Contracts Cases and Rules

Restatement § 344 - Purposes of Remedies

Rule: Judicial remedies serve to protect three interests:

1. Expectation Interest (benefit of the bargain)

2. Reliance Interest (reimbursed for loss/status quo ante)

3. Restitution Interest (restore benefit conferred)

Restatement § 351 - Unforeseeability

Rule: Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.

Bailey v. West (1969)

Facts: Bailey boarded a horse ("Bascom’s Folly") knowing ownership was disputed; West refused to pay.

Holding: No contract found.

Rule: (Implied-in-Fact/Quasi-Contract)

1. Implied-in-fact requires mutual intent;

2. Quasi-contract requires a benefit conferred and accepted under circumstances where retention without payment is inequitable.

Sullivan v. O'Connor (1973)

Facts: Plastic surgeon botched nose job; Patient sought value of "perfect nose" vs. costs.

Holding: Reliance damages awarded.

Rule: (Restatement § 344) When expectation damages are speculative (as in some medical contracts), reliance damages are the appropriate measure to restore the plaintiff to the pre-contract position.;

Hadley v. Baxendale (1854)

Facts: Mill shaft broke; carrier delayed delivery; mill owner sued for lost profits during shutdown.

Holding: Carrier not liable for profits.

Rule: (Consequential Damages) Damages are limited to those arising naturally (General) or those resulting from special circumstances communicated to the defendant (Consequential).

Restatement § 71 - Requirement of Exchange

Rule: To constitute consideration, a performance or return promise must be "bargained for" (sought by the promisor in exchange for his promise and given by the promisee in exchange for that promise).

Restatement § 79 - Adequacy of Consideration

Rule: If consideration is met, there is no requirement of equivalence in values or "mutuality of obligation." Courts generally do not weigh the adequacy of the bargain.

Kirksey v. Kirksey (1845)

Facts: Brother-in-law offered widow a place to stay ("If you come down…"); she moved, then he kicked her out.

Holding: Unenforceable gratuity.

Rule: A promise is unenforceable if the act performed by the promisee is merely a condition necessary to accept a gift, rather than an inducement bargained for by the promisor.

Hamer v. Sidway (1891)

Facts: Uncle promised nephew $5,000 to refrain from drinking/smoking until 21; nephew did so.

Holding: Enforceable.

Rule: Consideration exists if the promisee incurs a legal detriment (forbearance of a legal right) that was bargained for, regardless of benefit to the promisor.

Langer v. Superior Steel (1932)

Facts: Company promised pension if retiree didn't work for competitors; company stopped paying.

Rule: If a promise is made to induce a forbearance (not competing) and that forbearance is given, a "reciprocal conventional inducement" exists, constituting consideration.;

Pennsy Supply v. American Ash (2006)

Facts: Supplier gave "free" hazardous material to P; P incurred disposal costs and sued.

Holding: Enforceable.

Rule: Even if a product is "free," consideration exists if the transfer relieves the promisor of a burden (disposal cost) and that relief induced the transfer.;

In re Greene (1930)

Facts: Man promised mistress money; contract recited "$1 and other good and valuable consideration."

Holding: Unenforceable.

Rule: Nominal ("sham") consideration recited but not bargained for is insufficient; past illicit cohabitation is not valid consideration.

Thomas v. Thomas (1842)

Facts: Executors let widow rent house for £1/year to honor husband's dying wish.

Holding: Enforceable.

Rule: (Peppercorn Theory) Motive is not consideration, but even a nominal legal detriment (paying £1) is sufficient if actually bargained for.

Browning v. Johnson (1967)

Facts: P promised D $40k to cancel a sale contract; P later claimed the original sale was invalid anyway.

Holding: Enforceable.

Rule: (Restatement § 74) Forbearance to assert a claim which proves to be invalid is consideration if the claim is doubtful or held in good faith.

Restatement § 86 - Promise for Benefit Received

Rule: (Material Benefit Rule) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.

Mills v. Wyman (1825)

Facts: P cared for D’s dying adult son; D promised to pay expenses after son died.

Holding: Unenforceable.

Rule: A moral obligation is insufficient to support a subsequent promise unless there was a pre-existing legal obligation that became unenforceable.;

Webb v. McGowin (1935)

Facts: P saved D from a falling log, crippling himself; D promised payments for life.

Holding: Enforceable.

Rule: (Material Benefit Rule) A moral obligation acts as consideration when the promisor receives a material benefit (life) from the promisee and subsequently promises to pay.;

Restatement § 73 - Pre-existing Duty

Rule: Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration.;

Restatement § 89 - Modification

Rule: A promise modifying a duty under a contract not fully performed is binding if the modification is fair and equitable in view of unanticipated circumstances.;

UCC § 2-209 - Modification

Rule: An agreement modifying a contract for the sale of goods needs no consideration to be binding (but must be made in good faith).;

Levine v. Blumenthal (1936)

Facts: Tenant couldn't pay full rent; Landlord orally agreed to lower rent, then sued for balance.

Holding: Landlord wins.

Rule: (Pre-existing Duty) A promise to perform an existing legal duty (paying rent) is not valid consideration for a new promise (accepting less).;

Alaska Packers v. Domenico (1902)

Facts: Sailors refused to fish unless wages were raised mid-voyage; Boss agreed under duress.

Holding: Unenforceable.

Rule: A contract modification procured by the threat of breach (hold-up game) without new consideration is unenforceable.;

Angel v. Murray (1974)

Facts: Garbage collector asked City for more money due to unexpected housing boom; City agreed.

Holding: Enforceable.

Rule: (Restatement § 89) Modification is enforceable without consideration if fair and equitable in light of unanticipated circumstances.;

Rehm-Zeiher Co. v. F.G. Walker Co. (1913)

Facts: Whiskey contract allowed Buyer to refuse shipment for "any unforeseen reason."

Holding: Unenforceable.

Rule: (Mutuality/Illusory Promise) If one party has an unrestricted right to terminate or refuse performance, the contract lacks mutuality.;

Wood v. Lucy, Lady Duff-Gordon (1917)

Facts: Lucy gave Wood exclusive marketing rights; she argued he didn't promise to do anything.

Holding: Enforceable.

Rule: A contract is enforceable if the court can imply a promise (e.g., to use "reasonable efforts") to give the agreement business efficacy.;

Omni Group, Inc. v. Seattle-First National Bank (1982)

Facts: Land sale conditioned on buyer's "satisfactory" engineer report.

Holding: Enforceable.

Rule: A "satisfaction" clause is not illusory because it implies a duty to exercise judgment in good faith.;

Restatement § 90 - Promissory Estoppel

Rule: A promise which the promisor should reasonably expect to induce action/forbearance and which does induce such action is binding if injustice can be avoided only by enforcement.;

Ricketts v. Scothorn (1898)

Facts: Grandpa gave note to granddaughter so she "wouldn't have to work"; she quit.

Holding: Enforceable.

Rule: Even without consideration, a promise is binding if the promisor intentionally induces detrimental reliance (quitting a job).;

Congregation Kadimah Toras-Moshe v. DeLeo (1989)

Facts: Decedent promised $25k to synagogue; synagogue budgeted but didn't spend.

Holding: Unenforceable.

Rule: For promissory estoppel, there must be actual detrimental reliance (change of position), not just an expectation of funds.;

Embry v. Hargadine (1907)

Facts: Employee asked for renewal; Boss said "Go ahead, you're all right" but secretly didn't intend to renew.

Holding: Enforceable.

Rule: (Objective Theory) Mutual assent is determined by objective manifestations (words/acts), not secret intent.;

Lucy v. Zehmer (1954)

Facts: Zehmer sold farm on a bar tab while drinking; claimed it was a joke.

Holding: Enforceable.

Rule: If acts/words judged by a reasonable standard manifest intent to agree, undisclosed intent (joking) is immaterial.;

Raffles v. Wichelhaus (1864)

Facts: Contract for "Peerless" cotton; two ships named Peerless existed (Oct vs Dec); parties meant different ships.

Holding: No contract.

Rule: (No Meeting of Minds) No contract exists if a material term is ambiguous and parties attach different, equally reasonable meanings to it.;

Restatement § 24 - Offer

Rule: An offer is a manifestation of willingness to enter a bargain, justifying the other person in understanding that assent is invited and will conclude it.;

Lonergan v. Scolnick (1954)

Facts: Seller wrote "Expect to have a buyer soon"; Buyer wrote "I accept."

Holding: No contract.

Rule: (Preliminary Negotiations) A communication is not an offer if it indicates the sender reserves the final decision or requires further steps.;

Lefkowitz v. Great Minneapolis Surplus Store (1957)

Facts: Ad for "$1 Coat, First Come First Served"; Store refused P.

Holding: Enforceable offer.

Rule: An advertisement is an offer if it is clear, definite, explicit, and leaves nothing open for negotiation.;

Leonard v. Pepsico (1999)

Facts: Ad showed Harrier Jet for Pepsi points; P sent check.

Holding: No offer.

Rule: (Puffery) No offer exists if a reasonable person would view the communication as a joke or obvious puffery.;

Restatement § 50 - Acceptance

Rule: Acceptance is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.;

UCC § 2-206 - Acceptance

Rule: Unless otherwise indicated, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.;

La Salle National Bank v. Vega (1988)

Facts: Contract required Trustee's signature; Trustee didn't sign but tried to enforce.

Holding: No contract.

Rule: (Master of the Offer) If an offer prescribes the exclusive mode of acceptance, that mode must be strictly followed.;

Carlill v. Carbolic Smoke Ball Co. (1893)

Facts: Reward for using smoke ball and getting flu; P performed.

Holding: Enforceable.

Rule: (Unilateral Contract) Performance of the requested act constitutes acceptance; notice is not required unless requested.;

Corinthian Pharmaceutical v. Lederle Labs (1989)

Facts: D shipped 50 vials as "accommodation" instead of 1000 ordered.

Holding: No contract for full order.

Rule: (UCC 2-206) Shipment of non-conforming goods is acceptance unless seller notifies buyer it is an accommodation (counter-offer).;

Ever-Tite Roofing Corp. v. Green (1955)

Facts: Roofers loaded trucks and arrived; D had hired others.

Holding: Enforceable.

Rule: (Acceptance by Performance) Commencement of performance constitutes acceptance and cuts off the power to revoke.;

Russell v. Texas Co. (1956)

Facts: P said "Use of land = $150/day"; D used land but verbally rejected offer.

Holding: Enforceable.

Rule: (Restatement § 69) Exercising dominion over offered property constitutes acceptance of terms, even if verbally rejected.;

Restatement § 36 - Termination of Power of Acceptance

Rule: Power of acceptance is terminated by rejection, counter-offer, lapse of time, revocation, or death/incapacity.;

Dickinson v. Dodds (1876)

Facts: D offered house until Friday; P heard D sold to another on Thursday.

Holding: Revoked.

Rule: (Indirect Revocation) Power of acceptance ends when offeree learns offeror has taken action inconsistent with the offer.;

Drennan v. Star Paving Co. (1958)

Facts: Subcontractor made error in bid; General Contractor relied on it.

Holding: Irrevocable.

Rule: (Restatement § 87(2)) Reasonable reliance on a bid creates an implied option contract, making it irrevocable for a reasonable time.;

Adams v. Lindsell (1818)

Facts: Offer delayed; P mailed acceptance; D sold goods before receipt.

Holding: Contract formed on mailing.

Rule: (Mailbox Rule) Acceptance is effective upon dispatch (mailing).;

UCC § 2-207 - Additional Terms

Rule: A definite expression of acceptance operates as acceptance even with additional terms. Between merchants, terms become part of the contract unless they materially alter it or are objected to.

Minneapolis & St. Louis Railway v. Columbus Rolling-Mill (1886)

Facts: P accepted "1200" rails instead of "2000" offered; D ignored.

Holding: No contract.

Rule: (Mirror Image Rule) Under common law, acceptance must match offer exactly; variation is a rejection/counter-offer.;

DTE Energy v. Briggs Electric (2007)

Facts: Conflicting forms (Purchase Order vs Acknowledgement); parties performed.

Holding: Conflicting terms knocked out.

Rule: (Knockout Rule) When writings do not agree but conduct forms a contract, conflicting terms are removed and replaced by UCC gap-fillers.;

Hill v. Gateway (1997)

Facts: PC shipped with terms; P kept it >30 days.

Holding: Terms binding.

Rule: (Rolling Contract) Retaining goods beyond a return period constitutes acceptance of terms included in the box.;

Specht v. Netscape (2002)

Facts: Terms visible only if scrolling down (Browsewrap); P didn't see.

Holding: Not binding.

Rule: An offeree is not bound by "browsewrap" terms without actual or constructive notice.;

Varney v. Ditmars (1916)

Facts: Boss promised "fair share of profits."

Holding: Unenforceable.

Rule: Material terms must be reasonably certain for a contract to be enforced.;

UCC § 2-305 - Open Price Term

Rule: If parties intend to be bound but leave price open, the court may enforce the contract by setting a "reasonable price.";

Oglebay Norton v. Armco (1990)

Facts: Long-term shipping contract; pricing mechanism failed.

Holding: Enforced (Court set price).

Rule: In long-term relational contracts with clear intent to be bound, courts will fill gaps to preserve the deal.;

Hoffman v. Red Owl Stores (1965)

Facts: P sold bakery based on D's assurances of franchise; deal failed.

Holding: Reliance damages granted.

Rule: Promissory estoppel can grant relief for reliance during preliminary negotiations even if the contract is too indefinite to form.;

UCC § 2-201 - Statute of Frauds

Rule: Sale of goods >$500 requires a signed writing indicating a contract was made.;

Crabtree v. Elizabeth Arden (1953)

Facts: Employment terms spread across signed memo and unsigned payroll cards.

Holding: Enforceable.

Rule: (Linking Documents) SOF may be satisfied by multiple documents if they clearly refer to the same transaction.;

Sullivan v. Porter (2004)

Facts: Oral farm sale; P took possession and renovated.

Holding: Enforceable.

Rule: (Part Performance) Oral land contract is enforceable if buyer takes possession and makes substantial improvements.;

Restatement § 152 - Mutual Mistake

Rule: Contract is voidable if there is a mutual mistake as to a basic assumption that has a material effect on the exchange, and the party seeking voidance does not bear the risk.;

Sherwood v. Walker (1887)

Facts: Sale of "barren" cow that was actually pregnant.

Holding: Voidable.

Rule: (Mutual Mistake) Contract may be rescinded if mistake concerns the "whole substance" or nature of the thing sold.;

Lenawee County Board of Health v. Messerly (1982)

Facts: Apt bought "As Is"; condemned for sewage.

Holding: Enforced.

Rule: Mutual mistake does not void contract if an "As Is" clause allocates the risk to the buyer.;

Restatement § 161 - Non-Disclosure

Rule: Non-disclosure is actionable where disclosure is necessary to correct a basic assumption or where a fiduciary relationship exists.;

Vokes v. Arthur Murray (1968)

Facts: Widow sold dance lessons; experts falsely praised "talent."

Holding: Fraud.

Rule: Opinion by an expert to a layperson may constitute actionable misrepresentation.;

Hill v. Jones (1986)

Facts: Seller didn't disclose termite damage.

Holding: Duty to disclose.

Rule: Sellers must disclose material facts affecting value that are not readily observable.;

UCC § 2-302 - Unconscionability

Rule: Court may refuse to enforce a contract or clause found to be unconscionable (oppressive/unfair) at the time it was made.;

Williams v. Walker-Thomas Furniture (1965)

Facts: Store could repo all items if one payment missed; sold to welfare mom.

Holding: Unconscionable.

Rule: Requires absence of meaningful choice (Procedural) and unreasonably favorable terms (Substantive).;

Mitchill v. Lath (1928)

Facts: Written land sale; oral promise to remove icehouse.

Holding: Oral promise excluded.

Rule: (Parol Evidence Rule) Evidence of prior oral agreements is inadmissible if the written contract is fully integrated.;

Masterson v. Sine (1968)

Facts: Option to buy ranch; oral agreement to keep in family.

Holding: Admitted.

Rule: (Partial Integration) Oral evidence is admissible if the written agreement is not fully integrated and the term might naturally be made separately.;

UCC § 2-306 - Output Contracts

Rule: A term measuring quantity by output means such actual output as may occur in good faith.;

Feld v. Henry (1975)

Facts: Output contract; D stopped producing to save money.

Holding: Breach.

Rule: Seller cannot cease production in an output contract merely to increase profits; must face existential peril.;

Market Street Associates v. Frey (1991)

Facts: P didn't remind D of a penalty clause.

Holding: Remand.

Rule: Duty of good faith prohibits opportunistic behavior and "trickery" in performance.;

Restatement § 224 - Condition

Rule: An event, not certain to occur, which must occur before performance becomes due.;

Dove v. Rose Acre Farms (1982)

Facts: Bonus conditioned on strict attendance; P got sick.

Holding: No bonus.

Rule: Express conditions must be strictly performed.;

Jacob & Youngs v. Kent (1921)

Facts: Wrong pipe brand used; quality identical.

Holding: Substantial Performance.

Rule: For constructive conditions, substantial performance triggers payment; remedy for trivial defects is difference in value.;

Restatement § 261 - Impracticability

Rule: Duty discharged if performance becomes impracticable without fault due to an event the non-occurrence of which was a basic assumption.;

Restatement § 265 - Frustration of Purpose

Rule: Duty discharged if principal purpose is substantially frustrated without fault by an unforeseeable event.;

Taylor v. Caldwell (1863)

Facts: Music hall burned down.

Holding: Excused.

Rule: (Impossibility) Performance excused if essential thing/person ceases to exist.;

Krell v. Henry (1903)

Facts: Room rented for coronation; King got sick.

Holding: Excused.

Rule: (Frustration) Duties discharged if central purpose is destroyed by unforeseeable event.;

Hochster v. De La Tour (1853)

Facts: Courier cancelled before start date.

Holding: Immediate suit allowed.

Rule: (Anticipatory Breach) Aggrieved party may sue immediately upon unequivocal repudiation.;

Clark v. Marsiglia (1845)

Facts: Owner stopped painter; painter finished anyway.

Holding: No recovery for post-notice work.

Rule: (Duty to Mitigate) Non-breaching party cannot recover for damages increased after notice of breach.;

Lumley v. Wagner (1852)

Facts: Singer tried to work elsewhere.

Holding: Injunction granted.

Rule: Courts may enforce a negative covenant (promise not to work elsewhere) via injunction, even if specific performance is unavailable.;

Restatement § 74 - Settlement of Claims

Rule: If you agree to drop a lawsuit (or not sue) in exchange for something (like money), that agreement is usually valid if the original claim wasn't totally baseless.

First Hawaiian Bank v. Zukerkorn (1981)

Facts: D had debts barred by the Statute of Limitations; applied for a new credit card and promised to pay "on the old account."

Holding: Enforceable.

Rule: A new promise to pay a debt barred by the Statute of Limitations is enforceable without new consideration (revives the debt).

Restatement § 85 - Promise Performing a Voidable Duty

Rule: A promise to perform all or part of an antecedent contract of the promisor is binding if the antecedent contract was voidable by him (e.g., due to infancy or fraud) and he has not avoided it.

Restatement § 89 / UCC § 2-209 - Modification

Rule: (Restatement) A promise modifying a duty under a contract not fully performed is binding if the modification is fair and equitable in view of circumstances not anticipated. (UCC) An agreement modifying a contract for the sale of goods needs no consideration to be binding (but requires good faith).

Angel v. Murray (1974) (Tripartite Test)

Facts: Garbage collector requested more money due to unexpected housing boom.

Holding: Enforceable.

Rule: Modification is valid if: (1) voluntarily agreed to; (2) made before the contract is fully performed; and (3) prompted by unanticipated circumstances rendering the modification fair and equitable.

UCC § 2-306 - Output/Requirements

Rule: A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith.

Restatement § 228 - Satisfaction of Obligor

Rule: When it is a condition of an obligor's duty that he be satisfied with respect to the obligee's performance… and it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which the condition occurs if such a reasonable person in the position of the obligor would be satisfied.

Southworth v. Oliver (1978)

Facts: Seller sent letter with price/terms to neighbors.

Holding: Valid Offer.

Rule: Even without the word "offer," a communication is an offer if it contains definite terms (price, quantity) and a reasonable recipient would believe assent would conclude the bargain.

UCC § 2-305 - Open Price Term

Rule: The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery.

Hendricks v. Behee (1990)

Facts: Buyer made offer; Sellers signed acceptance but didn't tell Buyer before Buyer revoked.

Holding: Revocation valid.

Rule: There is no contract until acceptance of the offer is communicated to the offeror.

Restatement § 45 - Option Contract (Part Performance)

Rule: Where an offer invites an offeree to accept by rendering a performance, an option contract is created when the offeree tenders or begins the invited performance.

Industrial America v. Fulton Industries (1971)

Facts: Broker saw ad for merger, performed work, then claimed fee. D argued Broker didn't subjectively rely on ad.

Holding: Enforceable.

Rule: In a unilateral contract, if the offeree knows of the offer and performs the requested act, subjective intent is irrelevant; acceptance is presumed.

Glover v. Jewish War Veterans (1949)

Facts: P gave info on murder suspect without knowing of reward.

Holding: No reward.

Rule: It is impossible to accept an offer one does not know exists.

Schreiber v. Olan Mills (1993)

Facts: P told telemarketers "if you call again, you owe $100." They called.

Holding: No contract.

Rule: Silence or acting (calling) does not constitute acceptance if the offeree (telemarketer) clearly did not intend to accept the terms.

Beneficial National Bank v. Payton (2001)

Facts: Credit card added arbitration clause via mail stuffer ("silence/use = acceptance").

Holding: Clause valid.

Rule: In at-will relationships, continued use after notice of term changes constitutes acceptance.

Humble Oil v. Westside Investment (1968)

Facts: P had option contract; made "conditional" acceptance.

Holding: Option remained open.

Rule: In an option contract, the power of acceptance is not terminated by a counter-offer or negotiation unless explicitly surrendered.

Marchiondo v. Scheck (1967)

Facts: Broker found buyer; Seller revoked before sale closed.

Holding: Revocation ineffective.

Rule: (Restatement § 45) Part performance of a unilateral offer creates an option contract, preventing revocation.

James Baird Co. v. Gimbel Bros. (1933)

Facts: Subcontractor made error in bid; General Contractor used it; Sub revoked.

Holding: Revocation valid (Old Rule).

Rule: (Learned Hand) Promissory estoppel does not apply to commercial bids; the bid was an offer, not a promise, and use did not constitute acceptance.