Mutual
Assent
Offer
Acceptance
Rule for
most cases
Special
offer rules
How to accept
(requirements)
Communication of
Present Commitment
Termination of
power to accept
(see other chart)
Manifestation
of Present
Commitment
By the
offeree to
the offeror
To the
terms
Proper
Manner
Unilateral
Bilateral
Silence as
acceptance
Rules to
determine
manner
Performance
to Accept
Promise to
Accept
Reasonable person test,
looking at:
Language
Used
Context in which
language used
&
Advertisements,
Circulars, etc.
GR: Not offers
except with
specific offeree
or a limited qty
Requests for
Bids
GR: Not offers
and considered
invitations to
offers
Letters of Intent
GR: Not offer
unless party makes
it clear they are to
be bound
Offeree takes
benefit
Certainty of Terms
Required
Parties
Subject
Matter
Rule if doubtful
whether
unilateral or
bilateral?
Bilateral
Reason to
believe silence
is accepted
Previous dealings
have allowed
silence
Acts inconsistent
w/ offerror's
ownership
If Offer is
prescribes
manner
If Offer
suggests
manner
If Offer is
silent re
manner
Must comply
Any
reasonable
manner
Any
reasonable
manner
Price
Quantity
(Common
Law)
Not Required (Use as Evidence of Contract)
Time
ONLY in
the
following
situations
Place
Interpret language to
determine which
Last Updated: 10 December 2008
Termination of the
Power to Accept
Revocation
Rejection
Death or
Incapacity
Manifestation
not to Accept
Effect:
Terminates power
to accept
Lapse
CounterOffer
GR: Time stated
in offer or
reasonable time
Rule for face-toface GR: offer
lapses at the end
of the
conversation
Direct
Revocation
Indirect
Revocation
Elements
Irrevocable
Offers
UNLESS
Defined: Offeror
takes definite actions
inconsistent with an
intention to enter into
the contract
Contrary
intention is
expressed by
either party
Offeree manifests
intent to take it
under further
OR
advisement
Elements
Inconsistent
Act
&
Reliable
Information
Offer
Bilateral
Unilateral
Option Contract
(Trade $ for time)
Offeree starts
performance
(Creates an
option contract)
From the
offeree to the
offeror
Relating to
the same
subject
Proposing
Different
Bargain
Firm Offers (U.C.C.)
Offers between merchants to buy or sell
goods in a signed writing which gives
assurance that it will be held open is not
revocable for lack of consideration
during time stated or reasonable time (not
to exceed 3 months).
Last Updated: 11 December 2008
Consideration
GR: Bargained-for
exchange
Recurring
Problems
Forbearance
(Withhold some
legal action)
Invalid claims
are good
consideration,
if:
GR:
Forbearance
is good
consideration
Plaintiff
asserts claim
in good Faith
&
Pre-Existing
Duty
Rule
Adequacy
GR: Courts will
not usually inquire
into the adequacy
of consideration,
except:
Claim has a
reasonable
Basis
Like-Kind
Exchange
GR: A party who agrees to do
what he has already legally
obligated himself to do has given
no consideration
Illusory
Problems
GR: Agreeing to
do what one has
already done in the
past is not good
consideration
GR: Promises cloaked in
consideration and are
actually one-sided is not
good consideration
Elements
UNLESS
Addition of
Genuine New
Duties
Nominal
Moral &
Past
Considerations
Insufficiency
(items not
capable of
being owned)
Settlement of
a Genuine
Dispute
Minority Rule: Unforeseen
change in circumstances
and the extra compensation
must be fair
Promise
Free to
perform at
promisor's
own
discretion
Promise
cannot restrict
promisor's
discretion by
either:
Good
Faith
Rip & Tear
Contracts
U.C.C.: No Pre-Existing
Duty Rule
(see U.C.C. § 1-103 Duress)
OR
Reasonable
Efforts
OR
Reasonableness
Last Updated: 03 December 2008
Promissory Estoppel
Elements
See Restatements (Second)
Contracts § 90
Uses
#1 As a substitute for consideration
Promise
&
Promisor should
reasonably expect
to induce action or
forbearance
&
Promise does
induce such action
or forbearance
&
Injustice can only
be avoided by
enforcing the
promise
EXCEPTION
A charitable subscription
and marriage settlement is
binding without proof that
the promise induced action
or forbearance
#2 As a substitute for a writing
required by a statute of frauds
#3 As a way of making bids (offers)
irrevocable
#4 As a way of policing unfair
negotiation behavior
Measure of Damage
The court has the discretion to granting partial or full enforcement.
The remedy granted for breach may be limited as justice requires. In other
words, sometimes a party may be limited only to reliance damages.
Last Updated: 20 January 2009
Defenses
Undue
Influence
Duress
Traditional
Duress
Wrongful
Act
Threat or use of
violence, captivity,
or other wrongful
act or threat
Precludes
Exercise of
Free Will
Causation: The
threat or use
subjugated victim's
will
Statutes of
Fraud
Deception
Mistake of
fact by both
parties
(substance,
unconscious
ignorance)
Economic
Duress
Wrongful
Act
Threat of
breach in bad
faith
Illegality
Mistake
Mistake has
a material
effect on K
exchange
Mistake as to
the basic
assumption
(quality,
function,
purpose)
Procedural
(Process)
Absence of
meaningful
choice
&
Considerations:
1. Take-it-or-Leave it
2. Opportunity for
legal advice
3. Legalese
4. Deceptive Sales
No feasible
alternatives
exist
Deception
Substantive
(Terms)
OR
Precludes
Exercise of
Free Will
No practical
legal remedy
exists
Unconscionability
Gross
inequality of
bargaining
power
"Shocks the
conscience
of the court"
Extremely
Unfair K Terms
Think Categorical:
1. Wealth
2. Education
3. Experience
4. Access to legal advice
Argument: π could have said "no"
Assumption of Risk
Legitimate
reasons to
threaten breach
Contract allocates risk to a party
OR
Examples
Other party
breached
Change in
Circumstances
Considerations:
1. Marketplace
2. Parties Respective Risks
3. Competition
Party has a
good contract
defense
Party contracts knowing that she
has limited knowledge of the
facts (conscious ignorance)
OR
Court allocates the risk to the
party because it is just to do
Last Updated: 10 December 2008
Remedies
Damages
Coercive Equitable
Remedies
Liquidation (Agreed)
Damages
Restitution
(see separate chart)
(Specific Performance)
(see separate chart)
Measure
(see separate chart)
Limitations
Rest (2d) § 347
Avoidability
Foreseeability
GR: Damages
based on harms that
a party could have
evaded without
reasonable burden,
risk, or humiliation
are not recoverable.
Arise in the
ordinary course
of events
(naturally flow)
OR
Certainty
Special
Circumstances
EXISTENCE
AMOUNT
∆ must have a
reasonable
reason to know
Prove damage
actually occurred
because of the
breach
Prove the amount
of damages by
submitting enough
evidence to allow a
reasonable estimate
Additional Rules
1. Construction: After notification of a breach, the π
must reasonably stop performance. See Luten Bridge.
2. Employee: Employee need not take an inferior job to
address a wrongful termination. See Hussy and Parker.
General Damages
(Benefit of the
Bargain)
+
Special Damages
Reliance
Essential:
Money spent
preparing or
performing a
contract
OR
Situations where you
can receive reliance
only damages
-
Costs & Losses
Avoided
(Expenses Saved)
Consequential
Incidental:
Money spent in
anticipation of a
contract and
dealing with
breach fall-out
&
New Business Rule: A new
business can never claim lost
profits damage due to a
breach. (Only applies to some
jurisdictions.)
Argue what constitutes a new
business.
Additional Rules
1. Emotional Distress: Only recoverable for breach
when a high level of foreseeability is present.
2. Apply & Distinguish Cases
- Ford (Tractor Light): Expect some damages, but actual
damages are disproportionate to what was foreseeable.
- Boiler: Only recover damages that are foreseeable.
- Driveshaft: ∆ only responsible for damages knows or
should have known.
1. Property damage
2. Personal injury
3. Lost resale profits
4. Lost use profits
1. Benefit of the bargain too uncertain.
2. Contract is a losing contract.
3. "Break-even" contract.
4. Public Policy.
5. Promissory Estoppel.
Last Updated: 10 May 2009
Three Steps in Damages Analysis - See Restatements (Second) § 347
Step 1: What kind of breach did the defendant commit?
1. Breach by Non-Performance?
2. Breach by Defective Performance (Partial Performance)?
Step 2: What damages might the plaintiff be entitled? 4P's: Put the Plaintiff in the Performance
Position
1. Benefit-of-Bargain Damages (General Damages)
A. Breach by Non-Performance
(General Damages = Get - Give)
B. Breach by Defective Performance
(General Damages = FMV Promised - FMV Received)
2. Plus (+) Essential and/or Incidental Reliance Damages
a. Essential Reliance: Money spent preparing or performing a contract
$ spent in performing or in preparing to perform
b. Incidental Reliance: Money spent in anticipation of a contract and dealing
with breach fall-out
$ spent anticipating other party's performance
$ spent dealing with breach fallout
3. Plus (+) Consequential Damages
Property damage
Personal injury
Lost resale profits
Lost use profits (It must be reasonable to the seller/buyer that the item will be
resold)
4. Minus (-) Expenses Saved (Cost and Losses Avoided)
Unauthorized damages: (1) punitive damages, (2) emotional distress, and (3) attorney
fees (unless specified in contract).
Step 3: Do any limitations justify reducing (-) P's damages recovery?
Avoidability
Foreseeability
Certainty
Last Updated: 10 May 2009
COMMON LAW
General Damages for Commonly Made Contracts
Type of Breach
Breaching
Party
Non-Performance
Buyer
= K Price - FMV of Land
Non-Performance
Seller
= FMV of Land - K Price
Construction
Non-Performance
Owner
= K Price - contractor's cost of performing
Construction
Non-Performance
Contractor
= FMV of contractor's services - K Price
Construction
Defective
Performance
Contractor
= COR1 (unless COR1 is grossly disproportionate to DIV2); OR
= COR causes economic waste
Nature of Contract
Land
Purchase & Sale
Land
Purchase & Sale
Measure of Damages
Employment for
Non-Performance
Employer
= K Price
Specific Term
Employment for
Non-Performance
Employee
= FMV of employee's services - K Price
Specific Term
1
Cost of Repairs (COR): captures what you lost; gets you where you were promised to be; more accurate,
except in economic waster cases
2
Diminution of Value (DIV): determined by expert witnesses (not as accurate)
UNIFORM COMMERCIAL CODE (U.C.C.)
General Damages for Commonly Made Contracts
Nature of Damages
Type of Breach
Breaching
Party
U.C.C. §
Measure of Damages
All possible measures of seller's BOB damages for buyer's
non-performance: K - FMV, K - Resale $, Profit, K Price (only under extraordinary circumstances).
BUYER'S BREACH BY NON-PERFORMANCE.
Benefit of the Bargain
Non-Performance
Buyer
§ 2-708(1)
= K Price - FMV (OR:= Get - Give)
Profit
Non-Performance
Buyer
§ 2-708(2)
= Price Paid - Cost to Make
Profit Loss (Actual)
Non-Performance
Buyer
§ 2-706(1)
= K Price - Resale Price
Reasonable & Good
Faith Resell w/o Resell
Non-Performance
Buyer
§ 2-709(b)
= K Price
SELLER'S BREACH BY NON-PERFORMANCE.
Benefit of the Bargain
Non-Performance
Seller
= FMV Price - K Price
OR
= Cost of Cover - K Price
Last Updated: 10 May 2009
Remedies
Damages
Restitution
(see separate chart)
Coercive Equitable
Remedies
Liquidation (Agreed)
Damages
(Specific Performance)
(see separate chart)
GR: Value of
the ∆'s gain at
π's expense.
Substantive
Claim
(Unjust Enrichment)
EXCEPTION: Applies only to
a party in breach Value of the ∆'s gain minus the
damages caused by the breach.
Situations where a
party can recover
restitution damages
only
Elements
(Two-Part Test
of Validity)
Damages were difficult
to estimate at the time
that the contract was
made.
Elements
The ∆ gained
benefit at the π
expense
(enrichment)
&
The amount stated is
reasonable in light of
either estimated damages
or the actual damages.
Without
compensating
would be
unfair (unjust)
1. As an alternative to damages.
2. A losing contract.
3. Unjust enrichment not tied to a valid contract.
a. Alternative to a tort claim.
b. $ paid for performance under void or voidable contract.
c. Good Samaritan (services rendered by a medical doctor by an unconscious person)
4. To a party in breach.
Ground for Claim
Measure of Restitution
Alternative to damages for K
Alternate to tort
Performance under a non-contract
Value of defendant's gain
Losing K
Doctors to unconscious patients
Restoration to party in breach
(Value of defendant's gain) minus (Damages caused by breach, general damages)
Last Updated: 10 May 2009
Remedies
Damages
Restitution
(see separate chart)
(see separate chart)
Liquidation (Agreed)
Damages
(see separate chart)
Adequacy
Requirement
Uncertain
Coercive Equitable
Remedies
(Specific Performance)
Discretionary
Considerations
Undue burden on the
∆.
Fairness of bargain.
Irreplaceable
contract subject
Undue Burden on
the Court.
Higher degree of
certainty.
Uncollectable
Public policy.
Injunctions Against Breach
1. Analyze adequacy requirement (see chart above).
2. Analyze discretionary considerations (see chart above).
Laches and unclean
hands.
Covenants Not to Compete (see p. 416)
1. Must be part of a legit agreement;
2. Must be necessary to protect legit employer interests (good will, trades secrets,
or other proprietary information); and
3. Cannot be unduly burdensome regarding geography, duration, amd restricted
activity.
Limitation
13th Amendment: It is against the 13th Amendment for a court to order an
individual to work for an employer for whom the individual does not wish to work.
Last Updated: 10 May 2009
PAROL EVIDENCE RULE
STEP 1: Determine if the PER applies to the evidence.
The PER ONLY applies to prior or contemporaneous oral evidence or prior written evidence for which there is no separate
consideration.
Is it oral or written?
Was it made prior to, during or
after the making of the writing?
Was it for separate
consideration?
If the PER does NOT apply, STOP. The evidence is admissible.
STEP 2: Determine if the writing is integrated at all.
An agreement is integrated if it is in writing and final as to at least one term.
If the agreement is NOT integrated at all, STOP. The evidence is admissible. An agreement that is NOT
integrated at all does not bar ANY evidence.
STEP 3: Determine if the agreement is completely integrated.
There are three approaches. Apply each separately.
1. Williston Two-Part Test (Narrow). NOTE: A merger clause creates an irrebuttable presumption of
complete integration. If no merger clause, then apply two-part test:
a. Look at the writing and analyze whether it was adopted as a complete, exclusive statement.
b. Look at the term at issue and analyze whether it was natural for the parties to have omitted it.
(Analyze the six Hatley naturalness factors on page 2 of the note-taking guide.)
2. Corbin All-Evidence Test (Broad). Look at the agreement, the term and all surrounding circumstances
and determine if the parties intended a complete integration.
* Merger clause is evidence of complete integration.
3. U.C.C. § 2-202. (Broad, like Corbin) Intent of the parties unless it is certain that parties similarly
situated would have included the term.
If the agreement is completely integrated, SKIP to STEP 5.
If the agreement is NOT completely integrated, the evidence is admissible depending on whether it is consistent or
contradictory. GO to STEP 4.
STEP 4: Determine if term is consistent with or contradictory to the writing.
There are two approaches. Apply each separately.
Reasonable Harmony Test: Courts look at what the
parties have already agreed to and use as evidence to see
if any contradictions. (Narrow - bars more evidence)
Complete Negation Test: Evidence is consistent
as long as it does not completely negate any term
in the agreement. (Broad - bars less evidence)
If the term is consistent or NOT contradictory, STOP. The evidence is admissible.
If the term is inconsistent or contradictory, GO to STEP 5.
STEP 5: Determine if the evidence is of a type that is always admissible.
Evidence of contract defenses, of an oral condition precedent, or to help resolve an ambiguity is always admissible.
There are two approaches to identifying ambiguities. Apply each separately.
Four Corners Rule: An agreement is ambiguous only if it
appears so on its face. (Narrow - bars more evidence)
P, G & E Rule: An agreement that is unambiguous
on its face can be shown to be ambiguous by
extrinsic evidence, so long as the agreement is
reasonably susceptible of the alleged meaning.
(Broad - bars less evidence)
If the evidence falls into any of the above categories, the evidence is admissible.
Categories of K
Ambiguities
CONTRACT INTERPRETATION ISSUES
1. Patent
General Ambiguity
Problems
Recurring Ambiguity
Problems
(Appearing on the
face of document)
2. Latent
Grammatical
Problems
(Sloppiness)
(e.g. commas,
modifiers)
Words or
Phrases with
Multiple
Meanings
Conflicts
Among
Terms
Same as General Problems
BUT
Arise in Special Contexts
(Ambiguity revealed
only after learning
additional info)
3. Gap in K
(Contract is silent or
incomplete regarding
an issue)
NAME OF
CONTEXT
Creation of
an
Constructive
Condition
Creation of
an
Express
Condition
Force
Majeure
Clauses
Time of the
Essence Clauses
Construe
narrowly and
"other such
causes" must be
within the same
category
Express Condition?
Pro: It is so central that,
without it, nothing important
is left so it must be an EC.
Con: Boilerplate - time is
important but not so
important to mean if
performance is late, the K is
over.
* Preference to find CC *
USE
SPECIAL
RULES
Preference for a
promise
&
Against unclear
and ambiguous
language
1. Following stated or
relative dates.
2. If the parties can
perform at the same time,
they must.
3. "Work before Pay."
4. Nature of Transaction.
Divisibility
TEST
1. K divided into pairs;
and
2. Parties agree that each
item in each part is an
agreed equivalent of the
other item in that part.
EFFECT
1. If divisible, breach of
one party generally not
excuse further
performance.
2. If not divisible, breach
of one party may excuse
performance of
dependent obligation.
AND
USE GENERAL CONTRACT
INTERPRETATION RULES
(IN ORDER OF PRECEDENCE)
2
1
Course of
Performance
(Performance of
the K at issue and
neither party has
objected)
Negotiations
between
parties
3
Course of
Dealing
(Performance of
past Ks between
the same parties)
4
5
6
7
Trade Usage
(Parties must be in the
trade and usage is so
prevalent that anyone
in the trade would
know it.)
© 2009, Carolina Academic Press - Used with Permission
Interpreting
Ks to make
them
reasonable
Interpret the K
to reconcile
any
inconsistencies
8
Contra
Proferentem
Public Policy
(Interpret against
the drafting party)
Checklist for Identifying Patent Ambiguity
1. Try the easy way first. Look at the parties’ contract and their dispute and try to figure
out what each party would say the contract means.
2. Focus on what you know about the dispute between the parties. Look for a basis in the
contract itself for either party claiming the other party breached the contract.
3. Look for ambiguous words or phrases. Use your dictionary to help you develop
alternative and competing meanings for what you believe to be the key words in the
contract provision at issue.
4. Look for grammatical ambiguity. Make sure you understand what word in the contract
each modifying phrase is modifying. If you discover that a phrase may modify more
than one word, you may have found the ambiguity.
5. Look for conflicts between terms.
6. Try to translate the contract term(s) into your own words. If you cannot find the
ambiguity, the act of translating may reveal it. At least, translating contract into your
own words will demonstrate your ability to articulate at least one party’s contract
meaning contentions.
© 2009, Carolina Academic Press - Used with Permission
Conditions
Express
Conditions
GR: Courts prefer
promises when the
language is
ambiguous.
Was the express
condition
accomplished?
Constructive
Conditions
Clauses
CREATION
Magic
Words
(See Page 2)
OR
K
Interpretation
Rules
Perfect Performance: Express
conditions must perfectly occur, for
example:
1. Happen when suppose to happen;
2. Done in the correct manner
1. Pay when Paid: Ambiguous—
must use the surrounding
circumstances.
2. Time is of the Essence
* FOR EC: If something is of the
essence, it is so central that without it
nothing important is left.
* AGAINST EC: Boilerplate clause
used by the parties to mean that time
is important BUT do not mean that if
performance is a day late, the contract
is over.
3. Satisfaction: Creates an express
condition. Standards to evaluate:
* Fancy, Taste, or Judgment: made
in "good faith."
* Commercial Value: reasonable
person in determining satisfaction.
(operative fitness or mechanical
utility).
GR: Preference for
finding constructive
conditions.
Did the non-breaching
party get most of what
he was supposed to get?
(Core Assessment)
Types & Purpose
RULES
(In order of precedence)
1. Follow stated or relative
dates.
2. If parties can perform at
the same time, they must.
3. "Work before pay."
4. Courts consider the
nature of the transaction.
SUBSTANTIAL
PERFORMANCE
EFFECT
1. If an insubstantial
performance, then a
material breach and CC
has not occurred.
2. If a substantial
performance, then NO
material breach and CC
has occurred.
Rest. (2d) Contracts § 241
1. Extent non-breaching
party did not get her essential
K benefit.
2. Extent non-breaching
party can get damages to
substitute for loss of the K
benefit.
3. Extent breaching party
will have wasted time and
money.
4. Likelihood breaching
party will cure deficiencies.
CC help courts determine
order of performance.
1. CC Precedent: second
party has no duty to perform,
unless other party performs.
2. CC Concurrent: parties'
performances are due
simultaneously—each must
render/tender performance in
order to claim a breach by
the other party.
3. Independent: Terms are
unconditional and parties
must perform.
5. Extent breaching party
acted in good faith.
Last Updated: 10 May 2009
Express Condition Language Chart
(1) Language which all courts would
agree create express conditions:
1. Conditional (-ed) on
2. Contingent upon
╚ Dependent upon*
3. Expressly conditioned on
4. If
5. If and only if
6. On the condition that
7. Only if
8. Provided that
╚ With the understanding that*
9. Satisfy or Satisfied or Satisfaction
╚ Adequate*
╚ Please (-ing)*
╚ Suffices (-ive)*
10. Shall be a condition precedent to
11. Subject to
╚ Subjugate to*
╚ Predispose*
12. Unless
13. Unless and until
(2) Language which all courts
would agree do not create express
conditions:
1. Covenant
2. For
3. Pledge
4. Promise or Promising
╚ Assure or Assurance
╚ Expect
╚ Warrant
5. Shall (or Shall Not)
╚ Expect you to
╚ Must
╚ Ought to
╚ Will (have to / be able to)
5. Swear
6. Time is of the essence
7. Vow
(3) Language about which
reasonable lawyers could argue
either way:
1. After
╚ Afterwards
╚ Behind
╚ Later
╚ Subsequently
2. As
3. As soon as
4. Pay when paid
5. So that
6. Time is of the essence
7. Until
8. Upon
9. Upon receipt of payment
10. Warranty
11. When
╚ Although
╚ At which time
╚ Considering that
12. While
* - Weaker variation found in the
dictionary. A practitioner runs a risk that a
court may find these terms ambiguous (see
e.g. column 3).
Last Updated: 10 May 2009
Excuses
Nonoccurrence of
a prior condition
Waiver
GR: Condition
due before the
condition at
issue did not
occur
GR: Beneficiary of a
condition
intentionally gives up
the right to enforce
the condition.
EFFECT
EFFECT
Discharge or
Breach
Performance
Excused
Prevention
(Bad Faith)
Estoppel
GR: Beneficiary of a
condition takes action
indicating an intent
not to enforce the
condition and that
action causes the
other party to rely.
GR: Beneficiary of a
condition causes the
condition NOT to
occur, or otherwise
has breach her duty of
good faith.
EFFECT
EFFECT
Performance Excused
Discharged
Excused (depending
on significance)
Force Majeure
Clause
Impracticability /
Impossibility
(Act of God)
GR: Impracticability
clause. Lists
circumstances in
which a party can
avoid having to
perform the K without
penalty.
EFFECT
1. If material part, then performance
excused, remainder of K discharged.
2. If NOT material part, then that
performance is excused, remainder of K
is NOT discharged
EFFECT #1
Narrowly construe
and "other such
causes" must be
within the same
category to be
effective.
ELEMENTS
For
Express
Conditions
Only
Occurrence is
unforeseen event.
EFFECT #2
For
Express & Constructive
Conditions
Event makes
performance
impracticable (must
radically change the
obligation).
Shell: ⅓x increase (33% increase) (finding
increased cost is NOT excessive or
unreasonable).
Howard: 10 to 12x increase (1000% to 1200%
increase) (finding increased costs is excessive
and unreasonable).
Nonoccurrence of
event is basic
assumption.
If something in the
list happens, then you
do NOT need to prove
impracticability or
impossibility.
Party had no fault in
the occurrence.
K assigned the
risk
Party has not assumed
the risk, unless:
Event was
foreseeable
Event was
within the
party's control
Last Updated: 10 May 2009