“A contract is 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.” – Restatement (2d) 1

Mutual Assent, Offer, & Acceptance

FORMATION: Restatement (2d) of Contracts 17
“The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a
consideration.”
I. Mutual Assent: occurs upon acceptance of a valid offer to contract. Mutual assent is objective, meaning that we don’t
look to the secret intentions/subjective state of minds of parties. If someone reasonably appears to make an offer or
accept an offer, then they have done so. A true “meeting of the minds” is not necessary---HOWEVER, no contract exists
if parties don’t agree to the same thing and don’t know nor should know that there is a misunderstanding. If there is no
meeting of the minds and each party has a reasonable but different interpretation, then there’s no contract.
a. OFFER: an offer is a 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. In other words: an objective
manifestation of willingness by the offeror to enter into an agreement that creates the power of acceptance in the
offeree. The offer creates the power of acceptance in the offeree.
i. Requirements for offer under common law:
1. Material terms like price and quantity—“an offer is not an offer if it leaves too much out”
a. Most courts do not recognize “agreements to agree” where essential terms are left out.
Some courts do. Remember that courts vary on the spectrum of when they’re willing to
fill in terms and when they will say there just isn’t a contract.
b. Note that the UCC is much more forgiving for terms left open. A sale of goods contract
under the UCC is less likely to fail for indefiniteness. As long as the quantity is specified,
the courts have enough to establish a remedy—they can always look up the fair market
value on the back end.
2. Offers are only effective upon receipt when sent through the mail.
3. Can’t be a newspaper ad, generally. Ads are invitations to make an offer unless
a. It’s an ad that specifies the quantity, price and how you can accept, that is an offer.
b. If it’s a reward ad.
ii. Termination of offers: power of acceptance is terminated.
1. Lapse of time in offer—if there isn’t a specified time, then it lapses in a reasonable amount of
time. Reasonable depends on the facts and circumstances.
2. Death or mental incapacity of offeror: the death of either party will terminate an offer that has
not yet been accepted. Death does not, however, terminate a fully formed contract that has
already been made.
3. Destruction or illegality
4. Revocation: requires unambiguous language that offeror is no longer willing to contract with
offeree. Offeree must be aware of revocation. Revocation sent by mail is not effective until
received. If offeree accepts before offeror revokes, then the offeror is liable.
a. Generally, offerors have the power to revoke UNLESS (more on these below):
i. Option (promise not to revoke): promise to keep offer open for a specified
period of time. Limits the offeror’s power to revoke the offer until after the
period has expired. There must be consideration for this, but the consideration
can be nominal if the underlying contract is fair.
1. A minority view is that consideration is not required for an option
contract and that a signed assurance is enough.
ii. Merchant firm offer (UCC): an offer to buy/sell goods is irrevocable even with
lack of consideration if:
1. The offeror is a merchant.
2. There is an assurance for the offer to remain open.
3. Assurance is contained in a signed writing, signed by the offeror.
a. “any such term of assurance on a form supplied by the
offeree must be separately singed by the offeror.” So if the
 offeree is the one who comes up with the form and gives it to
the offeror, then we need an additional signature from the
offeror on the part that assures the offer will remain open.
This makes sure the offeror fully knows what is going on and
understands what they’re offering since they were not the
one to come up with the document.
• Irrevocability cannot exceed 90 days regardless of what time period is
stated. Parties can renew after 90 days. This does not mean that the
offeree loses power of acceptance after 90 days; it simply means that
the offeror can now legally revoke offer.
• I don’t think $500 matters here.
iii. Promissory estoppel: this doctrine offers recovery even if there is not
consideration or a fully formed contract. It can make gratuitous promises
enforceable. Restatement (2d) 90(1) says:
1. A promise
2. Which the promisor should reasonably expect to induce action or
forbearance
3. On the part of the promisee or a third person and which does induce
such action or forbearance (Although §90 does not say so expressly,
this reliance must be justified. (This element focuses on the
promisee’s reaction and evaluates his reliance largely on an objective
standard).
4. Is binding if injustice can be avoided only by enforcement of the
promise. Courts use a lot of discretion here. Even if all the preceding
elements are met, the court still has the power to say there is no
injustice.
5. The remedy granted for breach may be limited as justice requires (this
means the court needn't enforce the promise completely; it can
enforce it to the extent necessary to avoid injustice).
iv. Partial performance:
1. In a unliteral contract, the offeror cannot revoke once the offeree has
begun performance, but the offeree is not obligated to finish.
2. In a bilateral contract, part performance is acceptance, the offer is
irrevocable, and the offeree IS compelled to finish.
v. Specific Situation (not a general rule): where it’s reasonable to rely on an offer
even if there hasn’t been an acceptance. Think construction bids. The Drennan
approach. Look to notes for exceptions to this*.
5. Rejection by counteroffer: a counteroffer acts as a rejection of the original offer and creates a
new offer. An offeree’s power of acceptance is terminated by his making of a counter-offer,
unless the offeror has manifested a contrary intention (“propose the changes if you like, I won’t
take that as a no.” or if the offeree reserves their owner of acceptance by asking for time to
consider or making additional inquiries. The inquiries are not counteroffers. Counteroffers
include conditional acceptances and new terms added (under common law).
b. ACCEPTANCE: acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a
manner invited or required by the offeror.
i. Only a party to whom an offer is extended may accept.
ii. An offeree must know of the offer upon acceptance for it to be valid.
iii. The offeree must communicate acceptance to the offeror. Silence is generally not an acceptance, but
there are exceptions.
1. When someone remained silent regarding an action that benefited them where all they had to
do was say no and had the opportunity to do so, and they knew the other party expects to be
paid.
2. Custom exception—when past interactions between the parties suggest that silent acceptance is
fine.
iv. Mirror Image Rule: Acceptance must mirror the terms of the offer.
v. Modifications of the terms would be a counteroffer, not an acceptance. However, mere inquiries or
requests for clarification are not counteroffers.
 vi. Mailbox rule: acceptances are effective upon dispatch, not receipt. This is slightly different in option
contract—if there is an option contract, offeree needs to make sure their acceptance is received by the
end of the option contract.
1. Geisel might have said that everything EXCEPT for acceptances is effective upon receipt.
vii. Exercising dominion over product: if A randomly sends an item to B and says that keeping it would cost
$10 and A keeps it and uses it, A basically agreed to pay the $10 even though they never said anything
back. If A does not want to pay $10, they should hold onto the item as a bailee and send it back whenever
B asks for it back, assuming they do so when they don’t receive $10.
1. Doesn’t work if it’s unreasonable. If this were a bottle of shoe police selling for a million dollars,
for example, that would not be enforceable.
2. If the offeror uses U.S. mail to send unordered merchandise, there’s a federal statute saying that
the recipient can treat it like a gift.
viii. If someone accepts past a deadline, their acceptance effectively becomes a new offer that the original
offeror can accept or decline.
*Sometimes there is no identifiable offer and acceptance, yet it is still clear the parties agreed to the terms. For example, there
might be a writing where both parties signed, and it’s unclear who “offered” and who “accepted.”

Types of Contracts
Bilateral Contacts
A promise by one party is exchanged for a promise by the other. Offer can be accepted by a return promise. Involves commitments
on both sides. This is most common!
If the offeree can accept by anything other than complete performance, then it’s a bilateral contract.

Unilateral Promise
The offeree’s promise to perform is insufficient to constitute acceptance. Acceptance requires complete performance. Once
performance has begun, the offer is irrevocable for a reasonable period of time to allow the offeree to complete unless there is
manifestation of contrary intent. So when the offeree completes the task, two things happen at that moment 1) the contract is
formed AND 2) the offeree completes his end of the deal.
Restatement (2d) §45 (1): Where an offer invites an offeree to accept by rendering a 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.
(2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the
invited performance in accordance with the terms of the offer.
*Indifferent offers (ones that don’t specify what type of acceptance is needed) can be accepted by either promise OR performance.
If the offeree chooses performance, then the contract forms once they begin. That’s a bit different from a true unilateral contract
where the contract only forms upon completion.

Consideration
Definition
A performance or a return promise must be bargained for. Consideration is a contract formation question, meaning that if someone
fails to perform, that’s irrelevant to the question of consideration.

Components
1. Bargained for exchange: Each party does something to make the other party do something. Consideration can take the
form of
a. A return promise to do something
b. A return promise to refrain from doing something legally permitted.
c. The actual performance of some act.
d. Refraining from doing some act.
2. Adequacy of Consideration: something of substance must be given in exchange for the promise. Two biggest issues are past
consideration and gifts.
a. Subjective Value: Context is important. Courts don’t look to the economic value of what’s begin exchanged to
determine if there is consideration (for example, you can pay $1,000 for something that’s worth $10,000 and there
 still be consideration). However, the more lopsided a deal is, the more it looks like a sham transaction and not
bargained for exchange.
b. Nominal consideration: this is way beyond unequal value. The value of nominal consideration is so low that it could
not possibly induce anyone to do anything, therefore there is not consideration. It really isn’t so much about the
amount of money/value of the item—it’s nominal really when the parties KNOW they’re just going through the
motions to keep up the appearance of a contract.
i. $1 seems like it’s usually nominal, but what about $100? For some people, $100 would be of great value,
but for some it’s nothing at all and could be used as a pretense. Look for evidence of the pretense.
c. A gift with a condition to get it. “You can have X if you stop by and pick it up.”
i. It is very confusing to distinguish true consideration from a gift condition. Williston’s tramp is the
example: “If you walk around the corner to the store, I’ll buy you a coat.” Walking around the corner is
not true consideration because it was simply something the person had to do to get the gift. The offeror
did not gain anything from it.
ii. This is not an issue in commercial transactions because you are exchanging a good/service for money.
When the benefit to the promisor is non-economic, however, it’s harder to tell. We see the non-economic
Past consideration: doesn’t count! If someone has already done something, a later promise cannot induce
them to do that thing because it’s already been done.
d. Illusory promise: not a real promise, not a “something” that can be part of BFE. No new obligation (for example,
“I’ll do this for that if I feel like it”). This is illusory because it binds one person but not the other. If a party reserves
the right to take back their promise on a whim, that’s illusory.
i. This is not the same as adding a condition because someone can make a promise with a condition that
may or may not happen that can still be binding. With a condition, the promisor obliges himself to
perform if there occurs a true condition—a matter not governed by his own arbitrary whim.
e. Consideration can’t be something you’re already legally obligated to do. Promising someone to refrain from
murder is not consideration because you’re already not allowed to commit murder.
f. Contracts already formed: look out for modifications of a contract already formed. If there is already a contract
and then one person tries to change their terms but not the other person’s terms, then the other person isn’t
doing something they weren’t already obligated to do. There isn’t consideration for the 2nd contract unless BOTH
parties are doing something more.
i. UCC does not follow this rule.

UCC §2-207: Battle of the Forms

Why this was created
Companies often have form templates that they use when purchasing/selling goods, and sometimes these forms contradict one
another. Because of the “last shot rule,” whoever sent the last form usually had the upper hand. The UCC addresses this to make
things more fair.
• §2-207 (1) deals with the question of whether there is a contract.
• Assuming there is a contract, §2-207 (2) and (3) determine whether additional or different terms will make it into that
contract.
• Battle of the forms does not care if parties are merchants or not. All we care about is the sale of goods.
• Also doesn’t care about signed writings or unwritten agreements, etc.
Usually, there is going to be a contract formed. The main question we run into is whether the added or additional terms make it
into that contract.
A contract might not be formed only if acceptance is expressly conditional on the new terms. There is a contract if the original
offeror accepts the new terms or implies acceptance through their conduct, but there is NOT a contract if the original offeror
rejects the new terms.

UCC §2-207 (1)

“A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is
expressly made conditional on assent or to the additional or different terms.”
In other words: the mirror image rule doesn’t apply. An acceptance can look different from an offer as long as acceptance
doesn’t hinge upon the parts that are different. If the key elements are the same, there’s an agreement.

UCC §2-207 (2)

“The additional terms are to be construed as proposals for addition to the contract. Between merchants, such terms become a part
of the contract unless
A) The offer expressly limits acceptance to terms of the offer;
B) They materially alter it; or
C) Notification of objection to them has already been given or is given within a reasonable time after notice of them is
received.”

UCC §2-207 (3)

“Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the
writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms
on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this
Act.”

Restitution
This is not really a contract issue. While classical contract doctrine and even promissory estoppel focus on promise-based liability,
the idea of restitution/unjust enrichment focuses on benefits-based liability. The idea here is that, even though a promise has not
been made, we realize that something is owed to a party as a matter of fairness.

Implied-in-Fact vs. Implied-in-Law Contracts

Implied-in-Fact Contract: a person’s assent to an offer is inferred solely from the person’s conduct. To be contractually bound, the
person must intend the conduct but also know or have reason to know that his conduct may cause the offeror to understand that
conduct as an assent. Express terms do NOT have to be stated.
A handshake could be an example.
Implied-in-Law Contract/Quasi-Contract: this type of contract prevents unjust enrichment in cases where there is no contract or
maybe there is a failed or divisible contract. Applied when a person confers a benefit on another without gratuitous intent, and it
would be unfair for the person to receive the benefit without cost. These are situations where there is not an express contract, but
we act as if there is because that’s how we want society to work.
Medical emergencies are the best example.

Unjust Enrichment
To determine if there was unjust enrichment, ask:
1. FIRST, is there a contract, express or implied? If there is a contract, we go by that. Only in the absence of a contract do we
really get into the unjust enrichment.
2. Did the party providing enrichment act officiously? (was it forced upon them unfairly?)
3. Was the enrichment a gift?
4. Was it paid for?
Often arises in a contract setting but doesn’t usually work out in a landlord-tenant setting because if the tenant had work done and
didn’t pay for it, the landlord didn’t ask for or want the “benefit.” Arguably the benefit was forced upon the landlord.

Material Benefit Rule (“Promissory Restitution”)

Restatement (2) §86
1. A promise made in recognition of
2. A benefit previously received by promisor
3. From the promisee
4. Injustice can only be avoided by enforcement
Exceptions:
1. Gifts
2. If there's no unjust enrichment…a judge can determine if value of the promise.
This rule was established by Webb v. McGowin. It was McGowin's express promise to pay Webb that was an affirmance/ratification
that raises the presumption that McGowin requested the benefit. McGowin in no way requested to be saved, but the court is
essentially saying that he did since he decided to pay Webb after the fact. *You won’t see many cases like this in reality.

Statute of Frauds
Even if there is manifestation of mutual assent and consideration, contracts that fall under the Statue of Frauds are not enforceable
if they do not contain a writing.
The purpose of this is to avoid fraud because, by requiring a writing, people could not say there was a contract when there really
was not. However, we often run into the problem of people relying on the Statue of Frauds to get out of contracts they don’t want
to honor—saying there was not a contract when there really was. There are many exceptions to the Statue of Frauds in the interest
of justice. If it looks like a contract but all that’s missing is the required writing, courts might find a way to enforce it.

What types of contract require a writing under the Statute of Fraud?

1. Marriage: a contract made upon the consideration of marriage.
2. Year: a contract that cannot possibly be performed within one year of making it.
3. Land: a contract for the sale of an interest in land.
4. Executor/Administrator: contracts by executor or administrator of an estate to pay debts of the deceased.
5. Goods: a contract for the sale of goods for $500 or more (UCC §2-201). See below for more. The writing must:
a. Indicate a contract has been made.
b. Identify the parties.
c. Contain a quantity term
i. Price is not necessary.
d. Be signed by the party to be charged.
i. A letterhead or logo could suffice as a signature.
6. Surety: a contract answering for the debt of another.

Questions to Ask for Statute of Frauds Generally

1. Is this a contract that requires writing?
2. If the answer to 1 is yes, is there a sufficient writing?
a. Does the writing show the parties entered into a contract?
b. Does the writing state the essential terms of the agreement?
i. Multiple writings pieced together can work.
c. Is it signed by the party we want to hold to the contract? (the defendant)
i. Some courts say that an unsigned writing must reference the signed one. Others say that you can use an
unsigned writing together with a signed writing as long as they reference the same subject matter (the
contract).
ii. A letterhead can suffice as a signature.
3. If the answer to 2 is no, is there an exception we can apply to make the contract enforceable anyway?
a. Part performance: for land contracts, usually where specific performance is the remedy (not damage). Not all
courts do this per supplement. Acts that can make an oral contract of land enforceable are:
i. Payment of all or part of the purchase price.
ii. Possession by the purchaser.
iii. Substantial improvement of the property by the purchaser.
1. This is confusing, but this exception would not apply if a signed writing was required by another
area under the statute of frauds in addition to land. If A has an agreement with B to buy B’s land
in 2 years, and A goes ahead and possesses it, A might be in trouble if there is no writing
because, even though he has done part-performance, the signed writing was needed for the > 1
year aspect as well.
b. Promissory Estoppel (varies by jurisdiction)
i. Promise proved by clear and convincing evidence
ii. Promisor could reasonably expect reliance
iii. Reliance
iv. Justice factor—is enforcement the only way justice can be served?

Exceptions for Goods under the Statute of Frauds (UCC §2-201)

Below are exceptions to the signed writing requirement for goods. If one of these exceptions is present, the contract is still
enforceable without a writing.
1. Partial Performance
a. Payment has been made and accepted OR
b. Goods have been received and accepted.
2. Admission: someone under oath admits there is a contract or admits facts that clearly show a contract.
a. An alternate allegation is NOT an admission (e.g. “there was no contact but even if there was, it’s not
enforceable”).
 3. Specially Manufactured Goods
a. Specially manufactured for the buyer
b. Plainly not suitable for sale to others in the seller’s ordinary course of business.
c. Seller must have begun making them or have taken steps to obtain item.
d. All the above must have taken place before the buyer rejects/repudiates.
4. Promissory Estoppel: majority view is that this can be used in the goods/UCC context, but some courts still disagree.
5. Confirmation: a method to hold the contract enforceable. Something (like a purchase order). If the following qualifications
are met, the contract will be enforceable:
a. Is between merchants
b. Is sent within a reasonable time
c. Is a writing confirming the contract
d. Is sufficient against the sender
e. The Party receiving it has reason to know its contents.
f. The receiving party has not objected within 10 days.

Interpretation
Common Law vs. Today
If there was an ambiguity, courts use to say there was no contract because there was no “meeting of the minds.”
Today, we want to try to pinpoint one interpretation of the ambiguous term that is most reasonable and therefore applicable (a
semi-objective approach).

Questions to Ask
Giesel says there is not one set approach to interpretation, but this is one:
1. Identify the ambiguity.
2. Did A have reason to know what B meant but B had no reason to suspect what A meant? Or vice versa? If so, we go with the
innocent party’s interpretation. How do you know if someone has reason to know?
a. Course of performance
b. Course of dealing
c. Trade usage

From the Restatement

1. When parties have attached the same meaning to a term, it is interpreted according to that meaning.
2. If parties have attached different meanings to the same term, it is interpreted as the “innocent party” interpreted it,
meaning:
a. The innocent party did not know of the other’s meaning, but the other party knew what the innocent party meant.
OR
b. The innocent party had no reason to know of the other’s meaning, but the other had reason to know what the
innocent party meant.
3. Other than the circumstances outlined above, neither party will be bound to the meaning attached by the other even if this
means a failure of mutual assent.
*Note from supplement: related to what’s above—if one party is negligent in forming their interpretation, then the court will say
that the OTHER party was the reasonable one

Hierarchy of things to consider:

Express terms
Course of Performance
Course of Dealing
Trade Usage

Reasonable Expectation Doctrine

*Applies only to insurance contracts. *

Restatement(2d) §211
Applies the doctrine only when the insurer has reason to believe that the insured would not have agreed to the deal as written. This
is a situation where the insurer is trying to be "crafty." The insurance company knows you wouldn't like the terms, so they're trying
to slide them past you. Because people buying insurance don’t get to negotiate the terms, courts usually aren’t willing to enforce
terms that do not align with what the buyer reasonably expected they were getting.

Variations in Scope
1. Broad: the court refuses to apply even an unambiguous term.
a. C&J Fertilizer, Inc. v. Allied Mutual Insurance Co.
2. Narrow: the court refuses to apply only ambiguous or hidden terms.
a. Kentucky is one state that rules this way.
3. Not at all: the court does not use the doctrine based on the idea that ambiguities are construed against the insurer anyway,
so applying the doctrine would essentially be re-writing the contract.
a. Florida is an example.

Parol Evidence Rule

The PER enhances the sanctity of the written agreement.

The Rule
Prior or contemporaneous extrinsic evidence cannot be admitted if it contradicts the final writing. Prior or contemporaneous
extrinsic evidence cannot be admitted to supplement a complete and final writing.
- The general idea is that, if the parties verbally discussed something that was important, then that should have made it into
the final writing. If it's not there, we assume it was a negotiation that ultimately was not agreed upon. We have this rule so
that people don’t go back and try to say that they actually agreed to something else or try to change the terms, etc.
- If there is no writing, then this rule isn’t relevant at all. We only consider it when we have a writing.

Questions to Ask
1. Is there a writing?
a. Yes--continue with analysis.
b. No--PER does not apply. Evidence is admitted for court to consider.
2. Is the writing final?
a. Yes--continue with analysis.
b. No--PER does not apply. Evidence is admitted for court to consider.
3. Is a party seeking to introduce prior or contemporaneous evidence extrinsic parol evidence (oral or written)?
a. Yes--continue with analysis.
b. No--PER does not apply because this might be showing us an amendment. Evidence is admitted for the court to
consider.
4. Does the extrinsic evidence contradict the writing?
a. Yes--PER is not admitted. Why? Because we need to value the writing, and if prior evidence contradicts the writing, we
can't allow for it.
b. No--continue with analysis.
*what contract means can be interpreted narrowly or broadly. Narrowly would mean there is a term that is clearly
contradictory to another. More broadly would mean language that is "reasonably inconsistent."
5. Does the evidence supplement the writing?
a. Yes--continue analysis
b. No--PER does not apply. Evidence is admitted for the court to consider.
6. Is the writing complete?
a. If yes, the evidence cannot be admitted.
b. If no, the evidence can be admitted.
i. Is the extrinsic evidence relating to a term might naturally be omitted from the writing? If so the writing is
NOT complete and the evidence is admitted. See Restatement(2d) §216. Think: if they had actually
discussed it, would it be in the writing? Is it something important enough that should have made it if they
talked about it?
ii. Does the evidence actually show a collateral contract with its own consideration? If so, the evidence can
be admitted because we view the contract as not completely integrated.
 Complete is sometimes phrased as “unambiguous.” Incomplete is sometimes phrased as “ambiguous.” So if there is
something that needs to be cleared up, the writing is thought to be incomplete. But if there are no questions surrounding
the writing as it is, then it’s probably complete and no new evidence will be allowed.

Other things that get admitted despite PER

• Evidence that the writing is the product of fraud, duress, illegality, mistake, or lack of consideration.
• Evidence that assists the court in interpreting the writing.
• Evidence relating to a condition to the writing becoming effective.
• Evidence to reform the writing.
“Whatever the degree of integration — partial, complete, or not at all — a written agreement may be explained by extrinsic
evidence for purposes of interpretation.” Restatement (Second) §214(c), and Comment b.

Under the UCC

• Prior or contemporaneous evidence cannot be admitted if it contradicts terms in the writing.
• Prior or contemporaneous evidence can be admitted to explain or supplement the writing if it falls within one of the
following categories:
1. Trade usage
2. Course of Dealing
3. Course of Performance
• Prior or contemporaneous evidence not in one of the three categories above can be admitted as a supplement as long as
the writing is incomplete.
o UCC Test for Completeness: "If additional terms are such that, if agreed upon, they would certainly have been
included in the document….” then the document is complete and the evidence is not admitted. The UCC test is
tilted so that a court is less likely to say that a writing is complete. Evidence is more likely to come in.

Implied Terms & Implied Obligation of Good Faith

Some terms are implied, meaning that a court will find the contract valid even when these things are not specifically touched upon
in a contract.

Implied in Law
A term might be implied in law if…
1. A statute provides the term.
a. UCC 2-308: “…unless otherwise agreed, the place of delivery of goods is the seller’s place of business or, if none,
the seller’s residence.”
2. Common law provides the term.
3. A court in this case provides the term.
Summary of UCC Default Terms
If the contract does not specify the: The UCC default term is:
Price A reasonable price at the time and place for delivery.
Payment Details Payment is due at the time and place of delivery.
Place for Delivery Delivery occurs at the Seller’s place of business.
Time for Performance Performance is due within a reasonable time.

Implied in Fact
A term might be implied in fact if it is clear the parties agree even though they did not put it in writing.
Might look to trade usage, course of dealing, and course of performance evidence.

Implied Obligation of Good Faith

Once a contract is formed, there is an implied obligation of good faith. This is an intentionally vague requirement applied in different
ways depending on the setting. Generally, this entails:
1. Subjective Honesty
2. Objective reasonableness
a. Reasonable commercial standards of fair dealing: you cannot pretend like something isn’t acceptable when it IS in
fact acceptable just to get out of a contract.
b. Cannot interfere with the other party’s performance: if someone hires painters to paint the interior of their house
but then locks their doors and refuses to let painters in, then they can’t say painters didn’t perform.

• Parties cannot contract out of their implied obligation of good faith.

• A term that measures the quantity by the output of the seller OR requirements of the buyer means such actual output or
requirements as may occur in good faith.
o Requirements Contract: A agrees to provide B with all the items he requires this year, and B agrees to buy all the
items he needs from A.
o Outputs Contract: A agrees to supply all the items he makes to B, and B agrees to buy all the items A makes.
No quantity unreasonably or disproportionate to any stated estimate or otherwise comparable output/requirements can be
tendered or demanded.

Warranties
A guarantee of quality of product or service for a specified period of time.

Warranties Outside of the UCC

1. Express: directly stated

2. Implied
a. Like the Implied Warranty of Habitability

Warranties Within the UCC

Express Warranties:
1. Affirmation of fact promise by the seller to the buyer about the goods OR
a. Opinions do not count as fact, so “this is a great car” is not a warranty because “great” is not a fact.
2. a description the seller gives about the goods OR
3. a sample or a model
4. Any of which is the basis of the bargain.
• No magic words (like warrant) are necessary.
• No intent to warrant is necessary.
• Reliance is not necessary, but some courts allow seller to prove a lack of reliance to avoid liability.

Implied Warranty of Merchantability

1. Seller MUST be a merchant
2. Goods must be merchantable
 a. Passes without objection in the trader under its description (if seller calls the item a pencil, everyone must agree
it’s a pencil).
b. Fair and average quality for fungible goods.
c. Fit for ordinary purposes for which such goods are used (the pencil must write).
d. Even kind, quality, and quantity within each unit and all units involved.
e. Adequately contained, packaged, and labeled as the agreement requires.
f. Conform to the promise or affirmations of fact made on the container/label, if any.

Implied Warranty of Fitness for a Particular Purpose

1. Seller, at the time of contracting, has reason (from any source, not just the buyer) to know any particular purpose for which
the goods are required.
2. Seller knows that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods.
• Seller does not have to be a merchant.

Disclaiming and Limiting Warranties--§2-316

(1) If there is a warranty in one place and a disclaimer in another, construe all of it as consistent if it is reasonable to do so. If it
is not reasonable to do so, then the disclaimer is inoperative.
(2) If a seller wants to limit the implied warranty of merchantability, their disclaimer MUST
a. Mention merchantability (unless it says “as is” or “with all faults” according to supplement)
b. Be conspicuous
c. Does NOT have to be in writing.
If a seller wants to limit the implied warranty of fitness for a particular purpose, the disclaimer MUST
d. Be in writing
e. Be conspicuous
f. Safe harbor: “there are no warranties which extend beyond the description on the face hereof.”
(3) Other safe harbors: “as is” and “with its fault” or other common language.
If the buyer, before entering the contract, has examined goods or has been given the opportunity to examine and refuses, then
there is no implied warranty with regards to defects that an examination would have exposed.

Defenses
Incapacity, Duress, Undue Influence, Fraud/Misrepresentation, Unconscionability
Defenses do not deny assent and consideration. Rather, they raise an additional issue that makes it inappropriate to enforce the
contract DESPITE the existence of assent and consideration.

Incapacity
Restatement (2d) §12—lack of capacity means that the person might be able to rescind.
Incapacity protects people who CANNOT make good decisions, not someone who simply does not make good decisions. A person is
bound to a contract unless they are:
A. Under guardianship—contracts here will usually be void.
B. An infant: voidable by the infant but not by the other party. A minor can choose to honor a contract or not. A minor's
contracts are voidable by the minor at any time before reaching the age of majority or within a reasonable time after
becoming an adult. If the minor turns 18 and chooses to continue honoring it, it’s ratified. If the minor chooses NOT to
honor, then the court has the ability to find the contract void.
a. Traditional rule was that minors could always rescind unless they were contracting for necessities (the idea being
that adults should not be discouraged from contracting with minors for such things). Rescission means that minor
would give back whatever they got but did not have to pay for depreciation in value.
i. An adult must return a minor fully to status quo ante, but a minor need not do that for an adult. So if
the minor voids the contract, the adult must pay back the full amount the minor paid them, but the minor
 can give back the item as is even if it has lost value; if the minor has lost or completely destroyed the
item, they don’t even have to return anything. This seems unfair.
b. Now, some courts have adopted the Benefit Rule (minor can rescind but must pay for benefit received/rental
value) and Use Rule (minor can rescind but must pay for depreciation or destruction).
c. Some courts will not let a minor rescind if they have committed a tort—willfully lied about their age or
intentionally destroyed items, etc.
C. Mentally ill or defective
a. Traditional test is the Cognitive Test: person does not understand the meaning, effect, and consequences of
contract due to mental defect or disease (e.g. Down’s Syndrome)
i. Exception: could maybe be rescinded if the other party truly had no reason to know about the disability,
but this uncommon.
b. Modern test is the Volitional Test (minority?): person has an understanding but is unable to act in a reasonable
manner. (e.g. compulsive gambling or an addiction—people can understand that these things are bad for them but
seem unable to control themselves).
i. Exception: If the competent party had no reason to know of the inability to act in a reasonable way, the
contract stands. One supplement suggested that if things were easily returnable, however, they might still
have to rescind.
ii. If the competent party DID know about the inability to act reasonably and chose to contract anyway, then
the contract can be rescinded. If there is an item that is destroyed/lessened in value, the incompetent
party must make up for that lost value. Note that there is a greater burden on those with mental
incapacity than on infants.
D. Intoxicated: contract is voidable if the person entering into contract did not understand the nature of the transaction and
the other person had reason to know about the intoxication.

How to Prove Duress

Traditionally, the only duress recognized was physical compulsion, and those contracts would be void. Today, courts accept other
types of duress but find that these contracts are voidable, not necessarily void. Duress is rarely successful because it is hard to
convince a court of this.
1. The other party made a wrongful threat. Does not have to be truly illegal! The 4 types of wrongful threats are:
a. Threat of crime/tort OR is a crime/tort in itself (e.g. sign this or I will destroy your car).
b. Threatened criminal prosecution (e.g. sign this or I will report that you robbed a bank…even if they DID rob a bank,
you cannot manipulate the public system for a private gain).
c. Threatened use of civil process that is made in bad faith (e.g. pay me or I will sue you even though I don’t have the
grounds to sue you).
d. Breach of duty of good faith and fair dealing under a contract with the recipient
2. The threat created a situation where the party claiming duress had no reasonable alternative but to agree to the deal.
a. The party might have free will, but they do not truly have choices.
b. Presence of a lawyer does not matter because a lawyer cannot increase the number of choices available.
c. You MUST ask
i. Are there options?
ii. Would litigation solve this? (note that litigation usually doesn’t because it takes too long).
3. Causation: the threat caused the party claiming duress to make the deal.
a. Subjective: doesn’t matter if a reasonable person would’ve been induced to agree.
b. Some courts require that the threatener must have been responsible for the situation of no reasonable alternative.

Undue Influence
Unfair persuasion of a party who is under the domination of the person exercising the persuasion or who, by virtue of the relation
between, them is justified in assuming that the person will not act in a manner inconsistent with his welfare.
Signs (not all need to be present)
1. Discussion of the deal at an unusual time.
2. Unusual place for transaction.
 3. Insistence that the matter must be concluded at once.
4. Emphasis on the untoward consequences of delay.
5. Multiple persuaders.
6. Absence of counselors or attorneys for the weaker.
7. Statements that there is no time to talk with financial advisors.
8. Fiduciary relationship may be present.
a. Attorneys are not to conduct business with clients, the idea being that you have power and are supposed to put
your client’s interests above your own.

Fraud/Misrepresentation
Fraud: Tort Action for damages, requires intent.
Misrepresentation: Contract Action for rescission, can be an innocent mistake.
Elements
1. Statement of False Fact
a. Statement—simply a lie
b. Affirmative conduct. Concealment (e.g. spray painting a car’s faulty engine to make it look new). Less common.
c. Nondisclosure. Less common
i. Fiduciary relationship.
ii. Could be that party misspoke but failed to correct later.
iii. Could be that A knows B has a misconception about a basic part of the deal and does not correct them.
iv. Could be that A knows B is mistaken about the contents of the writing. Void.
d. Statement of Opinion: the expression of a belief, without certainty, as to the existence of a fact. Opinions can only
satisfy the false fact requirement if:
i. Stater is in a position of trust/confidence.
ii. Stater has special expertise.
iii. Stater did not really have that opinion at the time the opinion was stated.
iv. Target was particularly susceptible.
2. Reliance on the statement: hearer relied on the statement when entering the deal.
a. Courts generally require that reliance be reasonable.
3. Option 1: Tort Action
a. The statement must be fraudulently made with scienter (intentional mental state).
4. Option 2: Rescission
a. Statement must be material, meaning it was likely to induce a reasonable to enter into the contract OR the maker
knows that the statement is likely to induce the hearer.
b. Mental state is usually not inquired into—it can be an innocent mistake.

Unconscionability
A “catch all” for something that seems wrong but doesn’t fall into the categories above. Recall Williams v. Walker-Thomas Furniture.
• Substantive Unconscionability: the DEAL ITSELF is really bad for one party. No reasonable person would have agreed to this
if they knew that was what they were agreeing to.
o Oppression: a term that hurts the other party without a commercial justification. Is there an overly harsh
allocation of risks not justified by the circumstances or a great price disparity?
• Procedural Unconscionability: the PROCESS in which the party agreed was badly flawed. There is an absence of meaningful
choice.
o Is there a gross inequality of bargaining power? Was there an “unfair surprise?” Did the customer have the
opportunity to understand the terms? Were the terms hidden in fine print? Did the other party use deceptive sales
practices? Was the verbiage understandable?
§ Note that anyone who didn’t pay close attention to the terms could be surprised. The surprise is unfair if
the terms are unnecessarily complex or hidden.
Adhesion contract: a standard form contract that is given to a party on a take-it-or-leave basis. An adhesion contract by itself is not
unconscionable; however, it can be used to show that there was inequality in the bargaining power between the parties.
 Public Policy
When courts decide if a contract is enforceable, they look to two things:
1. Legislation
2. The need to protect some aspect of public welfare even if the matter has not been reduced to a statute.
a. Restraints on trade
b. Family relations
c. Protection of other interests—a catch all category.

Legislation
Statutes can determine certain kinds of contracts to be automatically void (like contracts made in gambling transactions in KY).
• If the statute is a revenue-raising matter, the courts tend to enforce the contract regardless.
• If the statute is a regulatory matter (meant to protect people), courts tend not to enforce. However, the analysis is nuanced
and depends on the facts of each statute and situation.
Weird exception: when one person’s performance isn’t illegal/against public policy but the OTHER party’s is, then the more innocent
party can recover the fair market value of the services they performed. You don’t use the contract to determine damages here
because this contract is unenforceable; thus, recovery had to be “off the contract.”
Illegality: A contract involving the commission of a crime (such as a contract to murder another party) is clearly illegal. Such
contracts are void as a matter of public policy. Some contracts involve an act that may break a law in the performance of the
contract. However, courts may still enforce the contract by balancing the interest of enforcing the contract against the strength of
the public policy. The courts will enforce the contract if they find that the policy of enforcing contracts is more important than the
public policy behind the licensing law that would have been broken.

Restraints on Trade
Historically, these have been viewed as against public policy and thus unenforceable; however, we also believe in freedom to
contract. Over time, courts have accepted that these MIGHT be valid.
1. Non-compete covenants usually won’t be enforced UNLESS it pertains to:
a. A sale of a business contract. Courts generally do not apply strict scrutiny here because the parties are understood
to have equal bargaining power.
b. An employment contract—a promise by employee not to compete with employer. Courts generally DO use strict
scrutiny here.
c. A partnership contact—a promise by one partner not to compete with the partnership.
2. The court must determine whether the covenant is reasonable in light of:
a. The interest the covenant seeks to protect.
b. The hardship on the constrained party.
c. The interest of the public.
d. Whether the covenant is…
i. Only so broad in scope as is necessary to protect the constrainer’s interest.
ii. Only so broad in geographical terms as necessary
iii. Only so broad in time as necessary
3. If the covenant is found NOT to be reasonable…
a. The court might refuse to enforce the covenant.
b. The court might enforce the covenant only to the bounds of reasonableness (KY follows this). Sometimes referred
to as “rewriting.”
c. The court might try to edit the covenant only by striking out words to make it enforceable. Called the Blue Pencil
Approach.
Severability clause: many contracts have sections that say if part of the contract is unenforceable, the rest of the contract should
still be enforceable.
 Mistake—Mutual and Unilateral
§152 - Elements of Mutual Mistake
Parties enter into a contract and later discover that both suffered from a mistake of fact at the time of contracting.
• Mistake of BOTH parties
o Mistake must also be shared, and think about how this is framed. If person A thought the stone was topaz and B
thought it was a quartz but it turned out to be a diamond, they had a SHARED mistake in thinking it was not a
diamond. Ignore the fact that each thought it was something else.
• At the time the contract was made—cannot be guesses about future events!
• As to a basic assumption on which the contract was made. This means central to the contract and something the parties
don’t even CONSIDER possibly not being the case.
• Mistake has a material effect on the agreed exchange of performances.
• Contract is voidable by the adversely affected party unless he bears the risk under the rule stated in §154.
Questions to Ask:
1. Did both parties make a mistake?
2. Was the mistake about a basic assumption on which the contract was made?
3. Did the mistake have a material effect on the agreed exchange?
4. Did the adversely affected party have the risk?
a. If they DO have the risk, then they cannot rescind.

§153 – Elements of Unilateral Mistake

Involves a mistake by only one party. Courts are wary of this, and it’s rarely used.
• Mistake of ONE party
• At the time the contract was made
• As to a basic assumption on which the contract was made
• Mistake has a material effect on the agreed exchange of performances.
• Contract is voidable by adversely affected party unless he bears the risk of the mistake under §154
• Only ONE of the following needs to be true for there to be a valid unilateral mistake:
o The effect of the mistake is such that the enforcement of the contract would be unconscionable (note the lower-
case U—this just means one-sided or harsh) OR
o The other party’s fault caused the mistake OR
o The other party had reason to know of the mistake. This means the other party would be taking advantage of a
deal that’s “too good to be true.” Most courts are only going to grant a unilateral mistake if they can see that the
other party (the one not asking for a rescission) is a bad actor.
Note that some of the above elements seem similar to misrepresentation.

§154—Risk (Applies to BOTH types of Mistake)

If a party has the burden of risk, they cannot succeed on a claim of mistake because they entered into the contracting assuming the
risk of such a mistake. A party has the risk if:
1. The agreement says so.
2. If the party is consciously ignorant. You have risk if you know that you do not know something.
a. Less likely to be consciously ignorant if the party relies on the opinion of an expert who also happens to be wrong.
b. The strange thing about this is that if you are absolutely sure about something but turned out to be wrong, then
you get the benefit of mistake. Uncertainty is what prevents you from succeeding, so it’s better in this case to be
confidently wrong than cautiously uncertain.
3. IF “the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.”
a. Courts might choose to allocate risk to the party who’s more easily able to deal with the mistake.
b. Courts might choose to allocate risk to a party who’s acted in bad faith.
Builder example: builder agrees to build because they think dealing with soil will only cost $10,000, but once he starts excavation he
realizes that it’s rock and it will cost $60,000. He probably has the risk because he’s a professional—it’s expected that he would
investigate first and be capable of preparing adequately.
Home seller: a seller of land always bears the risk that valuable minerals will unexpectedly be found beneath the land. So, the
person selling their home who tries to back out when their neighbor strikes oil cannot do so.

Remedies
• Usually rescission
• If the mistake is not about the substance of the deal but rather just the writing, then the remedy will be reformation.
Note that this is not dealing with breach of contract—this is simply where someone would go to court to get out of a contract or
change the writing because it’s not what they agreed to. If a party to a contract encounters circumstances that could be the grounds
of a claim for relief based on either mutual or unilateral mistake and the party completes performance, it will not be able to recover
the increased cost.

Other notes about Mistake

• Personal Injury Settlements—if parties settle after a car accident, the injured party might sign something saying that the
accept the settlement amount as full satisfaction of actions relating to injuries, known or unknown. If it turns out later that
the injured party has more significant injuries than they initially realized, some courts will let them claim mutual mistake
but others will not because they assumed the risk of accepting the settlement knowing that they could have more injuries.
• Clerical Errors—some courts are willing to award relief for clerical errors but not other types of mistake, so this might be
your best bet of winning a unilateral mistake argument in some places.
• Ordinary Negligence—some courts find that ordinary negligence is bar to recovery for mistake, but some say that only
gross negligence is.
• Unilateral Mistake about Writing—courts usually won’t accept the argument that the writing did not say what someone
thought it said because everyone has a duty to read. Of course, if both parties were mistaken about the writing, then that
could lead to a reformation.

Impossibility, Impracticability, and Frustration of

Purpose
Something happens in between the time you contracted and the time you are supposed to perform that changes.

Impossibility
Objective possibility: “I cannot perform and no one else in the world can either.”
• Rare because the UCC has the concept of impracticability that has dominated this area; however, impossibility DOES apply
to service contracts and destroyed goods.

Impracticability
Maybe performance is still possible, but it becomes unreasonably burdensome or expensive to do so. This requires more than being
merely unprofitable.
1. An extreme change in the nature of performance
2. Caused by the occurrence of an event, the non-occurrence of which was the basic assumption of the deal.
a. Foreseeability standard: courts may not apply the impracticability doctrine if the issue was foreseen because the
parties could have contracted around the issue. Foreseen is different from foreseeable, and some courts are
willing to apply the doctrine if something was foreseeable but not foreseen.
b. Courts will almost always decline impracticability on the basis of market fluctuation because it should be foreseen
that markets will fluctuate.
3. The claimer did not cause the problem (think government outlawing performance, natural disasters, wars, etc.)
4. The risk of the event occurring is not on the claimer by contract or circumstance.
 a. Common carriers: under shipment contracts, seller just has to get things shipped and has no risk beyond that.
Under destination contracts, sellers carry the risk until the thing makes it safely to its destination.
Force Majeure Clause: a clause that excuses parties and lets them walk away if certain things happen. We only have to rely on
impracticability when there’s not a force majeure clause to look to first. MUST contain specific language.
UCC §2-615
Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:
A) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of
his duty under a contract for sale if performance has been made impracticable by the occurrence of a contingency (the
nonoccurrence of which was a basic assumption) OR by compliance in good faith with any applicable foreign or domestic
governmental regulation whether or not it later proves to be invalid.
a. Textbook says that many courts have applied the section also to buyers.
B) Where the causes in (A) only affect a party of the seller’s capacity to perform, he must allocate production and deliveries
among his customers but may at his option include regular customers not then under contract as well as his own
requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
C) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under
(B), of the estimated quota thus made available for the buyer.

Frustration of Purpose
Performance is possible, but the whole point of performing is gone. Courts are even less willing to find this.
1. The purpose of the contract for one party has been frustrated (the VALUE of performance is much less).
2. The frustration is caused by the occurrence of an event, the non-occurrence of which was a basic assumption of the deal.
3. The claimer did not cause the problem.
4. The risk of the event occurring is not on the claimer by contract or circumstance.

Modification
Non-UCC
A contract modification must be supported by new consideration. In other words, each party must promise something new.
• Unforeseen circumstances arising can be the basis of modification because those circumstances could create new
consideration on both sides—one party has to do more to deal with the additional circumstances, and the other party
would pay more.
• Parties could avoid modification by rescinding the contract and entering into a new one. However, that does mean there
will be a period of time when the parties are obligated to do nothing and could walk away.
• From supplement: modification can arise by one party waiving their right to mutual mistake. If unforeseen circumstances
were present but not discovered until later, then they could probably argue mutual mistake and get out of it. But if they
wanted to proceed, one party could charge more and the other could waive its right to mutual mistake, so each “does”
something new and don’t have to deal with finding replacements, litigation, etc.
• From supplement: reliance may justify an exception to the requirement of new consideration. So if one party has already
fully performed (relying on the original terms), the other party can’t spring new terms on them at that point because
they’ve already gotten what they wanted.

UCC §2-209
(1) An agreement modifying a contract needs no consideration to be binding but must meet the test of good faith.
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or
rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately
signed by the other party.
(3) The requirements of the SoF must be satisfied if the contract is modified.
(4) Although an attempt at modification or rescission does not satisfy the requirements of (2) or (3), it can operate as a waiver.
 (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable
notification received by the other party that strict performance will be required of any term waived, unless the retraction
would be unjust in view of a material change of position in reliance on the waiver.
a. In other words: an oral modification will be enforceable if material reliance on the oral modification has occurred
and would make a retraction of the oral agreement unjust.

Modification through Settlement—Accord and Satisfaction

(1) An accord is a contract under which an obligee promises to accept a stated performance in satisfaction of the obligor's existing
duty. Performance of the accord discharges the original duty.
(2) Until performance of the accord, the original duty is suspended unless there is such a breach of the accord by the obligor as
discharges the new duty of the obligee to accept the performance in satisfaction. If there is such a breach, the obligee may enforce
either the original duty or any duty under the accord.
(3) Breach of the accord by the obligee does not discharge the original duty, but the obligor may maintain a suit for specific
performance of the accord, in addition to any claim for damages for partial breach.
• Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of 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.
o If there is a dispute as to liability and as to the amount owed, a party who tenders a check that says “payment in
full” to the other party who cashes the check, writing “reserving rights” on it, then the matter is settled. It’s over
even if the check was not actually for the amount that the party thought he was owed.
o If there is no dispute as to liability or amount and a party tenders a check for less than the full amount that says
“payment in full” and the other writes “reserving rights” on it, then this matter is NOT settled. The party is still
liable for the remainder owed because there was no question that he was liable and owed the specified amount.

Express Conditions
An event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract
becomes due. Arise when a party promises to perform IF something occurs or UNLESS something occurs.
These are strictly construed, which means the conditions are either met or not—there’s no almost. Express conditions are not
favored in the law, so courts are reluctant to interpret language as having that effect unless it is quite clear.
Words to look for: if, unless, provided, when, after, subject to.
Excuses: nonoccurrence of the conditional event does not have to happen.
1. Waiver: the party who requested the condition or would have benefitted from it may waive its protection, giving up the
right to rely on the condition and thus agreeing to perform despite nonoccurrence. Barbri says waiver occurs after the
conditional event was supposed to occur.
2. Estoppel: if a party’s prior words/conduct (usually suggesting that the condition will be waived) make it unjust to allow a
party to rely on the condition to withhold performance. Barbri says estoppel comes before the conditional event was
supposed to occur.
3. Prevention: neither party can prevent the other party from making the conditional event happen. Supplement suggests
that this would be a breach of good faith.
4. Judicial Forgiveness: court determines that enforcing the condition would produce disproportionate forfeiture (J.N.A.
Realty Corp)
Condition Promise
Description Does (or does not) occur Is (or is not) performed
If it isn’t or doesn’t Other’s performance is not due Allows damages for breach
Leeway? Strict occurrence required Substantial performance is okay
Excuses Waiver, Estoppel, Prevention, Judicial Waiver, Estoppel, Impracticability,
Forgiveness to avoid forfeiture Frustration
Hypothetical: A car buyer repeatedly paid on the 5th of each month even though he was required to pay on the 1st. Timely payment
is a promise and a condition of the creditor’s duty not to repossess the car, but the creditor did not object to late payments. The
creditor’s inaction may have created a waiver. However, the creditor can revoke this waiver going forward. It cannot revoke the
waiver regarding past payments and repossess the car immediately, but a revocation could reset the expectation for future
payments.

Order of Performance
1. The parties can specify who must perform first in their agreement.
2. Concurrent Constructive Conditions: promises that are related to each other and capable of being performed
simultaneously. Simultaneous performance is preferred if it is possible.
a. Examples: sale of goods and land
3. Constructive Conditions that have an Implied Order: when one party’s performance requires time, that party probably has
to perform first. The performance of the work is the constructive condition of the other party’s obligations.

Material Breach of Implied/Constructive Conditions

Substantial
performance /
No performance Material Breach Full Performance
immaterial
breach
As performance gets closer to full performance, a court is less likely to treat a breach as material. Barbri said that substantial
performance can be good enough for constructive conditions/implied conditions but NOT express conditions.
Material Breach: significant; undermines the substantial benefit of the bargain. involves a factor test. Consider the extent to which
the injured party will be deprived of what was expected but also the extent to which the party failing to perform will suffer forfeiture
(think sunk costs that cannot be recouped following a cancellation).
Substantial Performance: the opposite of material breach. If a court determines that a performance was “close enough” to the
promise to not be a material breach, then there was substantial performance.
- This is a quality measurement. Not quantity. Doing 99% of the job MIGHT not be enough.
- If a party has substantially performed his duties, then he is entitled to compensation under the agreement less any amount
for damages caused by his partial breach.
- Time is of the Essence Clause: if this clause is present, then being late is NOT okay and the substantial performance
doctrine won’t apply. If this clause is not present and the other party performs late, then a late payment would cure the
breach and thus the non-breaching party could only delay their own performance, not cancel it altogether.
To CANCEL the contract, you need a material breach.
To receive DAMAGES, any breach will do, even if it’s immaterial.

Restatement Approach

Immaterial or Must perform but

Partial maybe damages

Total breach (can

Breach
Incurable walk away & get
damages)

Material
Must perform but
Cured
maybe damages
Curable
Total breach (can
Uncured walk away & get
damages)

Anticipatory Repudiation
 Because breach is the unexcused nonperformance when performance is due, conduct before performance is due does not meet the
ordinary requirements for material breach. Recognizing the need to protect the reliability of contracts, the law sometimes allows a
party to treat the prospective breach as a current breach. If so, the nonbreaching party may protect its rights as if the breach had
already occurred. This is ideal because it allows the nonbreaching party to make substitute arrangements in an effort to minimize
loss.

Express Repudiation requirements

A party has anticipatorily repudiated a contract when, before performance is due, the party:
(1) makes an unequivocal and definite statement that he will not perform a contract when his performance is due, or
- Expressions of doubt that a party can perform, requests for rescissions, and requests for modifications are NOT
repudiations in themselves.
(2) engages in any conduct that renders that party unable to perform its duties.

Responses to Repudiation
The aggrieved party may:
1. Suspend their performance immediately and treat the contract as cancelled
2. Wait a commercially reasonable time to see if the other party will retract the repudiation, perhaps urging the other party
to retract.
a. The repudiating party can ONLY retract their repudiation if:
i. The aggrieved party has not already relied on the repudiation (i.e. found a substitute) or
ii. The aggrieved party has not given notice that he has accepted the repudiation.
b. Retraction, if timely, reinstates the contract obligations as they existed before.
c. The aggrieved party could urge the repudiator to retract one minute and rely on the repudiation the next if they
find a substitute opportunity. The ball is completely in the aggrieved party’s court until they receive a retraction.

UCC §2-609 Right to Adequate Assurance of Performance

1. A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not
be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party, the other
may in writing demand adequate assurance of due performance and, until he receives such assurance, may, if
commercially reasonable, suspend any performance for which he has not already received the agreed return.
2. Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be
determined according to commercial standards.
3. Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate
assurance of further performance.
4. After receipt of a justified demand, failure to provide within a reasonable time not exceeding 30 days such assurance of
due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

Damages
Remedies Overview
1. On the contract: suing for breach of contract.
a. Substitutional remedies
i. Expectation interest: putting the non-breacher in the position he would have been in if the contract had
been performed.
ii. Reliance interest: putting non-breacher back in the position they were in BEFORE the contract. Might be
done if expectation damages are hard to prove or if this is what the non-breacher wants.
 iii. Restitution interest: the breacher must give back the value of what he has gained. What did the non-
breacher give that het breacher ought not have now? (this is not the same thing as off the contract
remedies below)
b. Specific Performance
c. Agreed remedies (example is liquidated damages)
i. A liquidated damages clause is enforceable only if damages were difficult to estimate at the time the
contract was formed, and the amount agreed upon is a reasonable forecast of the damages that would
result from a breach. So if the agreed upon amount is WAY more than provable expectation damages, the
court is unlikely to enforce the agreed upon amount.
2. Off the contract: suing on another basis (unjust enrichment, quantum meruit).

Expectation Damages
Arise naturally and obviously from the breach. Measured by the market value of the promised performance minus the consideration
promised by non-breaching party.
• The most common option non-breachers will go for.
• The contract amount is not a limit on expectation damages.
Formula: (A) general measure = loss in value + other loss − cost avoided − loss avoided
• Contractor breach: The measure of damage for a contractor breach is the reasonable additional cost to complete and/or
repair the construction.
o If contractor doesn’t finish work, then the cost of completing it.
o If the contractor finishes but does so defectively, then it’s the cost of repairing it, even if the cost of repair is
greater than the amount of market value that’s being added by repair.
§ If the cost of repair is clearly disproportionate, then the plaintiff can only recover the loss in market value.
• Real estate contract breach: the difference between the contract price and the fair market value of the property at the
time of the breach. Additionally, the injured party can receive consequential and incidental damages.
• Employment Contract Breach: the additional cost incurred by the employer to purchase the same services.

Reliance Damages
Circumstances under which someone might get reliance damages:
1. When nonbreacher knows they can’t prove several elements of expectation damages.
a. Example, new business that is limited by certainty doctrine because they don’t know how profitable they would
have been.
b. Promissory estoppel oftentimes.
2. When reliance damages happen to be better/offer more money.
3. Sometimes the nonbreacher requests expectation damages and the court grants reliance damages instead.
Things to Know regarding Reliance Damages:
• The contract amount is not a limit on reliance damages.
• A losing contract: if a breacher can prove that the contract would have been a losing one for the non-breacher, then
reliance damages might be limited.
o Expenditures – net loss = recoverable damages
o Plaintiff recovering reliance damages cannot recover more than the defendant was obliged to pay under the
contact itself.
• Precontract reliance: most courts will not allow a party to recover damages for money spent before the date the contract
was signed.
• Lost Opportunities: Reliance damages are usually out of pocket damages but can also include lost opportunity cost.
o Example: if non-breacher quits job because of contract for a new job. New job breaches, so he then can’t work
new job. Non-breacher can recover the wages from the first job that the non-breacher quit in reliance on the new
job.
• All expectation limits (certainty, mitigation, foreseeability, mitigation) apply to reliance damages.

Restitution Damages
Two views of restitution:
1. Restitution as a cause of action: off the contract. No contract needs to exist but it could be at there is a contract that’s
simply unenforceable. Here, restitution is an action to have the breaching party pay for the benefit bestowed.
a. Additionally, when the breacher sues the nonbreacher for something, they cannot do so “on the contract” because
they’re the breacher. The breacher can sometimes recover in restitution though; they can recover for any benefit
conferred on the nonbreaching party less any damages caused by the breach.
i. There must be a material breach for the breacher to sue off the contract.
2. Restitution interest damages: on the contract. Nonbreaching party can ask the court to award damages for breach of
contract measured by Restitutionary interest.
This distinction makes a difference when a non-breacher’s contract is a losing one. If we’re talking about restitution off the contact,
we don’t care if it’s a losing contract because we don’t even need a contract—all we’re looking for is a benefit bestowed.
Restitution damages USUALLY = the fair market value of the plaintiff’s services.

Exception to the rule that the contract is irrelevant: If the nonbreaching party has fully performed his obligations under the
contract and the breaching party’s only remaining duty of performance is the payment of a liquidated or specified sum of money,
the nonbreaching party may not elect a restitutionary recovery but is limited to expectation damages.
Example: You agree to prepare a brief for $3,000. You do the brief but the other party breaches by not paying. You might try
to argue that your services are worth $10,000 and seek restitution damages for this amount. Court will not allow you to do
this because it's as if you are trying to change the terms of the contract.
The rule: if the only thing left in the contractual relationship for the breacher to do is pay, then the nonbreacher is limited to the
value of the service set by the contract.
*Glannon guide says this is not the case and suggests that a plaintiff could recover WAY more in restitution damages if he is in a
losing contract.

Specific Performance
When it’s available:
1. Land Contracts
2. When the item is unique—one of a kind or has sentimental value
a. Unique people: some courts will allow an injunction to prevent a person from working elsewhere (negative
covenant) if the person was very unique. Note that the court will never enforce the positive covenant because we
don’t force people to do things like that!
When it’s NOT available:
1. When the court thinks it will be too messy in terms of supervision or enforcement—court doesn’t want to be involved in
things over time.
2. Personal service contracts
3. Courts will not force an employer to rehire an employee was a remedy for wrongful termination

Positive & Negative Covenants

We know that specific performance cannot be used to make someone do something in a specific performance contract. An
injunction that prevents someone from doing that thing anywhere else is an indirect way of granting a positive specific performance
remedy, but courts generally will not grant that—note unique person exception.

Post-employment Covenants: if the employee is promising not to work for a competitor after their contract is finished, then there is
no argument that granting an injunction would be enforcing the positive covenant because the positive covenant is over at that
point—the contract has already been completed.

Interest
Losing parties always pay post-judgment interest.
In a situation where the breach is a set, liquidated amount, courts might find that the breacher owes pre-judgment interest on the
grounds that they should have paid ON the date they were supposed to.

Limitations on Damages
1. Foreseeability
2. Certainty
3. Causation
4. Mitigation/Avoidability

Foreseeability
(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the
breach when the contract was made.
(2) Loss may be foreseeable as a probable result of breach because it follows from the breach
a. Hadley Category 1: In the ordinary course of events (damages arise generally in a great multitude of cases—the
damages are obvious)
b. Hadley Category 2: As a result of special circumstance, beyond the ordinary course of events, that the party in
breach had reason to know. (Recovery can only be had if the special circumstances that give rise to damages are
communicated to the defendant).
(3) Court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss
incurred in reliance OR if it otherwise concludes that justice so requires in the circumstance to avoid disproportionate
compensation.
• Foreseeability matters at the time the contract is formed.
• The type of loss is the focus, not necessarily the method/manner in which the loss occurs.
• The breacher is the party that must foresee or should have foreseen.
• Foreseeable as the probable result of breach.
Foreseeability & UCC §2-715
(1) Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt,
transportation, and care and custody of goods rightfully rejected, any commercial reasonable charges, expenses, or
commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.
(2) Consequential damages resulting from the seller’s breach include
a. Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting
had reason to know and which could not reasonably be prevented by cover or otherwise.
b. Injury to person or property proximately resulting from any breach of warranty.
*When you ship through FedEx, there is a clause that says they will not be responsible for damages in excess of declared value for
items even if it had knowledge that damage could happen.

Certainty
Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. In
other words, you cannot be too speculative and pull a number out of thin air when calculating damages. There must be a factual
basis.
• A new business that cannot open because of a contract breach generally cannot prove a lost profit damages claim because
the business cannot prove that it would have made ANY money—unlike established businesses, they have no record to go
off of.

Causation
Damages must be linked to the breach. In class example was a restaurant contract breach that occurred during the pandemic-
related shutdown. The non-breaching party could not prove what caused damages—the breach or the shutdown.
• UCC §2-719: Oftentimes when you buy a product, there will be language that remedy for breach will be limited to
replacement. They will not be responsible for anything else that could ultimately result from a breach of warranty.
 Mitigation/Avoidability
The non-breacher does not have a “duty” to do anything, but what they can recover may be limited.
1. Obligation not to pile on and increase damages.
2. Obligation to mitigate—to try to act reasonably and lessen damages.
UCC §2-704(2)
When goods are unfinished, an aggrieved seller may be in the exercise of reasonable commercial judgment for the purposes of
avoiding loss and of effective realization by either:
- Completing the manufacture wholly identifying the goods to the contract.
- Ceasing manufacture and reselling scrap/salvage value
- Proceeding in any other reasonable manner.
UCC §2-715(2) Consequential damages are not recoverable if the non-breacher could have avoided them with reasonable conduct
leading to cover or a replacement contract.
How can you tell if a collateral contract is mitigation or just another contract?
• If the non-breacher enters into a new contract that they weren’t able to do before the breach, then this will probably be
viewed as a mitigation/substitute.
• If someone is a lost volume seller, meaning that they’re selling a lot of one thing and could have easily done the breached
contract AND the new contract, then the new contract probably won’t be a mitigation, and they’re entitled to full damages.
Wrongful Termination of Employment Agreement
Majority rule is that the employer, the breacher, has the burden of proving that the non-breacher did not act properly to mitigate.
Most courts include in the burden that:
1. The nonbreacher did not act reasonably in seeking substitute employment
2. Substitute employment was available.
a. Truly substitute employment could not have been done at the same time as the original job. So, if someone is
terminated from their regular salaried job and they begin tutoring a few nights a week, that is not considered
substitute because they could have done that while still employed.
b. Comparable employment: substantially similar. The terminated employee does not have an obligation to accept
different or inferior work.
If someone does not reasonably mitigate when they could have, their recoverable damages would be:
Damages = contract salary – salary at the job they refused to take.

Non-Recoverable Damages & Their Exceptions

1. Attorney fees
2. Mental distress
3. Punitive Damages

Attorney Fees & Exceptions

Generally, attorney fees are not recoverable for breach of contact. There are, however, the following exceptions:
1. When they are incurred in regard to a collateral action—if A breaches his contract with B, and this breach causes B to
breach his contract with C, then A will be liable for attorney fees that result from litigation between B and C but NOT for the
fees that result from his own litigation with B.
2. Parties provided that the breacher would pay in the contract.
3. Inherent authority to punish bad litigation behavior
4. Court rule allows it (like FRCP Rule 11)
5. Statute allows it.
6. Insurance bad faith matter.

Mental Distress
Recovery for emotional disturbance will be excluded unless:
1. the breach also caused bodily harm or
 2. the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result (in other
words, also a tort).
a. Fraud/conversion
b. Deceit or undue coercion
c. Intentional acts by breaching party, foreseeing that breach will cause mental anguish.

Punitive Damages
Recoverable if:
1. The matter is a tort, in which case the tort rules apply.
2. Insurance bad faith cases

Buyer’s Remedies Under the UCC

Key Question: did buyer accept the goods even though they were late, defective, less in amount, etc.?
NOTE: we are talking about acceptance of goods pursuant to a contract that has already been created. This is not the same as
acceptance in formation of a contract like we discussed last semester.

Remedies
1. Cover: a substitute. Buyer gets product from someone else since seller breached. Expectation damages.
a. Damages = Cover – Contract Price + Consequential & Incidental Damages
2. Market Damages: if buyer does not cover. We assume this is the price buyer would have gotten if he did cover. Ideally, he
would have covered, and it’s always one or the other.
a. Damages = Market price at the time buyer learned of breach – Contract Price + Consequential & Incidental
Damages
b. NOTE: it’s possible that a buyer might combine cover and market. For example, their breached contract was for
1,500 widgets. They might choose to buy 1,000 from someone else (cover) and then just get market damages for
the other 500.
3. Incidental Damages: Expenses reasonably incurred in inspection, receipt, transportation, care, and custody of goods. Also
charges associated with covering.
4. Consequential Damages: flow from breach. Loss that the seller had reason to know about at the time of contracting which
could not reasonably be prevented by cover or otherwise. Includes injury to person/property resulting from any breach of
warranty.
However, any damage award is reduced by expenses saved as a result of seller’s breach. So, if the cover happens to be a lot cheaper
than the original contract price, for example, damages would be much less or maybe even 0.

§2-610 Perfect Tender Rule

Close is not enough—seller must provide 100% correct product. Buyer has right to reject for ANY non-conformity.
A. May reject the whole
B. May accept the whole
C. Accept any commercial unit/units and reject the rest.
A buyer who has rejected goods as nonconforming is entitled to a refund or, if the seller refuses to refund, to resell the goods and
apply the proceeds to what is owed him from the seller. The buyer is entitled to offset expenses of selling and get its money back.

§2-606: Acceptance
1. After reasonable opportunity to inspect goods, the buyer signifies goods are conforming OR that he will take them despite
their non-conformity (express) OR
2. Buyer fails to make an effective rejection after reasonable opportunity to inspect OR
3. Buyer commits an act inconsistent with the seller’s ownership (uses the goods)
Even if buyer accepts, they can revoke due to substantial impairment if:
 1. They accepted it, thinking it would be cured.
2. They did not know about the impairment it was difficult to discover.
*They must do so promptly during reasonable time to inspect time period.
A buyer who accepts goods without inspection and realizes the error too late is limited to:
Damages = contract value – value at the time they accepted the shipment. If value changes further even later, that doesn’t matter.

§2-508 Right to Cure

Seller has a right to cure non-conformity when:
1. A tender is rejected because of non-conformity AND the time for performance has not yet expired. The seller must notify
buyer of his intention to cure in this case.
2. Seller has reasonable grounds to believe that their imperfect delivery would be allowable. If the buyer rejects due to non-
conformity that seller had reasonable grounds to believe would be acceptable with or without money allowance, the seller
may notify the buyer and have more time to cure. (this would be like the seller acknowledging the non-conformity and
saying he will fix it next week or something and give you some money back).
a. Course of dealing: if the buyer had never insisted on perfect tender in the past and had been okay with non-
conformities, then this would give the seller reasonable grounds to think another imperfect tender would be okay.
In this case, the buyer has the right to demand a perfect tender, but they have to give seller time to cure since they
created this expectation.

Specific Performance
Creature of equity, not law. May be decreed where good are unique or in other proper circumstances (of idiosyncratic value for
other reasons). More likely to be used if it’s clear that the product in question is not readily available in the market.
• Not limited to land sales.
• Although specific performance MAY be appropriate when items are unique, it’s not limited to this—it can apply in “other
proper circumstances.”
o Example is the sale of a commodity when there is a shortage.

Summary
• If buyer does not accept seller’s non-conforming product, it’s as if seller never sent it.
• If buyer accepts the non-conforming product and then revokes, it’s as if the seller never sent it.
• If buyer accepted and did not revoke but the product is non-conforming, buyer can still get damages.
o Damages = value of goods contracted for – value of goods accepted + C&I

Seller’s Remedies Under the UCC

2 forms of Buyer’s Breach
1. Acceptance of goods and refusal to pay (§2-709)
a. Buyer must pay purchase price + C&I
b. (§2-709(1)(b): Specific performance basically at play here. If the goods are unique and the seller tries to resale
them without success, then the buyer has to pay the full price for them whether they want the products or not.
2. Wrongful refusal to accept goods
a. Resale option (§2-706)
b. Market Option (§2-708)
If a buyer is insolvent, UCC section 2-702 permits the seller to refuse to deliver except for cash, including payment for all goods
previously delivered under the contract.

Remedies
1. Resale: Seller can recover contract price – resale price + I&C if:
 a. Seller identifies the goods to be sold as the goods related to the breach.
b. Seller gives Buyer proper notice of resale.
c. Resale must be in good faith and in a commercially reasonable manner.
2. Market: Market price – contract price + C&I
a. If the seller doesn’t provide reasonable notice for resale, then they would have to resort to market damages.
b. Some say that seller must resale if it’s reasonable to do so, and others do not.

Summary of Formulas
Expectation Damages:
Damages = loss in value + other loss – cost avoided – loss avoided

My formula
What should have happened: -losses + money saved = PP
What REALLY happened because of breach: - losses + money saved = BP
PP – [BP] = Damages

Contractor breach
Unfinished: Damages = the reasonable additional cost to complete construction.
Finished defectively: Damages = cost of repair, even if the cost of repair is greater than the amount of market value being
added by repair.
If the cost of repair is clearly disproportionate, plaintiff can only recover the loss in market value.

Real estate contract breach

Damages = Fair market value of property at time of breach – contract price + C&I

Employment Contract Breach: the additional cost incurred by the employer to purchase the same services.

When someone doesn’t mitigate job

Damages = contact salary – salary at job they refused to take

Reliance Damages
Damages = money spent by plaintiff once contract has been formed

Losing Contract
Damages = expenditures – net loss

Restitution
Damages = fair market value of plaintiff’s services

When breaching party adds value even though they breached

Damages = increase in value – cost to repair breaching party’s defects

When the breaching party has partially performed

Damages = cash value of whatever they gave up (breaching party will not be entitled to SP)

Buyer’s Remedies under UCC

Cover
Damages = [Cover-Contact Price] + C&I

Market
 Damages = [Market price at the time the buyer learned of breach] – Contract price + C&I

Buyer who accepts goods without inspection & realizes error too late
Damages = contact value – value at the time they accepted the shipment

Seller’s Remedies under UCC

Acceptance of Goods, refusal to pay
Damages = purchase price + C&I

Resale (seller gives notice to buyer)

Damages = contract price – resale price + C&I

Market (seller gives no notice)

Damages = market price – contract price + C&I