Contracts Outline
Roy § 3
Fall 2004
K- agreement b/t two or more people. An exchange of promises. Not necessarily in
writing.
Two approaches to K law:
1. Classical Approach- Objective Theory of K- it doesn’t matter what parties
thought or intended, but what a reasonable person in position of parties would
have thought or intended. Mutual assent is not necessary. If parties’ actions,
judged by a standard of reasonableness, manifest an intention to agree, then the
real state of the party’s mind is irrelevant. –What would a reasonable person have
thought? Ray v. Eurice Bros.- Duty to read rule; Park 100- fraud is a valid
defense.
2. Modern Approach- tries to be fair, looks at intent of parties.
Elements:
1. Offer
2. Acceptance
3. Consideration
1) Offer- a manifest intention to be bound w/out further assent
a) communication by offeror
b) creating a reasonable expectation in the offeree
c) offeror is willing to enter into a K
d) specified terms
e) offeree need only accept to form a K
- R. §70- One who makes a written offer which is accepted, is bound, though
ignorant of the terms. Obj. Theory.
2) Acceptance- offeree has “power of acceptance” that is terminated at time
specified in offer, or, if not time specified, at end of a reasonable time (depends
on circumstances).
R. §41: Mailbox Rule- revocation effective when rec’d; acceptance when
dispatched.
-qualified acceptance = counter offer = rejection
-revoke at any time b/f acceptance. Effective when communicated (directly or
indirectly).
Normile v. Miller- “you snooze, you lose” by agent was held to be effective
indirect revocation.
Bilateral K- exchange of promises
Unilateral K- promise in exchange for an act
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-Classical Approach: free to revoke b/f completion of full performance
Peterson v. Pattberg
-Modern Approach: part performance may create an option K-R.§45
R. §32- in case of doubt, offeree may choose to accept offer by
performance or promise to perform-uni or bi.
3) Consideration- must be something “bargained-for exchange”
R. .§71: Consideration
a) to constitute consideration, a performance or return promise must be
bargained for
b) bargained for = if it’s sought by the promisor in exchange for his promise and
is given by the promise in exchange for that promise
c) Performance may consist of:
i.
Act
ii. Forbearance
iii. Creation, Modification, or Destruction of Legal Relation
CONSIDERATION:
Hamer v. Sidway- Classical consideration- Benefit/Detriment Test= benefit to promisor
or detriment to promise. Legal Detriment- someone forbears from doing something that
they are legally entitled to do. In this case, boy refrained from drinking, smoking,
swearing until 21.
Baehr v. Penn-O-Tex- Bargained-for exchange is test for consideration. Here,
forbearance not to sue was not induced by promise. Ct. did say that forbearance to sue
could be consideration, just not here.
Dougherty v. Salt- aunt’s promise to give boy $3,000 had no valid consideration. “Good
boy”. Past Consideration nor Moral Consideration is valid. Promise was an
executory gift.
Batsakis v. Demotsis- Greek woman needed $. Cts will not inquire into the adequacy of
consideration. Must only have bargained-for exchange consideration. Objective Theory.
Illusory promise- promise that makes performance entirely optional w/ promisor no
matter what promise does- not an enforceable promise, obligation must be imposed on
promisor.
Mutuality of Obligation- both parties must be bound, or neither is bound. Not really
needed in K so long as bargained for exchange exists.
Plowman v. Indian Refining Co.- Ps argue there was valid consideration in an offer for
co’s retirement plan. Past Consideration nor Moral Consideration are valid. Condition of
the promise- is not consideration, simply a requirement in order to receive benefit. No
benefit to employer when they went to pick up checks.
Power of Agents- express and implied authority may be deemed actual authority.
Fiduciary relationship. May bind employer to Ks.
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PROMISSORY ESTOPPEL
This theory moves away from the classical theory towards modern doctrine. PE is a
substitute for consideration. It can also be used to make offers irrevocable, and as an
exception to statute of frauds.
4 elements- R. §90
I. Promise (express or implied)
II. Reasonable Reliance by Promisee
III. Detrimental Reliance- change of positions
IV. Injustice only avoided by enforcement
Promises w/in the family:
Kirksey v. Kirksey- Purely gratuitous promise will not be enforced. This case shows
traditional unwillingness to inject this new doctrine into the courts.
Greiner v. Greiner- Mrs. Greiner made promise to son to give him 80 acres. He moved a
long way and gave up his homestead in reliance of the promise. She later refused to give
him land. Mother argues no consideration b/c she received no benefit from his moving.
Ct. agrees, but uses PE to enforce b/c son reasonably relied to his detriment.
Wright v. Newman- Newman seeks child support from Wright. Ct. enforces “implied
promise” w/ PE. Wright’s actions (name on birth cert.. last name, established
relationship) implied a promise to Newman to support child even though he was not the
father. Ct. found other elements of PE satisfied.
Charitable Subscription:
Modern Theory- cts used PE to legally enforce “gifts” to charitable institutions. To
enforce a charitable subscription, you needed to est. that there was a promise to give
some property to a charitable institution and that promise was supported by consideration
or reliance.
Allegheny College- Cardozo toys w/ PE, but decides to enforce finding considerationwoman donated $ if school set up scholarship in her name. Long discussion of PE, but ct
doesn’t seem ready to use it yet.
King v. Boston University- Ct. finds consideration in MLK’s promise to transfer title of
papers and to give BU property when he died. There was bargained for exchange b/c
King wanted papers to be kept w/ scrupulous care at BU. BU did this and
organized(indexed) them as well.
PE in a commercial context: enforcing commercial promises in absence of
consideration.
Katz v. Danny Dare- over retirement plan for employee. Katz accepted pension
payments, but later company tried to quit paying. Is retirement plan enforceable? Ct. used
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PE and found that Katz reasonably relied on promise to his detriment. Also, injustice only
avoided by enforcement- ct likes “fairness.”
*Reliance must be Reasonable*
Shoemaker v. Commonwealth Bank- Would a reasonable person in the promisor’s
position have relied upon the promise, therefore not purchasing insurance.
RESTITUTION
When there is no promise, but one party has been unjustly enriched/benefited. Don’t
look for offer, acceptance or consideration. A person who has been unjustly enriched at
the expense of another is required to make restitution to the other.
Credit Bureau Enterprises v. Pelo- Pelo was hospitalized against his will for mental
illness. Is he required to pay for services rendered to him? Yes, although ct. doesn’t find
express or implied contract, Pelo has been unjustly enriched. Plus, hospital had an intent
to charge.
Restatement of Restitution § 116: Elements needed for restitution
1. Act unofficiously w/ intent to charge
2. Services were necessary to prevent other from suffering serious bodily harm or
pain
3. Supplier of services had no reason to know receiver would not consent (if
mentally competent)
4. It was possible for other to give consent
*Pelo’s consent would have been immaterial b/c of his mental capacity.
§116 is a Modern Doctrine. Classical Approach held: no bargain, no recovery.
Commerce Partnership v. Equity Contracting Co- To impose a quasi-contract action
(restitution) against owner, subcontractor must (a) exhaust remedies against General (b)
prove owner’s receipt of benefit conferred w/out paying consideration to anyone.
Quasi-K Elements:
1) P has conferred benefit on D
2) D has knowledge of benefit
3) D has accepted or retained benefit conferred
4) Unfair to allow D to keep benefit w/out paying
-Restitution rests on idea of promoting justice
Watts v. Watts- unmarried cohabitants- she took his name, filed tax together, and his
wealth greatly increased. When they split, she got nothing. Ct. finds unjust enrichment
b/c she did a lot of things during years that allowed him to work and build business. Ct
also finds K implied in fact b/c actions of parties imply agreement to share.
K implied-in-fact- K (look for offer, acceptance, and consideration)
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K implied-in-law- Restitution (look for unjust enrichment)
PROMISSORY RESTITUTION
Promise made after benefits have been rec’d.
Mills v. Wyman- Classical Approach- sick son taken care of by nurse, father later writes
and promises to pay. Is his promise enforceable if it was made after benefits rec’d? No
contract b/c no consideration. “Past” or “moral” consideration is not valid.
-pre-existing legal duty rule- ct will enforce w/out consideration, a promise to do
something that you have legal duty to do- wasn’t applied to Mills though.
Webb v. McGowin- Modern Approach- Webb throws 75 lbs blocks off 2nd floor to clean
up at work. McGowin walks under, Webb saves him by falling w/ block injuring himself
badly. McGowin promised to pay him for saving his life. Under Classical, not
enforceable b/c no consideration. Ct. introduces Material Benefit Rule
Material Benefit Rule: R. § 86:
1. A promise made in recognition of a benefit previously rec’d by the promisor
from promisee is binding to extent necessary to prevent injustice.
2. Promise is not binding:
a) if promisee conferred benefit as a gift or if promissory hasn’t been
unjustly enriched.
b) To extent that value is disproportionate to the benefit.
 Look for a significant benefit to promisor. MBR is close to restitution, but borrows
from K law. Restitution is an intent to charge. MBR is not same, but promisee expected
to receive value.
Under MBR: promisor must receive benefit and must not be a gift.
REACHING AGREEMENT: THE PROCESS OF K FORMATION
Bilateral K- exchange of promises. Classical theorists saw bilateral Ks as a product of
negotiation-offer and acceptance.
Longergan v. Scolnick- Correspond by mail concerning a piece of land for sale. Ct finds
no offer was made, only an invitation for offer- ct looks at words used.
R. 24
R. § 26- Preliminary negotiations are not an offer until promisor has made a further
manifestation of assent. Must be mutual assent- meeting of the minds, reasonable.
The “Mailbox Rule”- applies to post and probably faxes, not e-mail. Acceptance is
valid when dispatched/sent. Offer, revocation valid when rec’d.
-offer is “master of the offer” and can specify terms of acceptance.
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Izadi v. Machado (Gus) Ford, Inc.- Deceptive Ford ad attempted to “bait and switch”
customers. Ct holds deceptive ads will be viewed as binding offers. Objective theorywhat would a RPP believe ad to be. Normally, ads are held to be not offers, but merely
solicitations/ invitations for offers.
Difference b/t bilateral and unilateral K:
Normile v. Miller- offer to purchase remains offer until seller accepts on terms contained
in the original offer. A conditional acceptance is actually a counter offer and a rejection
of the buyer’s offer.
Power of acceptance- offeror has right to revoke offer any time b/f acceptance
Option K- an agreement to keep an offer open for a stated period of time. Must always be
supported by consideration separate from K
Mirror image rule- acceptance must be made on exact terms as offer.
Revocation is effective when communicated
Peterson v. Pattberg- Pattberg revokes offer when Peterson attempts to pay. Ct. holds:
any offer to enter into a unilateral K may be w/drawn b/f the act requested has been
performed. If offeror can say “I revoke” b/f offeree accepts, however brief, offer is
terminated. Classical Doctrine.
R. § 45- Option K created by part performance- In unilateral K, option K formed
when offeror begins or tenders performance. Offeror’s duty still only exists at
completion, but power to revoke is gone.
R. § 32- Try to interpret every K as bilateral if possible.
Cook v. Coldwell Banker- Employer offers bonus program if employees sell certain
amount. Later tries to revoke. Ct. uses § 45- can’t revoke after substantial performance
b/c option K is created.
James Baird Co. v. Gimbel Bros., Inc.- Gimbel sent offer to Baird that Baird used in a
bid. Gimbel later revoked his offer, but bid already placed. Ct. rejects Baird’s assertion
of PE b/c it was offer for exchange, no a promise. Offer needed acceptance.
Drennan v. Star Paving Co.- subcontractor’s bid to General that is used in reliance in
preparing a big bid is enforced under PE. It must be “reasonably foreseeable” that
General will use subs bid in his offer. Had General known or had reason to know
something was wrong w/ bid- no PE. Modern. Applying PE to an offer is known as the
Drennan rule.
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R. §87- Option K- similar to PE §90- an offer which the offeror should reasonably
expect to induce action or forbearance of a substantial character on part of offeree b/f
acceptance and which does is binding as an option K to avoid injustice.
Berryman v. Kmoch- Option K to sell land. K said consideration was $10, but Kmoch
never actually paid the $10. For Option K, consideration may be nominal, but it must be
paid. Note: Often, in regular K, you need more than nominal consideration, but in
Option K it’s okay to be nominal.
R. 87(1)- Consideration for Option K does not have to be paid, only recited. This is a
deviation from majority of cts.
Pop’s Cones v. Resorts- during preliminary negotiations, Resorts makes repeated
assurances and promises to Pop’s. Ct. allows Pop’s to recover on PE. Pop’s vacated
their lease  detrimental reliance. It was foreseeable on Resort’s part. This is another
example of PE in the commercial context.
Hoffman- assurances made during negotiations that a K is on its way amounts to a
promise sufficient to invoke PE when relied to promisee’s detriment.
Damages for PE:
1) Reliance Damages- Loss from preparing K, moving business, hiring
attny, etc.
2) Expectation Damages- Loss of income that would have been rec’d.
*Cts are divided over whether promisee can seek only reliance or both.
Uniform Commercial Code (UCC)
1. Article 2- K for sale of Goods (not services)
2. UCC not only for merchants.
UCC 2-205 Firm Offers
1. Offer
2. Made by Merchant (to anyone)
3. Signed Writing
4. Giving Assurances that offer will be held open (don’t have to prove reliance)
-If elements met, offer is irrevocable
-Time of irrevocability:
1. time stated
2. if no time, a reasonable time
3. not more than three months
This concludes 4 ways to make an offer irrevocable:
1. R. 45- Unilateral K- part performance
2. Option K created- consideration- R. 87(1)
3. PE- 87(2)
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4. Firm Offer
BATTLE OF THE FORMS
Classical Approach:
-Common Law “Mirror Image” Rule- R. 59- adding or changing terms of an offer
constitutes a counteroffer  rejection of the offer. Creates a “last shot” rule.
Common law unfair?
1. inconsistent w/ intention of the parties
2. one party could avoid effects of market changes – WHAT DOES
THAT MEAN?
Princess Cruises v. General Electric- K for services- falls under common law (only
goods fall under UCC). Make sure you take note of what K is for.
Last shot rule- last form in controls. This is what happens under common law approach.
Every form that changes is considered a counter-offer, therefore, the last one in is
accepted by performance.
Modern Approach: UCC 2-207
-replaces last shot rule (with first shot rule)
-creates expressed assent except between merchants
-applies to
1. exchange of forms
2. oral K followed by confirmation
3. oral K followed by exchange of confirmations
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First step is to have an offer

2-207(1): Purported acceptance will be treated as acceptance, even if it contains
additional or different terms (common law would have seen these as counteroffer).
Exception- if offeree expressly conditions acceptance to additional or different termscounteroffer/revocation of original offer.
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2-207(2): What to do w/ additional terms. They are considered proposals. If b/t
merchants, they b/c part of K unless:
a) offer expressly limits acceptance to terms of offer
b) materially alter it
c) notification of objection to them has already been given- or given w/in
reasonable time
 2-207(3): If parties thought, but didn’t have, a K- the terms are those in writings
which agree- knock out rule
*Assent- in 2-207, means “explicit agreement”
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Different Terms- 2-207(2) deals w/ additional terms. If you have exchange of forms
with different terms, cts take 3 different approaches:
1. Analyze like additional terms under 2-207(2)
2. “Knock Out Rule”- if conflict, they’re out. **Majority Approach**
3. Offeror’s terms control
Brown Machine v. Hercules- exchange of forms. Offer is first form to create the power
of acceptance in the offeree. Acceptance contains additional terms. Do they b/c part of
the contract? B/c K is for sale of goods and b/t merchants- go to 2-207(2)a-c to see if
they b/c part of K. Sub. a- they b/c part of K unless: offer expressly limits acceptance to
terms of the offer. Here, the offer by Hercules contained a clause that it was expressly
limited to those terms. So, no additional terms are possible. Only way to get around this
is for offeror to expressly assent- not infer, but expressly say okay to additional terms.
Dale Horning v. Falconer- Oral K and exchange of confirmations. One confirmation
contains additional term: limitation of consequential damages. Part of K? 2-207(2)badditional terms that “materially alter” K do not become part of it. Surprise or Hardshipct found term was a hardship.
Material Alteration: terms that would result in surprise or hardship (comment 4)
1. Surprise- an objective standard: Course of dealing and usage of trade looked atwhat do they normally do.
2. Hardship- economic burden or shift in liability. Penalties for not meeting
deadlines (expense). Hard, oppressive, completely unfair.
-Comment 4 also provides typical clauses that normally materially alter:
a. clause negating standard warranties as that of merchantability of fitness for a
particular purpose in circumstances which either warranty normally attaches
b. clause requiring a guaranty of 90% or 100% deliveries in a case such as a
contract by cannery
c. clause reserving to the seller the power to cancel upon the buyer’s failure to
meet any invoice when due
d. clause requiring that complaints be made in a time materially shorter than
customary or reasonable
Different Terms:
-Confirmations after Oral Agreement- different term doesn’t stick b/c you already
have your agreement.
-Exchange of Forms- 3 different approaches
 Offeror’s terms control
 2-207(2) analysis
 “Knock Out Rule”- Majority Rule*
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Electronic K:
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Hill v. Gateway- Hill purchased computer. In box were terms and agreements w/
arbitration clause. Is it part of K? Remember 2-207(2) does not apply by/c hill is not a
merchant. So only way for term to b/c part of agreement is for express assent. But this
court says UCC 2-207 does not apply b/c only 1 form was sent. Ct. said Gateway had a
“rolling offer”- from phone order to receipt of box that Hill accepted.
*Roy does not agree w/ Hill. Comment 1 (2-207) clearly states it covers agreements
when 1 or both parties send confirmations.
Klocek v. Gateway- Same fact scenario- terms and agreement w/ arbitration clause arrive
in box. Do terms b/c part of agreement? Ct uses 2-207! Klocek is seen as offeror. Offer
was made and accepted over the phone. Terms in box are “additional” terms and b/c
Klocek not a merchant, express assent needed. Express assent- mere inaction does not
cut it and it can’t be inferred from conduct. Only way to have gotten it is for Klocek to
have said, “I agree to arbitration term.” Note: Although Klocek was seen as offerordoesn’t matter who is b/c K was reached on phone. All additional terms in confirmations
are analyzed under 2-207(2)
Exam: Klocek is correct way to analyze. Know that some cts may follow Hill and not use
UCC, and mention Hill analysis- Gateway offeror- offeror’s terms controlled (common
law).
-----------------Revised UCC:
2-207- doesn’t make huge improvement, but it’s better. Uses “knock out rule”:
a. what is in agreement are terms with which record agrees
b. terms with which parties agree- mutual assent
c. UCC implied terms
- to determine if parties “agreed,” UCC leaves discretion to the ct. This is attempt to get
rid of “last shot” (common law – parties exchange forms, but they’re different. If they
don’t mirror each other, that is a counteroffer) or “first shot” (2-207) rules
 2-206- Offer and Acceptance to form K- no magic words needed
to make an offer or acceptance: Mirror image rule rejected.
POSTPONED BARGAINING: “AGREEMENT TO AGREE”
 parties “agree to agree” to postpone negotiations over a missing term until the
future
 Common Examples: occurs w/ sale of goods or sale or rental of land when price
is left to be agreed upon at some later time, based on state of market at that time.
Walker v. Kieth- two parties have a K w/ option to renew. Option didn’t include a set
new rent or a definite way to determine rent. It said rent determined by “ a comparative
basis of rental values.” Ct uses Classical Approach- if a material term is missing, K not
enforceable. Rent is material, and it was not set w/ enough certainty. Ct will not be
paternalistic and insert a term.
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R. 33- wants “reasonable certainty.” Says a term left open may show agreement. This is a
budge away from Classical towards UCC.
UCC 2-305: Modern Approach- “Open Price Term” will not prevent intention to be
bound. If parties later fail to agree, ct may enforce reasonable price. If one party has
power to fix term- must be done in “good faith.” If parties intended not to be bound
unless a price was fixed- no K.
Quake Construction v AA- Modern Approach- letter of intent rec’d by Quake. To
determine if a letter is binding cts look at intent. What did parties do/say? What would
RPP think? If court finds ambiguity, parole evidence may be brought in.
 General Arguments FOR intent to be bound: parties intended to enter into written
agreement and parties have begun to act upon those expectancies.
 Arguments AGAINST: letter lacks lots of specific terms that would be needed for
written K. No agreement yet.
3 Approaches Modern Cts take when interpreting intention:
1. Neither party intended to be bound
2. Both parties intended to be bound- ct fixes reasonable price.
3. Parties agreed to negotiate in good faith. Middle ground- Neither completely free to
w/draw, nor completely bound.
To avoid ambiguity in letter of intent: “Under no circumstances is this letter of intent
intending to be binding on either of the parties” or “ Each party reserves the right to
terminate negotiations prior to execution of a formal written K.”
To make letter binding: “This letter of intent is intended to be binding.”
R. 27: Even though a formal written K is contemplated, a showing of intent can still be a
K.
STATUTE OF FRAUDS (SOF) – an affirmative defense



Only a few types of K must be in writing to be enforceable. SOF is a defense to the
enforcement of a K.
SOF are listed in R. 110 and UCC 2-201
For our purposes, we will use a general list of 6.
 UCC Section
1. K for sale of goods for 500 bucks or more (2-201)
 R. 110
2. K that can’t be performed w/in 1 year of making – begin from when
contract is made. Not from when it goes into effect.
3. K for transfer of interest in real estate
4. K to guarantee obligation of another
5. K for an executor to meet an obligation of estate out of his own funds
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6. K in consideration of marriage
When analyzing SOF ask 3 q’s:
1. Is K w/in the statute? (Determine whether under common law or UCC)
2. If yes, is there sufficient memo/writing?
a. Must be signed by party to be charged
b. Subject Matter
c. Sufficient to indicate K
d. Essential Terms
3. If not, any exceptions applicable?
a. Common Law
i. Promisory Estoppel
ii. Part Performance
b. UCC
i. Merchants Exceptions
ii. Specifically manufactured goods
iii. Judicial Admission
iv. Part Performance
R. 131- General Requirements of Memo
Signed Writing Must:
a. reasonably identify the subject matter of K
b. be sufficient to indicate K has been made
c. contain essential terms (w/ reasonable certainty)
-Must be signed by party against whom enforcement is sought.
R. 132- Several Writings- okay so long as one is signed, and others clearly indicate they
relate to same transaction.
Crabtree v. Elizabeth Arden- Oral negotiations took place for Crabtree to be hired for 2
years. Memo w/ 2 year term on it prepared, but not signed. Also, 2 payroll cards were
made and signed, but they both lacked “2 year” term. Crabtree began work, but after 1
year, Arden reneged on salary provisions. Is the agreement enforceable?
1. Is K under SOF? Yes b/c it can’t be performed w/in 1 year: for 2 yrs. Note:
Lifetime Ks are not under SOF. Just b/c a K can be breached w/in 1 year doesn’t
take it out of SOF.
2. Sufficient Writing? This is the issue of the case. We have 3 writings w/ 1
unsigned that contains essential terms. R. 132- Memo can consist of several
writings if one is signed and others clearly indicate that they relate.
a. Can be tied together by parole.
R. 134- A symbol may be acceptable for signature
UCC 2-201(39)- signed” includes any symbol…w/ intention to authenticate writing.

Memo must only be signed by party against whom enforcement is sought.
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

Memo can be anything, so long as it indicates a K has been made. Macaroni Grill
table cloth.
Cts are LENIENT and want to enforce agreements.
A writing that purports that no K existed, if terms are listed, may be sufficient writing
to enforce.
R. 133- Except for consideration of marriage, a writing may be anything.
R. 134- signature can be symbol
R. 136- memo can be made b/f or after agreement/K is formed
Exceptions to SOF:
Winternitz v. Summit Hills Joint Venture- Oral agreement to renew lease for 2 years. P
began payment of new rent agreed upon. No signed writing exists and it’s under
SOF(specific state statute). Exceptions? P argues part performance (R. 129) b/c he
paid 1 month’s rent at new price. Only problem was P sought monetary damages, and
only damages available under 129 is specific performance.
- Also a malicious interference claim (tort) here. Why do courts want tort
remedy for breach of K? Different remedies are available in torts that may be
appropriate
R. 129- Part Performance- a K for transfer of an interest in land will be enforced if
party seeking enforcement reasonably relied, and changed his position so that injustice
can only be avoided by specific enforcement.
Alaska Dem. Party v. Rice- PE used as exception to SOF. Rice promised employment
for 2 years w/ party. She moved to AK, but was told she couldn’t have job. No signed
writing. Ct. used R. 139- PE used to enforce promise notwithstanding SOF. For 139,
need clear and convincing evidence. Also, forbearance must have been reasonable and
foreseeable. Harder to get 139 than 90. But, if 139 allows for “expectation damages” in
addition to what she had spent in reliance.
Notes: Limitation for promissory
Promise of written contract that’s not executed
Misrepresentation of the existence of the writing
What is different about 139 (than 90):
 Easier to get “benefit of bargain” damages
 More detailed- gives cts more guidance
 Applied when K conflicts w/ SOF
 Applied when not sufficient writing.
 Perhaps easier to enforce b/c agreement already exists.
UCC 2-201: Sale of Goods SOF
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-
sale of goods
$500 or more
Need quantity
Exceptions:
- merchants exception: writing sent in confirmation if not rejected w/in 10 days
- specially manufactured goods
- if admitted in pleading, testimony, or ct.
- part performance- made and accepted or rec’d an accepted.
Buffalo v. Hart- oral agreement for Buffalo to buy 5 tobacco barns by 4 installments.
Buffalo made 1st $5,000 payment and began repairs, made arrangements to sell them to
someone, and talked to an auctioneer about selling them. $5,000 check which was given
to Mrs. Hart, and accepted, was mailed back torn up and Hart called and “revoked” offer.
This was an attempt at repudiation, but there was already an agreement.
- K is under SOF: over $500
- Sufficient Writing: NO, check was not signed by Hart, only Buffalo.
Notes – 6 – initials, letterhead, symbols, etc. ok
Exceptions considered –
part performance
U.C.C. applies because it is a sale of goods.
2-201(3)c Exception: Enforceable if goods or payment is:
1) Made and accepted; or- Ct seems like it would have accepted this. Mrs. Hart
accepted the $5,000 check. But she sent it back- could argue that she didn’t
accept. Roy: keeping check for few hours is closer to outright rejection. Fact
intensive
2) Received and accepted- Ct accepts this part b/c Buffalo” received and accepted”
the barns- he held them out as having possession.
-Buffalo only paid a portion of full payment, so he will not get all 5 barns b/c they are
divisible. If asserted K is for one unit, part payment is sufficient to enforce entire K.
NOTE: Harts could have enforced K under SOF against Buffalo b/c there was sufficient
writing- check. Check was signed, contained description of property, and quantity was
included.
4th Exception to SOF- UCC 2-201(2) “Merchants Exception.” 5 elements:
1. B/t merchants
2. Writing in confirmation sent w/in reasonable time
3. Rec’d by someone w/ reason to know of its contents
4. Binding against sender, i.e. sender could not assert SOF defense
5. Objection not sent w/in 10 days.
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Bazak v. Mast- parties orally agreed and Bazak sent 5 confirmations to Mast. Mast did
not object w/in 10 days. To determine if writings were confirmations, cts use 2
standards:
Falls under U.C.C. because it is a contract for the sale of goods for 500 dollars or
more. Since it is between two merchants, it falls under the merchant exception.
Mast postulates that there was in fact no agreement.
Boiler pleate – standard fine print
Problem 4 -2 would be good as exam prep.
1. Strict Standard- must say “Confirmation.” Roy doesn’t like this.
a. Benefits
i. Protects against Fraud
ii. Encourages parties to be clear-unambiguous
iii. Unfair to bind party to a “sham” document.
2. Lenient Standard- liberal- looks at entire document to determine if there is
reason to believe it rests on a real transaction. Look for specific terms that
suggest parties have talked- dates, prices, and quantity.
a. Benefits
i. Conforms to expectations of business people
ii. Fairness over efficiency
iii. Allows P to get their day in ct
iv. Sellers aren’t allowed to sit on offer, they must act
--Purpose for Merchants Exception: encourages merchants to act.

NOTE: If a confirmation is sufficient under 2-201 to be an exception to SOF, terms
don’t necessarily become part of agreement. Must then do a 2-207 analysis.
 Written objection w/in 10 days- be careful that it won’t be deemed a signed writing
under UCC. Very hard to word w/out doing this. Play dumb if you really agreed
orally.
 Merchant- one having specialized knowledge as to business practices.
 1-201(31)
--------------BE PREPARED FOR THIS ON THE FINAL
Revised 2-201- Major Changes:
1. Amount changed from 500 to 5,000
2. ** “Writing” replaced w/ “Records” to allow electronic documents
3. 2-103(r)- “Signature” changed to allow electronic signatures- email
4. Acknowledgement of receipt of an email is unnecessary for it to be deemed read
5. Removed “except as otherwise provided in this section” to expand and allow for
PE and other common law exceptions. (Section 139)
6. 2-201(3)b changed from “in court” to “under oath” to clear up what courts already
were interpreting
7. Subsection 4- new section- clarified that 1 year provision was not a part of UCC.
Sale of Goods over 500(5,000) that was to be completed in under 1 year DOES
fall under SOF.
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THE MEANING OF AN AGREEMENT: PRINCIPLES OF INTERPRETATION
AND PAROLE EVIDENCE RULE
-This section addresses the situation where we do have a K, but aren’t sure of the terms.
We need to know the terms to be able to determine if a breach has occurred.
R. 201: Whose Meaning Prevails?
R. 201(1): If parties attach same meaning to a term, the term means what the
parties have given it.
R. 201(2): If parties attach different meanings, the term means what one party
thinks if:
a) that party did not know of any different meaning by the other, and the other
knew the meaning attached by the first party.
b) That party had reason to know of any different meaning attached by the
other, and the other had reason to know of the meaning attached by the first
R. 201(3): IF the parties attached different meanings to a material term of the K,
but 201(2) doesn’t’ apply, then no K exists b/c there is no mutual assent.
Has reason to know- modified objective standard- RPP- doesn’t mean they knew, only
that a RPP would have known.
202: Rules in Aid of Interpretation:
(1) Look at purpose of parties to determine words and other conduct
(2) Interpret writings as a whole
(3) If general language, interpret it accordingly, but if technical term, use technical
meaning.
(4) Part performance- any course of performance accepted or acquiesced in w/out
objection is given great weight in the interpretation of the agreement.
(5) To determine manifest intention: course of performance, course of dealing, usage
of trade.
203: Standards of Preference in Interpretation:
To interpret a term:
(a) use interpretation that is reasonable, lawful, and effective
(b) Order of weight: Express terms, course of performance, course of dealing, and
usage of trade.
(c) Specific/Exact terms greater weight than general
(d) Separately negotiated over standardized.
204: If parties have a K, but left out an essential term, the court may supply a reasonable
term
205: Parties have a duty of good faith and fair dealing
206: The meaning of a term is preferred that operates against the party who supplied the
words.
207: Meaning that serves public interest is generally preferred.
208: If a K or term is unconscionable, the court may refuse to enforce it.
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222: Usage of Trade: usage having such regularity of observance in a place, vocation,
or trade. May include system of rules regularly observed. Usage of trade should be used
to give meaning or supplement or qualifies a parties agreement, unless they agreed
otherwise.
223: Course of Dealing: a sequence of previous conduct b/t parties to an agreement
which is fairly to be regarded as establishing a common basis of understanding for
interpreting their expressions and other conduct.
UCC 1-203: Obligation of good faith
UCC 1-205: Course of Dealing and Usage of Trade in understanding and interpreting a
K.
Joyner v. Adams- Property owner K w/ builder “to develop” lots. Both parties thought
term had different meaning. No mutual assent. Rule: A party is bound by the other
party’s meaning if the first party either knew or had reason to know of the second party’s
meaning while the second party did not know or have reason to know of the first party’s
interpretation. Parties must present evidence showing other party had reason to know of
meaning. E.g. usage of trade. Very fact intensive. Argue both ways.
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If there is failure of mutual assent to a term, K may still be valid if that term wasn’t
essential
If one party has more information, then that party is held to higher standard. E.g. A
knows of B’s meaning, and B has reason to know of A’s meaning.
Frigaliment Importing- “Chicken” case. First look at language, but “chicken” is
ambiguous. So, look at evidence to interpret.
Evidence to interpret:
1) Usage of Trade- have experts testify what word means.
2) Reasonableness- reasonable interpretation- look at circumstances K was made
in- e.g. price- does price paid equal value of interpretation?
3) Statutory Definition- not determinative, but helpful as more evidence.
4) Course of Performance- how parties have dealt together
5) Negotiations b/t Parties
Plain Meaning Rule- must stick to four corners of document in interpretation unless
term is ambiguous, and then may look @ extrinsic evidence. Classical Rule not
followed in R. Frigaliment followed R. which is basically using logic. Did buyer
acquiesce to the term in course of performance? Here, no, he objected. R. prefers,
reasonable, lawful, and effective meanings. In interpreting, ct prefers(in this order of
importance): Express terms, Course of Performance, Course of Dealing, and Usage of
Trade. Also, negotiated terms are given greater weight than standardized terms.
Maxims of Interpretation- cts use to decide which of 2 conflicting interpretations of a
clause should be followed.
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Primary Purpose: If the primary purpose of the parties in making the K can be
ascertained, that purpose is given greater weight
Interpret K as a whole: a writing or writings that form part of the same transaction
should be interpreted together as a whole
Construed against drafter: ambiguous term will be construed against the person who
drafted the K.
Negotiated terms control over standard terms: a term that has been negotiated b/t the
parties will control over one that is part of “boilerplate” of K.
Terms that validate the offer preferred: an interpretation that makes the K valid is
preferred to one which makes it invalid
Public interest preferred: if a public interest is affected by a K, that interpretation or
construal is preferred which favors public interest
C&J Fertilizer- D/insurance co refuses to pay claim for burglary. Policy required
visible marks on exterior building, and none existed. Nonetheless, ct requires ins to pay.
Reasonable Expectations Doctrine- a party is not bound to non-dickered boilerplate
terms where party making terms had reason to believe that adhering party would not have
agreed to terms, had he known of the terms.
 This is a contradiction of duty to read rule.
 Policy: Inequality of bargaining power, almost an adhesion K. Ct knows
people don’t read Ks.
3 things to look for to determine if term violates R.E.D.:
1) Bizarre or Oppressive
2) Eliminates Dominant Purpose of Transaction
3) Boilerplate Overrides Dickered Term


RED generally applies in insurance Ks b/c they are adhesion Ks
Adhesion K: must have this to apply RED
o Standard Form
o Inequality of Bargaining Power
o Consumer Must Accept or Reject (i.e. no bargain- take it or leave it)
Section 211 of restatement – subsection 3
PAROLE EVIDENCE RULE
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Parole evidence is not admissible to contradict or vary the terms of a written
agreement. Prohibits extrinsic evidence.
Advantages of applying PER: Gives parties certainty
Disadvantages of applying PER: Actual agreement may not be enforced
Modified objective theory – parties knew or should have known. Look at all relevant
evidence that the parties have. This will included prior oral agreements between the
parties, maybe even prior written agreements between the parties. In order to introduce
this parole evidence rule comes up.

3 ways evidence may come in:
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1) Interpret
2) Supplement
3) Contradict

Merger Clause- provision in K stating K is final and complete
 Classical cts see merger clause as conclusive that K is integrated
thus PER applies
 Modern cts sees merger clause as evidence of integration, but not
conclusive.

Integration- document is integrated if it’s intended as the final expression of the
agreement
1) Complete Integration- final and complete- no evidence of prior
agreements or negotiations allowed to contradict or supplement
2) Partial Integration- intended to be final, but not complete b/c it deals w/
some, but not all aspects of a transaction
Judge determines if K is complete or partial integration
Classical: if K is integrated at all, no evidence is allowed in. Ct uses Williston 4
corner approach to see if writing is meant to be an integration
Modern: Corbin approach- judge looks at all extrinsic evidence to determine if
agreement is integration. If partial, evidence allowed to supplement and interpret,
but not vary or contradict. If complete, evidence allowed to interpret only, but not
supplement or contradict.
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To determine if term is ambiguous:
1. Classical: uses Williston 4 corners approach. If term not ambiguous from 4
corners, no parole evidence allowed at all
2. Modern: looks at all available extrinsic evidence. If the term in the K is
Reasonable Susceptible, judge will allow evidence to go to jury for their
determination. Policy: fairer to parties b/c looks at full scope of agreement.
Thompson v. Libby- classical court uses PER to prevent testimony from coming in to
supplement the agreement. Ct used 4 corners approach and found K to be integrated.
Exceptions to PER:
1) To explain/ interpret agreement- classical cts first require ambiguity from 4
corners b/f interpreting. Modern cts don’t; they allow all evidence in.
2) Oral or written agreements made after the execution of the writing
3) To evidence offered to show that the effectiveness of the agreement is subject
to an oral condition preceding
4) To show agreement is invalid: fraud duress, mistake, undue influence,
incapacity, illegality
a. Fraud in the execution- lying to get a signature, i.e. they don’t know
they’re signing a K (always an exception)
b. Fraud in the inducement- entered into agreement b/c misrepresentation
of facts were made (not usually an exception)
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5) to establish right to equitable remedy such as reformation of the K- a
misprint in the K, not used to contradict
6) to establish a “collateral” agreement- agreement outside scope of integrated
agreement
a. Classical: must be completely different subject matter
b. Modern: not as strict
Taylor v. State Farm- P signed a release w/ ins co, but now wants to sue. Claims he can
for bad faith. Modern Ct. First, judge determines if terms are reasonably susceptible to
opposing party’s meaning. Only looks @ document to determine ambiguity. Then, if
term is reasonably susceptible, the extrinsic evidence is admissible to determine meaning
introduced by parties. Reason for modern approach is- words have different meanings.
Sherrodd v. Morrison- P wants to introduce evidence that contradicts terms in K.
Remember, evidence to contradict is NEVER allowed. So, P needs exception. He claims
fraud in the inducement- related to subject matter of K. Ct does not provide exception
for fraud in the inducement. Policy: certainty that a signed K is binding.
 Note: a majority of fraud is fraud in the inducement- not allowed as exception.
 This brings up debate over Efficiency v. Fairness: It’s fair to allow fraud to be an
exception. But, it’s efficient to allow parties to a K certainty.
 Economic Duress could have been a possible exception in Sherrodd.
Some courts require fraud in execution – signed something different than what was
verbally agreed upon; not just fraud in inducement – goes to subject of contract.
Nanakuli Paving v. Shell Oil- P wants to supplement a price protection term to the K.
This is a K for sale of goods falls under UCC 2-202. UCC does not require
ambiguity to allow parole evidence in.
-UCC Cts will look at 3 things:
1) Course of Performance- ways parties have conducted themselves in past w/
regard to particular K at issue.
2) Course of Dealing- how parties have behaved re: each other in past contracts
3) Usage of trade- 1st, establish that trade exists, then establish that party is member
of that trade and should know about it.
Note: If K is fully integrated, may not offer 3 things to contradict, but may to
supplement or interpret. Evidence that contradicts will NEVER be admitted @ common
law or UCC.
PER Exam Q Outline
I. Make argument for/against each w/ conclusion to each
a. Supplement
i. Complete integration
ii. Partial integration
b. Contradict
c. Interpret
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i. Classical- ambiguous- 4 corners
ii. Modern- reasonably susceptible
II. Exceptions to PER- even if you determine evidence will come in, say that it could
still come in under an exception.
1) Agreements made after execution of writing
2) Oral condition preceding
3) Invalid: fraud, duress, etc.
4) Promissory Estoppel
5) Collateral Agreements- parts of K w/ separate consideration
6) Reformation-mistake
III. Conclusion: Note that just b/c evidence comes in, doesn’t mean they win---jury
will decide.
Also: If hypo has mixed goods and services, do analyze under both UCC and
CL.
IMPLIED TERMS: SUPPLEMENTING THE AGREEMENT

Some terms do not have to be expressed, but are implied by law
Wood v. Lady Duff Gordon- ct implied term reasonable efforts b/c of parties
intentions to enter into a K. Needed term to have consideration, otherwise it was only
an illusory promise. Remember Wright v. Newman- promise to pay child support- there
ct implied term as a matter of fairness, not intention.
Leibel v. Raynor Manufacturing- Ct applies UCC to mixed goods and services K that is
predominately goods- garage doors. UCC 2-309 requires reasonable notice to terminate
if no termination privilege is in K. This is an implied in law term- all about fairness. By
contrast, an implied in fact term looks @ parties’ actions surrounding the making of K.
Factors to consider if notice to terminate is reasonable:
1) how much investment distributor put up
2) how long to recoup/minimize losses
3) condition of the market
4) course of dealing, course of performance, and usage of trade
5) Unrecouped investment
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A term allowing immediate termination is probably okay if bargained for. UCC only
applies as a Gap Filler where no term exists.
If K provision said no notification needed- probably invalid b/c unconscionable, thus
UCC gap filler applies.
IMPLIED WARRANTIES
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Implied obligation of Good Faith- no definition, must determine on a case by case basis.
Common theme in bad faith- willfulness- people doing things purposefully. Not
depriving the party of the fruits of the K.
FORM OF BAD FAITH CONDUCT
MEANING OF GOOD FAITH
1) Seller concealing a defect in what he is
Fully disclosing material facts
selling
2) builder willfully failing to perform in
Substantially performing w/out knowingly
full, though otherwise substantially
deviating from specifications
performing
3) contractor openly abusing bargaining
Refraining from abuse of bargaining power
power to coerce an increase in the K price
4) hiring a broker and then deliberately
Acting cooperatively
preventing him from consummating the
deal
5) conscious lack of diligence in
Acting diligently
mitigating the other party’s damages
6) arbitrarily and capriciously exercising a Acting w/ some reason
power to terminate a K
7) adopting an overreaching interpretation Interpreting K language fairly
of K language
8) harassing the other party for repeated
Accepting adequate assurances
assurances of performance
Javins-I warranty of habitability implied into all residential leases
Locke v. Warner Bros.- P claims D deprived her of fruits of K by acting in bad faith.
1) Determine Fruits of K.
2) Then, both sides present evidence that P got/was denied fruits
 Here, Warner bros had discretion to pick films. Use Honest dissatisfactionsubjective standard used where there is a condition of satisfaction(matter of taste,
artistic).
 To show party breached standard, present testimony and evidence of bad faith
 **Showing bad faith is very fact intensive. Must present evidence that owe party
has deprived other of fruits of K
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R. 205: Duty of Good Faith/Fair Dealing

R. 208: Satisfaction of Obligor as Condition- when a condition of K is
satisfaction, cts prefer an objective standard. But, when it’s clear matter of artistic
taste/ preference, ct will apply honest satisfaction standard, although rare.
So, implied obligation of good faith can be put under objective or subjective standard

Empire v. Am. Bakeries-
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
Requirements K- buyer has obligation to buy all of their requirements from one
seller.
 Similar to Output/Supply K- seller must sell all its supply to particular buyer
 How do we know when a buyer has breached a requirements K?
UCC 2-306: What’s being tendered or demanded can’t be “unreasonably
disproportionate” to estimate. If no estimate, look @ course of performance.
 Provision interpreted 2 ways:
1) demanding way too much or too little
2) only demanding too much
 This ct applies #2. Here, buyer reduced his requirement to zero. This is okay if
business reason for doing so- e.g. evidence of reduction of orders. But Am Bakeries
gives no reason, so they can’t prove they’ve acted in good faith. Fact Intensive.
Donahue v. FedEx- P, an at-will employee, sues employer for breach of implied
warranty of good faith b/c he was fired for whistle blowing. Rule: Very hard to bring
good faith claim for at-will employment. Employees would need a K provision of good
faith. There is an inherent conflict b/t implied obligation of good faith and at-will
employment that allows termination w/out reason.
WARRANTIES

Caveat emptor- “let the buyer beware” Rule b/f cts adopted implied warranties.
ONLY READ THIS FOR WARRANTIES
Bayliner- P bought boat, had problems b/c wasn’t satisfied w/ performance. Sued for
breach of express warranty and 2 implied warranties.
Express Warranty
 Any affirmation of fact or performance
 Words “warranty” or “guaranty” not required.
 Doesn’t have to be intended
 Opinions and mere puffing are not a warranty
 Affirmations of fact that can be verified
 Timing: facts and circumstances determinative. Normally, statements made after K
are not warranties.
Implied Warranty of Merchantability
 Sale must be made by merchant who deals in goods of that kind
 Goods must pass w/in trade
 Goods must be fit for ordinary purpose
 Consumer expectations, not personal preference.
Implied Warranty of Fitness for a Particular Purpose
 Seller must have knowledge of particular purpose
 Buyer must have relied on seller’s skill and judgment
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Not required that merchant involved
Not that goods are defective, just not what buyer needed
PER may present a problem when trying to introduce express warranty. Determine if
there is complete integration and warranty will vary terms, so can’t come in. Then
use fraud exception. Classical cts will not allow b/c it’s fraud in the inducement. But
some modern cts will allow. If it was partial integration, much less problem getting
express warranty in.
Implied warranties have no problem w/ PER
Implied warranties can be disclaimed or modified if expressly contracted so. Cts
view this w/ suspicion, so boilerplate won’t cut it- need dickering.
Implied warranties exist in K to construct a house.
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