Professional Documents
Culture Documents
Contracts Outline Dec7
Contracts Outline Dec7
TABLE OF CONTENTS.............................................................................................................................................1
ISSUE SPOTTER CHECKLIST.................................................................................................................................8
QUESTION 2 CHECKLIST......................................................................................................................................13
THEMES.....................................................................................................................................................................15
Legal Formalism v. Legal Realism..............................................................................................................................15
DOCTRINES...............................................................................................................................................................22
CONSIDERATION.......................................................................................................................................................22
Consideration......................................................................................................................................................22
Promise...............................................................................................................................................................22
Donative Promises..............................................................................................................................................22
Consideration Cases....................................................................................................................................................... 22
Consideration and Form, Lon Fuller...............................................................................................................................23
MUTUALITY..............................................................................................................................................................25
Mutuality Rule.....................................................................................................................................................25
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Illusory Promise..................................................................................................................................................25
Conditional Promises..........................................................................................................................................25
Impossible Conditions.........................................................................................................................................26
Mutuality Cases..............................................................................................................................................................26
MODIFICATION..........................................................................................................................................................27
Modification:.......................................................................................................................................................27
Pre-existing duty rule (Restatement §73)...........................................................................................................27
Modification Statutes and Rules.....................................................................................................................................28
Modification Cases......................................................................................................................................................... 29
WAIVER....................................................................................................................................................................30
Waiver:................................................................................................................................................................30
Waiver Restatement....................................................................................................................................................... 30
Waiver Cases.................................................................................................................................................................. 31
Equitable Estoppel:.............................................................................................................................................32
Reliance Cases: Pre-1932...............................................................................................................................................33
Modern Reliance............................................................................................................................................................ 33
Unjust Enrichment..............................................................................................................................................34
Past and Moral Consideration.........................................................................................................................................34
Restitution Cases (Past and Moral Consideration)..........................................................................................................35
DEFENSES..................................................................................................................................................................39
DURESS.....................................................................................................................................................................39
Duress Cases..................................................................................................................................................................39
UNCONSCIONABILITY...............................................................................................................................................39
UCC Unconscionability.................................................................................................................................................40
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How to Argue Unconscionability...................................................................................................................................40
A Note of Warning re: Unconscionability Arguments....................................................................................................40
How to avoid unconscionability?...................................................................................................................................41
Unconscionability Cases................................................................................................................................................41
MISTAKE...................................................................................................................................................................41
Mutual Mistake...................................................................................................................................................42
Mutual Mistake Cases....................................................................................................................................................42
Unilateral Mistake..............................................................................................................................................42
Unilateral Mistake Cases................................................................................................................................................42
Transcription Errors...........................................................................................................................................43
Mistake Restatements.....................................................................................................................................................43
Notes on Restatement 154..............................................................................................................................................43
Mistake vs. Change in Circumstances............................................................................................................................44
Failure to Disclose..............................................................................................................................................44
UNDUE INFLUENCE...................................................................................................................................................45
INCAPACITY..............................................................................................................................................................45
FRAUD......................................................................................................................................................................45
IMPOSSIBILITY..........................................................................................................................................................45
Impracticability...................................................................................................................................................46
FRUSTRATION...........................................................................................................................................................46
DAMAGES..................................................................................................................................................................47
General Approach to Damage Assessment.....................................................................................................................48
EXPECTATION DAMAGES....................................................................................................................................49
Expectation Formula = Full Performance - Present Condition........................................................................49
Common Law Performer Breach Formula:........................................................................................................49
Common Law Recipient Breach Formula:.........................................................................................................49
Sales Cases Under UCC.................................................................................................................................................49
RELIANCE DAMAGES............................................................................................................................................52
Reliance Damages..............................................................................................................................................52
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Opportunity Cost.................................................................................................................................................52
Reliance Cases............................................................................................................................................................... 52
RESTITUTION DAMAGES.....................................................................................................................................53
How Courts Decide Between Different Measures..........................................................................................................53
RESTITUTION DAMAGES................................................................................................................................53
Unjust Enrichment..............................................................................................................................................53
Restitution Cases............................................................................................................................................................54
DISGORGEMENT........................................................................................................................................................54
UCC Seller/Buyer Breach Statutes.................................................................................................................................55
UCC Damages Cases......................................................................................................................................................55
OTHER REMEDIES..................................................................................................................................................56
LIQUIDATED DAMAGES............................................................................................................................................56
Liquidated Damage Statutes...........................................................................................................................................56
Liquidated Damage Cases..............................................................................................................................................57
SPECIFIC PERFORMANCE..........................................................................................................................................61
Specific Performance Cases...........................................................................................................................................61
Specific Performance and Covenant Not to Compete.....................................................................................................62
Covenant Not to Compete..............................................................................................................................................62
INTERPRETATION..................................................................................................................................................63
STANDARDS OF INTERPRETATION.............................................................................................................................63
WHAT HAPPENS WHEN THERE IS AMBIGUITY?.......................................................................................................63
Note on Capacity to Consent..........................................................................................................................................63
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Principal Purpose:..............................................................................................................................................66
ROLE OF WRITING..................................................................................................................................................67
PAROL EVIDENCE RULE...........................................................................................................................................67
Parole Evidence Rule Example......................................................................................................................................67
Exceptions to Parol Evidence Rule.................................................................................................................................68
Integration...........................................................................................................................................................68
Partial Integration..............................................................................................................................................68
Merger Clauses...................................................................................................................................................68
Two Ways to Determine if a Writing is Integrated.........................................................................................................68
Actual Approach: It’s Always a Factual Question.......................................................................................................69
Firm Offers..........................................................................................................................................................74
Common Law Firm Offers..................................................................................................................................74
Factors to Consider......................................................................................................................................................... 74
PRELIMINARY NEGOTIATIONS..................................................................................................................................77
Preliminary Agreements.....................................................................................................................................77
Factor’s Court Will Use to Determine Party’s Intention.................................................................................................77
UCC Open Price Term (Firm Offer)...............................................................................................................................77
REVOCABILITY..........................................................................................................................................................78
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Expiration...........................................................................................................................................................78
Communicated Revocation.................................................................................................................................78
Indirectly Communicated Revocation.................................................................................................................78
UCC §2-204........................................................................................................................................................78
Preliminary Negotiations and Revocability Cases..........................................................................................................78
3 Questions When Applying Promissory Estoppel:........................................................................................................79
ACCEPTANCE............................................................................................................................................................80
Silence As Acceptance...................................................................................................................................................80
DISCLAIMERS............................................................................................................................................................84
Disclaimer Case............................................................................................................................................................. 84
SHRINKWRAP/CLICKWRAP........................................................................................................................................84
Shrinkwrap..........................................................................................................................................................84
Shrinkwrap Cases...........................................................................................................................................................85
Clickwrap............................................................................................................................................................85
Clickwrap Case...................................................................................................................................................85
ROLLING CONTRACTS...............................................................................................................................................86
“Rolling Contracts” and “Contract First, Terms Later”..................................................................................86
Adhesion Contracts........................................................................................................................................................86
Four Approaches of Courts............................................................................................................................................86
DISCLOSURE.............................................................................................................................................................88
Casually Acquired Information, Kronman......................................................................................................................88
Discovery v. Foreknowlege............................................................................................................................................88
Disclosure Cases............................................................................................................................................................ 88
Hypotheticals................................................................................................................................................................. 88
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UCC CONTRACTS.....................................................................................................................................................90
UCC § 2-508. Cure by Seller of Improper Tender or Delivery; Replacement................................................................90
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Themes
LEGAL FORMALISM V. LEGAL REALISM
Legal formalism sees judicial decisions as resulting from the application of a relatively
predictable framework of doctrinal rules.
Legal realism sees those outcomes as better explained by the complexity of factual
circumstances in the individual case.
Law as a framework of
UNDERLYING MODEL Law as a set of practices
rules
To put it in a nutshell, formalism contends that the rules are fundamental and the cases illustrate the rules,
while realism contends that it's the cases that are fundamental and the rules just summarize the cases.
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Introduction: General Contract Overview
The law of contracts is the law of voluntary obligations
o Problems with voluntary lawmaking:
How do we know when the law was made? How do we know what law was
made?
How do we resolve ambiguities when not everything was settled when the law
was made?
What are the limits? What should people be allowed to contract around?
How do we make the law well – prevent the weak from being overpowered by
the strong
3 functions of contract law
o Determine what’s enforceable
o Gap-fill incomplete contracts
o Gap-fill for ambiguous contracts
Express contract
o Parties agree with each other via words to form a contract
Implied-in-fact contract
o Conduct of parties implies agreement
Implied-in-law contract/quasi contract
o 1 party has valid reason for action that confers benefit onto other party that the other
party accepts and retains
o Based off unjust enrichment – element of benefit
KINDS OF CONTRACTS
Unilateral contracts
o Promise for performance
o Traditionally enforceable only after performance completed, now enforceable after
performance has begun
Bilateral contracts
o Promise for promise
o Enforceable as soon as promises are made
ELEMENTS OF A CONTRACT
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3. Breach: the defendant has failed to perform on its contractual promise
4. Damages: the plaintiff must show that the defendants failure to perform has resulted in harm
Once the plaintiff makes out all the elements of the claim, we say that he or she has established a prima
facie case. This means that the plaintiff has gotten the ball over the line and is entitled to win unless the δ
raises some reason to say otherwise.
AFFIRMATIVE DEFENSES
A defendant can defeat the plaintiff’s prima facie case by disproving one or more of the
plaintiff’s required elements.
But the defendant can also try to establish an affirmative defense.
o It is up to the defendant to raise such defenses, and usually to prove them too.
INCAPACITY the promisor lacked power to enter into the bargain. E.g., the promisor was
a child, or was intoxicated or insane, or was exceeding their legal authority
(e.g., to act as an agent).
FRAUD the promisor was deceived into making the promise. Mistake: one or both
parties were mistaken about some fundamental aspect of the contract (we’ll
have substantially more to say about this one later in the course).
UNDUE INFLUENCE the parties have some special relationship that creates a risk that one party
won’t look out for their own interests, and thus there’s an obligation for
other party to take the weak party’s interests into account. E.g., the
relationship between a doctor and a patient, or an infirm person and their
caregiver.
DURESS under improper threat from other party, leaving victim no reasonable
alternative; or by 3rd party unless other party is in good faith, without
reason to know, relies or gives value to transaction
UNCONSCIONABILITY when things just look so unfair the court can’t uphold it (Note: a contract
may be unconscionable either because of an extreme lack of fairness in the
bargaining process, or because of the substance of the contract itself
Three overlapping kinds of reasons why we would want to enforce contracts or why we would want to
put limits on the enforcement of contracts.
Social utility: we enforce contracts to facilitate transactions and activities that promote wealth,
social welfare, and the pursuit of happiness.
Individual liberty: we enforce contracts in order to promote the freedom of the parties, their
autonomy, their power to pursue the ends that they individually choose for themselves.
Human development or Virtue: we enforce contracts in order to encourage the development of
virtuous and flourishing persons and communities.
When we decide which contracts should be entered into, we are taking an ex ante approach; when we
decide whether an already existing contract should be enforced, we are taking an ex post approach.
When deciding a conflict…
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A forward-looking perspective is often called the ex ante perspective
A backward looking perspective is often called the ex post perspective
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UCC vs. Common Law
UCC governs sale of goods (and some mixed qs)
o Predominant factor test: are the goods incidentally involved in the contract or are the
services incidentally involved?
o UCC governs all sales of goods, not just those with merchants, but has additional rules
for merchants depending on text
Merchant: person who deals in goods or otherwise by his occupation hold
himself out as having knowledge or skills peculiar to the practices or goods
involved in the transaction
Tends to be more liberal, interventionist than common law
If UCC silent, common law governs (UCC 1-103)
Parties can contract out of the UCC’s provisions so long as standards are not “manifestly
unreasonable”
UCC OVERVIEW
UCC is a statute in contrast to the Restatement, which is just an influential treatise that is not
binding on courts
o (except to the extent that they have incorporated its rules into the common law of their
jurisdiction)
The UCC been adopted by legislatures of the several states courts must follow it in cases to
which applies.
Article 1 provides some general principles of interpretation, as well as definitions of important
concepts
Article 2 relates to the sale of goods.
o Many of the provisions of Article 2 depend on flexible standards, many of which differ to
social practice and custom.
The duty of good faith is a good example of this.
GOODS:
Things that are movable, other than money.
So Article 2 does not apply to contracts involving services, real estate, insurance,
construction, intellectual property, or employment, except in so far as they include the sale of
movable goods. All those other kinds of items are covered by the common law and the
restatement.
SALE:
Passage of ownership in exchange for a price.
So sale does not include borrowing goods, leasing them, or pledging them as collateral for a
loan.
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STATUTE OF FRAUDS
Refers to the framework of rules that determine whether a contract must be in writing in order to be
legally enforceable.
This is a formal, not substantive requirement.
Purpose is to:
o (1) provide evidence of existence and purport of contract in the case of controversy and
o (2) prevent inconsiderate engagements.
Focused on fairly important agreements that are often rather complex in their terms.
Intended to restrain juries from finding contracts everywhere
Exceptions to writing requirement: Specially manufactured, Payment has been made, Admit there
was a contract
The following agreements that must be in writing:
1. Sales of land or permanent interest in land
2. Contracts that can’t be finished in less than a year
3. Contracts in consideration of marriage
4. Third party guarantees (debts) (Must be signed by guarantor)
5. Sales of goods of $500 or more – 2-201
Courts over the years have interpreted the Statute of Frauds strictly, so as to allow oral contracts
to be enforceable unless it is very clear that they come within one of the six categories.
For example, courts have interpreted the one-year provision of the Statute of Frauds to apply only
in cases where the contract, by its terms, must last more than one year.
o If a contract could be completed under some circumstances in less than a year, then it
doesn't have to be in writing.
But you can generally orally rescind SoF contract (unless its about land) but must modify it in
writing
“Notwithstanding the Statute of Frauds, all unperformed duties under an
enforceable contract may be discharged by an oral agreement of rescission.
RESTATEMENT §148 The Statute may, however, apply to a contract to rescind a transfer of
property.”
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Doctrines
CONSIDERATION
Generally how the law determines what promises should and should not be enforced
Contract law states that consideration for a promise must exist
two ideas of consideration:
o The idea that a promise must be bargained for (mostly speak about it in this sense)
o The set of things that make a contract enforceable
Bargain
Reliance
Form
Benefit
Legal realist would say we take all the cases where a contract has been enforced and that is what
consideration is.
CONSIDERATION
Something bargained for and received by a promisor from a promisee (reason to enforce a contract)
PROMISE
An expression of an intention to act or refrain from acting in a specified way in some future time, so made
as to justify the person to whom the expression is addressed in understanding that a commitment has been
made to that person
A person making promise is promisor
A person to whom its made is promisee
DONATIVE PROMISES
A promise to give a gift without expecting anything in return (without consideration);
these are NOT cast in a form to which modern contract law gives special significance
under classical contract law, consideration ran the basic fault line between bargain promises and
donative promises
Under bargain theory of consideration (classical contract law) every promise that was not a
bargain promise was viewed as a gratuitous promise
o If gratuitous not enforceable
CONSIDERATION CASES
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o Rule: Mere donative promises are not legally enforceable. Contracts must have
consideration to be enforceable. FORM VS. SUBSTANCE: merely reciting “value
received” will not be enough to prove
Various substantive and formal ground (process grounds) for enforcing promises
o Evidentiary safeguards
o Cautionary safeguards
Donative promises fall short because they raise serious problems of proof
o May sound like a credible by a jury despite absence of corroborating evidence
o Raise problems of deliberativeness - emotional involvement
The substantive and process bases for enforcing or not enforcing any kind of process are
interrelated
o The stronger the substantive interest in enforcing a given kind of promise, the more the
law can tolerate process concerns
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The Element of Bargain
Dominant theory of contractual liability
Must have either a performance or a return promise (Restatement §71)
Sections §71 §72 §79 of Restatement leave it up to the parties and no one else to determine what
contracts are worth entering
o Two standard issues:
sufficiency of consideration: whether the parties understand that both are giving
something of value
adequacy of consideration: whether the bargain was fair/between things of equal
value
CLASSICAL CONSIDERATION:
Something must be exchanged (sufficiency)
Courts don’t generally inquire into whether the things exchanged are equal (adequacy)
Waiver of any legal right at the request of another party generally counts as consideration
o See Hamer v. Sidway where court says nephew’s promise not to smoke, drink, etc. was
sufficient to establish consideration
§ 72 EXCHANGE OF PROMISE FOR Except as stated in §§ 73 and 74, any performance which is bargained for
PERFORMANCE is consideration.
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(c) “mutuality of obligation.”
BARGAIN CASES
MUTUALITY
MUTUALITY RULE
Both parties must be bound or neither is bound.
Issue with promise that arises in promise contracts (bilateral)
o Doesn’t apply to unilateral K
Arrangements that are clearly bargains but give one of the parties substantially more discretion
than the other
Formally an extension of the doctrine of consideration
ILLUSORY PROMISE
When a promise is not real/meaningful
Promisee has suffered no real detriment
Optional contract no condieration
CONDITIONAL PROMISES
Enforceable if the condition is a possible future event that is not completely controlled by the
promisor
o Example: if it rains tomorrow, I will sell you my umbrella
o See Scott v. Moragues – D told P that if he bought a boat, he would charter it to P; D
bought the boat but didn’t charter it to P; Court said he had to because there was a
bargain and it become binding once D bought the boat
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Not enforceable if conditioned based on party’s will and not on outside events (i.e. illusory
promise because party does not have to do anything if he doesn’t want to)
o See Office Pavilion v. ASAL – P didn’t have to actually buy any chairs, so K not
enforceable
An optional contract does not furnish consideration
Some courts have read in implied promise of best efforts into relational contracts
o See Wood v. Lucy Lady Duff Gordon
IMPOSSIBLE CONDITIONS
A promise conditioned on something that cannot occur
o Example: if it rains
MUTUALITY CASES
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o Exclusivity in dealing
If the court had not found an implied promise, would the contract be enforceable?
o 50% of the profits? IP protections? Exclusivity in dealing?
o Ex. Give me your umbrella, and I will give you $10 tomorrow if I have cash.
MODIFICATION
Common approach parties take to deal with uncertainty
o Parties enter into tentative agreement that contains the terms that appear best at the outset
of the relationship
expectation that the agreement will be updated over time as the parties receive
new information.
TRADITIONAL Relatively reluctant to lend their authority to enforce the kind of flexible adjustments that
APPROACH arise in the context of relational contracts, and tended to apply relatively rigid and
formalistic doctrines, such as the pre-existing duty rule or the illusory promise doctrine,
that avoided their having to do so.
MODERN More willing to step in. But doing so requires them to employ doctrinal tools that are less
APPROACH like rules, and more like standards: such as the duty of good faith. These doctrines are
arguably more equitable and better suited to the details of the individual relationship. But
their application is more uncertain.
MODIFICATION: Amends an existing contract (can be by adding, subtracting, or changing the terms).
Courts now often apply Restatement §89:
o modification is binding if
(a) fair and equitable in view of unforeseen circumstances or
(b) provided by statute or
(c) justice requires in view of material change of position in reliance on promise
Novation served as a formalism to get around the pre-existing duty rule
o Parties would tear up the old contract, affix signatures to a new contract with modified
terms
o See Schwartzreigh v. Baman-Basch where PED rule didn’t apply because old contract
was rescinded and new contract formed
UCC §2-209: no need for fresh consideration in order to modify a contract, just need good faith
negotiation and fair and equitable in light of the circumstances
o Good faith:
In general: “Honesty in fact in the conduct or transaction concerned.”
For merchants: “Honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade.”
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The logic of this rule is that the promisor cannot sell the same performance twice, anymore
than a car dealer can sell the same car twice.
Pinnel’s Case (ancient English) which suggested you could get around the PED rule if you
adjusted the obligations so that a fresh consideration exists
o but it has to differ in more than a nominal way
o See Lingenfelder v. Wainwright Brewery (P stopped work until D agreed to pay him
more; Courts said this was extortion, no consideration)
o Compare Angel v. Murray where court upheld pay increase because demands on
collection had increased
§ 89 MODIFICATION OF A promise modifying a duty under a contract not fully performed on either
EXECUTORY CONTRACT side is binding
(a) if the modification is fair and equitable in view of circumstances
(APPLIES TO EXECUTORY not anticipated by the parties when the contract was made; or
CONTRACTS: TERMS ARE SET (b) to the extent provided by statute; or
OUT TO BE FILLED AT A LATER
(c) to the extent that justice requires enforcement in view of material
DATE)
change of position in reliance on the promise.
§ 2-209. MODIFICATION, (1) An agreement modifying a contract within this Article needs no
RESCISSION AND WAIVER. consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by
a signed writing cannot be otherwise modified or rescinded, but except as
between merchants such a requirement on a form supplied by the merchant
must be separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (Section
2-201) must be satisfied if the contract as modified is within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the
requirements of subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the
contract may retract the waiver by reasonable notification received by the
other party that strict performance will be required of any term waived,
unless the retraction would be unjust in view of a material change of position
in reliance on the waiver.
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MODIFICATION CASES
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WAIVER
WAIVER: a voluntary election not to enforce one’s rights
Beneficiary of the term elects not to insist upon compliance after the time for occurrence has
passed
A relinquishment of a right or condition in a contract
o you can waive a condition in a contract without consideration if that contract is not a
material part of the agreed exchange (Restatement §84)
No consideration requirement for waiver
See Nassau Trust Co. v. Montrose Concrete) if K is still executory such waiver
can also be withdrawn unilaterally if other party has not relied on waiver and
there is still reasonable time to fulfill condition
Only non-material terms can be waived – you cannot waive the actual consideration of a contract
o A change in a material (essential) contractual term will be seen as a modification, and
would require consideration.
Retraction: A waiver can be retracted by giving notice before the other party acts in reliance
of the waiver and there is still reasonable time for the condition to be fulfilled
Doesn’t need to be an express waiver – can be implied via conduct
o See Clark v. West – P was supposed to stay sober while writing book, he didn’t but court
allowed the waiver since D had acted as though condition was waived and substance of K
was about writing the book not able keeping P sober
WAIVER RESTATEMENT
§ 84 PROMISE TO (1) Except as stated in Subsection (2), a promise to perform all or part of a conditional
PERFORM A DUTY duty under an antecedent contract in spite of the non-occurrence of the condition is
IN SPITE OF NON- binding, whether the promise is made before or after the time for the condition to occur,
OCCURRENCE OF A unless
CONDITION (a) occurrence of the condition was a material part of the agreed exchange for
the performance of the duty and the promisee was under no duty that it occur; or
(b) uncertainty of the occurrence of the condition was an element of the risk
assumed by the promisor.
(2) If such a promise is made before the time for the occurrence of the condition has
expired and the condition is within the control of the promisee or a beneficiary, the
promisor can make his duty again subject to the condition by notifying the promisee or
beneficiary of his intention to do so if
(a) the notification is received while there is still a reasonable time to cause the
condition to occur under the antecedent terms or an extension given by the
promisor; and
(b) reinstatement of the requirement of the condition is not unjust because of a
material change of position by the promisee or beneficiary; and
(c) the promise is not binding apart from the rule stated in Subsection (1).
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WAIVER CASES
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The Element of Reliance
The element of reliance allows courts to find a way to enforce a claim where a donative promise had been
relied upon. The element of reliance makes an agreement enforceable on the basis that it is unfair when
someone incurs a loss as a result of reliance on a promise.
According to §90 of Restatement, reliance isn’t enough by itself to make a promise legally
binding. Doctrine can apply even if there is no consideration (and often does)
o Eliminates the need to have “bargained for” consideration
Courts once refused to enforce this because of lack of consideration (Kirksey v. Kirksey)
But this has changed since the adoption of §90
o See Feinberg v. Pfeiffer: corporation made donative promise to pay secretary money,
reneged certain amount that secretary relief on
There must be actual reliance on the promise for the court to enforce it
o See Hayes v. Plantations Steel Co.: P had already planned to retire before promise, thus
no reliance
EQUITABLE ESTOPPEL:
A says B x is true; B acts based on x being true; B sues A where x being true matters – A cannot
now claim that x is not true
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A is estopped from using this defense
MODERN RELIANCE
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The Element of Benefit
Like reliance, the element of benefit is not only a part of contract law. The separate body of law that
governs when people acquire obligations as a result of receiving a benefit is restitution.
If you receive a benefit from someone else, even if you never offered something in return, you
can still be made to pay for it
RESTITUTION
The idea that liability can be derived from benefit received; depends on the presence of unjust
enrichment:
If you have been enriched in a manner that would make it unjust to retain what you’ve received;
someone shouldn’t be able to freely retain a benefit they have no right to if the result would be
injustice
o Example) Person A mistakenly sends one million dollars via wire transfer to Person B.
Person B does not get to keep the money.
Restitution is equitable in nature, so the outcome of restitution cases can depend sensitively on
the factual circumstances.
Contractor accidentally paves your driveway. Received an objective benefit but not obvious that it’s
There is no way to give the driveway back, a benefit to you.
but you might not spend money this way...
Contractor did on purpose assuming you will Weak case for restitution. Contractor has overridden
pay for it autonomy. The law will not make you pay him.
Contractor is a landscaper and sees a dead Benefit is clearer. You would have been obliged to
tree. He removes it because he knows it is a pay at some point. If he goes uncompensated, you
liability. would have gained at his expense. Case not clear
Contractor mistakenly goes to the wrong Case for restitution is strong. Contractor made an error
home. You are home and notice but do not but you could have prevented and you didn’t.
stop him
UNJUST ENRICHMENT
You have been enriched in a manner that would make it unjust for you to retain what you’ve
received
o You can’t inherit money from your father if you murdered him to get ti
Based on the principle that no one should profit from his or her own wrong
Equitable remedy, highly fact-sensitive
Implied contract in-law
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PAST AND MORAL CONSIDERATION
Courts used to be hesitant of enforcing promises based off past consideration (because they
thought “moral consideration” was not actual consideration)
Past benefit and moral obligation alone are insufficient to make a promise binding
o See Mills v. Wyman – P took care of D’s son, D promised to pay P for it but then reneged.
Court held that only a moral obligation existed so the promise was not binding.
See Restatement §86:
o (1) a promise made in recognition of a benefit previously received by the promisor from
the promisee is binding to the extent necessary to prevent injustice
o (2) a promise is not binding under subsection (1) if
(a) the promisee conferred the benefit as a gift or for other reasons the promisor
has not been unjustly enriched or
(b) to the extent that its value is disproportionate to the benefit
But if one receives a material benefit and makes a promise in consideration of that benefit such a
promise may be binding
o See Webb v. McGowin – P saved D’s life, D promised to pay him money for the rest of
his life. Court said that since a material benefit had been conferred onto D the promise
was binding
But even where material benefit conferred directly to D, some courts have
refused to enforce based off of restitution
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Takeaway: If a benefit is given that one can assume the other would want (given the opportunity
to bargain for it), subsequent compensation may be required.
Nursing Care Services v. Dobos, (1980)
Facts: D got nursing care at 3 different stages of recovery. D refused to pay for Nursing Care’s
services, arguing that she never signed a written contract or orally agreed to do so.
Held: For P
Takeaway: If someone knowingly and voluntarily accepts a particular service, they may be liable
to compensate the other party for the benefit they received.
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The Element of Form
People use and have used many types of forms when entering into contracts.
o Examples include: a legal seal, a writing, nominal consideration, recital of consideration,
deploying special terms of art like “value received”.
Courts used to rely more on formalistic/symbolic measures: seal, shaking hands
The tension between form and substances always exists: is the substance really there?
Four concerns:
o Evidentiary: how do we have proof that a contract occurred?
o Cautionary: how do we ensure adequate deliberation before parties contract?
o Channeling: how do we make this exchange clear and definite?
o Deterrent: getting rid of problematic contracts
Language of exchange doesn’t change lack of consideration if nothing more than that language
exists (Doughtery v. Salt)
NOMINAL CONSIDERATION
an exchange that has the form of a bargain but not the substance of a bargain because it is clear
that the promisor does not view what she gives up as the price of what she gets
present when obtaining the item is not an apparent motive of the promisor in making the promise.
A promise supported by nominal consideration is not binding, even if it includes all other forms
of a contract
Courts are hesitant to make determinations of adequacy (whether consideration was fair).
Modern exception: nominal consideration is sufficient to make options and surety promises
binding
Prior to statutory reform, a promise under seal occupied special status in contract law:
enforceable even though it was donative
Writing, ritual of hot wax, and physical object, ring personifying owner
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Ensure deliberation and proof
⅔ of states have adopted statutory provisions depriving the seal of binding effect
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Defenses
Plaintiff must first establish a prima facie case in a breach of contract action (must show mutual
assent, consideration, breach, and damages)
Once that’s done, defendant can respond with affirmative defense or disprove one of the
elements:
o Instant retraction is generally not a defense (Lucy v. Zehmer)
DURESS
Improper threat made by one party leaves other party with no reasonable alternative but to accept
bargain
o Hard bargaining does not equal duress (Batsakis v. Demotsis)
3rd party can also cause duress if they make an improper threat that the other party is aware of and
takes advantage of
o But courts are leery of enforcing this – would have to not act in good faith
Courts generally distinguish between duress and distress
DURESS CASES
UNCONSCIONABILITY
Terms of a contract are so unfair so as to be void as a matter of public policy
in the context of the commercial background, a clause is unconscionable when it is so one-sided
that a court should as a matter of judicial policy refuse to enforce it
can be substantive or procedural
Substantive: something wrong with the bargain itself; When terms are harsh, unfair, or unduly
favorable to one of the parties. Refers to situations in which the outcome of the bargaining
process is excessively one-sided.
o Examples: Exorbitant interest rates, harsh penalties for default, waiver of legal protection
or proper forum (in light of the general commercial context).
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o No Desire to Contract: Unfairness could lie in the fact that the weaker party did not
desire the transaction but was unfairly persuaded to enter it (E.g. door-to-door sales
representative convinces woman to buy two high-priced vacuums).
Procedural: something wrong with the bargaining process; When one party uses its position of
dominance to impose the contract or particular contract terms on the weaker party. Refers to
situations where something is wrong w/ bargaining process.
o Factors: Factors that can lead to procedural unconscionability are disparity in bargaining
power, sophistication, and knowledgeability.
o Abuse: It is not enough that the factors are present, but they must be abused (pressure,
deception, or unfair persuasion) in a way to impose will on the other party.
o Lack of Meaningful Choice: Walker Thomas Furniture defines unconscionability as the
absence of meaningful choice by one party resulting in contact terms that are
unreasonably favorable.
UNCONSCIONABILITY If a contract or term thereof is unconscionable at the time the contract is made a
(RST §208) court may refuse to enforce the contract, or may enforce the remainder of the
contract without the unconscionable term, or may so limit the application of any
unconscionable term as to avoid any unconscionable result.
UNCONSCIONABILITY (1) If the court as a matter of law finds the contract or any term of the contract to
(UCC §2-302) have been unconscionable at the time it was made, the court may refuse to enforce
the contract, or it may enforce the remainder of the contract without the
unconscionable term, or it may so limit the application of any unconscionable term
as to avoid any unconscionable result.
(2) If it is claimed or appears to the court that the contract or any term thereof may
be unconscionable, the parties shall be afforded a reasonable opportunity to present
evidence as to its commercial setting, purpose, and effect to aid the court in making
the determination.
UCC UNCONSCIONABILITY
UCC §2-302, comment 1 suggests that this provision is generally invoked when there had been a
determination that a contract or a part of a contract is “contrary to public policy or to the
dominant purpose of the contract”
o Terms may be “so one-sided”
o Determination is made in light of the context in which the contract was made
UCC §2-302 entitles courts to strike down the entire contract or to sever the unconscionable
provision
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It is not a scape goat for contracts that feel “unfair” (See Batsakis v. Demotsis)
And remember, the court in Walker-Thomas Furniture did not even say that the contract was
unconscionable per se.
o The case was remanded for a determination of unconscionability.
To determine reasonableness or fairness, the terms of the contract must be considered “in the
light of the general commercial background and the commercial needs of the particular trade or
case . . ." (Walker Thomas Furniture)
Avoid legalese
Avoid pressure (door-to-door sales)
Have them write out separately the clause that matters and sign it
Don’t use home furnishings, other essential items to securitize
UNCONSCIONABILITY CASES
MISTAKE
one or both parties mistaken about some fundamental aspect of the contract
R2K §151 defines mistake as a belief that is not in accord with the facts.
Contracts are often formed with incomplete information.
Sometimes, the circumstances make the cost of performance too high to perform.
Central question is whether risk was allocated to a party implicitly in the formation of a contract
Restatement §154 tells us when a party bears the risk of mistake
If other party knows that the other party is mistaken about basic assumption, he has duty to
disclose if he remains silent (Restatement §154)
Basic Analysis:
o Is there an error of fact?
o Does that error go to a basic assumption of K?
o Does it materially effect K?
o Did the parties not allocate the risk?
For unilateral mistake: do equities favor relief?
o Remedies:
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Avoidance and restitution
Reformation
“as equities dictate”
MUTUAL MISTAKE
If K explicitly based on shared mistaken factual assumption, parties can normally rescind if the
mistake has a material effect on agreed exchange (Restatement 152)
o See Sherwood v. Walker – parties thought cow was barren, it wasn’t. D can rescind.
But most courts have adopted a stricter rule than Sherwood, requiring a mistake of kind rather
than mistake of degree
Courts sometimes held that even if a mutual mistake did exist, the contract implied that one of the
parties assumed the risk of that mistake happening, so the contract is enforceable anyway
o See Lenawee County Board v. Messerly
UNILATERAL MISTAKE
One party messes up – can occasionally rescind if effect of mistake would be unconscionable or
other party had reason to know that the mistaken assumption existed or caused the mistaken
assumption (goes to failure to disclose, below)
o See RLL v. Donovan: unilateral mistake caused unconscionability because price change is
nearly 30% lower than it should be
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Issue: Does a defense of unilateral mistake to a breach-of-contract claim require evidence that the
breaching party did not act negligently or with undue care?
Held: Reversed and remanded for further proceedings.
Four prong test: “party seeking to avoid contract must show…(1) mistake was induced by the
party seeking to benefit from the mistake (2) there is no negligence or want of due care on the
part of the party seeking a return to the status quo (3) denial of release from the agreement would
be inequitable and (4) the position of the opposing pary has not so changed that granting relief
would be unjust
Two prong test: “court may rescind if (1) mistke did not result from an inexcusable lack of due
care and (2) defendant’s position did not so change in reliance that it would be unconscionable to
set aside the agreement”
TRANSCRIPTION ERRORS
Parties had agreement, but they wrote it down wrong
Can be remedied by reformation: parties show evidence of “true agreement,” write that down
o High burden of proof: clear and convincing evidence
MISTAKE RESTATEMENTS
RESTATEMENT §152: (1) Where a mistake of both parties at the time a contract was made as to a basic
WHEN A MISTAKE OF assumption on which the contract was made has a material effect on the agreed
BOTH PARTIES MAKES exchange of performances, the contract is voidable by the adversely affected party
A CONTRACT UNLESS he bears the risk of the mistake under the rule stated in § 154.
VOIDABLE (2) In determining whether the mistake has a material effect on the agreed exchange
of performances, account is taken of any relief by way of reformation, restitution, or
otherwise.
RESTATEMENT §153: Where a mistake of one party at the time a contract was made as to a basic
WHEN MISTAKE OF assumption on which he made the contract has a material effect on the agreed
ONE PARTY MAKES A exchange of performances that is adverse to him, the contract is voidable by him if he
CONTRACT VOIDABLE does not bear the risk of the mistake under the rule stated in § 154, and
(a) the effect of the mistake is such that enforcement of the contract would be
unconscionable, or
(b) the other party had reason to know of the mistake or his fault caused the
mistake.
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R2K §154 tells us there are three ways parties can bear the risk of mistake and therefore should bear the
costs
1. Allocated risk by agreement, explicitly as when goods are sold “as is”
2. No agreement, but one of the parties is aware of the risk and goes forward anyway
3. Common sense – what the court considers reasonable (may be informed by trade usage or
equitable considerations)
DISCLOSURE
FAILURE TO DISCLOSE
Concealment can operate similar to fraud if promisee takes affirmative steps to prevent
promisor from discovering material fact.
Nondisclosure can void contract if promisee fails to disabuse promisor of a mistaken belief
regarding a latent fact about a basic assumption
o at times have duty to disclose; can intertwine w broader duty of good faith
no obligation to reveal extrinsic or exogenous facts:
o mistake regarding extrinsic or exogenous facts do not pertain to basic assumptions
(Restatement 152)
o parties do not have to reveal information regarding valuation, but do have to reveal
information regarding pricing
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o Laidlaw v. Oregan unilateral misunderstanding regarding the value of tobacco did not
implicate the duty to disclose
Courts are reluctant to impose duty to disloce when facts are discovered by party;
would reduce the incentive to do fact-finding, due diligence in deal-making and
risk taking
Have to disclose when:
o It’s necessary to correct a previous material representation
o It’s necessary to correct the counterparty’s unilateral mistake relating to contents of a
written agreement
o There’s a relationship of trust and confidence or
o It’s necessary to correct the counter party’s unilateral mistake relating to a basic
assumption, and: nondisclosure would be breach of good faith or reasonable standards
of fair dealing
DISCLOSURE CASES
Laidlaw v. Organ (1817)
Facts: three Americans got news that the war had been ended. Price of tobacco would
immediately rise when news got out. Organ purchased tobacco from Laidlaw. Price increased by
30-50%. Laidlaw refused to deliver or seized back tobacco.
Held: Organ was not under a duty to dislose the news.
Rule: Where the means of intelligence are equally accessible to both parties, there is not a duty to
disclosure, but at the same time, each party cannot say or do anything tending to impose upon the
other.
UNDUE INFLUENCE
Special relationship between parties creates risk that one of the parties won’t look out for their
own interest, so other party must instead take those interests into account
o Doctor-patient, lawyer-client, caregiver, etc.
INCAPACITY
Promisor lacked power to enter into bargain (exceeded legal authority, child, mentally
incapacitated, intoxicated)
o Doesn’t always apply if the party incapacitated gives the appearance of being
incapacitated
FRAUD
Promisor deceived into making promise
Restatement §162-4: Has to be…
o 1) intentional or reckless
o 2) misrepresentation
o 3) of material fact upon which
o 4) a reasonable party
o 5) actually relied
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Parties can opt out of the fraud defense by including no-reliance clauses or merger
o Clauses themselves can be vitiated by fraud, but otherwise removes fraud analysis re
other clauses or facts from consideration
o Theoretically reduces transaction costs
o Stands for the proposition that parties should read and understand the clauses they accede
to
IMPOSSIBILITY
Contract could not actually occur due to change of circumstances/mistake
Example: Taylor v. Caldwell (place where P was to have concert burnt down, so D can get out of
K without paying P
Basic analysis:
o After K, event occurs, the non-occurrence of which was a basic assumption of contract
o Effect of occurrence is to render performance impracticable, impossible, or pointless
o Party seeking relief is not at fault
o Party seeking relief did not bear risk of event occurring
IMPRACTICABILITY
Also a defense: contingency occurs, parties didn’t allocate risk for it, and contingency renders
performance so expensive as to be impracticable
Courts reluctant to enforce this though unless large disparity
o See Transatlantic Financing v. US – US (D) chartered shipment from US to Iran. Charter
did not indicate route. Canal closed for political reasons. P sailed around Cape of Good
Hope to arrive at Iran and wanted to recover for additional compensation for the longer
voyage.
o “It is now recognized that ‘A thing is impossible in legal contemplation when it is not
practicable and a thing is impracticable when it can only be done at an excessive and
unreasonable cost.’’ (pg. 862)
o Rule from Transatlantic:
Three conditions must occur for doctrine of impossibly to apply
Something unexpected
Risk of unexpected occurrence must not have been allocated either by
agreement or by custom
Occurrence of the contingency must have render performance
commercially impracticable
RESTATEMENT §261 Where, after a contract is made, a party's performance is made impracticable without
his fault by the occurrence of an event the non- occurrence of which was a basic
assumption on which the contract was made, his duty to render that performance is
discharged, unless the language or the circumstances indicate the contrary.
FRUSTRATION
Contract’s purpose can no longer be accomplished, so D can renege without penalty
o Krell v. Henry – D wanted to watch king’s procession, king cancelled, so D can renege
from paying P for his room without penalty
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RESTATEMENT §265 Where, after a contract is made, a party's principal purpose is substantially frustrated
without his fault by the occurrence of an event the non-occurrence of which was a
basic assumption on which the contract was made, his remaining duties to render
performance are discharged, unless the language or the circumstances indicate the
contrary.
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Damages
Damages are the default remedy under American law.
Money damages for breach of contract are determined using concepts of expectation, reliance,
restitution, and disgorgement.
Expectation is the dominant theory.
§ 344 PURPOSES OF Judicial remedies under the rules stated in this Restatement serve to protect one or
REMEDIES more of the following interests of a promisee:
(a) his “expectation interest,” which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the
contract been performed,
(b) his “reliance interest,” which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as he
would have been in had the contract not been made, or
(c) his “restitution interest,” which is his interest in having restored to him
any benefit that he has conferred on the other party.
§ 345 JUDICIAL The judicial remedies available for the protection of the interests stated in § 344
REMEDIES include a judgment or order
AVAILABLE (a) awarding a sum of money due under the contract or as damages,
(b) requiring specific performance of a contract or enjoining its non-
performance,
(c) requiring restoration of a specific thing to prevent unjust enrichment,
(d) awarding a sum of money to prevent unjust enrichment,
(e) declaring the rights of the parties, and
(f) enforcing an arbitration award.
§ 347 MEASURE OF Subject to the limitations stated in §§ 350- 53, the injured party has a right to damages
DAMAGES IN based on his expectation interest as measured by
GENERAL (a) the loss in the value to him of the other party's performance caused by its
failure or deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the
breach, less
(c) any cost or other loss that he has avoided by not having to perform.
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STATUS QUO ANTE: the situation that would have prevailed if the promise had never been made
STATUS QUO POST: the situation that would prevail if the promise were performed rather than
breached
Cost of completion/
RETURN PROMISOR TO: Restitution
disgorgement
Courts generally apply the expectation theory of damages because it seeks to make the non-
breaching party "whole."
But sometimes there is no economic loss, or the economic loss is too difficult to measure.
o In those cases, other theories (reliance, restitution, or disgorgement) may be more
suitable to make the non-breaching party whole.
Expectation, reliance, restitution and disgorgement should be understood as idealizations of what
courts are aiming for when they award damages.
o The amounts that are actually awarded in real cases may not measure up. This could be
true for very practical reasons…
difficulties of proof: it may be very difficult to establish profits that could have
been earned from foregone opportunities for example
some aspects of what the parties have lost or gained, such as physical injury or
the subjective enjoyment or pride taken in performing a task, are not easily
measurable in money
institutional limitations: such as the American rule for financing litigation
under which prevailing parties are ordinarily expected to cover their own
attorneys’ fees.
Overhead costs usually refer to expenditures that have to be incurred no matter the level of
business activity (for example, rent, insurance, license fees.)
o These kinds of expenditures need to be included when setting prices and when assessing
overall firm performance, because a business that does not take in enough revenue to
cover all of its costs, including overhead costs, will not be able to stay in business in the
long run.
o But if these expenditures are not affected when a customer breaches, they should
not be deducted when calculating expectation.
Efficient breach is the concept that it’s not a good idea - in some cases it’s wasteful - to make
contractual parties enforce their contracts no matter what.
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Expectation Damages
Put nonbreacher in position of performance
o Measured by the difference between nonbreacher position if fully performed –
nonbreacher position currently
Paradigm case: Hawkins v. McGee (hairy hand)
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LOST VOLUME SELLER
If lost volume seller, 2-708 governs: profit + reasonable overhead + incidental damages
o See Neri v. Retail Marine Corp: D could have sold 2 boats – instead only sold 1 because
of P’s breach, so D gets lost profit on the second boat as damages
MIDDLEMAN SELLER
If the seller is a middle man, and the buyer repudiates before the seller has acquired any goods,
the seller may recover lost profits (because the seller has nothing to resell and recover)
CONSEQUENTIAL DAMAGES
Breaches unrelated to direct breach of contract but nevertheless caused by breach
o You could have sold two boats but now can only sell one
Lost profit for lost-volume sellers
Foreseeability limitation: generally cannot recover for unforeseeable consequential damages
UNLESS those damages are directly communicated between parties – and even then courts are
leery
o See Hadley v. Baxendale: if you didn’t foresee the damages at the time of the contract,
you’re not liable for them unless you should have known or did know about them
Additionally even if you did know about them you can maybe only be held liable
for a reasonable amount of damages per Victoria Laundry
INCIDENTAL DAMAGES
Damages caused by your attempt to mitigate
o E.g. you paid for an ad to sell the boat
PUNITIVE DAMAGES
Usually not available under contract unless tort action also involved
o Can bring tort action for bad faith breach
Economic waste: courts will not apply the expectation measure if they think it’d lead to
substantial economic waste; instead may just apply reliance measure
o See Peevyhouse
Theory of efficient breach in action
Rule: When the contract provision breached is merely incidental to the main
purpose of the contract and where the economic benefit of full performance is
grossly disproportionate to the cost of performance, damages should be
limited to the diminution in value due to non-performance
EXPECTATION CASES
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Facts: McGee performed a experimental surgical procedure on Hawkins with the promise that he
would restore his burned hand to "one hundred percent good." McGee grafted skin from Hawkins'
chest to his hand. His hand ended up burned and hairy.
Held: Hawkins is entitled to damages as if the contract had been fully performed.
Rule: Expectation damages are measured by the difference between the value of the contract as
fully performed and the value of the non-breaching party's present condition, plus any reasonably
foreseeable incidental damages.
Louise Caroline Nursing Home v. Dix Construction (1972)
Facts: Nursing Home sought damages because Dix did not complete a construction project on
time.
Held: It is contrary to public policy to award damages that would put a PL in a better position
than if the DF had carried out the contract. No compensable damages have occurred.
Rule: Breach by Performer of Services: Damage for an incomplete project = reasonable cost for
completion - any amount that has not been paid.
Peevyhouse v. Garland Coal & Mining (1962)
Facts: The Peevyhouses leased their farm to Garland to allow them to strip mine coal deposits
under the land. As part of their lease (not the main part), Garland agreed to restore the farm
property at the end of their lease. The cost of restoring the property was $29,000. The court
determined the diminution in value of the property to be $300.
Held: The cost of the restoration to Garland would grossly outweigh the benefit of the restoration
to the Peevyhouses. Peevyhouses got the $300.
Rule: When the contract provision breached is merely incidental to the main purpose of the
contract, and where the economic benefit of full performance is grossly disproportionate to the
cost of performance, damages may be limited to the diminution in value due to non-performance
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Reliance Damages
RELIANCE DAMAGES
= OUT-OF-POCKET EXPENSES + OPPORTUNITY COSTS
Put nonbreacher in position before contract existed
o The P must be prejudiced in that something of value has been wasted or lost, and cannot
be salvaged.
o If something is not wasted, lost, or could be salvaged, it may not be recovered
When reliance damages are used to remedy promissory estoppel, the duty to
mitigate enters in through the elements of causation and justice (as opposed to
applying as a separate doctrine)
Court will generally apply this and other measures of damages if its too difficult to apply
expectation damages
Nonbreacher receives costs incurred from reliance on breacher + opportunity costs
Can be given even if expectation measure would result in zero damages
o See Security Stove & MFG Co. v. American Rye Express: Company wasn’t guaranteed
profits off of exhibition, but contract’s purpose was frustrated so court awards reliance
damages
Shows the difference between measure and motive of damages: even though by
expectation measure P lost nothing, motive is to compensate them for waste
Pre-contract expenditures generally not given as reliance
o However, if other party knows those expenditures have been incurred and will be wasted
if he breaches, he can be held liable for them
See Anglia Television Ltd. v. Reed: actor knew that breaching would cause movie
to fall apart, so he has to pay for expenses
OPPORTUNITY COST
Foregone opportunities can also be factored into reliance if they can be reliably proven
RELIANCE CASES
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Restitution Damages
Restore breacher to position before contract existed – give back benefit conferred to breaching
party
o In other words: restitution seeks to return to the plaintiff the value of any benefit
conferred on the defendant by the plaintiff
Nonbreacher can rescind contract and sue for value of performance he rendered less benefits he
received from breacher
Remedy depends on extent of non-performance by breacher
o Can’t get restitution unless material breach
See Osteen v. Johnson
There are multiple measures
o Market value (quantum meruit): the total market value of a goods or service
o Net economic gain: objective and subjective gain in value to the defendant
Objective net gain: market value measure of gain
Subjective net gain: value to the individual
Example: A hires B to build a patio for $100. The patio increases the value of A’s property by
$150. On top of that, A’s subjective value of the patio (the value of her using the patio between
the time when it’s built and when she sells the house) is another $125.
o B builds the patio. A refuses to pay.
Quantum meruit: $100
Net economic gain: $275
This is a matter of equity, so courts would likely look to traditional equity principles in
determining which measurements/benchmarks to use
o Good faith/bad faith
o Fault/willfulness
o Disproportionality
However, different jurisdictions have different precedents, so we don’t go into this too much
RESTITUTION DAMAGES
= UNJUST ENRICHMENT
or
= AMOUNT GAINED BY BREACHING PARTY - REASONABLE VALUE OF SERVICES
ALREADY PERFORMED
UNJUST ENRICHMENT
How to value benefit conferred?
o Quantum meruit: market value of benefit
o Economic gain
Objective net gain
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Subjective net gain
See US Naval Institution v. Charter Communications:
RESTITUTION CASES
DISGORGEMENT
Disgorgement is used to describe cases where the breacher has received affirmative benefits as a result of
the breach but the benefits didn’t come directly from the disappointed party. There is an aspect of unjust
enrichment in this case, but we can’t really call what happens restitution, since the amount that’s been
saved –or disgorged--didn’t belong to the disappointed party to begin with, so it’s not being restored. It
isn’t very common, but it is appropriate in some cases.
Ruxley Electronics and Construction LTD. v. Forsyth
Facts: REC contracted to build a swimming pool with max depth 7’ 6” but pool built was only 6’
9.” Forsyth refused to pay the balance $39,000. REC sued for the remaining balance and F
counterclaimed for breach of contract. Facts found: 1) pool constructed was safe for diving 2)
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because the pool was safe for diving, value was not diminished, the only way to increase the
depth would be to demolish and start over which would cost $21,000 (and F had no intention of
building a new pool.
Held: Spending $21,000 on a new pool would be unreasonable since the cost would be wholly
disproportionate to the advantage of having a pool 7’ 6”. If F awarded 21,000 it would end up
with BOTH a pool that is substantially complete and profits of 21,000. This would be a windfall.
They did award damages for loss of pleasure and amenity of not being able to dive 7’6” as deep.
Important: Judge’s decision mentions that swimming pools are not necessities, they are for fun.
“I think that where a contract is for the provision of a pleasurable amenity...it is entirely proper to
award a general sum for the loss of the amenity.”
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breach, they were reasonable and customary. CSR failed to offer evidence that suitable
replacement fill was available at a lower price at the time of the breach
HWH Cattle v. Schroeder (1985)
Facts: HWH contracted to buy 2000 cattle from Schroeder. HWH was then going to sell the cattle
to Western Trio for a profit. Schroeder could only deliver 1397 cattle. Trial court limited HWH’s
damages to his expected profit from the sale to Western Trio. Plain Market-Contract damages
would have given HWH a windfall.
Held: Upheld the trial court’s holding.
Rule: The expectation measure places an individual in as good a position as if the contract had
been completed, but no better. If the expected profit is lower than profit from cover or
hypothetical cover, damages are limited to the original expected profit. Courts are hesitant to
award windfalls (punitive damages).
Note: This case really could have gone either way. Not all courts apply this rule.
Other Remedies
LIQUIDATED DAMAGES
Restatement 356, UCC 2-718: liquidated damages must be reasonable in light of actual loss and
difficulties of proof
Damages beyond this limit are unenforceable penalties
Damages can be additionally limited under §2-719
Parties can contract for damages that are below expectation damages, just not above expectation
damages
o Note: it’s difficult to see if something is a penalty re-characterized as something else
Ie reward or option
o If it’s done fairly, a court will probably enforce, but if it looks like a penalty, it may be
hard to enforce
If that is the case, said damages must not be a penalty and must instead be a reasonable
approximation of damages resulting from breach
o See Wasserman’s Inc. v. Middletown – where liquidated damages clause void as penalty
because no attempt at reasonable approximation of damages caused by breach
o If it’s impossible to calculate what those damages would be at the time of K, then any
liquidated damages clause is void as penalty
See Hutchinson v. Tompkins
o Courts scrutinize these clauses severely, will void them on a basis separate from
unconscionability
o Can get around this if phrased as buyout option – courts look more favorably on those
Deposit under UCC:
if the buyer paid a deposit, and then breaches, then his deposit back, minus any liquidated damage
clause, or in the absence of such a clause, a $500
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RESTATEMENT §356 (1) Damages for breach by either party may be liquidated in the agreement but only at
an amount that is reasonable in the light of the anticipated or actual loss caused by the
breach and the difficulties of proof of loss. A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public policy as a penalty.
UCC § 2-718: (1) Damages for breach by either party may be liquidated in the agreement but only at
an amount which is reasonable in the light of the anticipated or actual harm caused by
the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of
otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated
damages is void as a penalty.
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THE DUTY TO MITIGATE
Not a formal duty, but rather a limitation on damages.
Once a party breaches, nonbreaching party has a duty not to increase damages caused by
breach.
o not really a “duty” but nonbreacher won’t recover for additional damages if he failed to
mitigate
for personal services: duty to mitigate means you only have to accept substantially similar offer;
no duty to accept different or inferior offer
o See Shirley Maclain Parker v. Twentieth Century Fox – no duty to accept part in different
movie in different genre in different place
Supposed to stop performance after notice of breach
o See Rockingham County v. Luten Bridge – nonbreacher kept building bridge after
notified of breach, could only get damages for performance prior to breach
Under UCC: duty to mitigate includes cost of cover (you buy substitute good, get money for that
purchase) or hypothetical cover (you choose not to cover, get market price if you had covered)
The principle operates defensively as a limit on the damages that a non-breacher cannot recover
from a breacher.
o Generally a promisee cannot collect damages that could have been avoided by
reasonable mitigation.
o The basic idea: a person who suffers a breach of contract is expected to take steps to
minimize loss from breach, rather than run up the tab, even if they are totally innocent.
Example) if the cheapest way for the Peevyhouses to deal with that big hole in
their back yard is to sell their field at the market price to somebody who doesn’t
mind the big hole, and use proceeds to buy another piece of land that doesn’t
have a big hole in it, that might be what we expect them to do.
Losses incurred in avoiding damages (incidental damages):
o A plaintiff may recover reasonable costs incurred in attempts to mitigate damages. It does
not matter whether these attempts are successful or not.
o (Mr. Eddie, Inc. v. Ginsberg below)
REASONABLE EFFORTS:
The plaintiff only needs to make reasonable efforts to mitigate. They do not need to incur considerable
expense, risk, or humiliation.
§ 350 AVOIDABILITY AS A (1) Except as stated in Subsection (2), damages are not recoverable for loss
LIMITATION ON DAMAGES that the injured party could have avoided without undue risk, burden or
humiliation.
(2) The injured party is not precluded from recovery by the rule stated in
Subsection (1) to the extent that he has made reasonable but unsuccessful
efforts to avoid loss.
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NOTE ON DUTY TO MITIGATE
A Plaintiff who fails to mitigate does not recover damages for the avoidable loss (See
Rockingham County below)
Different justifications for duty to mitigate:
o Efficiency: we want to give incentives for people to take cost-justified precautions when
something goes wrong – even when that something wrong is someone else’s fault
o Equity: it’s fair for people to bear the consequences of their failure to keep their promises
–but not for those consequences to be unnecessarily magnified by the promisee’s
carelessness or spite.
o Responsibility: the defendant shouldn’t be able to make a mess and foist the cleanup
costs onto an innocent plaintiff, but the plaintiff shouldn’t treat the defendant’s breach as
an occasion to abandon ordinary norms of prudent behavior
If the choice is between being strict about requiring mitigation and thus undercompensating the
plaintiff, and being forgiving about mitigation and thus overcompensating the plaintiff, most
courts will choose the latter.
o But the flexibility of the standard —because it’s a standard and not a rule —can leave
parties very uncertain about where they stand.
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they are recoverable even though the result is an aggravation of the damages rather than a
mitigation.”
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with one who could do it for $18 per cabinet starting immediately rather than one that would
make them at $13.18 starting in four weeks.
Held: Court reversed trial court’s ruling that K had failed to properly mitigate damages.
Rule: “Whether or not the buyer’s obligation to mitigate damages has been discharged depends
on the reasonableness of its conduct. In this connection, reasonable conduct is to be determined
from all the facts and circumstances of each case, and must be judge in the light of one viewing
the situation at the time the problem was presented.
SPECIFIC PERFORMANCE
SP is an equitable remedy, available only when the usual legal remedy is inadequate
o Presumptively available for real estate (at least traditionally), presumptively unavailable
for personal services (though sometimes a negative injunction serves the same purpose)
Restatement § 360 - Factors Affecting Adequacy of Damages
o Difficulty of proving damages w/ reasonable certainty
o Difficulty of procuring substitute performance by means of funds awarded as damages
o Difficulty of obtaining damages from breaching party
Courts dislike requiring specific performance because it gives them more work that they’re
probably not qualified to supervise
o See London Bucket Co. v. Stewart
Only given when damages are insufficient
o See Walgreen v. Sara Creek
Can be done if damages are unknown and costly to calculate
Presumptively available for real estate: land is unique, can’t be substituted with
damages
Not given if it’s a contract for personal services, however, courts may sometimes enforce a
negative injunction (covenant not to compete) if parties included an exclusivity clause in the
agreement
o See Lumley v. Wagner which de facto results in a positive injunction
UCC 2-716 governs goods specific performance: given only if goods are unique or “other proper
circumstances” exist
o But still unusual and most likely to be awarded when there is no substitute
o Section (3) allows buyer of goods to force delivery under common law of replevin if
buyer has certain rights over those specific goods
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● Takeaway: Contracts for building construction are generally not specifically enforced, because
ordinary damages are an adequate remedy and because courts are reluctant to expend resources
on the extensive supervision of performance.
Walgreens Co. v. Sara Creek Property (1992)
● Facts: Walgreens had exclusivity clause in Sara Creek’s mall. Sara Creek tried to bring in
another pharmacy as an anchor tenant. Walgreens sued for an injunction against it.
● Held: Specific injunction granted.
● Takeaway: SP granted because damages would be hard to calculate (over the long period of
time) and because it would encourage parties to go back to the negotiating table.
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Interpretation
STANDARDS OF INTERPRETATION
Restatement §227 gives us six conceivable standards of interpretation of language and other
manifestations of intention:
General vs. Specific
o When should we focus on narrower definitions of a term (Terms of Art)?
Initiator vs. Recipient
o Who was in the better position to be informed or clear up misunderstandings?
Objective vs. Subjective
o When should we look into subjective interpretations of a contract?
Form vs. Substance
o When should we look at what was really going on behind a contract? (Parole Evidence
Rule)
*N.B. Courts are likely to default to the terms on the left unless they are given an reason to take the
alternative approach.
A party does not have the capacity to consent if he is: (a) under guardianship, or (b) an infant,
or (c) mentally ill or defective, or (d) intoxicated.
o A person is "intoxicated" if he is unable to understand in a reasonable manner the
nature and consequences of the transaction.
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CLASSIC V. MODERN INTERPRETATION
Classic
o Intent does not matter
You said what you said
o Would even enforce contract that defies party’s intentions
Modern
o What would parties reasonably intend?
o If parties mutually had unreasonable interpretation, that prevails
o When parties construe ambiguous terms differently in good faith, courts may look to
evidence outside the contract to determine the “proper” interpretation of the term
See Frigaliment Importing v. BNS International – court spends a lot of time
trying to determine if “chicken” as a specific meaning in this context
Courts now consider what the purpose of the contract was to determine if the parties breacjed it or
not
o See Spaulding v. Moore – purpose of K was to support kid in going to college, since he’s
not going to college anymore no need to pay
o Have to avoid absurd results in contract and take contract as a whole
See (Beanstalk Group v. AM General Corp.)
INTERPRETATION CASES
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Facts: PL bought "chicken" from DF for $0.33/lb. DF interpreted "chicken" to mean stewing
chickens (fowl), while PL interpreted the term to mean young chickens (broilers). The market rate
for fowl was $0.30/lb and $0.36 for broilers. PL complained about the first shipment, but allowed
DF to make the second shipment anyway.
Holding: PL has not met its burden of persuading the court that its narrower interpretation should
apply.
Rule: When parties construe ambiguous terms differently in good faith, courts may look to
evidence outside of the contract to determine the "proper" interpretation of the term.
Analysis:
o What “external evidence” did the court look at?
Plain Meaning: Dictionary definition [both definitions of chicken were in the
dictionary]
Negotiation Process: Didn't help in this case.
Trade Usage: When one party is not a member of the trade, the other party must
show: (1) actual knowledge or (2) that the usage is so pervasive that the party’s
acceptance of it may be presumed. [BNS was new]
Other Contract Provisions: Contract referred to Dept. of Agri. Regs., which
define "chicken" to include fowl.
Market Factors: Looked at the market prices, didn't help in this case.
Course of Dealings: Frigaliment allowed the second shipment after receiving the
first batch. (Though Frigaliment complained.)
Embry v. McKittrick (1907)
Facts: Embry was employed by McKittrick, and near the termination of his contract, asked
McKittrick for an extension. McKittrick said something along the lines of "go about your
business without worry." Two months later, Embry's employment with McKittrick was
terminated without extension.
Holding: McKittrick had reason to know that Embry would have interpreted "without worry" to
mean that his contract would get extended.
Rule: Where parties have attached different meanings to a promise or agreement or a term, and
party A had reason to know of the meaning attached by party B, and party B did not have such
reason to know of party A's meaning, party B's meaning will attach.
o Also: When the court interprets the assent to and terms of a contract, it examines the
objective, not subjective, manifestations of intent of each party
Spaulding v. Morse (1947).
Facts: PL and DF divorced and made an alimony agreement. DF promised to provide $1,200 for
their son every year until he went to college, & then $2,200 per year for four years. At 18, their
son was drafted into the army, and PL sued to continue the $1,200 payments.
Holding: The intent of the agreement was to provide for the son’s maintenance and education,
and while he was in the army he did not need to be provided for. DF does not have to continue
payments.
Rule: If the circumstances change from what was originally envisioned by the parties, the terms
of the contract will be interpreted in light of their overall purpose.
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OTHER CONSTRUCTION PRINCIPLES
PLAIN MEANING
Contracts are generally enforced according to the ordinary meaning of the words used, regardless of the
parties' intent.
ABSURDITY DOCTRINE
The terms of a contract should not be interpreted literally where doing so would lead to absurd results.
(Beanstalk v. AM General)
In such cases, courts may look to extrinsic evidence.
PRINCIPAL PURPOSE:
Words and conduct are interpreted in light of all the circumstances and the principal purpose of the
contract.
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ROLE OF WRITING
PAROL EVIDENCE RULE
BLACK LETTER If an agreement is expressed in the form of an integrated writing, THEN parol
PAROLE EVIDENCE evidence may not be admitted to contradict the writing. If an agreement is only
RULE partially integrated, then parol evidence can come in to supplement or explain the
writing, but not to contradict it.
Based on principle that when parties reduce their agreement to writing, they intend for the written
record to be the final expression of their agreement
o So evidence of terms that were agreed to but were not in writing are suspect and may be
misleading
Rule does not bar
o interpreting meaning of terms of writing
o or support of affirmative defenses
See Lucy v. Zehmer – mistake
o (See other exceptions below)
Oral modifications not barred under PER
o although they are barred in sales cases by 2-209
o deciding whether or not to enforce them done by trade rules of common law
UCC 2-202: can always hear parol evidence re: course of performance, course of dealing and
trade usage
o But it cannot contradict, can only explain and supplement
Enforcement determinations depend on integration determination made by court (see below)
From a court’s perspective, the contract looks the same no matter which scenario took place
But the evidence that B promised not to share in one would be…
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o misleading in Scenario 1 given the additional unwritten term
o not misleading in Scenario 2 since the additional term was part of the full agreement
INTEGRATION
PER does not come into play until we have an integrated agreement.
If the parties did not get to the point of agreement or if they got to an agreement but didn’t agree
that it the writing was an integration of the agreement, then the writing does not have any legal
status.
Writing is typically given more weight than oral evidence, but in absent integrated agreement,
writing won’t be legally authoritative.
PARTIAL INTEGRATION
If a written contract has been partially integrated, then parol evidence is inadmissible to contradict
terms already adopted, but can be used to add terms to the contract
MERGER CLAUSES
Parties can include merger clauses that explicitly state that the contract is integrated. They can also
include clauses providing that the contract is to be decided according to the laws of a particular
jurisdiction that has a liberal or conservative view of the rule.
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See Masterson v. Sine where court held that it wasn’t unreasonable that some
terms of the agreement weren’t included in the written agreement because of the
structued nature of the deed
Traditional exception: courts will only allow evidence in of agreement if
o 1) agreement is a collateral agreement (separate from original agreement)
o 2) it doesn’t contradict written provisions (express or implied) and
o 3) the agreement is something parties wouldn’t normally be expected to write down
See Mitchell v. Lath – court rejects on basis that it would have been written down
Collateral agreement: argue you had a separate oral agreement related to the written contract
Parol evidence rule: argue that your written agreement had an additional term that was not
written in the final agreement
Difference: CAR is the traditional method and does not use extrinsic evidence to determine if
the contract was integrated
Modern approach allows you to use external evidence to determine if a contract was integrated,
so you argue that the parol evidence shows the written portion of a contract does not represent the
whole contract
Statute of Frauds
o PER does not require there be writing
but provides that an integrated writing is authoritative for matters within its scope
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o Both PER and S/F impose formal tests to guard against error and fraud
o Both when relied strictly can defeat expectations and reliance
Both are subject to exceptions
Oral Modifications
o Aren’t governed by PER, but present similar functional problems
Wouldn’t the parties have put the modification in writing if they meant it?
Or should they have?
o Parties can bar oral modifications under 2-209 if they wish
And possibly under the common law
o But even in the absence of a bar, it’s hard to know what weight to give to them
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UCC § 1-303 COURSE OF PERFORMANCE, COURSE OF DEALING, USAGE OF TRADE DEFINITIONS
COURSE OF (a) A “course of performance” is a sequence of conduct between the
PERFORMANCE parties to a particular transaction that exists if:
(1) the agreement of the parties with respect to the transaction
involves repeated occasions for performance by a party; and
(2) the other party, with knowledge of the nature of the
performance and opportunity for objection to it, accepts the
performance or acquiesces in it without objection.
COURSE OF DEALING (b) A “course of dealing” is a sequence of conduct concerning
previous transactions between the parties to a particular transaction
that is fairly to be regarded as establishing a common basis of
understanding for interpreting their expressions and other conduct.
USAGE OF TRADE (c) A “usage of trade” 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. The existence and scope of such a usage must be
proved as facts. If it is established that such a usage is embodied in a
trade code or similar record, the interpretation of the record is a question
of law.
Found in §1-303:
o the court must read the express terms as being consistent with
trade usage
course of dealing and
course of performance
o whenever it is reasonable to do so. But if this cannot be done, then express terms get top
priority, course of performance second priority, course of dealing third priority, and trade
usage fourth priority.
If additional term, must ask whether its consistent with the instrument
o Inconsistent term must contradict or negate (Hunt p. 602)
If additional term are such that they would have been included in the document if agreed to, then
inadmissible (Hunt p. 602-3)
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PAROL EVIDENCE CASES
Foxco Industries, LTD. V. Fabric World, Inc. 5th Ct. App (1979)
Facts: Foxco (P) recovered $26k in lower court against Fabric World (D), AL corp. D argues
court erred in allowing published standards of the Knitted Textile Association to establish
meaning of disputed contract term. 1st order – P rep traveled to D to show D new fall line of
fabrics. This resulted in written order for “first quality” goods. D refused to pay when it got goods
it considered defective. Later that year P rep returned to show spring line. Didn’t say anything
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about last order. Ordered another $36k of fabric. P tried to cancel order because of a drop in the
price of finished goods. D wrote to say it could not accept cancellation.
Held: For P affirmed. The Knitted Textile Association’s standards could certainly qualify as trade
usages, and thus were admissible to explain contractual terms notwithstanding D’s unawareness
of them.
Takeaway: It does not matter whether a party is aware of the industry usage and cutom or of the
standards in question: the parties to a contract such as the one in ussue are presumed to have
intended the incorporation of trade usage in striking their bargain
o UCC 2-202 explicitly provides that trade usages may help explain or supplement contract
terms
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The Basic Principles of Offer and Acceptance
Sometimes we look to offer and acceptance to determine whether the parties entered into a
contract.
Sometimes we look to the totality of the circumstances to figure out if the parties entered into a
contract and if the answer is yes, we go look for the offer and acceptance
Offer
An offer is a manifestation of willingness to enter bargain so other party will understand his
assent is invited and will conclude bargain (Restatement 24)
The next-to-last communication before the bargain is sealed
Whether communication is an offer or an invitation to negotiate depends on the commercial
context
An invitation to negotiate does not have any binding force
o See Lonergan v. Scolnick: P corresponded with D about land, but D never explicitly
offered it to him
Common ones:
o Purchase order or sales contract – generally presumed to be offer
o Price quote – generally presumed to be invitation to negotiate
Can be offer in appropriate language and context
o Advertisement: generally not an offer unless clear and specific instructions, performance
promised in turn for something requested
See Lefkowitz v. Great Minneapolis Surplus Store
Depends on the parties’ intentions and surrounding circumstances
Once an offer is made, the offeror can unilaterally modify the terms of the offer before
acceptance, HOWEVER, after acceptance, the offeror may not impose additional or arbitrary
conditions on the offer
o See Lefkowitz v. Great Minneapolis Surplus Store
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OFFER justify another person in understanding that his assent to that bargain is invited and
will conclude it.
UCC §2-205: FIRM An offer by a merchant to buy or sell goods in a signed writing which by its terms
OFFERS gives assurance that it will be held open is not revocable, for lack of consideration,
during the time stated or if no time is stated for a reasonable time, but in no event may
such period of irrevocability exceed three months; but any such term of assurance on a
form supplied by the offeree must be separately signed by the offeror.
OFFER DETERMINATION
To determine whether a letter, bid, email, or gesture counts as an offer, will depend on whether it is…
clear enough
complete enough
and unconditional enough
…so that it could be accepted and its acceptance will conclude the matter.
FIRM OFFERS
An offer that creates the power of acceptance.
o If the offeree accepts, a contract is created
When an offeree takes some irreversible action without accepting…
o Either because the offeror promised to hold the offer open (Dickinson v. Dodds)
o Or because it was reasonable to do so under all of the circumstances (Drennan v. Star
Paving)
A court’s decision whether to protect the offeree will depend on whether the law views these
offers as “firm”
FACTORS TO CONSIDER
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Have they done business together in the past?
Background conventions:
Social
Moral
Trade/industry
(2) The offeror's duty of performance under any option contract so created is
conditional on completion or tender of the invited performance in accordance with the
terms of the offer.
Doesn’t mean you can only recover reliance; full contract is created with all
damages options
OFFER CASES
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Baird v. Gimbel Bros. Inc (1933)
L. Hand opinion in contractor case
Facts: Subcontracting supplier of linoleum revoked his offer before communication of acceptance
from plaintiff (contractor) reached him
Held: Subcontractor not held not liable for damages under promissory estoppel
Reasoning: Judge Hand addresses promissory estoppel, says it’s not applicable in the case of a
business transaction, because:
o There are rules in place monitoring business transaction, can’t circumvent the rules and
then claim §90
o Meant for donative promises and this isn’t even a promise
It was an offer, meant to be accepted before it was relied upon
Doesn’t become a promise until it’s accepted
Reliance isn’t reasonably induced, sub would be being held to “promises” he didn’t even make
Drennan v. Star Paving Co. (1958)
Facts: Plaintiff is a contractor and won a bid for a school job. Defendant had bid on being a
subcontractor for plaintiff. After plaintiff was given job, defendant said he couldn’t do job for
$7131.60 but needed at least $15000. Plaintiff found someone else to do it for $10,948.60 and
tried to recover reliance damages from defendant
Held: Court allows plaintiff to recover because it says defendant should have known that if its bid
was lowest, it would be accepted and they weren’t going to be given a chance to say yes or no
again
Reasoning: Traynor makes an argument for reliance, believes it’s relevant here. Doctrinally
innovative because first he implies a promise, and then he invokes promissory estoppel
o RSC §87 – Option Contracts, adopts this rule (kind of)
Doesn’t adopt the implied promise, says you don’t even need a promise, the firm
offer by itself is enough to justify reliance
Not promissory estoppel, really “offerery” estoppel
Lonergan v. Schonick (1954)
Facts: D placed an ad in newspaper offering property for sale. P inquired about details. D wrote
letter describing property, giving directions, and asking for price. Correspondence about the land,
but D sold to someone else before P received the letter telling him to act fast because there was
another interested buyer.
Rule: Merely asking a person whether he is interested in purchasing a property does not constitute
an offer to sell the property to that person. There is no contract until the parties have agreed to
some specific thing.
Lefkowitz v. Great Minneapolis Surplus Store (1957)
Facts: D published newspaper ad stating it would sell three fur coats worth $100 for $1 each.
Stated they would be sold on a “first come, first served basis. P was first person to present
himself at the store and offer to buy the items, however store refused to sell him on the ground
that a “house rule” dictated that offers were intended for women only.
Held: The store’s advertisement was clear, definite, explicit offer and acceptance by L formed
valid and enforceable contract.
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Rule: An advertisement constitutes a binding offer if it is clear, definite, and explicit, and leaves
nothing open for negotiation.
ACCEPTANCE
Manifestation of assent to terms of oferee
o Written acceptance generally sufficient for bilateral contracts
o Performance sufficient for unilateral contracts
Rejection of a previous offer immediately kills that offer
o See Akers v. JB Sedberry, Inc.
Offers can expire if no response within reasonable length of time
Can revoke offers at any time before performance has begun if no consideration put down
o See Dickenson v. Dodds
Unilateral contracts used to be abled to be revoked at any time before
performance was completed now only if performance has not yet started
Have to distinguish between preparations and performance
COUNTEROFFERS
Cannot accept offer if you responded with a counteroffer by adding conditions
o See Ardente v. Horan
Unless other party implicitly or expressly renews the previous offer
o See Livingstone v. Texas
SILENCE AS ACCEPTANCE
Restatement §69
Offeree accepts benefit (dominion)
o Courts more likely to say salience = consent if unjust enrichment exists
Offeror made clear silence consent (intention) and
Previous dealings show it’s reasonable
o See Vogt v. Madden where silence was not acceptance because previous agreements all
required explicit assent before contract existed
Sometimes duty to speak exists, if the person is then silent, they are estopped from saying no
acceptance
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o But courts still require a reasonably unambiguous indication of acceptance
Not always clear what terms are material/if something is an acceptance or a
counter-offer
Restatement 57 requires a “clear and unequivocal acceptance, but not clear what
that means
REVOCABILITY
Can usually revoke an offer unless specified otherwise.
o UCC 2-305 allows merchants to make firm offers: irrevocable for up to 3 months if
supported with signed writing
EXPIRATION
Offers can expire as specified or after “end of reasonable time” (context-specific).
COMMUNICATED REVOCATION
Offers may be revoked upon receipt by the offeree of a manifestation of the offeror’s intent not to
enter into the proposed contract (Restatement §42)
Offer will still be on the table until the offeree has been informed
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Implied Contracts, Preliminary Negotiations, and Indefiniteness
IMPLIED CONTRACTS
If a contract exists, what are it’s terms?
Courts have held that terms can be implied..
o in fact – parties didn’t mention specific terms, but they intended them
o in law – parties didn’t intend terms, but court supplies them anyway because the law
requires it
If parties agree to come to an agreement via a bargain, Courts have held that they have a good
faith duty to negotiate but not necessarily to agree
o See TIAA and preliminary agreements above
o Sometimes parties won’t even agree to come to an agreement, but during the course of
preliminary negotiations one party will rely enough on another party to justify imposing
liability if negotiations fall apart (Red Owl)
Expressions of intent
Context of negotiations
Status of open terms
Partial performance
Customary form for such transactions
PRELIMINARY NEGOTIATIONS
Typically, an indefinite agreement does not create a binding contract
BUT sometimes preliminary negotiation can create liability
This liability can be understood through 2 different doctrines:
o 1) reliance (See Garwood Packaging v. Allen; Hoffman v. Red Owl Stores)
o 2) bargain (See Channel Home v. Grossman; TIAA v. Tribune)
Modern approach of making promises to negotiate in good faith enforceable does not obligate
parties to reach agreement
but it DOES prohibit them from withdrawing from negotiations for bad faith reasons or for
considerations that are beyond the scope of the originally agreed allocation of risks
There are two types of binding preliminary agreements:
o 1) completed agreement
o 2) commitment to commit
Note: conditions precedent to enforcement don’t matter. They’re not bound to perform but to
negotiate in good faith.
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PRELIMINARY AGREEMENT TYPE #1: COMPLETED AGREEMENT
Completed agreement on all or most of all negotiated terms
Such that court fill in the gaps
o As with an open price term under UCC 2-305 or a requirements or output contract under
2-306
Remedy: performance
Is there an express reservation of the right not to be bound in the absence of signed writing?
Has there been partial performance?
Have the terms been agreed on?
Is this the kind of agreement generally committed to writing?
UCC § 2-305: OPEN 1)The parties if they so intend can conclude a contract for sale even though the price
PRICE TERM is not settled. In such a case the price is a reasonable price at the time for delivery if
a)nothing is said as to price; or
b)the price is left to be agreed by the parties and they fail to agree; or
c)the price is to be fixed in terms of some agreed market or other standard
as set or recorded by a third person or agency and it is not so set or
recorded.
2)A price to be fixed by the seller or by the buyer means a price for him to fix in
good faith.
3)When a price left to be fixed otherwise than by agreement of the parties fails to be
fixed through fault of one party the other may at his option treat the contract as
cancelled or himself fix a reasonable price.
4)Where, however, the parties intend not to be bound unless the price be fixed or
agreed and it is not fixed or agreed there is no contract. In such a case the buyer
must return any goods already received or if unable so to do must pay their
reasonable value at the time of delivery and the seller must return any portion of the
price paid on account.
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Is there a reason for the contract to not be completed?
Are there open terms?
Has there been partial performance?
Is it necessary to put the agreements in final form?
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Takeaway: Reliance can create a binding preliminary agreement.
1) Was the promise one which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promisee?
2) Did the promise induce such action or forbearance?
3) Can injustice be avoided only by enforcement of the promise? (Policy Q for court)
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STANDARDIZED FORMS
Reflect the realities of current business.
Saves costs of negotiations and drafting.
Rendered in fine print and jargin – the typical user won’t have a good sense of what they contain.
Courts generally enforce standardized agreements even if the terms are unfavorable and they
know people don’t read them
o See Carnival Cruise Lines v. Shute
Under Restatement 211, terms are enforced if party has reason to believe that the form is
regularly used to embody terms of the same type
o Unless there is a super unusual term that would have caused the party to withdraw assent
if he knew about it
See Darner Motor v. Universal - court allowed equitable estoppel to prevent
enforcement of form K against P)
Courts have generally taken a pro-drafter approach:
o a party is bound to all terms in a standard form except for terms that are patently
unreasonable
o drafter held to good faith and terms that are conscionable
More courts are even more deferential to forms than 211
Acceptability of form-contract terms is a fact-intensive inquiry and different courts may hold
different views of whether particular terms are acceptable.
o Wise for drafters to obtain explicit assent to potentially controversial terms (disclaimers,
limitations of damages, privacy policy terms)
Hyperlinks to details
Clickbox acceptance before finalizing contract (see more in
UCC prescribes particular standards for some of these:
o Warranty disclaimers must be conspicuous under §2-316
o Damage limitations must meet substantive requirements of §2-719
You can still negotiate over some terms
o But rarely over the ones that don’t vary much among transactions
Impact on signing party need not be negative – if fair and not unduly one-sided they create
sensible basis for contracting and save transaction costs to keep prices down for consumers
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RESTATEMENT §211: BLANKET ASSENT
RESTATEMENT (1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise
§211 manifests assent to a writing and has reason to believe that like writings are regularly
STANDARDIZED used to embody terms of agreements of the same type, he adopts the writing as an
AGREEMENTS integrated agreement with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly
situated, without regard to their knowledge or understanding of the standard terms of
the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would
not do so if he knew that the writing contained a particular term, the term is not part of the
agreement.
If a party assents to a form contract, and has reason to believe that the form is regularly used to
embody terms of the same type, he adopts the form as an integrated agreement with respect to the
terms included in the writing
Exception: where the other party has reason to believe that the party manifesting asset would not
do so if he knew the writing contained a particular term, that term is not part of the agreement
(Restatement §211(3))
Example: Buying a movie ticket. The ticket says you can’t bring in food. Even if you don’t read
the ticket, you are bound by the food term because most people know that tickets are used to
embody additional terms regarding conduct.
Not all terms appearing in standardized forms will be enforced…but most will be
o Determinations generally come down to reasonableness:
As long as terms are within bounds of normal practice
Or don’t excessively push the envelope
Factors:
o What is the relative sophistication of the parties?
o Did the parties actually read and understand the terms?
Do parties in their position usually read and understand?
o Are other communications such as parol evidence contrary to the form in a way this is
likely to be misleading?
o How one-sided are the terms?
o How unusual are the terms?
o General business context – same as unconscionability
Checklist:
o Bad faith?
Does term indicate a bad-faith motive?
Carnival ct. held that the forum selection clause did not indicate an
intention to deny passengers a means of pursuing legitimate claims
o Assent through fraud?
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Overreaching?
o Notice?
CONSPICUOUSNESS FACTORS
Larger font
Contrasting type
Different color
General test: whether attention can reasonably be expected to be called to the exclusion
o Having to scroll down to the bottom or initial that you agree before you can move
forward will make a court more willing to enforce
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o (1) if party assents to a form contract, and has reason to believe that the form is regularly
used to embody terms of the same type, he adopts the form as an integrated agreement
with respect to the terms included in the writing
o EXCEPTION: (3) where the party has reason to believe that the party manifesting assent
would not do so if he knew the writing contained a particular term, the term is not part of
the agreement
PER: The promise that the “umbrella agreement” included lessees was parol evidence that
directly contradicted an express term of the contract
Restatement §211, Comment F:
“…a party who adheres to the other party’s standard terms does not assent to a term if the
other party has reason to believe that the adhering party would not have accepted the
agreement if he had known that the agreement contained the particular term. Such a believe or
assumption may be shown by the prior negotiations or inferred from the circumstances.”
Takeaway: In a contract of adhesion, equity may be used to prevent the enforcement of
boilerplate terms which are more limited than the coverage expressly agreed upon
DISCLAIMERS
In general limited by unconscionability and public policy doctrines
Inconspicuous warranty disclaimers are not enforceable
o Conspicuousness determined by whether attention can reasonably be expected to be
called to the exclusion
If disclaiming implied warranty of merchantability must mention “merchantability”
o Doesn’t have to be in writing but if it is, must be conspicuous
o If covered by UCC must comport with procedural requirements of §2-316
If disclaiming fitness for particular purpose, must be in writing and conspicuous, but does not
have to mention specific fitness
DISCLAIMER CASE
SHRINKWRAP/CLICKWRAP
SHRINKWRAP
Paper agreements enclosed with the packaging of an item
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Courts generally uphold these agreements so long as the agreement makes clear that the purchaser
can reject the terms by returning the goods
o See Defontes v. Dell
Majority approach seen in ProCD v. Zeidenberg: where additional terms are inside the box rather
than printed on the outside, they are enforceable unless the terms are objectionable under ordinary
contract law
SHRINKWRAP CASES
CLICKWRAP
Electronic K to which user must agree to T&C prior to use of product/service
o These are also enforced so long as users have notice of the existence of additional
terms. When actual notice of inconspicuous terms is not available, internet users
may still have “inquiry notice” if a reasonably prudent offeree would know to look
for the additional provisions before accepting
o Courts have held that clicking “I acknowledge” and “I agree” is sufficient to clearly
indicate acceptance of terms
See Hancock v. AT&T: Acceptance can be silence or conduct
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CLICKWRAP CASE
Hancock v. AT&T (2012) (pg. 732)
Facts: U-verse case. Arbitration provision in clickwrap terms. The terms were presented
upfront, and P (customers) had to check a box indicating acceptance. Other Ps who signed up
before the arbitration provision received an email notifying them of the additional terms.
Held: For D. It is enough to manifest assent by clicking “I acknowledge” and “I agree” buttons.
For Ps who subscribed before and got email – it was conspicuously stated in a bullet point that an
arbitration provision had been added.
Rule: Clickwrap agreements are enforceable when customers are given notice of the terms and
conditions, and the customers are afforded the opportunity to review the agreement and the
customer clearly indicates acceptance.
ROLLING CONTRACTS
“ROLLING CONTRACTS” AND “CONTRACT FIRST, TERMS LATER”
Where terms are only revealed to the offeree after she has bought the goods or services, there may
be a dispute about whether a contract was formed at all, or even if both parties concede that a
contract exists, there may be a dispute about whether the standardized terms formed part of the
contract
ADHESION CONTRACTS
If there is no adequate market mechanism to allow the other party to negotiate a change in terms
or seek an alternative, there is a strong danger of adhesion – take-it-or-leave-it basis
Inquiry into choice and alternative options may be important
o Example: if there is a monopoly on groceries that compels consumers to sign contract
with arbitration provision and it is the only grocer in a 100 mile radius
o Not clear there is a contractual basis for a claim here
Unconscionability is not meant to be used to redress an imbalance of bargaining
power
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4) the court does not get too involved in the technicalities of offer and acceptance (clearly
contract was intended by the parties) instead focuses on the disputed term to decide if (1)
offeree had a reasonable opportunity to become aware of it and (2) if the term itself is fair
and (3) within range of reasonable expectations
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o
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Substantial Performance and Material Breach
Doctrine dealing with issues of performance of contract
Not about whether a contract existed but whether a contract was performed, and if it wasn’t
performed, who failed to perform first?
o Flipside of each other, depends on timing and who makes claim
SUBSTANTIAL PERFORMANCE
What happens if performance of a contract isn’t perfect but is still done?
Performer can generally sue on the contract for expectation damages.
Alternatively, if no substantial performance, the non-breacher can rescind and breacher can
sue off the contract for restitution damages.
o See Jacobs & Young v. Kent (Cardozo opinion): court found substantial performance
existed because defect was insignificant, omission was innocent, and the contract was for
a large, complex project so some variance is excusable
o Some courts willing to say substantial performance exists even if omission/deviation is
intentional, so long as its done in good faith
See Vincenzi v. Cerrio
o Modern trend is to be more forgiving in applying substantial performance doctrine
BASIC CONCEPTS
Implied condition – if you substantially perform, you are entitled to be paid, but if you don’t
substantially perform, you’re not entitled to be paid
If no substantial performance, the aggrieved party can suspend own performance, gets right to
rescind.
o Aggrieved party has option of suing on the contract or off
o Following rescission, breacher gets a quantum meruit claim (and so does aggrieved party
if it overpaid).
Conversely, if substantial performance, the aggrieved party is limited to suing on the contract for
lost expectation (usually measured by difference in value)
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Even if suit is worthwhile, rules on substantial performance affect parties’ bargaining in shadow
of law
UCC CONTRACTS
Prior to UCC, goods contracts required perfect tender: goods had to conform exactly.
UCC 2-601 nominally preserves this, but only if the buyer rejects the goods initially.
Otherwise, if defect is discovered after acceptance, 2-608 applies: buyer can only reject goods if
the defect substantially impairs the value to the buyer.
Sellers supposed to be given opportunity to cure breach:
UCC 2-508: buyers must act in good faith; can’t reject goods just b/c the deal is no longer
favorable, have to give seller oppty to substitute conforming goods. TW Oil v. ConEd.
(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for
performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure
and may then within the contract time make a conforming delivery.
(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe
would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer
have a further reasonable time to substitute a conforming tender.
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Courts will generally uphold express conditions precedent (contract says this condition has to
happen before other performance occurs (usually payment)), therefore not applying the
substantial performance doctrine
o See Oppenheimer & Co. v. Oppenheim: court refuses to allow P to enforce K against D
because express condition that confirmation had to be in writing:
Court says they won’t overrise parties’ intent
Can think of substantial performance as an implied condition in any
contracts
However, if language is not clear, courts will generally interpret such language as a promise, not
a condition, allowing substantial performance to apply
o Failure of a promise means that the promisor is liable for breach, while failure of a
condition means that liability is avoided
And conditions will sometimes not be enforced if enforcing such a condition would cause a
disproportionate forfeiture (Restatement 229)
o The burden is on the party seeking to excuse a condition
Conditions precedent vs. conditions subsequent
o Precedent: must be satisfied before contract goes into effect
o Subsequent: allow contract to be voided/changed after the fact if a certain condition
occurs
can’t be established under parol evidence rule
o can often change condition from precedent to subsequent based on how you read K
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o Wagenseller v. Scottsdale Memorial Hospital
Termination against good faith, an implied-in-law provision; good faith
does not manifest through “bad cause” termination
BEST EFFORTS
UCC
o 2-307(2) implies a duty of best efforts in all exclusive dealing contracts
o 3 interpretations
Acting in good faith
Production at a volume that maximizes gains of both parties (“optimal output”)
See in Bloor v. Falstaff Brewing Corp.
Due diligence and ordinary business prudence (not as high a req as optimal
output)
o No real consensus over what “best efforts” are, but it at a minimum involves giving fair
consideration to other party’s needs
Common Law
o Courts have implied a promise of best efforts when other party promises exclusivity
See Wood v. Lucy, Lady Duff-Gordon
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