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Contracts Outline

1. Exam Taking Notes

a. First answer question: Why is it a problem in a relation to a
perfect agreement?
b. Identify: what is perfect agreement?
c. Think about overstatement or understatement of problem
d. Flaws in pl. or def. argument

2. Contractual Assent and the Objective Test

3. The Offer
a. Def. (24): 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.
b. Offer as a promise
i. Def. of promise: A manifestation of intention to act or refrain from
acting in a specified way, so made as to justify a promissee in
understanding that a commitment has been made.
1. In order for there to be an offer, all that remains to be done
is to accept

4. Acceptance
5. Preliminary, Incomplete, and Indefinite Agreements
a. Must first state the problem on exam. Why is it a problem? (Which is the



def. of indefiniteness)
Indefinite doctrine regulates the enforceability of contracts when a court
cannot determent the agreements essential or material terms, or cannot
fashion an appropriate remedy for its breach/ failure of mutual assent
Defendant must 1st attack the pl. prima facie case
26 (defense in agreement to agree): A manifestation of willingness to
enter into a bargain is not an offer if the person to whom it is addressed
knows or has reason to know that the person making it does not intend to
conclude a bargain until he has made a further manifestation of assent
(idea not rule)
Must understand and interpret context.
i. Context = words, acts, circumstances
ii. Do not characterize words of document or words used by the
parties. Must actually quote words
Three types of Indefiniteness
i. Gap : not agreed on a material term

1. Question: Whether or not you knew or should have known

that there was one more term that the counterpart need,
required in order to conclude the deal
2. Examples of material terms
a. Price
b. Time or place of performance
c. Payment terms
d. Quantity to be purchased
ii. Agreements to Agree: preliminary negotiations
1. Deferred Agreement: parties agreed on most of the terms of
their proposed contractual relationship, but have deferred
agreement on an important aspect
2. Must examine the language used by the parties in context in
order to ascertain whether it was an AtoA or not.
iii. Vagueness: term is so vague that is impossible to ascertain its
1. Example: fair share of the profits
g. Zimmerman v. McColley
i. Once there is an enforceable agreement, a unilateral attempt to
change a term is not permitted
ii. Whether counterpart knew or had reason to know whether person
intended not to conclude bargain until further manifestation of
assent depends on
1. Words
2. Conduct
3. Circumstances
a. Previous communications of parties
b. Usages of their community or line of business
h. 27: When written memorial is contemplated (ex. Einhorn)
i. Manifestation of assent that are in themselves sufficient to
conclude a contract will not prevented from so operating by the
fact that the parties also manifest an intention to prepare and adopt
a written memorial thereof; but the circumstances may show that
the agreements are preliminary negotiations
i. Norkunas v. Cochran (agreement to agree)
i. Letter of intent implies that parties intended it to be a nonbinding
expression in contemplation of future contract (however not
controlling proposition)
ii. Court analysis includes reasonableness of buyer and seller in
similar situation
iii. Rule: For a promise to establish an enforceable contract it must
express with definiteness and certainty the nature and extent of the
parties obligations
iv. 2 Types of binding preliminary agreements
1. Agreements where parties have reached a complete
agreement + agreement to be bound on all material issues

2. Agreements that contain a binding commitment to

negotiate in good faith
j. Cause of Action: breach of duty to negotiate in good faith: Some courts
enforce agreements to continue to bargain in good faith if the
circumstances under which negotiations take place indicate that the parties
did intend to assume the duty to keep bargaining in good faith
i. Can be express or implied (but courts lenient on enforcing
ii. Problems with enforcing something before parties have entered the
contract being negotiated
iii. Remedy: Other party can not renounce deal, abandon the
negotiations, or insist on conditions not conforming to the
preliminary agreement
k. Einhorn v. Megatroyd Productions (agreement to agree)
i. When analyzing whether agreement is binding or not consider:
1. Whether there is an expressed reservation of the right not to
be bound in the absence of a writing
2. Whether there has been partial performance of the contract
3. Whether all of the terms of the alleged contract have been
agreed upon
4. Whether the agreement at issue is the type of contract that
is usually committed to writing
l. Arbitron, Inc. v. Tralyn Broadcasting Inc.
i. Tralyn authorized Arbitron to change license fee if Tralyn acquired
new radio stations (escalation clause). Trayln did just that and
Arbitron charged them and they refused to pay
ii. This is no agreement to agree, but a delgation of discretion. Must
now attack the discretion
m. Tort Cause of Action: Interference with Contract Relations:
i. Where a valid contract exists and a 3rd party, knowing of the
existence of the contract, intentionally and improperly procures or
induces a breach of the contract
ii. Binding Preliminary agreement may qualify as a protected
contractual agreement, and suit can be brought

6. The Statute of Frauds (defense to whether enforceable

a. How to approach question
i. Is the contract subject to the statute of frauds?
ii. If yes, is there a signed writing in a form sufficient to satisfy the
statute? If yes, contract is enforceable
iii. If no, is there a recognized exception to the statue of frauds that
will allow enforcement of this contract?
b. Def.: Statutes that require that certain contracts are required by law to be
in writing. If not, they cannot be enforced by legal action

c. Goal is to deter fraud

d. If Statute of Fraud is satisfied, pl. has to prove that def. breached it, and
that pl. suffered a harm for which he is entitled to relief
e. Requirements of Statute
i. Writing (memorandum) (Record)
1. (132): the writing can consist of several writings if one
of them is signed and they relate to the transaction
ii. Signature (can be electronic)
1. (134) signature = any symbol made with intention to
authenticate writing as that of the signer
iii. Sufficient content to evidence the contract (131)
1. Does not have to be full and complete
2. Reasonably identifies the subject matter
3. Sufficient to indicate that a contract has been made between
the parties or offered by the signer to the other party
4. States with reasonable certainty the essential terms of the
unperformed promises of the contract
f. Six Types of Contracts inside within the Statute
i. Contracts to Answer for the Debt or Obligation of Another (Surety
ii. Contracts of Executors or Administrators to Answer for the Duty of
their Decedents
iii. Contracts Made Upon Consideration (bargain) of Marriage
1. Prenuptial agreements
iv. Contracts for the Sale of Land or Transfer of an Interest in Land
1. Exception: Part Performance
a. Part Performance of an oral contract may provide
enough proof of the contracts existence to justify
enforcing it despite noncompliance with the statute
v. Contracts that Cannot be Performed Within a Year of Execution
1. Question: Whether there will be a gap of more than a year
from the time the contract is made to the time that
performance is completed (130)
2. Klewin, Inc. v. Flagship Properties, Inc.
a. Holding that an oral contract that does not say in
express terms that performance will have a duration
beyond one year = contract of indefinite duration
b. Contract of indefinite duration is outside the statute
and is enforceable.
vi. Contracts for the Sale of Goods for the Price of $5,000 or more
1. UCC 2-201
a. Must be
i. Record
ii. Sufficient content
iii. Signature

iv. Contract can not be Enforced beyond the

Quantity shown in the Writing
b. Contracts between merchants satisfy statute under
c. Other exceptions that do not have to qualify general
i. Specially Manufactured Goods (SMG)
1. If te contract is for SMG and the
seller has at least begun manufacture
or made commitments in reliance on
the buyers order
2. SMG = One the manuf. could not
readily sell in the ordinary course of
its business to anyone other than the
original buyer (custom made
ii. Admission
1. If the party against whom
enforcement is sought admits in a
pleading, under oath, at trial or in a
deposition that an oral contract was
made, the contract becomes
iii. Performance
1. If the buyer has paid for the goods
ordered or if the seller has
completely delivered all goods call
for under an oral contract, the
remaining promises in the contract
are enforceable

g. Exception: 139
i. Reliance on oral agreement. Same as 90 under promissory
estoppel _+ factors for determining if injustice can be avoided by
enforcing the promise
1. Availability and adequacy of other remedies (cancellation
and restitution
2. Definite and substantial character of the action or
forbearance in relation to the remedy sought
3. Extent to which the action or forbearance supports evidence
of the making of or terms of the promise, or the making or
terms are est. by clear and convincing evidence
4. Reasonableness of the action or forbearance
5. Extent to which the action or forbearance was foreseeable
by the promisor
h. Remedy: Restitution, Voidable

7. Consideration
a. Consideration the thing vs. consideration the doctrine

8. Promissory Estoppel (cause of action)

a. Only use this analysis if there exists no consideration or
inconsistent statements by defendant.
b. Def.: theory that sometimes protect a promisee who has relied to his



detriment on the promise, even though consideration or other elements of

enforceability may not otherwise be present
90 test:
i. in making the promise
ii. the promisor should reasonably expect to induce action or
forbearance on the part of the promissee (reciprocity)
iii. The promise does in fact induce foreseeable action or forbearance
by the promise
iv. Injustice can be avoided only by enforcement of the promise
v. Remedy granted for breach only if justice requires
Most important element is reasonableness of the reliance
i. Critical Question:
1. Expectation damages (what position party would have been
in if the performance/promise went through) vs.
2. Reliance damages (purely the promise that was relied upon
to their detriment) (putting you in position you were in) vs.
3. Restitution (compensate pl. for any benefit it conferred
upon the def. as a result of the parties contract
ii. Question of which avoids the injustice?
iii. Reliance claims a waste of assets (detriment to the promisee)
Best test of reasonableness
i. Looking first at how circumstances were at satisfying bargain. The
more remote, then more unlikely you will recover
ii. Looking at detrimental change in position

9. Options and Firm Offers (Irrevocable Offers)

a. Purpose of option contract is to allow the offerree some time in which to
decide whether to accept the offer
i. Allows offerees to plan, investigate, and deliberate without the fear
that offers will be revoked before a decision to accept is made
b. Generally, offers are freely revocable until accepted

c. Offeror must keep the offer open and even if offeree rejects the offer,


makes a counter-offer, tor he offeror dies or loses legal capacity the

original offer will remain in effect
Consideration is necessary, but more lenient in option contracts
i. Mere recital of consideration may be sufficient even if
consideration is not paid
45: Offer of a unilateral contract creates an option contract if offeree
begins performance, or tenders the beginning of it. However, offerors
duty does not begin until offerees completion of the performance.
Drennan v. Star Paving
i. Even though subcontractor made a mistake when submitting low
bid, the plaintiff, the general contractor, reasonably relied on this
bid. Because subcontractor had knowledge that the bid would be
used by the plaintiff, and could foresee the harm that would ensue
from an erroneous estimate of the cost, they can not revoke the
offer. (90- Promissory estoppel: reasonable expectation of
inducing action of forbearance where injustice can only be avoided
by enforcement of promise)
UCC and Firm offers
i. Applies to short term offers to buy or sell goods
1. No requirements of consideration of reliance
ii. 2-205. Firm Offers
1. An offer by a merchant to buy or sell goods in a signed
record that by its terms gives assurance that it will be held
open is not revocable, for lack of consideration, during the
time stated or if no time is stated for a reasonable time, but
in no event may the period of irrevocability exceed 3
months. Any such term of assurance in a form supplied by
the offeree must be separately signed by the offeror

Obligation Based on Unjust Enrichment and
Material Benefit
a. Unjust Enrichment = Cause of Action
i. Arises where the claimant has conferred a benefit on the recipient
under circumstances that make it unjust (nothing to do with
contract-separate cause of action)
ii. Elements
1. Benefit conferred to other party
2. Other party Appreciated the benefit
a. Party must have been enriched by obtaining
property, services, or some other economic benefit
from the other
b. Policy question: Circumstances must be such that it
would be unjust for the beneficiary to keep the

benefit of that enrichment without paying or

compensating the other party for the benefit
iii. Unjust or Just?
1. Just: When enrichment is given with gratuitous intent (i.e.
2. Just: If enrichment received without asking for it
(unsolicited), and service can not be returned
(intermeddling, voluntary)
3. Unjust: If enrichment received without asking for it, and
property can be returned (tangible)
a. Can sue for 69 (Silence as acceptance) or Unjust
4. Unjust: Emergency action by hospital in giving services to
an unconscious patient.
a. Court presumes that the recipient would have
wanted the care even though she could not ask for it
iv. Remedy: Restitution
1. By return of the benefit
2. By money judgment for its value (if benefit can not be
a. ex) service
b. Must be evaluated in terms of its market value (this
is the standard)
i. Quantum meruit: market value of services
ii. Quantum valebant: market value of goods
v. General notion: One can only become a debtor of another by
1. But one who retains benefit without paying becomes a
debtor without agreement
vi. Unjust enrichment claim may also be referred as:
1. Quasi-contract (not a real contract)
a. They never involve a promise to pay
i. Just benefit + refusal to pay for it
2. Contract implied in law
a. Distinguished from contract implied in fact, which
is a real contract, created by conduct rather than
express agreement
vii. Distinction between Contract Implied in Fact and Implied in Law
1. Martin v. Little, Brown & Co. (did not sufficiently establish
one receiving copy as a debtor)
a. Publisher volunteered to give copy of book which
led to copyright infringment investigation
i. Rule: Volunteers have no right to restitution
ii. He did not make offer conditioned upon
payment, and no evidence to suggest that
there was expectation of payment

b. Contract Implied in Fact: (actual contract) where

parties agree upon obligations incurred, and
intention is inferred from their acts in light of the
c. Contract Implied in Law: (promise to pay the
reasonable value of the service) Implied where one
performs for another, with the others knowledge, a
useful service of a character that is usually charged
i. Can be implied when payment is reasonable
expectation of party performing
ii. Can not be given as a gratuity without
expectation of payment
viii. Volunteers and Intermeddlers
1. Volunteer: person who confers a benefit gratuitously
a. Intent to make gift, or lack intention to be paid
2. Officious Intermeddler: person who intends to seek
payment when they confer benefit, but person imposed an
unasked-for benefit on the recipient under circumstances
that do not justify payment
3. Estate of Cleveland v. Gorden (niece sufficiently
established aunt as debtor)
a. Niece took care of sick dying aunt. Bank officers of
aunts accounts told her that if she kept detailed
records of expenses niece would be reimbursed.
Aunt said she hoped that niece got everything else
of what she had for taking care of her.
b. Niece not intermeddler (aunt was thrust upon her)
c. Family members services are not always gratuitous
i. There is express agreement for services
ii. Or proof of circumstances showing that the
relative accepting benefit of the services
knew or should have known that the relative
performing them expected reimbursement.
d. Detailed records of niece est. expectation of
payment and aunt knew she expected it
b. Material Benefit Rule (86 Promise for benefit received)
i. A promise made by promisor to promisee in recognition of a
previously received benefit is binding if necessary to prevent
ii. Not binding under above rule if:
1. Promisee conferred benefit as a gift, or promisor has not
been unjustly enriched
2. Or the value of promise is disproportionate to the benefit


Policing Contracts for Improper Bargaining

a. Problem: Court can refuse to enforce a contract or some aspect of it if it
finds that the apparent manifestation of one partys assent was induced by
improper means
i. Remedies
1. Avoidance
2. Restitution (based on unjust enrichment
3. Enforcement of the contract excluding certain terms
4. Money damages
b. Void Contract: never existed (but properly used term if contract is illegal)
c. Voidable Contract: is a contract, but maybe not enforceable
i. Remedy in the sense of an option
1. Option to avoid any duties or obligations assumed
2. Option to choose unilateral or bilateral contract
3. Can use avoidance as a defense to suit, or sue for avoidance
ii. Other remedies
d. Misrepresentation and Fraud (cause of action is misrepresentation)
i. Def.: assertion not in accordance with facts
1. Factual assertion: representation that the present fact exists
2. Must first establish that it is a misrepresentation, and
3. Assertion must have been made at the time the promise was
ii. Misrepresentation must induce actual reasonable reliance
iii. Material Misrepresentation
1. A misrepresentation is material if it is likely to make a
difference to a reasonable person in deciding whether to go
through with the transaction.
iv. Fraudulent Misrepresentation
1. Definition: deliberately and dishonestly inducing the
contract by a lie, whether by words, concealment, or nondisclosure
2. Fraud in factum vs. Fraud in inducement
a. Fraud in factum: misrepresentation as to the nature
of the agreement itself = void
b. Fraud in inducement: misrepresentation as to the
inducement to enter into the contract = voidable
3. Discuss both the actions of the perpetrator, and the effect it
has on the victim
4. If facts present a fraudulent misrepresentation, identity
whether each fact is an express statement, a deliberate
concealment, or non-disclosure
5. Express statement
6. Deliberate concealment of fact

7. Failure to disclose a fact (161)

a. Is there a duty to disclose? Yes, if:
i. Knows that disclosure is necessary to
prevent some previous assertion from being
a misrepresentation or fraudulent
ii. Knows disclosure would correct a mistake
of the other party as to a basic assumption
iii. Knows that a disclosure would correct a
mistake of the other party as to the contents
of effect of a writing
iv. Where other person is entitled to know the
fact because of a relation of trust and
confidence between them (fiduciary duty)
8. Kaloti Enterprises v. Kellogg Sales Co.
a. Intentional misrepresentation claim
b. Failure to disclose is treated as misrepresentation
c. Party to a business transaction has duty to disclose a
fact when
i. The fact is material to the transaction
ii. The party with knowledge of that fact knows
that the other party is about to enter into the
transaction under a mistake as to the fact
iii. The fact is peculiarly and exclusively within
the knowledge of one party, and the
mistaken party could not reasonably be
expected to discover it, and
iv. On account of the objective circumstances,
the mistaken party would reasonably expect
disclosure of the fact

e. Duress
i. Definition (171): manifestation of assent induced by an improper
threat by the other party that leaves the victim no reasonable
ii. Must determine whether threat was improper
iii. If someone is compelled to enter a contract by use of physical
force, then the contract is void
iv. Improper Threat (176)
1. Where terms of the exchange is fair
a. What is threatened is a crime of tort, or the threat
would be a crime or a tort if it resulted in obtaining
b. What is threatened is a criminal prosecution
c. What is threatened is the use of bivil process ant the
threat is used in bad faith
2. Where terms of the exchange are unfair

a. The threat is a breach of the duty of good faith and

fair dealing under a contract with the recipient
b. The resulting exchange is not on fair terms and
c. The threatened act would harm the recipient and
would not significantly benefit the party making the
d. The effectiveness of the threat in inducing the
manifestation of assent is significantly increased by
prior unfair dealing by the party making the threat
e. Or what is threatened is otherwise a use of power
for illegitimate ends

v. Economic Duress
1. Austin Instrument, Inc. v. Loral Corp.
a. Loral was to deliver radar sets to the Navy under
contract, and Loral had to get radar parts from
subcontractor and came across Austin. They used
Austin in first contract, but when the second
contract came around, Austin raised the prices of
the parts, and said it would not deliver the already
promised parts to the first contract unless Loral
accepted the price increase. Loral could not find
another subcontractor that could deliver in time for
them to satisfy delivery requirements with Navy, so
they paid the increased prices.
b. Threat to breach the contract by not delivering the
goods + threatened party could not obtain the goods
from another source of supply + remedy for breach
of contract not adequate = economic duress
2. Must be threatened about surviving economically
3. No reasonable alternative but going to court
a. Factors to consider:
i. Effectiveness of the remedy
ii. Time

f. Undue Influence
i. General definition: When the victim is particularly vulnerable to
the persuasion of the other party because of some kind of
relationship of submissiveness, dependence, or trust
1. Wrong to be redressed is abuse of power
ii. 177 defines under influence as unfair persuasion of a party who is
under the domination of the person exercising the persuasion or
who by virtue of the relation between them is justified in assuming
that the person will not act in a manner inconsistent with his

g. Unconscionablility
i. Before applying unconscionability, look to see fi there is evidence
of incapacity, duress, undue influence, or misrepresentation first

ii. General application: transaction is so unfair that it would offend

the conscience of the court to enforce it
iii. Judge, rather than the jury is the arbiter of unconscionability
1. Relies on discretionary judgment exercised in light of all
the circumstances of the case
iv. Remedies
1. Avoidance
2. Enforce the contract unconscionable term
3. Limit the application of the unconscionable terms to avoid
the unconscionable result
v. Usually applied to the sale of goods
vi. Tests
1. Whether, in light of the general commercial background
and the commercial needs of the particular trade or case,
the term or contract involved is so one sided as to be
unconscionable under the circumstances existing at the
time of the making of the contract
2. Principle is the prevention of oppression (unequal
bargaining power) and unfair surprise (clause is typically
hidden in terms and legal jargon of written agreement)
vii. Elements of Unconscionability (must have combo of both)
1. Procedural
a. Absence of choice because of oppression or
surprise, integrity of the process
2. Substantive
a. Terms are unreasonably unfavorable to one party


Contract Interpretation and Construction

a. Analysis
i. Is the term reasonably susceptible to more than one meaning? =
Ambiguity (objective)
ii. What proof/ authority does party have to support this different
iii. 20 Misunderstanding: No manifestation of mutual assent to an
exchange if the parties attach materially different meanings to their
manifestations AND whether or not the each party knew or reason
to know the meaning attached by the other (subjective)
1. Must then identify the sources used in interpretation of
each side
iv. 201 Prevailing meaning: Where the parties have attached
different meanings to a promise or agreement or a term, it is
interpreted in accordance with the meaning attached by one of
party did not know or have reason to know the meaning attached
by the first party
b. Plain Meaning Approach

i. Whether term is ambiguous

ii. Resolving that ambiguity by interpreting the language of the
c. Reasonably Susceptible Test (modern test)
i. If contract is reasonably susceptible to the meaning urged by one
party, that party may introduce extrinsic evidence to establish that
meaning is the one actually shared by both parties
1. All relevant circumstances evaluated
ii. Burden of Proof: Must prove with preponderance of evidence,
more likely than not
d. 202: Rules in Aid of Interpretation
i. Words and conduct are interpreted in light of the circumstances
ii. Principle purpose of the parties is given great weight
iii. Writing is interpreted as a whole
iv. All writings part of the same transaction are interpreted together
v. Unless a different intention is manifested
1. General prevailing meaning of term given
2. Technical terms and words of art are given their technical
vi. If agreement involves repeated performances and each party has
knowledge of the nature of the performance and has an opportunity
for objection, but doesnt, great weight is given to that
vii. Where reasonable, manifestations of intent are interpreted as
consistent with each other and any relevant course of performance,
course of dealing, or usage of trade
e. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.
i. Facts: Defendant wanted to admit extrinsic evidence to prove that
indemnity clause of a contract only covered injury to property of
third parties, not damage to the pl. property. Pl. is suing for damage
to their property
ii. Rule: Extrinsic evidence should be admitted if it is relevant to
prove a reasonably susceptible meaning.
1. Intentions of the parties is more determinative than the
mere words of the contract
2. Meaning of words varies with the context and surrounding
circumstances and purposes in view of the education and
experience of its users
3. Intentions can be ascertained through circumstances
surrounding the making of the agreement, including the
object, nature and subject matter of the writing


The Parol Evidence Rule

a. Problem: One party wants to introduce evidence to support that there was






an agreement to a term not in the final agreement, and claims that the
other party breached contract for no adhering to that term
One of the goals of rule is to resolve an ambiguity
Where it does NOT apply
i. To modifications
ii. Showing that contract never existed
iii. Showing that there is a condition precedent
iv. Establishing evidence that contract is voidable
v. Parol Evidence rule does not apply when party trying to contradict
preliminary language in a contract
vi. Evidence of the meaning of a rule is an issue of interpretation and
not of parole evidence rule
i. Integrated writing: at least one term in which both parties have
agreed to be bound (final writing)
ii. Partially integrated writing: writing is summary or incomplete,
contains some but not all f the final terms of agreement
iii. Totally Integrated writing: writing is final, thorough, and complete
expression of all the terms of the agreement
How to determine if writing is partially or totally integrated:
i. Determined by a judge, not jury
ii. This is determined by not just looking at the content of the writing
itself but looking at the circumstances surrounding the making of
the writing
iii. Integration Clause in agreement
1. Persuasive, but not determinative
Elements: Must have
i. Final Writing
ii. Party trying to Present Extrinsic Evidence
iii. Define purpose of presenting evidence
i. To Contradict a term of the writing:
1. Partially integrated = NO
2. Totally Integrated = NO
ii. To Explain a term in the writing
1. Partially integrated = YES
2. Totally integrated = NO
iii. To Supplement a term of the writing
1. Partially Integrated = YES
2. Totally Integrated = YES
3. Must be a consistent additional term if under the
circumstances it is one that might naturally have been
omitted from the writing
UCC 2-202 (contextual approach)

i. If the additional tem is that which if agreed upon would have

certainly been included in the writing, then a judge will not allow
that evidence to be submitted
ii. Terms in a record may be explained by evidence of course of
performance, course of dealing, or usage of trade without a
preliminary determination by the court that the language used is
i. If the evidence is permitted, then a jury will determine the credibility of
the evidence and if the term may become part of the agreement.

Misunderstanding, Mistake, and Excuse Due to
Changed Circumstances
a. Misunderstanding
i. Different meaning attached to a material term by both parties
(same words, different meaning)
ii. 20:
1. No manifestation of mutual assent is established if both
parties attach a different meaning to their manifestation and
a. Neither party knew or had reason to know of the
meaning attached by the other
b. Or both parties knew or had reason to know of the
meaning attached by the other (because they were
aware of each others misunderstanding but chose
to go ahead anyway without correcting it.
2. Manifestation of assent will be established if both parties
attach a different meaning to their manifestation but
a. One party knew or had reason to know of the
meaning attached by the other party.
b. The meaning will be in accordance with the party
that had no knowledge of the others meaning
iii. Meaning unreasonable if no objective source
iv. Failure of mutual assent = NO CONTRACT

b. Mistake
i. 151: A belief not in accord with the facts
ii. Had the party only known he would not have entered into the
contract in the first place
iii. A person who enters into a bad deal will not receive relief under
the mistake doctrine
iv. Mistake is measured by the facts as they exist AT THE TIME THE
v. Easier for the party adversely affected by the mistake to get relief
when the mistake is mutual than unilateral
vi. Mutual Mistake
1. Elements

a. The mistake relates to facts in existence at the time

of the contract
b. The mistake is shared by both parties
c. The mistake relates to a basic assumption on
which the contract was made
i. I think is not a sufficient basic assumption
ii. Mistake changes the essential nature of the
contract so what they thought they were
agreeing to was not actually what they
agreed upon
d. The mistake has a material effect on the agreed
exchange of performances
i. Too unfair to enforce the bargain because
one parry may get too large a windfall, or
the other is suffering too large of an
unknowing detriment
e. The complaining party did not bear risk of the
i. 154: How to find that party bore risk:
1. the risk was allocated to that party by
express agreement of the parties
2. the party is aware, at the time the
contract is made, that he or she has
only a limited knowledge of the true
facts, but decides to threat that
limited knowledge as sufficient or
3. As a matter of law the court finds it
reasonable to place the risk of the
mistake on that party
2. After discovery of mistake is made, claiming party must
seek to disaffirm or avoid it within a reasonable time. If
not, contract will be deemed ratified by adversely affected
a. What is reasonable is dependent on the
3. Reliance by other party does not matter, but party in which
the mistake adversely affects may have to pay restitution
4. Remedy: Contract is avoidable by party adversely affected
by mistake
a. Either must pay restitution if benefit received until
the time it was avoided
b. Or if granted restitution for benefits conferred under
the contract until the contract was avoided
vii. Unilateral Mistake (153)
1. Elements




a. The mistake relates to facts in existence at the time

of the contract
b. The mistake is by one party only
c. The mistake relates to a basic assumption on which
the mistaken party made the contract
d. The mistake has a material effect on the agreed
exchange of performances that is adverse to the
mistaken party
e. The mistaken party did not bear the risk of the
f. Either
i. The effect of the mistake is such that
enforcement of the contract would be
unconscionable or
ii. The other party had reason to know of the
mistake or his fault caused the mistake (may
be liable for misrepresentation failure to
Common example of a unilateral mistake is a mistaken
bid. A general contractor submits a very low bid on a
project which is submitted by a developer.
a. Must prove unconscionability (contractor would
lose so much money) or that developer knew or
should have known of mistake
After discovery of mistake is made, claiming party must
seek to disaffirm or avoid it within a reasonable time. If
not, contract will be deemed ratified by adversely affected
a. What is reasonable is dependent on the
If the non-mistaken party has substantially relied on the
promises made by the mistaken party, Most courts hold
that mistaken party can not avoid contract
Remedy: Restitution

c. Excuse
i. Party should be excused from contract because event subsequent to
contract formation has defeated its legitimate expectations under
the contract
ii. Must factor in foreseeability of event
iii. If there are multiple purposes or multiple risks that are in
relation to the performance, excuse is not going to work
because that goes against the basic assumption element
iv. Impossibility
1. Supervening event caused the performance to be
objectively impossible.

a. A reasonable person in the position of the party

claiming excuse would have to be incapable of
performing it
v. Impracticability
1. Change in circumstances makes performance become
unfairly burdensome or difficult (can be done, but not in
2. 261: Elements
a. Occurrence subsequent to contract formation occurs
b. Occurrence is not the fault of claiming party
c. Occurrence makes performance based on basic
assumption of parties impractical
3. Must factor who had the risk, who came into the
agreement knowing the risk
4. Ling v. Board of Trustees of Doane College
a. College and Ling applied for a visa so that Ling
could continue to teach, and it was granted. INS
visa granted to Ling was going to expire, so in
accordance with federal law, the college set up a
competitive recruitment process, where they had to
show that Ling is the most qualified out of the other
applicants. They found that Ling was not the most
qualified, and told him 4 months before his contract
school expired that he would not be reappointed.
Handbook stated that Ling should have been
notified one year ahead of time before his contract
expired. Court stated that the college could not
know that a more qualified person would apply, so
that this made notification impractical if they were
to be in accordance with federal regulations
5. Clark v. Wallace County Cooperative Equity Exchange
a. Clark was a farmer who contracted with Wallace
County to deliver 4000 bushels of corn. A freeze
occurred damaging the crop, so Clark only
delivered a portion of the required amount. Clark
claims that he should be excused because of the
freeze. Court did not excuse him because the risk
that the freeze would occur was foreseeable, and
Clark could have gotten the rest of the corn from
another source, so his performance was not
vi. Frustration of Purpose
1. Performance is excsed where a change in circumstances
following the contract defeated the mutually purpose of the
contract (Can be done, but not worth doing)
2. 261 Elements

a. Event occurs after the contract is formed

b. Occurrence substantially frustrates principle
c. Occurrence was not claiming partys fault
d. Non occurrence was a basic assumption on which
the contract was made


Conditions and Promises

a. Problem: Establishing whether a party who has not performed what he or
she promised in a contract is in breach for failing to perform, or has an
excuse for not performing

b. Analysis
i. First ascertain whether the contractual promise that was not
performed is subject to a condition, an unconditional duty, or
both subject to a condition and a duty
1. Intention of the parties is determinative of a term, but if
intention is uncertain, these are interpretative rules
a. Interpretation that a promise is an unconditional
duty rather than a conditional obligation is favored
when the event necessary to fulfill the condition is
within the obligees control
b. Interpretation that reduces promisors risk of
forfeiture is preferred
ii. Second, if the promise is subject to a condition, determine whether
the condition is a condition precedent or condition subsequent
1. Condition precedent
a. An event, not certain to occur, which
b. Must occur before performance under a contract is
enforceable, unless
c. The non-occurrence of the event is excused
d. Parties to a contract subject to a condition precedent are
in a binding agreement, but duties subject to the
condition are unenforceable until the conditional event

2. Condition Subsequent
a. An even, the occurrence of which is not the result of
a breach of the obligors duty of good faith, which
b. If it occurs, terminates a partys duty to perform,
c. Its occurrence is excused
d. Parties to a contract subject to a condition precedent are
in a binding agreement whose terms are enforceable, but
when the event occurs, the parties are still in a binding
agreement, but the duties under the agreement can no
longer be enforced

iii. Third, determine if that condition is an express condition, implied

condition, or a constructive condition
1. Express Condition: condition expressly agreed upon by the
parties as evidenced by their words
2. Implied in fact Condition: condition agreed upon by the
parties as evidenced by the actions rather than words
a. This is judged under an objective test, whether a
reasonable person would believed condition had
agreed to by the parties
b. Must be an agreement of actions by both parties
c. Have same legal effect as express conditions
3. Constructive Conditions: Condition that the parties have
not expressly agreed upon, but which the court decides is
necessary to imply in a contract to determine the parties
right and duties under that contract.
a. Court imposes constructive condition if it believes
i. Such a condition would have been agreed to
by the parties had they considered it or
ii. Whenever justice requires such a condition
be imposed so the rights and duties of the
parties under the agreement can be fairly
b. Most common Types of Constructive Conditions:
Conditions of Exchange
i. When a party will be in a breach
ii. Which party must perform first in a contract
where both parties have remaining duties
iii. When a party is in material, rather than
partial breach of contract
iv. Fourth, ascertain whether the condition has been satisfied,
noting that satisfying a condition precedent has different effects
than satisfying a condition subsequent, and that express conditions
are subject to the strict construction rule
1. If condition precedent: person to whom duty is owed bears
burden of proving that the condition was satisfied
2. If condition subsequent: party who owed duty bears burden
of proving that condition has occurred.
3. An express condition is strictly construed
a. Meaning that the condition must be fulfilled in its
entirety, or the duties subject to that condition are
not enforceable
v. Fifth, if the condition exists and has not been satisfied, ascertain
whether it has been excused by either a waiver, breach or a
disproportionate forfeiture

1. Excused condition means that it turned into an

unconditional duty
2. Excuse by waiver
a. Excuse of the non-occurrence of, or a delay in the
occurrence of a condition (Ex. Accepting a late
delivery of goods)
b. Waiver can take place before and after the contract
is made and before and after the event that is the
subject o the condition is due to occur
c. Waivers are generally freely admissible if
established after the contract has been signed
i. However, if the condition is waived prior to
entering into a written contract, there may be
problems in establishing that the waiver was
agreed to under the parol evidence rule
d. A party may retract a waiver if:
i. They give reasonable notice of the retraction
ii. So long as the other party has not materially
relied on the waiver
e. Waivers made after the condition has occurred can
not be revoked
f. Waivers can be made as to Express or Constructive
3. Excuse by Breach
a. If obligor breaches a contract and that breach causes
the non-occurrence of a condition, the act of
breaching the contract will excuse the nonoccurrence of the event and transform conditional
duty into an unconditional enforceable promise
4. Excuse to Avoid Disproportionate Forfeiture
a. General rule is express conditional duty is
unenforceable unless completely fulfilled
b. A court is entitled to excuse the failure to fulfill
even an express condition if
i. Enforcement of the condition will lead to
disproportionate forfeiture and
1. Balance importance of condition to
the obligor against the extent of loss
to be suffered by the obligee should
the condition be enforced to
determine if forfeiture is
ii. The condition is not as to a material party of
the bargained for exchange

vi. Conclusion: If a condition exists and is neither satisfied or

excused, the party who failed to perform will have breached
Contract: 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 a duty
Agreement: Manifestation of mutual assent on the part of the two or more persons
Bargain: An agreement to exchange promises or to exchange a promise for a
performance, or to exchange performances
Bilateral (promise for a promise) vs. Unilateral Contracts (promise for a performance)
Mailbox Rule: Contract is formed when a letter of acceptance is posted
Offeror chose medium of acceptance as post office
Risks that letter could be lost or late
Favors offerees certain reliance on posting the mail. This reliance requires no
proof in contrast with 90 which requires proof.
Mirror Image Rule: Offer must be accepted without modifications
59 of Restatement: Reply to an offer which purports to accept it but is
conditional on the offers assent to terms additional to or different from those
offered is not an acceptance, but a counteroffer
2-207: additional or different terms construed as addition to contract unless acceptance is
conditioned on offerors acceptance of additional terms or terms materially construe
original terms
Kabil Developments Corp. v. Mignot
Objective standard must be used when interpreting parties agreement
Dispute in unwritten agreement must be resolved by evidence of their
negotiations or past conduct, from communications and overt acts, not
undisclosed intent and ideas = mutual assent
Lucy v. Zehmer
201: Which Meaning Prevails
o If different meaning attached to promise, agreement, or term, it is
interpreted in accordance wit meaning attached by one of them at the time
the agreement was made
One party must know or have reason to know the meaning attached
by the other, and the other knew or had reason to know the
meaning attached by the 1st party

Rule: Mental assent is not requisite for formation of contract

Lefkowitz: Advertisements are not offers unless you can objectively determine who is the
offeree of the advertisement
General rule: Advertisements are invitations to bargain
Reciprocal Inducement
Bargain, not mere agreement
Promisor induced by performance to make promise
Hamer v. Sidway
One abandons some legal right in the present
Limits his legal freedom of action in the future
Acceptance of Offer (50): Manifestation of assent to terms thereof made by the offeree
in a manner invited or required by the offer
Acceptance by performance: At least part of the what offeror requests is performed
Bilateral (return promise)
Acceptance by promise: offeree complete every act essential to the making of the promise
What is Reasonable Acceptance? (Factors)
Nature (how it works)
69: Silence as Acceptance (Exception to general rule
Where offeree takes benefit of offered services with reasonable opportunity to
reject them and had reason to know it was offered with expectation of
Where offeror stated or gives offeree reason to understand silence as acceptance
Because of previous dealings, it is reasonable that offeree should notify offeror he
does not intend to accept
45: Option Contract
If begin performance = bargaining to enter into optional contract
o Have option to accept or not
o Not bound until you complete performance
o Can take time to complete perfomance