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AGREEMENT / FORMATION PROCESS

Is there an accepted offer? Counteroffer? Is there a promise for a promise or a promise for performance?
Bilateral Contract mutual promises between two parties to the K (a promise for a promise) R12
Unilateral Contracts: (promise for a performance R12) Beginning performance is the consideration
Restatement 2d 45 Option Contract created by Part Performance on a unilteral contract
Modern majority Rule: An offeror of a unilateral contract retains the right of revocation until performance has
begun. The offeree, however, retains the right to abandon performance at any point prior to completion. Offeror
retains more power in unilateral but once performance starts- some equities start to shift.
Modern UCC provisions are much more practical, looking toward how to make a deal go through
Assent: Measured objectively by a parties outward actions, not their subjective thoughts Lucy v. Zehmer
Mistake or misunderstanding? Peerless did either party have reason to know there was a difference?
Restatement 2d 20: (only for latent ambiguities) No assent if the parties attach materially different
meanings to their manifestations. Which party is in best position to clarify?
Restatement 2d 27 even if later writing is contemplated, mutual assent is enough to bind
Offer: Would a RPP believe its an offer? Modern rule: Surrounding circumstances
Offer not made until received. The offeror is the master of the terms (mode, duration)
Rest 2d 32 Offer is invitation to accept either through promising to perform or rendering performance
Duration of offers- how long is this offer open for?
Rejection or counter offer, lapse of time (offer open for reasonable time), failure to meet a condition.
Revocation: Offeror can revoke any time prior to a valid acceptance (Dodds)
Bars to revocation: 1. Beginning performance of unilateral contract R2d 45 Opt k by Part Performance
2. Accepted offers for bilateral contracts
When in doubt, an offer is an invitation to accept by promise or performance R2d 32
Acceptance: Acceptance is an agreement/an act demonstrating an assent to the terms of the offer
Was the acceptance conditioned? A counter-offer? Passage of time indicates acceptance
R 54: Notice of acceptance is not absolutely necessary, but a risk for the offeree.
Mailbox Rule/distance? Acceptance effective on dispatch except for option k: R2d63
Bid contract? Offeror can revoke up until acceptance. Also: unilateral mistakes & option contracts
Option contract? If unilateral k, beginning perf creates option k, requires offeror to permit performance
R2d 87(2) Option Contract: offer which produces reliance = option contract
Implied promise to make reasonable efforts (ie best efforts) and act in good faith? (Lady Duff Gordon)
Indefiniteness (term subject to determination?) ambiguity at formation stage, too uncertain to form basis of a k
Agreement to Agree? Trying to show would have come to an agreement in good faith. Q of fact (Fuqua)
Intent to be bound? Damages are question of fact, would they have reached agreement? Can get expectancy.
Statute of Frauds problem? Having something in writing doesnt make an auto-k, still in need consideration, etc
Land, marriage, third part obligation, UCC 2-201: sale of goods over $500
Must be signed by person against whom you are trying to enforce R2d131
Reliance & part performance can take out of SOF (McIntosh) R2d 139 Enforcement By Reliance
Warranty? Must be sale of goods. Implied for merchantability? Express? Implied for specific use?
CONSIDERATION [Need consideration on both sides De Los Santos]
Yes consideration: Bargained for exchanged, detriment to promisee (detrimental reliance), benefit to promisor
(ie promisor is receiver something, inducing, Maughs v. Porter), forbearance (waiving legal right -Hamer), exclusive
dealings. Things are worth what the parties bargain they are worth (Hardesty v. Smith)
No consideration: Gratuitous promise: is someone doing a favor for someone else? (Siegel v. Spear) One side not giving
up anything? Pre-existing duty, past performance, false/nominal (illusory), no waiving of legal right.
Willistonss tramp: conditions of performance are not consideration when something is still just a gift

EQUITABLE DOCTRINES = Substitutes for Consideration when there is no normal contract


Promissory Estoppel
1. Promise 2. Reasonably expected to 3. Induce action or forbearance = 4. Must enforce to avoid injustice
PE works when injustice can be avoided only by enforcement of the promise
Did the promise induce action or forbearance? Restatement 2d 90
Were the expenses normal costs of negotiating or specific inducements? (Empro v. Ball-Co says costs of doing
business Hoffman v. Red Owl says specific inducements)
Unjust Enrichment [When justice requires that unjust benefit to be restored]
When no K: One party confers a benefit but the agreement is unenforceable for some reason.
When breach of enforceable k: injured party sues for unjust enrichment
Moral obligation/benefit received?
19. REMEDIES Ask: Who breached? Does injured party get to choose?
Efficient breach issues? What do we want to incentivize? Ask: who should bear the burden?
Was it a losing k? (In losing k expectancy would be negative take a restitution remedy)
If youre beached on, you can get UE and go outside the K (which you should if its a losing k)
If P (builder) breached then D doesn't owe damages, but probably quantum meruit "outside the k"
If D (owner) breached, then P would have the option to put the k aside and try to get more
Why might builder (innocent party) prefer quantum meruit? Work might be worth more than the K
If buyer breaches, seller can resell (2-706) and/or get difference between KP and MP (2-708)
Expectancy damages: put injured party in as good a position as if the k had not been breached UCC 1-305
Often difficult to measure! Go to back up remedies
Caution about putting party in better position than if k had been performed (discourages efficient breach)
Made whole measured by difference between contract price and the market price see 2-708
Quantum meruit? Does performing party want value of their services?
Injured builders: profit on the k + any sum already expended that cant be mitigated
Consequential
damages? (Must be foreseeable expenditures made toward the k) in a way: its reliance

22. Was the damage (lost profit) foreseeable? (Hadley) 20. Lost expectancy? (Groves)
22. Lost volume seller? R2d347 (Neri) Would + could have sold another get profit on one deal
26. Fixed overhead? Did the breach diminish your profit on other projects? (Dempsey, Autotrol)
23. Duty to Mitigate? Usually employment (if reasonable opportunity to cut losses, you should do that)
Substantially similar work? Project? (Sheyboygan, Jordan, 4 ply roof)
24. Is damage definite? Or too speculative? New business rule (Evergreen)
25. Liquidated Damages? Policy: Overvalue non-performance prevent efficient breach
Was the clause a reasonable attempt to ascertain/forecast the damages? Otherwise unascertainable?
Deposits can be LD: if K is breach and there is a deposit, its going to go toward on ones damages
If LD is valid because remedy, strike it can proceed with damages as normal
26. Reliance damages as backup to expectancy (if you cant prove breach). Or reliance for promissory estoppel.
Restoring injured partys loss Restatement 90. Measured by costs spend in reliance
Award damages to P for purpose of undoing harm that his reliance caused him.
27. Restitution or unjust enrichment remedies. Recouping defendants gain.
Restatement 371 a (cost of completion) b (extent to which props been increased)
*Measured by benefit conferred to defendant: 1. Market value of the work, 2. You increased the value of the land (or
object) 3. Cost of performance (what the builder spent), 4. KP: best evidence of the value of the services
Limiting restitution: Cant recover outside k unless breach is substantial. KP as ceiling: courts differ (Bovee, cf Zara).
29. Specific Performance? Extraordinary remedy for unique goods, not fungible, no adequate monetary remedy
Can be for an act (i.e. processing loan app), or for real estate, invaluable goods, etc

POLICING DOCTRINES
30. Duress? Unequal bargaining power? Time pressure? Driving a hard bargain is not duress
Standard Box (freedom lens), there had to be "some element of illegality", now "wrongful acts" (a little more
vague, broader) Dunham (fairness lens).
31. Misrepresentation/ Concealment/Fraud? Constructive or actual?
as-is clause assigns all risk to the buyer: so rescission is not available to them as a remedy.
Silence can be concealment. If someone is relying your expertise, you cant take advantage.
31. Duty to Disclose
o Is there a closes/special relationship? Allocating disclosure burdens. Who should disclose defects?
Whoever is in best position/knows, whoever it is important.
o Possibility of fraud if buyer knows true value (think of sister selling timber rich land to brother)
o Best contemporary thinking: where buyer does affirmative (positive) information/research, not going to
require them to tell seller
o One argument: bidder/buyer must ascertain for itself all the conditions (Porreco: engagement ring)
o Assign duty to party that cares about it (engagement ring) versus party in best position to disclose
Rest. 20 and 21 (one party knew mistake and didn't reveal it)
32. Public Policy [Something of importance beyond the contracting parties]
When one party makes a bad deal, public policy doesnt bail out just you- need bigger picture -> convergence of
interests. Tension between assent problems and autonomy
33. Inequality of the Exchange
34. Unconscionability (balanced against not wanting paternalistic courts) UCC 2-302 & R2d208
Is our catch all doctrine for horrible transactions, equitable doctrine
Look at levels of sophistication of the parties. Typically combination of procedural and substantive:
Procedural: bargaining unfairness, the process is deficient, rushed, differences in expertise or education; not
reaching the level of fraud but often is also duress
Substantive: oppressive, too harsh substantive terms: a price that's way too high, any term thats substantively
unfair, waiving class action, jury trial. (Weaver, Industralease, Kolb)
Also when consideration is grossly inadequate. Or a party isnt getting the essential purpose of the k
Unconscionability requires inadequacy of price + bad conduct (Ryan v. Weiner)
37. Form Contracts [prime target for unconscionability]
Look out for cons: eliminates notion of real bargaining, no one reads them. Are important rights hidden?
R2d211: one party has reason to believe other party would not assent if they knew about a certain term
INTERPRETIVE TOOLS: did one party know more, etc? Pyramid of commercial context
38. Modifications [Worried about lack of consideration for the new terms]
UCC 2-209: all you need is good faith (don't need changed circumstance) (dumps traditional doctrine)
Restatement 89: Requires change in circumstances not anticipated by the parties
Modifications allow parties to reset values that they attach to the transaction (Schwartzreich)
*always check for additional terms without their own consideration
39. Accord and Satisfaction
Situations where someone pays less than contract price, and paying less is acceptable
Both parties must be aware of bona fide dispute + in order to sign, must know what youre signing
40. Battle of the forms problem? Additional terms? Between merchants? Address Hill AND Step method
2-207(1): An acceptance can be an acceptance even with different terms
2-207(2): Between merchants: the new terms become part of the contract

42. Parol Evidence Rule [watch for integration clauses]


Williston: formal NY approach (strict interpretation of the PER). The k must appear incomplete on its face
Corbin: functional approach (emasculates the rule). PER operates only when the parties intended a writing to be
complete. True intent of the parties is what matters. Admit as much as they can.
Traynor [CA] standard: Words have no inherent meaning, no such thing as plain meaning Liberal
admitting of evidence, unless it has propensity to mislead (PG&E)
Restatement test: look at what parties would have/should included in the agreement. Naturally included?
UCC 2-202 view: uses "final" (instead of integrated) agreement. Larger/broader admissions
Always admit PE if: not integrated, ambiguous, silent on a term, evidence of fraud, mistake, etc
44. Ambiguity (relates to interpretation) can always admit PE when there is ambiguity
Given the written agreement: is a term ambiguous such that we admit extrinsic evidence to clarify the term?
Using outside evidence to explain what the provisions are
Traynor says: Ask is meaning plain from the instrument alone? Extrinsic evidence should be let in to clarify
45. Interpretation [Take a rigorous look at the commercial context]
Parties intentions + Objective evidence can be admitted. UCC 1-303(b)-(e) uses these for PE/interpretation
Express contract terms have highest priority
Course of performance next highest (previous behavior in the same contract)
Course of dealing (How you have dealt with them in the past)
Trade usage: How things are done in this time, place, trade, location
47. Gap Fillers interpretive exercise/tool
Often duration cases: ks cant be unlimited Court can supply terms that dont materially alter the terms.
UCC 2-204(3) even if missing terms, the k will not fail for indefiniteness if there is a reasonable basis for
granting remedy. UCC requires you know your quantity
DUTY TO PERFORM
48. Good Faith (*important concept)
The role that good faith plays in supplying consideration, duress etc, validity of modifications, good faith can
supply a missing term (Fortune, Tymshare)
In interpreting a k, the focus is on the intentions of the parties (implied in fact), looking outside the intentions of
the parties (implied in law). Good faith does the most work when bringing something new into the transaction.
UCC 2-209 -allows modifications without consideration - you do need good faith
Public policy point: intentions based [looking at intentions of parties- implied in fact] and also public policy
based [bringing in limitations that do not come from the parties agreement but from the community]
Good faith might protect/salvage an at-will firing. Prefer to find good faith implied in fact.
51. Express Conditions/Promises
Promise: produces a duty that either party is responsible for if not fulfilled
Condition: if one side does not perform, there is no duty implied
Conditions (KB): terms which may or may not also be promises. It may be express or court might imply it,
either in fact or in law, the fulfillment of which is necessary before the other party has a duty to perform.
53. Excuse & Avoidance of Express Conditions (think about: fit with economic view of ks, risk allocation)
53. Impossibility: Becomes impossible, thus is excused because D has made it's attainment impossible
54. Waiver: generally waivers are favored under economic view. Waivers are exception to consideration
55. Forfeiture: economic efficiency: k law does not like waste. Has P made other arrangements? (JNA)
R2d 227: Prefer to reduce risk of forfeiture. R2d229: Excuse of a Condition to Avoid Forfeiture
55. Order and quality of performance: Order default rule: Simultaneous Exchange
At odds with another rule: the performance that takes longer should be performed first

56. Substantial Performance


Substantial performance does not apply to conditions SP only applies to exchanges of promises
If implied condition, SP can fulfill (Reading). But if an express condition- SP will not be enough. R2d 237
If you think the other party is in breach, and stop performance, but end up wrong, then you're in breach
K law allows you to set off damages (deduct) the damages against the otherwise due installment payment
Can recover under the contract. If just a promise, SP will get you what you bargained for minus damages for it
not being complete. Can be a promise but not an express condition: therefore sub perf can apply
57. Material Breach: Restatement 2d 241 Factors on whether breach was material
A non-material breach does not entitle the aggrieved party to rescind the contract.
58. Severability: To decide whether k is whole or severable look at intent and circumstances
If its severable, you recover the k price under the k, which is set by k.
60. Anticipatory Repudiation?
Situations where there are reasonably grounds for insecurity believing the k isn't going to be executed
Can demand some assurance, and you are entitled to suspend performance
Rest 2d 250: Objective test for determining when language or act constitutes a repudiation
GROUNDS FOR CESSATION & RECISSION
61. Mistake [goes to the heart of the k v. ambiguity which is just like vagueness about a term]
Mistake goes to validity of the contract (whereas ambiguity goes to interpreting the k)
Mutual [Three m's: mutual, material, mistake]
Risk allocation R2d 154. Does price already reflect the allocated risk? Good faith mistake - neither party had
reason to know that the other party had something else in mind
o Arises at agreement stage. When a party learns that the circumstances at the time of contracting were
materially different from what both parties assumed at the that time
o When parties have allocated the risks, you never get relief from mistake. It's not a mistake anymore
o Loss resulting from the mistake should fall on the party who caused it
62. Unilateral [R2d 153: party who made the mistake can rescind if fulfillment would be unconscionable]
Unilateral mistake will be resolved against the party who knew
Seller assumes the risk that the transaction will be unfavorable (Wood v. Boynton)
As-is clause assigns all risk to the buyer, so rescission is not available to them as a remedy.
Must preserve bidding process v. unjust enrichment to the party that didnt make mistake
Look at severity and lack of foreseeability
63. Impossibility
Ask how basic, central was the issue to the basis of the contract (assume there is a hall that hasnt burned)
Trying to discover what is fundamental to the contract
Doctrine originally about foreseeability (if foreseeable, we presume the parties have allocated the risk).
64. Impracticability Doctrine evolves: even unforeseeable risk can be allocated.
Multi factor analysis now (Translatlantic = modern approach), foreseeability is only one factor
This doctrine cares more about how the parties allocated the risk, rather than how impossible something is
65. Frustration of Purpose
Look at usually factors of foreseeability, was it in the parties' contemplation? Was it allocated?
Similar factors as impossibility, but here, the performance can still be done, just the value/benefit has drastically
changed. If the central purpose of the contract perishes, then the parties may be excused
The hardship must sufficiently extreme to excuse performance
Test for frustration of purpose: 1. Not foreseeable + 2. The value has been nearly/completely destroyed
Material Breach = grounds for recission

What follows from a contract being unconscionable? Recission/and other doctrines. What to do after the fact:
1. Sometimes pretends like k never happened/ Rescind the k (Ryan v. Weiner)
2. Sometimes performance has happened so we look at remedies
3. When no obvious remedy: leave at status quo (Jones v. Star Credit)
4. Can just strike the one provision (Industralease)
1. To determine whether there's been an agreement you look at the circumstances that a reasonable person would view
each side of the bargain. Objective view of contracts. We look objectively. No the way the parties subjectively intended it.
2. Offer controls the terms of the acceptance. The offer should tell the offeree what needs to be done to accept.
3. An offer can be accepted by return promise. Sometimes can be accepted by performance. Sometimes either one.
4. An offer can expire. By their own terms. Or the offerer may withdraw the author.
5. Option contract. UCC calls it a firm offer. By its own terms leaving it open.
6. An acceptance different from the offer or not on the terms of the offer is a counter offer.
7. Where there is a mistake (and no party is more at fault than another) there is no agreement unless:
A. One party was aware of mistake and did nothing to correct it.
B. Unless there is reasonable reliance
8. Ordinarily an agreement must be definite enough to enforce, however parties are free to make an agreement to agree, and
that can be binding. Was the behavior commercially reasonable? Is there an alternative rule to interpret?
Mistake/ambiguity/indefiniteness (at formation stage) = all drawing on the same interpretive tools
To establish assent, courts take an objective approach, by looking at the parties outward manifestations of intent to be bound
(Lucy v. Zehmer). Rest 20: if the parties assented/agreed to something, they should adhere to it (only latent ambiguities)
The modern approach to understanding offers instructs us to look at the surrounding circumstances and ask would those
circumstances have led a reasonable prudent person to believe that one party was making an offer (Southworth v. Oliver).
Tilbert v. Eagle Lock (holding that revocation of a unilateral promise needs to be communicated).
Acceptance is a manifestation of assent to the terms of the offer in a manner invited or required by the offer. Acceptance can
take the form of an act demonstrating an assent to the terms of the offer.
When a party makes an offer for a unilateral contract, to be accepted by performance, the offeror retains the right of
revocation until performance has begun. (Once the promisee begins performance, the offeror cannot revoke. Restatement 45).
Promissory estoppel requires a promise, which is reasonably expected to be relied upon, which induces action or forbearance,
and injustice can be avoided only by enforcement of the promise. Restatement 90.
Expectancy damages: If the court determines that there is a contract that has been breached, the injured party is entitled to be
made whole, or put in the position he would have been had the contract been performed. Expectancy damages tend to be
money damages, measured by the difference between the contract price and the market price. HERE
An injured party is also entitled to consequential damages (kind of a form of reliance).
Specific performance is also available for unique goods for which there is no adequate legal remedy.
Injured party is also entitled to the losses they incurred as a result of their reasonable reliance on the other partys promise. But
the other party must have reason to expect that the injured party would be incurring those expenses, hard to measure.
Restitution entitles the injured party to recoup the other partys gain. Restatement 2d 371 gives the injured party two options
as justice requires. 371(a) is cost of completion (or measure of improvements). 371(b) is difference between KP & MP.
Injured builder: contract law must give the builder the net profit he would have made and any amount expended in
furtherance of the contract, provided he tries to mitigate his losses by using the materials on other projects.
Injured employers: employers expectancy damages are the difference between the salary the employer must pay the new
employee and the salary the employer would have paid the breaching employee.
Duress: It's going to matter who is involved in creating the coercive behavior. If they engineer the scarcity, or situation that
they then take advantage of, then its worse for them. It is also going to matter that the person who is feeling pinches actually
did have another alternative. Not dispositive, but influential.
Deliberate concealment or nondisclosure does not automatically provide a right to rescission when the conditions are
minor or immaterial, but for a major condition rescission may be equitably justified.
Battle of the forms: When the transaction is between merchants, the additional terms become part of the contract unless the
offer is specifically limited to its terms, the offeror objects to the new terms, or the additional terms materially alter the offer.
Knock-out rule, the terms on which the forms do not agree cancel each other out and are dropped from the contract. The
relevant sale of goods act then supplies any missing terms. UCC says you can modify a k with just writing