Contracts Outline for Professor Claus

This outline is probably most useful for the summaries of the cases



Professor L. Claus


I.       Contracts

A.    Contracts are promises that are legally enforceable.

B.     Formation of a contract requires two basic elements:

i)        Consideration

ii)      Mutual Assent

II.    Freedom of Contract and Public Policy

(1)   In the Matter of Baby “M”

(2)   Marvin v. Marvin

III. Remedies for Breach of Contract (Damages)

A.    Notes

i)        Remedies are usually monetary damages awarded to the injured party when a contract is broken.

B.     The Three Damage Interests (alternative)

(1)   Restitution or quasi-contract damages

(a)    Restitutionary damages are based on the reasonable value of a benefit conferred.  Restitutionary damages are commonly used in three situations

(i)     Where a party has conferred a benefit under a contract that turns out to be unenforceable because of some defense.

(ii)   Where there was an enforceable contract and a breach, but the contract was a losing one for the innocent party, and she is better off with restitution damages than with expectation damages.

(iii) Where no contract was formed, but a benefit was conferred in a precontractual stage when the parties believed they had concluded or would conclude a contract.

(2)   Reliance

(a)    Reliance damages are based on the nonbreaching party’s costs and have the purpose of putting the nonbreaching party in the position he would have been in had the promise not been made.

(b)   Restatement (Second) of Contracts s. 349 ( at p. 117)

(3)   Expectation

(a)    Expectation damages are based on the contract price and have the purpose of placing the victim of a breach in the position he would have been in if the promise had been performed.    Expectation damages give the injured party the benefit of the bargain and are usually used where the broken promise is enforceable because it was part of a bargain.

(b)   The primary calculation for expectation damages is as follows:  Add to the measure of damages anything the injured party would have if the contract had been performed, but does not have now.  Subtract what the injured party has, but would not have had if the contract had been performed.  See Restatement (Second) of Contracts s. 347 (at p. 68)

(i)     Incidental damages are comprised of elements such as the cost of shipping goods to and from a buyer who has wrongfully rejected the goods, the costs of storing and insuring goods pending resale after a buyer wrongfully rejects them, and or the cost of going to the market to purchase substitute goods.  If the injured party incurs such incidental damages, they are normally added to the expectation damages to which he is entitled.

(4)   Hawkins v. McGee (p. 9)

(a)    Hawkins sued McGee, a doctor, for not making his hand perfect after he had operated on it.  The court ruled that the true measure of damages was the difference between the value of the goods as they would have been if the warranty as to the quality had been true and the actual value at the time of the sale.  Pain and suffering were not factored into the damages because they had nothing to do with the difference in value.  The true measure of damages in this case was therefore the difference between the perfect hand promised by Dr. McGee and the value of the hand in its present condition.

(5)   Nurse v. Barns (p. 10)

(a)    Reliance damages

(b)   Nurse paid Barnes 10lbs to use iron mills for six months.  Barns breached after Nurse had invested raw materials of approximately 500lbs.  The jury awarded Nurse 500lbs as a result of the breach and the judge affirmed.  The judge reasoned that special damages above and beyond the 10lbs consideration could be awarded as a consequence of breach.

(6)   Restatement (Second) of Contracts s. 347 (at p. 68)

(a)    Expectation interest defined (subject to limitations in s. 350-353)

(7)   Tongish v. Thomas (p. 12)

(a)    Tongish entered into a contract to sell sunflower seeds to Decatur Coop Association, but due to extenuating circumstances in the marketplace that caused the price of sunflower seeds to rise dramatically, Tongish breached his contract with Coop in order to sell his seeds to Thomas at a much higher price.  Coop brought action against Tongish for breach.  The court ruled that the damages to Coop were more than just the lose of profits, and that in an action for the breach of contract for the sale of goods, the proper measure of damages is the difference between the market value of the goods and the price of the goods as agreed upon by the parties.  The rational of the court was to discourage people from breaching contracts.  By awarding Decatur Coop the difference between the market value of the goods and the price of goods as agreed to, instead of merely awarding Decatur Coop its lost profit, the court discourages the breach of contracts

(b)   Note that Tongish committed an efficient breach and that all parties would have been better off if the court had awarded Decatur Coop its lost profits. 

C.     Three Limitations on Damages

i)        Remoteness or Foreseeability of Harm

(1)   For a loss to be recoverable, it must be foreseeable in one of two ways (yes to either)

(a)    What losses would people think of?

(i)     Objective test-what would a typical intelligent person think of?

(b)   Are there any special circumstances that the breaching party knew about?

(2)   Restatement (Second) of Contracts s. 351 (p. 101) Unforseeability and Related Limitations on Damages

(3)   Hadley v. Baxendale (p. 13)

(a)    Consequential damages can be recovered only if, at the time the contract was made, the defendant had reason to foresee the damages as a probably consequence of the breach.

(b)   Hadley owned a mill and needed the crank shaft replaced.  Hadley contracted with Baxendale, a courier, for the delivery of a new shaft.  The clerk for Baxendale was told that the shaft was a necessity and that it was needed immediately.  The clerk told Hadley that if the shaft were delivered before noon, it should arrive the next day.  Hadley delivered the shaft before noon, but Baxendale took several days to deliver.  Hadley brought action against Baxendale, claiming that Baxendale had breached his duty to deliver.  Hadley sued for the loss of profits resulting in the mill being down.  The court ruled that Hadley was not able to recover damages for lost profits.  An injured party is only able to recover the measure of damages that both parties may reasonably foresee as a result of the breach.  Where special circumstances exist that would give rise to damages in excess of those damages that are reasonably foreseeable, the defendant must have been informed of the special circumstances.  Baxendale was not informed.

(c)    Having the more legally sophisticated party default forces the less sophisticated party to get information.

(4)   Hector Martinez and Co. v. Southern Pacific Transportation Co. (p. 14)

(a)    Martinez delivered a drag line to Southern Pacific for shipment to Texas.  The drag line was damaged during transit and Martinez was forced to repair it before he could use it.  Furthermore, the last shipment of the dragline arrived over a month after it was contracted to arrive.  Martinez sued to recover the cost of the repairs, storage fees, and the lost use of the drag line.  The court held that Martinez was able to recover damages for the delay in shipment of his drag line equal to the value of the rental of such a machine.

(5)   Morrow v. First National Bank of Hot Springs

(a)    Morrow sought damages from First National Bank for losses incurred by the burglary of their coin collection, as a result of First National’s failure to notify them as to the availability of three safety deposit boxes.  The court ruled that First National Bank was not liable for the value of the stolen coins.  In an action for consequential damages, under the “tacit agreement test,” the plaintiff must demonstrate that the defendant expressly assumed responsibility for the plaintiff’s sustaining special damages as a result of the defendant’s breach.

(i)     Better reasoning:  The promise that was broken was not part of the security boxes.  It was a gratuitous promise to tell when the boxes were available.

ii)      Certainty of Harm

(1)   Damages can be recovered only if their amount is reasonable certain of computation.

(2)   Chicago Coliseum Club v. Dempsey

(a)    Dempsey had contracted with the Chicago Coliseum Club to fight Willis.  Dempsey later repudiated the contract and fought Tunney, whereby Chicago Coliseum Club brought suit for breach against Dempsey.  An aggrieved party may not recover special damages (lost profits) unless such damages are definite and certain.  Costs incurred in preparing a contract are not recoverable because such costs are part of the negotiations which each party must bear and which do not naturally flow from a breach of contract.  Attorney fees and court costs are not recoverable unless provided for in the contract.  Costs incurred in preparing for the performance of a contract are recoverable. 

(i)     Reliance implies concept of costs incurred.

(3)   Anglia Telvision Ltd. v. Reed (p. 17)

(a)    Uncertaintly about expectation, assume injured party has broken even

(b)   Anglia television entered into a contact with Reed whereby Reed would perform in a play for television.  Reed repudiated the contract and Anglia sued for damages in the amount of wasted expenditures (director’s, designer’s, and manager’s fees).  The court ruled in favor of Anglia.  In a breach of contract action, wasted expenditure can be recovered when it is wasted by reason of the defendant’s breach of contract.  When Mr. Reed entered into the contract, he must have known that a large amount of expenditures had already been incurred and that if he broke the contract, all those expenditures would be wasted.

(4)   Mistletoe Express Service v. Locke (p.18)

(a)    Locke sought damages for expenses incurred in preparation of performance pursuant to a contract with Mistletoe Express Service.  The court ruled that where one party to a contract makes expenditures in preparation for performance under the contract, the proper measure of damages for breach includes the recovery of her investment in order to return her to the position she would have enjoyed had the contract been performed.  Since lOcke would have failed to make a profit if the contract had been fully performed by the parties, she is not placed in position superior to the one she would have been in had the contract been executed.  However, since Mistletoe failed to sustain its burden in demonstrating the amount of that loss, that unknown amount cannot be used to reduce Locke’s damages.

iii)    Avoidability of Harm (onus on breacher)

(1)   Duty to mitigate

(a)    An injured party is not permitted to recover damages that could have been avoided by reasonable efforts.

(2)   1677 Virtue and Bird

(a)    Plaintiff contracted to carry goods to town-didn’t meet for six hours, horse was left in the rain during this time and died.  Court does not award plaintiff damages because the plaintiff could have avoided the harm.

(3)   Rockingham County v. Luten Bridge Co. (p. 19)

(a)    A contractor is under a duty to not add to the owner’s damages  by continuing to work after the owner breaches the contract.

(b)   Rockingham County contracted with Luten to build a bridge.  Soon after, Rockingham County repudiated.  After receiving notice of the repudiation, Luten continued to construct the bridge.  After repudiation of performance by one party to the contract, the other party cannot continue to perform and recover damages based on full performance. 

(4)   Shirley Maclaine Parker v. Twentieth Century-Fox Film Corp. (p. 20)

(a)    How important differences between jobs are to employee, a subjective test.

(b)   20th Century Fox contracted with Ms. Parker to star in a musical film called “Bloomer Girl.”  Fox decided not to produce the film and instead offered Ms. Parker a part in a Western Style movie for the same amount of money.  Ms. Parker refused this other role and sued for the money she would have made off of the original film.  The court awarded Ms. Parker damages.  Projected earnings from other employment opportunities only offset damages if the other employment was substantially similar to that of which the employee has been deprived.  In this case, the western film and the musical were not substantially similar (shooting location also changed) and judgment was in favor of Ms. Parker.

(5)   Neri v. Retail Marine Corp. (p. 21)

(a)    Lost volume doctrine UCC 2-708

(i)     A seller who can accommodate more than one buyer and for whom a buyer’s breach does not release the goods for sale to another customer; in such a case, the appropriate measure of damages is the net profit the seller would have earned pursuant to the sale.

(b)   Retail Marine sought the recoup lost profits under a contract for the sale of a boat to Neri.  Neri contracted to buy a boat.  After laying down the deposit, Neri was hospitalized and Neri’s lawyer sent a letter to Retail Marine rescinding the contract.  Marine had already ordered the boat and refused to refund the deposit.  The court ruled that the subsequent sale of the boat to another buyer was not in replacement of, but was rather in addition to the original sale.  The court held that Neri may recover his deposit, minus Retail Marine’s lost profit, and proven incidental damages (storing the boat).

iv)    Contracting Around the Default Rules of Damages

(1)   Express Limitations of Consequential and Incidental Damages

(a)    UCC §2-719

(2)   Liquidated Damages vs. Penalty Clauses

(a)    A liquidated damage provision is a provision in a contract that fixes the amount of damages that will be recoverable in the event of a breach.  The enforceability of such a provision depends on whether the court finds it to be a valid liquidated damages provision or a penalty.  If the court determines that the provision is a penalty, then it is not enforceable, and the injured party is limited to whatever damages she can prove.

(b)   Kemble v. Farren

(i)     Farren agreed to perform in Kemble’s theater.  Their contract provided that if either party breached the contract, he would pay £1,000 damages and that this was not a penalty.  Farren breached and Kemble sued to collect the full £1,000.  The court held that there is nothing illegal or unreasonable about parties, by mutual agreement, fixing the amount to be paid for breach on an agreement when the damages which will result from the breach are uncertain in nature.  The court ruled against Kemble holding that where a contract provides that a very large sum is to become immediately payable for any breach, however minor, the court will direct the jury to assess the real damages sustained as a result of the breach.

(c)    Wassenaar v. Towne Hotel

(i)     Wassenaar had entered into an employment contract with his employer, Towne Hotel and the contract contained a liquidated damages clause.  When Towne Hotel terminated his employment before the expiration of the contract, Wassenar successfully sued to enforce the damage clause granting him a sum equal to the remainder of his salary.  The court ruled in favor of Wassenar, holding that the stipulated damages clause is a valid provision for liquidated damages and therefore Wassenar’s subsequent earnings do not reduce the damages award.

(d)   Lake River Corp. v. Carborundum Co. (Posner)

(i)     Applicable state law requires that a liquidated damages clause, in order to be enforceable, must be a reasonable estimation at the time of contracting of the probable damages from breach, and the need for estimation must be based on the likely difficulty of assessing the actual damages suffered in the event of breach; otherwise such a clause is void as a penalty.

(3)   Punitive Damages and Arbitration Clauses

(a)    As a general rule, punitive damages are not available as a remedy for breach of contract, partly on the theory that such a policy would jeopardize the stability and predictability of commercial transactions.

(i)     The exceptions to this rule are as follows

1.      Tort

a.       Punitive damages are available if the conduct constituting the breach is independently a tort, has tortuous elements, or is fraudulent or outrageous.

b.      Putative damages may be available for a breach of the duty of good faith, on the theory that a breach of good faith is tortious

(b)   Garrity v. Lyle Stuart, Inc.

(i)     Garrity, an author, sought to confirm an arbitrator’s award granting her both compensatory and punitive damages resulting from publisher Lyle Stuart’s wrongful withholding of royalties from the sales of her books.  The court ruled that an arbitrator does not have the authority to award punitive damages.  The court further stated that the power to award punitive damages is necessarily retained by the state.

(c)    Willoughby Roofing & Supply Co. v. Kajima International, Inc.

(i)     An arbitrator has no power to award punitive damages, even if agreed upon by the parties.

IV. Other Remedies and Causes of Action (are damages an adequate remedy?)

A.    Specific Performance and Injunctions

i)        Specific performance in an equitable remedy in which the court orders a breaching party to perform.  Specific performance is available only where damages are not an adequate remedy at law. 

(1)   Specific performance will not be awarded where there is

(a)    Impossibility

(b)   Difficulty of enforcement

(c)    Proportionality

ii)      Contracts for Land

(1)   Rather than seeking damages, the buyer of real estate is entitled to the remedy of specific performance, in the form of a decree ordering the seller to execute a deed in the buyer’s favor.  Damages are considered an inadequate remedy because every piece of land is unique to some extent and because the value of land is always to some extent conjectural.

(2)   Loveless v. Diehl

(a)    The Diehls sought specific performance of an agreement for the sale of a farm they leased from the Lovelesses pursuant to an option contract.  The court ruled in favor of Diehl and held that in a contract for the sale of real property, the court may award the remedy of specific performance as a matter of course irrespective of the adequacy of the remedies at law.

iii)    Contracts for Goods (injured party must prove goods are unique UCC 2-716)

(1)   The traditional test for determining a buyer’s right to specific performance in a contract for the sale of goods was whether the goods were “unique.”  The UCC has expanded this rule.  The onus is on the buyer to prove such goods are unique.

(a)    UCC 2-716 gives the buyer a right to specific performance “where the goods are unique or in other proper circumstances.” 

(2)   Cumbest v. Harris

(a)    Cumbest and Harris entered into two agreements, one for the sale of stereo equipment belonging to Cumbest, and an option allowing Cumbest to repurchase the equipment by a specified date.  Although Cumbest made every effort to repay the loan by the end of the option period, Harris deliberately avoided receipt of the payment.  Cumbest then initiated a suit for specific performance.  The court ruled in favor of Cumbest, holding that while generally the court will not order specific performance for the sale of an item of personal property unless there is no sufficient remedy at law, the stereo in this case was sufficiently unique as it had taken many years to assemble and contained several unavailable parts.

(3)   Scholl v. Hartzell

(a)    Scholl initiated an action in replevin in order to specifically enforce an executory contract for the sale of a 1962 Corvette.  The court denied specific performance because they determined that the Corvette was not sufficiently unique. 

(4)   Sedmak v. Charlie’s Chevrolet, Inc

(a)    The Sedmaks sought specific performance of an oral agreement to purchase a limited edition Corvette automobile from Charlie’s Chevrolet.  The court ordered specific performance since the Corvette was a limited production model and the Corvette was tailored to the Sedmak’s requests. 

iv)    Contracts for Personal Services (policy) (injured party must prove uniqueness)

(1)   The Case of Mary Clark, A Woman of Colour

(a)    Clark claimed that she was illegally indentured to Johnston.  Clark had entered into an agreement with Johnston whereby she voluntarily agreed to render services as a house servant for twenty years.  The court ruled in favor of Clark, holding that a court will not uphold specific enforcement of a contract for personal services.  The enforcement of such services pursuant to the contract renders that service involuntary, and equal to the condition of slavery.

(2)   Lumley v. Wagner

(a)    Wagner was under contract to perform at a Lumley’s theater.  While under contract with Lumley, she entered into another contract with Gye to perform at his theater for more money.  The court ruled in favor of Lumley, holding that the court may grant a negative injunction restraining the party rendering the service from performing at any for any other employer during the contract period. 

(3)   Ford v. Jermon

(a)    Ford sought specific performance of an agreement whereby Jermon was to perform exclusively at his theater for a specified period.  The court ruled in favor of Jermon, holding that the court may not grant specific performance of a contract for the rendering of personal services, thereby compelling the individual to perform exclusively for the employer for a specified time period. 

(4)   Duff v. Russell

(a)    Duff, an opera producer, sought to enjoin Russell, a well known opera performer, from performing for another producer when she was under contract with him.  The court ruled in favor of Duff, holding that absent a reasonable excuse, a party to a personal services contract may be enjoined from performing alternate services.

(5)   Dallas Cowboys Football Club v. Harris

(a)    The Dallas Cowboys Football Club, to whom Harris was under contract, sought to prevent him from playing for a team in a rival football league.  The court ruled in favor of Dallas, holding that when a having a special skill agrees to perform a service, he may be enjoined from performing services for another.

B.     Restitution—Damage Interest and Cause of Action (non contractual remedy, material breach)

i)        Restitution for Breach of Contract

(1)   Bush v. Canfield (p. 38)

(a)    Bush, as part of a sales contract, advanced $5,000 to Canfield for the sale of flour.  Canfield failed to deliver the flour.  At the time of the contract, the price had been $7.00 per barrel, but at the time of delivery, the price had fallen to $5.50, therefore Bush would have lost money had the contract been performed.  The court held that the measure of damages for failure to deliver goods is the amount advanced by the buyer, plus interest. 

ii)      Restitution to the Party in Breach

(1)   Under modern law, even a party who is in material breach, and therefore could not sue on the contract, may be able to bring an action to recover the value of the benefits she has conferred on the other party, subject to an offset for the innocent party’s damages.

(2)   Britton v. Turner (p. 39)

(a)    Britton contracted to work for Turner for one year at the end of which he would receive payment of $120.  Britton quit after just over nine months and Turner refused to bay Britton for his services.  Even though Britton was in breach of his contract, the court held that he could recover in quantum meruit for his services to the degree which such services are greater than the damages incurred by the breach. 

(3)   Vines v. Orchard Hills, Inc. (p. 40)

(a)    Vines reneged on a land sale contract after making a down payment, which Orchard Hills kept as liquidated damages.  The court held that a party breaching a land sale contract may recover the down payment if he can prove that no damages were inflicted upon the seller at the time of the breach.  If the non breaching party suffered no damages, they would be unjustly enriched by keeping the liquidated damages.

iii)    Restitution and “Quasi-Contract”

(1)   Under the principle of unjust enrichment or quasi contract, in a variety of cases liability may be imposed on a person who receives a benefit form another, even in the absence of a promise to pay for the benefit.  A plaintiff can recover in restitution or quasi contract if he can show that:

(a)    He has conferred a benefit on the defendant

(b)   He conferred the benefit with the expectation that he would be paid its value

(c)    The defendant knew or had reason to know of the plaintiff expectation

(d)   The defendant would be unjustly enriched if he were allowed to retain the benefit without paying its value.

(2)   Cotnam v. Wisdom (p. 41)

(a)    Harrison was thrown from a streetcar and suffered serious injuries. Wisdom, a physician, attempted to render emergency aid at the scene, but was unsuccessful.  Wisdom sued Cotnam, the administrator of Harrison’s estate, for the value of his services.  The court held in favor or Wisdom, holding that a person rendering emergency services to a person may collect reasonable fees therefore.  When circumstances are such that one party benefits from the acts of another and it would be unfair not to compensate that other, it is held that a “quasi-contract” was formed which is measured by the value of the service rendered.

(3)   Martin v. Little, Brown and Co. (p. 42)

(a)    Where people are perfectly capable of contracting, and they don’t, the court must infer that they didn’t mean to.

(b)   Martin gratuitously informed Little, Brown and Co about an act of plagiarism and then demanded compensation.  The court held that one who volunteers information to another to the other’s benefit has not formed a contract.  The court held that an implied in fact contract arises when the actions of the parties demonstrate a contract like relationship in the absence of a genuine contract.  Such a situation does not occur when one party performs gratuitiously, as Martin did here.

C.     Tortious Interference with Contract (interferer is being malicious)

(1)   Lumley v. Gye

(a)    One who induces a party to breach a contract may be liable to the other contracting party for his damages resulting therefrom.

(2)   Texaco v. Pennzoil

(a)    Pennzoil sought to hold Texaco liable for interfering with its contract with Getty Oil, despite Texaco’s contention that it was unaware that a contract had existed.  The court ruled in favor of Pennzoil, holding that a party may be liable for interference with contractual rights even if he believes that the agreement giving rise to the contractual duty is not legally binding.

V.    Reaching an Agreement

A.    Revoking an Offer

i)        A revocation is a retraction of an offer by the offeror.  The general rule is that a revocation terminates the offeree’s power of acceptance, provided of course that the offer has no already been accepted.

(1)   A revocation is effective only when received by the offeree [Rest. 2d s. 42]

(2)   Firm offer UCC 2-205

(a)    A firm offer is an offer that by its express or implied terms is to remain open for a certain period.  The general rule is that a revocation of a firm offer, prior to the expiration of the period during which it was to remain open, has the same effect as the revocation of an ordinary offer, namely the revocation terminates the power of acceptance.

(b)   A firm offer is not revocable if the offeror should have reasonably foreseen that the offer would induce reliance by the offeree prior to acceptance, and such reliance occurs (Drennan v. Star Paving).

(3)   Exception: Dickenson v. Dodds

(a)    Dickenson v. Dodds

(i)     One June 10, Dodds offers to sell real property to Dickenson for 800l, the offer to be held open until June 12.  On June 11, Dickenson learns from his own agent that Dodds has sold the property to a third party.  On June 12, Dickinson hands Dodds a written acceptance of Dodd’s offer.  The acceptance is ineffective.  That fact that Dickenson obtained reliable information that Dodds changed his mind has the same effect as a revocation.  An offer is deemed revoked, despite the absence of direct communication between the offeror and the offeree, if the offeree obtains reliable information that the offeror has taken action showing that he has changed his mind.

B.     The Objective Theory of Assent

i)        The object theory of contracts is what a reasonable person to whom an expression, either in words or conduct, has been addressed would understand the expression to mean.

(1)   Embry v. Hargadine, McKittrick Dry Goods Co. (p. 47)

(a)    Embry, seeking renewal of his employment contract, contended that Hagardine, McKittrick’s president had made a statement to hi that communicated acceptance, even htough Hagardine contended that he had not meant to do so.  The court ruled in favor of Embry, holding that the meeting of the minds that is essential to the formation of a contract is not determined by the secret intention of the parties, but rather by their expressed intention.

(2)   Lucy v. Zehmer (p. 48)

(a)    Lucy offers to buy Zehmer’s farm for $50,000 cash.  Zehmer accepts the offer in jest, believing Lucy does not have the money.  The two parties work out the terms of the contract and Zehmer writes out the contract on the back of a restaurant check.  Zehmer and his wife sign the restaurant check.  Lucy tries to enforce the contract.  The court rules that the contract is enforceable holding that even if Zehmer did not subjectively intend to sell the farm, the contract is binding because Lucy actually and reasonably believed  it to be a serious transaction.

C.     What is an Offer?

i)        An offer is an expression of present willingness to enter into a bargain, made in such a way that a reasonable person in the shoes of the person to whom the expression is addressed would believe that he would conclude a bargain merely by giving assent in the manner required by the expression.

(a)    There are two essential elements for an offer.  To be sufficient as an offer there must be

(i)     Intent to enter into a bargain

(ii)   Definiteness of terms

ii)      Preliminary Negotiations

(1)   The fact that an expression looks toward a bargain does not make the expression an offer if it is clear from the language or circumstances that the expression reflects merely intent to begin negotiations.  Such expressions are called preliminary negotiations.

(2)   Nebraska Seed Co. v. Harsh (p. 49)

(a)    Harsh was a seed farmer who forwarded a letter to Nebraska Seed Co. stating that he had 1800 or thereabouts bushels of millet that he wished to sell for $2.25 per hundredweight.  Nebraska wrote back that it accepted the offer, and stated delivery instructions.  Harsh did not deliver, and Nebraska sued for breach.  The court ruled that an advertisement of a product is not an offer if it contains general, nonspecific terms.  1800 or thereabouts is not a sufficiently specific amount to constitute an offer. [Restatement (Second) of Contracts s. 46]

iii)    Written Memorial Contemplated

(1)   Empro Manufacturing Co. v. Ball-Co Manufacturing, Inc. (p. 51)

(a)    Empro and Ball-Co signed a letter of intent containing the general provisions of the sale of Ball-Co’s assets to Empro.  When Ball-Co started negotiating with someone else, Empro sued, contending that the letter of intent bound Ball-Co to sell only to Empro.  The court ruled in favor of Ball-Co, holding that parties who have made their pact “subject to” a later definitive agreement have manifested an intent NOT to be bound.  The letter also contains the term “general terms and conditions” which implies that each side retained the right to make changes. 

D.    What is an Acceptance?

i)        Acceptance by Correspondence—The Mailbox Rule (default rule, Rest. 2d. 56, 68)

(1)   Acceptance is effective when it is dispatched as opposed to when it reaches the offeror.

ii)      Acceptance  by Performance of “Unilateral” Contracts

(1)   An offer that calls for acceptance by performance of an act is known as an offer for a unilateral contract.  Such an offer can be accepted only by performance and not by a promise.

(2)   Carlill v. Carbolic Smoke Ball Co.(p. 55)

(a)    Carbolic Smoke Ball Co. placed an advertisement offering a sum to any person who became ill after using its product, upon which Ms. Carlill became ill and tried to collect.  The court ruled in favor of Ms. Carlill holding that a continuing offer may be accepted by performance of the condition named in the offer.

(b)   What made it a real offer?

(i)     Appeared legitimate, money deposited in bank

(ii)   Somebody seeing the add would think it was a real promise

(3)   White v. Corliss & Tifft (p. 57)

(a)    An offer that requires acceptance by a promise can be accepted only by a promise, not by an act. 

iii)    Acceptance by Silence

(1)   The general rule is that silence of an offeree does not constitute acceptance.

(2)   Exception to silence rule:  Offeree leads offeror to believe that silence will constitute acceptance:

(a)    Hobbs v. Massasoit Whip Co.

(i)     Hobbs sent Massasoit eel skins which it retained until they were subsequently destroyed.  Hobbs had sent Massasoit skins on four or five previous occasions and they had always been accepted.  The court ruled in favor of Hobbs, holding that silence will constitute acceptance where the offeree, by her own prior words or conduct, gave the offeror reason to interpret her silence as an acceptance.

VI. The Doctrine of Consideration

A.    Consideration is required to make a contract enforceable.

B.     Historical Origins of the Doctrine

i)        Benefit/Detriment Approach

(1)   Consideration used to be defined as either a benefit received by the party promising to perform, or a detriment incurred by the party to whom performance was promised.

C.     The Bargain Theory of Consideration

i)        A bargain is an exchange of promises, acts, or both, in which each party views what she gives as the price of what she gets.  As a general rule, a bargain constitutes consideration, and hence bargained for promises are enforceable.

(1)   The bargain theory of consideration equates consideration with a bargain.

ii)      Distinguishing Bargains from Gratuitous Promises

(1)   A donative or gratuitious promise is a promise to make a gift.  The general rule is that a donative promise is unenforceable because there is a lack of consideration.

(2)   Johnson v. Otterbein University (p. 106)

(a)    Otterbein University sued when Johnson failed to fulfill his promise to make a $100 gift donation.  The court ruled that a promise to make a payment as a gift may be revoked at any time before payment because it does not provide consideration for a contract.

(3)   Hamer v. Sidway (p. 107)

(a)    Uncle promises to pay nephew $5000 to abstain from smoking, drinking, swearing, and gambling until the age of 21.  Nephew agrees and abstains from doing any of the aforementioned activities.  Uncle refused to pay.  The court ruled that the Uncle must pay because a waiver of a legal right at the request of another party may serve as sufficient consideration for a promise.

iii)    Past Consideration

(1)   A promise is said to be given for moral or past consideration when the promisor’s motivation for making the promise is a past benefit to the promisor or detriment to the promisee that gave rise to a moral obligation, but not a legal obligation for compensation.

(2)   The traditional rule is that a promise based on moral or past consideration is simply a gratuitous promise and is therefore unenforceable.  There is no bargain or consideration. 

(3)   There are THREE important exceptions to the traditional rule:

(a)    A promise to pay a debt barred by the statute of limitations

(b)   A promise to perform a voidable obligation

(c)    A promise to pay a debt discharged by bankruptcy

(4)   Moore v. Elmer (p.108)


iv)    Moral Consideration

(1)   Mills v. Wyman (p. 109)

(a)    When Levi, Wyman’s adult son, returned from a sea voyage he fell ill and Mills, acting as a good Samaritan provided food and shelter to Levi and cared for him until he died.  After Levi’s death, Wyman wrote Mills a letter promising to pay for the expenses associated with taking care of Levi.  Wyman later refused to pay and Mills subsequently brought suit.  The court held that no contract existed and that the general position that moral obligation is sufficient consideration for an express promise is limited to cases where good or valuable consideration previously existed. Note: no material benefit was conferred in this case.

(2)   Webb v. McGowin (p. 110-111)

(a)    Webb saves the life of McGowin, but sustains serious injuries during the rescue.  McGowin promises to pay Webb a bimonthly stipend for the rest of Webb’s life.  McGowin pays Webb the stipend for more than eight years, but on McGowin’s death, his estate refuses to continue the payments to Webb.  The court holds that McGowin’s promise is binding because the promise to pay was based on a material benefit to the promisor that constituted valid consideration. (objective benefit to promisor, possibility of unjust enrichment, restitution recovery, intention to enforce a later promise)

(3)   Modern ruling from Webb v. McGowin seems to be that a promise based on moral obligation is enforceable, even if it does not fall within one of the three core exceptions, if the promise is based on a material benefit that was previously conferred by the promisee upon the promisor, provided the benefit gave rise to an obligation to make compensation. [Rest. 2d. s.86]

D.    Contract Modification and the Preexisting Duty Rule

i)        The promise or performance of an act that the promisor has a preexisting legal duty to perform does not constitute consideration.

ii)      Preexisting Contractual Duties

(1)   Performance of preexisting contractual duty for increased payment

(a)    Where A an B have a contract and A refuses to perform unless B pays more than originally promised, A’s new promise to perform (or A’s performance) does not constitute consideration for B’s promise to pay a greater amount than originally promised.

(2)   Stilk v. Myrick

(a)    Due to the desertion of other sailors, Captain Myrick offered Stilk and the other crewman additional money to complete the voyage.  Myrick later refused to pay.  The court held that modifications to employment contracts which are occasioned by emergency or duress are unenforceable.  Where crew members have signed on for a voyage and are obligated to complete it, there is no consideration for an oral agreement to pay additional wages for performing, under emergency conditions, the duties already required of them.

(3)   Alaska Packers’ Association v. Domenico

(a)    Domenico hired seamen in San Francisco under a contract for the salmon fishing season in Alaska.  The seamen stopped work as a group and demanded higher wages once they got to Alaska.  Since it was impossible on such short notice to find other workers, the company’s superintendent agreed to a new contract with new terms for higher wages to be paid.  The court ruled in favor of Domenico, holding that when a party refused to perform and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is already legally bound to do, there is no consideration for the promise for extra pay.

(4)   A new promise to pay is enforceable if unanticipated circumstances arise that make modification of the original contract terms fair and equitable.

(5)   Brian Construction and Development Co. v. Brighenti (??UCC-2-209)

(a)    Brian had subcontracted with Brighenti for the providing all of the foundation work for a building.  Included in the contract was a term that stated that Brighenti agreed to do “everything requisite and necessary to finish the entire work properly.”  Brighenti discovered the remains of another building at the excavation site.  This discovery was unanticipated by both parties and would have required considerably more work than expected.  The parties renegotiated to increase the amount of money Brighenti would receive.  Brighenti then stopped work after several days and Brian brought a breach of contract action against Brighenti.  The court ruled in favor of Brian.  Although it is an accepted principle that when a party agrees to perform an obligation which he is already obliged to perform, albeit for a different price, the second agreement does not constitute a valid contract.  The doctrine of unforeseen circumstances provides an exception to the general rule.  Under the doctrine of unforeseen circumstances, when such circumstances make the performance of a contract unduly burdensome, the parties may agree, in view of the changed conditions, to an adjustment in price.  The new agreement will constitute a valid contract.

E.     Adequacy of Consideration

(1)   Newman & Snell’s State Bank v. Hunter


(2)   Dyer v. National By-Products, Inc.

(a)    Dyer agreed with his employer National By-Products not to litigate a claim against it for a work-related personal injury if he was allowed to return to his former position as a foreman.  The court ruled in favor of Dyer, holding that if a person who in good faith believes he has a legal claim promises to forbear or in fact forbears from pursuing the claim, he has provided sufficient consideration for a return promise even if the claim turns out to be wholly ill-founded.

VII.          Intention to Be Legally Bound

A.    Using Formalities to Manifest and Intention to be Legally Bound

i)        The Seal

(1)   Aller v. Aller

(a)    A voluntary written agreement under seal is binding when there was no consideration intended by the parties, so long as the parties are identified in the document and the document is delivered.

ii)      Nominal Consideration

(1)   Nominal considerations are an exception to the general rule that a bargain constitutes consideration.

(2)   Nominal consideration involves transactions that are bargains in form but not in substance.  A transaction is said to involve nominal consideration when a promisor falsely casts her promise in the form of a bargain with the promise in an attempt to make the promise enforceable.  In reality such a promise lacks substance and consideration because neither party views each promised performance as the price of the other.

(3)   Schnell v. Nell

(a)    Schnell agreed to give Nell $200 out of the love and respect he had for his wife in return for Nell paying Schnell one cent.  Nell also agreed to forebear any claim he might have against the deceased estate.  The court held that nominal consideration will normally not make a donative promise enforceable, and thus no contract between the two parties existed.

iii)    Recitals

(1)   Smith v. Wheeler

(a)    Wheeler gave smith a one year option to buy some property.  The agreement recited that a payment of one dollar was made, but both parties agreed that the consideration cited in the agreement was never paid.  Smith tried to enforce the option and Wheeler filed a complaint.  The court ruled that the recital of one dollar was consideration for an option contract and gives rise to a promise to pay which can be enforced by another party. 

iv)    Written Expression of Intention to be Legally Bound

(1)   Thomas v. First National Bank of Scranton

(a)    Restatement 21

(b)   Thomas wrote a check and the next day went to the bank and signed a “Request to Stop Payment” form in order to void the check.  The form included a disclaimer that released the Bank from any liability in the event that the check should be inadvertently paid by it.  The bank accidentally paid the check and Thomas sued.  The court ruled in favor of the bank, holding that a stipulation releasing a bank from liability on paying a check in disregard of a stop payment request constitutes a valid enforceable contract.  The rule of freedom of contract will prevail since Thomas assented to the terms limiting the Bank’s liability.

(2)   Kay v. Kay

(a)    Mr. Kay agreed to be legally bound to support Mrs. Kay when they separated, but after a few years he stopped paying and argued that the agreement was not supported by consideration.  The court held that the absence of consideration does not render a separation agreement unenforceable where the agreement provides that the promisor intends to be legally bound.

(3)   Federal Deposit Insurance Corp. v. Barness

(a)    Barness signed a promissory note to a bank of which he was a shareholder.  Barness claimed that he had received no benefit in return for his signature and that there was no consideration for the note.  After the bank was closed, the FDIC sought to enforce payment on the note. FDIC claimed that since the note expressly stated that, “the undersigned promises to pay,” this constituted a statement to be legally bound.  The court held that a signed promise is not invalid for lack of consideration if the writing also contains an additional express statement that the signer intends to be legally bound.

B.     Lack of Intention to Be Legally Bound

(1)   Ferrera v. A. C. Nielsen

(a)    Ferrara was fired by Neodata, claimed that the employee handbook limited Neodata’s right to discharge her.  The handbook contained a disclaimer.  The court held that the employee handbook did not constitute a valid contract if the employer has clearly and conspicuously disclaimed intent to enter into a contract limiting an employer’s right to discharge employees.

VIII.       The Doctrine of Promissory Estoppel (Rest. 90)

i)        The principle that reliance may make a promise enforceable.

ii)      If a donative promise induces reliance by the promisee in a manner that the promisor should reasonably have expected, the promise will be legally enforceable, at least to the extent of the reliance.

B.     The Development of Promissory Estoppel as a Substitute for Consideration

i)        Family Promises

(1)   Ricketts v. Scothorn (p. 127)

(a)    Scothorn quit her job in reliance on her grandfather’s granting of a note payable to her and sued his estate for payment on the note after his death.  The court ruled in favor of Scothorn, holding that even though the note was given without consideration, Scothorn was entitled to the money because she had relied on the promise to her detriment.  When the payee changes her position to her disadvantage, in reliance on a promise, a right of action on the promise arises.

ii)      Promises to Convey Land

(1)   Greiner v. Greiner (p. 128)

(a)    Frank Greiner moved back home in reliance on his mother’s promise to give him eighty acres of land.  Frank made expenditures to improve the land, relying on his mothers promise.  The court ruled in favor of Frank Greiner, holding that a promise which the promisor should reasonably expect t induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forebearance is binding if injustice can be avoided only by enforcement of the promise.

iii)    Charitable Subscriptions

(1)   Allegheny College v. National Chautauqua County Bank of Jamestown (p. 129)

(a)    A donor agreed to pay Allegheny College $5000 thirty days after her death to start a fund for students entering into the ministry.  The donor paid $1000 during her lifetime, but later repudiated the promise.  After her death, Allegheny College brought action against National Bank, the executor of her estate, for the remaining balance.  The court held in favor of National Bank, holding that as soon as Allegheny college received the $1000, there was an assumption of a duty to do whatever acts were customary or reasonably necessary to maintain the memorial in the spirit of its creation (i.e. apply funds to ministry scholarship).  A bilateral promise may exist although one of the mutual promises is a promise “implied in fact.”

iv)    Promises of a Pension

(1)   Feinberg v. Pfeiffer Co. (p. 130)

(a)    Pfeiffer promised to pay Feinberg a set pension of $200 per month when Feinberg retired, and Feinberg relied on this promise to her detriment.  The court ruled in favor of Feinberg, holding that a promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such an action or forbearance is binding if injustice can be avoided only by enforcement of the promise.  (See Restatement §90)

v)      Construction Bids

(1)   Putting a contract out for a bid is usually not deemed to be an offer.  However, the bids submitted in response usually are considered offers.

(2)   James Baird Co. v. Gimbel Bros., Inc (p. 131)


(3)   Drennan v. Star Paving Co. (p. 132)

(a)    In formulating a bid to the Lancaster school district, Drennan, a general contractor, solicited bids for subcontracting work.  Star, a paving company, submitted the lowest paving bid, and Drennan used that bid in formulating its bid to the school district.  Using Star’s bid of $7,131.60, Drennan was awarded the general contract.  Star then told Drennan that is made a mistake and could not do the work for less than $15,000.  Star refused to do the work and Drenan found a substitute company that did the work for $10,948.  Drennan sued Star for the difference, claiming that it had relied on Star’s offer.  Star claimed it had made a revocable offer.  The court ruled in favor of Drennan, holding that reasonable reliance on a promise bind the offeror even if there is no other consideration.  Restatement of Contracts Section 90 states that when a promise is made that induces action or forbearance of the promisee, the promisor is bound if injustice would result from nonenforcement.    

(b)   Such reasonable reliance cases are often called firm offers.

(i)     A firm offer is an offer that by its express or implied terms is to remain open for a certain period.  (e.g. you have two weeks whether to decide to accept)

C.     Promissory Estoppel as an Alternative to Breach of Contract (reliance awarded)

(1)   Goodman v. Dicker (p. 133)

(a)    Local parts distributors promised to supply prospective franchisees with radios under a franchise agreement with Emerson Radio Corp.  Franchisees were told that the franchise would be granted and induced to incur expenses in preparing to do business.  No radios were delivered and notice was later given that the franchise would not be granted.  The court held in favor of Goodman (the franchisees).  Justice and fair dealing require that one who by his language or conduct leads another to do what he would have not otherwise have done, shall not subject such a person to loss or injury by disappointing the expectations upon which he acted.  In this case the proper measure of damages is the loss sustained by expenditures made in reliance upon the assurance of a dealer franchise and not any consequential damages for loss of possible profits.

(2)   Hoffman v. Red Owl Stores, Inc. (p. 134)

(a)    The Hoffmans sought damages they incurred in selling their business and relocating based on their reliance on an alleged promise made to them by Red Owl Stores to furnish them with a franchise. 

D.    Some Modern Applications and Limits of Promissory Estoppel

i)        Promise

(1)   Blatt v. University of Southern California (p. 135)

(a)    When the national legal society of the Order of the Coif refused to grant Blatt membership, he claimed he had detrimentally relied on its promises of membership eligibility.  The court ruled in favor of USC, holding that the action or forbearance induced by the promisor must be definite and substantial in character to invoke the doctrine of promissory estoppel to enforce a promise.  Furthermore the promise was that if Blatt fulfilled the necessary requirements, he would be eligible for consideration of admission into the Order of the Coif, and the record shows that Blatt was considered for membership.

IX. Discerning the Agreement

A.    Interpreting the Meaning of the Terms

B.     Why would a court need more than a dictionary?

i)        Special terms

ii)      Ambiguity

iii)    Vagueness

iv)    The courts first job is to try to work out whether parties understood the contract in the same way, is there an actual meeting of the minds?

v)      What type of evidence do we look at to guage the understanding of the contract by both parties?

(1)   Course of performance-what actions did both parties undertake in regards to the promise?

(2)   Course of dealing

(3)   Usages of trade-how words are used in the particular area/trade/business absent evidence of the contrary

(4)   Negotiations that led to the deal

(5)   Intratextual Analysis- look at a vague promise in context of the larger contract

vi)    Stupid wins over evil

(1)   If one party sees two meanings in a contract and they prefer one over the other to their advantage and they know that the other party has a different understanding the evil party will lose and the “stupid” party (i.e. the party that did not know) will get the meaning.

vii)  Three ways of working out ambiguous contracts

(1)   Prove that both parties had a shared subjective meaning

(2)   One party knew and only one party knew of difference in meaning

(3)   What a reasonable person would have thought

viii)            Ambiguous Terms

(1)   Raffles v. Wichelhaus (p. 67)

(a)    Raffles contracted to sell cotton to Wichelhaus to be delivered from Bombay to Liverpool on the ship “Peerless.”  Unknown to the parties was the existence of two different ships carrying cotton, each named ‘Peerless” arriving at Liverpool from Bombay, but at different times.  When there is an ambiguity, it is given the meaning that each party intended it to have.  However, if different meanings were intended there is no contract if the ambiguity relates to a material term.  Consequently there was no meeting of the minds and no binding contract.

(2)   Oswald v. Allen (p. 68)

(a)    Dr. Oswald negotiated to purchase two sets of rare coins from Mrs. Allen, who believed that her Swiss Coin Collection alone was being purchased.  The court held that Ms. Allen could get out of the contract.  When any terms used to express an agreement are ambivalent and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the others understanding.  There was no meeting of the minds and no contract.  This case illustrates the concept of a mutual mistake.  If each party makes a mistake on a basic fact of the agreement, then either party may use the mistake as a way to avoid the exchange.

(3)   Weinberg v. Edelstein (p. 69)

(a)    Weinberg sued Edelstein to stop Edelstein’s sale of skirts and blouses that looked like two-piece dresses.  The court ruled in favor of Edelstein holding that he was selling skirts and blouses originating in the sportswear industry and hence was not selling dresses in violation of the lease.  A restrictive covenant is construed strictly against the person seeking its enforcement when the intent of the restriction is not clear.

(4)   Frigailment Importing Co. v. B.N.S. International Sales Corp. (p. 70)

(a)    Frigailment ordered a large quantity of “chicken” from BNS, intending to buy young chicken suitable for broiling and frying, but BNS believed, in considering the weights ordered at the prices fixed by the parties, that the order could be filled with older chicken, suitable for stewing only, and termed “fowl” by Frigailment.  The court ruled against Frigailment, holding that the party who seeks to interpret the terms of the contract in a sense narrower than their everyday use bears the burden of persuasion to so show, and if that party fails to support its burden, it faces a dismissal of its complaint. 

C.     Filling Gaps in the Terms

i)        Illusory Promises

(1)   An illusory promise is a statement that has the form of a promise, but not the substance.  An illusory promise does not limit one’s future options.  An illusory promise is an apparent commitment that actually leaves a free way out.  For example, “I will buy wheat from you at $10 a bushel insofar as I want to buy wheat from you at that price.”

(2)   If one party makes an illusory promise in exchange for another’s real promise, neither party is bound.  The party exchanging the real promise for the illusory promise is not receiving anything in return, hence there is no consideration and no contract.

(a)    Common types of illusory promises

(i)     Promise to do an act “if I want to.”

(ii)   Right to terminate at will without notice

(3)   New York Central Iron Works Co. v. United States Radiator Co. (p.73)

(a)    New York Central Iron Works Co. contracted with United States Radiator Co. to supply all of New York Central’s radiator needs for the year 1899.  New York Central’s demand for radiators was far in excess of what United States Radiator estimated and they were unable and unwilling to fulfill their contract with New York Central.  U.S. Radiator contended that a mutual mistake as to the amount of radiators excused their performance.  The court denied this defense and held that a buyer in a supply contract may enforce the contract even if its requirements increase beyond the parties’ contemplation so long as the buyer’s needs are genuine and he is not merely speculating in the material.

(4)   Eastern Air Lines v. Gulf Oil Corp (p. 74)

(a)    Gulf Oil Corp was to furnish jet fuel to Eastern Airlines based on an alleged five year requirements contract.  When the price of fuel rose, Gulf Oil demanded that Eastern pay more for the fuel.  Eastern sued seeking enforcement of the contract.  The court held that the contract was enforceable. 

(5)   Wood v. Lucy, Lady Duff Gordon (p. 75)

(a)    UCC 2-306

(b)   Wood agreed with Lucy, Lady Duff Gordon to receive an exclusive right for one year to endorse designs with Lucy’s name and to market all her fashion designs, for which she would receive one-half the profits.  Lucy broke the contract by placing her endorsement on designs without Woods knowledge.  The court held that although the contract did not precisely state that Wood had promised to use reasonable efforts to place Lucy’s endorsement and market her designs; such a promise can be implied.  The implication arises from the circumstances.

(c)    The implied promise serves as consideration just as if it were an explicit promise. (e.g. a promise to use ‘reasonable efforts’ or ‘best efforts.’)

X.    Written Manifestations of Assent

A.    Interpreting a Writing—The Parol Evidence Rule

i)        The parol evidence rule provides that parol evidence will not be admitted to vary, add to, or contradict a written contract that constitutes an integration.

(1)   A written contract constitutes an integration if the parties to the contract intended the writing to be the final and complete expression of their agreement.

(2)   If there is a writing that is an integration, evidence of an alleged earlier oral or written agreement that is within the scope of the writing, or evidence of an alleged contemporaneous oral agreement that is within the scope of the writing, constitutes parol evidence.

ii)      A contract must be in writing for the parol evidence rule to apply.  If the contract is oral, any prior or contemporaneous oral or written agreements may be used to explain it.

iii)    Thompson v. Libbey

(1)   Libbey argued that Thompson’s agreement to sell his logs contained a verbal warranty of quality, which Thompson breached.  The court ruled in favor of Thompson holding that parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument.

iv)    Brown v. Oliver

(1)   Brown wanted to recover possession of hotel furniture located inside a hotel on land bought by Brown from Oliver.  The court held that parol evidence that bears upon the question of the intent of the parties to integrate their transaction into a writing may be admitted when the writing does not conclusively establish the intent.

v)      Pacific Gas and Electric Co. v. G. W. Thomas Drayage & Rigging Co.

(1)   Thomas contracted to repair Pacific’s steam turbine and to perform work at its own risk and expense and to indemnify Pacific against all loss and damage.  Thomas also agreed not to procure less than $50k insurance to cover liability for injury to property.  But when the turbine rotor was damaged, Pacific claimed it was covered under the policy while Thomas said it was only to cover injury by third parties.  The court ruled in favor of Thomas, holding that extrinsic evidence for the purpose of showing the intent of the parties could be excluded only when it is feasible to determine the meaning of the words from the instrument alone.

vi)    Trident Center v. Connecticut General Life Insurance Co.

(1)   Trident entered into a loan agreement with Connecticut.  The written agreement provided that Trident would borrow $56 million to construct an office building.  The loan was to be paid off during a period of time, but the loan contained a term that precluded payment within the first 12 years.   Because of a drop in interest rates, Trident sought to pay the loan off earlier and Connecticut objected.  The court held that parol evidence was admissible to show ambiguity in an otherwise unambiguous contract.  Because language cannot infallibly communicate the true meaning of intent of parties to a contract, parol evidence must be allowed where such intent is in issue.

B.     Reforming a Writing—Mistakes in Integration

i)        The Travelers Insurance Co. v. Bailey

(1)   A clerical error was made on Bailey’s life insurance policy that was not caught until thirty years after its issuance. 

C.     Requiring a Writing—Statute of Frauds (Rest. 131, UCC-2-201)

i)        The Statute and Its Exceptions

(1)   The following contracts must be in writing

(a)    Contracts for the sale of an interest in land

(b)   Contracts in consideration of marriage

(c)    Contracts that cannot be performed within one year of making

(d)   Contracts for the sale of goods for $500 or more not fitting any of the UCC exceptions

(e)    Suretyship contracts, (i.e. contracts where the promisor guarantees a third party’s obligation to the third party’s creditor)

(2)   The basic purpose of the statue of frauds is to prevent fraud and perjury by persons who might falsely claim that a contract was made, when it was not.

(3)   Boone v. Coe

(a)    Boone and J.T. Coe sued J.F. Coe to recover damages for breach of a parol contract to allow cultivation of land and allow for residence on the land to begin at a future date for one year.  The court held in favor of J.T. Coe, holding that damages cannot be recovered for violation of a contract within the Statute of Frauds.  The Statute of Frauds provides that no action shall be brought to charge anyone on any agreement which is not to be performed within one year from the making, unless there is some writing which is signed by the party to be charged.

(4)   Riley v. Capital Airlines, Inc.

(a)    Restatement 139

(b)   Riley alleged a five year contract to supply water methanol to Capital Airlines.

ii)      Satisfying the Requirement of a Signature

(1)   Parma Tile Mosaic & Marble Co. v. Estate of Fred Short

(a)    Any symbol or signature, whether written, printed, or stamped, will satisfy the writing requirement of the Statute of Frauds so long as the intent to be bound is demonstrated.

XI. Performance

A.    The Implied Duty of Good Faith Performance

(1)   Goldberg 168-05 Corp. v. Levy (p. 144)

(a)    Goldberg sought damages for unpaid rental payments based on Levy’s intentional diversion of profits so as to reduce his rental payments under a lease agreement and trigger a provision allowing him to terminate his contract.  The court ruled in favor of Goldberg, holding that a covenant of good faith and fair dealing is inherent in every contract, requiring a party to a commercial lease that requires part of the rental payments be based on a percentage of gross receipts utilize his best efforts in order to generate earnings.

(2)   Mutual Life Insurance Co. of New York v. Tailored Woman (p. 145)

(a)    Mutual sought rental payments owed to it by Tailored Woman based on a percentage generated by its fur department.  Tailored entered into a lease with Mutual whereby Tailored would pay Mutual 4% of all gross receipts over 1.2 million dollars.  Tailored signed another lease with Mutual for more space, but this lease did not stipulate any terms regarding a percentage of gross receipts.  Tailored then moved its lucrative fur department to the newly leased premises.  Mutual sued and the court denied their contention, holding that in the absence of fraud or deception, the tenant may conduct its business in accordance with the general lease provision in any manner it deems appropriate.  The court did not view the relocation of the fur department to the third floor as an intentional circumvention of the percentage lease clause.

(3)   Stop & Shop, Inc. v. Ganem (p. 146)

(a)    Ganem sought to compel lesee Stop & Shop to continue operating a market on premises pursuant to a commercial lease agreement providing for minimum fixed yearly payments plus a percentage of gross sales.  The court ruled in favor of Stop & Shop, holding that the court will no imply a covenant to continue operations for a specific purpose, or for any purpose at all, into a commercial lease agreement providing for a portion of the rent to be determined based on the gross sales of the business conducted therein. 

XII.          Conditions

A.    An event or state of the world that must occur before a party to a contract has a duty to perform is known as a condition.

i)        A condition can be an event or state of the world that must occur or fail to occur before a party has a duty to perform under a contract; or

ii)      An event or state of the world the occurrence or nonoccurrence of which releases a party from its duty to perform under a contract.

B.     The Effect of a Condition

i)        Inman v. Clyde Hall Drilling Co. (p. 154)

(1)   Clyde Hall employed Inman under a contract which provided that a thirdy-day written notice of claim had to be given to the company as an express condition precedent to a remedy.  The court ruled in favor of Clyde Hall, holding that an express condition precedent to give notice before filing suit under a contract must be fulfilled before suit is filed.

C.     What if Events are Conditions?

i)        Is the Event a Condition, a Promise, or Both?

(1)   Howard v. Federal Crop Insurance Corp. (p. 155)

(a)    Federal Crop claimed that Howard’s violation of a condition precedent negated its obligation to pay.  The court ruled in favor of Howard, holding that where it is doubtful whether words create a promise or an express condition, they are usually interpreted as creating a promise, thereby avoiding forfeiture.

ii)      Is the Event a Condition, a Promise, or Neither?  (ambiguity of term…then it’s just a promise)

(1)   Chirchella v. Erwin (p. 156)

(a)    The Erwins had contracted to buy a house from the Chirchellas.  The Chircellas were planning on moving into a new home sometime in October, but when the new home wasn’t completed in time, they refused to sell their old home, claiming that their moving into a new home was a condition to the sale of their old home.  The court ruled in favor of the Erwins, holding that the question of whether a stipulation in a contract constitutes a condition precedent is one of construction dependent on the intent of the parties.  The language in controversy here did not meet the definition of a condition precedent.

D.    Avoiding Conditions

i)        Waiver and Estoppel

(1)   Clark v. West (p. 157)

(a)    West paid Clark only $2 per page for writing a legal treatise, and Clark demanded the $6 per page he had been promised if he quit drinking, alleging that West had no objected when he continued to drink.  The court ruled in favor of Clark, holding that a condition in a contract may be waived, but no waiver is implied by mere acceptance of the proffered performance. 

ii)      Excuse to Prevent Forfeiture (insurance, late filing claim example)

(1)   J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.

(a)    Cross Bay negligently failed to give lessor JNA Realty Corp. notice of intent to exercise a lease renewal option.  The court ruled in favor of Cross Bay, holding that equity will protect a tenant who negligently fails to exercise a renewal option if failure to do so will result in forfeiture. 

XIII.       Breach

A.    Constructive Conditions

(1)   Kingston v. Preston

(a)    Preston agreed to sell his business to Kingston, and Kingston agreed to, but did not, give security for the payments. Preston refused to sell without a security.  The court ruled in favor of Preston, holding that breach of a covenant by one party to a contract relieves the other party’s obligation to perform another covenant which is dependent thereon, the performance of the first covenant being an implied condition precedent to the duty to perform the second covenant.

(2)   Morton v. Lamb

(a)    Lamb had agreed to deliver some corn to Morton for payment at the time of delivery.  Lamb did not deliver the corn because Morton did not say he was ready to pay for it.  When Morton sued for non-delivery, Lamb asserted that Morton could not maintain an action for non-delivery of the corn without averring that he was ready to pay for it.  The court ruled in favor of Lamb, holding that where two concurrent acts are to be done, the party who sues the other for non performance must aver that he had performed, or was ready to perform his part of the contract.

(3)   Jacob & Youngs v. Kent

(a)    Kent refused to make the final payment on a construction contract that specified that Reading pipes was to be used throughout his house, because not all of the pipe used was made in Reading.  The court ruled in favor f Jacob & Youngs, holding that where there is substantial performance with defects of a trivial or inappreciable importance, the measure of damages is not the cost of replacement, but the difference in value.

(b)   Disproportionality

(c)    If kent could prove pipes weren’t same, cost of completion

B.     Prospective Nonperformance

i)        Anticipatory Repudiation

(1)   If either party to a contract, in advance of the time set for performance, repudiates the contract, the repudiation excuses the other party from holding himself ready to perform, rendering performance, or tendering performance.  In addition, the innocent party may generally treat anticipatory repudiation as a present material breach of contract, and bring an immediate action for the entire value of the promised performance.  UCC 2-610

(2)   The general rule in cases of anticipatory repudiation is that the injured party must act promptly to mitigate damages after learning of the repudiation. 

(3)   Albert Hochster v. Edgar De La Tour (breached at that moment)

(a)    Before Hochster was due to perform his contract of employment for De La Tour, De La Tour announced his intention to repudiate the contract, whereupon Hochster immediately commenced an action for breach of contract.  The court ruled in favor of Hochster, holding that a party to a contract who renounces his intention to perform may not complain if the other party, instead of waiting until performance is due, elects to sue immediately for breach of contract.

(4)   Harrell v. Sea Colony, Inc.

(a)    Upon Harrell’s request for termination of a land sale contract, vendor Sea Colony, Inc. considered the contract repudiated.  The court ruled in favor of Harrell, holding that a mere request to cancel a contract does not constitute anticipatory breach thereof. 

ii)      Adequate Assurances of Performance

(1)   UCC 2-609

(a)    A failure to provide adequate assurances within a reasonable time not exceeding thirty days after a receipt of a justified demand for such assurances constitutes repudiation.

(2)   Scott v. Crown

(a)    Scott suspended shipments of wheat which Crown had ordered because it learned from the Department of Agriculture that there were active complaints against Crown from other farmers and because Crown had failed to respond to Scott’s inquiries about timely payment for previous deliveries.  The court ruled in favor of Crown holding that Scott’s action were an anticipatory repudiation which allowed Crown to cancel the contracts and resort to Buyer’s remedies.  When reasonable grounds for insecurity arise with respect to the performance of a party under a commercial contract, the other party may in writing demand adequate assurance of due performance and if commercially reasonable may suspend any performance for which he has not received the agreed return.

iii)    Material Breach

(1)   A material breach has two effects

(a)    It gives rise to an immediate cause of action for breach of the entire contract

(b)   It excuses further performance by the innocent party

(2)   If a breach is material, the injured party may

(a)    Sue for damages resulting from the breach but let the contract continue; or

(b)   Terminate the contract and sue the breacher for breach of the whole contract

(3)   B&B Equipment Co. v. Bowen

(a)    Bowen, a discharged employee, alleged that B&B could not rescind his contract because the major purpose of the contract was the purpose of stock and not his employment.  The court ruled in favor of B&B, holding that Bowen was in material breach.  A rescission of a contract for breach by the other party must relate to a vital provision going to the very substance or root of the agreement, and cannot relate to a subordinate or incidental matter.

(4)   Lane Enterprises, Inc. v. L.B. Foster Co.

(a)    Circling, avoiding harm, both parties trying to be innocent

(b)   When Foster, a general contractor, failed to make full payment for part performance on a construction subcontract to coat metal bridge components to prevent corrosion, Lane argued that Foster had breached the agreement. The court ruled in favor of Foster.  The ratio of the part performed to the part to be performed is an important question in determining material breach.  Applying the materiality test set fourth in Restatement §241, failing to pay only 5% of the total contract price would not constitute a material breach.  Lane’s failure to give Foster adequate assurance of performance of the second stage of the agreement amounted to an anticipatory breach.  Foster is therefore entitled to recover the cost of finding another contractor, which is to be offset by the amount Foster withheld from lane.

C.     Cost of Completion v. Diminution in Value:  The Expectation Interest Revisited

(1)   Groves v. John Wunder Co.

(a)    A provision in a lease for land which stated that the sand and gravel were to be removed to a uniform grade was breached by Wunder.  The court ruled in favor of Groves, holding that where a contractor willfully and fraudulently varies from the terms of a construction contract, he cannot sue and have the benefit of the equitable doctrine of substantial performance. 

(2)   Peevyhouse v. Garland Coal Mining Co.

(a)    Garland promised it would perform restorative and remedial work on the Peevyhouse’s farm at the end of the lease period, but then argued that the cost of the repair work would far exceed the total value of the farm.  The court held that where a contract provision breached was merely incidental to the main purpose, and where the economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which lessor may recover are limited to the diminution in value resulting to the premises because of nonperformance. 

XIV.       Lack of Contractual Capacity (Defense)

A.    Deficiencies in Contractual Capacity

i)        Incompetence

(1)   The traditional rule is that a person lacks the mental capacity to contract only if his mental processes are so deficient that he lacks understanding of the nature, purpose, and effect of the transaction.

(2)   Restatement rule for incapacity [ Rest. 2d 15]

(a)    A party lacks capacity if

(i)     He is unable to act in a reasonable manner, and

(ii)   The other party has reason to know of his condition

(3)   Ortelere v. Teachers’ Retirement Board of New York

(a)    Mr. Ortelere sought to have his wife’s election of a retirement benefits invalidated due to her mental incompetence.  The court ruled in favor of Mr. Ortelere holding that contracts of a mentally incompetent person are voidable.  The question is whether the in disso affected as to render the person wholly and absolutely incompetent to comprehend and understand the nature of the contract.  This test is qualified by the person’s ability to make a rational judgment concerning the particular transaction.

ii)      Infancy

(1)   A contract made by an infant or minor (somebody under the age of 18—unless married or in the military) is voidable at the minor’s option, although the minor may enforce the contract against the adult.

(2)   Webster Street Partnership, LTD. v. Sheridan

(a)    Sheridan and Wilwerding, entered into a lease with Webster Street Partnership, LTD.   Both Sheridan and Wilwerding were minors at the time the contract was formed.  Webster was aware that Sheridan and Wilwerding were minors.  Sheridan and Wilwerding broke the lease and Webster sued to enfoce.  The court ruled in favor of Sheridan, holding that an infant does not have the capacity to bind himself absolutely by contract, but may be liable for necessaries furnished to him.

(b)   Necessaries includes food, clothing, shelter, and whatever else is needed for the minor’s subsistence, health, comfort, or education, taking into account consideration of the minor’s age, status, and condition in life.

(c)    Brooke Shields v. Gross

(i)     Brook Shields posed for photographs when she was ten, which she later sought to prevent from being republished.  The court ruled against Brooke Shields and held that an infant may not disaffirm a prior unrestricted consent executed on her behalf by her parent.

XV.          Obtaining Assent by Improper Means

A.    Misrepresentation (False representation of existing fact, may give right to affirmative right to sue for damages—tort of deceit or in contract term of contract in addition totally separate, as a defense as a way to avoid liability two categories fraudulent (lack confidence in truth of what he is saying, intend statement to induce) and material (did representor know that it would induce particular representee, and one more thing)

i)        Fradulent Misrepresentation is distinguished by the mental state of the misrepresentor

(1)   Must think that  I hope this gets me the contract; and intend representation to induce representee to enter contract

(2)   Must know he is lying

B.     Cases

(1)   Halpert v. Rosenthal (p. 176)

(a)    Rosenthal refused to go through with an agreement for the purchase of Halpert’s termite ridden house.  The court ruled in favor of Rosenthal, holding that rescission of a contract is available for an innocent misrepresentation of a material fact.  Misrepresentation is any manifestation by one to another that amounts to an assertion not in accordance with the facts.

(2)   Byers v. Federal Land Co.

(a)    Byers brought suit to have a land sale contract canceled due to misrepresentations made by Federal Land Co.  The court held that an honest opinion as to the monetary value of property, stated as an opinion, is not fraudulent misrepresentation.

(3)   Vokes v. Arthur Murray, Inc. (undue influence)

(a)    Vokes was continually persuaded to purchase thousands of hours of dance instruction from Arthur Murray, Inc.  The court ruled in favor of Vokes, holding that where one party has superior knowledge, statements made within the area of such knowledge may be treated as statements of fact.  An example would be that one has the right to rely on the opinions of doctors, lawyers, etc.,  and Vokes extends such reasonable reliance to experts or those highly knowledgeable in a field which plaintiff is generally unfamiliar.

C.     Duress (forcing to choose between two things of which he has a legal right, no reasonable alternative to entering in contract, threat that is itself illegal)

i)        Two Clear Instances

(1)   Offereing between choice of legal rights

(2)   Non-illegal threat, i.e. a threat to do something legal (blackmail)

(3)   Hackley v. Headley

(a)    Headley performed work for Hackley and because of economic necessity, he accepted a lesser compensation than that to which he felt himself entitled.  The court held that a transaction is voidable because of duress only when one of the parties thereto is forced to act in a manner inconsistent with his own free will.

(4)   Austin Instrument v. Loral Corp.

(a)    Austin threatened to withhold delivery of precision parts unless Loral would raise the contract price.  The court held that a contract modification is voidable on the ground of duress when the party claiming duress establishes that its agreement to the modification was obtained by means of a wrongful threat from the other party which precluded the first party’s exercise of free will.

(5)   United States v. Progressive Enterprises


D.    Undue Influence

i)        Undue influence is unfair persuasion of a party, A, who is under the domination of the person exercising the persuasion, B, or who by virtue of the relation between then is justified in assuming that B will not act in a manner inconsistent with A’s welfare.  If a party’s assent is induced by the other party’s undue influence, the contract is voidable by the victim.

(1)   Odorizzi v. Bloomfield School District (narrow view of duress)

(a)    Odorizzi sought to rescind his resignation from his position as a teacher in the Bloomfield School District on the basis that it was procured as a result of duress, fraud, undue influence, and mistake.  The court held that undue influence is exerted where the injured party’s independent will is overpowered by that of a superior party, or his agents, at a time at which the victim was particularly vunerable.

E.     Unconscionablility

i)        One would allege unconscionability if they could not allege another more concrete defense.

(1)   Example, if you can’t prove misrepresentation, , public policy, duress, undue influence, infancy, incapacity, etc… then go for unconscionability.

ii)      Two kinds

(1)   Substantive, won’t be enforced ever on “terms” in contract, example is Baby M

(2)   Procedural, defect in the bargaining process, one of the parties must be close to incapable and the other party must be evil.

iii)    UCC 2-302

(1)   Williams v. Walker-Thomas Furniture Co.

(a)    Walker Thomas sold to Williams furniture burdened by a cross collateral clause and, subsequent to Williams default, sought to replevy all goods previously purchased by Williams.  The court held such a contract unconscionable and that the defense of unconsionability to action on a contract is judicially recognized. 

(b)   Brutal terminology, oppressive because buyer was making very bad decisions and seller knew about it, unfair surprise-draconian provision

(c)    What do we do with an unconscionable term?

(d)   Market conditions, monopoly v. non monopoly

(2)   Wille v. Southwestern Bell Telephone Co.

(a)    Southwestern failed to include the Wille’s correct information in the yellow pages, and Wille brings suit to recover for lost profits and costs of additional advertising he incurred to correct the error.  The court ruled in favor of Southwestern, holding that the terms of the contract were not unconscionable.  The terms of the contract were clearly printed and written in common words and Wille, an experienced businessman who had used the yellow pages for 13 years, had reason to be familiar with such form contracts.

F.      Identifying the Terms of the Agreement

i)        Form Contracts or “Contracts of Adhesion”

(1)   When hidden and not read, should not make it into a contract

(2)   Carnival Cruise Lines v. Shute

(a)    The Shutes sought to file suit in the district court for the Western District of Washington against Carnival for injuries sustained while on one of its ships, in violation of the forum-selection clause contained in their ticket contracts.  The court ruled in favor of Carnival Cruise lines, holding that a nonnegotiated forum-selection clause contained in a standard contract is enforceable where the court determines it meets the requirements of fairness.

XVI.       Failure of a Basic Assumption

A.    Mistakes of Present Existing Facts

i)        Mutual Mistake (made by both parties at time contract was made, who bears risk?)

(1)   A mutual mistake occurs where the parties made a contract under a shared mistake concerning a basic assumption of fact on which the contract was made.  In contract law the term mutual mistake normally refers to a mistaken assumption shared by both parties as to the conditions of the outside world.  In such cases, the adversely affected party is normally entitled to rescission unless he bore the risk of the mistake.

(2)   Sherwood v. Walker

(a)    Walker contracted to sell Sherwood a cow that both parties believed was barren.  Before delivery of the cow, Walker discovered the cow was pregnant, and thus more valuable. Under the older test, the contract could be rescinded because the parties made a mutual mistake as to the substance of the contract’s subject matter

(3)   Nestor v. Michigan Land & Iron Co.


(4)   Wood v. Boynton

(a)    Boynton purchased an uncut stone from Wood for $1; neither party realized the stone was a diamond worth $700.  The court ruled in favor of Boynton, holding that in the absence of fraud on the part of the vendee, a mutual mistake as to the nature and value of a thing sold will not afford a basis for rescission of the contract of sale.

(b)   Who has possession of the item?

(5)   Lenawee County Board of Health v. Messerly

(a)    Mr. and Mrs. Pickles sought the rescission of a land sale contract they had entered into with Mr. and Mrs. Messerly following the condemnation of the property by the Lenawee County Board of Health.  The court ruled in favor of Messerly holding that where both parties to a contract are mutually mistaken as to a basic supposition upon which the agreement was predicated, thereby affecting the parties’ obligations pursuant to the contract, the court may grant the equitable remedy of rescission where the particular circumstances warrant such a remedy.  Since the Pickles bought the house with an “as is” clause, they accepted the house in its present condition and this acceptance encompasses all defects known and unknown existing on the property.

ii)      Unilateral Mistake and the Duty to Disclose (some way party that is not mistaken is a bad guy)

(1)   A unilateral mistake occurs when something goes wrong with the mental machinery of one of the parties, as where of the parties makes a mistake in computation.  Such a mistake is a ground for rescission by the mistaken party if the nonmistaken party knew or should have known of the mistake.

(2)   Tyra v. Cheney

(a)    Tyra submitted a bid to Cheney to perform the roofing and sheet metal work under Cheney’s contract.  Tyra submitted an oral bid and he was told to submit it in written form.  When Tyra submitted his written bid, he mistakenly omitted an item valued at $963.  The court ruled in favor of Tyra, holding that where one party to a contract is unilaterally mistaken as to an essential contract term, and the other party is aware of his error, the agreement fails to constitute a binding contract and is hence unenforceable. 

(3)   Laidlaw v. Organ

(a)    External event

(b)   A party to an agreement who has exclusive knowledge of extrinsic circumstances that might influence the price of the commodity is not under a duty to disclose such knowledge to the other party where the information is freely available. 

(4)   Baseball Card Case

B.     Changed Circumstances

i)        Impossibility and Impracticability

(1)   Paradine v. Jane

(a)    Tenant sought to avoid payment of rent pursuant to a lease agreement with landlord on the basis that he has been ousted from possession of the premises.  Where a party to a contract agrees to perform certain obligations, he is not relieved of his contractual duties by the occurrence of an extraneous event rendering the other party’s performance impossible.

(2)   Taylor v. Caldwell

(a)    Caldwell owned a music hall and leased the hall to Taylor.  Before Taylor could use the hall it burned down.  Taylor then sued Caldwell to recover the expenses of advertising and costs incurred in setting up the concert.  The court excused both parties from performance.  In a contract where performance depends on the ongoing existence of a specific person or chattel, there is an implied condition that the destruction of the subject matter rendering performance impossible may excuse the parties from executing their contractual obligations thereunder.   

(3)   Eastern Air Lines v. Gulf Oil Corp

(a)    Gulf Oil Corp was to furnish airline fuel to Eastern for five years under an alleged requirements contract.  The court ruled in favor of Eastern, holding that a requirements contract is binding where the purchaser has an operating business. 

ii)      Frustration of Purposes

(1)   Krell v. Henry

(a)    Henry failed to pay the balance of money owed to Krell pursuant to an agreement to rent his flat in order to view the coronation of Edward VII, due to the cancellation of the ceremony.  The court ruled in favor of Henry, holding that where the performance of a contract becomes impossible due to a change in circumstances thereby altering the basis of the agreement, the parties may be excused from performance of their contractual obligations.

(2)   Lloyd v. Murphy

(a)    Murphy sought termination of his lease to utilize specific property for the sale of new automobiles, on the basis that the conducting of such business was frustrated by war conditions.  The court ruled in favor of Lloyd, holding that because the risk was foreseeable and because the banning of the sale of automobiles did not completely serve to destroy the purpose of the contract, the agreement was still binding on both parties.  The doctrine of frustration of purposes requires that where the primary purpose of a contract has been completely negated by circumstances that were no reasonably foreseeable to the parties at the time the contract was entered, the parties may be excused from performance.

C.     Allocation of Risk in Long-Term Contracts

(1)   Aluminum Company of America v. Essex Group, Inc.


(2)   Northern Indiana Public Service Co. v. Carbon County Coal Co.