First Lecture

elements of a contract
angebot + annahme  [+ causa] 
-{Wirksamkeitshindernisse; Nichtigkeitsgruende: -betrug -dol
-unfahigkeit{= vertrag
offer (terms must be sufficiently definite and certain as to
manifest intent to contract; we may imply terms where it is
reasonable to do so.<br />
–this expresses the dichotomy of “express versus implied”
–it also expresses the idea of “reasonable”
–these are two key concepts in law: we may sometimes imply
thing!
–what is reasonable? reasonable things are things for
which… we have a reason (grund)
(yes, it is circular, but it is grounded in facts)
That leads to the question of law versus question of fact…

offer + acceptance + consideration – vices {fraud, duress,
incapacity; mistake?}= contract

invitatio ad offerendum
offer to treat  – u.k.
preliminary negotiations – u.s.

memorandum of understanding – m.o.u.

Vocabulary 
Rechtsfaehigkeit, legal personality
Geschaeftsfaehigkeit capacity to contract
Einseitiger Vertrag,
Gegenseitiger Vertrag
Schadensersatz
Strafsschadensersatz
Liquidated Damages
Consideration  Causa
Offer Angebot
Offeror Vertragsgeber, Anbieter 
Acceptance Annahme
Performance Leistung
Angebot Annahme
Versprechen
invitatio ad offerendum
Stare decisis = precedent = case law
Law
Equity

Haftung liability
Verjaehrung – prescription; passage of the statute of
limitations [Klagefrist]
Ruecktritt – withdrawl, Rescission; rescind a contract —
reformation; to re-form a contract
rescind ~ revoke; revocation

Verzug; delay[?]
Agency – Stellvertretung
agent – Stellvertreter
but also Amt.
Damages – schaden
Rein Vermoegensschaden – pure economic losses
Punitive damages = Strafschaden
Culpa in contrahendo — ????
PVV – (something Vertragsverletzung)
I MUST LOOK THESE TWO UP

Anfechtungsgruende – Grounds for *revocation; defence;
complaint;*
bases of complaint
vices
*must look this one up in case there is something more
precise; i don’t think there is.

Einseitiges rechtsgeschaeft – unilateral legal act.
Unentgeltliches Rechtsgeschaeft – voluntary uncompensated
legal transaction
Anspruch – claim
Hypothek – mortgage
Nacherfuellung — After sales services ***Look up
Leistungsfaehigkeit – Possibility of performance; capacity
to perform

Mangel; absent, deficient, incomplete

Schadensersatz — restitution; but restitution is a
particular form of schadensersatz
Compensation is a better general term for Schadensersatz.
Restitution in kind = restitution in natura.
Garantie = guaranty guarantie*** warranty must loo up

Sources of Law: Legislation, Cases.
Statute of frauds
Uniform Commercial Code
Restatement on Contracts
United Nations Convention on Contracts for the International
Sale of Goods (CISG)

Game: 1) Pair off. 2) Find an English legal term
which you are not sure of and ask your neighbor what it
means – in English. Do you know the German equivalent term?
We can learn any vocabulary you like. if there are terms you
want included in this course email them to me
eric.engle@yahoo.com

CONTRACTS ARE VOLUNTARY OBLIGATIONS
TORTS ARE INVOLUNTARY
Contracts logic is restitution – remedial, not punitive.

Elements of a contract
Offer – the offeror is master of their offer. the offer is
open until it is closed by the offeror. the offeror may
indicate a time during which the offer is open, but may
revoke their offer Prior to acceptance.
if no time is specified the offer is open for a reasonable
amount of time.
what is reasonable depends on the facts.
what are the reasons for saying the offer should terminate
prior to [a month? a week? a year?]
…what is being contracted?
… who is contracting?
…have they dealt with each other before? if so, how?

Acceptance
Consideration  … Rechtsgrund? look it up.
No vices

Vices are:
Fraud, duress, incapacity,  and possibly mistake.

Does anyone know the civilian concept of causa in contracts?

Consideration = Bargained exchange

benefit to the promisor or a detriment to the promisee.
Where consideration for a promise consists of a return
promise, the transaction is usually termed a “bilateral”
contract. Where the promise by its terms calls directly for
an act of performance by the promisee, rather than for a
return promise to be followed by its performance, the
ensuing contract is “unilateral” in traditional parlance.
illusory/symbolic consideration
Exception: Promises under seal
Why is there a rule requiring consideration?
“adequacy” of consideration.

2. Preexisting duty rule
Cases in which a preexisting duty resulting from a contract
with the promisor may prevent enforcement of a later promise
involve problems of contract modification. Where such a
modification changes the rights and corresponding duties of
both parties, there is consideration and the preexisting
duty rule does not apply. On the other hand, where only the
duties of one of the parties are changed, for instance, a
higher compensation than originally agreed is promised, the
preexisting duty rule would defeat an enforcement of the
modified promise, no matter how reasonable and fair the
modification was in view of the circumstances. Such overkill
is undesirable. Consequently, courts have sought to avoid it
on sometimes spurious grounds.
In a seemingly much more radical fashion the Uniform
Commercial Code (UCC) provides in section 2-209(1): “An
agreement modifying a contract within this Article needs no
consideration to be binding.” But the official comment
clearly states that only a modification made in good faith
and for a legitimate commercial reason will be enforced.

3. Illusory promises

4. Dispute settlement

  there is consideration if the surrendered claim “is
in fact doubtful because of uncertainty as to the facts or
the law,” or “the surrendering party believes that the claim
… may be fairly determined to be valid,”

5. Past consideration
  defenses mistake, fraud, or lack of capacity.

6. Promissory estoppel
Quasi-contract
Unjust enrichment

Equivalent german terms?

action in reliance
expectation damages.

(1) A promise which the promisor should reasonably expect to
induce action or forbearance on the part of the promisee or
a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted may be
limited as justice requires.

7. Promise under Seal

Since the notary profession, in the form and function known
in civil law countries, does not exist in the United States,
the notarial form cannot be used to facilitate the making of
gift promises. On the other hand, the trust is readily
available to serve the same purpose as a serious notarized
gift transaction in a civil law country. For instance, if as
in a leading case, an uncle wishes his nephew to receive a
specified amount of money upon the occurrence of a certain
event, he can put funds in a bank, make the bank a trustee,
and instruct it to turn the funds over to the nephew as
beneficiary upon the specified event. To save expenses, he
could also set himself up as trustee, provided the funds are
kept sufficiently separate from other assets.

B. Mutual Assent

The distinction between bilateral and unilateral contracts
(see pt. II.A.1) is important to the topic of mutual assent.
A bilateral contract is formed by an exchange of promises. A
unilateral contract is formed when performance is rendered
in response to a promisor’s offer calling for acceptance by
performance.***

1. Making an offer

Whether a particular communication manifests a present
willingness to enter into a bargain or whether it reserves
the power of final assent to be expressed at some time later
is said to be a question of fact.

invitations to make offers – offer to treat – invitatio ad
offerandum.

 2. Specificity of an offer
– terms may be implied

3. Termination of an offer
– offer open until accepted or withdrawn.

4. Acceptance of an offer

UCC: An offer that does not clearly specify whether it is to
be accepted by the making of a return promise or by
rendering performance can be accepted either way.
Common law:
Whether a unilateral or bilateral contract was intended
depends on terms of offer
Acceptance by performance is ordinarily effective without
notification to the offerer.

mailbox rule an acceptance takes effect upon dispatch, not
upon receipt.

A purported acceptance, which states terms additional to or
different from those in the offer, does not have the effect
of an acceptance, but rather is a counter-offer

In general, silence does not constitute an acceptance. But
in exceptional circumstances an offeree who remains silent
after receiving the offer will be held bound by the contract
proposed in the offer. For instance, an insurance company
which does not respond within a reasonable time to an
application for insurance solicited by its agent and coupled
with payment of the first premium is most unlikely to escape
contract liability.
In an auction a bid is an offer, not an acceptance of an
offer by the auctioneer, provided the auction is “with
reserve,” which is always the case unless otherwise stated.

Recently, new forms of marketing, communication, and
packaging have presented intriguing issues of contract
formation. In so-called shrinkwrap cases, a buyer of
computer software may discover only after tearing the
plastic wrapping from the package that, according to
information inside the package, he has agreed to the terms
of a “license” concerning the use of the software.

III. DEFENSES:
VICE

process was flawed, in that it is affected by a lack of
capacity, duress DOL, misrepresentation BETRUG, or mistake.
Also, more general policy concerns may demand denial of a
contract’s intended effect. With respect to defects of the
agreement process and to general policy considerations, the
meaning of contract terms, and thus their interpretation, is
of paramount importance.

A. The Agreement
Process

1. Capacity to contract

Minors generally are lacking in capacity to contract. Most
states now fix the age of majority at 18, some at 19.
Contracts entered into by a minor are not void NICHTIG, but
can be avoided. If the contract involves so-called
necessities, it cannot be so disaffirmed. The policy
underlying this exception is to enable the minor to obtain
necessities crucial to his existence. Courts, however, can
limit the extent to which the contract will be enforced. The
actual value of goods or services obtained, rather than the
contract price, may be used as the measure of recovery.
A person who contracts under the influence of a mental
impairment may also lack capacity to contract. But American
courts tend to protect certain groups in this category more
than others. Someone suffering from a mental illness
affecting cognitive abilities can usually avoid a contract.
If, however, an illness affects only a person’s emotional
processes, avoidance may depend on whether the other party
knew or had reason to know of the impairment. Similarly, a
person who is found to be voluntarily intoxicated enjoys no
great protection in American courts. Such intoxication, as
distinguished from compulsive alcoholism and from medication
administered by a physician, is seen as a ground for
contract avoidance only if the other party took advantage of
the condition.

2. Duress

3. Misrepresentation

An assertion that is not in accord with the facts is a
misrepresentation. Under certain circumstances, the
nondisclosure of a fact will be treated as equivalent to an
assertion that the fact does not exist. A misrepresentation
can go to the “factum” of a contract, as where a movie star
is signing autographs and one of the fans lets her sign a
promissory note in the belief it is another autograph. If
there was no reasonable opportunity to know the character of
the transaction, no contract is formed. There would be a
defense even against a holder in due course.
If a misrepresentation goes not to the “factum,” but merely
to the “inducement,” the contract is voidable. In this
situation, the victim of a misrepresentation knows that a
contract is concluded. But since the false assertion
supplying a motive affects the agreement process, the
contract can be avoided provided the misrepresentation is
either fraudulent or material. This means that a fraudulent
misrepresentation entitles the defrauded party to an
avoidance of the contract irrespective of its materiality,
fraudulent misrepresentations include assertions which the
maker knows or believes not to be in accord with the facts.
In addition, if the maker has no confidence that he states
or implies the truth of an assertion, or if he knows that he
does not have the basis for an assertion, there is a
fraudulent misrepresentation. In determining the materiality
of a non-fraudulent misrepresentation, courts use a
reasonableness standard. They ask whether a reasonable
person was likely to be induced to agree to the deal by the
false assertion. Alternatively, if the maker knows that the
recipient was likely to be induced by the assertion,
reasonableness of the expected reaction becomes irrelevant.

A misrepresentation by someone not a party to the contract
is treated exactly like duress by an outsider.

4. Mistake

A belief that is not in accord with the facts is defined as
a mistake. Thus an erroneous assumption with respect to
future events, for instance, market conditions at some time
in the future, is not recognized as a mistake since it does
not involve existing facts. It is termed an “error in
judgment,” which on principle does not entitle someone to
relief.
Mutual mistake occurs when both parties share an erroneous
belief as to an existing fact. Such mistake furnishes a
ground for contract avoidance if it affects the “essence” or
“substance” of the contract, as courts usually put it. The
Restatement is more specific; it provides in section 152(1)
that the mistake, in order to be relevant, must meet three
conditions. It must go to a “basic assumption on which the
contract was made,” and it must have a “material effect on
the agreed exchange of performances.” If a violinist
contracts to sell to another violinist an instrument which
both believe to be a Stradivarius, when in fact it is but a
clever imitation, the contract is voidable, provided that as
is likely the case the agreed price and the value of the
imitation differ greatly. The third condition of relief for
mutual mistake is that the mistaken party does not bear the
risk as to the mistaken fact.
A particular kind of mutual mistake involves the unintended
discrepancy between the text of a writing embodying a
contract and the actual agreement reached by the parties. To
deal with this kind of situation, courts of equity have
fashioned a special remedy called reformation. By virtue of
this remedy the writing is made to express the actual
agreement. But the rights of innocent third parties, such as
good faith purchasers, must be protected. If reformation is
thus precluded, avoidance may become available.
Unilateral mistake not induced by a false assertion will not
give rise to a defense of misrepresentation. If, however,
the three conditions of relief for mutual mistake are
present, a unilateral mistake of which the other party knew
or should have known makes the contract voidable. Even in
the absence of actual or constructive knowledge of the other
party, under more recent cases unilateral mistake is a
ground for avoidance if it causes enforcement of the
contract to be unconscionable. For instance, an error in
computation resulting in a bid for $150,000 rather than
$200,000, and leading to a loss of $20,000 rather than an
expected profit of $30,000, makes the contract voidable.
Mistakes as to the identity of the subject matter of, or a
party to, a contract have sometimes been seen as a separate
category of mistake. More recently, such cases have come to
be decided under the same rules as applied to other kinds of
mistake.
The fault of a mistaken party whose diligence could have
avoided the mistake will ordinarily not defeat a request for
relief. Only when the action is inconsistent with the
principles of good faith and fair dealing is relief for
mistake likely so be denied. Another way of stating this
exception is to say that only gross negligence will bar
relief.
Misunderstanding in the agreement process can result in
problems of mistake. Where the parties attach different
meanings to expressions they use in that process, as for
instance to the word “chicken” in a leading case, it may be
found by a court that none of the parties knew of any
different meaning attached by the other, and only one of
them knew or had reason to know of the meaning attached by
the other. In the absence of such finding there would be no
contract. But given that finding, the party who had reason
to know of the other’s understanding is bound by a contract
based on that understanding. Yet she may be entitled to
avoidance because of her mistake as to that understanding.
If the three basic conditions discussed before are met, the
claim to relief turns on whether enforcement of the contract
yields an unconscionable result, since the possibility that
the other party had reason to know of the mistake does not
exist here.

A. Policy Concerns

1. Public policy

American courts invoke public policy as a ground for holding
a contract unenforceable in a variety of situations.

2. Unconscionability

3 Form AGB Adhesion contract fine print requirements

4. Legislation commonly referred to as the statute of frauds
establishes form requirements. An English statute of 1677
called “An Act for Prevention of Frauds and Perjuries”
required a writing for various transactions, including
certain types of contracts. In England the majority of these
requirements were repealed in 1954. By contrast, legislation
in most American states has expanded the scope of the
statute of frauds by the requirement of a writing for many
transactions not covered by the original statute and its
American early derivatives. Thus, while the law in all other
Western countries is characterized by the tendency to
liberate the law of contracts from form requirements as much
as possible, the legislative policy prevailing in America is
to the contrary. Presumably, one of the reasons for this
anomaly is the fact that a jury trial can be demanded in
civil cases in the United States. See Chap. 16, pt. IX.B.
Among the contracts for which a writing is required are
contracts for the sale of goods for the price of $500 or
more, contracts for the sale of investment securities,
contracts for the sale of other kinds of personal property
beyond a remedy of $5,000. As in other systems, including
England after the reform of 1954, contracts for the sale of
an interest in real property and agreements by which someone
promises so pay as a guarantor or surety of a principal
debtor are enforceable only if in writing. Also agreements
which by their terms cannot be performed within one year,
contracts to make a will, promises to pay a commission or
other compensation to a real estate broker or agent are
frequently included in statutes of frauds. So are promises
to pay a debt barred by a statute of limitations or
discharged in bankruptcy. The form requirement is fairly
easy to meet. A writing must originate only from the party
against whom enforcement of a connly that party’s signature
is required. Furthermore, rejecting some older case law the
UCC section 2-201(1) provides that a writing is not
insufficient because it is incomplete or states a term
incorrectly. See Chap. 13, pt. III.A. The Restatement Second
section 131 has adopted a similarly liberal rule. Also the
writing need not be intended as a communication between the
parties; an internal memorandum can be a sufficient writing.
Several writings can be pieced together to satisfy the
statute where no single one of them would be sufficient.
Application of the statute of frauds in cases to which it
ordinarily applies can sometimes be avoided. Part
performance, especially of a contract for the sale of land,
is frequently considered a sufficient ground to enforce an
oral contract. Also reliance on representations that a
writing will be executed or that a defense based on the
statute will not be asserted may help to overcome the form
requirement. In Restatement Second section 139 the reliance
principle, as applied to statute of frauds cases, is now
stated so broadly that it may thwart the statute’s basic
policy. Once the Uniform Electronic Transactions Act (UETA)
is adopted by a state, an electronic record will satisfy the
writing requirement between parties who have agreed to
conduct transactions by electronic means.

C. Interpretation

1. Canons of construction

Canons of construction of a rather formalistic nature have
sometimes been advocated. Samuel Williston, the reporter of
the first Contracts Restatement, favored an approach to
interpretation which looked more to an alleged objective
standard than to the individual parties’ subjective
intentions when a contract or its terms called for
interpretation. On the other hand, Arthur Corbin and the
Restatement Second want us to establish first of all the
subjective meaning of contract clauses.
But the Restatement Second, after stating certain formal
canons in sections 202 and 203, also embraces principles
with respect to interpretation which, while apparently of a
formalistic nature, are in fact an expression of substantive
policies. The most prominent canon in this realm is that of
contra proferentum. According to Restatement Second section
206, that meaning of an ambiguous agreement or term is
generally preferred which operates against the draftsman.
This rule has counterparts in Roman law as well as in modern
systems of civil law. Under circumstances prevailing today
it takes into account the control over terms by virtue of
superior bargaining power, which the draftsman typically
possesses, especially in the context of an adhesion
contract. Application of the rule occurs most frequently in
insurance cases.
It is well settled now that every contract must be
interpreted to impose a duty of good faith in its
performance and enforcement. The UCC in section 1-203
contains a rule to this effect for all contracts to which
the Code applies, not only Article 2 contracts for the sale
of goods. Restatement Second section 205 states a rule
imposing a duty not only of good faith, but also of fair
dealing, on parties to all contracts. A bad faith breach of
contract may give rise to a tort action, once again
especially in the field of insurance.

2. Parol evidence

Parol evidence to establish the actual content of a
contractual agreement may be inadmissible once the agreement
has been reduced to a writing. In most instances, the
various rules pertaining to parol evidence preclude
testimony by a witness, but written evidence may also be
precluded.
A strong argument for an application of the rule can be made
in the case of a so-called merger clause contained not in a
standard form contract, but in an individually negotiated
written contract. Such clauses stipulate in essence that the
writing represents the complete agreement between the
parties. It characterizes the writing as something the
Restatement calls an “integrated agreement.” Such agreements
can be interpreted by extrinsic evidence, and a jury may
have to pass on the credibility of such evidence or
inferences to be drawn from it; in all other respects
interpretation is a question of law to be decided by the
judge. Under the parol evidence rule a completely integrated
agreement supersedes all prior agreements within its scope,
not only inconsistent prior agreements.
In the absence of a merger clause it is for the court to
decide whether a writing was intended to be a completely or
partially integrated agreement, that is, an agreement
constituting a final expression of one or more terms of a
transaction. Some courts purport to make that determination
within “the four corners” of a writing without ever
considering the extrinsic evidence offered to establish an
additional agreement. Increasingly, however, it is admitted
that this very evidence must be considered by the court to
make the initial determination of whether it seems plausible
that an additional agreement exists. If so, the writing
constitutes only a partially integrated agreement. As such
it precludes evidence of an agreement which contradicts
terms of a writing, but not evidence of consistent
additional terms. The final decision of whether the
additional agreement was really concluded must be made by
the fact-finder, in jury trials by the jury.
The fact that trial by jury can be obtained in civil cases
in America explains to a large extent the significance of
the parol evidence rule as well as that of the statute of
frauds. See pt. III.B.3. It is generally believed that
juries are too much inclined to accept oral testimony as
credible even where it conflicts with written evidence.
Since this tendency may undermine the integrity of
documented business transactions, the parol evidence rule in
spite of its murkiness can serve an important purpose by
keeping evidence which is likely to mislead away from the
jury.

IV PERFORMANCE
AND NONPERFORMANCE

A. Conditions

Once an enforceable contract has been formed which cannot be
avoided, a duty to perform may still not arise immediately.
The parties can stipulate that performance shall be due only
upon the occurrence of a future event. If such event is
certain to occur, as a day specified by reference to the
calendar, the duty is absolute, not conditional; it will be
activated at the time so specified. A true condition is an
event which is not certain to occur, but which must occur
before a present duty to perform exists.

1. Express conditions

A term included in the parties’ agreement may result in an
express condition. No specific language is required to
create such a condition. But doubts respecting the
interpretation of a particular clause in a contract,
especially an insurance policy, are usually resolved in
favor of holding it not to be a condition because that helps
to avoid a forfeiture. If, for instance, a fire insurance
policy calls for the installation of a sprinkler system by
the insured, interpretation of this clause as a condition
might defeat recovery by the insured. As discussed before
(see pt. III.C.l) ambiguities in a form contract are
resolved against the drafter under the principle of contra
proferentum. Therefore, in the absence of unambiguous
language an insurance policy is likely to be interpreted not
to contain a condition, but only a covenant.
The mutuality of obligations in a bilateral contract is also
conceptualized in the form of conditions, not by the use of
a discrete concept, such as the civil law idea of
synallagma. Where by the terms of a contract, the exchange
of performances has to occur simultaneously, each is seen as
a concurrent condition to the other. Tender of one party’s
performance activates the other party’s duty to perform in
this case. Where, however, one performance must be completed
before the other becomes due, the former is a condition
precedent to the latter.

2. Constructive conditions

Constructive conditions are not created by the parties, but
by the court. The party’s failure to provide for a
connection between their mutual performances does not
necessarily mean that their promises are independent of each
other. Rather, the interdependence of the promised
performances may be so inherent in a transaction that the
parties’ actual purposes would not be accomplished without
reading constructive conditions into their agreement.
A distinction is sometimes made between implied-in-fact
conditions and constructive conditions, which are also
called implied-in-law conditions. The former are said to be
based on an actual, though unarticulated, intention of the
parties while the latter follow from general notions of
fairness and justice. It is stated also that implied-in-fact
conditions as well as express conditions must be strictly
complied with, while constructive conditions need only be
substantially performed in order to trigger the other
parry’s duty to perform.
To be sure, courts have developed the doctrine of
substantial performance in connection with constructive
conditions. In a leading case a contract to build a house
called for the installation of pipes of a certain brand. One
year after completion of the building it was discovered that
a different brand had been installed. The court held that
the builder had substantially performed and was therefore
entitled to his compensation.
While the doctrine as such is not applied to express
conditions, courts will not enforce them if this would
result in an unacceptable hardship. A condition is held to
be excused if its enforcement would cause an extreme
forfeiture and its occurrence forms no material part of the
exchange.

B. Breach

After the duty to perform becomes due, nonperformance of a
promise unless excused constitutes a breach of contract.
Fault is not an essential element of the concept of breach.
See Chap. 13, pt. III.C.

1. Excuses for nonperformance

Excuses can be derived from impossibility or
impracticability of performance as well as from a
frustration of purpose. It amounts to the same when these
instances are viewed as grounds for a discharge of the
promisor rather than as an excuse.
Where the existence of a particular person or a specific
thing is necessary for the performance of a duty, death of
the person or destruction of the thing may excuse
performance. Earlier cases and writers dealt with these
situations under the rubric of impossibility, and some still
do. But the prevailing view today that impossibility as such
does not necessarily furnish an excuse. Rather the issue
turns on whether the promisor assumed the risk of the
contingency, in which case he may still be liable in
damages. On the other hand, performance may be excused even
though it is still possible but, due to an unexpected event,
has become commercially impracticable. When the Suez Canal
was closed in 1956 the added expense of a voyage around
Africa under a charter party providing for the carriage of
wheat from the United States to Iran was held not to be so
excessive as to constitute impracticability.
Closely related to supervening impracticability is the case
of supervening frustration of a party’s purpose. The
postponed coronation of King Edward II in 1902 led to a
series of cases in which the frustration doctrine was argued
by renters of rooms on a street in London through which the
coronation procession was originally scheduled to pass. The
courts in England were split on whether the renters’ duty to
pay was excused after cancellation of the procession due to
Edward’s illness. In the United States the doctrine has
found the support of some courts and the Restatement. But it
is not frequently applied.

2. Anticipatory repudiation

If a duty to perform has not yet become due and the promisor
repudiates the contract, the other party can treat this act
as a present breach. Repudiation consists either of a
statement by the promisor that she will not perform or an
affirmative act by which she renders herself unable to
perform. For instance, if a contract for the sale of land
calls for performance on a future date and before the
arrival of that date the seller either announces that she
will not make the conveyance to the buyer, or if she conveys
title to a third party, she has repudiated her duty to
perform.
An anticipatory repudiation has various consequences. Under
a bilateral contract the non-repudiating party is discharged
of his remaining duties of performance once repudiation
occurs. Also the nonoccurrence of a condition to the
repudiator’s duty is excused if the repudiation contributes
materially to such nonoccurrence. Finally, the repudiation
gives rise to an immediate claim to damages for total
breach. A leading English case so holding is still followed
in the United States even though, unlike the other two
consequences, granting a right to bring an action for
damages before the due date is not necessary for the
protection of the victim of repudiation.
Even where a party does not repudiate a contract by word or
deed, circumstances may indicate that performance is not
likely to be rendered. If, for instance, two months before
delivery of the deed and payment become due, a buyer of land
discovers that a third party has a dower interest in the
land, clear title cannot be transferred to the buyer without
cooperation of the third party. In circumstances like these
a promisee, here the buyer, can demand that adequate
assurance of due performance be given and can suspend his
own performance until such assurance is received. Failure of
the promisor to provide adequate assurance within a
reasonable time can be treated by the promisee as an
anticipatory repudiation.

V REMEDIES

A. Damages

A breach of contract ordinarily entitles the injured party
to damages. Under the common law a claim to damages is
always understood to be a claim to compensation in the form
of money. Restitution in kind to the status quo cannot be
demanded in an action for damages.
While fault is not an essential element of the concept of
breach as such, in assessing and measuring damages the
blameworthiness of a breach is sometimes considered.

1. Expectation damages

Expectation damages are designed to put the injured party in
as good a position as performance would have done. The
injured party, being entitled to the benefit of the bargain,
can demand an amount of money equal to the value of the
promised performance. Individual circumstances, such as the
value of benefits received through part performance and
expenditures incurred by the victim as well as those saved,
must be taken into account.
Abstract market price differentials, as well as concrete
measures looking to cover or resale prices, can be used to
claim damages under a contract for the sale of goods
according to the UCC.
If the lessee of real property promises to return the
property in a certain condition and then returns it in a
lesser condition, the issue arises of whether damages are to
be measured by the cost of work necessary to bring about the
promised condition or by the diminution in value of the
property. In the case of a willful and deliberate breach by
the lessee it has been held that the cost of the work to be
done determines the amount of damages. This represents one
of the instances in which blameworthiness of a breach
influences the extent of liability. The same is true of
cases in which a builder renders performance which
substantially, but not completely, complies with the terms
of the contract. See pt. IV.A.2. Here, too, courts take into
consideration whether the breach was willful or not; if it
was unintended, substantial performance may be found and
damages assessed on the basis of a diminution in value, if
any.
Under the mitigation principle no damages can be recovered
for a loss that the injured party could have avoided after
learning of the breach. However, in order to minimize her
loss the injured party does not have to enter into a
substitute transaction that involves undue risk, burden, or
humiliation. For instance, a movie star who is denied a
promised, very significant lead role in one type of movie
does not have to play a much less important lead role in a
different type of movie.
Under the foreseeability principle, established by the most
prominent contract case of all times, which interestingly
relied on the French Civil Code and the French author Domat,
damages are not recoverable for losses that were not
reasonably foreseeable for the breacher at the time of
contract formation. Foreseeability is determined by
application of a dual test. It looks to the probable results
of a breach which follow either from the ordinary course of
events or, on the other hand, from special circumstances
that the party in breach was apprized of by the other party
or had reason to know of anyhow. Under me Restatement Second
even compensation for foreseeable loss of profits may
sometimes be denied as disproportionate and be replaced by
reliance damages.
Under the certainty principle no damages are recoverable for
losses that may be characterized as speculative, for which
there is no stable foundation in the evidence. In applying
this principle a court may be satisfied with a lesser degree
of certainty in a willful breach case, another instance in
which blameworthiness of a breach matters. Where courts
apply the certainty principle the injured party’s evidence
will not be allowed to go to the trier of fact. In the past
an alleged uncertainty of profits frequently affected the
recovery of losses involved in a new business with no past
earnings history. More recently, however, it has been held
that there is no hard and fast rule that prevents every new
business from recovering anticipated lost profits for breach
of contract. More generally speaking, the certainty
requirement is gradually losing much of its significance as
more sophisticated knowledge on economic and financial data
becomes available and can be interpreted and applied by
expert witnesses.

2. Reliance damages

Reliance damages are not designed to put the plaintiff in
the position she would have enjoyed if performance had been
rendered as promised. Rather, where reliance damages are
granted, they are designed to restore the injured party to
the position she would occupy if the transaction had never
taken place.
The reliance measure of damages may be an attractive
alternative to a victim of breach who finds it hard or
impossible to prove expectation damages, more specifically
loss of profits. However, the party in breach is allowed to
show that full performance would have resulted in no gain
for his opponent. In the case of such a losing contract,
presumably entered into by mistake in calculation or error
in judgment, breach must not leave a party better off than
performance. Since no expectation damages could possibly be
recovered, reliance damages must be denied too.
Several more modern rules of contracts permit courts to
limit a remedy “as justice requires,” or to enforce a
contract only to the extent “necessary to avoid injustice.”
The Restatement Second provides such rules, for instance, in
cases of promissory estoppel (section 90), binding offers
(sections 45, 87), contract modification (section 89), and
action in reliance under the statute of frauds (section
139). In applying rules like these a court may decide to
limit recovery to reliance damages rather than to grant
expectation damages, even though the injured party is able
to prove his loss of profits. In these circumstances the
reliance measure is preferred not for practical but for
equitable reasons. It is used by the court and not, in the
first place, by the plaintiff.
Under the reliance measure of damages, out-of-pocket
expenses which are attributable to the contract can be
recovered. Sometimes the injured party can recover the value
of a lost opportunity. For instance, the plaintiff thinking
to be bound by the contract that was later breached may not
have bid on another contract that can be shown he would have
won as the lowest bidder. Here profits not made in the
foregone transaction may be viewed as an item of reliance
damages.
Finally, in exceptional circumstances even non-pecuniary
loss has been held to be recoverable as reliance damages.
When a series of three attempts by a surgeon to improve the
appearance of a female entertainer’s nose failed miserably,
she was granted reliance damages for her expenses, the
worsening of her condition, and for pain and suffering and
emotional distress involved in the third operation.

3. Punitive damages

While available in certain circumstances in a tort action,
punitive damages cannot ordinarily be recovered for breach
of contract. If, however, the conduct constituting the
breach is also a tort, punitive damages may become
recoverable. The issue is entirely determined by tort law.
See Chap. 9, pt. II.E.
In recent decades courts have in effect gone beyond the
traditional approach to punitive damages, which requires an
independent tort accompanying a breach of contract.
Primarily in insurance cases, but also in employment and
other cases, a breach of contract committed in bad faith is
as such treated as a tort to the extent that it is a basis
for imposing punitive damages. The development started in
liability insurance where the rationale was advanced that
the insurer in handling a third party claim was acting as
the insured’s fiduciary. Once the practice of imposing
punitive damages for a bad faith breach of contract grew to
include other lines of insurance and also non-insurance
cases, the fiduciary duty rationale was tacitly abandoned.
It is obvious that punitive damages are used as a sanction
in contract cases because courts see a need to discourage
particularly reprehensible business conduct. This new
development provides the most impressive incident
demonstrating that under American law the blameworthiness of
a breach of contract, while irrelevant to establish
liability as such, can be highly significant in determining
the extent of liability, that is the amount and the kind of
damages recoverable.

4. Liquidated damages

Damages agreed to in a contract clause by the parties will
be enforced, provided their agreement meets certain
criteria. Unreasonably large liquidated damages will not be
enforced. Rather, they are regarded as a penalty, and unlike
other systems the common law is generally opposed to penalty
clauses. It was only very recently that this policy has come
under attack. It is being criticized as paternalistic and
inconsistent with economic efficiency. It is also at odds
with the new development pertaining to punitive damages
discussed in the previous section.

B. Equitable Relief

Remedies which in the past could not be granted by a court
of law, so that the injured party had to turn to a court of
equity to obtain relief, are still termed equitable remedies
even though the formerly separate court systems have long
been merged in most American states. See Chap. 16, pts. I.C,
D.

1. Specific performance

Specific performance of a contractual promise will not be
granted if damages would be an adequate remedy. In this
respect, in theory at least, the American law of contracts
differs sharply from the law of contracts in civil law
countries, which grants specific performance as a regular
remedy.
The American approach to specific performance is largely the
product of history. Policy reasons in terms of economic
efficiency, advanced by some writers in favor of this
approach, have been refuted by others.
In actual practice the difference between the systems with
respect to specific performance is less dramatic than in
theory. Under the civil law a plaintiff will not demand
specific performance unless this serves his particular
interests. In case such interests exist it is quite likely
that an American court would also grant specific
performance, since the courts are increasingly inclined to
find that there is no adequate remedy at law.
Traditionally, the concept used to determine when damages
are inadequate has been the uniqueness of a contract’s
subject matter. For mostly historical reasons real property
is always considered to be unique, so that the buyer of land
is automatically entitled to specific performance. With
respect to a contract for the sale of goods the UCC section
2-716(1) provides that specific performance may he decreed
where the goods are unique or in other proper circumstances.
This rule has been applied to long term supply contracts,
especially requirements contracts. Also contracts for the
sale of a business, or of an interest in a business in the
form of shares to which UCC section 2-716 does not apply
directly, have been found to involve unique subjects of
performance.
When deciding whether to grant specific performance, in
addition to considering the uniqueness of a performance,
courts will take into account the difficulty of proving
damages with reasonable certainty and the likelihood that an
award of damages could not be collected. Reasons for which a
decree may be denied include the uncertainty of contract
terms. A higher degree of certainty is said to be required
for a decree of specific performance than -for a judgment
awarding damages. It is also said that in a suit for
specific performance courts can base a dismissal on a wider
range of fairness and public policy grounds than in an
action for damages. Finally, a decree may be denied because
the character and magnitude of the performance impose
disproportionate burdens in enforcement or supervision upon
the court.
If a court decrees specific performance, it has broad
discretionary powers in fashioning the remedy. The purposes
for which the contract was made, and not necessarily its
terms, determine the details of the court’s order.

2. Injunctions

Injunctions can be issued in all kinds of cases, not only
those involving contracts. The purpose for which injunctions
are primarily used in the area of contracts is the
enforcement of a duty of forbearance. Frequently such duties
are implied by law, not expressly agreed upon by the
parties.
Contracts involving a promise to render personal services
will not be specifically enforced, partly because the United
States Constitution prohibits involuntary servitude. Still,
injunctions are sometimes issued enjoining the promisor from
rendering services for others while performance should be
rendered to the promisee. If, however, this would leave an
employee without a reasonable livelihood, an injunction must
be denied.

SELECTED BIBLIOGRAPHY

F.H. Buckley, ed., The Fall and Rise of Freedom of
Contract (1999).
John D. Calamari & Joseph M. Perillo, The Law of
Contracts (4th ed. 1998).
Arthur Linton Corbin, 1-8 Corbin an Contract (Joseph
M. Perillo ed., rev. ed. 1993-1999 &Supp. 2000).
Richard Craswell & Alan Schwartz, Foundations of
Contract Law (1994).
E. Allan Farnsworth, Contracts (3d ed. 1999).
——, 1-3 Farnsworth on Contracts (2d ed. 1998 &
Supp. 2000).
Grant Gilmore, The Death of Contract (Ronald K.L.
Collins ed., 2d ed. 1995).
John Edward Murray, Jr., Murray on Contracts (3d ed.
1990).
Harry N. Scheiber, ed., The State and Freedom of
Contract (1998).
David H. Vernon & Alan I. Widiss, Understanding
Contract Law (2000).
James J. White & Robert S. Summers, Uniform
Commercial Code (5th ed. 2000).
Samuel Williston, 1 -17 A Treatise on the Law of
Contracts (Richard A. Lord ed., 4th ed. 1990-2000).