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TYPES OF CONTRACTS
I. Types of Contracts:
1. contract: legally enforceable agreement—or—offer and agreement
2. quasi contract: THINK RESTITUTION-equitable remedy (not governed by K law)
-elements needed are: (all three needed)
1.) benefit conferred by  on 
2.) knowledge of benefit by 
3.) acceptance of benefit
4.) unfair for  not to pay
3. unilateral contract: promise in return for performance
- K that results form an offer that requires performance to accept
- (i.e. contests—or—“find my dog, $100 reward)
4. bilateral contract: mutual exchange of promises—K that results from an offer that is
open to how it can be accepted
note: the difference between unilateral and bilateral is the nature of the offer
5. option K: offer made irrevocable by consideration Restatement § 45
- offeree has paid offeror to keep the transaction open
- offeree can sell his right to acceptance
- when options expires, offer is not revoked, rather offeror is returned
right to revocation
 common law requires consideration for an option
 UCC’s “Firm Offer” is an exception to the common law rule
6. policy and employee handbooks: can create enforceable K if traditional requirements
for K formation are present (Duldulao)
7. oral K: Restatement § 27 – not bound until written K is what court may decide; could
show just preliminary negations
8. Adhesion K – (C.J. Fertilizer) defined as a (1) standard form (2) no choice (3) unequal
bargaining power
a. Seven Factors for Adhesion K: (pg 456 in text)
i. Many terms that confuse the contract, standard form
ii. K drafted by one party
iii. K to drafting party is a matter of routine
iv. Adhering party enters into transactions only on terms outline in the K
v. After few terms are dickered – signed adherent
vi. Drafting party enters into more transactions
vii. Principal obligation to adhering party as a whole is money
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9. executory: a K, which has not been fully performed (remedy depends upon)
10. aleatory K: duty to perform is conditional upon an occurrence that is chance (insurance)
11. void: ? about character; misrepresentation of whole document; “Fraud in Faction”
12. voidable: ? about terms; “Fraud in Inducement”
13. unenforceable: not enforceable in an action, due to a defense
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DEFINITIONS
Action of Assumpsit: To recover damages for non-performance of contract.
Afficiously: conferring a benefit on another without being requested or having a legal duty to do
so, and therefore has no legal grounds to demand restitution.
Condition Precedent: Contract is complete but before promisor is liable, some other act must be
completed; such as giving notice within a reasonable amount of time.
Consideration: Under Restatement 2d §71 consideration must be exchanged for a contract to
exist. Including a promise.
Contract: agreement between two or more parties in which an exchange of services or gifts are
given “law of exchange”, ideally, both parties should be better off at the end of the deal.
De Novo: No preference to statute used by lower court on appeal.
Expectation interest: net value plaintiff expects to realize from due performance.
Express Contract: express meeting (voiced or written) with mutual assent, clear consideration.
Implied in Fact: based on facts of case, we are implying a contract based on actions. Mutual
assent is also implied (i.e. Watts, showing public we are married).
Implied in Law: (unjust enrichment) implied in law obligation. No contract exists but courts will
imply under the law that there was an obligation based on the events. No mutual assent, no
consideration.
In Foro Conscientiae: A tribunal of conscience-“let your conscience be your guide”
Legal Realist: Looks at society’s best interest.
Legal Formalist: Looks at strict application of the law.
Legal Economist: Leave it to the market place to balance it out.
Locus Poenitentiae: a point at which it is not too late for a person to change their legal position.
Misfeasance: improper performance
Mitigate Damages: Plaintiff has the responsibility to lessen damages. Can’t sit and wait for trial
and pile up damage amount.
Nonfeasance: failure to perform
Nundum Pactum agreement is unenforceable b/c it lacks consideration.
Omnia Praesumuntur contra Proferentem: (aka: the “Rule of Construction”)favor is given to
the party who did not draft the contract (only maxum to know)
Pacta sunt servanda: agreements must be kept.
Promise: assurances to do or not to do something R2d§2
Restitution/Reliance: extent defendant has been enriched by or plaintiff has been damaged by
plaintiff’s actions in reliance of the defendant’s commitment to perform.
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APPLICABLE LAW
II. Applicable Law:
1. Common Law: always apply the common law unless sale of goods
2. Article II of the UCC: (only applies to the sale of goods)
FORMATION OF CONTRACTS
III. Formation of Contracts:
 Contract defined:
Restatement § 1: “a contract is a promise or set of promises for the breach of
which the law gives remedy, or the performance of which, the law in some way
recognizes as a duty.”
Offer and Acceptance (Mutual Assent)
- Objective Theory (classic view)
- Bound by signature
- Offer/acceptance determined as how reasonable person would view K
- Focused on intentions manifest—not actual intentions
- Given that other party doesn’t know or have reason to know
-
Mutual assent: agreement by both parties of the K.
objective: from the perspective a reasonable person (classical K) that there is a
“meeting of the minds”
- subjective: self knowledge- not used b/c no K would be enforceable
 Restatement § 70: party who manifests acceptance is bound
- (Eurice Bros.- meeting of minds concerning offer—objective standard)
- (Park 100 Investors: fraud so K was void, though unilateral mistake)
1. OFFER: Restatement § 24: manifestation of commitment -through words/actions
looking at actions!! That will show person “will conclude [offer]”
Restatement § 25: must be actual intent to be an offer
1.) Elements of an Offer
a.) communication (promise) by the offeror
-intended to be bound (not just negotiation)
b.) creating a reasonable expectation in the offeree
-in all cases, the offeree must be clearly identified
c.) offeror willing to enter into K
d.) specified terms at common law
1. subject matter
2. price
3. payments terms
4. quantity
5. quality
6. duration
7. work to be done
e.) offeree need only to accept to form the K
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2.) Problems with Offers:
a.) advertisements are no offers: only invitations for offers (i.e. shirt advertisement
of $10—not an offer—customer makes the offer when purchase shirt
b.) missing price terms:
1. if sale of real estate and missing price term—no offer! C/L says must
have all material terms
2. if goods and missing price term—can be an offer—even w/out price
term—if parties agree
c.) ambiguous material terms: both under C/L and Art. II—no offer!!
d.) requirement contracts: measures the quantity of goods to be purchased by the
buyers needs
1. it is okay in the requirement K to say that the “quantity” is the buyers
needs (here ambiguity is okay)
2. watch for increase in requirements—increase in quantity cannot be
unreasonably disproportionate (i.e. going from 10 to 100,000,000)
 ONCE YOU HAVE AN OFFER…WATCH FOR TERMINATION!!
3.) Ways To Terminate An Offer: Restatement § 36 - (once terminated—gone
forever)
a.) lapse of time: how old is the offer?
b.) offeror dies: offer dies w/him
c.) revocation of an offer: offeror has changed his mind
1. How?
 later statement by offeror…he changed his mind
 Offeror is the Master of the Offer!
 later conduct indicating change of mind (i.e. selling car to someone
else)
 is that the offeree is aware of what is said and done
2. When?
 must complete revocation before acceptance occurred
 if revocation is sent through the mail—not effective until received
3. When Not? (some Ks are IRREVOCABLE)
 option: when given earnest money or some type of consideration
 where an offer has been relied on: reasonable reliance (i.e.
contractor gets sub bids)
 part performance on offer to enter into unilateral K: (i.e. painter
starts painting house—cannot take the offer back now—not that
buying the paint would not be enough—mere preparation is not
enough)
 firm offer rule: (Art. II—only the sale of goods) merchant in
signed offer promises to keep offer open—she cannot revoke
d.) Rejection: offeree turns down the offer
1. COUNTEROFFER: (Normile v. Miller)
- original offer dies once counter offer is given (watch for bargaining—
different then rejection)
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2. Conditional Acceptance: “I accept if…” is really a rejection adding
terms: “I accept and…” adding terms=rejection!
 C/L: Mirror Image Rule –Restatement §38 must accept exactly
what has been offered—or else—reject!
 UCC 2-207: “battle of the forms”
- more liberal than C/L mirror image rule
- possible to add terms in the acceptance—if acceptance just
provides new terms—accept offer! If the acceptance insists on
new terms—no acceptance—reject!
- Silence on non-material terms equals acceptance
(i.e. “seasonable expression of acceptance”—can add terms—
look at whether new terms are accepted and they are not
materially altering—terms are okay for acceptance)
4.) Ambiguity in Offers cured by:
a.) The K itself
b.) Contra Proferentem
 ONCE YOU ARE SURE THAT YOU HAVE AN OFFER…LOOK AT
ACCPETANCE!
2. ACCEPTANCE:
1.) Watch for two things:
a.) who is accepting? Person accepting must be to whom the
offer was made (offers are specific – Lonergan: (“Joshua tree
estate” not all terms were definite)
b.) how are they accepting? Only reward/prize context—offeree
must know of the offer when they accept (i.e. if you do not
know of $500 dog reward—and you return the dog—later
learn of the reward—cannot collect b/c you do not know of
reward when you returned the dog)
c.) generally, silence is not constructible as acceptance
 must have a prior agreement that silence equals
acceptance (book of the month)
 offeror cannot insist on silence as acceptance
2.) Ways an Offer Can be Accepted:
a.) return promise: “I will buy” (note: if you have an unilateral
K—words are not enough—only actions/performance count)
B.) START OF PERFORMANCE:
1. unilateral K: offer made—start of performance—not
acceptance!!
 traditional approach: no K until performance
complete (acceptance and consideration) –thusyou can revoke until performance is complete
(Petterson v. Pattberg)
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
modern approach: substantial performance
Offer is irrevocable—but offeree not legally
bound by acceptance in a unilateral K until he
has done the whole nine yards.
-however, offer may be revoked before
performance begins (Williston § 60)
-in addition, revocation is permissible within the
“preparatory” stages of the K
(Cook v. Coldwell Banker) modern courts view
unilateral as bilateral once performance has
begun
2. bilateral K: offer made—start to perform—creates an
acceptance
c.) MAILBOX RULE: only applies to acceptance—“where
reasonable to respond—acceptance is when it was placed in
the mailbox—time when sent”
-Offer continually open until knowledge of revocation
(Reasonable Time)
-Once accepted, to late for the offeror to revoke
-In Summary:
*acceptance @ mailed
*revocation @ receipt
*rejection @ receipt
-Exception: As master of the offer, offeror can do away
with Mailbox Rule.
-Exception: Acceptance upon receipt if via an unacceptable
mode of transmission
-However, UCC (2-206) allows for any reasonable means,
unless expressly limited by Offer
-Exception: Acceptance upon an Option K at receipt, not
dispatch (Restatement 64)
d.) modes of acceptance under the UCC (2-606):
1. manifest that goods conform (or) accept despite nonconformity
(grumbling accept)
2. fail to reject within a reasonable time period
3. act inconsistently w/seller’s ownership
e.) other UCC provisions:
1. goods must be rejected w/in a reasonable time and
seller notified (2-602)
2. buyer must accept each installment unless value is
“materially impaired” (and) the defect cannot be cured
(2-612)
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3. What Makes Contracts legally binding:
1.) CONSIDERATION: “bargain for legal detriment”
 policy: do not want to enforce gratuitous
promises (Kirksey v. Kirksey- case about wife
living w/brother-in-law)
 caution: watch for promissory estoppel!
 look at the person who made the promise—
what is the person looking for
 legal detriment—could be doing something
you weren’t legally obligated to do—or
forbearance (doing something you could
do...like in Hamer v. Sidway)
 size: proportion of consideration is not relevant
(Batsakis v. Demotsis: war exchange: $25-2000)
- however, may use evidence of fraud,
misrepresentation, duress, unilateral mistake
a.) Promises:
1. factors to look at when deciding a promise:
 look at reliance
 benefit to person making the promise
 does person have the authority to make the
promise
 MUST BE A FUTURE PROMISE!!
2. types of promises to watch out for:
 naked: gratuitous (fails for want of
consideration)
 illusionary: cloaked in terms of commitment,
with no restrictions on reneging (fails for want
of consideration)
 conditional: obligation triggered by an event
outside of promisor’s discretion (no power to
renege) will not fail for want of consideration
b.) DETRIMENT/BENEFIT: detriment to promisee, benefit to
promisor (Hamer v. Sidway)
1. promisee does something not obligated to do (Vastoler)
(Williston § 60)
2. promisee refrains from doing something he is entitled to
do (Hamer) Restatement § 71(3)(b)
 example: not asserting a valid legal claim
c.) BARGAIN THEORY: mutual exchange of promises:
(Baehr v. Penn-O-Tex) Restatement § 71, 79
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- detriment must include the promise, and the promise must
induce the detriment
- negotiations resulting in voluntary acceptance of binding
obligations (act/forebear)
1. formality of statement (circumstances
surrounding)
2. degree of reliance (acted?)
3. what is the benefit received?
d.) Bargained for Legal Detriment v. Condition of a Gift:
(Plowman) past service does not equal legal consideration
1. consider the following:
 was the  bargaining for the action?
 Did the action benefit the  in anyway?
- detriment must benefit the 
e.) Problem Areas with Consideration: (three areas)
1. past consideration: action then promise for action—
not enforceable!! (Plowman)
 Exception is Promissory Restitution!
2. partial payment/forgetting about a debt: if debt is
undisputed and due—debt payment is not past
consideration—there is no detriment in paying what you
owe!
3. pre-existing legal duty rule: Restatement § 73 - doing
something you are already legally obligated to do—is not
consideration (i.e. if you are contracted to do
something—payment of more money to do that thing—is
not consideration b/c you are already bound!)
-Borelli case: marriage equals pre-existing duty (no
consideration)
- Alaska Packers: once on ship-wanted more $-can’t do


Exceptions to the Pre-Existing Duty Rule:
1. Mutual Rescission –New K
i. Eliminates pre-existing duty and past consideration
problems
ii. However, may be induced by coercion
2. Unforeseen Difficulties Rule (Restatement § 89)
i. modification enforceable (similar to
impracticability)
UCC and the Pre-Existing Duty Rule: (2-209)
1. no pre-existing duty rule for transaction in goods: binding
modification w/o consideration as long as in “good faith”
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f.) Considerations in Other Types of Ks:
1. output/requirements: consideration via limited discretion
(exclusive)
2. moral obligation is consideration if pre-existing duty rule
3. promises to charitable organizations are enforceable
(Restatement 90(2))
* detrimental reliance not needed in charitable
subscriptions (thus, no #2 or #3)
* enforceability stems from public policy (Allegany
College)
* donations from other donee are consideration for each
donation
4. under C/L “seal” was a substitute for consideration (not
modern view)
5. “best efforts” restricts freedom (thus, consideration)
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IV. Non-traditional Forms of Promises:
1.) Restitution: (Unjust Enrichment)
*Benefit without promise and unjust enrichment (w/ or w/out consideration)
a.) Restitution Looks Like: (Watts v. Watts- unmarried -12 yrs-$-kids)
1. benefits received – no promise
2. unjust enrichment (value of services) unless court takes action
 benefit conferred on 
 appreciation/knowledge of benefit by 
 acceptance of  under circumstances making it unfair
for  to retain
a.) traditional view: without request for benefit or promise
to pay (gratuitous) (Glenn)
b.) modern: one who provides service
i. w/out knowledge or consent (not acting
inofficiously) Restatement § 117
ii. intent to charge (their profession)
-Restatement § 116
iii. necessary to preserve life, health, property (promise
implied)
2.) Promissory Restitution:
 Exception to the Past Consideration Rule
-Services received…Promise after the Fact
a.) traditional: not enforced unless pre-existing obligation
made inoperative by law
 otherwise, in foro conscientiae: “let your
conscience be your guide” (Mills v. Wyman:
dead sea son care)
 (i.e. debt barred by statute of limits., child
entering into K-promise, pre-existing obligation,
revives former C)
 no longer applies to bankruptcy
b.) material benefit rule:
(Webb. McGowin- guy falling with tree-saved life)
 no pre-existing duty
 one requirement of the material benefit is that
the benefit must be received by the promisor.
Unlike consideration where the benefit can be
bestowed on a third party!
 sufficient consideration – care for/preserve
property or persons
 benefit must have been received by the promisor
-Restatement 86(b): value must be
proportionate to services provided
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2.) PROMISSORY ESTOPPEL: Restatement § 90 (Katz v. Danny Dare)
a.) characteristics:
1. consideration substitute
2. makes gratuitous promises enforceable
3. Promissory estoppel overcomes the statute of frauds
4. subcontractor bids irrevocable, via promissory estoppel,
though not supported by consideration
 (Drennan v. Star Paving)-Restatement § 45
 exceptions are: (1) contractor cannot reopen bid; (2) if
contractor knows of sub error; (3) sub says it is
revocable; & (4) only negotiations
b.) three elements of promissory estoppel
1. promise: (clear and definite)
2. the promise is foreseeable and reasonably relied on
(via act or forbearance)
3. to the other party’s detriment reliance
4. enforcement necessary to avoid injustice
c.) promissory estoppel damages:
1. necessary to prevent injustice
2. necessary to replace a party’s actual losses as a result of a
change in position
All elements of K, save consideration:
1. clear and definite promise
a. reasonably foreseeable: $ w/out specific purpose is no good
2. promisor has reason to expect reliance (via act or forbearance)
3. actual reliance (typically detrimental – not bargained fro)
a. cash or taking action not required to do
b. reliance must be induced by the promise, not the breach
4. injustice avoided only by enforcement
a. complete enforcement not necessary, only to avoid injustice
Promissory Estoppel Damages:
1. necessary to prevent injustice
2. necessary to replace a party’s actual losses as a result of change in position
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DEFENSES TO CONTRACT FORMATION:
V. Defenses to Contract Formation:
Things that could render a defense to K formation:
1.) Competency of the Parties:
f.) watch for incompetent people: (three categories)
1. infants: under three years of age (establish only that
fact)
2. mental incompetence: (establish only that fact)
3. intoxicated: (different: establish both (1) intox; and (2)
parties knowledge of intox)
Rule of Necessary: even people lacking capacity must pay for
necessary items (i.e. clothes, food)
-all that can be recovered is the value of performance to that
person)
2.) Statue of Frauds:
a.) Which Ks are within the statute of frauds? (meaning, covered by)
1. K not capable of being performed in a year (service K)
Examples: *chopping down a forest—enough trees, chain
saws, and beer—can do it in a year—reasonable
*rest of life work K—not covered b/c you could die within the
first year
*work for two years—definite terms greater than a year—
covered by the statue of frauds
2. transfers of interest in real estate (interest in real estate for a
year or less—not covered by SOF)
3. sale of good over $500—under UCC 2-201
b.) Performance:
1. if service K:
 full performance satisfies SOF
 partial performance does not satisfy SOF
2. if transfer of real estate:
 partial performance satisfies SOF is 2 of the 3 are
met: (1) payment; (2) possession; and/or (3)
improvements by buyer
3. goods $500+
 specially manufactures goods: once performance
started by seller—agreement legal (makes sense—
remember the cowboy boots)
 general goods: part performance—satisfied SOF, but
only to the extension of the performance (seller can
recover what was delivered—buyer cannot recover
for what was not)
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c.) Writing:
1. look for two issues:
 what the writing says?
1. C/L: all material terms must be in writing
(who are the people—what are they going to do)
2. Art. II: quantity and signature is all that is
needed
 who signed the writing?
-make sure all the enforcing parties have signed K
d.) Consequences of NOT COMPLYING with the Statue Of Frauds:
1. defense to K formation—situation in SOF—defense needs to
be pleaded and proved
2. quasi K remedy
note: other types of written authority:
1.) equal dignity rule: when can someone act on another’s behalf
2.) modifying agreement in writing: test is: look at K after the
modifications and changes have been made—if SOF applies—need
writing!! if no SOF—no writing needed!
3.) Unconscionably:
a.) ability of the court to refuse all or part of the agreement because:
1. the terms are oppressive [or]
2. unfairly surprise the other party
b. oppressive at the time K entered
c.) always go to Judge—never jury
4.) Illegally:
*watch for illegal SUBJECT MATTER—never enforce K (i.e. battery)
*illegal purpose can be enforced (taxi cab doesn’t know he is driving
someone to a place to commit murder—he can collect the fair)
5.) Ambiguity:
a.) three factors that trigger ambiguity1. ambiguous term
d.) each party has a different meaning in mind
*NEITHER PARTY KNOWS of meaning attached by
the other—if one party knows—the K is legally
enforceable
*Example: Raffles v. Wittlehaus (sailing ships-name-different
times)
6.) Mistakes in Facts:
a.) two factors needed:
1. both parties made the mistake-no K!
2. must be a mistake of material fact (material fact is a fact on
WHAT is being SOLD! Never a mistake on the value—value is
not material!
*Example: Sherwood v. Walker (the barren cow case)
7.) Unilateral Mistake:
*one party makes a mistake—the other party does not (Eurice Bros)
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a.) general rule:
1. no basis or defense for K formation—K is legally enforceable
2. signature: man bound what he signs – understanding is
irrelevant (Williston § 1577 and Restatement 70)
3. “reasonable person” – true test is what a reasonable person
would think (Williston § 74)
b.) exception rule: obvious mistake—other side has reason to know—K is
no good
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TERMS OF THE CONTRACT
VI. Source of Terms:
1. writing
2. conversation
3. prior transaction—between those specific parties
4. custom/usage—general transactions by other people in the industry
1.) Parole Evidence Rule:
parole evidence is words and conduct
(used in the “chicken case” - Frigaliment v. B.N.S)
 Policy: to avoid perjury and provide a clear basis for judgment
- purely an exclusionary rule (only when not admitted)
- prevents fro introducing collateral evidence to interpret terms
***problem arises when evidence used to supplement or contradict K
“When written agreement is a completely integrated, it cannot be contradicted or
supplemented with prior written or oral agreements or contemporaneous oral
agreements.”
“The rule forbids to add where the writing is silent, as well as to vary where it
speaks.” (Thompson v. Libby)
*objective: parties disagree over meaning – no contract b/c there is no mutual
assent…no meeting of the minds – use the reasonable person test
*subjective: look at the words and actions – meeting of the minds- what would a
reasonable person think it to mean (if there is a disagreement…no K)
*modified objective: “The Rule of Interpretation”- Rest § 201 – (Prof. Corbin)
if there was a clear argument – look at if the person knew – or had reason to know,
the other’s definition (if the disagreement and issue can’t be decided – the result
would be no K)
[case – Joyner v. Adams held that in the Rest. “knowledge” trumps “reason to
know”
 When deciding if a party had reason to know – look at parol evidence!
a.) what is the rule?
1. written K
2. intended by the parties to be the final agreement
3. cannot use earlier agreements to change terms of the K
b.) what facts trigger the rule?
1. must be in writing
2. parties intended it to be the final K (termed “integrated”
agreement)
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3. affect has an earlier agreements is that they are void
c.) Covers modifying, varying, or contracting evidence from:
1. prior written agreements
2. prior oral agreements
3. contemporaneous oral agreement
d.) possible issues:
1. look for merger clause (“merger clause” states it is a final
agreement)
2. applicable exceptions:
a. always introduce earlier evidence to show defense of K (i.e.
fraud or mistake)
b. earlier agreement to show mistake in making this the final
writing (meant to type 119 and not 191)
c. earlier agreement added terms to the writing—written K
only partially integrated (i.e. sell my car for “x” cost, but it
was suppose to be painted)—judge decides if partial
e.) Parol Evidence Rule does not prevent evidence proving:
1. agreement was not final
2. any defects in the formation (K shown “ineffective,” per only
to “effective”)
i. fraud
ii. duress
iii. mistake
iv. lack of consideration
3. the non-occurrence of a condition
4. anything which helps interpret ambiguous language
(reformation)
5. omitted terms
f.) Statute of Frauds Trap:
1. SOF—think ORAL! Defense to a legally enforceable K—is the
K valid?
2. Parole Evidence—think WRITTEN! know you have a legal K
g.) Determining Integration:
1. Traditional: “Four Corners” –if merger clause, then complete
2. Modern: all evidence should be used to determine intentions
(not supp or contra)
3. Merger Clause: all evidence with consistent, additional terms
(cannot contradict)
h.) Complete Integration: parties intended K to be a complete and final
statement of their agreement (no other terms) (No Supplementation)
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i.) EXCEPTIONS TO PAROL EVIDENCE RULE:
1. Partial Integration: terms left out- UCC says you have can
still have a binding K – can’t vary where the K speaks
(contradict written words) however, you can supplement and
“add where it is silent” can use P.E. to interpret terms.
(American Airlines)
2. Agreements Made After Execution of K: thus, P.E. won’t
exclude it – seen as different
3. Oral Condition Precedent: putting a condition on a K – K
does not begin working till oral precedent kicks in
4. Defenses: fraud, duress, K not enforced b/c no K
5. Reformation: parties have a typo error – can use parol
evidence to show mutual mistake
6. Collateral K: UCC uses it a lot –restatement states agreement
only applied to agreement about subject mater to which the
writing relates *basically-parol evidence allowed b/c additional
requirements added that weren’t part of the original K-thus,
parol evidence cannot contradict the written word.
j.) Parol Evidence Summary:
1. Traditional - Williston:
i. Do not look at parol evidence to decide complete
integration
ii. Can’t change or add
iii. Interpret if ambiguous
iv. Integration: 4 corners (no merger clause)
v. Partial Integration: No K
2. Modern – Corbin:
i. Can look at parol evidence
ii. Can go beyond 4 corners
iii. Cannot add/change if complete integration
iv. Add if partial, but not change
v. Interpret (ambiguity not needed)
vi. Use to determine if complete
vii. Supreme Ct. took Corbin’s View in Taylor v. State
Farm
***evidence does not get to jury until it passes through the judge!
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2.) Article II—Sale of Goods: (can affect terms)
a.) UCC 2-207: “battle of forms” (offer/acceptance does not match)
1. Both Merchants:
i. WHOLE OFFER makes it into the K
ii. Acceptance:
1. Contradictory Acceptance Terms get the boot
2. If offeror does not accept—the boot
3. Material changes
2. Not Both Merchants:
i. new stuff makes it in if agreed on by both parties
3.) Warranties:
a.) Express Warranty: words that describe goods being sold (make sure you
distinguish from “puffing”)
b.) Implied Warranty of Merchantability: goods are safe for ordinary purpose
c.) Implied Warranty of Fitness for Purpose: buyer has a particular purpose and
is relaying on the seller to provide the appropriate goods—seller is aware of
this reliance
4.) Conditions:
a.) basic condition: modifies obligation to perform
b.) conditional obligation: words like “if” “provided” “subject to”
c.) express condition: must be strictly complied with
1. watch for a condition requiring the approval by one party
d. for something like a personal
portrait—must be elusory (a real
promise)
e. again, a portrait—involves
personal taste—read literally
f. more ordinary K—use a
“reasonable test” (painting a
house—more general
good/service)
5.) Selling Goods (Art. II):
a.) perfect tender: meaning seller must deliver exactly what terms call for (100
an not 99)
b.) rejection of goods: if not perfect tender—buyer can reject
c.) revocation of acceptance: took the goods, then decided you did not want the
goods b/c they have a problem which was difficult to discover at the time of
delivery
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IMPLIED TERMS:
* Sources are: (1) parties (Lucy Lady Duff) (2) statutes (3) precedents
1. “Best Efforts:”
- implied obligation to carry out a promise (Wood v. Lucy)
- “instinct with an obligation”
- situations in which only One Party is obligated:
i. commissioned salesmen
ii. contingency fees
iii. money back guarantees
2. “Good Faith:”
- every K contains an obligation of Good Faith (Rest. § 205)
i. implied obligation of good faith in the sale of goods (UCC 1-203)
1. not denying other party the “fruit of the contract”
2. consistent w/the spirit of the contract
ii. honesty in fact (bare minimum) (UCC 1-201)
3. Requirements K:
- termination if retiring/selling in good faith
- quantity satisfied by referring to objective, extrinsic facts
- consideration is satisfied by exclusivity (discretion limited)
i. buyer all or a specific amount
ii. seller agrees to sell
4. Output K:
- termination if retiring/selling in good faith
- quantity satisfied by referring to objective, extrinsic facts
- consideration is satisfied by exclusivity (discretion limited)
i. sell all of output to buyer
ii. buyer has a duty to purchase
5. Good Faith & Changes in the Requirements/Output K: (Empire Gas)
- UCC § 2-306 – Rest §205 - Role of Courts to determine
i. no quantity disproportionate (if specific amount in K)
a. must remain w/in reasonable anticipation
ii. if no stated amount, quantity disproportionate to past amounts
iii. doctrine applies to all changes
Increases: (under UCC § 2-306)
1. stated: no reasonably disproportionate to demanded/tendered
2. not stated: course of performance (prior=proportionate)
a. good faith increases – normal business expansion
b. bad faith increase – (1) other party sells excess to make a profit
[or] (2) stockpiling
Decreases: (under UCC § 1-203)
good faith decreases:
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1.) bankruptcy (out-of-business)
2.) legitimate business decrease
3.) reasonable variation (of extreme sort)
2. bad faith decrease:
1.) purchase form another
2.) second thoughts about K – afraid it is a “losing K”
(as American Bakeries)
 Key Sections for “Good Faith:”
1.) UCC § 1-203: “every K or duty w/in act imposes an obligation of good faith
in its performance or enforcement.” [applies to all goods]
1. “Good Faith” according to UCC § 1-203 Does not apply in negotiations
[except during labor relations]
2. Tests for “Good Faith” outlined in UCC § 1-203:
a. Honesty in Fact [§1-201(9)] – in general definitions part nine-states
that if you lie-you violate §1-203 – SUBJECTIVE TEST
b. Observance of Reasonable Commercial Standards of the Trade [§2103(b)], also deals w/honesty in fact, however – OBJECTIVE TEST
2.) Rest. § 205: (pg. 163) “every K imposes upon each party a duty of good
faith and fair dealing in its performance and its enforcement.” [note: Rest
205 DOES NOT APPLY unless it has been adopted by the state]
Examples of “Bad Faith” are (1) does the action of the party violate the spirit of
the K? (2) opportunistic behavior – screwing the person over (3) trying to
recapture lost opportunities
6. Satisfaction Withheld: (Locke – [Eastwood’s girlfriend case - CA one of few states that
applies “good faith” to all types of contracts)
a. Personal taste: subject matter involves “aesthetic taste”
- Subjective standard – must be rejected in “good faith”
- Third party – regardless of subject matter
b. reasonable person: subject matter involves “utility”
- if fails satisfaction, look towards unjust enrichment/restitution
7. Implied Warranty:
a. Merchantability UCC § 2-314
- good quality
- fit for an ordinary purpose
 merchant could deny the above two characteristics by a disclaimer
under § 2-316
b. Fitness for a Particular Purpose UCC §2-315
- Buyer must rely on merchant’s knowledge/skill in selecting goods…and
seller must know of buyer’s reliance
- Goods are not fit for buyer’s particular purpose
 Note: no defect is required…just has to be the “wrong tool” for
the job
c. Outside the UCC: (real estate) (Caceci v. DiCanio Construction Corp.)
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-
-
-
-
-
Policy for Enforcing Housing Policies:
 Public policy: builder has all the control; need to protect the
buyer
 Lack of expertise: buyer does not know the field, builder does.
Buyer must trust the builder for they have all the control
Policy on Commercial Buildings:
 A company dealing in commercial business has more power than
the average buyer [or]
 Little guys starting up business need to be protected – also these
commercial buildings could be used be the public and you need to
protect them
In houses – can not sue on everything that goes wrong – things wear out
w/time
There could be “disclaimers” on the warranties (courts do look down on
disclaimers – are the builders hiding something?)
 Implied Warranty may be modified or eliminated
1. must be clear and conspicuous
2. both parties must agree
Habitability: applies also to construction
 Material: serious breach (affects ability to use of purpose)
 Latent: non-obvious (statue of limits. Runs once defect appears)
Implied Warranty extends to subsequent purchasers
 Traditional – no (lacks privity)
 Modern – yes (responsibility on builder: in best position to prevent
defect)
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AVOIDANCE OF THE K
1. Minor Incapacity:
- minors are incapable of contracting
- K avoidable at minor’s option
- Must provide restitution (if consideration is till in possession)
a.) Two Approaches To Minority Incapacity:
1. Reduced by amount of depreciation (restitution)
i. Not paying for depreciation, but benefits received
2. No restitution at all unless:
i. Willfully destroyed
ii. Misrepresented age
b.) Certain Ks infants cannot avoid:
i. public policy (bail bond)
ii. statutory (student loan)
iii. duties law would require even w/out K (child support)
c.) Infants are also liable for so-called necessities (can disaffirm/still liable)
i. liable for value, not the price of the necessities (food/shelter/medical/etc)
d.) Minor K must be disaffirmed before reaching the age of majority (or reasonable time
thereafter)
e.) If minor ratifies (reaffirms) after majority, no additional; consideration (PE) needed to
enforce
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INCOMPLETE TERMS
Incomplete Terms:
Traditional View: Mutual Assent to all terms for a K
1. Irrevocable Offer
- is pre-acceptance reliance binding?
A. Baird: (traditional) – withdrawn at anytime prior to acceptance (Hand)
B. Star Paving: (modern) - no K, but can use Promissory Estoppel if: (Trayner)
- G’s power to enforce S’s bid is not absolute :
3. if expressly deemed revocable in the bid (master of the offer)
4. offeree can’t shop around to reopen negotiations (bad faith)
5. known unilateral mistake w/other’s knowledge
6. mere estimate will not be enforced
2. Firm Offer (UCC 2-205)
-
applies to both buyers and sellers
UCC 2-105: “goods mean all things that are movable at the
time of identification to the K…
- Irrevocable offer w/out consideration (Option K)
within reasonable period…less than three months
- Thus, “firm offer” protects from revocation for three
months…..Promissory Estoppel does not work after the
three months b/c you should not have relied on that time
frame!
- If longer than 3 months, must have an option K
w/consideration (Midsouth Packers v. Shoney’s)
i. Offer
ii. Made by Merchant:
1. UCC 2-104: Merchant – concept of a
professional in business
iii. Signed Writing
iv. Must be a statement saying it was irrevocable1. Clear promise to keep the offer open
2. free to revoke after 90 days
 as long as all four are met – UCC has set up an option
contract without consideration!!
3. Agreement to Agree: (K w/terms left out)
A bargain in good faith…a formal contract…contemplated…just not finalized
1. traditional: cannot be binding K (no basis to grant relief – price)….
a. ) most courts follow traditional (Walker v. Keith), unless under UCC
b.) Policy: up to the courts to agree – not for the courts to decide
2. modern: if party intended to be bound, then courts should enforce (Quake Construction)
a.) especially under the UCC 2-204 – note: quantity
b.) UCC 2-305 – Open Price Term (Reasonable)
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Quake holding: (2-204 and 27) – (issue: what is the intent of the parties)
1. parties must have the intent to be bound
2. reasonable basis for remedy
4. Statute of Frauds:
- defense against K enforcement (policy: to prevent fraud)
- renders K unenforceable, not void
- note: Courts Hate the SOF, and will try to find the K enforceable
1. Is it within the Statute?
A. $500 or more in goods (UCC 2-201)
1.) not specifically manufactured goods, or services
2.) partial performance (even w/out stuff. memo)
B. Not performable within less than a year (mostly service Ks)
1.) Any possibility of performance within a year is okay
2.) not met unless the terms state a longer time period
3.) Initial K w/in one year – extensions less than a year: no
writing required
4.) Employment K w/termination clause (not SOF, could be
performed
5.) “life Contracts” are performable in less than a year
C. Real Estate (crops are not property – goods)
D. Debt of Another (collateral, not primary)
E. Executor
F. Marriage (in consideration of)
G. Securities
 “MY LEGS” – Marriage – Year – Land - Executor – Goods - Securities
2. You Must Decide:
1.) if the contract is within the statute (look at 1-6)
2.) sufficient memorandum – written and signed w/intent to authenticate
3.) if insufficient memo – could it be enforced? (yes, promissory estoppel)
3. If within, is there a Sufficient Memo?
1.) Must be in writing:
a.) contract subject matter
b.) parties identified
c.) promises by and to whom
d.) signature
i. must be signed w/intent to authenticate (initials okay)
ii. documents can be linked, if shown to relate
4. If no Sufficient Memo, the K is enforceable under the Statute of Frauds
- however, no sufficient memo required if:
a.) waiver
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b.) admission in court
c.) promissory estoppel
d.) complete performance
* Partial Performance may remove from SOF’s writing requirement – acting
inconsistently w/seller’s ownership (helps to establish PP)
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PRINCIPLE OF INTERPRETATION
1. Subjective:
a. If parties disagree, no K (no mutual assent) (Raffels case)
2. Objective:
a. Looks to the words and actions (not intent)
b. Reasonable person view K
c. Problem: ludicrous results nether party would have entered into
3. Modified Objective (Modern):
a. Evidence of subjective is important
b. Agreement on Terms: controls (doesn’t have to be objective)
c. Disagreement on Terms: (Joyner v. Adams)
i. If knew or had reason to know of other party’s definition – other party’s
definition
ii. If none, may not have K (Rest. § 201)
iii. Court can, however, add terms/definitions
d. Extrinsic Evidence may be used to prove (see below)
i. Not precluded by PER – is not contradicting or supplementing K
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HOW A CONTRACT IS ANALYZED…..EXTRINSIC EVIDENCE
In Determining “Know” or “Reason to Know”…..look at…..(Frigaliment)
1.) “K” Language
- K specifications (weight)
2.) Preliminary Negotiations – (Parol Evidence)
- not barred by the parol evidence rule
- some may be required if language is ambiguous
3.) Trade Usage – (look at the industry – how does it define trade?)
- definition
- trump clearly ambiguous K language
4.) Legal Standards
- what are/are there definitions of the law codes?
6.) Course of Performance
- UCC – how do the parties perform- (in “chicken case” - 
accepted chickens, however, they did object to the chickens
and said they did not want that type next time)
7.) Maxims of Interpretation: Guidelines [not rules]
1. contra proferentem
2. viewed in context of document
3. specific definition over general (when used in
conjunction)
4. interpreted ad a whole
5. specific provision is an exception to a general one
6. “purpose of the parties”
7. public interests preferred
8. valid K preferable to invalid
 reasonable construction should be preferred over the one that is
unreasonable (court in chicken case concluded that  definition is
unreasonable b/c it would have the  losing $ which would not
happen)
 that (1-6) is arranged in the order of most importance (1) to least important (6)
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REASONABLE EXPECTATIONS
Reasonable Expectations of the Non-Drafting Party: (extreme…not followed by most courts)
(C&J Fertilizer)
1. Standard Form Contract (not necessarily adhesion)
2. Little or no Chance to Dicker
- if dickered terms: non-drafter is bound
- otherwise interpreted against the drafting party
- When are reasonable expectations violated? (Rest. § 221)
- When non-dickered terms are:
1. bizarre or oppressive (not commonly used in the industry)
2. violates dickered terms
3. violates main purpose of the K
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AVOIDANCE OF K (CON’T)
2. Mental Incapacity: (Hauer v. Union State Bank)
a. Two Types of Tests for Mental Incapacity:
i. Cognitive: whether person had mental ability to know what he/she was
doing and the consequences/nature of the transaction at the time the K
was signed (<= Key Element!)
ii. Volitional: (Rest. §15) unable to act reasonably and the other party knows
of the condition
b. Generally, Ks are violable (unless adjudicated [judged]incompetent-void)
c. Incompetent must make restitution
d. If unable to pay restitution, must determine good faith
i. If made in good faith – still liable (must provide restitution)
ii. If made in bad faith – contract is voidable (no restitution)
e. Incompetent can disaffirm if:
i. Goods not yet produced
ii. If provided then: (at time of K)
1. other side did not know/have reason to know (no bad faith)
a. only voidable if infirm can make restitution (repay
consideration)
2. the infirmity would be obvious to reasonable person (bad faith)
a. infirm has no obligation to restitution if consideration is
gone
f. Comes down to a Battle of Evidence (and Parol Evidence does not apply – not
questioning the terms of the K):
i. Traditional (cognitive)
1. unable to understand the transaction
ii. Modern (volitional) –Rest. § 15
1. unable to act in a reasonable manner at the time of the K (like
cognitive)
2. other party knows or should have know (adds good faith)
3. if A and B met, look at reasonableness of K
a. if reasonable – then K is not void
3. Duress: (Subjective Standard) (Totem – added economic duress &
Odorizzi –
no duress found, but great discussion on duress according to Adams)
a. One party’s assent is induced by any wrongful threat, such assent was not a matter
of free will
b. Typical case: one party trying to rescind K
c. Voidable at the option of innocent
d. Performance:
i. If not performed, can void
ii. If performed, excess or market value less the amount P has received
e. Rest. § 175 – Economic Duress when:
i. Wrongful or improper threat:
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1. threats of physical harm (C/L only)
2. threats of criminal prosecution (imprisonment)
3. threats of civil actions (wrongful seizure)
4. threat not to fulfill conduct is not per se improper
ii. lack of reasonable alternative:
1. look at circumstances surrounding K
2. no choice but to agree of suffer financial hardship
iii. actual inducement of K by threat::
1. subjective: was the will of the victim overcome by 
2. does not have to be illegal
4. Undue Influence: (Rest. § 177) (Odorizzi)
a. Undue Influence when:
i. undue susceptibility (mental, emotional, and physical)
ii. gross oppression (excessive pressure, dominant service, over persuasion)
b. Rest § 177 – when undue influence makes a K voidable:
i. Undue influence is unfair persuasion when the person assumes that the
other person will not act in a manner inconsistent w/his welfare
ii. Party’s manifestation of assent is induced by undue influence by the other
party, the K is voidable by the victim
iii. A third party acts in bad faith and knew of undue influence…the K is
voidable
c. Over Persuasion Characteristics:
i. Discuss transaction at a bad time
ii. Unusual place
iii. Demand that business must be done at once
iv. Emphasis on consequences of delay
v. Multiple people against one
vi. No third party advisers to the lone party
vii. No time to consult attotneys/finacial advisors
d. Factors to Consider When Deciding Duress:
i. Was it someone you trust?
ii. Was there excessive pressure?
iii. Look at economic duress:
1. was there another alternative?
2. was there a wrongful threat?
 Batsakis: (Greek $ =>us $ ) pressure not being brought by a dominant, but a third
party
5. Misrepresentation: (requires clear evidence)
a. Fraud in Factum: K itself
b. Fraud in Inducement: misrepresents terms of K
c. Occurs when one party obtains other’s consent to K by misrepresenting material
terms
d. Voidable at option of the defrauded party
e. Rescission of K, allowed when misrepresentation present Rest. § 164(a)
i. parties put back to their original positions
f. Misrepresentation under Rest § 168 must show: (Syester v. Banta –68 yr. old
woman and dancing lessons)
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i. Assertion not in accord w/facts [they lied]
ii. Fraudulent [or] Material
iii. Relied on
iv. Reliance Justified
g. “Puffing” = making facts sound better…Actionable When:
i. person misrepresented their state of mind §159 (person does not really
think that)
ii. facts different § 168(2) basically facts lead him to believe this
iii. trust relationship…expert…person susceptible §169
6. Non-Disclosure: Rest § 161 (Hill v. Jones)
a. Duty to Disclose when:
i. Previous Assertion: you have made a previous assertion that would
become misrepresentation/fraud
ii. Mistake in Reading K: you would breach duty of good faith and fair
dealing – you have a duty to correct mistake
iii. Mistake in Writing K: you have a duty to correct mistakes in the writing
iv. Relationship of Trust: confidence (i.e. family, friends)
b.
c.
d.
e.
failure to disclose equals rescission
duty to disclose is a duty of good faith
duty to disclose generally upon seller only
no duty to discover
 Kromann- Economic Rule:
- if one party gains info at their expense – no duty to disclose
- diligently sought info: no duty to disclose
- casual information: duty to disclose

-
Keeton Approach:
One party in a better position – disclose
Difference in degree
Nature of K
Whether they are buyer/seller
7. Unconscionability:
(William vs.
Walker-Thomas Furn. – stereo repo- “pro-rata” add on clause))
a. New idea, 20th century creation
i. Unequal bargaining power
ii. Unfair in bargaining process
iii. Terms oppressively or grossly unfair
iv. COURTS DO NOT LIKE THIS DOCTRINE!
b. Two Types of Unconscionability:
i. Unconscionability in Terms: substantive; “meat” of the K
ii. Unconscionability in Bargaining: negotiation; procedural; [form K] [b/c
form K no equal bargaining power]—[correlates w/”good faith” and “fair
dealings”]
33
c. Deciding Unconscionability – Look At:
i. Absence of choice
ii. Terms unfavorable
1. price
2. trade practices
iii. Must fit w/business practice of the time and place (also look at
commercial needs)
d. Courts are free to:
i. Void entire K
ii. Void only offending clause
iii. Limit offending clause to avoid unconscionable result
 You Need BOTH Procedural and Substantive to Win Unconscionability Case!
(apply a balance between the two…like “dwelling” test)
e. UCC 2-302: “Clauses involved are so one sided as to be unconscionable”
i. Permits add on clause, but does not allow it to effect all claims….you
must pay off one thing at a time; not “pro-rata” all things)
8. Public Policy: (Boreelli v. Bruesseau –wife getting paid to care for hubby)
a. Comes from:
i. Constitution
ii. Statutes
iii. Administrative Regulations
iv. Cases
b. Public Policy [in General]:
i. Regulatory statutes [vs.]
ii. Revenue raising
c. Public Policy voids K when…
i. K violates regulatory statute – VOID K!
ii. VOID if statute says so
iii. Rest. § 178 – balancing test – weigh:
1. nature of public policy (type of policy)
2. forfeiture (how much will parties give up)
3. misconduct
4. connection of misconduct
5. what was the party expecting?
d. Two Keys:
i. If you deny the enforcement of the K – are you helping public policy?
ii. Unjustice occurs if K is not allowed
e. Advantages/Disadvantages:
i. Balancing test:
1. (+) changes w/time
2. (-) you may violate statute
ii. Statutes:
1. (+) voiding if statute is so clear cut…allows for clarity
2. (-) does not account for other things
iii. Restatement:
34
1. (+) merits of case
2. (-) no clear guidelines
f. Restitution should be considered in these cases: (Rest. § 197)
i. Restitution not available if benefit exchanged is unenforceable due to public
policy…[unless]
ii. denial gives disproportionate forfeiture
iii. [or]
1. Ignorance
2. Party hacks illegal purpose
-if knew morally torpid, no recovery
3. Unequal Fault
4. Severablity
*If illegal @ formation/offer: Terminated before acceptance.
*If becomes illegal after formed: Duty to perform is discharged
-Some courts require express regulation by statute (others only a violation)
g. Covenants not to Compete…unenforceable unless ancillary (Karin v. Weinberg)
* None between Attorneys (Rules of Professional Conduct)
- Covenants not to compete: Trade restraints
-trade secrets, customer lists (employment)
-goodwill (sale of businesses)
-Ancillary (part of) to a Valid Contractual Relationship (Threshold Question)
1. No broader than necessary to protect legitimate interest (reasonable)
-Scope/Time/Geography
2. No Undue Hardship (fair, not punishing)
3. No Injury to Public (is a form of Public Policy)
-Courts can redline (Blue Pencil) or find covenant unenforceable altogether.
9. Justification for Non-Performance
Rescission & Restitution:
-Most commonly used with Misrepresentation or Mistake
-Also possible w/ other defenses against formation or performance (i.e. duress, etc.)
*Rescission and Restitution: Market value of Party’s Performance
* Rescission and Restitution: Must be able to restore parties to pre-contractual positions
-Mutual Mistake: Rescission and Restitution available to both parties
-Unilateral Mistake: Mistaken party can only seek R/R if:
1. The other party knew/should have known about mistake and took advantage of it
2. Mistake involves a basic assumption, and burden on mistaken party’s performance
outweighs non-mistaken party’s burden if K is rescinded.
Mutual Rescission
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-Ok if K is fully executory (neither party has performed)
-Each parties rescission acts as consideration (generally oral ok)
-If partial performance: Surrender of P’s remaining performance is consideration
-However, Payment must be determined by the parties’ intentions
UCC 2-209: All modifications and rescissions must be in writing and signed.
a. Mistake: Pre-Contractual belief different from the facts.
-Must relate to a mistake @ the time of execution, not future event (Pre-Contractual)
-Rescission permitted if: (Restatement 152)
1. Basic assumption upon transaction
2. Material effect upon performance of parties (material = whether or not the parties
would have entered into the K)
b. Mutual Mistake: How to allocate risks. (Lenawee Co.)
-Both parties mistaken: thought what bargaining for was SUBSTANTIALLY DIFFERENT
from what actually bargained for, thus no Mutuality of Agreement. (Barren Cow)
-Either party can rescind.
-Mutual mistake of fact: grounds for avoidance unless one assumed the risk of mistake.
-(Restatement 154) – Look to evidence to determine risk allocation.
1. Risk may be allocated by the K ...part of language (“as is” clause)
a. Note: courts have sometimes held that “as is” clauses are not enforceable in
material mistakes b/c they are boilerplate language
2. Limited knowledge, but accepted (party knows they lack knowledge and say that i
okay)
3. Neither of the above two…court looks at what is Reasonable!
(nature/value/discoverability)
-Who’s in a better position to bear the risk?
c. Unilateral Mistake (Wil-Fred’s Inc. v. Metro) & (Eurice Bros.)
-No relief for unilateral mistake
-May be grounds for rescission if so palpable other party should have known of mistake:
1. Must relate to material
2. Despite reasonable care
3. Grave Consequences (Unconscionable)
-Grossly unfair and oppressive
4. Party not in error to be placed back in Status Quo (Restitution)
-Avoidance would impose no substantial hardship on. (thus, usually in Executory
phase)
-What is requires to rescind K -(Restatement § 153):
1. material feature
2. party must have used reasonable care in preparing K
3. grave consequences [or]
unconscionally –substantial hardship (note: not Unconscionability) [or]
36
other party had reason to know, [or]
caused the mistake
4. status quo (must return parties there
5.
-UCC view: If mistake of Quantity, only enforceable to the quantity in writing.
-Any other term, mistake may be corrected.
 Mistakes are made PRE-K…….Doctrines are made POST-K!
(doctrines = imposs/imprac/frust)
d. Impossibility (Post-Contractual):
- involves a specific item (person or good) that is essential
to K or necessary to
performance
-Viable Defense/Literally Impossible
A. Illegality: After K before performance
B. Death of person necessary to perform
C. Destruction of something necessary for performance (Subject Matter)
-W/no fault of either party & no assumption of risk
-Subjective: Party in K cannot perform, however, someone else can.
-Objective: Nobody could perform the duty (Thus, duty discharged)
Court requires objective Impossibility!
e. Impracticability (Rest.§ 261) [focuses on performance]
-Performance is impracticable due to change –it can occur, but is so different than what was
intended that it is unreasonable (Krell – coronation of king)
-Exceptional Circumstances: Extreme and Unreasonable difficulties or costs. (Restatement 261)
1. Event that makes performance impracticable
2. Non-Occurrence of the event is a basic assumption of the K
3. Neither party is at fault
4. Party has not assumed risk (express or implied)
-tough to meet, should have protected oneself (insurance)
f. Frustration of Purpose: (Rest § 265) [focuses on purpose]
-Difficult to meet
1. Event which occurs substantially (extremely) frustrated the purpose of the K
-Purpose must be known to both parties.
- Extreme and unforeseen loss or injury
-Lack of Profit or Fluctuation of price is insufficient to meet this
standard
(Karl Wendt)
-Severe shortage of supplies (due to war/etc) – Maybe.
2. Non-Occurrence of the event is a basic assumption of both parties
3. Neither party is at fault
4. Party has not assumed risk
-Courts hate frustration of purpose, will try to assign risks
-UCC 2-615: allows more liberally as to unforeseen shortage of goods.
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 Policy: FORESEEABILITY not needed in any of these doctrines…if requires, none would be
allowed…thus, no requirement!
g. Modification: Not trying to Rescind (Alaska Packers)
-To what extent is changed K enforceable?
-Not covered by the Parol Evidence Rule (Subsequent)
-SOF if modification (not original) fits terms
-Pre-Existing Duty Rule (Restatement 73)
*Requires additional consideration (W/O Detriment, No Consideration, No K)
-Policy: to prevent coercion….if K is modified, unenforceable if only asking for increased
compensation for same performance (No Consideration)
Discharge of Debt
Modification to pay less as a discharge of debt is not binding on creditor (no C) unless,
1. Difference in Performance (i.e. payment 2 weeks early)
2. Honest dispute over the existence of debt
-Amount bargained for equal consideration.
3. Honest dispute over amount of debt
-Amount bargained for equal consideration.
-Increased Payment Modification (Restatement 87)
1. Unanticipated circumstance, which
2. Makes readjustment fair & equitable
-Economic Exigencies: Good Faith
-Threat of Breach: Bad Faith
Exceptions to the Pre-Existing Duty Rule:
1. Mutual Rescission – New K
-Eliminates PED and Past Consideration problems
-However, may be induced by coercion
2. Unforeseen Difficulties Rule (Rest § 89)
-Modification enforceable (similar to impracticability)
UCC and the Pre-Existing Duty Rule: (2-209) (Kelsey Hayes v. Galatco)
- No Pre-Existing Duty Rule for transactions in goods:
binding modification w/o consideration as long as in “good faith”
- Modifications and rescissions must be in writing, oral for waiver only
10. Total & Material Breach:
-Overview: Is Non-Performance Justified?
i. Material/Total (Yes)
ii. Material/Partial (No, but may be suspended)
iii. Anticipatory Repudiation (Yes)
iv. Unexcused Failure of Condition (Yes)
v. Excused Failure of Condition (No)
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1. SUBSTANTIAL PERFORMANCE (Other party must perform as well) (Jacob &
Young)
-Partial Breach: Damages = Difference in Value (K Price - $ to Complete/Correct)
-Only substantial deviation will allow nonperformance
Types of Conditions:
1. Express: Expressly included in the language of the K, Parties agree upon.
2. Implied: Not in language of K, but parties agree upon.
3. Constructive: Didn’t agree upon, implied by law (policy: to promote fairness)
a. Implied/Instructed by the Court
b. Constructive Condition to perform obligations in every K (Obligation to perform is
conditioned upon other’s performance)
When is Performance Substantial? (Rest § 275)
all six elements given by Cardozo in Jacob Young v. Kent – first four in Rest.
1. Purpose of Provision in K?
2. Why wasn’t performance completed? Focus on faith of breach (Good Faith)
-Bad Faith: “willful transgressor” – No Substantial Performance
3. What is the cost of fixing defect?
4. Would damages be adequate to compensate harm?
5. willful transgressor – if you are a willful transgressor acting in “bad faith” – you los
the right to argue substantial performance
6. “dependant promises” – constructive condition promise cannot be separated from th
condition of the K
*If other party has rendered Substantial Performance:
-You must perform, but can sue for damages caused by their breach.
*If other party has not Substantially Performed:
-Excuses your duty of Counter-Performance
1. You can perform and sue for partial breach
2. You can cancel the K, and sue for total breach
b. MATERIAL AND TOTAL BREACH (Justified in suspending or nonperformance)
i. Is there a Material Breach?
ii. Is it Total or Partial?
Material Breach: (Rest § 241)
(Converse of Substantial Performance if you delay in stopping performance-no
damages)
Defined As: breach so serious you are justified in suspending
performance – equals non-occurrence of constructive condition…court
decides if breach is material (Must continue (or be prepared ) to perform)
1. Relates to a Material Term (also, “time is of the essence”)
2. Justified in suspending performance (non-breaching party)
Total Breach: (Rest § 242)
*Justifies terminating K (material breach and no cure w/in a reasonable time)
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1.
2.
3.
4.
Material Breach
Breaching party cannot (or fails to) cure w/in a reasonable time
Further delay in termination causes undue harm.
Breach is so serious
 Total Breach has occurred – free to enter into new K!
Partial Breach:
*Not total, thus not justified in suspending performance (like substantial
performance) damages for actual harm
 Partial Breach has occurred – must fulfill K, but can collect damages
c. ANTICIPATORY REPUDIATION:
(Refusal to perform, regardless of ability to do so)
*Definite, unequivocal statement (words or conduct) that one party is unwilling to perform- one
party commits a total breach
-Two Ways to look into an anticipatory repudiation:
1. Relying on it (Materially change position)
2. Notify other party of repudiations acceptance/finality
Anticipatory Repudiation:
1. Party can act immediately an anticipatory repudiation - Immediately Terminate & Sue for
Breach (notice/reliance = justification)
-Unless a party has performed and other repudiates, must wait till the due date to sue.
 danger is...if it is not a true anticipatory repudiation-you are in breach…thus, use
adequate assurance of performance!
2. Sue later (once performance is due for total breach) – Must mitigate
Anticipatory Repudiation can be retracted if:
1. No detrimental reliance or change in position
2. Not recognized as final by other party (words or actions)
UCC 2-609: Requires Adequate Assurance to be in writing….reasonable grounds for insecurity
UCC 2-610: Option to negotiate for retraction of repudiation
*Danger: if accuse other party of AR and wrong – Breach
-Thus, should demand adequate assurance if (Restatement 251 & UCC 2-609)
*Note: Request for AA is not required to prove an Anticipatory repudiation.
1. Reasonable grounds for insecurity
-Prior failure to perform
-Significant financial difficulties
2. If party fails to give AA, then commit AR (w/in reasonable time < 30 days).
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d. EXPRESS CONDITIONS:
-Created by Parties (Not Constructive) – Event must occur for K to be valid
(Oppenheimer –
no difference between material and technical – if expressed condition – must be followed [could
have argued statute of frauds b/c dealing with real estate])
-Two Types of Express Conditions:
1. Unexcused Failure of Condition (a.k.a –condition not ignored)
Condition fails to occur – duty to perform does not arise – nonperformance is okay –
NO BREACH! (b/c parties followed the condition)
2. Excused Failure of the Condition (a.k.a – ignored condition)
Ignored condition – not required to be met for obligation to perform – non-performanc
– not justified – BREACH! (b/c parties do not follow the condition)
-Failure for Excused Condition:
1.) Waiver: (Truman L. Flatt Case) – ignored rezoning condition
i. Material conditions (“time” can be a material condition – watch out!) need
consideration or reliance to be a waiver
ii. Technical condition need the words of the waiver – that is it
iii. Retraction of Waiver:
1. retraction of the waiver for a material condition also requires
consideration and reliance  material waivers are unretractable unless
parties agree
2. If performance of time has pasted – cannot retract the waiver
3. Waiver given by who benefits from the action
4. Or if the other side relies on waiver – you cannot retract
2.) Breach
3.) Forfeiture
i. Unless results in Forfeiture: (JNA Realty)
1. Actual Forfeiture
2. No prejudice to other party
3. Venial unintention (no intentional misconduct)
Types of Conditions:
1. Express: Expressly included in the language of the K, Parties agree upon.
2. Implied: Not in language of K, but parties agree upon.
3. Constructive: Did not agree upon, implied by law (policy: to promote fairness)
No substantial performance for an express condition: If so,
A. Excuse the parties performance, which was conditioned on that event
B. May pave the way to damages due to breach
Law Grants Equitable Relief When:
1. forfeiture (JNA Reality found that forfeiture was not enough – not all courts agree with this
however)
2. no prejudice
3. failure due to innocence (speculations and playing the market are already built into this test)
Promise v. Condition
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-Express Condition can be both a Promise and a Condition. (Rest § 260)
-However, if ambiguous, then viewed as a promise or a constructive condition
-Promise: Purports words of whom performance is required
-Condition: If words of other party.
-Breach of Promise, and breach is material: Cancel K and sue for breach
-Failure of Condition: Nonperformance, cannot sue
-Modern: Material and Non-Material Express Conditions
1. Material Conditions: Main purpose of the K
-Material Conditions are too be strictly enforced
2. Non-Material (Technical) Condition
-Do not have to be strictly met.
When Looking at Objective v. Subjective – look at:
1.) Purpose: commercial K
2.) Intent of Parties
3.) Rest § 228 – question as to which standard – preference is to objective standard
Objective Standard: would a “reasonable” person be happy with work?
Subjective Standard: would a “buyer” be happy with – Cannot be Just a Whim!
Rather-must be a good faith rejection!
11.REMEDIES
When Deciding Damages…Look At:
1. obligations? – promise
2. what is my obligation?
3. can the obligations be avoided or fulfilled? (i.e. avoided via impractability or
mistake)
4. damages
FOUR BASIC TYPES OF RELIEF FOR BREACH
b. Monetary Damages (Rest § 347 – Calculations of Damages)
-Loss in Value + Other Loss – Cost Avoided – Loss Avoided
c. Specific Performance
i. Policy: cannot make a person a slave
d. Rescission & Restitution
e. Reformation
Expectation Damages:
*Damages must be calculated w/reasonable certainty
-Put nonbreaching party in position if K fully performed
General Rule: damages measured by cost of completion!
Policy: don’t want parties coming out ahead – just back where they were
 Public Policy: be careful on environmental issues
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-Loss in Value + Other Loss – Cost Avoided – Loss Avoided
1.) Loss in Value: difference of value of performance and what was actually received
2.) Other Loss:
a. Incidental: losses incurred in a reasonable attempt to avoid loss
b. Consequential: damages occurring as a consequence of the breach. (cannot be mitigated)
3. ) Cost Avoided: Cost to have been incurred if nonbreaching party performed, now saved
4.) Loss avoided: Losses avoided by salvage, mitigation, or reallocation of resources.
*Alternative Method: Expected net profit on the entire K plus the builder’s un-reimbursed expenses at
the time of breach
Hadley v. Baxendale: Damages for special circumstances communicated to breaching party
1. Natural: necessarily, naturally, or probably result from K breach (or)
2. Consequential: At time of formation, may reasonably be within the contemplation of both
contracting parties. (Reasonably foreseeable to the  at time of K)
a. Limitations on consequential damages:
i. Foreseeablity
ii. Certainty
iii. Causation – suffered do to loss of breach
iv.
-Mitigation: The duty of nonbreaching party to lessen damages by finding substitute
performance.
-Doctrine of Avoidable Consequences (Rockingham Co.)
* Damages are fixed at the moment of Breach
- Recover Costs Prior to Breach + Net Profits
- Cannot recover damages that occurred after the breach –
- Policy: economic waste to the breaching party
Non-Recoverable Damages:
1. Attorney’s Fees (general unless specified in K)
2. Damages for Mental/Emotional Distress (Rest. § 353 – when you can recover)
3. Punitive Damages – NONE IN CONTRACT LAW!!!
Construction Damages: (Emmanuel)
-Note: all must be mitigated
1. Before Construction: (Full Profits) cost of completion & reasonable recovery for delay
2. During Construction: (K Price – Cost to Complete) cost of completion & reasonable recovery
for delay
-Note: If completion involves undue economic waste, damages will be the difference in
property value at the time of the breach.
3. Delayed Completion: (Full Price & Interests) lost income (i.e. from rents)
-The English Rule: In the event of seller breach, buyer only is entitled to restitution (unless bad faith
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-The American Rule: Expectation damages regardless of good/bad faith.
Contractor’s Breach of K: (American Standard)
1. Cost to Complete (General Rule) OR
-Idiosyncratic value: tends towards cost of completion
2. Market Value (w/work vs. w/o work)
A. K Substantially performed in good faith, and completion would result in economic waste
(J&K)
B. If breach is incidental, and completion is disproportional costly
-Incidental: ~ main purpose of K (main purpose already fulfilled)
Employer’s Breach of Employment K: (Lukaszewski)
* Not an at will employee (must be contractual)
-Difference between replacement cost and K price (Compensation for loss of bargain)
-Party is required to mitigate (find similar employee)
Reliance Damages: What condition if never entered into K? (Hightower)
*Does not include Expectation Damages (Must elect between one of 3 types)
-Alternative form of damages, used when expectation damages cannot be calculated w/reasonable
certainty…worries about losing K
-Often used w/Breach or Promissory estoppel.
-Reliance Damages (minus) loss of profits. (if can be shown unprofitable venture)
Restitution: Gives back benefits that were bestowed upon other party (Algernon Blair)
-Restatement 373: Allows for unjust enrichment in lieu of expectation damages.
*Reasonable Value of Performance (Standard in measuring recovery)
* a “thank god” breach
Limitations on Restitution Damages
1. Must have total breach
2. Right away
3. No Restitution if total performance (only lacking the payment of $)
a. Policy: avoid over compensation
-Traditional View: No Recovery for non-breaching party
-Modern View: Rest § 374: Can recover (otherwise punishing & unjust enrichment)
Qualifications for Breaching Party’s Recovery (Under 374):
1. Intentional Variance from terms of K (no recovery)
2. Bad Faith (no recovery)
Rescission & Restitution: (Emmanuel)
-Most commonly used with Misrepresentation or Mistake
-Also possible w/ other defenses against formation or performance (i.e. duress, etc.)
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*R/R: Market value of P’s Performance
*R/R: Must be able to restore parties to pre-contractual positions
-Mutual Mistake: R/R available to both parties
-Unilateral Mistake: Mistaken party can only seek R/R if:
1. The other party knew/should have known about mistake and took advantage of it
2. Mistake involves a basic assumption, and burden on mistaken party’s performance
outweighs non-mistaken party’s burden if K is rescinded.
Specific Performance:
-Remedy if P seeks “performance” of K, as opposed to monetary damages.
-Must prove expectation damages would provide inadequate relief (land or unique SM)
-Policy: Courts dislike (Supervision and involuntary servitude issues)
Liquidated Damages Clause: Provides for amount of damages in case of breach.
1. The clause must reasonably forecast the probable loss due to breach.
2. Harm caused by breach must be difficult to calculate, and
3. Parties must tailor the clause to the K’s circumstance (not a penalty)
*No duty to mitigate losses under liquidated damages.
*If K gives choice of exceptional damages v. liquidated damages (follows former)
*Only limited to claims of damages: thus, other types of relief still available
12. MISCELLANEOUS
a. Divisible Ks
-Employment Ks w/specified periodic time payments
-Entitled to $ for performed (less) damages of nonperformance
A. Each parties performance is divisible into @ least 2 parts, which depend on
corresponding performance.
B. Segments of performance each owe are equal in value
C. Each segment has an agreed upon corresponding performance from other party
EXCUSE FOR NONPERFORMANCE
1.)
2.)
3.)
4.)
Conditional Performance: condition not met—nonperformance okay
Material Breach: type of breach that excuses other party for not performing
Anticipatory Repudiation: party explains that they are going to breach early on
Later Agreements:
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a.) Novation-two people form a K-later both agree that a new party can take
over performance
b.) Accord and Satisfaction- (both needed!)- K between 2 people-change dealsame person-make new agreement (accord = new agreement, satisfaction =
performance on the new agreement)
5.) Unforeseen Occurrence:
a.) impossibility: cannot possibly happen (Taylor v. Coldwell-concert hall
burned down-no concerts there)
frustration of purpose: not impossible—however—the purpose of the agreement is gone (Corn
v. Henry-rent room to see king coronation)
***Attach Adam’s Handouts