UCC vs Common Law
UCC Article 2 applies to the sale of goods (UCC 2102) as defined in UCC 2-105(1)
If a contract involves goods and services, must
apply predominant purpose test (Jannusch v.
Naffziger - parties’ conduct can be used to
determine if terms are uncertain)
● Factors to consider include “(1) language
of the contract, (2) nature of the business,
and (3) the intrinsic worth of the materials.”
(Princess Cruises v. General Electric)
FORMATION
Mutual Assent
“A contract is a promise or a set of promises for the
breach of which the law gives a remedy, of the
performance of which the law in some way
recognizes as a duty.” (RS 1)
Look for objective manifestation of mutual assent
(objective theory of contracts) - external indications
of assent using reasonable person standard
Ray v. Eurice Bros: Subjective intent is irrelevant.
● Duty to read: contract is binding “absent
fraud, duress, or mutual mistake” if
someone has the capacity to understand a
written contract and they sign it
● Unilateral mistake cannot release from
contract
● Reasonable person standard: See Leonard
v. Pepsico (ad for selling a jet could not be
understood by reasonable person to be an
offer), but see Lucy v. Zehmer (joke can
still be an offer).
Bilateral Contracts
Offer
“An offer is the manifestation of a willingness to
enter into a bargain, so made as to justify another
person in understanding that his assent to that
bargain is invited and will conclude it” (RS 24)
An offer must be: (a) definite (b) communicated (c)
contain essential terms
● RS essential terms: price, subject matter
● UCC essential terms: quantity (NOT price)
Offeror is the master of the offer (Lonergan v.
Scolnick: To be a valid offer, must be the
“manifestation of an intention to be bound”).
● Offeror can revoke at any time prior to
acceptance (RS 42)
● Revocation can be direct or indirect
(Normile v. Miller: the real estate agent
informing of revocation/saying it was sold
was sufficient - revocation of an offer is
effective at the time it is received)
Advertisements are typically an invitation to make
an offer; a form letter is more like an advertisement
since not made to an offeree. Advertisements can
be offers WHEN:
● There is explicit language of commitment
(“first come, first serve” or “while quantities
last”), OR
● There is misleading language (bait and
switch) (Izadi v. Machado: ad was a
binding offer since when viewed as a
whole a reasonable person would have
viewed it that way)
Limits on power to revoke:
● Acceptance
● Option contract (RS 25, RS 87(1)requirements)
● Pre-acceptance reliance (RS 87(2),
Drennan v. Star Paving Co.)
● Unilateral contracts: substantial
performance (RS 45)
● Promissory Estoppel: reliance on the offer
(RS 90)
Counteroffers:
● Response containing additional or
separate terms is a counteroffer (RS 59)
● A counteroffer is a rejection of the original
offer (creates a new offer). A qualified
acceptance is a counteroffer if
adding/changing terms. (RS 39) (Normile)
Acceptance
Communicated in any way that is reasonable
unless otherwise specified in the offer (RS 50)
RS is lenient on signatures-intent key (RS 134)
Mirror image rule (RS 58)
Mailbox rule: acceptance is effective when put in
mail (RS 63), does not apply to option contracts.
Termination of offeree’s power of acc. (RS 36)
● rejection/counteroffer by offeree
● lapse of time
● revocation by offeror
● death or incapacity of either party
● non-occurrence of any condition to
acceptance under terms of offer
Consideration
Benefit-detriment test (OLD RULE): consideration
must confer a benefit to the promisor or a detriment
to the promisee (can include giving up a legal right)
(Hamer v. Sidway)
Bargained-for-exchange test (NEW RULE) (RS
71): reciprocal inducement of promise and
consideration, one party’s performance is price of
the other’s (Pennsy Supply v. American Ash)
(Marshall Durbin Food Corp. v. Baker: remaining at
one’s job in exchange for benefit is consideration
bc benefits employer)
Not Consideration:
● Promise to make a gift (Dougherty v. Salt)
● Past consideration is no consideration
(Plowman v. Indian Refining Co.)
●
●
●
Gross inadequacy in cases of suspicious
circumstances (Dohrmann v. Swaney),
otherwise adequacy is irrelevant (RS 79)
Performance of a legal duty (RS 73)
Illusory promise (RS 77)
Unilateral Contracts
Offer: promise in exchange for performance
● Part/substantial performance creates an
option contract and terminates power to
revoke/amend (Cook v. Coldwell Banker,
RS 45 - beginning performance serves as
promissory acceptance (but promisor
doesn’t have to pay until completion))
● Rewards program that provides specific
language is a unilateral offer where
purchasing goods is acc./consideration
(Sateriale v. R.J. Reynolds)
ALWAYS unilateral: rewards, reward programs,
prizes, explicit creation by offeror
Agreements to Agree
Without essential terms (price/rent, or method for
determining it), contracts that are vague/missing
terms are unenforceable agreements to agree
(Walker v. Keith, RS 33).
● Note: some courts have found they can
impose a term that allows intention of the
parties to continue (similar to Cardozo’s
reasoning in Lucy, Lady Duff Gordon)
● Note: Under UCC, price is not a necessary
term (UCC 2-305, open price term
agreements)
Letter of intent is agreement to agree and can be
binding if there is evidence the parties intended it to
be (Quake v. American Airlines, RS 27). Otherwise,
just preliminary negotiations (RS 26)
Formation Under the UCC
UCC 1-103(b): Where not specified in UCC, resort
to common law
Contract Formation is less formalistic than RS
● Conduct is sufficient to indicate existence
of contract (UCC 2-204(1))
● Do not need to be able to determine
moment of formation (UCC 2-204(2)) but
do need agreement on essential terms
consistent with past practices of parties
(E.C. Styberg v. Eaton Corp.)
● Acceptance can be in any reasonable
manner unless specified (UCC 2-206)
● Firm offers (UCC 2-205): signed writing
stating it will be held open is irrevocable
(for max 3 months - only exception is when
there is consideration)
Qualified Acceptance - “Battle of the Forms”
UCC 2-207
(1) Expression of acceptance with different or
additional terms is valid, unless it is expressly
made conditional on assent to the additional or
different terms - No Mirror Image Rule (Princess
Cruises v. GE)
(2) Additional terms are just proposals to add to the
contract (if non-merchant). Between merchants
those terms become part of the contract unless:
(a) the offer expressly limits acceptance to the
original terms (so an acceptance with
different terms is a counteroffer - Brown
Machine v. Hercules)
(b) the additional terms materially alter the
contract (see comment 4 - “surprise or
hardship”) (Paul Gottlieb v. Alps South
Corp.), OR
(c) notification of objection has been given
within a reasonable time
(3) Even without signing/if paperwork contradicts,
there is a contract if conduct recognizes the
existence of contract
● However no last shot rule - terms are
limited to those agreed to
●
Applies UCC terms where anything
missing (gap rule)
Three approaches to different terms:
● Disregard the different terms (textualist rare)
● Treat them as additional terms since 2207(1)/(3) and the comments do mention
them
● Knock-out rule - throw out conflicting terms
and default UCC terms for that issue apply
Duty to read is KEY under 2-207(1)
After an oral agreement, a written confirmation
cannot make a conditional acceptance because the
contract is already formed.
PROMISSORY ESTOPPEL & RESTITUTION
Liability in Absence of Acceptance
Option contracts cannot be revoked and
consideration is required
● In the absence of consideration (or with
nominal consideration or recital), the offer
can be revoked (Berryman v. Kmoch contracts in land must have paid
consideration; or reliance can be used to
hold contract open)
RS 45: offer to enter into a unilateral contract treated as an option contract once performance
has started, so offer cannot be revoked
Drennan Rule (RS 87(2)): Under promissory
estoppel, a subcontractor who provides a bid to a
contractor is bound to that bid (ONLY within the
construction industry), if the following are true:
(1) It has to be a real offer (e.g. not a quote)
(2) The offer must be relied on, and actually used
by the contractor for the broader contract
(3) The general contractor is also bound to use the
subcontractor's bid as-is; they cannot shop for a
lower bid with this subcontractor
(4) If there is a bona fide mistake, and the plaintiff
should reasonably have known, the subcontractor
is not bound to the bid
Drennan rule does not apply when:
● the bid states it is revocable until accepted
● palpable mistake
● bid-shopping
● estimates
Minority rule: offer cannot become binding through
promissory estoppel unless there is consideration
(James Baird, Co. v. Gimbel Bros., Inc.)
●
●
Charitable subscriptions: no requirement of
detrimental reliance (RS 90(2), King v.
Trustees of Boston University)
Retiring based on promise of pension is
detrimental reliance (Katz v. Danny Dare)
Restitution
Restitution: theory under which a party can get
relief so that other party is not “unjustly enriched”
by their services; there is no mutual assent
between parties but it is NOT intended to be a gift
Firm offer (UCC 2-205) - offer by a merchant to buy
or sell goods in a signed writing, which is not
revocable, and no consideration is needed
● Held open for time stated or a reasonable
time (but no longer than 3 months)
● 3-month rule can be extended ONLY IF
consideration is provided
Elements of unjust enrichment (Commerce
Partnerships v. Equity Contracting):
● Plaintiff has conferred benefit on defendant
● Defendant has knowledge of the benefit
● Defendant has accepted or retained the
benefit
● Would be inequitable for the defendant to
retain the benefit without paying fair value
Fringe case: Pop’s Cones - even without an explicit
promise, a court may use promissory estoppel to
grant relief if high degree of reliance.
Remedy: quantum meruit - reasonable value of
services provided (Watts v. Watts)
Promissory Estoppel
Promissory estoppel is an equitable doctrine, NOT
a legal doctrine, sometimes called a “consideration
alternative”
Credit Bureau Enterprises v. Pelo: forced to pay
restitution for services he did not assent to
● cannot be “unjustly enriched” from
another’s actions --> required to pay the
reasonable amount for services
Elements of Promissory Estoppel (RS 90, Katz v.
Danny Dare - pure PE):
1. Promise
2. Reliance on that promise (that is detrimental and
could be reasonably expected)
3. Failure to enforce would result in injustice
4. CA requires reliance to be both foreseeable and
reasonable (Aceves v. US Bank)
Applications:
● Promises within family: substantial
improvements made to land in reliance on
non-specific/explicit promise are
enforceable (Harvey v. Dow)
Promissory Restitution
RS 86: Promise for a benefit received
(1) A promise made in recognition of a benefit
previously received by the promisor from the
promisee is binding to the extent necessary to
prevent injustice.
(2) A promise is not binding
(a) if the promisee conferred the benefit as a
gift or for other reasons the promisor has
not been unjustly enriched; or
(b) to the extent that its value is disproportionate to
the benefit.
NOTE: Most courts do NOT abide by RS 86
Mills v. Wyman: pre-existing duty is not sufficient
(consideration or unjust enrichment)
● The law will not enforce a moral obligation
● Past consideration does not count
● RS 71(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
Webb v. McGowin: successful promissory
restitution relief for man who received payments
from employer for life after saving his life
● benefit from Webb’s action was sufficient
consideration to make agreement binding
● Material benefit rule: an express promise
after receiving a material benefit can make
an otherwise moral obligation enforceable
○ Courts are resistant to using this
rule
● Restitution damages case (gets what is
owed to him due to material benefit)
Statute Of Frauds
Is the contract within the SOF? (RS 110):
1. Executory promises
2. Suretyship
3. Marriage with conditions
4. Sale of land
5. 1-Year Provision: performance cannot be
completed within a year
If yes, has SOF been satisfied? Memorandum
requirements (RS 131)
● Signed by party to be charged - relaxed,
signature could be letterhead (Crabtree)
● Identifies subject matter
● Indicates contract exists
● States with reasonable certainty the
essential terms
If the written agreement is insufficient/absent, is the
contract an exception?
1. Multiple docs that together meet
requirements (Crabtree, RS 132)
2. Part performance (RS 129), Beaver v.
Brumlow sets test of “unequivocally
referable to an oral contract”
a. Only for specific performance
enforcement of sale of land
3. Promissory estoppel (RS 139) if injustice
can only be avoided by enforcement
a. Weak doctrine, mainly used for
employment contracts when party
moves cross-country - very high
standards for SOF PE
Statute of Frauds Under the UCC (UCC 2-201)
Sale of goods for $500 or more, does not require
terms other than quantity of goods (UCC 2-201(1))
Between merchants, written confirmation is
sufficient and the recipient of the confirmation has
10 days to object (UCC 2-201(2))
Exceptions (UCC 2-201(3)):
(a) Specially manufactured goods
● Both the buyer and the seller can enforce if
the agreement has been made
● If the buyer or seller calls and repudiates
BEFORE labor has been spent (e.g.
polishing, creating, etc.) they can revoke
(b) Pleadings rule - if the party in breach admits
under oath that there was a contract
(c) Part performance - payment has been made
and accepted OR goods have been received and
accepted
*can’t contract out of SOF
INTERPRETATION
If a party is arguing for an interpretation that is
narrower than what a reasonable person would
think, they bear the burden of proof (Frigaliment).
Modified objective approach: whose meaning
prevails?
● If parties agree, that prevails (RS 201(1))
● If parties disagree and one party knew or
had reason to know of the disagreement
and the other did not, the innocent party’s
meaning prevails (RS 201(2))
● Contra preferentum – contract will be
enforced objectively against drafter,
generally only applies when unequal
bargaining (Joyner v. Adams, RS 206)
If parties disagree and both innocent, court will use
RS 203 or void contract (no meeting of the minds)
● Reasonableness standard (Frigaliment
Importing v. B.N.S., RS 203(a)).
● Various categories of evidence to
determine whose meaning prevails:
language of contract, preliminary
negotiations, trade usage, government
regulations
Reasonable expectations doctrine (minority
rule/edge case): non-negotiated terms in adhesion
contact will be interpreted by intent of non-drafting
party (C&J Fertilizer v. Allied Mutual, RS 211)
● Reasonable expectation (C&J Fertilizer):
○ Bizarre/oppressive interpretation
○ Eviscerates the dominant purpose
○ Explicit terms give way to meaning
most consistent with purpose
● To not be an adhesion contract, parties
must be able to negotiate key terms
Interpretation principles:
●
●
●
●
●
●
●
●
●
●
Noscitur a sociis. Word's meaning can be
affected by immediate context.
Ejusdem generis: general term + specific term
includes only things that are of the same type
as the specific term.
Expressio unius exclusion alterius: if one or
more specific items are mentioned without any
general terms, other items are excluded even if
they are similar in kind.
Ut magis valeat quam pereat: interpretation that
makes a contract valid preferred over
interpretation that makes the contract invalid.
Omnia praesumuntur contra proferentem:
writing construed against the drafter.
Interpret contract as a whole: every term should
be interpreted as part of whole and not isolated
from it.
"Purpose of the parties." Apparent purpose of
parties given most weight.
Specific provision is exception to a general one.
If two provisions are inconsistent, and one is
general enough to include the specific situation,
the specific provision qualifies the general one.
Handwritten control printed ones because they
are assumed to more reliably express intent.
Interpretation that benefits the public interest is
preferred (RS 203)
Parol Evidence Rule
Does PER apply?
● Must have written contract that is the final
expression of the agreement
● Classical rule: completely integrated
contract (with no ambiguity) is interpreted
by plain meaning - no oral evidence of
contemporaneous terms allowed
(Thompson v. Libby)
○ Parol evidence could only be used
to clarify/uphold/enforce
If yes, does an exception apply? (RS 214)
● No promissory estoppel exception
● Interpretation exception: allows evidence
meant to interpret terms of the contract
(Taylor v. State Farm, RS 214(c))
● Fraud exception: most courts allow oral
evidence of fraud in inducement/execution
(Riverisland v. Fresno-Madera, RS 214(d))
○ Some courts will not allow oral
evidence of fraud in the
inducement (Sherrodd)
● If partially-integrated (ex: missing essential
terms, RS 204(e), can introduce evidence
that is consistent with existing terms
● Evidence to show the agreement is invalid,
such as fraud, duress, undue influence,
incapacity, mistake, or illegality
● Evidence regarding agreements made
after the execution of the writing, that
modify terms but do not contradict
● Evidence offered to show that
effectiveness of the agreement was subject
to an oral condition precedent
○ E.g. a party promising that they will
purchase something only
contingent on getting a new job; if
the written contract doesn't specify
the condition, evidence can still be
admitted to discuss it
● To evidence that is offered to establish a
right to an equitable remedy, such as
reformation of the contract
○ Especially e.g. typographic error in
a contract, such as agreeing orally
a price is $500, but then the
contract says $500,000
● To evidence introduced to establish a
“collateral” agreement between the parties
involving separate consideration (RS 213,
UCC 2-203 cmt. 3)
●
Under UCC, trade usage is usually allowed
in to clarify terms (Nanakuli v. Shell)
○ Trade usage defined as “regularity
of observance in a place, vocation,
or trade” (UCC 1-303)
○ However, trade usage that
contradicts express terms will not
be admitted (UCC 2-202)
Implied Terms
Implied terms rules:
● If it's a common law contract, you are more
likely to get a failure of contract when the
agreement is missing terms that the courts
cannot imply
○ RS 204: Courts fill in omitted terms
● Under the UCC, if you do NOT want an
implied term to kick in, you need to
mention the implied term and the NEW
term that overwrites it
● Implied terms CANNOT be used to fix a
defective contract
Nanakuli v. Shell: implied term of price protection
based on evidence of trade usage and course of
performance
● To introduce evidence of trade usage, that
usage must:
○ Exist/be regularly observed
○ Be binding on the party against
whom it is offered (some courts
say it isn’t binding if the party
doesn’t know about it)
○ Not be inadmissible under PER
Implied Terms in UCC:
● UCC 2-306(2) Exclusive Dealings - A
contract between the seller and buyer for
exclusive dealing imposes an obligation to
use best efforts to supply the goods and to
promote the sale of the goods respectively
(Cardozo in Lucy, Lady Duff-Gordon)
Implied Obligation of Good Faith
Obligation of good faith and fair dealing implied in
every contract (RS 205, UCC 1-304).
● Not an independent cause of action attach to conduct that is in breach (or that
undermines the contract), could be allowed
within the letter of the contract but deprives
either party of fruits of contract
● Good faith: RS 205 (comment (a))
Locke v. Warner Bros.: duty of good faith can be
used to remedy potentially fraudulent contracts.
Discretion must be used in good faith
● Fraud is equitable claim, only victimized
party can raise to nullify the contract
Morin Building v. Baystone: implied satisfaction
clause uses objective interpretation of satisfaction
● There are two standards when a contract
contains a satisfaction clause:
● Subjective interpretation (personal goods):
whether the actual party receiving the
good/service is satisfied; e.g. for a painting
● Objective interpretation (commercial
goods): whether a reasonable person
would be satisfied (RS 228)
Warranties
Express warranties: created by statements
regarding a good’s quality/description/etc. (UCC 2313). Puffery/opinion does not create a warranty
(Bayliner Marine v. Crow).
● It is NOT necessary to use the words
"warranty" or "guarantee"
Implied warranty of merchantability (UCC 2-314):
the goods must reasonably conform to an ordinary
buyer's expectations/work as expected
● Only applies if seller is merchant of this
kind of good
● It is NOT sufficient to get out of a warranty
by writing "buy at your own risk"
Implied warranty of fitness for particular purpose
(UCC 2-315): the goods must fulfill the obligation or
purpose for which they are intended
● Requires seller to know the buyer’s
purpose and buyer to rely on seller’s
expertise (Bayliner)
Implied warranty of habitability: the premises are fit
and habitable for human habitation and that the
premises will remain fit and habitable throughout
the duration of the lease, applies to discovery of
latent defects (Speight v. Walters)
● Speight extended to subsequent home
purchasers, but this is juris. by juris.
Warranty disclaimers:
● Express warranties: UCC allows
merchants to modify or “disclaim”
warranties, but they are considered
“inoperative” under UCC 2-316 if not
consistent with other terms in the contract
that would create an express warranty
● Implied warranties: Under the UCC 2-316,
disclaimers for warranties of
merchantability/fitness must be
conspicuous and in writing, but disclaimers
for fitness warranties can be less specific;
can also disclaim with the “as is” language,
but still a conspicuousness requirement so
consumers aren’t surprised
● Courts view disclaimers with suspicion and
have high standard (otherwise would call in
reasonable expectations doctrine)
Minority And Incapacity
Minority
Contracts with minors are voidable only by the
minor before they reach age of majority (not
automatically void) (RS 14)
● Exceptions: liable for value of necessities
(through restitution), emancipated minors
●
●
●
Once the minor reaches the age of
majority, she has the power to affirm or
ratify the contract, or must act within a
reasonable period of time to disaffirm the
contract or she will be deemed to have
affirmed the transaction.
Pre- and postinjury release agreements:
Many courts have held that minors are able
to disaffirm such preinjury exculpatory
agreements signed by the parent. However
settlements on behalf of minors usually
must be approved by courts so are valid.
Newer rule: upon rescission of contract
with minor, some courts grant vendor
reasonable compensation for the use,
depreciation, and willful/negligent damage
to the article. (Dodson v. Schrader)
Mental Incapacity
A contract with a mentality incapacitated party is
voidable by the incapacitated party (RS 15)
● Medical evidence may be required to prove
mental incapacity (Sparrow v. Demonico)
● Traditional test: “cognitive” test under
which a person lacks capacity to enter into
a contract if the person is unable to
understand the nature of the transaction or
its consequences.
● Modern “volitional” test looks to whether
the person is unable to act reasonably in
the transaction and the other party has
reason to know of the condition. (Sparrow also show emotions can cause incapacity)
● Incapacity is determined at the time of
formation
● If the other party was not aware of the
mental illness, a court may grant them
restitution (RS 15(2))
● Contracts with people who lack mental
capacity are typically void (never had force
of law)
○
●
If someone is required by the state
to have permanent guardianship,
then all contracts are VOID
○ If someone may have periods of
incapacity, or is willingly drunk,
then the contract may just be
VOIDABLE
The burden of proof is on the party seeking
to avoid a contract, which may be difficult
to carry
Duress and Undue Influence
Duress
Physical (classic) duress - contract void (RS 174)
Other duress makes contract voidable by victim
(RS 175). Elements:
● Improper threat (RS 176)
● Absence of reasonable alternative (RS
175, comment (b))
● Threat induced assent to contract (RS 175,
comment (c) - subjective test)
Includes economic duress (Totem Marine v.
Alyeska - victim must have no choice but to agree
to the other party's terms or face serious financial
hardship). Courts disagree whether the other side
needs to have caused financial hardship to use
duress.
Undue Influence
Makes contract voidable by the party being
influenced (RS 177)
Two elements:
1. Undue susceptibility to pressure
2. Presence of excessive pressure
7 factors to indicate undue influence: (Odorizzi v.
Bloomfield School District)
● Discussion of transaction at unusual or
inappropriate time
● Consummation of transaction in an
unusual place
● Insistent demand that the business be
finished right away/at once
● Extreme emphasis on untoward
consequences of delay
● Use of multiple persuaders by the
dominant side against servient side
● Absence of third party advisers to the
servient party
● Statements that there's no time to consult
financial advisers or attorneys
Duress is a stronger legal theory than undue
influence (but the bar for proving it is also higher,
requires more than just pressure)
Misrepresentation/Non-Disclosure
Misrepresentation makes contract void if injured
party has no knowledge of essential terms (RS
163), otherwise voidable by injured party (RS 164)
● Fraudulent misrepresentation – false
assertion intended to induce asset (RS
162(1), Syester v. Banta)
● Material misrepresentation – would induce
a reasonable person’s assent (RS 162(2))
RS 168: An opinion = misrepresentation when it
misrepresents opiner’s state of mind and could be
reasonably interpreted as an assertion. Does not
apply to puffery.
RS 169: When reliance on opinion is not justified.
Concealment (RS 160): when an action is intended
or known to be likely to prevent another from
learning a fact, it is equivalent to an assertion that
the fact does not exist
RS 161: Non-disclosure/fraudulent
misrepresentation (Stechschulte v. Jennings)
Syester elements of misrepresentation :
● Defendant made one or representations
that were false/fraudulent OR material
● False statements were about material
matters
● Defendants knew representations were
false
● The statements were meant to deceive
● The plaintiff reasonably relied on the
statements
● The plaintiff suffered damages due to
reliance
Stechschulte v. Jennings: negligent misrepresent.
based on failing to disclose key info about quality of
house, allows rescission of contract
Fraudulent inducement:
● Defendant made false representations as a
statement of existing and material fact
● Knew the representations to be false or
made them recklessly without knowledge
concerning them
● Made intentionally for the purpose of
inducing another party to act upon them
● Other party reasonably relied and acted
upon the representations
● Other party sustained damages by relying
upon the representations
Note: a representation is "material" when it relates
to some matter that is so substantial as to influence
the party to whom it is made
Fraud by silence:
● Defendant had knowledge of material facts
that plaintiff did not have and couldn't have
discovered
● Under an obligation to communicate the
material facts to the plaintiff (key analysis
is whether there was a duty to disclose)
●
Intentionally failed to communicate the
material facts to the plaintiff
● Plaintiff justifiably relied on the defendant
to communicate those facts
● Plaintiff suffered damages based on the
reliance
Negligent misrepresentation: when a person who,
during a transaction in which they have $$ interest,
supplies false information for the guidance of
another party --> liable for damages suffered by
other person
● Person supplying false information fails to
exercise reasonable care or competence in
obtaining or communicating information
● Person who relies on the false info is the
person for whose benefit and guidance the
info is provided
● Damages are suffered in a transaction that
the person supplying the information
intends to influence
● RS 164: When a Misrepresentation Makes
a Contract Voidable
Unconscionability
Requires procedural unconscionability (absence of
meaningful choice) AND substantive
unconscionability (terms unreasonable/favorable to
one party) (Higgins v. Superior Court of LA County)
● If terms are insanely unreasonable, court
may not require procedural
unconscionability
Factors to consider (Williams v. Walker-Thomas):
● Excessive price
● High pressure sales tactics
● Buried terms (fine print)
● Trade practice
Remedy: court may reform or refuse to enforce (RS
208, UCC 2-302)
● UCC requires gross inequality in
bargaining power
Public Policy
Promises that go against public policy are
unenforceable, but court considers expectations,
forfeiture, and public interest in enforcement vs
policy interest against (RS 178, 179)
Ex. A promise affecting the rights of a child is
unenforceable unless it’s in the child’s best interest
(In re Baby, RS 191)
RS 197: generally no restitution when contract is
unenforceable for public policy reasons unless
disproportionate forfeiture
Mistake
When mistake is as to the value of the item, there
is no rescission; When mistake relates to what the
item is, there is rescission
If you contract with limited knowledge, and you
treat that knowledge as sufficient, then you bear
the risk of potential mistake
Mistake is assessed at the time of formation
Assumption of risk (RS 154):
● Explicit in the contract?
○ “as-is” clause allocates risk to
buyer (Lenawee County v.
Messerly - upholds contract)
● Party knowingly proceeding with limited
information?
● Court may allocate risk to one party
Mutual mistake is voidable by the affected party
unless she assumed the risk (RS 152)
Unilateral mistake is voidable by the mistaken party
if they did not assume the risk AND (DePrince v.
Starboard Cruise, RS 153):
(a) the enforcement would be unconscionable;
OR
(b) the other party had reason to know of the
mistake or caused the mistake
Mistake in unilateral contracts in construction/with
sub-contractors -> Drennan
Impossibility and Impracticability
High standard to meet, courts hostile
Impossibility (RS 262/263, UCC 2-613): when a
party is unable to perform due to a supervening
event occurring after execution of the contract;
when performance is simply not possible
● Can only use in the case of death or
destruction of a necessary thing for
performance
Impracticability (RS 261): when performance is
sufficiently different from what the parties had both
contemplated at time of contract as to be
“impracticable” (though not literally impossible)
● Four elements of impracticability (Waddy):
(1) the event made the performance
impracticable
(2) the event was a basic assumption on
which the contract was made
(3) the impracticability resulted without the
fault of the party seeking to be excused
(4) the party has not agreed, either
expressly or impliedly, to perform in spite
of impracticability that would otherwise
justify his nonperformance
● Must involve extreme and unreasonable
difficulty
● A party cannot by its own act place itself in
a position to be unable to perform a
contract, then plead that inability to perform
as an excuse for nonperformance.
● A party pleading impossibility as a defense
must demonstrate that it took virtually
every action within its powers to perform its
duties under the contract (Waddy)
Frustration of Purpose (RS 265): when an
unforeseen event undermines a party's principal
purpose for entering into a contract. Three factors:
(Mel Frank Tool v. Di-Chem)
(1) the purpose that is frustrated must have
been a principal purpose of that party in
making the contract
(2) the frustration must be substantial. It is not
enough that the transaction has become
less profitable for the affected party or
even that he will sustain a loss. The
frustration must be so severe that it is not
fairly to be regarded as within the risks that
he assumed under the contract.
(3) the non-occurrence of the frustrating event
must have been a basic assumption on
which the contract was made
Possible remedies/results
● Rescission, leaving parties in same
situation where they began
● Rescission, letting the risk/harm where it
lies
● Some amount of restitution
Modification
Common law: modifications must meet all the
regular elements of formation, including
consideration
Pre-existing duty rule: need additional
consideration if requesting more payment, can’t
use old contractual duties (Alaska Packers’
Association v. Domenico)
● Exceptions: unforeseen circumstances,
reliance (RS 89)
Modification under duress is not binding
Modification can take a contract out of SoF
(reducing $, etc.) - look at contract as modified for
analysis
UCC: modifications are routine and presumptively
enforceable (UCC 2-209)
(1) No consideration needed for modifications
(2) Contract can exclude future modifications.
(No Oral Modification clauses).
○ If form provided by a merchant, it
must be signed by non-merchant.
UNLESS both parties are
merchants.
(3) SOF must be satisfied by modification if
original contract requires SOF compliance
(4) Attempts at modification/rescission that
don’t satisfy (2) or (3) can count as waivers
(5) If you have a NOM clause, and then waive
the NOM clause, you can still RETRACT
THE WAIVER (and go back to strict
performance under NOM clause) as long
as this occurs before reliance on waiver
Kelsey-Hayes v. Galtaco: modification under
economic duress may=non-enforcement
● Bad faith modification protest requirement
Express Conditions
Language that denotes conditions: "if and only if,"
"on the condition that," etc. Have to be negotiated
and included expressly.
Express conditions must be explicitly stated and
are always strictly enforced (RS 227, enXco
Development Corp. v. Northern States Power Co.)
Failure to meet express conditions discharges
other party’s duty unless the other party excused
the non-occurrence of the condition (RS 225)
Excuses for non-occurrence of condition:
● Doctrine of prevention: a condition is
excused if the promisor wrongly hinders or
prevents the condition from occurring
● Waiver/estoppel (RS 225)
●
●
●
●
Partial performance of a contract without
the condition being fulfilled counts as
implicitly waiving the condition
Substantial performance (e.g. 80%) of the
contract does NOT excuse a party's duty to
perform (RS 237 comment d)
Anti-forfeiture doctrine: If language is
ambiguous, courts treat as a promise, not
as condition, to avoid forfeiture (JNA
Realty v. Cross Bay Chelsea - lenient for
enforcement of procedural conditions like
notice, RS 227/229)
Impracticability/mistake/etc. (RS 271)
Material Breach
Partial breach: breach of only one part of a
contract; a breach that does NOT discharge the
duties of the nonbreaching party, who must STILL
PERFORM the contract
● Can sue for breach of contract and recover
(current) damages
Material breach – a significant deviation from
contract provisions (RS 241)
● If the breaching party fails to cure, and the
other party will face harm, it becomes total
breach
● Jacob & Youngs (Reading pipe case):
substantial performance, and no
willful/intentional breach, so used equitable
doctrine to hold non-breaching party to
performance - granted damages of
difference in value which were negligible
○ Can avoid express condition based
on lack of explicit language
● Material breach can justify withholding
performance, some courts are more liberal
than RS and allow parties to walk away
after material breach (Sackett v. Spindler)
Total breach: a breach that is sufficiently serious to
justify discharging the nonbreaching party from her
obligations to perform the contract (RS 242)
● Nonbreaching party can walk away entirely
and collect not only current damages but
also future damages flowing from the
breach
If a party continues to perform despite the other
party breaching or failing to meet the express
condition, this counts as waiving the condition or
accepting the breach, however the party that
waives a condition can still retract the waiver
Anticipatory Repudiation
RS 250: definition of repudiation: definite and
unequivocal manifestation (through words or
actions) of an intent not to perform
RS 256/UCC 2-611: Anticipatory repudiation may
be rescinded before other party (1) materially relies
on the repudiation or (2) indicates that he deems
the repudiation to be final. (Truman Flatt v.
Schupf).
RS 253/UCC 2-610: Remedy: damages for breach
or discharge of duty to perform.
A request to modify is not anticipatory repudiation
(Truman v. Schupf)
A party can demand adequate assurances of due
performance if they have reasonable grounds to
believe the other party will not meet the contractual
requirements (Hornell Brewing Co. v. Spry).
● Insecurity: significant financial difficulties,
repeated failure to perform
● Can only demand reasonable assurances
related to the type of insecurity in question
UCC 2-609: Right to Adequate Assurance
(1) Merchants or non-merchants. Adequate
grounds for insecurity and be commercially
reasonable to suspend performance
(2) Reasonableness between merchants is
determined by commercial standards
(3) Accepting delivery/continuing payment
doesn’t preclude a party from making
future demands for adequate assurances
(4) Failure to provide assurance within 30
days is a repudiation of the contract
NOTE: courts are split on whether a demand for
assurances must be written
NOTE: unclear whether assurances are
compulsory or permissive
Expectation Damages
No speculation damages/punitive damages in
contract law - only expectation damages
● Reasonably foreseeable economic harm
● Obligation to mitigate - not allowed to
worsen damage
● Can only request specific performance for
land (or specially manufactured goods),
otherwise only monetary damages
● Goal is to restore the damaged party to
where they would be had the contract been
fulfilled (normal/baseline)
RS 347: damages = loss in value + other cost cost avoided - loss avoided
Consequential/incidental damages are subject to
certain other restrictions:
(a) the requirement that damages be
reasonably foreseeable at time of contract;
(b) the harm must be measured with
reasonable certainty (not speculative); and
(c) the duty to mitigate damages (cannot
recover to extent damages could have
been avoided or minimized by reasonable
efforts)
Crabby’s Inc. v. Hamilton: illustrates damage
calculation, waiver of express condition
● Damages for real estate contracts are the
difference between the purchase price and
the fair market value
Handicapped Children’s Education Board. v.
Lukaszewski: breach of employment contract
● Damages=difference between the salary
they would have paid her and the woman
they did hire and consequential damages
American Standard v. Schectman: measure of
damages for construction is cost to complete
● Court does not allow substantial
performance exception:
○ Must have substantial performance
in good faith and the cost to
complete would cause economic
waste
○ OR a minor/incidental breach in
which damages would be unjust
● Note 2 (Emery): overcompensation/unjust
enrichment? No, just compensation for not
getting what you bargained/paid for
● Note 3 (Peevyhouse case): tension
between diminution in value
(environmental impact, etc.) vs. cost to
complete measure of damages
Other theories of damages:
● Reliance (Katz v. Danny Dare): no
consequential/special, only direct
● Restitution (Commerce Partnership-unjust
enrichment, Watts-reasonable
compensation, Webb-promissory
restitution/material benefit)
0. UCC or Common Law?
1. Is there a contract?
● Offer, acceptance, consideration
● Statute of Frauds
2. What are the terms?
● Interpretation principles
● Parol Evidence Rule
● UCC 2-207
3. Trying to enforce without a contract?
● Promissory Estoppel
● Restitution
4. Trying to avoid being bound?
● Minority/incapacity
● Duress
● Undue influence
● Misrepresentation
● Mistake
● Unconscionability
5. Trying to excuse nonperformance?
● Impracticability
● Express condition
● Material breach
● Anticipatory repudiation