I.

INTRO TO CONTRACTS
A. Definition: An agreement among two or more parties about future
performance, legally enforceable promises.
B. Sources of Legal Authority
C. Conceptual Frameworks
D. Types of Contracts:
1. Unilateral– a promise in exchange for a performance; a K which
only one party promises to do something and the other party is free
to act or not as he/she wishes.
2.  Bilateral– a promise in exchange for a return promise; both parties
promise to do something; much more common; more $ involved
3.  Implied in Law(quasi-contract) – A fiction of the law based on the
maxim that one who is unjustly enriched at the expense of another
is required to make restitution to the other (aka quasi-contracts or
constructive contracts) i.e. a physician gives emergency care to an
injured/unconscious pedestrian, services were not requested by the
victim or anyone else but the law may impose recovery on behalf of
the pedestrian if care is negligent)
4. Implied in Fact: arises where the court finds from the surrounding
facts and circumstances that the parties intended to make a
contract but failed to articulate their promises in writing and the
court merely implies what it thinks both parties intended (i.e. patient
visits doctor, where a reasonable fee is implied in fact although
neither party mentions payment)
5. Option Contract: 1) valid contract even though it is an offer without
an acceptance, instead it is a promise to keep an offer open for a
certain period of time. 2) it is the offeror’s acceptance of
consideration in exchange for his promise to keep the offer open for
a designated period of time, thus rendering the offer irrevocable; 3)
Elements are:
1. it must be supported by consideration (i.e. a deposit, the
deal is in writing and signed by the offeror, etc.) AND
2. proposes an exchange on fair terms within a reasonable
period of time AND
3. is reasonably expected to induce action/forbearance of
substantial character in order to be a binding option contract
b. Illusory Contract: an agreement in which one party gives as
consideration a promise that is so lacking as to impose no
obligation (i.e. “I promise to think about giving you $5” or “If you
come to every class, I will give you an A if I feel like it”); if a party’s
promise is given the power to terminate at any time/at will without
more, the party’s promise will be held as illusory unless termination
requires written notice in advance. These may rarely be enforced
under quantum meruit for the reasonable value of services or
materials actually rendered or under the doctrine of promissory
 estoppel, where a party relies to his detriment on the promises.
(See page >>> of this outline for more examples)
c. Adhesion Contract: a standard-form contract prepared by one
party, to be signed by the party in a weaker position, usually a
consumer, who has little choice about the terms. It is fully
enforceable, unless:
1. K is unconscionable or unduly oppressive
2. K does not fall within the reasonable expectations of the
consumer
B. Introduction Cases
a. CASE- Allen v. Bissinger
1. Holding: 
1. Allen and Bissingerhad an enforceable contract, i.e.,
mutual agreement. 
2. Using an objective reasonableness standard, there
was mutual assent: BissingeracceptedAllen’s offer of
report of ICC hearings.
3. There were no grounds to avoid enforcement of the
contract, i.e., misrepresentation or fraud on the part of
Allen.
4. Defendant’s performance of promise to pay was not
excused by not having a use for the report.
b. CASE- Meyer v. Uber
1. Holding:
1. 1)A party to a contract is not bound by inconspicuous
provisions contained in a document, but a party is
bound “if a reasonably prudent user would be on
inquiry notice of the terms.” 
2. 2)Meyer had reasonable notice of contract terms,
including the arbitration clause, even if he didn’t read
them.  ThereforeMeyer manifested assent to these
terms. Meyer bound by clickwrap contract including
arbitration clause:

CONTRACTS BIG PICTURE

I. NEGOTIATION
II. FORMATION OF K
A. Mutual Assent- Offer + Acceptance
1. Agreement by both parties to a contract. Mutual assent must be
proven objectively
B. Intent to be Bound by a Contract
1. CASE- Ray v. Eurice
1. Rule: Absent fraud, duress or mutual mistake, one having
capacity to understand a written document who reads and
signs it, or without having read it, signs it, is bound by his
signature in law.
B. Offer and Acceptance in Bilateral Contracts
a. Bilateral Contract: 2 promises
1. Offeror makes an offer accepted by offeree
b. Restatement S 24: The manifestation of
willingness to enter into a bargain, makes
other person know that assent to that bargain
is conclusory
c. CASE- Lonergan v. Scolnick
1. Rules:
1. An offer by an offeror gives offeree power to accept
and form contract without further assent by offeror.  A
statement which is not an offer requires further assent
from the would beofferor to form a contract.
2. An ad is usually a request for an offer, and not an
offer.
3. Mailbox Rule:
1. Acceptance is effective upon dispatch. Does
NOT apply if offeror specifies that acceptance
must be received to be effective
1. Restatements- Rejection or counteroffer
by mail is effect on receipt BUT
1. If acceptance is sent AFTER
rejection, it is a race
i. If acceptance i received
first the contract is formed
i. If rejection is received first
then acceptance becomes
counteroffer
ii. Option Contract:
a. Contract that is a promise to keep an offer
open that is binding on offeror
b. Creates irrevocable offer
c. It’s separate from main contract- it’s just a mini
contract about the offer
b. CASE- Normile v. Miller
a. Rules
i. Offeror specifies manner and timing of acceptance
ii. Conditional or qualified acceptance= counteroffer
iii. Offeror may revoke offer before it is accepted
iv. Revocation of offer must be communicated to the
offeree. Notice of acceptance of another offer is
notice of revocation of offer
B. Offer and Acceptance in Unilateral Contracts
a. Unilateral Contract: 1 promise  + performance
a. Offeror makes an offer, offeree accepts through performance
 b. Traditionally, an offer for a unilateral contract could be revoked
anytime before full performance by the offeree.
c. Two approaches today-
a. Some courts hold that an offer for a unilateral contract
cannot be revoked if an offeree has substantially performed.
b. Under the 2nd Restatements, when the offeree begins
requested performance under unilateral contract, the offeror
is bound and cannot revoke offer so long as offeree
completes performance
b. CASE- Cook v. Coldwell Banker
a. Rules:
i. An offer for a unilateral contract is accepted when the
requested performance is rendered.
ii. A promise to pay a bonus in return for an at-will
employee’s continued employment is an offer for a
unilateral contract which becomes enforceable when
accepted by the employee’s performance.
iii. Offeror cannot revoke offer when offeree has
rendered substantial performance.
b. CASE- Sateriale v. R.J. Reynolds
a. Rules:
i. Ads may be offers for unilateral contracts where they
invite performance of a specific act without further
communication and leave nothing for negotiation. 
(This is an exception to the general rule that ads are
not offers).
ii. The terms of a contract are reasonably certain
(definite) if they provide a basis for breach and
remedy.  Parties have an implied duty to act in good
faith.
iii. Mutuality of obligation (i.e., both parties must be
bound or neither is) does not apply to unilateral
contracts.
iv. An unrestricted right to revoke an offer and terminate
a contract, is not an offer.  This is an illusory promise.
(Here, offer was not illusory promise because
Reynolds said program would last for another six
months)
B. Postponed Bargaining: Agreement to Agree
a. Classical Approach
a. CASE- Walker v. Keith
i. Rules:
a. An agreement must be sufficiently definite to
be binding.
b. An agreement to agree is not a binding
contract.
 c. An agreement for a future contract must
contain essential terms.
d. Rent is an essential term of a lease.
b. Letters of Intent
a. CASE- Quake Construction v. American Airlines
i. Rules:
a. Letters of intent are binding if parties intend
them to be.
b. Factors to consider in determining intent: 
1. whether agreement is usually put into
writing
2. number of details
3. amount of money involved
4. whether formal writing contemplated,
etc.
b. Where letter of intent is ambiguous, parties
may present evidence of intent.
b. Example: “The parties do not intend this letter of intent to be
contractually binding in any way.  The parties intend to be
bound only on execution of a formal written contract. Each
party reserves the right to break off negotiations prior to
execution of a formal contract for any reason whatsoever, or
for no reason.”
B. Consideration
a. Two Definitions: Some courts will combine two definitions
a. Classical rule: Benefit to Promisor or Detriment to Promisee
i. Note- Detriment: waiver/relinquishment of legal right;
act or forbearance, or promise to act/forbear
b. Restatement- bargained for exchange (mutual inducement)
b. Benefit to Promisor or Detriment to Promisee (Classical)
a. CASE- Hamer v. Sidway
i. Rules:
a. An enforceable contract requires consideration
b. Consideration is present where one party
suffers detriment or one party receives benefit.
c. Waiver of any legal right is consideration for
promise.
b. Bargained for Exchange (Restatements)
a. CASE- Pennsy Supply v. American Ash
i. Rules:
a. A condition for a promised gift is not
consideration
b. Consideration is “bargained for exchange”
1. “Bargained for exchange” means
promise must induce detriment and
detriment induce promise (mutual
 inducement). No actual bargaining
required.
b. Here, court held that American Ash’s promise
to provide AggRite free of charge induced
Pennsy to assume detriment of collection and
taking title to AggRite
b. Donative Promises Lack Consideration
a. CASE- Dougherty v. Salt
i. Rules:
a. A donative promise is unenforceable for
lack of consideration.
b. Even though a promissory note may state “for
value received”, there may still be a lack of
consideration.
c. Here, Court held that Aunt Tillie’s promise
was a donative promise, and unenforceable. 
Sorry, Charlie!
b. Past Consideration is No Consideration:
a. CASE- Plowman v. Indian Refining
i. Rules:
a. “Past consideration” is not legal
consideration.
b. Moral obligation is not sufficient
consideration.
c. A gratuitous arrangement is void as a contract.
b. Inadequacy of Consideration= No Consideration
a. CASE- Dohrmann v. Swaney
i. Rules:
a. In general, courts do not weigh adequacy of
consideration.
1. However, where consideration is so
grossly inadequate as to shock the
conscience of the court, and/or
circumstances are unfair, the
consideration will fail.
b. Unfair circumstances include disproportionate
bargaining power, age and education of
parties, commercial experience, etc.
c. Where consideration for a contract is
illusory, the contract will be invalidated for
gross inadequacy of consideration
b. Illusory Promises and Unilateral Contracts
a. CASE- Marshall Durban v. Baker
i. Rules:
 a. Consideration is forbearance or change in legal
relation, or a return promise, bargained for or in
exchange for, a promise.
b. A document containing a recital of
consideration creates a rebuttable presumption
of consideration.
c. An illusory promise does not involve a
commitment (performance is optional); it is
inadequate for consideration.
1. However, an illusory promise may lead
to an act for a unilateral contract, which
is consideration.
B. Uniform Commercial Code (UCC)
a. Common Law is Governing Law in-
a. Service
b. Real estate
c. Employment
b. UCC Article 2 is governing law (supplemented by common law)
a. Sale of Goods
i. Goods= tangible, movable property
b. UCC Contract Formation- Sales of Goods
a. CASE- Jannusch v. Naffziger
i. Rules:
a. The “predominant purpose” test is used to
determine if Article 2 applies.  
1. A contract primarily for services, with an
incidental sale of goods, is not covered
by Article 2.
b. An enforceable contract must have essential
terms. 
c. An agreement may be made even though the
moment of making is undetermined.  UCC 2-
204 (2)
d. The parties’ conduct may indicate an
agreement. UCC 2-204(1)
b. UCC Contract Formation- Mutual Assent
a. CASE- E.C. Styberg Engineering v. Eaton
i. Rules:
a. A contract for the sale of goods may be formed
by the parties’ conduct. UCC 2-204(1)
b. A contract must have essential terms
B. Qualified Acceptance
a. Common Law
a. CASE- Princess Cruises v. General Electric
i. Rules:
 a. When there is no established federal or
admiralty law, admiralty law may look to
common law.
b. In determining whether or not a contract is
predominantly for the sale of goods, one
considers the contract language, business of
supplier, and worth of materials.  [Here the
primary purpose was inspection, repair, and
maintenance services].
c. Under common law, a conditional
acceptance is a counteroffer.
d. A counteroffer may be accepted by
performance.
b. Qualified/Conditional Acceptance
a. Two approaches
i. Common Law
a. Mirror image rule: any change is a counter
offer
b. “Last shot” accepted, favored sellers
1. Last Shot Rule: a party implicitly
assented to and thereby accepted a
counter-offer by conduct indication lack
of objection to it--- ex/ performance
ii. UCC 2-207 for sales of goods
a. Qualified acceptance= contract
b. Battle of the forms
 c.

d. Merchant= someone who deals in goods and

by occupation holds self out as having
knowledge or skill in goods
b. Battle of the Forms
a. Limited Offer
i. CASE- Brown Machine v. Hercules
a. Facts:
 1.

b. Rules:
1. “Boilerplate” are standard terms in a
contract
2. Indemnification clause means that one
party absorbs another party’s losses
3. Usually a price quote is not an offer
1. However, if it is detailed enough,
it can amount to an offer creating
the power of acceptance
2. Acceptance is a counteroffer only if the
acceptance is expressly made
conditional on acceptance to additional
terms
3. Under 2-207(2) additional terms become
a part of the contract between
merchants unless (a) limited offer, (b)
timely objection, or (c) material
alteration
b. Material Alteration
i. CASE- Paul Gottliev v. Alps South
a. Facts:
 1.

b. Rules:
1. A material alteration causes
“surprise or hardship”to the offeror.
2. A change is material and causes
“surprise”if agreement to it cannot be
presumed. [Here, no surprise because
previous contracts]
3. “Hardship” may include substantial
economic hardship. [Here, Alps did not
inform Gottlieb of consequences]
4. A limitation of consequential damages
does not restrict direct or incidental
damages.
b. Summary-
i. UCC 2-207 changes the common law concerning the
“mirror image” rule and “last shot”.  
ii. Under 2-207, a contract still may be formed if an
acceptance has different or additional terms.
iii. Between merchants, additional terms become part of
the contract if they are not objected to in a limited
offer or timely rejection, or do not materially alter the
offer.
B. Electronic Contracting: 
a. Definitions/Types:
a. Shrinkwrap Agreement:
 i. Purchaser orders product; product arrives wrapped in
plastic with contract terms. Purchaser has opportunity
to reject terms by returning product. Called “rolling
contracts”, “layered contracts” or “money now, terms
later contracts”
ii. Rule: When a merchant delivers a product that
includes additional terms and conditions, but
expressly provides the consumer the right to either
accept those terms or return the product for a refund
within a reasonable time, a consumer who retains the
goods beyond that period may be bound by the
contract.
iii. Rule: some courts apply UCC 2-207, “material
alteration” surprise or hardship
b. Clickwrap Agreement:
i. Before purchase, buyer scrolls through terms and
clicks “I agree”
c. Browsewrap Agreement
i. Seller puts terms on website and states all use of
website subject to terms
ii. Rule: Terms must be sufficiently conspicuous to put a
reasonably prudent internet customer on notice of its
provisions
d. Arbitration Clauses:
i. Private dispute resolution process
ii. Alternative to court proceeding which is public
iii. Based on parties’ voluntary agreement
iv. Neutral arbitrator(s) decides dispute. Parties pay for
arbitration. Cannot be appealed.
v. Courts are supposed to enforce arbitrator’s
decisions/awards
b. Formation- Electric Contracting/Shrinkwrap Agreements
a. CASE- Defontes v. Dell
i. Rules:
a. Arbitration clauses usually state
that the parties must resolve
disputes in arbitration
1. Private proceeding, not in court
b. Shrinkwrap Agreement: When a merchant
delivers a product with additional terms, and
expressly provides that consumer has right to
accept terms or return product, a consumer
may be bound by those terms. (following
ProCDv. Zeidenbergand Hill v. Gateway)
c. Contract formation occurs when consumer
accepts full terms after receiving a reasonable
 opportunity to reject them (after delivery of
product).  This is the “layered contracting”
theory.  
d. Here, not clear that keeping Dell product was
agreement to terms and conditions. 
Thereforeno acceptance of arbitration terms.
b. Electric Contracting/ Browsewrap
a. CASE- Long v. Provide Commerce, Inc.
i. Rules:
a. The Federal Arbitration Act requires a court to
send a case to arbitration if the parties agreed
to arbitrate
b. In deciding whether an arbitration clause or
other term in a browse wrap agreement is
valid, courts consider whether a website user
has actual or constructive notice of a site’s
terms and conditions prior to using the site
1. A reasonably prudent user must be on
inquiry notice of terms of contract
b. Here, the court held, that hyperlinks and
website did not put the user on notice
B. Promissory Estoppel- Substitute for Consideration
a. Promissory Estoppel-
a. Courts started to enforce promises without consideration
b. Restatement 90 introduced promissory estoppel in 1930s
i. Estoppel= “stopped from claiming no consideration”.
Most influential Rule
c. Placing responsibility on promisors; especially helpful in
family, charitable situation, but has expanded to commercial
situations, too.
d. Promissory estoppel has been used by courts as
i. Substitute for consideration
ii. Basis for irrevocable offer
iii. Measure for damages
b. Promissory Estoppel Restatement 90-
a. Promise (does not have to be offer, but clear and definite)
b. Reasonably expect to induce reliance
c. Did induce reliance
i. Action or forbearance
a. Actual expenditures
b. Change in position
1. Can even be financially beneficial
b. Injustice if promise not enforced
c. Remedy limited as justice requires
b. Charitable Subscriptions
a. Alternatives for finding an enforceable promise
 i. Contract with consideration
ii. Promissory estoppel
iii. Restatement 90(2) approach
iv. Statutory provision
b. CASES-
c. Promissory Estoppel- Traditionally Not Applied
a. CASE- Kirksey v. Kirksey
i. Rules:
a. A gratuitous promise is unenforceable
b. A gratuitous promise with a condition is also
unenforceable
b. Promissory Estoppel- Family (Consideration Substitute)
a. CASE- Harvey v. Dow
i. Rules:
a. Promissory estoppel enforces promises to
avoid injustice.
1. It be a substitute for consideration
b. A promise which promisor should
reasonably expect to induce, and
does induce action or
forbearance is binding to avoid
injustice.
1. The remedy granted is limited as justice
requires.
b. A promise may be implied by conduct
c. Where donee has made substantial
improvements to land in reliance on
promise to convey land, courts will enforce
promise to convey.
b. Promissory Estoppel- Charitable Subscriptions
a. CASE- King v. Boston University
i. Rules:
a. A charitable subscription is a promise to give
property to a charity for a charitable purpose
b. In Massachusetts, the charitable subscription
promise must be supported by consideration or
reliance in order to be enforceable.
c. A bailment is a delivery of personal property. A
bailee assumes a duty of care
b. Promissory Estoppel- Commercial Context/Pensions
a. CASE- Katz v. Danny Dare
i. Rules:
a. Promissory estoppel requires a promise,
detrimental reliance on the promise, and
avoidance of injustice only if promise is
enforced
 b. Promissory Estoppel- Commercial Context/ Bankruptcy
a. CASE- Aceves v. US Bank
i. Rules:
a. Promissory Estoppel Requires:
1. Clear and unambiguous promise
2. Reasonable and foreseeable reliance by
promise
3. Detriment suffered by promisee
B. Option Contracts
a. Contract that is a promise to keep an offer open that is binding on
offeror
a. Creates irrevocable offer
b. Separate contract from principle/main contact
i. Services may be consideration, consideration may be
nominal
b. Promissory Estoppel- Preacceptance Reliance
a. CASE- Berryman v. Kmoch
i. Rules:
a. An option contract not supported by
consideration is a mere offer to sell, which may
be withdrawn at any time prior to acceptance
b. Promissory estoppel did not apply here
because no injustice
B. Promissory Estoppel- Irrevocable Offer?
a.

b. When may an offer be revoked?

a. General Rule:
i. Offeror may revoke at any time prior to acceptance
a. EXCEPTIONS
1. Option contract with consideration
2. Restatement 45- for unilateral contracts,
tenders or begins performance
3. Restatement 87(1)- signed offer,
minority of courts follow
4. Restatement 87(2)- reasonable reliance
and injustice
5. UCC 2-205- Merchant’s firm offer
b. Promissory Estoppel- Preacceptance Reliance (Minority Rule)
a. CASE- James Baird v. Gimbel
i. Rules:
a. An offer is freely revocable unless there is an
option contract
b. Mere use by a general contractor of a
subcontractor’s bid does not constitute
acceptance of bid, forming a bilateral contract
b. Promissory Estoppel- Preacceptance Reliance- Majority Rule
 a. CASE- Drennan v. Star Paving
i. Reasonable reliance resulting in foreseeable
prejudicial change in position may imply an
enforceable promise not to revoke an offer for a
bilateral contract
b. Promissory Estoppel- Preacceptance Reliance
a. CASE- Pop’s Cones v. Resorts International Hotel
i. Rules:
a. In order to find promissory estoppel, there
must be 
1. Clear and definite promise (may be
relaxed standard)
2. Expectation of reliance
3. Promisee reasonably relies
4. Detriment of definite and substantial
nature
b. Baird and Drennan: Opposite Rules
a. Baird rule-
i. Mere use by a general contractor of a subcontractor’s
bid is NOT acceptance, forming a bilateral contract
b. Drennan rule- (majority rule today
i. Reasonable reliance implies a subsidiary promise not
to revoke an offer for a bilateral contract
B. Restitution- Liability for benefit received
a. Notes-
a. Restitution= alternative recovery to contract
b. Liability for benefit received
i. Plaintiff has conferred benefit on defendant
ii. Defendant accepts benefit
iii. Unjust for defendant to retain benefit without paying
for it
c. Quasi contract=
i. Unjust enrichment
ii. Implied-in-law contract
iii. Legal fiction
iv. Quantum meruit
b. No Promise- Restitution- Liability for Benefits Received
a. CASE- Credit Bureau v. Pelo
i. Facts:
ii. Rules:
a. A contract implied in law or a quasi-contract is
an obligation without regard to assent (i.e.,
quasi-contract is not a contract).
b. Unjust enrichment is an equitable principle that
one cannot receive benefits without making
 compensation for them.  One should pay a
reasonable charge.
c. Where a person performs services for another,
the law implies a promise to pay for those
services.  However, the person offering
services can not officiously confer a benefit on
another person.  Officiousness is unjustified
interference.
d. A person rendering necessaries or professional
services to a mentally incompetent person may
recover compensation even if the mentally
incompetent person does not consent to them.
b. Liability for Benefits Received- Restitution
a. CASE- Commerce Partnership v. Equity Contracting
i. Rules:
a. An express contract is based on oral or written
words between parties.
b. A contract implied-in-fact is based on a
promise inferred from the parties’ conduct.
c. A contract implied-in-law, or quasi-contract, is
a legal fiction to prevent unjust enrichment.  
1. Elements: 
1. plaintiff has conferred benefit; 
2. defendant accepts benefit; 
3. inequitable to retain benefit
without paying fair value.
b. A subcontractor may recover in restitution from
an owner when the owner has not paid the
general contractor for the work performed and
the subcontractor has exhausted its remedies
against the general contractor. 
c. If owner has paid general contractor for
subcontractor’s work, owner has not been
unjustly enriched by unpaid subcontractor’s
work.  Subcontractor must also exhaust
remedies against general contractor.
b. CASE- Watts v. Watts
i. Rules:
a. Unmarried cohabitants may raise claims based
upon unjust enrichment following the
termination of their relationships where one of
the parties attempts to retain an unreasonable
amount of the property acquired through the
efforts of both.
b. There may also be an express or implied
contract between unmarried cohabitants.
B. Promissory Restitution
a. Notes:
a. Promise AFTER material benefit received
b. Material benefit includes saving life, preventing serious
bodily harm
c. Restatement (2nd) 86-
i. Promise for previous benefit binding to extent
necessary to prevent injustice. Must not be gratuitous,
cannot be disproportionate
b. Past Consideration- Traditional Rule
a. CASE- Mills v. Wyman
i. Rules:
a. A promise based on a past benefit is without
consideration. Even though a promisor may
have a moral obligation to keep his promise,
there is no legal obligation
1. EXCEPTIONS
1. Promises based on debts barred
by the statute of limitations,
promises to pay for debts
incurred while a minor, and
discharged bankruptcy debt
b. Promissory Restitution- Material Benefit Rule
a. CASE- Webb v. McGowin
i. Rules:
a. Where promisee cares for, improves, and
preserves the property of promisor, though
done without his request, it is sufficient
consideration for the promisor’s subsequent
agreement to pay for the service, because of
the material benefit received.
b. If promisor received a material benefit before
promise, the promise is enforceable.  Saving a
person’s life or preventing grievous bodily harm
is a material benefit.  Benefit to the promisor or
injury to the promisee is sufficient legal
consideration for the promisor.
B. Statute of Frauds
a. Notes-
a. Statute of frauds is a defense against enforcement of a
contract
b. Requires certain, not all, contracts to be in writing
c. Writing must be signed by “party to be charged” i.e.
defendant
d. Signature is any symbol made with the intent to authenticate
a document
 i. Is contract “within” statute? (covered by statute
ii. If so, is statute “satisfied”? (requirements met by
sufficient memorandum with material terms)
iii. If statute is not satisfied, is there an applicable
exception? (part performance or reliance)
e. Contracts that need to be in writing to be enforceable
(“within” statute)
i. Marriage is consideration (prenuptial agreements)
ii. Year- by express terms cannot be performed within
one year from date of contract
iii. Land- transfers of real estate
iv. Executor’s promise to pay estate’s debts out of own
assets
v. Goods (sale of goods $500 or more) (UCC 2-201)
vi. Surety (promise to guarantee debt of other)
b. Statute of Frauds Exceptions:
a. Even though contract is within Statute of Frauds, and no
writing satisfies statute, contract is still enforceable because
of
i. Part performance- possession of land and substantial
improvements
ii. Promissory Estoppel (2nd Restatements)-
nonavailability of other remedies; definite and
substantial, reasonable, foreseeable reliance
iii. UCC 2-201- sale of goods $500 or more
a. Merchant’s confirmatory memo- UCC 2-201 (2)
1. Seller and buyer must be merchants
2. First merchant sends confirmatory
memo
3. If the second merchant doesn’t object
within 10 days, second merchant is
bound to contract, even though second
merchant never signed anything.
b. Specifically manufactured goods- UCC 2-
201(3)(a)
1. Not suitable for sale to others
2. Substantial beginning or commitments
b. Admission in pleading, testimony in court- UCC
2-201(3)(b)
c. Playment made/received and accepted- UCC
2-201(3)(c)
b. Statute of Frauds- Multiple Writings & Essential Terms
a. CASE- Crabtree v. Elizabeth Arden
i. Rules:
 a. The Statute of Frauds applies to contracts
which cannot be performed within one year
from the date of the contract.
b. Every agreement within the Statute of Frauds
is void unless some note or memorandum is
in writing, and subscribed by the party to be
charged, 
1. i.e., defendant, and the note or
memorandum contains essential terms.
b. The Statute of Frauds does not require one
signed writing, but may be satisfied by piecing
together different signed and unsigned
documents. Parol (oral) evidence may be used
to connect the different documents and to
indicate acquiescence or assent to the
unsigned documents.
b. Statute of Frauds- Promissory Estoppel Exception
a. CASE- Alaska Democratic Party v. Rice
i. Rules:
a. The statute of frauds prevents fraud by
requiring that certain categories of contracts be
reduced to writing
b. In order to avoid injustice, promissory
estoppel may be used to overcome the
statute of frauds. The following circumstances
are relevant-
1. Availability of other remedies
2. Definite
3. Substantial
4. Reasonable and foreseeable character
of action or forbearance
b. Statute of Frauds- UCC
a. CASE- Buffaloe v. Hart
i. Rules:
a. The statute of druids applies to the sale of
goods $500 or more
b. A check may satisfy the statute of frauds if it is
signed by the party to be charged
(promissory/defendant)
c. UCC 2-201(3)(c) provides that where payment
has been made and accepted, an oral contract
may still be valid without a writing.
II. INTERPRETATION OF THE K
A. Principles of Interpretation
a. Theories-
a. Subjective Theory
 i. If parties had different meanings, no contract formed
b. Objective Theory
i. Contact’s meaning is what reasonable person familiar
with circumstances would think, not the subjective
meaning of either party.
c. Modified Objective Theory
i. Where one party knows or has reason to know what
the other party means, the court will enforce the
contract in accordance with the innocent party’s
meaning
b. Patent and Latent Ambiguity
a. Courts may require ambiguity first before applying principles
of interpretation. Otherwise, they will use the plain meaning
of the contract
i. Patent/intrinsic ambiguity- apparent from words of the
contract
ii. Latent/ extrinsic ambiguity- not apparent from words
but visible in light of surrounding circumstances.
Therefore, may offer extrinsic evidence of
disinterested witnesses, trade usage, etc. to show
latent ambiguity
b. Evidence for Meaning on contact
a. Course of performance- what has happened between parties
during this contract
b. Course of dealing- includes previous dealings between
parties in previous contracts
c. Trade Usage- includes industry practices
b. Interpretation of Contracts
a. Hierarchy of preference- weighing evidence- more wight to
top of list
i. Separately negotiated or added express terms
ii. Specific express terms
iii. General express terms
iv. Course of performance
v. Course of dealing
vi. Trade usage
b. Doctrine of Reasonable Expectations
a. Majority rule for insurance contracts
b. Customers are not bound to unknown terms which are
beyond the range of reasonable expectations
b. Principles of Interpretation- Modified Objective Theory
a. CASE- Joyner v. Adams
i. Rules:
a. Contractual ambiguity should be resolved
against the party who drafted the agreement
(contra preferentum). This is usually applied in
 cases with uneven bargaining power.  [This
was not so in this case].
b. Where parties have attributed different
meanings to a term, a court may not enforce
either party’s meaning.  
1. However, where one party knows or has
reason to know what the other party
means, the court will enforce the
contract in accordance with the innocent
party’s meaning.  
1. This is the modified objective
theory of interpretation. [On
remand, developer’s meaning
prevailed because he did not
know or have reason to know
owner’s meaning].
b. Principles of Interpretation- Evidence for party’s knowledge of
other’s meaning
a. CASE- Frigaliment v. BNS
i. Rules:
a. In interpreting a contract, a court may look to
the written contract, previous correspondence
and negotiations, trade usage, government
regulations, reasonableness, and subsequent
conduct of the parties.
b. Principles of Interpretation- Doctrine of Reasonable Expectations
a. CASE- C&J Fertilizer, Inc. v. Allied Mutual Insurance Co.
i. Rules:
a. The objectively reasonable expectations of
applicants and intended beneficiaries regarding
the terms of insurance contracts will be
honored even though painstaking study of the
policy provisions would have negated those
expectations
b. Customers are not bound to unknown terms
which are beyond the range of reasonable
expectations
B. Parol Evidence Rule
a. What is it?
a. When parties to a contract have agreed to put their
agreement in a writing, neither party may contradict or
supplement the written agreement with extrinsic evidence
(written or oral) of prior agreements or negotiations
b. The parties may have intended either a complete or partial
commitment to writing
b. Parol Evidence Rule- Classical Approach- Supplementation
 a. CASE- Thompson v. Libby
i. Rules:
a. A fully integrated written agreement is intended
by the parties to be a final and exclusive record
of their agreement. “This is it!”
b. During a trial, parol (extrinsic oral or written)
contemporaneous evidence may not be used
to contradict or supplement a written
agreement which is complete on its face
(classical approach). 
c. Parol evidence (oral or written) may always be
used to explain an integrated agreement.
d. Parol evidence (oral or written) of a collateral
agreement may be admitted as an exception to
the parol evidence rule.  A collateral agreement
relates to a distinct subject.  A warranty is not a
collateral agreement.
e. Parol evidence (oral or written) may be allowed
to prove fraud, or a mistake necessitating
reformation of the written agreement.
b. Parol Evidence Rule- Interpretation- Modern Approach
a. CASE- Taylor v. State Farm
i. Rule:
a. A fully integrated written agreement is intended
by the parties to be a final and exclusive record
of their agreement. “This is it!”
b. Under the classical approach, during a trial,
parol (extrinsic oral or written)
contemporaneous evidence may not be used
to contradict or supplement a written
agreement which is complete on its face. The
court must interpret a contract according to its
“plain meaning”. A contract must be
“ambiguous” before extrinsic evidence is used
to interpret its meaning.
c. Under the modern contextual approach, the
court need not find ambiguity first before
admitting extrinsic evidence.  A court may
consider all extrinsic evidence to determine the
extent of integration, meaning of contract, and
party intent. Then the court excludes evidence
that would vary or contradict a final written
agreement. If contract language is “reasonably
susceptible” to a particular contract
interpretation, the parol evidence proving that
interpretation is admissible.
 b. Parol Evidence Rule (UCC Trade Usage, Course of Dealing,
Course of Performance
a. CASE- Nanakuli Paving v. Shell Oil Co.
i. Rules:
a. Trade usage is any practice or method of
dealing having such regularity of observance in
a place, vocation or trade as to justify an
expectation that it will be observed with respect
to the transaction in question. [UCC 1-303(c).]
b. Course of performance is the action of the
parties in carrying out the contract at issue.
c. Course of dealing consists of relations between
the parties prior to signing that contract.
d. Agreement under the UCC means the bargain
of the parties to act as found in their language
or by implication from other circumstances
including course of dealing or usage of trade or
course of performance.  These should be
consistent with express terms of contract.
[Here Court found price protection part of
contract]
B. Implied Terms- Good Faith and Fair Dealing
a. Notes:
a. The court supplies a term (sometimes called implied,
constructive, or default rules)-
i. Court must interpret the contract
ii. Does contract cover situation at hand? Court might
find implied-in-fact term
iii. If not, court supplies term. This is implied-in-law
iv. Court considers actual expectations
v. Court also considers justice and fundamental fairness
b. Good Faith and Fair Dealing
i. Modern contract law promotes good-faith conduct
based on reasonable standards (UCC, Restatements
(2nd)
a. Fulfills reasonable expectations of parties;
parol evidence admissible
b. UCC 1-201(20): honesty in fact (subjective
test) and reasonable commercial standards
(objective test)
c. UCC 2-104(1) “merchant”- deals in goods of
the kind or otherwise by his occupation holds
himself out as having knowledge or skill
peculiar to practices or goods in transaction.
d. Restatement (Second) 205: duty of good faith
and fair dealing
 e. Bad faith violates community standards of
decency, fairness, or reasonableness
f. Question of fact
b. Bad faith examples
i. Violation of spirit of contract
ii. Deprivation of fruit of contract
iii. Lack of diligence
iv. Abuse of power
v. Interference with other party’s performance
b. Implied Terms- Reasonable Efforts
a. CASE- Wood v. Lucy
i. Holding
a. Plaintiff Wood had implied promise to use
reasonable efforts to bring profits and revenues
into existence; thereforeWood’s promise not
illusory and defendant Lady Duff-Gordon
bound to her promise to give him exclusive
right to place her indorsements.
b. Implied Terms in UCC- Reasonable Notice of Termination
a. CASE- Leibel v. Raynor
i. Holding:
a. This distributorship agreement was a sale of
goods
b. The UCC applies and requires reasonable
notice of termination (UCC 2-309). What is
reasonable is a question of fact.
c. A distributor should be given a reasonable
period of time to recoup his investment or to
find substitute arrangements
b. Implied Terms- Good Faith and Fair Dealing:
a. CASE- Seidenberg v. Summit Bank
i. Rules:
a. Parol evidence may be admitted to explain the
parties’ intentions.  It cannot be used to bar
evidence concerning the implied covenant of
good faith and fair dealing, which is contained
in all contracts.
b. The central premise of the implied covenant
of good faith and fair dealing is not to
frustrate the parties’ reasonable
expectations and the purpose of the
contract.
c. The implied covenant of good faith and fair
dealing may (a) add terms that were not
expressly made in the contract; (b) address
bad faith conduct by defendant even in the
 absence of violation of an express term; and
(c)examine a defendant‘s discretion expressly
granted by the contract.
d. Bad faith or ill motive may be present when a
party acted arbitrarily, unreasonably, or
capriciously, with the objective of preventing
the other party from receiving its reasonably
expected fruits under the contract.
B. UCC Express and Implied Warranties
a. UCC Warranties
a. Express Warranties (2-213)
i. Quality or nature of goods; “basis of bargain”,
description, sample, model (opinion/puffery is not
warranty
ii. 1-316(1) DISCLAIMER inoperative id “inconsistent”
with express warranty
b. Implied Warranty of merchantability (2-314) “merchant”
i. Promise made by merchant. Merchant regularly deals
in goods involved or holds out as having particular
knowledge. Merchantability means good passes
without objection in trade/fit for ordinary purposes
ii. 2-316(2) DISCLAIMER must mention merchantability;
if in writing, conspicuous
c. Implied Warranty of Fitness for a particular purpose
i. Buyer relies on seller’s skill or judgment in selecting
goods for buyer (seller does not have to be
merchant); seller knows of reliance, does not have to
be defective
ii. 2-316(3) DISCLAIMER must be in conspicuous
writing
b. CASE- Bayliner Marine Corp v. Crow
a. Rules:
i. A warranty is a guarantee of quality of a product or
service for a specified period of time.  Whether or not
there has been a breach of an express or implied
warranty is a question of fact.  
ii. An express warranty is an affirmation of fact or
promise or any description of goods which becomes
basis of bargain.  An opinion is not an express
warranty.  
iii. An implied warranty of merchantability means a
product passes without objection in the trade and is fit
for ordinary purposes. Plaintiff must establish
standard of merchantability. Must have merchant!
 iv. An implied warranty of fitness for a particular purpose
requires that seller knew of buyer’s particular
purpose.
b. Contract Avoidance: Minority Incapacity, Mental Incapacity
a. NOTES:
i. Minority Incapacity
a. A minor/infant’s contract is voidable rather than
void
b. A minor may disaffirm a contract while a minor
and up until a reasonable time after reaching
majority
c. If a contract is avoided, a minor may sue for
return of consideration given, minor must also
return tangible benefit received
d. Some courts will reduce minor’s recovery in a
cash sale for use and depreciation, ex- minor
must make restitution to major
e. Minor always liable for reasonable value of
necessaries. ex/ food, clothing, shelter
(restitution)
f. Some courts will not void contract if minor has
misrepresented age or willfully destroyed
property. Most courts hold that minor may
disaffirm but may be liable in tort for fraud
ii. Mental Incapacity
a. A contract is voidable by a person who, due to
mental illness or defect, lacked the capacity to
contract at the time of entering into the
agreement.
b. Under the traditional cognitive test, proof was
required that the person was unable to
understand the nature and quality of the
transaction.
c. Under the modern affective/volitional test, proof
was required that the person was unable to act
in a reasonable manner, and the other party
had reason to know of his/her condition.
d. Some courts require medical evidence or
expert testimony.
b. Contract Avoidance: Minority
i. CASE- Dodson v. Shrader
a. Rules:
1. Rescission is unwinding a contract,
andrestoring the parties to their original
positions.
 2. Traditional rule: a minor may disaffirm a
contract up until a reasonable time after
reaching majority, receive restitution
from the major and only return what
minor has.  This protects minors from
improvident contracts with crafty adults.
3. Modern rule and minority of jurisdictions
(Dodson): minor’s recovery of funds
from major may be offset by use,
depreciation, and negligence.  This is
when there has been no overreaching
and undue influence by major, the
contract is fair and reasonable to minor,
and the minor has paid cash.
b. Contract Avoidance: Mental Incapacity
i. CASE- Sparrow v. Demonico
a. Rules:
1. A contract is voidable by a person who,
due to mental illness or defect, lacked
the capacity to contract at the time of
entering into the agreement.
2. Under the traditional cognitive test, proof
was required that the person was
unable to understand the nature and
quality of the transaction.
3. Under the modern affective/volitional
test, proof was required that the person
was unable to act in a reasonable
manner, and the other party had reason
to know of his/her condition.
4. Contractual incapacity does not require
proof of significant duration or a
permanent, progressive, or
degenerative disease. 
1. However, medical evidence or
expert testimony is needed to
prove that a party’s mental
condition interfered with his/her
understanding of the transaction
or inability to act reasonably.
B. Avoidance: Duress and Undue Influence
a. Notes:
a. Physical Duress:
i. When party enters into a contract under physical
duress (threat of physical harm) the contract is void-
Restatement (2d) 174.
 b. Economic Duress:
i. When a party enters into a contract because of an
improper threat that leaves no reasonable alternative,
the contract is voidable
c. Improper threats
i. Crime or tort, threat of criminal prosecution, bad faith
threat of civil process
d. Lack of reasonable alternatives: 
i. no other sources of goods, services, funds, etc
e. Undue influence
i. Doctrine of contract avoidance which protects
vulnerable parties in unfair bargaining situations.
Excessive pressure in overcoming the will of a
vulnerable person
ii. Vulnerability, undue susceptibility of one part: ex/
physical condition, emotional anguish, senility, etc.
iii. Unfair persuasion and domination by the other part.
The other party may be in a special relationship to the
dominate party. ex/ fiduciary relationship,
trustee/beneficiary, lawyer/client etc
iv. Examples of unfair persuasion are unusual time or
place, insistence on urgency, multiple persuaders,
absence of third party advisors
b. Contract Avoidance: Economic Duress
a. CASE- Totem v. Alyeska
i. Rules:
a. When a party enters into a contract under
physical duress (threat of physical harm,) the
contract is void.  Restatement (2d) 174.
b. When a party enters into a contract because of
an improper threat that leaves no reasonable
alternative(e.g., economic duress), the contract
is voidable.
c. Examples of an improper threat are a crime or
tort, threat of criminal prosecution, bad faith
threat of civil process, etc.
b. Contract Avoidance: Undue Influence
a. CASE- Ordizzi v. Bloomfield School District
i. Rules:
a. A party who enters into a contract because of
undue influence may avoid a contract.
b. Undue influence is unfair persuasion and
domination by the other party.  The other party
may be in a special relationship to the
dominated party.
 c. Examples of unfair persuasion are unusual
time or place, insistence on urgency, multiple
persuaders, absence of third party advisors,
etc.
B. Avoidance- Misrepresentation
a. Notes:
a. In order to bring a contract action for nondisclosure, a party
must prove that disclosure is necessary to prevent
misrepresentation of a previous assertion, or is failure to act
in good faith and fair dealing, or trust or confidential
relationship exists. The remedy is rescission and restitution.
Restatement (2d) 161.
b. Tort liability for nondisclosure requires a duty to exercise
reasonable care to disclose (fiduciary relationship, prior
misleading disclosures)
c. Fraud in the Inducement
i. Misrepresentation of fact leads to entering into
contract. Contract is voidable
d. Fraud in the execution/fraud in factum
i. Misrepresentation about what document party is
signing. Contract is void.
b. Contract Avoidance: Misrepresentation
a. CASE- Syester v. Banta
i. Rules:
a. In order to bring a tort action for
misrepresentation, a party must prove
defendant knowingly made false and material
representations; plaintiff reasonably relied on
these representations and plaintiff suffered
damages. 
b. In order to bring a contract action for
misrepresentation, a party must prove either
fraudulentor a material misrepresentation and
reasonable reliance.  The remedy is rescission
and restitution.
c. Opinions are actionable if there is a
misrepresentation of state of mind;  trust
relationship; expert opinion; or other
susceptibility to misrepresentation. 
b. Contract Avoidance: Nondisclosure
a. CASE- Hill v. Jones
i. Rules:
a. Parties must deal honestly and fairly with each
other. 
 b. Nondisclosure of a fact known to one party
may be equivalent to the assertion that the fact
does not exist.  
c. Seller has a duty to disclose to the buyer facts
in a residential dwelling, which materially affect
the value of the property.
d. 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.
e. Failure to disclose a known material fact may
justify rescission of a contract.
b. Contract Avoidance- Fraud in the Execution
a. CASE- Park 100 Investors v. Kartes
i. Rules:
a. A contract with assent obtained by
misrepresentation (fraud in the execution/fraud
in factum) as to the character or essential
terms of the contract is void.
B. Unconscionability
a. Notes:
a. UCC 2-302, Restatement (2d) 208, no definition
b. Some courts require both procedural and substantive
unconscionability
i. Procedural unconscionability
a. Coercion
b. Lack of meaningful choice
1. Disparity in bargaining power
2. Terms are hidden or not reasonably
intelligible
3. High pressure sales tactics, no
reasonable alternatives
ii. Substantive unconscionability
a. Fairness of exchange
b. Trade practice unless whole industry corrupt
b. Question of fact, but judge decides unconscionability, at time
contract was entered into
c. Trend: disclosure and substantive consumer protection
legislation (ex/ interest rates, right to rescind, attorneys’ fees,
warranties)
b. CASE- Williams v. Walker-Thomas
a. Rules:
i. An unconscionable contract is unenforceable. A court
may refuse to enforce a particular term or the whole
contract.
 ii. Unconscionability is an absence of meaningful choice
(procedural unconscionability) (quasi-fraud; quasi-
duress) along with unreasonably favorable terms to
one party (substantive unconscionability).
b. CASE- McFarland v. Wells Fargo Bank
a. Rules
i. A term is substantively unconscionable if it is one-
sided and overly harsh to the disadvantaged party.
ii. A mortgage contract is not substantively
unconscionable merely because the loan amount was
more than the value of borrower’s house. The
borrower benefits from the loan and the bank has
suffered a detriment due to an undercollateralized
loan.
iii. Inducement by unconscionable conduct is a separate
independent ground for an unconscionable contract. 
The standard is higher than for procedural
unconscionability, e.g., affirmative
misrepresentations, active deceit or concealment of a
material fact.
B. Avoidance: Public Policy
a. Notes:
a. In general, courts defer to freedom of contract for parties
i. However, contracts may be contrary to public policy if
in violation of constitution, statutes, or well-
established judicial precedent, e.g., restraint of
trade
b. Courts weigh public policy, violation, and injustice of
forfeiture.
c. Sometimes, parties to an unenforceable contract are still
entitled to restitution;court may also blue-pencil clause or
sever it
b. Public Policy- Non Compete Clauses
a. CASE- Valley Medical v. Farber
i. Rules:
a. Our law favors competition.  Therefore
restrictive covenants (promises to limit
competition) are disfavored unless ancillary to
a valid transaction (sale of business,
employment agreement, partnership
agreement) and reasonable.  (Ancillary means
supplementary/additional; opposite is stand-
alone).
b. 2The doctor-patient relationship is entitled to
special protection.  Restrictive covenants for
doctors must be strictly construed for
 reasonableness (duration, scope, geography,
etc.)
c. A restrictive covenant is unreasonable if the
restraint is greater than necessary to protect
the employer’s legitimate interest; or if that
hardship is outweighed by the hardship to the
employee and the likely injury to the public.
d. Some courts may “blue pencil”a restrictive
covenant as a remedy.  (This court did not).
b. Public Policy: Family Relations
a. CASE- PM v. TB
i. Rules
a. Iowa law does not prohibit traditional nor
gestational surrogacy contracts.  Although sale
of a baby is prohibited and a criminal act,
compensation for gestation services and
expenses is not.
b. To strike down a contract on public policy
grounds, the public general welfare must
outweigh the societal interest of freedom of
contract.
c. Surrogacy agreements are not inherently
exploitative and can promote stability and
permanence in family relationships.
d. A gestational surrogate is not a biological
parent.
B. Avoidance of Contract: Bilateral and Unilateral Mistake
a. Avoidance: Doctrine of Mistake
a. General rule: pacta sunt servanda (agreements must be
observed or a deals a deal)
b. Exception: Mistake
c. Belief as to fact at time of contract
d. Equitable doctrine: unbargained-for-loss
e. Possible remedies: rescission, restitution, reformation
b. Bilateral/Mutual Mistake (Res 2d 152) (both parties to contract
mistaken)
a. A contract may be avoided for bilateral mistake
i. Basic assumption
ii. Material effect on agreed exchange of performances
iii. Party wanting avoidance does not bear risk
b. Unilateral Mistake (only one party to contract mistaken
a. From Restatement 2d 153
i.  A contact may be avoided for unilateral mistake
a. Basic assumption
b. Material effect on agreed exchange of
performance
 c. Party wanting avoidance does not bear risk
plus
ii. Enforcement would be substantial hardship,
unconscionable (substantial loss), or
iii. Other party knew or had reason to know of mistake or
caused mistake
b. Excuse: Mutual Mistake (both parties mistaken)
a. CASE- Lenawee v. Messerly
i. Rules
a. A contractual “mistake” is a belief not in accord
with facts at time of contract formation.
b. Court’s remedy of rescission is discretionary
where mutual mistaken belief relates to a basic
assumption of contract and parties’
performance materially affected. [Res 2d 152]
c. Here, equity did not justify rescission because
buyer assumed risk. [Res 2d 154
b. Excuse: Unilateral Mistake (One party mistaken)
a. CASE- BMW Financial Services v. Deloach
i. Rules
a. A contract will be rescinded where:
1. Unilateral mistake concerned basic
assumption of contract
2. Unilateral mistake has material effect on
agreed exchange of performances
3. Mistaken party did not assume risk of
mistake
4. Enforcing the unilateral mistake is
unconscionable.
II. PERFORMANCE/NONPERFORMANCE OF PROMISE(S)
A. Justification/Excuse for Nonperformance: Impracticability and
Frustration of Purpose
a. Notes:
a. Excuse: Impossibility or Impracticability
i. Exception to general rule: Pacta sunt servanda
(agreements must be observed or a deals a deal)
ii. Disadvantaged party’s performance of contract
excused because performance is now impossible or
impracticable. Extreme change in nature of
performance for disadvantaged party. Performance so
vitally different as to alter essential nature
iii. Restatement 2d 261
a. Supervening event
b. Non-occurrence is basic assumption
c. No fault of (disadvantaged) party
d. No assumption of risk (by disadvantaged party)
 e. Traditional categories: death or incapacity,
destruction of subject matter, government
regulation or order
b. Excuse: Frustration of Principle Purpose
i. Exception to general rule: Pacta sunt servanda
(agreements must be observed or a deals a deal)
ii. Event has caused extreme reduction in value of other
party’s performance so as to render it nearly
worthless to disadvantaged party
iii. Restatement 2d 265
a. (disadvantaged party’s) performance of
contract excused because principle purpose of
contract of (disadvantaged party) frustrated
because
1. Supervening event
2. Non-occurrence is basic assumption
3. No fault of (disadvantaged) party
4. No assumption of risk
b. Excuse for Nonperformance: Impracticability and Frustration of
Purpose
a. CASE- Hemlock v. Solarworld Sachsen
i. Rules:
a. Performance of a promise may be excused
because of impracticability or frustration of
principal purpose of a contract.
b. For performance to be impracticable, it
must involve extreme and unreasonable
difficulty that renders performance vitally
different from what parties intended.
c. Market shifts, and economic
unprofitableness are not sufficient to show
impracticability.
d. A third party’s illegal actions do not make
performance impracticable.
e. For frustration of principal purpose, there
must be an extreme reduction in the value
of the other party’s performance so as
torender it nearly worthless.  Mutual
profitability is not the primary purpose of a
contract. 
f. A liquidated damages clause is enforceable
if reasonably intended to compensate for
injury and it is not unconscionable or
excessive.
 g. [Here is Restatement test for
impracticability and frustration of principal
purpose]:
1. A party’s duty of performance may
be discharged/excused if:
2. There is a supervening event, the
non-occurrence of which was a basic
assumption,
3. The party’s performance is now
impracticable, or principal purpose
has been frustrated,
4. The party is not at fault, and
5. The party has not assumed the risk
of the supervening event by
language of the contract or
surrounding circumstances.
b. Excused Performance: Frustration of Principle Purpose
a. CASE- Mel Frank v. Di-Chem
i. Rules:
a. Absent an express agreement otherwise,
tenant must pay rent after subsequent
government regulation if there is still
serviceable use available.  The fact that the
use is less valuable or less profitable or even
unprofitable does not mean the tenant’s use
has been substantially frustrated.
B. Modification of Contracts
a. Notes:
a. Overview
i. Three rules
a. Common law- pre-existing duty rule (need
fresh new consideration for modification)
b. Restatement (2d) 89 (exceptions under
common law: no new consideration needed if
equitable, authorized by statute, or reliance
exists)
c. UCC 2-209 (no consideration needed but need
good faith
b. General Common Law
i. New consideration necessary for enforceable
modification
a. Exceptions
1. Unforeseen circumstances and fair and
equitable (R 2d 89(a)) (impracticability
not needed)
 2. Reliance (R 2d 89(c))
3. Mutual recission and new contract
b. UCC Modification 2-209
i. Does not require new consideration for a modification,
but parties must deal in good faith.
ii. The Statute of Frauds is applicable for a modification
for a sale of goods $500 or more
iii. Performance and reliance are defenses to the Statute
of Frauds or a no oral modification (NOM) clause
b. Modification of Contract- Common Law Rule
a. CASE- Alaska Packers v. Domenico
i. Rules:
a. Pre-existing duty rule: a modification will not be
enforced without valid consideration for the
modification.  (This guards against coercive
behavior).
b. UCC Modification- Good Faith and Duress
a. CASE- Kelsey-Hayes v. Galtaco Redlaw Castings
i. Rules
a. A UCC contract modification is invalid if it was
entered into under duress.  The UCC
supplements and does not displace the
common law of duress and coercion.
b. In order to find duress, there must be an
improper threat and no reasonable alternative
for the party who agreed to the modification.
1. An improper threat includes a threat to
breach a contract and go out of
business.  
2. No reasonable alternative includes
having no other source for supplies and
imminent shutdown of a major
customer’s plant.
b. The party who agrees to the modification under
duress must protest the modification.’
b. UCC Modification- No Oral Modification Clauses/Writing
Requirement
a. CASE- Brookside Farms v. Mama Rizzo’s
i. Rules:
a. Contracts for sales of goods $500 or more
must be in writing, including modifications of
such contracts. UCC 2-201. Exceptions
include:goods received and accepted.
b. Every contract has an implied promise of good
faith and fair dealing
 c. A “no oral modification”clause (NOM) is
enforceable unless goods are received and
accepted.  UCC 2-209 and UCC 2-201(3)(c). 
(Under common law, not enforceable).
B. Express Conditions
a. CASE- enXco v. Northern States
a. Rules
i. A condition precedent is an act or event, which,
unless excused, must occur before a duty to perform
a promise arises.
ii. Express conditions are those agreed to and imposed
by the parties themselves.  
iii. Express conditions must be strictly enforced, unless
excused by waiver, breach or forfeiture.
iv. Impracticability excuses the non-occurrence of a
condition if the condition is not material and forfeiture
would result.
v. A waiver is an intentional relinquishment of a right.
vi. Forfeiture is loss of compensation after substantial
reliance.
b. Excuse of Conditions by Forfeiture
a. CASE- JNA Realty v. Cross Bay Chelsea
i. Rules:
a. An express condition may be excused if
forfeiture would result.
b. Tenant in possession may suffer forfeiture if
tenant has made valuable improvements on
the property.
c. Tenant will not be denied equitable relief from
the consequences of his own neglect or
inadvertence if a forfeiture would result and
there is no prejudice to the landlord.
II. BREACH OF PROMISES
A. Responding to Breach: Constructive Conditions
a. Breach- Substantial performance/nonmaterial, partial breach
a. Response- Can sue for actual damages, but must still
perform promise
b. Breach- Material/partial breach (Restatement (2d) 241)
a. Response- Can sue for actual damages, can wait to perform
promise (suspend performance) until there is a cure of
breach (reasonable time)
b. Breach- Total breach (Restatement (2d) 241 and 242)
a. Response- Does not have to perform promise, can sue for
future damages too
b. Responding to Breach: Constructive Conditions/Substantial
Performance
 a. CASE- Jacob & Youngs v. Kent
i. Rules
a. A constructive condition is a default rule, in
the absence of party agreement.
b. “Substantial performance” does not apply to
express conditions, only constructive
conditions. Substantial performance is
performance without a “material breach”.
c. Factors for substantial performance: purpose
of provision, reason for nonperformance, cost
of remedy, adequacy of damages.
d. Here, contractor’s performance was a
constructive condition of homeowner’s duty of
payment.  Although contractor had breached
contract by not using Reading pipe, contractor
had substantially performed.
e. Measure of damages for contractor’s breach is
difference in value of home with and without
Reading pipe, not cost to correct breach.
b. Material Breach and Total Breach
a. CASE- Sackett v. Spindler
i. Rules
a. A party may suspend performance when there
has been a material partial breach.  
b. Total breach is material nonperformance that
has not been cured for a reasonable period of
time.  Further delay will unduly prejudice
nonbreaching party.
c. Where there has been a total breach, a party
may terminate the contract and sue for past
and future damages.
B. Anticipatory Repudiation
a. Anticipatory Repudiation/ Type of Total Breach
a. CASE- Truman Flatt v. Schupf
i. Rules
a. A repudiation is a definite and unequivocal
manifestation of intent not to perform under a
contract from one contract party to the other.  It
is a type of total breach of contract.
b. Total Breach- injured/nonbreaching party may
terminate contract and sue for past and future
damages. Further delay will unduly prejudice
injured/nonbreaching party
c. Anticipatory Repudiation is advance refusal
to perfor,
 d. A suggestion for modification of the contract is
not a repudiation (type of total breach of
contract).
e. A party may retract a repudiation before the
injured party gives notice or materially relies on
the repudiation.
b. Demand for Adequate Insurances
a. CASE- Hornell Brewing Co. v. Spry
i. Rules
a. UCC 2-609 authorizes a party with reasonable
grounds for insecurity to demand adequate
assurance of due performance from the other
party, and if commercially reasonable to
suspend performance until such assurance has
been received.  If no assurances are received
within a reasonable time, the demanding party
may treat this an anticipatory repudiation by
the other party.
b. What are reasonable grounds for insecurity
is a question of fact depending on words,
actions, course of dealing or performance, the
nature of the sales contract, and the industry. 
They may include a buyer falling behind in
payments.
c. The request for adequate assurances may be
in writing.
d. The adequate assurances requested must be
commercially reasonable. Repeated demands
for adequate assurances may be made if
reasonable.
II. MONEY DAMAGES AND OTHER REMEDIES FOR BREACH OF PROMISE
A. Expectation Damages- Foreseeability
a. Notes-
a. Expectation Damages for Injured Party
i. Restatement (second) 347
a. Loss in value PLUS
b. Other loss (incidental +consequential) MINUS
c. Costs avoided + losses avoided (if total
breach)
ii. Minimize damages
a. Costs avoided after total breach= stop
performance
b. Losses avoided= make substitute
arrangements
b. General/Direct/Natural Damages
i. ex// lost profit from contract with breaching party
 c. Special/Consequential Damages
i. Foreseeability; special circumstances communicated
at a time of contract
ii. Ex// lost profits from collateral contracts (contracts
with 3rd parties); injury to person or property
Restatement (2d) 351; UCC 2-715(2)
b. Real Estate Contract Breach- Buyers’ Breach
a. CASE- Crabby’s Inc. v. Hamilton
i. Rules
a. Seller’s measure of damages for a buyer’s
breach of contract for sale of land is the
difference between the purchase price and
the fair market value of the property on the
date of breach.
b. Seller’s subsequent resale price within a
reasonable time after breach may be
representative of fair market value.
c. Fair market value is the price when offered for
sale by an owner who is willing but under no
compulsion to sell, andbought by a buyer who
is willing but not compelled to do so. Financial
motivation is not compulsion.
b. Employment Contract Breach
a. CASE- Handicapped Children’s Ed Board v. Lukaszewski
i. Rules:
a. Damages for breach of employment contract
by employee include cost of obtaining services
equivalent to promised employment, plus
foreseeable consequential damages.
b. Where reasonable, an employer may recover
damages for hiring a more qualified employee.
b. Consequential Damages- Natural v. Special Damages
a. CASE- Hadley v. Baxendale
i. Rules
a. Natural Damages: The injured party is entitled
to receive damages naturally arising from
breach, within the contemplation of the parties
at the time of the contract.
b. Special Damages: Special circumstances
must be communicated to breaching party for
liability for damages from such special
circumstances.
B. Expectation Damages- Mitigation/UCC Remedies
a. NOTES-
a. Expectation Damages for Injured Party
i. Restatement (second) 347
 a. Loss in value PLUS
b. Other loss (incidental +consequential) MINUS
c. Costs avoided + losses avoided (if total
breach)
b. Minimizing damages
i. Injured party must act reasonably and in good faith
ii. Reasonableness at time of breach
iii. Not expected to take steps that involve undue burden,
risk or humiliation
c. Breach of Employment Contract
i. Employee must make a good faith effort to find
suitable substitute employment.
ii. Employer has burden of proof to show suitable work
existed and employee did not make reasonable
efforts.  Suitable employment is “substantially
equivalent” and “suitable to employee’s background
and experience.”
iii. If an employee takes employment that is not
“substantially equivalent”, these wages will still offset
damages.
b. Mitigation of Damages
a. CASE- Rockingham County v. Luten Bridge
i. Rules:
a. After repudiation of a contract, the other party
cannot continue to perform and recover
damages based on full performance. The
plaintiff cannot recover for damages which
plaintiff could have avoided/mitigated.
b. The measure of plaintiff’s damages are for
labor and materials priorto repudiation plus
expected profits if contract performed fully.
b. Mitigation of Damages- Employment Contract
a. CASE- Maness v. Collins
i. Rules:
a. An injured party has an obligation to mitigate
his damages. His recovery for breach of
contract will be diminished by the amount he
would have earned in the exercise of
reasonable diligence.
b. When an employer wrongfully terminates an
employee, the employer must prove both the
availability of suitable and comparable
substitute employment and a lack of
reasonable diligence on the part of the
terminated employee.
B. Third Parties- Third Party Beneficiaries- Assignment/Delegation
a. Intended Third Party Beneficiaries
a. CASE- Vogan v. Hayes Appraisal Associates
i. Rules:
a. A third party is an intended third party
beneficiary if the third party has pecuniary
benefit and the promisor has reason to know
that promisee is entering into contract for this
purpose.
b. Assignments
a. CASE- Herzog v. Irace

i.
ii. Rules
a. 1) An assignment is an act or manifestation by
owner of right (assignor) indicating his intent to
transfer that right to another person
(assignee).  Assignor relinquishes control.
b. 2) Rights are assignable unless assignment
would materiallychange the duty of the obligor,
materially increase the burden or risk, impair
obligor’s chance of return performance, or
reduce value of return performance, and
unless restricted by law