CONTRACTS OUTLINE

I.CONTRACT
RULE OF LAW: A contract is a promise of set of promises for the breach of which the law gives a remedy or the
performance of which the law in some way recognizes as a duty
1. Oral or written agreement between two or more persons
2. An exchange in relationship
3. At least one promise
4. Enforceability
-Elements of a Contract
1. Meeting of the minds (objective approach as to what a reasonable person would consider mutual
assent and a formed contract)
2. Offer and acceptance
3. Consideration
4. Performance or delivery
5. Good faith
6. No violation of public policy
-Unilateral Contract: when a promise is given in exchange for a future act (ex. Reward)
-Acceptance through performance. Only one party comes under an obligation
-There is never mutuality obligation because at no point is the offeree bound to perform
-Used often when one party is not unknown ex lost dog
-Bilateral Contract: the exchange of a promise for a promise with each promise serving as consideration for the
other
-An offer looking to a bi-lateral contract may be accepted by an express promise or an implied promise

II. OFFER AND ACCEPTANCE

1. OFFER
RULE OF LAW: a manifestation of willingness to enter into a bargain so as to justify another person in
understanding that his assent to that bargain is invited and will conclude it.
-Elements:
1) Must be communicated
2) Indicate desire to K
3) Directed at a person or group
4) Invite acceptance
5) Upon acceptance a K will arise w/o any further approval required
-Promise: a manifestation of intent that gives an assurance that a thing will be done or will not be done
-Counteroffer: treated as a rejection of original offer and creation of a new offer
Restatement 2d §36 lists five possibilities under which an offer is terminated

(1) The offeree rejects the offer or makes a counteroffer

(2) At the time specified in the contract, or, failing that, at the end of a reasonable time
(3) If the offeror revokes the offer
(4) If the offeror dies or becomes incapacitated
(5) If the terms of the offer include a condition for acceptance that has not yet occurred.
-Advertisements, catalogs, and circular letters for the sale of goods are not ordinarily considered to be
offers because they do not contain express language of promise and do not spell out quantity and term.
A COURT CAN NEVER FILL IN QUANTITY
-Mirror Image Rule:
1. (1) Restatement 2d §59 states: “A reply to an offer which purports to accept it but is
conditional on the offeror’s assent to terms additional to or different from those offered is
not an acceptance but is a counteroffer.”
2. (2) Restatement 2d §61 states an “acceptance request[ing] a change or addition to the terms
of the offer” is not invalid “unless the acceptance is made to depend on an assent” to the new
terms.
3. (3) Both the UCC and the CISG are more liberal.
-Mailbox Rule: the offer is effective upon proper dispatch
(1) An acceptance made in a manner and by a medium invited by an offer is operative and
completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without
regard to wheter it ever reaches the offeror… Restatement 2d §63
Offeror’s Power to Negate the Mailbox Rule: an offeror may negate the mailbox rule by providing an
offer that the acceptance will be effective only when and if received
When Offeree Sends Both Acceptance and Rejection:
-Rejection sent 1st: an acceptance sent after a rejection has been sent can be effective if and only if
the acceptance is received prior to the rejection; such an acceptance is not governed by the mailbox
rule
-Acceptance sent 1st: contract formed on dispatch of the acceptance
-Revocability: Restatement 2d §42 says an offeree’s power of acceptance is terminated when the
offeree receives form the offeror a manifestation of an intention not to enter into the proposed contract.
2. ACCEPTANCE
RULE OF LAW: An offer creates a power of acceptance in the offeree. The exercise of this power
creates the set of legal relations called a contract and terminates the power of revocation that the
offeror ordinarily has
a. Acceptance by an Authorized Party: the offeree may not transfer power of acceptance
b. Knowledge of the Other and Intent to Accept: The offeree must know of the offer and manifest an
intent to accept
c. Necessity for Communication to Create a Bilateral Contract: the offeree’s promise muse be
communicated to the offeror; exception: since the offeror is the master of the offer he may dispense
with the communication requirement
d. Necessity for Notice of Performance in a Unilateral Contract: 3 views: (1)notice is not required unless
requested by the offer-minority view (2)the offeror’s obligation will come to an end if notice of
performance is not given within a reasonable time in a limed set of circumstances. If the offeree has
reason to know that the offeror has no adequate means of learning of performance with reasonable
promptness and certitude the duty of the offeror is discharged unless the offeree exercises reasonable
diligence to notify the offeror or the offeror otherwise learns of performance within a reasonable time or
the offeror expressly or by implication indicates that the notice is not necessary (3) same as 2 except
that if notice is required no contract is consummated until notice of performance has been sent
e. Acceptance of a Bilateral Contract:
-Acceptance by Silence:Silence is acceptance when: (1) offeror has given offeree reason to believe
silence will be taken as acceptance and offeree intends silence to accept (2) parties have mutually
agreed that silence will operate as assent (3) there is a course of dealings that has made this true (4)
someone takes offered services with a reasonable opportunity to reject them and it is reasonable for
the person to understand that the services offered with expectation of payment
-Acceptance by Conduct: Acceptance must be done according to the way prescribed by the offeror. If it
is done any other way it will be seen as an offer not an acceptance
i. Offeror is the master of the Offer: can indicate manner of acceptance
3. NEGOTIATION AND CLOSURE
-During the course of negotiations the parties may signal their growing commitment to a bargain by
preparing “intermediate documents” such as Letters of Intent, Memoranda of Agreement, and so on; it
is also possible that the parties in the higher interest of obtaining a final contract may deliberately leave
certain matters unsettled even though these matters are likely eventually to arise in the course of the
contract’s execution
4. GOOD FAITH IN CONTRACT FORMATION
-Definition: good faith is a total absence of any intention to seek an unfair advantage or to
defraud another party; an honest and sincere intention to fulfill ones obligation
-Also called bona fide purchaser
-Each party is expected to avoid deliberate or negligent conduct that might induce reliance and result in
the other party wasting resources
-A duty of good faith arises after contract has been concluded
-Contractual liability only exist when a contract actually exist
-Promissory estoppel always exist as a back up
5. TERMINATION OF REVOCABLE OFFERS
RULE OF LAW: to become a contract a revocable offer must be accepted before the power of
acceptance created by the offeror is terminated; an offer is made irrevocable (a) by consideration (b) by
statute (c) by part performance or tender of performance under and offer to a unilateral conduct (d)
under the doctrine of promissory estoppel (e) in some jurisdictions by a sealed instrument
a. Lapse of Time: an offer expires after the lapse of time specified in the offer or if no time is specified
after a reasonable time has elapsed; during a face to face offer ti is open only when the parties are
conversing
b. Termination on the Happening of a Particular Event: the offer may stipulate that the power of
acceptance will terminate on the happening of a given event. If the event happens before the
acceptance the power of acceptance terminates regardless of whether the offeree knows that the event
has occurred
c. Effect of Late Acceptance: a late acceptance will be considered an offer which in turn can be
accepted only by communicated acceptance
d. Death of Lack of Capacity: if the offeror dies after making the offer but before the acceptance the
offer is terminated even if the offeree was unaware of the offeror’s death; if there is a prior history of
mental defect and the property is placed on guardianship all offers are terminated; if there is not history
the offer is only void if the offeree is aware of the defect; if the offeree dies a representative cannot
accept
e. Revocation: if an offer has not been accepted it can be revoked by a communicated revocation
f. Death or Destruction: if this happens to something essential to the performance of the contract it
terminates the offer if it occurs before acceptance
g. Rejection or Counter Offer: a rejection or counter offer terminates an offeree’s power of acceptance
 unless the offeror or the offeree manifest a contrary intention
TERMINATION OF IRRREVOCABLE OFFERS IS TERMINATED BY
(A) lapse of time
(B) death or destruction
(C) supervening legal prohibition
TERMINATION OF IRREVOCABLE OFFERS IN NOT TERMINATED BY
(A) revocation
(B) death or supervening incapacity of the offeror or offeree
(C) rejection
6. OPTION CONTRACT:
RULE OF LAW: An option contract is an offer and a contract that the offeree has the option of
accepting during a certain period of time
Restatement 2d §87(a)

(1) An offer is binding as an option contract if it

(a) is in writing and signed by the offeror, recites a purported consideration for the

making of the offer, and proposes an exchange on fair terms within a reasonable
time; or

(b) is made irrevocable by statute.

a. (2) An offer which the offeror should reasonably expect to induce action
or forbearance of a substantial character on the part of the offeree
before acceptance and which does induce such action or forbearance is
binding as an option contract to the extent necessary to avoid injustice.

III. CONSIDERATION
RULE OF LAW:
Restatement 2d 71
(1) To constitute consideration a performance or a return promise must be bargained for
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his
promise and is given by the promisee in exchange for that promise
(3) The performance may consist of (a) an act other than a promise or (b) a forbearance or (c) the
creation, modification, or destruction of a legal relation
Restatement 2d 79
 “If the requirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or
benefit to the promisor or a loss, disadvantage, or determinant to the promisee; or (b) equivalence in the
values exchanged; or (c) mutuality of obligation”
ELEMENTS:
1. Detriment To Promisee: any relinquishment of a legal right; an immediate act, forbearance, or the partial or
complete abandonment of an intangible right
2. Benefit to the Promisor: gain or advantage not required but is typically clear through the determent to the
promisee
3. Bargained for Exchange: it must be sought by the promisor and given by the promisee I exchange for the
promise; bargain=agreement; economic inadequacy of the detriment is one of the factors taken into account when
determining if determent is bargained for
EXCEPTIONS
-court will review under unconscionability
-when equitable relief is sought the detriment can be considered
-inadequacy of consideration
A. Motive and Past Consideration: Past consideration and motive are not considered consideration
B. The Pre-Existing Duty Rule: if parties do what they are legally obligated to do or refrain from doing what they are
not legally privileged to do they have not incurred a detriment because performing legal obligations is not a
detriment and no legal right has been surrendered
C. Illusory Promises: an expression cloaked in promissory terms but upon further examination shows the promisor
has made no commitment; words of promise which by there terms make performance entirely optional with the
promisor do not constitute a promise
D. Conditional Promises: not illusory if the happening of the condition is outside the promisor’s control and
unfettered discretion
E. Gift Promises: while there may be some moral obligation to keep the promise nothing has been given in
exchange for it; a donor may make a promise in a reasonable expectation that it will not be binding (ex. Church
donation)
F. Output Contract: Seller agrees to sell all goods that he manufactures to a certain buyer
REQUIRMENT CONTRACTS
A. Quantity term is measured by the buyer’s requirement or seller’s output
B. Consideration is where the buyer is excluded from buying from other sellers. All of the consideration does
not need to be valid and consideration will work for the promises of more than one promisor
MORAL OBLIGATION
 1. A promise made in recognition of a prior moral or legal obligation is not enforceable (ex. Woman catching
axe)
a. Exceptions: promises to pay a liquidated debt, promises to pay fixed amounts for services
previously requested, promises to pay a fixed amount for services not requested, promises to pay
debts discharged or rendered unenforceable by operation of law, promises to perform a voidable
duty

IV. Reliance
a) Equitable Estoppel is strictly, an estoppel which arises out of a person’s statement of fact, or out of his silence, acts, or
omissions, rather than from a deed or record or written contract. Equitable estoppel is available when one party knowingly
misrepresents material facts that are then predictably relied upon by the other. The misrepresenting party is “estopped” from
asserting facts that contradict its misrepresentations.

b) Promissory Estoppel – an equitable doctrine declaring that “a promise which the promisor should reasonably expect [will] induc
action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding i
injustice can be avoided only by enforcement of the promise. Restatement 2d §90.

PROMISORY ESTOPPEL
RULE OF LAW: a promise that foreseeably induces substantial and definite acts of injurious reliance by the
promisee or a 3rd party is enforceable
ELEMENTS
1. PROMISE: A promise is required. Thus, an estimate or a statement of intention is not sufficient
2. FORESEEABLE RELIANCE: The reliance must be of a kind that the promisor could definitely have
expected; that is it must be foreseeable and reasonable. The promise must be one that the promisor should
reasonably expect will lead the promisee to act or forebear. The same thought could be expressed by
saying that the promisee must justifiably rely upon the promise
3. ACTUAL RELIANCE: The reliance must be of a substantial character and must be injurious rather than
detrimental in the consideration sense
4. INJUSTICE ABSENT ENFORCEMENT: The promise will not be enforced unless injustice can be avoided
only by the promise’s enforcement. Generally the remedy is the same as for breach of any other kind of
contract but enforcement may be limited to reliance losses if justice so indicates.
-Not a contract theory it is a fall back option when contract is not enforceable
-Possible Application
(1) Promise to make a gift: The P.E. doctrine is most often applied to enforce promises to make gifts, where
the promisee relies on the gift to his detriment.
 (a) Intra-family promises: The doctrine may be applied where the promise is made by one member of
a family to another. (Example: Mother promises to pay for Son's college education, and Son quits his
job. Probably the court will award just the damages Son suffers from losing the job, not the full cost of
a college education.)

(2) Charitable subscriptions: A written promise to make a charitable contribution will generally be binding
without consideration, under the P.E. doctrine. Here, the doctrine is watered down: usually the charity does
not need to show detrimental reliance. (But oral promises to make charitable contributions usually will not be
enforceable unless the charity relies on the promise to its detriment.)
(3) Gratuitous bailments and agencies: If a person promises to take care of another's property (a
"gratuitous bailment") or promises to carry out an act as another person's agent (gratuitous agency), the
promisor may be held liable under P.E. if he does not perform at all. (However, courts are hesitant to apply
P.E. to promises to procure insurance for another.)
-Quasi-contract: One party has something they were not entitled to in the first place, and in good conscience he
should either return it or pay its value (doctor charging for reviving a person who passes out on the floor). The
law implies a contract where no contract existed previously and dispenses relief according to that implied
contract. The contract implied-in-law is a legal fiction imposed by the court to remedy injustice.

V. THE RESTITUTION INTEREST

-RULE OF LAW: the interest of getting the pasties back to the point they would have been had their been no
contract
-The interest in getting back to the point the parties would have been at had there been no contract created. If a
person A gave $5 to another B in creation of the contract, the restitution interest is the $5 that would have to be
returned from B to A.

VI. PROBLEMS WITH STANDARD CONTRACTS

Important pieces:

(1) Definite acceptance, or written confirmation

(2) Does not expressly limit acceptance to the terms proposed (no conditional acceptance)
(3) Does not materially alter the offer
(4) Objection not received in a reasonable time
(5) Conduct by both parties suggests a contract was intended
(6) No unwillingness to proceed absent the terms
-Knock Out Rule: proposed warranties knock each other out if they conflict and ucc has provisions would have gap
filling provisions
- Rolling Contracts: A Rolling Contract is one where a consumer orders and pays for goods before seeing most of
the terms, which are contained on or in the packaging of goods.
-Reasonable Expectations: Largely confined to insurance cases; 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. Restatement 2d §211(3).

VII. STATUTE OF FRAUDS

RULE OF LAW: requires that certain contracts be in writing, and that they be signed by all parties to be bound by
the contract.
§ 2-201. Formal Requirements;  Statute of Frauds.

Applies to 5 major classes of cases (MY LEGS):

(1) a promise to answer for the debt, default, or miscarriage of another including the promise of an executor or
administrator to answer for the obligations of the decedent out of the admistrator’s or executor’s own pocket
(2) a contract to transfer an interest in real property or an actual trasfer of real property
(3) a promise that by its terms is not to be performed within one year from the making thereof
(4) a promise in consideration of marriage
(5) a contract for the sale of goods (UCC)
-Land and Goods are the most important and goods must be >$500?
-Require a signed writing not a signed contract
-Court will not bring up statute of fraud unless it is presented to them
-Elements of a writing:
(1) Reasonably indentify contract subject matter
(2) Shows there is a contract
(3) States the promises with certainty
-Based on oral agreement that must be memorialized into signed writing
-A Writing must meet 3 requirements:
(1) Must be sufficient to indicate that a contract for sale has been made between parties
(2) The writing must be signed by the party against whom enforcement is sought
(3) Must specify QUANTITY (price can be filled in by market value)
-If someone doesn’t assert statute of frauds at trial it is not an issue
-Oral contracts are typically enforceable unless it falls under certain criteria when signed writing is needed
-Multiple Writings to Comply with the Statute
a) A writing must be sufficient to indicate that a contract for sale has been made between the parties.

b) The writing must be signed by the party against whom enforcement is sought

c) The writing must specify a quantity.

d) The writing must “state with reasonable certainty the essential terms of the unperformed promises in the contract.”
Restatement 2d §131.

-Exceptions to the Written Requirement

a) If a party admits that an oral contract for sale was made by way of his pleadings, testimony, or otherwise in
court, then he can no longer assert a Statute of Frauds defense.

b) If both parties are “merchants,” one party may send written confirmation of an oral contract to
the other which, if received within a “reasonable time,” provides that the receiving party has 10
days to object in writing. Should the receiving party subsequently fail to object as required, he too
can no longer assert a Statute of Frauds defense.

-Promissory Estoppel does not Trump the Statute of Frauds: A promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceab
notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for
breach is to be limited as justice requires. Restatement 2d §139. This means that the Statute of Frauds is a higher authority than
Promissory Estoppel. Courts are generally reluctant to add ways to circumvent the Statute of Frauds.

VIII. The Parole Evidence Rule

RULE OF LAW: In the absence of fraud, duress, or mutual mistake, all extrinsic evidence must be excluded if the
parties have reduced their agreement to an integrated writing. Under this rule, all prior and contemporaneous
negotiations or understandings of the contract are merged once that contract is reduced to writing
A. Integration
Williston’s view

(1) Merger clause – will conclusively establish that the document is a total integration, unless the
doc is obviously incomplete.
(2) Rest of Writing – without a merger clause, if the doc is obviously incomplete, it is a partial
integration, allowing consistent terms to be submitted from oral evidence.
(3)Four Corners – reasonable person standard looking just at the document. Would a reasonable
person have put the terms of the alleged oral agreement in the document?
Corbin’s view
 (1) The actual intention of the parties should be looked to in answering if it is a partial or total
integration.
(2) Corbin places less importance on the actual writing and more on the intent. The Corbin view
comes close to eviscerating the parol evidence rule.
Parol Evidence is allowed in interpreting terms that are not clear
a) The fact that an essential term is omitted may indicate that the agreement is not
integrated or that there is partial rather than complete integration. Restatement 2d
§204.

b) Where the parties to a written agreement agree orally that performance of the
agreement is subject to the occurrence of a stated condition, the agreement is not
integrated with respect to the oral condition. Restatement 2d §217.

c) The term must not be contradictory to a term in the written document. A test in the
§2-201 official comment is “if the additional terms are such that, if agreed upon, they
would certainly have been included in the document tin the view of the court, then
evidence of their alleged making must be kept from the trier of fact.”

B. Reformation
a) In an action for reformation of a contract, “parol evidence is admissible to show the parties’ intent and a
mutual mistake.” … The parol evidence rule is not applicable in suits for rescission or reformation of contracts.
(Williston)

b)“Reformation of a written instrument will be decreed when the words that it contains do not correctly express
the meaning that the parties agreed upon, as the court finds to be convincingly proved.” (Corbin)

C.In sum
Is there an integrated agreement?

NO Then Jury can hear the evidence YES

Does the oral term directly contradict the written agreement?

YES Then Jury can NOT hear the evidence NO

Would the oral term naturally be omitted from (or is it in reasonable harmony with) the written agreement?

YES Then Jury can hear the evidence NO Then Jury can NOT hear the evidence
-Classic: Keep out absent fraud and mutual mistake
 Subject matter contradiction of contract  contradiction of term  contradiction of written term
-If you feel you’ve been done injustice you can always seek equitable remedy and always lets in parole evidence

IX. Interpreting the Terms of the Contract

Principles of Construction – 5 principles
a) The entire contract should be read as a whole and every part is a piece of the whole

b) The contract itself must be read in light of the circumstances under which it was made.

c) Where a public interest is affected, an interpretation that favors the public is preferred

d) Specific provisions ordinarily will be regarded as qualifying the meaning of broad general words in relation to a particular
subject

e) Unless contrary to the plain meaning of the contract, an interpretation given by the parties themselves will be favored.

-Courts will decide (1) whether to admit any extrinsic evidence concerning interpretation (2) who should hear that
extrinsic evidence if it is to be allowed; and (3) which types of extrinsic evidence should be allowed
-Ambiguous Terms: if term is found to be ambiguous all courts agree that extrinsic evidence must be allowed and
evaluated by the jury not the judge; look to parties initial intent such a s pre-contract negotiations
-Unambiguous Terms: judge will determine what term means
-3 approaches to determine ambiguity:
(1) Four corners rule: judge may not consult any extrinsic evidence at all and must stick to the contract
itself; will not look at negotiations or context surrounding the making of the agreement; followed by very few
courts
(2) The “Plain Meaning” Rule: court will not hear evidence of the negotiations but will hear about the context
surrounding the making of the agreement
(3)The “Liberal” Rule: evidence of prior negotiations is admissible for the limited purpose of enabling the
trial judge to determine whether the language in dispute lacks the acquired degree of clarity; adopted by the
restatement 2nd

X. Implied Terms and the Implied Covenant of Good Faith

-Definition
a) Good Faith is a total absence of any intention to seek an unfair advantage or to defraud another party; an honest
and sincere intention to fulfill one’s obligations

-Missing Terms
a) When a term is missing, a reasonable term may be inserted by the court, i.e. reasonable time is implied
when a temporal term is missing.

b) It is generally agreed that where a duration may be fairly and reasonably supplied by implication, a
 contract is not terminable at will. Restatement 2d §230.

c) A contract is not voided by conditions that arise outside the contemplation of the parties after execution.

d)Good faith rules apply.

e) If the parties agree not to be bound without a price, there is no contract. Buyer must return all goods
received or pay the reasonable value if unreasonable to return them. Seller must return prepaid money.

-Good Faith
a) Summers: the obligation of good faith performance is better understood simply as excluding behavior
inconsistent with common standards of decency, fairness, and reasonableness, and with the parties’
agreed-upon common purposes and justified expectations.

b) Burton: Bad faith is the exercise of discretion for the purpose of recapturing opportunities forgone or
bargained away at the time of contracting, with the identification of such forgone opportunities depending
on objective analysis of the parties’ expectations as they may be inferred from the express contract terms in
light of the ordinary course of business.

c) Four question test

(1) Does the agreement ostensibly allow to or confer upon Δ a degree of discretion in
performance tantamount to a power to deprive the plaintiff of a substantial proportion of the
agreement’s value?
(2) If the ostensible discretion is of that requisite scope, does competent evidence indicate
that the parties intended by their agreement to make a legally enforceable contract?
(3) Assuming an intent to be bound, has Δ’s exercise of discretion exceeded the limits of
reasonableness?
(4) Is the cause of the damage complained of Δ’s abuse of discretion, or does it result
from events beyond the control of either party, against which Δ has no obligation to protect
Π?
d) CISG contains no clause requiring good faith in the international sale of goods by merchants but most
European codes have clauses closely following Restatement 2d §205 which implies the duty of good faith
and fair dealing in every contract.

-Employment and Good Faith

a) An at-will employee can still be terminated at any time without a good faith duty for the
employer to give a reason.
 b) Most jurisdictions recognize a narrow “public policy” exception that must involve a public duty.

XI. Expressed and Implied Warranties

-Express Warranties: an explicit promise or guaranty by the seller that the goods will have certain qualities; puffing
and a description can count as an expressed warranty or a sample/model
-3 Ways they can come into being
(1) Basis of the bargain: buyer relies on seller’s warranty
(2) Warranties made to other persons than the P
(3) Statements after sale: most likely considered a modification
-Implied Warranty of Merchantability: “goods shall be merchantable is implied in a contract for their sale if the seller
is a merchant with respect to goods of that kind
-Implied Warranty of Fitness: “where the seller at the time of contracting has reason to know any particular purpose
for which the goods are required and that the buyer is relying on the sellers judgment to select or furnish suitable
goods there is an implied warranty that the goods shall be fit for such purpose”

XII. Modifications
-Restatement: “A promise modifying a duty under a contract is not fully performed on either side is binding (a) if the
modification is fair and equitable in view of the circumstances not anticipated by the parties when the contract was
made”
-Usually, modifications of contracts are contracts themselves requiring consideration.

(1) Preexisting duty rule: an agreement modifying a contract is not supported by consideration if one of the parties to the
agreement does or promises to do something that he is legally obligated to do.
(2) Courts are hesitant to apply this rule when unanticipated difficulties arise and the other party, not influenced by
coercion or duress, voluntarily agrees to the amendments.

-Oral Modifications
a) Oral modifications of contracts within the Statute of Frauds are not enforceable.

b) Oral modifications that do not materially alter the underlying obligations may not be barred. Where one party relies on
the other to reduce an oral agreement to writing, failure to do so will not prevent the relying party from taking the
modification out of the statute of frauds.

c) An oral modification may be valid on estoppel or statutory grounds.

XIII. Misrepresentations and Mistake of Fact

-Restatement: “a belief that is not in accord with the facts”
-Mistake of law cannot void a contract if other elements for mistake doctrine are satisfied
-Unilateral Mistake
-Traditional rule has been that avoidance for unilateral mistake would be allowed only where the non-
mistaken party knew or had reason to know of the mistake at the time the contract was made
-Where a mistake of one party at the time a contract was made as to a basic assumption on which he made
the contract has a material effect on the agreed exchange of performances that is adverse to him, the
contract is voidable by him if he does not bear the risk of the mistake under the rule stated in §154 and

4. (1) The effect of the mistake is such that enforcement of the K would be
unconscionable, or
5. (2) The other party had reason to know of the mistake or his fault caused the mistake.
Restatement 2d §153.
-A party bears the risk of a mistake when

1. (1) The risk is allocated to him by agreement of the parties, or

2. (2) He is aware, at the time the contract is made, that he has only limited knowledge
with respect to the facts to which the mistake relates but treats his limited knowledge
as sufficient, or
3. (3) The risk is allocated to him by the court on the ground that it is reasonable in the
circumstances to do so.
Restatement 2d §154.
-Example: construction bids
-Mutual Mistake
Restatement: Where a mistake of both parties at the time a contract was made as to a basic assumption on which
the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by
the adversely affected party unless he bears the risk of the mistake under the rule stated in §154. Restatement 2d
§152.

(1) Look out for limited information! If the parties recognize their limited information and proceed anyway, K
will be enforced.
-3 Requirements:
(1) Basic assumption: the mistake must concern a basic assumption on which the contract was
made; mistake of fact and the mistake was on an existing fact that goes to the essence of the
contract
 (2) Material Effect: materially affect the parties performance
(3) Risk of Mistake: the adversely affected party (the one seeking avoidance) must not bear the risk
of the mistake
-Reformation
a) A court may reform the contract if parties orally agree to a deal and then mistakenly draft a document that incorrectly
reflects the terms of the deal.

b) A party’s negligence does not prevent him from obtaining relief, even if he didn’t read the contract.

c) Parol Evidence may be allowed.

d) For more, refer back to the remedy of Reformation, above

XIV. Public Policy and Illegality

-Illegality: neither law nor equity can be invoked to redress a wrong that has resulted from the injured party’s own
wrongful and illegal conduct

-Covenant Enforceability
a) A noncompetition covenant is okay if the enforcing agent can prove it is necessary for business interests.

b) A covenant cannot deprive a community of a unique skill.

c) A covenant cannot impose undue hardship on the terminating worker

d) Geography constraints are upheld when the business serves a limited geographical area

e) Time constraints should be reasonable related to the legitimate interest which the employer is seeking to protect.

XV. Unconscionability
-If the provisions of a contract are so grossly unfair as to shock the conscience of the court the judge may decline to
enforce the offending terms or the entire contract
-Adhesion Contracts: most business contracts are standardized and contain may non negotiated terms; the
standardized terms are typically unclear, complicated, exceptionally favorable to the drafter, and printed in small
print. These are typically called adhesion contracts
-Courts have generally refused to enforce based on the theory that the non-drafter has not really assented
to the bargain
-Steps for avoiding contract: (1) that the contract itself is an adhesion contract and (2) that the contract or
the clause complained of either violates his reasonable expectations or unconscionable
-Unconscionability: contracts can be unenforceable because it is shockingly unfair; used mostly by consumers;
decision made by judge
-Procedural Unconscionability: one party was induced to enter the contract without having any meaningful
choice; no bargaining possible and lack of real consent; is concerned with unfair surprise, fine print,
clauses, mistakes or ignorance of important facts or other things that mean bargaining did not proceed as it
should
-Substantive Unconscionability: unduly unfair and one sided; involve either excessive price or an unfair
modification of either the seller or buyers remedies
-Remedies: excise the unconscionable clause, reform the contract by modifying the offending term, or
refuse to allow the P to recover at all on the contract
-Bargaining power
a) Courts are reluctant to accept pleas of unconscionability between merchants. (similar bargaining power)
b) When gross inequality of bargaining power and a misunderstanding or unawareness of a provision is
present, a court may invoke unconscionability.