CONTRACTS OUTLINE

TABLE OF CONTENTS
Meaning of Contract
Sources of Contract Law
Offer and Acceptance Generally
Intent to Contract (mutual assent)
Offer
The Offer
Validity of Particular Kinds of Offers 
Offer Creates Power of Acceptance
Acceptance
Acceptance – Generally 
Acceptance – Common Law
Common Law: Acceptance by performance
Common Law: Imperfect Acceptance & Counteroffer
Acceptance – UCC
UCC: Acceptance by Performance (shipment)
UCC: Imperfect Acceptance & Counteroffers
UCC: Acceptance with Different Terms
Duration of the Power of Acceptance
Consideration
What is Consideration?
What is NOT Consideration?
What is SOMETIMES Consideration?
Consideration Substitutes
UCC Additional Options for Consideration: Requirements & Output Contracts
Interpreting the Contract: Passing the Parol Evidence Rule to Add a New Term
Parol Evidence Generally
Parol Evidence Rule: Partially v. Completely Integrated Agreements
Where Parol Evidence Rule Doesn’t Apply
Interpreting the Contract: Ambiguity and External Evidence
Interpretation
Trade Usage, Course of Performance, & Course of Dealing Interpretation
Other Omitted/Implied Terms Supplies by the Court
Warranties
Warranties Generally
Express Warranties
Implied Warranties
Warranty Comparison
Warranties: Exclusion or Modification
Defenses to Not Enforce
Void v. Voidable
Breach
Breach by Other Party: Other Party’s Total Non-Performance 
Anticipatory Repudiation: Other Party Indicating an Unwillingness/Inability to Perform
Repudiation Insecurity by Conduct: Party Has Reasonable Grounds for Insecurity
Improper Performance by Other Party:  When is Performance Excused?
Conditions: When Occurrence & Non-Occurrence of Express Conditions Excuse Performance
Modifications as Excuses
 Waiver and Estoppel as Excuses
Impossibility, Impracticability, and Frustration of Purpose Excuse to Not Perform
Frustration of Purpose
Remedies
Remedies: Enforcing the Deal
Equitable Remedies
Damage Remedies

MEANING OF CONTRACT
Contract- an agreement the law will enforce
 Written v oral contracts: writing isn’t always necessary to create a contract. An agreement
may be binding on both parties even though it is oral; however, some contracts must be in
writing under the Statute of Frauds

SOURCES OF CONTRACT LAW

1. Article 2 of the UCC (Unified Commercial Code): SALE OF GOODS; in every state but
Louisiana, sales of goods are governed by this
 Always ask first: IS THIS A SALE OF GOODS?
1. Common Law (2 Restatement)
nd

a. Anything that isn’t a sale of goods

b. If UCC is silent on something (including sale of goods), common law of the state will control
0. See UCC § 1-103

OFFER and ACCEPTANCE GENERALLY

INTENT TO CONTRACT
Mutual Assent
Was there a meeting of the minds? Did the parties reach an agreement?
Mutual assent is an objective standard (REASONABLE PERSON)
 There’s mutual assent if: a reasonable person would believe that the offering party intended to be
bound AND if the offeree did in fact believe the offeror’s intent
 Party’s actual intent (subjective) is irrelevant
 Undisclosed intent is immaterial
 Example: deciding whether A intended to make an offer to B 🡪 issues is whether A’s
outward conduct reasonably indicated to one in B’s position that A was making an offer
 Conduct as a Manifestation of Assent (RS-19)
 Manifestation of assent may be made wholly or partly by written words, spoken words,
other acts, or by failure to act
 Conduct of a party is not 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 assented
 Conduct of a party may manifest as assent even though he doesn’t actually assent
 In this case, a contract could be voidable by fraud, duress, mistake, or other
invalidating causes
 Offeree must have knowledge of the offer, only the offeree can accept an offer, and the
acceptance must be in the form authorized by the offer
 Lucy v. Zhemer
  A party’s actions that a reasonable person would read as an intent to form a contract are
sufficient for a meeting of the minds
 A person can’t set up that he was merely joking when his conduct and words would
warrant a reasonable person to believe the contrary
Do both parties want to make the contract legally enforceable?
 If no 🡪 it’s not legally enforceable
 If yes 🡪 it is legally enforceable, even if they mistakenly believe it’s not
 Importance of the parties’ intention to make it legally binding depends on context
 Business context: presumption = parties intended their agreement to be legally binding
 Social/domestic: presumption = binding contract was not intended
Parties intend to put it in writing later: if both agree (orally or in a brief writing) on all points, but decide
to make a more formal written document later, the preliminary agreement may or may not be binding
 Their intention controls
 No intent manifested?
 When evidence of the intent is ambiguous, court will usually say an unwritten
contract was born as soon as the mutual assent is reached
 Exception: very large deals are not a contract until documents are signed

OFFER
THE OFFER
Offer- a promise to do or not do something in the future, contingent on the other party’s acceptance
 the manifestation of assent by the offeror that essentially says to the offeree, “I commit to a deal
on these terms. You now have the power to seal the deal with your assent to these terms.”
 Must be specific enough
 An answer, “yes, if…” negates the offer
Offeror: person who makes the offer and now has the power to control the offer
Offeree: person to whom the offer is made and whom now has the power of acceptance 
Objective standard: did words, conduct, or a combination of the two reasonably constitute an offer?
Offers must:
1. Be communicated
2. Indicate a desire to enter into a contract 
3. Be directed at a person or group 
4. Invite acceptance 
5. Create understanding that if accepted, a contract now arises
Offer must be so definite as to its material terms, or require such definite terms in the acceptance, that
the promises and performances to be rendered are reasonably certain
 Material terms may include subject matter, price, payment terms, quantity, duration and work to
be done 
 Under UCC, the only term required to be definite us quantity
 Can be bilateral or unilateral:
 Bilateral contract- BOTH parties make promises (A 🡨🡪B)
 Example: A says to B, “I promise to pay you $1,000 on April 15 if you promise now that
you will walk across the Brooklyn Bridge on April 1”
 A is proposing to exchange his promise for B’s promise
 Unilateral Contract: an exchange of offeror’s promise for offeree’s act (offeree does not make a
return promise 🡪 he performs)
 Example: A says to B, “if you walk across the Brooklyn Bridge, I promise to pay you
$1,000 as soon as you finish”
 A has proposed to exchange his promise for B’s act of walking across the bridge

VALIDITY OF PARTICULAR KINDS OF OFFERS

Offers made in jest = NO OFFER
 Even if the joke offer was “accepted,” there’s no contract 
Opinions = NO OFFER
 Reasonable person test used to distinguish opinions from offers using circumstances and
language expressed 
Preliminary negotiations = USUALLY NO OFFER
 If the offeror is soliciting bids, his solicitation is not an offer and can’t be accepted 🡪 it’s merely
just a basis for preliminary negotiations
 Example: A says, “I would like to sell my house for at least $100,000.” This is almost
certainly a solicitation of bids, rather than an offer, so B can’t “accept” by saying, “here’s
my check for $100,00” because there wasn’t a valid contract in the first place
Auctions = NO OFFER
 the item up for auction is treated as an invitation for offers to buy, which may be rejected by the
seller 🡪 bidders at an auction are treated as Offerors
 EXCEPTION: if the auction is “without reserve” meaning the seller is making an offer to
sell for any price, which can then be accepted by the buyer when presented for action 🡪
bidders here are treated as Offerees
Advertisements, Price Quotes, and Rewards = USUALLY NO OFFER
 Most ads appearing in newspapers, store windows, etc. are not offers to sell because they don’t
contain sufficient words of a commitment to sell
 Example: an ad saying “men’s jackets, $26 each” would not be an offer to sell jackets at
that price because it’s too vague regarding quantity, duration, etc.
 EXCEPTIONS:
 Specific terms: if an ad contains specific words of commitment, especially a promise to
sell a particular number of units, it may be an offer
 Example: “100 men’s’ jackets at $26 a piece, first come first serve starting
Saturday” is so specific it’s probably an offer
 Words of commitment: look for specific promises, limited numbers, controlled items, etc.
🡪 these suggest an offer
 Example: “Send three box tops plus $1.95 for your free cotton T-Shirt” is an
offer even though it is also an advertisement because the advertiser is committing
himself to take certain action in response to the consumer’s action 

OFFER CREATES POWER OF ACCEPTANCE

Offer from the offeror/promisor creates power of
acceptance in the offeree/promisee
Power of acceptance- the ability to create a binding
agreement with assent alone
 Can the offeree just say YES?
 If no, it’s probably not an offer
Power of acceptance is personal to the offeree

ACCEPTANCE
ACCEPTANCE
Requirements:
 The person for whom the offer was intended is the one who can accept
  Knowingly (must know of the offer at the time of the acceptance 🡪 can’t claim a reward after the
fact)
 In response to an offer (solicitations don’t count)
 In the form authorized by the offeror
Non-complying acceptance will not give rise to a contract even in circumstances where that result may
frustrate the desire and intent of the offeror
General rules:
 Offeror is the master of his offer
 HE dictates how to accept
 Anything other than his terms is not acceptance
 Mailbox Rule
 “acceptance is effective upon dispatch”
 Offeror can SUSPEND the mailbox rule by saying “no acceptance will be effective until
received by offeror” 🡪 courts will enforce this
 Qualification that offer must be reasonably dispatched and received within a normal time
frame 
 EXCEPTION: offer stipulates acceptance is not effective until received 
 Mere acknowledgement is NOT acceptance 
 Silence is not acceptance (unless it was decided ahead of time or implied-by-fact)
 Distinguish the true implied-by-fact contract situations (where each party, by his conduct,
knowingly leads the other party to believe they have an agreement) from a situation
where at least one of the parties doesn’t make any action that would justify the other
believing a contract was intended
Method of Communication:
 Where the method isn’t specified: any REASONABLE method is okay
 Contemporary view: regardless of whether it’s unilateral or bilateral, the offer can be
accepted by any reasonable manner of assent, unless the offer leaves no doubt that it can
only be accepted in the manner stipulated in the offer
 Promise for performance (unilateral contract ): OFFEREE ACCEPTS BY PERFORMANCE
 When acceptance is by performance, notice is NOT necessary to make a contract binding
 Offeror must know that they started to perform 🡪 must show through actions or
communication (offeror is bargaining for the act to be done)
 Completion of the act alone is enough to bind the offeror without further notice
 Once performance has begun, the offer cannot be revoked
 Example: A says to B, “I’ll pay you $1,000 if you cross the Brooklyn Bridge.” This can
only be accepted by A’s act of completely crossing the bridge (however, the offer will be
rendered temporarily irrevocable by A once B starts to perform)
 Promise for promise (bilateral contract ): OFFEREE ACCEPTS BY RETURN PROMISE
 Offeree must communicate the acceptance to the offeror, unless specifically waived
(exception: mailbox rule) 
 until the acceptance is communicated, the offeror may withdraw the offer
 offeror can revoke until the acceptance is communicated to him
 If it is a written offer, acceptance is in signature 🡪 the offer can be revoked at any time
before the offer is returned to the seller
 Restatement 54(2): Offeror’s duty to perform is discharged if the offeree who has
rendered performance fails to take reasonable steps to ensure the offeror learns of
performance
 Offer invites either promise or performance: if it is unclear whether it should be accepted by
promise or performance, the offeree can accept with either

ACCEPTANCE -- COMMON LAW

§ 50 - ACCEPTANCE IS A MANIFESTATION OF ASSENT TO TEMRS IN A MANNER INVITED
OR REQUIRED 
§ 45 – APPLIES TO UNILATERAL ONLY 🡪 PEROFRMANCE IS THE ONLY FORM OF
ACCEPTANCE ALLOWED
 Offeree must accept by performance
 Contract is binding once performance starts 🡪 however, offeree must complete the performance in
order to accept the offer (and get paid)
 Binding upon the start of performance 🡪 saves the offer of a person who is mid-
performance (almost across the bridge) from being revoked
 Technically not acceptance until the performance is completed, but under §45 the offer
cannot be revoked once the performance is started
 TWIST: §54(2) – when offeree knows that the offeror has no reasonable means of learning of
performance, the offeror’s contractual duty is discharged UNLESS… (see §54)
§ 62 – ASSUMED BILATERAL CONTRACT 🡪 PERFORMANCE IS AN OPTION
 Offeree is invited to accept by either promise or performance 
 If the offeree chooses performance, the contract is binding once the performance starts 🡪
however, the offeree must complete performance in order to accept (and get paid) (just like §45)
§ 32 – THE CONTRACT IS AMBIGUOUS ABOUT THE METHOD OF ACCEPTANCE 
 In case of doubt, offer is interpreted as inviting the offeree to accept either by promising to
perform what the offer requests OR by rendering the performance, whichever the offeree chooses
 (“when a method of acceptance isn’t specified, any reasonable manner is okay”)
§ 53 – PROVIDES THAT PERFORMANCE IS ONLY ALLOWED IF IT IS INVITED (OR IF THE
CONTRACT IS AMBIGUOUS)
 An offer can be accepted by performance only if the offer invites acceptance by performance
 Offeror can refuse performance as acceptance by notifying offeree of non-acceptance
 Offeror can only revoke BEFORE offeree performs
§ 54 – WHERE PERFORMANCE IS AN OPTION, NOTICE OF BEGINNING PERFORMANCE IS
(TYPICALLY) NOT NECESSARY UNLESS IT IS SPECIFICALLY REQUESTED
 Where an offer invites an offeree to accept by rendering a performance (could be unilateral or
bilateral option contract), no notification is necessary to make such an acceptance effective 🡪
unless the offeror requests such a notification
 HOWEVER if an offeree who accepts by performance has reason to know that the offeror has no
adequate means of learning of the performance with reasonable promptness and certainty, the
contractual duty of the offeror is discharged
 UNLESS:
 The offeree exercises reasonable diligence to notify the offeror of acceptance,
OR
 The offeror learns of the performance within a reasonable time, OR
 The offer indicates that notification of acceptance is not required

COMMON LAW: ACCEPTANCE BY PERFORMANCE

Acceptance by § Start of Can offeror revoke Can offeree quit once
performance requirement: performance = once performance performance starts?
offeree’s starts?
acceptance?
If PERFORMANCE IS 45 NO: not “technically” NO: option contract YES: offeree hasn’t
REQUIRED for acceptance acceptance until created when accepted until he
(option contract) FULL performance performance begins completes performance
If PERFORMANCE IS AN 62 YES: contract is NO NO: he has accepted the
OPTION for acceptance locked in once contract and is bound to
(assumed bilateral contract) performance begins complete the
 performance
If PERFORMANCE IS 32  YES NO: offeror assumes YES: offeror assumes
AMBIGUOUS for risk of ambiguity risk of ambiguity
acceptance

COMMON LAW: IMPERFECT ACCEPTANCE & COUNTEROFFER

Mirror Image Rule- acceptance has to be in EXACT terms of the offer 🡪 an addition or variation is
considered a rejection and a counteroffer, not an acceptance
 Focuses on the content of the acceptance
 Modern contract law distinguishes between:
 Conditional: “I accept, but only if X and Y”
 Treated as: implied rejection and counteroffer
 Mere suggestion or inquiry (counter inquiry): “I accept and would prefer X and Y”
 Treated as: acceptance with request based on convenience

ACCEPTANCE - UCC
UCC § 2-206
 (1) Unless otherwise unambiguously indicated by the language or the circumstances;
 (a) an offer to contract shall be construed as invited acceptance in any manner and by any
medium reasonable under the circumstances
 (b) an order or other offer to buy goods for prompt of current shipment shall be construed
as inviting acceptance either by a prompt promise to ship or by the prompt or current
shipment of conforming or non-conforming goods
 BUT such a shipment of non-conforming goods does not constitute an
acceptance if the seller reasonably notifies the buyer that the shipment is offered
only as an accommodation to the buyer (see below)
 (2) Where the beginning of a requested performance is a reasonable mode of acceptance, an
offeror who is not notified of acceptance within a reasonable time may treat the offer as having
lapsed
 IMPORTANT: unlike common law, under the UCC, if the offeree chooses to accept by
performance, he MUST NOTIFY the offeror of his decision to accept by performance
 ***if there is only one writing and then performance, this is a 2-206 issue***

UCC: ACCEPTANCE BY PEROFRMANCE (SHIPMENT) ^

UCC § 2-206(1)(B)
 Shipment of Goods = VALID ACCEPTANCE (UNLESS OTHER ACCEPTANCE IS
SEPCIFICALLY PROVIDED FOR)
 If a buyer of goods places a “purchase order” that doesn’t specify how acceptance is to
occur, the seller may accept by either promising to ship the goods or actually shipping the
goods
 Accommodation Shipment WITH notification to buyer = NOT ACCEPTANCE
 If the seller is “accommodating” the buyer by shipping what the seller knows and says
are non-conforming goods, this does not act as an acceptance
 Remember: seller MUST notify the buyer of non-conformance in order to
prevent his acceptance of the buyer’s offer (and this his own inevitable breach)
 In this situation, the seller is making a counter-offer that the buyer can accept or reject
 Buyer accepts 🡪 forms a contract for the quantity and type of goods actually sent
by the seller, not for those originally ordered by the buyer
 Buyer rejects 🡪 he can send back the goods
 **in either event, seller will not be found to be in a breach (as long as he
notified the buyer of non-conformance)
 UCC: IMPERFECT ACCEPTANCE & COUNTEROFFERS
§ 2-207: THE BATTLE OF THE FORMS
The UCC reject’s common law’s “mirror image” rule 🡪 will often lead to a contract being formed even
though the acceptance diverges from the offer. Whenever possible, UCC tries to find a contract, so as to
keep the parties from weaseling out (which they often try to do when the market changes)
Comes in to play if the response to an offer for the sale of goods adds or changes terms
 § 2-207(1): Conditional v. Unconditional 
 A definite and seasonable expression of assent won’t get through the gateway if the
offeree makes explicit that their assent is expressly contingent to the additional or
different terms contained in the acceptance 
 Not enough to say the acceptance is “subject to the terms and conditions of this
acknowledgement” 
 Offeree must make clear its unwillingness to go forward without affirmative
agreement to the additional or different terms
 § 2-207(2): Additional Terms (in Offeree’s Expression of Acceptance)
 ADDITIONAL TERMS
 Non-merchants (at least one party is not a merchant): proposals for addition to
the contract become part of the contract with the offeror’s consent
 Merchants: additional terms become part of the contract UNLESS EITHER:
0. The offeror expressly limits acceptance to his own terms, OR
1. Additional terms materially alter the offer, OR
 Example: a disclaimer of warranty will always be found to
materially alter the contract, so if the seller includes such a
disclaimer in his acknowledgement form after receiving the
buyer’s purchase order, the disclaimer will not become part of
the contract
 Anything that would make the offer’s balance change 🡪 one
party would be worse off
 Warranty disclaimer might meet this threshold
1. The offeror objects to alterations within a reasonable time
 § 2-207(3): Agreement by Conduct
 If a contract was not formed under 2-207(1) and (2), but the parties’ conduct still
demonstrates that some contract does exist, then the terms of the contract consist of the
terms on which the two writings agree and such other terms are as supplied by default
under Article 2
 “Conduct by both parties, which recognizes the existence of a contract, is sufficient to
establish a contract for sale, even if the writings of the parties don’t otherwise establish a
contract”
 Conduct indicating acceptance is sufficient to establish a contract
 “Terms of the particular contract consist of those terms on which the writings of the
parties agree, together with any supplementary default UCC terms”
 The terms of the contract will be those on which the writings of the parties
agree
 If the acceptance is silent on some terms in the offer 🡪 acceptance on those
terms: if an issue is handled in the offer and NOT handled in the acceptance, the
acceptance will be treated as covering all terms of the offer, including those it did
not address

UCC 2-207(2): ACCEPTANCE WITH DIFFERENT TERMS

The court uses three approaches to handle different terms:
 1. Treat different terms as additional terms under 2-207(2):
 Additional terms become part of the contract UNLESS EITHER:
1. The offeror expressly limits acceptance to his own terms, OR
2. Additional terms materially alter the offer, OR
 Example: a disclaimer of warranty will always be found to materially
alter the contract, so if the seller includes such a disclaimer in his
acknowledgement form after receiving the buyer’s purchase order,
the disclaimer will not become part of the contract
1. The offeror objects to alterations
1. Knock Out Rule
 Different terms cancel each other out and neither become part of the contract; use UCC
gap filler
 There’s an implied warranty in Art. 2 which stipulates a “reasonable time”
 Majority of reported decisions
1. Fall Out Rule 
 Offeror’s terms win 🡪 the conflicting term in the offeree’s acceptance simply drops out
 Avoids the Last Shot Rule

UCC: ACCEPTANCE BY SILENCE OR INACTION

General rule: silence cannot constitute an acceptance
Some circumstances where accepted by silence is implied:
 Silence in the face of receipt and enjoyment of a benefit with knowledge of an expectation of
payment creates a contract (implied from conduct)
 Silence when construed against a prior course of dealing might also constitute acceptance
 If offeror is justified in a return reply and reply is never received
 Intended to protect the offeror from a sneaky offeree, but it can also be reversed
EXCEPTION: Silence may be acceptance if
 An implied-in-fact contract is formed by conduct, but not put into promissory words clearly 🡪 a
fact finder must examine and interpret the parties’ conduct to help define the unspoken
agreement 
 Trade practice: buyer has a history of retention of goods on prior shipment form seller
DURATION OF THE POWER OF ACCEPTANCE
For an acceptance to be valid, it must become effective while the power of acceptance is still in effect
EXAM STRATEGY: where there is doubt about whether the acceptance is timely:
1. Pinpoint the moment at which the “acceptance” became effective; and
2. Ask whether the power of acceptance was still in effect at that moment
If the answer to part (2) is YES, the acceptance was timely/valid

TERMINATION OF POWER OF ACCEPTANCE: 5 Ways to Terminate

These five ways apply ONLY to revocable offers 🡪 the ordinary offer is revocable at the offeror’s wish
(an irrevocable offer is called an option contract [see next section])
1. Rejection: if the offeree rejects, his power of acceptance is terminated 
0. Rejection is absolute 🡪 once expressed, you can’t say “no wait I accept!!”
0. Once rejected, offer cannot be revived unless the offeror chooses to revive it
a. Implied rejection: the offeree creates a new offer (counteroffer) which the original offeror
can then accept or not
0. Example: “25 for the cage” … “I’ll give you $20”
b. EXCEPTIONS: rejection will not terminate the power of acceptance if either:
0. The offeror indicates that the offer still stands despite the rejections; OR
i. The offeree states that, although he is not now accepting, he wishes to consider
the offer further later (“I’d like to keep considering your original offer”)
 1. Counter Offer: if the offeree makes a counter offer, his power to accept the original offer is
terminated just as if she had flatly rejected the offer
0. Contrary statement: but, as with a rejection, a counter-offer does not terminate the power
of acceptance if either offeror or offeree indicates otherwise
0. Example: If B said, “I’ll buy 50 from you right now for $4; otherwise, I’d like to
keep considering your original offer” then A’s offer would remain in force
a. Be sure to distinguish counter offer from exploration: statement like “would you
consider” or “I might be interested in…” will typically have a non-counteroffer effect so
that the original offer stays open
1. Lapse: the offeror, as “master of his offer,” can set a time limit for acceptance 🡪 at the end of this,
the offeree’s power of acceptance automatically terminates
0. Assuming no termination or revocation, an offer lasts only as long as the offeror says it
will last
a. An offer for an unstated amount of time remains open for a reasonable time
b. Happens faster in a fluctuating market
c. Offer presented in an oral conversation lapses when the two parties part
d. Direct negotiations: when parties are bargaining face-to-face or over the telephone, the
power of acceptance continues only during the conversation unless there is evidence of
contrary intent
2. Revocation: the offeror is king of the offer and is free to modify or revoke his offer at any time
before it is accepted (except in case of option contracts, below)
0. Once revoked, the offer is dead
a. Strips the offeree of the power to accept
b. It is sufficient that a reliable source relays the message due to achievement of the same
result
0. Example: A offers to B. A offers and sells to C, but doesn’t relay revocation to B
and neither does a reliable third party. B accepts A’s offers. BOTH contracts
are enforceable because there was no revocation. A breaches one contract.
3. Death or Incapacity: if either the offeror or the offeree dies or loses the legal capacity to enter into
a contract, the offer is automatically terminated
0. Does not apply after acceptance 🡪 then it becomes an issue of impossibility of
performance
a. Majority rule: even if offeree has a legal representative, the offer dies
b. Does not hold if the offeree was notified or was aware of the death/incapacity
c. Outdated rule: This is true even if the offeree doesn’t learn of the offeror’s death or
incapacity until after he sent what he intended as an acceptance (this is outdated and a
public policy problem)

PRESERVATION OF AN OFFER: 3 Ways to Ensure Irrevocability (OPTION CONTRACTS)

The ordinary offer is revocable at the will of the offeror 🡪 this is true even if the offer states that it will
remain open for some state period of time, and even if the statement is in writing
HOWEVER, there are three exceptions to this rule that can render an offer irrevocable
**Option contracts are separate contracts promising to hold the offer open for a period of time**
1. Common Law: The Standard Option Contract w/ Consideration
 Offeror grants option contract (promise to hold offer open)
in exchange for consideration from offeree
 “I’ll give you $5 to hold the offer open until X”
 MUST BE IN WRITING & SIGNED BY
OFFEROR
 Gratuitous verbiage without consideration =
not irrevocable:
 Even if the offeror states that his offer is
“irrevocable for a certain period,” and even
if he uses the word 
“option,” the offer is still revocable at the offeror’s will unless there’s a written
recitation in the offer that the consideration will be or has been paid
 Counter-offer, rejection, revocation, death,
or incapacity do NOT terminate power of
acceptance: if an irrevocable offer exists,
these terminations of the power of
acceptance don’t apply
 For it to be enforceable, the promise itself must be an exchange transaction that is
supported by consideration
 A must receive something from B in order to hold the offer open for a certain period of
time and not be able to revoke
 What B gives A must be separate from the principle of the contract
 Under UCC, if the consideration is accepted, the firm offer rule does not apply
1. UCC Firm Offer
 An offer to buy or sell goods is firm offer (irrevocable – bound to stay open) IF the offer:
 Is by a MERCHANT
 Is in a SIGNED WRITING
 Gives EXPLICIT ASSURANCE that the offer will be held open
 Provides that it will be held open, and may not be revoked for the period
specified
 Consideration is NOT REQUIRED
 If NO PERIOD IS STATED, then it’s automatically for a period not to
exceed 3 months
 Applies when the offeror tries to revoke due to lack of consideration
 Presence of signed writing serves to assure that the open offer was deliberate
2. Reliance: Temporary Irrevocability as the result of the offeree’s partial performance or
detrimental reliance 
 Justified reliance = EXCEPTION to the common law’s “must provide consideration” rule
 The offeree’s partial performance or detrimental reliance may convert an otherwise-
revocable offer into a temporarily irrevocable one
 In other words 🡪 an offer that induces detrimental reliance of a substantial
character may be enforceable if enforcing it is necessary to prevent injustice (it
can be enforced as binding even without a promise of irrevocability and
consideration)
 Offeree MUST HAVE relied to his detriment
 Three main situations where this may occur:
0. Offer for unilateral contract: Where a promise is exchanged for performance, i.e.
where acceptance = performance, the beginning of performance by the offeree
makes the offer temporarily irrevocable (offer must stay open to offeree until
completion)
 Mere preparation to perform is not enough!!!
 As long as the offeree continues to diligently perform, the offer
remains irrevocable until he has finished
 Offeree is still bound to complete performance 🡪 stopping
performance would be a breach!!!
 UCC doesn’t address this 🡪 leaves it to common law
1. Unclear whether unilateral or bilateral: Where offeree can accept either by a
promise OR by performance, beginning performance by the offeree makes the
 offer temporarily irrevocable (offer must stay open to offeree until offeree
completes performance)
 Offeree is still bound to complete performance 🡪 stopping
performance would be a breach!!!
1. Preparations by Offeree: If the offer is for a bilateral contract (i.e. a contract
which is to be accepted by a return promise), the offeree’s making of
preparations will cause the offer to be temporarily irrevocable if justice requires
(*think: sub-contractors and general contractors)
 “An offer which the offeror should reasonably expect to induce
action or forbearance of substantial character on the part of the
offeree before acceptance and which does induce such action or
forbearance is binding as an option contract to the extent necessary
to avoid injustice." Rest.2d, § 87(2)
 Offers by sub-contractors: an offer by a sub-contractor to a general
contractor will often become temporarily irrevocable under this rule

DURATION OF THE POWER OF ACCEPTANCE

The Mailbox Rule
 Not applicable to the international sale of goods 🡪 becoming increasingly less important
 Comes into play when there is a period of delay in the parties’ communications (acceptance is
sent before revocation is received) 
 In most courts, acceptance is effective upon proper dispatch
 This is designed to protect the offeree against revocation while his acceptance is in transit
 EXCEPTION: this rule isn’t applicable if the offer provides otherwise (“this offer will be
accepted if and when your letter of acceptance is personally received by me”)
 Lost in transmission? Effectiveness of acceptance depends on whether it was properly addressed
 Properly addressed = the acceptance is effective at the time of dispatch even if it is lost
and never received by the offeror at all
 But a court might “discharge” the offeror in this circumstance 🡪 for instance if he
had sold the goods to someone else
 Not properly addressed/properly dispatched (e.g. sent by unreasonably slow means) = the
acceptance is effective at the time of dispatch only if it is received within the time in
which a properly dispatched acceptance would normally have arrived
 If it comes later than this “normal” time, it will not be effective until receipt
Option Contracts
 The acceptance of the option contract is effective upon receipt of the offeror, not upon dispatch
 Rationale: since an offer in an option contract is irrevocable, the protection against
revocation isn’t necessary
 Business custom (not black letter law): unless otherwise specified, an option contract is
exercised only upon notification to the offeror
Offeree sends BOTH acceptance AND rejection
 The time of acceptance depends on which one was dispatched first:
 Rejection sent first: the acceptance will be effective IF AND ONLY IF the offeror
receives it before he receives the rejection (i.e. the acceptance must be delivered faster
than the rejection)
 Acceptance sent first: the acceptance is effective upon dispatch, and the subsequently
dispatched “rejection” (really a “revocation of acceptance”) doesn’t undo the acceptance,
regardless of whether that rejection is received by the offeror before or after he receives
the acceptance
 CONSIDERATION
WHAT IS CONSIDERATION?
The most fundamental requirement limiting the enforcement of promises
Restatement: Something given in exchange for the promise that is bargained
for
 Can be an act, promise to do something in the future, promise not to
do something in the future
Multiple Reciprocal Inducement: two legal detriments that have been bargained for; giving something
that induces me to give something back
 For a valid contract, you must have offer, acceptance, and
consideration
 No consideration 🡪 contract is generally unenforceable
May come from or be received by a third party: it doesn’t matter whom or to whom the detriment moves,
as long as they were bargained for and given in exchange for a promise
Two Elements of Consideration:
1. Both parties must suffer a LEGAL DETRIMENT 🡪 i.e. each gives up something of value or
circumscribes his liberty in some way
 Legal detriment can be an act, a promise to do something in the future, or a forbearance
(a promise NOT to do something in the future)
 Cannot be something you don’t have a legal right to do/give up
 Intangible items count
 i.e. Noneconomic benefits = CONSIDERATION: a bargain may exist even
though the promisor doesn’t receive any economic benefit from it 
🡪 Hammer v. Sidway: uncle promised nephew $5,000 if nephew refrained
from smoking and drinking until he reached 21. Contract was
enforceable because the uncle was clearly attempting to obtain
something he regarded as desirable (his nephew’s health, morality, etc.)
so there was a bargain and a legal detriment = consideration
 Does not need to be equal/balanced between the parties
1. The detriments are BARGAINED FOR
 Informal, unrelied upon, or gratuitous promises are generally not enforced
 Promisee must know of promisor’s offer and must have intent to accept it
 Presumption is that there was fair bargaining between the parties
Why require consideration?
 Evidentiary function: consideration is objective evidence of the parties’ intent to make a binding
agreement; distinguishes promises intended to be binding from those that were intended as
obligations of honor/gifts/others for which no legal consequences were intended
 Cautionary function: if the parties know that providing consideration makes the other’s promise
enforceable, parties will be more careful and less likely to make bad bargains
 Conversely, they’ll take fewer precautions during the negotiation stage (before giving
consideration) and this will reduce transaction costs
Doctrine of Nominal Consideration 
 A promise should not be enforced when consideration was not truly bargained for 
 When both parites are aware that the consideration is a sham, and deliberately disguised as a
bargain when merely was a gratuitous promise, enforcement should be denied 
 Doesn’t deal with inadequacy of the consideration 🡪 rather flags the nature of the transaction
 A mixture of motives, only one being exchange based 🡪 consideration exists
 Only thing not enforceable in the exchange is the gift
Compromise or Surrender of Claims
 A surrender of a valid claim constitutes consideration 
 Relinquishment of a claim constitutes consideration as long as either:
  The claim is objectively founded OR
 If groundless, the claimant honestly believes the claim is valid

WHAT IS NOT CONSIDERATION?

Invalid legal claim without good faith
 Must have good faith belief that the claim is valid and reasonable for it be considered
consideration
Promise to perform a pre-existing duty (or forbear from something illegal)
 a Promise to do something which a party is already bound to do could not constitute
consideration for a contract modification
 The modified agreement had to be made with new consideration (helps prove the
modification did not come in some sort of bad faith situation)
 EXCEPTION #1: Common Law’s “Unforeseen Circumstances” Rule
 A modification of an already existing contract can be binding if the modification is fair
and equitable in light of new/different circumstances that weren’t anticipated at the
formation of the contract [RS § 89]
 EXCEPTION #2: UCC’s Modification W/o Consideration is Gucci Rule
 A sale of goods contract can be modified without any additional consideration, even if
the other party promises to do exactly what it had previously promised to do [UCC § 2-
209(1)]
Illusory Promises
 Illusory promise- a statement which appears to be promising something, but doesn’t actually
commit the promisor to doing anything at all
 Courts try to avoid striking down contracts for lack of consideration 🡪 one way they do
this with illusory promise is by finding that the promisee made an implied promise
 Lucy Lady Duff Gordon (designer label case)
 EXCEPTION: charitable gifts
Gratuitous Promises
 Conditional gifts (usually no consideration)
 Typically cases where the promisee must meet certain conditions in order to receive the
gift, but the meeting of these conditions is not really “bargained for” by the promisor 
 EXCEPTION: where the occurrence of the condition is a benefit to the promisor, there IS a
bargain
 Test: is the occurrence of the condition a benefit to the promisor?
 If yes 🡪 the promisee’s action was probably bargained for, so probably
consideration
 If no 🡪 the promisee’s action was just a necessary pre-condition, so no
consideration
Altruistic pleasure alone
 The fact that the party who promises the gifts expects to derive altruistic pleasure (love and
affection) alone from the giving the gift does not constitute a “bargain” (no exchange)
 EXCEPTION: a transaction that’s a mixture of bargain and gift IS consideration
 Example: aunt promises to sell her niece the family car at a price they both
recognize is a large discount to its market value (the niece’s promise to pay the
discounted price & aunt’s promise to give the car at a bargain makes
consideration)
Gifts already given (not even really applicable)
 Once the promisor gives the gift, he can’t later rescind for lack of consideration
 It’s only the promise to make a gift, not the actual giving of the gift, that is unenforceable for lack
of consideration
Past consideration (promise to pay for past services)
  Where one party suffered a legal detriment before the promise was made, the promise obviously
wasn’t bargained for
 Something that happened before a promise cannot be consideration for that promise
 Example: X promises to pay for past services given to him by Y (most commonly, Y is a
Good Samaritan who saved X [who is typically unconscious])
 There’s no consideration here because there was no reasonable expectation of
payment/compensation
 Don’t be fooled by tricky fact patterns making you think there was consideration,
such as:
 Unconscious person regains consciousness immediately after the rescue
and then promises to pay the savior 
 The savior happens to be someone with medical expertise, such as a
retired doctor 🡪 that’s still a past service
 A relative of the saved guy promises after the fact to pay the savior 🡪
there’s still no bargaining because it was a past service
 The promise to pay is made in writing and/or is promised “in
consideration” for the services rendered 🡪 writing down that there was
consideration does not mean there was consideration
 **distinguished from EMS provided by parties who WOULD
reasonably expect compensation**
 Example: ambulances, hospitals, etc.
 Makes a future promise essentially a gift 

WHAT IS SOMETIMES CONSIDERATION?

Promises
 General rule: exchange of promises is consideration
 Each party’s promise constitutes consideration for the other’s promise
 Mutuality of obligation
 EXCEPTION: illusory promises
 Not really promises to do anything
 Can be:
 Reserved full discretion (can choose not to)
 Promises based on a condition that can’t occur
 Courts sometimes limit and impose obligation of “good-faith effort”
Prior Obligations
 Can’t be something a party is already obligated to do
 KEY: determine the extent of the prior obligation
 ASK: does the new promise make an additional obligation?
 Often arises in construction cases 
 Examples:
 Existing legal obligation not to break the law 🡪 NO CONSIDERATION
 An organizational obligation: promise to remain a member of a club 🡪
CONSIDERATION (you could’ve quit at any time)
 Pre-existing contractual duty: promise to abide by the terms of the contracts 🡪 IT
DEPENDS (courts are split 🡪 you were free to breach the contract, but you were already
obligated)
Forbearance of Legal Claims
 Release of a valid legal claim is consideration
 Release of an invalid legal claim is consideration only if it is made in good faith (must be an
honest belief and a reasonable basis for the claim)
  Based on belief only at the time of the conception of the claim, not when the claim is
determined invalid
 Forbearance does not have to be an actual detriment, only a legal detriment
 Legal detriment- restriction of rights and/or freedoms
Past Actions
 General rule: past consideration is no consideration
 EXCEPTION: Material Benefit Rule (Implied-in-Law/Quasi Contract)
 Promise + Material Benefit = Consideration
 Created under the law of restitution to prevent an unjust enrichment
 Requirements:
 Promise to repay for past act is:
 Unsolicited
 Immediate or very close
 Continuing indication of intent to carry out promise (big help)
 AND a material benefit arose from the past act (i.e. your life was saved)
 Not based on promise or fault 🡪 ultimately turns on the existence of a material benefit
 Does not apply to volunteers who confer benefit gratuitously
 Webb v. McGowen (a Harrison favorite): 
 “Where the promisee cares for, improves, and preserves the property of the
promisor, even without request, it is sufficient consideration for the promisor’s
subsequent agreement to pay for the service because of the material benefit
received”
 Life and preservation of the body are usually considered material benefits

CONSIDERATION SUBSTITUTES
Material Benefit [Past action + material benefit = consideration (promise + prior benefit conferred)]
 Exception to the past consideration rule
 Three exceptions:
1. A debt barred by the statute of limitations (SoL runs out but indebted reaffirms obligation
to pay)
2. Debt discharged in bankruptcy 
3. Promise to perform a previously voidable obligation
Promissory estoppel/reliance [Promise + unbargained-for reliance)
 If one party relies to his detriment on a promise, he may be able to recover reliance damages
despite the fact that the promise wasn’t binding: the party’s reliance must have been
FORESEEABLE
 Based on a false statement of a past or present fact
 Elements that must be satisfied for recovering reliance damages under promissory estoppel
(Restatement 90):
1. There was a promise
2. There was justifiable and detrimental reliance on the promise by the promisee
3. The promisor should have expected to cause the promisee to change his position by
taking some action or forbearing from acting
4. Enforcement of the promise is necessary to prevent injustice
 Commonly hinges on whether promisor should have foreseen reliance on their promise and
whether non-enforcement would cause an injustice
 Possible applications of promissory estoppel:
 Offers by sub-contractors (only if there’s reliance on the part of the general contractor)
 Promises to make a gift (I’ll pay for your tuition 🡪 scott’s tots)
 Charitable subscriptions (a written promise to a charitable subscription is generally
binding even without consideration)
  Promise of a job
Restitution
 Available to either party (even the one who breaches)
 Benefit conferred which unjustly enriches the other party
 People usually get reliance damages, not expectation damages


Moral obligation/material benefit rule

 Generally, prior moral obligation is not recognized as consideration so as to make the promise
enforceable
 EXCEPTION: Restatement (second) of contracts §86:
 A promise is made in recognition of a benefit previously received by the promisor from
the promise is binding to the extent necessary to prevent injustice
 A promise is not binding under this rule if the promisee conferred the benefit as a gift
or for other reasons the promisor has not been unjustly enriched; or its value is
disproportionate to the benefit 
Equitable estoppel
 Defense throughout the law (not just contracts cases)
 Invoked to bar a person who misstates certain facts from later asserting the truth of the earlier
misrepresented matter against a party that relied to its detriment on the first statement
 Based on a false statement in the past 

UCC ADDITIONAL OPTIONS FOR CONSIDERATION: Requirements & Output Contracts

Requirements Contract: the parties agree that the seller will be the exclusive source of all the buyer’s
requirements for a particular item for a particular specified period of time
Output Contract: the parties agree that the buyer will be the exclusive purchaser of all of the seller’s
output of a particular type of item
 UCC § 2-306. Output Requirement and Exclusive Dealings
 “Actual output or requirement may occur in good faith, EXCEPT that no quantity
unreasonably disproportionate to any state estimate or in the absence of a stated estimate
to any normal or otherwise comparable prior output or requirements may be tendered or
demanded.”
 Requirement contract: the buyer can only “require” as much as he needs for his
business 🡪 he can’t put in a requirement for more items than he needs and then
resell the rest
 Output contract: the seller cannot wildly overproduce the item that the buyer has
contacted to be the exclusive purchaser of
 (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind
of goods concerned imposes unless otherwise agreed an obligation by the seller to use
best efforts to supply the goods and by the buyer to use best efforts to promote their sale
 Requirement contract: the buyer must make best efforts to promote the sale of the
good
 Can’t simply decide that the entire product line is not worth carrying
 Output contract: the seller must make his best efforts to supply the good
 Can’t simply decide to stop selling/manufacturing the good
 BOTH: Consideration is implied
 BUT 🡪 best efforts does not mean you have to kill your own business

INTERPRETING THE CONTRACT: Passing the Parol Evidence Rule to Add a New Term
PAROL EVIDENCE GENERALLY
Limits the extent to which a party may establish that discussions or writings prior to the agreement should
be taken as part of the agreement
A substantive law about what terms and obligations survive the formation of the contract (not a rule of
evidence)
Only applies to WRITTEN agreements

PAROL EVIDENCE RULE: PARTIALLY v. COMPLETELY INTEGRATED AGREEMENTS

Parol Evidence Rule: applies when a party wants to add an additional term after the contract has already
been made
 Limits the extent to which a party may establish that discussions or writing prior to the signed
written contract should be part of the agreement
Integrated Agreement: complete and final expression of the agreement (parol evidence rule applies only
to documents which are integrations, i.e. the final expressions of agreement)
 Can be one term of the contract or the entire set of promises
Partially integrated agreement: complete and final expression of the agreement on the terms it provides,
but not intended to include all the details of the agreement
 The written contract is the beginning and end of the discussion as to its integrated terms
 Prior agreements/evidence on terns contained in the partial integration are discharged 
 Prior agreements/evidence relating to any other term not addressed in the agreement is kept
 Party can only introduce evidence of consistent additional or supplementary terms
 i.e. court won’t admit evidence that would contradict a term in the contract
 If an agreement is partly oral and partly written, it is partially integrated AT MOST 
 can’t be fully integrated because it’s not a completely closed universe in the
writing
 Bottom line: evidence may be admitted if it doesn’t contradict a term in the writing
 Example: writing says $20, the parties verbally agree to $25, and then the party signs the
writing 🡪 parol evidence knocks out the price deal because written contract is the
beginning & end of discussion
Completely integrated agreement: a complete and final expression of the agreement that is intended to
include all details of the agreement
 Restatement § 209: a completely integrated agreement is one that reasonably appears to be, in
view of its completeness and specificity, a complete statement of the terms related to the deal
 Common law bottom line: no evidence may be admitted to a completely integrated agreement
 UCC § 2-202(3): Asks if the additional term being offered, if agreed upon, would have certainly
been included in the parties’ final agreement
 Courts look for “integration” or “merger clauses” that serve to establish the agreement as a
complete integration, such as:
 “this agreement is a complete expression of the parties’ understanding of the terms
of this deal,” or
 “this writing contains all of the terms related to the subject matter of this deal”
 UCC test: would the deal have been signed without the terms being offered?
 Presence of an integration/merger clause is VERY compelling evidence that the
contract is completely integrated
 Harrison says merger clause 🡪 99% chance of complete integration
 If you see a clause, ADDRESS IT
 IMPORTANT: an integration/merger clause does NOT affect implied warranties 🡪
possible “completely integrated agreement” workaround 🡪 is the term implied?
 The parol evidence rule never bars consideration of subsequent oral agreements
 i.e. A written contract can always be modified after its execution by an oral agreement

WHERE THE PAROL EVIDENCE RULE DOESN’T APPLY (EXCEPTIONS TO THE RULE)
A party may ALWAYS introduce extrinsic evidence (without having to pass the scrutiny of the PER) to
show:
 Fraud, misrepresentation, duress, or mistake defenses
 Existence of an agreement that was not completely integrated
 Applicable to show that relative sparseness of agreement lends credence to the claim that
there were additional terms
 Existence of an oral condition precedent (re: express warranty) to the effectiveness of the contract
 When there is a deal complete on its face, but there is a precedent event or agreement of
significance that is not in writing
 Existence of a collateral agreement supported by separate consideration
 The agreement can’t be inconsistent with the complete integration
 Proof of subsequent transactions
 Explain a written term of the agreement that is ambiguous (most common)
 *AS LONG AS YOU’RE NOT ADDING A TERM*

INTERPRETING THE CONTRACT: Ambiguity and External Evidence

INTERPRETATION
Most courts today allow parties to introduce extrinsic evidence to aid in the interpretation of a contract,
even if the writing is an integration
Ambiguous terms
 If a term is found to be ambiguous, extrinsic evidence must be allowed
 Extrinsic evidence 🡪 evaluated by the jury, not the judge
 Unambiguous term 🡪 judge’s duty to define it
 A judge can use two methods to interpret an ambiguous clause:
1. The Plain Meaning Rule (4 corners) – NY & FL
 The judge looks ONLY at the contract, unless ambiguity
arises and can be shown within the four corners of the
document, evidence can’t be introduced that is inconsistent
with the terms in the offer
 Under this rule, extrinsic evidence is often
admitted only when the contract is contradictory
 Parties may usually introduce extrinsic evidence
only when the contract is contradictory or when
the terms are vague and have no accepted meaning
2. External Evidence Rule – CA, Judge Traynor
 More lenient to bringing in external evidence to show the
ambiguity of a term than plain meaning rule
 Provides for finding ambiguity in essentially any word on
the premise that all words have more than one meaning;
judge will look at any evidence to determine the intent of
the parties of the contract
 Under this rule, extrinsic evidence can be
introduced more often
 Helpful to start with plain meaning test 🡪 if ambiguity exists in the document
then parol evidence is allowed
 If plan meaning rule fails 🡪 use external evidence to establish
ambiguity
 To interpret ambiguous terms, courts can use Frigalimen’s interpretative tools
 Language of the contract itself (ALWAYS FIRST)
 Reasonableness of proposed interpretation
  EXAM TIP: avoid ambiguity conflict within a contract
where there wasn’t any to begin with
 External Evidence Rule (outside sources) only:
 Communications during negotiations
 Trade usage
 Dictionary definition
 Conduct of the parts
Interpretive Maxims: the courts use these short hand rules to decide which of the conflicting
interpretations of a clause should be followed
 If the primary purpose of the parties in making the contract can be ascertained, that purpose is
given great weight
 All terms will be interpreted so that they will have a reasonable, lawful, and effective meaning
 An ambiguous term will be construed against the person who drafted the contract
 Generic terms will take the meaning from their context
 Negotiated terms will control over standard (non-negotiated or boilerplate) terms
 Courts prefer interpretation that leads to a valid contract or furthers public policy
 Contract should be construed against its drafter (if they drafted a less than perfect contract, the
ambiguity is their fault)
Contracts of Adhesion: The Special Rules of Interpretation: pre-printed, take-it-or-leave-it contracts that
are non-negotiable
 No bargaining is permitted 🡪 no choice but to accept the terms presented
 They are not automatically unenforceable, HOWEVER:
0. Courts will consider them closely and with special care
1. Courts will often narrowly construe the terms in favor of the weaker party
 Ambiguities construed against draftsman
2. Minority Adopted Restatement 211: if the contracting party knew that the other party
didn’t know about some provisions and would not have signed if they did, the court can
delete that provision
 Not reasonable expectations of adhering party 
3. Courts will not enforce terms that appear unconscionable

TRADE USAGE, COURSE OF PERFORMANCE, AND COURSE OF DEALING

INTERPRETATION
UCC Gap fillers 2-204
Three special sources which are used in interpreting the terms of a contract 🡪 especially important in sales
contracts, since the UCC gives these sources specific treatment (this is the court looking at the parties’
actions, rather than their words
 These sources are not affected by the parol evidence rule (i.e. they may be introduced to help
interpret the meaning of the writing, even if the writing is a complete integration)
0. Course of performance: the way the parties have previously conducted themselves in
performing THIS particular contract at hand
 How they acted regarding an ambiguous term or word in THIS one contract?
 If mid-contract there has been an alleged breach, a party can show that over the
life of the contract, the two parties have interpreted the language to mean a
certain thing by the way they behaved
1. Course of dealing: in prior OTHER contracts, have the parties ever used the same
term/word? How?
 Does not violate the parol evidence rule
2. Trade Usage: the trade meaning attached to a particular term in a certain region or certain
industry
 In repetitive and common contracts, certain terms are “old hat”
  UCC 1-303(c): any practice or method of dealing having such regularity of
observance in a place, vocation, or trade as to justify an expectation that is will
be observed with respect to the transaction in question
 Restatement § 222: in entire industry, essentially land and service contract
 Terms are automatically implied in all contracts of the “trade”
 Courts are split on if the term should apply fi the parties were not aware
 Available even when parties aren’t both merchants, or regardless of whether they
knew about the trade usage
Priorities: where more than one of these is present, the most specific pattern controls (i.e. go in order from
express agreement 🡪 course of performance 🡪 course of dealing 🡪 trade usage)

INDEFINITE CONTRACTS AND OTHER OMITTED/IMPLIED TERMS SUPPLIED BY THE

COURT
The courts will generally supply a missing term (a term to which the contract is silent) if it’s apparent that
the parties wanted to bind themselves, and there is a reasonable way for the court to go about formulating
the missing term
Traditional approach: a contract is “too indefinite” to enforce when:
 The terms of the contract were so indefinite that it would be difficult or impossible for the court
to detect breach OR
 Breach is detectable but it would be difficult or impossible for the court to fashion a remedy
Modern (more flexible) approach: indefinite analysis occurs in two steps:
 Did the parties intend to enter into a legally binding deal?
 Is there a reasonably certain basis for the court to fashion an appropriate remedy?
 The more indefinite the agreement, the more likely the parties were not intent on being bound
UCC applies a number of gap fillers that apply unless the parties provide otherwise 
Duty to continue business: in requirement and output contracts, generally there will not be a duty to
continue the business (assuming the owner acted in good faith when he closed it down)
Terms Applied to Achieve Public Policy Goals:
 Implied covenant of good faith and fair dealing (this term is always implied in a contract)
 Imposes obligation to refrain from taking (or not taking) actions that would deprive the
other party of the benefit of the bargain
 Contracts with terms of satisfaction may imply discretion in good faith
 Contracts subject to conditions require party to use good faith
 Good faith is hard to prove: it’s easier if a party can objectively prove that lots of
others would have done 🡪 if the term is clearly meant to be subjective, it’s
tougher
 EXAM TIP: consider what the parties would have agreed to at the time
of contract formation
 Express Terms trump Implied Terms of Good Faith, unless necessary to protect
the contract
UCC Supplied Terms
 UCC will provide various terms thought to be necessary to form a definite contract
 UCC 2-305: May Insert Price: a reasonable price, assuming the parties otherwise agreed to
conclude their deal without agreeing to a price, which would occur if the item for sale had a
well-established market price
 UCC 2-308: Place of Delivery: seller’s residence or place of business
 UCC 2-309: Time for Performance: a reasonable time 
 UCC 2-312: Implied Warranty of Title: a promise that the seller owns the goods sold
  UCC 2-314: Implied Warranty of Merchantability: Goods sold by a merchant will match the
description in the contract, be at least of fair average quality, and will be fit for the ordinary
purposes for which goods are used
 Contract language can negate or change any of these terms!!!

WARRANTIES
WARRANTIES GENERALLY
A warranty is just a promise (any promise you relied on)
 Common law: UCC warranties can be used in common law
 UCC: warranties are automatically in unless expressly taken out
Three kinds of warranties:
1. An express warranty
2. Implied warrant of merchantability 
3. Implied warrant of fitness for a particular purpose
Breach of warranty: strict liability type of offense 🡪 no proof of bad intent is required
 Irrelevant that the seller/warrantor wasn’t aware of the claim or whether or not he intended to
mislead the buyer
 Also irrelevant if the buyer actually relied on the warranty in deciding to buy
Generally, merger clauses eliminate express warranties 

EXPRESS WARRANTIES
Explicit promise or guarantee by the seller that the goods will have certain qualities (typically an oral
statement, but can also be written)
ASK: was the express warranty made before or after the contract?
 If before 🡪 is it included in the writing? Is there a merger clause? Parol evidence rule?
 If after 🡪 is it a modification? Does it need consideration?
 If UCC: no, just need good faith
 If common law: yes
Express warranties by the seller can be created as follows: 
 An affirmation of fact or promise that relates to the goods and the basis of the bargain
 A description of the goods made part of the basis of the bargain
 A sample or model of the goods made part of the basis of the bargain
Formal words like “warranty” or “guarantee” aren’t necessary for the express warranty to be created, nor
is it needed that the seller have the specific intent to create one
Puffing is NOT an express warranty
 If the seller is expressing an opinion or using embellishing salesmanship tactics (“this is a top
notch car” 🡪 not making a warranty

IMPLIED WARRANTIES
Assurances concerning the seller’s title to the good and the good’s basic quality 
 By operation of law, these are automatic unless they are excluded by an express disclaimer
 Do not depend on anything that the seller says or does
Three important types:
1. Implied Warranty of Title [§2-313]
1. There is warranty by the seller that:
 The good title will be rightfully transferred AND
 The goods are free and clear of any third-party claims, including liens,
encumbrances, claims arising by way of infringement, etc.
 1. UNLESS the buyer knows (or should know) that the seller is not claiming to have title
or that the seller is only selling whatever rights to title that he (or third party) may
have
1. Implied Warranty of Merchantability [§2-314]
 “Unless excluded or modified, a warranty that goods shall be merchantable is
(ALWAYS) implied in a contract for their sale if the seller is a merchant with respect
to goods of that kind.”
 Requirements:
0. Merchant with respect to goods of that kind 🡪 food and drink included
i. Goods to be merchantable must be at least such that 
0. Others in trade would have recognized them as described
1. Others in trade would conclude fair average quality of the goods
described
2. They are fit for the ordinary purpose within the trade which the
goods are used for
3. Are within variations permitted by the agreement
4. Adequately packed and labeled as the agreement requires
5. Conform to promises/affirmations of fact on the label/container, if
any
ii. Other implied warranties that may arise from the course of dealing or trade
usage
 BOTTOM LINE: goods sold to you by a merchant will always have an implied
warranty of merchantability that guarantees that the good is fit for the ordinary (NOT
UNUSUAL) purposes for which the good is intended
1. Implied Warranty of Fitness for Particular Purpose [§2-315]
 Goods are not defective, just not fit for the purpose that the buyer intended
 Much harder to establish that merchantability (simply that goods are defective)
 Important to consider buyer’s purpose, why the goods were unfit, and why he though the
goods would fit
 Analysis:
 If the seller affirmed foods would serve buyers purpose 🡪 EXPRESS
WARRANTY
 If goods are not fit because they’re defective 🡪 MERCHANTABILITY
 If there wasn’t an express warranty or an ordinary purpose, why’d the buyer
buy? 
 Relied on his own recourse 🡪 NO RECOURSE
 Relied on the seller and the seller knew that 🡪 maybe warranty for
particular purpose
 TEST to determine implied warranty of fitness for a particular purpose:
 Seller must know (or have reason to know) of buyer’s particular purpose
 Seller must know (or have reason to know) that buyer is relying on seller’s skill
or judgment to furnish or select appropriate goods
 Buyer must actually in fact rely upon seller’s skill or judgment 
 Mitigating factors in favor of the seller:
 Buyer examined the good or a sample of the good
 Buyer examined a product manual for the good

WARRANTY COMPARISON
Express Warranty v. Implied Warranty for Particular Purpose
 Seller affirmation v. buyer relying on seller’s judgment 
  Seller “puffing” by giving opinion does not create an express warranty, BUT giving an opinion
that the buyer relies on to buy a good for a particular purpose is implied warranty of particular
purpose
Ordinary Purpose v. Particular Purpose (particular doesn’t mean unusual)
 Why the public generally buys v. why the buyer is buying 
 Example: boots to look nice in v. steel-toe boots for working
BOTTOM LINE
 If seller affirmed out loud or in writing that goods would serve buyer’s purpose 🡪 EXPRESS
WARRANTY
 If goods are not fit because they’re defective 🡪 IMPLIED MERCHANTABILITY
 If there wasn’t express warranty or ordinary purpose, why buy?
 Relied on his own recourse 🡪 NO RECOURSE
 If buyer relied on the seller and the seller knew that 🡪 IMPLIED FOR PARTICULAR PURPOSE

WARRANTIES: EXCLUSION OR MODIFICATION

Express Warranties
 Words of conduct creating express warranty and those negating or limiting the warranty should
be construed consistently if possible
 Subject to parol evidence rule, negation or limitation is inoperative if not reasonably consistent
 *Courts are careful to construe creation and negation consistently
 If unable, whatever lessens or takes away from what was expressly granted in negated
Implied Warranties
 Merchantability: in order for any part of this to be modified or excluded, the language MUST
mention merchantability, and, if it’s in writing, it must be conspicuous
 Conspicuous: heading in capital letters or larger contrasting font from other text
 Not conspicuous: BUYER MUST BE AWARE OF THE DISCLAIMER for it to be
effective
 Fitness for particular purpose: in order to exclude or modify this, the exclusion must be made by
a writing and conspicuous
 Language to exclude all implied warranties of fitness is sufficient if it states, for example,
“no warranties extend beyond description on the face of this document”
No implied warranties when
 There is an expression like “as is” or “with all faults” or other common language that draws
buyer’s attention to exclusion of warranties
 Buyer EXAMINES THE GOODS (or sample/model) as desired, or declines the chance to do so
before entering the contract, with regard to what ought to have been revealed to him when/if he
had examined the product
 Exclusion or modification: maybe a course of dealing, course of performance, or trade usage
WARRANTY EXAM TIPS:
 ASK: what is the goal? Enforce the contract and get damages OR avoid the contract?
 To enforce and get damages 🡪 claim warranty and breach
 To avoid 🡪 claim misrepresentation 
 Same issues, different goals
 Don’t jump on one type of warranty 🡪 run through all of them IN ORDER
 Express 🡪 implied for ordinary purpose 🡪 implied for particular purpose
 If it’s a close call, say that!! (and say why)
 If it’s super obvious, say which one it is, but ALWAYS ARGUE THE OTHER SIDE

DEFENSES TO NOT ENFORCE

VOID v. VOIDABLE
Void- contract could never be enforced
  In avoiding a contract, there is no liability for damages
Illegality
 Contract is void if terms of the contract are illegal
 No recovery for either party 🡪 both parties are culpable, so the court “leaves them where it finds
them”
 Doesn’t have to be criminal law, can be any law that protects from such conduct 
 TIP: consider the policy served by a law 🡪 raise $$ or protect the public?
Public Policy Defense & Non-Compete Agreements
 Can be something that violates a law (illegality) OR public policy (case law) (§ 178)
 Defense is not limited to agreements that directly or indirectly violate a legislative enactment 🡪
can be determined by case law
 Covenants not to compete are presumed to be against public policy unless they are necessary
 Courts consider the reasonableness of the business’s need for the protective agreement,
the duration of the agreement, and the geographic region covered 
 TIP: weigh “good protection” v. “anti-competition”
 Based on reasonableness to circumstances
 Generally, these cases balance the public policy of:
 Freedom of contract
 Restraint of trade
 Freedom to compete
 Right of the employee to earn a livelihood 
 Covenant not to compete is invalid unless it has a legitimate interest beyond the desire to
protect from competition
 NOT ENFORCED WHEN:
 Restraint is greater than necessary to protect employer’s legitimate interest; OR
 Employer’s interest is outweighed by the hardship to the employee and the likely
injury to the public
 Courts generally deal with non-competes in one of three ways (EXAM TIP: If all he is
asking is if it is enforceable no need to go through three step analysis):
0. Blue Pencil Rule: you can blue pencil covenants to eliminate severable and
unreasonable provisions, but cannot go so far as to create new sentences (FL’s
preferred rule)
1. Throw it out: Applies to completely unenforceable and unreasonable 
2. Completely rewrite it: According to how the court feels is appropriate
Unconscionability (UCC § 2-302 & Restatement § 208)
 EXAM TIP: do not go to unconscionable unless there are VERY CLEAR SIGNALS – first
consider duress, undue influence, or misrepresentation 
 EXAMPLE: Unconscionability is for circumstances like when someone literally doesn’t
speak English or there’s some crazy clause buried on page 10
 Unconscionable- so one-sided given the circumstance AT THE TIME OF THE CONTRACT
 Can be found entirely unenforceable or that only certain terms are unenforceable
 IMPORTANT: TO PROVE UNCONSCIONABILITY THERE MUST BE BOTH
PROCEDURAL AND SUBSTANTIVE UNCONSCIONABILITY 
 Procedural: problems with the agreement process 🡪 party was induced to enter the
contract without having any meaningful choice
 UCC 2-302: unfair surprise
 Substantive: problems the terms of the contract 🡪 a clause that is unduly unfair
 Were the terms fair or oppressive at the time of the agreement?
 This question must be objectively discussed at the time of the agreement
 UCC 2-302: prevention of oppression
 Seven factors relevant to determining unconscionability:
 0. Standardized contract executed by parties of unequal bargaining power (Proc.)
1. Lack of opportunity to read and understand before signing (Proc.)
2. Use of fine print (especially if it’s the provision in question) (Proc.)
3. Relationship of the parties, including factors of assent, unfair surprise, and notice (Proc.)
4. Absence of evidence that the contract was commercially reasonable (Sub.)
5. The terms of the contract (Sub.)
6. All circumstances surround the formation of the contract (Proc. and Sub.)
 Determined as a matter of law (under UCC and common law)
 Arbitration Clause- rise in cases using unconscionability to challenge these
Mistake: Misunderstanding, Mutual Mistake, or Unilateral Mistake
 It’s harder to get out of a contract for mistake than it is for duress or misrepresentation 🡪 it’s a
case by case issue 
 Mistake- a belief that is not in accord with the facts
 Mutual Misunderstanding- parties agree to a certain term, but each attaches a different meaning to
that term (i.e. Peerless case)
 Restatement 20: doctrine of mutual misunderstanding only applies in cases where a
different meaning is attached to a material term AND 
 Neither party knows nor has reason to know the meaning attached by the other,
OR 
 Each party does know or have reason to know the meaning attached by the other
Mutual Mistake (when both parties have the same mistaken belief [§ 152] 
 EXAM TIP: Analyze who assumed the risk
 Common occurrence is mismarked price tags
 Mutual mistake is usually an accident 🡪 ASK: who was in the best position to avoid the mistake?
 If it’s a purchase/sale contract, usually the seller because he has better access/knowledge 
 A contract is voidable by a party adversely affected IF:
 It was a mistake of both parties at the time the contract was made
 The mistake concerns a basic assumption on which the contract was made; AND
 The mistake has a material effect on the “agreed exchange of performance;” AND
 The adversely-affected party isn’t the one who agreed to bear the risk of mistake
 A party assumes the risk of a mistake when:
 The risk was allocated to that party by the contract, OR
 There was conscious ignorance by that party (typically to the party who
will have an easier time bearing it)
 Typically the party who has the lowest cost to avoid the mistake is the party who
bears the risk (who would the parties have agreed bore the risk at the time of the
contract)
 Courts will deny relief if:
 There is simply bad judgment or ignorance, not a “legal mistake”
 The mutual mistake is not material
 There is a mutual material mistake, but under the circumstances, the person seeking relief
should bear the risk of mistake 
Unilateral Mistake: when only one party has a mistaken belief [§ 153]
 EXAM TIP: Analyze who assumed the
 Where the mistake is unilateral, it’s harder for the mistaken party to avoid the contract
 Common occurrence is mathematical or clerical errors in bids that were fairly obvious
 If the party that made the mistake discovers it before the other substantially relies, they
can rescind or reform its bid 
 UNILATERAL MISTAKE IS VERY RARE 🡪 BE CAREFUL GOING TO IT UNLESS IT’S
OBVIOUS
 Usually only when the deal would be unconscionable 
  The mistaken party must prove the same three requirements for mutual mistake PLUS an
additional requirement: 
 Three basic requirements: the mistake must be as to a basic assumption, the mistake
must have a material effect on exchanged performances, and relief seeking party
doesn’t bear the risk
 Additionally, AT LEAST ONE of the following must be the case:
 The mistake is such that enforcing the contract would be unconscionable 
 The other (non-mistaken) party had reason to know of the mistake, or his fault
caused it
Policy Problems with Mistake
 Proof: how do you prove what you were thinking at the time of the deal?
 Policy: do we really want to excuse people from doing what they said they would?
 Conceptually – mistake prevents mutual assent 🡪 was there really even an agreement?
 Ethically – shouldn’t the law reward efficient bargaining?
Mistake Defenses
 Typically parties can get relief even when the mistake was negligent (includes both mutual &
unilateral)
 HOWEVER, if the mistake is from a party’s failure to read the contract, he will NOT normally be
entitled to rescind
Two Main Mistake Remedies
 Avoidance/rescission of the contract + restitution (each party returns the benefits he received
from the other)
 Reliance (especially where restitution/avoidance wouldn’t work because one party suffered
losses, but the other party hasn’t received benefits)
Voidable- contract could be avoided if a party chooses
 In rescission, each party gives back what they received from the other (restitution is the ONLY
option 🡪 no reliance)
Fraud and Misrepresentation Contracts (UCC defaults to Common Law rules)
 Fraud- person has to know that he is lying with the intent to mislead
 Misrepresentation- can be fraudulent or innocent, but it must be material
 § 159: Misrepresentation is an assertion not in accord with the facts
 § 160: A action intended or likely to prevent another from learning a fact is an assertion
 § 161: Non-disclosure is equivalent to an assertion when:
0. Party knows disclosure would correct mistaken belief of other party about the
contract, or non-disclosure would be failure to act with good faith (“wide
exception”), OR
1. The other party is entitled to know disclosed facts due to parties’ relationship of
trust/confidence (not an arms-length deal)
 § 164: Misrepresentation must be fraudulent or material
0. Must have been foreseeable reliance on misrepresentation and the party must
have relied
 No UCC 🡪 same concept as in the common law
 Misrepresentation burden of proof falls on the party looking to avoid the contract
 Misrepresentation by omission: disclosure- duty to disclose, inform, or reveal whenever
justice, equity, and fair dealing demand it
 Obligation depends on how information was obtained
0. If by own effort (research, etc.) 🡪 party doesn’t have to disclose
1. If fortuitous (got lucky) 🡪 party should disclose 
 Non-disclosure with concealment is treated as a misrepresentation
 Irrelevant without concealment 🡪 a person is not required to tell another all he
knows, even if he is aware that the other person is not aware of the facts
  Taking the next step in concealing the existence of the fact is when it becomes a
problem 
Lack of Capacity (UCC defaults to Common Law)
 Minors/Infants § 14 – contracts entered by minors are typically voidable
 After some reasonable time, the contract becomes “ratified’ and is no longer voidable
 EXCEPTION: doesn’t apply to necessary items (if 17 year old gets kicked out, her may
need to sign for a lease and the contract won’t be voidable)
 EXCEPTION: emancipated minors, only if certified or determined by a court
 Mental Illness/Defect § 15 – contracts entered by person with mental illness are voidable IF:
 Person has cognitive impairment (unable to understand the consequences), OR
 Person has volitional impairment (unable to act and the other party knows)
 HOWEVER, if the contract has fair terms and is made without knowledge of mental
illness, the power of avoidance terminates:
0. To the extent that the contract is already performed (in whole OR part); or
1. Circumstances have changed in a way that makes avoidance unjust
 Intoxicated Person § 16 – contracts entered are voidable if the other party knows that, due to
intoxication, the other party is unable to EITHER:
 Understand in a reasonable manner the nature and consequences of the contract, or
 Act in a reasonable relation to the transaction
Duress and Undue Influence (UCC defaults to Common Law)
 Duress: can be physical (§174) or economic (§175); it’s typically economic in a contract
 Objective standard 🡪 NEED BOTH:
1. An Improper Threat (§176): person trying to enforce a contract applied wrongful
pressure, AND
2. No Alternative: person trying to avoid contract had no reasonable alternative 
 Undue Influence (§177): much lower standard than duress (more leeway)
 *subjective standard* 🡪 NEED BOTH:
0. Susceptibility of the weaker party (lessened capacity to make free choice)
1. Over persuasion by the stronger party (excessive strength by a dominant party)
 Usually involves on of the 7 following elements:
0. Discussion of contract at unusual or inappropriate time
1. Consummation of contract in an unusual place
2. Insistent demand that the contract be finalized at once 
3. Extreme emphasis on the consequences of delay 
4. Multiple on the dominant side v. one party on the weaker side
5. No time to consult with professionals/attorneys
 Duress v. undue influence
 Duress is two requirements (check boxes) and undue influence is more flexible in
considering various factors

BREACH
BREACH BY OTHER PARTY: OTHER PARTY’S TOTAL NON-PERFORMANCE 
Party is excused from performance and has cause of action against other party for breach 

ANTICIPATORY REPUDIATION: OTHER PARTY INDICATING AN

UNWILLINGNESS/INABILITY TO PERFORM
Repudiation- a refusal to fulfill or discharge an agreement 🡪 this is a breach of contract (§ 250)
Prospective Inability to Perform- an indication of a party’s desire to perform but inability to do so
Anticipatory repudiation- a notice indicating a party’s refusal to perform
  If an anticipatory repudiation is to be material (i.e. the party’s refusal to perform substantially
impairs the value of the contract), it will excuse the other party’s duty to perform on the
contract
 This requires an unequivocal indication of intent not to perform (must be absolutely declaring
non-performance)
 Uncertainty about whether there has been an unequivocal indication of nonperformance can
cause a party to anticipatorily repudiate because he honestly, but mistakenly, believed that the
other party anticipatorily repudiated
 Options after repudiation? [§ 2-610] 🡪 after receiving an unequivocal indication of the other
party’s intent not to perform, the aggrieved party may EITHER (1) immediately resort to any
remedy he chooses, provided he moves in good faith or (2) wait for a commercially
reasonable time for performance from the repudiating party
 In either case, the aggrieved party has freedom to choose whether or not he suspends
his own performance because he is discharged of his duty to perform 
 OPTION #1-STOP AND SUE: After receiving an unequivocal indication of the other
party’s intention not to perform, the aggrieved party can stop performing and sue
immediately instead of waiting for a breach to happen
 Also favorable for the defendant because the non-breaching party can
mitigate damages rather than having to wait for breach
 Dilemma: occurs when the non-repudiating party believes the repudiating party has
absolutely declared that they will not perform (and thus the non-repudiating party makes
itself unavailable) but the repudiating party only send a notice of a prospective inability to
perform, not an unequivocal indication
 In this case, if time for performance on the contract comes and the “repudiating” (but
not actually) party performs, but the first (originally aggrieved) party isn’t available,
the FIRST party is in breach

REPUDIATION INSECURITY BY CONDUCT: PARTY HAS REASONABLE GROUNDS FOR

INSECURITY
Anticipatory repudiation is not available if the words and conduct of the party in question are equivocal
Reasonable insecurity from the other party, however, MAY demand assurance from the party in question
 §2-609 Right to Adequate Assurance of Performance [same in common law: §251]
 When reasonable grounds for insecurity of performance arise, either party may in writing
demand adequate assurance of due performance, AND
 May suspend performance until such assurance is received 
 Merchants: reasonableness for insecurity is commercial standards
 Acceptance of improper delivery or payment does not prejudice right to demand adequate
assurance for future performance
 After receipt of justified demand, failure to provide such assurance in a reasonable time
not to exceed 30 days is a repudiation of the contract
 If the demand wasn’t justified and the receiving party ignores it, failure to
respond it is NOT a repudiation 🡪 if the first party suspends or fails to perform,
they are IN BREACH 
 A response that’s on the fence usually isn’t repudiation
 Three possible litigable issues:
1. Were there reasonable grounds for insecurity?
2. Was the assurance offered adequate?
3. Was it commercially reasonable to suspend performance until receiving adequate
assurance?
 §2-611: Retraction of Anticipatory Repudiation
  The repudiating party can retract its repudiation as long as the other party hasn’t relied on
it 
 The non-repudiating party doesn’t have a say unless they changed its position in reliance
on it

IMPROPER PERFORMANCE BY OTHER PARTY: WHEN IS PERFORMANCE EXCUSED?

There is a HUGE difference between the Common Law and the UCC regarding improper performance!
Common Law: Material Breach [§237]
 Non-breaching party’s performance is excused only if there is a material breach (a major screw
up)
 What is “material?” [§241] 🡪 significant circumstances to determine are:
 Extent the injured party will be deprived of expected benefits 
 Extent injured party can be adequately compensated for deprivation 
 Extent breach party will suffer forfeiture
 Likelihood breaching party will cure, considering circumstances
 Extent breaching party used standard of good faith and fair deal
 CANNOT be a material breach due to (lack of) quantity or quality
 CANNOT BE A MATERIAL BREACH AND SUBSTANTIAL PERFORMANCE 🡪
THEY ARE MUTUALLY EXCLUSIVE 
 If there’s a substantial performance, you must finish performance and sue for
damages of breach 🡪 if your performance was not substantial, you can stop
immediately and sue for breach and damages
 Anything less than full performance is a breach and damages can be recovered 🡪
substantial performance is just used to determine if the other party is excused from
completing their performance
 Only material breach excuses further performance under common law 
UCC Perfect Tender Rule [§2-601]
 Improper performance is almost always on the seller 🡪 by manner of what goods are delivered or
how they are delivered
 Buyer may be excused from performance (paying) if the seller doesn’t give perfect tender
(conforming goods)
 If the goods or tender of delivery fail in any respect to conform to the contract, the buyer
may choose to either:
 Reject entirety of goods (without risk of breach) 
 Accept entirety of goods (has to pay, but can recover damages)
 Accept some and reject some 
 EXCEPTION #1: Shipping Non-Conforming Goods as an Accommodation Shipment 
 The shipment of non-conforming good is not a breach IF THE SELLER
NOTIFIES THE BUYER that the shipment is only an accommodation 
 EXCEPTION #2: Cure by Seller of Improper Tender or Delivery; Replacement (2-508)
 Where non-conforming goods have been rejected and the time for performance
has not expired, the seller can notify the buyer of his intention to cure and may
do so within the original contract time
 EXCEPTION #3: Perfect Tender Rule Does Not Apply to Installment Contracts (2-612)
 Buyer can reject any installment non-conforming goods if it substantially impairs
the value of the installment and cannot be cured
 If it can be cured, the buyer must give the seller a reasonable
opportunity 
 If a non-conformity of 1 or more installments substantially impairs the value of
the whole contract, there is a breach of the whole 🡪 BUT the aggrieved party can
 reinstate the contract if he accepts non-conforming goods WITHOUT
NOTIFYING the seller

CONDITIONS: WHEN OCCURRENCE & NON-OCCURRENCE OF EXPRESS CONDITIONS

EXCUSE PERFORMANCE
Express Conditions
 Express condition is language in a contract that excuses the contract’s other promises rather than
creates new promises
 Failure to satisfy an express condition is not a breach
 Non-occurrence of an express condition excuses performance
 Magic words to identify express conditions: “if,” “only if,” “provided that,” “so long as,” “subject
to,” “in the event that,” “unless,” “when,” “until,” “on condition”
 If not one of these words of phrases, probably not an express condition under court
interpretation
 Look for phrasing “the condition is satisfied”
 If condition has been satisfied, then there is no excuse of later non-performance based on
nonoccurrence of the express condition
 Only satisfied if strictly complied with 
 If the parties explicitly agree that a duty is conditional upon the happening of some event, that is
an express condition
 Do not affect whether the contract exists, only the legal obligation to perform 
 Do not create a new obligation, only modify or limit obligations already in place
 That do not occur are not a breach 🡪 neither party promised the condition would occur
 There’s a requirement to use good faith/diligent effort to meet the condition
 BUT REMEMBER: law does not require the performance of a futile 🡪 inserting a
condition that is impossible to meet would be no consideration and no contract
 Strict compliance with an express condition is ordinarily required [§225]
 EXCEPTION #1: Courts typically avoid applying strict compliance to express conditions
where a forfeiture would result [§227]
 A forfeiture: when one party has relied on a bargain, the insistence on the
strict compliance with the condition would cause him to not receive his
expected benefits from the deal 
 Example: B’s duty to pay for the house is expressly conditional upon
the finished house matching the exact specifications of B’s architect
 Architect builds entire house correctly except the living
room, which is 6 inches too short
 EXCEPTION #2: Courts find that the fulfillment/performance of an express condition
may also be excused where extreme forfeiture would occur [§229]
 This will only be done if the damage to the other party’s expectation from
non-occurrence of the condition is relatively minor (i.e. court would probably
excuse the non-occurrence of the condition above because the damage to B’s
expectations from the short living room is relatively small)
 Conditions Precedent: pre-requisite to the parties’ obligation to perform
 Precedes parties’ obligations to pay and sell
 Non-occurrence of a condition precedent excuses performance
 Concurrent Conditions: Condition is meant to occur at the moment of performance
 Parties to contract are meant to exchange performances at the same time and each
performance is dependent on the performance of the other
 Example: Promisor and Promisee agree on the sale of a car to take place at 3 p.m. at the
corner of University and Main. The payment for the car and the delivery at the specific
time and place are concurrent conditions, if neither performs, each is excused
  Condition Subsequent: post-contractual limitation on the duty to perform 
 Doesn’t create a new obligation, but rather limits a contract obligation otherwise created
 Occurrence excuses continuing performance
 Constructive Conditions: terms under which a party’s duties to perform are conditioned on the
performance to be given in return (these conditions are supplied by the court)
 Substantial performance is required
 Most widely recognized is the implied obligation of good faith

MODIFICATIONS AS EXCUSES
Common Law [§89]: Promise Modifying Duty of Contract
 A modification requires consideration UNLESS the modification is fair and equitable due to
circumstances that were no anticipated at the formation of the contract
UCC [§2-209] – An Agreement Made by ALL Parties to Change the Terms of the Contract
 The UCC does NOT require consideration to make a modification of a contract 🡪 only requires
good faith 
 An attempt at modification that does not satisfy the requirements can operate as a waiver
 **Always first claim modification, then waiver if fallback position 

WAIVER AND ESTOPPEL AS EXCUSES

A party who owes a conditional duty may indicate that she will not insist upon the occurrence of the
condition before performing 
In some circumstances, her willingness to forego the benefit of a condition will excuse that condition 🡪
this is a waiver
 Waiver: A voluntary act or declaration relinquishing a known privilege or right
 The person protected by the express condition precedent can waive the non-occurrence 
 Can be determined by course of dealing or course of performance 
 You cannot waive without knowing that you waived 🡪 must be intentional
 A provision that an express condition of a promise cannot be eliminated by a waiver or by
conduct constituting estoppel IS WHOLLY INEFFECTIVE
 A non-waiver clause may be some evidence of non-waiver, but it may itself by
waived just like any other contractual 
 Retraction of Waiver [§2-209(5)]: when waiver is given without consideration, the waiving
party may reinstate the rights that have been waived upon reasonable notice that gives a
reasonable opportunity to comply, UNLESS
 The other party relied on the waiver and materially changed their position, making it
unjust to retract the waiver
 Estoppel: when another party reasonably relies to his detriment
 Plays a big part in determining if the waiver can be retracted

IMPOSSIBILITY AND IMPRACTICABILITY EXCUSE NOT TO PERFORM

All of these are defenses to a breach 🡪 essentially mean that something major happened that was not
provided for in the contract, AND that this major event created a substantial change that was so different
from what was assumed when making the contract that it has changed the nature of the transaction
 How substantial is the change to the party looking to be excused?
 PARTY LOOKING TO BE EXCUSED CANNOT HAVE ASSUMED THE RISK! (this is
critical)
 Commercial Impracticability/Impossibility
 A post-contract occurrence that made the ability to perform completely and
utterly impractical to sustain or impossible through no fault of the parties
 EXAM TIP: Analyze who assumed the risk
  Basic Assumption: the occurrence was assumed to be a non-occurrence
 Restatement §261: Excused unless circumstances indicate otherwise 
 UCC §2-615: Where impracticability only affects part of capacity 🡪
seller must allocate accordingly 
 Impracticability for sellers 🡪 UCC
 Impracticability for Buyer 🡪 Common Law
 “This was more expensive than we anticipated” is generally not
impracticability 🡪 must be a really big financial overrun
 Damage or destruction of subject matter of contract : excuses
performances if damage or destruction truly makes performance
impossible 
 Destruction of the buyer’s money can never be an excuse for
nonperformance
 Something made more expensive or inconvenient due to damage
is not impossible to rebuild
 UCC: has to be the goods identified when the contract
was made
 Performance can be impracticable when it can only be done at excessive
and unreasonable cost but that it is best an outlier
 Legal Impossibility
 After contract is signed, but before performance starts, a law makes performance
illegal 
 Parties are still physically able to perform it but are excused for legal
impossibility
 Different from physical impossibility
 EXAM TIP: Analyze who assumed the risk
 Force Majuere Clause is an EXCEPTION to Impracticability/Impossibility if it’s
included in the contract 🡪 it will prevail, so use its language 

FRUSTRATION OF PURPOSE
A post-contract occurrence, not anticipated by the contract, that does not affect the parties’ abilities to
perform, but affects the mutually understood purpose for the contract
ASK: What was the purpose that the parties entered the contract at the time?
 If there is (1) Frustration of Purpose of the contract and (2) BOTH parties understood the purpose
(“basic assumption”) of the contract at the time it was made, then the remaining contractual
duties are discharged [§265]
 Use the language “basic assumption” instead of “mutually misunderstood”
The purpose of the contract has become valueless by an unforeseeable supervening act
There are four requirements to defend against performing become of frustration:
1. The object of one of the parties in entering into the contract must have been frustrated by a
supervening event
2. The other party must also have contracted on a basic assumption of both parties regarding the
object
3. The frustration must be total or nearly total—the principal purpose of the contract must be either
totally or substantially frustrated
4. The party seeking to use the defense must not have assumed a greater obligation than the law
imposes or be guilty of a contributory fault

REMEDIES
REMEDIES: ENFORCING THE DEAL
Remedy- something to compensate the non-breaching party for the consequences of the breaching party’s
actions
Goal: to make the non-breaching party indifferent as to equitable (performance) or damage ($$) remedies
 Parties’ intentions usually not a factor in determining the amount of damages awarded
 i.e. intentional breaches are generally treated the same as non-intentional ones
Contracts is completely amoral and strict liability (unless an excuse applies) 🡪 don’t care if you breach 
 If you make a contract, you either perform or you pay
 NEVER damages for pain and suffering or punitive 
 Efficient breach: sometimes it makes sense to breach if no one is worse off
Types of damages available when:
 Contract is void or avoided 🡪 restitution (repay the benefit conferred)
 Contract is breached 🡪 Expectancy, reliance, or restitution 
 Contract provides damages 🡪 Liquidated damages (if not a penalty)

EQUITABLE REMEDIES
Sometimes the court will award “equitable remedies” instead of the usual remedy of money damage
Two types of equitable relief relevant to contract cases
1. Specific Performance
 Orders the breaching party to do what they promised to do
 Courts rarely resort to doing this
 Would rather just award the loss incurred from the breach in money damages
 Very difficult for a court to adequately enforce performance
 Courts order specific performance when damages are inadequate to compensate and when
it is fair and reasonable to compel performance 
 Most cases focus on inadequacy of the remedy as opposed to fairness
 Often applied to the sale of a unique item (most contracts do not fit these
requirements)
 Clean Hands Doctrine: a party can’t be rewarded specific performance if he was any part of
the problem (i.e. doesn’t have clean hands)
 Must have (1) inadequate remedy and (2) equity
1. Injunctions
 Person is ordered to not to do something (court enjoins you)
 Especially common in convenant not to compete cases
Limitations on Equitable Remedies
1. Inadequacy of Damages: the court won’t grant equitable relief unless damages (money) are not
adequate to protect the injured party
0. Two reasons why damages may not be adequate in contracts:
0. The injury cannot be estimated with sufficient certainty
i. Money cannot purchase a substitute for the contracted-for-performance (i.e. land)
0. Re: land: each piece of land is deemed unique, so the remedy for a sale of
land contract is ALWAYS specific performance 
1. Definiteness: the court won’t grant equitable relief unless the contract’s terms are definite enough
to enable the court to frame an adequate order
2. Difficulty of enforcement: the courts won’t grant equitable relief where there are likely to be
significant difficulties in enforcing and supervising the order (courts aren’t managers)
Land Contracts
 Most common situation for specific performance
Personal Service/Employment Contracts 
 Specific performance: the courts almost NEVER order specific performance, and that goes for
BOTH sides
  i.e. the court won’t order the employer to resume employment, nor will it order the
employee to perform the services
 Injunction: Where an employee under an employment contract breaches, the court may grant an
injunction that prevents him from working for a competitor
 The employer must show that (1) the employer’s services were unique and extraordinary,
and (2) the likely result will not be to leave the employee without other reasonable means
of making a living 
Sale of Goods
 Specific performance will sometimes be granted in sale of goods contracts
 This is especially likely in the case of output and requirement contracts, where the item is not in
ready 
Code Provisions
 UCC §2-716 Buyer: goods are unique or other proper circumstances
 UCC 2-709(1)(b) Seller: can recover if unable to find another buyer at a reasonable price

DAMAGE REMEDIES
Limitation of Remedy: Repair, Replace, or Return Money Paid
 UCC §2-719(2): when remedy provided for in the contract fails its essential purpose, the UCC
applies
 Big Problem in Contract Law: contract says only remedy is seller shall repair or replace within
their sole discretion (of course)
 Seller fails to adequately repair after several attempts, OR in repairing other issues start
popping up from the work to the goods
 Buyer either wants the goods replaced with new goods, wants to return the goods
for the purchase price, or wants to sue seller for damages
 Seller wants to keep trying to fix the old good to limit his out of pocket cost
 At what point has the remedy failed?
Liquidated Damages: Established by Parties in Contract
 There’s a term included in the contract that pre-determines what the damages will be if a breach
occurs
 Enforced if reasonable at the time of contract enforcement, in light of the anticipated or actual
harm
 A liquidated damages clause is enforceable if it appears that, at the time the contract was
executed, (1) the parties contemplated that a failure to close may result in injury, (2) such
damages would be indeterminable or difficult to calculate, and (3) the amount represents a
reasonable proportion of the contemplated injury
 Used when actual damages would be difficult to determine and unreasonable to include UCC §2-
718 and Restatement §356: the liquidated damage clause must be reasonable considering
anticipated or actual harm from breach; it would also be inconvenient/difficult/non-feasible to
establish damages; void if it’s a penalty
 TWO PART TEST for Liquidated Damages:
1. It would be difficult to ascertain damages; AND
2. Amount is a reasonable forecast of damages likely to occur in the event of a breach
 A LIQUIDATED DAMAGES CLAUSE IS UNENFORCEABLE IF CREATES A PENALTY; if
this is the case, the nonbreaching party gets actual damages
 Even if the clause is labeled as a liquidated damages clause, if it acts like a penalty it
won’t be enforced
 Court looks for reasonableness of the predetermined damages
1. Old Rule: If the damages were reasonable at the time of the contract, then they
are enforceable (more consistent with allowing parties to contract freely/benefit
of the bargain) 
 2. New Rule: Courts consider what actually happened; if the breach didn’t cause
any actual damages then the liquidated damages clause will be unenforceable
(more consistent with not allowing penalties; harder to get them to apply) 
 NOT Liquidated Damage Clauses:
0. Fixed amounts that do not depend on time or volume 
 This is a penalty 
 Amount should vary depending on the damages of the non-breaching
party
1. Prior income 
 UNDERSTATED (a little too small) Liquidated Damage Clause:
0. If arguing that the actual amount should be higher: procedurally and
substantively unconscionable term?
1. If arguing to keep the term: that was the term bargained for and the argument
based upon?
Expectancy Damages
 Expectancy damages are the monetary equivalent of where you would’ve been had the contract
not been breached
 There are three types of expectancy recovery:
1. General: normal foreseeable damages for that type of breach (Loss of Value, Cost of
Performance)
2. Consequential: foregone opportunities due to breach (lost profits) 
3. Incidental: damages incurred when party covered/replaced breach
 The preferred measure of damages (highest $$) 🡪 give benefit of bargain 
 This all applies to NON-BREACHING PARTIES ONLY; breaching parties can only get
restitution 
 Restatement §347: Loss of Value cause by breach, PLUS incidental or consequential damages,
minus any benefit received by breach (cost or other loss avoided) 
 Loss of Value + Incidentals/Consequential – Any Benefit Received = Benefit of the
Bargain Damages
 May include an award of both the gains prevented (profit that would have been made) and losses
sustained as a result of the breach
 May include recover for injuries that were reasonably foreseeable to a reasonable person
 May include money to cover substitute performance
There are two ways to measure expectancy damages:  
1. Loss of Value from Expected Result 
 Value of What Was Promised – Value of What Was Actually Received =
Expectancy Recovery
 Hairy hand idea
 If there’s delayed performance: interest no value of the property for period of delay 
1. Cost of Performance (default) 
 If the buyer breaches BEFORE substantial performance: 
 Amount Spent + Expected Profit – Prepayment = Expectancy Recovery 
 If the buyer breaches AFTER substantial performance: 
 Contract Price – Cost to Repair/Complete – Prepayment = Expectancy
Recovery 
  Note: if the contractor hasn’t substantially performed, that is a material breach and then
they can
Economic Waste Theory: Cost of Performance v. Dimunition of Value  
 Cost of Performance formula is sometimes much larger than the party’s actual loss of value 
 Cost of Performance is the default position, BUT in some cases, the courts will award Diminution
or Loss of Value instead; factors to consider:
 Disproportionate Value: if the values are far apart, maybe do a DoV instead of a CoP
 Ancillary: Was the term the main part of the contract?
 If the non-breaching party didn’t get the benefit purposed by the contract 🡪 CoP
 If it’s just a small part of the contract 🡪 DoV possible, depending on other
factors 
 Good or Bad Faith Breach: court doesn’t like to reward intentional breaches
 Good Faith: parties aren’t opportunistically benefiting from the breach 
 Bad Faith: if breaching party saw an opportunity to profit by refusing to
perform and then intentionally breach 🡪 full cost of performance 
 *Old Position*Economic Waste Theory: if the change in value is only X, why should we pay the
CoP which is much higher? They will just take that money and spend it on something else 
 Modern View: Who cares what they spend their money on? They deserve a better bargain unless
there are other factors that make it unjust 
Coase Theory
 The market will correct itself regardless of what the court decides
 All the court has to do is clearly assign their aware so that the parties clearly know their
bargaining position and then they will work it out for themselves 
 FLAW: theory doesn’t account for transaction costs and only works if parties are equal
financially or the less fortunate party gets the award 
Expectancy Limitations 
1. Avoidable Costs 
 Have to subtract whatever you saved from damages 
 Can’t collect full damages and still avoid costs from the breach; that would
overcompensate 
1. Avoidable Loss (Mitigation)
 Breaching party is not responsible for damages that non-breach party could have
mitigated with reasonable effort and without undue risk 
 Common Law: once informed of breach, cannot keep working to further damages
 UCC: Seller can stop work OR complete, whichever is a reasonable option in his
situation
 If stop: costs incurred at that point + profit 
 If continue: contract price – current market value/resale price
 Not required to mitigate risk if doing so would cause:
 Under risk, undue burden, or humiliation 
1. Foreseeability 
 Damages are those that are REASONABLY FORESEEABLE at the time the contract
was formed 
 To satisfy foreseeability, the damages sought must follow the breach in the natural
course of events, OR the evidence that breaching party had reason to foresee 
 General Damages: automatic
  Special/Consequential Damages depend: not always foreseeable; were they in
this contract, with these parties?
1. Certainty 
 Damages must be proved to a higher certainty

GENERAL DAMAGES
Expectancy
 Forward looking
 A party’s interest in realizing the benefit of the bargain 
 The position you would had been in had there been no breach of contract
 Applicable when there is a valid contract, so when valid, start argument with expectancy
 Restatement 347: measure of damages in general
 Injured party has a right to damages based on their expectation interest as measured by
 The loss in the value to him of the other party’s performance caused by its failure
or deficiency, PLUS
 Any other loss, including incidental or consequential loss, caused by the breach,
LESS
 Any cost or other loss that he has avoided by not having to perform
 Limitations
 Restatement 350: when a contract is repudiated, the injured party is entitled to recover
expectation damages minus: 
 Expenses saved due to breach, variable not fixed costs
 Gains that could not have been made had there been no breach; and 
 Losses that could reasonably have been avoided without undue risk, burden, or
humiliation 
 Restatement 350: Avoidability
 Only allowed to recover expenses already incurred at the time of repudiation plus
additional damages up to the expected profits from full performance
 No obligation to accept replacement work that is done differently or inferior
 Restatement 351: Foreseeability
 Extent of damage to non-breaching party must be reasonably foreseeable
 Damages must arise naturally or have been in the contemplation of both parties at
the time they made contract
Reliance
 A party’s interest in recovering losses suffered by virtue of reliance on the contract, regardless of
corresponding gain to the opposite party
 Position you would have been in the second before you signed the contract
 Backward looking
 Restatement 349: damages based on reliance interest
 Includes expenditures made in preparation for performance, less any loss that the non-
breaching party would have suffered had the contract been performed 
 A party who enters a loser contract is not entitled to recovery that would lead to a net
profit
 Used mainly when:
 Difficult to measure expectancy (profits)
  Recovery with Promissory Estoppel 
 Recovery does not include profits
Restitution
 A party’s interest in recovering values conferred on the other party
 Giving back the money that flowed from the non-breaching party to the breaching party
  Aim to avoid unjust enrichment
 Available to Breaching and Non-breaching parties
 Direct benefit conferred to the other party
 Restitution may offset damages
UCC 
 Expectancy
 Price-Expenses Save=Cost Incurred + Price
 Expenses
 Duty to mitigate damages
 Once breach occurs must stop, unless completion of project is reasonable
(close enough to being finished)
 Cost of Performance vs. Diminution in value
 How to decide which to use-Traditional view is diminution in value
 Not wasteful
 Willful 
 Substantial
 Unless disproportionate 
 Perceived as a windfall? 
 General and Special Damages
 “Direct” or general damages are the type necessary to award the non-
breaching party the benefit of the bargain
 Usually the market value-contract price
 Special damages
 Type of damage that doesn’t occur regularly
 Profit
 In order to show lost profit-have to show figures with reasonable
certainty
 **Substitute Transactions
 “Cover” 2-712: Buyer can make any reasonable purchase of or contract
to purchase to goods in substitution for those due from seller
 And recover the difference between the market price and the
contract price
 Goes the other way for seller as well See 2-706
 *May do these but don’t have to 
 **Contract vs. Market Difference
 2-713 Buyer, 2-708(1)-Seller
 Optional
 Incidentals and Consequential  
 Out of Pocket Expenses-incidentals
 Buyer and Seller both get incidentals
 2-715 and 2-708 (2)
 Specific Performance
 Buyer and Seller
 2-716, 2-719
 Seller can just ask for price (SP for money itself)
 More efficient than specific performance itself
 Posner View?
 Lost Volume Seller
 Reliance
 Mitigation
 Essential and Incidental Reliance
  Expectancy Cap
 Liquidated Damages (2-718)
 Damages that are set “liquidated”
 Reasonable in light of anticipated or actual harm
 If in a situation when damages are hard to determine, go to liquidated
damages because they help to get around the issues of foreseeability and
certainty
Limitations on Damages
 Mitigation
 As stated before, there is a duty of party that suffered the breach to lessen the amount
of damages to breaching party
 Foreseeability
 Harm from breach must be reasonably foreseeable by the breaching party
 Cannot be completely unknown
 Certainty
 Generally, recovery for lost reputation is denied on grounds of uncertainty or
foreseeability
 Usually applies to profits