Contracts

Outline

Table of Contents
Offer
Acceptance

3
4

Effects of Partial Performance

Employment Contracts
Mailbox Rule
Consideration

5
5
5

Option Contracts
Contract Modifications

6
6

Moral Obligation
Promissory Estoppel
Equitable Estoppel
Parol Evidence Rule
Conditions

6
7
7
7
8

Express
Constructive
Precedent
Subsequent
Concurrent

8
9
9
9
9

Breach
Remedies

10
10

Specific Performance
Damages
Injunction

10
11
12

Third Party Beneficiaries

12

Intended Beneficiaries
Incidental Beneficiaries
Vesting

12
12
12

Assignment

13

Assignment of Rights
Equitable Assignment
Delegation
Novation

13
14
14
14

Capacity of Parties

14

Infancy
Mental Incompetency
Intoxication
Illegality
Undue Influence
Duress

15
15
15
15
16
16

Avoidance: Misconduct or Mistake

Impossibility, Impracticability, & Frustration
Impossibility of Performance
Impracticability of Performance
Frustration of Purpose

16
17
17
17
17

Statute of Frauds

17

Offer
An offer is a promise to undertake or commit to do something. The offeror is the person who makes the
initial offer, and the offeree is the person who the initial offer is made to. The offeror is master of his
offer; only he can revoke it, and can prescribe the specific method of acceptance. However, an offer can
be revoked indirectly when revocation is communicated by a reliable source. The offeror can revoke his
offer at any time before the offeree accepts it.
An offer must have the following elements: essential terms, definite terms, power to accept, & induce
acceptance.
Generally speaking, advertisements are not considered offers; they are merely an invitation to an offer.
However, when advertisements are so specific that they leave no ambiguity or terms to be negotiated,
then they can be considered offers.
Price quotations are usually not offers, unless they contain promissory language.
Regarding the intent of the contracting parties, all we care about are the outward manifestations of their
intent. A party is only held to the intent they express; their secret intentions are irrelevant in establishing
an agreement. (We dont care about the gerbil inside ones head.) INTENT TEST: Would a reasonable
person in the shoes of the offeree believe that the offeror intended legal consequences? If YES, then its
an offer.
Unless a partys intentions are expressed at the time of contracting, any unexpressed intentions cannot
be held to defeat the purpose of the contract in court. An offer which the offeree knows or should know is
made in jest is not a valid offer; even if its accepted by the offeree, theres still no contract. For example,
in Zemmer, the offeree claimed to have contracted to sell his land in jest, but never made those intentions
known to the offeror at the time both parties signed the contract, so the court denied the offerees request
to cancel the contract.
Intent is tested by a reasonable person standard; would a reasonable person in the other persons
position think that the first partys objective manifestation demonstrated his intent?
If both parties intend for the contract to be legally enforceable, then it will be, even if the parties
mistakenly believe that it isnt.
Doctors promises regarding a specific outcome...
In the event that the evidence is ambiguous about whether the parties intended to be bound, the court will
follow the following rules on presumption: (1) In a business context, the court will presume that the
parties intended their agreement to be legally enforceable; but (2) in a social or domestic situation
(husband & wife), the court will presume that legal enforceability is not intended.
Regarding intent to be bound, if two parties agree (orally or in informal writing) on all essential terms, but
decide to memorialize the agreement at a later time through a more formal writing, the preliminary
agreement is considered binding so long as the parties intent that they be bound at the time is
expressed. (Ex. = Texaco v. Penzoil: memorandum of agreement, press releases, board meetings, etc.)
If a party that wants to contract preliminarily solicits bids (auctions or subcontractors), this solicitation is
not considered an offer, and cannot be accepted. A solicitation merely serves as a basis for preliminary
negotiations. Look for language like Ill pay at least $100...

If, after the offeror extends his offer to the offeree, and the offeree assents to accepting the offer BUT
requests that certain terms be changed, then that acceptance is not considered acceptance and is
instead considered a counter-offer. This kills the offerors initial offer, and the initial offerees counteroffer is now considered to be THE offer.

Acceptance
Acceptance of an offer is a manifestation of assent to the terms made by the offeror in a manner that is
required/invited by the offeror.
Bilateral v. Unilateral Contracts
A bilateral contract is a promise for a promise; a contract is formed upon the second partys assenting to
the offerors offer by promising. A unilateral contract is a promise for performance; a contract is formed
upon the second partys assenting to the offerors offer by performing a specified act.
Power of acceptance
An offer can only be accepted by a person in whom the offeror intended to create a power of
acceptance. In order to accept the offer, the offeree must know about the offer at the time of
acceptance.
Method of acceptance
Acceptance of an offer must be demonstrated in the method expressly specified by the offeror. If an offer
doesnt specify the method of acceptance, then acceptance may be given in a reasonable time.
Where the method of acceptance is ambiguous, the offeree can accept by either promising or
performance. In the case of shipping goods, if a buyer placed a purchase order that doesnt state how
acceptance is to occur, then the seller can accept by either shipping the goods (performance), or
promising to ship the goods (promise).
Silence as a method of acceptance
Generally, an offer cannot be accepted by silence, unless it is expressly stated in the contract that it may.
Silence can constitute acceptance if the offeror has given the offeree reason to understand that silence
constitutes acceptance. An offeree who silently receives the benefit of services (but not goods) will be
held to have accepted a contract for them if he: (1) had a reasonable opportunity to reject them; and (2)
knew or should have known that the provider of the services expected to be compensated. The prior
course of dealing may make it reasonable for the offerees silence to be construed as consent. (Ex. case
where whip company was sent snake skins.) When an offeree receives goods, and keeps them, this
exercise of dominion is likely to be held as acceptance. The offeree must return the goods in order to
demonstrate denial of the offerors offer.
In situations where contracting parties dont expressly exchange an offer for acceptance, but instead
indicate their understanding that a contract is being formed by their conduct, are referred to as impliedin-fact contracts.
When offerees power of acceptance dies
The offerees power of acceptance may be terminated through different means. If the offeree rejects
the offer, then his power of acceptance is terminated, and the offer is considered dead to him. However,
rejection doesnt terminate an offerees power of acceptance if (1) the offeror indicates that the offer still
stands despite the rejection, or (2) if the offeree expresses that he doesnt want to accept the offer now,
but will consider the offer for possible future acceptance. If the offeree doesnt accept the offerors offer
within the time specified by the offeror, then the offerees power of acceptance is automatically

terminated. If there is no specified time in the offer, then the power of acceptance terminates after a
reasonable time.
Acceptance can be valid, despite conditional language, if the language of the acceptance demonstrates
that the acceptance is distinct from the condition.

Effects of Partial Performance

There are 3 theories about the effect of partial performance on an offer looking to a unilateral
contract. Performance requires a clear and unequivocal act indicating acceptance.
(1) Option contract. Partial performance creates an option contract, where by the offeree beginning
performance, the offeror cannot revoke his offer, but the offeror can chose not to continue performance
without being held in breach. The offerees beginning performance acts as consideration to keep the
offerors option open.
(2) No effect. Partial performance does not constitute acceptance; the offeror may revoke his offer at any
time before performance has been 100% completed, and the offeree may cease performance without
being held in breach.
(3) Implied-in-fact promise to complete. Partial performance creates an implied-in-fact promise to fulfill
the contractual duty. If the offeree ceases performance after beginning performance then he is held in
breach. If the offeror revokes the offer after the offeree begins performance, then he is held in breach.

Employment Contracts
An at-will employee can only be fired for good reason or no reason, but not bad reason. An exception to
this is where the termination of an employee violates public policy. If an employer terminates an at-will
employee for no-reason, but there is evidence to support that the employee was fired for a bad reason,
the exception applies to provide the employee with a remedy. There is implied-in-law.

Mailbox Rule
Acceptance is valid upon dispatch; the second the acceptance drops to the bottom of the mailbox, a
contract is formed. Rejection is valid upon receipt; rejection is effective the second its in the offerors
hands.
The mailbox rule itself is where acceptance is sent before rejection, and rejection is received before
acceptance - ARRA. In this case, a contract is formed. However, if the offeree relies on the initial rejection
by entering into a contract with another party, then the existing contract can be estopped.
The exception to the mailbox rule is where rejection is sent before acceptance, and rejection is received
before acceptance - RARA. In this case, a contract is not formed; the rejection kills the offer.

Consideration
Gratuitous promises are not consideration.
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The forbearance of asserting a legal claim must be made in good faith in order for it to qualify as
consideration.
A written promise to pay a debt at a later time will negate the statute of limitations time requirement,
which obligates a person to bring legal action within a certain period of time.
A humanitarian and voluntary act does not count as consideration when it is performed at an earlier
date.
Generally speaking, a promise given in exchange for something already performed will not satisfy the
bargain requirement. You cant offer consideration when its something that youve already done.

Option Contracts
An offer in an option contract becomes irrevocable once consideration is provided. Consideration keeps
the offer open exclusively to the person providing consideration. If consideration is performance, then by
beginning performance, the offer can no longer be revoked. An option is considered to be exercised
when the consideration is provided. If theres a time term to the options expiration, then the option
expires at that time, even when the option is exercised. If there is no time term, then the option expires
at a reasonable time, which is decided by the court.
The mailbox rule does not apply to option contracts. So a persons desire to exercise an option is not
considered as soon as it is mailed.

Contract Modifications
Contracts that require modification during the life of the contract require consideration.
However, modification does not require consideration when 4 conditions are met: (1) the contract cannot
be fully performed; (2) the modification must be fair and equitable; (3) the modification must be voluntarily
agreed to; and (4) the modification was brought about because of unanticipated circumstances.
Factors regarding materiality:
1. Deprivation of expected benefit: THe more the non-breaching party is deprived of the benefit which
he reasonably expected, the more likely it is that the breach was material.
2. Part performance: The greater the part of the performance.

Moral Obligation
When the promisee provides the promisor with a material benefit (like saving his life), and the promisee
accepts the promisors offer to be compensated for providing such benefit, then the promisor is morally
obligated from that point on to provide the promisee with such compensation. If the promisor receives a
material benefit and makes a subsequent promise to the person who performed the act, the subsequent
promise is implied to be a requested act by the promisee. TEST: Would the promisor, if he had been
given the time and opportunity, request the act to be performed?
If a person morally obligates themselves to compensate a promisee immediately after the material benefit
is provided, or without having enough time to consider their promising to compensate the promisee,
then courts tend not to enforce the promisors promise to compensate the promisee.

Some jurisdictions dont apply the material benefit rule - its a minority rule.

Promissory Estoppel
Under the doctrine of promissory estoppel, when no consideration is tendered toward a contract, but
the offeree relies on the offerors promise, then the offerors promise will be enforced in order to
prevent injustice on the part of the offeree.
The promise is one which the promisor should reasonably expect to induce action or forbearance on
the part of the promisee (or a third person) and which does induce such action or forbearance is binding if
injustice can be avoided only be enforcement of the promise.
1st Restatement

2nd Restatement

Reliance must be of a definite and substantial

character. The promisee must act or forbear a lot
in order for the promise to be enforced.

The promisee must reasonably rely on the

promisors promise in order to enforce it.

The promisee can recover 100% of the amount

they were promised, just by partially performing.

The promisee can recover only the amount that

they relied on the promise - the amount that
justice requires. Rely a little, get a little; rely a
lot, get a lot.

Charitable subscriptions are not enforceable.

Charitable subscriptions are enforceable only

with consideration and reliance.

On the test: Talk about how both restatements would apply to the promisees situation.

Equitable Estoppel
Equitable estoppel is a way to get around the Statute of Frauds. A party can get around the Statute of
Frauds if they show reliance, partial performance, and that injustice cant be avoided by enforcing the
agreement as justice requires, or injustice can only be avoided by applying Statute of Frauds

Parol Evidence Rule

The parol evidence rule is an exclusionary rule which bars the use of parol (oral) evidence issued prior
to the signing of the written contract. The purpose of the parol evidence rule is to prevent fraud and make
sure that neither party is taken advantage of.
The idea behind the parol evidence rule is that if the contracting parties intended on including it in the final
written agreement, then it would have been included. So if the evidence varies, contradicts, or
supplements an integration, then it is excluded from being used in court. If the evidence is so similar and
related to the contract then that would presumably be something the parties discussed prior to the
contracts formation, and therefore would have included it in the integration if they intended to. If the
evidence will vary, contradict, or supplement the integration, then the evidence will be excluded.

Integration
A written document is said to be an integration of the parties agreement if it is intended as the final
expression of the agreement. The parol evidence rule only applies to documents that are integrations, i.e.,
final expressions of the agreement.
Partial integration
A partial integration is a document that is intended to be final, but that is not intended to include all
details of the parties agreement. When a writing is a partial integration, no evidence of prior or
contemporaneous agreements may be admitted if this evidence would contradict a term of the writing.
Total (complete) integration
A total integration is a document that is not only a final expression of agreement, but that is also
intended to include all details of the agreement. When a writing is a total integration, no evidence of prior
or contemporaneous agreements may be admitted that would either vary, contradict or supplement the
writing.
The parol evidence rule never bars consideration of subsequent oral agreements. A written contract
may always be modified after its execution by an oral agreement, unless theres a no oral modification
clause in the agreement.
Steps to tackling a parol evidence rule problem:
(1) Was there an oral (parol) agreement?
(2) Was there a written contract?
(3) Was the oral agreement made prior/subsequent/contemporaneously to the written agreement?
(4) If prior (or contemporaneous), does oral agreement vary, supplement, or contradict the written K?
If varies > The parol evidence would change a term in the K = EVIDENCE EXCLUDED
If supplement > The parol evidence would add a term to the K.
- If partial integration = EVIDENCE ALLOWED
- If total integration = EVIDENCE EXCLUDED
If contradict > The parol evidence would negate a term all together = EVIDENCE EXCLUDED
If interprets > Parol evidence is always allowed.
Defense to Parol Evidence
If a party raises the parol evidence rule in order to exclude a prior oral agreement, the party trying to allow
the parol evidence would raise the defense that the prior oral agreement induced them to enter into the
contract. Therefore, the party trying to allow the parol evidence would argue that the oral agreement was
a condition precedent to formation of the contract; they wouldnt have entered into the contract unless
that oral agreement was made.

Conditions
Express
Express conditions require literal compliance. For ex., if a contract term specifies that performance
must be completed by 1pm, and it is completed by 1:01pm, then the express condition was not literally
complied with, and is therefore considered a breach.
An express condition can also be implied-in-fact. In an implied-in-fact condition, courts determine what
the intent of the parties was from the facts and circumstances surrounding the performance of the
contracts. If the facts and circumstances imply that the parties intended for one partys duty

A forfeiture occurs when one party has relied on the bargain, and insistence on strict compliance with the
condition would cause him to fail to receive the expected benefits from the deal. If a forfeiture would
result, then the court will avoid applying the express conditions literal compliance.
If the parties clearly intend that one partys subjective satisfaction should control whether a condition
was met, the court will honor that intent. This applies where the condition involves the taste of the person.
Where conditions being met are dependent on the partys taste, dissatisfaction made in good-faith is
required in order for the condition to be considered met. If a party was dissatisfied with a known fact
prior to entering into the contract, then they cant assert that they were dissatisfied later on.

Constructive
A constructive condition, a.k.a. an implied condition, is implied-in-law, and established by the court.
Whether a constructive condition existed is determined after the performance toward a contract. Literal
compliance is not required since the conditions performance would not be known until after it is impliedin-law. Constructive conditions require substantial performance.
With constructive conditions, a party can suspend performance when the other party demonstrate
prospective inability to perform. Such inability demonstrates that their promise cannot be relied on, as
performance being completed is uncertain at the time. In the event that a party suspends their
performance, then the other party has a reasonable time to gain the ability to perform. Where the party
who is unable to perform never becomes able to perform, then they are in breach.
Promissory conditions identify an event that must occur for performance to be due, and that it contains
a promise by one of the parties that an event will take place.
Questions to ask to confirm if its a promissory condition or a condition:
(1) Did the parties intend for the performance to be excused if an event does not occur?
If no, the event is not a condition of the performance; its a promise.
If yes, the event is a condition of the performance.
(2) DId the parties intend that one of them is responsible for the event occurrence and will be liable for
breach of contract if the event does not occur?
If yes, promissory condition.
If no, pure condition.

Precedent
A condition precedent is where one partys performance of an act, or causing an event to occur, causes
the other partys duty to arise. The condition part is the performance of causing the event to occur. So if
a person fails to literally comply with the condition, then the other partys duty will not arise.

Subsequent
A condition subsequent is where one partys failure to perform an act, or failure to cause an event to
occur, extinguishes the other partys duty.
The difference between subsequent and precedent, aside from the former extinguishing the duty, is
that precedent conditions must be pled and proved by the person wanting performance of the condition,
whereas subsequent conditions must be pled and proved by the party that doesnt want the condition to
be enforced.

Concurrent

A condition concurrent is where both parties performance causes each others duty to arise. For ex.,
where both parties must deposit valid deeds and stocks in escrow, then both parties duty to buy/sell
arises.
In order to put the other party in breach, the suing party must tender performance - they must prove that
they are ready, willing, and able.
Tender - ready, willing, and able to perform in cases of the concurrent performance by the other party
with present ability to do so, and notice to the other party of such readiness.

Breach
In order to put the other party in breach, the non-breaching party must prove that they were ready,
willing, and able to perform.
An anticipatory breach exists when the non-breaching party puts the other party in breach prior to the
date that their performance is due. There must be a clear and unequivocal statement from the
breaching party that they wont perform in order to put them in anticipatory breach.
A material breach occurs when a person causes a huge breach - it causes a lot of damage. If material
breach is proved, then the person proving the material breach gets cancelation of the contract, as well as
damages.
The breaching party has a duty to mitigate damages. Any costs incurred by the non-breaching party that
could have been avoided are not awarded. Breaching party pays the least expense.
Efficient breach - Breaching party shows he will be incurring a loss if he does not breach. If he breaches
he stands to gain. The breaching party will pay off the non-breaching party (expectancy compensatory
damages). Non-breaching party then gets a benefit of the bargain. Breaching communicates to nonbreaching party intention to breach, and compensate, so that the non-breaching party does not have to
sue.
An opportunistic breach is one that tries to take advantage of the breach; its basically like the opposite
of an efficient breach.

Remedies
Specific Performance
Specific performance is only used where damages will not suffice in giving the non-breaching party
what they bargained for. Where the benefit the non-breaching party is to receive is so unique and
damages wont be able to provide the party with that benefit, then the breaching party will be forced to
provide the non-breaching party with that benefit.
Elements required to enforce specific performance: subject matter is unique; no adequate remedy at law.
However, where such benefit requires personal services being performed, specific performance is not
recommended, since a person cannot be forced to perform, and even if they could, the quality of their
performance may be compromised (since theyre being forced to perform).

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Damages
General v. Special
In order for damages to be awarded, they must fall into one of two categories: general or special.
Damages can be both general and specific, but if they are neither, then damages are not awarded. In
order to recover any damages, they must be proven with reasonable certainty.
General damages are those that naturally flow from the contract. Even though the amount of damages
are not specifically defined in the contract, both parties can foresee the amount of damages that would
result from breach.
Special damages are those that are contemplated by the parties - taken into account, at the time the
contract was signed. In order for special damages to be awarded, the breaching party must have known
that by breaching the contract, the non-breaching party would suffer a specific kind of damages.
(Ex., where the metalsmith sued the courier for loss of profits for failing to deliver a crank required by the
metalsmith in order to continue working. But because metalsmith didnt tell courier that not having the
crank would result in their loss of business, these damages were neither special nor general, so
metalsmith couldnt collect damages from couriers delaying shipment.)
Interests: Expectancy, Reliance, & Restitution
Damages seek to protect one or more of three interests: expectancy, reliance, and restitution.
Expectancy damages aim to put the non-breaching party in the same position as if the contract had
been fully performed. In other words, the non-breaching party receives the benefit the bargained for from
the contract. Ordinarily, its the amount of the profit you bargained for (revenue-costs).
Reliance damages aim to compensate the non-breaching party for all expenses incurred in relying on
the performance of the contract. Reliance damages compensate the non-breaching party for expenses
that directly flow from the contract, as well as for expenses that do not directly flow from the contract.
Restitution damages aim to compensate the non-breaching party for any benefits they conferred onto
the breaching party. In other words, the non-breaching party gets back any benefit from the contract they
have already tendered toward the breaching party. Reliance damages may include restitution. Breaching
party is normally the party to plead and prove that they deserve restitution, because they want the benefit
they conferred upon the non-breaching party back, so at least theyre in the same position as if the
contract hadnt even existed.
Liquidated/Stipulated Damages clause - pre-specified amount of damages written explicitly in the K
payable to non-breaching party upon breach of K. If it is truly a liquidated damages clause then the court
will enforce it; otherwise, it is is held as punitive and is not allowed.
Ways to tell if Liquidated Damage Clause OR Punitive Damages
1. Did the person intend for the provision to be a penalty? (Cant be entered into through duress).
2. Is the injury caused by the breach one that is difficult/impossible of accurate estimation?
3. Difficult to ascertain?
Is it a reasonable pre-estimate?
Covenants not to compete - balance the employer and employees interests, and provide a reasonable
penalty for breaching the covenant not to compete. The covenant covers the time, area, and scope in
which the employee cannot work after the employee has finished his employment with the employer
enforcing the covenant. Cant be punitive.

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Blue pencil rule - Make a covenant not to compete reasonable by removing terms. Used when
covenant employs terms that are too broad. The restatement abandoned the blue pencil rule and now
calls it the limited enforcement rule.
Punitive damages - The idea is to make the party whole with punitive damages. Has to prove its only
one of the following: willful, fraudulent, grossly negligent, malicious, tortious, oppressive.

Injunction

Third Party Beneficiaries

A third party beneficiary is a person who is not a contracting party but becomes a contracting party when
they were intended to receive some benefit from one of the contracting parties.
The promisor is the person whose promise we are trying to enforce. The promisee is the person who
wants the benefit of the promise to be conferred upon the third party beneficiary.

Intended Beneficiaries
An intended beneficiary is a beneficiary who is intended by the promisee to receive the benefit of the
promisors promise. The significance of being an intended benny rather than an incidental benny is that
having the status of the former substitutes the promisees privity of contract. This allows the intended
benny to sue on the contract, and claim and defense against the promisor that the promisee would have
been able to use against the promisor.
We look at the language of the contract to determine the intent of the parties. In order for the intended
benny to be able to sue/use promisees defenses, all the promisor must know is that the promisee
intended for the benefits of the promise to go to another person; it could be a specific person, or a class
of people.
Also, if the benefit flows directly to the third party, rather than through the promisee, then that indicates
that the third party benny is more likely the intended benny. If the benefit does not flow directly to the
third party, then it is less likely that they are the intended benny.
A creditor beneficiary is an intended benny who is owed money (a debt) from the promisee. In such a
case, the creditor benny is also known as the creditor, and the promisee is also known as the debtor.
A donee beneficiary is an intended benny who is owed a gift (such as money from a will) from the
promisee. In such a case, the donee benny is also known as the donee, and the promisee is know as the
donor.

Incidental Beneficiaries
An incidental beneficiary is a person who was not intended by the promisee to receive the benefit of the
promisors promise, but does so anyway. An incidental benny cannot sue on a contract because they
dont have the intended benny status necessary to substitute for privity of contract.

Vesting
When a partys rights vest, the rights are unable to be removed from them; they are entitled to that right
(receiving the right) no matter what. When a partys rights vest, the original contracting parties cannot

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modify the original K unless the third party agrees to the modifications. If the third party agrees to the
modification, then they will still receive whatever benefit comes about from that modification.
1st Restatement
Donees rights are vested immediately upon the formation of the K. Creditors rights vest when they
detrimentally rely on the promisors promise.
2nd Restatement
Theres no difference between a donee and creditor in vesting their rights; both parties must detrimentally
rely. Most jurisdictions use the second restatement.

Assignment
All parties to a contract have both rights and duties. All rights from a contract can be assigned, and all
duties can be delegated, to a third party.

Assignment of Rights
An assignment is a present transfer of rights under a contract. If a person promises to assign, then that
is not an assignment, as their promise to transfer rights implies a later transfer, and assignments transfer
rights immediately. Language such as will assign or promise to assign do not indicate valid
assignments. Assignments do not require consideration, as consideration is already tendered for the
contract that the right is coming from.
The assignor is the party to an existing contract that transfers their right to a third party. The assignee is
a third party to the contract that the right is coming from, and is the person who is to receive the rights
assigned by the assignor from that contract. The obligor is the person whose performance provides the
right that is assigned to the assignee; the obligors performance was originally owed to the assignor, but
through assignment, the obligors performance becomes owed to the assignee.
The assignee stands in the shoes of his assignor, and can take subject to all defenses, set-offs, and
counterclaims which the obligor could have asserted against the assignor.
Obligors receipt of notice locks him into assignment
Once the obligor has received notice of the assignment, either from the assignor or assignee, then the
obligor cannot thereafter provide the right to the assignor; if he does, the obligor is in breach. Before the
obligor receives notice of the assignment, he and the assignor may modify the contract. Once the obligor
receives notice of the assignment, he and the assignor may modify the contract only if the assignor has
not yet fully performed. And if the contract is modified before the assignor fully performs, then the
assignee gets whatever new rights are given to the assignor by the modification.
Vesting
Once the assignee demonstrates that they have substantially relied on the assignors promise to
transfer future rights, then those rights have vested upon the assignee, and the assignment can no
longer be revoked or changed.
Certain rights cannot be assigned.
(1) If the obligors duty would be materially changed by the assignment, then the assignment wont be
allowed. This is most often seen in personal service contracts, where a special relationship of trust
or confidence exists between the parties that prevents the assignor from assigning a right/duty to a
third party whose performance would materially change the obligors performance.

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(2) Assignment will also not be allowed where it would materially vary the risk assumed by the obligor,
most commonly found in insurance policies.
(3) Assignment will also not be allowed where it would materially impair the obligors probability of
obtaining return performance; the obligor would not be able to receive the same benefit of their
bargain.
Normally, if a contract contains a provision prohibiting assignment, then the courts will enforce the
clause. Under the Restatement, anti-assignment clauses are generally enforceable, but are subject to the
following rules:
Assignment is allowed when the assignor has fully performed their contractual duty.
The right to sue for damages from breach may always be assigned.
If the anti-assignment clause states that the contract may not be assigned, then the contract will
be interpreted to bar only delegation, not assignment.
**If the contracting parties clearly manifest an intent regarding with assignment, then that intent will
be followed, and these rules hold no bearing.
The assignee takes subject to all defenses against the obligor that the assignee can raise against the
assignor.

Equitable Assignment
An equitable assignment is a present transfer of a conditional right. Receiving the benefit is conditioned
on some kind of performance first.

Delegation
A party to a contract can delegate their contractual duties when they wish to have another person
perform them. However, even when a party delegates their duty to a third party, they are still liable for the
performance of the duty; so if the third party fails to perform the delegated duty, the original contracting
party is liable.
Duties not delegable when
1. Duties are part of a personal service K
2. Parties manifest an intention contrary to the K, that the duties are not to go along with the rights.
3. If assignee gives assignor consideration.
4. If assignment by assignor is to pay a debt to assignee.
General presumption that duties are assigned along with rights.

Novation
A novation is a complete substitution of another party. All parties must assent to the substitution meaning all original contracting parties and the new party. Essentially, it creates a new contract, as
opposed to an assignment where assignor is still liable in a K where the assignor assigns his rights/duties
to another person.

Capacity of Parties
Generally speaking, contracts made by minors or the mentally infirm are voidable at the option of the
party lacking capacity.

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Infancy
Infants (under 18) dont have capacity to K. Ks entered into by infants are voidable, at the option of the
infant. This means the infant may void the K and avoid any liability from it or chose to hold the adult party
the K (stay in the K). Of the contract is not made void by the infant within a reasonable time after the
infant reaches the age of maturity, then the K is no longer voidable. The infant must restore any benefit
conferred to them by the other party. As long as the minor is not subject to undue influence or duress
(taken advantage of) in forming or performing the K, then the non-minor party can recover restitution
damages. When necessities are furnished by the non-minor party (like water, gas, food), recovery of the
non-minor party can only encompass the reasonable value of the services or goods, not the agreed
upon price. Statutory exceptions may include insurance or student loans. Recovery is under a theory of a
quasi K (implied-in-law) - the judge decides what the reasonable value of the services/goods are. When
a minor enforces a K, it is said that he ratified the K, and the minor can no longer void the K.

Mental Incompetency
If a party is adjudicated mentally incompetent and is under guardianship, Ks made by the individual are
void. A void K results in the K being nullified and is non-enforceable. If there is no adjudication or
guardianship, then the K is voidable. If the person is unable to understand the nature and consequences
of the transaction, or unable to act in a reasonable manner in regard to the transaction, and the other
party knows about his mental incapacity.
TEST: If the mentally incompetent party can void a K (when no guardianship or adjudication):
1. Is it fair to enforce the K?
2. Did the party asserting the lack of capacity enter into the K as a result of his mental illness?
3. Did the party understand the nature of the agreement?
4. Will the other party be returned to the status quo if the K is avoided?
5. Does the other party know or have reason to know of the other partys mental incapacity?

Intoxication
A contract entered into by an intoxicated party is voidable only if the person didnt understand the nature
of the transaction and the other party had reason to know that the intoxicated party was intoxicated.
Intoxication can be by drugs or alcohol. The intoxicated party will be liable for the fair value of goods and
services furnished; implied-in-law, where court determines reasonable value.

Illegality
If the consideration or performance that is to occur is illegal, the K is illegal and unenforceable; it is void.
Illegal transactions are not recognized or enforceable; restitution is not awarded for consideration, and
there is no remedy for partial performance.
Exceptions:
1. Ignorance - where one party is justifiable ignorant of the fact making the K illegal. Party may recover if
other party acted with the knowledge of illegality.
2. Party lacks illegal purpose - if only one party has an illegal purpose, the other party can recover if he
didnt know of the illegal purpose, or knew of the illegal purpose but didnt facilitate that purpose, or the
purpose doesnt involve serious wickedness.
3. Divisible K (partial illegality) - Some K an be separated into legal and illegal parts so that the legal
parts can be recoverable. TEST: (1) Is consideration apportionable, where promises are not
conditioned upon one another? If the K is whole, then it is not divisible. (2) Is the legal promise is no so
bad that it taints the entire agreement?

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Examples:
1. Prostitution - sex is not valid consideration.
2. Against public policy

Undue Influence
A K entered into through undue influence is voidable. Undue influence is proved by:
1. A confidential relationship where there is a relationship of trust. One party enters into the K because of
excessive persuasion by the dominant party.
2. One the confidential relationship is proved, the burden of proof is shifted to the dominant party
(normally the ) to establish that the agreement in question was fair and reasonable.

Duress
Duress is a threat that precludes the party from using their free will. The threat was either an unlawful
threat or a legal threat made in an unlawful manner. The party under duress must disaffirm to
objecting into the K, otherwise they ratify the K.
Economic duress occurs when a party is forced to enter into a K, or perform under an existing K,
because there is no other financially viable way to satisfy the objective of the K. To claim economic
duress, the party must demonstrate that they made a reasonable attempt to find an acceptable
alternative, and there is no other legal alternative that would satisfy the objective of the K.
Unconsciounability includes an absence of a meaningful choice on the part of one of the parties
together with K terms which are unreasonably favorable to the other party. Whether a meaningful choice
is present is determined by looking at the circumstances surrounding the transaction to determine the
reasonableness and fairness of the K.
TEST for unconsciounability:
- Were the terms so extreme as to appear unconscionable according to the mores and business practices
of the time and place?
- ***Meaningfulness of choice can be negated by a gross inequality of bargaining power.
- The manner in which the K was entered.
- Was the K understandable? (Were there hidden terms, etc...?)
- When a party of little bargaining power signs a commercially unreasonable K, with little or now
knowledge of its terms, it is hardly likely that this is consent, or even an objective manifestation of his
assent was even given to all the terms.

Avoidance: Misconduct or Mistake

If a party can show that the other party made a misrepresentation to him prior to the signing of the K, he
can use misrepresentation (1) as a defense to a breach COA brought by the other party, or (2) as the
grounds for recission or damages in a suit in which he is the plaintiff.
Mandatory elements to prove misrepresentation
(1) The P doesnt need to prove that the party alleged to have made the misrepresentation did so
intentionally; a negligent or even innocent misrepresentation is usually sufficient to avoid the
contract, but only if the misrepresentation is in regard to a material fact of the contract.
(2) The party asserting misrepresentation must show that they justifiably relied on the misstatement.

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(3) The misrepresentation must be one of fact, not opinion. Misrepresentations of opinion are considered
puffing, and have no basis for the party asserting misrepresentation to justifiably rely.

Non-disclosure
Only affirmative statements can serve as the basis for an action in misrepresentation. A partys failure
to disclose information generally doesnt justify recission of the K or recovery of damages by the other
party.
Actionable exceptions to non-disclosure
If a misleading representation is made by only telling part of the truth, and not the full truth, then this
can constitute misrepresentation.
If a party takes positive action to conceal the truth, this is actionable for misrepresentation, even if the
action is non-verbal.
If the parties have some sort of fiduciary relationship, where one believes that the other is looking out
for their best interests, there will be a duty to disclose material facts. If a fiduciary relationship exists,
and material facts are not disclosed, then the failure to disclose is actionable for misrepresentation.
If one party knows the other party is making a mistake as to a basic assumption of the K, then the
formers failure to correct that misunderstanding will be actionable for misrepresentation, but only if
such failure amounts to a failure to act in good faith.

Impossibility, Impracticability, & Frustration

Impossibility of Performance
A party can argue that due to the subject matter of the K no longer being in existence, it is impossible for
him, or anyone for that matter, to perform. Then ...
(a) the defense of impossibility of performance only excuses the performance of an executory K.
(b) If it is impossible to performa a K according to its terms, a party cannot insist on another type of
performance to obtain the same result that would have been obtained if the K had been performed
instead of being discharged.

Impracticability of Performance
If due to changed circumstances, performance would be infeasible from a commercial viewpoint, the
promisor may be excused just as he would be if performance were literally impossible.

Frustration of Purpose
A party can argue that although his performance is possible, his purpose for entering the agreement no
longer exists. For a frustration of purpose defense, the party must show: (1) The reason he entered into
the K no longer exists, and (2) the other K party knew of his reason and purpose in entering into the K.
For Both parties purpose in contracting must be frustrated.

Statute of Frauds
Certain K need to be in writing in order for a court to enforce the K: marriage, sale of real property or an
interest in real property, sale of goods of $500 or more, when guarantors agree to pay a certain debt, K
that cannot possibly be performed within one year of making the agreement.

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General rule: The year starts from the time the agreement is made. Possibility of completing performance
could be termination of the K, but does not necessarily mean that termination is always completed
performance.

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