Contract Formation
Offer:
 Two parts: The offeror shows a manifest willingness to enter into the contract. One person confers power
on the other to close the contract.
 You can only revoke an offer before formal acceptance.
 An offer must invite the close of the deal, not merely invite negotiations.
o Owen v. Tunison: saying that one “could not sell for less than” was an invite to negotiate, not an offer. Language
is too general, which is a sign that it is not an offer.
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o Southworth: ?
Price Quotes are generally NOT binding offers.
o For a price quote to be binding, it usually needs to be to a specific buyer at a specific quantity.
o Fairmount Glass: the language of “for immediate acceptance” transformed what would have been just a price
quote into a binding offer.
 If you know that FG usually gives price quotes and they are not offers, then they could not accept, because
it wasn’t an offer and .they knew it
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Act evidently without intent to Contract:
o If you know that the person making the ‘offer’ does not have an intent to contract, then the
contract is not valid.
 As in Lucy v. Zehmer and PepsiCo
Advertisements are generally not binding offers.
o Policy reason what if the store runs out of stock?
o New/ Arbitrary conditions cannot be implemented after acceptance (see Lefkowitz v. Great MN Surplus
Store).
o Ads are not an offer unless it is clear, definite, explicit, and directed at a particular person.
Rewards
o Offer for a Unilateral K (promise in exchange for a performance). It invites acceptance by
performance.
o If the performer doesn’t know there is a reward, then there cannot be an offer and acceptance.
 Broadnax: Because he didn’t know about the reward, he wasn’t bound by K to get the reward.
Construction Contracts
o General Contractor’s bid offer is revocable before formal acceptance.
 IF: Offeror can be placed back in status quo, the error is clerical (not in bad faith),
enforcement of the K would be unconscionable, notice of the mistake is prompt.
 Elsinore: General Contractor had the power to revoke until the school formally accepted, as long as there
o
is not reliance.
 City can still be placed in the status quo by allowing someone else to complete the contract.
Usually, Construction Ks have offers for a Bilateral K, a promise for a promise to finish in a set amount of time.
Acceptance:
 An acceptance creates contractual relations, and can be made in any manner, unless specified by the
contract.
 Manner of Acceptance: look at the offer to determine what sort of acceptance is invited.
o Acceptance can be made in any reasonable way, unless specified by the K.
 For the sale of goods, if you specify a manner of acceptance, it must be unambiguous according to UCC
2-206
o Stays open for a reasonable amount of time under the circumstances
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o The offeror is the master and can specify the terms.
Notice of Acceptance
o Bilateral K (R2d 56): You must give notice of the acceptance so that the other party knows that
they are bound.
 Terms of the K can waive the necessity of notice in a bilateral K. (International Filter v.
Conroe Gin)
o Unilateral K: Generally, notice is not required, unless
 The accepting party knows that the offeror will not find out about the acceptance with
reasonable promptness or certainty).
 Or, the offeror specifically demands notice.
 Carbolic Ball using the ball is performance, getting sick is not performance. You don’t need to give
notice, performing is acceptance of the K.
o Acceptance can be made by a performance IF an offer invites acceptance by performance.
(White v. Corlies, Ever-Tite v. Green)
 In a bilateral K, beginning performance can act as a return promise, except when
the offer specifically asks for a promise.
 The performance must be clear to indicate to the other party that you accept the contract.
It must be material and unlike the usual course of events. White v. Corlies.
 Ever-Tite v. Green the offer said you can accept by promise or performance, and if you accept by
performance then you promise to complete. Performance implies the promise.
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Acceptance by a Shipment of Goods
o UCC 2-206 The order for a shipment of goods can be accepted by promise to ship or shipment
unless unambiguously indicated by language or circumstances.
 UCC favors prompt shipment unless the offer asks for notice first.
 A ministerial conformation (such as a tracking number) is not an acceptance.
o Accomodation
 UCC 2-206 (1)(b)An accommodation is NOT acceptance.
 In Corinthian v. Lederle, the shipment of a non-conforming was just an
accommodation, and therefore not an acceptance of the contract.
Silence (R2d 69) is generally not an acceptable manner of acceptance, except:
o You get benefit that you know you are going to repay (like when you go to a restaurant and order, you should know
you must pay).
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o Long history of silence as acceptance in a long term K.
o Offer invites acceptance by silence and offeree intends to accept by silence.
Mailbox Rule: (R2d42, 63)
o Revocation is effective upon receipt.
o Acceptance is effective once it is sent in the mail.
o In an option K, acceptance is not operative until it is received by the offeror.
Termination of the Offer: (R2d36)
o An offer can lapse after a reasonable amount of time.
o Death of an offeror/ offeree terminates the K.
o Revocation
 Classical Rule: Offer is revocable until acceptance.
Rejection
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The Common Law Mirror Image Rule
o Any deviation in the acceptance was a rejection of the offer, and therefore, it was a counter-offer.
(R2d39)
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 When you reject an offer, it is terminated. If you want to reconsider, it is a counter-offer.
o Terms that aren’t in the original offer are proposals for addition.
o Problems:
 Allows a party to get out of the K on a technicality.
 In Non-UCC cases, apply: Last Shot Rule
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Whoever sent the last form could say that his terms were consented to by conduct. (Battle of
the Forms)
§ 2-207. Additional Terms in Acceptance or Confirmation.
o  UCC 2-207 is a remedy to the common law mirror image rule for merchants.
o (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable
o
time operates as an acceptance even though it states terms additional to or different from those offered or agreed
upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such
terms become part of the contract unless:
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(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
o (3) Conduct by both parties which recognizes the existence of a K is sufficient to establish a contract for sale
although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular
contract consist of those terms on which the writings of the parties agree, together with any supplementary terms
incorporated under any other provisions of this Act.
o Cases on UCC 2-207: (often Battle of the Forms cases)
 Conditional Acceptance
 An acceptance conditional on certain terms
 Step- Saver Data Systems, Inc. v. Wyse Technology: Box top license would be sent
with the goods, and it materially altered the K, in a disclaimer of warranty. Repeatedly opening
the box is not assent. D offered a conditional acceptance (which is a counter offer). Here, it was
not a conditional acceptance; it was a K. D needed to show, but failed to, that they would have
foregone the K w/o the new condition. However, if the terms materially altered the K, the K will
not be enforced. UCC 2-207 is favorable to the buyer.
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K formed by conduct:
 When the parties writings do not form a K according to 2-207 (1), the parties can
form a K by conduct, and the terms are those agreed on and those filled in by the
UCC.
 In Itoh v. Jordan: Itoh did not assent, but they still sent the goods, so there was a K between
the parties by conduct. The arbitration clause is not one of these gap fillers, and therefore is not a
part of the K.
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Different terms in a K:
 If they are not merchants, then they are just proposals.
 3 Different ways to deal with different terms:
o UCC gap filler (knockout rule) Majority Rule
 Revised UCC uses knockout rule
o First shot rule (offeror’s terms hold)
o Act as though UCC 2-207 included different along with additional terms,
and see if there is a material alteration. If there is, they are just proposals.
This is the California rule.
 Northrop Corp v. Litronic Industries: The court used a reasonable term (UCC gap filler)
by applying the knockout rule.
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Rolling K
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K is not formed at the moment of purchase.
Buyer accepts after he has had time to inspect and does not reject.
ProCD, Inc. v. Zeidenberg: Notice of the terms on the inside of the box on the outside of
the box and an opportunity to return the item is acceptable.
o UCC 2-207 not applied, because the K isn’t agreed to until it was not returned
 Hill v. Gateway: UCC 2-207 not applicable because the customer did not object in a timely
manner.
The new UCC 2-207 additional or different are dropped out and the terms become agreed terms
plus UCC gap fillers.
Judges have to decide whether to follow the reasoning in ProCD or StepSaver. New
UCC would fill in with gap fillers.
Efficient Breach
Efficient Breach Theory: Society’s well being will be maximized if resources are allocated to those who value
them the most.
 We want to encourage people to walk out of contracts in favor of more beneficial Ks.
 Expectation damages will ensure the benefit is conferred on the breach-ee.
 Maximizes the net gain.
 Critiques Doesn’t take externalities into consideration
o it doesn’t take much into consideration other than money,
o it doesn’t take uniqueness into consideration,
o assumes everything is fungible with cash,
o positive and negative externalities,
o And it assumes an initial equal allocation of resources.
 Pareto Superior Transaction: Each side is better off.
Consideration
Consideration Overview:
 Classical Consideration
o Marked off boundary between public and private spheres
o Contract should give affect to the will of the parties. (even a peppercorn will do).
 Restatement § 71. A performance or a returned promise must be bargained for. It is bargained
for if sought by promisor in exchange for his promise and the promisee gives his promise or
performance in exchange. A performance may be:
o An act other than a promise
o A forbearance
o Creation/ modification/ destruction of a legal relation. (Hamer)
 Promises can be made to third parties.
 There must be reciprocal inducement.
 The bargain includes: the making of a promise and the promise induces furnishing of consideration.
 The law is not interested in the internal mental state (as in the joke in the bar case).
 The law doesn’t inquire into adequacy of consideration, unless it is a gift/ theft
o Inquiry into the adequacy of the contract Benefit to promisor and detriment to promisee required?  Courts are
split about whether mutuality of obligation matters.
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o R2D says neither are required. However, benefit and detriment are often good indications as to the fact that a
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promise was bargained for.
Exception to nominal consideration rule is the option contract.
Fiege v. Boehm shows that forbearance to assert a legal claim that was honest and reasonably believed can be
consideration, even if you are wrong.
Gifts:
 Cons made spontaneously, in private sphere, etc.
 Pros moral reasons, it is good to enforce promises.
 No consideration for gifts, but if it is a mixture of a gift and bargain, then there is consideration (b/c we don’t inquire into
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adequacy).
There is a fine line between gifts and bargains.
o Tramp no mutual inducement
o Tiffany’s mutual inducement: he was induced by seeing her, and she was induced by the ring.
Kirksey majority decided that her behavior was a condition to a gift. He was not induced by her losses.
Assent:
A Bargain Requires
1.
2.
3.
4.
Consideration
Mutual Assent
Offer
Acceptance
1. Assent is determined objectively in order to:
 Avoid Fraud
 Practicality
 Historically, it was intended to make people conform to reasonable standards.
 If words and acts judge by a reasonable standard manifest an intent to agree, it does not matter what a party’s latent intent
was.
2. Misunderstanding in Mutual Assent §20
 No mutual assent if parties attach materially different meanings to their manifestations and
o Neither party knows the meaning (or has reason to) attached by the other.
o Each party knows the meaning (or has reason to) attached by the other.
 If Lucy had heard Zehmer’s whispers.
o It is a contract if A knows or has reason to know B’s meaning, and B knows or has reason to know A’s meaning.
 Manifestations of the Parties are operative in accordance with the meaning attached to them if
o Party doesn’t know of a different meaning, and the other knows the other’s meaning (Lucy v. Zehmer)
o No reason to know any different meaning attached, and the other knows the other’s meaning (Lucy v. Zehmer)
o Pepsi-Jet no reasonable person would believe they can buy a jet for 700K with Pepsi points.
o Embry it was a contract, because the boss’s words manifested an intent to rehire, and his words would be
interpreted as an intent by a reasonable person. Things you would want to look at:
 Practice of company on question.
 Industry standard.
 Past relations in transaction.
Promise for Past Benefit
Promise for Past Benefit:
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R2d 86 Promise for past benefit is binding only to the extent necessary to prevent injustice, unless it was a gift or
the promisor hasn’t been unjustly enriched, or the value is disproportionate to the benefit.
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Unjust Enrichment:
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o Feinberg v. Pfeiffer no consideration for past benefit. It would not have been unjust enrichment to her boss,
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because she was paid for her work. She cannot collect on a bargain theory.
o Webb v. McGowin It would have been unjust enrichment not to compensate Webb.
Past benefit applies when you are reaffirming an obligation that would be a contract but isn’t because of a technicality. (such
as the statute of limitations If it runs and a party promises to pay anyway).
Promises to pay when no prior negotiations were possible and not intended as a gift.
o Example someone paints your house and you promise to pay them, you would get expectation. Without a
promise, you might only get restitution.
o Also, emergencies, as in Webb. Physicians, acting in a professional capacity.
CAB v. Ingram (covenants not to compete) The consideration for them to sign was enough due to the promotions
and bonuses they got, but not just for their continued employment. Once the employees got these raises and promotions, they
cannot refuse performance of the contracts. An invalid bilateral contract (b/c their contracts are terminable at will, CAB is
not giving anything in exchange for Ingram signing) turns into a binding unilateral contract, once the performance is
completed (CAB’s performance of the bonuses in exchange for Ingram’s promise not to compete). (59) Some courts say
continued employment for at-will employment is consideration, and some say it is not.
Mills No material benefit to him, it was to his son. Bull case (a claim for restitution if there is no promise).
When considering when to invoke promise for past benefit: formality of the promise, material benefit of definite and
substantial character, part performance, moral obligation, amount offered is not disproportional, harm to promisee.
Reliance
Reliance Theory, Promissory Estopple:
 R2d § 90 (See Rickets as example)A promise that can be
o Reasonably expected to induce action/forbearance
o Induces action/forbearance (except in charity/ marriage settlement, you don’t have to prove that it induced an action
or reliance)
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o Injustice can only be avoided by enforcement.
o The remedy granted is limited as justice requires.
A bargain contract requires both consideration and assent, and promissory estopple allows contractual enforcement when
either one is missing.
Reliance comes into play often when consideration does not work, it would be unjust not to enforce the contract
(Feinberg given expectation damages).
o Estopple precludes you from arguing that there was no consideration.
Expectation is hard to calculate at times, and so we use reliance (D&G Stout, which extends promissory estopple into the
commercial realm.)
R2d remedy is limited to “as justice requires” and removes the element of reliance as “definite and substantial character”
(now it is just if reliance is reasonable).
Policy:
 Duty not to lead people on.
 Against P/E traditional meaning of a K is a bargain, but here there is no bargain. (concern that the only promise that
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wouldn’t be enforced under P/E is a wholly executory Ks wouldn’t fall under §90)
o However, judges haven’t done this, because they are really just making sure that justice is served. Judges aren’t
using §90 too liberally.
Major deviation from a contract as a bargain for exchange.
§90 is subject to much judicial discretion.
Restitution
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Restitution: restoring a benefit that has been unjustly retained.
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Cases for restitution:
o Breaching party is seeking relief
 such as a deposit
o Non-breaching party is seeking relief for losing K
 when restitution is more than expectation
 if someone puts more into a K than they think they will and the other party breaches, you want back what
you already put into it.
o When there is no Contract:
 To prove unjust enrichment
 P must confer benefit to D, D must retain it.
 Benefit must be conferred with an expectation of payment (not a gift, not acting a Good Samaritan).

 Professional acting in a Good Samaritan type capacity can be reimbursed.
 If you go out of your way a great deal to be a Good Samaritan, you can recover.
The P was not acting officiously (such as someone who just decides to paint your house without your
knowledge).
o Unenforceable K situations
 K is void for no statute of frauds, illegal, etc.
Miscellaneous Contracts

Option K: R2d 87
o Must have consideration (Dickinson v. Dodds)
 A true option will give consideration not to revoke. Even nominal consideration is
enough to keep an option alive.
o An offer to sell without consideration can be revoked until accepted (Dickinson v. Dodds)
o There must be notice of revocation to the offeree for it to be revocable (indirect or direct).
o An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the
part of the offeree before acceptance and which does induce such action or forbearance is binding as an option K to
the extent necessary to prevent injustice.
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Firm Offers
o UCC 2-205 Only merchants can make firm offers as a form of consumer protection.
 Offer by merchant to sell or buy goods in a signed writing which gives assurance that it will be held
open is not revocable for lack of consideration for a reasonable time.
 Does not require consideration
 Requires a signed document
 Can only be held open for a reasonable amount of time (not more than three months).
Part Performance (R2d45):
 When an offeror invites an offeree to accept by performance, an option K is created when the actor
beings performance.
o This part performance is consideration.
 The offeror’s duty is conditional on offeree’s completion of performance. Offeror must perform upon completion of the
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offeree’s performance.
The offer must be held open for a reasonable amount of time, in order to allow offeree to complete performance.
A preparation for a performance is not enough to count as beginning a performance. The performance begun must be that
which was bargained for.
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The offeree is not obligated to finish (but the offeror must perform if the offeree does finish).
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o Ragosta v. Wilder: P tried to invoke R2d 45 and failed because beginning to take out loans was not beginning
performance. It was merely preparation for the performance, which is not sufficient.
 For R2d 45 to apply, one must have begun the performance that was bargained for.
Family Contracts:
 More informal, often lacking detail
 Traditionally, they didn’t exist, but were seen as altruism or gifts.
 See Hamer v. Sidway (a contract, because there was bargained for consideration)
Employee handbooks
 Unilateral contracts: a promise (handbook) in exchange for a performance (employees working). Consideration for
abiding by the handbook is continued employment. Courts are split on handbooks.
o Metal v. Pine River State Bank Handbook is a unilateral contract. Continued performance of duties is
consideration the promises in the handbook.
o Bankey Says handbook is not a bargained for contract, because change to a contract like this must be done with
reasonability in time and consistency.
Illusory Contracts
 R2d 77: Promise is not consideration if promisor reserves a choice of alternative performances (unless both would have
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been consideration for the one bargained for).
(Strong v. Sheffield) looks like a contract, but is not one (often for lack of consideration), so it will not be enforced.
There is an apparent commitment, but it allows one party a way out.
Satisfaction Clauses (Mattei v. Hopper) not illusory. One can only back out based on a good faith standard.
These clauses do not invalidate a contract. Based on a subjective standard, unless it is for a sale of goods, and then it is based
on an objective standard (reasonable person standards) p73-74
Flexible Terms (both parties must act in good faith).
 Output Contracts Seller has flexible terms, that is, the buyer promises to buy all the seller produces.
 Requirements Contracts Buyer has flexible terms, that is, the seller promises to sell all the buyer
needs. (Gulf v. Eastern: Eastern gets spec. perf. b/c they had a req’s K, and they wanted to buy at their
estimated cost).
 Sidenote UCC 2-306: If one departs too much from an estimate made in the contract, it must be both
reasonable and in good faith.
Implied Contracts
Implied Contract (UCC 2-306(2))
 Exclusive Endorsement Contract In an exclusive contract, there is an implied promise to use best efforts. (Wood
v. Lucy Lady Duff-Gordon) The implied promise is that Wood would use best efforts to uphold his end of the bargain.
Implied in Fact K:
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Did not agree in words, but it can be inferred from words/ actions/ etc. that you intend to be bound.
o Must have intent to contract
o Must have a meeting of the minds.
Expectation damages.
Painting house and watching it example.
Quasi-K (implied in law K, unjust enrichment, Quantum Meruit K):
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Legal Fiction to prevent unjust enrichment (think about Webb).
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No possible way to have a meeting of the minds and an intent to contract (unlike implied in fact Ks).
To recover on a quasi- contract,
o the plaintiff must show that the defendant was unjustly enriched,
o that a benefit was conferred,
o that the defendant retained it,
o and that it would be unjust to retain it.
o Callano there would’ve been unjust enrichment, but sued the wrong party. There must be a
direct relationship. P didn’t expect D to pay.
o § 110 Says that a person who has conferred a benefit on another as the performance of a contract with a third

Cotnam v. Wisdom:n
o Professional Good Samaritan, so he will be reimbursed.
 Doctors will be compensated reasonably, on the standard scale.
 We want to encourage doctors to step in on the behalf of the injured.
Family Contracts:
o Only enforced in extraordinary and unilateral benefits.
o Pyeatte v. Pyeatte
 Not an expressed bargain because it was too indefinite.
 It wouldn’t have been unjust enrichment if she benefited from becoming a lawyer’s wife.
 Sex issue courts wouldn’t have enforced this K between a co-habiting unwed couple.
o Rauschenberg Example
 Consideration: no consideration because of their lover relationship.
 Reliance not enforceable.
 Unjust enrichment
person is not entitled to restitution from the other merely because of the failure of performance by the third person.
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Pre-Contractual Liability

Section 90 Reliance, Promissory Estopple
o Reliance without an Offer
 Hoffman v. Red Owl Stores: Here, there is a potential franchise relationship. ROS must reasonably
foresee that their actions would induce H’s actions. Justice can only be avoiding by enforcing this contract.
o Reliance without Agreement in Terms
 Cyberchron Corp. v. Calldata: Never reached agreement about the terms of the weight, but P was
encouraged to continue anyway. P relied to their detriment, and receives reliance damages.

Option K §87
o An offer becomes irrevocable through reliance on an option K.
o “An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on
the part of the offeree before acceptance and does so, is binding as an Option K to the extent necessary to avoid
injustice.”
 Drennan v. Star Paving: D has to hold their offer open for a reasonable amount of time. P relied on
D’s bid in making their bid. No other way to place P in status quo perform K. (?)

Four ways to create an Irrevocable Offer
o R2d 45 (part performance)
o Reliance on an Offer creates an Option K (R2d87)
o True Option K
o UCC 2-207 Offer left open for a reasonable amount of time when there is a signed writing.
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Contractual Requirements
Definiteness
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Terms must be definite enough that you can tell when a party has breached and form a remedy and must
show the full intention of parties.
R2d 33: Offer cannot be accepted unless the terms of the K are reasonably certain, and they are if they provide a
basis for determining breach and an appropriate remedy.
o Varney They say “I will give you a fair share of the profits if you stay.” Not definite enough.
 Dissent says this could be determined.
o Definite Method to Reach a Price:
 Toys, Inc. v. Burlington, Co.: Definiteness in question with the option to renew the lease. There is
a definite and ascertainable method to reach a price, by looking at the mall current leasing rate.

It is not necessary for a K to contain all the terms, so long as the terms can be
ascertained.
o Flexible Price Terms
 UCC 2-305: K can be concluded without a set price term, and when the parties disagree, the price will be

a reasonable one at the time of delivery, when the parties intend to be bound by the K.
Oglebay Norton Co. v. Armco, Inc.: 2 pricing mechanisms break down. They keep performing,
demonstrating intent to remain bound by the K. They had a long relationship that the court wanted to see
continue. The court established a reasonable price.
Statute of Frauds
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Writing Requirement still renders certain categories of K unenforceable if not commemorated in
writing:
o K to guarantee someone’s debt
o Sales of Land
o K to be performed a later after the K formation
o Sales of goods greater than $500 (new UCC says 5K)
o Wills
Loopholes
o K can be enforced if one party wrote it down but the party seeking enforcement did not. A written confirmation
o
o
o
o
o
following an oral agreement is okay.
Video/ Audio tape is okay in some jurisdictions.
It can be multiple, detached documents.
Writing req. is satisfied if there once were documents that are now lost/ stolen/ destroyed.
UCC 2-203 (3): if parties admit an oral K, it is enforceable.
Restitution and Prom. Estop. Are used to enforce promises that are unenforceable under a traditional bargain theory
because of statute of frauds.
Contract Interpretation
Interpreting Contract Language: Express Terms

Evidence to interpret the terms is always admissible.
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R2d20 Misunderstanding: No mutual assent to an exchange if the parties do not know or do not have reason to
know of the meaning of the other parties or if the parties do know the different meaning of the other.
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In interpreting multiple reasonable meanings of the express terms in a contract, look to:
o First Any clues within the contract (look at interpretation keys below).
o Next Look to course of Performance (course of performing THIS K).
o Then Look at course of dealing (previous conduct b/w the parties).
o Finally Look at trade usage (practice having regulation that will justify its usage, usually expert testimony).
 In Frigaliment, D showed that it was beginning in the poultry trade, so when one of the parties is not a
member of the trade, that party must be made to be known and agree to the trade usage.
 Usually, admit trade usage to interpret analogous cases.
 Critique don’t impose terms just b/c they are standard.
 Some say newcomers shouldn’t be bound, some say outsiders aren’t bound, and some say once you join the
trade you should be bound.
to Interpret Express Terms in a K:
Policies
o R2d 202 Rules to Aid Interpretation: Principle purpose of the parties is given great weight. All
writings are interpreted together. Unless a different intention is manifested, where lang. has a
generally prevailing meaning it will be given that meaning, tech. words or art words are given
that meaning when used in that field. Course of Performance is given great weight. When
reasonable, interpreted with course of perf., dealing, and trade.
o Contract Construed Against Drafter: Any ambiguities caused by the drafter of the K must be resolved against him.
o Interpret K so as to give effect to its principle purpose.
o Interpret K in accordance with public policy
o Interpret K to be lawful, reasonable, and internally consistent.
o Specific weight should be given to separately added boiler plate terms.
o When a list is given, only other things very similar to it will be included.
o UCC provides that course of perf., dealing, and trade usage are always admissible.
If it is determined that parties mean the same thing, subjective meaning prevails, according to R2d 201;
if not, (as in Frigaliment), use the modified objective test.
o If B knows/ has reason to know A’s meaning and A doesn’t know or have reason to know of B’s, use A’s meaning.
In Frigaliment, P couldn’t show that his meaning should prevail, so D prevailed.
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Case Examples:
o Frigaliment: Both had reasonable interpretations of chicken. D shows that P’s price interpretation would have
o
been too low, that P continued to perform knowing the price discrepancy, and that P agreed previously to any kind
of chicken.
Raffles: No K here, b/c both parties acted in good faith, and a crucial term was omitted. Honest mutual mistake
(R2d 20), they meant two different things.
Interpreting Contract Language: Implied Terms: Filling Gaps
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There is an implied duty of good faith and fair dealing in almost every contract, according to UCC 1203, and R2d 205.
o Good faith is NOT opportunism, interfering with the other party’s conduct, irrational or arbitrary discretion,
hiding or lying about changed circumstances, destroying or injuring the other party’s ability to receive benefits of
the K.
UCC 2-103 Honesty in fact and the observance of reasonable standards of fair dealing.
o
Easterbrook (minority opinion), says you can contract around duty of good faith.
Interpreting the K/ Gap Fillers:
o Open Price Terms (UCC 2-305): A price can be left open, and if nothing is said, or the price is to be set by an
agreed standard, or the parties don’t agree, the price will be a reasonable price at the time of delivery. A price fixed
by seller/ buyer must be made in good faith.
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o
o
o
o
o
o
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Sudden, Unreasonable Demands (UCC 2-306) are unenforceable. No unreasonable quantities, etc.
Absence Of place of Delivery (UCC 2-308): Usually seller’s business (or home if he has no business)
Absence Of Time Provisions (UCC 2-309): a reasonable time.
Open Time for Payment (UCC 2-310): unless otherwise agreed, payment is generally due when buyer is to
receive goods.
Implied Warranty: Merchantability (UCC 2-314): There is an implied warranty that goods will be merchantable.
They must pass the trade under the K description, be fit for the purpose, be of avg. quality, etc. MORE
Implied Warranty, Fitness for a Particular Purpose (UCC 2-315): When seller knows the purpose for which the
goods are bought, there is an implied warranty that the goods will be fit for such a purpose. MORE
INSERT 2-316
o
Implied Terms, Duty of Good Faith:
o Dalton v. ETS: When P’s score was under review, D violated its good faith obligation to consider and review his
new information, as per the K. (Duty of best efforts)
o Eastern Air v. Gulf: P not violating good faith by fuel freighting. It is an industry standard & has been done
in the courses of dealing and performance of this K.
o Dickey v. Minit Man: Under the non-complying use provision, there is no implied term in the K for D to
o
o
o
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maximize the profits for P. D should not have to stick with a business that is bad for them.
Bak-a-lum v. ALCOA: P was D’s exclusive distributor, and led P to believe that the K would continue, so P
acquired new space, relying on D. D violated the implied duty of good faith. D needed to give reasonable
notice.
Sheets v. Teddy’s Frosted Foods: P has to choose between turning in his boss (which would be illegal not
to do) and getting fired. Even in an at-will employment K, we don’t want employees to be held hostage, and we
want to encourage whistle blowers. P cannot be fired for promoting the public interest.
Balla v. Gambro: P is in-house counsel, and he reports his boss to the FDA, and is fired. This is not the
minority rule (CA does not agree with this case), but it says that all attorneys can be fired at will. There is a
confidentiality concern when criminals tell their lawyers about their crimes.
Parol Evidence Rule
o If it applies, it prevents one party from giving evidence of “prior or contemporaneous agreements
or negotiations.”
 Example: Gianni Written lease to sell soda, candy, etc. P claims there was an oral agreement that he
was to be exclusive soda seller as consideration for not selling tobacco. Court determines this was a
complete integration of the K, so no evidence to contradict the K is admissible.
o Steps to determine if PER applies:
 Is the K an integration? Is it a complete or a partial integration?
 To decide if it is complete or partial, 2 views:
o 1. Classical View: Look at the K itself. Only if it appears incomplete is it partial.
o 2. Modern View, R2d (214) says you need to bring in all the available
evidence in order to decide if the integration is complete. (Most courts will
at least bring in context).
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o
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Note: if you bring a claim of fraud, you can bring in extrinsic evidence to prove
that claim.
Merger Clause can show intent to be an integration, but may not be conclusive in
a standardized K.
If it is a complete integration:
o You cannot contradict or supplement it,
If it is a partial integration:
o You cannot contradict it, but you can supplement it.
o Masterson v. Sine: P sells ranch with option to buy it back. Can D bring in evidence that
the option was meant to be left in the family? Majority says the K is a partial integration
(b/c deeds are likely to be so) and extrinsic oral agreement is consistent (although dissent
says the extrinsic evidence is contradictory).
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o When arguing to admit evidence mention ambiguity in the agreement (evidence to explain is not barred),
evidence offered to establish the K is invalid (such as fraud), evidence that the K was not intended to be an
integration, reliance, merger clauses not conclusive.
o Arguments for PER:
 Written word is reliable, lower chance of fraud
 Makes K law predictable, can rely on the fact that Ks say what they say
 Cannot trust jury to weigh evidence correctly.
o Arguments against PER:
 Words do not have plain meaning or stable referents
 We should allow all evidence to give effect to intent of parties.
 We should trust a jury to weight written word more heavily even with extrinsic evidence.
 PER leads to lots of legal battles and does not make law more stable.
o Reformation of the Contract and PER
 When error in reducing parties negotiations to writing produces writing that does not
accurately express party’s agreement, may admit Parol Evidence and Reform the K.

Bollinger admit oral agreement to make a waste sandwich.
o No Oral Modification clauses
 These clauses concern oral agreements that come after the formation of the K. These are
often not upheld.
 UCC 2-209 allows for NOMs b/w merchants where it is separately signed and agreed to.
 If an oral modification is relied on, it can act as a waiver to the NOM.
o Exceptions to PER:
 Does not preclude collateral agreements.
 Does not exclude evidence of negotiations after written agreement was made, evidence to show no

agreement or agreement invalid (defenses), evidence of integration, or evidence to interpret the writing.
UCC 2-202: No contradiction can be admitted, but K can always be explained or supplemented by trade
usage, course or dealing, and course of performance.
Merger clauses may not conclusively determine complete integration for standardized K. (R2d211)

o To interpret K, PER bars admission when:
 2 steps:
 Is lang. ambiguous? If yes, then admit evidence of prior negotiations for
interpreting express terms.
 Classical Rule says it either is or is not ambiguous.
 WWW: Lang. of the K is unambiguous and cannot be made ambiguous by the extrinsic evidence.
 Modern Rule says admit extrinsic evidence to determine whether express terms are
reasonably susceptible to meaning contended by parties, and if not, then exclude.
 PG&E: (Indemnity clause case): look at extrinsic evidence to see if the K is ambiguous.
o Course of Dealing and Trade Usage
 Even with a complete integration, you can always admit course of dealing and trade
usage for interpretation and for supplementation if consistent.
 Nanakuli Price Protection case. P argues course of performance, and trade usage. D says
trade usage contradicts express term, and should not be admitted. UCC favors admittance of TU,
and trade usage was not a total negation of express terms, so it was admitted.
Policing Bargains, Defenses
When Ks seem unfair if there is a threat, look to duress. If there is a trust relationship, look to undue
influence. General unfairness look to Unconscionable.
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Usually, people are trying to void the K, and get restitution damages at best.
Ks violating public policy are void.
Incapacity: (defenses to get out of the K.)
o Children do not have the capacity to contract. Minor’s K is void-able at the determination of the minor. Minor’s
o

can’t affirm a contract before they turn 18, but they can after they turn 18. Traditional rule: minor only has to return
what is left, not liable in restitution for full benefit received. Exceptions:
 Necessities
 Minor seeking recovery for cash paid.
 In some states, minor’s misrepresenting age. Adult can get full restitution.
Mental: Test do you know and understand the K entered into if not, the contract is void-able. R2d adds: if you
were unable to act with reasonability, and the other party knew, this bars the K.
Drug/ Intox: void-able only if the other party has reason to know of the incapacity.
o
Pressure in Bargaining:
o Pre-existing Duty Rule: No consideration for a promise that you already are bound to.
 Problem allow for changes in contracts.
 Classical rule is expanded to allow for modifications to the K that are made in good faith.
 Alaska Packers Ass’n v. Domenico: D was already bound to do the work, and there was
no consideration for the higher price they demanded. D acted in bad faith, and P was under
duress, because P had no reasonable alternative (a “hold-up” situation).
Modifications to Contracts: R2d 89 Modifications to a bilateral contract are
o Good Faith
enforceable if it is fair and equitable in light of unanticipated circumstances or if justice can be
avoided only by modification, or under UCC 2-209: Modifications in writing w/o consideration are
enforceable.
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To evaluate the good faith standard: evaluate the state of mind of the person requesting
the modification in light of the overall circumstances and the business justifications.
Watkins & Son v. Carrig: Oral agreement to increase the price is enforceable, b/c D did not object
and the new price was reasonable in light of unanticipated circumstances. There was good faith.
o Duress Doctrine: If you were prevented from exercising free will, K not enforceable (the classical rule, a very
o
o
narrow rule). Duress is an improper threat (a threat that is expressed or implied, that is improper, and must induce
the apparent assent, leaving the victim no reasonable alternative) pressure that induces assent to the contract.
Forms:
 Threat of physical harm (voids the K, according to R2d 174, 175).
 Anything that is a crime or a tort.
 An offer that cannot be refused.
 A threat leaving no reasonable alternative.
 A threat of a frivolous lawsuit, made in bad faith.
 Breach of duty in bad faith.
 Threats that are egregious amount to duress, regardless of the result. (R2d176) The bar will lower for
duress if the resulting exchange is really unfair.
Economic Duress Doctrine: polices situations in which one party is very constrained in their choices due in
part to the action of other parties. It deprives a party of free will and provides no reasonable alternative. Normal
remedy for breach is inadequate.
 Austin v. Loral: P threatened to stop shipment if D didn’t award them the whole K and agree to a new
higher price. D agreed because they had no reasonable alternative. This is economic duress, b/c P
deprived D of free will, and left D with no reasonable alternatives, but to agree to P’s terms. This is the
type of hold up that can occur when one party has a temp. monopoly over the other. Normal remedy for
breach was inadequate.
Undue Influence: One party is under the dominance of the other, or they are in a very special, confidential
relationship. One party abused the position of dominance to persuade the subservient party to enter into a
disadvantageous contract. (Duress unlawful threat, Undue influence abuse of trust, R2d 177)
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Two requirements of undue influence: establish relationship of dependency and trust that they
gave the influencing party dominance over you and that justify you in believing that he wouldn’t act
contrary to your interests. Establish that they improperly abused the position of trust and psychological
advantage by unfairly persuading you to enter into a K that is adverse to your interest.
Odorizzi v. Bloomfield School District: D came to P’s house and threatened to fire him if he did
not resign. He was persuasively convinced to resign, without convincing his judgment.
 Factors in Undue Influence:
o Presence in home, influenced at an unusual place.
o P cannot consult a lawyer.
o Forced to sign at once.
o Large group coercion.
o Confidential relations
o Misrepresentation
 A misrepresentation is an assertion that is not in accord with the facts. R2d says that if a
K is fraudulent (intent to deceive) or material (central term to the making of the K), it
can be voided, even if the misrepresentation is not intentional, but it is important to the K.
(R2d 162)
 Three elements to misrepresentations:
 Fraudulent (lie, intentional deceit) or material (important to the deal) assertion
 Recipient justifiably relies
 Induces assent
 Misrepresentation makes the K voidable at the request of the misrepresented party.
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The most damages you could get would be restitution (usually, just a voided K); Breach of
warranty (implied or express) can provide full damages.
The misrepresenting party can get out of a contract by:
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Lying to the other party about what is in the K (some courts require that the parties read the Ks).
In general, an opinion is not a misrepresentation. Exceptions:
o Imbalance of power
o Person is particularly susceptible (and the other party probably knows so)
o Fiduciary relationship (relationship where you rely on their opinion, relationship of trust
and confidence)
o Artifice or trick.
Vokes v. Arthur Murray, Inc.: P’s dance abilities were misrepresented. Opinion works in a
misrepresentation case here, b/c D is in a superior position of knowledge. D’s fraud tricked P into a
lifetime of lessons, and we do not like to enforce extremely long term contracts.
of Goods:
Go for breach of warranty because you will get more damages.
o Sales

 UCC 2-314: There is an implied warranty of merchantability with respect to goods of
that kind.
 UCC 2-315: Where the seller has reason to know that the particular purpose on which the
buyer is relying, there is an implied warranty that the goods shall be fit for such a
purpose.
o Concealment
 Concealment can amount to misrepresentation.
 Breach is better than non-disclosure, because you will get damages for breach of K.
 You can get incidental/ consequential damages
 Insert 161, 162, 163.  what are the damages??
 Traditional Rule is that: No duty to disclose latent defects (no liability for bare nondisclosure)
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Modern Rule: there are Mandatory Disclosures:
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It is necessary to correct a mistake of basic assumption, because you have a duty of good faith and
fair dealing.
Half-truths
Correct a mistake about a writing
Fiduciary Relationships (relationships of trust and confidence)
Factors to consider:
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Most jurisdictions require that deep secrets are revealed.
Courts are split on whether you have to disclose shallow secrets.
Look at deep/ shallow secrets and latent/ blatant defect distinctions.
There is no duty on the part of the buyer to disclose virtues.
Swinton v. Whitinsville Sav. Bank: D knows that the house is infested with termites, but doesn’t
say anything. We don’t want to force sellers to say everything. (If they had applied the 1 st exception, this
case would have turned out differently).
Kannavos v. Annino: If you do not say anything, you are not lying. If you start to say anything, you
must tell the whole truth. D misrepresents that the building can be an apt. building, while knowing of the
zoning violations. This is a half truth (not bare-non disclosure).
Public Policies on Policing the Bargain
o Distribute the cost of investigation to the cheapest investigator.
o Favor buyers over sellers who have investigated.
o Breach of warranty claims lead to better recovery than misrep. claims.
Adhesion Contracts and Unconscionability
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Classical Approach: Duty to read the K, signed contracts should be enforced.
Adhesion Ks: One party creates the K, and the other only has the opportunity to reject or accept it.
There is no bargaining over the terms.
o Some argue that this is a return to status governing the contract.
o The contract is more like a law and less like a bargain.
o Party does not give actual consent, because there is no choice.
Standard Form Ks are mass produced adhesion Ks.
o Tickets/ Stubs:
 You would not think that is a contract, so it will not be enforced unless the party makes specific notice of
the K.
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o Advantages of Standard Form Ks:
 Judges can interpret one K, and it can serve as an interpretation for all Ks.
 Reduce uncertainty, save time and trouble
 Simplify planning and administration, and make superior drafting skill widely available.
 Can create good industry standards and reduce transaction costs.
o Disadvantages:
 One party can assert it will on an unwilling/ unwitting party.
 A party with strong economic power can assert its power over a weak party.
 No opportunity to bargain over the terms.
 Drafting party has more time to scrutinize the K and understand the terms..
Unreasonable terms that a party would not assent to aren’t accepted.
R2d 211: In signing a K of adhesion, you agree to the negotiated terms, and all reasonable terms.
o Where the other party has reason to believe that the party would not agree to the K if he knew there was a term in
the that party would not assent to, the K is voidable. (Widely accepted in insurance Ks)
o Terms that are unconscionable can be eliminated, or the whole K can be eliminated.
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 Henningsen falls in here this term shouldn’t be in the K because it is beyond reasonable expectations.
Standard Form Contracts:
o K law frowns upon exculpatory clauses for liability for negligence.
 O’Callaghan: P sued landlord D for negligence, but there was an exculpatory clause in her lease. She
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said this was a K of adhesion that shouldn’t be enforced because she had to sign in a housing shortage.
Majority disagrees, and says there was a competitive market; she could have found other options.
Henningsen: P sued D for implied breach of warranty. There was a liability disclaimer in the mass
produced K. Since there was no competition in the market, the K never called attention to the warranty
and D tried to hide their terms, and you cannot sign away all liability for a product defect, verdict for P
(even though she didn’t read the fine print).
Carnival Cruise Lines: P purchased tix with a forum selection clause. Procedurally, notice was
given to P (who knew of the clause), and substantively, everyone saved from the clause. D didn’t operate
in bad faith. Even though the tix weren’t refundable, a forum selection clause is w/in a customer’s
reasonable expectations.
o Public Policy Concerns:
 Hold people to their contracts
 Hold people to duty of care
 Allow buyers to sue
 Substantive ensure fair terms.
 Procedural lack of bargaining and competition.
Unconscionability:
o UCC 2-302: (1) If the court as a matter of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder
of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as
to avoid any unconscionable result.
o A term is Unconscionable if:
o Unconscionability occurs where there is an absence of meaningful choice and the terms are unreasonably onesided.
o Usually, both procedural (unfair surprise, and absence of meaningful choice, fine print and hidden terms, market
o
failure of competition, home sales) and substantive (oppression and one sided terms, unfair result)
unconscionability are required. (there is a sliding scale b/w the two)
A term is unconscionable if it is not w/in the reasonable expectations of the adhering party or if the K is unduly
oppressive.
o Price Unconscionability: If the price is really egregious, then there may be intervention.
 Williams v. Walker Thomas Furniture: Cross Collateralization clause was unconscionable,

because they sold at her house, knew P was very poor, and she did not understand the terms of the K. The
cross collateralization clause was an “oppressive and unfair surprise.” (Paternalistic case)
Jones v. Star Credit: Home sale, P is on welfare, charged far over what the product was worth and
what was agreed to. Bargaining power is great. Shows the difficulty of determining when a price term
alone is unconscionable.
o Arbitration Unconscionability:
 Hill v. Gateway: Rolling K: arbitration clause is unconscionable b/c the fees are too high and

discourage arbitration. Substantive unconscionability is so high that that alone can render the K
unconscionable.
Armendariz: The arbitration agreement is adhesive b/c P could not negotiate it. There is no modicum
of bilaterality, because only the employees have to arbitrate. The K is also unconscionable because it does
not permit the full recovery of damages for employees.
o Legislative limits precluding unconscionability:
 Cooling off periods
 Full disclosure of warranty information
 Caps on interest rates
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No cross-collateralization clauses.
Illegality and Violations of Public Policy

Surrogacy Agreements
o States have differing opinions. They can be enforced, criminalized, or made voidable.
o Arguments against Surrogacy Agreements:
 (Family Law): “Baby-selling,” termination of a parental right, revocability.
 Children should grow up with their natural parents.
 Child should go to the best parents, not the highest bidder.
 SurMom is uninformed about what she is giving up.
 Exploitation of SurMom (Breeder Class)
 Commodification of children.
 Most will not allow a surmom to be bound to giving up her child.
o Arguments in favor of Surrogacy Agreements:
 Favors the intentional family, the one who wanted the child.
 The father is still the natural father, and we encourage his rights.
 Freedom of K is encouraged.
 Surrogacy was not in mind when adoption statutes were made.
 Paternalistic to tell a woman that she cannot enter into this K.
o Baby M: Agreement that surrogate mom would terminate legal rights went sour, and the surmom wanted
o

custody. S.C. said that surrogacy Ks were unenforceable, and gave the baby to the father and his wife, b/c this was
in the baby’s best interest.
Calvert: Under the Uniform Parentage Act, the mom is the birthing or genetic mother. The court looks to intent
and determines that the genetic mother should get the child.
Covenants-Not-To-Compete
o California does not ever enforce covenants not to compete.
o Courts construe against the party seeking enforcement.
o Elements in a reasonable Covenant-Not-To-Compete
 No more protection than the employer needs.
 No undue hardship to the employee.
 Not injurious to the public (protect public interest in choosing their co).
o Arguments against Covenants-Not-To-Compete
 Employees should have freedom to work (don’t deprive them of livelihoods)
 Employees should have freedom of contract.
o Arguments For Covenants-Not-To-Compete
 Employers want to protect their investments
 Employers do not want their employees to take away clients.
 Employers do not want their employees to take away trade secrets.
 Freedom to contract.
o Hopper v. All Pet Animal Clinic: Her K said that she couldn’t have a small pet clinic within five miles for
three years. Court ruled that the clause was enforceable, with a modification to a one year time limit. Then, it passed
the three point test.
o Court imposed Modifications to Restrictive Ks
 Two Approaches:
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
Blue pencil rule cross out unreasonable terms, and leave the remaining terms to govern the K.
Reasonableness Rule court can take out unreasonable terms and modify them to make more
reasonable terms. (There is an argument against this, that employers could just impose
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unreasonable terms, knowing that either the court will modify them, or there employer will not
sue).
 Alternatively, they could just reject the entire contract.
CAB: Covenants-Not-To-Compete were too broad. The court imposes it’s own limitations to fit within
the 3 point test for a CNTC, according to a reasonableness rule.
Pre-Nuptial Agreements
o Traditionally seen to promote divorce, they are now becoming more enforceable, under the Uniform Premarital
Agreements Act.
o Test if Valid: Entered into voluntarily and need a full and fair disclosure of the financial positions of the parties.
Without it, a material misrepresentation in the inducement for entering a pre-nup may be asserted.
o Simeone v. Simeone: Important points:
 Law should treat Pre-Nups like any contract, and not enquire into the adequacy.
 A full and fair disclosure of the parties financial situation is required.
 Not enforcing an unequal K would be paternalistic.
 P was not under duress when she signed the agreement.
 Dissent says don’t enforce when they are vastly unfair.
o Bonds v. Bonds: Important points:
 Lack of independent counsel is one factor in determining voluntariness.
 Pre-Nup should be evaluated as b/w a normal K (and therefore do not inquire in to the adequacy) and a
marriage settlement.
 Conflicting stories, but the court believes she was well informed of what she was waiving.
o California Premarital Agreement Legislation: ensures that the party signs a week before the wedding,
have or waive independent counsel, and it is not enforceable it is not entered into voluntarily or if the K is
unconscionable.
Mistake, Impracticability, and Frustration

Elements of a Mistake Claim:
o Was there a belief not in accord with the facts?
o Was this fact a basic assumption of the K?
o Did the mistake have a material affect?
o Did the adverse party bear the risk? To Decide did the court allocate (according to custom, trade usage, buyer
seller distinctions such as rewarding buyers for investigations, etc.) or did the agreement allocate (inferred from the
agreement that one of the parties intended to bear the risk).
 If not, then…
 If it was a mutual mistake, then the K is voidable/ reformable.
 If it was a unilateral mistake, then…
o Would enforcement be unconscionable?
o Did the other party know/ HRTK of mistake or was it their fault?
o If yes to either, K is voidable.

Mutual Mistake
o Cow Case K for a completely different item, voided K (no longer applicable)
o Diamond Case Jeweler benefits. Seller knows there is an issue and doesn’t investigate (although she argues that
she did investigate through the jeweler).
o Stees  building was built on quicksand and collapses. P would lose on mutual mistake here because both parties
discussed draining the land.
o Renner Mistake in that the property was not suitable to grow jojoba. This was a basic assumption of the K and
neither party bore the risk, so the K was voided at the determination of the adverse party.
o Baseball card cases consider the buyer/ seller distinctions: we favor buyers who have investigated, sellers usually
have had ample opportunity to investigate, reliance interests, conscious ignorance.

Impracticability
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o Elements of an Impracticability Claim
 Occurrence of an event/ contingency
 Non-occurrence of which was a basic assumption of the contract
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 Not fairly to be regarded as within the risks of the K.
Made performance impracticable.
 Is there no real alternative?
o Today, if there is a good alternative, the K has not become impracticable.
 By saying that a certain something was an implied condition of the K, then if that thing disappears, you
can say the K is impossible to be performed.
Notes
 Designation of a Particular crop/ good shifts the risk to the buyer.
 Half destruction: companies can allocate goods to whoever they want.
o Classic Doctrine of Impossibility
 Taylor v. Caldwell concert hall burns down, and courts insert an implied condition that the music
hall is going to continue to exist. K voided.
o Foreseeability and “Bearing the Risk”
 Transatlantic Suez Canal closed, so P had to go around the Cape of Good Hope to make D’s delivery.
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P wanted money back for extra expenses. Court says P bore risk since the closure was foreseeable.
Performance was not impracticable. It was less profitable, but not impracticable
 Foreseeability a foreseeable risk is not necessarily allocated to that party, but it is a factor.
Not every risk can be provided for, but if the risk is a real possibility it becomes part of the K.
Consider if it was foreseen or if parties tacitly agreed on it.
 Bearing the Risk To determine if one party bore the risk, look at
o 1. The terms in the K.
 Sometimes there will be a force majeure clause, excusing performance for
certain acts.
o 2. Other terms of the negotiation, implied terms
o 3. Custom
o 4. Economic Analyses
Eastern v. Gulf D claims impracticability b/c of the energy crisis. However, D could have protected
itself in the K, b/c the energy crisis was foreseeable. This court held that since the energy crisis was
foreseeable, foreseeability is the test, and therefore D assumed the risk.
Mistake v. Impracticability:
o Mutual Mistake is easier to prove. It only requires showing a material effect. Impracticability requires that there is
no real alternative, and that is very hard to prove.
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Frustration of Purpose
o Principle purpose is frustrated by the occurrence of an event, the non-occurrence of which was a
basic assumption of the K. This is a buyer’s claim (I wanted to buy this from you, but now it is worthless
to me…)
 Ask who bears the risk, was it foreseeable, was the risk allocated?
 UCC does not cover frustration, but adheres to R2d 265 by analogy.
 We are more likely to let people out on this defense if there has been no reliance.
o Krell v. Henry: King got sick and the coronation was cancelled. D advertised his apt. as usable during the
o
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coronation, and P leased it for that time. However, the principle purpose for which P wanted to use the apt. was
frustrated. The non-occurrence of the cancellation was a basic assumption of the K.
 Once a seller knows/ HRTK of buyer’s principle purpose, it becomes a basic assumption of the K.
Chase v. Paonessa: P was producing medians for D, and stopped at D’s instruction that there was a cancellation
in the construction work. P was aware that there might be a cancellation, but D did not allocate the risk b/c they
were not aware of the possibility of such a major cancellation.
Conditions
o Express conditions will be read strictly if a condition does not occur, no K.
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o Promissory Conditions event is a condition of A’s duty and B has a duty to see that event
occurs.
o Condition v. Duty/ Promise
 Duty/ Promise If it doesn’t occur, you can sue for breach. You must still perform if the other
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substantially performs. Can usually be modified.
Condition If a condition does not occur, avoid the K. It discharges a duty to perform. Can be waived or
excused by the court.
Promissory Condition If it does not occur, you can get damages, breach, and a discharge of duties to
perform.
Remedies
Classic View: What damages would parties have assumed risk for at time of K-ing?
Realist: Now that we have this mess, how do we clean it up, equitably?
Restitution Interest: Plaintiff’s interest in having any benefit conferred on the defendant restored to him.
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Unusual to award restitution
Often occurs when returning a deposit.
Most commonly applied in construction cases.
Sometimes given as an option if it is more than expectation damages.
Reliance Interest: Plaintiff’s interest in being reimbursed for loss caused by being put in as good a position as
he would have been if the contract had not been formed.
 Sullivan v. O’Connor (or expectation) she is compensated for expenses, pain and suffering of the third surgery, and
worsening. The court tries to put her in a pre-op position. It would be too hard to give her expectation here (how much more
work would this get her?). Hairy Hand Rule inapplicable in this case because there is no way to quantify expectation
damages.
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Sometimes given when expectation seems too high.
Sometimes given when expectation is hard/ impossible to determine.
Pre- contract value – post contract value= reliance damages. (Do not take into account the bargained for costs).
Expectation Interest: Plaintiff’s interest in having the benefit of his bargain by being put in as good a position
as he would have been if the contract had been performed.
 Expectation damages are the standard for breach of contracts b/c reliance and restitution would over-encourage breach, and
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punitive damages would under-encourage breach.
A wholly executory K that is breached should be compensated with expectation damages (unless specific performance is
appropriate).
Hawkins v. McGee (Hairy Hand Rule) Gains prevented + loss sustained + value of botched job= expectation damages.
Promised value- post contract or present value= damages.
If a seller breaches, expectation damages are the fair market value of the promise at the time the promise is made. (Does the
fair market value only matter if the buyer breaches??)
Punitive Damages: Additional money damages meant to punish the defendant rather than benefit the plaintiff.
 In breach of K, no punitive damages unless there is a tortuous, fraudulent or outrageous misconduct.
 Extreme effect of punitive damages is specific performance.
 Werner v. Lewis: awards punitive damages to deter the defendant and other like-situated people. (He is more culpable due to

their relationship and his expertise).
Not given because they do not want to get criminality involved, moral reasons.
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Specific Performance: Court order for defendant to carry out the contract, rather than pay money damages
(only if plaintiff cannot be put in as good a position as the performance of a contract).
 Comes out of the courts of equity.
 Land almost always falls under specific performance.
 UCC 2-716—goods that are unique or in other proper circumstances.
 R2d 369--says that spec perf is granted when unique (get a suitable substitute by means of money damages), hard to prove,
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or hard/impossible to collect.
o Look at adequacy and uniqueness.
Klein v. PepsiCo Inc.: Specific Performance is granted if goods sought are unique or for “other circumstances.” (here, the jet
was not unique, as Klein had access to buy another no spec. pref.)
Laclede v. Amoco extended uniqueness to unique contracts. (It was doubtful that Laclede could get another like contract).
REPLEVIN—the other goods are out there, they are not unique, but it is unlikely that you can cover.
Walgreen v. Sara Creek: a balance in costs and benefits in an injunction calling for specific performance should be withheld.
(here, it is not withheld, b/c the costs of the court monitoring the injunction would be lower than trying to calculate any
damages). BILATERAL MONOPOLY they could only compete with each other, which means they aren’t going to be able
to bargain for better contracts (discourages bargaining).
No specific performance if expectation damages could be provided, and the goods sought aren’t unique.
Likelihood of receiving monetary damages and proving damages with reasonable certainty are also considered in spec pref.
Not granted if you can “cover” find a substitute.
o Non-breaching party cannot sue for spec perf unless they try to cover.
Specific Performance vs. Damages:
 Cons of damages
o Diminished accuracy in determination of values.
o Parties expenditures in negotiation of damages.
o Timing of court to evaluate damages.
 Cons of specific performance
o Courts supervision of injunction is expensive.
o Servitude arguments we shouldn’t force people to do things.
o English common law, spec pref only got to courts of equity, so spec pref only came out as a last resort.
Posner sets new standard that if the costs and benefits are equal, then you give damage awards. If the costs are
less for specific performance, you give specific performance.
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Substantial Performance
o When can you withhold your own performance?
 If the other party materially breaches, you do not have to perform.
 However, if they substantially perform, you cannot withhold your performance. If you
do, you will be guilty of breach.
o Jacob & Young v. Kent D specified a certain pipe, and D used one that was not the same brand but otherwise
equal. P stopped payment, citing D’s “breach,” but the court held that D substantially performed.
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Factors to consider concerning Substantial Performance
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Bad faith
Just results
Purpose to be served
Excuse for deviation
Cruelty of forced adherence
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o Plant v. Jacob Misplaced wall case. Court says that contractors do not have to perform to the
letter of every K. This was substantial performance by F.
o Non-Conforming Goods, the Perfect Tender Rule
 UCC if you get goods that are a little bit different, the buyer can reject them for any non-conformity.
(UCC 2-601)
 However, seller has the right to cure the defect if the time in the K hasn’t run or if the seller had
reason to believe the buyer would accept, the seller can cure w/in a reasonable time. (UCC 2-508)
 If buyer has already accepted, buyer can revoke acceptance only if they have substantial
impairment. (UCC 2-608)
 For installment Ks, you can reject an installment only if the installment is substantially impaired.
(UCC 2-612)
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Divisibility
o Protect breaching party by making other party pay for the part of the K that was substantially
performed.
o For divisibility, price has to be apportioned to the work that has been done that is being paid for. You should not
have to guess how much of the K has been performed.
o Gill v. Johnstown Lumber Co.: A flood carried logs that P was moving for D too far. However, since a price
had been apportioned to a certain amount of logs, the court can sever what part of the K should be paid for.
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Suspending Performance/ Termination of the Contract
o When does breach justify suspending or terminating the K?
 Walker v. Harrison P leased a neon sign to D, w/ monthly payments. P was to maintain the sign, but
did not. In turn, D stopped payment. Court decided that P did not materially breach, so D did not have a
right to stop payment, and in turn, D breached.
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Anticipatory Repudiation
o The time for performance has not yet come, but you put it out of your power to perform. If you receive a clear
repudiation, you can go to court immediately.
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o
Kanavos v. Hancock Bank and Trust Co. P had an option to buy stock, and D took it away buy
selling to a 3rd party. If P could not have performed anyway, D is not liable even though he repudiated. P
has to prove that D’s repudiation caused the failure of the K.
If injured party receives a repudiation, you cannot wait performance and ignore the repudiation. You are at your
peril and in danger of not recovering later.
A repudiation cannot be withdrawn if the non-breaching party relied on the repudiation.
The non-breaching party can agree to the repudiation.
o
o
o Adequate Assurance of Performance
 UCC 2-609: if you have reason to believe that your contracting party may not perform, you can ask for an
adequate assurance of performance.
 If no assurances w/in a reasonable amount of time, you can consider that a repudiation.
 Reasonable grounds for insecurity is judged by commercial standards, such as lack of
communication, delays, other customers are suing them, etc.
Maddox is treated this way, even though it is not a UCC case.
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Remedies
o Formula for Expectation:
 Loss in value- loss avoided- cost avoided + other loss = expectation damages
 Lost profit- Loss avoided + reliance costs+ other loss = expectation damages (alt)
 Loss in value=difference in what you thought you would get and the value you received.
 Loss avoided= what you were able to save by mitigating damages
 Cost avoided= saved expenses that would have been incurred had performance continued
 Other loss= injury costs by breach (consequential damages) and incidental damages
(trying to avoid the loss, delay, inconvenience in avoiding the loss)
 Cover= loss in value + loss avoided
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o Vitex v. Caribtex: P reopens plant and sues D when D does not perform. The court decides that
overhead should be calculated into P’s recovery.
o Seller’s Remedies:
 K price- Resale price – cost avoided + other loss= damages
 In general, if a buyer breaches a K, the seller can resell the goods and sue for damages.
 If you do not resell: Damages for non-acceptance is the difference b/w K price and
market price + C/I –cost avoided. Damages for repudiation is the difference b/w K price
and market price at the end of a commercially reasonable time + C/I –cost avoided.
 If seller cannot resell, buyer will have to pay full K price. (UCC 2-709)
 If the goods are identified to the buyer, you can get an action for price (UCC 2-704)
o Buyer’s Remedies:
 Replacement price- K price- cost avoided + other loss= Damages
 When seller does not deliver or repudiates, buyer may cancel and cover and have
damages, recover damages for non-delivery, or if the goods have been identified the
buyer may recover them or obtain specific performance. UCC 2-711
 After breach, a buyer may cover and get damages including incidental/ consequential
damages. UCC 2-712
 Damages for non-delivery when buyer does not cover is the difference b/w market
price and K price +C/I damages
 Buyer’s damage for breach of accepted goods: once given notification of nonconformity, he can get damages for non-conformity. UCC 2-714
 If no cover is possible, specific performance under UCC 2-716
 Buyer’s incidental and consequential damages:
 Incidental damages include expenses from inspection, receipt, transportation and
care of rejected goods, commercially reasonable charges, expenses from effecting
cover.
 Consequential damages include loss from requirements of needs of which seller
knows at the time and could not reasonably be prevented by cover and injury to
person or property.
 Laredo Hides: D repudiates output K. Buyer benefited by covering. D bears the burden
of showing that cover was unreasonable, and they failed to do so. (Cover better than
market price).
Lost Volume Seller: Ask is the subsequent transaction in place of the original K?
o If seller has a big supply, they might say “I could have had both contracts.” If seller has a
limitless supply, they could not use lost volume seller.
o UCC 2-708 (2): If normal damages (UCC2-708(1)) are not enough to put seller is as good a
position as if the K had been performed, then he should get value of the profit from full
performance of a buyer +C/I damages.
o A party claiming lost volume seller must prove:
 I could have made both sales and
 I would have (it would have been profitable to make both sales).
o Davis v. Diasonics: P paid deposit & breached & wants deposit back. D says it should get lost profit, b/c 2 nd K was
not a substitute for 1st K. D must show a finite and predictable amount of buyers, you could have made both
sales, and would have, show they were looking for other buyers, etc. and they were able to.
Limitations on Remedies
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Duty to Mitigate
 R2d §350: Damages aren’t recoverable for loss that the injured party could have avoided.
If the party makes reasonable but unsuccessful efforts to avoid loss, he can recover.
o Rockingham Co.: D built bridge even after being told not to. This non-movable good could not be resold, so D
had a duty to stop performance and mitigate damages. (A good probably could be finished and resold).
o Parker v. Twentieth Century Fox: P did not have to take on alternate role offered to her, under the “different
or inferior” test.
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Diminished Value Rule
o Occurs when performance is defective (not that it is incomplete). Part of the cost to remedy the
defect will probably be the cost of undoing some of the work already done. Cost to remedy may
then exceed the loss in value to the injured party, so that the award based on that loss would be
too great.
o See R2d 348 If a breach results in defective/ unfinished construction and loss in value is not
proved w/ sufficient certainty, he can recover damages based on diminution in market value or
reasonable cost of completing performance if that cost is clearly not proportionate the loss in
value to him.
o Jacobs and Young: Reading pipe case, used diminished value rule.
o Groves: leveling land case, court gave cost
o Peevyhouse: Court gave loss in value; case where D didn’t do restorative work
 Reasons for DVR:
 Avoid economic waste wasting money by doing something that is not worth
being done. (Sometimes applied only to tearing down structures).
 Unjust enrichment cost rule would transfer to P more than their subjective
value (probably the best argument for DVR).
 Cost is disproportionate to the value in these cases.
o Cost would be to require the breaching party to pay the cost of fixing the defective performance.
 Reasons for Cost Rule:
 Prove market wrong, or it could change over time
 Externalities
 Paid for value
 Went to trouble to specify wanting this in the K
 The non-breaching party might have unique personal value of the land.
Foreseeability in Damages:
o R2d 351: Damages aren’t recoverable for loss that the party in breach didn’t have reason to foresee as a
o
probable result of the breach when the K was made. Loss may be foreseeable as a result of breach if it
follows in the ordinary course of events of breach or as a result of special circumstances that party has a
reason to know. Court discretion as justice requires.
Hadley: (mill shaft case) damages for mill stoppage not recoverable, because it is unreasonable to think that
the mill would come to a stop.

In the case, P said to use extra haste. Court must have disregarded this, because if it hadn’t the case likely would have come out
differently.
o Kenford: D did not allocate risk for damages in profit if stadium not built. Not all foreseeable profits are
recoverable.
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Certainty in Damages
o R2d 352Uncertainty as a limitation on damages: damages not recoverable beyond what
evidence shows is established to a reasonable certainty.
o Fera: K for a lease, experts showed what damages would have been. P got 10 years of profits foregone. This case
said that new business rule should not limit recovery.
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o Damages for Emotional Distress: often excluded on the grounds of foreseeability and certainty.
 Exception: weddings, funerals, special cases about homes.
Liquidated Damages and Penalties
o Ask Is this an enforceable liquidated damages clause, or is it an unenforceable penalties clause?
o UCC 2-718: Damages may be liquidated to a reasonable amount in light of anticipated or actual harm caused by
breach and the difficulties of proving loss and inconvenience/ non-feasibility of obtaining and adequate remedy.
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o
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We do not allow penalty clauses but allow LDs. UCC increasingly uphold LDs.
If a K-ing party is worried damages will be excluded b/c they are too uncertain, a party
might put in a clause for protection.
Wasserman’s: 25% of gross receipts does not seem reasonable. Doesn’t take into account other
expenses and is not a good faith estimate of the damages.
 Gustafson’s: (closed road case) LD on a sliding scale. Fair way of estimating damages.
UCC 2-719: K may provide for remedies in addition to/ in substitution for those provided and may limit/ alter
damages recoverable as by limiting buyer’s remedies to return of goods and repayment of price and resort to a
remedy as provided is optional unless the remedy is expressly agreed to be exclusive. C damages may be
limited/excluded unless unconscionable (limitation for personal injury is unconscionable).
Defendant wants to Limit damages look to foreseeability, causation,
mitigation, uncertainty.
GO OVER PRACTICE TEST AGAIN AND INSERT ADD’L INFORMATION.
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