Offer

A manifestation of willingness to enter into a bargain giving the offeree the

power of acceptance.

RE: (1) Intent to be bound (as governed by the objective standard)

(2) Definiteness or Certainty of Terms
Seven Essential Terms of Certainty or Definiteness of Offer
Indefiniteness Contains:
a. Terms are vague
b. Terms are omitted (silent)
UCC 2-204 “Gap Fillers” as b/t two merchants
Price, place, (payment) time
c. Parties agree to agree at later date
(3) Communication of Offer
Express or Implied

“The Objective Test”

If an offer is present, it creates the power of acceptance in the offeree. The
expression is an offer is dependent on an evaluation of the surrounding
circumstances.

The Seven Essential Terms of Definiteness or Certainty:

“Ducks Say Quack Quack When People Pass”
(1) Duration
(2) Subject Matter
(3) Quantity
(4) Quality
(5) Work to be done
(6) Price
(7) Payment Terms

There are five essential elements to an offer:

(1)A communication by the offeror
(2)Creating a reasonable expectation in the offeree;
(3)That the offeror is willing to enter into a contract;
(4)On specified terms
(5)Such that offeree need only accept in order to form a contract.

What is an offer?
It can be defined as a manifestation to another of assent to enter into a
contract if the other manifests asset in return by some action, often by a
promise (bilateral contract) but sometimes a performance (unilateral
contract). This offer is nearly always a promise, and the action on which the
offeror conditions the promise is the “price” of its becoming enforceable.
Offer is the name given to a promise that is conditional on some action by
the promisee if the legal effect of the promisee’s taking that action is to
make the promise enforceable.

The First Element

In determining whether an offer has been made you use the objective
standard:
(1) Would a reasonable person in the offeree’s shoes assume that the
power of acceptance had been created in him? This means that
if the offeree knows or has a reason to know that the offeror
hasn’t made an offer, then there is no offer.

To determine whether an expression is an offer it must be a manifestation of

present intent. Because of the objective nature of this objective test of
intent, modern cases require that one look not only at the words use by the
offeror, but also at all of the surrounding circumstances to determine
whether a reasonable person in the same or similar circumstances of the
offeree would understand that the offeror intended to be bound. Offers can
be: oral, written, or implied by conduct.

The Second Element

Definiteness ~ Even though the parties may intend to form a contract, if
terms of their purported agreement are not reasonably certain, no contract
will result. If the terms purposed in an offer are not reasonably certain, an
acceptance of the “offer” cannot form a contract. As with other areas of
contract formation, it is a question of intent. Thus, all of the circumstances
surrounding the transaction must be examined.
Indefiniteness can be divided into three general categories:
1. The parties purport to agree on a material tem but leave it too
indefinite or vague.
2. The purported agreement is silent on a material term.
3. The parties agree to later agree on a material term
In order for an offer to be definite enough, there must be a reasonably
certain basis for a remedy in the event of a breach. More specifically, a court
must have a basic guide available to calculate the amount of damages
awardable for breach or to award specific performance of the contract.

U.C.C. 2-204~ If the parties had otherwise exhibited an intention to form an

agreement, Article 2 uses the “gap fillers” to provide terms where the parties
fail to make an agreement on some terms of the contract: price, place,
payment.

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The Third Element
The third element to determine whether an expression in fact is an offer is
whether an expression in fact is an offer is whether it was communicated to
the offeree. In fact, failure of the offeror to communicate the offer to the
offeree may indicate that no offer exists in the circumstances. Furthermore,
an offer only creates the power of acceptance in the offeree and not in other
third parties.
An offer must be communicated to the offeree in order to be an offer.

Acceptance

Acceptance is the offeree’s manifestation of assent to the specific terms of

the offer stated by the offeror, made in a manner invited or required by the
offeror, and the occurring while the offer is still open.

Mutual assent to be bound to a contract is an essential element to contract

formation. Parties may achieve mutual assent through a bargaining process
that involves an offer and an acceptance. So, identifying the offer and
acceptance can be the method by which mutual assent is established.

Manifestation of mutual assent ordinarily takes place:

(1)by one party (the offeror) making an offer to another party (the
offeree)
(2)which the offeree accepts

Because the offeror is the master of the offer, the offer may be restricted to
a form of acceptance dictated in the offer. Thus, the form of manifestation of
assent by the offeree may be restricted by the offer.

In determining whether an acceptance has been made you use the objective
standard:
(1) Would a reasonable person in the offeror’s shoes assume there has
been acceptance? Even when the offeree didn’t in fact know
of the offer or intend to accept it.

Acceptance Generally:
An acceptance is merely the offeree’s manifestation of assent to the terms of
the offer stated by the offeree.

An effective acceptance requires three things:

(1)A manifestation of assent by the offeree to the terms of offer;
(2)Must be made in the manner invited or required by the offer; &

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 (3)Must occur while the offer is still open.

First Element: Manifestation of Assent

Three criteria:
(1)There must be a commitment
(2)The commitment must not be conditional
(3)The commitment must be on the terms proposed without variation

The commitment must not be conditional:

Since an acceptance is the ultimate step in making a contract, the
commitment cannot be conditional on some final step to be taken by the
offeror.

Commitment must be on the terms proposed without variation:

“Mirror Image Rule”
The expression of commitment manifesting assent to the bargain offered
must be on terms proposed by the offeror without any variation.

Second Element: Manner of Acceptance

An offer is accepted when the offeree promises to perform the terms of the
offer. Since the offeror is the master of the offer, he can specify that the
offer can be accepted by performance (“Unilateral Contract”) or by
promising to perform (“Bilateral Contract”). When an offer does not specify
the manner of acceptance the offeree can accept in any manner reasonable
under the circumstances.

Who can accept?

An offer can only be accepted by the person or persons to whom it is
addressed b/c the “power of acceptance” has been bestowed upon the
offeree by the offeror.

Advertisements
Sometimes an offer may be directed to a group of persons, perhaps even to
an unlimited number of persons, such as the public. Who can accept is
determined by the terms of the offer.

Rewards
In addition to being a person who can accept an offer, an effective
acceptance must be also be made by a person having knowledge of an offer.

Silence as acceptance

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The general rule is that acceptance is not made by the offeree remaining
silent in response to the offer. An offeror cannot foist a contract on an
offeree by forcing the offeree act to reject the offer. The receipt of an
unsolicited offer does not create an obligation on the offeree to respond or
face acceptance by silence.

However, exceptional circumstances do exist and conduct of the offeree may

amount to acceptance in some cases:
(1)Taking the benefit of the offer;
(2)Prior conduct of the offeree giving the offeror reason to believe that
silence would be acceptance;
(3)Exercise of dominion over the goods; or
(4)Where the offer states that the offer may be accepted by silence
and the offeree remains silent with the intention of accepting

Prior Conduct
The prior conduct of the offeree that gives the offeror reason to believe that
silence is an acceptable method of acceptance may be sufficient to bind the
offeree who is silent.

Exercise of Dominion
An offeree who receives goods and exercises dominion over the goods will
be deemed to have accepted the goods even though the offeree does not
intend to accept.

Offeree’s intention that silence is acceptance

Sometimes an offer may state that an offeree’s silence may constitute
acceptance, but that offeree must intend to accept by silence in order to be
bound. Also, when the offeree allows the offeror to confer a benefit on the
offeree knowing that the offeror expects payment thereof.

Rejection and Counter-Offer:

A rejection of the offer terminates that power of acceptance. A counter-offer
proposes an offer on the same subject matter and also rejects the original
offer. In both of these cases, the offer is terminated and the offeree can no
longer accept it, no contract.

Rejection
A rejection is simply a manifestation of the offeree’s intention not to accept
the offer. Such a manifestation typically results in the termination of the
power of acceptance unless the offeree also manifests an intention to take
the offer under “advisement” or the offeror has manifested an intention to
5
keep the offer open. The rationale underlying the rule is that an offeror who
receives a rejection is likely to rely on it.
Inquires or requests for a better offer do not constitute rejection.

Counter-Offers
A counter-offer is a new offer made by the offeree to the offeror on the same
subject matter as the original offer. It is a substituted bargain proposed
instead of the one offered originally. When the offeree makes a counter-
offer, it typically will terminate the power of acceptance under the original
offer, unless a contrary intention is manifested.

Contract Formation I

The Bargaining Process:

There are essentially two requirements: (1) Assent and (2) Definiteness.

Mutual assent to be bound:

An essential element of contract formation. Parties may achieve mutual
assent through a bargaining process, which involves an offer and an
acceptance. So, identifying the offer and acceptance can be the method by
which mutual assent is established. Once you determine that an offer has
been made, next determine if the offer is revocable. An offer can be
irrevocable by formation of an option contract, by beginning to perform
under an offer that looks to acceptance by performance only, by detrimental
reliance, by statute, including a firm offer under U.C.C. 2-205, and by a
writing signed by the offeror which recites a purported consideration and
proposes a fair exchange.

Objective v. Subjective:
In order for a contract to be formed there must be a “meeting of the minds.”
Objective Theory looks to what a reasonable person would believe had they
been in the offeree’s same or similar position. Subjective intent is what the
offeror meant as determined by the surrounding circumstances.

Generally, advertisements, catalogs, and trade circulars do not manifest an

intent to constitute an offer.

Termination of the Power of Acceptance:

Revocation:
There are three ways in which the power of acceptance revocation occurs:
(1)Revocation by the offeror

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 (2)Lapse of time
(3)Death or incapacity of the offeror

A revocation occurs when the offeree:

(1)Receives from the offeror
(2)A manifestation of intent not to enter into the proposed contract

A written revocation occurs when “received”:

(1)when the writing comes into the possession of the offeree or
(2)when some person authorized by the offeree to do so receives it, or
(3)when it is deposited in some place which the offeree has authorized
as the place for communications to be deposited for him or her.

A revocation occurs when:

(1) The offeror takes definite action inconsistent with an intention to
enter into a
proposed transaction
(1)The offeree acquires reliable information to that effect

Lapse:
Governed by the reasonable person standard. Where parties bargain face to
face or over the telephone, the time for acceptance does not ordinarily
extend beyond the end of the conversation.

Irrevocable Offers: (option contracts)

There are several ways in which an offer can be made irrevocable:
(1)An Option Contract~ A promise to hold the offer open that meets
the requirements for the formation of a contract that limits the
promisor’s power to revoke.
(2)Beginning to perform under an offer that looks to acceptance by
performance only.
(3)An offer in a signed writing that recites a purported consideration
for making of the offer and proposes an exchange on fair terms
within a reasonable time.

Sale of Goods:
U.C.C. 2-205 permits a merchant to make an irrevocable offer in a signed
writing. This is called a firm offer. There are special rules when the contract
form is supplied by the offeree.
(1) Protection is afforded against the inadvertent signing of a firm offer
when contained in a form prepared by the offeree by
requiring that such a clause by separately authenticated. If

7
the offer clause is called to the offeror’s attention and he signs
it separately, he will be bound
(2) U.C.C Section 2-302 may operate to prevent an unconscionable
result which otherwise would flow from other terms
appearing in the form.

Formation of Contracts Under the UCC Article 2

Article 2 has its own rules on the formation of a contract that differs from the
common law rules. For instance, under UCC 2-204 a contract can be formed
“in any manner sufficient to show agreement” This is even true if the parties
fail to include terms that would result in the contract failing for indefiniteness
at common law, UCC 2-204(3).

UCC 2-204: Formation in General

(1)A contract for the sale of goods may be made in any manner
sufficient to show agreement, including conduct by both parties
which recognizes the existence of such a contract
(2)An agreement sufficient to constitute a contract for sale may be
found even though the moment of its making is undetermined
(3)Even though one or more terms are left open a contract for sale
does not fail for indefiniteness of the parties have intended to make
a contract and there is a reasonably certain basis for giving an
appropriate remedy.

UCC 2-205: Firm Offers

(1)An offer by a merchant to buy or sell goods in a signed writing that
by its terms gives assurance that it will be held open is not
revocable, for lack of consideration, during the time stated or if no
time is stated for a reasonable time, not longer than 3 months; but
any such term of assurance on a form supplied by the offeree must
be separately signed by the offeror

UCC 2-206: Offer and Acceptance in Formation of Contracts

(1)Unless otherwise unambiguously indicated by the language or
circumstances:
(a) An offer to make a contract shall be construed as inviting
acceptance in any manner and by any medium reasonable in
the circumstances;
(b)An order or other offer to buy goods for prompt delivery or
current shipment shall be construed as inviting acceptance
either by a prompt promise to ship or by the prompt or

8
 current shipment of conforming or non-conforming goods, but
such a shipment of non-conforming goods does not constitute
an acceptance if the seller notifies the buyer that the
shipment is offered only as an accommodation to the buyer.
(1)Where the beginning of a requested performance is a reasonable
mode of acceptance an offeror who is not notified of acceptance
within a reasonable time may treat the offer as having lapsed
before acceptance.

U.C.C. 2-207: Sale of Goods

(1)A definite and seasonable expression of acceptance or a written
confirmation that is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different
from those offered or agreed upon, unless acceptance is expressly
made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition
to the contract. However, b/t merchants such terms become part of
the contract unless:
(a) The offer expressly limits acceptance to the terms of the offer
(b)They materially alter it; or
(c) Notification of objection to them has been given or is given
within a reasonable time after notice of them is received.
Clauses that would normally “materially alter” the contract
are those that result in surprise or hardship of incorporated
without express awareness by the other party.

UCC 2-209: Modification, Recission, and Waiver

(1) An agreement modifying a contract within this Article needs no
consideration to be binding.
(2)A signed agreement which excludes modification or rescission
except by a signed writing cannot be otherwise modified or
rescinded, but except as between merchants such a requirement on
a form supplied by the merchant must be separately signed by the
other party.
(3)The requirements of the statute of frauds section of this Article (2-
201) must be satisfied if the contract as modified is within its
provisions
(4)Although an attempt at modification or recission does not satisfy
the requirements of subsection (2) or (3) it can operate as a waiver.
(5)A party who has made a waiver affecting an executory portion of
the contract may retract the waiver by reasonable notification
received by the other party that strict performance will be required

9
 of any term waived, unless the retraction would be unjust in view of
a material change of position in reliance on the waiver.

Acceptance or Counter Offer:

Acceptance:
(1) An acceptance creates a contract. A counter-offer rejects the offer.
So, the power of acceptance is terminated. The offeree can no
longer accept it. Therefore, there is no contract.
(2) Where an offer invites an offeree to accept by rendering a
performance and does not invite a promissory acceptance, an option
contract is created when the offeree tenders or begins the invited
performance or tenders a beginning of it.

Mutual assent is created once there is an offer and an acceptance.

Counter-offer:
A counter-offer is an offer made by an offeree to his offeror relating to the
same matter as the original offer and proposing a substituted bargain
differing from that substituted by the original offer. Therefore, a reply to an
offer which purports to accept it but is conditional on the offeror’s assent to
terms additional to or different from those offered is not an acceptance.
(1)must propose a substituted bargain, or impose some condition not
implicit in the original offer. Anything less is not a counter-offer.
(2)Adding conditions which are already implicit in the offer will not
result in a counter-offer.

Steps to Answer a sale of goods questions~ U.C.C. 2-207

(1)Was the transaction involving the sale of goods?
(2)Were the parties both merchants?
(3)Was the initial contact a preliminary negotiation, an inquiry that a
reasonable person would understand to be not intended to conclude
a bargain without further manifestation of assent?
(4)Was response a preliminary negotiation, as to a reasonable person?
(5)Was the offer sufficiently definite in terms?
(6)Was there a counter-offer or an inquiry to keep the negotiations
open?
(7)Was an option contract created by one party promising to keep the
offer open in exchange nominal consideration?
(8)Was there a revocation of the offer?

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 (9)Was there acceptance, measured by the objective test of the
reasonable person so that it was a mutual

Consideration: The basics of Consideration and the Bargain

Theory

A contract is a voluntary act, manifesting assent to be bound with

consideration making promises binding on the parties.

Consideration is a “bargained for exchange” established when the promisor

and the promisee exchange promises in consideration for the other’s
promise.

The consideration of the courts is on the “legal value” element of

consideration as well as the “bargained for exchange” element.

Elements of the Bargain:

The bargained –for-exchange is established when the promisor gives a
promise in exchange for a promise given by the promisee, who in turn enters
into the exchange for the promisor’s promise. Similar to the law of mutual
assent, whether an exchange is bargained for is determined on an objective
basis.

Types of Consideration:
Just about anything that parties want to bargain for can be consideration to
support a promise. The classic description is some type of transaction
involving a benefit or detriment to the parties, with typical contracts having
benefits and detriments to both parties.

“Unilateral” Contracts:
The consideration for a promise might be a performance by the promissee,
unilateral because there is only one promise involved. Other times, the
bargain might involve a forbearance – that is, refraining from doing an
affirmative act.

“Bilateral” Contracts:
The bargain involves one promise by the promisor in exchange for return
promise by the promisee (expressly or implied). Two promises involved.

Consideration Moving to or From a Third person:

In the typical contract, the bargained-for-exchange moves between the
promisor and the promisee. Sometimes, the consideration bargained for is

11
not actually intended by the parties to be for the benefit of the promisor or
the promisee. The rule is that it does not matter from who the consideration
moves or to whom it ultimately reaches. The key is still whether there is a
bargained for exchange.

Adequacy of Consideration:
There is no rule in contracts assessing the market value of the exchange
made by the contracting parties. Therefore, as a general rule, courts do not
require into the adequacy or sufficiency of consideration. Policing the
fairness of bargains would be an insurmountable task for courts to
undertake.

Nominal consideration is in “name only”, and does not constitute real

consideration.

Agreements lacking consideration: Gift Promises

Entering into a contract is a voluntary act. Parties enter into contracts by

manifesting assent. Mutual assent to be bound is an essential element of
contract formation, consideration is also required, not all promises are
enforceable as contracts without some additional validating mechanism.
Consideration is the best known of these validating mechanism making
promises binding on the parties.

Consideration is described a requiring “bargained for exchange” which is

established when the promisor and the promisee exchange promises in
consideration for the other’s promises.

Some types of agreements are not supported by bargained for exchange.

These agreements are not enforceable as contracts. One type is the gift
promise.

Gift Promises
Promises may be made that do not have any exchange element at all.
Because of the absence of the “bargained for exchange” these promises are
not supported by consideration. With respect to reliance as a basis for
enforcement of gift promises, the key factor seems to be whether the
conduct in reliance was reasonably induced and foreseen by the promisor.

12
 (1)Although a person might be morally obligated to abide by a gift
promise it is not typically enforceable as a contract.
(a) Exception: Where the elements of promissory estoppal are
present.

Mixture of bargain and Gift:

Courts do not typically inquire as to the sufficiency of any bargained for
exchange actually made, the result is that even if the parties know that a
transaction involves both a bargain and a gift promise, the bargain portion
may furnish consideration for the entire transaction. The gift itself, even if it
imposes a burden on the recipient, is not ordinarily considered a bargain.

Condition or Consideration:
Arises when the promisor makes a promise to the promisee that requires the
promisee to act in some way that is purely incidental or conditional to
receiving the benefit, a conditional gift.

If the promisor makes the promise with no interest in the action required by
the promisee then there is no consideration. The key is whether the
detriment to the promisee requested in the promise is a condition that forms
the consideration for the promise or is merely an incidental detriment. If it is
the latter, then the promise is a gift.

Battle of the Forms (U.C.C. 2-207)

Under the traditional common law rule, acceptance must be on the exact
same terms as the offer, without variation. This is known as the “mirror
image rule” Problems with the mirror image rule arises when the parties use
preprinted forms for the offer and the acceptance that contain different
terms.

Mirror Image Rule:

The mirror image rule operates as a “last shot rule”, since a contract is
formed on the basis of the last form sent by one of the parties. Any forms or
other responses containing additional or different terms than those proposed
by the offeror would be counter-offers, rather than acceptances.

Because the “last shot rule” acts as a counter-offer the terms of the contract,
if formed, will be based on the terms of the party who sends the last counter-
offer, which is then accepted by the other party.

13
Battle of the Forms (U.C.C. 2-207):
Applies to the “sale of goods”, b/c this is statutory law it is binding and will
take precedence over case law.
Goods are things that are moveable under U.C.C. 2-205(1):
(1)“Goods” means all things that are moveable at the time of identification
to the contract for sale other than money in which the price is to be
paid, and things in action (intangible things).

Because many companies have their own forms with specific “terms &
conditions” related to the sale their forms will usually include terms
favorable to themselves. Applying the “mirror image rule” would result in
one party’s terms and conditions related to the sale becoming part of the
contract merely b/c the form was sent to the other party last, with no
consideration of whether the parties have actually agreed to those terms or
to what the parties might have otherwise have negotiated.

UCC 2-207 was drafted to modify the harsh effects of the “mirror image
rule”. The goal was simply to prevent parties from reneging on a deal after
the fact due to inconsequential variations b/t the buyer and seller’s forms,
not necessarily to favor one party or the other.

The following methods are employed by 2-207 to alter the “mirror image
rule”:
(1)A definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different
from those offered or agreed upon, unless acceptance is expressly
made conditional on assent to the additional or different terms.
(2)The additional terms are to be construed as proposals for addition
to the contract. Between merchants such terms become part of the
contract unless:
(a) The offer expressly limits acceptance to the terms of the offer;
(b)They materially alter it; or
(c) Notification of objection to them has already been given or is
given within a reasonable time after notice of them is
received.
(1)Conduct by both parties that recognize the existence of a contract
is sufficient to establish a contract for sale although the writings of
the parties do not otherwise establish a contract. In such cases, the
terms of the contract consist of those terms on which the writings of
the parties agree, together with any supplemental terms
incorporated by this act.
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 The Mailbox Rule

The mailbox rule states that an acceptance is effective upon dispatch,

without regard to whether it ever reaches the offeror. This rule provides that
an acceptance is effective when put in the mail or dispatched. This rule
allocates the risk to the offeror that a letter of acceptance might get lost in
the mail and never arrive. The offeror, as master of the offer, could have
guarded against the risk by restricting the means of acceptance to exclude
mail or to specify that acceptance is only effective upon receipt.

Option Contracts:
A promise to keep an offer open becomes irrevocable if the promise is
supported by consideration resulting in an option contract. However, the
“mailbox rule” does not apply to option contracts since they are subject to
specific time limits. The general rule between the parties is that exercise of
an option must be had by actual receipt by the offeror before the time period
expires.

Revocations by Mail:
If the offeror has not yet received the acceptance in the mail, the offeror
might send a letter to the offeree revoking the offer. Any such attempted
revocation, though, must be received by the offeree prior to acceptance in
order to be effective. If the offeree has already accepted, then the attempted
revocation is too late, as a contract has already been formed.

Parol Evidence Rule:

What is a party offering to prove?

15
One party claims that the other is in breach of contract for failing to perform
an obligation. Parol evidence is evidence extrinsic to the parties’ agreement,
evidence outside the parties’ agreement. When two parties enter into an
oral agreement, one party may introduce written evidence extrinsic to the
oral agreement.

Types of Extrinsic Evidence:

(1)If an agreement is written or oral any evidence prior to the agreement
that is not included in the agreement
(2)Custom or usage of trade
(3)Evidence defining ambiguous terms found in the contract

What purpose is the evidence offered?

A parol evidence rule issue arises when one party offers evidence of an
obligation and the other party claims that that obligation is not part of the
parties’ agreement. That parol evidence might an oral understanding, a
writing, or a trade usage. The task of a court confronted with a parol
evidence rule issue is to find the agreement of the parties by deciding
whether that obligation is part of the contract or not.

Parol evidence rule is not applicable when the evidence is offered for some
other purpose. These include:
(1)A separate enforceable agreement
(2)An issue of interpretation
(3)A modification
(4)A formation issue
(5)A condition precedent
a. The exception is when parties have agreed to condition the
performance of their contract on the happening of an event.
If the event fails to occur, the contract is not performable &
parol evidence will be admitted to show condition existed.
(6)A consumer protection act

The parol evidence bars evidence only of understandings made before or at

the same time that the parties reduced the agreement to writing. It does not
apply to understandings made after that time. (Modification issue).

Although determining whether a modification is effective does not represent

an application of the parol evidence rule, the analysis is analogous. The 1st
step is to find the original agreement. Then the evidence alleging a
modification may be heard. The rules governing modification of contracts,
not parol evidence rule, will apply.

16
Oral Agreements:
UCC 1-201(b)(3) defines agreement as “the bargain of the parties in fact, as
found in their language or inferred from other evidence.” Therefore, there is
nothing wrong with agreements being partly oral & partly written.

The policy behind the parol evidence rule are also evident in the rules on
modification, a distrust of oral agreements. A party can make up or
incorrectly recall an oral understanding or an oral modification. Another
policy is to show that there is a defense to contract formation. If no contract
was formed, then a party cannot be in breach.

Extrinsic evidence is generally permitted to prove all the traditional defenses

that show lack of formation of a contract: offer, acceptance, consideration,
capacity, illegality, duress, fraud, mistake, and the like.

Some courts will not recognize the fraud exception when the subject matter
of the fraud is addressed in the contract. This is because one of the elements
of fraud is that the defrauded party reasonably relied on the fraud, and the
document clearly shows that the purchaser did not reasonably rely on it.

Parties may introduce evidence that their agreement was based on

conditions that they agreed to which is not found in the written agreement.

Once the parties have reduced their agreement to a writing that they intend
to contain the final and complete statement of their agreement, neither
party may introduce evidence that contradicts or supplements the terms of
that agreement.

Parol evidence rule may not be invoked when the parties intended to
entirely by a written contract and not by their prior oral agreement.

Did the parties intend the writing to contain the final and complete
statement of their agreement?
Two types of written agreements: determined by the intentions of the parties
(1)Complete or total integration
a. The writing is a complete and exclusive expression of all the terms
on which the agreement was reached.
b. In a complete integration, the parties writing is complete &
exclusive expression of all the terms on which agreement was
reached. If oral agreement is not found in the writing, it will be
excluded.
(1)Partial integration
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 a. The writing is a final expression of the terms that it contains, but
the agreement could contain other terms.
b. If the agreement could contain other terms, then the oral
agreement will be included or allowed.

Intentions of the parties:

Merger Clause:
This agreement constitutes a final written expression of all the terms of this
agreement and is a complete & exclusive statement of those terms. Not
needed when an agreement is carefully negotiated and carefully prepared by
both parties.

When no merger clause exists use the “objective test” to conclude whether a
reasonable contracting party would naturally & normally have excluded the
term from the writing.

Does the offered evidence contradict or supplement the writing?

Supplementary Evidence:
If the written agreement is not a complete integration, then the
supplementary oral understanding is considered to be part of the agreement.

Contradictory Evidence:
If the written agreement is not a complete integration, then the contradictory
oral understanding is not considered to be part of the agreement. This
analysis gives greater weight to the written document.

Supplementary v. Contradictory
Ask if the two terms could reside in the same agreement with reasonable
harmony.

The UCC Parol Evidence Rule:

Terms may only be explained or supplemented:
(1)By course of performance, course of dealing, or usage of trade; &
(2)By evidence of consistent additional terms unless the court finds the
writing to have been intended as a complete & exclusive statement of
the terms of the agreement.

Two kinds of terms:

(1)The agreed terms in the confirmatory memo
(2)The terms in a writing that is final and that is a partial integration &
those terms may not be contradicted by evidence of any prior
agreement or of a contemporaneous oral agreement.
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To determine if a word is ambiguous the court will look to the term in its
commercial context.

Statutes of Frauds

(1) Contracts that are governed by the Statute of Frauds:

(1)Contracts for sale of land or interest in land
(2)Contracts that cant be performed within a year
(3)Contracts for the sale of goods over $500
(4)Surety Contracts
(5)Performance that will not be completed by end or lifetime
(6)Marriage

If no then an oral contract is enforceable.

(1)If yes, is the contract reflected in writing that satisfies the statute?
a. Contracts under S of F can be written on anything
1. Can be a series of writings
2. Can be lost by time of litigation & its existence can be shown
through testimony
b. Writing must certain info.
1. At common law it must identify parties, nature of exchange,
and set forth all or must material terms
2. UCC 2-201 states that the only term that must be stated
correctly is quantity.
c. Writing must be signed by the party against whom the contract is
being enforced
(1)Does Contract fall within any of the exceptions?
a. Partial Performance
1. Exception: When a party seeking enforcement of an oral
contract, “has performed to such an extent that
repudiation of the contract would lead to an unjust or
fraudulent result the court will disregard the
requirement of a writing and enforce an oral agreement.
b. Promissory estoppal inducing reliance by offeree

If yes, contract is enforceable.

If no, contract is unenforceable.

Pre Existing Duty Rule

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Performance of a legal duty owed to a promissor, which is neither doubtful
nor the subject of honest dispute, is not consideration.

The requirement of consideration:

(1)a promise will be legally binding only if the promise is supported by a
consideration
(2)A sufficient consideration may consist of: 1. A performance, 2. A
promise

The basics of the pre existing duty rule:

(1)When the promisee merely performs an existing duty, there is no new
legal detriment on the promisee
(2)Performance of the legal duty is not induced by the promise or, the
promisee ought not be permitted to assert such inducement.
(3)There is no “exchange”, since one party is simply providing what he or
she is required to do anyway.

A performance or promise can’t serve as a consideration for a promise

unless it is “bargained for” in exchange for the promise. In order to be
considered as “bargained for” in exchange for a promise, a prospective
performance must both induce the promise and it must be induced by the
promise.

Third Party contractual obligations:

The restatement takes the position that a promise to perform an already
existing contract duty can serve as consideration for a new contract with
somebody else.

An offer for a unilateral contract places no duty to perform on the offeree, so

the act constituting acceptance of the unilateral contract can serve as the
consideration for the second contract

A promise to perform a pre-existing contract duty to another does result in

fresh legal detriment.

Contract Modification:
One party provides something new to the other, an “extra” or a discharge,
while the other does nothing extra beyond what he or she already had a
contractual duty to do anyway or not even that.

A literal application of the pre-existing duty rule would suggest that such
“one sided” modifications of contracts should never be enforced. The
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“beneficiary” of one-sided contract modification supplies no new
consideration, but instead only does what he was already obligated to do.

Exception:
Parties may mutually agree to rescind their original contract and
replace it with a new contract, this act will “reuse” all the considerations
under the original agreement. The rescission relieves the parties of
their respective duties under the original contract. Then the very same
performance can serve as the basis for the
consideration under the new one.

Restatement 89:
A promise modifying a duty under a contract is binding if the modification is
FAIR and EQUITABLE in view of circumstances NOT ANTICIPATED by the
parties. Only applies to contract not fully performed on either side; an
executory contract exists on both sides.

S 89- Modification of executory contracts:

Contract is binding if:
(1)Modification is fair & equitable as to unforeseeable circumstances
at contract formation
(2)As provided by statute
(3)When justice requires such b/c of one parties’ change in position
due to reliance

Thus, preserving the factual basis for a mutual relinquishment (exchange) of

rights under the old contract (rescission) followed by a new contract on the
modified terms.

If a contract is fully performed on one side modification can’t be viewed as

an adjustment of an exchange relationship. Rather, the “modification” would
amount to a simple oral discharge of a part of debt.

UCC 2-209~Eliminates the pre-existing duty rule & permits modification of a

contract without consideration. The effect of 2-209 is:
(1)To make contracts for the sale of goods rather freely modifiable
without consideration, subject only to the general U.C.C. obligation
of “good faith”.

Accord & Satisfaction:

Accord:

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An accord is an agreement between debtor & creditor that the debtor will
provide a DIFFERENT performance from the one originally owed to the
creditor.

Satisfaction:
The performance of the accord, when the agreed-to different performance is
rendered & accepted, where the effect of a satisfaction is to discharge the
original obligation.

Performance of part of an obligation is not consideration for the discharge of

the remaining part: “ payment of a lesser sum cannot be any satisfaction for
the whole.”
Exceptions:
(1)Payment of a lessor amount earlier than due;
(2)Payment of a lesser amount at a different place from the agreed place
of payment
(3)A gift as payment

Executory Accord & Substituted contract:

An “executory accord” is a mere agreement to take something DIFFERENT
from the original performance in satisfaction. Traditionally, an executory
accord had no legal effect: debtor was not bound to render the different
performance, nor was creditor obligated to accept (unilateral contract)
parties are not bound until performance has begun.

Executory accord would not affect the original debt, only accord and
satisfaction would.

Liquidated debt or claim, undisputed and due:

Those claims about which there is no dispute as to the amount or validity

Unliquidated debt or claims:

(1)Uncertain in amount
(2)Uncertain as to their validity

To validate a discharge of a debt, there must be sufficient consideration

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