some other term will be adjusted.  At common law agreements to agree and other provisions like this might have been handled as Peerless cases or be unenforceable.  Not anymore, courts as we’ve seen hate the Peerless solution.
B.  Courts Supply Missing Terms in ‘Interpreting’ Documents: Today courts will be willing to supply terms and in essence make Ks for the parties under the guise of interpretation.  The court will first look to see if the parties have manifested a definite intention to be bound, and then will try to supply a reasonable term if the parties have left it from the K.  Caveat:  However, courts remain unwilling to give effect to constructions that would form perpetual Ks or Ks that are terminable at will.
1. 	Consumer’s Ice Co. v. US:  Govt. () argued lease term extended until the Govt. no lionger needed land for anti-aircraft purposes.   duration clause should be interpreted as having ended in 1964.  Court held for .  Shows that courts will look to which of the party’s interpretations is more reasonable in light of the circumstances.  The law assumes that the parties would never intend a perpetual lease, which was the interpretation given by the .  
2. 	Applying the rule in Peerless to Consumer’s, assuming each party adopted entirely different interpretations, no contract was formed.  Why was the court unlikely to apply the Peerless analysis?  Hamilton says that we should assess whose interpretation is more reasonable, and then the court should apply that standard; this case is distinguished because the parties lived under the K for 15 years.  As a practical matter, the courts prefer one construction over the other.  It would not make sense to say that for 15 years no K ever existed, even though rent was being paid, etc.  
3. 	Haines v. City of New York:   held that a K executed in 1924 (to build sewage system for Haines) was perpetual, and hence NYC had to build new plants in the ’70s.  Rule:  Courts will never find a K perpetual unless the parties make this their clear, unequivocal intention.  If it’s not clear the court may supply a reasonable duration term, by looking to the intention of the parties. 
4. 	Omitted Terms in the UCC and the Restatement Second:  The UCC has very liberal provisions for the courts to supply omitted terms.  §2-204(3) authorizes courts to supply terms missing from the agreement.  This section says the K does not fail for indefininteness if the parties have intended to make an agreement and there is an reasonably certain basis for giving an appropriate remedy.  
a) 	UCC on Omissions
(1) 	Courts will supply, and historically have had little problem, providing minor terms such as:
(a) 	an omitted delivery date (2-309),
(b) 	a place for delivery (2-308), 
(c) 	and a time for payment (2-310).  
(2) 	The courts may even supply fundamental terms for the parties.  Under §2-305, the court may supply an open price term.  (This provision was designed to counter the trend in the early 20th century where courts were unwilling to supply major terms.)
b) 	The Restatement Second:  § 204 is consistent with the UCC.  The Restatement allows courts to add terms, which are reasonable under the circumstances.  § 33 allows courts to supply terms if k is definite enough to determine if a breach has occurred and to determine an appropriate remedy.  
c) 	Action Ads v. Judes:  This case shows the importance of the ’s giving the courts something to hang their hats on in terms of damage measures.  In this case,  had suffered injury and was uninsured because  had promised to get insurance for him after he started working.   failed to show any evidence of what an average insurance policy would have covered.  This would have allowed the court to find an appropriate remedy.  (Hamilton said this case was very wrong.  The parties clearly wanted to be bound by the agreement, a long term of work, and the court should have, therefore, designated a remedy.  He said this provision was vague, not ambiguous, and given the reliance, the court should have fashioned a remedy for the .)
d) 	Oglebay Norton Co. v. Armco:  Courts are now even more willing to step in between parties in a long term relationship and provide terms.  In this case, the parties had determined the shipping rate for 17 years by following an official trade publication.  Negotiations on new rates broke down, and a trial court appointed a mediator.  Mediation was unsuccessful (and not binding like arbitration) so court set the price itself.  This was really stepping out for the court to set the price term for a long term contract.  Hamilton said that the court could do this because (1) the parties intended to be bound, and (2) Oglebay exhibited significant reliance. (§2-305.)  Plus, the course of dealing evidence (stretched over a two decade relationship) supported the finding that the parties intended to be bound.  The course of dealing provisions in §223 allowed the court to do this when combined with the authorization to supply essential terms in §204.  (n.b. §204 is flatly contradicted by §33 of the Restatement, according to Hamilton.)
e) 	Hamilton’s Examples of ‘Certainty’ Cases:  In employment situations where an employer says, “ This is your salary, and you’ll get a nice bonus at the end of the year.”  Without a showing of course of dealing the employee won’t be able to enforce the bonus provision.  This is vagueness with a vengeance.  Hamilton said there is an analogy here with the implied promises in the requirements cases (i.e. good faith and fair dealing), and, thus, courts should be able to find a way to enforce these promises.
4.  Agreements to Agree:  As stated above, drafters may sometimes deliberately leave out a provision, and use a term like ‘price to be agreed upon later’.  Most of the time these agreements in the past have been held unenforceable.  Courts today will sometimes enforce them, but usually the party seeking enforcement must give judge something to hang the damages on.
a) 	Joseph Martin, Jr. Delicatessen v. Schumacher:  Lease contained phrase, “Tenant may renew lease for an additional period of five years at annual rentals to be agreed upon.”  The parties could not agree on the new rent, and the court refused to make a decision as to the price.  Hamilton said that this case was similar to Oglebay.  These cases present problems, because usually the lessee believes he can count on renewal.  If you’re in this position, you should try to get landlord to index the renewal price, agree to have the property independently appraised by a pre-determined appraiser, have a clause in lease that would provide for tenant paying landlord a percentage of sales on top of the previous rent price, or agree to resort to ADR such as arbitration or a 3rd party resolution.  Hamilton says that this case affirms that courts are less willing to supply missing terms.
b) 	Stancroft v. Brown:  
c) 	Genest v. John Glenn Corp:  Lease with an option to purchase.  The court found five of the provisions too vague, and, thus, found specific performance inappropriate.  Hamilton said that the court here got the lack of terms argument wrong in this case, because it was sensitive about criticism of its earlier decision in Southworth.
Note:   Southworth:  The court found that there was an offer to sell, and the court ordered specific performance, using a, “ standard form printed K.”  Hamilton said there was clearly no offer here.  
d) 	Interway v. Alagna:  Parties signed letters of intent to sell stock subject to a definitive agreement to be executed later.  The court found that negotiations were ongoing, and the letter of intent was not sufficient to bind the parties.  The most difficult term to supply was the no compete clause in the letter.  Hamilton said this was ok for the court to rule this way.  The other tension here was whether the intent of the letter should be for the judge or the jury.  Ill. let the judge dismiss the suit, so it was a question of law.  This was the Williston view, modern trend is to let the jury have it.
Note:  No inherent reason exists why parties may not be bound by the initial formal document.  It is probably a question of fact, as the court decided in Pennzoil.  For example, in a lease situation, where the landlord writes the proposed lease terms and the writes, “sign lease as a memorial of the agreement,” this probably show that the parties intended to be bound by the initial document.  Writing this provision would be a major concession by the landlord.
d) 	Texaco v. Pennzoil:  Let the jury decide if parties intended to be bound.  The strongest argument Texaco had was that there was no way the parties intended to be bound by a 4 page document, for a transaction requiring thousands of documents.  However, Hamilton said that Texaco’s board of directors’ vote to provide themselves with a substantial severance proved that they believed the agreement was binding.  Jury found for Pennzoil.  Texaco’s lawyers should have objected to the fact that the jury instructions did not emphasize the lack of express terms.  
e) 	City Stores v. Ammerman:  This shows how far modern courts are willing to go.  They awarded specific performance on the basis of no express terms agreed upon.  This is K creation from scratch.  
f) 	Judge v. Jury:  Today the manifestation of intention to be bound is most often considered a question of fact to be given to the jury.  
g) 	Alternatives:   Hamilton says that one probably should be able to enter into an agreement to negotiate a contract.  One could argue that Getty had entered into an agreement with Pennzoil to negotiate a contract.  Interestingly, this argument was never presented in court, because Texaco took the position that no contract was never formed.    From Pennzoil’s standpoint, its damages would not have been based on the Getty contract but rather on the damages resulting from breaching the contract to negotiate.
Offer and Acceptance
I. 	The Offer:  Many of the problems in this area arise in trying to determine exactly what constitutes an offer.  The Restatement Second defines it as follows:  “The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will constitute an acceptance.”  §24.  There are no terms of art that will constitute a definite offer, rather it is the conduct of the offeror (n.b. in the context of trade custom), as well as the words he uses, that constitute an offer.  Hamilton defined the test as whether the offeree has reason to know that the offeror is communicating an intent to be bound when he receives an acceptance.  
A. 	Newspaper Advertisements:  Hamilton noted that general advertising (i.e. newspaper advertisements) generally cannot constitute an offer; these types of advertisements are “invitations for offers” from the general public.  A first-come first-serve clause in the newspaper advertisements make the ad an offer, because it is designated to one specific person.
B. 	Moulton v. Kershaw:  Communication sent by the defendant quoted prices, but did not include a quantity term.  The court ruled that no offer was made, rather the ’s order was the offer.  Hence no K.  Hamilton said the lack of a quantity term made the ’s communication sound like an advertisement.  What should the party reasonably understand based on the communication?  Hamilton says this is based is part on trade custom.  
C. 	Fairmount Glass Works v. Grunden-Martin:  The  sent an inquiry, and  sent back price list.  On this basis,  said I accept.  Although, Hamilton said, the publication of a price list is quintessential advertising.  However, since the  here initiated the communication, the price list could be construed as an offer.
1.  Rule:  Usually the offer is made in a reply to an advertisement, not in the ad itself.  
D. 	Lefkowitz v. Great Minneapolis Surplus Store:  This case is an exception to the rule that newspaper ads do not constitute an offer.  The fact that the add specifically said first come first served, made it specific enough to enforce for the courts.  Also the store specified a quantity, which the court found dispositive.  Hamilton said that this was not a realistic offer and acceptance case.  Lefk. should have been bound by the house rule he was aware of when he tried to accept the second ad.  Rule:  The offeree is bound by wording of the offer & the secret terms of the offeror that he is aware of.
E. 	Izadi v. Machado:  Carefully worded car ad designed to mislead customers.  This case stands for the proposition that an objective standard is used in evaluating offers.  “What a reasonable offeree would view the offer to be.”  Hamilton said this case and Lefkowitz case were attempts by court to punish misleading advertisers.  This is not a very frontal way of attacking this problem.  
II.  Revocation, Rejection, and Counteroffer:  This section sets out the general rules of offer and acceptance.
A.  Dickinson v. Dodds:  An offer may be withdrawn by an indirect revocation, where the offeree receives reliable information from a third party that the offeror has engaged in conduct indicative to a reasonable man that the offer was withdrawn.  Hamilton says that the reasonable person is the best test in these circumstances.  The offeror in this case said he’d leave the offer open until 9:00 a.m. Friday.  This defined the period in which the offer is open.  This case also shows that it does not matter if  resolved immediately to accept on Wed., this subjective acceptance will not do.  
B.  Law of Offer and Acceptance.  These rules are rarely litigated, because there is never much reliance, and sophisticated parties will know how to avoid the pitfalls.  
1.  Duration of an offer:  An offer is said to remain open during the period the offeree has a power of acceptance, or, absent such a limitation, for a reasonable period of time.
a)  Unequivocal Rejection:  An unequivocal rejection terminates the power of acceptance.
b)  Counteroffers and Conditional Acceptances:  Counteroffer is a rejection of the offer, and thus has the same effect as a rejection on the duration of the offer.  The counteroffer itself acts as a rejection and as a new offer, creating the power of acceptance in the original offeror.  A communication purporting to be an acceptance, which adds qualifications or conditions is a counteroffer and a rejection rather than an acceptance.  Occasionally, these new terms might be an acceptance, plus a new offer.  This is determined by a reasonable interpretation of the language used under the circumstances.  Hamilton says that a person can qualify his response to preserve the original offer, “I am very interested discussing the $400 offer, but if you would sell the car for $350, I will say ‘yes’ right now.”  This language is not a counteroffer.  (UCC §2-207 lays out the language for a counteroffer destroying the original offer.)
c)  Generally, however, an acceptance to be effective must be unequivocal.  
d) To be effective an acceptance must occur within a specified time period.  If the offer does not specify a time period, the rule is that the offer expires at the end of a reasonable time.  This amount of time is determined by looking at the surrounding circumstances (i.e. the nature of the proposed K, the communications of the parties, their prior course of dealing if any.
i)  When parties are bargaining face to face, or over the phone the time period does not usually extend beyond the length of their conversation.  A longer period of course would be implied if they were negotiating through the mail.
ii)  Speculative transactions:  Offers regarding products that have a volative price, will be open for a shorter period, so that the offeree may not speculate at the offeror’s expense.
e) 	Death or Incapacity of Offeror:  The power of acceptance was terminated upon the death or incapacity of the offeror.  
2. To Whom an Offer is Addressed:  The offeror may exclusively determine the person or persons in whom the power of acceptance is created.  It is possible for an offeror to make the offer to the world.  The power of acceptance will then be terminated by the first person exercising it.  Reward offers are frequently of this nature, but they need not be.
3.  What Constitutes a Revocation:  A revocation must be a clear manifestation of unwillingness to enter into the proposed bargain.  For example, an unequivocal statement that property previously offered for sale to offeree has been disposed of to a third person is an effective revocation of the offer to sell it to the offeree.
4.  Indirect Revocations:  Restatement Second § 43:  Offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contrct, and the offeree acquires reliable information to that effect.
5.  Communications to Third Persons:  Restatement Second § 68:  A written revocation, rejection or acceptance is received when it comes into the possession of the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him.  
6.  Manner of Signifying Acceptance:  The rule is that acceptance must comply with the precise requirements of the offer, since the offeror is the, “master of his offer.”  A formal requirement of acceptance being in a particular form may be ignored by the offeror;  the result would be acceptance by conduct of the parties despite the language used in the offer.
7.  Effectiveness of Communications:  The mailbox rule:  This set of rules is still applicable when the parties choose not to use instantaneous communications.  The rule is that in the absence  of express specifications by the offeror, an acceptance becomes effective when its placed into the mail, while all other communications are effective only when received.  The mailbox rule thus places the risk of lost transmission on the offeror, but this has the benefit of closing the deal more quickly and enabling performance more promptly.
a)  When a revocation crosses an acceptance, the acceptance is still good, and revocation is not effective.  If parties are using mails, and the offeror wishes to revoke, he must use instantaneous communications.  In such circumstance, the revocation may be viewed as merely an offer to rescind and not as a revocation.  Morrison v. Thoelke.  (UCC §2-609, 2-702, 2-705)
b)  Lost or Delayed Acceptance:  Even when the acceptance is lost, it is still generally effective once mailed.  It is certainly effective if only delayed, but if the offeror never receives notice, the courts may relieve him of his duties.
c)  The Overtaking Rejection:  If offeror learns of a revocation mailed after an acceptance, the rule is applied to make the K binding.  This protects the offeror from speculation at his expense by the offeree.
d)  Rejection followed by the mailing of acceptance:  In this case to protect the offeror, the Restatement modified the mailbox rule to say that the acceptance will only be effective if it is received before the rejection.
8.  Effectiveness of Communication Continued:  There are situations where the rule will or will not be applicable.
a)  The offeror may avoid the application of the mailbox rule by specifically stating how and when assent must be communicated.
b)  Improper Medium of Transmission:  Usually an offeree must use at least as reliable method of transmission as that used by the offeror.  
c)  The rule does not apply if the message is not properly dispatched.  i.e. no postage on letter, etc.
d)  If offeree sends acceptance by his own employee, it is not effective until received.
e)  
9.  Crossing Communications:  When identical offers cross in the mail, neither was intended to manifest assent to the other, and hence no K is formed.  
10.  Problem on Page 455:  Seller sends following offer to buyer: “I offer to sell you one hundred gross of men’s polo shirts, all sizes, assorted colors.  Price $85,000.  If you wish these shirts, let me know by Nov. 1.  Buyer only wants shirts of fig, cinnamon and sage.  He would like to avoid purple, but will take a few.  Which reply should he send?  1)  “Accept your offer; fig, cinnamon and sage only.”  This would be a counteroffer.  The term is too difft.
2)  “Accept your offer.  We assume you do not send purple, which we cannot use.”  Not entirely clear.
3) 	“Accept your offer;  please send shirts in fig, cinnamon, and sage; would prefer no purple shirts.”  This is an acceptance, since it does not condition response on acceptance of different terms by seller.
C. 	Humble Oil & Refining Co. v. Westside Investment Corp.:  
D. 	Option Contracts:  The rule is that when an irrevocable option is created, the power to accept the option is not terminated by revocation, counteroffer, or the death of the offeror.  Also, the mailbox rule does not apply to options.  The option or must receive notice of acceptance from the optionee before the time expires.  However, the power to accept the option may be terminated before the specified time by an unequivical rejection.  In this situation, Hamilton said you should still send a letter to optionee saying you understand its a rejection, buy the option back, or let the time expire.
E. 	Offer and Acceptance in Auction Situations:  The traditional laws of offer and acceptance do not apply in auction situations. When an auctioneer puts goods up for auction, he is soliciting offers.  A bid is then an offer, and acceptance takes place when the hammer falls.  
1)  Generally, the presumption is that all auctions are with reserve unless otherwise specified.  This was the position at common law, and this has been codified in UCC 2-328(3)  If an auction is with reserve, then the auctioneer may reject bids that he does not like.
2)  If an auction is expressly said to be without reserve, then the auctioneer may not revoke, and the auctioneer is said to have made an irrevocable offer to sell the goods to the highest bidder.  
3)  If a bidder revokes his bid before the hammer falls, the previous bids are not automatically reinstated.  
4)  Auction Problems on p. 468:  (1)  She wants to get certain minimum prices for pieces at a public auction.  Must she announce these prices?  No.  She should tell auctioneer to accept no bids below specified price, and announce nothing.  (2)  May seller station grandkids in audience to salt the bidding?  Maybe, maybe not.  UCC 2-328(4) seems to say that you are obliged to announce that bids may be made on behalf of the seller.  
E.  Offer and Acceptance in Relations Between Genral Contractors and Sub-Contractors:  A particular troubling offer and acceptance problem has been how to handle the relationship between Sub-K and general K in the bidding process.  Normally, a general solicits bids for various subparts of a large construction project.  Then he uses these to form his own bid.  If he is awarded the K from the city, developer, etc., may he still accept the sub’s bid, or may the sub revoke right up until the point where the general says I accept?  There are two ways of handling these situations.  
1)  Baird v. Gimbel Brothers:   got a subs () and used it in its own bid for a project.  ’s bid contained a 50% mistake in price, and  notified  before the general bid had been accepted.  Thus, could have withdrawn its bid.  Unrealsistic says Hamilton, because linoleum in this sub-K was small part of whole project.  Held for .  
2)  Drennan v. Star Paving Co.:  Here  was awarded the general K before the sub notified him of the mistake.  The mistake in the sub’s bid was only 30%.  J. Traynor said that the ’s reliance on the sub’s bid made it irrevocable, and hence he held for the .  This is the dominant approach taken, but there are still problems, because the prime is not bound to accept the sub’s bid.  He may later shop the bid to get a better deal.  Traynor said that the prime was obliged to accept the sub’s bid immediately upon the general bid being accepted or the sub could once again revoke.  
3)  The principle in Drennan was codified in Restatement Second § 87(2)  This provides that an offer is temporarily irrevocable (as an option K), if the offeror should reasonably expect it to induce action or forebearance of a substantial character on the part of the offeree.  This option K is only binding to the extent necessary to avoid injustice.  (i.e. reliance rather than expectancy may be awarded.)  
a)  A sub-rule is that the prime may not rely on the bid if he knows or should have know that the sub’s bid contained a mistake.
4)  The California statute passed in respect to this problem forces the prime to list potential sub-Ks in his general bid.  No sub-K may be awarded if sub was not included.  However, the Holder case allows subsitution if Prime can prove a clerical mistake.  Thus, Hamilton said the cure could be worse than the disease, since this leads to expensive litigation.
5)  It is possible for a sub to get out of a mistaken bid by getting the owner to reject all general bids receieved.  The court allowed this by ruling for the sub, who did this, in a tortious interference action brought by the general vs. the sub.  Four Nines Gold, Inc. v. 71 Constr. Inc.
6) 	In cases involving the sale of goods, where the sub makes an oral bid and then refuses to perform, the courts are split as to whether the SOF (UCC § 2-201) prevents enforcement of the bid.  Some hold that it does, while others say that offer estoppel applies, since the code says it does not replace common law rules of estoppel.  UCC § 1-103.  Allen M. Campbell v. Virginia Metal Industries, Inc.
7) 	Mongomery Industries International, Inc. v. Thomas Construction Co.:  Court held that a sub may not shop his own bid.  Hamilton says that he does not have a problem with this ruling.
III.  Acceptance by Performance or Promise:  Before the Restatement Second and the UCC, courts would try to determine whether or not a K was bilateral or unilateral for purposes of determining whether or not an effective acceptance had been made.  The traditional common law statement of the rule was as follows:  A bilateral K creates two rights and two duties (through an exchange of promises), whereas a unilateral K creates only one right and one duty (requires some performance on the part of the offeree to accept).  This distinction was viewed as important, because if an offer could be characterized as a unilateral one, then the offeree could only accept by rendering full performance, and the offeror could revoke up until the point that performance was complete, despite the substantial performance/reliance of the promisee.  
A. 	This position was exemplified and defended by Professor Wormser, in his note on the true conception of unilateral Ks.  He used the hypo of someone promising to pay another $100 for crossing the Brooklyn Bridge.  Up until the offeree crossed fully, the offeror could revoke, because he was the master of his offer, and the only acceptance that was proper was the completed act of crossing the bridge.  Hamilton said this is a trivial example and ignores the fact that in real life, the beginning of performance may often involve quite substantial costs.  This led to the movement to protect the offeree’s interest in these cases.
1. 	Petterson v. Pattberg:  The  offered to let the  pay off his mortgage for $780 less if he paid by a certain time.   showed up with the money, and  said, “I revoke.”  The court held that the ’s offer was revoked.  The offeror was master of his offer and stated that offeree could only accept by fully performing.  Hamilton said that this decision is wrong.  It’s unfair to offeree, when he is there ready willing and able to tender his acceptance.   
a. 	Mailbox Rule Application:  Should  have mailed the payment?  The mailbox rule is an implication about communication.  It is an acceptance that is communicated when it is put in the mailbox.  Hamilton says the application of the mailbox rule is very questionable.   How about sticking the $ through the door with a note on it?  
b. 	Tender:  If a party tenders the $, and the second party refuses to accept it unreasonably, then the second party has effectively not made a gift to the first party.  Hamilton says that it would stop the interest that the first party would owe to second party on the obligation.  
c. 	Dead Man Statute:  The important thing to know about this statute, according to Hamilton, is the limitation that it puts on the witness.   cannot testify that he sent a letter to  if  dies and is unavailable to corroborate the receipt of the mailing.
2. 	Wormser, The True Conception of Unilateral Contracts:       
3. 	Brackenbury v. Hodgkin:  The s moved to Maine at the request of the offeror to, “ take care of her until she died, and they would receive the house.”  Fights began after s moved in, and the s sued.  The court here adopted a new rule that in a unilateral K, the beginning of performance makes the offer irrevocable, contingent upon the offeree fully performing.  The court here essentially ignored the rules of offer and acceptance that existed at the time.  
4. 	§45, §90, and §87(2) of the Restatement Second:  When the Restatement came out it included § 45 (option contract) and § 90 (promissory estoppel).  § 45 operates by creating an option K when the offeree tenders or begins performance.  This duty on the offeror’s part is made conditional on the completion or tender of the invited performance in accordance with the terms of the offer.  Hamilton went into a long discussion about why § 45 was kept in the Restatement Second, when §87(2) was already included.  He said that the true difference in these two sections was that § 45 contemplates the recovery of expectancy damages as a matter of right, whereas in § 87(2) they may be awarded or limited at the court’s discretion.  To recover under § 45, you’d introduce evidence that you could complete the performance and that you had begun to do so.  However, even under § 45, actually beginning to perform is necessary, mere preparations to perform will not do.

B. 	The Modern Approach:  Distinction between Bilateral and Unilateral Ks De-emphasized.  The modern approach is to adopt a three fold analysis.  There is still a narrow group of offers to create pure unilateral contracts, a broad range of offers that invite acceptance by performance or promise, and the offers creating pure bilateral contracts.  This last category may have disappeared, and the first is very narrow in scope indeed.  This has sapped § 45 and §90 of much of their significance.  (Indeed, the pure bilateral area may have completely disappeared.)
C. 	Remaining Unilateral Offer Cases:  There are a few areas where the offeror by being specific enough may invite acceptance only by rendering performance.
1. 	Hamilton Hypo:  If a man hires a tailor to cut a suit for him for $1000, and halfway through the tailor’s performance the offeror tells him to stop, can the offeree complete performance and recover?   Hamilton asks is Brooklyn Bridge would have any application.  Under §45, Hamilton says the tailor would be out of luck.  Under §90, perhaps.  When the offeree begins performance, the offeror has lost power of revocation.
2. 	Preparing to Perform v. Beginning to Perform:  §45 is only applicable when you begin to perform. §45 is designed to protect the relying offeree.   
3. 	Real Estate Brokers:   A broker is considered to have accepted the seller’s offer and earned her commission when the broker produces a buyer “ready willing and able to buy.”  A promise to perform by the broker does not really do the seller any good.  An example of this proposition was shown in Sunshine v. Manos.  Here the  tendered one non-conforming loan, and the  rejected it and tried to revoke the offer.   sued, and  was found to be in breach.  Hamilton said that on remand, the broker could proceed under § 45 or § 87(2).  Under 45, he might recover expectation damages if he can prove that he was ready, willing, and able to get a loan when  breached.  If he can’t prove that he was ready, willing, and able, he might be better off under § 87(2), since he could recover his reliance expenditures under that section.  Hamilton says that breach of contract in real estate cases usually results in the remedy of enforcement of the contract by specific performance.  Hamilton says that there is no room for evaluating substantial performance in this area, Sunshine either conforms or he does not; Manos is the master of his offer.
4. 	Offers to act as a Surety:  This is another category of the remaining strictly unilateral contract situations.  In these situations, the acceptance is the extension of credit in exchange for the surety’s promise to pay.  The consideration is then the extension of credit to the borrower of the loan.  This is an extremely important relationship in today’s economy.  The case of Bishop v. Eaton held that if the surety is unlikely to know of the extension of credit, then the creditor must give the surety timely notice.  The notice acts as a condition subsequent, and if it is not fufilled, then the surety’s obligation under the K is discharged.  It does not necessarily matter if surety actually receives the notice, as long as it is properly mailed.
5. 	Hamilton’s points about suretyship agreements.  Generally, acting as a suretyship is a standing offer to pay any of debtor’s debts.  Each extension of credit is a separate acceptance creating a separate unilateral K.  However, any material change in the debtor-creditor relationship discharges the surety’s obligation.  It does not even matter if the change is adverse to the surety.  Also, the creditor usually creates the document that the surety signs, and thus, the creditor tries to waive the common law material change=discharge provision, and the common law notice requirement.  Finally, sureties may place a cap on their liability to protect themselves.  Also, sureties will either have a cause of action against a defaulting debtor through subrogation or quantum meruit.
6. 	Not covered in class:  Law of Reward Offers:  This is the final category of cases where the offer creates only a unilateral contract.  In Newman v. Schiff, the  was held to be not entitled to reward, because he did not actually call during the program.  As with all other offers, the person offering the reward may specify the exact time available and means to effect acceptance.
a)  Usually a person claiming the reward must have been aware of the reward when he/she performed the act.  An exception to this is in the case of rewards by governments.  
b)  Reward Offers Lapse after a reasonable time.  
c)  Revocation of Reward:  Public reward offers may be revoked by using the same means originally used to publish it, unless no better means of revocation is available.  Thus, if A knows B is actively pursuing the reward, he must notify B by phone.  
d)  What acts constitue acceptance?  Unique problems in rewards contexts.  If a person performs some part of acts before he learns of the reward, then he may still collect.  However, a person acting pursuant to a legal duty may not claim a reward.
e)  Apportionment of Rewards:  If four people participate in parts of the acts necessary, the courts will apportion the reward.  
D.  Acceptance by Performance or Promise:  The modern approach in the UCC and the Restatement Second is to allow the offeree to accept by promising to perform or actually performing.
Restatement Second § 32:
In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.  
Restatement Second § 62:
(1)  Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.
(2)  Such an acceptance operates as a promise to render comlete performance.
UCC § 2-206:  Clause 1(a) of this section is a codification of the indifferent presumption (i.e. acceptance by any means reasonable under the circumstances)  Clause 1(b), says that with an offer to buy goods for prompt shipment, prompt shipment or a promise of such is an acceptance, unless seller seasonably notifies buyer that such shipment is only offered as an accomodation to the buyer.  Hamilton said that clause 1(b) codifies the Restatement Second §§ 32/62 approach.  Clause 2 says that when beginning of performance is a reasonable method of accepting, the offeror may treat the offer as having lapsed, if he is not notified of acceptance in a reasonable time.
These principles are exemplified in most of the more modern case law revolving around offer and acceptance.
1)  Davis v. Jacoby:   asked s to come to California, care for his sick wife, and help him with his affairs.  If they did this, he promised to leave his property to the s.  The court eventually found that s were entitiled to have the will changed in their favor, as the ’s decedent promised.  The main point of this case was that it recognized the presumption in favor of finding bilateral, rather than unilateral Ks.  Everyone prefers this presumption, since it allows both parties to be bound and, thus, fufills expectations.  In this case, had the K been found to be unilateral, the s would not have been allowed to recover at all.  Here the court found dispositive the letter sent by  to  promising to carry out performance.  
a) 	Hamilton’s suit hypo:  If I tell a tailor, “If you make me a suit, I’ll pay $7,000.”  Then if tailor gets material and starts making suit, he has accepted my offer, and impliedly promised to complete the suit.  If the tailor decides that he will accept by performance, does he have to notify the buyer?
b) 	Notice requirements in §32 and §62:  In the case of the suit above, notice would probably not be required.  However, if performance would take a substantial amount of time, like more than a month, then the offeree may be required to give the offeror notice that he intends to accept.  
c) 	§32 Example:  You go to Sears and tell the salesman you’ll buy the refrigerator if they have it in grey.  The salesman says he is not sure if they have it, but fills out an order form anyway.  Later that day a Sears truck delivers the gray refrigerator to my house.  I have to pay. This example fits squarely to §32.  
d) 	Anti-Lapse statute:  Most states including California have an anti-lapse statute that says that if the gift is a gift to kin or kindred—substantively children and grandchildren, not spouses—it does not lapse.
e) 	Modern Pleading:  You can plead in the alternative.  You do not have to put all your eggs in one basket.  You can have completely contradictory theories and argue them under Theory A, Theory B, etc.  Hamilton says that failing to argue in the alternative was Davis’ biggest mistake.
2) 	Empire Machine Co. v. Litton:  This case highlights the fact that UCC §2-206 is an opt in or opt out provision.  By clear and unambiguous language, the parties may avoid having this section apply to them.  In this case, the seller had a clause that all sales were subject to home office approval.  In situations like this, the seller solicits an order/offer from the buyer, and then the home office may accept by shipping goods or promising to ship.  Even where there is an express “home office acceptance clause,” the offeree may still accept by acting in a way signifying a K.  Thus, in this case since Litton () cashed the ’s check and acted in other ways, the court felt that they had waived the expressed mode of acceptance outlined in their sales agreement, and accepted by performance.  Thus, the trial ct. should not have granted summary judgment to the .  These clauses often operate at the expense of the buyer.  Hamilton also said that the use of these “home office” clauses does not give the manufacturer complete freedom to screw the buyer.  
IV. 	Acceptance by Silence or by Acceptance of Benefits:  

A. 	Hobbs v. Massasoit Whip Co.:  
B. 	Roberts v. Buske:  
C. 	Kukuska v. Home Mutual Hail-Tornado Insurance Co.:  
D. 	Ransom v. The Penn Mutual Life Insurance Co.:  
E. 	Insurance Binders:  Courts have tended to be pretty tough on insurance companies in cases like these.  There is naturally some sympathy that society will have on someone who just suffered the death of a spouse.  Hamilton said that it is his impression that insurance companies have recognized the problems and probabilities that they will lose in cases in which a premium has just been paid by someone wanting life insurance.  The issue turns on whether or not the person’s application would normally have been approved.  If it normally would, then the insurance company would have a hard time paying the face value of the policy.
F. 	Louisville Tin & Stove v. Lay:  UCC §2-601-§2-608, which tend to deal with providing the buyer with grounds to reject nonconforming goods, outline a series of rules that seem to be related to the Louisville problem.   Hamilton said that had the case been heard in 1983 and these sections of the UCC applies, the same outcome probably would have arisen.

V. 	Offer and Acceptance in Form Contracts
A. 	Introduction:  At common law, an acceptance not conforming in all respects with the offer was considered a counteroffer.  This was called the ‘mirror image’ rule.  This provided for lots of problems as business entered the twentieth century and as both buyers and sellers began communicating with standard forms.  The parties would exchange forms and assume that they had a binding contract, but when a dispute arose, it was determined that there was no K at all.  This would let one party ‘welsh’ on the deal for reasons having nothing to do with the offer and the acceptance.  An additional problem was created, because a K would often be created by conduct giving an unwarranted advantage to whichever of the two parties sent the last form (i.e. the last shot).  This would usually be the seller’s invoice sent with the shipment of the goods.  When buyer accepted the goods, he unwittingly assented to the seller’s terms.  Thus, the seller usually won at common law.  The reason is that the seller usually provides the last counteroffer, the invoice, which is the request for payment
B. 	Roto-Lith v. F. P. Bartlett & Co.:  The default rule is that warranties exist unless they are disclaimed, so no there no real reason for the buyer to put specific warranties into the K if he is satisfied with the default warranties in the UCC.  In this case, the emulsion produced by Bartlett did not work.  Hamilton said that based upon the text of UCC §2-207, [which applies only to pre-printed forms?], it is apparent that Judge Aldrich confused the decision.  Aldrich basically returned back to the old common law, that is, whoever speaks last wins.  Hamilton says this case is decidedly wrong.
C. 	C. Itoh & Co. v. Jordan International (***):  Since buyers tend to prefer the more open ended approach to litigation instead of arbitration because they are more likely to receive consequential damages.  
D. 	To correct the these two common law problems UCC § 2-207 was written.  The UCC changed this by making the seller’s response (an invoice) to the buyer’s purchase order an acceptance even if it contains terms, “additional or different than those offered or agreed upon, unless acceptance [by the buyer] is expressly made conditional on assent to the additional or different terms.”  
1. 	UCC § 2-207(1) abolishes the common law mirror image rule.  Also, the last part of clause 1 makes it easy for the offeree to make sure that no K is formed by his acknowledgment.  This would prevent the parties from forming a K on the documents and would prevent clause 2 from applying.   
2. 	UCC §2-207(2) tells you how to handle the additional terms.  It states that additional terms become proposals for addition to the K, unless the two parties are merchants, then the terms are automatically part of the contract, unless one of the three listed exceptions applies.  (Hamilton says to note that in White and Summers’ hornbook, the two authors disagree as to how §2-207 should be construed.)   However, under note 6, if no answer is received within a reasonable period of time after additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented, unless there are unaddressed, conflicting terms.
E. 	When the warranty clauses within a K disagree, you disregard them and go back to the default warranty clauses of the UCC.  This safeguards against very formal documents that have conflicting terms, as well as informal agreements in which no warranty clauses was even discussed.  This clause is very powerful, because it effectively overturns the common law rule on warranties
1. 	UCC §2-207(2)(a & c):  The offer expressly limits acceptance to the terms of the offer.  The offeror gives notification that the additional terms are unacceptable.  This usually won’t happen as the offeror (buyer) won’t read the fine print on the seller’s form.
2. 	§2-207(2)(b):  The additional terms do not become part of the K if they materially alter it.  Hamilton said its easy to show that the additional terms constitute material alterations.  Thus, this sets up position where the party sending the first form usually wins as the offeree’s terms will drop out.  
3. 	Daitom, Inc. v. Pennwalt Corp.:  
F. 	If the seller includes the, “not accepted unless buyer assents to additional terms language,” a K can still be formed on the basis of conduct.  UCC § 2-207(3)  If this occurs, then this K is governed by the terms in the two documents, which agree, and the supplemental provisions of the UCC.  Very often when this section applies it will be extremely favorable to the buyer, since conflicting terms will drop out, and then the UCC’s very favorable supplemental provisions for buyers will come intoo play.  Hamilton points out that under the UCC, the party firing the first shot in the battle of forms often wins out.  
G. 	Problem Categories:  There are a number of problem categories mentioned in the White and Summers excerpt, and the UCC does not supply satisfactory answers.
1. 	Case where term is in offer, but acceptance is silent.  This would mean that the offeror’s term is impliedly accepted by offeree.  Note 6, UCC § 2-207.
2. 	Offer and acceptance deal with same issue in different ways:  This is a different term under §2-207(1).  There is a huge disagreement, since clause 2 does not mention different terms.  One approach is to treat them as additional terms, which, since they’d by definition be materially altering, means the offeree’s terms would drop out.  The more common approach is to knock out both sides terms that conflict.  This knock out can happen when one sides express clause contradicts one of the UCC’s gap filler provisions.  This rule has been criticized of depriving the offeror of his common law priveledge of determining the basis on which he is willing to contract.  
3. 	Response diverges so much that it cannot act as an acceptance:  This could happen if the two sides completely disagree as to one of the usual bargained for terms like price, quantity, delivery.  This would mean no K at all.
4. 	Confirmation of an oral agreement:  Where one party sends a written confirmation of an oral agreement which contains an additional term, courts will treat it normally under 2-207(2).  If it contains a different term, courts will drop it and not apply the knockout rule.  If two confirmations are sent and their terms conflict, then comment 6 would clearly have the courts apply the knockout rule.  

VI. 	Precontractual Liability:  There is a new area of case law that exists at the intersection of Tort and Contract Law.  It is now possible in some cases to incur liability for a representation that in no way is definite enough to compose an offer that could have been accepted.  
A. 	Hoffman v. Red Owl Stores:  One of the problems with Hoffman is the reliance seems to be such that some sort of remedy should be available for Hoffman.  One suggestion is that this case rose to the level to negotiate in good faith for the store.  Should inducing type statements automatically relegate this case to a torts case rather than a contracts case?  Hamilton said that the answer is not entirely clear.  
B. 	Consolidated Grain and Barge v. Madgett:   and  had been involved in a business deal, went their separate ways, and then agreed to negotiate in good faith about how they would divide their mutually owned property.  Madgett made his offer, and Consolidated rejected it.  Madgett left the table, and Consolidated brought action to try to have the court enforce their agreement to negotiate in good faith.  The court held that the clause was too indefinite to be enforceable.  Hamilton says damages should be measured on a reliance basis and that this case was correctly decided to the extent that Consolidated realized no reliance damages.
C. 	Hamilton’s University Coop Hypo:  
D. 	Giant Food v. Ice King:  
E. 	Brewer Street Investments v. Barclays Woollen:  
F. 	Childres & Spitz, Status in the Law of Contract:  

VII. 	The Parole Evidence Rule
A. 	Introduction:  The rule includes not only “parol” (oral) agreements, but also prior written agreements.  It is not a rule of evidence, but rather one of substantive law.  
B. 	Mitchell v. Lath:
1. 	Three main elements of the Parole Evidence Rule
a. 	Agreement must be collateral:  The agreement must in form be a collateral one.
b. 	No contradiction with provisions of K:  It must not contradict express or implied provisions of the written contract.
c. 	No connection with principle transaction as to seem to be part of it:  It must not be so clearly connected with the principle transaction as to be part and parcel of it.
2. 	Would a deed be construed to be a complete integration of the transaction?  A deed is designed to be recorded and to give public notice.  In a broad sense, a bill of sale is similar to a deed.  
3. 	Many documents appear to be binding in nature but it contains only some of the terms that were agreed upon. 
4. 	Merger clause:  A clause in a written contract that says that what is written in paper is the whole, entire, and final contract.  
5. 	Exceptions to the PER:
a. 	Fraud
b. 	Unconscionability
c. 	Unfair surprise