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Contracts Outline
Bargained for Exchange: The parties must exchange something.
 Gift: There is no bargain involved when one gives a gift to another.
o Act or Forbearance by Promisee: Sufficient to form a bargain if it benefits the
 §71: consideration requires promises be bargained for
 §79: no addt’l req. of gain/loss, equivalence or mutuality of obligation
 §81(2): motive is key; promise must be part of reason for performance
o Economic Benefit Not Required: If one party gives the other peace of mind or
gratification in exchange for something, it may be sufficient to establish a bargain.
 Past or Moral Consideration: A promise given in exchange for something already done
does not satisfy the bargain requirement.
o §71: timing issue, nothing sought by promisor
o §82(1): can enforce promise to pay if indebtedness would be enforceable w/o
statute of limitation
 Legal Value Element
o Adequacy of Consideration: Not generally inquired into but if something is devoid of
value (token consideration), it is insufficient.
o Pre-Existing Legal Duty is traditionally insufficient consideration.
 Exceptions: new or different consideration is promised, or the preexisting
duty is owed to a third party rather than to promisor
o Forbearance to sue is consideration if made in good faith.
 §74: ^ is invalid unless facts are debatable OR promise given in good faith 
good faith must be proven, defer to reasonable person standard
 Mutual and Illusory Promises: If only one party is bound to perform, the promise is illusory
and will not be enforced. Courts often supply implied promises (i.e. best efforts) to infer
o §77: illusory promise if promisor has a choice of performances
o a personal satisfaction clause (§228) doesn’t render a contract illusory: 2 types:
 (1) business standard
 (2) personal taste  can act subjectively as long as in good faith
 Substitutions for Consideration
o Promissory Estoppel (Detrimental Reliance): the promisor should reasonably expect
her promise to induce action or forbearance of definite and substantial character
and such action or forbearance is in fact induced
 §90: Reliance -- promise which promisor reasonably expects to induce action
or forbearance and which does is binding if injustice can be avoided by
o Restitution for Unjust Enrichment: Enrichment is unjust if created by your actions
(mislabeled house gets painted) but not if impossible to return or by accident
Contracts Outline
Nature of Assent: For an agreement to be enforced as a contract, there must be mutual assent.
In other words, one party must accept the other’s offer. Whether mutual assent is present will
be determined by an objective standard i.e. did words or conduct manifest a present intention
to contract?
 §24: An offer is the manifestation of willingness to enter into a bargain, made so as to
justify another person in understanding that his assent to that bargain is invited and will
conclude it.
Offer: Creates a power of acceptance in the offeree (“last shot”). To be valid, must be:
1. Expression of promise, undertaking or commitment to enter into a contract
2. Definite and certain in its terms
3. Communicated to the offeree
Requirement of Definiteness
 §33/UCC2-204(3): offer requires reasonably certain terms so as to make it clear to
offeree that acceptance creates a contract and to determine existence of
 Land Contracts: Offer must describe property and price.
 Sale of Goods Contracts: Offer must describe quantity and goods involved.
 Service Contracts: Offer must describe duration and nature of services.
Types of Contracts (by Acceptance)
1. Bilateral Contracts require an exchange of promises.
2. Unilateral contracts require the exchange of an act for a promise.
a. Where the offeror clearly indicates that performance is the only manner of
Acceptance of Bilateral Contract
 Who may accept? The person to whom the offer was addressed, as does a member of
the class to whom the offer was addressed.
 How? Communication via proper method
o If an offer clearly requires use of a particular method of acceptance, use of any
other method is a counter offer.
o If offer just suggests use of a specific method but does not require it, use of
suggested method or different but reasonable method is still acceptance.
 Use of unreasonable method = counteroffer.
 Reasonable means as quick and as reliable as suggested method.
o If no method is required or suggested, offer may be accepted by same method
used to send offer or any other reasonable method
Contracts Outline
When is acceptance effective? Upon dispatch  The Mailbox Rule (§63)
o Exceptions:
 if the offer says it doesn't apply
 if the offer suggests a method of communicating acceptance and a
different but reasonable method is used
 if the offeree dispatches an acceptance, then sends a rejection. The
acceptance is effective upon dispatch unless offeror receives the
rejection first and acts in reliance on it.
 If the offeree sends a rejection first, then sends an acceptance. The
acceptance is effective upon receipt if it beats the rejection. If not, the
acceptance is only a counter offer.
Notice Requirement: When K can be formed by beginning performance, offeree must
give notice of the beginning within a reasonable time if the offeror would not otherwise
be aware of the beginning. If there is no such notice, the offer lapses.
o §50(3): acceptance of promise requires completion of every action essential to
making of promise
o §56: essential to acceptance by promise, requires reasonable effort and must be
seasonable unless offer manifests contrary intention
o §50(2): prep that is part of request constitutes performance (loading truck)
o §45: option K created at start of performance, so offeror cannot revoke
Acceptance of Unilateral Contract requires (1) complete performance of the requested act and
(2) notice of completion if required by offer OR if completion would not otherwise come
to offeror's attention within a reasonable time.
Termination of Power to Accept: An offer can be accepted as long as it has not been
terminated. §36 outlines when power may be terminated: (1) rejection/counteroffer from
offeree (2) revocation by offeror (3) lapse of time or (4) death/incapacity
1) Termination by Offeror (Revocation)
a) Offeror terminates an offer if he directly communicates the revocation to the
offeree; OR acts inconsistently with continued willingness to maintain offer and the
offeree correctly receives correct information from reliable source.
b) Effective when received by offeree.
c) Offers not supported by consideration or detrimental reliance can be revoked at will
by the offeror, even if he has promised not to revoke for a certain time period (§87),
d) Limitations on offeror’s power to revoke include:
(1) option contract
(2) firm offer under UCC (2-205: if definite holding date less than 3mo)
(3) offeree has detrimentally relied upon the offer in a way that the offeror
could have reasonably expected
(4) in the case of a unilateral K, the offeree has commenced performance
2) Termination by Offeree (Rejection or Time Lapse)
a) Rejection can be expressed or via a counter-offer
i) Effective when received
Contracts Outline
b) Lapse of time
i) Reasonable time, unless otherwise stated (§41(1))  if stated, acceptance past
time frame, considered counter-offer
ii) Rapid changes in price tend to shorten the time for acceptance
(1) Hypo: Offer to sell product for $1, attempt to accept later when product
worth more  no, reasonable timeframe dependent on market value
Effect of Rejection of Revocation on Offer
 Offeror sends offer. Offeree sends acceptance then rejection. Offeror receives
acceptance then rejection. Contract.
 Offeror sends offer. Offeree sends acceptance then rejection. Offeror receives rejection
and detrimentally relies on it, then receives acceptance. No Contract.
 Offeror sends offer. Offeree sends rejection then send acceptance. Offeror receives
rejection then acceptance. No Contract.
 Offeror sends offer. Offeree sends rejection then send acceptance. Offeror receives
acceptance then rejection. Contract.
 Offeror sends offer then revocation. Offeree sends acceptance then receives revocation.
 Offeror sends offer then revocation. Offeree receives revocation then sends acceptance.
No Contract.
Acceptance Varying Offer
1. Common Law “Mirror Image Rule” – Under §50(1), acceptance must mirror the
offeror’s terms, neither omitting not adding terms. Otherwise, it is a counteroffer or a
2. UCC – In contracts involving the sale of goods, an acceptance need not mirror the offer’s
terms. An acceptance that deviates from the offer is not necessarily a rejection and
counter offer.
 2-207 “Battle of Forms”
1. Any acceptance that indicates desire to enter into a contract is valid unless it is
made conditional on the acceptance of new or different terms.
2. The contract contains all the terms common to both offer and acceptance. If the
offeror or offeree are not both merchants, new or different terms from the
acceptance are part of the contract only if the offeror agrees. If parties are both
merchants, new (i.e., additional) terms in the acceptance automatically become
part of contract unless:
a. offer stated to the contrary
b. terms are a material alteration (would lead other party to want to negotiate),
c. offeror objects within reasonable time.
3. If parties perform contract, valid and based on common terms plus “gap-filler”
Contracts Outline
Breakdown of §2-207
 §2-207(1)
 A definite expression of acceptance or written confirmation
 A written confirmation confirms a prior agreement. The parties have already
interacted maybe orally/face to face. Just by looking at that interaction we can gather
that there is a contract. Then a party send a written confirmation and it makes
 (1) says that the written confirmation is the acceptance and might inject additional or
different terms.
 If you have a reply to the offer that changes things/adds terms it is still an effective
acceptance as long as it is sent in a seasonable time.
 Ex: offer A, B, C. acceptance says I accept A,B, not C, and D.
 Under this section we are looking for a definite and expressed acceptance of the
 UNLESS acceptance is conditioned upon offeror agreeing to offerees changes
 That is not an acceptance – that would be a counter offer.
 Summary of §2-207(1):
 You can add stuff, you can change things in an offer so long as there is language of
acceptance AND,
 so long as it is not expressly made conditional on the offeror assenting to the changes.
 If there is a counter-offer you must figure out if there was an acceptance of the counteroffer.
 If there is an acceptance and NO counter-offer we must figure out the terms of the
 Addressed by §2-207(2)
 If an acceptance under §2-207(1) then figure out what will apply by looking at §2-207(2)
 If there is a counter-offer we must look in §2-207(1) to see if there was acceptance.
 If there is no expressed acceptance we must look to §2-207(3)
 §2-207(2)
 The Q is do we go with addition or if we go with original offer?
 Between Merchants
 1. Offer expressly limits acceptance to the terms of the offer.
 2. Material alteration
 Big change ≠ not in contract
 Not big change = contract
 3. Notification of objection of the changes has already been given or is given w/i a
reasonable time after notice of them is received.
 If there is one non-merchant, the statute takes a different approach
 If not both merchants, the offeror wins
 But what that means is if she agrees to new terms, the new terms are a part of the
 OR Stick with the terms of the original offer.
 §2-207(3)
 Whatever is consistent between the offer and counter offer are in. AFTER We fill in the
gaps with whatever the UCC tells us to.
 Have to work your way step by step
Contracts Outline
First, look to §2-207(1)
IF NO CONTRACT UNDER §2-207(1) THEN GO TO §2-207(3).
 You never get to (3) if you find a contract in (1).
 Assuming no contract in (1) and the response to the offer was not an acceptance.
 Conduct by both parties recognizes the existence of a contract  meaning
 Performance is sufficient to establish the contract.
 NEXT: what terms apply since under §2-207(1) we didn’t have a contract?
 If the documents don’t match
 Whatever is consistent in offer and counter offer are in the contract.
 i.e., Offer says A, B, C, and Q. The acceptance says A, B, C, Not Q, adds D. What
is in?
 A, B, & C.
 If gap in the contract, the UCC tells you.
 i.e., Q and D, are about how the goods will be delivered and are not agreed upon.
The UCC will tell you how it will be delivered.
 i.e., or just absent in the contract in general.
 Another way to make a contract without offer and acceptance
 Ex: we have a counter-offer meaning there is no contract. But you still perform.
 If the parties perform even though there was no acceptance just an offer and a
counter-offer, there is a contract.
Contracts Outline
Parol Evidence Rule: governs the effect of prior or contemporaneous, oral or written
agreements between the parties on an integrated contract
OK: consistent
additional terms
Integrated K?
contradictory or
additional terms
Complete v. Partially Integrated Agreements (§210)
o If parties intend document to express final agreement = integrated
 If parties don’t intend the K to include all the details of their agreement =
partially integrated
 If parties intend the K to include all the details of their agreement =
completely integrated
Parol Evidence Rule
o Common Law (§213)
 Partially Integrated:
 contradictions ≠ evidence inadmissible
 consistent additional terms = admissible
 Completely Integrated:
 evidence inadmissible re: contradictions & additional terms
o UCC (§2-202)
 If writing is final expression of parties, it may not be contradicted but it
may be explained or supplemented by
 (1) course of dealing,
 (2) trade usage,
 (3) course of performance, or
 (4) consistent additional terms
o Gianni: Tenant sells soda. Written K w/ landlord gave right to sell soda. Tenant
claims landlord orally told him he would have exclusive rights to sell soda.
 Holding: Evidence inadmissible. Natural a clause like that would be
included in the K since same subject matter and exclusive rights are
consideration.  Strict NY Rule: determine integration by looking at K
Contracts Outline
o Masterson: Sold ranch w/ option to buy back, seller went bankrupt and trustee
wanted to buy it back. Buyers said parol evidence indicated right was not
assignable (had to be kept within family). No integration clause.
 Holding: Parol evidence admissible re: meaning of terms. Court uses
contextual approach to determine if completely integrated. Hard to
include the non-assignment agreement in the deed, and a family
agreement so might not write anything down.  Liberal CA Rule:
determine integration by looking at K and other agreements
o Bollinger: Written K allowing dumping. Oral agreement that D would dump in a
hole & fill. P didn’t notice this term was left out of K. D dumped in agreed
manner then stopped. Not an additional but forgotten term.
 Holding: Parol evidence admissible to reform K according to agreed upon
terms in light of clerical error (§214). Specific performance ordered.
Determining Whether the Agreement is Ambiguous
 Liberal CA Rule: have to look to extrinsic evidence to determine if a contract is
ambiguous; is language fairly susceptible to multiple meanings?
o PG&E: Plain language of K read “all damages,” PG&E sought to include extrinsic
evidence to define “all” according to the parties’ intent
 Holding: Court says plain language reading is too constrictive. Intent of
the parties matters. Evidence admissible.
o Trident: 9th Circuit decision criticizing the binding rule set forth in PG&E as
adding uncertainty to otherwise clear Ks
 Plain Meaning NY Rule: If language isn’t ambiguous (by looking at contract alone), can’t
bring in extrinsic evidence. If language is ambiguous, then can use extrinsic evidence to
explain the ambiguous term.
o WWW Associates: K had a reciprocal cancelation clause, one party wanted to
read it as for their sole benefit based on extrinsic evidence. K also had a merger
 Holding: K was unambiguous so can’t look to extrinsic evidence, can’t
consider extrinsic evidence to create an ambiguity
 Maxims describe basic logical concepts that can be used to help interpret language in a
o Using logic to interpret what’s on the page – not extrinsic evidence.
o Maxims such as:
 Of the same kind
 ejusdem generis
 The expression of one thing is the exclusion of another
 expression unius est exclusion alterius
 It is known from its associates
 noscitur a sociis
 popular in contract interpretation.
Contracts Outline
Extrinsic Evidence
a. Weight of Extrinsic Evidence: §203
i. (1) Express terms Parol Evidence – Most specific to this K, so given the
greatest weight
ii. (2) Course of Performance- Next most specific bc has to do with how parties
performed this contract (Boillinger- D dug a hole, dumped, and sealed it)
iii. (3) Course of dealing
1. Evidence about these parties in other contracts they’ve engaged in the
2. History of parties in dealing with each other
iv. (4) Usage of trade—Most general, not specifically linked to these parties and
this contract
1. Trade usage is admissible to interpret the meaning bc parties are in the
2. Terms can have a particular meaning w/in a trade or industry different
from common usage
3. Must show either both were in the trade, or at least one of the parties
was in the trade, and the other party was aware of the trade usage.
Extrinsic Evidence in Commercial Context
 Under UCC, evidence can be used to supplement or give meaning to terms as long as it
doesn’t contradict express terms, even when the language appears to be clear. They can
supplement the contract.
Express K
Course of
Course of
Usage of
o Course of Performance: Prior conduct in relation to K in question that involves
repeated occasions for performance
o Course of Dealing: Conduct in previous transactions
o Usage of Trade: Traditional conduct in a place, vocation, or trade
Frigaliment: Controversy over what constitutes a “chicken” in a trade K.
o Holding: Term is ambiguous. There is a trade usage definition but D new to trade
so P had to prove that D knew trade meaning or that meaning so known in
community. P couldn’t prove either so D’s definition won.
Hurst: K for horse meat said it had to be at least 50% protein.
o Holding: Court allowed evidence of trade to show that amounts above 49.5% but
under 50% count as 50%. Even when contract is not ambiguous on its face, can’t
exclude evidence of usage of trade.
Nanakuli: Dispute over whether K included price protection for asphalt paving K  Gap
Contracts Outline
o Holding: Based on course of performance (D had price protected 2x) and Trade
Usage (common practice for this industry in HW), filled gap with price protection
Columbia Nitrogen: K for sale of specific amount of fertilizer at specific price w/ merger
clause. After K formed but before delivery, market prices dropped. Buyer refused to
complete full K. Seller sold rest at lower price and sued for damages.
o Holding: Merger clause only prevents parol evidence, not extrinsic evidence to
gap fill. There was only a price escalation clause, not de-escalation so that gap
could be filled by trade usage and course of dealing.
Whose Meaning Prevails (§201)
1. Where the parties have attached the same meaning to a promise or agreement or a term
thereof, it is interpreted in accordance with that meaning.
2. Where the parties have attached different meanings to a promise or agreement or a term
thereof, it is interpreted in accordance with the meaning attached by one of them if at the
time the agreement was made
a. that party did not know of any different meaning attached by the other, and the
other knew the meaning attached by the first party; or
b. that party had no reason to know of any different meaning attached by the other,
and the other had reason to know the meaning attached by the first party
o Raffles: P & D K for shipment on ship named Peerless. There are 2 ships w/ that
name and each party is thinking of a different ship.
 Holding: K unenforceable. No meeting of minds.
 Hypos: If both thinking of same ship, K valid based on their intent. If one
party knew about the 2 ships and other didn’t, do with meaning of
ignorant party. If meant for ship 1 and wrote ship 2, could reform K to
discuss intended ship 1.
Supplying Omitted Essential Terms (§204)
 When the parties to a bargain sufficiently defined to be a K have not agreed with
respect to a term which is essential to a determination of their rights and duties, a term
which is reasonable in the circumstances is supplied by the court
Warranty of Merchantability (§2-314): Implied whenever seller is a merchant with
respect to the kinds of goods in question
Warranty of Fitness (§2-315): Implied whenever seller knows specific purpose buyer
intends to use good for and buyer relies on seller
Exclusion (§2-316): Implied warranties can be left out if buyer examines goods and
doesn’t see defect they should, if buyer neglects to examine goods, if conspicuously
written or due to course of dealing/performance or trade usage
Henningsen: K had confusing and hidden warranty in K calling. Will only fix car w/in 2
months thus disclaiming personal injury liability.
Contracts Outline
o Holding: Court refuses to uphold disclaimer of liability: didn’t call attention to
the provision, no bargaining over warranty, text was unclear
1) Is there a condition?
a. A promise is a commitment to do or refrain from doing something. It may be
conditional or unconditional.
b. A condition is an event the occurrence or nonoccurrence of which will create, limit
or extinguish the absolute duty to perform (§224).
c. Language to look for “on condition that, provided that, only if, it, so long as, etc.
2) Is it expressed or constructive?
3) If expressed, does non-occurrence relieve duty to perform?
a. Generally, yes. Strict compliance ordinarily required.
b. BUT under §227, courts look for reasons to “excuse” non-occurrence of the
condition to avoid forfeiture (loss on behalf of party condition is against)
4) If constructive, does non-occurrence relieve duty to perform?
a. Substantial performance typically required.
b. If performance not substantial, material breach. Breach typically determined to be
material or not by considering
i. lost benefit to injured party,
ii. compensation,
iii. forfeiture,
iv. likelihood of cure,
v. bad faith (§241)
5) If both parties owe performances, what’s the order in which performances are due?
a. If in contract, go with that order. (§234)
b. If not, perform simultaneously if possible. Implied condition each will tender (§237)
c. If not possible, longer performance must be done first. Implied condition that 1 st
performance will occur before 2nd (§238)
6) Is the contract divisible?
a. Contract can be divided into corresponding pairs of performances.
i. Divisible contract:
1. performance of each party is divided into two or more parts;
2. the numbers of parts on each side is the same;
3. each part of the performance by one party has a corresponding part in
the other party’s performance.
Contracts Outline
ii. Ex: Assume a contract calls for a builder to construct 100 houses and a
developer to pay $100,000 for each house built. Is this a divisible contract?
1. Yes, because each house has a separate price.
iii. What if the contract calls for the builder to construct 100 houses and the
developer to pay $10,000,000 for the work. Is this a divisible contract?
1. No, you build 100 houses, I pay for 100 houses.
7) If yes, did P substantially perform any parts?
a. If yes, [P] can recover at the contract rate for that part even if [P] materially
breached on other parts.
8) Was condition excused?
a. Failure to Cooperate (Prevention): If a party has some control over whether a
condition on her duty to perform will be fulfilled, the condition is excused if she
doesn't try to fulfill the condition or if other party tries to prevent its fulfillment.
i. Ex: Buyer promises to buy Seller's house if Buyer can get a loan at not more
than 8%. Buyer never applies for a loan. Can Buyer defend Seller's suit for
breach on the grounds of failure of condition?
1. No, because the buyers inaction excused the condition. The buyer had
some control over whether the event would occur – it could’ve gone to
the bank to fill out a loan application but didn’t do that. Therefore, the
condition goes away.
b. Estoppel: A condition is excused on the grounds of estoppel where the party whose
duty is conditioned says, before the condition was to be fulfilled, that it will perform
even if the condition is not fulfilled, and the other party changes position in reliance
on this statement (detrimental reliance)
i. Ex: Buyer promises to buy Seller’s house by the 30th on condition Seller
paints the house by the 15th. On the 10th, Seller tells Buyer he needs more
time. Buyer says “You can have until the 20th.” Seller relies on this
statement by not painting until the 20th. Can Buyer claim failure of
1. No, Buyer is estopped because Seller relied on it.
c. Waiver: A condition is excused by waiver when, after the condition was to have
been fulfilled but was not, the party whose performance was conditioned, knowing
there was a failure of condition, states it will still perform
i. Ex: Buyer promises to buy Seller’s house by the 30th on condition seller
paints the house by the 15th. On the 16th, Seller tells Buyer he needs more
time. Buyer says “You can have until the 20th.” (WAIVER.) On the 19th,
Seller asks for yet more time and Buyer says he can take until the 25th. In
reliance, Seller waits until the 25th to paint. (ESTOPPEL.)
1. Buyer had the right to say this deal is off, but he didn’t, he told him to
paint by the 20th, so he is now waiving the condition.
2. So after he waived the condition did he then make another condition?
a. Waiver of the original condition but they are setting up a new
one (a modification).
Contracts Outline
9) Was there anticipatory repudiation?
a. A statement indicating that the obligor will commit a breach that would give the
obligee a claim for damages OR a voluntary affirmative act which renders the obligor
unable to perform (§250)
i. Who is the obligor, who is the obligee?
1. No obligor or oblige only a promisor or a promisee.
b. If unclear whether there will be repudiation, obligee can demand adequate
assurance. If not provided = repudiation (§251)
i. In writing - demand adequate assurance
1. Must be w/i scope
a. Did [P] demand assurance of the performance defendant
promised or assurance as to more than was due under the
ii. If assurance is not given, there is repudiation.
c. Examples:
i. A agrees to paint B's house and B agrees to pay on condition that he is
satisfied with A's work. Before the time comes for A to paint, B says "I
repudiate." Can B now defend suit for breach on the ground his duty to
perform was expressly conditioned and that condition was never satisfied?
1. No, because condition has been excused (Rst. §255).  even though
there was a condition to pay only if satisfied, he had to allow painter to
at least paint.
ii. A and B make a contract under which A agrees to buy and B agrees to sell a
business for $1,000,000 payable December 1. On November 1 A declares
bankruptcy. On November 15 B sells the business to C. A sues B for breach
of contract. How should the court rule? See Restatement §§250(b), 253(2).
1. B should win because B is not in breach, its duty was discharged when
A repudiated by filing for bankruptcy.
d. Nullifying Repudiation
i. You can nullify repudiation if you retract it so long as other party has not
relied on repudiation or has indicated he considers the repudiation to be final.
ii. Repudiator can retract so long as there has been no material reliance, or the
other party has not made a statement to the affect that this “is a final
Luttinger: K to buy home, conditional on buyer obtaining mortgage financing from bank
at rate not above 8.5%. They could only find 8.75%.
o Holding: Condition not met so no deal. Seller offered to make up difference but
no obligation to accept since used due diligence to pursue mortgage
Peacock: K says general contractor will make final payment to subcontractors w/in 30
days of completion of the work in the subcontract, written acceptance by Architect, &
full payment by the owner for the subcontract work.
Contracts Outline
o Holding: General contractor’s payment not a condition on paying subcontractor,
just temporal context. Common sense in industry
Gibson: Painter agreed to enlarge portrait of man’s deceased daughter. Condition on
payment that painting must be “satisfactory” to father
o Holding: Personal satisfaction ok if in good faith re: taste
Kingston: Apprentice to take over business after one year, has to pay monthly and
provide good security (as judged by owner) that he’ll keep paying. Doesn’t provide
security, sues for transfer of business.
o Holding: Security is implied as a condition precedent, so merchant is excused
from transferring (it’s a material breach). If it wasn’t, then merchant would have
to transfer and could then sue for breach.
Stewart: P agreed to do construction work for D. D promised to pay. Gap in K re:
sequence of performance. P refused to finish work b/c no progress payments made.
o Holding: Court uses §234 to fill gap. P must finish 1st because takes longer.
Jacob & Youngs: Builder used incorrect piping brand but of same quality. D refused
payment and demanded pipes fixed.
o Holding: Judgement for P under §237 because builder would suffer tremendous
forfeiture to fix minor problem
Plante: Builder misplaces wall by a foot.
o Holding: Not material b/c not intentional so w/in good faith and fixing would
cause forfeiture.
 HYPO: If hired to fix wall & messed up = material b/c entire extent of K
McKenna: Architect’s certificate was a condition of each payment, D refused to make
final payment but 6 of 7 payments were made w/o a requested certificate
o Holding: D waived his right repeatedly during progress of the work, so he’s
waived it for the final payment too.
Hicks: Completely integrated written agreement for merger of two companies. One
party performed, sued for specific performance when other didn’t.
o Holding: Court allows in parol evidence that there was a condition precedent
(agreement not to become effective till they raised $672k), so judgment for
Walker: D rented an ad sign for biz. K was monthly rental for 3 years & P agreed to keep
sign clean. Sign got dirty. D asked P to clean. P didn’t, D refused to pay rent. Who
committed first material breach?
o Holding: Court says D breached first since P’s conduct was non-material.
K&G Construction: Sub-contractor K to do work w/ general contractor states that
progress payments will be made each month and that work will be done in workmanlike
manner. Sub’s bulldozer damages the building, general withholds progress payment,
sub stops working and general has to hire more expensive sub.
o Holding: For general since progress payments were dependent on sub’s promises
(including workmanlike manner)
Gill: Gill agreed to move logs, flood prevented part of the performance (swept them
away). Gill sued Johnstown for payment of the logs that he delivered.
Contracts Outline
o Holding: Gill is entitled to compensation for work done, contract was severable.
But only for logs he delivered the whole way, no partial compensation for a log
he delivered only part way.
Kirkland: P contracted to make alterations to D’s house. Had a schedule of payments.
But K provisions were not severable, total consideration was to be paid for total work.
o Holding: Defaulting contractor who has materially enriched the other party is
entitled to recover the reasonable value of work done, minus whatever damage
the other party suffered due to breach
Hochster: D hired P for 3 months beginning 6/1. In May, D informed P he would not
honor K. P sued on 5/22.
o Holding: Suit allowable even though before time K would have begun.
Kanavos: P gave D right of first refusal to some stock, then sold the stock without
notifying P. At time D sold the stock to the third-party, P unable to pay for it.
o Holding: A party cannot recover damages for breach of other party unless one is
able (financially or otherwise) to perform his own obligation (in this case pay for
the stock)
McCloskey: D agreed to supply P w/ steel during Korean War. P worried about shortage
and demanded assurance of steel. D wrote that looking but not given up.
o Holding: Not repudiation b/c not a clear no and no time restraint in K.
The Perfect Tender Rule (UCC §2-601)
 In a sale of goods case, where the contract calls for single delivery of goods,
performance of seller must be perfect to satisfy the constructive condition on buyer’s
promise to pay no matter how minimal imperfection is.
Contracts Outline
Legal Remedies
a. Expectancy Damages: Net value of what was promised – net value of what was
received from breacher.
i. P makes a K w/ FedEx to deliver mail next day or he’ll be fired. Next day
delivery costs $10. FedEx delivers mail three days later in regular service
which costs just 50 cents. Expectancy damages = $10 - $0.50 = $9.50
b. Consequential Damages: Non-breacher can recover other losses cause by the
breach so long as reasonably foreseeable. Duty to mitigate.
i. Above example, P could recover lost income since told FedEx he’d be
fired if not delivered on time.
c. Incidental Damages: Non-breacher may recover reasonable cost of mitigation.
i. Above example, could recover the costs of finding new job.
d. Quasi-Contractual Recovery: Where a promise is not enforceable, but one party
receives a benefit from the other, the party bestowing the benefit may recover
its reasonable value.
i. Kid buys burger but doesn’t pay. Unenforceable b/c child but since got
the burger, must pay the reasonable value of food.
e. Liquidated Damages: LD clause enforceable if (1) at the time of formation
damages for breach were difficult to estimate, and (2) the amount specified in
the clause was a reasonable forecast of the actual damages.
i. Sell 100 shares for $10 each. Market value is $9. K provided that
liquidated damages would be $2,000. Unenforceable b/c 20x.
Equitable Remedies
a. Specific Performance: A party is ordered to perform a K’s terms.
i. Must be a valid K.
ii. All conditions on promise have been satisfied or excused.
iii. Legal remedy is inadequate. Money damages inadequate when subject is
iv. Enforcement is feasible.
v. There are no equitable defenses:
1. Latches: unreasonable delay in bringing suit that causes prejudice
to D i.e. suing for sale of house after remodeled
2. Unclean Hands: party asking for remedy engaged in wrongful
conduct in connection w/ the creation or performance of K.
vi. Personal Performance Contract ≠ Equitable Remedies
Buyer’s Remedies for Seller’s Breach of Warranty
a. Status Quo Remedies: designed to get the goods back into the seller’s control after
the seller ships but breaches
Contracts Outline
i. Rejection: In K for a single delivery, buyer can reject any nonconforming
shipment before accepting the goods, no matter how trivial the nonconformity (“Perfect Tender Rule”)
ii. Revocation of Acceptance: Buyer can revoke acceptance for substantial
defect or nonconformity if problem was difficult to discover at the time
goods were accepted or seller said the defect would be cured and it has not.
1. Acceptance occurs when buyer fails to reject within a reasonable
time, or indicates the goods are acceptable, or does anything
inconsistent with seller's ownership
iii. NOTE: In both cases, buyer must give seller
1. Reasonable notice of the defects and use of these remedies.
2. Buyer then must await instructions as to what to do with the goods.
3. If instructions are reasonable, the buyer must follow them.
4. If instructions are not reasonable, or if there are no instructions, the
buyer can do anything reasonable with the goods
b. Other Buyer’s Remedies
i. Damages: If goods are delivered and buyer decides to keep them, buyer can
sue for any breach of warranty. Damages = diminished value of the goods.
1. If seller fails to deliver goods or the buyer rightfully rejects or revokes
acceptance, buyer can “cover” by purchasing substitute goods within
a reasonable time after learning of the breach.
a. If buyer covers, damages = difference between cover price
and contract price.
i. Ex: Make a contract to buy $5,000 worth of gas.
Promisor does not fulfill promise – promisee finds
another supplier and ends up paying $6,000. Can
recover $1,000 from promisor.
b. If buyer does not cover, damages = difference between
market price at the time buyer learned of the breach and
contract price.
2. Buyer can get consequential and incidental damages under rules
described above
ii. Specific Performance: Available if goods are unique.
Seller’s Remedies for Buyer’s Breach
a. Status Quo Remedies: Remedies that restore goods to seller or permit seller to keep
the goods.
i. Right to Withhold Goods: If buyer breaches while goods are still in seller’
possession, seller may withhold delivery. Seller may then do whatever is
reasonable (resell, scrap, etc.) and sue for damages.
ii. Right to Stop in Transit and Recover Shipped Goods: If the seller ships goods
and then buyer breaches, seller can stop and recover shipment if buyer is
insolvent. If buyer is not insolvent, seller can stop in transit and recover only
large shipments like carloads.
Contracts Outline
b. Other Seller’s Remedies:
i. If seller still has the goods it can seek a substitute sale.
1. Damages = difference between contract price and the substitute sale
2. In such a case, seller must give notice to buyer of the resale except
where goods are perishable or will decline in value quickly.
3. This notice gives the buyer one last chance to complete performance.
ii. Alternatively, seller can choose to recover damages = difference between
contract price and the market price at the time and place delivery was to be
made. Seller can also sue for the price if goods are not resellable
c. Remedies for Lost Volume Sellers
i. Sellers for goods in great quantities (Sear’s steak knifes)
d. Incidental Damages: Non-breacher may recover reasonable cost of mitigation.
i. Same as common law
1. Statute of Frauds: Defense to contracts that are not in writing.
S of F is a statute enacted in every U.S. state that makes certain contracts enforceable only if
they are in writing or, in limited circumstances, were performed by the parties.
a. Five Categories that fall within the Statute of Frauds:
i. Marriage
ii. Suretyship (promise to pay the debt of another w/ collateral promise, if
not done for personal benefit)
iii. Interests in Land  lasting 1+ year
1. Lease
2. Easement
3. Mortgage
4. Fixture
iv. Estate to Perform a Duty of the Deceased.
v. Service contracts not capable of complete performance within 1 year
1. The statute of frauds applies only if at the date of formation there
was no logical possibility to complete performance within one year
from that date.
vi. UCC: Sale of Goods for $500+
b. Evidence to Satisfy the SoF, written contracts must satisfy the following
i. Writing
1. Common Law must be:
a. signed by the party to be charged and identify parties;
b. subject matter; and
c. consideration
2. UCC must be:
a. signed by the party to be charged and
Contracts Outline
i. Letterhead = signed
ii. Initial = signed
b. identify the goods and quantity
ii. Partial-Performance
1. Goods: enforceable for part exchanged
2. Land: payment & possession and/or valuable improvements
3. Service: full performance
2. Capacity (§12)
a. Infancy (§14): 18 under. Affirm or void upon majority. Necessity exceptions
b. Mental Incapacity (§15): cognitive impairment OR known judgment issue
c. Intoxication (§16): other party has reason to know
3. Pre-Existing Duty (§73)
a. Performance of a legal duty already owed to a promisor cannot be consideration
for a new contract. Similar performance is okay if different, so long as not just a
b. To modify a contract, typically need consideration and must be fair within scope
of K (§89). For UCC, no consideration is needed for modification (2-209).
c. If can’t modify K, must either rescind original K, let time pass and then create
new K OR find a basis for making the K voidable.
4. Duress (§175-6): Limit – you have to try to resist pressure of duress (reasonable)
a. If assent is induced by an improper threat by the other party that leaves the
victim no reasonable alternative, K is voidable by the victim.
b. A threat is improper if it’s a) crime or tort, b) criminal prosecution, c) bad faith
use of civil process or d) the threat is a breach of the duty of good faith.
5. Undue Influence (§177)
a. Persuasion which overcomes the will without convincing the judgement
i. Subjective: dominant party exerting force over servient party
ii. Objective: reasonable person in victim’s position would let will be
6. Misrepresentation (§159-4)
a. Misrepresentation makes contract voidable when assent induced by fraudulent
or material misrepresentation that was reasonably relied on.
b. Fraudulent intended to induce a party assent and the maker knows/believes
false/lacking confidence or basis to make assertion
c. Material if would be likely to induce a reasonable person to manifest his assent,
or if the maker knows that it would be likely to induce the recipient to do so.
i. If person lies [D] gets the defense even if lie isn’t material.
Contracts Outline
7. Concealment
a. AKA non-disclosure which is typically protected against under the principle of
caveat emptor (buyer beware), so long as no lies or intentional hiding
Unfairness – wont get
8. Unconscionability (§208, UCC §2-302)
a. A contract may be voidable where the clauses are unfairly one-sided
b. Procedural = unfairness in the bargaining process or unfair surprise
c. Substantive = K contains an unreasonably one-sided term/contrary to pub policy
i. Look at if it is against public policy if it is not unreasonably one-sided.
ii. Test for substantive unconscionability:
1. Is there a one-sided term?
a. Yes: move on #2
b. No: no substantive unconscionability
2. If so, does it protect a legitimate interest?
a. Yes: move on to #3
b. No: Substantively unconscionable
3. If so, is it a reasonable way to protect that interest or does it go
beyond what’s necessary?
Yes: no substantive unconscionability
No: substantively unconscionable
 McKinnon: Businessman (P) helped neighbors (D) buy land for resort on
condition they didn’t develop any closer to his property for 25 years. 4 years
later, D developed closer to help business. P sought injunction through an
order of specific performance (equitable remedy)
 Holding: Equitable remedy prevented due to unfairness of K resulting
from disparity in status relating to business experience
 Tuckwiller: K b/w caretaker & Parkinson’s patient. Life service for property.
Died within weeks.
 Holding: K enforceable. At the time of contracting there was no way
of knowing how long the elderly woman would live for.
 Black Industries: Chain of Ks – D made parts for P who sold at higher price to
Hoover to use in a government defense K. D defaulted and P sued. D claimed
contacts was against public policy.
 Holding: Acceptable K, P performs service by connecting D to H.
Contracts independently fair and at arm’s length.
 O’Callaghan: P fell in apartment courtyard. Landlord (D) protected by
exculpatory clause in rent agreement.
 Holding: Fair because there was no evidence P tried to negotiate the
clause. Common practice clause for type of K. Question re:
substantive unconscionability b/c insurance is an alternative.
 Williams: Welfare family and pro-rata furniture Ks
Contracts Outline
Holding: Remanded to determine D’s understanding of confusing prorata term in K for procedural unconscionability. Probably
substantively unconscionable b/c one-sided w/ extreme measures to
protect biz interest
Jones: Welfare buyer paid $620 of $1440 K for freezer worth $300.
 Holding: price term enough on its own for unconscionability, doesn’t
look towards procedural unconscionability. K reformed to price paid
thus far.
Armendariz: P sued for wrongful termination based on sexual
harassment/discrimination. Employment K had arbitration clause for
wrongful termination claims only.
 Holding: Unconscionable b/c although limited procedural concerns,
extreme substance concerns re: one-sidedness
Scott: Cingular’s standard form contract not only required arbitration, but
forbade user participation in class actions and class arbitrations.
 Holding: Unconscionable based on substance which went against
federal protection against unfairness (CPA)
Contract of Adhesion: A standardized contract, which, imposed and drafted
by the party of superior bargaining strength, relegates to the subscribing
party only the opportunity to adhere to the contract or reject it. Enforceable
unless unconscionable in terms.
 Graham: Music producer w/ contracts of adhesion ft. arbitration
clause upheld
 Klar (Package Room): parcel check room gave ticket after payment
w/ “K” printed on it including limited liability for lost packages clause.
o Holding: Unenforceable K b/c paid very small amount prior to
“entering” K
9. Good Faith in Performance
a. §205/UCC §1-304: “Every contract or duty within [the UCC] imposes an
obligation of good faith in its performance and enforcement.”
b. §1-302: “The obligations of good faith…may not be disclaimed by agreement.”
c. What does good faith mean? duty to respect reasonable expectations of other
party, duty to refrain from acting in bad faith
 Dalton: 2nd SAT score increase triggered fraud investigation. K said student
could submit explanatory materials which he did. D didn’t consider info.
 Holding: Breach of good faith so student entitled to specific
 Frey: Sale and leaseback arrangement with option to buy back, Paragraph
34 said had to give reasonable consideration to requests for additional
financing. Requested financing 20 years later, didn’t mention Para 34,
was denied. Tried to buy back.
Contracts Outline
Holding: Remanded to determine if bad faith. Can’t take
deliberate advantage of an oversight by your L partner of their
rights under the K
10. Illegality
a. If the subject matter of a contract is illegal in that its performance involves a
crime or tort, the contract is void.
b. If the subject matter is not illegal but a party’s purpose for the contract is illegal,
the contract is voidable at the option of the innocent party, if there is one.
c. §178: Courts may refuse to enforce contracts that violate public policy = broader
basis for voiding a contract than illegality since it encompasses subjects or acts
that do not involve crimes or torts
11. Mistake (§151-4) (after contract was formed)
a. Mutual Mistake: where both parties to the contract are mistaken as to a matter
that has a material effect on the exchange, unless the party adversely affected
by the mistake assumed the risk of that mistake
i. Ex: Buyer agrees to purchase from Seller what they both believe to be a
painting by Van Gogh. Both are art dealers and had no doubt as to
authenticity. An expert later proves the painting a fake. Is the contract
1. No, this was a mutual mistake. Both believed this to be an
authentic painting. It goes to a basic assumption on which the
contract was made.
2. Has material effect on the contract
ii. Ex: Same case except Buyer thought it was a Van Gogh but knew he
could not be certain unless he consulted an expert. He decided it was not
worth the time to consult an expert and bought the painting, which turned
out to be a fake. Is the contract enforceable?
1. Yes, he assumed the risk when he was consciously aware that he
only had limited knowledge but was willing to make the deal
a. Even when you think you know what it is.
b. Unilateral Mistake: where only one party is mistaken as to matter that has a
material effect on the exchange. The defense applies where (1) the other party
knew or should have known of mistake, or (2) the effect of the mistake makes
the contract unconscionable. Again, there is no defense if the party adversely
affected by the mistake assumed the risk of that mistake.
i. Ex: Seller takes what he thinks is just a pretty stone to a jeweler for
appraisal. The jeweler tells him it is worthless. Buyer, who happens to
overhear the discussion, looks at the item and realizes it is a $10,000
diamond. He offers Seller $1 and Seller agrees. Is the contract
1. No, because Seller is not consciously aware that he is lacking the
full facts, so he is not assuming the risks.
Contracts Outline
a. Seller investigates
b. Takes advice from someone who is supposed to be an
Mistake Hypo:
Buyer purchases an item at a flea market for $5. He discovers later that the item is a rare
antique worth $50,000. May seller successfully sue to void the contract and recover the
 Seller hasn’t investigated, did not bring in an expert to analyze the item.
o Because of no investigation: seller assumed the risk.
o Consciously aware that he did not have the full value of he item.
o Mutual mistake.
 Hypo: buyer knows this is a valuable item.
o Unilateral mistake
o Still assumption of the risk on the part of the seller unless there is
some other defense. What else might work?
 Misrepresentation – did buyer say something to mislead the
Contracts Outline
13. Impossibility & Impracticability (§261) (after contract was formed)
a. The defense of impossibility applies were, after formation of a contract,
something happens that makes it impossible for a reasonable person to perform.
i. There are three ways this occurs:
1. Death or physical incapacity of a person essential to performing a
promise in the contract UNLESS delegable
2. Destruction of the subject matter of the promise,
3. Performance of the promise becomes illegal after K is made
b. The defense of impracticability applies where:
1. performance is made much more difficult (even though not
2. by an event not anticipated at the time of formation,
3. through no fault of the person asserting impracticability, and
4. that person does not assume the risk of the event.
 Taylor: K renting Surrey Gardens for four days. Venue burnt down before
rental date.
 Holding: D’s duties discharge for impossibility.
 Transatlantic: Shipping contract, Suez closed down after formation, had
to take longer route around Cape of Good Hope.
 Holding: No impossibility. Can’t recover in quantum meurit for the
additional distance traveled and also get the contract price.
Transatlantic bore risk.
 Eastern Air Lines: Requirement K for jet fuel during 70s oil crisis.
Intentionally fueling where prices were lower. Defense to breach claim is
 Holding: No, profits up, not much more difficult and oil crisis
14. Frustration of Purpose (after contract was formed)
a. If the principle purpose of a K is destroyed or impacted, K can be discharged
b. Elements
i. Principal Purpose that’s frustrated
ii. Frustration must be substantial
iii. Both parties have to understand/know the purpose
iv. The non-occurrence has to be a basic assumption
 Krell: Renting apartment to view coronation parade. Parade cancelled.
 Holding: K discharged b/c purpose frustrated.
Contracts Outline
 3rd Party Rights are derivative. Rights and obligations of 3rd parties derive from the
rights and obligations of the original parties. If a defense is good against original party, it
is good against any 3rd party deriving rights from the original party.
 The time when 3rd party rights are created is key.
 Approach the problem one promise at a time.
When the 3rd party is the intended, not incidental beneficiary of a promise
o The beneficiary is identified in the promise.
o The K calls for the rendering of performance by the promisor to the identified
o There is some relationship between the promisee and the beneficiary that
indicates that the promise intended to benefit the beneficiary.
 the rights have to go directly to the 3rd person.
Ex.: Gold will pay painter $5,000 and she promises to paint his neighbor's house
Non-Ex: Gold will pay painter $5,000 and she promises to paint Gold's house.
This will increase the value of the property next door, thus benefiting Gold's
neighbor  3rd party not a beneficiary here
Beneficiaries are either creditors or donees.
o Donee gets the performance as a gift
o Creditor is one to whom promisee already owes an obligation and promisee
negotiates for the promise to satisfy this existing underlying obligation
o Who can enforce?
 The 3rd party beneficiary or the promisee can enforce a third-party
beneficiary contract against the promisor.
o What can the 3rd party beneficiary enforce?
 Beneficiary can enforce the promise in the form it was in when the
beneficiary's rights vested. Until vesting, the promisee and promisor can
modify or rescind
o When do 3rd party beneficiary’s rights vest?
Contracts Outline
Rights vest when 3rd party beneficiary learns of the promise and either
assents to it, changes position in reliance on it, or sues on it
o Creditor: Can sue promisor or promisee in case of breach
o Donee: Can sue promisor but not promisee in case of breach
An assignment occurs when a party to a contract that has already been formed
unilaterally assigns rights to a third party unless:
o The K prohibits the assignment
o The law prohibits the assignment
o Performance of personal services ONLY If
 the assignment would change the character or nature of the obligor’s
o Assignment changes the character or nature of the obligor’s performance.
 Ex: Supercuts enters into a requirements contract to provide Gold with all
the hairstyling services he requires. Gold attempts to assign his rights to
Bigfoot. Is the assignment valid under common law?
 No, it changes the character and nature of obligor’s performance.
There is more hairstyling required. It is a harder job.
 Ex: Contract says that Supercuts is to cut the hair at customer's residence.
Gold, who lives in Los Angeles, attempts to assign his rights to Homer
Simpson, who lives in Hollywood. Is assignment valid?
 NO, because the service is to take place at the customers residence.
 Anytime new assignment would change place or time of
performance, it is not valid because it is changing the character or
nature of the contract.
o Obligor  obligated to perform on assigned right
o Assignor  assigns right
o Assignee  receives right
Valid assignment requires:
o Assignable right
 Restrictions include:
 Prohibited by K,
 Illegal
Contracts Outline
o (i.e. wages can’t be assigned to avoid adding to income for
divorce settlement),
 If the performance is of personal services OR
 Assignment materially changes character or nature of
o Proper assignment
 Requires: description of right and words of present transfer (“I hereby
assign the right”)
Assignee’s Rights:
o Assignee v. Obligor: Obligor owes to assignee duties owed to assignor.
 Assignee is subject to any defenses the K obligor acquires prior to the
obligor receiving notice of the assignment.
o Assignee v. Assignor: The assignee gets from assignor implied warranties of
assignment, the breach of which gives the assignee the right to sue. Assignments
for consideration =
 Assignor impliedly warrants to do nothing after the assignment to defeat
the assigned right; and
 That there are no defenses to the assigned right unless notice given at
time of assignment.
 Ex: Barber is obligated to cut Homer's hair for $100. Barber
assigns the right to receive the $ to Gold in exchange for services.
Barber induced Homer to enter into the agreement through fraud.
She failed to disclose this to Gold at the time of assignment.
Homer voids contract for fraud. Can Gold sue Barber?
o Yes, it is a breach of implied warranty.
o Assignee v. Other Assignees:
 First, check that all assignment are valid.
 Assignments for consideration take priority over gratuitous assignments.
 If multiple assignments for consideration, first in time takes priority.
 If multiple gratuitous assignments, last in time takes priority.
Contracts Outline
o Delegator: Delegates obligation to perform
 Not off the hook, if delegate doesn’t perform delegator is responsible.
o Delegate: Obligation to perform delegated to (don’t say assign on exam)
 Has a duty to perform
o Obligee: Owed performance
Is the duty delegable? 4 Limits:
o K prohibits delegation
o Law prohibits delegation
o Duty involved performance of personal services
 Patient hires the head of the Cardiology Dept. to perform a heart
transplant. The Dr. cannot delegate her duties to another surgeon.
o Delegation would substantially change the character and nature of performance
Rights and obligations of parties after delegation
o The obligee must accept the performance of the delegate
o The delegator remains a surety for the performance of the delegate.
 If the delegate doesn't perform, the delegator is obligated to do so
o If delegation was gratuitous, obligee can't require delegate to perform
o If the delegation was for consideration, obligee has the right to sue delegate
because obligee is creditor beneficiary of a 3rd party beneficiary contract
between delegate and delegator
 Delegator and obligee can sue because the obligee is the beneficiary of
a 3rd party beneficiary contract.
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