WHAT IS A CONTRACT?

I. Contract – A promise or a 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.
a. Contract = Mutual Assent (Offer & Acceptance) + Consideration (three legged stool)
b. Elements:
i. The agreement in fact between the parties
ii. The agreement as written
iii. The set of rights and duties created by (1) and (2)
c. A contract is formed by a three-legged stool—offer, acceptance, and consideration. If any of these are
missing, the contract has not been formed.
d. A bilateral contract is a promise for a promise. A contract in which the offeror requires an acceptance to
be in the form of a return promise. There must be “a thing sought”.
e. A unilateral contract is a contract where acceptance and consideration are executed through actual
performance—it is a promise for performance or an act. The offer invites the offeree to accept by
rendering a performance. An offeror can revoke unless the offeree has substantially performed. An option
is created when the offeree begins the performance. See R§45- where an offer incites an offeree to
accept by rendering performance and does not invite a promissory acceptance, an option contract is
created when the offeree tenders or begins the invited performance or tenders a beginning of it
f. Not every promise is a contract (Rest. §1 (Pg. 157))
g. A promise is illusory if the performance is optional for the promisor—if the promisor reserves the right
to terminate at will without any notice. If it is illusory, there is no mutual obligation and no contract.

MUTUAL ASSENT (OFFER + ACCEPTANCE)

I. Intention to be bound
a. Objective theory → Mutual Assent
i. Manifestation of mutual assent to an exchange requires that each party either make a promise or
begin or render a performance.
b. Subjective theory → Meeting of the Minds
i. Ray v. Eurice Bros.
1. Rule: Absent fraud, duress, or mutual mistake, one having the capacity to understand a
written document who reads and signs it, or, without reading it or having it read to him,
signs it, is bound by his signature in law.
2. (Held) There was no fraud or duress in the making of the contract, and any mistake
regarding which specifications were part of the contract was unilateral on appellee
builder’s part. Appellant owners intended that their specifications were to be used, and
that was clearly stated in the contract that integrated those specifications. Appellee signed
the contract and was bound by its contents. Appellee’s actual intent was immaterial
because it had agreed in writing to a clearly expressed intent to the contrary. Parties have
a “duty to read” what they are signing. Accordingly, appellee breached the contract.
II. Offer
A. An offer is a definite, invitational communication that indicates a willingness to commit to a proposed
bargain. It calls for a yes, and if yes, there is a deal. An offer is the manifestation of willingness to enter into a
bargain, which another person justifiably understands that his assent to that bargain is invited and will
conclude it. An offer ends the need for further assent. The offeror (person extending the offer) is the master of
the deal and retains the power to revoke at any time before acceptance. R§24.
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 B. In Lonergan, the court held that a form letter and preliminary negotiations that did not express a commitment
or invitation to accept was not an offer. The ruling ultimately stated that the entire context of the transaction
can be used to determine if there was mutual assent, objectively determined R§26
a. Language, completeness of suggested bargain, context/all the circumstances, trade, number of persons to
whom it’s made, fact determinative
b. An offer is a definite, invitational communication that indicates a willingness to commit to a proposed
bargain. It calls for a yes, and if yes, there is a deal. An offer is the manifestation of willingness to enter
into a bargain, which another person justifiably understands that his assent to that bargain is invited and
will conclude it. An offer ends the need for further assent. The offeror (person extending the offer) is the
master of the deal and retains the power to revoke at any time before acceptance. R§24.
c. §26: Preliminary negotiations
d. §33: Certainty: A valid offer contains clear and definite terms:

Q: Quantity of goods, services

T: Time for the contract to be performed
I: Identity of the parties who are contracting
P: Price
S: Subject matter of Contract
e. §38: Rejection
f. §39: Counteroffers
g. Special Offer Rules:
· [a]: Advertisements
o Invitations to receive offers from the public where the advertiser has an option to accept, negotiate, or
reject the public’s offer
o Obvious jokes in communications are not offers
§ [ex]: Leonard v. Pepsico – An ad doesn’t constitute an offer unless its terms are sufficiently clear & leave
nothing open for negotiations
· [b]: Price Quotes
o Invitations for offers
§ [ex]: Fairmount v. Cruden: When a party quotes a price & invites acceptance by another party, a binding
offer has been made that cannot be revoked once accepted
· [c]: Letters of Intent
o Two Enforceable Letters of Intent:
§ [a]: Letter sign intending to sign contract in the future; or
§ [b]: A contract one actually signs with intention to enforce in the future
· [ex]: Store Properties v. Neal
· [ex]: Diesel Power v. ADDCO
[d]: Request for Bids
o When a general contractor seeks bids from subcontractors, the general contractor’s request for
bids is an invitation for others
§ The offeror is the one who can change the manner of the rules
III. Acceptance ( §30, 32, 50-53, 56)
a. A manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the
offer.
b. Acceptance by performance requires that at least part of what the offer requests be performed or tendered
and includes acceptance by a performance which operates as a return promise.
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c. Must be mirror image- exactly the same-under common law
d. Acceptance by promise requires that the offeree complete every act essential to the making of the
promise.
e. §43: Power of acceptance
i. Offeree’s power of acceptance terminated when offeror takes action inconsistent w/intention to
enter into proposed contract & offeree acquires reliable info to that effect
f. Mailbox rule – an acceptance (by the offeree) will in some circumstances be treated as effective as soon
as it was dispatched
i. Does NOT apply to option contracts → only effective by acceptance, NOT when the
contract is mailed.
g. Conduct as manifestation of assent  [RS § 19]
(1) The manifestation of assent may be made wholly or partly by written or spoken words or by other acts
or by failure to act. 
(2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in
the conduct and knows or has reason to know that the other party may infer from his conduct that he
assents 
(3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a
resulting contract may be voidable because of fraud, duress, mistake, or other invalidating clause.

h. Communication of Present Commitment

i. Each party must communicate a present commitment to form a contract

ii. One party’s expression of commitment is an offer & the other party’s expression of
commitment is an acceptance; when both parties communicate a present commitment, mutual
assent is present
iii. Only need an outward manifestation of assent to enter into a bargain
iv. Does not have to take the form of offer and acceptance
· Embry Objective (Reasonable Man) Standard: Regardless of the parties’ subjective or
actual intent, if a reasonable man could infer from their conduct (outward
action/expression) intent to enter into a binding and enforceable contract, a binding and
enforceable contract is presumed to exist.  
Postponed Bargaining – Agreements to Agree
A. Postponed bargaining occurs when there is a mutual expression of agreement, but a failure to
complete the deal into a contract. The agreement will be upheld if the parties express an intention to
bind and when there is a way of determining the essential terms. Agreements to agree can be
enforceable if there is a method for calculating the future agreement. The agreement must specify the
essential terms or method of calculating the essential terms—the more indefinite, the less likely the
parties intended to be bound. R§26
 In Walker, the court held that where the parties did not agree on a way of determining an essential
term (how to determine the calculation of rent), there is no enforceable agreement to agree.

Written Memorial vs. Preliminary Negotiations

a. Manifestations of assent that are in themselves sufficient to conclude a contract will not be
prevented from operating because the parties manifest an intention to prepare and adopt a written
memorial, but the circumstances may show that the agreements are preliminary negotiations. R.§27.
This is because “Actions speak louder than words”.

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 b. In Quake, the court held that it was ambiguous on whether the letter of intent was meant to be binding
as a contract. See R§27. This occurred after there was confusion over a cancellation clause in a
contract that led to further confusion regarding whether one can cancel a contract with a written letter
in place or not.
c. To determine whether there is an enforceable contract, consider the extent to which the express
agreement has been reach on all the terms to be included, whether the contract is the type
usually put in writing, whether it needs a formal writing for its full expression, whether there
are many or few details, whether the amount involved is large or small, whether it is a common
or unusual contract, whether a standard form contract is typically used in similar contracts,
and whether either party has taken action in performance during the negotiations. This can be
shown by oral evidence or correspondence or other preliminary / partially complete writings.
Limiting power of revocation

§36: Terminating power of acceptance

i. Rejection or counteroffer by offeree

ii. Lapse of time
iii. Revocation by one of the parties
iv. Death/incapacity of one of the parties

The power of acceptance terminates by rejection or counteroffer by the offeree, a lapse of time,
revocation by the offeror, death or incapacity of the offeror and offeree, or by any express condition of acceptance
in the terms of the offer. R. §36.
A rejection terminates the offer and the power of acceptance. A rejection can be a manifestation of intent
to not accept an offer unless the offeree manifests an intent to take it under further advisement. R.§38.
Revocation: An offeror can revoke the offer through a manifestation of intent to not enter into the
proposed bargain—the offeror takes away the invitation. The offeree’s power acceptance is terminated when the
revocation is received. R§42.
An offeree’s power of acceptance can be revoked if the offeror takes definite action inconsistent with an
intention to enter into the bargain and the offeree acquires reliable information to that effect. R. §43.

Offer and Acceptance → BILATERAL contracts

b. Bilateral contracts - An exchange of promises in which each party promises to do

something for the other (future actions)
c. Lonergan v. Scolnick
i. Rule: If from a promise, or manifestation of intention, or from the
circumstances existing at the time, the person to whom the promise or
manifestation is addressed knows or has reason to know that the person
making it does not intend it as an expression of his fixed purpose until he has
given a further expression of assent, he has not made an offer.
ii. (Held) D's ad in the paper was a mere request for an offer. The court here
agreed with the trial court's finding that no contract had been entered into
between the parties and found that the trial court's construction of the letters
exchanged between the parties as inquiries and answers, rather than
acceptance, was reasonable. Further assent on the part of D was required to
show acceptance.
d. Normile v. Miller
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 i. Rule: A valid contract between two parties can only exist when the parties
assent to the same thing in the same sense, and their minds meet as to all
terms. This assent, or meeting of the minds, requires an offer and acceptance
in the exact terms and that the acceptance must be communicated to the
offeror. If the terms of the offer are changed or any new ones added by the
acceptance, there is no meeting of the minds and, consequently, no contract.
This counteroffer amounts to a rejection of the original offer.
ii. (Held) The counteroffer by D, which stated that P had until 5:00 p.m. of the
next day to accept, did not constitute a binding and enforceable option
contract. D's counteroffer on P’s original offer was a rejection of that offer,
which meant that the time for acceptance provision in P’s original offer was
also rejected and did not become part of D's counteroffer. D then properly
revoked the counteroffer by selling the property to P and thus gave P’s notice
of that revocation.

Offer and Acceptance → UNILATERAL contracts

e. Unilateral contracts – A contract created by an offer than can only be accepted by

performance.
f. Cook v. Coldwell Banker/Frank Laiben Realty Co.
i. Rule: A unilateral contract is a contract in which performance is based on the
wish, will, or pleasure of one of the parties. A promisor does not receive a
promise as consideration for his or her promise in a unilateral contract. A
unilateral contract lacks consideration for want of mutuality, but when the
promisee performs, consideration is supplied, and the contract is enforceable
to the extent performed. An offer to make a unilateral contract is accepted
when the requested performance is rendered. A promise to pay a bonus in
return for an at-will employee's continued employment is an offer for a
unilateral contract which becomes enforceable when accepted by the
employee's performance.
ii. (held) The court affirmed the verdict, finding that the firm made a unilateral
offer, which induced the agent to remain, and that the agent substantially
performed by earning a high level of commissions. The firm did not revoke
the first offer by making the second offer because the agent had substantially
performed on the original offer. Testimony regarding other firms' bonus
plans was irrelevant because the firm's offer was not ambiguous.
g. Sateriale v. R.J. Reynolds & Tobacco
i. Rule: [SAME AS Cook CASE]
ii. (held) The court found that the Camel Cash certificates constitute an offer,
whereby RJR promised to provide rewards to customers who purchased
Camel cigarettes, saved Camel Cash certificates and redeemed their
certificates in accordance with the catalogs’ terms.
OPTIONS:
An option contract is a promise which meets the requirements of formation of a contract and limits the
promisor’s power to revoke an offer. See R§25. When an offer invites an offeree to accept with performance, an option
contract is created when the offeree begins the invited performance. An option contract can be binding if it is in writing,
signed by the offeror with purported consideration. R§87. However, this is generally only applied to situations in
which construction contracts are in question.
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CONSIDERATION

I. Consideration
a. Consideration → a performance or a return promise must be bargained for
b. Consideration is the thing sought (the promise or returned promise must be the thing sought), or the
bargain for exchange—it can be a benefit to the promisor or a detriment to the promisee.
c. A promise which is sought or bargained for can be consideration for a promise to be exchanged. See
R§71. Performance of a legal duty owed to the promisor is not consideration. See R§73.
d. 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.
e. The performance may consist of
i. An act other than a promise, or
ii. A forbearance, or
iii. The creation, modification, or destruction of a legal relation.
f. The performance or return promise may be given to the promisor or to some other person. It may be given
by the promisee or by some other person. (Res. §71)
g. §97: Adequacy of consideration
i. If requirement of consideration met, no additional requirement of
1. Grain advantage or benefit to promisor or loss, disadvantage or detriment to promisee;
2. Equivalence in values exchanged; or
3. Mutuality of obligation (both parties must be bound or neither be bound)
ii. If the requirement of consideration is met, there is no additional requirement of a benefit to the
promisor, detriment to the promisee, equivalence in the value of the things exchanged, or
mutuality of obligation. See R§79. For the most part, courts do not police the adequacy of
consideration because the courts want to avoid interfering with the private ordering of the parties
(because that would be communism).

h. Agreeing to agree
i. Dispute arises because matter typically deals with in negotiating contract not covered or left open
ii. Usually not upheld in court under common law (no contract)
iii. UCC will attempt to find contract if parties intended to be bound by agreement
i. Benefit/detriment test
i. Promisor makes promise in exchange for detriment/forbearance on part of promisee
j. NOTE: A failure of consideration = BREACH. An absence of consideration = NO CONTRACT.
k. In Marshall Durbin, the court held that an action can be consideration. (the thing sought was a high-
level employee staying/stabilizing the company during difficult financial times until the triggering event)
l. Hamer v. Sidway
i. Rule: A valuable consideration in the sense of the law consists either of some right, interest,
profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other. Courts will not ask whether the thing which forms the
consideration does in fact benefit the promisee or a third party or is of any substantial value to
anyone. It is enough that something is promised, done, forborne or suffered by the party to whom
the promise is made as consideration for the promise made to him. In general, a waiver of any
legal right at the request of another party is a sufficient consideration for a promise.
ii. (held) Court held that the right to use and enjoy the use of tobacco was a right that belonged to
the nephew-promisee and was not forbidden by law. The abandonment of its use was a sufficient
consideration to uphold the promise because such abandonment was the inducement for the
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 promise. It is not essential in order to make out a good consideration for a promise to show that
the promisor was benefited or the promisee injured. Because the nephew-promisee abandoned his
legal right to use tobacco and drink liquor in exchange for the testator-promisor’s promise to pay
him a sum of money, there was sufficient consideration to enforce the contract.
m. Pennsy Supply, Inc. v. American Ash Recycling Corp. of PA
i. Rule: A cause of action for breach of contract must be established by pleading: (1) the existence
of a contract, including its essential terms, (2) a breach of a duty imposed by the contract and (3)
resultant damages. While not every term of a contract must be stated in complete detail, every
element must be specifically pleaded. Clarity is particularly important where an oral contract is
alleged.
ii. (held) American Ash received a benefit in the transaction, when Pennsy hauled away the material
for free, thus saving American Ash thousands of dollars in disposal costs. The Court concluded
with "the Complaint alleges facts which, if proven, would show the promise induced the
detriment and the detriment induced the promise. This would be consideration."
n. Dougherty v. Salt
i. Rule: Nothing is consideration that is not regarded as such by both parties.
ii. (held) The court held that the inference of consideration was so overcome and rebutted that there
was no question for a jury because the boy's guardian testified, in effect, that the note was the
unenforceable promise of an executory gift. The court concluded that the boy was not a creditor,
that his aunt was not paying a debt, and that the note was not given for "value received" even if
the maker may have labeled it.
o. Plowman v. Indian Refining Co.
i. Rule: However strongly a man may be bound in conscience to fulfill his engagements, the law
does not recognize their sanctity or supply any means to compel their performance, except when
founded upon a sufficient consideration. Past or executed consideration is a self-contradictory
term. Consideration is something given in exchange for a promise or in a reliance upon the
promise. Something which has been delivered before the promise is executed, and, therefore,
made without reference to it, cannot properly be legal consideration.
ii. (held) The court held that assuming the former employees were told the payments were for life,
there was not sufficient consideration to support the promise. The court held that the past services
afforded the former employer did not provide sufficient consideration. The court also held that
the former employer did not ratify any promises by local plant managers to make the benefits
payable for life.
p. Dohrmann v. Swaney
i. Rule: The basic requirements of a contract are an offer, acceptance, and consideration. The
determination of whether consideration is sufficient to support a contract is a question of law for
the court to decide. Valuable consideration for a contract consists of some right, interest, profit or
benefit accruing to one party, or some forbearance, detriment, loss or responsibility given,
suffered or undertaken by the other. Any act or promise that benefits one party or disadvantages
the other is sufficient consideration to support the formation of a contract. Whether a contract
contains consideration is a question of law, which is reviewed de novo. Where the amount of
consideration is so grossly inadequate as to shock the conscience of the court, the contract will
fail.
ii. (held) The Court held that circumstances existing when the contract was entered into were such
that the terms of the contract should be set aside because the estate sufficiently showed that the
contract should be considered void due to the grossly inadequate consideration provided the

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 decedent from the neighbor, as well as the unfair circumstances surrounding the contract's
creation.

Kinds of Consideration
a. Consideration can take the form of:
§ [1]: Money;
§ [2]: Property;
§ [3]: Promise; or
§ [4]: Act or forbearance
b. Rest. §71. Types of Exchange (Pg. 179)
§ (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;
· [b] a forbearance; or
· [c] the creation, modification, or destruction of legal relation.
c. Types of Consideration:
§ [1]: Adequacy of Consideration: A promise, act, or forbearance. Consideration must be adequate, of
reasonably exchange of value
· Nominal consideration is not adequate consideration
§ [2]: Past & Moral Consideration: Both are insufficient for consideration
§ [3]: Pre-existing Duty
· Rule: If there is a pre-existing duty, there is no consideration; a promise to do what one is already
obligated to do is not consideration.
· Rest. §73. Performance of Legal Duty (Pg. 180)
o Performance of a legal duty owed to a promisor which is neither doubtful nor subject to honest
dispute is not consideration; but a similar performance is consideration if it differs from what was
required by the duty in a way which reflects more than a pretense of bargain.
§ [4]: Accord & Satisfaction
· Accord & Satisfaction: An agreement between two parties to a contract, which has a legal claim against
the other, released the other party from its obligation in return for some form of compensation
o Agreement – accord; compensation – satisfaction
o [ex]: A contract between a creditor and a debtor for settlement of a claim by some performance other
than which is due
Agency Law
Agency refers to a consensual relationship in which one person, the agent, agrees to act on the behalf of, and
subject to the control of another person (which can be a corporation), the principal. The actions of the agent bind the
principal. It can create a fiduciary relationship, which is a relationship of trust and confidence in which the agent is bound
to act in the interest of another.
Actual Authority means that the principal is bound to the agent’s actions as if the principal had engaged
in those actions himself.
Express Authority is when the principal tells the agent to do something—explicit instruction to take
certain actions or forbearances. Implied Authority is when the principal allows the agent to have general
responsibilities or to do something generally, but the actual provisions, actions, and decisions on how to
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execute are left to the agent. It is something incidental to the position—it is not spelled out, but it carries
out the principal’s objectives.
o To determine whether there is express or implied authority, consider whether the agent had
reasonable belief that the agent had the power to act because the principal’s actions.

Apparent Authority is when the agent does not have actual authority, but the agent’s actions bind the
principal nevertheless.
o To determine whether there is apparent authority, consider whether the principal’s actions
gave the 3rd party a reasonable belief that the agent can act.
o In Plowmen, the court held that the vice president of the company did not have the authority
to create a binding contract on the refinery because the board of directors never ratified of the
agreements and never had notice of the agreements.

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CONTRACT FORMATION → UCC

UCC Definitions §1-201

I. An agreement means the bargain of the parties in fact, as found in their language or inferred from other
circumstances, including course of performance, course of dealings, or usage of trade.
II. A contract, as distinguished from an agreement, means the total legal obligation that results from the parties’
agreement as determined by the UCC supplemented by any other applicable laws.
III. Signed includes any symbol executed or adopted with the present intention to adopt or accept a writing.
IV. Writing includes printing, typewriting, or any other intentional reduction into tangible form.
V. Course of dealings 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.
VI. Usage of trade is any practice or method of dealings having such regularity or 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 must be proven as facts. Most general evidence of the parties’ agreement.
VII. Course of performance or course of dealing between the parties or usage of trade in the vocation or
trade in which they engaged or of which they are or should be aware is relevant in ascertaining, the meaning of
the parties’ agreement, may give particular meaning to the specific terms of the agreement, and may supplement
or qualify the terms of the agreement. How the parties have acted in this contract specifically.
VIII. A merchant (2-104) is a person who deals with goods of the kind; holds himself out as having
knowledge or skill particular to the practices or goods involved in the transaction; or such knowledge can be
attributed to him by his employment of an agent who holds himself out as having knowledge/skill. This can be
based on specialized knowledge of the goods involved, business practices, or both. Provisions dealing with the
statute of frauds, firm offers, and 2-207, rest on normal business practices typical and familiar to any person in
business. Thus, almost every person in the business would be a merchant because nonspecialized business
practices include answering mail. This only applies to merchant in his mercantile capacity.
NOTE: Common law principles fill in the gaps of the UCC.
STEP 1: Does the UCC apply? The UCC Art. II applies to transactions of goods. See §2-102. A good includes all things
which are movable at the time of identification other than money (unless it’s a coin), securities, and things in action. A
good occupies time and space. See §2-105. A contract for sale applies to present and future sales. A sale is the passing of
title from the seller to the buyer for a price. §2-106.
STEP 2: If the contract involves goods and services, when does the UCC apply?
STEP 2.5: A hybrid contract is a contract for the exchange of goods and services.

 To determine this, the court should use the predominant factor test to inquire into what the contract was really
about—consider the language of the agreement, the kind of business the parties are engaged in, and the price of
the goods and services.
o In Princess Cruises, the court held that a contract for services and goods was not governed by the UCC
when the services was the main substance to the contract, and thus would be governed by common law.
Under the alternative Graveman Test, the court should determine whether on the face of the agreement, if it was
a contract for goods or for services. It is a pleadings test. Is the plaintiff complaining about goods and failure of
consideration there or complaining about the performance of a service?
o In Jannusch, the court held that there was a contract for the sale of goods because the parties conduct
indicated there was a contract through the delivery and acceptance of the goods and other circumstances
that indicated a contract.

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STEP 3: A contract can be formed by a definite and seasonable expression of acceptance.
Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a contract shall be
construed as inviting acceptance in any manner and medium reasonable in the circumstances. See §2-206.

 An offer to make a contract invites acceptance in any manner or medium reasonable in the circumstances.
To determine whether there is a contract, look for the (1) dickered terms; (2) the intent of the parties manifested by their
conduct; (3) the basis for remedy.
o The dickered terms are quanity, quality, price, and delivery.
 In Styberg, the court found that there was not a contract because the actions of the parties did not ever result in a
conclusion of a deal—they were engaging in continuing negotiations because there was never a price, an essential
makeup of the dickered terms.
 You can leave out anything but quantity and the court will figure it out. No Quantity- no contract (unless
requirements)

A contract can be formed in any manner sufficient to show agreement. An offer is what the common law defines an offer
as, because the UCC does not offer an explicit definition and the code will then “fill the gap”. An agreement can be
sufficient even though the moment of its making is undetermined. One or more of the terms can be left open if the parties
intended to make a contract and there is a reasonably certain basis for an appropriate remedy. §2-204. Actions speak
louder than words.
Requirements Contract: Under 2-306, a term which measures the quantity of output of the seller or requirements of the
buyer means that the output or requirements that may occur in good faith—no quantity unreasonably disproportionate to
any stated estimate or if the estimate is absent, any normal/comparable prior output or requirements may be tendered or
demanded.
Under 2-306, a lawful agreement for exclusive dealings in the kind of goods imposes an obligation on the seller to use
best efforts to supply the goods and the best efforts of the buyer to promote their sale.
Firm Offer Provision: **lowest order of merchant** Under §2-205, an offer by a merchant to buy or sell goods in a
signed writing that gives assurance that the offer will be held open is not revocable, even for lack of consideration, during
the time stated, or if no time is stated, a reasonable amount of time not more than three months.
Acceptance

a. “Battle of the Forms”

i. (1) Was a contract formed? (2) If so, what are the terms?
ii. §2-204: (1) K for sale of goods may be made in any manner sufficient to show agreement,
including conduct by both parties which recognizes existence of K; (2) agreement sufficient to
constitute K may be found even though moment of exact making undetermined; (3) if one or
more terms left open, K does not fail if parties have intended to make K & there is reasonably
certain basis for giving appropriate remedy
iii. §2-207:
1. Definite & seasonable expression of acceptance or written confirmation sent within
reasonable time operates as acceptance even though states terms additional to or different
from those offered or agreed upon, unless acceptance expressly made conditional on
assent to additional or different terms;
2. Additional terms become part of K unless:
a. Offeror expressly limits acceptance to terms of offer
b. They materially alter it
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 c. Notification of objection given within reasonable time after they are received;
3. Conduct by both parties which recognizes existence of K sufficient to establish K even
though writings of parties do not otherwise establish:
a. conflicting terms knocked out, relevant UCC gap filler used or if none, common
law controls
b. Response diverges too greatly = no contract
c. If contract formed:
i. Orally with forms to follow → terms of K are what parties agreed to
before forms; terms in form analyzed under §2-207(2)
ii. Via writings → terms are what are agreed upon in writings; additional
terms §2-207(2)
iii. K formed on conduct of parties → terms are those upon which writings
agree and any other terms incorporated by UCC; all terms not agreed
upon fall out
iv. THE KNOCKOUT RULE Most courts apply the knockout rule with UCC § 2-207(2) to
determine whether the new terms control or whether UCC gap fillers must be implemented.
Under the knockout rule, a distinction is made between "different" and "additional" terms. A
different term is a term that was not included in the original offer that conflicts with the terms of
the original offer. An additional term is a term that was not included in the original offer that does
NOT conflict with the original offer. Under the knockout rule, different terms in the original offer
and acceptance knock each other out creating a gap in the contract. UCC gap fillers are then used
to plug this gap (regardless of whether the parties are merchants). The knockout rule does not
apply to additional terms added in the acceptance. UCC § 2-207(2) will determine whether the
additional terms control or whether UCC gap fillers must be implemented.
i.
v. Princess Cruises, Inc. v. General Electric Co.
1. Rule: The test for inclusion or exclusion of the UCC is not whether contracts are mixed
but, granting that they are mixed, whether their predominant factor, their thrust, their
purpose, reasonably stated, is the rendition of service, with goods incidentally involved or
is a transaction of sale, with labor incidentally involved. The U.S. Court of Appeals (4 th
Cir.) deems the following factors significant in determining the nature of a contract: (1)
the language of the contract, (2) the nature of the business of the supplier, and (3) the
intrinsic worth of the materials.
2. (held) As a matter of law, the court ruled, services rather than goods predominated the
parties' contract. GE's final price quotation was a counteroffer rejecting Princess'
purchase order, and the terms and conditions of the price quotation controlled liability
and damages in the transaction. The jury could only award damages consistent with the
terms and conditions of GE's price quotation and could not award incidental or
consequential damages.
vi. Brown Machine, Inc. v. Hercules, Inc.
1. Rule: Because the term "offer" is not defined in the UCC, the common law definition
remains relevant. An offer is made when the offer leads the offeree to reasonably believe
that an offer has been made. An "offer" is the manifestation of willingness to enter into a
bargain, so made as to justify another person in understanding that his assent to that
bargain is invited and will conclude it. The general rule is that a price quotation is not an
offer, but rather is an invitation to enter into negotiations or a mere suggestion to induce
offers by others. However, price quotes, if detailed enough, can amount to an offer

14
 creating the power of acceptance; to do so, it must reasonably appear from the price quote
that assent to the quote is all that is needed to ripen the offer into a contract.
2. (held) The quote constituted an offer that was not timely accepted. The court held that
appellant's purchase order, which did not contain an indemnity clause, constituted the
offer. The court construed appellee's order acknowledgement, which contained an
indemnity clause because the acceptance was not expressly conditioned on the
acceptance of those terms. The court held that those terms did not become part of the
contract because the terms materially altered the agreement and were not expressly
accepted by appellant.

Electronic & Layered Contracts

b. Shrink-wrap terms occur when a purchaser orders a product and receives possession of it
wrapped in plastic. When the purchaser opens the plastic, he/she can inspect the product and
terms. After a time-period for return has passed, the purchaser has agreed to the terms.
c. Clickwrap terms occur when a purchaser must scroll through the seller’s terms and conditions
and click ‘I agree’ or the equivalent. If the purchaser refuses, the seller will not complete the
sale.
d. Browsewrap terms occur when the user accesses a site but is not required or encouraged to
scroll through the terms and conditions or click ‘I agree.’ These are usually enforceable if the
user is provided with adequate notice of the terms; the user has meaningful opportunity to review
the terms; and the user is provided with adequate notice that specified actions manifest assent to
the terms.
e. In Defontes, the court held that §2-207 did not apply because there were not two forms (the oral
agreement was not considered a ‘form’) and therefore, the additional subsequent terms were
enforceable.
f. In Hines, the court held that when terms are inconspicuous or hidden, they were not enforceable
against users of the website.

15
16
LIABILITY IN THE ABSENCE OF BARGAINED-FOR-EXCHANGE

I. Promissory Estoppel
A. Elements
i. A promise was made;
ii. Promisor should reasonably expect (or reasonably foresee) that the promise would induce action
or forbearance;
iii. Actual reliance by the party to whom the promise is made (the promise actually induced the
promisee to act or forebear); and
1. Often referred to as “detrimental reliance”
2. The reliance must be reasonable
iv. Justice compels enforcement of promise.
B. Reliance:
1. In Harvey v. Dow, the court held that the absence of a definite promise did not preclude
enforcement of it when the promisee engaged in substantial action in reliance of the
promise, which resulted in a definite change of position.
2. In Katz, the court held that voluntarily changing positions (K chose to step down from his
job and change his position) in reliance of a promise is sufficient detrimental reliance.
3. In Acevas, the court held that giving up a legal right (to a type of bankruptcy) was
sufficient detrimental reliance. Note: this is really an issue about whether the reliance is
reasonable.
C. Within the Family
i. Kirksey v. Kirksey
1. Rule: It is not allowable for witnesses, or juries, to compare the handwriting of papers
not in evidence for other purposes, with the disputed writing or signature in evidence,
with the object of arriving at a conclusion as to the genuineness of the latter. In this
respect, there is no distinction between the competency of a witness who has seen the
party write, and an expert who has never seen him write. The jury may institute a
comparison between writings or signatures in evidence before them for other purposes,
proved to be genuine, and the disputed one, in order to arrive at a conclusion as to the
genuineness of the latter.
2. (held) The court held that if the signature was admissible, it was permissible for a party
to show the witness a part of the signature. The court noted that none of Albert’s
witnesses stated positively that the handwriting in the signature was that of the decedent.
The court reversed the judgment because Albert did not meet his burden of proving that
the signature was the decedent's.
D. Commercial Context
i. Katz v. Danny Dare, Inc.
1. Rule: There are three elements to be satisfied to invoke the doctrine of promissory
estoppel: (1) a promise; (2) a detrimental reliance on such promise; and (3) that injustice
can be avoided only by enforcement of the promise.
2. (held) The court ruled in favor of P. The doctrine of promissory estoppel states that a
promise can be enforced if the promissee detrimentally relied upon the promise to the
extent that its enforcement is material in order to avoid injustice. P had retired with a
reliance on the promise, and noted that D could have dismissed him but chose not to.
E. charitable subscription is binding under R§90 without proof that the promise reasonably induced action
or forbearance. However, gifts are not enforceable unless there is detrimental reliance.
17
 i. In King, the court held that charitable subscriptions can only be enforced if there is detrimental
reliance.
II. Limiting the Power to Revoke
a. Option Contract → Common Law
a. An offer which (at least for some specified, or perhaps “reasonable,” time period) they could
delay accepting without losing the power of acceptance, even if the offeror should attempt to
revoke it in the meantime.
b. An option contract can be binding if it is in writing, signed by the offeror with purported
consideration. R§87. However, this is generally only applied to situations in which construction
contracts are in question.
c.
1. Promissory estoppel as substitute for consideration for option contract applies with the
same test as usual
a. Only applicable when reliance is reasonably expected, e.g., relied on option to
secure loan
d. Part performance or tender (§45)
1. Created when offeree tenders or begins performance requested in offer
2. Offeree has ability (BUT NOT THE LEGAL OBLIGATION) to complete invited
performance
3. Beginning preparations (even if essential to carry out contract) is not enough
4. Does NOT apply to ambiguous offers
e. Consideration
1. Binding option may be created by having
a. Offer and promise not to revoke offer
b. Acceptance of promise to keep offer open
c. Consideration (bargained-for-exchange to keep offer open)
2. Does not need to be a bargain, especially when option contract is in writing
3. Consideration may be nominal
a. UNLESS the exchange is not on fair terms (§87 comment b)
4. Consideration can be a promise, performance, legally sufficient act, or forbearance
5. Must have consideration (§42)
a. The offeree in an option contract may give services or some other form of
consideration instead of the payment of money
6. “Nominal consideration” generally is not effective
f. Detrimental reliance
1. Offer when offeror should reasonably expect to induce action or forbearance of
substantial character on part of offeree before acceptance, and which does induce such
action of forbearance, is binding as option contract to extent necessary to avoid injustice
g. Berryman v. Kmoch
1. Rule: There are three elements to be satisfied to invoke the doctrine of promissory
estoppel: (1) a promise; (2) a detrimental reliance on such promise; and (3) that injustice
can be avoided only by enforcement of the promise.
2. (held) The court rejected the individual's claim of promissory estoppel. The individual's
efforts and expense to find investors to purchase the land did not constitute acts that
could have reasonably been expected as a result of extending the option promise. The
court held that the individual's power of acceptance was terminated when he learned that
the land had been sold to the third party.
h. Firm Offer → UCC

18
 1. If a merchant;
2. Offers to buy or sell goods in a signed writing; and
3. The writing gives assurances that it will be held open;
4. The offer 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 exceed three months).
b. Pre-Acceptance Reliance - promises become enforceable despite lack of consideration, on basis of
reliance on promise
a. Subcontractor bid revocable before acceptance; cannot argue reliance without offering valuable
consideration to subcontractor to render the offer an enforceable contract
b. Drennan v. Star Paving Co.
1. Rule: [SAME AS Berryman ABOVE]
2. (held) The court affirmed the award of damages to P, since the loss resulting from any
mistake fell upon the party who caused it. P had no reason to believe that D’s bid was in
error and P was entitled to rely upon it.
c. Pop’s Cones, Inc. v. Resorts International Hotel, Inc.
1. Rule: [SAME AS Berryman ABOVE]
2. (held) The court found that P was not claiming breach of contract, but that P sought
damages that resulted from its reasonable reliance on D’s promises. P suffered the loss of
its prior location and its ability to earn profits during the summer season, out-of-pocket
expenses including attorney fees, and expenses in finding an alternate location. Affording
P all favorable inferences, its equitable claim raised a jury question, and D’s motion for
summary judgment should not have been granted.
c. Statutory Limits
a. §87: An offer is binding as an option contract if it is made irrevocable by statute.
b. §2-205: An offer by a merchant to buy or sell goods in a signed writing which by its terms gives
assurance that it will be help 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.
1. Firm offer
a. No consideration required (§2-205)
b. UCC does not apply → look to common law
III. The Principle of Restitution
a. Restitution is a remedy that can be awarded if a benefit has been provided without a bargain, the
benefit has been given and knowingly accepted and retained, and there would be injustice if the
party was not required to compensate for that benefit. It is commonly referred to as unjust
enrichment. The absence of a promise “Implied-in-law” (quasi contract)
1. NOT a real contract
a. No bargained for exchange present; no element of assent
2. An obligation created by the law without regard to the parties’ expression of assent by
their words or conduct
a. Can assert quasi contract even without previous dealings
3. Based on justice and fairness; remedy for unjust enrichment
a. Conferred benefit to party
b. Knowledge of benefit from the actual party
c. Would be unjust to do so without payment
b. “Implied-in-fact"

19
 1. Where services are rendered by one person for another without his expressed request, but
with his knowledge, and under circumstances fairly raising the presumption that the
parties understood.
2. Are “true” contracts
c. Express contract
1. Agreement arrived by words, oral or written
d. Quantum meruit
1. A reasonable sum of money to be paid for services rendered or work done when the
amount due is not stipulated in a legally enforceable contract
e. Quantum valebat
1. When goods are sold without specifying any price, the law implies a promise from the
buyer to the seller than he will pay him as much as they are worth
b. Restitution §2
c. Rescission is placing the parties at their pre-contractual position. The basic expectation of restitution is to
“make the plaintiff whole” by either placing parties in their pre-contractual position or making it so that
parties will be at the point they thought they would be in should the contract have been fulfilled.
d. Restitution §116: An individual is entitled to restitution if:
a. Actor acted “unofficiously” and with intent to charge therefor
b. Services were necessary to prevent the further suffering serious bodily harm/pain
c. Actor performing services had no reason to know that the other party would not consent to
receiving them, if mentally competent
d. It was impossible for other party to give consent because of extreme youth or mental impairment
e. Credit Bureau Enterprises, Inc. v. Pelo
a. Rule: Unjust enrichment is an equitable principle mandating that one shall not be permitted to
unjustly enrich oneself at the expense of another or to receive property or benefits without
making compensation for them.
b. (held) The court found appellant had benefitted by the hospitalization and was therefore liable for
medical services rendered to him. The district court had therefore properly determined that
appellant was legally obligated to pay for those services based on an implied in law contract
theory.
f. Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co.
a. Rule: A contract implied in law, or quasi contract, is one form of an enforceable contract; it is
based on a tacit promise, one that is inferred in whole or in part from the parties' conduct, not
solely from their words. A contract implied in law is not based upon the finding, by a process of
implication from the facts, of an agreement between the parties. A contract implied in law is a
legal fiction, an obligation created by the law without regard to the parties' expression of assent
by their words or conduct. The fiction was adopted to provide a remedy where one party was
unjustly enriched, where that party received a benefit under circumstances that made it unjust to
retain it without giving compensation. The elements of a cause of action for a quasi-contract are
that: (1) the plaintiff has conferred a benefit on the defendant; (2) the defendant has knowledge of
the benefit; (3) the defendant has accepted or retained the benefit conferred and (4) the
circumstances are such that it would be inequitable for the defendant to retain the benefit without
paying fair value for it.
b. (held) The court held that the company did not prove at trial that the corporation had not made
payment to any party for the benefits conferred on the property by the company. This was not an
affirmative defense, but an essential element of a quasi-contract claim by a subcontractor
against an owner. Thus, the court reversed the ruling and remanded the case back to the trial court
because what the corporation paid on the project was not fully litigated, so whether its enrichment
20
 was unjust was an open question. The court also noted that, contrary to the trial court's
evidentiary ruling, the corporation's attempt to prove that it had paid money directly to
subcontractors for work on the building was relevant to issues in the case and that what it
expended on the project was central to the cause of action.
c. You cannot go after the owner if the owner already paid someone for the benefit conferred.
g. Promissory restitution - middle ground between classical contracts and pure restitution cases
a. Granted when
1. Promise made
2. Promisor benefited from promisee’s action
3. Benefit not fully paid for
4. Past consideration exists (giving rise to originial promise)
b. Moral obligation not sufficient in most cases, but only sufficient when
1. Debts barred by statute of limitations
2. Debts incurred by infants/minors
3. Debts of bankruptcies
c. §86 ‘Material benefit’ rule: If person receives non-gratuitous material benefit, subsequent
promise to compensate person for rendering benefit is enforceable (despite being past
consideration; not all courts recognize this)
d. Mills v. Wyman
1. Rule: When the child shall have attained to manhood and shall have become his own
agent in the world's business, the debts he incurs, whatever may be their nature, create no
obligation upon the father; and it seems to follow, that the father's promise founded upon
such a debt has no legally binding force.
2. (held) The court affirmed because there was no legal consideration for the father's
promise to pay the good Samaritan's expenses. The kindness and services provided for
the father's son were not bestowed at the father's request, and he was not legally obligated
to support his son in any way. Thus, because the son was an adult who was responsible
for his own debts, any debt he incurred created no obligation upon the father. Without
consideration, the father's promise founded upon such a debt had no legally binding
force.
e. Webb v. McGowin
1. Rule: For a moral obligation to support a subsequent promise to pay, there must have
existed a prior legal or equitable obligation, which for some reason had become
unenforceable, but for which the promisor was still morally bound. This rule, however, is
subject to qualification in those cases where the promisor, having received a material
benefit from the promisee, is morally bound to compensate him for the services rendered
and, in consideration of this obligation, promises to pay. In such cases the subsequent
promise to pay is an affirmance or ratification of the services rendered carrying with it
the presumption that a previous request for the service was made.
2. (held) McGowin's express promise to pay appellant for the services rendered was an
affirmance or ratification of what appellant had done raising the presumption that the
services had been rendered at McGowin's request. The averments of the complaint show
that in saving McGowin from death or grievous bodily harm, appellant was crippled for
life. This was part of the consideration of the contract declared on. McGowin was
benefited. Appellant was injured. Benefit to the promisor or injury to the promisee is a
sufficient legal consideration for the promisor's agreement to pay.

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THE STATUTE OF FRAUDS

I. Statute of Frauds – refers to the requirement that certain kinds of contracts be memorialized in writing, signed
by the party to be charged, with sufficient content to evidence the contract.
a. No consideration → compliance with SOF is not sufficient for enforcement
b. Failure to comply with SOF → contract (even with consideration) is unenforceable
c. Requirements
i. Linking documents
1. A memorandum may consist of several writings if one is signed and the others clearly
relate to the same transaction (§132)
ii. A “signed writing”
1. Writing and signature need not be formal
2. Can be electronic communication and signature
3. Signed by the party to be charged
4. Essential terms (relaxed by UCC)
5. Subject matter of transaction
6. Sufficient to indicate that there is a contract between the parties
7. UCC §2-201 → Symbol to accept, intentional reduction to tangible form
8. §134 → Intention/apparent to authenticate writing of signer
d. Usually protects D
i. D may raise SOF as affirmative defense → burden of proof shifts to P
ii. Fake oral contract → P lying: D can assert SOF defense, contract is unenforceable
iii. Real oral contract → D lying: D can assert SOF defense, contract is unenforceable
e. Can injustice be avoided ONLY if by enforcement of promise?
i. Promise is enforceable if action was induced by promise and if injustice can be avoided only by
enforcement of that promise
ii. To determine whether injustice can be avoided only be enforcement of promise:
1. Availability and adequacy of other remedies

22
 2. Definite and substantial character of the action or forbearance in relation to remedy
sought
3. Extent to which the action or forbearance corroborates evidence of the making and the
terms of the promise (by clear evidence)
4. Reasonableness of action or forbearance
5. Extent to which action or forbearance was foreseeable by promisor
II. SOF → Common Law
a. §110 Contracts covered:
i. Executor-Administrator Provision
1. A contract of an executor or administrator to answer for a duty of his decedent
ii. Suretyship Provision
1. A contract to answer for the duty of another
2. Exception for writing requirement
a. When the debt is being made for YOUR benefit
b. When you are SECONDARILY LIABLE for contract
iii. Marriage Provision
1. A contract made upon consideration in marriage
iv. Land Contract Provision
1. A contract for the sale of an interest in land
v. One-Year Provision
1. A contract that is not to be performed within one year from the making thereof
b. §100 Exceptions:
i. Suretyship Contracts
1. Usually held not within the statute unless it was made to the creditor to whom the debt is
owed
2. The “debt of another” provision has also been held inapplicable when the promisor who
has guaranteed payment of another’s debt did so mainly for his own economic advantage
ii. Marriage
1. Many statutes have restricted/abolished a breach of promise to marry
2. To come within this class, the promise must be an actual “consideration” for the promise
to marry and not just made on the “condition” or “contemplation” of marriage.
iii. The “One Year” Clause
1. A contract is not subject to the statutory provision if it is possible to be performed within
a year, even though the prospect of such performance is remote
2. The fact that a contract may be terminated within a year is NOT sufficient to remove the
contract from the requirements of the statute
a. ONLY performance will do
iv. Lifetime Contracts
1. Contracts measured by a lifetime are inherently capable of termination by full
performance in less than a year
c. Contract may not be enforceable per statute of frauds, however it is NOT ENTIRELY VOID
i. What do we mean when we say that a contract is unenforceable?
ii. The contract does not meet the requirements of a particular claim/doctrine/statute
iii. Can be used as basis for a tort claim, not as a breach of contract claim
1. Contract law is not meant to penalize versus tort law which has that capacity
d. §129: Part Performance

23
 i. Contract for transfer of land may be enforced notwithstanding failure to comply with statute of
frauds if that party seeking enforcement, in reliance to promise made by seller, has changed his
position so the only way to avoid injustice would be through enforcement
e. §139: Enforcement by Virtue of Action in Reliance
i. Promise that reasonably induces action is enforceable notwithstanding State of Frauds if injustice
can be avoided only by enforcement of promise
ii. Significant circumstances to determine enforcement:
1. Availability of other remedies
2. Definite and substantial character of action
3. Extent to which action corroborates evidence of making and terms of promise
4. Reasonableness of action
5. Extent to which action was foreseeable by promisor
f. Crabtree v. Elizabeth Arden Sales Corp.
i. Rule: In order to satisfy the Statute of Frauds, the written instrument or memorandum must
contain all of the following elements: (1) the identity of the parties to the agreement, (2)
identification of the subject matter of the agreement, the terms and conditions of the agreement,
(4) Identification of the consideration, and (5) The signature of the party who is being sued. If
there is a valid oral contract the requirements of the Statute of Frauds are met provided there is a
sufficient written memorandum containing the essential terms of the contract. The memorandum
may be informal and need not be contained in a single instrument but may consist of several
writings. All that is required is that there be sufficient written evidence of the contract between
the parties.
ii. (held) The court held that because all the essential terms of the contract were acknowledged and
evidenced by an unsigned office memorandum and two payroll change cards initialed by
employer's officers, such writings constituted a written memorandum of the agreement sufficient
to satisfy statute of frauds.
g. Winternitz v. Summit Hills Joint Venture, et al.
i. Rule: Part performance is an equitable doctrine available only where the principal relief sought is
specific performance of the oral agreement. It has no application in an action at law for money
damages.
ii. (held) The court held that the doctrine of part performance did not bar application of statute of
frauds to counts alleging breach of oral lease and breach of oral assignment agreement, and the
evidence supported finding that landlord maliciously interfered with contractual relationship
between tenant and buyers of tenant's business.
III. SOF → UCC (§2-201) – lowest order of merchants (do you answer your mail?)
a. Requirements:
i. A fairly low threshold for application,
ii. A minimal set of requirements to have a sufficient writing, and
b. EXCEPTIONS:
1. Special manufacturing/ custom goods
2. Merchant confirmation (§2-201(2))
3. Not enforceable because quantity is omitted
4. Payment has been made/accepted or goods have been delivered/accepted
a. Partial performance exception both in the common law and the UCC
b. Promissory estoppel may be used as exception in some jurisdictions
c. ACTIONS SPEAK LOUDER THAN WORDS
ii. WRITING ONLY NEEDS TO BE SIGNED BY PARTY BEING CHARGED

24
 c. Buffaloe v. Hart
i. Rule: To qualify under the NC statute, the seller must deliver the goods and have them accepted
by the buyer. Acceptance must be voluntary and unconditional and may be inferred from the
buyer's conduct in taking physical possession of the goods or some part of them. The official
comment to §25-2-201 explains that for the buyer, he is required to deliver something that is
accepted by the seller as such performance. Thus, part payment may be made by money or check,
accepted by the seller. Under this standard, §25-2-201(3)(c) presents questions of fact, which are
questions for the jury, on the issue of acceptance.
ii. (held) A jury found in favor of the tobacco farmer on his breach of contract claim. The court
agreed with the property owners that the personal check was not sufficient to constitute a writing
under the statute of frauds, because it was not endorsed by the property owners. The court,
however, concluded that there was substantial relevant evidence that the tobacco farmer
"accepted" the purchased barns and that the property owners "accepted" the tobacco farmer's
check, thus taking the contract out of the statute of frauds.

à When there is a promise not in writing where the promisor should reasonably expect to induce action or
forbearance by the promisee, and does induce action or forbearance, is enforceable notwithstanding the Statute
of Frauds if injustice can be avoided only by enforcement of the promise. The court should consider the
adequacy of other remedies, the definite and substantial character of the action/forbearance, the extent to which
the action/forbearance corroborates evidence of the making and terms of the promise or the making and terms are
otherwise established through clear and convincing evidence, and the extent to which the action or forbearance
was foreseeable by the promisor. R§139.
 In Alaska Democratic Party v. Rice, the court found that a party could recover on promissory estoppel
when her employment contract did not comport with the Statute of Frauds and she reasonably relied.
 Many states do not follow this section because it is a situation that the Statute of Frauds is meant to
prevent.
Modification: Many courts have held not only that writing is required when the modification brings the contract under
SOF, but also that all modifications must be in writing when the original contract was under SOF. However, other courts
require a memo that specifies only quantity, other terms (like price) may be oral.

MEANING OF THE AGREEMENT

I. Principles of Interpretation
II. §203 Standards of Preference in Interpretation
a. In the interpretation of a promise or agreement or a term, the following standard of preference are
generally applicable:
b. An interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred to an
interpretation which leaves a part unreasonable, unlawful, or of no effect;
c. Express terms are given greater weight than course of performance, course of dealing, and usage of trade,
course of performance is given greater weight than course of dealing or usage of trade and course of
dealing is given greater weight than usage of trade
d. Specific terms and exact terms are given greater weight than usage of trade
e. Separately negotiated or added terms are given greater weight than standardized terms or other terms not
separately negotiated
f. Joyner v. Adams
i. Rule: The rule that ambiguity in contract terms must be construed most strongly against the party
that drafted the contract rests on a public policy theory that the party who chose the words is
25
 more likely to have provided more carefully for the protection of his own interests, is more likely
to have had reason to know of uncertainties and may have even left the meaning deliberately
obscure. Consequently, the rule is usually applied in cases involving an adhesion contract or
where one party is in a stronger bargaining position, although it is not necessarily limited to those
situations. An adhesion contract (“standard form contract” or “boilerplate contract”) is where
the terms and conditions of the contract are set by one of the parties, and the other party has little
or no ability to negotiate more favorable terms and is thus placed in a "take it or leave it" position.
ii. (held) The court concluded that where the superior court found divergent meanings between the
parties, it did not err in concluding that there was no meeting of the minds on the question of
what conditions would trigger retroactive rent escalation. The court also concluded that the
superior court erred in awarding judgment for lessee based on the rule that ambiguous contract
terms were to be construed against the party drafting the contract where the contract was
negotiated between experienced parties who occupied essentially equal positions of power.
Lessee would be entitled to a favorable construction if lessor knew that lessee attached a certain
meaning to the disputed language and lessee did not know of the meaning attached by lessor.
g. Interpretive Principles
i. How courts may handle different meanings
1. Court may rule that word is unambiguous, so they will assume plain/ordinary meaning of
word
2. Court may rule that the word is ambiguous
3. Court may rule that the word is reasonably susceptible to different meanings
ii. Modified objective theory of contract interpretation – a party is bound by the other party’s
meaning if the first party either knew or had reason to know of the second party’s meaning while
the second party did not know or have reason to know of the first party’s interpretation
iii. §201
1. Where parties have attached same meaning, it will be interpreted in accordance with
same meaning
2. Where parties have attached different meanings, it will be interpreted in accordance with
meaning attached by one of them if at the time the agreement was made
a. That party did not know of any different meaning attached by the other and the
other knew meaning attached by first party
b. That party had no reason to know of any different meaning attached and other
party had reason to know meaning attached by first party
3. Except as stated in this Section, neither party is bound by meaning attached by the other,
even though result may be failure of mutual assent
4. Looking for least blame-worthy
iv. Noscitur a sociis – the meaning of a word in a series is affect by the others in the same series; or
a word may be affected by its immediate context
v. Ejusdem generis – a general term joined with a specific one will be deemed to include only
things that are like the specific one.
vi. Expressio unius exclusio alterius – if one or more specific items are listed, without any more
general or inclusive terms, other items although similar in kind are excluded
vii. Ut magis valeat quam pereat – an interpretation that makes the contract valid is preferred to one
that makes it invalid
viii. Omnia praesumuntur contra proferentem – if a written contract contains a word or phrase
which is capable of two reasonable meanings, one of which favors one party and the other of

26
 which favors the other, that interpretation will be preferred which is less favorable to the one by
whom the contract was drafted
ix. Interpret contract as a whole – writing(s) that form part of the same transaction should be
interpreted together as a whole (every term should be interpreted as a part of the whole and not as
if isolated from it)
x. Purpose of the parties
xi. Specific provision is exception to a general one
xii. Handwritten or typed provisions control printed provisions
xiii. Public interest preferred
h. Frigaliment Importing Co. v. B.N.S. International Sales Corp.
i. Rule: When one of the parties is not a member of the trade or other circle, his acceptance of the
standard must be made to appear by proving either that he had actual knowledge of the usage or
that the usage is so generally known in the community that his actual individual knowledge of it
may be inferred.
ii. (held) The district court held that plaintiff's reliance on the fact that the contract forms contained
words with a blank not filled to negate agency was wholly unpersuasive where the clause's
purpose was to permit filling in an intermediary's name to whom commission would be payable.
D’s subjective intent that it could comply with the contracts by delivering stewing chicken
coincided with objective meaning of "chicken," which had at least some usage in the trade; and P
did not sustain its burden that "chicken" was used in the narrower rather than in the broader sense.
i. Court’s interpretive aids for determining if terms are ambiguous
i. Extrinsic evidence
ii. Prior negotiations
iii. Trade usage - general meaning placed on the word by people in the business
1. Different parties, different contracts
2. Rule: trade customs and evidence of the parties’ intent when the parties have actual
knowledge of the custom or the custom is so pervasive that constructive knowledge is
justified, provided the trade custom is neither illegal no in conflict with public policy
3. When to substitute trade usage when contract is ambiguous?
a. Trade customs are evidence of the parties’ intent when the parties have actual
knowledge of the custom or the custom is so pervasive that constructive
knowledge is justified, provided the trade custom is neither illegal nor in conflict
with public policy. A trade custom is pervasive when one can assume that the
parties executed the k with implicit reference to the custom
iv. Course of performance - actions of parties in carrying out contract at issue (same parties, same
contract)
1. Sequence of conduct between parties to transaction that exists if
a. Agreement of parties with respect to transaction involves repeated occasions for
performance by party and,
b. Other party, with knowledge of nature of performance and opportunity for
objection to it, accepts performance or acquiesces in it without objection
c. Repeated conduct is evidence on what party intended to do
d. No complaint = gives light to what was meant in contract
v. Course of dealing (same parties, previous contract)
1. Actions taken by the parties in performing previous contracts between them
j. Ambiguity
i. Roadmap
1. Is term ambiguous in the first place? (4 corners or more context)
27
 2. If ambiguous > consider all external circumstances (***Maxims of Interpretation (p
555))
3. If NOT ambiguous > rely on contract
ii. Patent (intrinsic) ambiguity – a term does not make sense
iii. Latent (extrinsic) ambiguity – something that arises during performance
k. Objective evidence vs. Subjective evidence
i. Must first ask if the word is ambiguous/unclear (varies by jurisdiction)
ii. Objective evidence – testimony of disinterested third parties or trade usage or the like, is deemed
permissible to establish latent ambiguity because such evidence cannot be easily fabricated
iii. Subjective evidence – testimony about what the parties believed the contract meant, is not
acceptable for that purpose because it tends to be self-serving

III. Parol Evidence Rule

What type of writing? Not integrated Partially Integrated Total integration

● Neither complete nor
What does writing
● Ex: price lists, a letter ● Partial integration can
reflect?
Factors to look for to
identify level of
integration
Is this writing final?
Is this writing complete?
What evidence is
generally admissible in
evaluating this writing?
● Final but incomplete
final expression of the expression of the parties’
parties’ agreement agreement
detailing current status of consist of 1 writing or of
negotiations. more than 1 piece of
paper
● No merger clause
● Clear “gaps” in coverage
(key terms missing, such
that agreement is
incomplete on its face)
● Length of agreement
(short>likely partial)
Not final Final
Not complete Not complete
All evidence admissible Evidence admissible to
for any reason explain and supplement,
but NOT contradict
● Final and complete
expression of the parties’
agreement
● Entire, non-draft, agrmt
is complete in writing.
● May have a merger
clause.
● Merger clause
● If parties objectively
agreed to k (no fraud,
duress, or mistake)
● Detailed agreement that
appears to cover all
issues one would expect
to have covered in the
type of agreement
● Long agreement length
Final
Complete
Evidence admissible to
explain, but NOT to
supplement OR contradict

Is extrinsic evidence admissible under the PER?

Not
Partially integrated Totally integrated
integrated
Prior oral or written No
negotiation/agreements
Yes No
that contradicts the
writing
Prior oral or written No
negotiation/agreement
Yes Yes (§216.1)
that supplements the
writing
Evidence of subsequent Yes Yes Yes – parties are allowed
negotiations/agreements to introduce evidence of

28
(oral or written), even if
contradictory
Contemporaneous oral
negotiation/agreement
Couse of performance,
course of dealing, or
usage of trade to explain
or supplement (ALWAYS
ADMISSABLE)
Any prior oral or written
negotiation/agreement
that explains the writing
Contemporaneous written
agreement
subsequent modifications
No – we’ll assume
Yes No writing is more
authoritative
Yes * if parties don’t
want to be bound by
Yes Yes usage of trade they can
specifically negate them
in their agreement
Yes. Evidence admissible IF after the court concludes the term is
ambiguous. BUT courts disagree to what extent extrinsic evidence
is admissible to determine whether the term is ambiguous.
*see Frigaliment chicken case
● To determine term meaning, court considers:
o Govt regulation
o Trade usage (expert testimony)
Yes o Communications between during negotiations
o Sensible operation of the k - Price of chickens - seller
would not sell chickens at a loss
o How the word "chicken" is used in the k
o Course of performance
o Dictionary definition
o Could have considered previous agreements between
the parties (but none in this case)
Probably, yes. Because probably part of the same agreement.
Yes

a. §210: Complete Integration vs. Partial Integration

i. Complete integration – a writing that is intended to be a final and exclusive expression of the
agreement of the parties
1. “Four corners”/plain meaning
a. If writing appears complete, presumed complete
b. Ohio relies on the plain meaning in a contract
2. CAN allow evidence to interpret the agreement
3. CANNOT allow evidence of prior OR contemporaneous agreements that supplement or
contradict the agreement
4. Merger clause – states that the writing is intended to be final and complete; all prior
understandings are deemed to have been “merged” into or superseded by the final writing
ii. Partial integration – a writing that is intended to be final but not complete because it deals with
some but not all aspects of a transaction between the parties
1. CAN admit evidence of consistent additional terms to supplement the agreement
2. CANNOT admit evidence to contradict the agreement
3. §216(2): NOT completely integrated if writing omits a consistent additional agreed term
which is:
a. Agreed to for separate consideration or,
b. Such a term as in circumstances might naturally be omitted from writing
b. Exceptions → parol evidence CAN be admitted:
i. To exclude evidence offered to interpret or explain the meaning of the agreement
ii. To agreements, whether oral or written, made after the execution of the writing
29
 iii. To evidence offered to show that effectiveness of the agreement was subject to an oral condition
precedent
iv. To evidence offered to show that the agreement is invalid for any reason, such as fraud, duress,
undue influence, incapacity, mistake, or illegality
v. To evidence that is offered to establish a right to an “equitable” remedy, such as “reformation” of
the contract
vi. To evidence introduced to establish a “collateral” agreement between the parties
vii. Court must allow for parol evidence to determine parties’ intent outside the written
memorialization of agreement
1. When contract does not provide a term necessary to fulfill parties’ expectations
2. When bad faith served as a pretext for exercise of contractual right to terminate
3. When contract expressly provides party with discretion regarding its performance
c. Exceptions for Extrinsic Evidence
i. Extrinsic evidence CAN be added in order to create a more perfect understanding of contract
1. Parol evidence of a warranty is admissible on ground that warranty us collateral to
contract of sale
a. Collateral meaning “relating to distinct subject matter”
i. Court here said that the warranty here is NOT collateral because
warranty acts as one of the terms of sale and NOT a separate,
independent contract and the breach of warranty would NOT result in its
recission
d. The Corbin view (as opposed to restrictive view)
i. First looks at all the evidence to determine what evidence is relevant to the parties’ intent and the
extent of integration.
ii. After the intent of the parties has been determined, the court then applies the parol evidence rule
and excludes any evidence that contradicts or varies the meaning of the agreement
iii. Parol evidence can only be admitted unless terms are found to be AMBIGUOUS in preliminary
finding
1. At what point should a court stop considering what to admit as extrinsic evidence?
a. Needs to consider the offered evidence and must decide if language can be
reasonably susceptible to needing further examinations
i. Making moves to aid in what the intent of the parties was
ii. Must fall within scope of claim
e. Thompson v. Libby
i. Rule: Where a contract includes all that is necessary to establish the parties' rights and
obligations, it is presumed that the parties have introduced into it every material item and term;
and parol evidence cannot be admitted to add another term to the agreement.
ii. (held) The Court held that it was improper for the trial court to admit parol evidence of a
warranty. Parol contemporaneous evidence was inadmissible to contradict or vary the terms of a
valid written instrument. Because the parties deliberately put their engagements into writing in
such terms as to create a legal obligation, without any uncertainty as to the object or extent of
such engagement, it was conclusively presumed that the whole engagement of the parties, and the
manner and extent of the undertaking, was reduced to writing. There was nothing on its face to
indicate that the contract was a mere informal and incomplete memorandum. Furthermore, no
new term, forming a mere incident to or part of the contract of sale, could be added by parol
evidence.
f. Taylor v. State Farm Mutual Automobile Insurance Co.

30
 i. Rule: [SAME AS Thompson ABOVE]
ii. (held) The trial court properly considered and then admitted extrinsic evidence to interpret the
release and determine whether it included Taylor's bad faith claim. That question, in this case,
was appropriately left to the trier of fact.

SUPPLEMENTING THE AGREEMENT

I. Supplementation – one party offers extrinsic evidence to show that the contracting parties entered into an
agreement that was not expressed in the final writing
II. Implied Contract Terms
a. Implied terms
i. Implied in law – agreement by law for public policy
ii. Implied in fact – based on conduct, words in contract
iii. Illusory promise – not essentially binding, but to a reasonable man’s understanding, it could be
seen as binding
1. Want to ensure business efficacy to prevent one party being at the mercy of another
(Cardozo)
2. “Instinct with an obligation”
b. Wood v. Lucy, Lady-Duff Gordon
i. Rule: A promise may be lacking within a contract, and yet the whole writing may be instinct with
an obligation, imperfectly expressed. If that is so, there is a contract.
ii. (held) The Court held that upon examination of the contract, although plaintiff does not promise
in express terms, such a promise is fairly implied. Defendant gave an exclusive privilege and
plaintiff's promise to pay one-half of the profits and revenues resulting from the exclusive agency
and to render accounts monthly, was a promise to use reasonable efforts to bring profits and
revenues into existence, and, hence, the demurrer cannot be sustained.
c. The Implied Obligation of Good Faith
i. §205 / §1-304
ii. “Fruit of the Contract” Concept of Good Faith
1. Good faith – honesty in fact and observance of reasonable commercial standards of fair
dealing (§1-201(20)), fair dealing of the trade (§2-103(1)(b)), good faith and fair dealing
in performance and enforcement (§205)
2. Breach of good faith IF – party exercises its discretionary authority arbitrarily,
unreasonably, or capriciously, with the objective of preventing the other party from
receiving its reasonably expected fruits under contract
iii. Emanates from the fundamental notion that a party to a contract may not unreasonably
frustrate its purpose
1. Ps interest is internal to understanding of parties and good faith requires D not
exercise such discretion as it may have under the literal terms of contract to thwart
Ps expectation/purpose
2. MUST HAVE ILL MOTIVE/BAD FAITH TO MAKE THIS CLAIM
iv. Implied covenant of good faith – requires that a contracting party act in good faith when
exercising either discretion in performing its contractual obligations or its right to terminate
1. Permits the inclusion of terms and conditions which have not been expressly set forth in
written contract
a. Utilized to allow redress for bad faith performance of an agreement even when D
has not breached any express term

31
 b. Permits inquiry into a party’s exercise of discretion expressly granted by a
contract’s terms
c. Largely unaffected by parol evidence rule
d. CANNOT OVERRIDE AN EXPRESS TERM IN CONTRACT
v. Seidenberg v. Summit Bank
1. Rule: In New Jersey case law, the implied covenant of good faith and fair dealing is
applied in three general ways, each largely unaffected by the parol evidence rule: (1) the
covenant permits the inclusion of terms and conditions that have not been expressly set
forth in the written contract. The covenant acts in such instances to include terms the
parties must have intended because they are necessary to give business efficacy to the
contract; (2) the covenant is utilized to allow redress for the bad faith performance of an
agreement even when the defendant has not breached any express term; and (3) the
covenant permits inquiry into a party's exercise of discretion expressly granted by a
contract's terms.
2. (held) Ps’ claim of a breach of the implied covenant of good faith and fair dealing is not
precluded merely because the parties' possessed equal bargaining power, or because Ps
were not financially vulnerable during the contract's formation, or even if the plaintiffs
negotiated the contract with the assistance of highly competent counsel. These are factors
that the trier of fact may consider in weighing the sufficiency of Ps' claim, but they are
not the only factors. Also, it was concluded that the parol evidence rule had no impact
upon the ability of Ps to substantiate either their claim that they had a reasonable
expectation of a continued relationship (notwithstanding the expressed right of Summit to
terminate), or their claim that Summit failed to perform its contractual obligations in
good faith. And lastly, while the appropriate level of bad faith may be difficult to define
and may also vary depending upon the nature of the alleged breach and the type of
business engaged in by the parties, Ps’ allegations of bad faith and ill motives are
sufficient to survive dismissal
vi. Applications of the Good Faith Principle
1. A court may be persuaded that in order for the contract between the parties to have
“business efficacy,” it is necessary to imply terms not expressly incorporated in the
agreement. It will not imply any term that conflicts with the express terms of the parties’
agreement.
2. A court may permit a finding of breach even where no express term of the agreement has
been violated
3. To judge the appropriateness of a party’s exercise of some type of discretion expressly
granted to it by the terms of a contract
vii. Warranties - ucc
1. §2-313: Express Warranties
a. Any affirmation of fact/promise made by seller to buyer which relates to goods
and becomes part of basis of bargain
i. Any description of goods which is made part of basis of bargain creates
warranty that goods will conform to description
ii. Any sample/model makes warranty that goods will conform to
sample/model
b. It is not necessary to create an express warranty that seller use formal words such
as “warrant” or “guarantee” or have a specific intention to make warranty, but an

32
 affirmation merely of the value of goods or statement purporting to be merely
seller’s opinion or commendation of goods does not create a warranty
i. THIS IS NOT THE CASE FOR IMPLIED WARRANTY – IT
DOES CREATE A WARRANTY
2. Implied Warranties
a. §2-314: Merchantability
i. Warranty that goods shall be merchantable is implied in contract for sale
if seller is merchant with respect to goods of that kind
ii. In order to be merchantable, the goods must pass without objection of
trade
1. Reasonable public would purchase
2. Fit for ordinary purpose (no proof from Crow)
b. §2-315: Fitness
i. When a seller has reason to know any particular purpose for which goods
are required and that buyer is relying on seller’s skill/judgment to select
goods, there is an implied warranty that goods are fit for that purpose
ii. No need to show good was defective
iii. Purpose must be one other than ordinary use of good (some courts)
c. §2-316: Disclaimer of Warranties
i. Disclaimer of an express warranty is inoperative if disclaimer cannot be
construed as “consistent” with terms in contract that would create the
express warranty
1. Subject to parol evidence rule (§2-202)
a. Only when we have terms of completely integrated
contract
2. To disclaim merchantability – language must mention
merchantability and in case of writing must be conspicuous
a. Disclaimer will be effective if contract states, “There are
no warranties which extend beyond the description on
face thereof”
3. “As is” disclaimer – one should be implied to carry out section’s
purpose of avoiding surprise to buyers (no conspicuous
requirement)
a. When buyer examines goods as he desired/refused to
examine, there is no implied warranty with regards to
defect
b. Implied warranty can be excluded/modified by course of
dealing/performance/usage of trade
3. Bayliner Marine Corp. v. Crow
a. Rule: VA statute provides that, in all contracts for the sale of goods by a
merchant, a warranty is implied that the goods are merchantable. In order to
prove that a product is not merchantable, the complaining party must first
establish the standard of merchantability in the trade.
b. (held) The court held that buyer failed to establish a breach of an implied
warranty of fitness for a particular purpose because the evidence failed to show
that he made known to the sport fishing boat manufacturer the particular purpose
for which the goods were required. The evidence showed that the boat

33
 manufacturer did not know that a boat incapable of travelling 30 miles per hour
was unacceptable to the buyer.
4. Exclusion of Implied Warranties
a. Exclusion of express warranties: Words/conduct relevant to the creation of an
express warranty and words/conduct tending to negate or limit the warranty shall
be construed wherever reasonable as consistent with each other, but subject to the
parol evidence negation. If not, the limitation is inoperative to the extent that the
construction is unreasonable. §2-316.
b. It there is a conflict between the writing and the warranty, warranty wins out.

c. Exclusion of the implied warranty of merchantability: To exclude or modify

the implied warranty of merchantability, the language must mention
merchantability and in the case of a writing, must be conspicuous. §2-316.

d. Exclusion of the implied warranty for a particular purpose: Language to

exclude all implied warranties of fitness must be in writing and conspicuous. It is
sufficient if it states, “there is no warranties which extend beyond the description
on the face hereof.” §2-316.

e. Unless the circumstances indicate otherwise, all implied warranties are

excluded by the expressions like ‘as is’ or ‘with all faults’ (language that
commonly calls the buyer’s attention to exclusion of warranties and makes plain
that there is no implied warranty). §2-316.
f. If the buyer, before entering into the contract, has examined the
goods/sample/model or has refused to examine the goods, there is no implied
warranty regarding defects which would have been revealed upon examination.
§2-316.

g. An implied warranty can be excluded or modified by the course of dealings,

course of performance, or usage of trade. §2-316.

AVOIDING ENFORCEMENT
A. Infancy: Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual
duties until the beginning of the day before the person’s 18th birthday. R§14.
a. Under the common law rule, the infant can rescind the contract.
b. Where the minor has not been unduly influenced, the contract is fair and reasonable, and the minor has
paid for and used the article purchased, the minor cannot recover the amount actually paid without
allowing the vendor to recover the reasonable compensation…
o For a deduction of the minor’s use of the consider he/she received under the contract.
o For the use, depreciation, or damage to the article while it was in the minor’s home.
c. Exceptions:
i. If the infant has induced the contract based on fraud, the infancy defense cannot be used.
ii. If the infant has married, the infancy defense cannot be used.
iii. If the infant is purchasing necessities (food/clothing/shelter), the infancy defense cannot be used.
B. Lack of Mental Capacity: A person incurs voidable contractual duties by entering into a transaction if by reason
of mental illness or defect… R. §15.
· He is unable to understand in a reasonable manner the nature and consequences of the transaction and the other
party has reason to know if his condition. R. §15.
34
· He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of
his condition. R. §15.
· If the contract is fair and the other party has no knowledge of the mental illness/defect, the power of avoidance
terminates to the extent that the contract has been performed in whole/in part or the circumstances have so
changed that avoidance would be unjust. R. §15.
· NOTE: DOES NOT require proof that the party claimed mental illness or defect had a significant duration or was
permanent. Without medical/expert testimony that the mental condition interfered with the party’s understanding
of the transaction/her ability to act reasonably in relation to it, the evidence will not be sufficient to support a
conclusion of incapacity.
· Cognitive Test: Whether the person could not understand the nature and quality of the transaction or
grasp its significance.
· Volitional Test/Modern Test: Under the modern test, you ask whether the transaction is the kind a
reasonably competent person would make. The other party’s perception of the situation is also in
question- do they know of the condition pled? Under Sparrow, the court held that medical tests would
have been needed to excuse the contract, and that she, as a reasonably competent person, could have made
the deal in question.
· NOTE: DOES NOT require proof that the party claimed mental illness or defect had a significant
duration or was permanent. Without medical/expert testimony that the mental condition interfered with
the party’s understanding of the transaction/her ability to act reasonably in relation to it, the evidence will
not be sufficient to support a conclusion of incapacity.
C. Intoxication: person incurs only voidable contractual duties by entering into a transaction if the other party has
reason to know that by reason of intoxication… R. §16.
a. He is unable to understand in a reasonable manner the nature and consequence of the transaction.
b. He is unable to act in a reasonable manner in relation to the transaction.
D. Duress:
a. If conduct appearing to be a manifestation of assent by a party who does not intend to engage that conduct
is physically compelled by duress, the conduct is not effective as a manifestation of assent. R§174. (no K
formed)
b. If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the
victim with no reasonable alternative, the contract is voidable. R§175.
i. A threat is improper if… R.§176.
1. It is a crime or tort.
2. The threat is criminal prosecution.
3. The threat is the use of civil process and the treat is made in bad faith.
4. The treat is a breach of the duty of good faith and fair dealing under a contract with the
recipient.
ii. A threat is improper if the resulting exchange is not on fair terms and…
1. The threatened action would harm the recipient and not significantly benefit the
party making the threat.
2. The effectiveness of the treat inducing the manifestation of assent is significantly
increased by prior unfair dealing by the party making the threat.
3. The threat is otherwise a use of power for illegitimate ends.
c. If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is
voidable by the victim unless the other party to the transaction in good faith and without reason to know
of the duress gives value or relies materially on the transaction. R§175.
i. In Totem Marine, the court held that using a party’s dire economic situation to forge a lower deal
was a form of duress because the party only had the options of bankruptcy or agreeing.
E. Undue Influence: unfair persuasion of a party who is under the domination of the person exercising the
persuasion or who, because the relation between them, is justified in assuming that a person will not act in a
manner inconsistent with his welfare. R§177. This renders the contract voidable by the victim.
35
 1. In Odorizzi, the court found that over-persuasion usually includes several of the following…
a. Discussion of the transaction in an unusual/inappropriate time
b. Consummation of the transaction in an unusual place
c. Insistent demands that the business be finished at once
d. Extreme emphasis on the consequences of delay
e. Use of multiple persuaders by the dominant side against a single servient party
f. Absence of third-party advisors to the servient party
g. Statements that there is no time to consult with financial advisors or attorneys
2. Two circumstances when Undue Influence can be found:
a. Susceptibility due to weakness of mind
Coercive, high pressure to person in weakened spot
b. Susceptibility due to a special relationship
Fiduciary or other special relationship
F. Fraud
a. Misrepresentation: A misrepresentation is an assertion that is not in accord with the facts. R§159.
i. A misrepresentation induces a party’s manifestation of assent if it substantially contributes to
his decision to manifest assent. R§167.
ii. If a party’s manifestation of assent is induced by either a fraudulent or material
misrepresentation by the other party and the recipient is justified in relying, the contract is
voidable, unless the other party acts in good faith and without reason to know of the
misrepresentation relies materially on the transaction. R§164.
1. A misrepresentation is material if it would be likely to induce a reasonable person to
manifest his assent, or if the maker knows that it would be likely to induce the recipient
to do so. R.§162.
2. Negligent misrepresentation is an honest, but careless misrepresentation. It occurs when
a party breaches a duty of ascertaining facts.
3. Innocent misrepresentation is an incorrect, but blameless misrepresentation.
4. An opinion is an assertion that expresses a belief without certainty to the existence of a
fact or expresses a judgement as to the quality, value, and authenticity, or similar matters.
R§168.
iii. If a misrepresentation as to the character or essential term of a proposed contract induces a
manifestation of assent by one who neither knows or has reasonable opportunity to know of the
character or essential term of the proposed contract, his conduct is not effective as a manifestation
of assent. R.§163.
iv. A misrepresentation is fraudulent if the maker intends his assertion to induce a party to
manifest the assent and the maker… R.§162.
· Knows or believes that the assertion is not in accord with the facts
· Doesn’t have the confidence that he states/implies in the truth of the assertion. (can be an
opinion if false)
· Knows that he doesn’t have the basis that he states/implies for the assertion.
b. Concealment: An action intended/known to be likely to prevent another from learning a fact is equivalent
to an assertion that the fact does not exist. R§160.
c. Disclosure: A non-disclosure of a fact known to him is equivalent to an assertion that the fact does not
exist only when… R§161.
· The person knows that disclosure of the fact is necessary to prevent a previous assertion from
being a misrepresentation/fraudulent/material.
· The person knows that disclosure would correct a mistake of the other party as to a basic
assumption on which the party is making the contract and nondisclosure amounts to failure to act
in good faith and fair dealings.

36
 · The person knows that disclosure of the fact would correct a mistake of the other party as to the
contents or effect of a writing embodying an agreement in whole or in part.
· The person is entitled to know of the fact because a relation of trust and confidence between
them.
d. Cases:
i. In Strechtschulte, the court held that an opinion was a fraudulent misrepresentation when the
person lied about their opinion.
ii. In Park 100, the court held that there was a fraudulent misrepresentation when the parties signed
a document which the other party had mislead them about the contents and legal effect of the
writing.
e. An opinion is an assertion that expresses a belief without certainty to the existence of a fact or expresses
a judgement as to the quality, value, and authenticity, or similar matters. R§168.
1. If it is reasonable to do so, a person hearing an opinion as to facts not disclosed or
otherwise known to that person can interpret it as an assertion if…
a. The facts known to that person are not incompatible with his opinion
b. He knows facts sufficient to justify him in forming it
2. If an assertion is an opinion, the person hearing it is not justified in relying on it unless
the person…
a. Is in a relationship of trust and confidence with the person asserting & it’s
reasonable to rely on it.
b. Reasonably believes that the person giving the opinion has a special
skill/judgment/objectivity with the subject matter.
c. For some other reason, is particularly susceptible to a misrepresentation of the
type involved.

G. Unconscionability: Some contracts may not be enforceable because enforcing it would be too shocking to the
conscience of the court. If a term of the contract is unconscionable, the court may enforce the remainder of the

37
 contract without that term or limit the application of the term to avoid any unconscionable result. R.§208.
Basically, same under the UCC §2-302.
a. Procedural Unconscionability occurs when there is a lack of choice by one party or some other defect in
the bargaining process.
b. Substantive Unconscionability is when the terms are so one-sided that they are unfair or result in unfair
surprise.
c. You must have both, but it is a sliding scale where a lot of one makes up for less of the other.
d. Cases
· In Williams, the court held that add-on clause to contract to sell household goods to a poor
woman was unconscionable. (Add-on clause keeps a balance on all goods purchased on credit
rather than first-in-first out)
· In Higgins, the court found that a mandatory arbitration clause was unconscionable but enforced
the remainder of the contract.
· In Quicken Loans, the court found that predatory lending policies rendered provisions of a
contract to be unenforceable.
e. Factors that may indicate procedural unconscionability:
1. Inconspicuous placement of the clause in question
2. Sophistication and experience of the parties
3. The party not being given time to examine the document
f. Factors that may indicate substantive unconscionability:
1. Harsh, one-sided practices
2. Set up in such a way as to preclude the claimant from seeking relief
3. Lacking a modicum of bilaterality- one side burdened unfairly
Step One: Is this an adhesion contract? (A standardized contract that is imposed and drafted by the party of
superior bargaining strength and relegates to the other party only the opportunity to adhere to the contract or reject
it.)
Step Two: if yes, then the court must determine whether other factors are present which, under established legal
rules- legislative or judicial- operate to render it unenforceable (unconscionable provisions would fit.)
Unconscionability has both a procedural and a substantive element, the former focusing on “oppression” or
“surprise” due to unequal bargaining power, the latter on “overly harsh” or “one-sided” results. The prevailing
view is that both must be present to render the contract unenforceable, but do not have to be present to the same
degree. The more substantively oppressive, the less evidence of procedural unconscionability is required.
Step Three: Does the petition challenge the entire agreement or just part? If it truly is only part, is that part
unconscionable?

H. Public Policy and Covenants not to Compete: A term or contract can be unenforceable on grounds of public
policy if the legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed by
public policy against the enforcement. R §178.
a. In weighing the interest in enforcement, consider…
· The parties’ justified expectations
· Any forfeiture that would result if enforcement was denied
· Any special public interest in the enforcement
b. In weighing a public policy against enforcement, consider…
· The strength of the policy as manifested by legislation or judicial decisions
· The likelihood that refusal to enforce the term will further that policy
· The seriousness of any misconduct involved and the extent to which it was deliberate
· The directness of the connection between that misconduct and the term
c. A public policy against enforcement can come from legislation or the need to protect some aspect of
public welfare, like restraint of family members and interference with other protected interests. R§179.
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 d. A promise is unenforceable for public policy if it is an unreasonable restraint in trade. A promise
restrains trade when it limits competition in any business or restricts the promisor from gainful
occupation. R §186
e. If the agreement isn’t ancillary to an otherwise valid transaction or relationship, it is unreasonable. R
§187.
f. In Valley Medical, the court held that patient’s right to choose their doctor was a strong public interest
and the geographical scope, time duration, and material scope of the noncompete agreement was
unreasonable.
g. The Blue Pencil Approach can make revised agreements enforceable if a grammatically cognizable
agreement without the objectionable portions can be found by crossing out those portions.
I. Moral Hazard: Creates an incentive to act unethically because the courts will just cross
out anything unreasonable.

I. Mistake: A mistake is a belief not in accord with the facts. R§151.

a. A mutual mistake is an error of fact by both parties at the time the contract was formed as to a basic
assumption of the contract which had a material effect and the adversely effected parties does not bear the
risk of the mistake. R.§152.
i. A party bears the risk of the mistake if…
1. The contract says so (as is clauses)
2. Conscious ignorance (assumed risk)
3. Court decides so (reasonable in the circumstances)
ii. The contract is voidable by the adversely affected party.
iii. In Lenawee, the court held that the party bore the risk of the agreement because the contract
contained an ‘as is’ clause.
b. Unilateral Mistake: error of fact by one party at the time the contract was formed as to a basic
assumption of the contract which had a material effect and the adversely effected parties does not bear the
risk of the mistake. R.§153.
i. A party bears the risk of the mistake if…
1. The contract says so (as is clauses)
2. Conscious ignorance (assumed risk)
3. Court decides so (reasonable in the circumstances)
· Can be negligence on the side of the mistaken party, which could preclude relief
or tip balance in favor of the other party.
ii. AND Equity must favor relief for the mistake. This requires weighing hardship to the person
suffering the mistake against the unfairness to the other party.
iii. The effect of the mistake would render enforcement to be unconscionable
iv. The other party has reason to know of the mistake or cause the mistake.
c. Nondisclosure as an Assertion: A non-disclosure of a fact known to him is equivalent to an assertion
that the fact does not exist when… R§161.
§ The person knows that disclosure would correct a mistake of the other party as to a basic assumption
on which the party is making the contract and nondisclosure amounts to failure to act in good faith
and fair dealings.
i. The contract is voidable by the adversely affected party.
ii. In DePrince, the court held that negligence of the adversely affected party could impact their
defense for unilateral mistake.
d. Test: The following facts must be established to qualify for rescission based on mistake of fact:
1. The D made a mistake regarding a basic assumption upon which the D made the contract
2. The mistake has a material effect upon the agreed exchange of performances that is adverse to the
d
3. The d does not bear the risk of the mistake

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 4. The effect of the mistake is such that enforcement of the contract would be unconscionable
e. R154 Allocation of Risk: A party bears the risk of mistake when
a) The risk is allocated to him by agreement of the parties or
b) 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
c) The risk is allocated to him by the court on the ground that it is reasonable to do so
 Allocation of risk of mistake is really assigning responsibility for knowing the truth of the matter and
bearing the burden of ignorance.
 Who is in a better position to know the truth of the matter?
 IF 154 does not apply => R157

J. Impossibility (Death or destruction)

B. People: If the existence of a particular person is necessary to perform a duty, his death/incapacity makes
performance impracticable is an event, which the nonoccurrence was a basic assumption on which the
contract was made. R§262.
C. Things: If the existence of a specific thing is necessary to perform a duty, its nonexistence, destruction or
deterioration which makes performance impracticable is an event, which the nonoccurrence was a basic
assumption on which the contract was made. R§263.
D. Cases: In Taylor, the court held that a party was not discharged from contractual obligations when the
music hall being rented out burnt down.
E. Goods: If the contract requires goods identified when the contract was made, and the goods are destroyed
without fault of either party before the risk of loss passes to the buyer…
· If the loss is total, the contract is avoided
· If the law is partial or the goods have deteriorated so badly that they no longer conform to the
contract, the buyer can demand inspection and decide whether to avoid the contract or accept the
goods with a discount for the deterioration/deficiency in quantity but without further right against
the seller.
F. UCC: Under §2-613, if the contract requires for performance goods identified when the contract is made,
and the goods suffered casualty without the fault of either party before the risk of loss passes to the
buyer…
· If the loss is total, the contract is avoided.
· If the loss is partial or the goods have been deteriorated so that they no longer conform to the
contract, the buyer can treat the contract as avoided or accept the goods with allowance from the
contract price for the deterioration/deficiency, but without further right against the seller.

K. Impracticability (Unduly Burdensome)

1. After a contract is made, if a party’s performance is made impracticable without his fault by the
occurrence of an event, the nonoccurrence of which is a basic assumption the contract was made, the
party’s duty to render that performance is discharged unless there is language or circumstances indicating
the contrary. R§261. Generally, decreased profits will not be enough.
· In Hemlock v. Sachsen, the court found that market shifts were not enough to warrant an
adjustment to the contract and surrounding terms.
2. UCC: Except when the seller assumed a greater obligation… §2-615.
i. Delay in delivery or non-delivery in whole/in part by a seller is not in breach of his duty if
performance as agreed is impracticable by the occurrence of a contingency, the nonoccurrence of
which is basic assumption of the contract.
· If the causes only affect a part of the seller’s capacity to perform, the seller must
allocate production and deliveries among his customers in any manner which is
fair and reasonable.
40
 ·
The seller must notify the buyer seasonably that there will be a delay or non-
delivery, or the estimated quota if allocation is required.
ii. Where the buyer receives notice of material/indefinite delay or an allocation justified under §2-
615, and where the prospective deficiency substantially impairs the value of the whole contract…
§2-616.
· The buyer can terminate and discharge the unexecuted portion of the contract
· Modify the contract by agreeing to take his available quota in substitution
L. Frustration of Purpose (Pointless)
1. After a contract is made, if a party’s principal purpose is substantially frustrated without his fault by the occurrence of
an event the nonoccurrence of which was a basic assumption of the contract, his remaining duties for performance are
discharges unless language or circumstances indicating contrary. R§265.

· The reason of the bargain goes away. This doctrine only applies if the primary purpose of the
contract is frustrated.
· In Mel Frank Tool, the court held that the inability to store hazardous waste was not the primary
purpose of the lease and the lessor still received value from the lease, so frustration of purpose
did not apply.

JUSTIFICATION OF NONPERFORMANCE

I. Modification
a. Consideration
i. §89: Promise modifying a duty under contract not fully performed on either side is binding if
1. Modification is fair and equitable in view of circumstances not anticipated by parties
when contract was made
a. To extent provided by statute
b. To extent that justice requires enforcement in view of material change of position
in reliance on promise
ii. §2-209: Agreement modifying a contract within this Article needs no consideration to be binding
1. Requirements of statute of frauds section of Article (§2-201) must be satisfied if contract
as modified is within its provisions
2. Parties can both agree to rescind agreement, but courts avoid because it can still involve
coercion for doing so
b. Writing
i. A written contract can be modified orally
ii. The modification must be in writing if the contract as modified, fall within the statute of frauds
iii. Under common law, parties can orally modify the contract EVEN IF the written contract
expressly provides that it may only be modified by writing
c. Parol evidence is admissible to show subsequent oral modifications of a written contract
d. Pre-existing duty rule – if a party to a contract is under a pre-existing duty to perform, then no
consideration is given for any modification of the contract and the modification is therefore voidable
e. Courts generally require that a modification be supported by new consideration on both sides, even if very
minimal or slight
i. Exceptions:
1. Unforeseen circumstances – a promise of modification is binding if “fair and equitable
in view of circumstance not anticipated by the parties when the contract was mad”
2. Reliance – to perform as originally promised might constitute such reliance as would
satisfy §89
3. Mutual release – both sides agree to terminate the contract

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 f. R2D Cases:
i. Alaska Packers’ Association v. Domenico
ii. Rule: A promise to pay a person for doing that which he is already under contract to do is
without consideration.
iii. (held) The court held that the later contract was not supported by adequate consideration because
the fishermen were already contractually obligated to perform the specified services and therefore
the later contract that was merely a demand for more compensation.
g. UCC: Under UCC §2-209, an agreement modifying a contract needs no consideration to be binding.
 Between a merchant and non-merchant, when no oral modification is permitted, form supplied by
merchant must be signed by the nonmerchant. (No oral agreements clauses are ok)
 The statute of frauds must be satisfied.
 If the above are not satisfied, the attempt to modify may work as a waiver.
 Waiver can be retracted on notice, unless material change by other party in reliance on waiver.
 If an attempt at modification or rescission doesn’t satisfy the requirements, it can operate as a
waiver.
 A party who has made a waiver can retract the waiver by reasonable notification received by the
other party that strict performance will be required of the term unless the retraction would be
unjust due to material change of position in reliance of the waiver.
h. The modifications must be in good faith.
i. UCC Cases:
i. In Brookside, the court held the changes to the basil and price changes were enforceable despite
the NOM clause and modifications didn’t comport with the S of F because the party waived.
ii. In Kelsey-Hayes it was found that you cannot frustrate/ adjust a contract when there is an
inbalance of power. You can also reserve rights to a particular form of a contract under UCC §1-
308

CONSEQUENCES OF NONPERFORMANCE

I. Express Conditions
a. Express conditions – designed to protect one or both parties against various types of risk, involving the
possibility that performance will be less advantageous than hoped for, or will be more difficult or even
impossible in ways that might not otherwise offer an excuse from liability for nonperformance
i. Condition – an event, not certain to occur, which must occur before performance under a
contract becomes due (§224) Performance of a duty subject to condition cannot become due
unless the condition occurs or the non-occurrence is excused. Non-occurrence of a condition is
not breach by a party unless he is under a duty that the condition occur. Unless the non-
occurrence of the condition is excused, the non-occurrence of the condition discharges the other
party’s duty to perform. R. §225.
1. Types of conditions – condition precedent, condition subsequent, concurrent conditions
2. Rationale
a. Consideration of justice – mainly forfeiture
b. Intent/expectations of parties – particularly the nonbreaching party
c. Good faith/willfulness of conduct of breaching party
ii. Must be literally performed or satisfied; substantial performance will NOT suffice
1. Substantial performance doctrine – allows a court to imply a term that allows a partial
or substantially similar performance to stand in for the performance specified in the
contract (§237)
iii. Will not be found if there is another reasonable interpretation
iv. Condition fails to occur → the duty never arises → nonperformance is justified

42
 v. A condition can be created by agreement between the parties or by a term supplied by the court.
R. §226.
vi. If nonoccurrence of the condition excused, the obligator’s failure to perform can become breach
because the conditional duty becomes an unconditional duty.
b. An implied condition is one that is read into the contract by the court. It is a condition that is not
expressly listed but is a condition that is necessarily there. Exact performance of the condition is not
required. The condition only needs to be substantially performed, meaning that close is good enough.
c. In determining whether an event is an express or implied condition, an interpretation for an implied
term is preferred when possible to avoid the obligee’s risk of forfeiture, unless the event is within the
obligee’s control or the obligee has assumed the risk. R.§227.
d. A party can waive a condition that is for that party’s benefit.
e. Condition vs. Promise
i. Condition
1. Requires strict compliance
2. If a condition fails, the obligor is discharged from further obligations
3. Express condition – material and required in contract through writing, so breach of
condition would justify a discharge of duties
a. TAKEAWAY – one party’s duty to perform is conditioned on there being no
uncured material failure to perform on other party’s part
b. Trivial defects may not always be breach of condition that may lead to
forfeiture/discharge of obligations
4. Implied/construed condition - not written in contract, but rather assumed/implied
ii. Promise
1. Generally, requires only “substantial performance”
2. The breach of a promise does not necessarily discharge the obligor and may only give
rise to a claim for damages for breach of the promise
3. Types of promises (Cardozo)
a. Truly independent (not conditioned on each other)
b. Dependent (plainly conditioned on each other)
c. Promises are dependent/conditioned, but when department is insignificant,
treated as independent
f. Constructive conditions – judicially created devices used to determine consequences of breach when
parties failed to spell out agreement
i. Traditional types of covenants
1. Mutual and independent
2. Conditions and dependent
3. Mutual conditions performed at the same time
ii. §236: Revised Version
1. Express
2. Implied-in-fact
3. Constructive conditions
iii. §234: Duties Performed at Same Time (subject to change by contract)
1. Due on the same time
2. Longer period must be completed before start of shorter period
3. Must show ability to maintain performance
g. Equity relieves against forfeitures of valuable lease terms when default in notice has not prejudiced
landlord
i. Waiver (§84): intentional relinquishment of known right
1. Effective without consideration and/or reliance only if condition waived was not material
part of risk assumed

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 ii. Prevention (§245): condition excused if promisor wrongfully hinders performance from
occurring
iii. Forfeiture (§229(b)): loss, giving up of something as a penalty for wrongdoing
1. Denial of compensation that results when obligee loses his right to agreed exchange after
he was relied substantially, as by preparation/performance on expectation of that
exchange
2. Appropriate basis for excusing condition if its non-excuse would result in harsh
deprivation of rights to one party and windfall to other
iv. Estoppel - reliance on manifestation on intention/representation
1. Non-occurrence of express condition alleviates other party from compliance,
therefore discharging duty
iii. Divisibility (§240): must be able to apportion performances among parties AND performances
must be agreed equivalents
iv. When it is a condition on the obligator’s duty is his satisfaction with the obligee’s performance
or something else, an interpretation is preferred which the condition occurs if a reasonable person
in the position of the obligator would be satisfied. R.§228.
v.
h. Oppenheimer & Co. v. Oppenheim
i. Rule: A condition precedent is an act or event, other than a lapse of time, which, unless the
condition is excused, must occur before a duty to perform a promise in the agreement arises.
Most conditions precedent describe acts or events which must occur before a party is obliged to
perform a promise made pursuant to an existing contract, a situation to be distinguished
conceptually from a condition precedent to the formation or existence of the contract itself. In the
latter situation, no contract arises "unless and until the condition occurs"
ii. (held) The court reversed the judgment, granted summary judgment in favor of the obligor, and
dismissed the complaint. The court found that substantial performance had no application to the
dispute. The parties' letter of agreement unambiguously established an express condition
precedent rather than a promise. The sophisticated parties dealt at arm's length and there was no
reason to relieve the consequences of their bargain. The court further held that the issue of
whether there had been substantial performance was not for the jury but the judges of the law.
i. Jacob & Youngs, Inc. v. Kent (laying pipe)
i. Rule: The courts never say that one who makes a contract fills the measure of his duty by less
than full performance. They do say, however, that an omission, both trivial and innocent, will
sometimes be atoned for by allowance of the resulting damage, and will not always be the breach
of a condition to be followed by a forfeiture. The distinction is akin to that between dependent
and independent promises, or between promises and conditions.
ii. (held) The Court held that plaintiff's omission of the specified pipe was neither fraudulent nor
willful, and the plaintiff was ready to present evidence proving that the pipe used was essentially
identical to the specified pipe. Thus, plaintiff was due payment for substantial performance with
compensation for the trivial defect
j. In eXXco, the court found that there was no forfeiture when the party’s retained ownership of the things,
but the market only rendered them less valuable.
k. In JNA Realty, the court held that there was forfeiture because the parties’ invested in the restaurant
which would be a dead loss.

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II. Material Breach- Common Law
a. When does a breach occur?
i. When there is a shortcoming of performance when condition is due
ii. Must ascertain whether breach is material; if it is – injured party can at least suspend performance
until there is a cure
1. Anticipatory repudiation – clear manifestation of intent that party will not perform the
contract of date of performance
a. Intent must be clear and unequivocal
b. Doubtful and indefinite statements that performance may not take place are not
enough
b. Partial breach
i. “Loss in value” breach (unpaid portion of contract)
ii. Builder freed from necessity of expending whatever additional sums it would have cost to
complete performance (“cost avoided”)
iii. May be able to recover some expenditures already made (“loss avoided”)
1. Deducted from aggregate loss suffered in order to compute P’s net recovery
c. Total breach is a claim for damages based on all of the injured party’s remaining rights to performance.
R.§236.
i. Material, incurable/uncured breaches are total.
d. The doctrine of constructive conditions
i. “Constructive conditions” are judicially created devices, used to determine the consequences of
breach when the parties have failed to spell that out in their agreement
ii. Provides an analytic framework for the courts in various cases where one party claims he did not
yet have a duty to perform because of the other party’s failure to render his performance
iii. §226 divides conditions into 3 categories:
1. Express conditions
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 2. Implied-in-fact conditions (inferred from the conduct of the parties)
3. Constructive conditions (created by a court for reasons of justice)
iv. §234
1. If performances cannot be rendered at the same time, the performance requiring the
longer period of time must be rendered before the performance requiring the shorter
period of time will be due
2. Contracts for the conveyance of land or for the sale of goods are viewed by the law as
bring capable of simultaneous performance; absent agreement otherwise, they will be
construed as calling for simultaneous rendition of performances
3. It will thus be necessary for either party to such a contract to show that he has at least
tendered performance on his part, in order to maintain an action for breach against the
other party
v. §2-507: Tender of delivery a condition to buyer’s duty to accept and pay for goods
vi. §2-511: Tender of payment a condition to seller’s duty to deliver
e. §241: In determining whether a failure to render/to offer performance is material, the following
circumstances are significant:
i. The extent to which the injured party will be deprived of the benefit which he reasonably
expected;
ii. The extent to which the injured party can be adequately compensated for the part of that benefit
of which he will be deprived;
iii. The extent to which the party failing to perform or to offer to perform will suffer forfeiture;
iv. The likelihood that the party failing to perform or to offer to perform will cure his failure, taking
account of all the circumstances including any reasonable assurances;
v. The extent to which the behavior of the party failing to perform or to offer to perform comports
with standards of good faith and fair dealing

f. §242
i. The extent to which it reasonably appears to the injured party that delay may prevent or hinder
him in making reasonable substitute arrangements;
ii. The extent to which the agreement provides for performance without delay, but a material failure
to perform or to offer to perform on a stated day does not of itself discharge the other party's
remaining duties unless the circumstances, including the language of the agreement, indicate that
performance or an offer to perform by that day is important
g. §250: Anticipatory repudiation is: 2-610
i. Statement by obligor to obligee indication that obligor will commit breach that would itself give
obligee a claim for damages for total or;
ii. Voluntary affirmative act which renders obligor unable or apparently unable to perform without
such a breach
iii. Retraction
1. May retract unless other party gives notice that it has accepted repudiation or;
2. Unless other party has relied on it in some way;
3. Treats repudiation as breach by bringing suit against repudiating party
iv. TAKEAWAY: If party has reasonable grounds to believe that other party will not perform under
contract, that party may demand adequate assurance of performance from other; failure to provide
such assurance is treated as repudiation of contract (UCC → 30 days; common law → reasonable
time)
v. When either party repudiates the contract with respect to a performance not yet due the loss of
which will substantially impair the value of the contract to the other, the aggrieved party may
(a) for a commercially reasonable time await performance by the repudiating party; or

46
 (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified
the repudiating party that he would await the latter's performance and has urged retraction; and
(c) in either case suspend his own performance or proceed in accordance with the provisions of
this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage
unfinished goods
h. Possible application of rules governing express conditions
i. (MAJORITY RULE) If the contractor’s right to receive payment is expressly conditioned on the
issuance of the architect’s certificate, the condition will be strictly enforced and the contractor
denied recovery unless the contractor shows some ground for excuse of the condition such as
fraud, bad faith, or waiver
i. Principle of substantial performance
i. Each party’s duty of performance is implicitly conditioned on there being no uncured material
failure of performance by the other party
ii. Minor or immaterial deviations from the contractual provisions do not amount to failure of a
condition to the other party’s duty to perform
iii. Applies to all types of agreements, not just to construction contracts
iv. One aspect of the doctrine of constructive conditions
v. Where there is substantial performance, a party can recover an allowance for the difference
between the value of what was actually performed and what was contracted for. The parties
are not discharged from their duties. We assume that the parties are acting reasonably.
There is a defect in performance that is not material.
vi. Substantial performance and material breach are mutually exclusive.
vii. In Jacobs Youngs (laying pipe), the court found that there was substantial performance when the
party built the home, but used the wrong brand of pipes which were the same kind as the ones in
the contract.

j. Effect of willful breach

i. A willful breach does not automatically bar recovery, but the motive of the breaching party is to
be a factor considered in determining whether performance was substantial
k. Other grounds for recovery: restitution and divisibility
i. Restitution
1. Most courts will allow a contractor that has committed a material breach to recover
restitution (quantum meruit) for the reasonable value of its services, less any harm
resulting from the breach
ii. The doctrine of divisibility
1. Elements
a. It must be possible to apportion the performances of the parties into
corresponding pairs of part performances
b. It must be proper to treat these pairs of part performances as “agreed equivalents”
2. Designed to protect the expectations of the contracting parties
l. Sackett v. Spindler
i. Rule: Whether a breach of contract is total or partial depends upon its materiality. In determining
the materiality of a failure to fully perform a promise the following factors are to be considered:
(1) The extent to which the injured party will obtain the substantial benefit which he could have
reasonably anticipated; (2) the extent to which the injured party may be adequately compensated
in damages for lack of complete performance; (3) the extent to which the party failing to perform
has already partly performed or made preparations for performance; (4) the greater or less
hardship on the party failing to perform in terminating the contract; (5) the willful, negligent, or

47
 innocent behavior of the party failing to perform; and (6) the greater or less uncertainty that the
party failing to perform will perform the remainder of the contract.
ii. (held): The Court affirmed the trial court as to liability and concluded that the letter which
seller’s attorney wrote to the buyer's attorney, which stated that there would be no sale as a result
of P’s delay in performing the contract did not constitute an unlawful repudiation of the contract
and was not a breach of the contract by the seller. Thus, it did not discharge buyer's duty to
perform the contract or, alternatively, to respond to seller in damages. As to damages, the court
found that the trial court applied the appropriate measure of damages for breach of a contract to
accept and pay for the stock: the difference between the contract price and the market price at the
time and place of delivery. The court modified the damages award by deleting the award of
interest.
Material Breach UCC:
A. Under §2-507, tender of delivery is a condition to the buyer’s duty to accept goods and his duty to pay for
them. When payment is due on delivery, the buyer’s rights against the seller is conditional on making the
payment.

B. Under §2-511, unless otherwise agreed, the tender of payment is a condition to the seller’s duty to tender and
complete delivery. Tender of payment is sufficient by any means or manner in the ordinary course of
business.

C. Cure: Under §2-508, If any tender or delivery is rejected because it is nonconforming and time for
performance has not expired, the seller can seasonably notify the buyer of his intention to cure and make a
conforming delivery within the contract time.
D. If the buyer rejects 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 further
reasonable time to substitute a conforming tender.

E. Perfect Tender Rule: Under §2-601, if the goods or tender of the delivery fail to conform to the contract, the
buyer can reject in whole, accept in whole, or accept some and reject the others. The rejection must be within
a reasonable time of their delivery or tender, and it is ineffective unless the buyer seasonably notifies the
seller. Any exercise of ownership over the goods by the buyer after rejection is wrongful, and the buyer must
take reasonable care of the goods if the buyer has possession for a time sufficient for the seller to take them.
§2-602.

F. Buyer’s Duties: Under §2-603, the merchant buyer has a duty to follow any reasonable instruction received
by the seller, and in the absence of those instructions, must make reasonable efforts to sell them if they are
perishable for the seller’s accounts. Buyer is entitled to reimbursement for reasonable expenses in caring and
selling the goods as well as commission that is usual in the trade. The buyer must act in good faith. Under §2-
604, if the seller gives no instruction within a reasonable time after notification of rejection, the buyer can
reject goods for the seller’s account, reship them, or resell them with reimbursement for reasonable expenses
in caring and selling the goods as well as commission that is usual in the trade.

G. Under §2-606, acceptance of goods occurs when the buyer…

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 After reasonable opportunity to inspect signifies to the seller that the goods are conforming/retain them in
spite of their nonconformity
 Fails to make an effective rejection
 Does any act inconsistent with seller’s ownership

H. Acceptance of a part is acceptance of the whole.

I. Under §2-607, the buyer must pay at the contract rate for any goods accepted.

J. Under §2-612, an installment contract is a contract that requires the delivery of goods in separate lots to be
separately accepted, even though the contract contains a clause that ‘each delivery is a separate contract’.
 The buyer can reject a nonconforming installment if the non-conformity substantially impairs the value of
the installment and cannot be cured.
 Whenever the non-conformity substantially impairs the value to the contract as a whole, there is a breach
to the whole.
 The injured party reinstates the contract if he accepts a non-conforming installment without seasonably
notifying of cancellation or if he brings an action in respect to past installments or demands performance
of future installments.
K. Anticipatory Repudiation UCC:
a. Adequate assurance:
i. Under §2-609, a contract imposes an obligation on each party that the other’s expectation of
performance will not be impaired. When there are reasonable grounds for insecurity, the other
party may demand adequate assurance of performance in writing and until he receives such
assurance and if it is commercially reasonable, he can suspend any performance for which he
has not already received the agreed return.
ii. Between merchants, the reasonable of grounds for insecurity and adequacy of assurance is
determined by commercial standards.
b. Prior to performance:
i. Under §2-610, if a party repudiates a contract where performance is not yet due and the
loss will substantially impair the value of the contract to the other, the injured party
can…
1. For a commercially reasonable time, wait for performance.
2. Resort to remedies even though he has notified the repudiating party that he
would await performance and urge retraction (sue for breach)
3. Suspend his own performance or proceed under §2-704.
c. Retraction of repudiation
i. Under §2-611, until the repudiating party’s performance is due, he can retract his repudiation
unless the injured party has materially changed his position or otherwise indicated that he
considers the repudiation to be final.
ii. Retraction may be executed through any method that clearly indicates that the repudiating
party intends to perform and must include any assurance justifiably demanded under §2-209.
iii. Retraction reinstates the repudiating party’s rights under the contract with allowance and
excuse to the injured party for any delay by the repudiation

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Remedies

Formula for calculation of expectation damages §347

General Measure = loss in value + other loss – cost avoided – loss avoided

 Loss in value & Other loss → Adverse to the injured party and therefore increase damages
 Cost avoided & Loss avoided → Beneficial to the injured party and therefore decrease that party’s damages
 Mitigation of damages → P may NOT recover damages for injurious consequences of D’s breach that P could
have avoided
o Aka - “avoidable damages”
o Not seen as general rule itself, but rather a limit on ability to recover

What does the non-breaching party receive?

→ Difference in value between what was promised and what was received.
→ The difference between the value to the injured party of the performance that should have been
received and the value to that party of what, if anything, actually was received
→ Depends on the circumstances of the injured party or those of that party’s enterprise
Direct
Purpose: Direct damages compensate the non-breaching party for the loss of the value of the
Damages
promised performance.
(loss in
value)
Different ways to restate and/or calculate direct damages:
→ Additional expense of obtaining a replacement, completing performance, or correcting
performance
→ The profit that would have been earned had the contract been fully performed

Indirect What: Additional costs and losses caused by the breach and mitigating the breach. Party is also
Damages entitled to recovery, subject again to limitations such as that of unforeseeability:
(other → Damages must be reasonably foreseeable;
losses) → Damages must be proven with reasonably certainty; and
→ Damages may not be recovered to the extent that they could have been avoided or

50
 minimized by reasonable efforts

Purpose: compensate the non-breaching party for secondary losses resulting from the breach

Two types of indirect damages:

o Incidental → include additional costs incurred after the breach in a reasonable attempt to
avoid loss, even if the attempt is unsuccessful (i.e., extra cost incurred by non-breacher in
dealing w breach or mitigating losses from breach).
o Do NOT include attorneys’ fees UNLESS provided for in the parties’ contract
o Ex: Costs incurred in dealing with defective goods or services
▪ Shipping or reselling defective goods
▪ Boarding up and paying extra insurance on a building left unfinished by a
contractor
o Ex: Costs incurred in attempting to secure substitute performance
▪ Paying a broker to find a substitute buyer after a prospective purchaser backs
out
▪ Spending employee time negotiating a replacement contract with a new party
o Consequential (“Ripple effect”) → loss of opportunity to make gains in transactions that are
dependent on underlying contract being performed; damages to person/property that is
consequence of breach of contract.
o Include such items as injury to person or property caused by the breach
o §351 / §2-715(2) Damages foreseeable:
o Damages are not recoverable for loss that party in breach did not have reason to
foresee as probable result of breach when contract was made
o Loss may be foreseeable as probable result of breach because it follows breach
o Factors:
→ depends on knowledge at time of breach
→ only necessary to be foreseeable NOT the manner in which the loss occurs
→ focus is on breaching party
→ objective standard
→ probable reason
o Ex: Consequential damages suffered primarily by businesses
o Lost profits / customers / business volume / downstream breaches
o Ex: Consequential damages suffered primarily by consumers
o Property damage or personal injury resulting from defective performance / Lost
income
o Limitation: Recoverable only if FORESEEABLE!
o Routinely “Disclaimed” in Contracts

→ Expenses that the non-breaching party did not have to incur because performance stopped early.
Costs → The breach may have a beneficial effect on that party by SAVING it the further expenditure that
avoided would otherwise have been incurred.

→ Losses that the aggrieved party would have suffered but was able to prevent/avoid because of its
own mitigation efforts or other circumstances.
Losses
→ The breach may have a further beneficial effect on that party by allowing it to avoid some loss
avoided
by salvaging and reallocating some or all of the resources that otherwise it would have had to
devote performance of the contract

I. Purpose → to put the aggrieved party in position it would have been in had the contract been completed
II. General rule
a. Specific performance is limited to certain situations when money is deemed incapable of adequately
compensating P
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 b. Generally invoked for things like land or specially manufactured goods
c. Courts favor money damages to best avoid violations of 13th Amendment (involuntary servitude)
III. Three basic interests that the law may seek to protect remedies for breach of contracts:
a. Restitution Interest (presents the strongest case for relief)
i. P has in reliance on the promise with D, conferred some value on D
ii. D fails to perform his promise
iii. Court may force D to disgorge the value he received from P
iv. Purpose → to prevent unjust enrichment
b. Reliance Interest
i. P has, in reliance on the promise with D, changed his position
ii. Court may award damaged to P for the purpose of undoing the harm which his reliance on D’s
promise has caused him
iii. Purpose → to put P in as good a position as he was in before the promise
c. Expectation Interest
i. May seek to give the promisee the value of the expectancy which the promise created
ii. May compel D to render the promised performance OR make D pay the money value of the
performance
iii. CONSIDER (§352(a)) → (1) foreseeability, (2) causation, (3) certainty, and (4) mitigation
1. Mitigation: Damages are not recoverable if the injured party could have avoided the loss.
However, a party is not precluded from recovery if the party has made reasonable, but
unsuccessful efforts to avoid loss. R. §350.
2. Foreseeability: Damages are not recoverable for loss that the breaching party did not
have reason to foresee as a probable result of breach when the contract was formed. A
loss may be foreseeable if it follows from the breach in the ordinary course of events or if
the party had reason to know of it. R. §351.
iv. Purpose → to put P in as good a position as he would have occupied had D performed the
promise
v. Exceptions:
1. Nonpayment of money
2. Not making good title
IV. Interest
a. Prejudgment – when P is successful in recovering judgment
i. Discretionary
ii. Good faith controversy does not preclude prejudgment interest
b. Postjudgment - under local law, will accrue with respect to that amount from date of entry/verdict
V. Liquidated sum – When both amount due and date on which such amount is due are fixed and certain or when
same become definitely ascertainable by mathematical calculation
VI. Both facts and amount of damages MUST BE BASED ON REASONABLE CERTAINTY
a. Prohibition on speculative damages (unreasonable certainty)
i. However, courts want to protect new businesses because they do have an understandable
uncertainty of loss of profits because of their infant nature
1. Known as the “new business rule”
2. PURELY SPECULATION
b. Duty to mitigate damages (no recovery if they could have been minimized/avoided)
i. Applied to both partial and total breach claims
ii. Tacit Agreement Test (Epstein)
1. Party assumed consciously the liability
a. If specified amount is in contract, follow
b. If contract is silent, defer to what parties would have reasonably agreed upon
iii. Alternative to Tacit Agreement Test (Eisenberg)

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 1. Damages for proximate cause, subject to contractual allocation of risk and principles of
fair disclosure of limitations
c. Roesch v. Bray
i. Rule: Generally, under Ohio law, when a purchaser defaults upon a contract for the sale of real
estate, the seller may recover the difference between the contract price and the market value of
the property at the time of the breach.
ii. (held) The court held that the lower court erred in restricting Ps’ award to consequential damages
and failing to include the expectancy damage amount. The court also held, however, that the
lower court erred in awarding Ps damages for the costs of holding the property for resale and
interest
d. Measure of damages for breach of real estate contracts
i. Damages for the loss of bargain are ordinarily calculated as the difference between the contract
price and the market value of the property at the time of breach
1. IF PURCHASER BREACHED - Seller must show that the property value > market value
a. English rule – restricted P to restitution of any payment made on purchase price,
unless D breached on bad faith
b. American rule – P can be awarded expectation damages for unexcused failure to
convey, regardless of good/bad faith
i. UNLESS NONPERFORMANCE FALLS WITHIN EXCUSED
CATEGORY, EXPECTATION REMEDY WILL ENSUE
2. IF SELLER BREACHES – Purchaser must show that the market value > property value
ii. Property owner and/or real estate “experts” may testify as to the market value
VII. Types of damages usually denied to P in ordinary actions at common law for breach of contract
a. Attorney fees
i. Prevailing party clause
b. Punitive damages
i. §355 - punitive damages not recoverable for breach of contract unless conduct constituting breach
is also a tort for which punitive damages are recoverable
ii. Goal → put P in place of where they would be had contract been completed, not to punish D for
breaching
c. Mental/emotional distress (pain and suffering, or the like)
i. §353 - recovery for emotional disturbance will be excluded unless
1. Breach caused bodily harm
2. Contract/breach of contract is such a kind that serious emotional disturbance was
particularly likely result
VIII. Restrictions
a. Damages
i. General/direct - arise naturally from contract
ii. Special/consequential – communicated special circumstances
b. Mitigation of Damages (Minimization)
i. Cost avoided
ii. Loss avoided
c. Doctrine of “Avoidable Consequences” – P may not recover for those injurious consequences of D’s
breach that P herself could by reasonable action, have avoided
i. P does not have right to pile up damages after amounting breach and can only sue for damages
that would have incurred and/or loss of profit
ii. No right to pile up damages after notice of repudiation
iii. If work is done and contract is repudiated before work started, it is inflicting damage on D
without benefit to P to allow latter to insist on proceeding with contract

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 1. Damages awarded – expenses incurred for unreimbursed labor/materials at time of
breach, not those added after
d. §350: (1) Except as stated in Subsection (2), damages are not recoverable for loss 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.
e. Hadley v. Baxendale
i. Rule: That consequential damages will not be awarded unless the defendant was put on notice of
the special circumstances.
ii. (held) The court held that the lost profits were not a proper item of damages, because “in the
great multitude of cases of millers sending off broken shafts to third persons by a carrier under
ordinary circumstances, such consequences (the stoppage of the mill and resulting loss of profits)
would not, in all probability, have occurred; and these special circumstances were here never
communicated by the plaintiffs to the defendants”
TOTAL BREACH FORMULA: loss of value + other loss - cost avoided – loss avoided.
PARTIAL BREACH FORMULA: loss of value + other loss
SPECIFIC PERFORMANCE: Specific performance requires that the duties of the contract be performed
instead of awarding damages when justice requires. R.§358. Specific performance will often be rendered when
the contract involves the sale of the land because land is unique.
 It will not be awarded if damages would adequately protect the injured party’s expectation
interest. The adequacy of damages does not preclude specific performance to the contract as a
whole. R.§359.
 Specific performance will not be enforced if the contract is a promise to render personal
services. R.§367.
 Specific performance will not be granted if it would be against public policy. R.§365.
UCC Damages:
UCC: Waiver: Under 1-306, a claim arising out of an alleged breach may be discharged in whole or in part without
consideration by agreement of the injured party in an authenticated record.

UCC Seller’s Damages

Under §2-706, the seller can recover damages for the difference in the contractual price and the resale price plus
incidental damages minus costs avoided.
The seller is obligated to have a competitive resale in good faith.
If there is no competitive resale or any resale, under §2-708, the seller can recover for the difference in the contractual
price and the market price of the goods plus incidentals minus costs avoided.
Under §2-708, the seller can recover for loss volume. The seller must prove that they would have sold the resale goods
even if the contract with the buyer went through. Thus, the seller can recover for the goods which were in breach as well
as the sale of the additional goods thereafter. Entitled to damages because resold goods for same contractual price, suing
for lost profits from “I believe in Santa.”

UCC Buyer’s Damages

Cover Price Differential: Under §2-712, after breach, the buyer can cover by making in good faith/without reasonable
delay any reasonable purchase/contract to purchase goods in substitution with the goods due from the seller. The buyer
can recover the difference between the cost of coverage and contract price as well as incidental or consequential damages.
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Market Price Differential: Under §2-713, the measure for buyer’s damages for non-delivery or repudiation by the seller
is the difference between the market price at the time the buyer learned of breach and the contract price as well as
incidental and consequential damages.
Accepted Goods: Under §2-714, the buyer can recover damages for non-conformity of tender the loss resulting in the
ordinary course of events from the seller’s breach determined in any reasonable manner.
The measure for breach of warranty is the difference at the time and place of acceptance between the value of the goods
accepted and the value that they would have been if they had been warranted—unless there are special circumstances.
In proper cases, incidental and consequential damages may be recovered.
Consequential and Incidental Damages: Under §2-715, incidental damages include expenses reasonably incurred in
inspection’ receipt, transportation, care, custody of goods rightfully rejected; any commercially reasonably charges;
expenses or commissions in connection with effecting cover, and any other reasonable expenses incident to delay or other
breach.
Under §2-715, consequential damages include any loss resulting from general or particular requirements/needs that the
seller had reason to know and could not be prevented by cover; or injury to person or property resulting from a breach of
warranty.
Specific Performance: Under §2-716, specific performance can be granted where the goods are unique or in other proper
circumstances. This may include enforcement of terms and conditions such as the payment of price, damages, or other
relief.
A buyer has the right to replevin for goods identified to the contract if, after reasonable effort, he is unable to cover the
goods or circumstances reasonably indicate that such effort will be unavailing.

Primary Differences Between UCC and Common Law Contracts

 Contract Terms
o Common law → the offer, nature of work, price, quantity, and performance must be included in the
contract
o UCC → only requires quantity to be included (does not need price)
 Mailbox Rule
o Common law → follows
o UCC → does NOT follow
 Acceptance
o Common law → Mirror Image Rule
o UCC → Only change that affect the contract materially have an impact (§2-207)
 Performance
o Common law → provides more flexibility under the substantial performance doctrine
o UCC → Buyers can insist on exact performance
 Delivery
o Common law → substantial performance
o UCC → Perfect tender rule (§2-601)
 Discharge of Contract
o Common law → contracts can be discharged ONLY if a party has died or the subject matter of the
contract is destroyed
o UCC → contracts can be discharged ONLY because of impracticability

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 Privity
o Common law → requires privity of contract to sue
o UCC → does NOT require privity of contract to sue
 Contracts Held Open
o Common law → [Option contract]
 Requires consideration
o UCC → [Firm offer]
 Irrevocable if made in writing
 Does not require consideration
 Cannot be held open for longer than 3 months UNLESS explicitly stated in the contract
 Statute of Frauds
o Common law → executor-administrator, suretyship, marriage, land contract, one-year
 Exceptions: admission, promissory estoppel, partial performance, equitable estoppel
o UCC → sale of goods over $500, sale of securities, sale of personal property over $5,000
 Exceptions: specially manufactured goods, admission in court, part performance
 Fraud
o Common law → punitive damages are not allowed
o UCC → allows good title for a purchaser
 Under UCC
o Merchant offers can be non-revocable even without consideration
o Carries express warranties based on representation or promises, implied warranty of fitness when seller's
expertise is relied upon, and implied warranty of merchantability
o Does NOT require consideration for good faith modifications
o LESS strict about contract acceptance

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Contracts Check List:
1. Has a contract been formed?
a. Are all bargain contract elements present? (List each definition and go through analysis)
o Offer: A manifestation of a willingness to enter into a bargain, so made as to justify another person in
understanding that his assent to the bargain is invited and will conclude it.
§24. If the party had (serious) reservations about the completeness of the negotiations he is not
justified in understanding that his assent will conclude the bargain.
 If the party feels the need for further negotiations remains, then the bargaining was not
complete.
To determine whether a communication is an offer:
 Open Terms
o Open terms wouldn’t justify someone in believing an offer was really made and
that his assent would conclude the bargain.
Advertisement: if there is very clear, definite and specific details
including first come, first serve language, if nothing is open for negation,
it may constitute as an offer.
o §33/Importance of reliance interest as a counter measure
To the extent there are open terms you would have expected to have been
negotiated, the less reasonable it is to believe the negotiations have been
completed and an agreement has been made.
o §34/Part Performance
§34(2): Part performance under an agreement may remove uncertainty
and establish that a contract enforceable as a bargain has been formed.
Clue in
 Good Faith
o If court believes someone is acting in bad faith, ex. Engaging in deceptive
advertising, it will be more inclined (may even bend over backwards to do it) to
consider the communication as an offer.
 Interpretation against the Drafter
o In choosing between reasonable meanings of a promise, the court will assign the
reasonable meaning which operates against the drafter of the writing.
o Least cost avoider principle
o Used particularly if courts determine party is acting in bad faith.
 Totality of the Circumstances
An offer is removed from the table if
 The offer is rejected
 A counter-offer is made: any other proposal on additional or different terms constitutes
an implicit rejection, removing the offer from the table.
o Mirror Image Rule: conditional acceptances are counter offers and therefore
implicit rejections.
 Time for acceptance has lapsed: offeror can stipulate the offer will be on the table only
for a specific period of time. If no such stipulation of period of time the offer will be on
the table, it will be on the table for a reasonable period.
o What constitutes a reasonable time depends upon the totality of the
circumstances
Evertite Roofing Corp. v. G.T. Green: because parties understood that a
credit check may take over a week, it was reasonable to keep offer open
for that amount of time.

57
  The offer is revoked
o The general rule: offeror can revoke an offer anytime prior to acceptance.
 The offeror dies
o Acceptance: when a party knowingly and voluntarily agrees to the offer.
Mirror Image Rule: acceptance must be based on the terms of the offer and must mirror the terms
of the offer. If an acceptance does not exactly mirror the terms of the offer, it constitutes as a
rejection.
Power of acceptance may be terminated by (1) counter-offer (2) lapse of time (3) revocation by
the offeror (4) death or incapacity
Acceptance by return promise
 Acceptance must be communicated to the offeror. In order for a promise to be effective,
we apply the objective test to determine if it is reasonable for the promisee to believe the
promisor is willing to be bound by the terms of the agreement.
o If offeror cannot reasonably believe offeree intends to be bound, the offeror may
revoke his offer.
 Signing the writing is acceptance by promise to be bound by the terms in the document.
Acceptance by performance
 Where an offer invites acceptance by performance of some act, performance of that act
operates as acceptance.
 Execution of document may constitute acceptance by performance if the offer
unambiguously stipulates that acceptance can only be made by the act of signing the
document.
 If there is an acceptance by performance, there will be no need to communicate
acceptance to the offeror because the offeror has waived the need to communicate the
acceptance to him or her.
o This is in line with the objective test because the offeror is master of his offer so
may waive his right to have acceptance communicated by inviting acceptance by
performance of some act.
o By stipulating that acceptance can be made by performance of some act, the
offeror is waiving the need to communicate acceptance.
o This protects the offeree’s reasonable reliance interests.
 If there is an acceptance by performance, while there is no need to communicate
acceptance to the offeror to effectuate the acceptance, if the offeror can in no way know
that he has been bound, if the offeree fails to communicate the acceptance to the offeror
within a reasonable time, the offeror’s duties under the contract will be discharged.
Acceptance by promise or performance
 §32: unless the offeror clearly stipulates otherwise, we will interpret offers as inviting
acceptance by either promise or performance.
o If language is ambiguous: will, should, etc., the court will interpret the offer as
inviting acceptance by promise or performance.
 If seller really meant he would only allow acceptance by signing, he would have said go
away until you sign.
Acceptance by Part Performance
 §62: where an offer invites an offeree to choose between acceptance by promise OR
performance, part performance is an acceptance by performance and operates as a
promise to render complete performance.
o Acceptance will be effective on the date of the tendered commencement of
performance whether or not the offeror is aware of it.

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 o Nominal consideration will not be considered part performance (beginning to
pay) especially if either not reasonable to think the party was willing to be bound,
it would conclude the bargain or acceptance was invited by other performance.
o Consideration
OR

 Are all bargain contract elements present (2)?

o Promise: Manifestation of intention to act or refrain from acting in a specified way so made as to justify a
promise in understanding that a commitment has been made.
Promisor: the person manifesting the intention to be bound to the commitment.
Promisee: the person who is justified in a reasonably believing that the other party has made a
commitment to do something or refrain from doing something.
A promise may be stated in words either oral or written, or may be inferred wholly or partly from
conduct.
Need to satisfy §19
 You need some voluntary, intentional conduct on the part of the promisor (subjective
aspect of contract analysis).
Take §20 Least Cost Avoider Principle into account
 If someone should have inquired further (best position to avoid this action), then a
promise has not been made.
 Toy Yoda Case
 Bailey v. West: Bailey could have called West to find out if he would pay before
proceeding to take care of the horse.
Take into the totality of the circumstances - context, conduct, language, and business/societal
norms – to see if a promisee is justified in understanding a commitment has been made.
o Mutual Assent: agreement reached regarding a proposed exchange, requires that each party makes a
promise or begin to render a performance.
May be made wholly or partly by written or spoken words or by other acts or failure to act.
Need to satisfy §19.2
 Must intend to engage in the conduct and know or have reason to know that the other
party may infer from your conduct that you assent.
Can manifest assent even though you do not in fact assent.
Objective Test: to ascertain whether assent has been made, look at the situation from the
perspective of the party to whom the conduct was directed to see if it was reasonable for that
person to believe that an agreement had been made, in light of the totality of the circumstances.
 Actual intent irrelevant
o Even if there is evidence of that intent, corroborating witness.
o Unless it has been communicated to the promisee, it couldn’t affect his
reasonable beliefs way or the other.
 Pepsi Co
 Totality of the Circumstances
o Language
Least – Cost Avoider Principle
 If someone should have inquired further (best position to avoid
this action), then a promise has not been made.
 Toy Yoda Case
 Bailey v. West: Bailey could have called West to find out if he
would pay before proceeding to take care of the horse.
§20(1): There is no manifestation of mutual assent to an exchange if the
parties attach materially different meanings to their manifestations and
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 (a) Neither party knows or has reason to know the meaning attached by
the other; or (b) Each party knows or each party has reason to know the
meaning attached by the other
 Peerless Case: One party reasonably believed that the ship Peerless was leaving in Oct whereas the other party
reasonably believed that the ship was scheduled to leave in Dec.
 Each of the parties reasonably believe two totally different
things, in such case there is no mutual assent.
§20(2): The manifestation of the parties are operative in accordance with
the meaning attached to them by one of the parties if (a) that party does
not know of any different meaning attached by the other, and the other
knows the meaning attached by the first party; or (b) the party has no
reason to know of any different meaning attached by the other, and the
other has reason to know the meaning attached by the first party.
 Toy Yoda Case:
 The promisee’s reasonable reliance interests
o Courts will be more inclined to find a promise has been made if the promisee has
incurred reasonable reliance interests.
o Part Performance & Reliance/§34
§34(2): Part performance under an agreement may remove uncertainty
and establish that a contract enforceable as a bargain has been formed.
§34(3): Action in reliance on an agreement may make a contractual
remedy appropriate even though uncertainty is not removed.
 Even if that uncertainty is not removed by the acts of reliance,
reliance interests are so important that courts are inclined to find
a contract has been made if the promisee has incurred reasonable
reliance interests.
o Consideration: Promise or performance given by the promisee in exchange for the promisor’s promise
(must bargained for consideration).
If nothing has been given in exchange for a promise it’s not enforceable
Only promises that can be said to have been paid for by the promisee are the only ones that can be
enforced in the framework of bargain contracts.
Nominal consideration is no consideration
 Nominal consideration is a consideration which has no relation to the actual value of the
contract.
 If it is not really sought for by the promisor, it’s a pretense that is consideration in name
only because it does not facilitate the exchange process.
 There is no real harm to the promisee if we don’t legally enforce the promise.
 Nominal consideration may be made in an attempt to dress up a gift promise to make it
look like there is consideration when there’s not.

b. Does it need to be a written contract?

o Can the contract be performed within a year?
o If not does it satisfy the statute of frauds requirements?
Statute of Frauds: statutes outside the common law of contracts require certain categories of
contracts to be evidenced in writing in order to avoid fraud in those circumstances.
 Basic categories of statutes of frauds (MY LEGS)
o M – Marriage: §124
o Y – Year: §130 One Year Rule: the provision covers only those contracts whose
performance cannot possibly be completed within a year, contracts not to be
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 performed within one year from the making thereof will be required to be
evidence in writing.
o L – Land: contract for the transfer of interest in land will be required by evidence
in writing.
o E – Executor: someone assigned to minister an estate
o G – Goods: contracts with seal of goods that is beyond a certain threshold are
required by evidence in writing.
UCC 2-201: Goods for the price of $500 or more.
o S – Surretyship: commitment of one party to take on the debt of another (Dad co-
signs for car).
 One Year Rule
o §130: If contract cannot possibly be fully performed within one year from when
it is made, in order to be legally enforceable it is required to be evidenced by
writing.
o To be within the one year provision, there can’t be even the slightest possibility
that it can be fully performed within one year
o Embry v. Hargadine: if employment contracts were always 1/1-12/31, reasonable
to assume that contract was upon same terms as past 10 years.
 §131: A contract within the statute of frauds is enforceable if it is evidenced by a writing
that:
o It is signed by the party against whom the enforcement is sought
o Identifies the subject matter of the contract
o Contains all the essential terms of the contract
o Is it a good?
Definition: a good is something that is tangible and movable. HAS TO BE EQUAL OR OVER
$500.
§2-201: contract for the sale of goods for the price of equal or over $500 is not enforceable
unless:
 There is some writing sufficient to indicate a contract for sale has been made
 It is signed by the party against whom enforcement is sought.

c. Did the person have the capacity to contract?

o Voluntary Act: it is only appropriate to impose contractual liability for intentional voluntary conduct for
which the promisor should be held responsible. You should not be held responsible for conduct that led
the other party to reasonably believe that a contract had been made if it is unintentional, involuntary
conduct.
§19: the promisor must willingly and knowingly use the words and do the acts that may
reasonably be interpreted to indicate a commitment had been made.
Must ask whether the party had reason to know that the other party may infer from his conduct
that he assents
o §15: Mental Illness or Defect: A promise is not legally enforceable if by reason of mental illness or defect
out of his control, the promisor is unable to understand the nature and consequences of the transaction.
Apply subjective test to determine capacity: look into party’s state of mind to determine if he
engaged in intentional voluntary conduct for which he or she should be held legally responsible.
Power of Avoidance: you will not be held contractually liable if you were not responsible for
your conduct due to mental defect out of your control.
Balance in favor of reasonable reliance interests
 If promisee reasonably believes that a commitment had been made and reasonably relied
on that belief, incurring real harm, but the promisor didn’t have capacity to engage in the

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 requisite intentional voluntary conduct so they shouldn’t be contractually liable, the
balance will be struck in favor of protecting reasonable reliance interests to the extent that
justice so requires.
o Intoxication: if the promisor is intoxicated he will be held contractually liable for the reasonably
foreseeable consequences of his conduct unless the other promisee had reason to know that the promisor
was intoxicated and therefore unable to understand the nature or consequences of the transaction.
The drinking will constitute the requisite voluntary act

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Table of Contents

Common Law Formation 1

Mutual Assent 1
Offer 1
Certainty 2
Acceptance 2
Counteroffer 2
Mailbox Rule 3
Written Memorial 3
Postponed Bargaining 3
Consideration 6
Options 6
Agency 8
UCC Formation 12
Definitions 12
Requirements/ firm Offer 13
Hybrid 12
Acceptance, 2-207 13
Layered Contracting 15
Promissory Estoppel 17
Restitution 19
Statute of Frauds 22
Interpretation 25
Parol evidence 28
Implied terms R2D 31
Warranties UCC 32
Defenses Infancy/Capacity 34
Duress/Undue Influence 35
Fraud/Misrepresentation 36
Unconscionability/public 37
Public Policy 38
Mistake 39
Impossibility/Impracticability 40
Frustration of Purpose 41
Modification 41
Conditions 42
Anticipatory Repudiation 45
Breach 45
Remedies 50
UCC 54
Checklist: 57

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