Elle Klein

Fall 2015

Overview
1. Contract = a promise or set of promises for the breach of which the law provides a
remedy, or the performance of which the law in some way recognizes a duty
a. Governing:
i. UCC
ii. Restatement
b. Types
i. By Formation
1. Express
2. Implied
3. Quasi
ii. By Acceptance
1. Bilateral
2. Unilateral
a. Modern view allows for acceptance by promise or start of
performance
3. Test: each party has a duty and a right = bilateral, one party has a
duty, one party has a right = unilateral
iii. By Validity
1. Void = without legal effect
2. Voidable = elect to avoid
3. Unenforceable = otherwise valid defenses
c. Creation of a K = MA + C -
2. Mutual Assent
a. Objective theory of contracts = apparent intention
b. The Offer
i. A direct and complete proposal for a contract be entered into providing for
the exchange of defined performances
ii. Expression of a promise, undertaking, or commitment
iii. Certain and definite
iv. Communicated to the offeree
v. Termination?
1. By offeror
a. Revocation
i. Direct or indirect
ii. Effective when received
iii. Limitations
1. Options
2. Firm offers = signed writing to be held open
3. Detrimental Reliance
4. Part performance
a. Irrevocable once performance has begun for
a reasonable time
2. By offeree
a. Rejection
i. Express
ii. Counter
b. Lapse of Time
3. By Law
a. Termination by death or incapacity
b. Destruction of Subject Matter
c. The Acceptance
i. Must be unequivocal

Elle Klein
Fall 2015

1. Restatement: different or additional terms make the acceptance a

counter/rejection Mirror Image Rule
a. last shot rule the boilerplate document that is sent just
before performance governs the contract.
2. UCC
a. 2-207 Battle of the Forms
i. A definite and seasonable expression of acceptance or a
written confirmation which is sent within a reasonable
time.even if it states additional or different terms
ii. Additions are construed as proposals and become part of
the contract unless
1. Offer expressly limits acceptance
2. Materially alters
3. Or notification of objet has already been given in a
reasonable time
iii. Different terms can
1. Treat like additional and determine if they should
be accepted
2. Knock out and filled with gap filler
3. Disregarded
ii. Must be communicated
1. May be accepted by any medium reasonable in the circumstances
2. Mailbox rule
a. Moment of dispatch
3. Consideration
a. R71(1): something of value that is being bargained for in exchange for something
else
b. Elements:
i. Bargained-for Exchange: requires that the promise induce the detriment and
the detriment induce the promise
1. Gift = not C
a. Act or Forbearance by Promisee must be of benefit to Promisor
b. Economic Benefit not Required = Peace of mind or gratification
2. Past or Moral Consideration = not sufficient consideration
ii. Benefit-Detriment Theory
1. Majority = detriment to the promisee in performing the act/making
promise is the exclusive test of consideration
2. Second Restatement = Bargained-for exchange
3. Detriment = promisee has to do something he has no legal obligation
to do/refrains from doing
4. Specific Situations
a. Pre-existing legal duty C
i. New or different consideration required
ii. UCC no new C for modification to be binding. Implied
good faith
c. Mutual & illusory promises
i. Requirements & Output Contracts
1. C = parted with the legal right to buy or sell goods he may need
d. Substitutes for Consideration
i. Promissory Estoppel or Detrimental Reliance
1. C not necessary
2. Elements:
a. A promise which the promisor should reasonably expect to
induce action or forbearance on the part of the promisee or a

Elle Klein
Fall 2015

third person and which does induce such action or forbearance

is binding if injustice can be avoided only by enforcement of the
promise. The remedy granted for breach may be limited as
justice requires.
ii. Promises in Writing
1. UCC and Written Promises
a. Modification of a K
b. Firm offers
4. Defenses to K
a. in formation, in defect in capacity, to enforcement
b. Defenses to Formation (absence of mutual assent, absence of consideration, and
public policy considerations)
i. Absence of mutual assent
1. Mutual mistake Voidable if:
a. Mistake concerns basic assumption
b. Mistake has material effect
c. Party seeking avoidance did not assume the risk
i. Consciously aware of their ignorance
ii. Mistake in general value generally not a defense
d. Unilateral mistake If one party is mistaken, no K formation
prevention UNLESS nonmistaken party knew or had reason to
know of the mistake made by the other party
e. Latent Ambiguity Mistakes Mutual Misunderstanding @ K
formation
i. Neither party aware of Ambiguity No K
ii. Both Parties Aware of Ambiguity No K
iii. One party Aware of Ambiguity K (according to intention
of unaware party)
2. Misrepresentation
a. Fraudulent Misrepresentation
i. Voidable by innocent party if they justifiably relied on the
misrep
ii. Fraud in the inducement
1. v. Fraud in Factum
b. Nonfraudlent Misrepresentation voidable if Material
i. If innocent party justifiably relied on misrep & it was
material
ii. Material if:
1. Information asserted would induce a reasonable
person to agree
2. The maker of the misrep know the info asserted
would cause a particular person to agree.
ii. Absence of Consideration
1. Illusory Promise
iii. Public Policy
1. Illegality = defense for enforcement
c. Defenses based on Lack of Capacity
i. Legal Incapacity
1. Infants
a. Age of majority = 18
b. Contract is voidable by infant until age of majority then he has a
reasonable time to disaffirm
c. Exception:
i. Necessities Bound to pay reasonable value

Elle Klein
Fall 2015

2. Mental Incapacity
a. Incapable of understanding the nature and signifigance of the K
may disaffirm when lucid ie voidable
3. Intoxication
a. Voidable if other party had reason to know of intoxication
ii. Lack of Volitional Consent
1. Duress
a. Voidable
b. Where one party takes advantage of another partys economic
needs usually doesnt equal duress
2. Fraud in the Inducment
a. Voidable by innocent party. Know a K is being entered into but
under false impression
d. Defenses to Enforcement
i. Statute of Frauds
1. A writing signed by the parties sought to be bound
2. Agreements covered:
a. Interest in Land
i. Partial performance or full performance of an oral
promise in an interest in land may be enforceable if it
unequivocally indicates K, will take the K out of the SOF
b. Performances not within one year
i. Starts at date of K formation
ii. Must be humanly impossible to perform w/I one year
iii. Lifetime Ks not in SOF bc person can die.
c. Goods Priced at $500 or more
i. UCC must be in writing
ii. Orally enforced if:
1. Specially manufactured goods
2. Written confirmation between merchants
3. Goods = all things which are moveable at the time
of the identification to the K
d. Other three: consideration of marriage, suretyship, debt
personal payments
3. Requirements:
a. Any writing suffices as long as it contains EVERY essential term
i. Identity of the party sought to be charged
ii. ID of the contracts subject matter
iii. Terms and conditions
iv. Recital of the Consideration
v. Signature of the party sought to be charged
b. UCC quantity, signature of party to be charged, and writing
sufficient to indicate that a K was formed
4. Noncompliance with SOF renders a K unenforceable at option of party
to charged. It is a for party charged to say there was a lack of
writing.
5. Situations where SOF not applied
a. Admissions
b. Performance
i. To the extent of the partial or full payment or
performance
c. Promissory Estoppel

Elle Klein
Fall 2015

i. If an oral agreement foreseeably induces a plaintiff to

change his position in relaiance on an oral agreement,
courts may use PE to remove K out of SOF
6. Remedies = reasonable value for part performance, OR restitution of
benefit that has conferred. = quantum meruit (what one has earned)
ii. Unconscionability
1. Allows court to refuse to enforce a provision of an entire K to prevent
oppression and unfair surprise. (UCC)
2. TEST in light of the general commercial backgrounds and needs of
the particular party, the clauses involved are so one-sided as to be
unconscionable
a. One-sided bargains where one party has substantially superior
bargaining power
3. Inconspicuous Risk-Shifting Provisions
a. Disclaimer of warranties
b. Add on clauses!
4. Contracts of Adhesion Take it or Leave it
a. One sided bargain. Buyer has not choice
5. Price Unconscionability rare
5. Rights and Duties of Nonparties to the K
a. General rule: only confer rights & duties only on the parties thereto
b. Exceptions:
i. Third party beneficiaries
ii. Transferred beneficiaries
c. Third-Party Beneficiaries
i. A enters into K with B that provided that B will render some performance to
C. A is the promisee, B is the promisor, and C is the third party.
ii. Which 3rd Parties can sue?
1. Intended (can) v. Incidental (cannot)
2. TEST: was the purpose of the promisee, according to the language of
the K, to get the benefit for herself primarily or to confer a right to
another party?
3. Determining Intentions
a. Expressly designated?
b. Performance directly to 3rd?
c. 3rd have any rights?
d. Relationship?
iii. When do the rights of the beneficiary vest?
1. Manifests assent to the promise in a manner invited or requested by
the parties;
2. Brings suit to enforce the promise; or
3. Materially changes position in justifiable reliance on the promise
d. Assignment of Rights & Delegation of Duties
i. Assignment of Rights
1. X and Y have a K. Y assigns rights to Z.
2. X (obligor) ----------------- Y (Assignor) ------------ Z (Assignee)
3. Generally all K rights may be assigned. Exceptions:
a. Assigned Rights would substantially Change the Obligors Duty
i. Personal Service Ks
ii. Requirement and Output K
b. Rights Assigned would Substantially Alter Obligors Risk
c. Assignment of Future Rights
d. Assignments Prohibited by Law
e. Express contractual provision against assignment

Elle Klein
Fall 2015

i. Assignment of the K bars duties, but not rights usually

4. Necessary for an effective assignment:
a. (sometimes) writing requirement
b. adequate description
c. present words of assignment
d. no requirement of consideration
5. Partial Assignments okay
ii. Delegation of Duties
1. X and Y have a K. Y delegates duties to Z. Y is the obligor since Y is the
one with the duty to perform the obligation. Y also is the delegator
since Y delegated the duty to Z. X is the obligee, since X is the one for
whom Y or Z is obligated to perform
2. X (obligee) ------------------ Y (delegator/obligor) ------------- Z (delegatee)
3. Generally, all contractual duties can be delegated. Exceptions:
a. Duties involving personal judgment and skill
b. Special Trust in Delegaot
c. Material changes of Obligees expectancy
d. Contractual Restriction of Delegation
4. KEY a delegator will remain liable until the delegatee completes
performance
6. Rules of Contract Construction & the Parol Evidence Rule
a. Rules of contract construction
i. Contracts are fully integrated
ii. Plain Meaning Rule
iii. Custom and usage
iv. Preference to construe contract as valid and enforceable
v. Ambiguities construed against party preparing contract
b. Parol Evidence Rule
i. Complete Integration = When parties express their agreement in writing with
the intent it embody the full and final expression
1. All written/oral prior evidence not admissible
2. Merger Clause strengthens presumption of all negotiations are present
ii. Purpose: to carry out the apparent intention of the parties and to facilitate
judicial interpretation by having a single clean source of proof (the writing)
on the terms of the agreement
iii. If a K is a complete integration is a question of fact for a JUDGE
iv. TEST:
1. Willistonian 4 Corners approach
2. Corbianian/Modern interpretation of the parties most imp.
v. Extrinsic Evidence outside the scope
1. Formation defects (Fraud, Duress, Mistake, Illegality)
2. Conditions Precedent
3. Evidence to show interpretations of K ambiguities
4. True Consideration
7. Interpretation and Enforcement of the K (has a present duty to perform arisen and
has the duty to perform been discharged?)
a. When has a contracting partys duty to perform become absolute?
i. Distinction between promise and condition
1. Promise = the manifestation of mutual intent to act or refrain from
acting in a specific way so as to justify a promisee in understanding
that a commitment has been made
2. Condition=an event, not certain to occur, which must occur, unless its
nonperformance is excuse, before performance under a K becomes
due

Elle Klein
Fall 2015

b. Classification of conditions
i. According to Time of Occurrence
1. Condition precedent
2. Conditions Concurrent = capable of occurring together
3. Condition Subsequent
ii. Expressed, Implied (in fact), and Constructive (Implied in law) Conditions
1. Express
2. Implied in Fact = inferred from partys intentions
3. Implied in Law/Constructive = read into a K by the courts
iii. Have the conditions been excused?
1. Excuse of condition by actual (material) breach
2. Excuse of condition by substantial performance
a. Courts usually only apply in constructive conditions, not express
b. Arises if breach is minor
c. Has the absolute duty to perform been discharged?
i. Discharge by performance
ii. Discharge by Impossibility, Impracticability, or Frustration
1. Discharge by impossibility
a. Impossibility must be objective the duties could not be
performed by anyone
2. Discharge by Impracticability
a. The test for finding of impracticability is that the party to
perform has encountered:
i. Extreme and unreasonable difficulty/expense
ii. This difficulty is not anticipated
b. Can not be mere changes in degree of difficulty or expenses
due to such cases
c. UCC the nonoccurance was a basic assumption on which the
K was made
i. Crop failure, currency devaluation, war
3. Discharge by Frustration
a. Frustration will exisit if the purpose has become valueless by
virtue of some supervening event not the fault of the party
seeking the discharge
i. Parade example
iii. Discharge by rescission
1. Must be an executory
iv. Partial Discharge by modification of the K
v. Discharge by Release
vi. Discharge by Lapse
vii. Discharge by SOL
8. Breach of the Contract and Available Remedies
a. When Does a Breach Occur?
i. Under an absolute duty to perform and this duty has not been discharged,
then failure to perform in accordance with the K will amount to a breach
b. Material v. Minor
i. Minor = not relieved of duties
ii. Material = obligee doesnt receive substantial benefits of bargain
c. Determining Materiality of Breach
i. Amount of Benefit Received
ii. Adequacy of Damages
iii. Extent of Part Performance
iv. Hardship to Breaching Party
v. Negligent or Wilful Behavior

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Fall 2015

vi. Likelihood of Full Performance

d. Failure of Timely Performance
i. As specified by Nature of K = not material unless explicitely stated
ii. When Delay Occurs = more likely to be material prior to performance
starting
iii. Mercantile Contracts
iv. Land Contracts = more delay is req.
v. Availability of Equitable Remedy = more lenient in tolerating considerable
delay in equity courts
e. Remedies for Breach
i. Damages
1. Types
a. Compensatory Damages
i. Put the nonbreaching party where she would have been
had the promise been fulfilled
1. Expectation Damages benefit of the bargain
damages
a. Reliance Damages Alternative put the in
the position she would have been in had the
K never been formed
2. Consequential Damages any losses resulting
from the breach that a reasonable person would
have foreseen. has burden of proof.
b. Punitive Damage
c. Nominal Damages may be awarded where a breach is shown
but no actual loss is proven
d. Liquidated Damages have been agreed on by both parties
before hand
2. Duty to Mitigate
a. She must refrain from piling up damages after she receives
notice of breach
i. Ie) dont keep building the bridge
3. Effect of the Liquidated Damages Provision
a. Enforceable if:
i. Damages for K breach have been difficult to ascertain or
estatime at the time the K was formed
ii. Been a reasonable forecast of compensatory damages
b. Recoverable even if no actual damages
ii. Suit in Equity for Specific Performance
1. If the legal remedy is inadequate, the nonbreaching party must seek
specific performance
2. Available for Land and Rare/Unique Goods
3. Not Available for Service Ks
a. Injunction is an alternate remedy
iii. Rescission and Restitution
1. Where the nonbreacher has transferred a benefit to the breacher in an
attempt to perform on her side, she is entitled to restitution of that
benefit
iv. Other forms of Relief Arising out of Contractual Situations
1. Quasi-Contract
a. Not really a K
b. Legal fiction to avoid injustice of unjust enrichment
c. Requirements for a QC:
i. Failed K

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Fall 2015

1. Failed k must result in unjust enrichment

a. Tornado destroy house thats partially
painted. Still gets partial payment
ii. Where no K is involved
1. conferred a benefit
2. had reasonable expectation of being
compenstated
3. not just volunterred
4. was unjustly enriched
d. Measure of recovery:
i. Recovery measured to the detriment of the

McWilliamss Contracts Outline

Theme 1: What qualities must a private undertaking have to merit enforcement by
public institution?
An Enforceable Contract(Offer + Acceptance)=MA & Consideration

First step
The first question when analyzing a contracts problem is:
1. Is the K for goods or services?
a. If goods, then the K is governed by the UCC.
b. If not goods, the K is governed by the Restatement.
2. What if the K is for both goods and services?
a. What was the intent of the parties, what was the K originally for, what was
the most money paid for, the good or the service?
Answer: UCC-Contract for Goods (wooden boxes)
1. Establishing an Enforceable Contract
Contracts (defined): A contract is a promise or set of promises for the breach of
which the law gives a remedy; or the performance of which the law in some way
recognizes as a duty. Restatement 1
Promise (defined): A promise is a manifestation of intention to act or refrain
from acting in a specified way; so made as to justify a promise in understanding that a
commitment has been made. Restatement 2 (1)
a. Sources of contract law
i. Contract law is governed primarily by two sources: statutes & common law.
1. Common law -- Services & real property
a. Restatement (2d) of Contracts
b. stare decisis: let the decision (precedent) stand
2. Statute -- Goods:
a. Uniform Commercial Code (UCC)
b. states will adopt UCC in statutes
c. goods: all things which are movable at the time of identification
to the contract
ii. Theories of Contract Law

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1. Classical Approach Williston

a. Less sympathetic look at K
b. Intent determined by what reasonable person would find 1st
parties intent was by words & actions
c. Four corners approach
d. Applies hard, fast rules without regard for social justice
2. Modern Approach Corbin
a. More sympathetic: subjectivity sometimes considered
b. More attentive needs of the commercial marketplace.
c. Responsive to social issues.
d. Includes fairness doctrine
3. Today, contract law adheres to the Objective Theory of Contracts:
Courts determine what a reasonable person would objectively think,
regardless of a partys personal, subjective thoughts Williston
Approach
b. Qualities every contract must have:
i. Offer
ii. Acceptance
iii. Consideration

The Function of Legal Formalities

Evidentiary Function:
Provides evidence of a contracts (1) existence AND a contracts (2) terms
Cautionary Function:
Evidence of intention to be bound
Provides a check against inconsistent or hasty action
Channeling Function:
Channels into court the types of cases the court wishes to hear; and channels away
from court the types of cases the court doesnt want to hear.

The Basis of Contractual Obligation: Mutual Assent and Consideration

1. Mutual Assent (B = O + A) MA + C = K

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Fall 2015

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2.
Requirement of a Bargain: (Restatement 17)
The formation of a K requires a bargain in which there is a manifestation of mutual assent to
the exchange and a consideration.
Bargain: a negotiated exchange.
Mutual Assent: offer or proposal of one party, followed by an acceptance by another party.
Consideration(71(1)): something of value that is bargained for in exchange for something
else.
Mode of Assent: (Restatement 22)
1.) The manifestation of mutual assent to an exchange ordinarily takes the form of an
offer or proposal by one party, followed by an acceptance by the other party or
parties.
2.) A manifestation of mutual assent may be made even though neither offer nor
acceptance can be identified and even though the moment of formation cannot be
determined.
KEY: The manifestation of mutual assent to an exchange is typically an offer and acceptance, but it

Intention to be Bound: The Objective Theory of Contracts

i. Ray v. William G. Eurice and Bros
Facts: Eurice Bros. signed contract to build house according to certain
specifications. They claimed to have been mistaken as to the specifications later
on and refused to build the house
Issue: Does a unilateral mistake make a bilateral contract void?
Holding: No, a unilateral mistake does not make a bilateral contract unenforceable
Rule:
o plain meaning rule words are given the ordinary meaning assigned to
them as understood by a reasonable person
despite the individual intent of a party, a reasonable persons
interpretation of the words is binding
Rationale protection of parties reasonable expectations. No
more meeting of the minds which was subjective. There is
sufficient MOA whenever a party uses an expression that he
knows, or has reason to know, the other party would
reasonably interpret as an O or A, and the other party does so
interpret it.
o Takeaway: an intention to be bound is required, NOT an intention to be
bound by the contents of the agreement
This is the fundamental point of the Objective Theory of Contract
o A unilateral mistake will not void a K. A mutual mistake is more likely to
o An official bid is considered an offer; an estimate is considered a request for
an offer.
__________________________________________________________________________________________________
2. Offer & Acceptance in Bilateral Contracts
Bilateral contracts an offer that requires acceptance by a promise (express or implied) is
called an offer for a bilateral contract. Promise for a promise (or promise of performance).
Exception: full performance by offeree can lead to offer being irrevocable.
In a bilateral contract, each party is a promisee and a promisor.
Acceptance of offer for a bilateral contract Promissory acceptance Not necessarily
verbalpromise implied from offerees conduct and act designated by offer to signify a
promise

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Fall 2015

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a. Offer R24 an offer is the manifestation of willingness to enter into a bargain, so made
as to justify another person in understanding that his assent to that bargain is invited and
will conclude it ****UCC does not define offer ****
a. The offeror is the master of the offer
i. The offeror can prescribe the method of acceptance: if the offeree fails to
accept the offer in a manner set out by the offeror, there is no binding
agreement
ii. The moment the offeree accepts, the offeror loses the power of revocation,
and private, enforceable law is created.
b. Two essential elements: (1) intent to enter into a bargain; and (ii) definiteness
of the terms
i. Intent: has to be more than words suggesting negotiations (Are you
interested?...). Think more harsh to suggest offer (I will sell..)
ii. Definiteness: usually not an offer unless offer makes clear (i) the subject
matter of the proposed bargain; (ii) the price; and (iii) the quantitythese
dont necessarily have to be met if there is intent determinative
Powers Created in Offeree by offer:
b. Power of acceptance
a. if that party manifests her acceptance of the offer in a legally effective way, then at
the moment a K is created.
c. Counter-Offer
d. Revocation
Methods to terminate the power of acceptance
1. Rejection of Offer (offeree)
-By conditional or qualified acceptance adds or changes the terms of the offer
(unless under sale of goods)
i. -Exception: an offerees power of acceptance is not terminated by an
acceptance that is conditional or qualified in form, but in substance
merely spells out an implied terms of the offer.
1. - UCC 2-207(1) a definite and seasonable expression of
acceptance operates as acceptance even though it states terms
additional to or different from those offered or agreed uponunless
acceptance was expressly based on those terms.
2. counter-offer (offeree)
3. revocation (offeror)
i. only needs reliable communication of revocation to lose power
ii. To be effective, a revocation must normally be communicated by offeror to
the offeree
1. Exception: indirect revocation if the offeree obtains reliable info
that the offeror has taken action showing that he has changed his
mind.
2. Revocability of firm offers The promise to hold the offer open for
a fixed period is not binding if the promise was made without
consideration. See pages below
1. Exception: Option contracts if the offeree gives
consideration for the promise, offer is
irrevocable for the stated time period
2. Exception: Nominal consideration even if there
is no true consideration, under majority rule the
offer is irrevocable if it recites a purported or
nominal consideration at least if the offer is in

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writing and proposes an exchange on fair terms

within a reasonable time. (i.e.: old people
transferring land)
3. Exception: Reliance if the offeror should have
reasonably foreseen that the offeror would
induce reliance by the offeree prior to
acceptance (Drenan v. Star Pavement)
4. Restatement v. UCC.
4. lapse in time
i. norm: three months unless otherwise specified
5. death or incapacity or either party
** The general rule is that an offer is revocable unless an exception applies. Exceptions: The (i)
offer was supported by consideration (real or nominal), (ii) caused reasonably foreseeable
reliance, (iii) was a U.C.C. firm offer, or (iv) was an offer for a unilateral contract for which
performance had begun.**
Has an offer been made? Look to:
language
parties relationship
Must have clear offeree K is intended for
prior practices
industry custom
method of commerce
circumstances
NOT offers:
Mere invitation (jest)
Preliminary negotiations (solicitation of bids or statement of future intention to
contract)
o Offeree knows/should know offeror intends further manifestation of assent
(Lonergan)
Price quotations/Estimates (request for an offer)
Most advertisements are not offers.
When an auctioneer puts an item up for auction, this is not an offer.
A note is a promise to pay NOT a K.
Offer:
Official bid
b. Acceptance R50(1) acceptance of an offer is a manifestation of assent to the terms
thereof made by the offeree in a manner invited or required by the offeror.
Modes of Acceptance: (Restatement 50(2) & (3))
(2) Acceptance by performance: requires that at least party of what the offer request be
performed or tendered and includes acceptance by a performance which operates as a
return promise.
(3) Acceptance by a promise: requires that the offeree complete every act essential to the
making of the promise
Mailbox Rule:
(Lonergan)
a. Acceptances are effective when sent.
b. Offers and Revocations are effective when received.

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c. Rationale: (i) encourages contracting parties at a distance from each other by making
the offeree just as secure as if the contract were made face-to-face and (ii) creates a
contract at the earliest possible moment.
** In general, all communications except an acceptance are effective on receipt. An acceptance
is effective on dispatch**
Specific Performance as a remedydoing what was set out in contract
(Lonergan)
Equitable Remedy
Rarely granted (except in real estate cases): normally only granted when $$$ is not
an adequate remedy.
Acceptance by silence????
Ads (Izadi)
An advertisement can constitute an offer if a reasonable person would read it as such.
Traditional Rule ads mere invitation for offersdoesnt contain sufficient words of
commitment to sell
Lonergan v. Scolnick
Rule: Preliminary Negotiations do not constitute valid offers (26)
Facts: wanted to sell land. Parties correspond and the says that the must hurry because
there are other potential buyers. gives money to an escrow agent, but sells to someone
else.
Issue: Did the make an offer? No (communication was prelim negotiation)
Holding: No, because knew that the needed to make some further expression of assent. The
parties correspondence was merely preliminary negotiations.
Izadi v. Machado (Gus) Ford, Inc.
Reasonable Belief (Ad)
If a reasonable person would believe it to be an offer it is an offer
Facts: placed a misleading ad thinks that he could trade in a beat-up car for $3000 &
get a deal on a new car. This was clarified in the fine print.
Issue: did the misleading ad constitute an offer?
Holding: Despite the s intent, misleading ad constituted an offer, but this is not usually
the case. Here, the court held the ad was an offer because a reasonable person would
interpret it as one. The court wanted to hold the liable for the s bad faith.
1. Ads are typically not considered offers because they arent sufficiently
direct
2. Usually, ads are considered solicitations for offers
Normile v. Miller
Counter Offer
Facts: is selling real estate. makes an offer to with a specified time for acceptance by
"August 5 at 5:00." makes changes and sends it back. is told by a reliable third party
about the selling, you snooze you lose but tries to accept anyways.changes
constituted counter offer
Holding & Rule: did not have the power to accept the offer because the s changes to
the offer constituted a counter offer.
a. When an offeree makes a qualified acceptance or a conditioned
acceptance, it acts as a counter offer.
b. In effect, a counter offer rejects the original offer, and substitutes a new offer.
c. Mirror image Doctrine at common law, an acceptance had to be a mirror image
of the offer. Additional or different terms deemed it a qualified acceptance and
therefore did not for a contract, had the legal effect of a counter offer

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2. If an offeree receives reliable communication of revocation (or in this case, reliable

communication of the offeror acting inconsistently with the offer), the offerees power
of acceptance is lost (43)
c. Options Contract R25 An option contract is a promise which meets the requirements for
the formation of a K and limits the promisors power to revoke an offer
Function:
1. An option contract is a mini contract that holds an offer open for a specified
amount of time (limits the offerors power of revocation)
2. mini contract: the option K must be contracted for, just like any other K (req. all
components & consideration)
__________________________________________________________________________________________________
3. Offer & Acceptance in Unilateral Contracts
Unilateral contract: Offeror exchanges promise of future performance only in return for the
offerees actual rendering of the performance rather than a mere promise of future performance.
Performance = acceptance of K
Performance must be complete before the offer is accepted (old rule)
Bilateral: an offer that is to be accepted by a promise
Petterson v. Pattsberg
Traditional Rule

Rule (Traditional Rule): The offer is revocable by the offeror until the offeree
renders complete performance, i.e., the offerors duty to perform is created
when the offeree renders complete performance.
Facts: Pattberg told Petterson he would save him a certain amount of money if Petterson
paid his mortgage before a certain date. Petterson went to pay the mortgage before the
date, but Pattberg refused to accept it because he had already sold the mortgage.
Rule: The offer is revocable by the offeror until the offeree renders COMPLETE
performance (i.e. the offerors duty to perform is created when the offeree renders
complete performance)
Holding: bc Pattsberg revoked the offer before Petterson rendered complete performance
(handed over the money), the offer was revoked.
This type of harsh result (requiring complete performance) gave rise to the ameliorating
doctrine found in Restatement (Second) 45, below. (Public policy Question!)*
Today, substantial performance makes an offer irrevocable substantial performance does
not apply to preparations to perform. (seen in Cook v. Coldwell Banker)
Example: Walking across the Brooklyn Bridge example: when substantially performed
his walking across the Brooklyn Bridge, the K became an option and the lost his power to
revoke the K. Offeree can either quit or complete performance, rendering the original
unilateral. K enforceable
Cook v. Coldwell Banker
Modern (Corbin) Rule

Rule (Modern Rule): In a unilateral K, an offeror loses the power to revoke once the
offeree renders substantial performance.

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Facts: offered its employees a bonus to be paid in December. had already wellqualified for the bonus when the changed the offer to say the bonus would be paid in
March. left company at the end of the year and told that she did not qualify since
did not stay until March

Option Contract Created by Part Performance or Tender R45:

(1) 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.
(2) The offerors duty of performance under any option contract so created is conditional on
Noteworthy aspects of 45 1) offer open for reasonable time 2) preparing v. performing
NOTE: does NOT say substantial/part performance but most courts look for substantial
performance
*** On exam, use the Restatement Rule (beginning of performance), but also mention the
Coldwell Banker approach (substantial performance)
Key Points:
1. The beginning of performance (or substantial performance under Coldwell) does
not bind the offeror to perform, it merely limits the offeror from revoking the offer. The
offeror is bound to perform once the invited performance is completed. (i.e.: the offeror
just cant revoke any more BUT he doesnt have to perform on his end until the offeree has
completed their performance)
2. Restatement 45 and Coldwell are creating options.
Acceptance/Revocability Bilateral v. Unilateral Contracts
Bilateral Contract
Unilateral Contract
Modes of Acceptance
- Express promise
- Performance of the act
- Promise implied from
requested in the offer.
conduct
-In appropriate cases,
performance of an act
designated by the offeror to
signify a promise (when
offeree leads offeror to
believe silence will
constitute acceptance or
when offeror specifies that
silence will constitute
acceptance and offeree
subjectively intends silence
to constitute acceptance)
Communications of the
Offeree must communicate
Offeree does not need to
Offeror
acceptance to form a
give notice of performance
contract
to form a contract, but must
diligently try to notify offeror

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Obligation of Offeror

On acceptance, both offeree

and offeror are bound to
perform

Revocability

Being to perform before

making a required
promissory acceptance
might not constitute
reasonable reliance and
therefore be revocable

in a reasonable time after

completion of performance
to obligate the offeror
On acceptance, offeror is
bound to perform; offeree
has already completed
performance
An offeree will be protected
under the Restatement 45
(the offer is irrevocable after
the start of performance)

__________________________________________________________________________________________________
Other Methods of Reaching Mutual Assent UCC
1. The UCC Generally
a. Application
i. Applies to goods
ii. More functional (conduct-based) than the Restatement/CL How people really
work
iii. A lot more flexibility for what constitutes a valid contract (in comparison to the
Restatement)
iv. Looks to parties conduct, Firm Offer, or Battle of the Forms when looking for
formation
v. If there is a gap in the UCC, look to the Common Law
vi. Applies to both consumers AND commercial (merchant) sale of products
1. Consumer-consumer transactions
2. Consumer-merchant transactions
3. Merchant-merchant transactions
b. Terms
II.
Goods defined (UCC 2-105): all things which are movable at the time of
identification to the contract (for sale)
III.

Merchant defined (UCC 2-104): a person who deals in goods of the kind
or otherwise by his occupation holds himself out as having knowledge or skill
peculiar to the practices or goods involved in the transaction

Harlow v. Jones (UCC)

Facts: Harlow supplied Andrews steel. Forms were swapped that included different dates of
shipment. Some of the steel arrived a month late and Advance refused to pay.
Issue: Which form constituted the offer, signifying the contracts shipping dates?
Rule:
1. Establishing a Contract under the UCC
a. Conduct of both parties that recognizes the existence of a K is sufficient to
establish a K UCC 2.204
b. Indefinite terms do not preclude the formation of a contract so long as
there is
a reasonably certain basis for granting an appropriate
remedy
c. Even though the moment of its making is undetermined.
d. Even though terms are missing
e. Even though the parties writings fail to establish a K.

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2. What terms apply?

a. Those on which the parties writings DO agree
b. UCC gap fillers
3. Under the UCC, a K may exist even though all of the Ks terms are not
determined. A K doesnt fail for indefiniteness if a reasonably certain basis for
granting an appropriate remedy exists
Analysis:
1. An oral K existed before the forms were ever changed. The conduct of the parties
in ordering the steel and producing the sales confirmations were evidence of this.
The fact that certain terms (the shipping dates) were not ironed out does not make
a difference.
2. The court asserted, what could be more indicative of intent to form a contact
that
payment on one side and shipment on the other? Where the written stuff
doesnt
match up, the court will fin in the gaps.
Takeaway: Under the UCC, conduct by both parties which recognize existence of a K is
sufficient for a K

UCC Gap Fillers

Under the UCC, when contractual terms are not expressed, the default terms of gap
fillers fill the gap. UCC gap fillers are:
1. Course of performance: how parties have already (so far) acted in the course of this
dealing
2. Course of dealing: How parties have acted in prior dealings (typically)
3. Trade usage: How members of the particular industry typically act.
__________________________________________________________________________________________________
Consideration
Consideration: is the most important quality a private undertaking must have to merit
enforcement by public institutions. Aka the price of enforceability in the courts.
Matter of law, not fact.
Purpose is to show parties intended to enter into a K.
Used to refer to a bargain an exchange of promises. Today, consideration also may be
used more broadly to refer to any factor that makes a contract enforceable (justifiable
reliance on a promise)

Adequate Consideration
Forbearance/waiver of legal right (Hamer)
Relieving offeror of legal obligation (Pennsy)
Not Adequate Consideration

Motive (Love & Affection)

Nominal Consideration (but allowed in
option K)
Mere Recitation of Consideration
Gratuitous gifts
Conditioned gifts
False recitals

Past performance
Testamentary Gifts
Illusory Promises
Promissory Note
Preparation of Performance
Moral Obligations

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19

Anything un bargained for,

unsubstantial, un-exchanged, or

anything no meaningful between the

parties.

Types of Consideration:
Benefit-Detriment Test (Hamer v. Sidway)
Bargain for Exchange (Pennsy Supply)
Negotiation (Pen-o-Tex)
Types of Consideration
Benefit-Detriment Test Hamer v. Sidway

Each party is still a promisor and promisee

Rule: Consideration may consist of either some right, interest, profit, or benefit accruing
promisor, OR some forbearance, detriment, loss of responsibility given, suffered, or undertaken
promisee.

i. Facts: Uncle promised nephew money to refrain from certain vices. Nephew
refrains from those vices. Uncles dies before paying.

ii. Analysis: Because Nephew Story had a legal right to perform the vices, his
forbearance of that right in exchange for $5000 was a detriment. Nephew
suffered a legal detriment.
iii. Takeaway: B-D Test
1. Benefit for the promisor OR
2. Detriment to the promisee
3. Both are not necessary

2. Bargain-For Exchange

Restatement 71: To constitute consideration, a performance or a return

promise must be bargained for

C
Restatement 72: A performance or return promise is bargained for if it sought
by the promisor in exchange for his promise and is given by the promisee in
on
exchange for that promise
si
de
Restatement 79: If the requirement of consideration is met, there is no
ra
additional requirement of (a) a benefit to the promisor or a detriment to the
ti
promisee
on

equivalent to a bargain under this approach. A bargain is an exchange of promises, acts,

or both, in which each party views what she gives as the price of what she gets. This
bargained-for price may include not only promises and acts, but also promises to forebear
and actual forbearance from performing acts one is legally entitled to perform.

a. Reciprocal Inducement: (Pennsy Supply Inc. v. American Ash Recycling Corp. of

Pa)

** the promise induces the detriment and the detriment induces the
promise**
i. Facts: was paving driveway for school. supplied a certain waste material
as an aggregate for free. gave aggregate for free to avoid disposal costs.
Paving starts to crack and the has to fix it and dispose of the aggregate.
sues to recover the costs.

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ii. Rule: the promise must induce the detriment and the detriment must induce
the promise
iii. Notes:
1. Consideration is a matter of LAW decided on by JUDGES; NOT a matter
of FACT
2. The Tramp Example (pg. 83): Consideration vs. Conditional Gift
a. Setup
i. A philanthropist promises a tramp (homeless person) If
you go around the corner to the clothing shop there, you
may purchase an overcoat on my credit
ii. In order to obtain the coat, the tramp must walk around
the corner.
b. However, under all three tests for consideration, this probably
doesnt constitute consideration.
i. The promise of the coat is not made because the
philanthropist wants the tramp to walk around the corner
ii. This is known as a conditional gift: walking around the
corner is necessary before the promise can be received.
3. Negotiation (Pen-o-Tex Oil Corp; Newman & Snells Bank v. Hunter)
a. Rule: Consideration consists of deliberation. Analysis turns on whether
promises/performances are bargained for (negotiated) (Pen-o-Tex Oil Corp)
b. Newman & Snells Bank v. Hunter
i. Facts: Bank sued widow to enforce widows promise to pay dead husbands
debt; in exchange, Bank gave widow the promissory note of her late husband.
Bank was only liable if she voluntarily obligated herself to pay the debt.
ii. Holding: The widow was not obligated because the note was worthless, and
therefore, the bargain lacked consideration
iii. Analysis: Because the promissory note was a virtually valueless piece of
paper,
1. the widow did not suffer a detriment by surrendering it, and
2. the Bank was not benefited by receiving it
iv. Arguments:
1. Benefit-Detriment Test
a. Was the note actually valueless? Sure, it may not have meant
much to the Bank, but, didnt the widow value it?
b. The Bank had a legal right to hold on to the note, so wasnt its
surrender literally a forfeiture?
2. Bargain-For Exchange
a. The Banks performance of surrendering the note was induced
by the widows promise that she would settle her late husbands
debt. Right?
3. Negotiation
a. Bank and widow reciprocally negotiated ending in an agreement,
evidencing deliberation
v. Overall Legal realism shows that judgment for the Bank could have been
rationale under any of the above tests. The court felt that denial of recovery
was appropriate on the grounds of lack of consideration (could have been
based on other defenses in equity such as undue influence or wrongful
disclosure)

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The Function of Legal Formalities

Evidentiary Function: Provides evidence of the contracts (1)

existence AND (2) terms.

Cautionary Function: Evidence an intention to be bound. Provides a

check against hasty action

Channeling Function: Channels into court the types of cases the

court wishes to hear; and channels away from the court the types of

cases the court doesnt want to hear.

Examples of Not Consideration

1. Doughtery v. Salt
a. Facts: An aunt left a nephew a promissory note for $3000 at her death for being a
good boy. She said in the note that value had been received.
b. Issue: Is there consideration to make the promissory note enforceable?
c. Rule:
i. Mere recitation that consideration has been received is not sufficient to satisfy
consideration requirements (false recital of consideration)
ii. Motive (love, affection, etc.) is not sufficient for consideration either
iii. This was just an executory gift to be executed in the future
d. Note: A note, without more, is NOT a contract
2. Batsakis v. Demotsis
a. Facts: gave Greek $25 during WWII when was in Greece in return for a promise to
pay back $2000
b. Rule: A promise is enforceable even if the consideration is not proportionate. The courts
will not weigh each partys performance under the K. The fact that there was a
bargained-for exchange is enough. not unconscionable
c. Holding: There was a promise here, $25 in exchange for $2000 later, was not nominal
because there was a bargained-for exchange and a manifestation of mutual assent.
The poor lady valued $25 at the time she wanted to get out of the country more than
she valued the $2000 at a later, safer date.
3. Plowman v. Indian Refining Co.
a. Facts: fires , but promised to continue paying wages. Later, stopped making
payments.
b. Rule: the promise to continue payments was a gratuitous arrangement without
consideration not a binding contract. Instead, the s promise to pay was revocable
at the s will.
i. Pre-existing duty rule: something already done cannot constitute consideration
for a later promise
ii. Moral consideration does not constitute consideration where there is no legal
duty.
iii. Condition to the Gift: Because the s had to suffer the detriment of walking into
town to pick up the gifts does not suffice to serve as consideration. The act of
walking into town was a condition that had to be met before s could receive
the gift (Tramp example)

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Bargain Promises
1. General Rule Bargain Constitutes Consideration A bargain is an exchange in which
each party views his promise or performance as the price of the others promise or
performance.
a. Equal Value not Required (just not Unconscionability)
b. Exceptions Bargains that are not Considerations
1. Nominal considerations transactions that are bargains in form but not
in substance

ex: father sells daughter house for $1. Clearly neither view the house
as being $1, but rather the transaction has only the form of a bargain a
form adopted for the obvious purpose of making Fathers donative promise
legally enforceable. The purported consideration (the bargain) is not real; its
nominal.
2. Promises to surrender or forebear from asserting a legal claim that
is unreasonable
3. Apparent bargains involving an illusory promise; and
4. Bargains in which one party promises to do only what she is already
legally obliged to
do.

___________________________________________________________________________________________
_______
Pre-Acceptance Reliances

Limiting the Power to Revoke

Options Contract: 25 An option contract is a promise which meets the requirements
for the formation of a contract and limits the promisors power to revoke an offer
87(1) Requirements (1) An offer is binding as an option contract if it (a) is in
writing and signed by the offeror, recites a purported consideration for the making
of the offer, and proposes an exchange on fair terms within a reasonable time; or (b)
is made irrevocable in a statute
Promissory Estoppel: 90 Promise Reasonably Inducing Action or Forbearance
(1) A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and
(2) Which does induce such action or forbearance
(3) Is binding if injustice can be avoided only by enforcement of the promise
(4) The remedy granted for breach may be limited as justice requires
Offertory Estoppel 87(2) An offer which the offeror should reasonably expect to
induce action or forbearance of such a substantial character on part of the offeree
before acceptance and which does induce such action or forbearance is binding as an
option contract to the extent necessary to avoid injustice

1. James Baird Co. v. Gimbel Bros. Inc. (1930)

a. Facts: hears of a highway department bid and sends offer to supply linoleum to 20
contractors who are likely to be awarded the project. s offer asked for prompt
acceptance after the bid was awarded. The amount accounted for was wrong, so the bid
placed by was wrong. realized the mistake and attempts to revoke the offer before the
project is awarded to , but fails. subsequently accepts the s offer
b. arguments:

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a. Bi-lateral enforceable contract: s use of the s bid constituted acceptance

Fails: mere use of bid is not acceptance
b. Promissory Estoppel fails. Offers are not meant to be relied upon until there is
acceptance. Promises, however, can be relied upon.
c. Options Contract Fails: no evidence to show that this was agreed upon by the
parties (no consideration)
c. Notes:
a. Remember: Bids are offers capable of acceptance
b. Hand distinguishes offers and promises:
i. Offer: although an offer may contain a promise, the promise does not exist
until consideration is received (i.e. until accepted)
ii. Promise: one may rely on a promise without expecting something in return
(consideration; acceptance)
iii. Therefore, promissory estoppel applies to promises, not offers.
iv. Older view, where some cases have allowed an offeror to revoke a firm offer
notwithstanding the offerees reliance. However, most of these are older
cases and probably would not be followed today.
2. Drennan v. Star Paving Co.
a. Facts: subcontractor gave a mistakenly low estimate bid for paving services to
general contractor. The used the s bid in its own bid (to owner) and was awarded
the contract. tried to revoke the offer. (Essentially same facts as Baird)
b. Analysis:
i. No bilateral, enforceable contract
ii. 90 (promissory estoppel) does not work because the made an offer not a
promise.
iii. No consideration to support the making of an option contract.
c. Rule: Using powers of equity to combine option contracts (45) with promissory estoppel
(90) to make offertory estoppel (now 87(2))
i. Offertory Estoppel
1. An offer, reasonably expected to induce detrimental reliance from the
offeree before accepted, and
2. actually induces the offeree to rely to his detriment,
3. makes the offer binding as an option contract to the extent
necessary to : avoid injustice
d. Note:
i. James Baird (Traditional Rule) v. Drennan (Modern rule): Modern Rule won
ii. Offertory Estoppel usually is applied to only general contractors and
subcontractors situations
iii. Estoppel (Mac Def.) one party, for reasons of fairness, is forbidden by the
court to say whats true
iv. A firm offer is irrevocable if the offeror should have reasonably foreseen that the
offer would induce reliance by the offeree prior to acceptance, and such reliance
occurs.
3. Berryman v. Kmoch
a. Facts: Berryman prepared an option contract for Kmoch. Option contract stated to leave
option open for 120 days for $10 and other valuable consideration. Kmoch never paid
the $10. Berryman revoked offer by selling the land to someone else before the 120 days
were up. Kmoch had tried to line up potential investors.
b. Issue:
i. Did Kmochs preparatory work lining up potential investors suffice as
consideration to make the option contract enforceable?
ii. If no, can the successfully argue that the preparation was sufficient obtain a
remedy under promissory estoppel?
c. Holding & Analysis: No & No

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i. Consideration: Kmochs preparatory work does not constitute consideration

sufficient for the option contract (the following are not distinct reasons some
mesh together)
1. Illusory Promise: Kmochs actions were voluntary. The agreement did
not impose a legal duty on Kmoch was not inducement for Berrymans
promise. If a partys promise to perform is voluntary, the promise does
not constitute valid consideration (pg. 125)
2. Confuses motive with Consideration: Kmochs motive to sell the land to
investors once Kmoch purchased the land is not consideration. Selling
the land was Berrymans motive for entering into the K. It was not the
action that induced Kmoch to enter into the K.
ii. Promissory Estoppel: Kmochs reliance on Berrymans promise was
unreasonable. (i.e. B-man could not have reasonably foreseen that Berrymans
promise would induce Kmochs detrimental action
d. Notes:
i. Promissory estoppel: Freestanding remedy or substitute for consideration?
1. Promissory estoppel is NO LONGER a substitute for consideration
2. Promissory estoppel is now a freestanding equitable remedy
3. The difference:
a. When PE used to be a substitute for consideration; allowing to
receive the benefit of the bargain
b. Now PE only allows the promisee to regain out of pocket expenses.
___________________________________________________________________________________________
_______
Firm Offer UCC

Firm Offers ( 2-205 UCC) only between merchants.

Firm Offer
An offer by a merchant to buy or sell goods in a signed writing which 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, but in no event may such a period of
irrevocability exceed three months; but any such term of assurance on a form supplied by the
offeree must be separately signed by the offeror
1. Offer by merchant assuring that offer will be held open
2. Signed writing
a. Will be help open for that time (up to 3 months)
3. But if no time is stated
a. Will be held open for a reasonable time (up to 3 months)

Provision must be separately signed by the offeror

Applies only too options offered by merchants
Applies only to purchase/sale of goods
Opposite of common law: allows for option K without consideration

Firm offers only last up to three months! However, if there is valid consideration, it operates
the same as it does under the common law, and therefore, may be for as long as the parties
agree.

CONDITIONS THAT MUST BE MET: 1) written and signed 2) irrevocability stated 3) for the
sale of goods 4)by merchants

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UCC Definitions for Firm Offer

Merchant: (UCC 2-104) a person who deals in goods of the kind or otherwise by his
occupation holds himself out as having knowledge or skill peculiar to the practices or goods
involved in the transaction
Goods (UCC 2-105) all things which are movable at the time of identification to the
contract
Signed (UCC 1-201(39)) includes any symbol executed or adopted by a party with present
intention to authenticate a writing
Written or Writing (UCC 1-201(46)) includes printing, typewriting, or any other intentional
reduction to tangible form
Reasonable Time (UCC 1-204) (2) [If not expressly stated in the agreement,] a reasonable
time for taking action depends on the nature, purpose, and circumstances, of such action

___________________________________________________________________________________________
_______

Battle of the Forms

1. Common Law (Restatement):
a. Princess Cruises, Inc. v. General Electric Co.
i. Facts: Princess hires GE to make repairs on its ship. Battle of the forms ensues
with differences over liability of GE. GE sends last form stating no liability. GE
performs repairs and Princess pays. Repairs were made negligently
ii. Issue: Which terms apply (more specifically, does the CL or the UCC apply)
iii. Rule: Services provided the predominant thrust of the K
iv. Notes:
1. Mirror Image rule: (restatement 59) A reply to an offer that purports to
accept to terms of the offer but contains different OR additional terms, act
as a counter offer
a. Classical Rule: contracts must be identical
b. Modern Rule: Minor variance is okay (doesnt act as a counteroffer)
2. Last shot Rule:
a. The last form sent (the last shot) in a battle of the forms before
performance begins will control the K
b. The performance by a party acts as an implied acceptance
3. Mixed Contracts: UCC or CL when K is both goods and services
a. The predominate thrust or the essential element of the K
b. Suggested factors:
i. Language of the contract
ii. Nature of the business of the supplier
iii. Intrinsic worth of the materials.
2. UCC 2-207
a. Brown Machine, Inc. v. Hercules, Inc.
i. Facts:
1. Brown Machine brings an indemnity action (third-party action) against
Hercules

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2. 1975 Brown Machine sends Hercules a quote for a machine

3. Nov. 1975 Brown sends original proposal Boilerplate & includes
indemnity provision
4. Jan. 1976 Hercules sends Brown machine a written purchase order,
which: expressly limited acceptance to the terms stated in the purchase
order and did not contain the indemnity provision
5. Jan. 1976 Brown machine sends Hercules an order acknowledgement,
which contained the same terms as Brown Machines earlier original
proposal (including the indemnity provision)
6. Feb Hercules responds with a letter, advising Brown Machine that except
for a description of the machine, all other specifications are correct
7. April Brown Machine ships the machine and Hercules pays for it.
8. Later Herculess employee gets injured and sues Brown machine. Brown
Machine settle. Brown Machine brings indemnity action against Hercules
for settlement amount.
ii. Issue: Was the indemnity clause part of the contract between the two parties?
iii. Court found that:
1. The initial quote did NOT constitute an offer (it was a
proposal/solicitation/invitation) Izada
2. Herculess purchase order was the offer.
3. Brown Machines order acknowledgement constituted an acceptance, and
not a counter offer because it did not limit acceptance to its own terms
4. Brown Machines indemnity provision did not automatically become part
of the contract because of 2-207
a. Herculess offer (purchase order) limited acceptance to its terms
(2-207(2)(a)
b. Brown Machines indemnification provision constituted a material
alteration (2-207(2)(b))
5. Notes:
a. Quotes are not offers. They are proposals or solicitations of offers,
except for in rare circumstances where they are very detailed.

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b. For the purposes of UCC 2-207, silence does not constitute

consent.

How to Answer a Battle of the Forms UCC Questions

Section (1)
1. Determine who made the offer
2. Does the offeree respond with
a. A definite and seasonable expression of acceptance OR
b. a written confirmation sent with a reasonable time?

Reasonable time: depends on the nature, purpose, and circumstances of such action UCC 1-205(2)
Seasonably: action taken at or with the time agreed or it no time is agreed at or within a reasonable time UCC 1-205(3)
Written or writing: includes printing, typewriting, or any other intentional reduction to tangible form. UCC 1-202(46)

3. If yes, then 2-207 is invoked, and the offerees response acts as an acceptance, even if there
are different or additional terms than those in the offerors offer UNLESS:
a. However, if the offerees response conditions assent on the different/additional
terms, then there is no acceptance; instead there is a counter offer.
Section (2)
1. If the parties are not both merchants, then common law
a. Additional terms act as proposals (which must be expressly accepted)
b. Different terms
i. Are treated as additional terms
ii. Are disregarded, and instead the offerors terms are used OR
iii. Knock out Rule the different terms knock each other out, and the court
fills in the terms using gap fillers **majority rule**
2. If the parties are both merchants, then
a. Additional terms become part of the K (w/o express acceptance), UNLESS:
i. The offeror expressly limits acceptance to the terms of the offer;
ii. The additional terms materially alter the contract; OR
iii. The offeror objected to the additional terms or objects within a reasonable time
after receiving notice of the terms
b. Different terms: **
i. Are treated as additional terms If not expressly limited acceptance, dont
materially alter, and offeror doesnt give notice of objection (or w/I reasonable
time)
ii. Are disregarded, and instead, the offerors terms are used OR
iii. Knock out Rule the different terms knock each other out, and the court
fills in the terms using gap fillers **majority rule**
Section (3)
1. The conduct of both parties that recognizes the existence of a K is sufficient to establish a K,
even though the parties writings are insufficient to establish a K.
2. If this happens, the terms the court will use are those
a. On which the parties agree on in their writing
b. UCC Gap Fillers and Default Terms

** The UCC 2-207(2) does not provide any additional guidance about the effect of
different terms. Courts have struggled with it and three broad terms have emerged

When the writing of the parties is silent, the court may use:
1. Default rules
a. 2-305: open price term (see note 3 on pg175)
2. Gap Fillers
a. Course of performance

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b. Course of dealing
c. Trade usage (Course of Trade)
___________________________________________________________________________________________
_______

Incomplete Bargains: Intention to be Bound

1. Generally
a. Where parties appear to have completed their bargaining to reach an agreement, but
the agreement ends up being incomplete. Matters are postponed for future agreement.
b. Two types:
i. Agreement to Agree: The C/L says if anything is left for future agreement, there
is no K. But the UCC provides exceptions (e.g., UCC 2-305)
ii. Formal Contract Contemplated: Courts are more flexible in making these
enforceable (e.g., letters of intent)

2. Walker v. Keith Agreement to Agree

a. Facts: Lease contained option contract to renew, with rent to be determined later.
b. Issue: Was the price provision, which allowed the parties to agree to price later, so
indefinite and uncertain that the parties could not have agreed?
c. General Rule (common law): Contracts where the parties fail to agree on a specific
price (or method of calculating a specific price) are unenforceable for uncertainty and
indefiniteness.
d. Analysis:
1. Terms of a contract typically have to be definite and certain so that courts:
a. Can determine if a breach has occurred
b. Can determine what remedy to provide
e. Notes
i. Remember the UCC doesnt require a price provision (UCC 2-305), so long as
parties intended to agree.

3. Quake Construction, Inc. v. American Airlines, Inc. Letters of Intent

a. Facts: Quake submitted a bid to Jones for construction work. Jones orally notifies
Quake that has been awarded the bid. Jones does not give a written K, but sends a
letter of intent (LOI) to Quake to get subcontractors. LOI contained a cancellation
clause, reserving the right to cancel the LOI. Jones subsequently revoked the offer.
b. Issue: Whether Joness LOI is enforceable even though it contained a cancellation
clause.
c. Rule: LOIs are binding if parties (objectively) intend to be bound by them.
d. Method
i. First look to the writings to tell if the parties intended to agree.
ii. If writings are ambiguous as to party intent, look to "parol evidence" to
determine parties intent.

Parol Evidence- extrinsic evidence (written or oral) of agreements or negotiations

between the parties not included in the K.
e. Analysis:
i. On its face, the letter looks unambiguous because of the cancellation clause. It
becomes ambiguous because of the actions of Jones in telling Quake and others
that Quake got the K.
ii. The fact that a LOI says its nonbinding is not dispositive, it is merely evidence of
intent.

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iii. Letter referred several times to the execution of a formal contract by the parties,
thus indicating the parties intent not to be bound by the letter.
f. Takeaway: An agreement contemplating the execution of a formal K may be
contractually binding if the parties so intend. This intention is a question of fact.
g. Notes
i. The rule that parties may be bound contractually even though they contemplate
further negotiations is accepted by both the UCC ( 2-204(3)) and the
Restatement (27).
___________________________________________________________________________________________
_______
Electronic Contracting

1. Three Types of Electronic Contracting Terms:

a. Shrinkwrap: Purchaser placed an order either by phone or mail without discussion of
the specific terms of the transaction (except perhaps price and delivery date). The
sellers terms are placed inside the box and sent to the purchaser. Purchaser only sees
the terms when the wrapper is removed. Usually, the purchaser is deemed to have
accepted by retaining the goods beyond a specified period. The offer occurs not when
the purchaser places the order but when the seller ships the merchandise. Acceptance
occurs after the purchaser fails to return within the time allotted in the terms.
b. Clickwrap: Purchaser make a purchase online and clicks the I agree button to show
assent to the Sellers terms. Difficult to argue that they have not agreed because the
terms are available for review, and require mandatory assent, before purchase. The
agreement is signified by an affirmative act rather than a passive act like in Shrinkwrap
cases.
c. Browsewrap: This type is different from the previous two because usually no purchase
is made. A user is browsing a site for information and the website provider wants to
protect itself by imposing terms of use. It does so by including the terms of use
somewhere on the website and indicating that by using the website, user agrees to
those terms.

2. Brower v. Gateway 2000, Inc.

a. Brower purchased Gateway computer. Computer came with shrinkwrap terms, which
contained an arbitration clause requiring arbitration in Chicago, Illinois, and
correspondence in Paris, France. Brower had problems with computer. Gateway seeks
to have the case arbitrated.
b. Issue: Whether Brower is bound by the arbitration clause since he did not return the
computer within the time specified by the shrinkwrap terms.
c. Browers three arguments for unenforceability:

i. 2-207: Fails because the court doesnt believe that there was a material
alteration (an additional term) of an oral K. The offer was the shipment of the
merchandise, and the acceptance was keeping the merchandise for more than
30 days. Note: the order and payment did not constitute a K. Instead, an
enforceable K was formed only with the consumers decision to retain the
merchandise beyond the 30-day period specified in the agreement.
ii. Adhesion: Fails because
1. Could've made the purchase elsewhere
2. Could have returned the goods
3. Is not in a take-it-or-leave-it position

Adhesion Contract Defined

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Definition: A standard-form contract to be prepared by one party, to be signed by another

party that is in a weaker position (who has less "bargaining power"). Think "Take it or Leave It"
Contract
Adhesion Contracts are still enforceable, but invite judicial scrutiny. (may be unenforceable
under duress, Unconscionability, fraud, etc.)
iii. Unconscionability: Ultimately, champions the day. The court found the
expense of traveling to ICC for arbitration unconscionable, and therefore,
unenforceable. However, it's more important to know why the other two
arguments failed. We cover Unconscionability later.

"Blue Pencil":
To edit or change a contract that the court finds unconscionable or unenforceable

___________________________________________________________________________________________
_______

Promissory Estoppel and Restitution

1. Generally
a. These equitable remedies are available even if there is no contract. (therefore, these
remedies are outside or beyond the laws of contract)
b. This chapter is about doctrines rooted in equity.
2. Fullers Three Bases for Enforceability
a. Private Autonomy Contract (not in equity)
i. negotiated exchange arrived at through offer and acceptance and consideration.
ii. The law views private individuals as possessing power to affect, within certain
limits, changes in their legal relations. (Private agreement Classical Contract
Law).
iii. Least urgent need for remedy only have to prove one party did not perform.

iv. Remedy: Benefit of the bargain (Aristotle's distributive justice)

b. Reliance Promissory Estoppel (equitable)

i. The breach of a promise might detriment to one who has changed his position in
reliance on the expectation that the promise would be fulfilled. (enforcing a
promise not supported by considerationso not a contract)

ii. Remedy (Equitable Rights): Avoid injustice. Put back in position before promise
occurred (Aristotle's "corrective justice"). Generally limited to out-of-pocket
expenses. The wording of 90 and the fact that it is an equitable remedy gives
court considerable flexibility.
c. Unjust Enrichment Restitution (equitable)
i. Where a promise is breached and one party is enriched at the expense of the
other party. The promisor gets and retains a benefit unjustly. The two parties
have not entered into an enforceable agreement.

ii. Remedy: Quantum meruit; Restitution (Aristotle's corrective justice)

iii. Most urgent b/c of double wrong:
1. unjust detriment to party in reliance; and
2. unjust enrichment of the other party.

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Also known as a windfall

___________________________________________________________________________________________
_______

Promissory Estoppel
1. Generally
a. Restatement 90 - (1) a promise which the promisor should reasonably expect to
induce action or forbearance on the part of the promisee or a third person and which does
include such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted for breach may be limited as justice
requires.

b. Element:
i.
promise is made
ii.
promisor should have reasonably expected the promise to induce action or
forbearance by the promisee (foreseeable)
iii.
Promise induces justifiable action or forbearance by the promisee (reasonable)
iv.
Promise is binding if injustice can be avoided only by its enforcement
2. Use Modern promissory estoppel
a) Reliance
a. No longer needs to be substantial or detrimental must be REASONABLE (on
the part of the promisee) and FORESEEABLE (on the part of the promisor.
b) Remedy out of pocket expenses: put the promisee back in the position party would have
been in if promise was never made.

d. Protection of promise reliance. Here, we are no longer concerned with a bargained-for

exchange. Sometimes an undertaking, even though not an enforceable contract, may
still be enforceable in equity.

Estoppel Defined: one party is prohibited from telling the truth because of fairness and
equity.

Remember the difference between a conditioned promise and consideration for an offer:
conditional promise: if breached, recovery is promissory estoppel and you are limited to
equitable remedies only out-of-pocket expenses.
promise supported by consideration: the promise becomes binding in contract and the
remedy is a legal remedy non-breaching party gets the benefit of the bargain.

Condition Defined (Rest. 224): an event, not certain to occur, which must occur, unless its
non-occurrence is excused, before performance under a contract becomes due.

3. Kirksey v. Kirksey (1845)

a. Mans brother passed away so he invited his brothers widow to come live with him.
Man encouraged widow to leave her home and come live on his land. Widow did so
and he subsequently kicked her out.
b. Issue: Does the widow's detrimental reliance provide sufficient consideration to form a
contract?

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c. Ruling: No. Man wins because the promise was unenforceable due to a lack of
consideration.
d. Notes
i. Promissory Estoppel as a substitute for consideration
1. The dissent proposes that reliance should be a substitute for consideration
to support the promise and therefore create an enforceable contract.
2. THIS IS NOT WHAT PROMISSORY ESTOPPEL DOES TODAY.
a. Reliance is not seen as a substitute for consideration (thus creating
K rights)
b. TODAY: reliance (P/E) is a freestanding doctrine of equity: remedy is
typically out-of-pocket expense.
3. This case was decided BEFORE P/E was available.

4. Greiner v. Greiner (1930)

a. Mom's husband died and did not provide for sons in will. Mom wanted to provide for
her son, the defendant. Mom promised Defendant-son a plot of land and to move a
house on it. Mom also promised a deed. Son moved from where he currently lived to
the house. Mom never gave deed and then later sought to eject son from the property.
b. Issue: Should Moms promise to hand over the deed to her son be enforced?
c. Yes, because
** SWAPS
i. The promisees reliance was reasonable and foreseeable.
CONSIDERATION FOR
ii. injustice can only be avoided by enforcement of the
RELIANCE**
promise.
Traditional Approach
d. Note: This case comes AFTER the enactment of 90.

Charitable Subscriptions Defined: an oral or written promise to do certain acts or to give real
or personal property to a charity for a charitable purpose

McWilliams: a promise not supported by consideration

Usually, a promise to make a gift is not enforceable unless it is supported by consideration

so when we talk about 90 we are talking about an exception to this rule based in equity.

1. King v. Trustees of Boston College.

a. MLK deposited some of his papers with the bailee, Boston University. MLK said in a
letter that the papers are to remain his legal property. However each year MLK
would apportion some papers to become the absolute property of BU. At his death
all deposited papers would become the absolute property of BU.

Bailment Defined: established by delivery of personality for some particular purpose, or

on mere deposit, upon a contract, express or implied, that after the purpose has been
fulfilled it shall be redelivered to the person who delivered it, or otherwise dealt with
according to his directions or kept until he reclaims it. (p. 232)

Bailee is held to a standard of "scrupulous care."

b. Issue: Was there a promise by MLK to transfer title to his papers to BU, and if so,
was that promise supported by consideration (contract) or reliance (90)?
c. Holding:
i. No K because jury found that there was no K. 1

1AlthoughthecourtfoundthatthejurycouldhavefoundthatBUprovidedconsiderationbyactingbeyondtheobligationsofa
baileesdutyofscrupulouscare.

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ii. Evidence to show that BU went beyond bailee duties, which constituted
reliance (or consideration, see footnote 1)
d. Rule: In Massachusetts, consideration is required to bind a promise to make a
charitable subscription. (For Exam: Restatement 90(2) does not require
consideration for charitable subscriptions!!!!)
e. Analysis
i. The court first considered whether Dr. King made a promise to BU: The court
determined that two sentences about intent to transfer title through
subsequent installments and ownership at death could be construed as
promises.
ii. Then, the court decided the promise was supported by reliance (or
consideration).
iii. The fact that the library went well beyond its bailment obligations could
constitute reliance or possibly consideration.
f. Misc.
i. When one party is a charity, normal rules get diluted on account of public
policy.
ii. Home Cooking: State judges will tend to reach conclusions that are
favorable to their home states
2. Katz v. Danny Dare, Inc.
a. Company wanted Katz to retire. Initially, Katz did not want to. Later, Company offered a
large pension so Katz agreed. Company testified that Katz would have been fired if he
did not accepted pension. Company stopped paying.
b. Issue: Does P/E make the pension plan enforceable?
c. Holding: Yes.
i. This court held that the trial court misapplied the law when it held that Katz was
required to show that he gave up something to which he was legally entitled before he
could enforce the promise of a pension plan. (Not legally entitled to job = at-will
employee)
ii. The test is NOT whether he gave up something to which he is legally entitled but
whether there was a promise made upon which Katz detrimentally relied.
iii. Reliance need not be equivalent to consideration. (This is not the Plowman
case.)

Employment At-Will Doctrine: Notwithstanding a contract stating otherwise, an employee

or employer may terminate employment at any time, for any reason, or for no reason.

___________________________________________________________________________________________
_______

Restitution
1. Generally
a. Also known as: implied-in-law contact, quasi-contract, quantum meruit, unjust
enrichment, constructive contract.
b. Note: the remedy for this equitable doctrine is usually referred to as quantum meruit
c. Purpose: to prevent one side from receiving a windfall
d. Based on unjust enrichment partys performance (detriment) unjustly confers a
benefit to another party. If the benefited part retains the benefit, the party is unjustly
enriched
e. Fuller:
i. Restitution is the most urgent case for a remedy. DOUBLE WRONG.

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ii. Restitution can operate without consent, without promise, and even, in some
circumstances, without consent/will of benefitted party.

Implied-in-fact Contracts
o If the promise of the parties inferred from their acts or conducts, or from words that
are not explicitly words of agreement, the contract is said to be implied in fact.
Although implied, such contracts are true contracts. The mutual assent is inferred,
but it is real, not fictional.
Ex: Auctioneer knocks price for vase down to $190. Bidder raises hand.
Auctioneer knocks down gavel. Auctioneer and bidder have an implied-in-fact
contract.
o A type of enforceable contract.
o Inferred in part from parties conduct, not just their words.
o Has contract remedies
o No express promise found, but if court finds that the parties intended to contract
with each other, it will imply facts sufficient to create a contract.
o The facts of the case can only be explained by finding a contract between parties.

VS.

Implied-in-law
o Where one party is required to compensate another for a benefit conferred in order
to avoid unjust enrichment, rather than because there has been an actual or
implied-in-fact promise to pay for the benefit.
Ex: doctor sees pedestrian laying in the street unconscious and renders
medical services. When Pedestrian recovers, Doctor bills Pedestrian.
o Not real contract
o Basis is unjust enrichment, not assent. can lead to restitution
2. Credit Bureau Enterprises, Inc. v. Pelo.
a. Pelo was committed to a hospital after threat of suicide. Pelo objected, but still
received, treatment/medicine. Magistrate subsequently ordered his release.
b. Issue: Should a Pelo who was involuntarily committed to Credit Bureaus hospital have
to pay Credit Bureau for medical services received?
c. Holding: Yes.
d. Rule:
Restatement of Restitution 116:
A person who has supplied things or services to another, although
acting without the other's knowledge or consent, is entitled to restitution
therefor from the other if

(a) he acted unofficiously AND with intent to charge therefor, AND

(b) the thing or services were necessary to prevent the other from
suffering serious bodily harm or pain, AND
(c) the person supplying them had no reason to know that the other
would not consent to receiving them, if mentally competent; AND
(d) it was impossible for the other to give consent OR, because of
extreme youth or mental impairment, the other's consent would
have been immaterial.

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Officiousness Defined: interference in the affairs of others not justified by the

circumstances under which the interference takes place. (Restatement of Restitution 2
cmt. a.)

Ex. Violinist plays music outside your window and asks you to pay for the benefit you
enjoyed (p. 266).

e. Notes
i. Contracts implied in law are not legitimate contracts, and therefore, contract law
does not apply to them. but restitution could?
ii. Restitution does not necessarily require: consent, promise, willingness
iii. Judge Posner: Restitution promotes economic efficiency. The rescuer does what
the injured person would have asked for if the injured person had been able to
ask.
iv. Remedy: reasonable value = market value (almost every time)

3. Commerce Partnership v. Equity Contracting Co.

a. Facts: Commerce Pship contracted with a general contractor to provide improvements
to property. Equity was a subcontractor hired by the general contractor. Equity
completely performed its duties under the contract, but because the general
contractor filed for bankruptcy, Equity was never paid. Equity brought suit against
Commerce Pship, seeking payment owed to Equity by general contractor.
b. Issue: Can a subcontractor recover from an owner in restitution for payment owed by a
bankrupt general contractor?
c. Holding: Yes. p. 271 Note 1.
d. Rule: Equity can recover from the Commerce Pship if Equity can prove that the
Commerce Pship unjustly enriched itself by not paying consideration to the general
contractorthis would be element 4, below.
4. Elements of a quasi-contract

has conferred a benefit on the ;

has knowledge of the benefit;

accepted or retained the benefit conferred; and

the circumstances are such that it would be inequitable for the to retain the benefit
without paying fair values for it.
5. Watts v. Watts (1987)
a. Quasi-wife was persuaded by her quasi-husband to quit her job and move in with him.
The two began living a marriage-like relationship. Quasi-wife performed many
services as a wife and opened a business with quasi-husbands sister. The two
subsequently split and quasi-husband barred her from the business.
b. Issue: Can quasi-wife bring a suit for property division based on restitution if the parties
were never married?
c. Holding: Yes.
d. Rule:
i. Division of Contract by Parties
1. Quasi-wife can win on restitution argument only if sexual relations were
not the sole consideration of the parties contract.
2. Here, the conduct of the parties demonstrated that the parties intended to
share the assets equally: by creating joint bank accounts, making joint
purchases, filing joint income tax returns, and listing themselves as
husband and wife on legal documents.
ii. Unjust Enrichment
1. Court cites 3-part test, which is substantively similar to 4 elements,
above.

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2. Out of fairness, court creates a new rule: unmarried cohabitants may

make restitution claims where one of the partners attempts to retain an
unreasonable amount of property acquired through the efforts of both.
e. Meretricious defined: involving an unlawful sexual connect sexy contracts
___________________________________________________________________________________________
_______

Promissory Restitution

1. Generally,
a) Promissory Restitution is a doctrine that applies to promises made after performance:
receiving a benefit promising to pay for it later (no bargained-for exchange)
a. Liability in the absence of bargain-for exchange. Youre held liable for a breach even
though there is no consideration. Plaintiff can get remedies without a contract
because theyve detrimentally relied on the defendant. Reliance must be
foreseeable and reasonable.
b) Exceptions to the Plowman Case (Past consideration/Pre-existing duty rule)
c) Material Benefit Rule Restatement 86: Promise for a Benefit Received

(1) A promise made in recognition of a benefit previously received by the

promisor from the promisee is binding to the extent necessary to prevent injustice.

(2) A promise is not binding under Subsection (1)

(a) if the promisee conferred the benefit as a gift or for other reasons
the promisor has not been unjustly enriched; or

(b) to the extent that its value is disproportionate to the benefit

2. Mills v. Wyman (1825).

a. Wymans 25-year-old son was on a return voyage from sea and suddenly became sick
and poor. Mills gave boarding and nursing to the son to help him recover. Wyman
wrote a letter after all expenses had been incurred and promised to pay Mills for such
expenses in taking care of his son.
b. Issue: Is the promise by the father to pay for the benefits received by the son binding?
c. Holding: No.
d. Rule: Moral obligations, without adequate consideration, cannot bind a party to a
promise made after another partys performance.
i. This was a gratuitous act, not a promise, by Mills. Remember it was not Wyman
who received the benefit or accepted it.
e. Note: Express promises to perform preexisting obligations (which are now inoperable)
can be revived; for example: debts barred by the statute of limitations, debts incurred
by infants, debts of bankrupts. 2 (Bottom of p. 288)
2. Webb v. McGowin (1935)
a. Webb fell out of a building to avoid dropping block on McGowin and seriously injuring
him. Webb was seriously injured in the process. McGowin promised to pay Webb a
stipend and did until he died.
b. Issue: Did Webbs act of saving McGowins life provide adequate consideration to make
the promise enforceable?
c. Rule: A moral obligation is sufficient if the defendant received a material benefit.
Saving anothers life constitutes a material benefit (wages, etc.). Defendants
subsequent promise to pay for the benefit implies that he requested it to begin with.

___________________________________________________________________________________________
_______

2Restatement82(2),83,and85,respectively

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Statute of Frauds Restatement

1. Generally
a. The Statute of Frauds (SOF) prohibits the enforcement of certain contracts that are not
in writing, notwithstanding exceptions.
i. Memorialized in writing by the party to be charged
ii. In short, a contact is within the Statute it is unenforceable against a party who
has not signed a written memorandum containing the contracts material terms,
unless some exception takes the contract out of the statute of frauds, in which
the case is enforceable.
b. Purpose:
i. to prevent fraud and perjury by persons who might falsely claim that the K was
made, when it was not. Its about equity and justice
ii. The SOF is more of a judicial channeling tool than a doctrine of uniform results,
so it is flexible
c. Fullers formalities functions fulfilled: ALL evidentiary, channeling, cautionary
d. Key issues for courts:
i. Did the parties intend to be bound?
ii. If they did, the court will try to find a way to get around the SOF
e. Its use in Courts
i. SOF is an affirmative defense against contract enforcement that must assert
ii. If satisfies the SOF, it doesnt mean the wins, it just means that the case
doesnt get dismissed.

Analyze a SOF case

1. Does the contract fall within the SOF? (McWilliams only hold us responsible for
knowing Restatement 110(d) and 110 (e)
2. Is there a writing?
3. Is it signed by the party to be charged/the party against whom
enforcement is sought (the )?
4. Is the writing sufficient?
a. Reasonably identifies the subject matter
b. Sufficiently indicates that a K entered between the parties or offered by the
signer () to the other party
c. States essential terms of unperformed promises with reasonable certainty
5. If not, is there an exception of substitution that would make the contract
enforceable? (e.g. Promissory estoppel, restitution)

The writing must specify with reasonable certainty:

1. The contracts subject matter
2. Parties Identities
3. Promises, by whom and to whom, and essential terms and condtions
4. Signature of the party to be charge
Mnemonic: SIPS (Subject, Identities, Promises, Signatures)
** UCC SOF the only essential terms is quantity
1. Does the Contracts fall within the SOF (must be memorialized by writing):
iii. Contracts for the sale of interest in land (lease too)

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Contracts for the sale of goods $500 or more

Contractions in considerations of marriage
Suretyship contracts
Contracts that cannot be performed within one year of making (aka
take over a year)
1. Begins the day the contract is made
2. Statute is not applicable if performance within one year is possible
although unlikely
a. If it is humanly possible to perform the K in 1 year, it is outside the
scope of SOF. courts typically will only say that an agreement
falls within the SOF id performance is literally impossible within 1
year.
2. Is there writing?
Several writing ( 132): multiple writings that clearly indicate that they relate to the
same transaction are all considered a single writing or a single memorandum so
long as one of the writings is signed.
Written or writing includes printing, typewriting or any other intentional reduction
to tangible form

3. Is the writing signed by the Defendant? ( 134)

- Signature: any symbol [or marking] made or adopted with an intention, actual or
apparent, to authenticate the writing as that of the signer.
-Signatures could include: email, fax heading, business card, letterhead,etc.

4. Is the writing sufficient?

The writing muse:

- Reasonably identifies the subject matter of the contract
- Sufficiently indicates that a contract was made between the parties or offered by the
signer (the ) to the other party (the ) and
- States with reasonable certainty the essential terms of the unperformed promises in
the contract.
5. If the answer is no to any of these questions, is there an applicable exception?
(129, 139, restitution)
- 129 Specific performance for contracts regarding interests of land: What this
means is that a court will give the interest in land over to another party instead of just
being monetary value of that interest in land.
Policy: Because each particular interest in land is unique, courts are willing to allow
a righteous party to benefit from that land
- 139 Promissory Estoppel: Essentially makes it clear that promissory estoppel is not
eliminated by the SOF (in other words, a party can prevail under the doctrine of PE
even if there is no signed writing) justifiable reasonable reliance

- Restitution:

-Remember that it is valid, even though its not specifically laid out in the
Restatement
-McWilliams: restitution is not about enforcing a K, it is about preventing unjust
enrichment

1.
Crabtree v. Elizabeth Arden Sales Corp (signed, sufficient writing)
a. Crabtree entered into negotiations with Elizabeth Arden about employment. Different pay
levels would take place over 2 years. Multiple signed writings. One unsigned
iv.
v.
vi.
vii.

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memorandum had the term of years of the contract. The other signed writings only had
pay increases.
b. Issue: Can an unsigned memorandum stating the duration of employment be read
together with another signed writing to satisfy the SOF?
c. Rule: Yes. The writing requirement may be met by several documents both signed and
unsigned and their relationships may be established by oral (parole) testimony.
d. Analysis
i. Is the purported contract within the SOF?
1. Yes, b/c it would take more than 1 year to fully complete performance. Crabtree
claims this contract is 2 years of employment.
ii. Is there a sufficient writing signed by the party to be charged? Issue in this case
1. Writing: We have a memo written on a telephone message pad and 2 payroll cards.
2. Signed by : Arden signed the payroll checks.
3. Sufficient: Alone, these writings are not satisfactory, but taken together, they satisfy
the requirements of 131(a)-(c)
e. Notes
i. Parol Evidence may be presented to support the connection between the memos.
ii. If this were flipped around and Arden was trying to enforce the contract, would it be
enforceable?
1. No, because Arden signed the documents, not Crabtree

2. Alaska Democratic Party v. Rice (SOF does not eliminate PE/ PE as an exception to SOF)
a. The Party promised the Rice a job. With no formal agreement, The Party promised Rice
a 2-year contract. Rice quit her job in MD and moved to AL. The Party revoked the
promise.
b. Issue: Can the promise be enforced even though it did not satisfy the SOF?
c. Analysis
i. Within SOF? The contract was for at least 2 years, so it would be impossible to
complete within 1 year of the making of the contract.
ii. Sufficient, signed writing? No.
iii. Exception or Substitute?
1. Rice must resort to one of the exceptions.
2. Rice uses 139 (is extremely similar to 90): It provides an appropriate
balance between the competing considerations supporting strict
enforcement of the Statute on one hand, and prevention of a miscarriage
of justice, on the other. (p. 325)
iv. Despite failure to comply with SOF, Rice prevails because she showed there was
no other remedy available, and that The Party should have foreseen reliance,
there was reasonable reliance, and injustice could only be avoided by
enforcement of s promise. (Courts factors for injustice avoidance on p. 326).
d. Notes:
i. Promise is only enforceable were Injustice can be avoided by enforcement of the
promisep326
ii. PE isnt a substitute for consideration, it is a free standing remedy based in
equity.
iii. Contract damages are distributive giving someone something they didnt have
before
iv. PE is corrective justice. giving something back that someone lost

Statute of Frauds UCC

UCC 2-201(1)

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A contract for the sale of goods for the price of $500 or more is not enforceable by
way of action or defense unless there is some writing sufficient to indicate that a contract
for sale has been made between the parties and signed by the party to be charged (or his
agent). A writing is not insufficient because it omits or incorrectly states a term agreed
upon but the contract is not enforceable under this paragraph beyond the quantity of
goods shown in such writing.

UCC 2-201(1): A purported K satisfies the SOF if, if

a. K is for the price of $500 or more.
b. There is a writing that sufficiently indicates that a K has been made btw the parties
c. Writing is signed by the party to be charged (the Defendant or his agent)
d. Includes a quantity, and

UCC 2-201(2): Merchants Exception

Between merchants if within a reasonable time a writing in confirmation of the

contract and sufficient against the sender is received and the party receiving it has reason
to know its contents, it satisfies the requirements of subsection (1) against such party
unless written notice of objection to its contents is given within 10 days after it is received.

SOF is satisfied if
a. both parties are "merchants"
b. a writing in confirmation of the contract is sent within a reasonable time
c. the writing is sufficient against the sender
d. writing is received by someone who has reason to know its contents
Unless: written notice of objection is given within 10 days of receiving the writing

UCC 2-201(3): Three More Exceptions

(3) A contract which does not satisfy the requirements of subsection (1) but which is
valid in other respects is enforceable
a. Specially manufactured, not suitable for others, substantial beginning of
manufacture before repudiation received; or
b. Party to be charged admits in court or pleading enforceable up to quantity
admitted; or
c. Part performance with respect to goods for which payment has been made and
accepted or which have been received and accepted

a. a. specially manufactured goods, of which could not be sold to another.

b. b. if Defendant admits that a K exists, the statute of frauds is satisfied. (even if by
accident)
c. c. If payment has been made and accepted or the goods have been received
and accepted.

___________________________________________________________________________________________
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Principles of Interpretation

The Parol Evidence Rule: When a writing is intended by the parties to be the
final and complete expression of the agreement of the parties (a complete
integration), then prior or contemporaneous evidence that is extrinsic to the K
(parol evidence), will not be admissible.
Interpretation: the process by which a court gives meaning to contractual
language when the parties attach materially different meaning to the language.
Construction: judicial role in determining the legal effect of that language.
Sometimes the terms interpretation includes a word construction
Integration:
Complete integration: a writing that is intended to be final and exclusive
expression of the agreement of the parties (p388)
Partial Integration: a writing intended to be final but not complete because
it deals with some but not all aspects of a transaction between parties (p388)

For the problems with interpretation

The 1st step is to determine whether the writing is intended to be a final expression of the
parties agreement and, if so, whether it is a complete or partial statement of the
contracts terms.
Three Approaches:
1. Subjective: If the meaning of a writing was ambiguous, then there was no meeting
of the minds.
2. Objective: (Williston plain meaning rule or four corners approach): courts
should not give writing the meaning the parties intended, but instead, interpret in
accordance with the standard of a reasonable person familiar with the
circumstances.
3. Modified objective: (Corbin Restatement 201(2)):
a. If the parties attach the same meaning to a provision, THEN that meaning
will govern
b. If the parties attach different meanings to a provision, and one party knew
or had reason to know of the meaning attached by the second party, and the
second party did not know or have reason to know of the meaning attached
by the first partyTHEN the second partys meaning governs.
c. If the parties attach different meanings to a material term of the contract,
and at the time the K was made, neither party knew or had reason to know of
the other partys meaning, THEN no contract exists because of absence of
mutual assent.
Note: The Modified Objective Approach is the rule found in the Restatement. This is the
common law on the exam. But MacDaddy wants you to know the Four Corners Approach.
oyner v. Adams
a. Dispute arising over when a price-escalation provision began. The two parties had
differing opinions of what it meant to develop land (whether or not that meant
actually constructing the buildings or just preparing the land for the construction)

1.
J

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b.
c.

d.

e.

42

(ambiguity). Joyner filed this suit seeking the escalated rent because Adams had
failed to construct buildings.
Issue: What did develop mean in the contract, and whose construction of the word
should control?
Holding: When parties disagree about the meaning of a provision, if the court finds
that:
i. one party knew (or had reason to know) the 2nd partys meaning, and
ii. if the 2nd party did not know (and did not have reason to know) the 1st partys
meaning,
iii. THEN the court should enforce the meaning as understood by the innocent
party (here, the 2nd party)
Ruling:
i. The Court reversed and remanded the trial courts judgment awarding plaintiff
based on the rule that ambiguity in contract terms must be drafted against the
party who drafted the contract.
ii. Although this rule is still used, these parties were at arms length and were
equally sophisticated. (this rule is usually used in adhesion Ks or other similar
Ks)
iii. The Court reverses and remands for findings of fact as to whether either party
know or had reason to know of the other partys meaning.
Notes:
i. Trade usage seemed to have decided this case. Each had a different idea of what
develop meant.
1. The had no idea that the term meant something other than what was
common trade usage, but the plaintiff did

Adhesion Contract Defined: No agreed-upon definition.

General characteristics of Adhesion K:
Use standard-form documents
Take-it-or-leave-it basis
Only one party drafted the form
The drafting party participates in the numerous transaction of the type
The adhering party enters into few transactions of the type (at least, in comparison)
The adhering partys principal obligation is to pay the drafting party money.

Rules of Aid of Interpretation: Rest. (2d) 202

a. Words and other conduct are interpreted in the light of all the circumstances, and if
the principal purpose of the parties is ascertainable it is given great weight.
b. Writing is interpreted as a whole, and all writings that are part of the same
transaction are interpreted together.
c. Unless a different intention is manifested,
i. Where language has a generally prevailing meaning it is interpreted in
accordance with that meaning; (retains objective theory where parties agree)
ii. Technical terms and words of art are given their technical meaning when
used in a transaction within their technical field.
d. Where an agreement involved repeated occasions for performance by either party
with knowledge of the nature of the performance and opportunity for objection to it
by the other, any course of performance accepted or acquiesced in without
objection is given great weight in interpretation of the agreement.
e. Whenever reasonable, the manifestations of intention of the parties to a promise or
agreement are interpreted as consistent with each other and with an relevant
course of performance, course of dealing, or usage of trade.

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Standards of Preference in Interpretation: Rest. (2d) 203

1. an interpretation which gives a reasonable, lawful, and effective meaning to all the terms
is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no
effect.
2. Express terms are given greater weight than course of performance, course of dealing,
and usage of trade, course of performance is given greater weight than course of dealing
or usage of trade, and course of dealing is given greater weight than usage of trade.
3.
Hierarchy: Express terms Course of Performance Course of dealing Usage of
Trade

** Last three are gap fillers**

Course of performance how parties have already acted in the course of this dealing
Course of dealing how parties have acted in prior dealings
Usage of trade - how members of the particular industry typically act.

Specific terms and exact terms are given greater weight than general language;
4. Separately negotiated or added terms are given greater weigh than standardized terms or
other terms not separately negotiated (Boilerplate terms)
Prof. Pattersons Principles of Interpretation (pg. 358-59)

The meaning of a word in a series is affected by others in the same series

A general term joined with a specific one will be deemed to include only things that are
like (of the same genus as) the specific one (lists are usually exclusive)
If one or more specific items are listed, without any more general or inclusive terms, other
items although similar in kind are excluded. (lists that contain something like without
limitations are non-exclusive)
An interpretation that makes the contract valid is preferred to one that makes it invalid.
If a written K contains a word or phrase which is capable of two reasonable meanings, one
of which favors one party and the other which favors the other, the interpretation that is
less favorable to the one who drafted the contract is preferred. (This is because the drafter
has more bargaining power than the other party)
A writing or writings that form part of the same transaction should be interpreted together
as a whole: every term should be interpreted as a part of the whole and not as if isolated
from it. (i.e.: words should mean the same thing throughout the the contract)
If a term or provision is ambiguous, the court should look to the purposes of the parties
entering into the K.
If a specific provision is inconsistent with a general one, which includes the specific one,
then the specific provision will be construed to be an exception to the general provision
Handwritten or typed provisions control printed provisions
Interpretation of favor in public policy/interest is preferred

Hierarchy: handwritten type written or person computer boilerplate

Also, later provisions trump earlier provisions

___________________________________________________________________________________________
_______

The Parol Evidence Rule

Restatement 209-218

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a) Generally, the PER

a. Is generally though of as a substantive rule of contract law, not a rule of
evidence
i. Meant to preserve the integrity of written Ks
b. Has implications with channeling, cautionary, and evidentiary function of a
K.
c. Only applies on evidence prior or contemporaneous to the written contract
i. When the parties to a K have expressed their agreement in writing and
they intend for that writing to be a complete and final version of their
agreement, the rule prohibits the introduction of evidence of prior
understandings or negotiations between them to vary or contradict the
written version of the K.
d. The rule prevents either party from introducing evidence of terms, alleged to
have been agreed upon, but nevertheless included in the final written
(completely integrated, final expression) version of K.
i. Only applied to complete integration contracts both parties intended for
it to be a final expression.
e. Does not create a requirement for a writing
f. Oral and written evidence of parol
g. Policy:
i. Promotes commercial certainty
ii. Permits parties to finalize their agreements
iii. Facilitates parties in performing contractual obligations confidently
b) Integrations General
a. Complete Integration
i. No parol evidence is admitted that is within the scope of writing
b. Partial Integration
i. Parol Evidence relating to an integrating term is excluded
ii. Parol Evidence supplementing or explaining the writing to the extent that
it is not integrated. The evidence must:
1. Be consistent with the integrated terms, and
2. The evidence cannot contradict or vary integrated terms, can only help explain
c) Two different approaches
a. Traditional Willistonian
i. Four Corners approach: integration is determined by looking to the four
corners of the writing without looking into extrinsic evidence
ii. Merger/integration clause:
1. Clauses that state the writing is intended to be final and complete; all prior
understandings are deemed to have been merged into or superseded by the
final writing
2. When found in a writing, merger clauses are usually dispositive. (relating to or
bringing about the settlement of an issue or the disposition of property.)
b. Functional Corbinian (Modern)
i. Intent of the parties is most important. Consideration of the context
McWilliamss
surrounding the execution of the K is helpful in discovering the parties
like the
intent
Corbianan
approach
ii. Merger clauses are not dispositive

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iii. Criticism: to admit all of the evidence would allow the exact kind of
evidence that the PER is supposed to exclude. This problem is solved by
allowing the judge to hear the evidence outside the evidence of the jury
NOTE: Marty Mac will tell you whether the use the modern PER or the traditional PER on the
exam. Remember, both approaches are still good law. If he doesnt tell you, analyze under
both,
en camera.

1. Thompson v. Libby (Traditional Approach)

a. Thompson and Libby entered agreement for the purchase and sale of logs. No written
term pertaining to warranty of the quality of the logs existed in the parties written,
executed agreement. Thompson sued when Libby refused to pay for the logs.
b. Issue: Is oral evidence pertaining to the existence of an additional term admissible
when the parties adopted a completely integrated writing?
c. Holding: No. For total integrations, parol evidence cannot be used to
i. contradict/vary the terms contained in the writing.
ii. Add additional terms
iii. Prove that the contract was incomplete
d. Notes
i. Collateral Agreement Rule: When parol evidence of a collateral agreement is
offered, the collateral agreement must be for an agreement distinct from the
instant agreement.
ii. Fraud is an exception to everything, essentially.

2. Taylor v. State Farm Mutual Insurance (Modern Approach)

a. Taylor was involved in an automobile accident. Signed a release agreement from all
contractual rightscauses of action subsequently with State Farm. Taylor tried to
sue State Farm for bad faith, but State Farm claimed suit was barred by release
agreement.
b. Issue: Can Taylor present extrinsic evidence to interpret release agreement?
c. Rule: The Court adopts Corbinian view -- allows Parol Evidence, which showed that the
language used in the document was ambiguous.
d. Analysis
i. To apply the PER, the court considers all evidence to determine its relevant to
the parties intent. (evidence for the purpose of interpretation, not contradiction)
ii. Then the court applies the PER to exclude evidence that contradicts or varies the
discovered meaning of the writing.
e. Notes:
i. Hearing evidence as to the intended meaning does not defeat the purpose of the
parol evidence rule because hearing the evidence in camera does not contradict
or vary the terms, but instead helps discover their meaning.
ii. Ambiguities
1. Traditional Approach: Parol Evidence may not be offered for
terms/provisions that are plain and unambiguous on their face.
2. Modern Approach: The judge may hear Parol Evidence, in camera, to
determine whether a term/provision is unclear or ambiguous.
*Oh no! This allowance permits consideration of the type of evidence
that PER sought to prohibit!

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Release Defined: K in which one party surrenders rights [s]he may have in exchange for
consideration.
Under the UCC 2-202 Parole Evidence
- Ambiguities can be filled with gap fillers
Exceptions to the PER on page 390-393

___________________________________________________________________________________________
_______

Implied Terms
a) Generally,
a. Implied terms a set of legal obligations that a court enforces in addition to those
terms which are agreed upon.
1. A court places a K on the parties even though the parties didnt agree
to it.
ii. Implied-in-Fact Terms: Terms that the court finds to be in the parties
agreement by virtue of the parties words or conduct, although the term is
not expressly stated.
iii. Implied-in-Law Terms: Terms the court finds to be implied in the parties
agreements because of the rule of law, not because the parties agreed to
include the term.
1. Imposed onto the parties by the court.
2. Policy: K law is private law, but here, we see public institutions
imposing on private law, limiting the right to negotiate. Public
institutions decide to include provisions into private agreement that
the parties did not agree to
3. Sources of implied-in-law terms:
a. Statute
b. Common Law
c. Judge implies terms in the particular case
4. Majoritarian Default Rules (Default Rules defined an implied term that
the court inserts into an agreement that the parties probably would
have made had they bargained over the issue.)
a. Terms that the parties probably would include in the agreement
of the negotiated terms
b. Parties may negotiate to exclude these terms from the
agreement.
c. Policy These terms increase efficiency by decreasing
transaction costs, permitting parties to save time by not
negotiating for these terms in every agreement.
5. Mandatory Default Rules
a. These terms are in every contract; the parties may not negotiate
to exclude from the agreement.
6. Gap Fillers A standard term legally implied into a K to supplement
or clarify the agreements express language.

b) Implied Obligations
a. Wood v. Lucy, Lady Duff-Gordon (1917) (Cardozo) (Common Law)
i. Lady Duff-Gordon hired Wood and gave him exclusive control over her
endorsements, subject only to her approval. Wood made endorsements
without Lady Duffs knowledge. Wood claims that no contract existed for

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lack of consideration because his promise did not require him to do anything
(illusory promise).
ii. Is the exclusive contract over Lady Duffs endorsements unenforceable
because of insufficient consideration?
iii. Rule:
1. The court implies a promise of reasonable efforts in cases
where the contract calls for exclusive dealings.
2. Without an implied obligation to use reasonable efforts, Woods
promise would be illusory because he would not be bound to do
anything.
3. Common Law: Where a contract is exclusive, there is an implied
duty to use reasonable efforts (Wood v. Lucy, Lady Duff-Gordon).
4. UCC: Where a contract for a sale of goods is exclusive, there is
an implied duty to use best efforts.

Reasonable Efforts vs. Best Efforts

Reasonable Efforts (Restatement) (Objective) Efforts that would be used by a reasonable

person under the circumstances.
Best Efforts (UCC) (Subjective) Best efforts of the party in question.

a. Leibel v. Raynor Manufacturing Co. (1978)

i. Raynor Co. manufactures garage doors, operators, and parts. Leibel is a dealer
of these parts. Leibel and Raynor Co. enter into an oral agreement by which the
Raynor Co. would supply Leibel with products at a factory-distributor price, in
return Leibel would then sell Raynor Co.s products exclusively. Leibel
borrowed substantial sums of money and took numerous steps to prepare for
the distribution. After 2 years of decreasing sales, the Raynor Co. notified Leibel
that the relationship was terminated and it would do business with another
dealer.
ii. Issue: Was Raynor Co. required to give reasonable notice of the termination of
the contract even though the contract was terminable at will?
iii. Rule: UCC 2-309(3) (Mandatory Gap Filler):
1. If K DOES NOT have an agreed-upon provision for termination:
reasonable notification is implied.
2. If K has DOES have an agreed-upon provision for the termination:
agreed-upon event for termination is valid, unless the result
would be unconscionable.
iv. Notes:
1. Economic Efficiency and Fairness: Most parties would voluntarily choose
such terms for the contract. pp. 445-46 Note 1.
2. Examples of Majoritarian Default Rules:
(remember that these can be negotiated around if the parties so
choose)
a. UCC 2-309(a)-(b)
i. If time for shipment/delivery is not specified, reasonable time
is implied
ii. A K for successive performances with an indefinite
duration, is valid for a reasonable time, and can be
terminated at any time by either party.
iii. UCC 2-308: Delivery Place
iv. UCC 2-310: Time of Payment
v. UCC 2-509: Risk of Loss
vi. UCC 2-513: Buyers Right of Inspection

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vii. UCC 2-306: Requirement of Best Efforts in Exclusive Dealings

3. Examples of Mandatory Default Rules
(Cannot be negotiated around by the parties)
a. UCC 2-309(3): Reasonable Notice of Termination
b. UCC 2-719(3): Contractual Modification or Limitation of Remedy
c. UCC 1-203: Good Faith

2. The Implied Obligation of Good Faith (and Fair Dealing)

a. Generally included in every contract under both the Restatement and UCC (both
goods and services)
UCC 1-203. Obligation of Good Faith

Every contract or duty within this Act imposes an obligation of good faith in
its performance or enforcement.
Restatement (Second) of Contracts 205. Duty of Good Faith and Fair
Dealing

Every contract imposes upon each party a duty of good faith and fair dealing
in its performance and its enforcement.

Good Faith Defined

honesty in fact in the conduct or transaction concerned (UCC 1-201(19))
Absence of bad faith

Bad Faith Defined

Overreaching
Undermining the reasonable expectation of the K without breaching the K
Frustrating the purpose of the K without breaching
Even if the K permits the s discretion, a bad faith claim can be made if the acts

a) Unreasonably, arbitrarily, or capriciously

b) out of a bad motive

Bad Faith Test (Summit Bank):

a) acting in a way that deprives the other side of the reasonably expected fruits
of the K

b) Party must have acted out of a bad motive

***********McWilliams really liked this quote: [When] one partys actions were such
as to undermine the spirit of the contracteither by enabling that party to realize gains
that in making that contract he had implicitly agreed to surrender, or by unfairly denying
the other party the fruits of the contract that she reasonably expected to receive.

b. Seidenberg v. Summit Bank

i. Seidenberg sold business to bank, but got to keep position as agree in the
contract. Seidenberg claims that Summit Bank intentionally refrained from
helping the business prosper. Business declined and the Seidenberg was
ultimately fired. Seidenberg argues that bank let business suffer so it could fire
him and replace him with the banks people.
ii. Issue: Can evidence be introduced proving bad faith or would that violate the
parol evidence rule?
iii. Rule:

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1. The PER does not exclude evidence pertaining to bad faith. Good faith is
an implied term in every K. Therefore, evidence relating to this term
would not add or vary the K, and thus does not upset the PER.
2. Two-Prong Bad Faith Analysis:
a. One party must act in a way that deprives the other side of
the reasonably expected fruits of the Contract; and
b. That party must have acted out of bad motive.

c. Locke v. Warner Bros, Inc.

i. Clint Eastwood facilitated deal between Locke and Warner Bros pursuant to a
settlement agreement. Warner Bros paid Locke for a non-exclusive first look
deal where Warner Bros got to approve or reject any directing deal before
Locke could go to another studio. Warner Bros also gave Locke a pay or play,
allowing it to either use Lockes services or pay her a fee. Warner Bros paid
Locke $1.5 million for her commission, but never used her services. Witnesses
testified that Warner Bros never intended to use Lockes services.
ii. Issue: Did the contract include an implied obligation that Warner Bros would
employ honesty and good faith when determining whether to use Lockes
services?
iii. Rule:
1. Contracts that confer one party with discretionary power have an
implied term of good faith and fair dealing.
2. Contracts conditioning that one party be satisfied with the others
performance must employ that satisfaction with honesty and in good faith.
iv. Analysis:
1. Courts will not second-guess creative decisions, courts only ensure that
the decisions were honest and would not injure the other partys expected
fruits under the contract.
2. By refusing to even look at Lockes projects, Warner Bros. acted in bad
faith.

Rule for Satisfaction Clauses Clauses that require the satisfaction of a party.

Objective Standard (presumed by court unless strong, precise language indicates otherwise):

Requires party be satisfied to the satisfaction of a reasonable person under the

circumstances.

Subjective (Artistic) Standard (requires strong, precise language):

-Party may exercise satisfaction to the partys subjective pleasure.

-These clauses are non-justiciable, proscribing the court from reviewing the
satisfaction.

-Court will not scrutinize creative decisions, but whether they in good faith
considered it.

-However, subjective dissatisfaction must be a sincere expression of dissatisfaction.

Must prove that there was a process in determining satisfaction.

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**Because Good Faith is an implied term of every K (for our purposes), Good Faith cannot
contradict express terms in the contract. I.e., one is obligated to act in good faith to carry
out the express terms of the contract.

___________________________________________________________________________________________
_______

WARRANTIES

1. Generally (Know UCC 2-312 through 2-316)

a. Background
i. Caveat emptor(let the buyer beware):
1. Based on presumption that the buyer best knows what she wants
2. Cost of assessing suitability of product was on the buyer

ii. Unfortunately, stuff got real since the 19th century:

1. as products became more complex, the average person was no longer
best fit to protect themselves against product defects.
2. The burden switched from the buyer of a product to the manufacturer,
retailer, producer, and seller of a product.
2. Types of Warranties

2-312 Warranty of Title and Against Infringement; Buyers Obligation Against

Infringement
Title conveyed in a transfer must be good, and its transfer must be rightful
Title Transferred should be free of any pending security interest or lien or encumbrance
that the buyer has no knowledge of.

*** 2-313 Express Warranties by Affirmation, Promise, Description, Sample***

1. Express warranties by the seller can be created by any of the following:
a. Affirmations of fact or promise that becomes part of the basis of the bargain.
b. Descriptions that becomes part of the basis of the bargain.
c. Samples that become part of the basis of the bargain.
d. Models that become part of the basis of the bargain
2. A statement purporting to be merely the sellers opinion or commendation of the does not
create a warranty. This is mere puffery. (good exam word)
3. Requirements of an Express Warranty
a. 1 of 4 methods used by the seller: affirmation of fact or promise; description; sample
or model; and
b. Reliance: the representation becomes part of the basis of the bargain; i.e., the buyer
relies on the representation.

*** 2-314 Implied Warranty: Merchantability; Usage of Trade***

1. Implied Warranty of Merchantability is implied in a K for the sale of goods if the seller is a
merchant with respect to the goods in question.
2. Merchantable
a. Goods are merchantable if the goods are of goods are
i. Of good quality, and
ii. Fit for the ordinary purposes for which they are used. (p. 499)
b. Goods are merchantable if the goods

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i. pass without objection in the trade and are fit for the ordinary purposes for
which such goods are used. Bayliner, at p. 503.
c. A list of factors for the minimum requirement demanded by merchantability can be
found at UCC 2-314(2).

Merchant Defined (again) (UCC 2-104(1): a person who deals in goods of the kind or
otherwise by his occupation holds himself out as having knowledge or skill peculiar to the
practices or goods involved in the transaction.

2-315 Implied Warranty: Fitness for a Particular Purpose

1. Elements that create IWFPP
a. The seller knows (or should know) that the purchaser is purchasing the products for a
particular purpose, and
b. The buyer relies on the sellers skill or judgment to select/furnish such goods,
c. Then, there is an implied warranty that the goods are fit for that particular purpose.
2. Notes
a. IWFPP can still be breached even if the goods are in perfect condition; does not require
defective condition.
b. IWFPP is not limited to merchants.
c. Knowledge: the Seller must know or have reason to know that the buyer is purchasing
the goods for a particular purpose.
d. Reliance: The Buyer must actually rely on the seller.

2-316 Exclusion or Modification of Warranties

1. Subsection (1)
a. To negate or limit an Express Warranty, the disclaimer must be able to be read
consistently with the terms creating the express warranty.
2. Subsection (2)
a. Implied Warranty of Merchantability, disclaimer must
i. Mention merchantability
ii. In the case of a writing, the disclaimer must be *C*O*N*S*P*I*C*U*O*U*S*
b. Implied Warranty of Fitness for a Particular Purpose, disclaimer must
i. Be in a writing
ii. Be conspicuous
UCC offers language that excludes all IWFPP: There are no warranties which
extend beyond the description on the face hereof.
3. Subsection (3)
a. Notwithstanding Subsection (2), all implied warranties are excluded
i. When the seller uses expressions like as is, with all faults, or
ii. other similar language that calls the buyers attention to the exclusion and
makes plain that there is no implied warranty
b. Notwithstanding Subsection (2), all implied warranties than an examination would have
revealed are excluded, if before entering the K, the Buyer
i. examined the goods or the sample or model as fully as the buyer desired, or
ii. Refused to examine the goods.

c. Notwithstanding Subsection (2), implied warranties can be excluded or modified by

course of performance or usage of trade.
4. Subsection (4): Remedies for a breach of warranty can be negotiated around in accordance
with the provisions of UCC Article 2.

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Bayliner Marine Corp. v. Crow

a. Bayliner sold Crow a fishing boat. Before purchasing it, Crow asked how fast the boat
could go. Bayliner showed Crow a prop matrix, which said how fast a boat of a
particular size could go. Bayliner also showed Crow a brochure that said the boat
delivers the kind of performance necessary to fish offshore. Crow purchased the boat,
although it was of a different size than the one described in the prop matrix. Despite
numerous repairs, the boat would not go faster than 25 mph.
b. Issue: Did Bayliner breach any express or implied warranties?
c. Holding: Crow lost on both arguments (the existence of express and implied
warranties).
d. Analysis:
i. Prop Matrix did not create an EW because the specifications in the prop matrix
were different from the boat Crow bought.
ii. A commendation does not amount to an express warranty.
iii. Implied Warranty of Merchantability: requires the to show a standard of
merchantability. Here, Crow testified himself. He should have got an expert
witness.
iv. Implied Warranty of Fitness for a Particular Purpose: requires the to show that
conveyed his particular purpose for the boat to the seller. Here, Crow did not.
He might have gotten way with this if Crow had not specifically testified to 30
mph.

Caceci v. Di Canio Construction Corp. (implied warranty of habitability)

a. Married couple entered into a contract with construction corp. for the construction of a
home. Construction corp. negligently constructed the home so that the kitchen floor
began dipping 4 years later. Made attempts to repair it, but ultimately failed.
Couple got someone else to perform the repairs.
b. Issue: Was there an IW in the K that the construction co. would construct a house
skillfully without defects?
c. Rule:
i. An implied warranty of habitability exists in the construction of every
home between the builder-vendor of the house and the purchaser of
the house.
ii. The two parties who bargain over the construction of the home are not equals:
the buyer enters the bargain before the construction, so its impossible for the
buyer to inspect defects. The buyer must rely on the builder-vendor to build a
house reasonably fit for the purpose for which it was intended (habitability).
iii. The reasonable expectation is that the house will be built free from
material defect and in a skillful mannerthe house must be habitable.
iv. This implied warranty exists in every contract for the construction of a home.
___________________________________________________________________________________________
_______

AVOIDING ENFORCEMENT
MUFFIN I.D. (MISTAKE; UNCONSCIONABILITY; FRAUD; FRAUD (SOF); INCAPACITY; ILLEGALITY;
DURESS)

1. Generally
a) Doctrines allowing a party to avoid performance under facially valid contract
because of public policy considerations that particular flaws in the bargaining

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process undermine the fundamental presumption that rational parties, having

relatively equal bargaining power, bargain at arms length in their respective
self interests before voluntarily entering into binding agreements.

Contract liability is: strict liability is [l]iability that does not depend on actual
negligence or intent to harm, but that is based on the breach of a[] duty. 3
Does not require fault
Does not require harm

1. INFANCY/MINORITY

1. Generally
a. If someone does not have the capacity to contract, then the contract could not have
been formed by rational parties bargaining at arms length in their respective selfinterest.

b. This doctrine rebuts this irrefutable presumption that certain types of parties (e.g.,
infants) are too disadvantaged to negotiate on a level playing field.

Restatement (Second) 14: Infants

Unless a statute provides otherwise, a natural person has the capacity to incur only
voidable contractual duties until the beginning of the day before the persons
eighteenth birthday.
Infants can only assume voidable Ks up until one day before the infants 18th
birthday.
If an infant fails to render the contract void within an reasonable time after reaching
the age of majority, the contract becomes enforceable (like a normal, binding
contract).

2. Dodson v. Shrader (1992)

a. 16-year-old pays cash for mans pickup truck. 16yo did not misrepresent his age, and
man did not inquire. The truck started having problems (for example, the engine
exploded). Man brought an action to rescind the contract. After filing the complaint,
the truckparked in 16yos front yardwas damaged by a hit-and-run driver.
b. Issue: Can the 16yo rescind a contract and receive the full value of the truck because
he was not of the age of majority at the time of the contracts formation?

Rescind Defined: an equitable remedy under which both parties reverse

performances made under the K.
Parties re-exchange considerations.
Parties are placed back in the position they were in before the K took place.

3 Blacks Law Dictionary

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c. Holding: Here, rescission was inappropriate because it would not make both parties
whole: 16yo wants to give the ruined truck back in exchange for the money he paid for
it.

d. Rule
i. Traditional Rule: States that the K is void when it is to the infants prejudice,
enforceable when its to the infants benefit (in the case of necessaries); and
voidable, by the infant, when the benefit or prejudice of the K is uncertain.

ii. The Modern Rule: (Majority Rule) K is voidable by infant before or after
attaining the age of majority.
1. Policy: protects minorsbecause of their lack of judgmentsfrom
squandering wealth by entering into improvident Ks with crafty adults
who would take advantage of them in the marketplace.
2. Limitation: The infant is liable for the reasonable value of necessaries.
Recovery in these cases is based on restitution, and not on K remedies.

a. If the K is to the infants prejudice , the K is void.

b. If the K is to the infants benefit (in the case of necessaries) then

the K is a valid, enforceable K whether the minor likes it or not.

c. If the nature of the K is unknown (unsure if it is to the infants

prejudice or benefit), then the K is voidable at the infants election
.

iii. Benefit Rule (Minority Rule): Upon rescission, recovery of the full purchase price
is subject to deduction of the minors use of the article. Here it is the rental
value of the truck. Deduct it to find use.

iv. Oregon Rule (Minority Rule): Recovery of full purchase price is subject to a
deduction for
1. the minors use of the consideration received under the K, OR
2. the depreciation or deterioration of the consideration in the minors
possession.

The Modified Oregon Rule (adopted by the court):

There must be
Fair and reasonable Terms
Payment by the minor on the purchase price
Use and possession of the goods purchased (by the minor)

There must not be

Overreaching (bad faith)
Undue influence
Unfair inducement of the minor to make the purchase

How to Calculate Recovery:

Minors Recovery = Purchase Price (Use + Depreciation + Willful/Negligent
Damage)

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Words... and their respective definitions

Voidable : K can become void at the election of one of the Parties.

Innocent party may enforce the K, but K cannot be enforced against the innocent
party.
Voidable Ks may be ratified by the party with the power to avoid the K (i.e., the
innocent party) once the reason for such avoidance no longer exists (e.g., the party
reaches the age of majority).

Void: No K ever existed. It may look/seem like a K existed, but it did not.
Unenforceable by either Party.

Necessaries : Things necessary to live

usually food, clothing, shelter, (and perhaps medical services), etc.
Example4: If a sick minor goes into a drug store and the pharmacists sells him a
bottle of Aspirin for $50, the minor is only liable for the reasonable price of the
Aspirin (only responsible for the reasonable price of the necessary).

Use: Rental value.

Depreciation: Market value decrease due to conditions such as use or age of
article.

2. MENTAL INCAPACITY

Restatement (Second) 15. Mental Illness or Defect:

1. A person incurs only voidable contractual duties by entering into
transaction if by reason of mental illness or defect
i. [Cognitive Test:] He is unable to understand in a reasonable
manner the nature and consequences of the transaction, or
ii. [Volitional Test:] He is unable to act in a reasonable manner in
relation to the transaction and the other party has reason to know
of his condition.
2. Where the contract is made on fair terms and the other party is
without knowledge of the mental illness or defect, the power of
avoidance under Subsection (1) terminates to the extent that the
contract has been so performed in whole or in part or the
circumstances have so changed that avoidance would be unjust. IN
such a case a court may grant relief as justice requires.
Note: Whether a person is mentally incapable for the purpose of avoiding performance
under a contract is a matter of fact for a judge to decide.

3. DURESS

4 Under Newer Traditional Rule

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1. Generally
a. A K may be voidable if one partys manifestation of assent was obtained by

improper threats or coercion from the other party (or by a third party).

b. Traditionally, this rule applied only to the act/threat to personal injury or property, but it
now includes the act/threat of economic duress.

c. Note: a mere threat to refuse to enter a K, or to agree only to terms disproportionately

unfavorable to one party is not duress because there is no duty to enter into a K.

d. Once again, duress rebuts the presumption that during the Ks formation , the K was
entered into voluntarily , at arms-length, and for the parties respective self-interests.

Duress Defined (Restatement (FIRST) of Contracts 492(b)): any wrongful threat

of one person by words or other conduct that induces another to enter into a
transaction under the influence of such fear as precludes him from exercising free will
and judgment, if the threat was intended or should reasonably have been expected to
operate as an inducement.

Rest.2d 174: When Duress by Physical Compulsion Prevents Formation of

a Contract. If conduct that appears to be a manifestation of assent by a party who
does not intend to engage in that conduct is physically compelled by duress, the
conduct is not effective as a manifestation of assent.

Rest.2d 175: When Duress by Threat Makes a Contract Voidable.

(1)
If a partys manifestation of assent is induced by an improper threat by the other party
that leaves the victim no reasonable alternative, the contract is voidable by the
victim.
(2)
If a partys manifestation of assent is induced by one who is not a party to the
transaction, the contract is voidable by the victim unless the other party to the
transaction in good faith AND without reason to know of the duress either
gives value OR relies materially on the transaction.

***McWilliams 5-Part Test for Duress5:

1. One party (the victim) assents involuntarily

2. No other reasonable alternative is available to the victim
a. A lack of reasonable alternative
i. The victim must be left virtually with no choice but to agree
to the other partys terms.
ii. There must be no adequate alternative if the threat were
carried out.
3. Circumstances were the result of coercive action (Causation
element)
4. Improper Threat
a. Threat does not need to be illegal: moral or legal wrongfulness will
suffice. (See Restatement 176 for determining when a threat is
improper.)
5. Foreseeability by knows that they have controlAND the
inequality in power is purposely exercised

5 Derived from the Restatement. The book says that there is a 3-part test (p. 541), but the book lies.

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[Duress, Generally (contd)]

e. Early Common Law only allowed avoidance by duress when the threat was sufficient to
overcome the will of a person of ordinary firmness and couragee.g., fear of loss of
life or limb, mayhem, or imprisonment, etc. The doctrine now includes
.
f. Distinguish: Traditional duress was viewed under an objective standard. Modern
Duress is shifted toward a more subjective standard. Now you know . . .

Mayhem Defined: The crime of maliciously injuring a persons body, esp. to impair
or destroy the victims capacity for self-defense. 6 7

6 Blacks Law Dictionary.

7 Note also that in the movie Chinatown, Jack Nicholsons characters nostril was sliced by some bad dudes.
Last year he said this would be on our exam, but today he didnt say that so never mind.

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2. Totem Marine v. Alyeska Pipeline (1978)

a. Totem contracted to transport pipeline construction materials from TX to AK for
Alyeska. Totem charged a barge and an oceangoing tug to perform the contract.
When Totem began performance, it discovered it had around more material to ship
from TX than expected, causing Totem to incur a months delay. The extra load slowed
the vessels, so Totem chartered a second tug. Alyeska delayed signing the
amendment to cover the cost of the tugboat, which delayed its passage. Alyeska then
off-loaded Totems vessels in CA (stopping short of AK) and terminated the contract
(fired Totem). Totem submitted invoices of nearly $300,000 and needed immediate
payment to avoid bankruptcy, but Alyeska delayed payment. Aleyska offered a
settlement of $97,000. Totem accepted the cash and signed a settlement and release
to avoid bankruptcy. Totem and its creditors later sued Alyeska, seeking rescission of
the settlement under the doctrine of economic duress. The contract in question is not
the performance of the contract, its the enforceability of the settlement and release.
b. Issue: May a render a K void under the economic duress doctrine if could previously
have sued for the money owed to ?
c. Holding: Yes. Totem could elect to void the K under the economic duress doctrine
because, although it could have sued Alyeska earlier, filing suit at that time would have
practically ensured Totems bankruptcy; i.e., Totem had no reasonable alternative but
to submit to Alyeskas terms or otherwise face bankruptcy.
d. Rule
i. Contracts made under economic duress are voidable rather than void, and are
deemed binding unless disaffirmed, and may be expressly or impliedly ratified
by the purported victim.
ii. Economic duress is also determine under Marty-Macs 5-part test (from
Restatement 175), above.
e. Notes:
i. Posner: you dont have to cause the bankruptcy, you have to force the other
party to enter into the K because of the impending bankruptcy.
ii. Economic duress does not arise merely because was a victim of a wrongful act.
must have had no reasonable alternative but to agree to the s terms.
Recourse to litigation might not be a reasonable alternative in some situations
because of the inherent delays in collection through litigation.

4. UNDUE INFLUENCE
1. Generally
a. Definition: Persuasion which tends to be coercive in nature, persuasion which
overcomes the will without convincing the judgment. P. 550.
b. Undue influence typically involves:
i. Use of excessive pressure
ii. By a dominant party in overcoming the will (e.g., by exploiting a known
weakness) of a
iii. Vulnerable (servient) party.

2. Odorizzi v. Bloomfield
a. Odorizzi was arrested for homosexual activities. He resigned from his position as an
elementary school teacher after administrators stated that if Odorizzi refused to resign,
he would be dismissed and the charges against him would be publicized. The charges
were later dismissed. Odorizzi sued to rescind his resignation because it was obtained
by duress and undue influence.
b. Issue: May a threat of termination and exploitation, made to obtain a resignation,
constitute undue influence?

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c. Holding: Yes.
d. Rule: Undue influence, unlike duress, involves persuasion that is coercive in nature,
characterized by high pressure that works on mental, moral, or emotional weaknesses.
e. Analysis:
i. There was no duress because the School District had a legal right to threaten to
dismiss Odorizzi, and might even have had a positive duty to do so. So long as
the School District acted in good faith, it could properly start dismissal
proceedings, regardless of the impact on Odorizzis reputation.
ii. A critical element of undue influence is a lessened capacity of one party to
on a level playing field. It involves an unfair advantage attributable to an
that exists in the parties bargaining power.

f. Typical Characteristics of Undue Influence (p. 552):

The more of these factors present and the degree to which the factors assert
themselves make a finding of undue influence more likely:
i. Discussion of the transaction at an unusual or inappropriate time.
ii. Consummation of the transaction in an unusual place.
iii. Insistent demand that the deal be done at once.
iv. Extreme emphasis on serious consequences of delay
v. The use of multiple persuaders by the dominant side against a single servient
party.
vi. Absence of third-party advisors to the servient party.
vii. Statements that there is no time to consult advisors.

5. MISREPRESENTATION

Misrepresentationtwo types: (1) Material Misrepresentations; (2) fraudulent

misrepresentations
1)Fraudulent MisrepresentationAKA: Intentional Misrep., Tortious Misrep., Fraud, Deceit.
2)Material MisrepresentationAKA: Negligent Misrepresentation, Innocent
Misrepresentation

1. Generally
a. Restatement 16173
b. Contract and Tort:
i. In Contract:
1. Remedy of Rescission
a. p. 556 a judicial return of the parties to the status quo that
existed before the contract was formed
b. Equitable remedy wrongdoer and injured party return to the
other any money or property received from the other
2. Sometimes rescission is undesirable. For example
a. You may want to keep the consideration.
b. If the consideration no longer exists, it cannot be given back.
c. If the party wants the cold hard $$$, they can bring the claim in tort
(and receive punitive damages!!!)
ii. In Tort
1. Remedy of (actual and statutory) damages plus punitive damages
c. Fraud can be used as
i. A mechanism to hold a contract unenforceable
ii. A mechanism to enforce rescission

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iii. A mechanism to obtain (punitive and other) damages

Katies No-Fear Method for Approaching Misrepresentation Problems

1. 164(1): Fraudulent or material misrepresentations that the recipient is justified in

relying upon are
voidable by the recipient.

2. 162: Is the statement Fraudulent or Material?

A Misrepresentation is Fraudulent if the maker intends his assertion to induce a

party to

manifest assent and the maker

(a) knows or believes that the assertion is not in accord with the facts, OR

(b) doesnt have the confidence that he states or implies in the truth of the
assertion, OR

(c) knows that he does not have the basis that he states or implies for the
assertion.

A Misrepresentation is Material if it would be likely to

(a) induce a reasonable person to manifest his assent (Objective), OR

(b) if the maker knows it would be likely to induce the recipient to do so

(Subjective).

3. 161: Did the Defendant fail to disclose a fact? Does nondisclosure/silence amount
to an assertion? 5 situations when it does:

(a) The Maker knows that disclosure is necessary to prevent a previous assertion
from being a misrepresentation or from being fraudulent or material.
(b) The Maker knows disclosure would correct the other partys mistake as to a
basic assumption on which that party is making the K, AND nondisclosure of the fact amounts to
a failure to act in good faith and fair dealing.
(c) The Maker knows that disclosure of the fact would correct a mistake of the other
party as to the contents/effect of a writing, that lays out some/all of the agreement.

(d) The other person is entitle to know the fact b/c of a relation of trust and
confidence

(e) When required by statute or regulation.

d. Opinions
i. Definition: An assertion is an opinion if it expresses only a belief, without
certainty, as to the existence of a fact or expresses only a judgment as to the
quality, value, authenticity, or similar matters. 168(1)
ii. Rules p. 566
1. Classical Rule
a. A statement of opinion could not be fraudulent based on the view
that morals of the marketplace required a certain degree of leeway
for puffing (expression of exaggerated opinion with intent to sell a
good or service)
2. Restatement
a. A statement of opinion amounts to misrepresentation of fact if the
person giving the opinion misrepresented his state of mind
(i.e., stated that he held a certain opinion when in fact he did not)

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iii. Opinions can be actionable if: p.566

1. Fiduciary relationship person giving the opinion stands in a relationship
of trust and confidence to the recipient
2. is an expert on matters covered by the opinion
3. given to someone who is particularly susceptible to the misrepresentation

2. Syester v. Banta
a. Mrs. Syester, an elderly widow, bought dance lessons from Dance Studio (defendants)
over several years. Mrs. S paid a total of approximately $30k for over 4,000 hours of
lessons (roughly 3 lifetime memberships). Mrs. S used less that 10% of the hours she
purchased and sued for damages caused by defendants misrepresentations. At trial,
Mrs. Ss former dance teacher testified that her level of dancing ability required 200400 hours of instruction and that she could not improve much because she was 68
years old. Mrs. S signed a release, accepting $$, which defendants then used as a
complete defense. The jury found for Mrs. S and awarded her $14,300 in damages and
$40,000 in punitive damages. Defendants appeal.
b. Analysis and Holding
i. Defendants conduct was beyond the limits of propriety:
1. Sold lessons that they knew Mrs. S would never be able to use
2. Falsely represented that Mrs. S was improving and had the potential to be
a professional dancer
3. Induced Mrs. S to enter the settlement agreement by use of manipulation
and isolation from outside counsel
ii. Elements of Fraud in Iowa p. 563 (varies by state/jurisdiction)

3. Hill v. Jones
a. The Hill Family (buyers) contracted to buy a residence from The Joneses (sellers). The
sellers provided a termite inspection report that stated the property was free of termite
infestation. Before closing, the buyers inquired about a ripple in the wood floor that
they believed to resemble termite damages, and the sellers said it was caused by
water damage. The buyers dismissed the concern believing that a termite infestation
would arise in the pest report. After moving in, the buyers learned of past termite
infestations by third parties. Buyers sued for rescission of the contract. Sellers
disclosed that the prior owner had the house treated for termite with a guarantee from
the exterminator. The termite inspector used for the presale inspection claimed he
should have been told about the history of pest infestation.
b. Issue: Does the seller of a residence have a duty to disclose facts of past termite
inspection to a buyer?
c. Holding: Yes.
i. Non-disclosure is normally non-actionable.
ii. However, a seller has a duty to disclose latent facts unknown to the buyer that
materially affect the value of the property.

Materiality Defined: A matter is material if it is one to which a reasonable person

would attach importance in determining his choice of action in the transaction in

question. p. 572
4. Park 100 Investors v. Kartes
Park 100 prepared a lease agreement for the Karteses, who wished to lease
commercial space for Park 100. The Karteses signed the lease, which contained no
provisions pertaining to the personal guaranty of the lease. Park 100s agent told the
Karteses that they had to sign more lease papers as they were leaving for a wedding
rehearsal. Given the urgency, the Karteses signed the document without reading it.
This document contained a personal guaranty clause. The Karteses later discovered

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that they were personally liable for the lease and disavowed the guaranty. After the
Karteses sold their interest in the company to a third party, the third party defaulted on
the lease, and Park 100 sued the Karteses under the guaranty clause.
a. Holding
i. Park 100s agents statements that the documents containing the personal
guaranty were lease papers, and that the Karteses were unable to enter the
building until the papers were signed, were misrepresentations of material facts.
ii. Agent knowingly made these false representations, and the Karteses reasonably
relied on the statements to their detriment.
iii. General Rule: Parties are responsible for reading the document before
manifesting their assent to the terms therein, and cannot avoid liability by
claiming ignorance of the terms. (See Eurice & Bros.)
1. Notwithstanding, when a party employs misrepresentation/fraud to induce
a party to enter into an agreement, the agreement is voidable by the
induced party.
b. Notes
i. Two types of Fraud: p. 583
1. Fraud in the Execution party is deceived as to the nature/contents of the
writing
2. Fraud in the Inducement party knows the nature of the writing, but
signs it pursuant to a misrepresentation
5. UNCONSCIONABILITY
1.

Test for Unconscionability

Unconscionability has generally be recognized to include an absence of meaningful
choice on the part of one of the parties together with contract terms which are
unreasonably favorable to the other party. (p. 588)
UCC 2-302 official comment
The principle is one of the prevention of oppression and unfair surprise AND not of
disturbance of allocation of risks because of superior bargaining power.
(1) Procedural: Party is induced to enter contract without meaningful choice,
defect in the bargaining process
(2) Substantive: Contract (or its terms) are unreasonably unfair. Usually
unreasonably favorable to one party (so much so that is shocks the
conscience of the court) p. 590
Note: Unconscionability prevents oppression and unfair surprise and does not prevent
disturbance of allocation of power (e.g., unequal terms or bargaining power do not
warrant application of the Unconscionability doctrine).
How Courts Apply the Unconscionability Elements (p. 590-91 n. 1)
(1) Most courts require a sufficient showing of both procedural AND substantive
elements.
(2) Some states use a sliding-scale approach: if one prong is stronger, the other
prong can be weaker.
(3) Some states find either procedural or substantive unconscionability alone to be
sufficient.

Applying the Test

a. Restatement 208 Unconscionable Contract or Term

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If a contract or term thereof is unconscionable at the time the contract is

made a court may refuse to enforce the contract, or may enforce the remainder
of the contract without the unconscionable term, or may limit the application of
any unconscionable term as to avoid any unconscionable result.
1. Upon finding of Unconscionability, the Court may:
a. Refuse to enforce the contract
b. Refuse to enforce the provision
c. Limit the application of the unconscionable portions to avoid an
unconscionable result
ii. Most courts use the two-part test cited in the Williams case (p. 586)
1. An absence of meaningful choice on the part of one of the parties
(procedural), AND
2. Terms that are unreasonably favorable to the other party
(substantive)

b. UCC 2-302 Unconscionable Contract or Clause

i. Official Comments (to the rescue)
1. The basic test is whether, in light of the general commercial background
and the commercial needs of the particular trade or case, the clauses
involved are so one-sided as to be unconscionable under the
circumstances existing at the time of the making of the contract.
2. The principle is one of the prevention of oppression and unfair
surprise
AND not of disturbance of
allocation of risks because of superior bargaining power

2. Williams v. Walker-Thomas Furniture Co.

a. Mrs. Williams agreed to a standard-form contract for credit sales that provided that (1)
all credit transaction of the buyer were to be lumped into one account and each
installment payment was to be spread pro rata over all items purchased (even if
purchased at different times) until all items were paid off; and (2) if Mrs. Williams
defaulted, Walker Co. could repossess all items. Mrs. Williams bought several items on
separate occasions and failed to make sufficient payments on the most recent item
(stereo). Mrs. Williams was on welfare, separated from her husband, and the caretaker
for 7 children. Walker Co. brought an action to repossess all items purchased on credit.
b. Holding The Add-On Clause was unconscionable.
c. Rule
i. Unconscionability has generally been recognized to include an absence
of meaningful choice on the part of one of the parties together with
contract terms which are unreasonably favorable to the other party. (p.
588)
d. Analysis
i. Here, any meaningful choice by Mrs. Williams is negated by the gross inequality
of bargaining power. The manner in which Mrs. Williams entered into this
contract is also relevant to this determination (McWilliams: Courts policing of
normative contract behavior).
ii. The gross inequality of bargaining power between her and Walker Co. made it
possible for Walker Co. to exploit Mrs. Williams by providing standard-form,
preprinted contracts that contained unreasonable provisions.
e. Notes
i. Corbinian Test: whether the terms are so extreme as to appear unconscionable
according to the mores and business practices of the time and placeothers
say it is what which shocks the conscience
ii. Add-On Clause: An installment contract clause that converts earlier purchases
into security for new purchases.

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6. PUBLIC POLICY
Generally

a. While there is usually a strong public policy to enforce contracts, a court will
refuse to enforce a contract if enforcement is repugnant to the courtif it violates or
contravenes some other PP.
b. Contracts involving illegal activities are not enforceable.
Valley Medical Specialists v. Farber

VMS hired Farber, a doctor who performed a specialized procedure only performable
by certain hospitals with the requisite equipment. Farber entered an employment
agreement containing a 3-year restriction prohibiting him from competing within 5 miles of
any of VMSs offices (restrictive covenant covenant not to compete). Farber left VMS
and started practicing medicine within the prohibited territory. VMS sued for injunctive
relief.

Issue: May a restrictive covenant in a doctors employment contract be enforced if it

lasts for 3 years and covers any practice of medicine within a large, defined territory?
Rule:
v. Traditionally, common law refused to enforce covenants not to compete, seeing
such agreements as restrictions on trade. Restraints found in employment or
partnership agreements, were enforceable. However, restrictions on physicians
were considered in light of the impact on public interests.
vi. The Modern Rule makes covenants not to compete invalid unless they protect
a legitimate interest beyond the employers desire to protect itself from
competition. One legitimate interest is the limitation of secret information that
the employee acquired in the course of employment.
vii. A covenant not to compete is unreasonable, and thereby not enforceable if:
1. Restraint is greater than necessary to protect the employers legitimate
interest (the scope of the restriction is measured by duration and
geographic area) OR
2. The hardship to the employee & the likely injury to society outweigh the
employers interest.
d. Holding: The restrictive covenant was not enforceable because it was excessive.
i. The Employers Interest:
1. Retain customer base

weighed against
ii. Employees and Societys Interest?
1. Personal bond between doctor and patient
2. Patients freedom to choose doctors of their choice
3. 3-year, 5-mile prohibition on all types of practice was greatly excessive

___________________________________________________________________________________________
_______

JUSTIFICATION FOR NON-PERFORMANCE

Mistake, Changed Circumstances, and Contractual Modifications: These doctrines focus on

the subject matter/content that renders a contract unenforceable (before we were talking
primarily about the process of negotiation/contracting)
MIST
Mistake defined: A belief that is not in accord with the facts. 151.
AKE
The mistake must relate to a fact.

Must be at the time of the contracts formation.

This is different than a prediction, the fact must actually exist.

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1. Generally (151158)
a. Mistake is an equitable doctrine that may warrant rescission by a court.
b. Main themes: First, the mistake must relate to a fact in existence at the time of K (cant
be an error is business judgment or incorrect prediction). Second, the mistake must be
with respect to a material aspect of the contract and have a significant effect on the
agreed exchange of performance. Third, the aggrieved party neither assumed the risk
of the mistake not would it be fair or appropriate to allocate it to her.
MUTUAL MISTAKE
Restatement 152
(1) Where a mistake of both parties at the time a contract was made as to the
basic assumption on which the contract was made has a material
effect on the agreed exchange of performances, the contract was
voidable by the adversely affected party unless he bears the risk of the
mistake under the rule stated in 154.

2. Lenaw
ee
County
Board
of
Health
v.

Material central to the partys decision to enter into the contract

Basic Assumption The basis of the bargain. Something material that the
parties considered when negotiating and agreeing to the agreement.
Restatement 154
A party bears the risk of mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited
knowledge with respect to the facts to which the mistake relates but treats
his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable
in the circumstances to do so.

Messerly
a. The Pickleses bought a 3-unit apartment building from the Messerlys under a landpurchase contract. Soon after, the Board of Health condemned the property because
the Messerlys predecessor in title, Bloom, installed an improper septic system. The
Board of Health obtained an injunction against the Messerlys and the Pickleses,
prohibiting human habitation until the property conformed with the applicable
sanitation code. The parties contract provided that the Pickleses had examined the
property and agreed to accept it in its present condition. The Pickleses refused to make
payments, and the Messerlys filed a cross-complaint for foreclosure, sale, and
deficiency judgment. The Pickleses counterclaimed for rescission, alleging failure of
consideration.
b. Analysis
i. The parties were both mistaken in their belief that the property could be used as
an income-generating rental property.
ii. Although the mistake in this case clearly satisfies the test, rescission is not
appropriate because the Pickleses purchased the property as is pursuant to
which they assumed the risk of the present condition of the property. 154(a)
c. Holding The Picklesses are not entitled to the equitable remedy of rescission.

3. Sherwood v. Walker (The Barron Cow Case)

a. Parties agreed to the sale and purchase of a cowRose of Aberlonewhich was
thought to be barren but she was actually pregnant with a calf. The seller sought to
rescind the contract. The court allowed the rescission because the mistake of the

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parties went to the whole substance of the agreement. The pregnant cow with the calf
would have been worth a lot more than a barren cow. The agreement would not have
been made if the parties knew the cow was pregnant. The mistake affected the very
nature of the consideration rather than merely its quality. The thing bought and
sold had in fact not existed.
b. Notes
i. A mistake that affects the essence of the consideration may justify rescission,
while one that involves the quality or value of the consideration may not.
ii. Note 6 p. 673
1. Mistake in written expression: if a mutual mistake is the failure of the
writing to state accurately the parties actual agreement, the court will
likely grant reformation so that the contract captures the parties intent.
2. Equitable relief in mistake cases grants court great discretion to exercise
creative ingenuity in fashioning a well-suited remedy for any particular
circumstance.
iii. Mistakes as to Value:
1. Without more, if parties are mistaken as to the value of the bargained-for
considerations, the courts are unlikely to void the contract.
2. Courts do not like to inquire as to the wisdom of the particular bargain.

UNILATERAL MISTAKE

Restatement 153
When Mistake of ONE Party Makes a Contract Voidable
See above, and:
(a) the effect of the mistake is such that enforcement of the contract would
be unconscionable
(b) the other party had reason to know of the mistake or his fault caused the
mistake

1. Wil-Freds, Inc. v. Metropolitan Sanitary District

a. Wil-Freds submitted a sealed bid to Metropolitan to do rehabilitation work at one of
Metropolitans water reclamation plants. Wil-Fred provided a 100K security deposit.
Wil-Fred won the bidbidding more than 300K less than what Metropolitan
estimated the job would cost. Wil-Fred learned that its subcontractor made an error
in the calculation, and the subcontractor withdrew, leaving Wil-Fred unable to
complete the work at the bid price. Wil-Fred attempted to withdraw, but
Metropolitan rejected. Wil-Fred then sued, seeking preliminary injunction and
rescission.
b. Rule Rescission is appropriate for an unilateral material mistake so
palpable that the party not in error [should be] put on notice. Restatement
(First) 503.
c. Notes
i. It is very unusual for a party to receive a remedy for unilateral mistake.

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ii. An error in business judgment is not a mistake for which relief is normally
granted. Most cases that give relief for unilateral mistakes give it for clerical
and mathematical mistakes, not for mistake of judgment.

CHANGED CIRCUMSTANCES
1. Impracticability 261, Frustration of Purpose 265, Impossibility 26263
Underlying Principle: Performance of an obligation under a contract may be excused if the
performance has been rendered impossible or impracticable by the occurrence of an event
whosenonoccurrencewasabasicassumptiononwhichthecontractwasmade.

FRUSTRATION OF PURPOSE; IMPRACTICABILITY

Elements of Frustration of Purpose/Impracticability:
(1) Substantial Reduction of the Value of the Contract
performance is made impracticable
A partys principal purpose is substantially frustrated
(2) Because of the occurrence of an event, the nonoccurrence of which was a basic
assumption of the contract
(a) The occurrence must be unforeseen at the time of the contract.
(b) Some courts require it to be unforeseeable at the time of the formation of the contract.
(c) Just because the event was unforeseen/unforeseeable does not mean it was a basic
assumption of the contract
(3) Without the occurrence being attributable to the party; AND
(4) The party seeking relief does not bear the risk of occurrence of the event either
under the language of the contract or the surrounding circumstances
Mnemonic: RUDE (Realized purpose; Unforeseeable; Destroys Purpose; Event Supervenes)

Impracticability:
Remember that these two doctrines have the same elements, BUT they are not the same
actions; i.e., you can bring both claims to court, but in the analysis, the court would use the
same elements.
What might fall within impracticability: severe shortages of raw materials or supplies caused
by the following, which create a marked increase in cost or prevents performance altogether:
a. War, embargo, local crop failure, unforeseen shutdown of major sources of supply,
or similar circumstances.
b. Changed market conditions are never a basis for impracticability.
Frequently, even natural disasters and war arent sufficient to satisfy these 2 doctrines
Occurrence must take place after the formation of the contract. Contrast with Doctrine of
Mistake: Mistake relates to fact at the time of the formation of the contract.

1. Karl Wendt v. International Harvester Co.

a. Wendt had a dealership agreement with IH, a manufacturer of farm equipment.
After a downturn in the market, IH sustained large losses and sold its business to
Case Co. When it purchased IHs assets, Case did not acquire IHs franchise
network. Case granted dealership to approximately 2/3 of IHs former dealers, but
Wendt was in an area that conflicted with existing Case dealer and so he did not
receive a Case dealership, Wendt sued IH for breach of the dealer agreement. IH
asserted the defense of impracticability of performance.

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b. Issue: Does a dramatic economic downturn constitute impracticability that excuses

performance? Or frustration of purpose?
c. Holding: No.
i. Impracticability
1. Impracticability requires more than a lack of profit, but it can include a
shortage of raw materials due to war, embargo, or local crop failure.
2. The critical issue is whether the supervening event is such that the
non-occurrence of that event was a basic assumption on which both
parties made the contract.
3. The continuation of the existing market conditions is ordinarily not
such an assumption.
a. Mutual profitability
ii. Frustration of Purpose
1. This doctrine attempts to fairly apportion risk between the parties in
light of unforeseen circumstances (as the parties would have had the
necessity occurred to them).
2. Frustrating event IHs decision to sell its farm equipment assets and
go out of business.
3. Here, lost profit due to the economic downturn is not adequate. The
parties would not have agreed to discharge IHs obligation if IH simply
lost its profits. IH would have negotiated with Wendt for a mutual
agreement for termination as per their agreement.
d. Note 7 p. 688
i. Judge Posners Superior Risk Bearer Argument
1. In the absence of a contractual provision, the risk should be assigned
to the party who is in the best position to prevent the event from
occurring, or if prevention is not passible, to minimize the
consequences at the lowest cost, typically by purchasing insurance.
Foreseeability combined with ability to prevent loss.

1.

IMPOSSIBILITY

Typically,
Impossibility Defined: When a person or thing necessary for performance
of the agreement dies or is incapacitated, is destroyed, or damaged, the
duty of performance is accordingly excused
performance must be literally objectively impossible, not just subjectively impossible
a. Objective impossibility: no one can do it
b. Subjective impossibility: I cannot do it
c. Performance is not excused if it just becomes more difficult or expensive or just
because the contract loses value to the party in question.

MODIFICATION

Modification in Nutshell:
Common law requires new consideration for modification (73, 89)
UCC does not require new consideration for modification (UCC 2209)
Policy: People modify contracts in commercial law/sales all the time.
Modification is a contract, in itself, to reallocate the risks and costs of an already-existing
executory contract. All rules of contract apply.
Why do we care?
If contractual protections are illusory, people will be reluctant to make contracts.

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If people arent confident in the enforceability of their contracts (if they can be easily
modified), they will be reluctant to enter them and the economy will die.

1.
Alaska

Modification Unenforceable: Preexisting Duty Rule: A pre-existing duty

cannot serve as consideration for a new agreementmerely promising to
perform an existing obligation will not serve as valid consideration for
additional/different performance from the other party.
Exceptions:
o Mutual Release If the old contract is mutually rescinded and a
new contract is entered into using only the former preexisting duty
then it is enforceable
o Employee Contracts
o Unforeseen Circumstances (almost impracticability)
o Reliance

Modification Enforceable: A modification may be enforceable if the new

agreement varies in any way from the old. (New consideration)

Packers v. Domenici
a. Seamen-fishermen refused to continue work at sea unless they get additional
money. The work was hard! Superintendent signed an agreement to pay the
additional money because he could not get substitute workers (They are at sea.) At
the end of the season, the Co. paid the seamen according to the original
agreement. Seamen sued in admiralty for the additional money. The court found for
the seamen, Co. appealed.
b. Issue: Was adequate consideration given by the seamen to the company in
exchange for the raise?
c. Holding: No.
i. The supervisors consent to the demands of the seamen was without
consideration because it was based solely on an agreement to render the
exact services they were already under contract to render. A party cannot
refuse to perform under a previous contract, and thereby coerce a promise
from the other party to pay more for the same services that it is already
required to do. Such a promise would be unsupported by consideration.
1. Preexisting obligation cannot constitute consideration. Merely
promising to perform an existing obligation will not serve as valid
consideration
2. Main point of this case: modification of a contract requires
consideration to be enforceable
d. Other issues in this case:
i. Agency Issue
1. An agent can bind his principle in contract to the extent that the agent
is authorized to do so
2. Can be based on:
a. express authority given by the corporation
b. apparent authority
ii. Duress
1. Economic duress performed by the seamen
2. But, the facts of this case occurred before the economic doctrine of
duress was developed

THIRD PARTIES: ASSIGNMENTS AND DELEGATIONS

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IN GENERAL

Privity of contract: Relation between two parties that is created by a contract and
recognized by law.
Rights and duties usually only extend to parties in the contract.
In a contract, each party gives a duty, and gets a right.
Parties to a contract cannot create duties in a third party, just rights.
Rights are ASSIGNED and duties are DELEGATED.

Assigning Rights: When you plan on giving a right to someone who is not in contractual
privity.
Delegation of Duties: When you plan on delegating your duty to someone not originally
in contractual privity
Third Parties: Person who are not in privity with the parties to the contract. Normally,
they have no rights or obligations with respect to the contract.

CLASSIFICATIONS OF BENEFICIARIES

1. Intended v. Incidental Beneficiaries: To enforce the promise, the 3P involved must be more
than a mere incidental beneficiary
a. Difference Restatement 302
i. Intended Beneficiary: A 3P to whom the contract benefits, and to whom the
contracting parties intended to give a benefit.
ii. Incidental Beneficiary: A 3P to whom the contract benefits, but to whom the
contracting parties did not intend to give a benefit.
2. Factors to Consider:
a. Is the performance rendered directly to the 3P?
b. Do express provisions of the contract purport to create rights in the 3P?
c. Is the 3P explicitly named in the contract?
d. Is there a close relationship between the promise and the 3P?

3. Rights of 3Ps as Contract (Intended) Beneficiaries

a. Contracts can affect parties that are not privity to it. Two persons may validly
contract for a performance to be rendered to a 3P. The question normally raised is
whether the 3Pwho is not in privity to the contract and gave no consideration for
the promisemay enforce the promise made for his benefit.
i. Common Law Rule: 3P may not enforce the promise since he was not in
privity.
ii. Modern Law Rule: 3P may normally enforce the promise made for his benefit.
4. Whose intent rules?
b. Three different approaches:
i. Both parties intent rules
ii. Promisees intent
iii. Promisor must know or at least have reason to know of the promisees intent
to benefit the 3P, even if the promisor has no particular desire to confer a
benefit on or create an obligation to the 3P. (Vogan)
5. How to Show Intent:
c. Must first look to whether the contract expressly provides evidence that contract is
intended to benefit 3P.
d. Only if the contract is silent regarding the parties intention, the court may then look
to the totality of the circumstances
i. language, background, fairness, practicability

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6. Vogan v. Hayes Appraisal, Inc.

e. The Vogans were the third party beneficiary to the Hayes/Bank agreement to
appraise the building of the house.
f. Issue
i. Was Vogan an intended third party beneficiary?
ii. Did the Bank or Hayes manifest intention to make Vogan a beneficiary?
g. Rule:
i. Promisor must know or at least have reason to know of the promisees intent
to benefit the 3P, even if the promisor has no particular desire to confer a
benefit on or create an obligation to the 3P.
h. Holding: Yes.
i. The files, invoices, etc. had Vogans name on it. Hayes knew or should have
known that the Vogans were intended to be benefited.
ii. The language of the contract gives Hayes reason to know the Bank
contemplated that benefit as a motivating cause for entering the contract.
iii. Benefit to a 3P need not be direct. Here, Hayes monitored construction so
that the Bank could loan money to the contractor to build a house for the
Vogansvery indirect.

ASSIGNMENTS & DELEGATIONS

ASSIGNMENTS OF RIGHTS
Assignment of a Right (Restatement 317): An act or manifestation by the owner of a right (the

assignor) indicating his intent to transfer that right to another person (the assignee). p. 766

Assigning a contractual right creates in the assignee a new right, and automatically and
immediately extinguishes the assignors rights previously held.

A contractual right can be assigned unless: (Restatement 317)

1. Substitution of a right to the assignee would materially change the duty of the obligator,

or materially increase the burden or risk imposed by the contract, or materially impair his

chance of obtaining return performance, or materially reduce value to him

2. forbidden by statute
3. precluded by the contract

Normally, court do not enforce non-assignability clauses due to public policy in favor of
7.
DELEGATION OF DUTIES
assignability.
Typically interpreted as prohibition of delegation of duties.
The Delegation
law does notof
like
restraints
on alienation.
a Duty
(Restatement
318): A transaction by which a party to a

contract arranges to have a third party perform the partys contractual duties.
A contractual duty can be delegated unless contrary to public policy or the
terms of the promise (non-delegation clause). A promise requires performance
by a particular person only to the extent that the obligee has a substantial interest
in having that person perform or control the acts promised (non-delegable
duty).
Example: A Van Gogh painting painted by someone else.
Neither delegation of performance nor a contract to assume the duty made with
the obligator by the person delegated discharges any duty or liability of the
delegating obligor. (Unless there is a novation.)
Novation (Restatement 280) A substituted contract that includes as a party
one who was neither the obligor nor the obligee of the original duty.

Herzog v. Irace

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intent of the parties. The lawyer received the settlement and gave it to Jones
instead of the doctor. Jones spent it instead of paying the doctor back.
b. Rule/Analysis:
i. An assignment assigned by an assignor to an assignee automatically and
immediately extinguishes the right previously held by the assignor. There is
now a DUTY to pay the doctor and not Jones. Their duty to the doctor remains
even though they paid Jones, therefore they are liable to the doctor who can
directly enforce his right against the lawyers (obligors).
8. Sally Beauty Co. v. Nexxus Products Co. (UCC case)
a. Sally merges in contract with Best (mergers and acquisitions) who has a contract
with Nexxus. Sally wants to enforce Nexxuss duties under Bests contracts. Nexxus
refuses to continue performances, and Sally sues for breach of contract.
b. Issue:
i. If an assignment is made to a partys competitor, is the assignment voidable?
c. Rule:
i. UCC 2-210
1. A duty of performance cannot be assigned to a direct competitor
without consent (to the extent that the oblige has substantial interest
in not seeing that person perform the duty)
2. Rationale: Performance may be much different than what was
originally bargained for. (Will Sally distribute Nexxuss products in a
manner similar to Best? Probably not.)
a. There is a presumption that Sally will not use best efforts (which
is required by the UCCRemember?)
d. Holding Nexxus can repudiate the contract.
9. UCC allows assignment unless the assignment would:
a. Materially change the other partys duty;
b. Materially increase the risk the K imposes; or
c. Materially impair the other partys chance of receiving return performance
d. Mnemonic: DRIP (Duty, Risk, Impair, Performance)
e. Exceptions: personal services, rights under furture contracts, requirements/output
Ks

CONDITIONS!!!!!

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The McWilliams MaximPlease Memorize This.

There is no remedy until there is a breach.
A breach is non-performance when performance is due. (there must be a duty to perform
Restatement 225)
Performance is due when all conditions thereto have been fulfilled. (Restatement 225)
A condition is an event, not certain to occur, which must occur, unless its non-occurrence is
excused, before performance under a contract become due. (Restatement 224)
Non-occurrence can be excused by:
1. waiver (by the non-breaching party)
2. disproportionate forfeiture (BP will be excused by the court, unless the condition was
material to the agreement.)
When does a condition exist in my contract?
Condition Flavors
1. Express conditions expressed in unmistakable language or apt and certain
words
2. Constructive condition
3. When unclear, courts prefer interpreting conditions as mere promises to limit
disproportionate forfeitures.

Forfeiture Defined (Restatement 229): the denial of compensation that results when
the oblige loses its right to the agreed exchange after is has relied substantially, as by
preparation or performance on the expectation of that exchange

1. Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co.

a. Sub-tenant sought to sublease its space in a building to a 3P (defendant). The
landlord included a non-assignment clause in the lease with subtenant, so the
parties to the sublease needed the landlords approval. The landlord agreed to
waive the non-assignment clause if certain conditions are satisfied:
i. Two Conditions in this case:
1. signature of landlord by a certain date (fulfilled)
2. consent of landlord in writing to perform work (not satisfied completely
telephone call, not in writing)
b. Defendant 3P wants to repudiate the contract due to non-performance of second
condition. Sub-tenant sues.
c. Issue:
i. Can Condition #2 be fulfilled by substantial performance?
d. Rule:
i. Generally, an express condition must be actually, literally performed
because it was part of the negotiation. (like it says in the provision)
ii. A constructive condition may be satisfied by substantial performance,
and does not have to be literally performed.
e. Analysis:
i. Here, the unmistakable language of the contract was clear, leaving no
doubt about the parties intent to form an express condition.
ii. Sub-tenant did not show that the non-occurrence of the condition would
cause a substantial forfeiture.
1. Instead claims that the condition should be waived or its enforcement
should be estopped because there was substantial compliance.

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2. BUT, the doctrine of substantial performance is inapplicable to express

conditions. Sub-tenant could only obtain waiver of the non-occurrence
of the condition to avoid forfeiture.
2. Jacob & Youngs, Inc. v. Kent (Nonperformance Material Breach)
a. Jacob & Youngs contracted to build a residence for Kent. The contract specified that
a certain brand (Reading) of pipe be used. Jacob & Youngs used a different type of
pipe equivalent to the type specified. When Kent discovered the mistake, he
realized that the cost of replacing it with the correct pipe would be astronomical:
the entire structure would have to be reconstructed. Kent refused to pay for the
work.
b. Issue:
i. Is Kent excused form paying because Jacob & Youngs failed to use the exact
brand of pipe specified under the contract, and instead, used a functionally
equivalent pipe, when non-payment would cause Jacob & Youngs to suffer a
forfeiture? (And a really, really big onethe cost of a whole house!)
c. Rule:
i. To create an express condition, parties must use apt and certain
words.
ii. If BP makes an innocent and trivial breach of a venial express condition,
the NBP is still obligated to perform if nonperformance would cause a
disproportionate forfeiture to the BP.
1. This is a partial breach.
2. The NBP may claim damages for Difference in Value. (See bottom of
p. 808)
iii. However, if the condition is material (Does its non-performance frustrate the
purpose of the contract?) OR if it is created by apt and certain words,
the NBP is relieved from its obligation (may repudiate the contract).
1. The NBP may claim damages for Cost to Completion.
d. Holding:
i. Here, the Reading pipe was an express condition created by apt and certain
words. (According to Prof. McWilliams, your authors disagree.)
ii. The detriment to Kent for Jacob & Youngs failure to use Reading pipe ($0) is
grievously disproportionate to the oppression of forfeiture to Jacob &
Youngs if Kent does not render performance ($3500).
1. Therefore, Kent must render performance and pay.
e. Notes:
i. Other Grounds Under Which NBP Can Recover Note 8 p. 814

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Remedies

Analyzing Remedies:
Ask the following in this order:
1. Do the parties simply want to modify an incorrect written agreement to reflect their actual agreement?
Reformation
2. Do the plaintiffs want to return the parties to the position they were in before the K was formed, as though the
K never existed? Rescission & restitution
3. Would money damages adequately compensate the ? If not, Special Performance. If yes, damages starting
with #4.
4. Is there a liquidated damages clause in the K? If its valid, it controls for damages.
5. What are the s so called natural contract damages? entitled to gains prevents and losses caused, less the
savings made possible. (Place is position as if the K had been formed)
a. Expectation Damages what the would have made
b. Restitution Damages benefits conferred onto the
c. Reliance Damages change in position
6. Is the entitled to consequential damages? Must be reasonably forseeable when the K was formed
7. Is the entitled to non-compensatory damages? Nominal and Punitive
a.

Four Basic Types of Relief for Breaches:

1.
2.
3.
4.

Damages (most common)

Specific Performance
Rescission and Restitution
Reformation

Equitable relief specific performance or injunction for when money damages would
provide an inadequate remedy
Remedies at law (money damages)
o Expectation damages
Put the in the position she would have been in had the performed. (1)
out-of-pocket costs & (2) profits they would have made
o Reliance Damages:
As good a position as she was in prior to making the K. (1) out of pocket
o Restitution
Prevents unjust enrichment
Returns to the who has partially performed the value of the performance he
has rendered to the defendant
Substantial Performance may sue for expectation damages for partial performance,
but the may counterclaim damages from incomplete performance
Duty to mitigate must make reasonable effort to avoid damages.
Liquidated Damages
o A provision in a K that setting the amount of damages in case of breach by one of
the parties

Computing Expectation Damages

Goal is to put the in the position she would have been in had the K been performed by
the . ** benefit of the bargain**
General Measure = loss in value + other loss (incidental + consequential) cost avoided
loss avoided
o Restatement 347

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Loss in value
Other loss:
incidental additional costs incurred after the breach in a reasonable
attempt to avoid loss
consequential you loss other profits because of it
o Cost avoided: the cost the non-breaching avoided by not having to performance
o Loss avoided: the stuff that you would have used in the breach contract that you
can now use in another contract
Roesch v. Bray -- When a purchaser defaults upon a contract for the sale of real estate, the
seller may recover the difference between the contract price and the market value of the
property at the time of the breach
o
o

Restrictions of Expectation Damages

Hadley v. Baxdale (1854) - Facts: plaintiff sued for lost profits because the didnt get
the steam engine for their mill back when they said they would. The paid for its carriage
and it was delayed by some neglect
o Where two parties have made a K which one of them, has broken, the damages
which the other party ought to receive in respect of such breach of K should be such
as may fairly and reasonably be considered either arising naturally or may
reasonably be supposed to have been in the contemplation of both parties, at the
time they made the K, as the probable result of the breach of it.
If there are special circumstances, the must expressly state them to the otherwise the
is not liable
Comes down to foreseeability, certainty, and causality
Avoidable consequences: the does not have a duty to mitigate but they may not
recover for those injurious consequences of the s breach that the herself could by
reasonable action have avoided.
o Rockingham County V. Luten Bridge Co. (1929) kept building the bridge
anyways.

Specific Performance
City Stores Co V. Ammerman - The needs Tysons Corner (gas station) except the

zoning was wrong. The asks the for a letter, which the writes. The zoning board
changed the zone. Then the fails to give the a site to build. thought they had a deal
and wanted. Instead of issuing monetary damages, Court order specific performance for
the lease to be enforced.
Limitations on the use of equity (specific performance):
o Money damages must be inadequate to protect the injured party
o The contracts terms must be definite enough to allow the court to frame an
adequate order; and
o The courts task of enforcing and supervising the relief must not be unduly difficult
Usually for land provisions and unique chattel
Courts dont use specific performace for personal service contracts

Agreed Remedies Liquidated Damages

Three elements of valid liquidation clause:

1. The clause must be reasonably forescast the probably loss due to breach
2. Harm caused by breach must be difficult to calculate
3. Parties must tailer the clause to the Ks circumstances

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Mnemonic CiDeR (circumstance, difficulty in calculation, reasonable forecast)

- No duty to mitigate under a liquidation clause

77