C H A P T E R O N E



INTRODUCTION TO THE STUDY OF CONTRACT LAW



SECTION 1. PRELIMINARY SURVEY OF SUBJECT AND SOURCES



Contract as Binding Promise. This course of study will deal primarily with the legal implications of promise making. Every issue respecting the legal enforcement of a promise is broadly a contracts issue. An authoritative and acceptable working definition is that of Restatement (Second) of Contracts: "A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty."(1)



The focus upon promise is useful, since a common element in all contracts is promise, defined in the first Restatement as "an undertaking, however expressed, either that something shall happen, or that something shall not happen, in the future."(2)

Yet the result of a contract is the creation of a legal relationship involving rights and duties of persons.(3)

Thus, it may be better to emphasize the result of the promise rather than the promise itself. To an extent the Uniform Commercial Code does this: " 'Contract' means the total legal obligation which results from the parties' agreement as affected by this Act and any other applicable rules of law."(4)



Contract law thus concerns the promises we make, and it takes but a moment's reflection to be impressed by the broad scope of the subject. Instances are legion in which we repose confidence in the promises of others. Limited to the commercial area alone, every employment agreement, sales contract, promissory note or check, rental or lease agreement, and so on, embodies a promise or contractual undertaking. And lest one conclude too hastily that humankind is totally unregenerate consider that in the vast majority of these cases, people keep these promises. They do what they say they will do. Goods are ordered, delivered, and paid for. Work is performed; wages are paid. Funds are deposited and returned with interest. And so on, through a myriad of economic transactions.



Why Keep Promises? Why do people ordinarily fulfill their contractual obligations? Why the high rate of contract performance? No doubt the fear of legal sanction helps to deter breach. But the matter surely goes beyond mere fear of the law. Indeed, the fear of officially imposed sanction (e.g., a judgment for damages) may be a relatively minor deterrent in many situations. One thinks, for example, of the great Law Merchant tradition of the late medieval period, out of which much of our modern commercial law developed.(5)

The merchants themselves administered a remarkably effective system which did not depend upon state enforcement mechanisms or procedures, but relied upon private sanctions such as refusal to deal or boycott.



Obviously, it is often in one's self-interest to keep promises. If one is to have credibility for the future, one must perform one's promises today. Finally, most people believe that promises ought to be kept because it is the right thing to do. It is a part of the way an honest person behaves.



It is not surprising that there emerged in our legal tradition the notion of "sanctity of contract." One writer summarized the prevalence of this attitude as follows:



[Throughout the development of the English common law] the giving of a promise or the conclusion of an agreement involved a solemn undertaking the breach of which amounted in the eyes of the Church to a sin and in the eyes of the general body of contemporary lawyers to an immoral or unethical act. With the special emphasis placed by the nineteenth-century philosophers and jurists on the importance of freedom and the manifestation and extension of an individual's freedom through contract, it was not surprising that contracts developed a juristic blessedness or halo and were so often regarded as sacred.(6)



In contrast to this unqualified duty perform, Oliver W. Holmes argued that "the duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it--and nothing else."(7)

For Holmes, a contractual promise was merely a promise to perform or pay damages.



Why Should Promises Be Legally Enforced? Although there is no record of a legal system that has undertaken to enforce all promises, there is yet to appear an organized society which has repudiated altogether the concept of binding promise or contract. To be sure, criteria of enforcement have varied. Moreover, the sanction imposed for nonperformance has at times been merely social, or religious, rather than an official court command to perform the promise (specific performance) or a judgment awarding monetary damages. Still, the modern who insists "you gave me your word" or "a bargain's a bargain" is not advancing novel doctrine. The Roman Law maxim pacta sunt servanda (agreements are to be kept) reflects a characteristic human attitude.(8)

In this respect, the ancient Code of Hammurabi, the celebrated Code of Justinian, and the contemporary Uniform Commercial Code are quite alike in fundamental orientation.(9)



The economic importance of promise making and promise keeping can hardly be exaggerated. Dean Roscoe Pound put it this way: "In a developed economic order the claim to promised advantages is one of the most important of the individual interests that press for recognition. * * * Credit is a principal form of wealth. It is a presupposition of the whole economic order that promises will be kept. Indeed, the matter goes deeper. The social order rests upon stability and predictability of conduct, of which keeping promises is a large item."(10)



With good reason, Sir Frederick Pollock, the English legal historian, could maintain: "Enforcement of good faith in matters of bargain and promise is among the most important functions of legal justice. It might not be too much to say that, next after keeping the peace and securing property against violence and fraud so that business may be possible, it is the most important."(11)



In his book The Promises Men Live By, Harry Scherman, an economist, makes this bold assertion: "I do not think there is any single fact more important for men to recognize, with all its implications, than this simple one--that their individual well-being, as well as that of the whole society, is determined by the volume of exchanges going on in the whole society."(12)



The facilitation of economic exchange is a basic policy of commercial law in general and contract law in particular. Enforcing contracts facilitates trade by promoting present reliance on future promise. When the exchanged promises are to be performed at different times, legal enforcement can assure the person who has promised to perform first that she can rely on the subsequent performance by the other side to the agreement. By encouraging a high volume of private exchange and the economic growth and development that results therefrom, the law contributes to both the welfare of the individual participants and the nation as a whole. If legal impediments to voluntary exchange are kept to a minimum, the law plays a market-supporting role by providing a general framework within which private planners can rationally allocate resources. And this, it is believed, is an essential ingredient of a dynamic economic order.



Beyond Economics. One cannot gainsay the importance of freedom of contract to a market economy and the relative superiority of such a system to unproductive command economies which are, seemingly, in decline throughout the world today. But there are more than economic advantages; there are political advantages as well:



Freedom of contract, together with the right to own property, were core elements in the American vision of personal liberty. * * * The American constitutional scheme places contract liberty well above common law status; it is a guaranteed personal right. Liberty of contract is recognized not as power delegated by the sovereign, but as power originating in and guaranteed to the people.(13)



Private contract is a powerful tool for diffusing power in a society, for dividing decision-making and opportunities between the state on the one hand and private persons on the other.(14)

In a sense, contracting parties are lawmakers. By entering into a binding contract, they make law for themselves.(15)

They incur obligations which are enforceable by public authority, the courts. As indicated, the amount of legal obligation of this type is staggering. Any analysis of the real government of the people must take note of this extensive network of contractual obligations.



But even as one acknowledges these enormous practical advantages, one feels the need to press beyond social considerations. The matter goes beyond economics and politics. It touches on the very nature of a human person.(16)

In her book The Human Condition, Hannah Arendt relates the power to promise to the power to forgive, the one (forgiveness) providing a remedy for a painful past and the other (promise) a remedy for an uncertain future. She explains: "The possible redemption from the predicament of irreversibility--of being unable to undo what one has done * * * is the faculty of forgiving. The remedy for unpredictability, for the uncertainty of the future, is contained in the faculty to make and keep promises. The two faculties belong together in so far as one of them, forgiving, serves to undo the deeds of the past, whose 'sins' hang like Damocles' sword over every new generation; and the other, binding oneself through promises, serves to set up in the ocean of uncertainty, which the future is by definition, islands of security without which not even continuity, let alone durability of any kind, would be possible in the relationships between men."(17)



Only persons forgive; only persons promise. Indeed, Charles Fried insists that "if we decline to take seriously the assumption of an obligation * * *, to that extent we do not take [the promisor] seriously as a person."(18)

There are many, of course, who view these awesome powers as conferred by the Creator who both forgives and promises and commands that we do likewise. According to scripture, God has always dealt with people in terms of covenant and covenantal law.



Sources of Contract Law: The Common Law Tradition. The mainstream of our law is that which evolved within the English common law tradition, encompassing mainly the decisions of common law courts, but also, in the larger sense, those of the separate and in many ways competing Chancery Court.(19)

As the royal courts expanded and a law common to the entire realm came to be administered, a significant portion of the judicial precedents thus amassed dealt with what we would regard today as the law of contracts. But this is not how these cases were regarded initially. The common lawyer viewed law in terms of remedies available (viz., "writs" which would be granted to redress wrongs) rather than as a body of substantive doctrine or legal principles. There was no law of contracts, as such, but certain actions were available to enforce rights which, in retrospect at least, we see as "contractual" in nature. The development and expansion of the writ system to meet the exigencies of the times account for the remarkable continuity and durability of the common law. Contracts developed principally from the writ of assumpsit, itself an offshoot of trespass on the case, a "tort" remedy.(20)



While common law judges proceeded modestly on a case by case basis, adjudicating individual controversies brought before them, they did not act in a strictly ad hoc manner or without guidelines of any sort. They adhered to a principle of stare decisis as regards their own past and were also influenced by other bodies of legal learning, especially Roman Law, Canon Law and the Law Merchant.(21)

Of particular interest here is the influence of the Law Merchant, aptly called "the private international [commercial] law of the Middle Ages."(22)

Based upon the customs of merchants, and strongly impressed by an international character, the Law Merchant existed as a body of rules and principles pertaining to merchants and mercantile transactions, distinct from the ordinary law of the land. A characteristic of the mercantile courts, which regularly functioned at fairs and markets, was the dispatch with which disputes were settled. Moreover, it is said that this law, eminently practical and adapted to the requirements of commerce, "was characterized by the spirit of equity."(23)

By the 16th century, all the great principles that mark the commercial law of modern times had evolved. "By that time every great country in Europe had recognized in commercial cases the principles of representation, the negotiability of bills of exchange, the liability of the real property of the debtor for his debts, the validity, to a certain extent at least, of formless contracts, the necessity of speedy justice, the importance of the principles of equity and the claims of the bona fide possessor to the protection of the law. The legal relations of partners to one another and to the outside world had, in almost every important point, been definitely settled, and a new commercial contract, insurance, had been evolved and the legal principles that were to govern its development clearly marked."(24)



Until well into the eighteenth century a large part of Anglo-American law pertaining to the sale of goods (and indeed commercial law generally) remained that which was fashioned and administered by the merchants themselves. But gradually this mercantile practice was brought within the common law tradition. One of the chief instruments of the assimilation was a very remarkable jurist, Lord Mansfield, who became Lord Chief Justice of the King's Bench in 1756. Holdsworth called him the "greatest lawyer of the century."(25)

Mansfield was a master at adapting the common law to the needs of the age.(26)

This was done by both a careful scrutiny of the work of his predecessors and the use of principles developed in other legal systems. He did not always succeed in his efforts, as we shall see, but his accomplishments are impressive. It is interesting to note that one of the tools which he used was a jury of merchants, men who gave him advice on commercial matters. Because of this, some complained that Lombard Street (the merchants) was dictating to Westminster (the judges). In part, of course, this was true. But how fortunate for the common law, especially in view of the fact that during this period the great expansion of trade and commerce made it imperative that the law keep better pace with changing times.(27)



Legislative Codification. Just prior to the turn of this century there began, in England, the legislative codification of large segments of commercial law. One of the early statutes was the English Sale of Goods Act, drafted by Mackenzie D. Chalmers and enacted in 1893. Lord Chalmers admirably executed his mandate from Parliament to "reproduce exactly as possible the existing law," thereby preserving continuity with case precedent. Codification of sales law in the United States began in 1902,(28)

when the National Conference of Commissioners on Uniform State Laws entrusted the task of drafting a statute to Professor Samuel Williston. The result was the Uniform Sales Act, approved by the Commissioners in 1906 and recommended to the various State legislatures. The response was highly favorable, over thirty States adopting it. In the main Professor Williston followed the English statute, often copying verbatim Chalmers' language. In treating of contracts for the sale of goods, each statute touched on matters of general contractual import. But since, as noted, a determined effort was made to preserve a continuity with the common law, the basic structure of contract law was not changed.



In 1923 the American Law Institute, whose activities have had a profound effect upon American law and practice, was founded "to promote the clarification and simplification of the law and its better administration of justice and to encourage and carry on scholarly and scientific work."(29)

Among the Institute's accomplishments was the preparation of the Restatement of Contracts, a respected work to which frequent reference will be made in this book. As the title implies, a restatement purports to be a systematic statement of prevailing law, both decisional and statutory. Work on the Contracts Restatement (and on those covering Torts, Conflict of Laws and Agency) began in 1923, with Professor Williston serving as Reporter. He was a most logical choice for this position, since his monumental treatise on contracts had just recently been published and he was recognized as the leading authority in the United States.(30)

Among Williston's advisers on the project was Professor Arthur L. Corbin, himself a renowned authority on contract law and later the author of a major treatise on the subject.(31)

The final draft was approved in May, 1932, and it has been a very influential document. A measure of judicial acceptance can be seen in the fact that it has been cited thousands of times by appellate courts.(32)

Williston stated that "the endeavor in the Restatement is to restate the law as it is, not as new law."(33)

However, the end product had a strong normative aspect as well; many provisions had only marginal case support and were quite obviously advanced as improvements upon prevailing doctrine.



In the early 1960's, the American Law Institute began work on the Second Restatement of Contracts with Professor Robert Braucher as reporter. He served in that capacity until 1971 when he was appointed to the Supreme Judicial Court of Massachusetts. He was succeeded by Professor Allan Farnsworth. Each year from 1963, a new tentative draft of the Second Restatement was produced, sixteen in all, until 1979 when the American Law Institute adopted the entire Restatement (Second). After some final editing, the Restatement was published in 1981. Like the first Restatement, the second Restatement's primary thrust was to restate the law as it is, not as it should be. Nevertheless, it does contain some outright innovations, the most significant of which is the increased recognition of reliance as a basis of liability.(34)



By far the most significant recent event in the development of contract law has been the appearance of the Uniform Commercial Code (UCC), a comprehensive statute dealing with a wide range of commercial transactions. Work on the Code began in the early 1940's, under joint sponsorship of the National Conference of Commissioners on Uniform State Laws and the American Law Institute. The first edition was approved in 1952. A revised edition, known as the 1958 Official Text with Comments, was published in 1958, followed four years later by the 1962 Official Text. The 1995 official text is the latest version. Forty-nine States, plus the District of Columbia and the Virgin Islands, have enacted the UCC. In addition, Louisiana has adopted Articles 1, 3, 4 and 5. At this writing every article of the UCC but one(35)

has been or will be revised.(36)

The twenty-first century could herald a new age of codification for domestic and transnational contract law.(37)



The primary architect of the Code was the late Professor Karl Llewellyn,(38)

assisted by many others from the ranks of the judiciary, the practicing bar, the law schools and business. Unlike Chalmers and Williston, Llewellyn and colleagues did not feel a special need or obligation to follow previously charted courses. There are many innovations and departures from precedent in an effort to implement the following purposes and policies: "to simplify, clarify and modernize the law governing commercial transactions; to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; to make uniform the law among the various jurisdictions."(39)

The statute has no rival in our country in terms of sheer displacement and modification of existing commercial law. It is much more than a mere restatement or an effort "to make uniform the law among the various jurisdictions." Although the desire for uniformity may have been the principal motive for initiation of the project, the Code being designed to replace seven of the uniform acts prepared by one of the sponsoring organizations, and although the practical value of uniformity may well be the major factor in overwhelming legislative acceptance, it is clear that normative elements of law improvement were so dominant as to result in a reorientation of much legal doctrine. The effect of strict application alone is far-reaching; analogic application adds to the potential impact.(40)

Throughout this book, we will study, primarily, Article 2 of the UCC (which governs the sale of goods) as a source of more modern ideas about contract and examine the not so subtle impact of the Code upon the development of Restatement (Second).



Default vs. Immutable Rules. Most of the rules that you will learn in this course can be altered by the private agreements of the parties. Such rules that the parties can contract around are often called "default" or "gap-filling" rules. Just as computer word processing software establishes a default lefthand margin of 1 inch (which individual users can alter by affirmatively reformatting a document), contract law provides default rules about what is sufficient to reach an agreement(41)

and about what the parties' obligations are under an agreement.(42)

Default rules govern when the parties have remained silent--i.e. in the absence of agreement to the contrary.



Not every contract rule, however, can be contracted around. Some rules are mandatory or "immutable." This distinction between default and immutable rules is emphasized in the very first section of the UCC: "The effect of provisions of this Act may be varied by agreement, except as otherwise provided in this Act and except that the obligations of good faith ... may not be disclaimed by agreement."(43)

Thus, in learning the rules of contract it is essential to identify (i) whether particular rules can be contracted around and (ii) how private parties might opt for alternative provisions. Indeed, a worthwhile exercise after reading each case is to consider what contractual provisions would be sufficient to reverse the court's decision. If there is no language that could reverse the decision, then the court has in effect created an immutable rule.



Immutable rules are established by both courts and legislatures. The common law (i.e., law made by judges) established immutable limitations on the maximum amount of damages that parties can contract for (restrictions on so-called liquidated damages) and limitations on the maximum length of "covenants not to compete." In the last 60 years, legislative (and administrative) bodies have promulgated a host of immutable rules that restrict freedom of contract. Many matters, e.g., insurance and labor, have in a sense been removed from the free market and many other commercial activities are limited in scope by such things as the antitrust laws.(44)

For example, since 1964, employers have had an immutable duty not to discriminate on the basis of race or gender in making employment decisions. Even the relatively simple construction of a private home is awash with immutable regulatory duties.(45)



As a normative matter, there is "surprising consensus among academics at an abstract level on two normative bases for immutability. Put most simply immutable rules are justifiable if society wants to protect (1) parties within the contract, or (2) parties outside the contract. The former justification turns on parentalism; the latter on externalities. Immutable rules displace freedom of contract. Immutability is justified only if unregulated contracting would be socially deleterious because parties internal or external to the contract cannot adequately protect themselves."(46)



However, even when contract law chooses not to restrict contractual freedom, it must still decide which default rule will govern when the parties are silent and what manifestations are sufficient and/or necessary to displace the default rule. At times, it might be useful to establish defaults which penalize one or both parties to encourage more explicit contracting--as the parties act to contract around the penalty default. For example, the UCC refuses to enforce contracts that omit the quantity to be sold--which effectively establish a default quantity of zero.(47)

In stark contrast to the "reasonable price" default, this "zero quantity" default is likely to induce private parties to provide better information about the terms of their agreement.(48)



Appreciating the default nature of much of contract law suggests that contract law is not just created by courts and legislatures, but, perhaps most importantly, by private parties themselves. Indeed, people in their daily interactions may contract around immutable rules as well as default rules by largely ignoring what contract law ordains to be legally enforceable obligation.(49)

Important parts of the way parties actually exchange and resolve promissory obligations may be beyond the shadow of the law.(50)

"If, because of the high cost of litigation, the increased use of alternative dispute resolution techniques, and the limitations of adjudication, more behavior occurs outside of the 'shadow of the law,' the impact of contract law is reduced, and theories based upon assumptions that people are influenced by the law are weakened."(51)



In sum, contract operates on two levels. The first is the vast area of agreement in fact, where bargains are performed and disputes settled without resort to public agencies of decision. This level may be likened to that large part of the iceberg which is under water. The second level is that of litigated disputes ultimately resolved by courts or other agencies and the results published in reported opinions. This is the "visible" law of contracts, which emerges as courts resolve disputes between private bargainers. This is the body of doctrine which, in theory, influences rational pre-transaction planning and provides standards for the settlement of disputes. A primary thrust of our study of contract law will be to determine what courts, frequently guided or controlled by legislation, do or should do about private efforts,(52)

frequently assisted by attorneys,(53)

to allocate economic and other resources through bargain and exchange. But since the "visible" law of contracts has been carefully selected, classified and truncated for insertion into your casebook, you should realize that you are studying the top of the iceberg.



Recurring Questions. As you begin to study the multiple problems of contract law and to draw on both legal materials and your own experience and training, several recurring questions should be kept firmly in mind.



1. Which promises will be enforced? If the law will not enforce every promise, what are the conditions which must be met before the force of organized government will support private citizen A's claim against private citizen B?



2. When enforceable, what is the scope and content of promissory obligations? How will courts interpret contractual provisions and the absence of contractual provisions--especially in the light of changed circumstances?



3. How will these promises be enforced? What remedies are available when a contractual promise is breached?



4. Which of the foregoing answers can the parties contract around? And what contractual language will be sufficient to produce a particular result?



Although by no means exhaustive,(54)

the above questions, if conscientiously considered, should contribute substantially to your study of contract law.(55)



A final note. As the Fifth Edition goes to press, the revision of Article 2, Sales of the Uniform Commercial Code is approaching completion. Final approval is expected by the Summer of 1998. One of your co-authors, Richard E. Speidel, is Reporter to that Revision. In the text that follows there are occasional notes discussing proposed changes and, in brackets, references are given to sections in the January, 1997 Draft. The Revision, however, is still in transition and there will undoubtedly be changes in both content and numbering in the final product. Unless otherwise noted, UCC citations are to the 1995 official text.



<SRHO>SECTION 2 Introductory Cases and Problems<ERHO>



SECTION 2. INTRODUCTORY CASES AND PROBLEMS



The following materials are designed to accomplish at least three objectives. First, they can be used to begin the development of certain fundamental lawyering skills, such as the analysis and synthesis of judicial decisions and the use of the legislative sources of contract law. Second, they introduce in a fairly straightforward way some recurring concepts and ideas about contract liability and remedy. Third, they provide a general overview of and framework for what comes later in the book. These objectives overlap and, at first, the pursuit of them will appear to be incomplete and somewhat frustrating. But have faith! Each case and each problem will appear again in the pages to follow, to be reviewed and related to new and more diversified materials.



BAILEY V. WEST



Supreme Court of Rhode Island, 1969.



105 R.I. 61, 249 A.2d 414.



Paolino, Justice. This is a civil action wherein the plaintiff alleges that the defendant is indebted to him for the reasonable value of his services rendered in connection with the feeding, care and maintenance of a certain race horse named "Bascom's Folly" from May 3, 1962 through July 3, 1966. The case was tried before a justice of the superior court sitting without a jury, and resulted in a decision for the plaintiff for his cost of boarding the horse for the five months immediately subsequent to May 3, 1962, and for certain expenses incurred by him in trimming its hoofs. The cause is now before us on the plaintiff's appeal and defendant's cross appeal from the judgment entered pursuant to such decision.



The facts material to a resolution of the precise issues raised herein are as follows. In late April 1962, defendant, accompanied by his horse trainer, went to Belmont Park in New York to buy race horses. On April 27, 1962, defendant purchased "Bascom's Folly" from a Dr. Strauss and arranged to have the horse shipped to Suffolk Downs in East Boston, Massachusetts. Upon its arrival defendant's trainer discovered that the horse was lame, and so notified defendant, who ordered him to reship the horse by van to the seller at Belmont Park. The seller refused to accept delivery at Belmont on May 3, 1962, and thereupon, the van driver, one Kelly, called defendant's trainer and asked for further instructions. Although the trial testimony is in conflict as to what the trainer told him, it is not disputed that on the same day Kelly brought "Bascom's Folly" to plaintiff's farm where the horse remained until July 3, 1966, when it was sold by plaintiff to a third party.



While "Bascom's Folly" was residing at his horse farm, plaintiff sent bills for its feed and board to defendant at regular intervals. According to testimony elicited from defendant at the trial, the first such bill was received by him some two or three months after "Bascom's Folly" was placed on plaintiff's farm. He also stated that he immediately returned the bill to plaintiff with the notation that he was not the owner of the horse nor was it sent to plaintiff's farm at his request. The plaintiff testified that he sent bills monthly to defendant and that the first notice he received from him disclaiming ownership was "* * * maybe after a month or two or so" subsequent to the time when the horse was left in plaintiff's care.



In his decision the trial judge found that defendant's trainer had informed Kelly during their telephone conversation of May 3, 1962, that "* * * he would have to do whatever he wanted to do with the horse, that he wouldn't be on any farm at the defendant's expense * * *." He also found, however, that when "Bascom's Folly" was brought to his farm, plaintiff was not aware of the telephone conversation between Kelly and defendant's trainer, and hence, even though he knew there was a controversy surrounding the ownership of the horse, he was entitled to assume that "* * * there is an implication here that, 'I am to take care of this horse.' " Continuing his decision, the trial justice stated that in view of the result reached by this court in a recent opinion wherein we held that the instant defendant was liable to the original seller, Dr. Strauss, for the purchase price of this horse,(56)

there was a contract "implied in fact" between the plaintiff and defendant to board "Bascom's Folly" and that this contract continued until plaintiff received notification from defendant that he would not be responsible for the horse's board. The trial justice further stated that "* * * I think there was notice given at least at the end of the four months, and I think we must add another month on there for a reasonable disposition of his property."



In view of the conclusion we reach with respect to defendant's first two contentions, we shall confine ourselves solely to a discussion and resolution of the issues necessarily implicit therein, and shall not examine other subsidiary arguments advanced by plaintiff and defendant.



I



The defendant alleges in his brief and oral argument that the trial judge erred in finding a contract "implied in fact" between the parties. We agree.



* * *



The source of the obligation in a contract "implied in fact," as in express contracts, is in the intention of the parties. We hold that there was no mutual agreement and "intent to promise" between the plaintiff and defendant so as to establish a contract "implied in fact" for defendant to pay plaintiff for the maintenance of this horse. From the time Kelly delivered the horse to him plaintiff knew there was a dispute as to its ownership, and his subsequent actions indicated he did not know with whom, if anyone, he had a contract. After he had accepted the horse, he made inquiries as to its ownership and, initially, and for some time thereafter, sent his bills to both defendant and Dr. Strauss, the original seller.



There is also uncontroverted testimony in the record that prior to the assertion of the claim which is the subject of this suit neither defendant nor his trainer had ever had any business transactions with plaintiff, and had never used his farm to board horses. Additionally, there is uncontradicted evidence that this horse, when found to be lame, was shipped by defendant's trainer not to plaintiff's farm, but back to the seller at Belmont Park. What is most important, the trial justice expressly stated that he believed the testimony of defendant's trainer that he had instructed Kelly that defendant would not be responsible for boarding the horse on any farm.



From our examination of the record we are constrained to conclude that the trial justice overlooked and misconceived material evidence which establishes beyond question that there never existed between the parties an element essential to the formulation of any true contract, namely, an "intent to contract." Compare Morrissey v. Piette, R.I., 241 A.2d 302, 303.



II



The defendant's second contention is that, even assuming the trial justice was in essence predicating defendant's liability upon a quasi-contractual theory, his decision is still unsupported by competent evidence and is clearly erroneous.



The following discussion of quasi-contracts appears in 12 Am.Jur., Contracts, 6 (1938) at pp. 503 to 504:



"* * * A quasi contract has no reference to the intentions or expressions of the parties. The obligation is imposed despite, and frequently in frustration of, their intention. For a quasi contract neither promise nor privity, real or imagined, is necessary. In quasi contracts the obligation arises, not from consent of the parties, as in the case of contracts, express or implied in fact, but from the law of natural immutable justice and equity. The act, or acts, from which the law implies the contract must, however, be voluntary. Where a case shows that it is the duty of the defendant to pay, the law imputes to him a promise to fulfil that obligation. The duty, which thus forms the foundation of a quasi-contractual obligation, is frequently based on the doctrine of unjust enrichment. * * *



"* * * The law will not imply a promise against the express declaration of the party to be charged, made at the time of the supposed undertaking, unless such party is under legal obligation paramount to his will to perform some duty, and he is not under such legal obligation unless there is a demand in equity and good conscience that he should perform the duty."



Therefore, the essential elements of a quasi-contract are a benefit conferred upon defendant by plaintiff, appreciation by defendant of such benefit, and acceptance and retention by defendant of such benefit under such circumstances that it would be inequitable to retain the benefit without payment of the value thereof. Home Savings Bank v. General Finance Corp., 10 Wis.2d 417, 103 N.W.2d 117, 81 A.L.R.2d 580.



The key question raised by this appeal with respect to the establishment of a quasi-contract is whether or not plaintiff was acting as a "volunteer" at the time he accepted the horse for boarding at his farm. There is a long line of authority which has clearly enunciated the general rule that "* * * if a performance is rendered by one person without any request by another, it is very unlikely that this person will be under a legal duty to pay compensation." 1 A Corbin, Contracts 234.



The Restatement of Restitution, 2 (1937) provides: "A person who officiously confers a benefit upon another is not entitled to restitution therefor." Comment a in the above-mentioned section states in part as follows:



"* * * Policy ordinarily requires that a person who has conferred a benefit * * * by way of giving another services * * * should not be permitted to require the other to pay therefor, unless the one conferring the benefit had a valid reason for so doing. A person is not required to deal with another unless he so desires and, ordinarily, a person should not be required to become an obligor unless he so desires."



Applying those principles to the facts in the case at bar it is clear that plaintiff cannot recover. The plaintiff's testimony on cross-examination is the only evidence in the record relating to what transpired between Kelly and him at the time the horse was accepted for boarding. The defendant's attorney asked plaintiff if he had any conversation with Kelly at that time, and plaintiff answered in substance that he had noticed that the horse was very lame and that Kelly had told him: "That's why they wouldn't accept him at Belmont Track." The plaintiff also testified that he had inquired of Kelly as to the ownership of "Bascom's Folly," and had been told that "Dr. Strauss made a deal and that's all I know." It further appears from the record that plaintiff acknowledged receipt of the horse by signing a uniform livestock bill of lading, which clearly indicated on its face that the horse in question had been consigned by defendant's trainer not to plaintiff, but to Dr. Strauss's trainer at Belmont Park. Knowing at the time he accepted the horse for boarding that a controversy surrounded its ownership, plaintiff could not reasonably expect remuneration from defendant, nor can it be said that defendant acquiesced in the conferment of a benefit upon him. The undisputed testimony was that defendant, upon receipt of plaintiff's first bill, immediately notified him that he was not the owner of "Bascom's Folly" and would not be responsible for its keep.



It is our judgment that the plaintiff was a mere volunteer who boarded and maintained "Bascom's Folly" at his own risk and with full knowledge that he might not be reimbursed for expenses he incurred incident thereto.



The plaintiff's appeal is denied and dismissed, the defendant's cross appeal is sustained, and the cause is remanded to the superior court for entry of judgment for the defendant.



[Footnotes omitted.]



NOTES



(1) What are plaintiff's theories of recovery? How do they differ?



(2) Suppose West personally delivered "Bascom's Folly" to Bailey's farm, but nothing was said specifically about Bailey caring for the horse or West paying for that care. Would West be liable? If so, on what theory?



(3) What if Bailey found "Bascom's Folly" collapsed along side the highway, took him in and cared for him, and thereafter sought out West. Would the latter be responsible to Bailey for the care given the horse? If so, on what theory? See, generally, Wade, Restitution for Benefits Conferred Without Request, 19 Vand.L.Rev. 1183 (1966). "One who, without intent to act gratuitously, confers a measurable benefit upon another, is entitled to restitution, if he affords the other an opportunity to decline the benefit or else has as reasonable excuse for failing to do so. If the other refuses to receive the benefit, he is not required to make restitution unless the actor justifiably performs for the other a duty imposed upon him by law." Id. at 1212.



(4) Contract is a theory of promissory liability. Without a promise, express or implied, there can be no contract. See Restatement (Second) 1. But what is a promise? Consider the following attempts at a definition. What are the similarities? Differences?



Restatement (First) 1: "A promise is an undertaking, however expressed, either that something shall happen, or that something shall not happen, in the future."



Sharp, Promissory Liability, 7 U.Chi.L.Rev. 1, 4-5 (1939): "What then is a promise? * * * As a matter of every day experience and common usage, a promise has something reliable about it. * * * It may be suggested that a promise is the maker's statement about his future conduct so made that the maker should expect the person to whom it is made mentally to rely on it as dependable. It will be observed that the maker's actual intention is not regarded as important and this is true at least in the courts. * * * Thus we say that the maker of a promise is one who ought to expect another to rely on his statement. * * * The person who says he has relied on another's work has a kind of burden of showing that the other was in the wrong. * * * He has to give affirmative reasons for deciding that the other has not acted in accordance with ordinary standards of business communication, in making his statement."



Restatement (Second) 2(1): "A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made."



See also C. Fried, Contract as Promise 9-14 (1981), who argues that a promise invokes a commitment to a future course of conduct that "absent our commitment is morally neutral." The force of a promise, then, is in the commitment not in what reliance it may induce.



HAMER V. SIDWAY



Court of Appeals of New York, 1891.



124 N.Y. 538, 27 N.E. 256.



Appeal from an order of the general term of the supreme court in the fourth judicial department, reversing a judgment entered on the decision of the court at special term in the county clerk's office of Chemung county on the 1st day of October, 1889. The plaintiff presented a claim to the executor of William E. Story, Sr., for $5,000 and interest from the 6th day of February, 1875. She acquired it through several mesne assignments from William E. Story, 2d. The claim being rejected by the executor, this action was brought. It appears that William E. Story, Sr., was the uncle of William E. Story, 2d; that at the celebration of the golden wedding of Samuel Story and wife, father and mother of William E. Story, Sr., on the 20th day of March, 1869, in the presence of the family and invited guests, he promised his nephew that if he would refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until he became 21 years of age, he would pay him the sum of $5,000. The nephew assented thereto, and fully performed the conditions inducing the promise. When the nephew arrived at the age of 21 years, and on the 31st day of January, 1875, he wrote to his uncle, informing him that he had performed his part of the agreement, and had thereby become entitled to the sum of $5,000. The uncle received the letter, and a few days later, on the 6th day of February, he wrote and mailed to his nephew the following letter: "Buffalo, Feb. 6, 1875. W.E. Story, Jr.--Dear Nephew: Your letter of the 31st ult. came to hand all right, saying that you had lived up to the promise made to me several years ago. I have no doubt but you have, for which you shall have five thousand dollars, as I promised you. I had the money in the bank the day you was twenty-one years old that I intend for you, and you shall have the money certain. Now, Willie, I do not intend to interfere with this money in any way till I think you are capable of taking care of it, and the sooner that time comes the better it will please me. I would hate very much to have you start out in some adventure that you thought all right and lose this money in one year. The first five thousand dollars that I got together cost me a heap of hard work. You would hardly believe me when I tell you that to obtain this I shoved a jack-plane many a day, butchered three or four years, then came to this city, and, after three months' perseverance, I obtained a situation in a grocery store. I opened this store early, closed late, slept in the fourth story of a building in a room 30 by 40 feet, and not a human being in the building but myself. All this I done to live as cheap as I could to save something. I don't want you to take up with this kind of fare. I was here in the cholera season of '49 and '52, and the deaths averaged 80 to 125 daily, and plenty of small-pox. I wanted to go home, but Mr. Fisk, the gentleman I was working for, told me, if I left them, after it got healthy he probably would not want me. I stayed. All the money I have saved I know just how I got it. It did not come to me in any mysterious way, and the reason I speak of this is that money got in this way stops longer with a fellow that gets it with hard knocks than it does when he finds it. Willie, you are twenty-one, and you have many a thing to learn yet. This money you have earned much easier than I did, besides acquiring good habits at the same time, and you are quite welcome to the money. Hope you will make good use of it. I was ten long years getting this together after I was your age. Now, hoping this will be satisfactory, I stop. * * * Truly yours, W.E. Story. P.S. You can consider this money on interest." The nephew received the letter, and thereafter consented that the money should remain with his uncle in accordance with the terms and conditions of the letter. The uncle died on the 29th day of January, 1887, without having paid over to his nephew any portion of the said $5,000 and interest.



Parker, J. The question which provoked the most discussion by counsel on this appeal, and which lies at the foundation of plaintiff's asserted right of recovery, is whether by virtue of a contract defendant's testator, William E. Story, became indebted to his nephew, William E. Story, 2d, on his twenty-first birthday in the sum of $5,000. The trial court found as a fact that "on the 20th day of March, 1869, * * * William E. Story agreed to and with William E. Story, 2d, that if he would refrain from drinking liquor, using tobacco, swearing, and playing cards or billiards for money until he should become twenty-one years of age, then he, the said William E. Story, would at that time pay him, the said William E. Story, 2d, the sum of $5,000 for such refraining, to which the said William E. Story, 2d, agreed," and that he "in all things fully performed his part of said agreement." The defendant contends that the contract was without consideration to support it, and therefore invalid. He asserts that the promisee, by refraining from the use of liquor and tobacco, was not harmed, but benefited; that that which he did was best for him to do, independently of his uncle's promise,--and insists that it follows that, unless the promisor was benefited, the contract was without consideration,--a contention which, if well founded, would seem to leave open for controversy in many cases whether that which the promisee did or omitted to do was in fact of such benefit to him as to leave no consideration to support the enforcement of the promisor's agreement. Such a rule could not be tolerated, and is without foundation in the law. The exchequer chamber in 1875 defined "consideration" as follows: "A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other." Courts "will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to any one. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him." Anson, Cont. 63. "In general a waiver of any legal right at the request of another party is a sufficient consideration for a promise." Pars. Cont. *444. "Any damage, or suspension, or forbearance of a right will be sufficient to sustain a promise." 2 Kent, Comm. (12th Ed.) *465. Pollock in his work on Contracts, (page 166,) after citing the definition given by the exchequer chamber, already quoted, says: "The second branch of this judicial description is really the most important one. 'Consideration' means not so much that one party is profiting as that the other abandons some legal right in the present, or limits his legal freedom of action in the future, as an inducement for the promise of the first." Now, applying this rule to the facts before us, the promisee used tobacco, occasionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years upon the strength of the promise of the testator that for such forbearance he would give him $5,000. We need not speculate on the effort which may have been required to give up the use of those stimulants. It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle's agreement, and now, having fully performed the conditions imposed, it is of no moment whether such performance actually proved a benefit to the promisor, and the court will not inquire into it; but, were it a proper subject of inquiry, we see nothing in this record that would permit a determination that the uncle was not benefited in a legal sense. Few cases have been found which may be said to be precisely in point, but such as have been, support the position we have taken. In Shadwell v. Shadwell, 9 C.B. (N.S.) 159, an uncle wrote to his nephew as follows: "My dear Lancey: I am so glad to hear of your intended marriage with Ellen Nicholl, and, as I promised to assist you at starting, I am happy to tell you that I will pay you 150 pounds yearly during my life and until your annual income derived from your profession of a chancery barrister shall amount to 600 guineas, of which your own admission will be the only evidence that I shall receive or require. Your affectionate uncle, Charles Shadwell." It was held that the promise was binding, and made upon good consideration. * * * In Talbott v. Stemmons, 12 S.W.Rep. 297, (a Kentucky case, not yet officially reported,) the step-grandmother of the plaintiff made with him the following agreement: "I do promise and bind myself to give my grandson Albert R. Talbott $500 at my death if he will never take another chew of tobacco or smoke another cigar during my life, from this date up to my death; and if he breaks this pledge he is to refund double the amount to his mother." The executor of Mrs. Stemmons demurred to the complaint on the ground that the agreement was not based on a sufficient consideration. The demurrer was sustained, and an appeal taken therefrom to the court of appeals, where the decision of the court below was reversed. In the opinion of the court it is said that "the right to use and enjoy the use of tobacco was a right that belonged to the plaintiff, and not forbidden by law. The abandonment of its use may have saved him money, or contributed to his health; nevertheless, the surrender of that right caused the promise, and, having the right to contract with reference to the subject-matter, the abandonment of the use was a sufficient consideration to uphold the promise." * * * The order appealed from should be reversed, and the judgment of the special term affirmed, with costs payable out of the estate. All concur.



NOTES



(1) Restatement (Second) 71:



(1) To constitute consideration, a performance or a return promise must be bargained for.



(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.



(3) The performance may consist of (a) an act other than a promise, (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation.



(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.



(2) Enforceable Promise as Contract. "Unfortunately, contract, like most of the basic terms constituting the intellectual tools of law, is conventionally defined in a circular fashion. By the most common definition, a contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law recognizes as a duty. This amounts to saying that a contract is a legally enforceable promise. But a promise is legally enforceable only if it is a contract. Thus nothing less than the whole body of applicable precedents suffices to define the term 'contract.'



"Although the definition of contract does not help much in determining what expressions shall be held to impose legal obligations, it does direct attention to a promise as the starting point of inquiry. Both in popular and legal usage, a promise is an assurance, in whatever form of expression given, that a thing will or will not be done. While we must take care to distinguish between statements meant to express merely present intention and those meant to give an assurance as to a future event, this involves no more than the common difficulty of seeking precise meaning in the usually imprecise, and often careless, expressions of ordinary colloquy.



* * *



"However, the fact that a promise was given does not necessarily mean that a contract was made. It is clear that not every promise is legally enforceable. Much of the vast body of law in the field of contracts is concerned with determining which promises should be legally enforced. On the one hand, in a civilized community men must be able to assume that those with whom they deal will carry out their undertakings according to reasonable expectations. On the other hand, it is neither practical nor reasonable to expect full performance of every assurance given, whether it be thoughtless, casual and gratuitous, or deliberately and seriously made.



"The test that has been developed by the common law for determining the enforceability of promises is the doctrine of consideration. This is a crude and not altogether successful attempt to generalize the conditions under which promises will be legally enforced. Consideration requires that a contractual promise be the product of a bargain. However, in this usage, 'bargain' does not mean an exchange of things of equivalent, or any, value. It means a negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an act or forbearance by the other. Consideration thus insures that the promise enforced as a contract is not accidental, casual, or gratuitous, but has been uttered intentionally as a result of some deliberation, manifested by reciprocal bargaining or negotiation. In this view, the requirement of consideration is no mere technicality, historical anachronism, or arbitrary formality. It is an attempt to be as reasonable as we can in deciding which promises constitute contracts. Although the doctrine has been criticized, no satisfactory substitute has been suggested. It is noteworthy that the civil law has a corresponding doctrine of 'causa' which, to the eye of a common-law lawyer, is not much different than consideration.



"Consideration, as essential evidence of the parties' intent to create a legal obligation, must be something adopted and regarded by the parties as such. Thus, the same thing may be consideration or not, as it is dealt with by the parties. In substance, a contractual promise must be of the logical form: 'If ... (consideration is given) ... then I promise that....' Of course, the substance may be expressed in any form of words, but essentially this is the logical structure of those promises enforced by the law as contracts."



Loevinger, J. in Baehr v. Penn-O-Tex Oil Corporation, 258 Minn. 533, 537-39, 104 N.W.2d 661, 664-66 (1960).



(3) Was there equivalency of exchange in Hamer? Did the promisor gain a pecuniary advantage? Did he derive any "benefit" from the transaction at all, or is enforcement predicated solely upon "detriment" to the promisee? In what way was plaintiff's conduct detrimental?



(4) Economic Functions of Contract Law. In the view of Professor (now Judge) Richard A. Posner, the law of contracts performs three economic functions: first, it furnishes "incentives for value-maximizing conduct in the future," i.e., conduct that exploits economic resources in such a way that human satisfaction as measured by aggregate consumer willingness to pay for goods and services is maximized; second, it reduces the "complexity and hence cost of transactions by supplying a set of normal terms which, in the absence of a law of contracts, the parties would have to negotiate expressly"; and third, it furnishes "prospective transacting parties with information concerning the many contingencies that may defeat an exchange, and hence to assist them in planning their exchange sensibly." These economic functions are supported by the doctrine of consideration, which is used to "deny liability for breach of a promise ... where there is no exchange and where, therefore, enforcement of the promise would not advance the economic purpose of the law of contracts which is to facilitate exchange. A truly gratuitous, nonreciprocal promise to confer a benefit is not a part of the process by which resources are moved, through a series of exchanges, into successively more valuable uses." R. Posner, Economic Analysis of Law 68-71 (2d ed. 1977).



(5) Contract as a Basic Social Institution. After discussing the "emotive and symbolic power" of the idea of contract and the "moral imperative" that clusters about the phrase "pacta sunt servanda," that "obligations freely agreed to are to be honored and performed," Professor Harry W. Jones has this to say about contract as a "basic social institution, one comparable in importance to such other pervading social institutions as property, the family, even the institution of representative government":



In a society like ours, people live not by birds in the hand but by promises: for example, anyone's job is an exchange of promises, by him to work and by his employer to pay agreed or understood wages. Investments are essentially promises by corporate powerholders to manage a business in proper ways and to pay dividends as earned. A bank account is a promise to hold and return money deposited; even money is a promise, though rather less reliable than in earlier days, by government to pay something on due presentation.... John Kenneth Galbraith may or may not have been right to characterize our national community as The Affluent Society; he would have said something unquestionably true, and perhaps of even greater economic significance, if he had called us the promissory society. A promissory society, by definition, is one energized and bound together by the institution of contract.... The law of contract--and "law of contract" here includes what we elsewhere break up into such segments as commercial transactions, partnerships, corporations, labor law and many more--has as its ultimate purpose the security of those reasonable expectations that arise from agreement between seller and buyer, borrower and depositor, stockholder and corporation, employer and organized employees.



Jones, The Jurisprudence of Contracts, 44 U.Cin.L.Rev. 43, 47-48 (1975).



RICKETTS V. SCOTHORN



Supreme Court of Nebraska, 1898.



57 Neb. 51, 77 N.W. 365.



Sullivan, J. In the district court of Lancaster county the plaintiff Katie Scothorn recovered judgment against the defendant Andrew D. Ricketts, as executor of the last will and testament of John C. Ricketts, deceased. The action was based upon a promissory note, of which the following is a copy:



"May the first, 1891. I promise to pay to Katie Scothorn on demand, $2,000, to be at 6 per cent per annum. J.C. Ricketts."



In the petition the plaintiff alleges that the consideration for the execution of the note was that she should surrender her employment as bookkeeper for Mayor Bros. and cease to work for a living. She also alleges that the note was given to induce her to abandon her occupation, and that, relying on it, and on the annual interest, as a means of support, she gave up the employment in which she was then engaged. These allegations of the petition are denied by the executor. The material facts are undisputed. They are as follows: John C. Ricketts, the maker of the note, was the grandfather of the plaintiff. Early in May,--presumably on the day the note bears date,--he called on her at the store where she was working. What transpired between them is thus described by Mr. Flodene, one of the plaintiff's witnesses:



A. Well the old gentleman came in there one morning about 9 o'clock,--probably a little before or a little after, but early in the morning,--and he unbuttoned his vest and took out a piece of paper in the shape of a note; that is the way it looked to me; and he says to Miss Scothorn, "I have fixed out something that you have not got to work any more." He says, "None of my grandchildren work and you don't have to."



Q. Where was she?



A. She took the piece of paper and kissed him; and kissed the old gentleman and commenced to cry.



It seems Miss Scothorn immediately notified her employer of her intention to quit work and that she did soon after abandon her occupation. The mother of the plaintiff was a witness and testified that she had a conversation with her father, Mr. Ricketts, shortly after the note was executed in which he informed her that he had given the note to the plaintiff to enable her to quit work; that none of his grandchildren worked and he did not think she ought to. For something more than a year the plaintiff was without an occupation; but in September, 1892, with the consent of her grandfather, and by his assistance, she secured a position as bookkeeper with Messrs. Funke & Ogden. On June 8, 1894, Mr. Ricketts died. He had paid one year's interest on the note, and a short time before his death expressed regret that he had not been able to pay the balance. In the summer or fall of 1892 he stated to his daughter, Mrs. Scothorn, that if he could sell his farm in Ohio he would pay the note out of the proceeds. He at no time repudiated the obligation. We quite agree with counsel for the defendant that upon this evidence there was nothing to submit to the jury, and that a verdict should have been directed peremptorily for one of the parties. The testimony of Flodene and Mrs. Scothorn, taken together, conclusively establishes the fact that the note was not given in consideration of the plaintiff pursuing, or agreeing to pursue, any particular line of conduct. There was no promise on the part of the plaintiff to do or refrain from doing anything. Her right to the money promised in the note was not made to depend upon an abandonment of her employment with Mayer Bros. and future abstention from like service. Mr. Ricketts made no condition, requirement, or request. He exacted no quid pro quo. He gave the note as a gratuity and looked for nothing in return. So far as the evidence discloses, it was his purpose to place the plaintiff in a position of independence where she could work or remain idle as she might choose. The abandonment by Miss Scothorn of her position as bookkeeper was altogether voluntary. It was not an act done in fulfillment of any contract obligation assumed when she accepted the note. The instrument in suit being given without any valuable consideration, was nothing more than a promise to make a gift in the future of the sum of money therein named. Ordinarily, such promises are not enforceable even when put in the form of a promissory note. (Kirkpatrick v. Taylor, 43 Ill. 207; Phelps v. Phelps, 28 Barb. [N.Y.] 121; Johnston v. Griest, 85 Ind. 503; Fink v. Cox, 18 Johns. [N.Y.] 145.) But it has often been held that an action on a note given to a church, college, or other like institution, upon the faith of which money has been expended or obligations incurred, could not be successfully defended on the ground of a want of consideration. (Barnes v. Perine, 12 N.Y. 18; Philomath College v. Hartless, 6 Ore. 158; Thompson v. Mercer County, 40 Ill. 379; Irwin v. Lombard University, 56 O.St. 9.) In this class of cases the note in suit is nearly always spoken of as a gift or donation, but the decision is generally put on the ground that the expenditure of money or assumption of liability by the donee, on the faith of the promise, constitutes a valuable and sufficient consideration. It seems to us that the true reason is the preclusion of the defendant, under the doctrine of estoppel, to deny the consideration. Such seems to be the view of the matter taken by the supreme court of Iowa in the case of Simpson Centenary College v. Tuttle, 71 Ia. 596, where Rothrock, J., speaking for the court, said: "Where a note, however, is based on a promise to give for the support of the objects referred to, it may still be open to this defense [want of consideration], unless it shall appear that the donee has, prior to any revocation, entered into engagements or made expenditures based on such promise, so that he must suffer loss or injury if the note is not paid. This is based on the equitable principle that, after allowing the donee to incur obligations on the faith that the note would be paid, the donor would be estopped from pleading want of consideration." And in the case of Reimensnyder v. Gans, 110 Pa.St. 17, 2 Atl.Rep. 425, which was an action on a note given as a donation to a charitable object, the court said: "The fact is that, as we may see from the case of Ryerss v. Trustees, 33 Pa.St. 114, a contract of the kind here involved is enforceable rather by way of estoppel than on the ground of consideration in the original undertaking." It has been held that a note given in expectation of the payee performing certain services, but without any contract binding him to serve, will not support an action. (Hulse v. Hulse, 84 Eng.Com.Law 709.) But when the payee changes his position to his disadvantage, in reliance on the promise, a right of action does arise. (McClure v. Wilson, 43 Ill. 356; Trustees v. Garvey, 53 Ill. 401.)



Under the circumstances of this case is there an equitable estoppel which ought to preclude the defendant from alleging that the note in controversy is lacking in one of the essential elements of a valid contract? We think there is. An estoppel in pais is defined to be "a right arising from acts, admissions, or conduct which have induced a change of position in accordance with the real or apparent intention of the party against whom they are alleged." Mr. Pomeroy has formulated the following definition: "Equitable estoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed, either of property, or contract, or of remedy, as against another person who in good faith relied upon such conduct, and has been led thereby to change his position for the worse, and who on his part acquires some corresponding right either of property, of contract, or of remedy." (2 Pomeroy, Equity Jurisprudence 804.) According to the undisputed proof, as shown by the record before us, the plaintiff was a working girl, holding a position in which she earned a salary of $10 per week. Her grandfather, desiring to put her in a position of independence, gave her the note, accompanying it with the remark that his other grandchildren did not work, and that she would not be obliged to work any longer. In effect he suggested that she might abandon her employment and rely in the future upon the bounty which he promised. He, doubtless, desired that she should give up her occupation, but whether he did or not, it is entirely certain that he contemplated such action on her part as a reasonable and probable consequence of his gift. Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was given without consideration. The petition charges the elements of an equitable estoppel, and the evidence conclusively establishes them. If errors intervened at the trial they could not have been prejudicial. A verdict for the defendant would be unwarranted. The judgment is right and is



Affirmed.



NOTES



(1) In Ricketts v. Scothorn, there was no consideration for the grandfather's promise. Katie's act of quitting her job was not bargained for and given in exchange for the written promise to pay $2,000 plus interest. The court, however, concluded that grandfather's executor was estopped or precluded from raising the defense of "no consideration." Why? Because grandfather's promise induced reliance by Katie that made it inequitable for the executor later to claim that there was no consideration. As a result, the promise was enforced in full as if there was consideration.



There are two difficulties with this analysis. First the analysis tends to confuse two types of estoppel, "equitable" and "promissory." As one court put it: "Equitable estoppel ... is based upon a representation of existing or past facts, while promissory estoppel requires the existence of a promise.... Equitable estoppel ... is available only as a 'shield' or defense, while promissory estoppel can be used as a 'sword' in a cause of action for damages." Klinke v. Famous Recipe Fried Chicken, Inc., 94 Wash.2d 255, 616 P.2d 644, 646 (1980). Second, the consequence of the confusion is that some courts have treated reliance induced by a promise as a reason to foreclose an attack on the enforceability of the promise and to limit the remedy to the loss suffered in reliance. See, e.g., Wheeler v. White, 398 S.W.2d 93 (Tex.1965). A more affirmative statement of "promissory" estoppel appears in Section 90 of Restatement (Second):



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 for breach may be limited as justice requires.



(2) How would Ricketts be decided under Section 90?



(3) Was there "agreement" here? Can there ever be contractual obligation without an agreement?



(4) Can the result in Ricketts, where the plaintiff's conduct did not benefit the defendant, be reconciled with the results in Hamer v. Sidway, where the defendant was benefited in some respect by the plaintiff's conduct?



WILLIAMS V. WALKER-THOMAS FURNITURE CO.



District of Columbia Court of Appeals, 1964.



198 A.2d 914.



Quinn, Associate Judge. Appellant, a person of limited education separated from her husband, is maintaining herself and her seven children by means of public assistance. During the period 1957-1962 she had a continuous course of dealings with appellee from which she purchased many household articles on the installment plan. These included sheets, curtains, rugs, chairs, a chest of drawers, beds, mattresses, a washing machine, and a stereo set. In 1963 appellee filed a complaint in replevin for possession of all the items purchased by appellant, alleging that her payments were in default and that it retained title to the goods according to the sales contracts. By the writ of replevin appellee obtained a bed, chest of drawers, washing machine, and the stereo set. After hearing testimony and examining the contracts, the trial court entered judgment for appellee.



Appellant's principal contentions on appeal are (1) there was a lack of meeting of the minds, and (2) the contracts were against public policy.



Appellant signed fourteen contracts in all. They were approximately six inches in length and each contained a long paragraph in extremely fine print. One of the sentences in this paragraph provided that payments, after the first purchase, were to be prorated on all purchases then outstanding. Mathematically, this had the effect of keeping a balance due on all items until the time balance was completely eliminated. It meant that title to the first purchase, remained in appellee until the fourteenth purchase, made some five years later, was fully paid.



At trial appellant testified that she understood the agreements to mean that when payments on the running account were sufficient to balance the amount due on an individual item, the item became hers. She testified that most of the purchases were made at her home; that the contracts were signed in blank; that she did not read the instruments; and that she was not provided with a copy. She admitted, however, that she did not ask anyone to read or explain the contracts to her.



We have stated that "one who refrains from reading a contract and in conscious ignorance of its terms voluntarily assents thereto will not be relieved from his bad bargain." Bob Wilson, Inc. v. Swann, D.C.Mun.App., 168 A.2d 198, 199 (1961). "One who signs a contract has a duty to read it and is obligated according to its terms." Hollywood Credit Clothing Co. v. Gibson, D.C.App., 188 A.2d 348, 349 (1963). "It is as much the duty of a person who cannot read the language in which a contract is written to have someone read it to him before he signs it, as it is the duty of one who can read to peruse it himself before signing it." Stern v. Moneyweight Scale Co., 42 App.D.C. 162, 165 (1914).



A careful review of the record shows that appellant's assent was not obtained "by fraud or even misrepresentation falling short of fraud." Hollywood Credit Clothing Co. v. Gibson, supra. This is not a case of mutual misunderstanding but a unilateral mistake. Under these circumstances, appellant's first contention is without merit.



Appellant's second argument presents a more serious question. The record reveals that prior to the last purchase appellant had reduced the balance in her account to $164. The last purchase, a stereo set, raised the balance due to $678. Significantly, at the time of this and the preceding purchases, appellee was aware of appellant's financial position. The reverse side of the stereo contract listed the name of appellant's social worker and her $218 monthly stipend from the government. Nevertheless, with full knowledge that appellant had to feed, clothe and support both herself and seven children on this amount, appellee sold her a $514 stereo set.



We cannot condemn too strongly appellee's conduct. It raises serious questions of sharp practice and irresponsible business dealings. A review of the legislation in the District of Columbia affecting retail sales and the pertinent decisions of the highest court in this jurisdiction disclose, however, no ground upon which this court can declare the contracts in question contrary to public policy. We note that were the Maryland Retail Installment Sales Act, Art. 83 128-153, or its equivalent, in force in the District of Columbia, we could grant appellant appropriate relief. We think Congress should consider corrective legislation to protect the public from such exploitive contracts as were utilized in the case at bar.



Affirmed.



WILLIAMS V. WALKER-THOMAS FURNITURE CO.



United States Court of Appeals, District of Columbia Circuit, 1965.



121 U.S.App.D.C. 315, 350 F.2d 445.



J. Skelly Wright, Circuit Judge. Appellee, Walker-Thomas Furniture Company, operates a retail furniture store in the District of Columbia. During the period from 1957 to 1962 each appellant in these cases purchased a number of household items from Walker-Thomas, for which payment was to be made in installments. The terms of each purchase were contained in a printed form contract which set forth the value of the purchased item and purported to lease the item to appellant for a stipulated monthly rent payment. The contract then provided, in substance, that title would remain in Walker-Thomas until the total of all the monthly payments made equaled the stated value of the item, at which time appellants could take title. In the event of a default in the payment of any monthly installment, Walker-Thomas could repossess the item.



The contract further provided that "the amount of each periodical installment payment to be made by [purchaser] to the Company under this present lease shall be inclusive of and not in addition to the amount of each installment payment to be made by [purchaser] under such prior leases, bills or accounts; and all payments now and hereafter made by [purchaser] shall be credited pro rata on all outstanding leases, bills and accounts due the Company by [purchaser] at the time each such payment is made." (Emphasis added.) The effect of this rather obscure provision was to keep a balance due on every item purchased until the balance due on all items, whenever purchased, was liquidated. As a result, the debt incurred at the time of purchase of each item was secured by the right to repossess all the items previously purchased by the same purchaser, and each new item purchased automatically became subject to a security interest arising out of the previous dealings.



On May 12, 1962, appellant Thorne purchased an item described as a Daveno, three tables, and two lamps, having total stated value of $391.10. Shortly thereafter, he defaulted on his monthly payments and appellee sought to replevy all the items purchased since the first transaction in 1958. Similarly, on April 17, 1962, appellant Williams bought a stereo set of stated value of $514.95.(57)

She too defaulted shortly thereafter, and appellee sought to replevy all the items purchased since December, 1957. The Court of General Sessions granted judgment for appellee. The District of Columbia Court of Appeals affirmed, and we granted appellants' motion for leave to appeal to this court.



Appellants' principal contention, rejected by both the trial and the appellate courts below, is that these contracts, or at least some of them, are unconscionable and, hence, not enforceable. In its opinion in Williams v. Walker-Thomas Furniture Company, 198 A.2d 914, 916 (1964), the District of Columbia Court of Appeals explained its rejection of this contention as follows:



[The court quoted the last two paragraphs of Judge Quinn's opinion, reported supra.]



We do not agree that the court lacked the power to refuse enforcement to contracts found to be unconscionable. In other jurisdictions, it has been held as a matter of common law that unconscionable contracts are not enforceable. While no decision of this court so holding has been found, the notion that an unconscionable bargain should not be given full enforcement is by no means novel. In Scott v. United States, 79 U.S. (12 Wall.) 443, 445, 20 L.Ed. 438 (1870), the Supreme Court stated:



"* * * If a contract be unreasonable and unconscionable, but not void for fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to. * * *"



Since we have never adopted or rejected such a rule, the question here presented is actually one of first impression.



Congress has recently enacted the Uniform Commercial Code, which specifically provides that the court may refuse to enforce a contract which it finds to be unconscionable at the time it was made. 28 D.C.Code 2-302 (Supp. IV 1965). The enactment of this section, which occurred subsequent to the contracts here in suit, does not mean that the common law of the District of Columbia was otherwise at the time of enactment, nor does it preclude the court from adopting a similar rule in the exercise of its powers to develop the common law for the District of Columbia. In fact, in view of the absence of prior authority on the point, we consider the congressional adoption of 2-302 persuasive authority for following the rationale of the cases from which the section is explicitly derived. Accordingly, we hold that where the element of unconscionability is present at the time a contract is made, the contract should not be enforced.



Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power. The manner in which the contract was entered is also relevant to this consideration. Did each party to the contract, considering his obvious education or lack of it, have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices? Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain. But when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms. In such a case the usual rule that the terms of the agreement are not to be questioned should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld.



In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied. The terms are to be considered "in the light of the general commercial background and the commercial needs of the particular trade or case." Corbin suggests the test as being whether the terms are "so extreme as to appear unconscionable according to the mores and business practices of the time and place.".... We think this formulation correctly states the test to be applied in those cases where no meaningful choice was exercised upon entering the contract.



Because the trial court and the appellate court did not feel that enforcement could be refused, no findings were made on the possible unconscionability of the contracts in these cases. Since the record is not sufficient for our deciding the issue as a matter of law, the cases must be remanded to the trial court for further proceedings.



So ordered.



Danaher, Circuit Judge (dissenting). The District of Columbia Court of Appeals obviously was as unhappy about the situation here presented as any of us can possibly be. Its opinion in the Williams case, quoted in the majority text, concludes: "We think Congress should consider corrective legislation to protect the public from such exploitive contracts as were utilized in the case at bar."



My view is thus summed up by an able court which made no finding that there had actually been sharp practice. Rather the appellant seems to have known precisely where she stood.



There are many aspects of public policy here involved. What is a luxury to some may seem an outright necessity to others. Is public oversight to be required of the expenditures of relief funds? A washing machine, e.g., in the hands of a relief client might become a fruitful source of income. Many relief clients may well need credit, and certain business establishments will take long chances on the sale of items, expecting their pricing policies will afford a degree of protection commensurate with the risk. Perhaps a remedy when necessary will be found within the provisions of the "Loan Shark" law, D.C.Code 26-601 et seq. (1961).



I mention such matters only to emphasize the desirability of a cautious approach to any such problem, particularly since the law for so long has allowed parties such great latitude in making their own contracts. I dare say there must annually be thousands upon thousands of installment credit transactions in this jurisdiction, and one can only speculate as to the effect that these cases will have.



* * *



[Some footnotes omitted.]



NOTES



(1) Did Judge Wright hold that the contracts were unconscionable at the time of contracting? See UCC 2-302 [UCC 2-105 (1997)].



(2) Try to describe the views of Judge Quinn in the lower court and Judges Wright and Danaher in the Court of Appeals on whether a court should declare a contract unconscionable. What are the similarities and differences?



(3) State as clearly as you can Judge Wright's test for determining whether a contract is unconscionable. Would you expect the outcome of its application to vary with whether the contract was between a professional business person and an individual consumer or two business people?



(4) "Properly understood, [the principle of freedom of contract] does not require a court to enforce every contract brought before it. It does, however, demand that the reasons invoked for not enforcing the contract be of one of two sorts. Either there must be proof of some defect in the process of contract formation (be it duress, fraud or undue influence); or there must be, but only within narrow limits, some incompetence of the party against whom the agreement is to be enforced. The doctrine of unconscionability is important in both these respects because it can, if wisely applied, allow the courts to police these two types of problems, and thereby improve the general administration of the contract law. Yet when the doctrine of unconscionability is used in its substantive dimension, be it in a commercial or consumer context, it serves only to undercut a private right of contract in a manner that is apt to do more social harm than good. The result of the analysis is the same even if we view the question of unconscionability from the lofty perspective of public policy. '(I)f there is one thing which more than another public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justice.' (Printing and Numerical Registering Co. v. Sampson, L.R. 19 Eq. 462, 465 (1875))." Epstein, Unconscionability: A Critical Reappraisal, 18 J.Law & Econ. 293, 315 (1975).



We will return to these challenging problems in Chapter Four, Section 2(D).



SULLIVAN V. O'CONNOR



Supreme Judicial Court of Massachusetts, 1973.



363 Mass. 579, 296 N.E.2d 183.



Kaplan, Justice. The plaintiff patient secured a jury verdict of $13,500 against the defendant surgeon for breach of contract in respect to an operation upon the plaintiff's nose. The substituted consolidated bill of exceptions presents questions about the correctness of the judge's instructions on the issue of damages.



The declaration was in two counts. In the first count, the plaintiff alleged that she, as patient, entered into a contract with the defendant, a surgeon, wherein the defendant promised to perform plastic surgery on her nose and thereby to enhance her beauty and improve her appearance; that he performed the surgery but failed to achieve the promised result; rather the result of the surgery was to disfigure and deform her nose, to cause her pain in body and mind, and to subject her to other damage and expense. The second count, based on the same transaction, was in the conventional form for malpractice, charging that the defendant had been guilty of negligence in performing the surgery. Answering, the defendant entered a general denial.



On the plaintiff's demand, the case was tried by jury. At the close of the evidence, the judge put to the jury, as special questions, the issues of liability under the two counts, and instructed them accordingly. The jury returned a verdict for the plaintiff on the contract count, and for the defendant on the negligence count. The judge then instructed the jury on the issue of damages.



As background to the instructions and the parties' exceptions, we mention certain facts as the jury could find them. The plaintiff was a professional entertainer, and this was known to the defendant. The agreement was as alleged in the declaration. More particularly, judging from exhibits, the plaintiff's nose had been straight, but long and prominent; the defendant undertook by two operations to reduce its prominence and somewhat to shorten it, thus making it more pleasing in relation to the plaintiff's other features. Actually the plaintiff was obliged to undergo three operations, and her appearance was worsened. Her nose now had a concave line to about the midpoint, at which it became bulbous; viewed frontally, the nose from bridge to midpoint was flattened and broadened, and the two sides of the tip had lost symmetry. This configuration evidently could not be improved by further surgery. The plaintiff did not demonstrate, however, that her change of appearance had resulted in loss of employment. Payments by the plaintiff covering the defendant's fee and hospital expenses were stipulated at $622.65.



The judge instructed the jury, first, that the plaintiff was entitled to recover her out-of-pocket expenses incident to the operations. Second, she could recover the damages flowing directly, naturally, proximately, and foreseeably from the defendant's breach of promise. These would comprehend damages for any disfigurement of the plaintiff's nose--that is, any change of appearance for the worse--including the effects of the consciousness of such disfigurement on the plaintiff's mind, and in this connection the jury should consider the nature of the plaintiff's profession. Also consequent upon the defendant's breach, and compensable, were the pain and suffering involved in the third operation, but not in the first two. As there was no proof that any loss of earnings by the plaintiff resulted from the breach, that element should not enter into the calculation of damages.



By his exceptions the defendant contends that the judge erred in allowing the jury to take into account anything but the plaintiff's out-of-pocket expenses (presumably at the stipulated amount). The defendant excepted to the judge's refusal of his request for a general charge to that effect, and, more specifically, to the judge's refusal of a charge that the plaintiff could not recover for pain and suffering connected with the third operation or for impairment of the plaintiff's appearance and associated mental distress.



The plaintiff on her part excepted to the judge's refusal of a request to charge that the plaintiff could recover the difference in value between the nose as promised and the nose as it appeared after the operations. However, the plaintiff in her brief expressly waives this exception and others made by her in case this court overrides the defendant's exceptions; thus she would be content to hold the jury's verdict in her favor.



We conclude that the defendant's exceptions should be overruled.



It has been suggested on occasion that agreements between patients and physicians by which the physician undertakes to effect a cure or to bring about a given result should be declared unenforceable on grounds of public policy. See Guilmet v. Campbell, 385 Mich. 57, 76, 188 N.W.2d 601 (dissenting opinion). But there are many decisions recognizing and enforcing such contracts, see annotation, 43 A.L.R.3d 1221, 1225, 1229-1233, and the law of Massachusetts has treated them as valid, although we have had no decision meeting head on the contention that they should be denied legal sanction. ... These causes of action are, however, considered a little suspect, and thus we find courts straining sometimes to read the pleadings as sounding only in tort for negligence, and not in contract for breach of promise, despite sedulous efforts by the pleaders to pursue the latter theory. ...



It is not hard to see why the courts should be unenthusiastic or skeptical about the contract theory. Considering the uncertainties of medical science and the variations in the physical and psychological conditions of individual patients, doctors can seldom in good faith promise specific results. Therefore it is unlikely that physicians of even average integrity will in fact make such promises. Statements of opinion by the physician with some optimistic coloring are a different thing, and may indeed have therapeutic value. But patients may transform such statements into firm promises in their own minds, especially when they have been disappointed in the event, and testify in that sense to sympathetic juries.(58)

If actions for breach of promise can be readily maintained, doctors, so it is said, will be frightened into practicing "defensive medicine." On the other hand, if these actions were outlawed, leaving only the possibility of suits for malpractice, there is fear that the public might be exposed to the enticements of charlatans, and confidence in the profession might ultimately be shaken. See Miller, The Contractual Liability of Physicians and Surgeons, 1953 Wash.L.Q. 413, 416-423. The law has taken the middle of the road position of allowing actions based on alleged contract, but insisting on clear proof. Instructions to the jury may well stress this requirement and point to tests of truth, such as the complexity or difficulty of an operation as bearing on the probability that a given result was promised. See annotation, 43 A.L.R.3d 1225, 1225-1227.



If an action on the basis of contract is allowed, we have next the question of the measure of damages to be applied where liability is found. Some cases have taken the simple view that the promise by the physician is to be treated like an ordinary commercial promise, and accordingly that the successful plaintiff is entitled to a standard measure of recovery for breach of contract--"compensatory" ("expectancy") damages, an amount intended to put the plaintiff in the position he would be in if the contract had been performed, or, presumably, at the plaintiff's election, "restitution" damages, an amount corresponding to any benefit conferred by the plaintiff upon the defendant in the performance of the contract disrupted by the defendant's breach. See Restatement: Contracts 329 and comment a, 347, 384(1). Thus in Hawkins v. McGee, 84 N.H. 114, 146 A. 641, the defendant doctor was taken to have promised the plaintiff to convert his damaged hand by means of an operation into a good or perfect hand, but the doctor so operated as to damage the hand still further. The court, following the usual expectancy formula, would have asked the jury to estimate and award to the plaintiff the difference between the value of a good or perfect hand, as promised, and the value of the hand after the operation. (The same formula would apply, although the dollar result would be less, if the operation had neither worsened nor improved the condition of the hand.) If the plaintiff had not yet paid the doctor his fee, that amount would be deducted from the recovery. There could be no recovery for the pain and suffering of the operation, since that detriment would have been incurred even if the operation had been successful; one can say that this detriment was not "caused" by the breach. But where the plaintiff by reason of the operation was put to more pain than he would have had to endure, had the doctor performed as promised, he should be compensated for that difference as a proper part of his expectancy recovery. It may be noted that on an alternative count for malpractice the plaintiff in the Hawkins case had been nonsuited; but on ordinary principles this could not affect the contract claim, for it is hardly a defence to a breach of contract that the promisor acted innocently and without negligence. The New Hampshire court further refined the Hawkins analysis in McQuaid v. Michou, 85 N.H. 299, 157 A. 881, all in the direction of treating the patient-physician cases on the ordinary footing of expectancy. See McGee v. United States Fid. & Guar. Co., 53 F.2d 953 (1st Cir.) (later development in the Hawkins case); ....



Other cases, including a number in New York, without distinctly repudiating the Hawkins type of analysis, have indicated that a different and generally more lenient measure of damages is to be applied in patient-physician actions based on breach of alleged special agreements to effect a cure, attain a stated result, or employ a given medical method. This measure is expressed in somewhat variant ways, but the substance is that the plaintiff is to recover any expenditures made by him and for other detriment (usually not specifically described in the opinions) following proximately and foreseeably upon the defendant's failure to carry out his promise. Robins v. Finestone, 308 N.Y. 543, 546, 127 N.E.2d 330; .... Stewart v. Rudner, 349 Mich. 459, 465-473, 84 N.W.2d 816. Cf. Carpenter v. Moore, 51 Wash.2d 795, 322 P.2d 125. This, be it noted, is not a "restitution" measure, for it is not limited to restoration of the benefit conferred on the defendant (the fee paid) but includes other expenditures, for example, amounts paid for medicine and nurses; so also it would seem according to its logic to take in damages for any worsening of the plaintiff's condition due to the breach. Nor is it an "expectancy" measure, for it does not appear to contemplate recovery of the whole difference in value between the condition as promised and the condition actually resulting from the treatment. Rather the tendency of the formulation is to put the plaintiff back in the position he occupied just before the parties entered upon the agreement, to compensate him for the detriments he suffered in reliance upon the agreement. This kind of intermediate pattern of recovery for breach of contract is discussed in the suggestive article by Fuller and Perdue, The Reliance Interest in Contract Damages, 46 Yale L.J. 52, 373, where the authors show that, although not attaining the currency of the standard measures, a "reliance" measure has for special reasons been applied by the courts in a variety of settings, including noncommercial settings. See 46 Yale L.J. at 396-401.(59)



For breach of the patient-physician agreements under consideration, a recovery limited to restitution seems plainly too meager, if the agreements are to be enforced at all. On the other hand, an expectancy recovery may well be excessive. The factors, already mentioned, which have made the cause of action somewhat suspect, also suggest moderation as to the breadth of the recovery that should be permitted. Where, as in the case at bar and in a number of the reported cases the doctor has been absolved of negligence by the trier, an expectancy measure may be thought harsh. We should recall here that the fee paid by the patient to the doctor for the alleged promise would usually be quite disproportionate to the putative expectancy recovery. To attempt, moreover, to put a value on the condition that would or might have resulted, had the treatment succeeded as promised, may sometimes put an exceptional strain on the imagination of the fact finder. As a general consideration, Fuller and Perdue argue that the reasons for granting damages for broken promises to the extent of the expectancy are at their strongest when the promises are made in a business context, when they have to do with the production or distribution of goods or the allocation of functions in the market place; they become weaker as the context shifts from a commercial to a noncommercial field. 46 Yale L.J. at 60-63.



There is much to be said, then, for applying a reliance measure to the present facts, and we have only to add that our cases are not unreceptive to the use of that formula in special situations. We have, however, had no previous occasion to apply it to patient-physician cases.(60)



The question of recovery on a reliance basis for pain and suffering or mental distress requires further attention. We find expressions in the decisions that pain and suffering (or the like) are simply not compensable in actions for breach of contract. The defendant seemingly espouses this proposition in the present case. True, if the buyer under a contract for the purchase of a lot of merchandise, in suing for the seller's breach, should claim damages for mental anguish caused by his disappointment in the transaction, he would not succeed; he would be told, perhaps, that the asserted psychological injury was not fairly foreseeable by the defendant as a probable consequence of the breach of such a business contract. See Restatement: Contracts, 341, and comment a. But there is no general rule barring such items of damage in actions for breach of contract. It is all a question of the subject matter and background of the contract, and when the contract calls for an operation on the person of the plaintiff, psychological as well as physical injury may be expected to figure somewhere in the recovery, depending on the particular circumstances. The point is explained in Stewart v. Rudner, 349 Mich. 459, 469, 84 N.W.2d 816. Cf. Frewen v. Page, 238 Mass. 499, 131 N.E. 475; McClean v. University Club, 327 Mass. 68, 97 N.E.2d 174. Again, it is said in a few of the New York cases, concerned with the classification of actions for statute of limitations purposes, that the absence of allegations demanding recovery for pain and suffering is characteristic of a contract claim by a patient against a physician, that such allegations rather belong in a claim for malpractice. See Robins v. Finestone, 308 N.Y. 543, 547, 127 N.E.2d 330; Budoff v. Kessler, 2 A.D.2d 760, 153 N.Y.S.2d 654. These remarks seem unduly sweeping. Suffering or distress resulting from the breach going beyond that which was envisaged by the treatment as agreed, should be compensable on the same ground as the worsening of the patient's condition because of the breach. Indeed it can be argued that the very suffering or distress "contracted for"--that which would have been incurred if the treatment achieved the promised result--should also be compensable on the theory underlying the New York cases. For that suffering is "wasted" if the treatment fails. Otherwise stated, compensation for this waste is arguably required in order to complete the restoration of the status quo ante.(61)



In the light of the foregoing discussion, all the defendant's exceptions fail; the plaintiff was not confined to the recovery of her out-of-pocket expenditures; she was entitled to recover also for the worsening of her condition,(62)

and for the pain and suffering and mental distress involved in the third operation. These items were compensable on either an expectancy or a reliance view. We might have been required to elect between the two views if the pain and suffering connected with the first two operations contemplated by the agreement, or the whole difference in value between the present and the promised conditions, were being claimed as elements of damage. But the plaintiff waives her possible claim to the former element, and to so much of the latter as represents the difference in value between the promised condition and the condition before the operations.



Plaintiff's exceptions waived.



Defendant's exceptions overruled.



[Some footnotes omitted.]



NOTES



(1) Comment (a) to Section 329 of the first Restatement stated: "In awarding compensatory damages, the effort is made to put the injured party in as good a position as that in which he would have been put by full performance of the contract, at the least cost to the defendant and without charging him with harms that he had no sufficient reason to foresee when he made the contract." Compare UCC 1-106(1). Section 344 of Restatement (Second) states the "purposes" of contract remedies as follows:



Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee:



(a) his 'expectation interest,' which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,



(b) his 'reliance interest,' which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or



(c) his 'restitution interest,' which is his interest in having restored to him any benefit that he has conferred on the other party.



(2) Relief to Promisee to Redress Breach, not Compulsion of Promisor to Prevent Breach. "[O]ur system of contract remedies rejects, for the most part, compulsion of the promisor as a goal. It does not impose criminal penalties on one who refuses to perform his promise, nor does it generally require him to pay punitive damages. Our system of contract remedies is not directed at compulsion of promisors to prevent breach; it is aimed, instead, at relief to promisees to redress breach. Its preoccupation is not with the question: how can promisors be made to keep their promises? Its concern is with a different question: how can people be encouraged to deal with those who make promises? ...



"How do courts encourage promisees to rely on promises? Ordinarily they do so by protecting the expectation that the injured party had when he made the contract by attempting to put him in as good a position as he would have been in had the contract been performed, that is, had there been no breach. The interest measured in this way is called the expectation interest and is said to give the injured party the 'benefit of the bargain.' The expectation interest is based not on the injured party's hopes at the time he made the contract, but on the actual value that the contract would have had to him had it been performed." Farnsworth, Contracts, 12.1, pp. 812-813. (Emphasis added.)



"The basic principle for the measurement of those damages is that of compensation based on the injured party's expectation. He is entitled to recover an amount that will put him in as good a position as he would have been in had the contract been performed. At least in principle, a party's expectation is measured by the actual worth that performance of the contract would have had to him, not the worth that it might have had to some hypothetical reasonable person. Damages based on expectation should therefore take account of any circumstances peculiar to the situation of the injured party, including his own needs and opportunities, his personal values, and even his idiosyncracies...." Id., 12.8, p. 839. (Emphasis added.)



Frankenmuth Mutual Insurance Company v. Keeley, 433 Mich. 525, 558 n. 23, 447 N.W.2d 691, 705, n. 23 (1989) (dissent. op.).



PROBLEM: THE CASE OF THE RECALCITRANT MANUFACTURER



Smirgo, Inc., a manufacturer of bakery equipment, specializes in custom made ovens. Bisko, Inc. operates a medium sized bakery in a highly competitive market and sells primarily to restaurants, hotels and other institutional buyers.



On May 15, Bisko's research people informed the president that a new bread had been developed for the institutional trade. It was described as "revolutionary" and "likely to sell like hotcakes." A business decision was then made by the board of directors to purchase two new custom ovens and make a concerted effort to expand the business. At this time Bisko policymakers knew that Caraway Co., a competitor, was working on the development of a similar bread but had no idea what progress had been made.



On June 1, Smirgo and Bisko entered a written contract for the manufacture and sale of custom made ovens to bake the new bread. The basic design was supplied by Bisko engineers. The agreed price was $30,000, to be paid in full 90 days after Smirgo had delivered both ovens on the promised delivery date, November 1. While Smirgo and Bisko had done business before, this was the first contract for custom made ovens. At the time the contract was signed, the president of Smirgo was informed that the "ovens will be used in a business expansion," "prompt delivery is critical," and "we have a new product coming out." After the contract was signed, Bisko spent $7,500 in readying its plant for the new ovens.



On November 1, the time agreed for delivery, Smirgo informed Bisko that while the new ovens were completed they would not be delivered unless Bisko paid $30,000 cash. There was no justification for this demand; it was clearly a breach of contract since a 90 day credit term had been agreed. On November 2 Bisko discovered that there were three concerns within a hundred mile radius that would manufacture the custom made ovens at an average price of $29,500. The estimated time of delivery was six months, however, and no business concern had the type of oven needed by Bisko in stock. On November 3, Caraway Co. announced that it was marketing an institutional bread almost identical to that developed by Bisko. The next day, the Bisko sales manager informed the president that unless the ovens were obtained within ten days, Bisko would lose an estimated $20,000 in profits on six long-term contracts already made and an estimated $100,000 in profits on contracts under negotiation but not yet signed. During the past 5 years, Bisko's net profits have averaged $100,000 per year.



On the afternoon of November 4, the president of Bisko came to you for legal advice. Assume that Smirgo is in breach of contract and that the Uniform Commercial Code governs this case. Based upon an analysis of UCC Article 2, Part 7, Sections 2-711 through 2-717, and the business situation, what would you advise Bisko to do? Go as far as you can with the relevant statutory provisions. [Sections 2-801 through 2-808 and Sections 2-823 through 2-828 (1997)].



Comment: An Introduction to Contract Remedies



If one party to an enforceable bargain has repudiated or failed without justification to perform, what remedies are available for the aggrieved party? Seven rather general remedial principles are set out below.



First, one's contractual duty to perform is conditioned on the other side not breaching its own contractual promises. Accordingly, breach of contract gives the non-breaching party the option of suspending its performance or cancelling the contract. However, trivial or insubstantial breaches at times will not give the non-breaching party an option to suspend its own performance. When one side to a contract announces that it does not intend to perform a promise which is not yet due (so called, anticipatory repudiation), the aggrieved party normally can both cancel the contract and sue for damages before the date agreed for performance.



Second, Anglo-American law has exhibited a preference for monetary damages instead of specific performance (ordering the contract breacher either to perform or go to jail for contempt). Specific performance is normally given only if the non-breaching party can show that the subject matter of the contract is unique or that monetary damages are unlikely to make the non-breaching party whole.



Third, although there are several ways to measure in dollars the loss caused by a breach, a basic assumption is that the aggrieved party should recover both net gains prevented by the breach (expectation) and out-of-pocket expenditures associated with performance (reliance). Recovery for breach is not limited to the value to the defendant of the aggrieved party's performance up to the breach (restitution). Exceptions aside, the purpose of damages for breach of a bargain is to put the aggrieved party in the position that would have been gained if the defendant had fully performed. For whatever reason, there are objectives here that go beyond the reimbursement of induced reliance or the recovery of unjust enrichment.



Fourth, as a corollary, it is stated that the primary purpose of contract remedies is to compensate the aggrieved party for losses suffered rather than to punish the contract breacher. Unlike the law of crimes, deterrence is not a primary objective in contract remedies. One reason for this is economic--it is, perhaps, more efficient to say to the breacher: "You may breach this contract and move your resources to higher levels of utility if you are prepared to compensate the aggrieved party for the losses thereby caused. Thus, as you decide whether to breach, you need consider only the probability that a judgment for compensatory damages will be imposed, not the risk of an additional amount for punishment." There is some evidence, however, that the willingness of courts to award punitive damages for certain breaches of contract is increasing.



Fifth, there are several explicit policies that permeate the process of translating losses caused by the breach into dollars:



(a) The plaintiff must prove, (1) that the breach was the substantial cause of the loss complained of, and (2) the amount of the loss caused with reasonable certainty. Proof problems are more important than causation problems in the law of contracts. Thus, a court, under the uncertainty rubric, can, for example, limit liability for claims for non-economic loss, i.e., mental anguish.



(b) The provable losses caused by the breach must have been reasonably foreseeable to the defendant at the time of contracting. If not, these consequential damages are not recoverable.



(c) The plaintiff has a "duty" after the breach to make all reasonable efforts to avoid the consequences of the breach. If the defendant, who has the burden of proof, establishes a failure to "mitigate damages," this item of recovery, even if caused, certain and foreseeable, may not be recovered.



Sixth, the parties have some power through agreement to expand or narrow the remedies normally available for breach of contract. In addition, they may substitute arbitration or some other dispute resolving mechanism for the judicial process.



Seventh, in addition to compensatory damages, the victorious party may also recover interest on sums of money withheld and, in the discretion of the court, the costs associated with the litigation. But attorney fees are not awarded to the victor in the absence of agreement, statute or, perhaps, a vexatious and unfounded suit brought by the plaintiff. More pointedly, there is no way to compensate either party for what we might call imperfections or inefficiencies in the process of adjudication, such as delay. These transaction costs clearly influence the plaintiff's choice on when to seek judicial remedies and how far to go before considering a settlement.



For a further exploration of these remedial policies, see Chapter Six, Section (2)(A).



1. Restatement (Second), Contracts 1 (1981). Paraphrasing Professor Fuller, contract law might be defined as the enterprise or activity of courts, legislative bodies and administrative agencies of subjecting the human conduct of promise making to the "governance" of rules about liability and remedy. Lon L. Fuller, The Morality of Law 106 (1963).

2. Restatement, Contracts 2 (1932). "A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made," Restatement (Second), Contracts 2.

3. A useful discussion of terms, emphasizing legal relations arising from contract and prior negotiations, is Goble, A Redefinition of Basic Legal Terms, 35 Colum.L.Rev. 535 (1935). See also Sharp, Promissory Liability, 7 U.Chi.L.Rev. 1 (1939).

4. Uniform Commercial Code 1-201(1). Similarly, in defining agreement as the "bargain of the parties in fact," UCC 1-201(3), the UCC moves even farther away from promise as an indispensable foundation word. For example, the word "promise" is used several times in the 1995 official text of UCC Article 2, Sales, see, e.g., UCC 2-206(1)(b), 2-210(4) and 2-313(1)(a), but defined only in Article 3, Commercial Paper, as "an undertaking to pay" and "more than an acknowledgment." UCC 1-102(1)(c). The definition of agreement as a "bargain" without defining the word "bargain," however, suggests that the ordinary usages of that term may be employed. In Restatement (Second) 4, bargain is defined as "an agreement to exchange promises or to exchange a promise for a performance or to exchange performances."

5. See, generally, W. Mitchell, An Essay on the Early History of the Law Merchant (1904); L. Trakman, The Law Merchant: The Evolution of Commercial Law (1983).

6. D. Parry, The Sanctity of Contract 17-18 (1959).

7. Oliver W. Holmes, The Path of the Law, 10 Harv. L. Rev. 457, 462 (1897) (stating that "nowhere is the confusion between legal and moral ideas more manifest than in the law of contract").

8. See Wehberg, Pacta Sunt Servanda, 53 Am.J.Int'l L. 795 (1959); Pound, Promise or Bargain, 33 Tul.L.Rev. 455 (1959). Professor Harry W. Jones has stressed "the deeply ingrained power that the idea of contract has had, throughout recorded history, on the minds of men and women; the centrality of contract as a basic institution of contemporary society; and the significance of freedom of contract as one of the great 'constitutional' devices for the dispersion of power in a society fearful, as ours has always and rightly been, of too much power in too few hands." Jones, The Jurisprudence of Contracts, 44 U.Cin.L.Rev. 43, 44 (1975).

9. See, generally, C. Fried, Contract as Promise: A Theory of Contractual Obligation (1981); Farnsworth, The Past of Promise: An Historical Introduction to Contract, 69 Colum.L.Rev. 576 (1969). Hannah Arendt has noted: "[T]he power of stabilization inherent in the faculty of making promises has been known throughout our tradition. We may trace it back to the Roman legal system, the inviolability of agreements and treaties (pacta sunt servanda); or we may see its discoverer in Abraham, the man from Ur, whose whole story, as the Bible tells it, shows such a passionate drive toward making covenants that it is as though he departed from his country for no other reason than to try out the power of mutual promise in the wilderness of the world, until eventually God himself agreed to make a Covenant with him. At any rate, the great variety of contract theories since the Romans attests to the fact that the power of making promises has occupied the center of political thought over the centuries." H. Arendt, The Human Condition 243-44 (1958).

10. 3 Pound, Jurisprudence 162-63 (1959).

11. 7 Encyclopedia Britannica 35 (11th ed. 1910).

12. H. Scherman, The Promises Men Live By 393 (1983) (emphasis in original).

13. Blum and Wellman, Participation, Assent and Liberty in Contract Formation, 1982 Ariz.St.L.J. 901, 907-8.

14. Jones, supra note 8 at 50.

15. Id. at 53.

16. Contracts can be used by individuals to escape from disadvantaged status and to protect their lifestyles through wills and trusts, cohabitation agreements and quasi-marriage contracts. See Testy, An Unlikely Resurrection, 90 Nw. U. L. Rev. 219 (1995); Kastely, Cogs or Cyborgs?: Blasphemy and Irony in Contract Theories, 90 Nw. U. L. Rev. 132 (1995).

17. H. Arendt, supra note 9 at 237.

18. Fried, supra note 9 at 20-21.

19. See Newman, Equity and Law: a Comparative Study 11-49 (1961).

20. See also Professor Simpson's exceptional work, A.W.B. Simpson, A History of the Common Law of Contract: The Rise of the Action of Assumpsit (1975). In a book with a provocative title, "The Death of Contract," Professor Grant Gilmore insisted that recent "contract" trends manifest a return to "tort" roots, so much so that traditional emphasis upon "bargained-for exchange" as the prototypical contractual transaction is obsolete, having been largely superseded by theory allowing recovery for "unbargained-for" reliance. For a critical review, see Speidel, An Essay on the Reported Death and Continued Vitality of Contract, 27 Stan.L.Rev. 1161 (1975). See also Speidel, The Borderland of Contract, 10 N.Ky.L.Rev. 163 (1983).

21. See Re, The Roman Contribution to the Common Law, 29 Ford.L.Rev. 447 (1961); Hamburger, The Development of the Nineteenth-Century Consensus Theory of Contract 241, Law & Hist.Rev. (1989).

22. Maitland, Select Pleas in Manorial Courts 133.

23. Mitchell, supra note 5 at 16.

24. Id. at 156-8.

25. Holdsworth, Some Makers of the English Law 161 (1938).

26. Edmund Burke, a contemporary, said of him: "His ideas go to the growing melioration of the law, by making its liberality keep pace with the demands of justice, and actual concerns of the world; not restricting the infinitely diversified occasions of men and the rules of natural justice, but conforming our jurisprudence to the growth of our commerce and of our empire." Id. at 169.

27. Some of the relationships between common law and economic growth in nineteenth century England and America are discussed in Simpson, Innovation in Nineteenth Century Contract Law, 91 L.Q.Rev. 247 (1975); Horwitz, The Historical Foundations of Modern Contract Law, 87 Harv.L.R. 917 (1974). See also, Danzig, Hadley v. Baxendale: A Study of the Industrialization of the Law, 4 J.Legal Studies 249 (1975).

28. For an interesting history of earlier and largely unsuccessful efforts to codify American law, see J. Honnold, The Life of the Law 100-145 (1964).

29. Restatement, Contracts viii (1932).

30. The original edition of Williston on Contracts was published in 1920. The text was revised by Professor Williston, in collaboration with Professor George Thompson, in 1936-38. The third edition, as revised by Professor Walter H.E. Jaeger, is now complete.

31. Professor Corbin's treatise was published in 1950-1, and after his death in 1967 has been updated by supplements prepared by Professor Colin Kelly Kaufman.

32. Goodrich and Wolkin, The Story of the American Law Institute 39 (1961).

33. 3 ALI Proceedings 159 (1925).

34. See Farnsworth, Ingredients in the Redaction of the Restatement (Second) of Contracts, 81 Colum.L.Rev. 1 (1981).

35. In all probability, there will be a proposal to revise this one exception (Article 7, concerning documents of title).

36. Two recent symposia contain all you might want to know and more about the "new" Uniform Commercial Code. See Symposium, Is the UCC Dead, or Alive and Well?, 26 Loy. L.A. L. Rev 535 (1993); Symposium, Is the UCC Dead, or Alive and Well?: Practitioners' Perspectives, 28 Loy. L.A. L. Rev. 89 (1994).

37. On January 1, 1988, the Convention for the International Sale of Goods (CISG) became effective in the United States. The convention applies to contracts for the sale of goods between parties having a place of business in different countries that are parties to the convention. See, generally, Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review, 63 Fordham L. Rev. 281 (1994).



This codification trend raises the continuing questions of the circumstances under which contract doctrine should be codified--especially since the UCC is primarily drafted by private groups rather than in formal legislative hearings. See Schwartz & Scott, The Political Economy of Private Legislatures, 143 U. Pa. L. Rev. 595 (1995).

38. For an interesting study of Llewellyn, his life, times, ideas and role in UCC drafting, see W. Twining, Karl Llewellyn and the Realist Movement (1973).

39. Uniform Commercial Code 1-202(2).

40. See D. Murray, Under the Spreading Analogy of Article 2 of the Uniform Commercial Code, 39 Fordham L.Rev. 447 (1971). In 1990, a new Article 2A, entitled "Leases," was approved by Code-sponsoring organizations and proposed for adoption by the states. A lease of goods is treated in a manner analogous to that in Article 2 pertaining to a sale of goods.

41. For example, UCC 2-206 provides that "unless otherwise unambiguously indicated by the language or circumstances" an offer to buy goods invites acceptance by either a prompt promise to ship or by shipment of the goods itself. The offeror, however, as master of the offer can alter this rule by "unambiguously indicating" that only a particular type of acceptance will be effective.

42. For example, if an agreement fails to specify a price, the UCC fills this gap by establishing the buyer's obligation to pay "a reasonable price." UCC 2-305(1).

43. UCC 1-102(2).

44. Some commentators have suggested that the preemption of common-law rules by market-specific statutes and/or by the encroachment of tort has rendered contract law "dead" or transformed it into a residual category. See G. Gilmore, The Death of Contract (1974); L. Friedman, Contract Law in America (1965); Symposium, The Relevance of Contract Theory, 1967 Wis.L.Rev. 803-839. Others focusing on the default-nature of law have characterized contract law as an imperialist theory swallowing large segments of the legal landscape. See, e.g., Langbein, The Contractarian Basis of the Law of Trusts, 105 Yale L.J. 625, 630 (1995) ("Contract has become the dominant doctrinal current in modern American law. In fields ranging from corporations and partnership to landlord and tenant to servitudes to the law of marriage, scholars have come to understand our legal rules as resting mainly on imputed bargains that are susceptible to alteration by actual bargains.").

45. An increasing amount of this regulatory activity has as its avowed purpose the protection of consumers. See, e.g., Macaulay, Bambi Meets Godzilla: Reflections on Contracts Scholarship and Teaching vs. State Unfair and Deceptive Trade Practices and Consumer Protection Statutes, 26 Hous.L.Rev. 575 (1989).

46. Ayres & Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L.J. 87, 88 (1989).

47. UCC 2-201(1) ("a contract ... is not enforceable under this [provision] beyond the quantity of goods shown").

48. See Ayres & Gertner, supra note 46 (arguing that "penalty defaults" by inducing explicit contracting might produce valuable information for parties to the agreement or third parties--such as courts).

49. See Macaulay, Non-Contractual Relations in Business: A Preliminary Study, 28 Am.Soc.Rev. 55 (1963); Ellickson, Order Without Law (1991).

50. See Rubin, The Nonjudicial Life of Contract: Beyond the Shadow of the Law, 90 Nw. U. L. Rev. 107, 109 (1995).

51. Speidel, The Shifting Domain of Contract, 90 Nw. U.L. Rev. 254, 257 (1995).

52. A staggering development in the last fifty years has been the growth (measured in billions of dollars) of federal government procurement. The law of government contracting governing this procurement is both complex and voluminous. A basic understanding of this area is essential to a contextual understanding of contemporary contract law. For an introduction, see N. Keyes, Government Contracts in a Nutshell (2d ed. 1990).

53. Contracts, as much as any other area of private activity, poses the greatest opportunities for the parties and their attorneys to negotiate and plan for the future and to resolve disputes by agreement without the direct intervention of government. See, in general, Macneil, A Primer of Contract Planning, 48 S.Cal.L.Rev. 627 (1975); Gilson, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 Yale L.J. 239 (1984).

54. For example, it is also useful to pay attention to (i) whether particular laws are standards ("thou must drive safely") or rules ("thou must drive less than 55 miles per hour") and (ii) who decides these questions--judge, jury, legislator, administrator or the parties themselves.

55. The following abbreviations will be used in subsequent references: UCC--Uniform Commercial Code, 1995 Official Text; Restatement--Restatement, Contracts (1932); Restatement (Second)--Restatement (Second), Contracts (1981); Corbin--Corbin on Contracts; Williston--Williston on Contracts (Jaeger ed.); Farnsworth--Farnsworth, Contracts (2d ed. 1990); Calamari and Perillo--Calamari and Perillo, Contracts (3d ed. 1987); Murray--J. Murray, Murray on Contracts (3d ed. 1990); Prosser and Keeton--Prosser and Keeton on Torts (5th ed. 1984); Dobbs--Dobbs, Remedies (1973).



Editorial marks ... indicate citations omitted in middle of sentence. Editorial marks.... indicate citations omitted at end of sentence. Editorial marks * * * indicate text has been omitted.

56. [See Strauss v. West, 100 R.I. 388, 216 A.2d 366 (1966). The court held that Bascom's Folly was "sound" at the time delivery was tendered by Strauss, that title had passed to West and that West was liable to Strauss for the purchase price of $1,800. Ed.]

57. At the time of this purchase her account showed a balance of $164 still owing from her prior purchases. The total of all the purchases made over the years in question came to $1,800. The total payments amounted to $1,400. [Footnote of the court.]

58. Judicial skepticism about whether a promise was in fact made derives also from the possibility that the truth has been tortured to give the plaintiff the advantage of the longer period of limitations sometimes available for actions on contract as distinguished from those in tort or for malpractice. See Lillich, The Malpractice Statute of Limitations in New York and Other Jurisdictions, 47 Cornell L.Q. 339; annotation, 80 A.L.R.2d 368.

59. Some of the exceptional situations mentioned where reliance may be preferred to expectancy are those in which the latter measure would be hard to apply or would impose too great a burden; performance was interfered with by external circumstances; the contract was indefinite. See 46 Yale L.J. at 373-386; 394-396.

60. In Mt. Pleasant Stable Co. v. Steinberg, 238 Mass. 567, 131 N.E. 295, the plaintiff company agreed to supply teams of horses at agreed rates as required from day to day by the defendant for his business. To prepare itself to fulfill the contract and in reliance on it, the plaintiff bought two "Cliest" horses at a certain price. When the defendant repudiated the contract, the plaintiff sold the horses at a loss and in its action for breach claimed the loss as an element of damages. The court properly held that the plaintiff was not entitled to this item as it was also claiming (and recovering) its lost profits (expectancy) on the contract as a whole. Cf. Noble v. Ames Mfg. Co., 112 Mass. 492. (The loss on sale of the horses is analogous to the pain and suffering for which the patient would be disallowed a recovery in Hawkins v. McGee, 84 N.H. 114, 146 A. 641, because he was claiming and recovering expectancy damages.) The court in the Mt. Pleasant case referred, however, to Pond v. Harris, 113 Mass. 114, as a contrasting situation where the expectancy could not be fairly determined. There the defendant had wrongfully revoked an agreement to arbitrate a dispute with the plaintiff (this was before such agreements were made specifically enforceable). In an action for the breach, the plaintiff was held entitled to recover for his preparations for the arbitration which had been rendered useless and a waste, including the plaintiff's time and trouble and his expenditures for counsel and witnesses. The context apparently was commercial but reliance elements were held compensable when there was no fair way of estimating an expectancy. See, generally, annotation, 17 A.L.R.2d 1300. A noncommercial example is Smith v. Sherman, 4 Cush. 408, 413-414, suggesting that a conventional recovery for breach of promise of marriage included a recompense for various efforts and expenditures by the plaintiff preparatory to the promised wedding. ...

61. Recovery on a reliance basis for breach of the physician's promise tends to equate with the usual recovery for malpractice, since the latter also looks in general to restoration of the condition before the injury. But this is not paradoxical, especially when it is noted that the origins of contract lie in tort. See Farnsworth, The Past of Promise: An Historical Introduction to Contract, 69 Col.L.Rev. 576, 594-596; Breitel, J. in Stella Flour & Feed Corp. v. National City Bank, 285 App.Div. 182, 189, 136 N.Y.S.2d 139 (dissenting opinion). A few cases have considered possible recovery for breach by a physician of a promise to sterilize a patient, resulting in birth of a child to the patient and spouse. If such an action is held maintainable, the reliance and expectancy measures would, we think, tend to equate, because the promised condition was preservation of the family status quo. See Custodio v. Bauer, 251 Cal.App.2d 303, 59 Cal.Rptr. 463; Jackson v. Anderson, 230 So.2d 503 (Fla.App.). Cf. Troppi v. Scarf, 31 Mich.App. 240, 187 N.W.2d 511. But cf. Ball v. Mudge, 64 Wash.2d 247, 391 P.2d 201; Doerr v. Villate, 74 Ill.App.2d 332, 220 N.E.2d 767; Shaheen v. Knight, 11 Pa.D. & C.2d 41. See also annotation, 27 A.L.R.2d 906.



It would, however, be a mistake to think in terms of strict "formulas." For example, a jurisdiction which would apply a reliance measure to the present facts might impose a more severe damage sanction for the wilful use by the physician of a method of operation that he undertook not to employ.

62. That condition involves a mental element and appraisal of it properly called for consideration of the fact that the plaintiff was an entertainer. Cf. McQuaid v. Michou, 85 N.H. 299, 303-304, 157 A. 881 (discussion of continuing condition resulting from physician's breach).