LUCY v. ZEHMER: Supreme Court of Appeals of Virginia, 1954 CB 1-4
[Man creates contract through his actions regardless of his unstated intent]
Issue and Holding:
Did the trial court make an error in deciding that Lucy had failed to establish their right to
specific performance? Yes, the appeals court ruled that Lucy was entitled to specific performance
of the contract and overturned the trial court decree. Zehmer’s actions demonstrated the requisite
intent to contract regardless of his claim that his offer was a drunken joke. This demonstrates the
majority rule objective theory.
Facts: Lucy alleged that Zehmer entered into contract to sell a farm for $50,000. A instrument
(piece of paper to be determined a contract or not) was signed by Mr. And Mrs. Zehmer and
produced by Lucy. Zehmer claimed that there was no contract because the ‘memorandum’ was a
joke, obviously written in jest.
Procedural History: Lucy sued Zehmer for specific performance to force the sale of the farm.
In the trial court, the case was dismissed for Lucy’s failure to establish right to specific
performance. The appeals court overturned this decision and ordered the case to be remanded to
the trial court who would issue a decree requiring Zehmer’s to perform the contract.
Reasoning: This case demonstrates the objective test of intent that is commonly applied in
establishing a contract. Objective theory states that once outward actions and words are the key
to establishing a commitment to the offer. Zehmer’s many actions outwardly indicated he was
serious. “The mental assent of the parties is not requisite for the formation of a contract. If the
words or other acts of one of the parties have but one reasonable meaning, his undisclosed
intention is immaterial…(unless the other party knows it is a joke.)”
The court asserted that a reasonable person in Lucy’s circumstance would have concluded that
Zehemer was serious in his intent to contract. [outward expressions showing objective intent to
contract] [also, if buyer knew or should have known it was a joke, then no contract]
BALFOUR v. BALFOUR: Court of Appeal, Kings Bench, 1919 CB 4-5.
[No contract between husband and wife for monthly allowance commitment]
Issue and Holding: Is a promise of a husband to pay his wife an allowance a contract? The court
of appeals in this case ruled this answer to be No by overturning the lower courts decision.
Facts: Man promised to pay wife £30 a month. They separate and he stops payment of this
allowance. She sues him for this money as part of the divorce.
Procedural History: The lower court ruled in favor of the wife that a contract existed and
ordered the husband to honor the contract. Husband appealed. The appeals court overturned this
ruling stating that this agreement was not a contract.
Reasoning: Certain agreements are made without the intention of them being contracts,
especially agreements between a husband and wife. This was the attitude of the court in 1919.
The court stated that matters between spouses were not subject to contract, that they would
overburden the court system, and be an intrusion of the King into private matters.
Evaluation: For reasons of social policy, this may hold true even if the parties expressly state
their intent to be bound by legal consequence.
COLLINS v. REYNARD: Supreme Court of Illinois, 1992 CB 16-18
[Lawyer goofs real estate forms and is sued for malpractice tort and contract breach]
Issue and Holding: Should a lawyer be held to both contract and tort liability? No, the court
ruled that malpractice should be applied only in Tort because tort is the established forum for
dealing with lawyer malpractice.
Facts: Lawyer failed to protect the clients interests in a real property deal causing financial loss.
The complaint against the lawyer was made, in separate courts, on both tort and contract theories.
Procedural History: Motion to dismiss tort claim was overruled in trial court. This was
appealed and the first level appeals court reversed the ruling stating that the malpractice
complaint is only valid in contract. Supreme court affirmed, but the case was re-argued on other
Reasoning: The ruling is grounded more on historical precedent rather than logic.
am unclear about the phrase “we rule that a complaint
against a lawyer for professional malpractice may be couched in
either contract or tort and that recovery may be sought in the
alternative. “ What does this mean? What is the ruling in this
HAWKINS v. McGEE: Supreme Court of New Hampshire, 1929 CB 18-21
[Doctor in breach of contract by promising perfect results of skin graft]
Issue and Holding: Should the trial court’s judgment of excessive damages be set aside? Is a
doctor liable in contract for a promise regarding treatment results? In this case the appeals court
said that this is indeed a possibility but failed to answer the damages question in detail. This case
overturned and sent for a new trial
Facts: Defendant Doctor performs skin graft surgery on surgery on plaintiff’s hand. Surgery and
recovery go poorly. Plaintiff alleges the doctor made an express promise to restore than hand to
perfect condition. Defense argues that no reasonable man would understand these words to imply
intent to contract. It is disclosed that the defendant repeatedly solicited the plaintiff to undertake
Procedural History: The plaintiff prevailed with the jury but the trial court set aside the verdict
for being excessive and against the weight of the evidence. The plaintiff appealed this judgment.
The appeals court found that the jury instructions were indeed incorrect in regards to damages
and ordered a new trial, failing to determine the proper damages amount themselves.
Reasoning: The court ruled that there was not question of contract. The jury properly decided
with proper instruction that the doctor had formed a contract. The jury instruction to consider
“pain and suffering” damages was indeed false. The instruction should have defined damages as
the value between a perfect hand and the hand that the plaintiff ended up with.
Evaluation: Why not sue in tort for malpractice where “pain and suffering” damages could
McGEE v. US FIDELITY & GUARANTEE: US Court of Appeals, 1931
[Malpractice company not responsible for contract breach loss]
Issue and Holding: Insurance company did not have to pay because doctor lost a judgment on
contract and not the tort of malpractice.
Procedural History: Doctor sued malpractice insurer for breach of contract for failing to pay
settlement of original case. Decision upheld on appeal.
LEONARD v. PEPSICO, INC: US District Court, S. D. New York, 1999
[Pepsi advertisement for Harrier jet reward is not considered an offer]
Issue and Holding: Is a television advertisement for a Harrier jet considered an offer? The court
in this case decided no.
Facts: Plaintiff witnessed an advertisement from defendant which alleged to offer a Harrier jet in
exchange for “Pepsi points.”
Procedural History: This case is being tried in US court and the defendant has requested and
been granted a summary judgment.
Reasoning: Television advertisements are not considered offers according to the Restatement of
Contracts (Second). The advertisement was fanciful and any reasonable person would conclude
that no offer was communicated. The ad was an invitation for the completion of an order form,
which would constitute the offer in this transaction. The Pepsi commercial contained no specific
language that would have opened the ad to consideration as an offer.
Evaluation: This case is pretty cut and dry. Summary motion to dismiss granted.
HOFFMAN v. HORTON: Supreme Court of Virginia, 1972 CB 33-34
[Auctioneer reopens bidding within his rights]
Issue and Holding: The question in this case us whether an auctioneer at a foreclosure sale may
reopen the bidding when an overbid is made immediately prior to or simultaneously with the
falling of the hammer in acceptance of a lower bid. The trial court and the appellate court ruled
that the auctioneer was vested with the discretion to reopen the bidding and judgment for the
auctioneer defendant is upheld.
Facts: Plaintiff had high bid near the close of an auction. Immediately on close of the auction the
auctioneer was brought to realize that he had missed a bid. The auction was reopened at that
price, eventually knocking down the item to plaintiff for $17,000 more than the previous winning
bid. Plaintiff filed suit.
Procedural History: The trial court found as a matter of undisputed fact that the missed bid
came “prior to or simultaneously with” the fall of the hammer and that it was within the
auctioneers discretion to reopen the auction for the item. Judgment for the defendant in trail and
Reasoning: The trail court cited the UCC statement giving auctioneer authority and discretion to
reopen bidding when a bid is received, or sell the goods under the bid on which the hammer was
falling. However, the appellate court argues, UCC is not controlling in this transaction of
property as UCC only covers transactions in goods. Even still, the UCC gives good guidance and
is appropriate to borrow from in the transaction at hand. Trail court decision upheld.
Evaluation: same result even though the appellate court found contention with trial courts
LONERGAN v. SCOLNICK: District Court of Appeal, 4th District,
California, 1954. CB 36-37
[Real estate advertisement and correspondence letters not considered offer to sell]
Issue and Holding: Did the letter from the defendant to the plaintiff constitute an offer to sell
real property? No, the correspondence between the plaintiff and defendant were only invitations
to make offers and preliminary negotiations, and are therefore not binding.
Facts: Plaintiff responded to defendant’s newspaper advertisement regarding a piece of real
property for sale. Plaintiff and defendant exchanged further correspondence in which defendant
provided information on the property and additional preliminary communication.
Procedural History: The trial court decided this case in favor of the defendant. All
communications issued by the defendant failed to meet the standard of an offer. The appellate
court agreed with the trial court on this controlling issue and affirmed the judgment.
Reasoning: The plaintiff’s case failed to establish that a contract was formed. In order to be
considered a contract, a valid offer must be accepted. Advertisements and preliminary
communications generally are not considered offers by rule of law, unless the have specific
language defining the elemental terms required of an offer.
FAIRMOUNT GLASS WORKS v. GRUNDEN-MARTIN
WOODENWARE; Court of Appeals Kentucky, 1899. CB 38-40
[Quote for Mason Jar shipments constituted an offer]
Issue and Holding: Did the response by the appellant to the appellee’s request for an offer
constitute an offer to enter into contract? The appeals court upheld the trial court ruling that the
language in the response was specific enough to constitute a valid offer to contract.
Facts: Appellant requested a price quotation for a specific quantity and type of Mason glass jars.
Appellee sent a letter with a specific price, quantity and terms of purchase. Upon receipt,
appellee confirmed the order of jars at which time appellant declared that they could not deliver
Procedural History: This case was heard at the trail level and judgment was made for the
Reasoning: Letter contained all material terms of an offer, including the phrase ‘for immediate
acceptance’. Appeals court rejects argument that the language was not an express offer to sell.
Argument of indefiniteness of terms is rejected because “10 car loads” is specific enough when
considered as an expression common in the trade as meaning 1,000 gross.
Quotation can be considered an offer if all material terms are defined.
Module 2 cases
TEXACO v. PENNZOIL; Court of Appeals Texas, 1987. CB 41-52
[Texaco liable to Pennzoil for tortuous interference with Getty Oil merger]
Issue and Holding: Did the memo of agreement between Getty and Pennzoil constitute a
contract? Yes, the trail court and the appeals court held that Texaco was liable for interference
with the contract between Getty and Pennzoil
Facts: Pennzoil and Getty were negotiating a merger deal and reached an agreement in principle.
A memo of agreement was written, signed, and issued for press release. Texaco makes Getty a
superior offer, which Getty accepts. Pennzoil sues Texaco and wins compensatory damages of
$7.5B and punitive damages of $3B. Texaco claims in appeal that Getty did not have the intent to
be bound, and that the memo of understanding was indefinite and thereby not a contract.
Procedural History: The appeals court upheld the verdict of the trial court.
Reasoning: It is the parties expressed intent (objective test) that controls which rule of contract
formation applies. Court considered following factors: 1) did a party expressly reserve the right
to be bound only by formal written document? 2) was there partial performance that was
accepted by the disclaimant? 3) were all the essential terms of the alleged contract agreed upon 4)
is the complexity of this deal such that a formal executed writing would normally be accepted?
Texaco also makes claim (in vain) that even if there is a contract with required intent, the contract
would be void for vagueness.
Evaluation: This case looks closely at the language of the agreement. Case history is mixed.
Each of Texaco’s claims was rejected. In many cases, the court rules that by law these questions
were not clear. Since they could not be settled in law, they were questions of fact and the jury
decision was deferred to.
[This was a long case with very fine points about intent and vagueness claims]
HAINES v. NEW YORK; Court of Appeals NY 1977. CB [52-55]
[City under contract to maintain but not expand watershed villages water treatment plant]
Issue and Holding: Does the contract from 1924 provide the specific performance of the
expanding the waste treatment facility? No. The appeals court overturned the trial court ruling
and found the city under an enduring contract, but not responsible for any expansion of the
capacity beyond the current level.
Facts: City of New York formed a contract in 1924 with several villages to build and maintain a
sewage treatment system within the city’s watershed. 50 years later, a developer is denied an
extension to the sewer system and sues. Villages join suit claiming city’s contract is perpetual in
duration and obliges expansion.
Procedural History: The trial and appeals court found the city responsible for expansion of the
system (Court of Appeals in NY might be Supreme Court!). This court holds that the City of NY
is not responsible for any expansion of the system beyond it’s current limits. Overturned and
remanded back to local court for entry of judgment.
Court reasons that contract is in effect, but not perpetual. A long as the city of New York wants
the clean water, they must pay for the maintenance of the system that was built according to the
original specifications. “In providing for the extension of sewer lines, the contract des not
obligate the city to provide sewage dispolas services fro properties in areas no presently served or
even to new properties in areas currently served where to do so could reasonably be expected to
significantly increase demand on present plant facilities:
Evaluation: The reasoning seems to contradict the language in the contract to extend sewer lines
when “necessitated by future growth and building constructions of the respective communities.”
Module 3 Cases
WAGENSELLER v.SCOTTSDALE MEMORIAL HOSPITAL; Supreme
Ct. Arizona, 1985. CB [55-67]
[Woman sues employer on claim she was fired after not partying on camping trip]
Issue and Holding:
1) Is an employers right to terminate an at-will employee limited by any rules which, if
breached, give rise to a cause of action for wrongful termination? Yes. Firing for bad
cause may be deemed wrongful on social policy basis. Here the court held that a jury
must answer the question of fact whether the employee was terminated wrongfully.
2) If public policy does for the basis for such an action, how is it determined? By weighing
the actions (or non action) against common and statutory law. In this case the defendant
may have been fired for failure to commit a prohibited act. It would be up to the jury to
decide if she was fired for this reason.
3) Was the trial court correct in declaring the employee manual was not part of the
employment contract? No they were not. This question is for the jury. The manual did
not include the proper language to prevent it from modifying the at-will status of the
4) Do employment contracts contain an implied covenant of ‘good faith and fair dealing’?
Here the court held no they do not. Although the covenant of good faith is recognized as
part of contracts, it does not construe the doctrine to give tenure or other non-contracted
Facts: Plaintiff was a long standing employee with high evaluations. During a company
camping trip, the employee’s supervisor, and the group as a whole, engaged in obnoxious,
offensive, and possibly illegal activities. The plaintiff refused to participate during the camping
trip and on a subsequent reenactment of a mooning skit at the hospital. Plaintiff alleges that she
was fired shortly after and this was the proximate cause of the conflict with the supervisor.
Trail court dismissed all causes of action on defendants’ motion for summary judgment. Appeals
court affirmed all judgement except for remanding for cause of action against direct supervisor.
1) public policy: firing of an at will employee can be for no cause or good cause, but not for bad
cause. It is now recognized that a proper balance must be maintained among the employers
interests…the employees interests, and society’s interest in seeing public policy carried out.
2) Public policy is defined by “…our founders, our legislature and our courts”. Termination for
refulas to expose ones buttocks is a termination contrary to public policy.
3)at will status is recognized as standard unless otherwise modified. Court states that it would be
a question of fact whether the employee handbook contained language, or if there was conduct or
oral representations establishing the handbook as a contract. Further, the plaintiff does not need
to establish reliance in fact for the handbook to be considered a contract.
4)court cannot accept argument that discharge without good cause breaches the implied-in-law
covenant of good faith and fair dealing contained in every contract. To do so would tread close to
abolishing the at-will doctrine. Covenant can be used to prevent avoidance of payment of
benefits already earned.
SOUTHWEST ENGINEERING v. MARTIN TRACTOR; Sprme. CT.
Kansas, 1970. CB [67-71]
[Generator supplier breaches contract claiming indefiniteness]
Issue and Holding: Did the lack of defined payment terms nullify the contract for
indefiniteness? Here the court held No. Although the terms were not defined or even agreed
upon, the contract does not fail. The terms can be reached by examining normal business
practices and statutory guidance.
Facts: Plaintiff, a general contractor, entered into contract with defendant for supply of
generating equipment. Defendant breached agreement.
Procedural History: Trail was had to the court which entered judgment in favor of the plaintiff
Reasoning: The actions of the parties indicate that the terms were not that big of a deal. (In fact,
the indefinite reasoning is brought up after the case was brought). Overall these parties acted as if
an agreement had been reached and statue can be used as a gap filler to define the terms.
Evaluation: Gap filler, indefiniteness.
MARTIN DELICATESSEN v. SCHUMACHER; Ct. of Appeals, NY,
1981. CB [72-75]
[Tenant sues landlord for breach of contract for failed lease extension option]
Issue and Holding: Did the lease extension provision with a rate to be agreed upon cause this
contract to fail for indefiniteness. Yes, Here the court held that an agreement to agree on such a
material term as price is unenforceable if setting of the price is not guided by specific
methodology within the lease itself.
Facts: Deli owner was 5 years into a lease and wanted to extend according to an extension
provision with annual rental rate “to be agreed upon.” Landlord and tenant disagreed on fair
Procedural History: Case was dismissed at the trial court, and reversed at appellate court.
Supreme court re-instated trial court verdict holding that contract was unenforceable for
Reasoning: Price is a material term and need to be defined to have a valid contract. UCC type
provision for setting fair rate do not apply to real estate transactions.
Evaluation: Dissent states that tenant has already negotiated and paid for the right to extend the
lease and the court should recognize this. The UCC
COPELAND v. BASKIN ROBBINS; Ct. of Appeals 2nd District, 2002. CB
[Contract for factory sale contains an agreement to negotiate a contract for sale of ice
Issue and Holding: Is an agreement to negotiate an agreement distinguishable from an
agreement to agree? Here the court held yes, this type of provision is not the same as an
agreement to agree. However, liability in this case would be limited to reliance damages which
are not applicable to this plaintiff.
Facts: Parties agreed on terms of sale of ice cream manufacturing facilities. Instrumental to that
deal was an agreement that defendant purchase ice cream from the plaintiff. An offer including
this provision was made by defendant and accepted by plaintiff, who provided the requested
deposit. Parties continued negotiation of the co-packing deal until defendant announced there
would be no co-packing agreement and returned the plaintiffs deposit. Plaintiff is suing for
Trail court granted defendants motion for summary judgment stating that agreement was
indefinite and therefore unenforceable. Although the Federal appeals court differentiated an
agreement to negotiate from an agreement to agree, the trial courts ruling is still upheld.
Reasoning: Plaintiff did not claim that a co-packing agreement was ever reached. His claim was
that the original agreement included a provision to negotiate an agreement. This contract was
binding and forced the defendant to negotiate the co-packing deal in good faith. Whether this is
done will most often be a question of fact for the jury. Court sites sound public policy concerns
for protecting parties from bad faith negotiations.
Evaluation: Plaintiff could not show that he had damages because he relied on the agreement to
negotiate. This was the only type of damages the defendant was liable for.
OGLEBAY NORTON v. ARMCO; Supreme Ct. Ohio, 1990. CB [82-88]
[Shipping contract valid even though price was not defined]
Issue and Holding: Can a contract be found enforceable if a material term like price is
undefined? Here the court held yes. If the parties intend to be bound and they specify the method
for establishing price, the contract can be enforced.
Facts: Long term shipping contract in effect for over three decades. Companies demonstrate
intent to be bound by contract by close business relations and practices. Rate set by published
figure until no longer available, at which time negotiated rates prevail for several years. Finally,
parties cannot reach agreement on rate and Plaintiff sues asking court to find a declaratory
judgment setting the
1. The trial court held that the actions of the parties demonstrated their intent to be bound,
even though the rate was not settled.
2. Since they intended to be bound, and the established method of setting the rate failed,
then the price shall be the price that is reasonable at the time the service is provided
3. The court held the parties should adopt the pricing strategy defined in the contract to
reference other common carrier rates.
4. If no agreement can be reached, the court will implement a mediator to establish the rate.
Appeals court and supreme court affirmed.
These companies acted with intent to be bound and relied on contract provisions. The court
thought it appropriate to recognize the intent to be bound and the enforcement of this contract.
Intent to be bound, reliance, provisions for adopting market rate.
ECKLES v. SHARMAN; US Ct. of Appeals 10th Circuit, 1977. CB [89-92]
[Basketball coach sued for breach of contract]
Issue and Holding: Did the court err in granting summary judgment to the plaintiff? Here the
court held yes. The original contract may be unenforceable as a matter of fact to be determined
by the jury if the pension and option clauses are found to be essential to the contract.
Facts: Coach leaves NBA for ABA startup in Los Angeles signing multi-year contract. Team is
sold and moved to Utah. Contract has provisions that agree to agree on contract terms of pension
and ownership stake. Coach eventually leaves Utah for Los Angeles Lakers and is sued for
breach along with Lakers owner who allegedly induced.
Procedural History: Judgment was entered on jury verdict for $250k against the coach and
$175k against owner inducing breach. Appeals court reverses and remands.
Reasoning: If the pension clause was so material to this contract as demonstrated by the parties
actions, a failure to reach an agreement might leave the contract unenforceable. The trail court
should not have granted summary judgment as the jury needs to decide if these items are material
as a matter of fact. Severability clause may not hold up if severed paragraphs are essential
material elements to the contract.
Evaluation: Indefiniteness, agree to agree, severability,
Module 4 Cases: Acceptance and Unilateral Contracts
STATE v.MALM; Supreme Ct. Connecticut, 1956. CB [93-95]
[No reward for info on murderer. Performance came before awareness]
Issue and Holding: Did plaintiff fulfill the terms of the offer for reward? No. The court held
that the performance required by the offer was performed before the plaintiff knew of the offer
and therefore is not a contract.
Facts: Plaintiff provided information regarding a criminal case. This information was provided
prior to plaintiff knowledge of a reward for information.
Procedural History: Plaintiff’s motion denied in trial court. Affirmed.
Reasoning: An reward offer is commonly treated as an offer to a unilateral contract.
Reward offer stated: “who shall give information leading to the arrest…”. Court interpreted this
to show the manifest purpose of the statute was to elicit information not already available.
Evaluation: Reward offers, offers to unilateral contracts require performance, knowledge of
INDUSTRIAL AMERICA v. FULTON INDUSTRIES; Supreme Ct.
Delaware 1971. CB [95-98]
[Broker (Deutsh) cut out of merger wins contract claim]
Issue and Holding:
Did the plaintiff have to prove subjective intent that he accepted the offer of guaranty which the
jury found in defendants advertisement? No. Subjective intent is irrelevant. The advertisement
invited acceptance y performance
Facts: Plaintiff was negotiating a merger deal for defendants. Brought parties together after
reading advertisement with words “brokers fully protected” Ended up getting cut out of deal.
Procedural History: Trial judge found that performance (bringing parties together) was
acceptance to the offer with guaranty “brokers fully protected”. $125,00 award affirmed.
Reasoning: Subjective intent is not relevant, defendants offer invited performance, plaintiff
knew of offer at time of performance, performance was made (as per jury).
Evaluation: Performance by acceptance. Offer to unilateral contract.
CARLILL v. CARBOLIC SMOKE BALL; Ct. of Appeal, QB, 1893. CB
[Flu prevention guarantee an offer to unilateral]
Issue and Holding:
1. Was the defendants advertisement an offer to all, or a puff which meant nothing? Held,
defendant placed money in a bank demonstrating seriousness of offer. Valid offer.
2. Is the reward offer binding given they are not addressed to a particular individual? Held, they
are offers to anybody who performs the conditions named and anybody who performs the
conditions accepts the offer. Defendants are obligated to perform their promise.
3. Does the contract fail because the offeree failed to communicate her acceptance of the offer?
Held, no. performance itself can be a sufficient method of acceptance.
Facts: Influenza remedy manufacturer guarantees money to any user of their product who
catches ill. Woman uses product as directed, catches ill, and makes claim.
Procedural History: Trial court granted recovery to plaintiff. Appeal dismissed.
Reasoning: a person who makes an offer to unilateral in an advertisement must have common
sense to know acceptance apart from performance is not required.
Evaluation: Offer to unilateral, acceptance by performance.
GEM BROADCASTING v. MINKER; Florida Appeals, 2000. CB [108-
[Consultant establishes implied in fact contract claim]
Issue and Holding:
1. Was the trial court correct in determining a contract implied in fact existed? Yes, the
court held that the actions of the parties demonstrated assent to contract for services as
commonly found in implied in fact contracts
2. Does the plaintiff have to convey a benefit to recover for this type of contract? No. Here
the court held destroyed the defense argument as it applied to implied in law contracts.
Implied in fact contracts can be enforced even when defendant receives nothing of value.
Facts: Plaintiff worked 30 days as a consultant for defendant.
Procedural History: Bench trial established implied in fact contract. Awarded damages based
on reasonable value of services, Quantum Meruit.
Reasoning: Assent can be silent when demonstrated by actions.
Evaluation: Implied in fact, Implied in law, acceptance by silence.
WILHOITE v. BECK; Appellate Indiana, 1967. CB [110-113]
[2nd cousin recovers for 20+ years living expenses]
Issue and Holding: Did an implied contract exist between appellee and decedent relative? Yes,
here the court held that a contract existed and upheld damages award based on the trial courts
findings and lack of controverting evidence.
Facts: Appellee provides room board to a distant relative for two decades. Upon her death,
appellee filed a claim against the decedent’s estate for a n implied contract.
Procedural History: Bench trial awarded damages. Appeals court overruled a motion for a
new trial.. Supreme Court only revisiting that case based on claim that 2) insufficient evidence to
support a claim 3) decision of court is contrary to law.
Court looks at distant relationship of parties and states that this relationship does not guarantee
services provided for free. Court then looks to living arrangement to see that it was not typically
There is no evidence that parties discussed payment (perhaps because of dead mans statutes
prohibiting testimony when decedents lips are sealed by death).
Decedent was a well educated and employed person who reasonably could not have expected to
live free of charge.
Inclusion of appellee in decedents will does not preclude recovery here for legitimate services
Evaluation: Implied in fact contract. Gratuitous services for family.
HOBBS v. MASSASOIT WHIP; Supreme CT. Mass., 1893. CB [114-115]
[EEL Skins retained constitutes assent]
Issue and Holding:
Did the acceptance and retention of some unsolicited EEL skins constitute assent to formation?
Yes. Here the court held that because of prior established business dealings between the parties,
the defendants had a duty to either return the goods or inform the plaintiff of rejection.
Facts: Plaintiff sends a package of eel skins to defendant, as he has done before on several
occasions. EEL skins are retained for some time and then destroyed
Procedural History: Trail court found for the plaintiff. Exceptions overruled.
Reasoning: The jury instruction brought up on appeal may have initially seemed to impose a
duty on a stranger to reject unsolicited goods, but in this case, the established relationship
between the parties makes that not the case. Appeals court rejects argument that jury instruction
Unsolicited goods, acceptance, silence.
ProCD v. ZEIDENBERG; US Appeals 7th, 1996. CB [116-122]
[Shrinkwrap licenses held as valid ]
Issue and Holding:
Are shirinkwrap licenses enforceable contracts? Yes. Shrinkwrap licenses are enforceable
contracts unless their terms are objectionable on general contract claims. Since they are not in
this case, the case is remanded with order to enter judgment for plaintiff.
Facts: Software purchaser used software commercially in violation of license agreement.
Procedural History: District court dismissed holding that licenses were inside the box and not
on the outside, and also that federal law forbids enforcement, even if Shrinkwrap licesnes are
Reasoning: Software publisher has right to engage in price discrimination for maximum
economic efficiency. This arbitrage is common in air carriers, movies etc. By turning to the
contract, ProCD establishes restriction in the use of their consumer product.
Court finds that “notice on the outside, terms on the inside, and a right to return the product if the
terms are unacceptable” is an appropriate means of doing business.
Transactions in which money changes hands prior to full disclosure of terms is common (airline,
concert ticket, warranty in a box.
Further, UCC can still govern this type of contract (payment up front with formation upon
acceptance of license agreement or rejection)
Software Licensing, license agreement, terms disclosed after purchase.
Section 5: When may an offer looking to unilateral no longer be
Petterson v. PATTBERG; NY Ct. of Appeals, 1928. CB [125-129]
[Estate Property Mortgage case: man unsuccessfully sues for loss of prepayment
Issue and Holding:
Could the offer (the letter agreeing to accept cash for the mortgage with an early payment
allowance) be rescinded prior to the plaintiffs tender of payment? Yes. Here the majority held
that as long as the offer is revoked prior to performance (tendering of the money) then no contract
Facts: defendant offered to reduce mortgage to plaintiff if he paid early. Before payment, man
revoked his offer.
Procedural History: Trail court and appeals court found for the plaintiff. Dismissed on appeal.
Reasoning: Offer can be revoked at any time prior to performance.
Evaluation: Revocation of an offer to unilateral.
Reinforced in STATE v. WHEELER, Washington 1981. Court held that plea offer is an offer
to unilateral that can be revoked at any time prior to performance (entering of plea)
Moye says in session three lecture that this case looks at defendant’s argument of detrimental,
reasonable, reliance upon offer creating a irrevocable equitable offer.
MOTEL SERVICES v. CENTRAL MAIN POWER; Supreme Court
Maine, 1978. CB [129-133]
[Energy rebate allowance sent to wrong company]
Issue and Holding:
Was trail judges ruling that plaintiff did not complete performance of the rebate offer prior to
transferring ownership and thereby had no contract correct? No. The appeals court reversed and
remanded with instructions for a judgment for appellant to be made.
Facts: Motel built hotels for third party. CMP send energy allowance to third party. Motel sues
CMP for allowances.
Procedural History: Final judgment entered for defendant at a bench trial
Reasoning: Third party is clearly not entitled to the rebate.
Court finds that the rebate offer became irrevocable upon acceptance of the offer (beginning the
installation of the required heating system), but payment was not due until completion of required
Motel Services gave CMP what it had bargained for prior to the conveyance of ownership. This
court held that since the majority of performance was complete and CMP had what they were
after, then the rebate should go to Motel Services.
Evaluation: Partial performance as acceptance of offer to unilateral.
Module 5 Cases:
BRACKENBURY v. HODGKIN; Supreme Court of Maine, 1917. CB
[Mother enters contract with daughter upon daughters moving to residence]
Issue and Holding:
Did a contract exist between the mother and daughter? Here the court held yes, an enforceable
contract existed without doubt. The mothers letter to the daughter was an offer to a unilateral
contract and performance was completed upon the daughters relocating back to the mothers
Evaluation: An offer to a unilateral contracts requires a reciprocal act for a promise. The
only acceptance of that offer is the performance of the act. The promise becomes binding
when the act is performed.
CANTU v. CENTRAL EDUCATION AGENCY; Texas Appeals, 1994. CB
[Teachers resignation effective upon sending of acceptance letter]
Issue and Holding: Defendant argues that the mailbox rule should not apply in this case because
the original offer was not sent by mail (it was hand delivered). There was no express
authorization to mail the acceptance nor can an implied authorization to use mail be found. Held,
The mailbox rule can be applied. The acceptance does not have to be in the same manner as the
offer, so long as the acceptance is communicated in a manner that is reasonable under the
Facts: Plaintiff provided resignation letter to supervisor. This letter was delivered to the
Superintendent, who promptly mailed an acceptance letter [contract formed according to mailbox
rule]. Plaintiff subsequently delivered a letter rescinding the resignation, but was not allowed to
Procedural History: State Commissioner of Education made ruling against appellant. The
District Court affirmed that decision, which is upheld here.
Reasoning: Corbin: “The mailing of a letter has long been a customary and expected way of
accepting an offer. “even though the offer was not made by mail, and there was no express
authorization , the existing circumstances may be such as to make it reasonable that the offeree
accept by mail Restatement: “An acceptance by any medium reasonable under the circumstances
is effective upon dispatch, absent a contrary indication in the offer.
Was it reasonable to use mail: Yes. It was urgent to resolve this matter as school was starting. 1)
communication in person were delayed due to weekend 2) Plaintiff requested that check be
mailed indicating she was not local and would not be returning to the school/district.
Evaluation: Mailbox rule: An acceptance is valid when dispatched. This policy protects the
rights of the offeree since the offeror has missed his chance to be the proper master of the offer.
FUJIMOTO v. RIO GRANDE PICKLE; US Appeals, 1969. CB [137-140]
[Employees protected by an implied acceptance, even without return of signed contract.]
Issue and Holding: Did the plaintiffs provide a valid acceptance and thereby form an
enforceable contract? Yes, Written notice of acceptance was not required by the offer.
Acceptance can be proven by the conduct. Ruling in favor of the plaintiff workers.
Facts: Plaintiffs negotiated a contract, including profit sharing bonuses, that were provided to
them for signing. The contracts were signed but never returned, although the plaintiffs worked
for the company for many months afterwards.
Procedural History: Jury found that a plaintiffs had entered into a written contract had been
Reasoning: Corbin: “1) offeror can require a notice of acceptance in the terms of the offer. 2)
offeror can specify the mode of acceptance exclusive of all others. 3) if the offeror specifies no
mode of acceptance, then the law provides that acceptance be in accord with the usage and
custome of men in similar cases”. Furthermore, ‘in many situations, acts or symbols can be
equally effective communicative media”
Evaluation: The plaintiffs were able to establish that their continued work with the company,
their strong negotiation, and the discussions they had with management proved that the company
knew they had accepted the contract
SWIFT & CO v. SMIGEL; New Jersey Appellate, 1971. CB [142-147]
[Nursing Home Owner’s contract with supplier may be held enforceable, regardless of
his incapacity, if plaintiff was unaware of the incompentency
Issue and Holding: Was the defendant responsible for goods delivered once he was declared
incompetent? Yes. Here the court held that the declaration of incompetency alone was not
sufficient to preclude a contract. Defendant would have to prove that the plaintiffs had
knowledge of the declaration of incompetence.
Facts: Defendant entered an agreement of “continuing guaranty” with Plaintiff. Defendant is
declared incompetent. Defendant’s estate claims they don’t have to pay for goods that were
delivered after declaration of incompetency.
Procedural History: Trial court granted defendant’s motion for summary judgment and
dismissed plaintiffs complaint.
Reasoning: “ The decisive consideration should be the presence or absence of knowledge by the
plaintiff, actual or reasonably to be imputed, of defendant’s incompetency at the time of each
advance of credit pursuant to the guaranty.”
Evaluation: Contracts with Lunatics are invalid, unless the contract has been made in good faith,
for full consideration, and had been executed without the knowledge of the insanity, or such
information as would lead a prudent person to the belief of the incapacity.
DORTON v. COLLINS AIKMAN CORP; US Appeals, 1972. CB [149-156]
[Carpet store v Carpet Supplier Battle of the Forms case]
Issue and Holding: Did the District Court err in holding that The Carpet Mart was not bound by
the arbitration agreement on the back of the Collins Aikman acknowledgement forms? Held,
Remanded for further findings. The carpet mart will not be bound by the arbitration provision
absent a finding that it expressly agreed to be bound by thereby.
Facts: Carpet Store ordered from carpet supplier in more than 55 transactions. Order forms,
acceptance forms, invoices all contained terms, including an arbitration agreement.
Procedural History: The District court held that no binding arbitration agreement existed based
on UCC 2-207
Reasoning: UCC 2-207: 1) a definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an acceptance even though it
states terms additional to the offer, unless acceptance is expressly made conditional on assent to
the additional or different terms. [Court found that even though the language of the
acceptance form had ‘subject to all the terms…” it was not covered by this provisio.
Assent to this term must be a specific requirement to be governed here.]
2) the additional terms are to be construed as proposals. Between merchants, the terms become
part of the contract unless a) the offer expressly limits acceptance to the terms of the offer or b)
they materially alter it, or c) notification of objection to them is given within a reasonable time.
3) Conduct by both parties is sufficient to establish a contract including original offer plus
additional terms. [this proviso binds these parities by conduct even though their written
agreement may have fallen apart on the express requirement of acceptance of terms.
UCC will not impose arbitration where their conduct is silent on the matter. District court applied
this to determine that the arbitration clause had not become binding.
Parties do not impose much significance on terms on printed forms.
Evaluation: UCC governs transactions in goods. In this case, two merchants involved. Court
had to identify whether form was an acceptance or a confirmation. If oral agreements were
reached prior to the sending , then acknowledgement forms. If not, then acceptance forms. In
either case a determination if the arbitration clause term was materially different than the original
offer will need to be made.
DIAMOND FRUIT GROWERS v. KRACK; US Appeals 9th, 1986. CB
[Manufacturer liable for damages even though delivery form stipulated not liable for
Issue and Holding: Was the liability disclaimer contained in the acceptance terms enforceable
as part of the contract? This determination would be based on KRACK’s assent to Metal-
Matic’s limitation of liability term. Held, no. KRACK never assented to this term.
Facts: Metal Matic had forms indicating that acceptance is expressly made conditional on
acceptance of terms and provisions contained on acknowledgement form, including a disclaimer
for all liability for consequential damages. The liability disclaimer was discussed several times
between executives of both companies during the course of a 10 year business relationship.
Procedural History: Jury reached verdict in favor of KRAK against Metal-Matic in third-party
Reasoning: The parties could have negotiated a contract and agreed on terms, but for whatever
reason, they failed to do so. Therefore, neither party should get it’s terms. Metal Matic makes a
good argument that KRACK’s continued business dealings indicate assent to the terms. Court
rejects that as a regression to common law last shot mentality. UCC requires specific an
unequivocal expression of assent on different term.
Metal-Matic continued to do business with KRACK even though they did not provide specific
assent to their stipulated terms.
Evaluation: Common law last shot rule not fair. UCC 2-207 tries to address this with a more
HILL v. GATEWAY; US Appeals 7th, 1997. CB [162-165]
[Arbitration agreement shipped with computer is binding]
Issue and Holding: Are the terms contained in a mail order computer box binding? Yes. In
this case, Gateway provided adequate notice that the order was subject to terms, and opportunity
to reject the deal if the terms were unacceptable.
Facts: Hill ordered a computer. It arrived with a list of terms, including a binding arbitration
agreement. Customer had 30 days to return the computer if terms were not acceptable.
Procedural History: District court held that there was insufficient evidence to enforce the
arbitration agreement as plaintiffs were not given adequate notice of the arbitration clause.
Reasoning: Terms of Gateways sale stand or fall together. If they constitute the contract
because the Hills had an opportunity to return the computer after reading them, than all must be
enforced equally. ProCD establishes terms can be inside the box if adequate notice and
opportunity to reject is given.
ProCD is not excluded in this case because it was a software sale v hardware sale.
Hills argument that this was an executory transaction that was compete upon delivery of the box
does not stand up. Hills expected Gateway to provide warranty and actually called this warranty
into use. Hard for them to claim the deal was done and therefore not governed by ProCD.
Hills argue that ProCD does not apply because the Hills are not merchants. Court rejects that as
this is not a battle of forms case. The ProCD opinion was a case where only one form, the
license, was in dispute. The merchant clause of UCC 2-207 is irrelevant when there is only one
Evaluation: Court suggests an argument that the cost of returning the computer would dissuade
one from returning the computer.
KLOCEK v. GATEWAY; US District, Kansas, 2000. CB [166-172]
[Arbitration agreement shipped with computer is not binding]
Issue and Holding: Are the terms contained in a mail order computer box binding? No.
Gateway provides no evidence thar at the time of the sales transaction it informed the plaintiff
that the transaction was conditioned on plaintiff’s acceptance of the standard terms.
Facts: Terms in the box are said to be accepted if computer is not returned within 5 days. Terms
include arbitration clause.
Procedural History: Gateways motion to dismiss is overruled.
Reasoning: In order to prevail on motion to dismiss, Gateway needs to establish that it is entitled
to arbitration. This involves showing that a written agreement existed for arbitration. According
to Kansas and Missouri law, cases are split on whether terms received with a product become part
of the parties agreement.
Gateway shipped the computer with the terms attached but this did not communicate to plaintiff
any unwillingness to proceed without the plaintiff’s agreement to the standard terms.
Because plaintiff is not a merchant, additional terms do not become part of the contract
uless plaintiff expressly agrees to them.
The act of keeping the computer past 5 days is not sufficient to demonstrate that the plaintiff
expressly agreed to the Standard terms.
Evaluation: This transaction does not have a clear jurisdiction. Last act necessary to complete
the contract might be one of several jurisdiction. Opinion is based on Kansas or Missouri law.
Gateway is invited to submit brief as to why another jurisdiction might be correct.
SPECHT v. NETSCAPE; US Appeals 2nd, 2002. CB [173--181]
[No binding arbitration for download software as terms not adequately conveyed]
Issue and Holding: Is a binding arbitration agreement in place for the software downloaded and
used by plaintiff? Here the court held no. The Smart Download software license agreement was
not adequately presented to the user prior to obtaining or using the software. Absent the
acceptance of these terms, no arbitration agreement can be enforced. No clickwrap for Smart
Facts: Plaintiff downloaded two pieces of complementary software. One had specific
requirement to agree to terms before software could be used. 2nd piece of software was obtained
without user being forced to accept terms. Terms were displayed on the download page, but off
the main screen. Plaintiff claims software is violating several Federal electronic protection acts,
and has brought suit. Netscape wants to compel arbitration.
Procedural History: District court denied Netscape’s motion to compel arbitration. Affirmed.
Reasoning: Clickwrap protection was in place for Communicator software but not for Smart
Download. It was not sufficient that the terms and conditions for Smart Download were
displayed on the same page as the download link, but not in a conspicuous manner. “California’s
common law is clear that an offeree regardless of apparent manifestation of his consent, is not
bound by inconspicuous contractual provisions of which he is unaware”
Court rejects reasoning that a reasonably prudent offeree would have known or learned of the
existence of SmartDownload license agreement prior to acting.
Court rejects argument that assent to Communicator license implies arbitration for
SmartDownload matters. SmartDownload claims are separate and distinct. Plaintiffs claim is
properly applicable to SmartDownload.
Evaluation: Shrinkwrap licensing is perfectly valid when the terms are offered in a conspicuous
PLANTATION KEY DEVELOPERS v. COLONIAL MORTGAGE; US
APPEALS 5th, 1979. CB [183-185]
[Permanent lender liable for breach of option contract to condo developer]
Issue and Holding: Should the breach of contract issue have been submitted to the jury? Held,
yes. The jury award was allowed as an option contract was in effect.
Facts: Plaintiff had paid for an option contract with three specific performance provisions. At
each option, the defendant agreed to make loans to the plaintiff at an established rate with
‘adjustments in interest and points made if market conditions exist.” Upon the enacting of the
option, defendant raised the points to a level unacceptable to plaintiff, who sued for breach.
Procedural History: Jury returned a verdict of $60,000 for the plaintiff on it’s contract claim.
Reasoning: Colonial fails to recognize it’s agreement for what it is, an option contract. An
option contract has two elements: 1) the underlying contract is not binding until accepted; and 2)
the agreement to hold open to the optionee the opportunity to accept.
Argument that plaintiff had to tender additional money in order to sue for breach is rejected.
Original payment satisfied the requirement.
The trial court properly left the question to the jury whether the quoted rate was in compliance
with the “as market conditions” require. Since other loans were available without the high points
quoted in this instance, the offer did not comply with the option contract.
Evaluation: Option contracts are not feely revocable.
Module 6 Cases: Consideration
HAMER v. SIDWAY; Court of Appeals, NY, 1891. CB [188-191]
[Uncle forms contract with Nephew to abstain from smoking and drinking]
Issue and Holding: Did the Uncle’s agreement contain adequate consideration to form an
enforceable contract? Here the court held that the nephew had refrained from doing something he
was legally entitled to and such abandonment of use was sufficient consideration to uphold the
Facts: Uncle promised nephew $5,000 if he would abstain from vice until his 21st birthday.
Nephew performed and uncle agreed to hold money with interest. Upon Uncles death, estate
rejected claim for payment.
Procedural History: Decision of trial court in favor of plaintiff was overturned by higher court.
New trial was granted. That ruling is appealed in this case. Court of final appeals reinstates the
judgment for the plaintiff.
Reasoning: The defendant claims that the contract was without consideration, and that either the
promisee must incur detriment or the pomisor must incur a benefit. Court holds that
“Consideration means not so much as that one party is profiting as that the other abandons some
legal right, or limits his legal freedom of action in the future” Certainly the nephew abandoned
his right to use and enjoy tobacco. Given this, the court does not consider whether the uncle
incurred a benefit form the nephew’s actions. Nephews abandonment of the stimulants is
1) The promisee must incur legal detriment, (either do something not bound to do, or refrain from
doing something legally entitled to do)
2) the detriment must be induced by the promise, (promisor wishes to exchange the promise for
the detriment incurred by the promisee)
3) the promise must induce the detriment (promisee must be aware of the promise)
KIRKSEY v. KIRKSEY; Supreme Court of Alabama, 1845. CB [191-192]
[Sister-in-law has no contract in donative offer]
Issue and Holding: Was the promise by the brother in law a bargained for exchange with
sufficient consideration to enforce the promise? No. The court found that the brother in laws
promise was a gratuity.
Facts: Brother in law invites by letter his brothers widow to relocate to his land, promising land
and housing to raise her family. After two years, he kicks her out.
Procedural History: Trial court verdict in favor of plaintiff for $200 overturned on appeal.
Reasoning: Dissenting judge claims that her relocation would be adequate consideration to
support the promise “to furnish her with a house and land to cultivate so she can raise a family.”
However, the remaining judges felt that the promise was simply a gratuitous offer.
Detriment must induce the promise: the promis must be made to induce the conduct of the
promisee. The promisor has manifested an offering state of mind looking to an acceptance rather
than a gift making state of mind.
GOTTLIEB v. TROPICANA HOTEL & CASINO; US District, PA, 2000.
[Offer to Spin of the Million $ wheel provides adequate consideration]
Issue and Holding: Does participation in a promotion constitute adequate consideration for a
contract? Here the court held yes, even minimal detriment to a participant in a promotional
contest is sufficient consideration.
Facts: Plaintiff was a member of the defendant’s Diamonds players club. Upon entering casino
on one occasion she participated in a million dollar wheel contest, which was open to Diamond
club members for one free spin each day. Plaintiff and Defendant disagree about the results of
the plaintiff’s spin.
Procedural History: This opinion denies defendants motion for summary judgment.
Reasoning: Detriment to promisee: travel to casino, waiting in line, providing personal
information to casino, participating in the entertainment of the casino.
Benefit to promisor: data on gambling habits and personal information, added patronage created
by the promotion.
There is sufficient consideration to form a contract. Even a minimal/trivial filling out of a coupon
could suffice. There are no altruistic motives here. This is a bargained for exchange.
Evaluation: Consideration is a bargained for exchange that may take the form of a detriment to
the promisee or a benefit to the promisor
Synthesis: Compare to Kirksey where the promise was gratuitous. In this case the court points
out that there were no altruistic motives here. Each party exchanged a promise for their own
BATSAKIS v. DEMOOTSIS; Court of Appeals, TX 1949. CB [195-198]
[Woman held to contract in exchange of $2000 for $25 dollars worth of foreign currency]
Issue and Holding: Is there sufficient consideration to from a contract in an agreement to
exchange 500,000 drachmas for $2,000 dollars. Yes, here the court held that the plaintiff got
exactly what she bargained for and what the defendant promised.
Facts: Plaintiff was in a foreign country and needed money provided on credit. Plaintiff agreed
to exchange 500,000 of foreign currency and repay $2000 later.
Procedural History: Trial court without jury found for plaintiff for $1163.83. Appellate court
upheld and reformed the recovery to the full $2000 of the contract.
Reasoning: Defendant knew all along what was being bargained for.
Although courts usually do not find consideration in exchanges of money for money, foreign
currency conversion or collectable coins are situations where one amount of money exchanged
for another will be held to have consideration.
WHITE v. McBRIDE; Supreme Court, TN. CB [198-204]
[Lawyer gets no quantum meruit after charging excessive fees to clients]
Issue and Holding: Was the Plaintiff lawyers contingency fee contract enforceable? And if not,
could he recover for quantum meruit? Here the court held that the fee violated Tennessee statute
Disciplinary Rule for Code of Professional Responsibility and is thus unenforceable. Further the
court rejected Quantum Meruit compensation so as not to provide a safety net for unethical
lawyers to fall back on.
Facts: Lawyer contracts to represent client in wife’s probate matter for a contingency fee
of 1/3rd of the recovery. The court later holds that this contract is unenforceable given the
nature of his services.
Procedural History: Probate court and court of appeals held that the contingency fee was
“clearly excessive”, however Quantum Meruit was awarded. Supreme Court rejects even the
Quantum Meruit recovery.
Reasoning: An attorney who enters into a fee contract or attempts to collect a fee that is clearly
excessive should not be allowed to fall back on Quantum Meruit. Awarding Quantum Meruit in
this situation does nothing to promote ethical behavior. The safety net actually encourages the
practice of exorbitant fee contracts.
Evaluation: Lawyer-Client retainers are an exception to the rule that courts will not evaluate the
adequacy or fairness of consideration. This would be an unwarranted interference with the
freedom of contract to relieve an adult party from a bad exchange. However, the courts have a
stake in attorneys fees contracts; the fairness of the terms reflect directly on the court and its bar.”
(Also, exchange of specific amount of money or goods for a lesser amount of money or goods at
the same time and same place will be excepted to this rule)
ELANOR THOMAS v. BENJAMIN THOMAS; Queens Bench, 1842. CB
[Man makes request to give wife house. Executors form this wish into contract ]
Issue and Holding: Yes good consideration - valid K
Facts: John Thomas (deceased) says to executors "I want you to make sure that my wife
has the house of $100 instead." Executors tried to put wish into effect. Executors
promised in consideration of such desire and of the premises to convey the house to the
widow for life or as long as she continued unmarried provided she pay $1.00 yearly for
rent and kept it in good repair. One executor died and the other one ejected P. P sued in
K b/c couldn’t sue for gift b/c not on deathbed and no delivery.
Reasoning: Consideration means something which is of some value in the eye of the law -
must be moving from P promisee to D promisor be it a detriment to P or a benefit to D.
In this case there still was longterm lease on houe t/f $1.00 should have been paid to him.
B/c P is paying $1.00 to D and undertaking repairs on house this is valid consideration.
Evaluation: This case was not easily followed.
FIEGE v. BOEHM; Maryland Court of Appeals, 1956. CB [206-211]
[Man ruled out as father by blood test looses contract paternity case]
Issue and Holding: Whether the contract was unenforceable, based on the pl’s
forbearance to prosecute as an invalid claim, and therefore the contract lacked
consideration? Court held that agreement was enforceable.
Pl alleged that Df and Pl had consensual, premarital sex which resulted in the pl
becoming pregnant, and that Df acknowledged responsibility and paternity. Pl gave birth
to a female child and df agreed to pay all her medical, and miscellaneous expenses related
to the birth, and to compensate pl for the loss of salary and $10 per week until his
daughter reached 21, for child support, in exchange for pl’s abstaining from filing
bastardly charges against him.Df denied ever having sex with the Pl. Df paid $480 and
refused to pay the balance of $2,415.80. Pl instituted bastardly charges against df,
whereas blood tests revealed the child was not his.
Procedural History: Trial ct. charged jury that df criminal ct. acquittal was not binding
upon them, jury found for the pl, awarding full amount
Reasoning: Forbearance to prosecute a claim is insufficient consideration if the claim
forborne is so lacking in foundation as to make its assertion incompatible with honesty
and a reasonable degree of intelligence. The promise of a woman who is expecting a
illegitimate child that she will not institute bastardly proceedings against a certain man is
sufficient consideration for his promise to pay for the child’s support, irregardless of
whether the man is the father or the prosecution is successful, if she makes the charge in
good faith. There was no proof of fraud or unfairness. The PL made the charge of
bastardly against the df in good faith.
Evaluation: This holding seems contrary to common sense. Man agreed to support the child
thinking the child was his. Given that the child was not the child’s father, common sense would
dictate the agreement be unenforceable. Case looks as Surrender of invalid claim as a detriment.
SCHWARTZREICH v. BAUMAN-BASCH, INC; NY Ct of Appeals, 1921.
[Clothier cancels existing contract while enacting new one]
Issue and Holding: Did the renegotiation of P’s contract amount to a mutual cancellation of the
existing contract and the formation of a new contract, or was the second agreement unenforceable
lacking consideration. Here the court held that the parties mutually agreed to dissolve the first
agreement and form a second contract.
Facts: Plaintiff entered into a contract to work for defendant at $90 per week. Before he
starts, he gets an offer for $100 from another employer. The parties agree to a new
contract for $100. Old contract had the signatures torn off of it
Procedural History: Jury rendered a verdict for the plaintiff, but the trial judge set it aside on
the ground that there was not sufficient evidence that the first contract was cancelled to warrant
the juries findings. The appellate court overturned the trial judge’s decision and reinstated the
jury verdict. The court of final authority reviews whether the jury charge was erroneous.
Appelllate decision for Plaintiff affirmed.
Reasoning: Contracts can be rescinded by mutual assent. Provided that it is the express and
acted upon intention, the time of the rescission, whether a moment before or at the same time as
the making of the new contract is unimportant. Holding distinguishes this case of mutual assent
to countless other cases where refusal to perform in demand for increased payment is not
enforceable. In this case there was a complete expressed rescission of the old contract, not a
modification to an enduring agreement.
Evaluation: Mutual assent to rescind a contract is recognized apart from contract modification
ANGEL v. MURRAY; Supreme Court RI, 1974. CB [216-220]
[Trash collector modifies contract with city]
Issue and Holding: Did the defendant receive payment he was not entitled to as a result of an
invalid contract modification? If there was a pre-existing duty and no further consideration, the
contract would be lacking. Held, the court finds that the circumstances of the contract changed
and the additional payments were fair and equitable in the circumstances.
Facts: A garbage service provider contracts with the city for 5-years. In the middle of the
contract, the size of the city has grown much faster than anticipated. The price is inadequate, so
you collector goes to the city and asks for more money. The city says OK.
Procedural History: Trial court held that additional payments to the defendant were illegal as
they did not contain additional consideration.
Reasoning: “A promise modifying a duty under contract not fully performed on either side is
binding (a) if the modification is fair and equitable in view of circumstances not anticipated by
the parties when the contract was made” . If the growth was unanticipated by the parties, then it is
enforceable. What if there is nothing in the contract about the anticipated growth? Still
enforceable, if it was good faith. There is certainly the possibility for "strategic" behavior here.
Evaluation: Remember that the main reason for the legal-duty rule is to prevent "hold-ups".
What the restatement says is that if the background circumstances change, that's not the same as a
hold-up. Pre-existing duty rule evolves to incorporate the unforeseen circumstances
DE CICCO v. SCHWEIZER; NY Court of Appeals, 1917. CB [221-225]
[Father makes annuity contract with daughter as third party]
Issue and Holding: Is there consideration for the promised annuity given the fact that there was
a preexisting duty for the parties to marry? Held, yes. The parties were free to break the
engagement mutually so the promise of the annuity was sufficient consideration.
Facts: Father agrees to contract with daughters fiancé to pay $2500 annually to daughter.
Marriage takes place and payments continue for 10 years. Daughter assigns guaranty to another
party. Suit is brought when payment is not made.
Procedural History: Trail court found in favor of the plaintiff. Affirmed.
Reasoning: “They were free by common consent to terminate their engagement. If they forbore
from exercising this right and assumed the responsibilities of marriage in reliance on the
defendants promise, he may not now retract it”
Evaluation: Defense further argues that the agreement by the father was a gift. Court rejects this
due to the formality of the agreement being signed to covenant. One does not usually pledge
one’s self to generosity in the language of a covenant. This was a promise to ensure the marriage
IN RE ALLAN SEGALL; Supreme Court of Illinois, 1987. CB [225-229]
[Lawyer Suspended for Fraud in Credit Scam]
Issue and Holding: Whether an attorney should be sanctioned under the Attorney Code of
Professional Ethics for violations which occurred while he was representing himself in
his own litigations. Held, The attorney is still in the position of an attorney when he is
representing himself in his own litigations. Therefore, he is still held under the Attorney
Code of Professional Conduct when he is engaged in his own litigations. While the
attorney’s attempted fraud was not successful, an attempted deception is as serious an
ethical violation as a successful one. Together with his violation of contacting the other
party w/out going through their attorney, was serious enough to warrant a substantial
Facts: An attorney owed Carte Blanche Corp. almost $13,000 in credit card charges.
The attorney was sued, and a default judgment was entered in favor of Carte Blanche,
plus costs. The attorney moved to vacate the default judgment, claiming lack of notice.
While the motion was pending, the attorney who was in Florida at the time, directed his
secretary to send a $95.60 check and a letter in his name directly to Carte Blanche with
the stipulation that if Carte Blanche cashed the check, a full and final release in
settlement of all claims and causes would be assumed. The attorney filed another motion
to vacate, attaching copies of the letter and negotiated check by Carte Blanche. The
attorney claimed that the negotiated check evidenced a settlement of Carte Blanche’s
claims. The trial court found that there had been no accord and satisfaction, and
dismissed the action. The attorney appealed, but the appellate court affirmed the trial
court. The attorney ultimately paid the judgment in full to Carte Blanche. Similar set of
facts with Amoco charges.
Procedural History: The hearing board found no ethical violation with regard to Count
III, but found against the attorney on Counts I and II. The hearing board recommended
that the attorney be censured. The Review Board agreed w/ the hearing board’s findings
but recommended a two year suspension. The attorney filed exceptions but was
ultimately suspended for two years.
Reasoning: Disciplinary Rule 7-104 states that an attorney may not communicate with the
other client, unless he has the permission of that client’s attorney.
The attorney admits that on both occasions, he knowingly contacted the other client w/out
permission of the other attorney, but he argues that these contacts were made on his own
behalf as a litigant and thus were not during the course of his representation of a client.
-Court states that an attorney who is himself a party to the litigation represents
himself when he contacts an opposing party.
-A party, having employed counsel to act as an intermediary b/w himself and
opposing counsel, does not lose the protection of the rule merely b/c opposing counsel is
also a party to the litigation.
The attorney bypassed the other client’s attorney and sent each client a letter to make
them believe that the minimal amount tendered was the amount actually due. The letters
did not state the actual amount due, and, in the Carte Blanche case, did not even mention
that the dispute had been reduced to a judgment. Violation of Rule 1-102(a)(4)
*Also, by filing motions to dismiss the suits due to the purported settlements, the attorney
attempted to involve the courts in his fraudulent scheme. Involving the courts in such a
scheme must be considered prejudicial to the administration, and thus the attorney
violated Rule 1-102(a)(5).
Evaluation: *no accord and satisfaction! Cannot short pay and include “payment in
full” unless it is clearly marked and spelled out.
KIBLER v. GARRETT and SONS; Supreme Court of Washington, 1968.
[Wheat Harvester cashes check that says payment in full not an accord]
Issue and Holding: Did the defendants check stating that the check was “payment in full”
constitute an accord and satisfaction? No, here the court held that it is the burden of the party
alleging the accord and satisfaction to show that there was a meeting of the minds. Can’t get
sneak a check by with minute print and have it be effective.
Facts: Kibler billed Garret for harvesting wheat. Garrett sent a check for a little over half,
with fine print reading "full payment of following account." Court found for Kibler
because Garrett had failed to express his intention to pay no more than the amount of the
check. The court could have said no consideration under PED rule, but instead they
refused to impute assent because it was form language.
Procedural History: Action dismissed at the close of plaintiffs evidence. Trail court finding
that there had been accord and satisfaction. The plaintiff appeals. Reversed and remanded for
Reasoning: There was no meeting of the minds and hence no accord and satisfaction.
Evaluation: This case looks at issues involving accord and satisfaction.
a. Common law—there must be a meeting of the minds to have an accord and
satisfaction. Payment in full checks will work b/c a debtor cay pay his money with any
conditions. Kibler v. Garrett & Sons (court not allow the payment in full on the check to
b. UCC—payment in full checks will not do. UCC §1-207, 3-311.
Dissent would have affirmed the trial court. Agreeing that the notation on the check was
insufficient, the dissent argues that the claim was un-liquidated due to re-invoicing and
the assertions in the letter accompanying the check should have made it clear that the
defendant was only going to pay this sum as full payment.
Module 7 Cases: Modification and Mutuality of Obligation
ROTH STEEL v. SHARON STEEL; US Ct of Appeals 6th, 1983. CB [235-
[Steel Producers agreement falls apart when supplier raises prices and delivers late in
case involving Modification of a UCC contract.]
Issue and Holding:
1) Was it a breach of contract for the supplier to raise prices during performance of an existing
contract? Held, no. Market conditions changed in an unforeseeable manner giving the supplier
justification to modify the contract.
2) Was it bad faith to try and modify this contract? Held, yes. The suppliers attempt to modify
the contract is ineffective because they did not act in a manner consistent with the requirement of
honesty in fact in observance of reasonable commercial standards. They used coercive conduct
and tried to modify the contract for cold rolled steel which was not warranted.
3) Was adequate notice of breach given? Remanded for determination.
Facts: Contract for steel supply is formed. Mid-way through the year, supplier notifies
purchaser that prices are increased. Dispute whether this is a valid modification of contract
arises. Further, supplier is having difficulty delivering product on time. It is learned that supplier
is sending shipments to warehouse for premium price.
Procedural History: District court granted plaintiff’s motion for partial summary judgment.
Court went on to hold a 5 day trial after which it granted the plaintiffs damages of $555,968
holding breach of contract for changing prices, untimely delivery. District court reasoned that
modified contract was formed under duress and hence voidable. District courts ruling vacated in
part, affirmed in part, and remanded for further proceedings.
Reasoning: Supplier must have acted in good faith and in an honest desire to compensate for
commercial expenses and with reasonable commercial standards of fair dealing. District courts
reasoning that supplier was insulated from raw material cost increases and willing to make a low
profit contract were not satisfying to appeals court. Sharon actually suffered a loss on the
“We are convinced that unforeseen economic exigencies existed which would prompt an ordinary
merchant to seek a modification to avoid a loss on the contract”
“Although coercive conduct is evidence that a modification is sought in bad faith, that prima facie
showing may be rebutted by the party seeking to enforce the modification” but Sharon did not do
that here. “The district courts conclusion that Sharon acted in bad faith is not clearly erroneous”
“The evidence does not indicate that Sharon ever offered the theory [that they were ecused from
performance by plaintiffs breach in failing to accept higher prices] as a justification until this
matter was tried”
Contracts can be modified provided that there is a good faith reason consistent with reasonable
industry standards and practices.
In determining if a modification was made in good faith will be put to the following test:
two conditions must apply (1) was conduct consistent with reasonable commercial standards of
fair dealing in the trade and (2) were parties motivated to seek modification by an (subjectively)
honest desire to compensate for commercial exigencies. Basically, the party must have a
good, legitimate reason and must demonstrate how he was motivated by that reason to
request the modification.
AUSTIN INSTRUMENT v. LORAL CORP; Ct. Appeals NY, 1971. CB
[Radar Contract with Navy: Subcontractor seeks to modify in mid contract constitutes
Issue and Holding: Was Loral forced to agree to the price increases under circumstances that
amount to economic duress as a matter of law? Yes. The court found that this was a classic case
of economic duress.
Facts: Loral had $6M contract to produce Navy radar. Loral contracts with Austin to supply
some parts. Loral gets second Navy contract and requests bids for additional parts. Austin
stopped delivery of parts due under existing contract until Loral agreed to pay higher price for all
previously purchased parts and sign contract for new parts in there entirety.
Procedural History: Dismissed at trial because it was not shown that these parts could not have
been obtained somewhere else. Affirmed by closely divided appellate court. Overturned by court
of last resort. Remanded to determine the damages due Loral. (Cross claim for outstanding
payment awarded to Austin)
Reasoning: “A contract is voidable on the ground of duress when it is established that the party
making the claim is forced to agree by means of wrongful threat precluding the exercise of free
will”, proof of which could be had by “immediate possession of needful goods is threatened”. Or
“by proof that one party has threatened to breach the agreement by withholding goods unless the
other party agrees to some further demand”
“It must also appear that the threatened party could not obtain the goods from another source of
supply and that an ordinary remedy of an action for breach would not be adequate.” Court finds
that the liquidated damages clause in Navy contract and Loral’s reliance on government work
placed this in an emergency duress situation under which they were deprived of their free will.
Dissent argues that supply could have been obtained elsewhere, but the majority found that Loral
had sufficiently tried all reasonable alternative suppliers.
“A contract is voidable on the ground of duress when it is established that the party making the
claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free
RIDGE RUNNER FORRESTRY v. VENEMAN (Sec. of Ag.); Federal
Circuit, Court of Appeals, 2002. CB [249-251]
[No contract in tender agreement]
Issue and Holding: Did the tender agreement entered into by the parties amount to a contract?
Held, no. The Court points out that neither party had a true obligation. Each party’s
consideration was conditional on their discretion.
Facts: Ridge Runner entered an agreement with the government to be at the ready to supply fire
protection equipment. The agreement provided no actual obligation by either promise.
Procedural History: Department of Agriculture Board of Contract Appeals ruled that no
contract had been entered into, it lacked jurisdiction.
Reasoning: The government did not guarantee any orders would be placed against the agreement,
and Ridge Runner was obligated only “to the extent that the contractor is willing and able at the
time of order”
Evaluation: This agreement is not a contract as it lacks consideration. Neither party is obligated
WOOD v. LUCY, LADY DUFF-GORDON; NY Ct of Appeals, 1917. CB
[Fashion promoter’s implied duty to market goods constitutes consideration]
Issue and Holding: Was there an enforceable contract supported by consideration? Held Yes.
The court finds mutual consideration and holds Lucy liable for breach of contract. The Plaintiff’s
promise to promote and market her goods was backed by an implicit duty to perform.
Facts: Lucy made an exclusive endorsement deal with Wood. Lucy would get half the profits on
anything Wood put her endorsement on. Lucy subsequently gave her endorsement to other
products without Wood’s knowledge and without sharing the profits. Wood sued, but Lucy
claimed the endorsement deal wasn’t an enforceable contract because Wood didn’t actually
promise to do anything.
Procedural History: Special Term court found for plaintiff. Overturned on appeal, but restored
by highest court.
Reasoning: :A promise may be lacking, and yet the whole writing may be ‘instinct with an
obligation’ imperfectly expressed.
Evaluation: An enforceable contract may be construed through an implied promise of one of the
MEZZANOTTE v. FREELAND; Ct. of Appeals, NC, 1973. CB [253-256]
[Land purchase agreement with loan contingency supports consideration and duty to
good faith financing attempt]
Issue and Holding: Did the contract requirement of “satisfactory” mortgage amount to an
illusory promise? No. Here the court held that the promise to obtain satisfactory financing was
not illusory because it contained an implied promise to act in good faith and use reasonable
efforts to obtain and evaluate the financing.
Facts: Plaintiffs and Defendants entered a contract for a land purchase. The agreement provided
that the plaintiffs would secure a “satisfactory” mortgage from a bank. (Although they tried in
good faith, they were not able to get that mortgage and found alternative financing to make the
purchase.). Plaintiffs are suing for specific performance of the sale of the property.
Procedural History: no mention
Reasoning:The court found an implied promise of good faith and reasonable effort may
accompany a conditional promise, and it is not illusory. Because of this implied promise, there is
sufficient consideration on the part of the plaintiff in such an agreement, and thus a contract.
Since plaintiffs tried in a reasonable manner and with good faith to secure a loan through NCNB,
there was a legal enforceability, which provided detriment to the promisor (plaintiff). As long as
there is a reasonable standard a party undertakes in attempting to secure their end of the
agreement, there is an consideration on their part.
Evaluation: Illusory promise, Consideration concerns.
Rule: Where a K confers on one party a discretionary power affecting the rights of the other, this
discretion must be exercised in a reasonable manner based upon good faith and fair play.
MIAMI COKE BOTTLING v. ORANGE CRUSH; 5th Circuit Appeals,
1924. CB [256-257]
[Cancellation clause means no consideration]
Issue and Holding: Did the cancellation clause render the promise illusory and the contract
therefore unenforceable? Yes. Here the court held that the appellant did not promise to do
anything and could at any time cancel the contract?
Facts: Appellee granted appellant the exclusive right to manufacture Orange crush under
trademark. Appellee promised to supply concentrate and do advertising. Appellant promised to
buy concentrate, bottle the drink, and promote its sale. Appellant also had provision that the
contract could be cancelled at any time.
Procedural History: This is an appeal from an order dismissing appellant’s bill seeking to
enjoin the cancellation of a contract and to compel its specific performance. Affirmed on appeal.
Reasoning: The contract was void for lack of mutuality.
Evaluation: Illusory promise means no real obligation.
TEXAS GAS UTILITIES v. S.A. BARRETT; Supreme Ct. of Texas, 1970.
[Exculpatory clause does not negate natural gas contract]
Issue and Holding: Is the contract between the parties unenforceable because of lack of
mutuality of obligation? Here the court found that exculpatory clause did not negate the
obligation of the gas company and therefore the contract was enforceable.
Facts: Gas company petitioner and respondent Barrett entered into contract for the delivery of
natural gas. Respondent lost lease and no longer needed the gas supply. Petitioner brings suit to
claim minimum payments due under the contract.
Contract contains provision; “it is further and distinctly understood that the Company assumes no
obligation whatever regarding the quantity or quality of gas delivered, or the continuity of
service” This clause was seen by the lower court to demonstrate a lack of mutual obligation.
Procedural History: After trail to a jury, the trial court ruled in response to respondents’ motion
for judgment that there were entitled to judgment on the jury verdict and as matter of law. The
court of appeals affirmed upon holding that contact is unenforceable for lack of mutuality of
Reasoning: The modern decisional tendency is against lending the aid of courts to defeat
contracts on grounds of want of mutuality. It is clear that the agreement here is an enforceable
The exculpatory clause provided relief for non-performance under certain conditions (momentary
interruptions, low quality gas). It did not relieve them of the obligation entirely. They were still
required to supply gas that was available or face a breach themselves. The court finds this
obligation satisfactory consideration to support a contract.
Evaluation: Promise not illusory if consideration exists. Obligation key to consideration.
CANUSA v. LOBOSCO; US District EDNY, 1997. CB [261-267]
[Output contract estimate reduction requires good faith, not present here]
Issue and Holding: What is the effect of an estimate in an output contract when the supplier
produces less than the sated estimate? I conclude that the New York law would hold that good
faith, rather than the stated estimate, would control whether a breach has occurred. Good faith
was not found here. Judgment for the plaintiff.
Facts: Canusa and Lobosco entered into an output agreement with quantities were based on
estimated minimum quantities, which were never met. Canusa modified the agreement by
accepting lower quality goods, and also offered to accept an outright fee for leased equipment
relieving Lobosco of any obligation under the agreement. A settlement was reached on the
equipment with rights reserved.
Procedural History: This is a diversity case being heard by the US District court. Contract
states NY law will apply.
Reasoning: Canusa offered no evidence that this contract was a fixed quantity contract.
Output contracts are governed by UCC 2-306: “A term which measures the quantity y the output
of the seller or the requirements of the buyer means such actual output or requirements as may
occur in good faith, except that no quantity disproportionate to any stated estimate, or otherwise
comparable prior output/requirement may be required”
Common law also held estimates as just that: estimates.
A mechanical adherence to the estimate in the contract would essentially convert all output
contracts into fixed contracts.
Good faith evaluation: Well established that good faith becomes the requirement in these types of
contracts. Measured by its own standard, Lobosco’s performance does not comport with good
faith. The fact that it would cost more to clean the material does not demonstrate good faith; nor
does it provide an excuse for not supplying the proper output.
Evaluation: Output and requirement contracts are not fixed quantity contracts. Quantity
estimates in these contracts must be satisfied with good faith and in reasonable quantity based on
CENTRAL ADJUSTMENT BUREAU v. INGRAM; Supreme Court
Tennessee, 1984. CB [267-274]
[Non-Compete clauses binding for collection business employees]
Issue and Holding:
1) What consideration is required to support non-compete clauses in employment contracts when
such covenants are entered into after employment has begun? Here the court held that each
defendant received additional employment benefits, including raises, that
2) Whether a covenant not to compete, the geographic and time limitations of which are broad,
can be judiciously modified so as to make the covenant reasonable? Here the court modifies and
then enforces the non-compete clauses to narrower in geographical coverage and duration.
Facts: D's (ex CAB employees) signed a covenant, after their day of hire, not to compete. D's,
formed a competitor company. CAB brought suit and sought compensatory and injunctive relief.
The court found covenants to be broad w/ respect to time and location, the court modified the
restrictions enforcing then as modified by injunctive relief and awarded P damages for the breach
and torts. The court of appeals reversed, holding the covenants unenforceable for lack of
consideration; and affirmed the D's liability in tort and remanded for damages. Now on appeal.
Procedural History: The case was brought before the Chancery Court which found that the non-
compete covenants were unreasonably broad with regard to geographical and time limitations.
The Chancellor modified these restrictions enforcing them as modified by injunctive relief and
awarded $80k in damages for breach and tort. Court of appeals reversed holding that the
covenants were unenforceable for lack of consideration. Judgment of the court of Appealss as to
all Ds is reversed; Lower court ruling affirmed.
Reasoning: Rule of reasonableness applies to consideration as well as to other maters such as
location and time. Employment is sufficient consideration for a covenant, but must be informed
prior to employment (or the day of). Some states found that continued employment was
sufficient for consideration, others regard covenant as binding if there is actual performance of
the promise of continued employment (?). This court held that although there was no
consideration to bind the employer when an employee signed a non-competition covenant,
performance under the contract supplied the necessary consideration and mutuality necessary to
make the contract binding. Facts and circumstances of each case are dependant to decide if a
performance is sufficient to support a covenant. Factors such as length of employment,
circumstances under which employee leaves, etc have a bearing on whether consideration exists.
D's length of employment and terns of resignation are sufficient to constitute substantial
performance, and thus the covenant is binding. D's received benefits which they would not have
received if they had not signed the covenant. For these reasons this court held the covenants to be
supported by sufficient consideration.
Evaluation: Non Compete clause, consideration.
Module 8 Cases: Moral Obligation and Consideration, Promissory Estopple
SHELDON v. BLACKMAN; Wisconsin Supreme, 1925. CB [277-281]
[caretaker gets award even without consideration]
Issue and Holding: Does a promissory note for services previously rendered contain valid
consideration? Here the court held yes, the services rendered were a consideration of inestimable
value for the execution of the note.
Facts: Respondant lived with and cared for decedent for 30+ years. Decedent delivered a letter
to respondent stating that he would give her $30,000 upon his death, for value received. ‘The
consideration for this note is the services rendered…”
Procedural History: Probate court found the instrument a nonnegotiable promissory note for
good and sufficient consideration and allowed $35k.
Reasoning: Court views caretakers actions over the years, and the mans continuing willingness to
provide just compensation to the caretaker as what both parties wanted. Why should the court
step in the middle of that.
Evaluation: Court is recognizing that the hard and fast rules of contract sometimes need an
alternative. In this case, moral obligation is given priority over traditional consideration rules in
order to preserve a morally obligated promise.
ESTATE of LOVECAMP; Civil Appeals, OK., 2001. CB [281-282]
[ex-wife does not get $60,000 gift promised by decedent husband]
Issue and Holding: Did the plaintiff and the decedent have an express oral contract for $60,000
payment in return for wife returning to live with the decedent husband after divorce? Held, no.
The contract failed for lack of consideration because the ex-wife did not incur and legal liability;
she had already lived with him (past consideration).
Facts: Woman divorces husband but reunites to cohabitate. Husband gives woman a check for
$60k 18 years prior to his death, as a reward for her return. Unable to cash the check upon his
death, she makes a claim against the estate.
Procedural History: Woman’s claim was denied by the probate court. Summary judgment
granted for estate of decedent. The trail court found that there was no contract for lack of
consideration; “as claimant coming back and staying with the decedent fails as past
Reasoning: past consideration is no consideration.
Evaluation: Compare to Sheldon: Plaintiff in this case did not do anything. In Sheldon the
caretaker toiled in some of the most disgusting acts which seemed to tip the court in her favor. In
this case, the man just gives the ex-wife the gift in a more gratuitous fashion.
BANCO DO BRASIL v. STATE of ANTIGUA and BARBUDA; NY
Appellate, 2000. CB [282-284]
[Debtors letter revives statute of limitations]
Issue and Holding: Whether defendants 1997 letter regarding the loan agreement, sent to
plaintiffs, after the Statute of Limitations had run, constituted an acknowledgement or promise
sufficient to revive plaintiff’s time barred claims? Held, yes. The letter revived the Statute of
Limitations because the debtor acknowledged the debt and expressed an intention to pay”
Facts: Default on Bank Loan. Statute of Limitations runs. Correspondence letters acknowledge
debt and describe pyment plan.
Procedural History: The IAS court denied defendant’s motion to dismiss and concluded that the
six year statute of Limitations was revived. Affirmed.
Reasoning: “A written acknowledgment or promise will toll the Statute of Limitations…The
writing, in order to constitute an acknowledgment, must recognize an existing debt and must
contain nothing inconsistent with an intention on the part of the debtor to pay it”
HARRINGTON v. TAYLOR; Supreme Court of N.C., 1945. CB [284-285]
[mans promise to pay for rescuers damages not enforceable]
Issue and Holding: Whether there was consideration recognized by our law as sufficient to
support the promise? Held, no. This promise fails to support consideration
Facts: Woman injures hand saving man from having his head chopped off by his wife.
Man subsequently promises to pay for plaintiffs damages. Pays only small amount.
Procedural History: Defendant demurred to the complaint as not stating a cause of action.
Reasoning: However much the defendant should be impelled by common gratitude to
alleviate the plaintiffs misfortune, a humanitarian act isn’t consideration for later promise
Evaluation: compare to next case where moral obligation is sufficient consideration.
WEBB v. McGOWIN; Court of Appeals, Alabama, 1935. CB [285-288]
[Man falls with wood block to save life of defendant]
Issue and Holding: Did the act of saving McGowin’s life constitute consideration for
McGowin’s subsequent promise to pay Webb for life? The court finds that McGowin’s
moral obligation was sufficient consideration and his contract to pay Webb was binding.
Facts: The plaintiff saved the life of the late McGowin, and in doing so was severely and
permanently injured. In gratitude, McGowin promised to pay the plaintiff money for the
rest of his (Webb’s) life. When McGowin died, the payments stopped coming. Webb
sued the executors of McGowin’s estate for all the missed payments. The defendants
demurred and the trial court sustained the demurrer, declaring a nonsuit. The plaintiff
Procedural History: The court found that the trial court erred in sustaining the
defendants’ demurrer, and the case was reversed and remanded.
Reasoning: Rule “[A] moral obligation is sufficient consideration to support a
subsequent promise to pay where the promisor has received a material benefit”.
“I do not think the law should be separated from justice, where it id st most doubtful”
Evaluation: How does this compare with Harrington? In both cases, the plaintiff saved the
defendants life, a promise was made, and then court enforces one but not the other? How
can this jive? Need to reconcile this. The Harrington court could have even known about
FEINBERG v. PFEIFFER CO.; Court of Appeals, Missouri, 1959. CB
[Pensioner awarded judgment via promissory estoppel]
Issue and Holding: Was the promise to pay pension an enforceable contract, surviving all
claims that consideration is lacking? Here the court held yes. Given the fact that the plaintiff
changed her position in reliance of the promise and that avoiding injustice requires enforcement
of the promise, the court will enforce this promise.
Facts: Alleged contract whereby defendant agreed to pay plaintiff a sum of $200 per month for
life upon retirement. Parties are in substantial agreement on the essential facts. Company
president stated: “Resolved, she be afforded the privilege of retiring from active duty in the
corporation at any time she may elect to see fit so to do upon retirement pay of $200 per month,
for the remainder of her life.“ Pensions checks stopped being delivered several years after
Procedural History: A jury being waved, the case was tried by the court alone. Judgment found
for the plaintiff’s full claim.
Reasoning: 1) Plaintiff changed her position in reliance on the promise.
Evaluation: Was this a promise to make a gift, lacking consideration, as the defense argues?
Here the court quotes Restatement Section 90; “ A promise which the promisor should reasonably
expect to induce actionof a definite and substantial character on the part of the promisee and
which does induce such action is binding if injustice can be avoided only by enforcement of the
SHOEMAKER v. COMMONWEALTH BANK; Superior Court, PA, 1997.
[Mortgagee gets no insurance after bank says it will purchase insurance]
Issue and Holding: Whether a mortgagor who is obligated by a mortgage to maintain insurance
on the mortgaged property can establish a cause of action in promissory estoppel based upon an
oral promise made by the mortgagee to obtain insurance. We conclude that a mortgagee’s
promise to obtain insurance can be actionable on a theory of promissory estoppel.
Facts: Homeowners took out mortgage requiring them to insure property. Insurance lapsed at
which time bank wrote letter stating that bank might be ‘forced to purchase [insurance] and add
the cost loan balance.” Homeowners assert that they understood this to mean that the bank would
obtain insurance. Bank actually does purchase insurance, but it lapses at which time the Bank
sends letter to homeowners instructing them to purchase insurance. House burns while
uninsured. Homeowners bring suit in contract, promissory estoppel, and fraud.
Procedural History: Trail court granted summary judgment to the mortgagee. Trial court felt
that because the bank actually did purchase the insurance and since no claims of duration were
ever made, all obligations of the bank were met and there was no cause of action. This decision
is now being affirmed in part, reversed in part, and remanded for further proceedings.
“Breach of a promise to do something in the future is not a fraud,” so there is no cause of action
“We reject Commonwealths claim that the Shoemakers cannot maintain a cause of action because
of their obligation under the mortgage to maintain insurance on the property”
Court then proceeds to find that a jury could reasonably find that 1) the bank made a promise
upon which it reasonably should have expected the Shoemakers to rely 2) that the shoemakers
actually did rely on the promise, and 3) that the only way to prevent injustice is to enforce the
promise. This evidence is sufficient to establish a genuine issue of material fact on the
promissory estoppel cause of action.
Evaluation: Case sets out again the elements to a promissory estoppel cause of action.
SALSBURY v. NORTHWESTERN BELL; Supreme Court Iowa, 1974.
[Charitible Subscription enforced without consideration or reliance]
Issue and Holding: Is defendant’s charitable subscription enforceable? Held, yes. Although the
promise lacks traditional consideration, the promise can be enforced through a special doctrine of
promissory estoppel applied to charitable contributions.
Facts: Plaintiff solicited a charitable subscription from defendant, then did not complete the
Procedural History: The decision of the lower court is Affirmed.
Reasoning: “In the nature of charitable subscriptions, it is presupposed the promise is made as a
gift and not in return for consideration”
Evaluation: Using promissory estoppel to rationalize the enforcement of these promises is
strained because charities often cannot prove reliance. Courts generally want to enforce these
promises and have come up with a variety of reasoning. Most sensible in support of this public
policy objective [enforcing charitable promises] is the idea added by the restatement; “A
charitable subscription or a marriage settlement is binding without proof that the promise induced
action or forbearance” This basically establishes promissory estoppel with a special exception for
Not really gratuitous b/c prestige is consideration. Other people’s donations your
DRENNAN v. STAR PAVING; Supreme Court CA, 1958. CB [304-308]
[subcontractor held to mistaken bid amount]
Issue and Holding: Did General Contractor plaintiff’s reliance make sub-contractor
defendant’s offer irrevocable? Held; Yes. GC forseeably and detrimentally (used lower
bid rather than other bids) relied on subcontractors bid in securing a contract. Promise is
Facts: On July 28, 1955, plaintiff, a licensed general contractor, was preparing a bid on
the “Monte Vista School Job” in the Lancaster school district. It was customary in that
area for general contractors to receive the bids of subcontractors by telephone on the day
of bidding and to rely upon these bids in computing their own bids. Defendant placed the
lowest bid for paving work for the Monte Vista School of approximately 75 bids received
by various subcontractors. Plaintiff computed his own bid accordingly and submitted it
with the name of the defendant as the subcontractor for paving. When the bids were
opened on July 28th, plaintiff’s bid was lowest and he was awarded the contract.
On his way to Los Angeles the next morning, plaintiff stopped at defendant’s office. He
was immediately told that the bid placed by defendant was a mistake. Defendant refused
to do the paving work for less than $15,000.
After several months of soliciting bids from other subcontractors, plaintiff was able to
find another subcontractor who could do the paving work for $10,948.60. Plaintiff sues
for $3,817 [the difference between defendant’s bid and the cost of the paving to plaintiff]
plus court costs.
Defendant states there was no enforceable contract between the parties because the offer
was revocable and it was revoked before plaintiff communicated his acceptance to
Procedural History: The trial court found for the plaintiff and awarded $3,817 in
damages. Defendant appeals to the California Supreme Court.
Reasoning: A promise which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promise and which
does induce such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise.
Defendant’s offer constituted a promise to perform and had reason to believe that if its
bid was the lowest, plaintiff would use it. Defendant also did not make it clear in its bid
that it was revocable at any time before acceptance by plaintiff.
Reasonable reliance may replace the need for consideration which is normally required to
make an offer binding. When the defendant bid on the contract, it should have expected
the plaintiff to place a bid according to the amount bid by its subcontractor. The only
way to remove the injustice is to enforce the promise made by defendant. Judgment was
GROUSE v. GROUP HEALTH PLAN; Supreme Court Minnesota, 1981.
[Pharmacist relied on job offer gets relief]
Issue and Holding: Did the trial court err in deciding that Grouse’s complaint fails to state a
claim upon which relief can be granted? Held: Yes, an employer may be liable to an at-will
employee when it rescinds an offer of employment under promissory estoppel when the
company could reasonably expect that their offer would induce reliance, and where the
employee acted in reliance on the offer.
Facts: Grouse told defendant after he was offered job that he was resigning from his
present job. The job offer was later rescinded. Grouse had also passed on other
Procedural History: Trail court entered judgment in favor of defendant. Reversed and
remanded for new trial on the issue of damages.
The defendant health plan is asked why is this OK, what is their answer? What are the
terms of employment; suppose Grouse shows up and insults the boss n the first day?
They can fire him even if they don't like his clothes. He was an employee at-will, they
were under no obligation to hire him, and he was under no obligation to work.
Could also have used promissory estoppel (§ 90 of restatement of contracts) after he
started—dictum that he should have a chance to prove himself. However, this has an
extremely low win rate.
Damages: difference between old salary and replacement job—not between replacement
job and promised job.
WERNER v. XEROX; US Appeals 7th Circuit, 1984. CB [311-315]
[Offload supplier relied on Xerox to build off-load factory]
Issue and Holding: Is the promise to provide offload work to plaintiff enforceable in promissory
estoppel? Held yes, the Xerox promise was made to induce a resonce, it did induce the response
in which the plaintiff relied on the promise, and just requires that the promise be enforced, up to
the point where a reasonable person would have not relied on the promise.
Facts: Werner sold 3 machines to Δ, and set up facilities to be the off site management
place. Manager at Xerox said would not use their facilities, but Wolf at Xerox said the
guy didn’t know what he was talking about and lead the п to believe would be doing
business. П got damages only up until he reas should have not believed Wolf. Here got
damages for things said during preliminary negotiations which were relied on.
Procedural History: District court awarded only partial damages for plaintiff on the promissory
estoppel claim. Plaintiffs and defendants cross appeal. Affirmed.
Reasoning: Under Red Owl the promisee's reliance need only be in the exercise of
The promisee's reliance must be reasonable to recover damages.
DELI v. University of Minn.; Court Appeals, Minnesota, 1998. CB [315-
[Coach not entitled to emotional distress damages in breach of promise of athletic
director not to view sex tape]
Issue and Holding: Can a promissory estoppel cause of action lead to recovery of emotional
damges. Held, no. The doctrine of promissory estoppel is a contracts doctrine and recovery is
limited to actual damages
Facts: Athletic director promised not to look at a tape but did, causing embarrassment to
п. By handing over tape, court held the oral promise not to view the tape was not a K. No
consideration b/c the tape belonged to the University. No PE b/c only damages were
Procedural History: Trail court erred in awarding emotional damages on the contract based
claim because plaintiff failed to allege or prove the existence of an independent tort. Reversed.
Under the doctrine of promissory estoppel, a promise may be enforced when (1) it is clear
and definite, (2) the promissor intended to induce the promisee to rely on the promise, (3)
the promisee detrimentally relied on the promise, and (4) enforcement of the promise is
required to prevent an injustice.
In the absence of specific statutory provisions, extra- contractual damages, such as
emotional distress, are not recoverable for breach of contract except in exceptional cases
where the breach is accompanied by an independent tort. The accompanying independent
tort must be willful and support the extra-contractual damages in its own right.
The preservation of a boundary between contract and tort law is necessary to protect the
specific interests and expectations each embodies.
refusing to permit recovery for emotional distress where damages caused by tort are same
damages caused by breach of contract.
Module 9: Parol Evidence Cases
MITCHILL v. LATH; Court of Appeals NY, 1928. CB [325-330]
[Parol promise to remove Ice House not admitted]
Facts: Mitchill agreed to buy a farm from Lath on the condition that an ice house across the street
would be removed. Lath agreed, but that condition was never explicitly put into the written
contract for the sale of the property. Subsequently, Mitchill moved in and made lots of
improvements on the land, but Lath never removed the ice house. Mitchill sues for specific
performance. The trial court and intermediate appellate court found for Mitchill. Lath appeals to
the Court of Appeals of New York.
Issue: Is the oral agreement to remove the ice house enforceable?
Rule: An oral agreement to modify a written contract is only enforceable if all of the following
1. The oral agreement must be collateral in form.
2. The oral agreement must not contradict any express or implied provisions of the written
3. The oral agreement must not be of the type the parties would ordinarily expect to put
into writing. In other words, the written agreement on its face mustn’t appear to contain the
complete agreement of the parties.
Analysis: According to the majority, the defendant’s oral promise fails the third part of the test.
The contract says a lot of stuff, but nothing about removing the ice house. The contract appears
on its face to contain the all the responsibilities of each side. Basically, an objective observer
would expect that if the parties really agreed about the ice house that they would have (and could
have) included something about it in the contract.
The minority agrees with the statement of the rule, but not its application. In particular, the
minority feels that there is a solid evidentiary foundation for the existence of the oral promise,
and that the plaintiff reasonably relied on that promise in deciding to buy the property. Lehman
says that the agreement to remove the ice house was “collateral to, yet connected with” the main
written contract. Since there was no independent consideration for the problem to remove the ice
house, Lehman figures it can only be enforceable if it’s tied to the same consideration as the
Though Andrews doesn’t tackle the issue directly, Lehman finds that the oral agreement doesn’t
contradict any terms of the written agreement. Lehman points out that there is no express
language in the written agreement that says that the defendants can only do that which is
explicitly stated in the writing.
Furthermore, Lehman finds it plausible that the parties would leave the agreement about the ice
house, which was on a separate parcel of land, out of the document conveying the primary parcel
of land from one party to the other. The question is, however, whether the parties intended to
render the oral agreement non-existent by adopting a writing that didn’t include the terms of that
agreement. Lehman thinks that the removal of the ice house isn’t so closely bound in subject
matter to the conveyance of the land that not mentioning it should have the effect of making it
Conclusion: The judgment of the lower courts is reversed and the plaintiff’s complaint is
(borrowed from http://lawschool.mikeshecket.com/contracts/mitchillvlath.htm)
LEE v. SEAGRAM & SONS; US Ct of Appeals 2nd, 1977. CB [330-334]
[Seagrams parol promise to relocate distributors admitted into evidence]
Relevant Facts: Pl/ee, Lees owned 50% interest in a wholesale liquor distributorship. Seagram is
a distiller of alcoholic beverages. The Lees and other owners wanted to sell their interests. Mr.
Lee discussed this with Yogman VP of Seagram. Lee offered to sell but conditioned the offer on
Seagram’s agreement to relocate Mr. Lee and sons in a new distributorship of their own in a
different city. Evidence supports this as having been done. A mo. later another representative
began negotiations, the purchase of the assets was consummated pursuant to a written agreement.
The promise to relocate was not reduced to writing.
Legal Issue(s): Whether the oral promise to provide another distributorship would be an
expectable term of the contract for the sale of assets by Capital, in which the Pls only have a 50%
interest, considering the history of their relationship with Seagram?
Court’s Holding: No, it is a separate and independent contract.
Procedure: Appeal by df of jury verdict for pl breach of K. Affirmed.
Law or Rule(s): Certain oral collateral agreements are not w/i the prohibition of the parol
evidence rule “b/c if they are separate, independent, and complete contracts, although relating to
the same subject, they are allowed to be proved by parol, b/c they were made parol, and no part
thereof committed to writing.
Rationale: In customary business practices, oral agreements can be treated as separate and
independent of the written agreement. Collateral agreements such as shareholder employment,
survive the closing of a corporate deal, are often set forth in separate agreements. An agreement
to obtain a new distributorship for certain persons, not parties to the contract, would not
ordinarily be integrated into an instrument for the sale of corporate assets. There was a close
relationship of confidence and friendship between Mr. Lee and Yogman, whose authority to bind
Seagram has not been questioned. The written agreement does not contain the customary
integration clause. There are no contradictions of the terms of the sales agreement. The writing
dealt w/ the sale of corporate assets, the oral w/ the relocation of the Lees. The oral does not vary
or contradict the money consideration recited in the contract as flowing to the selling corp.
Plaintiff’s Argument: (EE/Lee) The oral agreement was a collateral agreement and since it is not
contradictory of any of the terms of the sales agreement, proof of it is not barred by the parol
Defendant’s Argument: (ant/Seagram) The oral agreement was part and parcel of the subject
matter of the sales contract and that failure to include it in the written contract bars proof of its
GEORGE v. DAVOLI; City Court of Geneva, NY, 1977. CB [334-336]
[Purchase of jewelry lacks specific return period]
Facts: P purchased jewelry for $500 from D on condition that it could be returned for refund of
$440 if not satisfactory. Written agreement documents this sale. Agreement was silent as to the
time in which the return must take place. The court allowed, over the objection of the D, to
testify to a contemporaneous oral agreement that the return had to take place by the following
Monday. P contacted D about the return two days later on a Wednesday. Case is governed by
UCC which says” “Unless otherwise agreed upon, the good must be returned ‘seasonably’.
Section 2-202 compels a court to allow oral testimony supplementing the written agreement
where not inconsistent and where the writing is not intended as a complete and exclusive
statement of the terms of the agreement.
Issue and Holding: Should the oral agreement that the goods be returned by Monday be
admitted as a term of the original agreement? Held, yes. The oral agreement can be admitted to
evidence under the UCC because this agreement was not complete and agreement to return the
goods by Monday does contradict the writing. Since this evidence stands unrebutted, the court
must find that the plaintiff failed to comply with the agreement and is not entitled to return.
Reasoning: It cannot be said that the written agreement is complete since there is no mention of
the return timeframe, which would be an essential part of the agreement. The defendants
testimony about the oral agreement also does not contradict the writing in any way.
Evaluation: Under UCC, parol evidence can be admitted if 1) the writing is not a complete and
exclusive statement of the agreement and 2) the oral testimony is not inconsitent with the written
VAL-FORD REALTY v J.Z.’s TOY WORLD; NY Supreme, 1996. CB
[Parol evidence is admissible to show contract was a fraud]
Facts: P seeks to recover rent due under a written lease executed by D. D admits to executing
these documents but claims their purpose was to defraud the plaintiff’s construction lender and
never intended to be enforceable. Court admits evidence to show contract was a sham.
Reasoning: While parol evidence is generally inadmissible to contradict, vary, add to, subtract
from the terms of an integrated agreement, it is admissible to show that a writing ‘although
purporting to be a contract, is, in fact no contract at all”
PG&E v. THOMAS DRAYAGE & RIGGING; Cal. Supreme Court, 1968.
[Indemnity clause requires interpretation. Is it limited to third party indemnification?]
Facts: Pl-P. G & E, entered into a contract with Df Drayage, Df would furnish the labor and
equipment to remove and replace the upper metal cover of the plaintiff’s steam turbine. During
the work the cover fell and injured the exposed rotor of the turbine. The cost of repair was
$25,144.51. Df agreed to perform the work at its own risk and expense AND to
indemnify(reimburse) PL against all loss, damage resulting from injury to property arising out of
or connected with the performance. The trial ct found that the language used was “classic
language for a 3rd party indemnity provision AND one could very easily conclude its intent is to
indemnify 3rd parties, it nevertheless held the plain language of the agreement also required df to
indemnify pl for injuries to pl property.
Issue(s): Whether extrinsic evidence may be used to explain the meaning of the written
Procedure: Trial ct ruled in favor of pl and did not allow evidence to prove df’s case, reversed.
Law or Rule(s): If a court decides, after considering extrinsic evidence, that the language of a
contract, in the light of the circumstances, is fairly susceptible of either one of the two
interpretations contended for, then extrinsic evidence relevant to prove either of such meanings is
Court Rationale: Offered extrinsic evidence is relevant to prove a meaning to which the
language is reasonably susceptible. Limiting the determination of the meaning of a written
instrument to its four corners b/c it seems to the court to be clear and unambiguous, would either
deny the relevance of the intentions of the parties or presuppose a degree of verbal precision and
stability our language has not attained. Exclusion of parol evidence b/c the words do not appear
ambiguous to the reader can easily lead to the attribution to a written instrument of a meaning that
was never intended. Rational interpretation requires at least a preliminary consideration of all
credible evidence offered to prove the intention of the parties. Refusing to consider evidence
offered to show that the indemnity clause in the contract was not intended to cover injuries to
plaintiff’s property was erroneous. The evidence was admissible to prove that the clause was
reasonably susceptible of the meaning contended by the df and did not cover pl’s property.
Plaintiff’s Argument: The language of the contract plainly included a third party indemnity
provision and through the cross liability clause extended coverage to the pl’s property.
Defendant’s Argument: Pl’s agents, and df’s conduct under similar contracts entered into with Pl
prove that the indemnity clause was meant to cover injury to property of third parties only, and
not PL’s property.
Extrinsic evidence includes evidence of usage of a trade, course of dealing, or a course of
TRIDENT CENTER v. CONN. GENERAL LIFE; 9th Circuit Ct. of
Appeals, 1988. CB [343-348]
[Due to PG&E holding, court must admit all extrinsic evidence despite clearly written
contract in this case]
Issue and Holding:
1) Is the contract ambiguous, as P claims, because one clause claims prepayment cannot be made
befor 1996 and another clause speaks of a prepayment resulting from default prior to 1996? Held,
no. Under the courts interpretation, the default clause would override the no prepayemtn clause.
The court should construct a K to avoid internal conflicts.
2) Should extrinsic evidence be introduced to potentially modify a seemingly
unambiguous K? Here the court held, Yes. Due to the California Supreme Court ruling
in PGE vs THOMAS DREYAGE extrinsic evidence must be allowed as to the intention
of the parties drafting the K, even in the face of an integrated agreement. The CA.
Supreme Ct. would be wise to revisit this issue & change this law
Facts: P is a limited partnership made up of an insurance company and two major Los
Angeles law firms D is an insurance company. Connecticut General financed $56
million to Trident Center to build an office building on Olympic Blvd. in West L.A.
Connecticut General financed the $56 million at 12 ¼ % interest for the term of 15 years
& it was secured by a deed of trust on the project
-promissory note provided that Trident could not prepay the principle in whole or in part
for the first 12 years
-note also included that in case of default in years 1-12 Connecticut General had the
option of accelerating the note & adding a 10% prepayment fee
-in 1987 the interest rates dropped & Trident started to look for ways to the loan at a
lower interest rate
-Connecticut General was not willing to let them, reminding them that they could not
prepay for the first 12 years (1996)
Procedural History: Trident brought suit in California state court seeking a declaration
that it was entitled to prepay the loan now, subject to only the 10% prepayment fee
-Connecticut General removed to Federal Court (on diversity jurisdiction §1332) &
motioned to dismiss claiming that the loan documents clearly & unambiguously
precluded prepayment during the first 12 years
-Federal District court granted Connecticut General’s motion to dismiss & sanctioned Trident for
filing a frivolous lawsuit
-Trident appeals, claiming the District Court erred in denying them opportunity to present
evidence that the K language did not accurately reflect the parties’ intentions
9th Circuit must reverse the decision of the D. Ct & remand to allow P to introduce the
extrinsic evidence as to the intention of the parties in drafting the K
(substantive law of the state applies in Fed.Ct. for diversity juris. Cases)
-since the District Courts ruling is reversed, the court must reverse the sanctions, b/c
Trident has a right to pursue all remedies available under the law
–Trident’s interpretation is wrong, but even if it weren’t it is up to Connecticut
General to decide if they will make Trident do an accelerated repayment →
Connecticut General has the option to make Trident pay off the balance, to make
them make accelerated payments, OR to do nothing at all
-the language assigning Connecticut General the exclusive right to decide could not
-the language stating that the loan cannot be prepaid till year 13 is very clear &
-Trident can stop making payments, which may cause Connecticut General to declare a default &
accelerate the loan, but Connecticut General doesn’t have to do that → they can ignore the
default & go after the income, rents, royalties & profits of the property
-defaults are messy, & by going into default Trident could risk losing the property &
ruin their credit → this would prevent them from obtaining refinancing & would
impair their cash flow
-this is why Trident isn’t simply going in to default → instead they are willing to go
thru expensive litigation
BEANSTALK v AM GENERAL; 7th Circuit Ct of Appeals, 2002. CB [349-
[Hummer licensing agreement does not apply to sale of entire Hummer business to GM]
Issue and Holding: Did the plaintiffs licensing agreement entitle him to commission of the sale
of the Hummer business as a whole to General Motors? Held, no. The licensing agreement does
not apply to the sale of the complete business which is a different type of agreement altogether.
Facts: Beanstalk was granted exclusive agency to find licensees to use AM Motors Hummer
trademark. Beanstalk would receive 35% commission on all such licensing deals. AM Motors
sold the Hummer business to General Motors, who
Procedural History: District court dismissed P’s claim. Affirmed.
Reasoning: Usually contracts are to be construed against the drafter, unless both parties are
commercially sophisticated and represented by counsel.
K’s can’t be interpreted literally when it will lead to absurd results.
Beanstalk is not a business brokers. This is a licensing agreement and the transfer of the business
to GM is not a licensing arrangement as Beanstalk claims.
UNTIEDT v. GRAND LABS; Ct. of Appeals Minnesota, 1996. CB 
[Retainer agreement for 40% does not apply to attorneys fees award]
Issue and Holding: Should the defendant be entitled to 40% of the P’s attorney fees awarded in
a case? Held, no. The 40% award was for “any recovery” which the court found to be an
ambiguous term and ruled in favor of the plaintiff.
Facts: P and D had a contingent fee retainer agreement providing 40% contingent fee upon any
recovery. P was awarded >$1m plus $366k in attorneys fees. Attorney sought to collect 40% on
the attorney fees.
Reasoning: It is appropriate to place the burden of identifyinh and clarifying ambiguities on the
attorney who has more experience and is in a better position to discharge the task. Moreover, it is
the attorneys fiduciary responsibility to exercise great caution in the eadverse process of selecting
terms that will govern a contingent fee arrangement.
Evaluation: Interpretation can depend on the position of the parties.
RAFFLES v. WICHELHAUS;Ct of Exchequer,1864. CB [353-354]
[Cotton arrives on incorrect Peerless ship]
Issue and Holding: Should the defendant be bound by the agreement to buy the cotton
from the other “Peerless”? Held, There is no binding contract unless both sides agreed to the
same thing, which in this case cannot be proved even accepting all external evidence.
Facts: The plaintiff agreed to sell the defendant cotton that was going to arrive from Bombay on
a ship called the “Peerless”. Little did they know that there were actually lots of ships with that
name. When one of the “Peerlesses” arrived, the plaintiff was ready to sell, but the defendant
repudiated. The defendant argued that the agreement had been to buy cotton from the other
“Peerless” which arrived in October, and so the defendant wasn’t bound to buy cotton off of the
“Peerless” that arrived in December. The plaintiffs argued that it didn’t matter what ship it was
and that the point of naming the ship was that if the ship sunk while in transit, the contract would
Procedural History:: Tr ct Df filed a motion of demurrer; granted, per curiam judgment
for the Df.
Reasoning: Apparently, the court accepts the argument of the defense that the contract was too
ambiguous to uphold. The moment it appears that two ships called Peerless were about to
sail from Bombay there is latent ambiguity, and parol evidence may be given for the
purpose of showing that the Df meant one Peerless and the Pl another. That being so
there was no consensus between the parties and therefor no binding K.
Plaintiff’s Argument: The Dfs refused to accept the cotton or pay the Pl for the bales when they
Defendant’s Argument: A material term of the K was ambiguous and therefor the Dfs’ failure is
DISSENT: The K was for the sale of a number of bales of cotton, which the Pl was ready to
deliver. It is immaterial by which ship the cotton was to arrive upon. If the K was for the sale of
a ship named the Peerless and two existed, then the question of what was meant or the intention
of the parties would be relevant. The Pl did not have any goods on board the other ship.
Intention is of no avail UNLESS stated at the time of the K. The time of sailing is not part of the
NANAKULI PAVING v. SHELL OIL;9th Circuit Ct. of Appeals, 1981. CB
[Shell supply contract gets price protection injected as trade usage course of
Issue and Holding: Should Nanakuli be entitled to price protection, absent a provision in the K,
given the common practice in the trade and existence of price protection in previous course of
performance? Held, yes. Price protection was common in the paving industry in Hawaii between
paving companies and materials suppliers and can be granted on that according to the UCC rules
for modification and trade usage. Also, Shells previous granting of price protection can be shown
to establish a previous course of performance on which Nanakuli properly could assert modified
Facts: Shell and NANAKULI have long standing supply contract. On several occasions, Shell
protects the price to Nankuli.
Procedural History: Jury verdict for Nanakuli set aside and JNOV granted for Shell. Vacated.
Jury verdict reinstated.
Reasoning: Evidence of all courses was introduced to show that Shell breached a term of
the contract that didn't even exist, because Shell and Nanakuli acted as though there was
price protection. If Shell gives price protection once, that counts as an offer to modify the
contract. Price protection was found to be ``consistent'' with the contract term about using
The UCC wants to promote flexibility in expansion of commercial practices and will have the
court look beyond the pages of the agreement to reach the true understanding of the parties. This
includes modifications for trade usages where the usage does not negate an express term. In this
case, the modification of price proection did not totally negate the price term. It only applied
during price increases and only for work committed prior to those increases.
Module 10 Cases: Formation Defenses; Statute of Frauds
KLEWIN v. FLAGSHIP; Supreme Ct. Conn., 1991. CB [838-845]
[Construction Manager v Developer: State Supreme Court Tells Federal Court that 1 year
performance only applies when performance is expressly prohibited by an agreement]
Issue and Holding: Does the statute of frauds prohibit an oral agreement if performance is
unlikely within a year? Held, no. Absent express prohibition of performance within a year a
contract is subject to statute of frauds. A contract with any possibility of full performance within
a year is not within the statute.
Procedural History: Federal court asks state supreme court for clarification on statute of frauds
and 1 year performance.
Reasoning: Courts cant seem to find the statute’s intention: it doesn’t protect contracts of long
duration well and it does not protect against failing memories.
Evaluation: Narrow construction of 1-year performance and statute of frauds.
ERLICH v. DIGGS; US EDNY, 2001. CB [845-847]
[Rappers oral agreement not barred by statute under California law]
Evaluation: California law follows a narrow 1yr provision and would not require a written record
for an oral management agreement between P and D. NY law says that duty to pay royalties is
non-terminable and therefore cannot be performed in a year and therefore must be in writing.
California law found to apply. Judgment for the P.
CRABTREE v. ELIZABETH ARDEN; Ct. of Appeals NY, 1953. CB [851-
[Memo sufficient record for employment contract’s required writing]
Issue and Holding: Whether there was a memorandum of the terms of the contract
evidenced by several writing, sufficient to satisfy the S/F?: Held, yes
Facts: Pl, Crabtree entered into negotiation w/ df company Arden seeking employment.
The df manufactures and sells cosmetics. The pl requested a 3 yr $25000/yr K. The
president Arden agreed to a two year K, $20000 for the first 6 mos. then $25000 2nd 6
mos. then $30000 for the 2nd year with $5000 per year expense money. She had her
secretary write the terms down on a blank telephone order slip. Pl accepted, and df
“welcome,” and a second writing to reflect the first was issued as a payroll change. Pl
was paid the first six mos as agreed but after the 2nd 6 mos he was not given the agreed
increase. The comptroller attempted to seek authorization but Mrs. Arden refused, pl quit
and filed an action.
Procedural History: Pl filed action for breach, trial ct found for pl and against df
($14000); App Ct affirmed. Affirmed with costs
Reasoning: Every agreement is void, unless some note or memorandum be in writing, and
subscribed by the party to be charged, does not impose the requirement that the signed
acknowledgment of the K must appear from the writings alone, unaided by oral
testimony. At least one writing must bear the signature of the party to be charged. Parol
evidence serves only to connect the separate documents to show assent. The unsigned
office memo, the payroll change form initialed by the general manager, and the paper
signed by the comptroller all refer on their face to the same transaction. The parties, the
position to be filled by the pl, the salary to be paid, are all identically set forth within
each. The three documents constituted a “memorandum,” of their agreement within the
meaning of the S/F. The memorandum contains all the essential terms of the contract and
only one term, the length of employment is in dispute. The indication “2 years to make
good,” is supported by the other documents as meaning employment for a specific period
under the contract.
Law or Rule(s): Signed and unsigned writings may be read together provided that they
clearly refer to the same subject matter to constitute a sufficient connection piecing
together to satisfy a sufficient writing.
McINTOSH v. MURPHY; Supreme Ct. Hawaii, 1970. CB [856-861]
[Chevy sales managers reliance on promise makes oral K enforceable despite statute
Issue and Holding: Whether an action can be maintained on an alleged oral agreement for
employment when S/F determines that oral k are unenforceable if not performed w/i one
Facts: Df Murphy was interviewing prospective management personnel in California for
a position in HI. He interviewed pl twice for sales manager. Df called pl and informed
him of a possible opening w/i 30 days and pl indicated he was interested and available.
Pl sent a telegram to df declaring he could be to work April 26. Df telephoned pl and
informed him that the job of asst sales manager was available that Monday the 27th. Pl
arrived after selling some of his possessions, leasing an apartment in Honolulu, and
forgoing other employment. Two months and one half months later he was dismissed.
Procedural History: Df moved for direct verdict; trial ct ruled k not w/i S/F. Jury trial
granted pl; df appeals; S. Ct. Affirmed.
Reasoning: The computation of time excludes weekdays at the beginning and end of time
periods. Therefore acceptance did not begin until the Monday pl appeared in HA. The
action of pl in moving 2200 miles from LA to HI was not only foreseeable to the df but
required. Injustice an only be avoided by awarding money damages, no other remedy is
adequate. The pl was left to reside in HI without a job. A contract of some kind did exist.
The exact length was up to the jury to decide. The trial ct might have found that
enforcement of the contract was warranted by virtue of the pl’s reliance on the df’s
promise. Each case turns on its own facts. The true policy behind the Statute of Frauds,
historically, was to prevent fraud or any other type of unconscionable injury. The pl’s
reliance was such that injustice could only be avoided by enforcement of the contract.
Evaluation: Forseeable, detrimental, reliance on a promise can lead to enforcement of an
otherwise barred parol agreement.
Dissent: The Statute of Frauds was duly enacted by the legislature, it is not the job of the
courts to usurp legislative power and enter into the legislative field.If the Statute of
Frauds is too harsh it is up to the legislature not the courts to amend or repeal.
AZEVEDO v. MINISTER; Supreme Ct Nevada, 1970. CB [862-866]
[Hay purchase agreement bound by UCC statute of frauds. Accounting statements
satisfies writing requirement.]
Reasoning: This agreement does require a writing as per the UCC restriction on agreements for
goods $500 or more. D’s written accounting statements sent to P considered confirmation letters
which, if not objected to, would bind the recipient.
Evaluation: The accounting records were not objected to, they referenced an oral agreement and
they were sent in a reasonable amount of time. Therefore the writing requirement of the UCC is
satisfied and the agreement is valid.
COHN v. FISHER; NJ Supreme, 1972. CB [867-870]
[Boat Deal: Ma’s Deposit Check satisfies statute of frauds and forms an enforceable
Issue and Holding: Can a deposit check be sufficient written memorialization to satisfy the
UCC statute of frauds requirement on goods over $500? Held yes. The check sufficiently
evidenced the agreement, especially with respect to the required quantity term.
Facts: Sale of goods (boat) for more than $500 requires memorialization. D gives deposit check
and then backs out of deal. P sues for difference between this sale price and what he ended up
selling the boat for.
1) The check itself may constitute sufficient written memorandum.
a. Must evidence a contract for the sale of goods
i. (for aux sloop D’arc Wind)
ii. full amount $4600
iii. Deposit of 50% (partial terms)
b. Must be signed
c. It must specify the quantity
2) Defendants testimony may constitute and admission of a contract
3) Payment and acceptance may constitute partial performance
POTTER v. HATTER FARMS; Ct. of Appeals Oregon, 1982. CB [870-
[Turkey Poult Agreement: Oral agreement prohibited by UCC Statute of Frauds,
enforceable by promissory estoppel]
Issue and Holding: Can promissory estoppel be used to enforce an agreement otherwise barred
by the Statute of Frauds? Yes. There was substantial evidence of an oral contract and although the
contract would have otherwise been unenforceable for violating the Statute of Frauds, there was
substantial evidence here of promissory estopple barring defendants assertion of that defense.
Facts: P testifies that the parties had an oral contract for the sale of young turkeys. D claims that
the contract did not exist and that even if it had, an oral agreement would be barred because of the
UCC statute of frauds (Goods over $500)
Procedural History: Jury verdict in favor of Plaintiffs. Affirmed.
Reasoning: Appellate court refuses to overturn juries finding that the contract was not indefinite.
If the jury was satisfied that the transportation term was not material, then the appeals court will
not intervene as long as there is some evidence that the contract existed.
Evaluation: Promissory estoppel should be allowed to defeat reliance on the UCC Statute of
Frauds as it is consistent with the obligation of good faith.
LAWRENCE v. ANDERSON; Supreme Court Vermont, 1936. CB [875-
[Roadside promise to doctor to pay fathers bill barred by statute: promise to pay debt of
another requires a writing]
Reasoning: Witness testimony claims that Defendant made an original promise to pay for the
debt, which would not be barred by the statute due to express promise to pay, however, P should
have not have sued the estate of the Decedent if the original debt was to the daughter. Third party
promises to pay a debt of another are barred by the statute.
Evaluation: Original promises, promises to pay the debt of another, Statute of Frauds.
YARBRO v. McGINNIS Equipment; Arizona Supreme, 1966. CB [877-
[Promise to pay third party debt not barred by statute when promise benefits promisor]
Issue and Holding: Whether Yarbro’s promise to pay the debts of Russell, being oral, are
enforceable under Statute of Frauds? Whether there was sufficient consideration to
support the promise? Whether the judgment was excessive? No, Leading Object
exception; yes; yes.
Facts: Appellee, McGinnis, a farm equipment company, sold a tractor to Russell, on
installments of 574/mo after denying Yarbro the credit to do so. Russell failed to make
the first months payment, and a company rep met with Yarbro who agreed to make the
payment. Over time Yarbro agreed to make several more late payments for Russell and
did so. After a couple more payments were late McGinnis threatened to repossess.
Yarbro submitted two checks both which were NSF and returned. The tractor was
ultimately repossessed by McGinnis.
Procedural History: Trial ct. default against Russell, and found Yabro liable for the entire
balance (8751.95); Affirmed as modified.
Reasoning: There must be consideration and benefit AND that benefit must be the
primary object of making the promise as distinguished from the benefit which is merely
incidental, indirect, or remote. The facts show before McGinnis dealt w/ Russell Yarbro
sought to purchase the tractor but financing was denied. Yarbro thought he could get
Russell to buy it. He borrowed it several times, when repairs were needed the repairman
found the tractor at Yarbro’s, he requested that McGinnis not repossess the tractor in
conjunction with offers to pay the late payments. The main and leading object of Yarbro
in making his promises was not to become guarantor, but to serve his own interests.
McGinnis had a legal right to re-possess but forbode so doing b/c Yarbro promised he
would pay the delinquent payments. A detriment to McGinnis and a benefit to Yarbro.
Thus consideration was sufficient to support an oral promise to guaranty. Evidence only
indicates that Yarbro promised to pay the late payments of Russell from Oct 1957 to July
Evaluation: As an exception to the writing requirement of the S/F, the nature and intent of
the promisor regard must be given to the form of expression, the situation of the parties,
and all the circumstances of the case to determine whether he was to become a surety for
another or to secure a pecuniary advantage to himself(answer for his own debt).
Surety - separate and distinct contract.
Guaranty- joint undertaking with the principal
DIENST v. DIENST; Supreme Ct Michigan, 1913. CB [882-883]
[Oral promise to make will with husband as beneficiary barred by statute: promise in
consideration of marriage]
Evaluation: “Every agreement made upon consideration of marriage shall be void unless such
agreement or some note or memorandum thereof be in writing signed by the party to be charged”
SHAUGHNESSY v. EIDSMO; Supreme Minnesota, 1946. CB [884-888]
[Lease Purchase option: accepting option creates land transaction covered by S/F.
Possession and reliance takes agreement outside statute]
Issue and Holding: When the purchase option is excercised, the agreement becomes a land deal
with a written record required.
However, when an oral agreement and the purchaser with the assent of the vendor takes or retains
possession thereof, and also pays a portion or all of the purchase price, the purchaser or the
vendor may specifically enforce the contract.
Module 11 Cases: Formation Defenses (capacity, duress, undue influence, mistake)
GALLON v. LLYOD-THOMAS; US Ct of Appeals 8th, 1959. CB [377-
[Plaintiff agreed to a new contract under duress; he was confronted by his boss about
bigamy and threatened with deportation. Even still, court says his actions afterwards
(continued working without objection or attempt to void contract) ratifythe contract
regardless of duress during formation]
Procedural History: JNOV for Defendants affirmed again.
Reasoning: K was signed under duress. Failure to object once the duress was removed amounts
to a ratification.
FRANCOIS v. FRANCOIS; US Ct of Appeals 3rd, 1979. CB [382-387]
[Husband wins suit to invalidate a divorce agreement; wife had undue influence]
Issue and Holding: Did the wife exert undue influence over the man in persuading him to sign
the separation agreement? Held yes.
Facts: Independently wealthy 50yo Husband marries 30yo wife with no assets. He agrees to
sign a separation agreement at the behest of his wife and her lawyer that givers her most of his
significant property. The stand-in lawyer who ‘represented’ him was a setup arranged in
advance. Wife leads Husband to believe that signing the settlement would lead to reconciliation.
Procedural History: District court granted husband relief from the “property settlement and
separation agreement”. Affirmed.
Reasoning: Trial Judge said the agreement was invalidated because of their post-agreement
cohabitation, her undue influence, fraud and misrepresentation, and unconscionable terms.
Appeals court agrees that undue influence was exerted by the wife thereby voiding the agreement.
Court holds that a confidential relationship exists in this relationship and the wife was the
dominant partner. Once this is determined, it is up to the Defendnat to proof that the agreement
was fair, which she fails as matter of law.
METHODIST MISSION HOME TEXAS v .N_ A_ B_; Civil Appeals
Texas, 1970. CB [387-390]
[Girl pressured to give up child unduly influenced by counselor. Adoption papers signed
under duress void]
Pregnant girl at Methodist Mission Home relentlessly pressured by staff and counselors to give
her baby up for adoption. Counselor aggressively only gives one side of the story and interferes
with P’s decision to keep the child and reunite with family.
Procedural History: Jury found the adoption agreement was the result of undue influence
exerted on her. Affirmed.
Reasoning: This was undue influence because the plaintiff was subjected to excessive
persuasion. Plaintiff was told falsely that she could not keep her child. This came from a person
who was supposed to give guidance and from an organization that Plaintiff was indebted to for
her care. Jury verdict clearly not a shock to the conscious.
COUSINEAU v.WALKER; Supreme Ct Alaska, 1980. CB [391-398]
[Ad for Alaskan land misrepresents gravel content and frontage. P’s justified reliance on
these material misrepresentations allows for restitution and rescission]
Facts: Df Walker purchased 9.1 acres for $140 K, then listed it w/ a realtor stating that
“Engineer Report says over 1 million in Gravel on Prop,” and requested $245K. A sale
under that listing failed. The subsequent listing stated “minimum 80K cubic yds of
gravel,” 580 ft of Hwy frontage, and 2.6 acres had been zoned for commercial use. The
price was increased to $470K. Df specifically requested that the appraiser not mention
the gravel in assessing the value of the property, and the hwy frontage was also omitted.
Pl, Cousineau a contractor also engaged in gravel extraction discussed w/ Df the
possibility of extracting gravel from the property (Df denies) the determined that $385K
was the sale price. That price was contingent upon zoning. After zoning was approved
extraction began. Only 6K cubic yds were unearthed and no more was available on the
property. Pl notified Df of their intent to rescind.
Issue: Whether Buyers of property under a land sales K are entitled to rescission b/c of
false statements made by the Seller?
Procedure: Sup Ct C: buyers did not rely on misrep; misreps were not material; and
reliance by Buyers was not justified. Deed of trust foreclosure sale granted property back
to Df; S. Ct AK Reversed and remanded to determine damages.
Law or Rule(s): A K may be rescinded if there was a misrepresentation, which was
fraudulent or material; and which induced the recipient to make the K; the recipient must
have been justified in relying on the misrepresentation
Court Rationale: 1st the Pl must have relied on the misrep. Pl is in the gravel business
and came across the property by its listing “1 million in gravel,” and the following listing
“80K cubic yds.” Pl purchased equipment and entered into K for the removal of the
2nd the statements must be material to the transaction such that it would cause a R P to
enter into K. A R P would likely consider the existence of gravel an important piece in
developing property. Df’s agent testified that the statements were placed b/c gravel was
this property’s best points and a selling point.
3rd the Pl must have been justified in relying upon the material misrep. A buyer is
entitled to rely on an express warranty when factual statements are provided as to specific
attributes. A purchaser of Land may rely on material misreps made by the Seller and is
not obligated to ascertain whether such reps are truthful. Pl may have exhibited poor
judgment, he was not so unreasonable in view of Df’s description of the prop that
recovery should be denied.
Plaintiff’s Argument: Df’s description which Pl relied upon was a material misrep of
facts known by the Df which caused the Pl to enter into a K.
Defendant’s Argument: Pl’s reliance on Df’s and Df’s real estate agent’s was imprudent
and unreasonable. Pl failed to obtain or review the engineer’s report, the survey or
examine the plat. Pl failed to make calculations, or measure the frontage. Pl is an
experienced business person who frequently bought and sold real estate.
VOKES v. ARTHUR MURRAY; Ct of Appeals, Florida, 1968. CB [398-
[Dance school bilks widow for $30k in dance lessons: misrepresentations may allow
Issue and Holding: Whether misrepresentations made by one party to induce the other
party to enter into subsequent dance contracts are actionable when offered as an opinion
rather than fact? Held, Yes
Facts: Pl, Vokes, 51 yof, wanted to become an accomplished dancer, and she sought the
services of Df Murray and Davenport. Murray authorizes franchise operators under its
name to instruct client on dance techniques. Initially, Df Davenport sold Pl 8 ½ hr
lessons to be used w/i 1 month. Over a period of 16 months she was sold 14 additional
dance courses under separate Ks. During that interim Df encouraged Pl to sign the
subsequent Ks by assuring her that she had grace and poise; rapidly improving and
developing her dance skill; she was capable of dancing w/ the most accomplished
dancers. Pl soon discovered that she did not develop in her dancing ability; she had no
dance aptitude; and even had difficulty hearing the musical beat.
Procedural History: D. Ct dismissed w/ prejudice Pl’s 4th Amended Complaint for failure
to state a claim; Ct of App Reversed
Law or Rule(s): A statement made by a party having superior knowledge may be
regarded as a statement of fact, although it would be considered as opinion if the parties
were dealing on equal terms.
Reasoning: Sales puffing is allowable, but these statements made by D crossed over the line into
It can be reasonably inferred that Dfs had “superior knowledge” as to whether Pl had
“dance potential” and as to whether she was noticeably improving. The undenied
averments in Pl’s complaint that the flowering eulogiums heaped upon her by Dfs
proceeded more to hear the ring of the cash drawer than from any honest or realistic
appraisal of her dancing prowess or a factual representation. Even in a K’ual situation
where a party owes no duty to disclose facts w/i his knowledge or to answer inquiries
respecting such facts, the law is if he undertakes to do so, he must disclose the whole
What is plainly injurious to G F ought to be considered as a fraud sufficient to impeach a
K, and an improvident agreement may be avoided b/c of surprise, or mistake, want of
freedom, undue influence, the suggestion of falsehood, or the suppression of truth.
WOOD v. BOYNTON; Supreme Ct Wisconsin, 1885. CB [405-408]
[Diamond mistook for Topaz]
Issue and Holding: Whether the Pl could rescind the sale of the uncut diamond upon
discovery that the stone was valued at nearly $1000? Held, no. The mistake of
misidentifying the stone was a risk that the parties were aware of and not a mistake of
indentity of the thing sold.
Facts: Dfs are partners in the jewelry business. Pl was the owner of a small stone of the
nature and value of which she was ignorant. Pl sold the stone to the Dfs for $1.
Afterward Pl learned that the stone was worth about $700 and attempted to tender the $1
plus $.10 interest to the Dfs demanding the return. Dfs refused.
Procedural History: Circuit ct jury trial; judge directed jury to find for Df; Pl excepted,
motion for new trial - Denied; PL appealed. S. Ct WI Affirmed.
Law or Rule(s): The only reasons for rescinding a sale and revesting title for the
recovery of possession against the vendee are 1) that the vendee was guilty of some fraud
in procuring the sale to be made to him; 2) that there was a mistake made by the vendor
in delivering an article which was not the article sold, - a mistake in fact as to the identity
of the thing sold with the thing delivered.
Reasoning: The Pl’s own evidence shows that she was not induced to make the sale she
did by any fraud or unfair dealings on the part of the Dfs. Both were entirely ignorant at
the time of the character and nature of the stone and its intrinsic value. If she chose to
sell it w/o further investigation as to its intrinsic value to a person who was guilty of no
fraud or unfairness which induced her to sell it for a small sum, she cannot repudiate the
sale afterwards b/c she ascertained that she made a bad bargain. There was no warranty
made and unless Pl could show that Pl had been told it was a diamond or that the Df
knew the stone was a diamond, there could be no rescission based on fraud. In the
absence of fraud or warranty, the value of the property sold, as compared with the price
paid, is no ground for a recission of a sale.
Plaintiff’s Argument: B/c the stone was immensely more valuable than the parties at the
time of the sale supposed it was is ground for rescission b/c that fact was evidence of
fraud on the part of the Df.
Defendant’s Argument: Df had no knowledge in the sale or identification of uncut
diamonds and informed the Pl of that fact. Df did no know that the stone, when sold, was
an uncut diamond.
Evaluation: Mutual Mistake
LENAWEE COUNTY BOARD OF HEALTH v. MESSERLY; S Ct.
Michigan, 1982. CB [408-414]
[Bad septic system on property leads to condemnation of recently purchased property]
Issue and Holding: Is rescission always granted when there is a mutual mistake?
Held, No. A mutual mistake that is the prerequisite for rescission is one that relates to a
basic assumption of the parties upon which the contract was made and which materially
affects the agreed performance of the parties. However, rescission need not be granted in
every case where there is such a mistake. It cannot be ordered to relieve a party who has
assumed the risk of loss in connection with the mistake. Furthermore, where both parties
are innocent, as in this case, the court exercises its equitable powers to determine which
blameless party should assume the loss. Here, the “as is” clause suggests it should be the
Facts: : When Mr. Bloom owned the property on which there was a three-unit apartment
building, he installed a septic tank without a permit and in violation of the applicable
health code. This was not known to the Messerlys when they subsequently bought it, nor
to Barnes when he purchased it on a land contract from the Messerlys. After Barnes
defaulted on the land contract, an arrangement was made whereby the land was quit-
claimed back to the Messerlys, and they sold it on a new land contract to the Pickles.
About six days later, the Pickles discovered raw sewage seeping out the ground. The
Lenawee County Board of Health condemned the property and sought an injunction
against human habitation until it was brought into compliance with the sanitation code. In
resulting cross-actions, the Pickles sought rescission of the contract on grounds of mutual
mistake. Focusing on the “as is” clause in their land contract, the trial court denied
rescission and awarded the Messeerlys a judgment against the Pickles on the land
contract. The court of appeals reversed.
Rule: A court need not grant rescission in every case in which there is a mutual mistake
that relates to a basic assumption of the parties which the contract was made and which
materially affects the agreed performances of the parties.
Analysis: According to 1 Restatement Contracts, 2d, sec. 124, a party bears the risk of
mistake if it is allocated to him by agreement of the parties, or he is aware at the time of
contracting of his limited knowledge of the facts to which the mistake relates but treats
his limited knowledge as sufficient, or the court allocates it to him because “it is
reasonable in the circumstances to do so.”
WHITE v. BERENDA MESA WATER DISTRICT; California Appeals,
1970. CB [414-419]
[Contractor mistakes % of rock to excavate due to soil report error. Mistake of fact
judgment allowed in rescission of bid]
Issue and Holding: Does White's mistake in computation excuse him from performance of the
contract? Yes. The range of bids indicated that perhaps a mistake had been made. The District
still had time to substitute someone else for the project and remain within its estimate.
Facts: White submitted a $427,890 bid to Berenda Mesa Water District for a project involving the
regulation of a reservoir. White was the low bidder and was awarded the project. White then
discovered that he had made a mistake in computing his bid due to a mistake in a soil report and
appeared before the District Board to withdraw his bid. The bids ranged from White's $427,890
bid to $721,851. The bid nearest White's was $494,320 or $66,430 higher. The District's engineer
had estimated the cost of the project at $512,250 or $84,360 above White's bid. White refused to
perform. The District sued.
Procedural History: Lower court found for Defendant and allowed Plaintiff’s bond to be
Reasoning: White’s mistake was not negligent. It was mix of mistake of judgment and mistake
of fact. The mistake was material to the contract. White gave prompt and adequate notice of his
election to rescind thereby satisfying the California rescission requirements.
Evaluation: Mistake of fact is a clerical or computational error.
BOLLINGER v. CENTRAL PA QUARRY STRIPPING; S Ct.
Pennsylvania, 1967. CB [420-421]
[Turnpike builder contract reformed to require removal of topsoil prior to depositing fill]
Facts: Defendant entered into a contract to deposit construction waste on plaintiffs' property.
Plaintiffs maintain that defendant was "to make a sandwich of its refuse" (cover it with topsoil),
and it did so initially. After some time, defendant no longer did so, and plaintiff found that this
understanding was not incorporated into the contract.
Holding: - If a mistake is mutual, a court may reform the contract to correspond to the
understanding of the parties. Denial by one party of a mistake will not prevent a finding of mutual
* Evidence suggests that agreement to replace topsoil was omitted by mutual mistake (or worse,
by defendant's fraud), in either case not favorable to defendant.
* Court rules for plaintiff, saying evidence could supplement written agreement.
* UCC allows for no-oral modification clauses. § 2-209(2): A signed agreement which excludes
modification or rescission except by a signed writing cannot be otherwise modified or rescinded...
* No-oral modification clause helps reduce uncertainty, particularly with agents of business who
might be saying different things out in the field.
* '''Ambiguous''' and '''vague''' terms--different issue, but similar question as to how much
extrinsic evidence is admissible in interpretting terms of a contract.
Module 12 Cases: Performance; Express Conditions
AUDETTE v. L’UNION St. JOSEPH; S. ct Massachusetts, 1901. CB
[Wife cannot sue for insurance claim: benefits conditional on a death certificate]
Issue and Holding: Can Plaintiff sue for her husbands life insurance given that she does not
have a death certificate as required by the contract? Held, No. She must meet the condition
precedent and obtain a death certificate. Court does not render final judgment as woman can file
claim once certificate is obtained.
Facts: Decedents attending physician had a religious objection to signing a death certificate.
Procedural History: Lower court judgment in favor of D. Affirmed
Reasoning: It is common in insurance cases a certificate must be obtained (fire, life, theft).
Court cited Johnson case where P was not allowed to go forward with his case even after giving
his best efforts to procure the required certificate.
INMAN v. CLYDE HALL DRILLING; S ct Alaska, 1962. CB [442-445]
[P barred recovery because Employment K requires notice of suit w/in 30 dyas and 6 mo.
Issue and Holding: Whether a provision in the contract making written notice of a claim a
condition precedent to recovery is contrary to public policy? Held, No.
Facts: Pl, Inman worked for Df Clyde as a derrickman under a written contract of
employment, signed by both parties in late 1959. Early 1960 Inman was fired by Clyde.
A portion of the contract stated notice of any claim against Clyde was required w/i 30
days and no longer than 1 yr. Pl’s only notice was the complaint under this action for
Procedural History: Df filed for summary; granted. Pl appealed; Affirmed.
Law or Rule(s): The ct must look at the relative bargaining positions of the parties in the
framework of contemporary business practices and commercial life. If one party has
taken advantage of the economic necessities of the other, as a matter of public policy, the
ct should refuse to enforce the transaction.
Reasoning: There is nothing in the notice provision to suggest it was designed from an
unfair motive to bilk employees out of wages or other compensation. There is nothing to
suggest that Inman did not have knowledge, capacity, or opportunity to read the
agreement and understand it; that the terms were imposed w/o any real freedom of
choice; that there was any substantial inequality in bargaining positions. Inman attached
a copy of the K to his complaint, and he admitted that at the time he signed it, he read it,
and had discussed it w/ a Co rep. If the danger is increased whereby workmen are
disadvantaged by employers the Leg will act. Commencement of an action and service
of the complaint was not an effective substitute for the kind of notice called for by the
agreement. Normally, failure to give advance notice of a claim where notice is required
would be a defense set forth in the answer, but here the parties agreed that the notice was
a condition precedent to any recovery. The Df cannot be charged w/ waiving a defense
which it was not obliged to present in its answer. Pl’s failure to provide notice was not
the fault of the Co, there is no evidence that the Co induced Pl not to give notice.
Plaintiff’s Argument: Since the complaint set forth the basis of the claim which was
served w/i 30 days Pl substantially complied w/ the notice requirement. Non-compliance
w/ the notice requirement is an affirmative defense that must be raised in the answer.
The Co breached the contract by terminating employment which canceled all obligation
under the contract.
Defendant’s Argument: The provision required Pl provide notice of any claim prior to
the commencement of an action in order to recover. Pl did not provide notice prior to
commencement of this action.
GENERAL CREDIT v. IMPERIAL CASUALTY; S. Ct. Nebraska, 1959.
[Trucking Company Insurance Suite: Is clause a condition or a promise?]
Issue and Holding: Whether the language in the loss payable clause “provided, also, that in case
the Lessee, Mortgagor or Owner shall neglect to pay any premium due under such policy the
Leinholder shall, on demand, pay the same” is a condition or a covenant? Held, it is a condition
Facts: Trucking company finances autos and insures them, only later to fail to pay premium. Suit
arises when Insurance company and Finance company argue about the meaning of the cause in
Procedural History: A jury was waived. The trial court awarded plaintiff judgment for $1,839
and denied recovery for the defendant. Affirmed.
Reasoning: Restatement says that if the words are of the party who is to do the act, then
interpretation must be as a promise. If the words purport to be those of a party who is not to do
the act they are interpreted as a condition. (Words relating to acts of third parties are conditions)
Evaluation: This was one of the least clear cases I have studied this year.
NY BRONZE POWDER v. BENJAMIN ACQUISITION; Ct of Appeals
Maryland, 1998. CB [454-461]
[Contract with condition that Promissory note must be surrendered as condition to
payment, P only has a copy]
Issue and Holding: Should the clause “The noteholder shall be required to surrender this note
for cancellation upon the maturity or prepayment of this note” be construed as a condition
precedent? Held, no. The court of appeals reversed holding that this clause is considered a
promise by P, failure of which is an immaterial breach. D still required to perform.
Facts: Corporate acquisition deal involved a partial payment while certain assets were valuated.
D issued P a Promissory note pending this valuation. The valuation never took place and P sued
to redeem the $300k note. P let the original copy go with the bank and could not surrender the
not as condition precedent to redemption.
Procedural History: The Court of Special Appeals in an unreported opinion reversed a
trial court judgment in favor of the plaintiff and construed as a condition precedent a
provision in a non-negotiable note/contract requiring surrender of the note in order to
receive payment. This ruling meant the P could not recover the value of the note as P
could not meet condition of surrendering actual note.
Reasoning: K is governed by NY law which looks to the Restatement for guidance. Restatement
looks to avoid harsh results like found in court below by favoring an interpretation of duty rather
than condition. The language of this note did not convincingly make the surrender of the note a
condition (could have made language stronger if they really wanted it to be a condition). Obvious
purpose of the clause is to prevent a double redemption of the note, which is minimized in this
case since the note is non-negotiable. Under these circumstances it is unlikely that the parties
intended an agreement that would lead to one party keeping $200k without consideration.
Evaluation: Words relate to actions of a party construed as a promise.
THOS. DYER v. BISHOP ENGINEERING; US Appeals 6th, 1962. CB
[Subcontractor to be paid not withstanding a pay-when-paid condition in the K.
Subcontractor does not generally assume the risk of a contractor not getting paid.]
In Thos. J. Dyer v. Bishop International Engineering Co., the Sixth Circuit U.S. Court of
Appeals refused to enforce a pay when paid clause. In Dyer, a general contractor was not
paid on a project after the owner declared bankruptcy. The general contractor, in turn, did
not pay its subcontractor for the work it performed.
The Sixth Circuit held that conditions on payment are enforceable, so long as such conditions are
clearly expressed. In construing the clause that "no part [of payment] shall be due until five days
after the owner shall have paid the contractor", the court decided that the clause was sufficiently
ambiguous to require examination of the parties' intent.
In examining the parties' intent, the court noted that general contractors normally bear the risk of
nonpayment due to insolvency. The court held that this normal relationship could be varied only
with clear and unequivocal language.
Accordingly, the court held that the pay when paid clause was only effective to delay payment
"for a reasonable period of time after the work was completed, during which the general
contractor would be afforded the opportunity of procuring form the owner the funds necessary to
pay the subcontractor."
Ohio courts have followed the Dyer rule. In Power & Pollution Services, Inc. v. Suburban Power
Piping Corp., the Cuyahoga County Court of Appeals reversed the trial court's dismissal of a
subcontractor's claim against a general contractor after the owner, LTV Steel, declared
bankruptcy. The subcontract contained the language that the general contractor "shall not be
required to pay such monthly billing of the subcontractor prior to the date Company receives
payment of its corresponding monthly billing from the Owner."
"Pay if paid"; satisfying the Dyer concerns
How do contractors shift the burden of nonpayment by the owner? Say it clearly in a contract
What should be said? The contract should state that
The subcontractor is paid only if the general contractor is paid, (or the subcontractor will not
be paid unless the general contractor receives payment from the owner); and
The subcontractor assumes the risk of nonpayment by the owner due to insolvency or other
inability to pay.
Such contract language has been held by many courts to sufficiently shift the burden of
nonpayment to the subcontractor.
Some states, however, have held that such risk shifting violates public policy. The California
Supreme Court has ruled "pay if paid" clauses are unenforceable as a violation of California’s
public policy. Wm. R. Clarke Corp. v. Safeco Ins. Co. of Amer., 938 P.2d 372 (Cal. 1997). The
court noted that a "pay if paid" clause is an indirect forfeiture of a subcontractor’s constitutionally
protected lien rights. The New York high court has likewise concluded that "pay if paid" clauses
are void as against public policy.
JJ SHANE v. AETNA CAS. & SURETY; Flordia Appeals 3rd, 1998. CB
[Subcontractor paid when paid clause held to be a condition precedent (unlike Dyer)
because language clearly shifts risk to subcontractor]
Issue and Holding: Whether the provision in the contract was a condition precedent or a
unconditional promise to pay the subcontractor? Held, Condition precedent: plainly and
unambiguously, the county was to make payment to the general contractor, and that
money was to be used to pay the subcontractor. This was a condition precedent rather
than simply fixing a reasonable time for payment as contended by the subcontractor.
Dismissed w/out prejudice. DEF wins.
Facts: Action of breach of contract involving a subcontractor against a general contractor
and Insurer for the general contractor’s failure to make complete payment for the
subcontractor’s work on general contractor’s project. General contractor contracted w/
Dade County to construction of the Omni extension of the “People Mover” in downtown
Miami. The general contractor then subcontracted w/ PL to provide some of the
construction materials and labor. There was a clause in that subcontract which stated that
“subcontractor was to be paid from funds received by the DEF general contractor from
Procedural History: Judgment for DEF with attorney’s fees and costs. PL appeals.
Reasoning: PL says: the payment provision is ambiguous and, as such, DEF is obligated
to pay within a reasonable time.
DEF says: there was a condition precedent and that it wasn’t obligated to pay until it
received payment from the county OR until its lawsuit was settled which was already
going on w/ the county.
COURT: Where the owner’s non-payment to the general contractor is undisputed, this
cause for payment by the subcontractor was prematurely filed.
Evaluation: *maybe defend w/ unconscionability (the subcontractor could use this)
Rule: Subcontract agreements may contain valid payment provisions which shift the risk
of payment failure by the owner to the subcontractor
HICKS v. BUSH; Ct of Appeals NY, 1962. CB [467-470]
[Company Merger: Parol condition precedent allowed as it does not contradict the written
record (merger deal contingent on raising capitol]
Issue and Holding: Whether the parol evidence rule was violated by the receipt of testimony
tending to establish that the parties had orally agreed that the legal effectiveness of the written
agreement should be subject to a stated condition precedent? Held, yes.
Facts: D and P were involved in a company merger. P transferred his interests in his company to
a holding company and the deal never materialized. D claims that the entire written agreement
was subject to an oral condition precedent that $672k be raised.
PH: Lower court finding for D affirmed.
Reasoning: Parol testimony is admissible to prove a condition precedent to the legal
effectiveness of a written agreement if the condition does not contradict the writing. There
written agreement is silent as to raising the funds so therefore there is no contradiction.
P argues that the oral condition contradicts the condition to transfer stock. Court says no.
“evidence of an oral condition is not “inconsistent” merely because the written agreement
contains other conditions precedent” In this case, the court finds that there are two separate
conditions precedent that are not contradictory.
Therefore the Parol evidence was properly admitted and written agreement is ineffective and
Evaluation: Parol evidence rule interacts with condition precedent.
EDMUND FLYNN v. SCHLOSSER; DC Ct of Appeals, 1970. CB [471-
[Purchase of Apartment conditional of approval of buyer by board. Purchaser cannot
revoke offer before condition is met]
Issue and Holding: Was it a condition precedent to the existence of a binding agreement that the
Purchaser be approved by the board? Held, No, mutual assent had been reached and the K
formed. Neither party was obligated to perform until the happening of the condition, but neither
party could rightfully revoke in the meantime.
Facts: Appellee was entered an agreement to be the purchaser of a co-op apartment. The
agreement stated it was conditioned upon Purchasers being approved for occupancy by the board
of directors. Appellee revoked her offer before the condition could be met.
Procedural History: Trial court found that the language in the writing was a condition
precedent to the existence of a binding agreement and that appellee was free to revoke her offer.
Module 13 Cases: Constructive Conditions
STEWART v. NEWBURY; Ct of Appeals NY, 1917. CB [475-478]
[Pipe company contracts for building. K considered entire: P not allowed to breach after D’s
failure to pay part performance]
Issue and Holding: Was the jury charge entitling payments at reasonable intervals acceptable?
Facts: Agreement to build new concrete works. Letters exchanged for rates fail to state payment
terms. Disputed parol evidence only as to payment terms. Partial performance by P. D fails to
pay installment. P Stops work. D terminates contract. P sues for work done + damages
Procedural History: Judgment for the plaintiff for work done (w/o damages) reversed, new trial
Reasoning: Where a contract is made to perform work and no agreement is made as to payment,
the work must be substantially performed before payment can be demanded.
MONROE STREET PROPERTIES v. CARPENTER; US Appeals, 9th,
1969. CB [478-480]
[K is a “mortgage for stock” deal. P failed to tender adequate performance, no recovery]
Depositing first mortgages a concurrent condition to stock transfer. P fails to tender performance
cannot sue for breach.
Procedural History: Appeal from a judgment in favor if the D. Affirmed.
Reasoning: “Monroe’s duty to deposit the insured first mortgages and Westerns duty to deposit
its stock were concurrent conditions. Neither party could place the other in breach for failure to
perform without a tender of its own performance”
JACOBS & YOUNG v KENT; Ct Appeals NY, 1921. CB [480-484]
[House built w/ different brand pipe than specified. Majority holds P entitled to a trial to
recover unpaid balance]
Issue and Holding: Was the use of the wrong brand of pipe breach? Held, no. Use of the wrong
pipe was insignificant. P entitled to trail for recovery of unpaid balance.
Facts: House built with the wrong brand pipe. This was shown to be neither fraudulent nor
willful. Defendant withheld outstanding balance. P sues to recover.
Procedural History: Directed verdict for the defendant. Appellate division reversed and granted
a new trial. Affirmed. Motion for re-argument denied.
Reasoning: Subject matter of the contract cannot be returned. The measure of allowance is not
the cost of replacement, but the difference in value, which is nominal or nothing.
Dissent: Use of wrong pipe is a failure to perform K.
VRT v. DUTTON-LAINSON; S Ct Nebraska, 1995. CB [485-487]
[Summary Tagline Patient care Equipment inventor sells to manufacturer. Failure to file a
patent substantial non-performance]
Facts: Inventor sells his rights to a patent pending to a manufacturing company who agrees to
pay him royalties. Turns out he failed to file the patent before the formation of the contract. Can
P recover for D’s breach? Held, no. P must establish substantioal performance to sustain a claim
Procedural History: District court ruled that defendant was obligated to pay past due and future
royalties as specified by the contract.
Reasoning: The very essence of the transaction was to enable the D to manufacture, market, and
distribute the improvements that were subject to the patent application. P’s failure to deliver a
filed patent application was not a minor deviation from P’s obligation. Therefore, no substantial
performance on part of P means no claim in K can be sustained.
WALKER v. HARRISON; S Ct Michigan, 1957. CB [487-490]
[Dry cleaner K’s for Neon sign. Makes 1 payment only due to condition of sign]
Issue and Holding: Was the failure to maintain the sign a material breach? If not, then failure to
pay becomes a breach. Held, there was no valid ground for the D’s repudiation and their failure
to thereafter comply with the contract was a material breach
Facts: D stops payment for his neon sign because sign was not maintained to his satisfaction. P
sues and wins for full amount due under contract.
Procedural History: Tried without a jury and decided for the plaintiff. Affirmed.
Reasoning: P services sign 1 week after repudiation.
Breach not material as judged by factors spelled out by court on 489.
Evaluation: Deciding if a breach is material is based on many factors. This case looks to the
restatement. Parties need to be weary of breaching themselves when responding to another
partie’s minor breach.
K&G CONSRUCTION v. HARRIS; Ct of Appeals, Maryland, 1960. CB
[Subcontractor damages contractors house]
Issue and Holding: Does a contractor, damaged by a subcontractors failure to perform a portion
of his work in a workman like manner, have a right to withhold an installment payment due the
subcontractor? Yes. Withholding the payment was justified meaning subcontractors subsequent
repudiation was an additional breach.
Facts: Contract for excavation work includes clauses that; payments will be made monthly, the
work will done in workman like fashion, that liability insurance will be required of the sub.
Subcontractor damages contractors house and insurance fails to pay. Payment withheld to cover
damages. Subcontractor stops work.
Procedural History: court sitting without a jury found for the subcontractor on the counterclaim
for recovery of work and loss of profits. [Subcontractor paid damages in full due for house
Reasoning: Subcontractors negligence in damaging the wall was a material breach of the
workman like clause allowing the contractor to withhold the payment. Further, subcontractors
failure to perform after contractors justified non-payment is wrongful repudiation.
However, the contractor allowed the work to continue after the breach meaning he must have
considered it a partial breach only.
Modern rule: mutual promises presumed dependent. Mutually dependent promises compared to
BARTUS v. RICCARDI; City Court of Utica, 1967. CB [496-499]
[Hearing aid model delivered to D not the model contracted for. UCC allows seller to
cure non-conforming performance even beyond the K’s duration.]
Issue and Holding: Whether P, having delivered a model not in conformity with the K, can
recover in view of his subsequent tender of the model that did meet the terms of the K? Held, yes.
P can recover the value of the contract as 1) belief that D would accept the new model was
reasonable and 2) he timely tendered conforming goods.
Facts: P orders a specific hearing aid model from D. Manufacturer updates the model and P is
delivered a newer model. P returns the non-conforming product. Does this rejection end the
contract? D argues that since there was an improper delivery of goods, the buyer can reject.
Procedural History: municipal court case lacks history.
Reasoning: UCC does not require strict performance as it allows a chance to cure. P can
“substitute a conforming tender’ if he had ‘reasonable grounds to believe the non-confirming
tender would be accepted and he seasonally notifies the buyer of his intention to substitute
UCC 2-608; revocation of acceptance is ok if buyer was induced by sellers assurances or non-
conformity was difficult to discover. Revocation of acceptance acts as a rejection.
UCC 2-601: Perfect Tender Rule; Non-conforming goods are goods that “fail in any way respect
to confirm to the contract”.
2-508 If buyer rejects goods, the seller can cure the tender within the time of the contract or
within a reasonable time when notice is given.
AB PARKER v. BELL FORD; S Ct Alabama, 1983. CB [499-501]
[Defective wheel housing in pickup truck causes excessive tire wear]
[UCC requires notice of rejection in a desire to find a cure]
Issue and Holding: P claims that his case should have gone to the jury because there was a
scintilla of evidence in support of his allegations. Rejected. Since the P did not notify the D that
the truck was defective, P cannot recover.
Facts: P buys pickup from D. Tires wear excessively. D pays for alignment, which did not fix
the problem. P files suit without further notice to D. It is later found that defective wheel housing
is the cause of the tire wear.
Procedural History: Directed verdict for defendant affirmed.
Reasoning: The UCC governs the sale of goods and requires notice of breach when tendered
goods have been accepted. Notice serves to encourage settlement and gives the seller the
opportunity to cure the defect.
EMANUEL LAW OUTLINES v. MULTI-STATE LEGAL STUDIES;
Southern District NY, 1995. CB [501-507]
[Breach Immeterial Cured. D not allowed to escape K]
Issue and Holding:
1) Was there oral modification to relax the due date? No evidence to support modification.
2) Was the breach material? No, a supplemental outline was available in time for class. D
did not even request overnight shipping.
3) Was the breach cured? Yes.
4) Did the alleged breach impair the value of the K? No evidence that the delay damaged
5) Did the K get reinstated by accepting the supplement without notification of the breach?
Yes. D’s letters to P not effective absent evidence they were received.
Given that Ps’ breach was immaterial and cured, D is held to be liable for the two remaining
years on the contract.
Facts: P contracts to supply D with bar exam study materials for 3 years. Agreement includes
creation of new materials to be supplied by a specified date. P suffers heart attack and delivery of
this portion of the contract is late.
Parties modified the standard UCC requirement in re notice.
MARTIN v. SCHOENBERGER; S Ct. Pennsylvania 1845. CB 
Rule: Man cannot recover for part performance
LANCELLOTTI v. THOMAS; Superior Ct. Penn., 1985. CB [511-515]
[Appellee entitled to recovery for partial performance in luncheonette purchase
Issue and Holding: Whether a defaulting purchaser of a business who has also
entered into a related lease for the property can recover any part of his payments
made prior to default. Held yes. Quasi-contractual remedy.
Facts: Purchase of luncheonette tied to lease agreement requiring building addition. Appellee
paid $25k for the business and improved the building before deciding he wanted out of the
business. Business turned back over to the Appellant. Does $25k get refunded?
Procedural History: Trial court found that appellee was barred from recovery. Reversed and
remanded for trial to determine level of damages and if restitution is warranted.S
Reasoning: Common law said no recovery in these circumstance but the weakness in this is that
the non-breaching party should not obtain a windfall from the breach. The restatement says that
“if a party justifiably refuses to perform on the grounds that his remaining duties have been
discharged by the other partys breach, the party in breach is entitled to restitution for any benefit
that he has conferred by way of part performance”
Dissent: No case law to establish the restatement as law. Common law should govern.
SCAVENGER SOFTWARE v. GT INTERACTIVE; NY Supreme Court,
2000. CB 
[Contract to supply 4 CD-ROM games divisible. P can recover for the delivery of the first
Facts: P is a game developer who contracts with D, a distributor of games. K is for supply of 4
Procedural History: Summary judgment for P affirmed.
Reasoning: D’s contract with P was a divisible contract. Accordingly, P’s right to recover
payments guaranteed under the contract for the two CD-ROM games is not impaired by the
plaintiffs failure to deliver the tow remaining games. Also, since the D asked the P to modify the
games, there was no breach for failing to deliver the games on time.
Evaluation: Divisible contracts.
Module 14 Cases: Wrongful Prevention and Noncooperation
CANTRELL-WAIND v. GUILLAUMS MOTORSPORTS; Arkansas
Appeals, 1998. CB [518-520]
[D cannot in bad faith delay closing date to avoid paying realty commission]
Issue and Holding: Did D have a good faith obligation to cooperate with P in closing the
transactions before the stipulated deadline? Yes, the court rules that the trial court erred in
granting summary judgment for D as D was under an obligation to no deliberately avoid closing
the transaction before the deadline.
Facts: P and D entered into a lease with a purchase option. Further, if the purchase option was
exercised within two years, the D would have to pay the P’s a $15k commission. P adheres to
contact terms and executes his option. The two-year deadline is missed because D does not
cooperate. [D’s avoidance led to unmet condition]. D argues that he was under no obligation to
close the deal before the deadline. (D falsely stated he was out of the country). Trail judge
Procedural History: summary judgment for D. Reversed and remanded for trail on appeal
Reasoning: A party has an implied obligation notto do anything that would prevent, hinder, or
SWARTZ v.WAR MEMORIAL COMISSION ROCHESTER; Ny Supreme
4th Dept, 1966. CB [521-522]
[P obligated by % contract to sell liquor once the prohibition of liquor sales is lifted]
Issue and Holding: Is P required by the terms of the contract to sell beer? Yes, the court holds
that it was the plaintiffs duty to attempt to qualify himself to sell beer and ale by acquiring a
Facts: P is a concessionaire at a stadium. Commission informs P that he will loose his
concession rights unless he applies for a license to sell beer within 30 days. P files suit to enforce
his rights and preclude such action. Contract had a clause that stated “if the ban on alcohol sales
were removed, exclusive sales rights granted herein shall extend to the sale of such alcoholic
beverages…” In addition, the contract had a provision that the P would obtain all necessary
permits and licenses.
Procedural History: Plaintiffs complaint dismissed for lack of merit. On appeal, court finds that
P violated the terms of the contract un-remedied for 30 days and that the contract is terminated by
Reasoning: P’s promise to pay the defendant a percentage of the gross receipts resulting from
the exclusive agency was a promise to use reasonable efforts to bring profits and revenues into
existence [lady duff principle]. His failure to do so amounted to a default on his part of an
obligation of the contract.
Evaluation: percentage of the profits contract, good faith effort to maximize revenue.
STOP&SHOP, INC v. GANEM; Supreme Judicial Court Mass., 1964. CB
[D leases building to P for base rent plus a % of the store profits. Lessee is free to cease
store operations as k requires substantial rent and no express requirement to run a store]
Issue and Holding: Whether there is an implied covenant to continue operations? No.
Facts: P leases building from D. P decides to cease supermarket business but comply with lease,
including a substantial monthly rent.
Procedural History: final decree of the court that ruled the lease does not expressly or impliedly
require the plaintiff to use the premises for any particular purpose. Judgment for the Plaintiff.
Reasoning: P argues that since the k contained no express language requiring P to operate a
store, and that more than nominal rent was set, there is no requirement that he operate for profit.
Court agrees that there is no basis for implying a covenant to operate a store. P has made an
honest decision to not operate the store, or choose to open a store elsewhere.
Evaluation: This case is distinguished from Swartz which was a pure percentage agency
MARKET STREET ASSOCIATES v. FREY; US Ct of Appeals 7th, 1991.
[Is P obliged to remind D of the contract terms? Posner looks deep into good faith
requirement before deciding that this case needed a trial.]
Issue and Holding: Was P under an obligation to remind D of an unfavorable condition in the
contact? If P believed that D would know or find out about the buyback clause, it was not
dishonest to fail to flag that paragraph . To decide the subjective belief of P will require a trail.
Facts: JC Penny sells property and leases it back from GE Pension. Agreement contains a
buyback clause; if the lessor fails to finance improvements then property can be purchased at a
6% annually appreciated rate. GE was not so interested/motivated during negotiations for
financing. P invokes buyback option, which is rejected by D. P files suit seeking specific
Procedural History: Federal Diversity case. Summary judgment for defendants because P failed
to mention the buyback clause to D during negotiations and this failure violates the good faith
Wisconsin probably did not intend in the name of good faith to make every contract
signatory his brother’s keeper, but P cannot be deceitful or opportunistic.
SHIPSVIEW v. BEECH; USDC ND NY, 1996. CB [534-542]
[Bridge Painter contracts for containment system]
Issue and Holding: The following is a cause of action for all
deposit money given to defendant; defendant counterclaims for lost
profits as a result of having to sell its bridge containment system on
the open market. Complaint and counterclaim are both dismissed and
costs are denied to both parties.
Facts: P lands bridge cleaning + painting k w/ state for 6 bridges. Causes P to discuss and
purchase a lead containment system from D. P late with deposit payments. Parties agree to
contract modification. D relies on modification. P is further late with payments. D warns that
late payments will cause a delay but give a few days for P to pay. P finally pays full deposit.
P+D’s idea of delivery dates differs. Original contract called for a cancellation and refund for
any delay past 10 weeks from order. There was no delivery on the June 7th that the P had set as
the cutoff date. P canels order and demands refund. P contracts with different supplier and sues
for deposit and damages. D claims he has reasonable time to deliver. D claims Ps breach cause
damages resulting from having to unload the containment system on the open market.
Time is of the essence in the original K and prevails after the agreed modification. June 7th is the
deadline according to the original contract.
Procedural History: NY Law and the UCC will govern. The complaint and counterclaim are
Reasoning: Either party may make or restore time as of the essence whenever it desires, simply
by giving notice to that effect. In the event of delay in a contract where time is of the essence, the
non defaulting party may cancel the contract or extend the time of performance and sue for
damages resulting from the delay.
What is the effect of the late deposit payments? D injected a time of the essence for the deposit
payments when he said that late payement would result in delivery delay. When P breached, D
elected to waive the stipulation + continue. Time is no longer of the essence.
Did the language on P’s letter and check re-establish the June 7th delivery date? No. It was a clear
notification, but it was an unreasonable date demanded. P’s was warned that delayed payments
over 1 month would leda to a delay in the delivery date. Nothing P can do can restore the orginal
date. In light of this D is obligated to perform in a reasonable time.
The actions of the parties shed further light onto the intentions of the parties. P was not active in
setting the delivery. P was not ready to take delivery. P’s actions do not establish time of the
essence. Court finds it a plausible theory that P simply wanted to avoid the contract.
Rule: Where a K for the sale of goods fails to provide a time for
shipment or delivery, the law requires delivery within a reasonable
time. What constitutes a reasonable time is dependent upon "the
nature, purpose and circumstances" of performance.
Module 16: Performance: Relief from Forfeiture, conditions of satisfaction
SHARP v. HOLTHUSEN; S. Ct. Montana, 1980. CB [543-546]
[Land purchase agreement: No forfeiture even though D in default]
Issue and Holding: Is the lower courts dismissal of a forfeiture claim correct given that the
Defendant was in default on the agreement? Held, yes. The Defendants are entitled to retain
possession and make full payment, including interest and attorney fees, so that plaintiff has not
Facts: Defendants were purchasers of property from plaintiffs. Terms included monthly
payments, assumption of the P’s loan, and discharge of the balance due by October 1977. D’s
gained possession of property and have paid $7k cash down plus monthly payments an payments
on loan. Problems arose when the well was determined to be contaminated. D’s drilled a new
pump at a cost of $1,741.
Procedural History: District court dismissed the plaintiffs claim for forfeiture under claim for
Reasoning: D’s were delinquent in payment and they were in default, but under the
circumstances, the anti-forfeiture statute allows the defendants to make full payment of interest
and attorney’s fees for the default, and allows the contract to be enforced.
BURGER KING CORP v. FAMILY DINING; USDC ED Penn., 1977.
[Forfeiture as an Excuse]
Issue: Whether BK was entitled to have the condition protecting its promise strictly
enforced; Whether giving strict effect to the termination provision which would involve
divesting the Family Dining of territorial exclusivity, would amount to a forfeiture?
Law or Rule: Where the words of a K raise no duty in and of themselves, but rather
modify or limit the promisees’ right to enforce the promise, such words are considered a
condition. A condition may be excused w/o other reason if its requirement - a) will
involve extreme forfeiture, or penalty, AND b) its existence or occurrence forms no
essential part of the exchange for the promisor’s performance.
Facts: PL, BK, a Fl corp was founded by McLamore, who was a college friend of Carl
Ferris, owner of Df PA corp, Family Dining. The parties entered into a franchise
agreement whereby BK licensed Df to operate under BK’s name. The period of 90 years
and territorial exclusivity was conditioned upon Df opening, building 10 franchises in as
many years, and maintaining all ten for the 90 year period. The first three went ahead on
schedule, but the fourth did not. The parties entered into a Modification, where BK
waived Df’s failure to comply w/ the development rate. If the 4th and 5th were nearly in
compliance BK agreed to overlook the year in default. Then the opening of the 6th was
given a one month extension. The 7th opened, and after BK’s exercise in discretion
related to site location the 8th went ahead, but the 9th and 10th had not been opened or
were under construction. Pl and Df corresponded several times in an attempt to negotiate,
but BK wouldn’t budge on the exclusivity and BK then terminated their agreement.
Procedural History: BK filed suit seeking declaration that a territorial exclusivity
agreement between it and a franchisee, by its own terms, was no longer of any force and
effect. TRO was granted to BK. Bench trial, on the Df's motion for involuntary dismissal;
Reasoning: A careful reading of the K indicates that it raises no duties in Family Dining.
Failure to comply w/ the development rate operates to defeat liability on BK’s promise of
exclusivity. The hiatus in development is not fully chargeable to Df. BK is not entitled
to have the condition protecting its promise strictly enforced. Early on BK was
concerned w/ development of a territory than exact compliance. There was no evidence
it considered literal performance to be critical. After realizing the territory could support
more than 10 franchises BK’s attitude changed. If the right of exclusivity were to be
extinguished by termination it would constitute a forfeiture. IF Family Dining were
forced to forfeit the right of exclusivity it would lose something of incalculable value
based on its investment of time and money developing the area, the significant risks
assumed and the fact that there remains 76 years of exclusivity. The termination of the
Territorial Agreement would result in an extreme forfeiture to Df.
Plaintiff’s Argument: Since Family Dining failed to perform its promises to construct and
open 10 franchises w/i 10 years the contract should be legally terminated. DF did not earn
exclusivity past the 9th year and should forfeit anything in which it has an interest.
Defendant’s Argument: The Territorial Agreement should not be terminated because it
would result in a forfeiture to Family Dining. Pl has not asserted any relief other than
Issues as presented to the court:
The requirement that the Family open ten new restaurants during the first ten years of the
agreement was a condition subsequent rather than a promise on the part of the Family
The contract was intended to be entire rather than severable. The BK was not entitled to
have the condition protecting its promise strictly enforced.
Giving strict effect to the termination provision which would involve divesting the
Family Dining of territorial exclusivity, would amount to a forfeiture.
Development rate imposed by agreement was not promise by Family but was, rather,
condition subsequent, failure of which operated to defeat liability on BK's promise of
exclusivity, or to divest Family Dining of its right to enforce promise.
Provision terminating agreement which granted restaurant franchisee 90 years' territorial
exclusivity upon failure of condition subsequent that franchisee develop and operate ten
new restaurants in first ten years of agreement would not be given strict effect where,
throughout early duration of contract, franchisor was more concerned with general
development of territory than with exact compliance with terms of development rate,
where there was no evidence that failure to fulfill time feature of provision was result of
intentional or negligent conduct on part of franchisee and where if franchisee were forced
to forfeit right of exclusivity it would lose something of incalculable value in that it had
developed area to point where ten restaurants were in operation; considerations of
fairness and equitable principles would not permit termination of agreement which would
result in extreme forfeiture to franchisee. Agreement entered May 1963
R&R of Connecticut v. STIEGLER; Appellate Ct of Conn, 1985. CB [555-
[Grocer’s attorney dies and lease option not renewed in time. Is P entitled to equitable
Issue and Holding: Whether a tenant’s late notice of intention to renew a lease of commercial
property should be excused on equitable principles? Held, a new trail is required to determine if
the failure to properly extend the lease was negligent, willful or grossly negligent. The level of
culpability will determine if P is entitled to equitable relief.
Facts: P is a tenant operating a grocery store in a space leased from D. Leasee does not
exercise renewal option in time and McDonalds offers owner more $$$ for the space. Lease
option was not enacted because P’s attorney died in the weeks before the deadline. Ps’ new
attoroney states that “I believe it was probably (decedent lawyers) intention to renew under the
terms of the lease.” P had invested significantly in the property and would suffer loss if
relocation necessary. Trail court concluded that the attorneys death coupled with the large
monetary loss of the P justified equitable relief.
Procedural History: P sought an injunction to prevent D from terminating the lease. The
defendant appeals from the judgment of the trial court that the option to extend the lease has been
properly exercised. We find error.
Lower court said, “We think the better rule to be that willful or gross negligence in failing to
fulfill a condition precedent of a lease, equity will never relieve. But in the case of a mere neglect
in fulfilling a condition which does not fall within the accident or mistake, equity will relieve
when the delay has been slight.
Appeals court rejects assumption that P’s former attorney might have probably intended to
complete the lease option. Appeals court rejects evidence to how much loss the lessor incurred
by missing the McDonald’s opportunity as “speculative”.
Equitable relief may be granted when a condition is not met if:
1) If the failure to give notice was mere neglect and does not amount to recklessess/gross
2) If the delay in giving notice is slight
3) If the loss to the lessor is small.
C&J Fertilizer v. Allied Mutual; S. Ct Iowa, 1975. CB [559-574]
[Farm Chemical Merchant Burglarized: forced to sue insurer who denied claim because
of lack of “exterior forced entry evidence.” Court overturns and rejects contract
exclusion based on unconscionability + forms]
Issue and Holding: Is the requirement of the insurance policy that any claim for burglary be
accompanied by external evidence of forced entry enforceable? Held No. The intention of the
condition is to prevent an inside job, which was sufficiently evidenced here. The insurer should
not be allowed to escape the contract if strict adherence to the condition is unjust.
Facts: P insured his property with D. Part of the policy stated that any claim for burglary would
require visible marks made by tools explosives or physical damage to the exterior of the premised
at the place of entry. Although an interior door was destroyed, entrance from the exterior was
made in a manner that did not leave such evidence. D denies claim.
Procedural History: Trail court found that P had failed to establish a burglary within the policy
definition. Judgment for the Defendant reversed and remanded on appeal.
Reasoning: Court starts by rejecting lower courts determination that the definition of burglary as
evidence in the policy is adequate. By re-evaluating the underlying definition of burglary, the
court determines the intention of the clause to be the general prevention of inside jobs, not to
frustrate legitimate claims. The burglary definition that crept its way into this policy comports
with neither the concept of the layman nor any legal interpretation.
Standard from insurance contracts signed by simple farmers may have language that is unknown
or misunderstood. Further, these contracts are presented in a take it or leave it manner from one
party who is in much more of a position of power than the other. The farmers assent to the
contract is seen not as specific assent to every terms, but a general assent to all the reasonable
terms, and not to any unreasonable or indecent term.
Is it a reasonable expectation that the policy would cover this loss? “The objectively reasonable
expectations of the applicants regarding the terms of insurance contracts will be honored even
thought eh painstaking study of the policy provisions would have negated those expectations.”
Implied Warranty: court extends the implied warranty present in transactions for tangible goods
to this insurance transaction.
Unconscionability: Court further thinks P is entitled to a reversal because the provision on
burglary is unconscionable. (Standardized forms and inequity of bargaining power).
Dissent feels like the majority decision ignores virtually every rule by which we have heretofore
adjudicated such cases and affors plaintiff ex post facto insurance coverage which it not only did
not buy, but which it knew it did not buy.
Sec 10: Conditions of Satisfaction
WESTERN HILLS, OREGON v. PFAU; S Ct. Oregon, 1973. CB [575-
[D’s agreed to buy land contingent on satisfactory zoning approval from county. Can’t
escape contract because of unsatisfactory sewer requirement since this condition was
known to be unsatisfactory at the time of contracting]
Issue and Holding: Whether defendants were excused from performing their agreement because
they never secured the city’s approval of a satisfactory planned development, when the evidence
shows they abandoned this effort because of the expense of providing an alternative sewer system
made the development financially unattractive. Held, D’s cannot escape the contract because tey
knew before contracting that this condition would not be satisfied.
Facts: D’s formed a joint venture to purchase 268 acres of land for development conditional
upon favorable development approval. D never followed through on getting the planning
approval. D’s claim that their obligation to purchase the property never fulfilled because the
condition was never fulfilled. A condition regarding sewers was removed from the original
agreement because D thought the provision for approval accomplished the same thing.
Procedural History: Trail court found that the Ps’ were entitled to specific performance of the
Defendants had an implied duty to try and get a satisfactory zoning approval. When satisfaction
is a condition of a contract it is either the 1) taste or personal judgment of the individual which is
absolute and may not be reviewed by the court or 2) those which involve utility, fitness or value,
which can be measured against a more objective standard.
Although in this case, the condition is subjective, a party must actually be dissatisfied with the
subject matter. Dissatisfaction cannot be something known at contracting time.
VAN IDERSTINE v. BARNET LEATHER; Ct of Appeals, NY, 1926. CB
[Vealskin contracts: delivery rejected by 3rd party defined in K as having approval
authority. D then flatly rejects all tendered skins regardless of 3rd party’s acceptance]
Issue and Holding: whether the plaintiff may recover under it’s contract upon proof that it
offered to deliver the skins which in quality complied with the contractual requirements, and that
the 3rd party unreasonably withheld it’s approval of these skins. Held, no. The defendant should
not be required to pay the contract price unless the plaintiff performs according to the contract
“subject to the approval” of the third party. Trail court jury instruction incorrectly entitled P to
dmagaes is approval of goods was unreasonable.
Facts: Two distinct contracts for vealskins stipulated the sale and delivery of 15,000 and 6,000
skins. 3,500 of original shipment rejected as non-conforming and second delivery rejected in full
Seller P alleges that rejection was unreasonable.
Procedural History: Jury ruled in favor of plaintiff. Reversed and remanded.
Reasoning: The trail court relied on contractor cases where the approval condition would lead to
unjust enrichment. This is not the case here since the skins would not have passed in possession
to the rejecting party.
Here the third party was designated expert and not just D’s agent and delivery mustbe made
subject to expert’s approval. To compel D to accept goods without such approval is to impose
liability which he has not agreed to assume. Unless the certificate has been withheld in bad faith,
there may be no recovery under the second cause of action.
LARGENT CONTRACTING v. GREAT AMERICAN HOMES; Ct of
Appeals, TN, 1990. CB [582-584]
[Case to go to trial to determine if payment for extra work completed by contractor is
required not withstanding engineers lack of approval]
Facts: Largent agreed to clear and build a lake. The complaint alleges that an additional $11k
worth of work was authorized and completed and is owed. D claims that this work was not
approved by the engineer as required by the contract. The engineer conceded that the additional
work was in fact completed.
Procedural History: Plaintiff, Largent, appeals from the trial courts grant of summary judgment
in favor of the defendant. Reversed and remanded for trial.
Stare Decisis concludes that K’s which leave it up to the architect/engineer are binding, but this K
did not give the engineer final authority. (The engineer is to approve the final payment, but the
contract does not provide that it’s decision as to disputes is to be final and conclusive or that the
engineer is the final arbiter).
Testimony reflects that Ps’ did the work and that it was authorized. There is a genuine issue of
material fact sufficient to preclude summary judgment.
INDOEv. DWYER; Superior Court NJ, 1980. CB [584-589]
[House purchase agreement contingent on attorney approval]
Issue and Holding: What is the scope and effect of an attorney approval clause in a contract for
the purchase of real estate? Held, the vendee may disaffirm the contract if he is dissatisfied and
his reasons for dissatisfaction may not be determined or inquired into by anyone else. The value
of this clause is to allow a party to consult with an attorney and act upon his advice. The only
limit is that the attorney act in good faith, which there is no basis for bad faith claim here. The
contract was terminated by operation of the attorney approval contingency
Also, what is the effect upon a husband of such a contract executed solely by the wife where the
only evidence of the husband’s interest was a provision that the deed would be in both names?
[no need to examine this question given result supra]
Facts: P’s were selling their house. Mrs. D accepted an offer mistakenly believing it to be a bid.
This document stated that the terms of the contract would have to be acceptable to their attorney.
D’s became dissatisfied with the agreement and D’s attorney notifed sellers that he would not
give his approval and that D’s were not proceeding with the transaction.
P’s claim that the attorney approval clause does not permit the disapproval for unspecified of of
any of the stated reasons in this case, and only allows disapproval for matters within the special
expertise of the attorney.
D’s claim that there is no showing of bad faith and that the contract is not enforceable in the event
of a disapproval by the stipulated counselor.
Procedural History: Cross motions for summary judgment.
Reasoning: The effect of an unlimited right of disapproval is to place the parties in the same
position they would have been if they had been able to consult with an attorney before the signing
of the contract. To only allow him to disaffirm when his dissatisfaction rests upon some valid
and reasonable objection to the title is to practically deny him the exercise of this privilege
expressly conferred by the contract and denies him the right to exercise his judgment in the
Module 17: Prospective Failure of Condition and Breach by Repudiation
Hochester v. De La Tour; Queens Bench, 1853. CB [592-597]
[D breaks employment contract prior to start of term. P can still recover without waiting
Issue and Holding: Whether Df may, before the day of the agreed upon hiring of Pl as a
courier, renounce the agreement, entitling Pl to recover damages where Pl was ready, and
willing to perform the service until it was renounced by Df? Held, Yes. (at trail and
Facts: Df entered into an agreement where Df would engage Pl as a courier under Df’s
employ to commence on a future date, where they would travel into a foreign country in
that capacity on that day, for a monthly salary for a term of three months. Prior to the
date of departure the Df renounced the agreement
Reasoning: Both parties were engaged to each other and it seems to be a breach of an
implied contract if either of them renounces the engagement. The Pl has no remedy
unless he treats the K as being in force and acts upon it on the prescribed date by not
accepting any other employment which would interfere with his promise. After the
renunciation of the agreement by the Df, the Pl should be at liberty to consider himself
absolved from any future performance, retaining his right to sue for any damage he has
suffered from the breach. Df is at liberty to seek service under another employer, which
would go to mitigating the damages. The Df after renouncing the K, should be
permitted to object that faith is given to his assertion.
Plaintiff’s Argument: The renunciation by the Df was a breach of K, and Pl is entitled to
Defendant’s Argument: There could be no breach of K before the day the performance
was due to begin.
Evaluation: P can sure for damages once breach is established w/o waiting till performance due.
It is not judicial to allow the breaching party to escape liability if damaged party does not wait
around to not perform.
DANIELS v. NEWTON; Supreme Court Massachusetts, 1874. CB [597-
[Real Estate Purchase Contract allows defendant 30 days to close: No sustainable action
can be filed by P before performance is due]
Issue and Holding: Does the inference from the clause indicate that the defendants were to have
the entire 30 days + 30 days before P can sue for breach. Held Yes. P cannot sue prior to the
agreed upon time elapses.
Facts: Parties agreed to convey premises within 30 days, with an agreed upon extension of 30
Procedural History: Trail court and court of review find for Defendant.
Reasoning: “Doctrine of Hochster v. De La Tour has not been adopted in this Commonwealth”
“Actual injury and not anticipated injury is the grounds for legal recovery.
Evaluation: P argues that Hochster v. De La Tour rule allows him to recover prior to the required
DRAKE v. WICKWIRE; Supreme Court of Alaska, 1990. CB [600-602]
[Lawyer negligent for advising client to make anticipatory breach in the face of possible
Issue and Holding: An attorney was negligent as a matter of law in
advising his client to break an earnest money sales agreement in the
face of an ambiguous statement by real estate agent that buyers were
"resisting the pressure to close," which was insufficient to indicate
anticipatory repudiation of contract by buyers.
Facts: Property owner filed malpractice action against his attorney for
attorney's action in inducing client to break earnest money sales
Procedural History: The Superior Court granted summary judgment for
attorney, and client appealed.
The Supreme Court held that attorney was guilty of malpractice as
matter of law in negligently advising anticipatory conduct by client in
the face of ambiguous statement from real estate agent which was
insufficient to indicate anticipatory repudiation of earnest money sales
contract by buyers.
Reversed and remanded.
Reasoning: to act as a repudiation language must be sufficient positive that party will not or
cannot perform. Wickwire’s negligence in this case was in advising precipitate conduct in the
face of an ambiguous statement that was not sufficiently positive of an upcoming breach.
Evaluation: Lone judge dissents without comment.
COHEN v. KRANZ; Court of Appeals NY, 1963. CB [602-605]
[P breaks agreement to buy house because of bad title. P’s non-performance is a breach
because D in fact was not notified properly of the claimed defects and the defects were in
Facts: P’s contracted to buy a house from D and made deposit. About 15 days into the 30 day
closing period, investigation into the title resulted in a showing that the property had title defects
including an illegal structure. P’s immediately attempted to recover deposit monies.
Procedural History: The trial court found that the P had given notice of defective title to D took
no steps to remedy the problem, and the problems were not found to be minor. Therefore P was
excused from performance. Appellate court unanimously reversed finding that the plaintiffs
advance rejection of title and demand for deposit return was unjustified and an anticipatory
breach of contract.
Evidence supported finding that letter which was written by
prospective vendee seeking return of deposit and which stated that
investigation had disclosed that structure of premises was not legal
and that title was thus unmarketable failed to specify claimed illegality
and that specific objections to title, namely lack of certificate of
occupancy for swimming pool and projection of split rail fence beyond
front line of dwelling, were not raised until more than one month after
“A vendor with incurable defects is always in default, whereas a vendor with curable title defects
must be placed I the default by tender and demand, which was not done here”
Module 18 Cases: Ch 9 Impossibility, Impracticability, and Frustration
PARADINE v. JANE; King’s Bench, 1647. CB [609-610]
[D leased land from P. Claims he was invaded y German prince and expelled from land
not liable for the destruction of the property]
Holding: Leasee must still pay the rent because he obliugated himself so by contract and 1) he
could have protected himself against this harm, 2) he enjoyed the benefits of the lease and
therefore must assume the risks, and 3) D has an action against the invaders for recovery.
Facts: Paradine v. Jane was an action in debt10 for three year’s worth of arrears of rent due for
lands let to the defendant under a twenty one year lease.11 The defendant agreed that he owed a
certain amount of the rent but he argued that he should be excused payment of the remainder. He
claimed that “a certain German prince, by name Prince Rupert, an alien born, enemy to the King
and kingdom, had invaded the realm with a hostile army of men” and had expelled him from the
lands. He had been dispossessed for over two years and had been prevented from taking profits
from or getting any benefit out of the land, and so claimed that he should not have to pay rent
owed for this period.
It should be clear from this brief exposition of the facts that the defendant was not seeking to be
excused for non-performance on the basis that a supervening event had made such performance
impossible. He was seeking to be excused payment of a money rent, something which is never
technically impossible.12 The supervening event did not affect the performance which was being
sued for, but the counter-performance for that performance – i.e. the expulsion and dispossession
of the defendant did not affect his ability to pay the rent but rather, it was claimed, affected his
obligation to do so because he had not been able to enjoy the use of the land. The defendant was
not claiming that his performance was impossible but rather was claiming that there had been a
failure of performance on the part of the
TAYLOR v. CALDWELL; King’s Bench, 1863. CB [610-613]
[P rents concert hall from D but it burns down prior to performance]
Issue and Holding: What result when the subject matter of a contract is destroyed? Held, the
concert halls existence is a condition to the contract. P cannot sue D for breach. Performance is
excused when the destruction of the subject matter makes performance impossible.
Facts: P rents the use of a concert hall form D for several performances. Prior to the concerts,
the hall burns and D is unable to tender delivery of his performance. P sues for breach.
Court classifies this contract not as a lease or a rent, but rather as a license to use the premises for
the shows. Court also determines that the agreement shows the concert hall to be essential for
The existing rule taken from Paradine v. Jane:” when there is a positive contract to do a thing,
the contractor must perform it or pay damages for not doing it, although the consequences of
unforeseen accidents the performance has become unexpectedly burdensome or even
This rule is only applicable when the contract is positive and absolute, and is not subject to any
condition which is implied. Court then proceeds to find that if a contact implies a condition, then
an excuse for performance may exist.
Court also states that where a K requires personal service and the provider dies, a contract is
discharged. This is based on the notion of an implied condition of the existence of the life of the
So it is held that if the destruction of the contract’s subject matter makes performance impossible,
and excuse is granted.
Evaluation: Was there a breach? Yes, the owner of the hall did not provide the hall as
promised. But the owner’s performance is excused under impracticability doctrine.
Performance is impossible and the court holds the owner ought not to bear the loss that the
owner’s failure to perform imposes on the other party, the lost profits the promotor would
CAZARES v. SAENZ; Ct of Appeals 4th, CA, 1989. CB [613-619]
[Attorney becomes unable to perform when he is elected judge. His firm sues D for
contingency fee recovery owed by contract.]
Issue and Holding: Are Plaintiff Cazares and Tosdal, former partners, entitled to one half of a
contingent fee promised them by defendant Saenz? Held, P’s cannot recover 50% since the
obligation of the contract was discharged when the primary attorney enlisted for the case became
a judge. They can however recover a reasonable value of the legal services rendered before the
What is frustration of purpose? Incapacitation of parties?
Facts: D associated P’s law firm to help him represent a Mexican in contingent fee personal
injury case. Cazares was the primary reason that D wanted to work with the firm and it was
established that Cazares would be the only interface to D. P gets elected judge and cannot finish
the case. D proceeds to win the case. P sues D for recovery of 50% of fee.
Procedural History: Tried before a referee by stipulation. Found that P’s had performed fully up
to the time Cazares took the bench, and that since D rejects performance by the remaining partner
Tosdal, D prevented the performance in full. D owes P full share of contingent fee award.
Was it a breach to not accept Tosdal’s services? No, D was within his rights to reject the services
of Tosdal since the agreement clearly contemplated that Cazares would perform the work. Where
a contract contemplates personal services of a party, performance is excused when that party dies
or becomes incapacitated
What is the proper measure of Quantum Meruit in such circumstances? P’s are entitled to a
reasonable fee for their legal services. This is not necessarily a straight hourly rate when the
agreement was a contingent fee arrangement. Lawyers take certain compensable risks with
contingent fee’s and often provide financing. In this type of arrangement, P’s are entitled to
recover proportional share of the contingency fee based on the share of work their firm completed
vs. the overall work.
We suspect that disputes over legal fees may sull whatever remains of the image of law
as a noble profession.
AMERICAN TRADING v. SHELL INT’L MARINE ; US Appeals 2nd,
1972. CB [619-624]
[No impossibility or impracticability for extra costs for having to go long route due to
Proceeding on claim against charterer for additional compensation for
transportation of cargo from Texas to India via the Cape of Good Hope
as a result of the closing of the Suez Canal. The Court of Appeals held
that where the parties contracted for shipment of cargo from Texas to
India at an agreed rate, and the charter party made no reference to a
fixed route and it was well understood in the shipping industry that the
Cape route was an acceptable alternative in voyages of the character
of that in question, the agreement merely contemplated that the Suez
Canal would be the probable route, and Suez passage was not a
condition of performance, though the rate which was in accordance
with a tanker rate schedule was based on Suez Canal passage and the
invoice contained a specific Suez Canal toll charge. The Court also held
that there was not commercial impracticability which would excuse
performance though additional expense was involved in the amount of
$131,978.44, which was an increase of less than one-third over the
Mere increase in cost alone is not sufficient excuse for non-performance. This case is not
distinguished from precedents because of the greater distance involved. Still no impracticability
or frustration. Captain was also warned in advance yet proceeded to traverse the Mediterranean
Parties contemplated the canal as the probable route, but not the exclusive. Therefore this is not
an impossibility case.
NORTHERN CORP v. CHUGACH ELECTRIC ASSOC.; Supreme Ct
Alaska, 1974. CB [624-628]
[Dam building project has problems with specified rock supply. Performance of
amended agreement excused due to impossibility of hauling rocks across frozen lake.]
Issue and Holding: Was it impossible to perform the agreement to transport rocks across the
frozen lake? Held, yes. Contractor's repeated efforts to perform amended contract for
repair and protection of upstream face of dam by transporting rock across frozen lake by
truck, culminating in tragic loss of life, supported finding that contract was impossible of
performance by this method.
Facts: Chugach contracted Northern to repair a Dam. The contract specified that the source of
rock would be an upstream quarry. This source was not sufficient and both parties agreed to
reform the contract. The new location was to be a quarry across the lake, which was to be
crossed in the frozen winter months. Vehicles break through ice and sink. Additional accidents
take place killing several men.
Procedural History: The lower court held that the contract was discharged due to impossibility.
It is clear that the original agreement was superseded as a result of the formal amendment to the
contract. Since the amendment provided for the additional costs incurred by Northern, there is no
claim in regard to express or implied warranties of the original contract. (as was claimed on
Appellant sufficiently attempted performance and suitable demonstrated impossibility. Could an
alternative method have been used? No, this method of delivery was expressly specified in the
contract and a material impossibility excuses performance.
Where ice haul method of transporting rock ultimately selected was within
contemplation of parties to contract for repair and protection of upstream
face of dam and was part of basis of agreement which ultimately resulted in
amended contract, but that method was not commercially feasible within
financial parameters of the contract, contract was impossible of performance,
and contractor's duty to perform was discharged.
EASTERN AIR LINES v. McDONNELL DOUGLAS; US Appeals 5th,
1976. CB [628-635]
[Aircraft supplier excused for delay in performance caused by government act]
Issue and Holding: Did the language of the contract providing excuse for “any act of
government” expressly allow for an excusable delay? Held Yes. Appeals court says that the
maximum ejusem generis only applies when clause not certain. Here the clause does not limit
excuses to those specifically listed as required by the lower court. In this case it is clear that
Eastern specifically “contemplated and voluntarily assumed” the risk that the deliveries would be
delayed by governmental acts.
Was the informal “jawboning” a governamental act? Yes, Congressional intent with the ACT was
to allow for informal processes and means to be acceptable. “Given McDonnell’s unquestioned
good faith in complying with the Government’s demands for priority , we hold that as a matter of
law that McDonnell is not liable for any delivery delay proximately resulting from the informal
Facts: P and D had a series of contracts for the delivery of 100 planes. The planes were delivered
late. Demand for planes by government during Vietnam causes aircraft manufacturer to be late
Procedural History: A jury returned a verdict for $24.5M in favor of Eastern Airlines for
breach. At trial, the evidence of the governments informal demands for priority not allowed.
Trail judge also limited the excuses to those specifically provided for in the language of the
Did the trial judge properly require the event causing the delay to be unforeseeable? Courts must
take a narrow interpretation of exculpatory provisions absent evidence to the contrary. But here
the parties saw this possibility and provided for it in the terms of the contract. Is the excuse of
impracticability available if the event was foreseen? when the promisor has anticipated a
particular event by specifically providing for it in the contract, he should be relieved of liability
regardless o whether it was foreseeable.
KRELL v. HENRY; Court of Appeal, KB, 1903. CB [637-641]
[Rental agreement for a flat to watch King’s coronation. Agreement based on renting the
flat for the kings coronation procession. Absent this condition D’s performance is
frustrated and excused.]
Issue and Holding: Does the contract infer the requirement of the King’s coronation? Held, yes.
The place was advertised for the purpose of the coronation and both parties agreed to an enhanced
rent because of this event and the flats suitability to viewing the coronation. Plus the rooms were
rented for day use only. These facts establish the letting was not a common rental and was only
for the kings coronation. The non-occurrence of the basis of the contract is an unforeseen event
preventing performance. Both parties are discharged from further performance.
Facts and Procedural History: The plaintiff offered to rent out his rooms overlooking a
street where processions to the royal coronation were going to take place. The defendant
offered to pay £75 to rent the rooms in order to watch the processions. The defendant put
down £25. The king got sick and the processions didn’t happen. The defendant refused
to pay. The plaintiff sued for the remaining £50 and the defendant countersued for the
£25 deposit. The trial court dismissed the plaintiff’s complaint and gave judgment for the
defendant on his counterclaim. The plaintiff appealed.
Evaluation: This is the landmark case on frustration. Why is this a “frustration of
purpose” case rather than an impossibility or impracticability case? The promise of the
defendant is to pay £50. This promise is not impossible to perform. It’s not
impracticable either. When you have a promise to pay a fixed sum, the sum doesn’t go
up because of the supervening event. Paying £50 isn’t impossible. Under the facts of
Krell v. Henry in our country, Henry would get his £25 back. (That claim was dropped in
WESTERN PROPERTIES v. SOUTHERN UTAH AVIATION; Ct of
Appeals Utah, 1989. CB [642-644]
[D’s excused from performance to construct a building. City’s cooperation deemed a
material assumption absent which performance is impossible with no fault of D’s
Obligation to construct building discharged]
Issue and Holding:
Facts: Sublessor appealed from an order of the District Courwhich dismissed its claims
for additional rent and for breach of a lease covenant regarding construction of a
building. The Court of Appeals held that: (1) doctrine of impossibility discharged
sublessees' obligation to construct maintenance building on property, and (2) doctrine of
frustration relieved sublessees from paying further rent after it was apparent that
maintenance building could not be constructed and sublessees abandoned property.
Procedural History: P wins award for back rent. D wins on claim excusing building
Under the contractual defense of impossibility, an obligation is deemed discharged if an
unforeseen event occurs after formation of the contract and without fault of the obligated
party, which event makes performance of the obligation impossible or highly
Doctrine of impossibility discharged sublessees' obligation to construct maintenance
building on subleased land, inasmuch as city approval was needed to construct building,
city refused to give such approval and parties did not foresee city's refusal to cooperate.
Purpose of sublease was effectively frustrated after city refused to give sublessees the
required approval to construct maintenance building on property, and thus sublessees
were not responsible for rent after city refused to cooperate and sublessees abandoned
407 East 61St Garage v. SAVOY Fifth Avenue; Court of Appeals NY, 1968.
[Garage sues Hotel for breach of contract when hotel ceases operation.]
Issue and Holding:
Was there an impled promise by the hotel to continue to operate for the full term of the parking
garage contract? Yes, Party to contract is not permitted to abrogate same, unilaterally,
merely upon showing that it would be financially disadvantageous to perform it.
Action for breach of contract by defendant hotel operator. The Supreme Court entered an
order denying motion by plaintiff garage for summary judgment and granting cross
motion by defendant hotel operator for summary judgment and the garage appealed. The
Appellate Division affirmed and appeal was by permission. The Court of Appeals held
that contract whereby garage undertook to furnish adequate garage services and facilities
to any guest of particular hotel who requested them and was to pay hotel operator 10% Of
transient storage charges incurred by hotel guests during the fiveyear term of agreement
presented an issue of fact as to whether agreement did import an implied promise by
hotel operator, which after several years of substantial financial losses ceased operating
hotel, to fulfill its obligations for an entire five-year period precluding summary
Order modified by remitting case to Special Term for further proceedings in accordance
with opinion and, as so modified, affirmed.
The lower court reasoning treats the agreement as a requirements contract. When the hotel
ceased operations in good faith, they had no requirement. The higher court said it was more like
a license agreement, which may mean that liability persists (revocation of a license may be a
Promise that party will continue to remain in business may be implied in fact as part of an
agreement for rendition of services to a business particularly where promisee has
undertaken certain burdens or obligations in expectation of and reliance upon promisor's
Generally, excuse of impossibility of performance is limited to destruction of means of
performance by an Act of God, vis major, or by law.
Where impossibility or difficulty of performance is occasioned only by financial
difficulty or economic hardship, even to extent of insolvency or bankruptcy, performance
of a contract is not excused.
Where purpose of plaintiff's contract to furnish garage services to hotel guests was
frustrated only when operator itself made a business decision to close hotel prior to the
expiration of five-year term of agreement, and the frustration did not result from
unanticipated circumstances, defense of frustration of purpose of a contract was not
available to hotel operator in suit for breach.
POLLARD v. SHAAFFER; Supreme Ct Pennsylvania, 1797. CB [649-
[Lessee not obliged to rebuild property after destroyed by invading army. ]
Issue and Holding: Does the fact that the defendant was dispossessed of the land change his
duty to pay rent and deliver the property in good order? Held, the Defendnat is obliged to pay the
rent, but he is excused from his promise to deliver the property in good repair. A covenenat to
protect against an act of God or enemy, would have to be expressed in the contract. D received
no consideration for this risk and in the basis of equity the premises would have been damaged
even if they were in the possession of the Plaintiff himself.
Facts: Lease agreement for a house. Suit brought for back rent and failure to return the property
in good condition. D claims that an occupying army excuses his performance.
It is agreed that if a house is destroyed without any occurrence of the lessee, he cannot be charged
with using it improperly. Also, if the law creates a duty a party may be excused if performance is
disables. Here though, there is an express covenant for the D to return the property in good
Every contract ought to be construed according to the intention of the parties. In the present case,
the D had only covenanted to keep the premises in repair against ordinary accidents, not against
an unforeseen event beyond his control and not of his fault
TURNER ENTERTAINMENT v. DEGETO FILM; US Appeals 11th,
1994. CB [652-659]
[German broadcast over new satellite system allowed, according to German court
proceedings, with extra compensation required in return.]
Issue and Holding: Is a German court ruling that Defendant can broadcast licensed
programming over an expanded satellite system with extra compensation valid? Held yes. The
German court decision that American licensor of television programming was required to
allow German broadcasters to use new technology but that they would be required to pay
an increased licensing fee did not abrogate freedom of contract and did not offend
Georgia law, and thus did not preclude federal court from abstaining in parallel American
Facts: Issue centers around satellite reception, German governmental requirement and the
definition of acceptable overspill. New satellite system chosen for ease of distribution to all of
Germany has large overspill footprint.
Procedural History: At trail, Turner gets injunction against satellite broadcast plus court does
not dismiss tn light of German proceedings. German case then decided on it’s merits so appeals
court reverses on appeal.
Via acquisition, Turner stands in the shoes of original contracting party.
It was an unforeseen requirement that broadcast to all of Germany <reunification and new
Court is willing to defer to German court ruling finding strong rational. Principles for respecting
foreign jurisdictions: 1) respect for fellow sovereign nations 2) fairness to litigant and 3) efficient
use of judicial resources.
Contract specifically allowed the use of this technology. Turners rights are being preserved fairly
by German decision.
Federal courts have virtually unflagging obligation to exercise subject matter jurisdiction
conferred upon them.
In some private international disputes, prudent and just action for federal court is to
abstain from exercise of jurisdiction.
Once judgment on the merits is reached in one of two parallel proceedings in American
and foreign courts, failure to defer to judgment would have serious implications for
concerns of international comity.
Concerns of international comity, fairness, and efficiency warranted deference to German
forum which had already rendered judgment on the merits in parallel litigation, so federal
court would abstain; dispute concerned broadcasting of television programs in German-
speaking areas of Europe pursuant to license granted by American corporation.
Module 19 Cases: Damages
HAWKINS v McGee, supra. Damages in general = Position that P would have been in
if the contract had been performed.
PROTECTORS INSURANCE v. US FIDELTY & GUARANTEE; US
Appeals 10th, 1998. CB [660-664]
[D loses suit for breach. Jury awards for lost profits as well as for loss in going concern
of business. This is a double recovery.]
Independent insurance agency that sold its assets upon insurer's termination of agency's
personal lines business thereafter sued insurer for breach of contract, alleging that insurer
failed to make good faith effort at rehabilitation to avoid termination of agreement. The
United States District entered judgment on jury verdict awarding agency $809,650 in lost
profits and $35,000 difference between actual sale price of agency and its reasonable sale
value had it not been sold under distress. Insurer appealed. The Court of Appeals, held
that: (1) judgment awarded agency impermissible double recovery, and (2) proper
remedy was to vacate lost profits award and affirm reduction in value award.
Affirmed in part, vacated in part, and remanded.
Objective of damage award in breach of contract action under Colorado law is to place
injured party in same position it would have been in but for breach; double or duplicative
recovery for single injury, however, is invalid
Lost future profits may be used as method of calculating damage in breach of contract
action under Colorado law where no other reliable method of valuing business is
HADLEY v. BAXENDALE; Court of Exchequer, 1854. CB [664-667]
[Delay in delivery of mill shaft cuases mill to loose profits. P cannot recover because D
was not aware of the special circumstances surrounding the delivery of the shaft]
Issue and Holding: Can Plaintiffs recover lost profits? Held, No.
Facts: Plaintiffs were the owners of a mill whose operation was stopped due to the
breakage of a crank shaft. The shaft had to be sent to engineers of the manufacturer
[Joyce & Company] as a pattern for a new one. Plaintiffs used Pickford & Company as
carriers. The clerk advised them that the shaft must be sent immediately, as the mill was
stopped. The clerk was promised delivery in one day and paid 2 pounds 4 shillings for
the delivery. However, Pickford failed to perform as promised and delivery was delayed
for several days. As a result, plaintiff lost several days’ profits from the mill that
otherwise would have been made if the shaft had been delivered on time. Plaintiff sues
Defendant for lost profits.
Procedural History: In the trial case, the jury returned a verdict for the Plaintiffs for 25
pounds, plus the amount paid into Court. Defendant appeals and a new trial is ordered.
Appellate court reverses.
Reasoning: A New Rule was created in this case: The court found that an aggrieved
buyer of services will be unable to recover consequential losses resulting from breach
unless the losses are 1) a “natural” consequence of breach; or 2) the buyer brings the
circumstances which would generate the losses expressly to the seller’s attention. The
court reasoned that Pickford had no way of knowing that Plaintiffs would lose profits if
the shipment of the shaft was delayed, as this information wasn’t communicated directly
to them and therefore the loss of profits was not reasonably contemplated by both the
parties when they made the contract. Although the fact that the mill was closed was
communicated, it wasn’t made completely clear to the Defendants that the mill was
closed because of the broken shaft and couldn’t re-open again until it was fixed. For all
the Defendants knew, the mill was closed for another reason.
SUMMARY: Indirect or consequential damages are only recoverable if reasonably
foreseeable by both of the parties at the time of the contract and arising naturally from
such breach. This legal concept is still alive today – 150 years later. If the Plaintiffs had
made it clear that the mill’s operation was dependent upon getting the new crank shaft,
the outcome would have been in their favor.
MADER v. STEPHENSON; Supreme Ct Wyoming, 1976. CB [667-668]
[P’s win but appeal that the damages award does not cover certain legal costs and travel
Issue and Holding: In an action for breach of contract, plaintiffs were awarded a
judgment in the District Court, Campbell County, Leonard McEwan, J., in the sum of
$1,000 with interest, and they appealed, claiming a right to recover punitive and other
damages. The Supreme Court held that additional damages were not recoverable and that
costs would be assessed against plaintiffs for appealing without reasonable cause.
Successful plaintiffs in breach of contract action were not entitled to recover attorney's
fees, travel expenses or for time spent in preparation of lawsuit.
Award of punitive damages is optional or solely in discretion of fact finder, and when
trial court as fact finder does not award punitive damages, appellate court cannot change
such finding or remand it for determination.
S.J. GROVES & SONS v. WARNER; US Appeals 10th, 1978. CB [668-
[Concrete supplier does not properly perform. Trial court reduces P’s award finding
partial fault and an obligation to obtain a supplemental supply after D was proven to be
Issue and Holding:
Subcontractor on bridge construction project sued concrete supplier for the supplier's
failure to deliver adequate supplies of concrete at scheduled times. The District Court
rendered judgment for the subcontractor in the amount of $35,401.28 and subcontractor
appealed. The Court of Appeals held that: (1) where the subcontractor's failure to meet
his contractual obligations on a particular date was the fault of both the subcontractor and
the supplier, but it was impossible to allocate damages exactly, the trial court did not err
in allocating 25 percent of the damages to the supplier, and (2) the subcontractor was not
obliged to mitigate damages by contracting for a supplemental supply of concrete when it
became clear that the supplier would not perform satisfactorily, where the presence of
two independent suppliers acting separately might impose problems more severe than
those which existed before and supplier itself was in as good a position to seek a
supplemental supply as the subcontractor.
Supply contract between concrete supplier and subcontractor containing additional
requirement of proper and timely delivery was governed by Uniform Commercial Code.
Subcontractor was not obliged to mitigate damages by contracting for supplemental
supply of concrete when it became clear that concrete supplier would not perform
satisfactorily, where presence of two independent suppliers acting separately might
impose problems more severe than those which existed before and supplier itself was in
as good a position to seek supplemental supply as subcontractor
Where subcontractor's failure to meet his contractual obligations on particular date was
fault of both subcontractor and supplier of concrete, but it was impossible to allocate
damages exactly, trial court did not err in allocating 25 percent of damages to supplier.
GRUBER v. S-M NEWS; US District, SD NY, 1954. CB [674-676]
[Lost profits too hard to prove. Essential reliance damages used instead of loss of profits.
P wins damages equal to essential reliance less recouped $]
Facts: Action, by manufacturers of Christmas cards, for breach of oral contract against
company allegedly having exclusive rights, under contract, for sale and distribution of
cards. The District Court, held, inter alia, that contract had been only for distribution and
return of cards and not for sale, but that defendant had not used promised diligence in
Manufacturers of Christmas cards, maintaining action for breach of contract against
company having exclusive distribution rights for certain cards, in order to recover on
basis of expected profits, had burden of proving, to extent of reasonably certain and
factual basis of computation, difference between that which they actually obtained for
their cards and that which they would have obtained had company used reasonable
diligence in distributing cards.
In action for breach of contract, wherein plaintiffs had not sustained their burden of proof
to be awarded loss of expected profits plaintiffs' recovery for their out-of-pocket
expenses would be diminished by any loss that would have resulted from defendant's full
performance on contract.
ANGLIA TELEVISION v. REED; House of Lords, 1971. CB [676-677]
[Actor breaches a duty to perform in a play. Actor is sued for all of film companies
losses. Actor claims he is not responsible for expenses made by P prior to the time that D
Issue and Holding:
Can P recover expenses made prior to contract with D? yes. P can recover all wasted expensed
caused by D;s breach. D knew or reasonably should have known that expenditures had already
been made and must pay for all expenditures so thrown away.
US Actor agrees to star in British play. He backs out causing film company to suffer loss.
P won an award for 2,750 pounds. D appeals.
BALLARD v. EL DORADO TIRE; US Appeals 5th, 1975. CB [679-683]
[Court does not reduce damages awarded to P for his possibility of finding employment]
Issue and Holding: Sales executive brought diversity action against former employer
seeking damages for alleged wrongful discharge. The United States District Court entered
judgment on jury verdict awarding executive $46,352.20 in damages, and appeals were
taken. The Court of Appeals held that evidence which established, inter alia, that there
was an extremely low rate of unemployment for "professional technicians and managers"
failed to discharge employer's burden to prove with reasonable certainty that employment
was available for former sales executive in a managerial type position in the tire industry;
and that former sales executive's failure to comply with length of employment condition
under stock option caused by wrongful termination by employer did not preclude the
executive's recovery for loss of stock he would have earned but for his discharge since
employer cannot be allowed to benefit from its own breach of contract.
Affirmed in part; and remanded in part with directions.
As a general rule, employee's damages for breach of employment contract will be
mitigated only if the employer proves that a similar employment opportunity was
Where employment contract for sales executive dealt only with a negative duty not to
compete with former employer by seeking similar employment, contract did not establish
an affirmative duty on part of sales executive to mitigate damages following his
discharge by seeking dissimilar employment.
Independent contractor cases in which contractor has the burden of proving nonexistence
of similar employment opportunities in order to escape mitigation represents an exception
to the general rule that the burden of proving existence of similar employment
opportunity is upon employer.
Former sales executive's failure to comply with length of employment condition under
stock option caused by wrongful discharge by employer did not preclude the executive's
recovery for loss of stock he would have earned but for his discharge since employer
cannot be allowed to benefit from its own breach of contract.
Module 20 Cases: Damages (Sales of Goods and Realty)
CHRONISTER OIL v. UNOCAL REFINING; US Appeals 7th, 1994. CB
[Damages award vacated. P’s breach of contract caused no damages to D. Breach was
actually a windfall to D.]
Issue and Holding: Does the UCC entitle D to cover from his own inventory? Held, No, the
UCC defines cover as a ‘purchase”. Taking a good out of your inventory is not a purchase.
Damage award based on this average cost of inventory is erroneous. Further, since the seller P
breached in a declining market, the market price was cheaper for D than the contract price.
there are no damages.
Facts: Unocal wins $26k in damages for breach of gasoline supply contract. Unocal used
inventory reserves to “cover’ the contract. The lower court used the average cost of this
inventory as the cover cost basis.
Reasoning: Point of award of damages, whether for breach of contract or for tort, is, so far
as possible, to put victim where he would have been had breach or tort not taken place.
Buyer of 25,000 barrels of gasoline suffered no damage as result of seller's failure to
perform where, due to declining prices, buyer could have bought covering gasoline at
price lower than contract price; it made no difference that instead of buying gasoline on
open market, buyer took it from inventory
NATIONAL CONTROLS v. COMMODORE BUSINESS MACHINES; Ct
of Appeals 1st District, CA, 1985. CB [687-691]
[Scale supplier entitled to ‘lost volume seller’ profits for damages without any setoff for
profits on resale.]
Issue and Holding: Seller brought action against buyer alleging breach of contract. The
Superior Court, Sonoma County, William B. Boone, J., entered judgment in favor of
seller, and buyer appealed. The Court of Appeal held that seller was entitled to lost
profits on contract without any setoff for profits on resale.
Reasoning: Damages caused by buyer's breach or repudiation of sales contract are usually
measured by difference between resale price of goods and contract price
When it is not appropriate to use difference between resale price of goods and contract
price as a measure of damages for breach of sales contract, seller's measure of damages is
the difference between market and contract prices
Under certain circumstances, difference between market and contract prices for seller's
measure of damages for breach of sales contract is not adequate means of compensation
and seller may recover loss of expected profits
In action alleging breach of sales contract, evidence was sufficient to support finding that
seller had capacity to supply both buyer and company to which it eventually resold
goods and that had there been no breach by buyer, seller would have had the benefit of
both original contract and resale contract; accordingly, seller was lost volume seller
entitled to lost profits on contract without any setoff for profits on resale
DONOVAN v. BACHSTADT; Supreme Ct NJ, 1982. CB [692-697]
[Court adopts the rules that a sellers good faith inability to deliver title entitles P to
recover “loff of the benefit of the bargain” type damages. No award for higher interest
financing encountered by P’s]
Issue and Holding: Purchasers sued vendors for breach of an executory contract to
convey real property. The Superior Court awarded purchasers reimbursement of their
expenditures for a survey and for title searches, but denied compensatory damages. The
Superior Court, Appellate Division, reversed and the vendors' petition for certification
was granted. The Supreme Court held that the purchasers were entitled to recover benefit
of the bargain damages when the vendors breached the executory contract to convey real
Judgment of Appellate Division modified and case remanded to trial court.
O'Hern, J., filed a dissenting opinion.
Purchaser should be allowed to recover benefit of the bargain damages where vendor
breaches executory contract to convey real property, regardless of vendor's good faith
Where vendor agreed that title would be marketable, vendor was responsible to purchaser
for damages occasioned by failure to provide marketable title.
Compensatory damages are designed to put injured party in as good a position as he
would have been in had performance been rendered as promised.
To be compensable, loss must be reasonably certain consequence of breach of contract
although exact amount of loss need not be certain.
Upon vendor's breach of executory agreement to sell real property, purchaser will usually
be entitled to return of amount paid on purchase price with interest thereon, costs and
expenses incurred in connection with proposed acquisition, such as for title search and
survey, and difference between market price of property at time of breach and contract
Court willing to reject English rule that limited liability for good faith failure to deliver title. Title
warrantability is feasible in America today. This contract even had a express title warranty
Revisit Jacobs & Young v Kent; Reading Pipe case page 480.
EMERY v. CALEDONIA SAND AND GRAVEL; Supreme Court, NH,
1977. CB [699-702]
[Contract to remove fill and restore topsoil upon completion. Court allows full
compensatory damages to P’s to restore the land to the contract specifications]
Issue and Holding: Owners of farm brought suit against road construction company to
recover damages for defendant's alleged breach of its restoration obligations under
landfill removal contract. The Superior Court found for plaintiffs. Defendant's exceptions
to verdict and various rulings by trial court were reserved and transferred. The Supreme
Court held that: (1) parol evidence as to plaintiffs' understanding that their farmland
would be restored so as to once again be usable as farmland did not vary or contradict
restoration duties of defendant under contract and consequently "parol evidence rule" did
not require exclusion of such evidence; (2) valuable income-producing asset having been
rendered unproductive, award of compensatory damages to plaintiffs constituted
reasonable means of bringing that asset back to life; (3) it was not error for trial court to
conclude that $10,500 expenditure required to restore topsoil so as to make land again
usable for hay crop was not within plaintiffs' duty to mitigate; (4) the Supreme Court
would not disturb finding of trier of fact rejecting defendant's proposed findings of fact in
support of its argument that damage award was excessive in that plaintiffs failed to
mitigate and avoid damages by allegedly failing to "speak up" at time;
Under ordinary contract measure of compensatory damages, effort is made to put injured
party in as good a position, so far as money damages can put him, as he would have
occupied had defendant fully performed.
In case of tort, general purpose of compensation is to give sum of money to person
wronged which as nearly as possible will restore him to position he would have been in if
wrong had not been committed.
Valuable income-producing asset having been rendered unproductive by virtue of
defendant road construction company's failure to restore farmland so as to make land
once again usable as hayfield, in alleged breach of its restoration obligations under
landfill removal contract with owners of farm, award of compensatory damages to
owners constituted reasonable means of bringing that asset back to life, notwithstanding
contention that award of such damages was inappropriate based on allegation that there
was "no evidence" that owners intended to restore land; if owners chose to "pocket" their
recovery, they would have foregone restoration of their land and would not have been
Law requires reasonable efforts by plaintiff to curtail his loss, and recovery will not be
permitted of damages which could have been avoided by reasonable effort without undue
risk, expense or humiliation.
Module 21 Case Briefing: Punitive Damages, Penalties, Efficient Breach, Agreed Damages
and Limitations of Liability
PATTON v. MID-CONTINENT SYSTEMS; US Appeals 7th, 1988. CB
[Punitive damages vacated absent showing of maliciousness, fraud, or gross negligence]
Truck stop franchisees sued franchisor for breach of franchise agreement. The US
District Court entered judgment on jury verdict awarding franchisees compensatory
damages, as well as punitive damages in reduced amount. On appeal, the Court of
Appeals, Posner, Circuit Judge, held that: (1) under Indiana law, franchisee could
introduce evidence of mistaken omission from agreement of his place of business which
had led to initial breach through franchising of competitor; (2) jury could find that
franchisor failed to give franchisee sufficient time to provide additional coverage in
territory, but compensatory damage awards were so excessive in relation to proof of harm
that new trial on that issue was warranted; and (3) under Indiana law, franchisees were
not entitled to punitive damages.
Affirmed in part, vacated in part, and remanded.
Under Indiana law, truck stop franchisees were not entitled to punitive damages as result
of franchisor's breaches of franchise agreement through franchising of additional stop as
result of ambiguous description of territory in agreement and subsequent franchise of
another stop after peremptory termination of right of first refusal; there was no evidence
that initial breach was opportunistic or even deliberate and while failure to correct that
violation for several years after it was called to franchisor's attention converted breach
into deliberate one it was not malicious, fraudulent, oppressive, or even grossly negligent,
and, with regard to second breach, franchise agreement failed to specify period for which
right of first refusal had to be extended.
WASSENAAR v. PANOS; Supreme, WI, 1983. CB [711-716]
[Was damages clause in employment contract a penalty? Liquidated damages enforced
because P suffered harm and D fails to prove damages clause in unreasonable.]
Synopsis: Employee sued former employer for enforcement of stipulated damages clause
in employment contract. The Circuit Court entered judgment in favor of the employee,
but the Court of Appeals in unpublished decision, reversed. The Supreme Court granted
employee's petition for review on limited issue. The Supreme Court held that: (1) in view
of evidence that employee did suffer harm in being unemployed for approximately two
and one-half months after his discharge and record did not reveal whether employee
suffered consequential damages, employer, failed to carry burden of proving that
stipulated amount of damages was grossly disproportionate to actual harm and thus
unreasonable, and (2) in view of fact that employer at trial took erroneous position that
burden was on employee to prove reasonableness of stipulated damages clause in
employment contract, and in view of fact that employer made no offer of proof as to what
testimony would be, trial court's refusal to admit employer's evidence regarding
employee's salary at his new job did not require reversal of decision that liquidated
damages provision was reasonable.
Decision of Court of Appeals reversed, and judgment of the Circuit Court affirmed.
Validity of stipulated damages clause is matter of public policy, and, as in other contract
cases, question of contractual validity as matter of public policy is issue to be initially
decided by trial judge
In deciding whether stipulated damages clause is valid, trial judge should inquire into all
relevant circumstances, including such matters as existence and extent of anticipated and
actual injury to nonbreaching party.
The greater the difficulty of estimating or proving damages, the more likely that
stipulated damages will appear reasonable, while if damages are readily ascertainable, a
significant deviation between stipulated amount and ascertainable amount will appear
First appeals court found that the liquidated damages was a penalty because damages of 1
years salary were easily measured.
KVASSAY v. MURRAY; Ct of Appeals, KS, 1991. CB [716-719]
[Trail court uses Plaintiffs previous salary to determine reasonableness of liquidated
Issue and Holding:
Seller of baklava brought action against buyer alleging breach of contract. The Sedgwick
District Court, Nicholas W. Klein, J., found liquidated damages clause in contract
unenforceable and that damages for lost profits were not recoverable. Seller appealed.
The Court of Appeals, Richard B. Walker, District Judge, assigned, held that: (1) lost
profits were recoverable for goods that had not been produced; (2) seller did not have to
prove record of profitability to claim lost profits; and (3) corporate veil of buyer could be
pierced to hold principals liable for corporate debt.
Reversed and remanded in part, and affirmed in part.
Stipulation for amount of damages upon future breach of contract is valid as liquidated
damages clause if set amount is determined to be reasonable and amount of damages is
difficult to ascertain.
Criteria by which to measure reasonableness of liquidated damages clauses under
Uniform Commercial Code include anticipated or actual harm caused by breach;
difficulty of proving loss; and difficulty of obtaining adequate remedy.
A term in sale contract fixing unreasonably large liquidated damages is void as a penalty
In considering question of what damages may be recovered by vendor in case of breach
by vendee of contract for purchase and sale of articles to be manufactured, it must be
borne in mind that aim of law is to place vendor in same position he or she would have
occupied if vendee had performed his or her contract and if that object is to be attained,
vendor must be permitted to recover profits which he or she would have made if there
had been no breach of contract.
LAKE RIVER CORP v. CARBORUNDUM; US Appeals 7th, 1985. CB
[Damages Clause found to be a penalty]
Warehouse operator brought suit against manufacturer claiming liquidated damages
under contract by which operator agreed to provide distribution services. The United
States District Court for the Northern District of Illinois gave judgment for both parties,
and both parties appealed. The Court of Appeals, Posner, Circuit Judge, held that: (1)
warehouse operator did not have valid lien on bagged abrasive powder that it refused to
ship to manufacturer's customers; (2) damage formula was a penalty; and (3) it was
necessary to refigure each parties' damages.
Affirmed in part; reversed in part and remanded.
To be valid under Illinois law, liquidation of damages must be reasonable estimate at
time of contracting of likely damages from breach, and need for estimation at that time
must be shown by reference to likely difficulty of measuring actual damages from
breach of contract after breach occurs; if damages would be easy to determine then, or
if estimate greatly exceeds reasonable estimate of what damages are likely to be, it is a
Under Illinois law, whether provision for damages is penalty clause or liquidated-
damages clause is question of the law rather than fact.
Illinois courts resolve doubtful cases in favor of classification as penalty, rather than
Under Illinois law, when contract specifies single sum in damages for any and all
breaches even though it is apparent that all are not of same gravity, specification is not
reasonable effort to estimate damages; and when in addition the fixed sum greatly
exceeds actual damages likely to be inflicted by minor breach, its character as penalty
If agreed-on damage formula is invalid, victim of breach is entitled to his common-law
damages under Illinois law.
AFLAC v. WILLIAMS; Supreme, GA, 1994. CB [721-723]
[Attorney retainer agreement w/ liquidated damages clause seen as infringing on clients
right to terminate. Penalty clause rejected.]
Corporation brought action seeking declaration as to enforceability of long-term retainer
agreement with attorney. Attorney filed counterclaim for breach of contract. Superior
Court entered summary judgment for corporation, and attorney appealed. The Court of
Appeals, affirmed in part and reversed in part. The Supreme Court held that provision in
retainer agreement requiring payment of 50% of sums due under remaining term of
agreement if client terminated agreement was unenforceable.
Attorney may not recover damages under penalty clause when client exercises legal right
to terminate attorney's retainer contract
Supreme Court has duty to regulate practice of law.
To force all attorney-client agreements into conventional status of commercial contracts
ignores special fiduciary relationship created when attorney represents client.
For contract provision to be enforceable as liquidated damages, injury must be difficult to
estimate accurately, parties must intend to provide damages, rather than penalty, and sum
must be reasonable estimate of probable loss.
WEDNER v. FIDELITY SECURITY SYSTEMS; Superior Ct, PA, 1973.
[P contracts with D for security. Robbery with major loss occurs and D is negligent in
performing contract. Damages clause limits liability to 1 years service charge. Penalty?]
Action was brought for breach of contract to install and maintain burglar alarm system.
The Court of Common Pleas entered judgment for plaintiff, but awarded only amount
equal to annual service charge, as provided by contract, and plaintiff appealed. The
Superior Court, was equally divided, resulting in affirmance.
Reference in contract to recoverable damages as "liquidated damages" was not
determinative of whether clause called for liquidated damages, nor did term automatically
create ambiguity to be resolved against drafter of agreement.
Provision of contract for installation and maintenance of burglar alarm system that any
liability of installer "is and shall be limited to a sum equal in amount to the yearly service
charge hereunder" was limitation of liability clause rather than liquidated damages
clause, even though contract further provided that such sum "shall be paid and received
by the subscriber as liquidated damages."
Module 22: Contract Remedies, Restitution, and Specific Performance
OLIVER v. CAMPBELL; Supreme, CA, 1954. CB [729-733]
[Attorney Terminated at close of trial sues for restitution. P under contract to charge $750
for divorce. Sues for quantum meruit.]
Issue and Holding: Action by attorney for reasonable value of legal services rendered to
client. The Superior Court entered judgment for defendant, and plaintiff appealed. The
Supreme Court held that where, at time he was discharged by defendant, plaintiff had
performed practically all the services he had been employed to perform, and the fee of
$750 called for in the contract was payable, plaintiff could recover the balance due on the
contract, and no more than that amount.
Judgment reversed with directions.
If principal, in violation of contract, terminates or repudiates employment, or agent
properly terminates it because of breach of contract by principal, agent may elect to
receive either amount of net losses caused and gains prevented by principal's breach or, if
there are no such losses or gains, a small sum as nominal damages, or reasonable value of
services previously rendered principal, not limited by contract price, except that for
services for which a price is apportioned by contract he is entitled to receive the contract
price and no more.
One who is wrongfully discharged and prevented from further performance of his
contract may elect, generally, to treat contract as rescinded, may sue upon a quantum
meruit as if the special contract of employment had never been made, and may recover
the reasonable value of services performed, even though such reasonable value exceeds
the contract price, but the contract price is competent evidence bearing on reasonable
value of the services.
CENTEX HOMES CORP v. BOAG; Superior Court, NJ, 1974. CB [733-
[Specific performance not granted to vendor of condominiums]
Synopsis: Sponsor of condominium apartment project brought specific performance
action against defendants, who had executed contract for purchase of apartment unit and
who stopped payment on check given for balance of down payment. The Superior Court,
Chancery Division held that specific performance is not automatically available to vendor
of real estate, that specific performance will not be ordered in instant case since damages
sustained by sponsor were readily meansurable and damage remedy at law was wholly
adequate and that since purchase contract limited liquidated damages to such moneys as
were paid at time default occurred, sponsor's liquidated damages were limited to retention
of initial deposit.
Principle underlying the specific performance remedy is equity's jurisdiction to grant
relief where damage remedy at law is inadequate.
Mutuality of remedy is not an appropriate basis for granting or denying specific
performance; the test is whether the obligations of the contract are mutual and not
whether each is entitled to precisely the same remedy in the event of a breach.
Specific performance relief is not a remedy automatically available to vendor of real
estate but is confined to those special instances where a vendor will otherwise suffer an
economic injury for which his damage remedy at law will not be adequate or where other
equitable considerations require that such relief be granted.
Specific performance would not be granted as regards contract to purchase condominium
apartment where damages sustained by sponsor as breach of sales agreement were readily
measurable and damage remedy at law was wholly adequate and no other reason was
shown for requiring such remedy.
LACLEDE GAS CO. v. AMOCO OIL; US Appeals, 1975. CB [737-739]
[Specific Performance Granted in long term propane supply contract]
Plaintiff, which was designated as "distributing utility" under propane supply contract,
brought diversity action against supplier seeking specific performance or, in the
alternative, damages. The United States District Court rendered judgment for defendant,
and plaintiff appealed. The Court of Appeals held that contract was not invalid merely
because plaintiff alone had right to cancel, that plaintiff's right of termination was neither
arbitrary nor unrestricted and, hence, did not render all its other promises illusory so as to
constitute a complete failure of consideration, that contract did not fail for lack of
mutuality of consideration because plaintiff did not expressly bind itself to purchase all
required propane from defendant since a practical reading of agreement and supplemental
form letter revealed that such was the intent of the parties and that plaintiff was entitled to
Reversed and remanded.
Generally, determination of whether to order specific performance of a contract lies
within the sound discretion of the trial court.
Distributing utility was entitled to specific performance of propane gas supply contract as
to residential developments for which a supplemental agreement form had been signed
where as to such developments the designated supplier was to supply all propane which
was reasonably foreseeably required, utility was to purchase the required propane and
pay contract price therefor, last covered subdivision was to be converted to natural gas in
ten to 15 years and although propane was readily available on open market there was no
assurance that utility could obtain long-term supply contracts such as one at issue and
even if it could it would face considerable expense and trouble which could not be
estimated in advance.
Missouri law does not require that both parties be mutually entitled to the remedy of
specific performance in order that one of them be given such remedy
While a court may refuse to grant specific performance where such a decree would
require constant and long-continued court supervision, such rule is merely discretionary
one which is frequently ignored when the public interest is involved.
It is axiomatic that specific performance will not be ordered when the party claiming
breach of contract has an adequate remedy at law; this is especially true when the
contract involves personal property as distinguished from realty.
NORTHERN INDIANA PUBLIC SERVICE v. CARBON COUNTY
COAL; US Appeals 7th, 1986. CB [739-741]
[Specific performance not granted in coal supply contract]
Synopsis: Utility brought suit seeking declaration that it was excused from its obligations
under long-term, fixed-price coal contract. Seller counterclaimed for breach of contract
and moved for preliminary injunction. The United States District Court rejected seller's
request for specific performance, but entered judgment for seller and awarded damages.
Both parties appealed. The Court of Appeals, Posner, Circuit Judge, held that seller was
not entitled to specific performance; and
Appeal dismissed in part, and other orders affirmed.
Seller was not entitled to specific performance, under Indiana law, of long-term, fixed-
price coal contract, where damages were adequate remedy, and mine had closed.
Party that is trying to obtain specific performance in lieu of damages cannot at the same
time attempt to execute damage judgment.
AMERICAN BRANDS v. PLAYGIRL; UA Appeals 2nd, 1974. CB [741-
[Injunction prohibiting publication not granted where advertiser contracts to buy back
Synopsis: Action by advertiser against magazine for declaratory and injunctive relief. The
United States District Court denied a preliminary injunction seeking to restrain the
publisher from refusing to publish advertiser's tobacco advertisement on the back cover
of magazine and from accepting other advertisements for the back cover. The advertiser
appealed. The Court of Appeals held that in view of lack of showing by advertiser that
women's magazine was unique or that such advertising space was not readily available
because of commitments to other national advertisers, trial court properly refused to issue
preliminary injunction enjoining the publisher from refusing to publish advertiser's
tobacco advertisements on the back cover of the magazine and from accepting other
advertisements for the back cover. The Court further held that the advertiser failed to
establish that it was entitled to preliminary injunction on ground that the equities tipped
strongly in advertiser's favor.
The standard which governs the trial court in determination of whether a preliminary
injunction should issue is whether the moving party has carried the burden of clearly
demonstrating a combination of either probable success on the merits and the possibility
of irreparable damage, or the existence of serious questions going to the merits and the
tipping of the balance of hardships sharply in its favor.
Publisher did not have the initial obligation of establishing that advertiser had appropriate
legal remedy in damages.
Advertiser had burden to establish that it would probably succeed on the merits.
BEVERLY GLEN MUSIC v. WARNER; Ct of Appeals 2nd District, CA,
1986. CB [745-747]
[Warner not enjoined from hiring Anita Baker’s services after her breach of Beverly
Recording studio brought action against second recording studio seeking preliminary
injunction to prevent it from employing a singer, who had contract with first recording
studio, and for allegedly inducing breach of contract. The Superior Court denied
injunction, and recording studio appealed. The Court of Appeal held that recording studio
was not entitled to preliminary injunction.
An unwilling employee cannot be compelled to continue to provide services to his
employer either by ordering specific performance of his contract, or by injunction; to do
so runs afoul of Thirteenth Amendment's [U.S.C.A. Const.Amend. 13] prohibition
against involuntary servitude.
the injunction would have achieved the same improper effect as seeking an injunction
against singer from performing for any other recording studio and that action would have
run afoul of Thirteenth Amendment.
Module 23 Cases: Equitable Defenses - Specific Performance
SCHLEGEL v. MOORHEAD; Montana Supreme, 1976. CB [748-751]
[Oil Field Purchase Contract. Specific performance not granted as P did not have clean
Action was brought for specific performance of an option to purchase a federal oil and
gas lease from defendants. Defendants answered and counterclaimed for cancellation or
rescission of the option on the ground of fraud and for actual and exemplary damages.
The Ninth District Court entered judgment in favor of defendants on the complaint for
specific performance and in favor of plaintiff against defendants' counterclaim.
Plaintiff appealed, and the Supreme Court, held that evidence was sufficient to support
the district court's finding that the option price was disproportionate to the real value of
the lease; that any error which may have resulted from the admission of expert testimony
as to the value of the lease was, under the circumstances, harmless; and that the district
court did not abuse discretion by refusing to grant specific performance of the option.
In an action for specific performance wherein defendant alleges that his assent to the
contract was obtained by "misrepresentations, concealment, circumvention, or unfair
practices" of plaintiff, court in equity has far more latitude to assess the conduct of the
parties before it than does a court determining the legal elements of fraud
Even though district court specifically found that party who sought specific performance
of option to purchase a federal oil and gas lease had not obtained defendant's assent to the
option by an affirmative misrepresentation, district court's conclusion that enforcement of
the option against defendant would be unjust and unreasonable due to plaintiff's
concealment or circumvention in answer to defendant's question as to "why" plaintiff was
interested in purchasing the lease was not necessarily inconsistent with the finding and
did not constitute an abuse of discretion.
Where, inter alia, party who sought specific performance of option to purchase federal oil
and gas lease had failed to inform the lease owner that two wells in close proximity to the
lease were expected to be put into commercial production and where the option price was
disproportionate to the real value of the lease, it was not an abuse of discretion for trial
court to refuse to grant specific performance of the option.
SCHLEGEL v. MOORHEAD; Montana Supreme, 1978. CB [751-752]
[Suite for specific performance was lost. Can P proceed with action for damages?]
Synopsis: Action was brought for damages for alleged breach of defendant's contract to
sell oil and gas lease. The Second District Court granted defendant's "Motion to Dismiss
or Alternatively for Summary Judgment" in an order phrased only in terms of a motion to
dismiss for failure to state a claim, and plaintiff appealed. The Supreme Court, held that:
(1) plaintiff, whose action for specific performance of the contract had been dismissed,
could not subsequently maintain the action for damages for breach of contract, in light
of fact that the inadequate consideration and the lack of consent were equally applicable
so as to bar enforcement of a contract at law as well as in equity, and (2) trial court's
order constituted a grant of summary judgment.
MEYER v. BENKO; Cal Appeals, 1976. CB [752-753]
[Specific performance of home sale ordered overturning lower court ruling that no K
existed and even if it did, the agreement suffered from lack of consideration.]
Synopsis: Purchasers of residential property brought an action for specific performance of
the contract. The Superior Court entered judgment for the vendors, and the purchasers
appealed. The Court of Appeal, held that a 'deposit receipt' signed by the parties was an
enforceable contract of sale, that specific performance was available, and that the
purchasers were entitled to recover the fair rental value of the subject property from the
time when the conveyance should have occurred.
Evidence in action for specific performance of alleged contract to sell real estate
demonstrated that "deposit receipt" signed by parties was in fact enforceable contract
There was adequate consideration to justify specific performance of contract for sale of
residential property where sale price of property was $23,500 and sellers testified that
residence had value of $30,000 on date of trial
DUANE SALES v. CARMEL; NY Supreme Appellate, 1977. CB [753-754]
[Specific performance ordered for real property agreement. Court orders accounting of
profits/expenses accrued during trial.]
Following remand by the Supreme Court, Appellate Division, the Supreme Court at
Special Term, Albany County, entered an order granting plaintiff's motion for summary
judgment in an action to compel specific performance of an option agreement for the
purchase and sale of real property, and appeal was taken.
The Supreme Court, Appellate Division, held that (1) since defendant sought to raise
again the same issues that were decided on the previous appeal, the "law of the case" was
applicable and the order of Special Term would be affirmed, and (2) equitable
considerations required that an accounting should be had of the respective losses and
gains during the period of litigation.
Judgment modified, and as so modified, affirmed.
In decreeing specific performance equity requires not only that contract provisions to be
enforced be just and equitable, but that consequences of specific performance likewise be
just and equitable; relief should not be granted if, under circumstances of case, result of
specific enforcement of contract would be harsh or oppressive or result in unconscionable
advantage to plaintiff.
Where specific performance of option agreement for purchase and sale of real property
was properly compelled by order of Special Term, equitable considerations required that
accounting should be had of respective losses and gains during period of litigation, which
would take into consideration, among other things, rents received by defendants during
period from date of conveyance of title to premises; any profits resulting to defendants in
their operation of property; and any losses sustained by plaintiff because of delay in
conveyance of title; necessary expenses incurred by defendants in operation of property,
such as payments of principal and interest on mortgage, property taxes, insurance, and
minor repairs; and benefits to plaintiff in retaining use of purchase money during
pendency of litigation.
Module 24 Cases: Third Party Beneficiaries: Intended Incidental Creditor and Donee
LAWRENCE v. FOX; Court of Appeals NY, 1859. CB [767-771]
[3rd party loans $ to D who promises to pay P. Can P enforce? Yes, justice requires it.]
Historical Development of 3rd Party Beneficiaries
Relevant Facts: Holly loaned the Df, Lawrence $300. Df agreed to pay the $300 to the Pl
Fox, for a debt that Holly owed to Pl, the next day.
Legal Issue(s): Whether privity of K must exist between Df and Pl in order for the Pl to
seek recovery against the Df?
Court’s Holding: No
Procedure: Tr Ct Judge denied Df’s nonsuit; Df Excepted; then jury returned verdict for
Pl, Df Appealed; then Sup Ct affirmed verdict, Df appealed; Ct of App affirmed.
Law or Rule(s): Where one person makes a promise to another for the benefit of a third
person, that third person may maintain an action upon that promise.
Court Rationale: The promise was made to Holly and not expressly to the Pl; but in this
case the Df, upon ample consideration received from Holly, promised Holly to pay his
debt to the Pl; the consideration received and the promise to Holly made it his duty to pay
the Pl as if the money had been remitted to the DF for that purpose, and as well implied a
promise to do so as if he had been made a trustee of property to be converted into cash.
“That a promise made to one for the benefit of another, he for whose benefit it is made
may bring an action for its breach,”has been applied to trust cases. The Pl did not release
the Df from his promise. No one can doubt that the Df owes the sum of money
demanded of him, or that in accordance with his promise it was his duty to have paid it to
Plaintiff’s Argument: The Df agreed with Holly to pay Holly’s indebtedness to Pl the
next day in consideration of receiving $300. Holly nor Pl released the Df from this
promise and Df did not pay.
Defendant’s Argument: The Df was not in privity w/ the Pl, who was not a party to the
agreement, paid no consideration, and the Df was not a trustee of the property of Holly.
DISSENT: The Pl had nothing to do with the promise, it was not made to him, or did the
consideration proceed from him. There must be privity of K. The party who sues upon a
promise must be the promisee, or he must have some legal interest in the undertaking.
VROOMAN v. TURNER; Ct of Appeals NY, 1877. CB [771-773]
[Living fossil applies to mortgage assumption cases. 3rd party action can’t be sustained
as lack of “intent to benefit” and proof that promisee had obligation to beneficiary.
Requires creditor beneficiary status.]
Intent to benefit creates privity by substitution. There must be intent to benefit. Requires debt
owing from promisee to beneficiary. Not found here.
SEAVER v. RANSOM; Court of Appeals, NY, 1918. CB [773-776]
[Niece recovers as 3rd party beneficiary of aunt and uncles testatory agreement.]
Synopsis: Appeal from Supreme Court. Action by Marion E. Seaver against Matt C.
Ransom and another, as executors of Samuel A. Beman, deceased. From a judgment of
the Appellate Division affirming judgment for plaintiff, defendants appeal. Affirmed.
Hiscock, C. J., and Collin and Andrews, JJ., dissenting.
Reasoning: That a cause of action may arise out of a breach of duty created by a contract,
there must be privity of contract between the person bringing the action and defendant.
However, if the contract was made expressly for his benefit, the third party beneficiary
has a right to recover if he can show an existing pecuniary obligation or a close
Where testatrix had intended to leave her house to a beloved and favorite niece, but upon
husband's promise, made to her while she was in extremis, to provide for niece in his
will, signed a will prepared by the husband, leaving the remainder of wife's estate, after
her husband's death, to another, the niece, upon husband's failure to provide for her in his
will, is entitled to enforce the contract as one made for her benefit.
Niece is an intended beneficiary and a close relation.
H.R. MOOCH v. RENSSELAER WATER; Court of Appeals NY, 1928.
[Can third party P recover against Defendant water company as a beneficiary to the D’s
contract with the City to supply water to hydrants. Held, No. Here the P was an
incidental beneficiary with no rights to sue under contract.]
Action by the H. R. Moch Company, Inc., against the Rensselaer Water Company. From
a judgment of the Appellate Division reversing an order of the Special Term, and
granting defendant's motion for judgment dismissing the complaint for failure to state
facts sufficient to constitute a cause of action, plaintiff appeals.
There cannot be a finding that the P was an intended beneficiary as the city must be shown to owe
more than a general duty to it’s citizens. P must show a primary and immediate duty owed by
No legal duty rests on city to supply its inhabitants with protection against fire.
Lawrence v Fox rule might apply where city contracts on behalf of citizens intended to give
citizens individual benefit and enforcement.
WESTERN WATERPROOFING v. SPRINGFIELD HOUSING AUTH.;
US District Ct, Illinois, 1987. CB [779-783]
[Housing Agency D breaches obligation to require general contractors to obtain payment
bond. Can subcontractor P recover as a third-party direct beneficiary? Held Yes. D was
obligated to get payment bond P’s win judgment.]
Synopsis: Subcontractors brought action against housing authority asserting rights as
third-party beneficiaries of provision of general contract requiring general contractor to
provide payment bond. The District Court, Mills, J., held that: (1) general contractor was
obligated under the contract to provide payment bond as well as performance bond; (2)
subcontractors were third-party beneficiaries; and (3) housing authority was not immune
Judgment for plaintiffs.
If contract is entered in to for direct benefit of third party who was not a party to the
contract, that third party may sue for breach thereof but if the benefit to the third party is
incidental, there is no right of recovery.
LUCAS v. HAMM; CA Supreme, 1961. CB [783-786]
[Poorly drafted will causes harm to beneficiaries who sue drafting lawyer. Court throws
out old rule shielding lawyers from harm caused to beneficiaries as lack of privity and no
intent to benefit reasoning is flawed. Lawyers held responsible to harm caused by
negligence to intended beneficiaries, but in this case, the subject that tripped the lawyer
up is commonly blundered. This mistake is a reasonable one and the lawyer is not
Synopsis: Action by beneficiaries under a will against an attorney who had been engaged
by the testator to prepare the will. The Superior Court dismissed the complaint and the
plaintiffs appealed. The Supreme Court held that the attorney, who allegedly drafted the
will so that trust provisions violated rules as to perpetuities and restraint on alienation
was not liable to beneficiaries, on basis of negligence or breach of contract.
Reasoning: Lack of privity between beneficiaries of will and attorney who drew will did
not preclude beneficiaries from maintaining an action against attorney for allegedly
negligently preparing testamentary instruments, overruling Buckley v. Gray, 110 Cal.
339, 42 P. 900.
Intended beneficiaries who lose testamentary rights because of failure of attorney who
drew will to properly fulfill his obligations under his contract with testator may recover
as third-party beneficiaries;
Regardless of whether claim is based on tort or breach of contract, attorney is not liable
for every mistake he may make in his practice; he is not, in absence of express
agreement, insurer of soundness of his opinions or of validity of instrument he drafts; and
he is not liable for being in error as to question of law on which reasonable doubt may be
entertained by well-informed lawyers.
Module 25 Cases:
ERICKSON v. GRANDE RONDE LUMBER; Supreme Oregon, 1939. CB
[P, creditor beneficiary, allowed to go after both promisee and promisor for one whole
A creditor beneficiary who has an enforceable claim against the promisee can get
judgment against either the promisee or promisor or against each of them on their
respective duties to him, and satisfaction in whole or in part of either of these duties, or of
judgments satisfies to that extent the other duty or judgment.
Alexander Revell v. CH Morgan Grocery; Appellate Illinois, 1919. CB
[P , as third party beneficiary, not allowed to recover against promisor since promisee
failed to perform]
Where contract is entered into by two parties for benefit of a third, the third person's
rights are subject to the equities between the original parties springing out of the
transaction between them.
Where store owner promised contractor to pay certain money to seller of fixtures and
contractor promised to do certain work but did not do the work, seller of fixtures could
not recover from store owner amount which it promised to pay.
DETRIOT BANK and TRUST v. CHICAGO FLAME HARDENING; US
District Court, ND Indiana, 1982. CB [792-796]
[P cannot recover on “Widows resolution” as she did not accept her rights prior to the
modification of the contract.]
Diversity action was brought seeking recovery on behalf of widow under corporate
resolution calling for payments to widow of a deceased shareholder officer. The District
Court held that: (1) under Indiana law, express reservation of right to rescind was not
required to abrogate the third-party beneficiary agreement; (2) where shareholder's
surviving wife was a competent adult at time of rescission and initiation of suit could not
be fictionalized as an act of acceptance prior to rescission as rescission occurred before
inhibiting physical and mental decline; and (3) where there was no acceptance or change
in position in reliance on the resolution prior to its rescission, the rescission was effective.
Judgment for defendant.
Modification on part of promisor and promisee is ineffective only if the agreement so
provides, unless the third-party beneficiary has changed his position in reliance on the
promise or has accepted, adopted or acted on it.
Under Indiana law, right to rescind or modify a third-party beneficiary contract without
assent of the beneficiary ceases once the contract is accepted, adopted or acted on by the
Indiana follows the general rule that parties to a third-party beneficiary contract may
rescind, vary or abrogate the contract as they see fit, without approval of the third party,
at any time before the contract is accepted, adopted or acted on by a third-party
beneficiary and that rescission prior to the required change in position by the third party
deprives that party of any rights under or because of the contract
A presumption of acceptance by third party is necessary to protect interests of minor
beneficiaries of third-party beneficiary contracts.
Under Indiana law, filing of suit by a third-party beneficiary may be considered
acceptance of the beneficial agreement, precluding rescission.
DREWEN v. BANK of MANHATTAN; SC NJ, 1959. CB [796-798]
[P allowed to enforce the rights as third party beneficiaryof ex-husband’s will]
Action by divorced wife's administrator with will annexed to have divorced husband's
executor-trustee directed to administer husband's estate to enforce a contract executed by
plaintiff's decedent and the defendant's decedent. The Chancery Division dismissed the
action, the dismissal was affirmed by the Appellate Division and certification was
granted by the Supreme Court. The Supreme Court held, inter alia, that where husband
and wife, in contemplation of divorce, had executed property settlement agreement as
part of which husband promised never to reduce children's interests in his estate as set
forth in a will executed on date of agreement, and if one child predeceased testator
without leaving issue surviving child would take the other's share, after divorce wife died,
and thereafter husband executed new will which revoked former will, changed gifts to
children to life estates, and provided for avoiding of bequest to any one who would
question the provisions of any legacy, etc., had the agreement been breached during
lifetime of wife she would have had right to equitable relief, and such right passed to
wife's administrator c.t.a. who could maintain action against divorced husband's executor-
trustee to enforce the agreement, it appearing that no beneficiary or creditor of wife's
estate objected to prosecution of such action.
Judgment of Appellate Division reversed.
Burling and Hall, JJ., dissented.
A person may bind himself by contract to make a particular will.
Testator's son, as a third party beneficiary of contract between testator and his wife
entered into in contemplation of divorce whereby testator promised never to reduce the
quantity or quality of children's interests in his estate as set forth in a will executed on
same day as the contract by which will each child was to receive about 30 percent of
testator's estate in fee, could have maintained a suit for specific performance.
ROUSE v. US; US Appeals DC, 1954. CB [798-799]
Action by United States, which had taken assignment of F.H.A. note which was in
default, to recover from purchaser who had bought house from maker of note. The United
States District Court for the District of Columbia, struck purchaser's defenses and granted
summary judgment for plaintiff and purchaser appealed. The Court of Appeals, held that
where vendor paid for heating plant in house with note, guaranteed by F.H.A., and sold
house to purchaser, who promised to assume liability for heating plant cost, purchaser
could set up defense of vendor's fraudulent misrepresentation of condition of heating
Judgment reversed and cause remanded with instructions.
One who promises to make a payment to the promisee's creditor can assert against the
creditor any defense that the promisor could assert against the promisee.
Where the promisor agrees to pay sum of money to a third party, to whom the promisee
says he is indebted, it is immaterial whether the promisee is actually indebted to that
amount at all, and defenses which promisee might have had available against third party
are not available to the promisor.
Where vendor paid for heating plant in house with note, and sold house to purchaser, who
promised to assume liability for heating plant cost, purchaser could not set up, in an
action by assignee of note, defense that the seller of the heating plant had not installed it
Module 26 Cases: Assignment and Delegation (Chapter 12)
DONOVAN v. MIDDLEBROOK; Appellate Division, NY, 1904. CB [800-
[Agreement to pay ½ of commission to another not an assignment. Agreements to pay a
debt out of a fund fail as assignments where assignor retains control.]
Synopsis: A broker employed to sell realty was assisted by another, and after a sale gave
the other a writing wherein he agreed that the other was entitled to one-half the
commission earned, amounting to a named sum. Held, that the instrument was not an
SPEELMAN v. PASCAL; Court of Appeals, NY, 1961. CB [802-804]
[A delivered letter to plaintiff confirming that decedent was to give plaintiff certain
percentages of decedent's shares of profits from the then nonexistent stage musical
version of "Pygmalion," known later as "My Fair Lady," was assignment of future
royalties and was a completed gift; consideration was unnecessary.]
Synopsis: Action against administratrix to establish right to participate in decedent's share
of profits from the production of a musical show. The Supreme Court granted plaintiff's
motion for summary judgment. The defendant appealed. The Supreme Court, Appellate
Division, affirmed. The defendant appealed by permission of the Court of Appeals. The
Court of Appeals, held that a delivered letter to the plaintiff confirming that the decedent
was to give the plaintiff certain percentages of decedent's shares of the profits from the
then nonexistent stage musical version of 'Pygmalion,' known later as 'My Fair Lady,'
was an assignment of future royalties and a completed gift.
MACKE v. PIZZA of GAITHERSBURG; Ct of Appeals, MD, 1970. CB
[Soda vending contract can be assigned despite D’s objection to receiving services from
assignee. Court finds that this is not a services contract but a mechanical function which
can legally be assigned.]
Synopsis: Breach of contract action. The Circuit Court entered judgments for defendants,
and plaintiff appealed. The Court of Appeals, held that agreements, which called for
installation of vending machines on defendants' premises and which were either a license
or concession granted owner of machines by defendants, or a lease of a portion of
defendants' premises, with owner agreeing to pay a percentage of gross sales as a license
or concession fee or as rent, were assignable to plaintiff, notwithstanding claim that
service received was personalized, in that owner's president kept machines in working
order, paid commissions and cash, and permitted defendants to keep keys to machines so
that minor adjustments could be made when needed, where agreements were silent as to
details of working arrangements.
Reversed as to liability; remanded for new trial on damages.
In absence of a contrary provision, rights and duties under an executory bilateral contract
may be assigned and delegated, subject to exception that duties under a contract to
provide personal services may never be delegated, nor rights be assigned under a contract
where delectus personae is an ingredient of bargain; also, Uniform Commercial Code
makes ineffective a term in any contract prohibiting assignment of a contract right, i. e., a
right to payment.
Difference between service defendants happened to be getting from owner of vending
machines installed on their premises and what they expected to get once agreements for
installation of machines were assigned to plaintiff did not amount to such a material
change in performance of obligations under agreements as would justify defendants'
refusal to recognize assignment
SALLY BEAUTY v. NEXXUS; US Appeals 7th, 1986. CB [809-814]
[Contract for exclusive hair products distribution not assignable to the direct competitor
of the Obligor under UCC 2-210. Posner dissents.]
Successor in interest to distribution contract brought action against manufacturer of hair
care products for breach of contract. The United States District Court for the Northern
District of Illinois, granted summary judgment for manufacturer, and successor in interest
appealed. The Court of Appeals held that position of predecessor in interest to
distributorship, as wholly owned subsidiary of direct competitor of manufacturer of hair
care products, was sufficient to bar delegation of distributor's duties under agreement,
without consent of manufacturer. Affirmed. Posner, Circuit Judge, dissented and filed
ALDANA v. COLONIAL PALMS PLAZA; Florida Appeals 3rd, 1991. CB
[Leasee assigns “construction allowance” due to him under lease. Clause prohibiting
assignment of lease does not apply as this is the assignment not of the lease, but of the
right to the construction allowance.]
Synopsis: Construction lender that was assigned tenant's right to receive from landlord
the first $8,000 of construction allowance for improvements sued landlord for amount
due pursuant to assignment. The Circuit Court entered summary judgment in landlord's
favor and awarded landlord attorney fees pursuant to offer of judgment rule and costs.
Lender/assignee appealed. The District Court of Appeal held that: (1) antiassignment
clause in lease was not rendered ineffective by Article 9 of the Uniform Commercial
Code; (2) under ordinary contract principles, lease provision did not prevent assignment
of right to receive contractual payments; and (3) landlord was given notice of assignment
and was bound thereby. Reversed and remanded.
Prohibition against assignment of contract will prevent assignment of contractual duties
but does not prevent assignment of the right to receive payments due unless
circumstances indicate the contrary.
FRANKLIN v. JORDAN; Supreme Georgia, 1968. CB 
[P not entitled to specific performance of assigned option contract because optionee
failed to tender signed promissory note as required by agreement.]
Synopsis: Assignee's action for specific performance of option contract. The Superior
Court, Cobb County, dismissed the complaint and assignee appealed. The Supreme
Court, Frankum held that where under option contract optionee undertook obligation to
give note signed by him personally promising to pay balance of purchase price due after
initial payment, tender of promissory note signed by assignee but not signed by optionee-
assignor, either as maker or endorser, was not in accordance with terms of agreement,
and assignee was not entitled to specific performance of agreement.
Reasoning: Obligation undertaken by optionee to give note signed by him personally
promising to pay balance of purchase price, due after initial payment, was not released by
assignment of option to another.
Where under option contract optionee undertook obligation to give note signed by him
personally promising to pay balance of purchase price due after initial payment, tender of
promissory note signed by assignee but not signed by optionee-assignor, either as maker
or endorser, was not in accordance with terms of agreement, and assignee was not
entitled to specific performance of agreement.
SEALE v. BATES; Supreme Court Colorado, 1961. CB [819-822]
[Dance lesson contract assigned to a different studio. Contract for services would not
have been assignable except P’s accepted the delegation by attending classes of the
assignee. Otherwise P’s could have recovered for invalid assignment.]
Action by students to recover amount they had paid under contracts for dance instruction
to one studio which had assigned contracts to another. The District Court, entered
judgment for defendants and plaintiffs brought error. The Supreme Court, held that
assignment of contracts by one dance studio to another was a breach of contracts, but
students, who accepted the assignment and proceeded to take lessons from assignee's
studio, waived breach of contracts.
Dance instruction contract was a personal service contract and was nonassignable without
Assignment of contracts for dance instruction by one dance studio to another without
students' consent was a breach of contracts and did not result in release of assignor, but
students, who accepted the assignment and proceeded to take lessons from assignee's
studio, waived breach.
Evidence sustained findings that students of dance studio accepted assignments of
instruction contracts to another studio and did not elect to rescind when it was brought to
their attention that contracts had been assigned.
Module 27 Delegation of Duties
WESTERN OIL SALES v. BLISS & WEATHERBEE; Appeals of Texas,
1927. CB [822-825]
[Oil Lease assignment does not release assignor of liability for proper performance.]
Error to Court of Civil Appeals of Eleventh Supreme Judicial District.
Action by Bliss & Wetherbee against the Western Oil Sales Corporation. Judgment for
plaintiff was affirmed by the Court of Civil Appeals and defendant brings error.
Provision that sales contract shall be binding on assigns of parties held not effective to
release purchaser making assignment from its primary liability.
That contract is assignable does not signify that party thereto may release himself from
liability under it by assignment.
KAGAN v. K-TEL Entertainment; NY Supreme Appellate, 1991. CB [825-
[Kagan shops K-Tel TV series to MGM. Agent for seller not allowed to go after buyer
Company which contracted with producer to place pilot and locate distributor for
television series brought action against distributor for unpaid fees following producer's
default. Distributor moved for summary judgment. The Supreme Court, New York
County denied distributor's motion. Distributor appealed. The Supreme Court, Appellate
Division, held that: (1) distributor was not liable for producer's obligations under
contract, and (2) distributor's acquiescence in assignment of contract between producers
was not an assumption of those contractual liabilities. Reversed and complaint dismissed.
Mere assignment of bilateral executory contract may not be interpreted as promise by
assignee to assignor to assume performance of assignor's duty, so as to have effect of
creating new liability on part of assignee to other party to contract assigned.
ASSOCIATES LOAN v. WALKER; Supreme New Mexico, 1966. CB [828-
[Water softener trial at farm. Conditional contract assigned to P subject to the same
condition precedent that softener increase dairy production.]
Suit upon written contract by assignee of seller of mechanical water softener against
buyers. The District Court entered judgment for defendants and plaintiffs appealed. The
Supreme Court Court of Appeals, held that defense that seller of water softener and
buyers had agreed that there would be no sale and contract would not be effective unless
after trial of the water softener, it was determined that the softener increased buyers' milk
production was available against seller's assignee suing for balance due on the contract.
Assignee of chose in action acquires by virtue of his assignment nothing more than the
assignor had and all equities and defenses which could have been raised by debtor against
assignor are available to debtor against assignee.
If contract in assignor's hands was subject to condition precedent under which it was not
to become effective until happening of contingency, assignee took contract subject to
COOPER v. HOLDER; Utah Supreme, 1968. CB [830-832]
[City Liable to assignee after mayor is given notice of assignment and city pays oblige.]
Synopsis: Suit by assignee against city, the assignor's obligor, which ignored the
assignment and paid money over to assignor. The Seventh District Court of Grand
County, F. W. Keller, J., entered judgment in favor of assignee, and city appealed. The
Supreme Court, Crockett, C.J., held that service upon its mayor of notice of an
assignment of money payable by the city to the assignor constituted notice to the city and
was binding upon it.
Except under unusual circumstances, where assignment relates to personal services, or
something of unique character where a party would be put to a distinct disadvantage,
when obligor receives proper notice of the assignment, he must honor it.
FDIC v. REGISTRY HOTEL; US District ND Texas, 1986. CB [832-836]
Synopsis: Federal Deposit Insurance Corporation, as receiver of bank, brought suit
against owner to recover loans extended to contractor. On owner's motion for summary
judgment, the District Court, held that: (1) following owner's termination of construction
contract, bank, which had been assigned contractor's right to payment, did not acquire
corresponding rights in new contract and (2) there was material issue of fact as to
whether assigned contract was terminated in good faith and in accordance with
reasonable commercial standards under Texas law, precluding summary judgment.
Following owner's termination of construction contract, bank, which had been assigned
contractor's right to payment, did not acquire corresponding rights, under Texas law, in
new contract reached by owner with former subcontractor, who subcontracted with
contractor's principal's new company, since original parties to assigned contract were not
in privity after the breach.
FALL RIVER TRUST v. B.G. BROWDY; Supreme Judicial, Mass., 1964.
Synopsis: Action on assigned accounts wherein defendant declared in setoff to the extent
of plaintiff's claim for value of goods delivered to plaintiff's assignor subject to
defendant's order and not returned, and for money had and received. The case was heard
in the Superior Court, Gourdin, J., on auditor's report whose findings were not to be final.
From an order for judgment for plaintiff, the defendant appealed. The Supreme Judicial
Court, Whittemore, J., held that where auditor's report did not show whether missing
goods were processed under contract which gave rise to assigned accounts, or when claim
of defendant accrued, order for judgment would be reversed and case remanded for
determination of necessary facts.
Reversed and remanded.
In action on assigned accounts wherein defendant declared in setoff for value of goods
delivered to plaintiff's assignor subject to defendant's order and not returned, and for
money had and received, and auditor's report did not show whether missing goods were
processed under contract which gave rise to assigned accounts, or when claim of
defendant accrued, order for judgment would be reversed and case remanded for
determination of necessary facts
Module 28 Cases: Discharge of Contract Obligations
COPELAND PROCESS v. NALEWS; Supreme Ct NH, 1973. CB [889-
[Subcontract rescinded by mutual agreement after part performance. Can P still recover
for D’s failure to perform? Held. No. The Intent of D was to rescind all rights past,
present, and future. P should have reasonably been aware of this intent.]
Action was brought by corporate contractor against corporate subcontractor to recover
damages alleged to have been suffered by alleged breach of contract. The trial court
entered judgment for defendant and plaintiff appealed. The Supreme Court held that
agreement to cancel contract which stated that cancellation would be 'without prejudice'
was ambiguous; that evidence of the circumstances surrounding the agreement was
properly received; and that evidence sustained finding that defendant understood, and
plaintiff had reason to know that defendant would understand, that, after cancellation,
defendant would be under no responsibility or liability for the cost of completion.
Affirmed and remanded.
Questions as to whether agreement of cancellation of contract discharges all right to
compensatory damages for breaches that have already been committed and as to whether
the cancellation operates only in futuro can only be answered after interpretation of the
terms of the agreement of cancellation and in the light of the circumstances that
surrounded its making.
Evidence that cancellation agreement was entered into in some haste for the purpose of
maintaining the professional reputations of companies involved and that president of one
company told president of the other that he did not wish to harm the other's professional
standing by invoking provision allowing for termination upon breach, coupled with
phraseology that cancellation was to be "without prejudice" supported finding that
president of one company understood, and president of the other company had reason to
know that he would understand, that there would be no responsibility or liability for the
cost of completion of the project encompassed by the contract being cancelled.
GREENFIELD v. PHILLES RECORDS; Ct of Appeals NY, 2002. CB
[Phil Spector allowed to synchronize master recordings of the Ronettes as the contract
gave rights to replication by “any technological means. Further, wife, in divorce
settlement, did not intend to relinquish her rights to her rights under the recording
Synopsis: Members of singing group brought breach of contract action against their
record producer. The Supreme Court entered judgment in favor of plaintiffs, and
defendant appealed. The Supreme Court, Appellate division, affirmed, and leave to
appeal was granted. The Court of Appeals held that: (1) group's transfer of full ownership
rights to master recordings of musical performances in contract with their record
producer carried with it unconditional right of the producer to redistribute those
performances in any technological format, and (2) under California law, extrinsic
evidence could be considered in determining whether general release executed by one
member of group in connection with her divorce was intended to include her right to
Affirmed as modified and remitted.
Fundamental, neutral precept of contract interpretation is that agreements are construed in
accord with the parties' intent.
The best evidence of what parties to a written agreement intend is what they say in their
writing; thus, a written agreement that is complete, clear and unambiguous on its face
must be enforced according to the plain meaning of its terms.
Extrinsic evidence of the parties' intent may be considered when interpreting contract
only if the agreement is ambiguous, which is an issue of law for the courts to decide.
Contract is unambiguous if the language it uses has a definite and precise meaning,
unattended by danger of misconception in the purport of the agreement itself, and
concerning which there is no reasonable basis for a difference of opinion.
GOLDBARD v. EMPIRE STATE; Supreme Ct NY, 1958. CB [896-901]
[Claim for disability insurance. P did not give away rights under the original K for
promise of $800. Court holds that a canon of construction when interpreting releases is
to lean towards one not relinquishing original rights.]
Action against insurer on an accident and health policy. From determination of the
Appellate Term which modified the judgment of the Municipal Court of the City of New
York, in favor of the plaintiff by reducing the amount of such judgment to $800, the
plaintiff appealed pursuant to leave granted by the Appellate Term. The Appellate
Division held, inter alia, that where insured called representative of State Insurance
Department and said something which suggested to representative that insured would be
amenable to considering favorably insurer's terms of settlement, and representative so
notified insurer, and insurer wrote to insured a letter stating that insurer would appreciate
it if insured called at insurer's office for purpose of signing a release for $800 and
requesting that insured have with him his accident and health policy because release and
settlement were made only when policy should be returned and should be in possession
of insurer, and insured never responded to the letter, negotiations between insured and
insurer did not constitute either a substituted agreement or an executory accord, and if
executory accord did result it was not cognizable under New York law for lack of
Determination of Appellate Term modified in accordance with opinion.
The words, "settlement" and "compromise" are used interchangeably to describe either a
subsequent agreement which discharges an earlier agreement, that is, a substituted or
superseding agreement, or an executory accord which does not, and hence one does not
advance solution of problem whether disputed claim has been discharged with such
finality that no action may be brought upon it by attaching either label, or presuming to
conclude the discussion by making an initial determination that a negotiation has or has
not achieved a "settlement" or a "compromise".
In determining whether a disputed claim has been discharged with such finality that no
action may be brought upon it, but only upon the later agreement, the question always is
whether subsequent agreement, whatever it may be, and in whatever form it may be, is,
as a matter of intention, expressed or implied, a superseder of, or substitution for, the old
agreement or dispute; or whether it is merely agreement to accept performance, in futuro,
as future satisfaction of the old agreement or dispute.
There is no simple rule to be applied, as a matter of law, to determine in all given
situations, whether subsequent agreement extinguishes the old.
In determining whether a disputed claim has been discharged with such finality that no
action may be brought upon it, but only upon the later agreement, the principle to be
applied is that of determination of intention of the parties, as objectively manifested, and
matter of intention may sometimes be determined from documents exclusively, in which
event, conclusion may be drawn as matter of law by the court, and at other times,
determination of the intention will depend upon conversation, surrounding circumstances,
or extrinsic proof, in addition to documentation, if any exists, in which event issue is one
of fact for trier of the facts.
Under common law, an executory accord not fully performed is not even available as a
defense, but under statute an executory accord may be enforced, provided it is in writing
and signed by party to be held, and if it remain unperformed, promisee may elect to sue
on the accord or the original obligation
If it is determined that intention of parties, expressed by their conduct or words, is that
subsequent agreement was designed to do more than result in agreement that a future
performance, albeit of a promise presently made, would be accepted as future satisfaction
of old obligations, then statute comes into play and subsequent agreement is
unenforceable unless it is in writing and signed.
Generally, it is assumed that one does not surrender an existing obligation for a promise
to perform in the future.
FIRST AMERICAN COMMERCE v. WASHINGTON MUTUAL; Utah,
1987. CB [901-903]
[Assignment of loan by lender not a Novation absent a clear evidence of this intention.]
Borrower brought action against lender to enforce lender's obligations under loan
agreement. The Third District Court granted partial summary judgment for lender, and
borrower appealed. The Supreme Court held that though lender had assigned its right to
receive payments, it remained obligated to perform its duties under loan agreement
absent novation agreement between lender and borrower whereby assignee's performance
would be substituted for that of lender. Reversed and remanded.
Whether agreement is novation is matter of intent, not law.
Loan note stating that agreement bound parties "and" their heirs and assigns to
documents did not contain novation relieving lender of its contractual obligations upon
lender's assignment of note to third party.
OLD WEST ENTERPRISES v. RENO ESCROW; Nevada, 1970. CB
[Summary judgment reversed as silence to account rendered does not create an account
Action by attorney's assignee against client to recover on alleged account stated for legal
services rendered. The Second Judicial District Court entered summary judgment in favor
of the attorney's assignee and the client appealed. The Supreme Court held that material
issue of fact as to reasonableness of attorney's fees precluded grant of summary
Reversed and remanded.
Trial court may grant summary judgment only when the proofs received show that there
is no genuine issue as to any material fact.
"Account stated" is an agreement based upon prior transactions between the parties with
respect to items composing the account and balance due, if any, in favor of one of the
parties, and to effect account stated, outcome of negotiations must be recognition of sum
due from one of the parties to the other with promise, express or implied, to pay that
Amount of balance agreed upon by parties concerning prior transactions between them
with respect to items composing the account and the balance due, if any, in favor of one
of the parties constitutes a new and independent cause of action.
The genesis of an account stated is the agreement of the parties, express or implied.
To give account rendered the force of account stated because of silence on part of one
receiving the account, circumstances must be such as to support inference of agreement
as to correctness of the account; such inference may be rebutted.
The sum due for attorney's services may properly be subject to account stated, but the
omission to object to account rendered raises only rebuttable inference that debtor
consents to such account, giving rise to triable issue; and, in such case, value of
professional services rendered and amount thereof unpaid are to be assessed before jury.
Material factual issue as to reasonableness of attorney's fees precluded grant of summary
judgment in attorney's assignee's action against client to recover on alleged account stated
for legal services.
Module 29 Cases Briefing: Illegal Bargains against Public Policy Ch 15
HEWITT v. HEWITT; Illinois, 1979. CB [907-914]
[15-year relationship w/ no formal marriage. Can P recover ½ estate from D. Held, wife
not entitled to property rights as it would contravene Illinois Marriage Act + public
policy, in effect, re-instating common law marriage.]
Woman brought suit against man with whom she had lived from 1960 to 1975 in an
unmarried, family-like relationship to which three children had been born, to recover
from him an equal share of profits and property accumulated by parties during that
period. The Circuit Court dismissed complaint, and woman appealed. The Appellate
Court reversed and remanded, and man appealed. The Supreme Court, Underwood, J.,
held that woman's claim was unenforceable for reason that it contravened public policy,
implicit in statutory scheme of Illinois Marriage and Dissolution of Marriage Act,
disfavoring grant of mutually enforceable property rights to knowingly unmarried
Appellate Court reversed and Circuit Court affirmed.
An agreement in consideration of future illicit cohabitation between parties is void, but
that cohabitation by parties may not prevent them from forming valid contracts about
independent matters, for which it is said the sexual relations do not form part of the
Judicial recognition of mutual property rights between unmarried cohabitants would
clearly violate policy of recently enacted Illinois Marriage and Dissolution of Marriage
Act to provide adequate procedures for solemnization and registration of marriage and to
strengthen and preserve integrity of marriage and safeguard family relationships.
TROUTMAN v. SOUTHERN RAILWAY; US Appeals 5th, 1971. CB [914-
[P, lawyer, uses personal influence with Kennedy’s to get favorable outcome from justice
department. Not contrary to public policy for attorney to be present a client’s case to the
government. No improper conduct = enforceable K. P can recover for services provided.]
Synopsis: Action by attorney against railroad to recover reasonable value of legal services
rendered to railroad in a grain rate case. The United States District Court entered
judgment from which the railroad appealed. The Court of Appeals held that attorney's
employment agreement with railroad to obtain an audience with the President of the
United States and there to present to the President the merits of railroad's position in
grain rate case was not in violation of public policy and was therefore enforceable.
IN RE JAMES HIMMEL; Supreme Court, IL, 1988. CB [917-923]
[Review of disciplinary action against defendant. Public discipline required for attorneys
violation of rule; failing to repeat known misconduct. Respondent suspended 1 yr.]
Synopsis: In disciplinary proceeding, the Supreme Court, Stamos, J., held that attorney's
failure to report misconduct on part of attorney who has formerly represented client and
has converted client's settlement, in violation of rule, warrants one-year suspension, not
merely private reprimand.
Actions of client would not relieve attorney of his own duty to report another attorney's
misconduct, and accordingly, dispute as to whether client informed Attorney Registration
and Disciplinary Commission of misconduct on part of client's former attorney is
irrelevant to resolving whether attorney violated Disciplinary Rule by failing to disclose
information regarding the other attorney's misconduct
Client's direction that attorney not report misconduct on part of another attorney does not
provide defense to charge against attorney for failure to disclose misconduct.
Information attorney obtained regarding misconduct on part of client's former attorney
who had converted client's settlement was not protected by attorney-client privilege, so as
to exempt attorney from operation of rule requiring him to report attorney misconduct;
client had discussed matter with attorney at times when her mother and her fiance were
present, and attorney discussed former attorney's conversion of client's settlement with
insurance company involved, insurance company's lawyer, and former attorney himself,
with consent of client.
NORTHERN INDIANA PUBLIC SERVICE v. CARBON COUNTY
COAL; US Appeals, 7th, 1986. CB [924-926]
[D’s Violation of a mineral lands leasing act is not a defense to long term coal supply
contract between P and D.]
Synopsis: Utility brought suit seeking declaration that it was excused from its obligations
under long-term, fixed-price coal contract. Seller counterclaimed for breach of contract
and moved for preliminary injunction. The United States District Court for the Northern
District of Indiana rejected seller's request for specific performance, but entered judgment
for seller and awarded damages. Both parties appealed. The Court of Appeals, Posner,
Circuit Judge, held that: (1) district judge did not abuse his discretion in refusing to
postpone trial to give utility more time to prepare; (2) Mineral Lands Leasing Act was no
defense to enforcement of the contract; (3) Indiana Public Service Commission's
"economy purchase orders" did not trigger force majeure clause; (4) utility's obligations
were not excused or suspended by virtue of doctrines of frustration or impracticability;
(5) seller was not entitled to specific performance; and (6) utility was not required to post
$181,000,000 bond as condition of obtaining stay of execution of damage judgment
pending its appeal.
Appeal dismissed in part, and other orders affirmed.
BATEMAN EICHLER, HILL RICHARDS v. BERNER; US, 1985. CB
[P not In pari delicto in case where insider stock tip recipient P can sue since D
misrepresented with scienter.]
Investors appealed from dismissal by the United States District Court for the Northern
District of California of their securities fraud action, and the Court of Appeals reversed.
On certiorari, the Supreme Court, Justice Brennan, held that there was no basis for
applying in pari delicto defense to dismiss investors' action.
Chief Justice Burger concurred in judgment.
A private action for damages under federal securities laws may be barred on grounds of
plaintiff's own culpability only where as direct result of his own actions, plaintiff bears at
least substantially equal responsibility for violations he seeks to redress, and preclusion
of suit would not significantly interfere with effective enforcement of securities laws and
protection of investing public. Securities Exchange Act of 1934
In context of insider trading, a person whose liability is solely derivative cannot be said to
be as culpable as one whose breach of duty gave rise to that liability in the first place.
SINGLETON v. FOREMAN; US Appeals 5th, 1970. CB [933-936]
[Divorcing woman fires hostile attorney. She is entitled to seek restitution of her retainer
as contract was an illegal contingency fee divorce, but she was not in pari delicto.]
Synopsis: Diversity action by client against discharged attorney to recover jewelry given
as security under contingent fee agreement and to recover for alleged emotional distress
client suffered by reason of attorney's conduct following discharge after attorney refused
to permit client to settle divorce action. The United States District Court rendered
judgment of dismissal on the pleadings, and plaintiff appealed. The Court of Appeals
held that complaint that attorney, who allegedly caused client to enter into contingent fee
agreement at time client was distraught over proposed divorce action, refused to return
jewelry and entered on course of abuse and oppression causing client extreme mental
pain and suffering, stated cause of action against attorney, under Florida law, both in
contract and tort.
Reversed and remanded.
A motion to dismiss for failure to state a claim should not be granted unless it appears to
a certainty that plaintiff would be entitled to no relief under any state of facts which could
be proved in support of claim; on motion to dismiss on the pleadings it must be assumed
that all of the allegations of the complaint are true.
Contract for contingent fee in divorce cases are void and unenforceable under Florida
Under Florida law, courts generally will not aid either party to an illegal contract but will
leave them where they place themselves; however, Florida law recognizes an exception
to such rule when law or public policy requires action by the courts, or where the parties
are not in pari delicto.
Under Florida law, when one party to a contract unjustifiably refuses to perform a
substantial part of his duty under the contract, the other party has the right to rescind the
contract and recover what he has paid pursuant to the agreement; rule applies equally to
situations where there is an unsuccessful attempt to perform.
If simple breach of contract is accompanied by some intentional wrong, insult, abuse,
gross negligence, or oppression, claim for exemplary damages is properly asserted under
COCHRAN v. DELLFAVA; Rochester City Court, 1987. CB [937-939]
[Woman who lost her investment in an illegal pyramid scheme cannot recover as she is in
pari delicto. May be allowed if violation is of a malum prohibitum offense and P can
show duress and that D is more culpable than P, but that is not the case here.]
Plaintiff, a party to an "airplane game," brought action against another party to the game
to recover money she gave him to play in the game. The Rochester City Court held that
plaintiff could not maintain action against another party to the game, an illegal chain
distribution scheme, to recover money she gave him to enter the game.
For party to illegal contract to be allowed to recover from other party, not only must party
establish that agreement was only malum prohibitum, but she must also establish that she
entered agreement under duress or undue influence and that other party's conduct was