Contracts

Professor Norberg
Contracts, 8th Edition
Introduction

1. “Contract” defined, R2 § 1 – “a promise or a set of promises for the breach of which the law gives a
remedy...”

 R2 §4 – “a promise may be stated in words either oral or written, or may be inferred wholly or partly from
conduct.”

2. Introduction to determining which promises are legally enforceable

 A promise is legally binding/enforceable where a reasonable person would understand the words and
conduct of the promisor as manifesting intent to be legally bound.
 Enforceable promise: see Hawkins v. Mcgee – Doctor promised a “100% perfect hand,” a quick recovery,
and he repeatedly solicited for the opportunity to do the surgery (that is, the plaintiff did not go to him; it was the Dr.
who went to the plaintiff.) The promise, for containing strong language and through the Dr.’s solicitations, was
enforceable (i.e. a reasonable man would see the doctor’s statements as binding.)
 Not enforceable promise: see Bayliner Marine Corp. v. Crow – the plaintiff claimed that the “prop
matrixes” and the brochure granted an express warranty and fitness for a particular purpose. Court argues that the
boat Crow bought was not the same as the one described in the “prop matrix,” which makes it not applicable – those
facts and promises were relating to THE good described, and Crow bought a different boat; and, that the brochure
was merely a “commendation of performance, not factual description of specific performance” (see UCC § 8 2-
313(2).) Promise was not enforceable.

 There are three theories of contract enforcement:

(a) Contract as a Promise: the law is justified in enforcing a promise when a person intentionally invokes a
convention whose function is to give moral grounds for another to expect the promised performance.
(b) Consent Theory: it is less concerned about morality. Consensual undertakings that reveal an intention to
create a legally enforceable obligation.
(c) Reliance Theory: considers promisee’s reliance on promise made by the promisor. When the promisee
reasonable relies on the promise to his own detriment, the law will enforce it against the promisor in order
to protect the promisee.

3. Introduction to contract law remedies

a. Relief of promisee vs. Punishment of promisor

 (1) Law is primarily concerned with relief of aggrieved promises and not with punishment of promisors.
 (2) The primary purpose of the remedy is to give promisees “the benefit of the bargain” by protecting
expectation interests.
 See United States Naval Institute v. Charter of Communications, Inc. – the purpose of damages for
breach of K is to compensate the injured party for loss caused by breach. Damages generally are not based on
defendant’s gain or profit. Damages in excess of plaintiff’s actual loss would tend to be punitive, and punitive
damages generally are not permitted for breach of K (it focused on the promisee’s loss, and not the promisor’s
gains.)

b. Damages (substitutional relief) and Specific Performance

 The courts usually seek to put the promisee in the position it would have been had the contract not been
breached (substitutional relief/damages.) That is, compensation for the breach, instead of requiring the promisor to
perform (specific performance.) Specific performance remedies are when courts compel the promisor to exactly
perform what was promised. These are sometimes hard to accomplish though, since they may not be available
anymore, or the performance may be undesirable (in Hawkins, the plaintiff would most likely not want another
surgery;) thus, a substitutional relief is more known to happen. Specific performances, however, are used sparingly,
and only when the monetary compensation is inadequate.

The Three Interests, see R2 § 344

(1) Expectation – the award should be just enough money to make the promisee as well off as actual
performance would have made him/her (standard remedy.)
(2) Reliance: See Sullivan v. O’Connor - it puts the promisee in a position “as good as he would have been in
had the contract not been made.” Reliance remedy may be sought if the promisee has changed his/her position to
his/her detriment by relying on the promise. An example is if the promisee incurs costs in preparation to the
promisor’s contract performance; thus, the injury is that the promisee is now worse off as he would have been if the
contract had not taken place. R2 § 344(b) describes it as the promisee being “reimbursed for loss caused by
reliance.” This is considered to be the in between of expectation and restitution damages, and it also includes
OPPORTUNITY COSTS.
(3) Restitution: Puts the promisor in the position he would have been in if the contract had not been made
(unjust enrichment principle).

 Punitive damages are not recoverable for breach of contract, unless when the breach constitutes a tort that
is recoverable.

c. The Theory of “Efficient Breach”:

 Whenever breaching a contract makes the promisor better-off but leaves the promisee just as well off as he
could have been had the promisor performed the contract properly. Transactions that make no one worse-off, but
one better off, are called Pareto-Improving. A Pareto-Improvement can only occur if the other parties involved are
not worse-off, but someone is better off. A situation that does not take the promisee’s compensation into account is
called Kaldor-Hicks efficiency. Basically, as long as the promisor’s gains exceed the promisee’s loss, it is a Kaldor-
Hicks scenario. In this case, the Pareto-Improving scenario gives back the promisee expectancy compensation,
whereas Kaldor-Hicks does not compensate the promisee in any way whatsoever.

4. Sources of K law

 K law has two purposes: (1) ensuring that future promises will be enforced; and, (2) provide default
rules in case not specific.

a. Common Law: every state except Louisiana has adopted the UCC. Provisions of UCC usually trump
common law. Common law applies to contracts for sales of goods, unless it contradicts Article 2.

b. Statutory law/UCC Article 2

(1) Scope of Article 2, UCC §§ 2-102, 2-105(1), 1-103(b): § 2-102 applies to the transactions of goods; it does
not apply to contracts to sell (see Naval Institute). § 2-105 defines “goods” as: all things which are movable at the
time of identification to the contract for sale other than the money in which the price is to be paid, investment
securities and things in action… [it] also includes the unborn young of animals and growing crops and other
identifies things attached to realty as described in the section on goods to be severed from realty.”

(2) Mixed Ks: standard test to see which provision will govern mixed Ks is the “predominant factor test.”
This determines whether the transaction will be of goods, or services. (See CALI exercise for example – person goes
to a dentist to get a tooth filling procedure done. The material used had a defect; however, the predominant factor
test will determine whether the “goods” part of the transactions governs, or whether the “service” part of the
transaction governs.)
c. Restatement (Second) of Ks: this is basically a summarized document of all K laws. Issues not covered are
resolved with Common Law opinions and rules.

d. UN Convention on Contracts for the International Sale of Goods (CISG)

(1) Scope of the CISG, CISG Arts. 1(1), 2, 3(2), 6:

 Art. 1 applies to contracts between people in different states when the states are doing some sort of
transaction/contracting.

(2) UNIDROIT Principles

e. Treatises and legal scholarship

Chapter 1: Bases for enforcing promises

 (1) The seal, (2) Consideration, (3) Past consideration/moral obligation, and (4) Detrimental
reliance/promissory estoppel

1. The seal; and functions of the seal

 Evidentiary: providing trustworthy evidence of the existence and terms of the contract in the event of
controversy.
 Cautionary: this would make people who would put the seal in place cautionary of using their names and
reputation to establish the contract, and understand the importance of that act.
 Channelling: marking the promise as one intended to be legal and therefore to be resolved within the
system of laws (i.e. making it enforceable.)

2. Consideration: Consideration is a basis for enforcing promises. Consideration is (see bargain theory of
consideration below) a promise or performance that is bargained for.

 See R2 § 71 – “(1) to constitute a consideration, a performance or a return promise must be bargained for;
(2) a performance or return promise is bargained for if it is sought by the promisor in the exchange for his promise
and is given by the promisee in exchange for that promise; (3) the performance may consist of: (a) an act other than
a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation.”
 See R2 § 17 – “(1) … the formation of a contract requires a bargain in which there is a manifestation of
mutual assent to the exchange and a consideration.”
 See R2 § 18 – “Manifestation of mutual assent to an exchange requires that each party either make a
promise or begin or render a performance.”

a. The bargain theory of consideration, R2 §§ 71, 79 – CONSIDERATION is:

(1) A promise or performance;

(2) That is bargained for.

 See Hamer v. Sidway – the consideration in this case was the performance in which the nephew conducted.
The performance was refraining from his legal right to drink, smoke, and swear. As it is stated in R2 § 72, any
performance included in R2 § 71 is considered “bargained for,” which in this case would be a forbearance of a legal
right. The estate agent used the argument that the contract was without consideration because unless the promisor is
benefited from the contract, it is considered to be without consideration. This argument was struck down by the
Court.

 Peppercorn: “Even a peppercorn will do; AS LONG AS it is bargained for.” Describes a gratuitous
promise that becomes valid for a mere token of a payment/amount. That is, as long as it is bargained for, it is
consideration, and the promise will be valid.
 E.G.: A desires to make a binding promise to give $1,000 to his son B. A offers to buy from B for $1,000 a
book worth less than $1. B accepts the offer knowing that the purchase of the book is a mere pretense. This is no
consideration…. However, it could maybe be consideration if the value was $100.
 R2 § 71 (comment a): “it is enough that one party manifests an intention to induce the other’s response and
to be induced by it and that the other responds in accordance with the inducement… A mere pretense of bargain
[however] does not suffice, as where there is a false recital of consideration or where the purported consideration is
merely nominal.”
 See Wood v. Lucy, Lady Duff-Gordon – IMPLIED PROMISES are also basis for consideration; in this
case, Lucy claimed that there was no consideration in her promise with Wood. However, the promise of exclusive
rights, and the fact that the earnings that were to be divided equally depended on Wood’s best efforts to exercise its
duties. Without that, there would be no profit whatsoever. Justice Cardozo held that there was an implied promise
from the contract, and it was enforceable.

b. Settlement of Claims, see R2 § 74(1)

 R2 § 74:

(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration
unless
(a) The claim or defense is in fact doubtful because of uncertainty of facts or the law, or
(b) The forbearing or surrendering party believes that the claim or defense may be fairly determined to be
valid.

 Forbearance from a suit on a claim of doubtful validity is sufficient consideration for a promise IF there
is a sincere belief (“good faith”) in the validity of the claim.
 See Dyer v. National By-Products, Inc. – Dyer, National By-Products employee, had a work-related injury.
Defendant put him on a full-paid leave of absence, and came 1 year later and was subsequently laid off. Plaintiff
sued defendant claiming that defendant had offered him lifetime employment if plaintiff had not pursued
personal injury claim (he did not have a valid claim, however). Plaintiff claimed he forbeared his claim for the
agreement of lifetime employment.
 Note: the plaintiff in this case did not have a valid claim, worker’s compensation was the recoverable damage
for the injury, and he received it. However, the Court remanded the case because it told the lower court to
evaluate whether Dyer had good faith in believing he had such a claim to forbear in the first place (even if it had
no legal basis).
 The Courts usually favor settlements to save $ (efficiency) by avoiding litigation; these settlements, also, are
usually considered Pareto-improving for both parties.

c. Transactions lacking bargained-for-exchange

(1) Gratuitous promises, see R2 §§ 71, 81:

 These are NOT enforceable because there is no promise or performance by promisee. Enforceable contracts
must be bargained for. Actions voluntarily taken in reliance on a gratuitous promise are not consideration. A
promise must be offered in order to induce the promisee to perform what the promisor seeks, and only then can
the promisees’ performance amount to consideration.
 Gratuitous promises serve no economic function. They are merely redistributive of net wealth.
 Bargained-for exchange creates a “cautionary” aspect for promisors/promisees.
 HYPO 1 – Note 2, p. 59: A father and his daughter became estranged after the divorce. He invited her for lunch
and said “if you will meet me, I will buy you a ring.” Daughter met Father, and he did not buy ring. There was a
VALID contract because it was bargained-for exchange. The father wanted to see her, and she wanted the ring.
(PS: if they were not estranged, there would be no consideration, and it would be a gratuitous promise.)

(2) The problem of action in the past: past consideration/moral obligation

 There are NOT enforceable.

(a) Majority rule re past consideration/moral obligation; rationale; exceptions

 PAST ACTION: see Feinberg v. Pfeiffer Co. – Feinberg worked for about 37 years for the company. On
December 1947 she received a raise and a “lifetime” retirement pay of $200 a month by the President of the
company. After that she stayed working for an extra 1 year and a half, and then retired. She received the $200
for a few years; until the new President rethought of this payment made, and stopped making the payments
claiming it was not a valid contract but only a gift.
 There was no consideration in the agreement. Promises based on past actions are not enforceable, and she
claimed that the agreement was based on her previous performance of 37 years, and later she claimed that she
worked for 1 year and a half still after the resolution passed, and it still was not consideration.
 The employer’s resolution did not make it a condition for her to work a year and a half longer to receive
the payments; she was free to quit at any time, and working the extra time was her own choice. There
was no promise made to make her continue working to receive the payments or to retire to receive it, or
any other condition. The past actions offer no bargained-for exchange.

 MORAL OBLIGATION; see Mills v. Wyman – Levi Wyman was sick after a sea voyage, and Daniel Mills
took him in to take care of him. After offering him good and good care, he died. The father, filled with
gratitude, offered to pay the costs of his son to Mills. However, after he promised that he decided to break his
promise and not pay.
 Rule: A moral obligation arising out of a benefit previously received is not binding.
 The benefit conferred to Wyman was unsought for (i.e. he did not ask for it; unsolicited action).
 There was no consideration in the promise to pay Mills back, because it was a past action, which had no
consideration, and thus it was not enforceable.
 See Harrington v. Taylor – plaintiff saved defendant’s wife against the wife’s self-defense act of trying to
decapitate husband with an ax. When plaintiff interfered, defendant cut plaintiff’s arm almost entirely off.
Defendant promised to pay for his wife’s damages, but after a small payment he stopped paying.
 The promise was not enforceable because the mere “moral obligation” of paying the plaintiff is not enough to
make it enforceable (there is no consideration for a past action). There was a material benefit, just like Webb –
see below differences.
 There are three exceptions to moral obligation promises:

1) A promise to pay a debt no longer enforceable due to the statute of limitations has run;
2) A promise by an adult reaffirming a promise made when the promisor was a minor;
3) A promise to pay a debt that has been discharged in bankruptcy.

 These are exceptions most likely because at one point in time there WAS consideration and a bargained-for
exchange involved in these promises. They were enforceable, and due to other circumstances were made non-
enforceable; so these moral obligation promises are enforceable.

(b) Minority rule/the material benefit doctrine: Alabama (Court that issued Webb decision) follows a
different law; but some other courts may also follow minority rule of material benefit.

 Material Benefit doctrine: A moral obligation is enforceable whenever there is a material benefit of
pecuniary value. The promisor is morally bound to compensate for material benefit.
 See Webb v. McGowin – after saving Mr. McGowin’s life from a pine block and suffering life-altering injuries,
McGowin promised to pay Webb $15 every two weeks for the rest of his life to compensate for his sacrifice,
and McGowin’s life he had saved. Payments happened for 8 years, until defendant died and payments stopped
coming.
 There was sufficient consideration for the promise because the promisor received a material benefit for the past
action. Plaintiff was injured in the accident because of this material benefit received by the defendant.
 This was an unsolicited action, but it is still enforceable.

 Restitution Theory of Recovery:

(1) Conferred benefit with reasonable expectation the person would be paid for benefit;
(2) Unjust to allow other party to have benefit and not pay for it.
 The difference between this Webb, and Harrington is that the promise was not made as an impulse, like in
Harrington; the payments for Webb were been effectuated for 8 years, not just a mere token of gratitude before
promise was broken like in Harrington; the level of injury is clearly different between the two cases.

(3) The problem of unsolicited action:

(a) Promisor did not seek the performance

 See Kirksey v. Kirksey – plaintiff’s brother-in-law (defendant) sent a letter to plaintiff, claiming to be worried
about her and the children since she was a widow. He then offered a land for her to work on, and live on if she
moved there (which was 60 miles away from her current house). Once she moved, she was in a comfortable
home for a while, until he told her to leave and put her in a cabin in the woods, which eventually he told her to
leave there as well.
 Not enforceable if action was not sought by promisor. In this case, he did not seek the action of the plaintiff
moving the 60 miles to live there, that was just an induced action for her to get the gift, not a performance
sought for it.
 See Lake Land Employment Group of Akron, LLC v. Columber – Columber (defendant) violated a non-
compete by opening his own business that was engaged in a similar business than of his previous employment
Lake Land. The non-compete was put in place to ensure that for a period of 3 years after his termination of
employment, Columber would not work in that business within a 50-mile radius of Akron, Ohio. He signed the
non-agreement 10 years prior, and admitted that he could not remember if there were conditions for the non-
compete, such as “I will not fire you, if you sign the non-compete.”
 The contract was valid because in exchange of him signing the non-compete, the employer did not fire him (he
was an at-will employee, who could be fired at any time without cause).
 Subsequent employment is sufficient consideration to support a covenant not to compete for an at-will
employee.
 The performance by the employee was continuing to work after the non-compete agreement signed (i.e. he
stayed at his job for 10 more years after he signed the non-compete). There is NO evidence, however, that he
signed it purely to keep his job (Court assumes that employer would fire employee had he not signed the non-
compete).
 Caveat: AS LONG AS IT IS REASONABLE, including that the employment continues for a reasonable
amount of time after signing the covenant. The Courts can still rule non-competes to be not enforceable for
other reasons besides lack of consideration.
 There were two dissents:
1) One claimed that the majority ruling was not correct because upon signing the non-compete, the
employee had gained nothing. He was, in fact, in the same position but with a non-compete. There was no
consideration in signing it.
2) This rationale that he had to sign the non-compete to keep his job was not consideration, but
coercion. A simple monetary compensation for the non-compete would have sufficed for consideration.

 3 views on CNTC:

a) A CNTC is enforceable as part of a unilateral K where the employer continues to employ the employee for a
reasonable amount of time after signing the CNTC (with caveat stated above.)
b) A CNTC is enforceable as part of a bilateral K where the employer has an implied promise to continue
employing employee for a reasonable amount of time after the employee signs the CNTC.
c) A CNTC is not enforceable for lack of consideration. Rather, something in addition to continued employment
is necessary to suffice consideration.

(b) Promisee did not act pursuant to the promise; R2 §§ 51, 53(3)

 R2 § 51: “Unless the offer manifests a contrary intention, an offeree who learns of an offer after he had
rendered part of the performance requested by the offer may accept by completing the request performance.”
 R2 § 53 (3): “Where an offer of a promise invites acceptance by performance and does not invite a promissory
acceptance, the rendering of the invited performance does not constitute an acceptance if before the offeror
performs his promise the offeree manifests an intention not to accept.”
 Rewards – p. 70: A reward offer “may be accepted by anyone who performs the service called for when the
acceptor know that it has been made and acts in performance of it, but not otherwise.”
 Example of the bounty hunter; if the bounty hunter did not know of the reward, and performs the action
without knowledge of the reward, he will not be able to be awarded. Only if his performance is induced by the
reward will he be able to get the reward.

d. Promise for promise/promises as consideration, R2 §§ 75, 81

(1) Illusory promises

 A promise in which the promisor does not bind himself to do anything, and hence it furnishes no basis for a
contract because of a lack of consideration; a promise so indefinite that it cannot be enforced or which, by
virtues of provisions or conditions contained in the promise itself, is one whose fulfillment is optional or
entirely discretionary to the promisor.

 See Strong v. Sheffield – Benjamin Strong (plaintiff) sold a business to plaintiff’s husband. He promised not to
collect the money “until he needed” in exchange for the endorsement of a promissory note by the plaintiff (the
promissory note would make the wife liable for debt if husband defaulted).
 This promise was ILLUSORY. Louisa’s promise to pay husband’s debt was not supported by consideration
because the forbearance of the collection of the debt was an illusory promise; that is, a promise with an
indefinite date, and that was completely discretionary to the promisor to decide when he would need the money.
 She sought a promise, but promise was illusory (not enforceable); she got a performance, but was not sought for
(unsolicited action; not enforceable either).
 See Mattei v. Hopper – Real estate developer Mattei (plaintiff) entered in a deal with Hopper (landowner).
Plaintiff wanted to build a shopping center in that area and needed the defendant’s land, so he made a deal that
was evidenced by a deposit receipt. The deal was that Mattei would give Hoppe $1,000, plus the remainder of
$57,500 within 120 days of the deal to examine and consummate the purchase, given that plaintiff found
satisfactory leases. Once defendant tried to back out from the deal, knowing that plaintiff had found satisfactory
leases, plaintiff sued defendant.
 Promise was NOT ILLUSORY because of the “satisfactory clause” included in the agreement. Illusory
promises occur when the promisor is able to back out of the contractual obligation arbitrarily at any time. Here,
the deal specifically made the performance of his part dependent on the satisfaction of the leases found. There
was consideration and bargained-for exchanged from both sides: Mattei promised to pay, given the satisfactory
leases, in exchange of the land deed; and Hopper promised to give the land in exchanged of the money.
 “Satisfactory Clause”: The Court held that the standard to evaluate the dissatisfaction of a deal that has such
clause included cannot be arbitrary; the standard to evaluate is to observe whether the party had good faith in
claiming the dissatisfaction (subjective standard of review; i.e. in matters of judgment, or matter that a
“reasonable man” cannot decide, thus are up to Courts to evaluate.)
 It can be either subjective or objective; in this case it was subjective good faith (dependent upon
“satisfactory” leases.)

(2) Output and requirements Ks, see UCC § 2-306(1); and, Exclusive dealing agreements, see UCC § 2-306(2)

 These may sound illusory because of their nature of “I will buy all you produce,” or “I will buy whatever I
need.” But the requirement of GOOD FAITH is essential here, and is what makes it enforceable.
 This includes the BEST EFFORT from both the seller to supply the goods and by the buyer to promote their
sale.
 Output and Requirements: Good faith standard.
 Exclusive Dealing Agreements: Best effort standard.

(3) Termination clauses

 Parties use termination clauses often to reduce the risks they assumed from contracting. In Wood v. Lucy, Lady
Duff-Gordon for example would expire after one year of exclusive rights.
 If a termination clause gives a party the power to end the contract at any time at will, without any justifications,
that promise will be held illusory.
 Nowadays restrictions were put in termination clauses. They include giving notice of “60 days” prior to
terminating the contract. That makes the contract enforceable through consideration.

e. Recitals of consideration

 Whatever is recited, a Court might say the recited note can be an implied promise for whatever was recited; if
there’s bargained-for exchange it’d be enforceable.
 “FOR and IN consideration…” e.g.: “in consideration for” naming an institution in exchange for a $1.5
million donation. It would not be a bargained-for exchange with respect to the naming provision.
 This does not establish consideration and bargained-for exchange.
 Recitals may have a presumption of consideration; but does not conclusively establish consideration.

3. Detrimental reliance/promissory estoppel

 R2 § 90(1): A promise which the promisor should reasonably expect to induce action, or forbearance,
which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the
promise. The remedy granted for breach may be limited as justice requires.
 Breaking it down, the elements become:

(1) A promise
(2) Which the promisor should reasonably expect to induce action or forbearance on the part of the promisee
(3) Which does induce such action or forbearance
IS BINDING IF
(4) Injustice can be avoided only by enforcement of the promise

 The remedy granted for breach may be limited as justice requires.

 That is, Courts will usually give EXPECTATION DAMAGES for Promissory Estoppel; however, some
courts might consider:

(1) Certainty or uncertainty of one measure to other;

(2) The good/bad faith of the promisor;
(3) Whether recovery under one or the other would be insignificant.

 Promissory Estoppel is meant to “AVOID INJUSTICE, not PERFORM JUSTICE.”

 The “estopped” party cannot claim consideration to make promise not enforceable.
 Grandfather promised to pay $2,000 annually to granddaughter. Grandfather induced her to quit her job by
promising this money, by saying that “none of her granddaughters worked.” In reliance of the promise, she
quit her job. Through promissory estoppel she was granted expectations damages after her grandfather died
without paying the $ - see Ricketts v. Scothorn.
 Plaintiff relied on the provision to retire, given that with the money she would obtain she would be able to
retire comfortably – see Feinberg v. Pfeiffer
 Promissory estoppel requires only that the reliance by the injured party be reasonable; and, does not require
injured party to exhaust all other alternative means of obtaining the benefit of the promise before being able
to enforce the promise against promisor - see Wright v. Newman.
 Even when parties are not thinking of “contractually legally binding” contracts, it is still enforceable under
promissory estoppel – see Cohen v. Cowles.
 Normal damages awarded are EXPECTATION DAMAGES; however, in certain cases the Court may award
different measures. Reliance damages can be used to remedy promissory estoppel when no other remedy is
available due to the specific facts of the case – see D & G Stout, Inc. v. Bacardi Imports, Inc.
 Future wages – employee has expectation of income, the recovery of which promissory estoppel
cannot recover under an at-will employment setting – see D & G Stout, Inc. v. Bacardi Imports, Inc.
Restitution as an alternative basis (outside of contract) for recovery

O Measure of Recovery:

 R2 § 371: “If a sum of money is awarded to protect a party’s restitution interest, it may as justice requires
be measured by either: (a) the reasonable value to the other party of what he received in terms of what it would
have cost him to obtain it from a person in the claimant’s position, or (b) the extent to which the other party’s
property has been increased in value or his other interests advanced.
 Restitution claims: confers benefit on other, apart any agreement, with expectation to receive just
compensation; it would be unfair for party to retain benefit without paying for it (even if not actual contract, see
Pyeatte v. Pyeatte.)
 A party who acts officiously (a.k.a. officious intermeddler; volunteer) in conferring a benefit (as opposed to
erroneously) cannot get restitution from the recipient of that benefit. That is, there is not liability in restitution for an
unrequested benefit voluntarily conferred.
 If a volunteer stops to help someone that was in a car crash, that person cannot expect just compensation
for his help. He will be acting as a volunteer, and no expectation to be paid for it should occur. However, if it is a
doctor summoned, and the recipient is unconscious, and the doctor performs surgery on him, he will be able to be
compensated for restitution (see Cotnam v. Wisdom.)
 In Cotnam, the Court could have chosen two measures of the “value of the benefit”: (1) the monetary value
of the surgery performed, or (2) the value of improvement to the other party. It will choose the lesser value.
 Value of benefit is not based on the ability of the person receiving the benefit, but instead the “fair
compensation,” or “reasonable compensation.”
 Marital relationships have no recovery in restitution because they are considered gratuitous. Unless
agreement bound them to make it enforceable (intent to enforce it; not a real constructed contract.) In Pyeatte, the
wife and husband made an agreement to put one through law school and in return the other through a graduate
program. After the husband received his J.D., he asked for a divorce. The Court held that the wife was eligible for
restitution damages because it was a unilateral effect solely to benefit of other, and it would be unjust to let the
husband be enriched.

Chapter 2: Creating Contractual Obligations

A. The Nature of Mutual Assent

1. The Objective Theory: a reasonable person will understand the words or acts of the other party as manifestation
of intent to be legally binding.

i. Did the parties making an agreement intend to be legally bound?

ii. Presumption to be legally bound

 See Lucy v. Zehmer: The mental assent of parties is not a requisite for a formation of a contract. Both
parties had been drinking, and Zehmer made an offer to Lucy to sell his farm for $50,000. His words and acts were
amounted to be considered a contract, since Lucy both reasonably (objective theory) and actually (subjective theory)
believed he was serious about the transaction. If the price offered had been $50 for example, the evidence and the
outward expression interpreted by Lucy could have been seen differently. If the words or other acts of one of the
parties have but one reasonable meaning, his undisclosed intention is immaterial when as unreasonable
meaning which he attaches to his manifestations is known to the other party.
 There can be four possible scenarios of contract formation, using these facts:

1. When both parties only think the other is serious; there is no outward expression manifesting intent, so no
offer.
2. When one says there is an offer and the other accepts – both have outward expressions about the offer;
there is mutual assent, thus there is an offer.
3. When one thinks not to sell, but says sell; and, the other says he will buy, and thinks he is buying; this
would be like Lucy v. Zehmer, thus there is an offer/contract.
4. When one who is offering thinks not to sell, and whoever is buying thinks not to buy; but, they both say
that they will buy/sell; no offer.
2. The Requirement of Mutual Assent to be Bound

a) General rule: Presumption of Intent to be Bound

 R2 § 21: “Neither real nor apparent intention that a promise be legally binding is essential to the formation
of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the
formation of a contract.”

b) Express Statements Regarding Legal Consequences

 Usually parties negotiate terms and lock in terms that they might agree upon; however, it is not until the
agreement is formally in its written form that it is contractually bound. Oral contracts can be contractually
binding, but depending on the circumstances they can serve as preliminary agreements, to then formalize it
by having it written.
 Assent is a necessary condition for contractual liability, but it is not sufficient.

 Common Law principles of K formation/enforceability:

(a) That absent an expressed intent that no contract shall exist, mutual assent between the parties, even though
oral or informal, to exchange acts or promises is sufficient to create a binding contract; and,
(b) That to avoid the obligation of a binding contract, at least one of the parties must express an intention not to
be bound until writing is executed.

 Regarding contracts for sale of goods – a typical sequence of contract formation:

a. Buyer requests quote from seller;

b. Seller submits quote;
c. Buyer submits offer/order;
d. Seller accepts/acknowledges.

 Factors that help determine whether a party has sufficiently expressed intention not to be bound in
the absence of a formally written document:

(1) Whether there has been an express reservation of the right not to be bound in the absence of a writing;
(2) Whether there has been partial performance of the contract;
(3) Whether all of the terms of the alleged contract have been agreed upon; and,
(4) Whether the agreement at issue is the type of contract that is usually committed to writing.

c) Special Cases: Doctors’ Assurances, Domestic Arrangements, Social Engagements

 Negotiations for complex deals such as acquisition of companies, real estate developments, divorce
settlements, and doctor assurances (see Hawkins v. McGee), the negotiations are usually lengthier.
Negotiating parties in these transactions may want to record, or perhaps lock in, terms that have been
agreed upon, yet not be contractually bound to that term until a final agreement is reached, and often not
until that agreement takes formal written form.

d) Contemplation of final writing

 R2 § 27: “Manifestations of assent that are in themselves sufficient to conclude a contract will not be
prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a
written memorial thereof; but the circumstances may show that the agreements are preliminary
negotiations.”

B. The Offer
 a. Defined (sort of) R2 § 24: An offer is an act whereby one person confers upon another the power to create
contractual relations between them. It must be an act that leads the offeree reasonably to relieve that a
power to create a contract is conferred upon him.

 R2 § 24: “An offer is the manifestation of willingness to enter into a bargain, so made as to justify another
person in understanding that his assent to that bargain is invited and will conclude it.”
 The offer creates the power of acceptance by offeree; it is the penultimate step in formation of contract.
Thus, find whatever the plaintiff is claiming to be acceptance and work back to find offer.

b. vs. invitations to deal and preliminary negotiations

 R2 § 26: “A manifestation to enter into a bargain is not an offer if the person to whom it is addressed
knows or has reason to know that the person making it does not intend to conclude a bargain until he has
made a further manifestation of assent.”

c. Cases/precedents

 See Owen v. Tunison – The letter stated that if Tunison was to sell the property, it would “not be possible
… unless I was to receive $16,000 cash.” This, as we have seen, is not an offer because that was simply an
opening statement to start negotiations, and there was never a clear sign that he was offering; simply a
“quote” of how much it would be the value if he were to sell it. Subjectively, there was “no meeting of the
minds” to expect the response to the first letter to constitute an offer.
 Cited in Owen v. Tunison; Sellers v. Warren – The seller said he would not consider “less than half,”
which does not amount to an offer to sell for one-half.
 See Harvey v. Facey – Buyer sends telegram asking the lowest price for a property; seller answers back
giving the price of “900lbs.” Buyer interprets that as an offer, and accepts it. This is not an offer because it
was simply a quote of the lowest price, which is a preliminary negotiation. It could have possibly been
binding if following the price given, and the acceptance of the quote, then seller accepted/acknowledged it.
 See Southworth v. Oliver (CB 143): Southworth sent a letter to various neighbors to negotiate the sale of
his ranch. Oliver assumed that the letter itself was an offer, and accepted it; however, as R2 § 26 says, these
were merely preliminary negotiation terms.
 See Fairmount Glass Works v. Crunden-Martin Woodenware Co. – A quote is a request for an offer;
the promise/offer in this case was to sell ten car loads of the jars by the specified terms given by Fairmount.
This case is deviated from the general rule of a quote being a request for an offer because of its “immediate
acceptance” aspect of it; that is, whenever the buyer answered it would have been by the immediate
acceptance asked. Thus, the general intent and nature of the dialogue can make this be an offer (which is
different than the norm in the business of sale of goods.) In Moulton v. Kershaw (CB 147) for example, the
language in the letter was that they were “authorized to offer,” which is not an actual offer; and, there was
no QUANTITY SPECIFIED in the offer, just the amount in which they could sell it for – “the language is
not such as a business man would use in making an offer to sell … a definite amount of property.”
 See Lefkowitz v. Great Minneapolis Surplus Store – the general rule of advertising is that they are not
offers, but rather invitation by the seller to the buyer to make an offer to purchase. In Lekowitz there
was an offer because it was “clear, definite and explicit, and leaves nothing open for negotiation.” And,
that a “First Come First Served” advertisement is different than usual advertisements.

d. Mistakes in offers

(1) A big discrepancy of $ amount in order v. the value of the good/service (indication that offeror is
mistaken)
(2) Offeree/offeror knows there is a difference in value and accepts it anyway, will make it not binding.

e. Defined (again)

i. Is a manifestation of a promise or commitment to do, or not do, something in the future;

ii. That is clear, definite and explicit; and,
iii. That a reasonable person under the circumstances would understand as giving the offeree the power
of acceptance to conclude a contract with his assent.

 
C. The Acceptance

a) Defined

 R2 § 50(1): “Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in
a manner invited or required by the offer.”   

 See International Filter Co. v. Conroe Gin, Ice & Light Co. – International produced machinery for water
filters, and submitted a proposal to sell a filter to Conroe Gin. The proposal stated that become binding
upon “approved by executive officer,” which was done when Engels accepted the offer by sending the
“O.K.” letter. The offer did not require notice to the other party of that approval unless expressly dictated in
the agreement. Offer was completed if approved promptly, as Engel did so after Conroe sent the offer of
accepting the proposal.
 Note: The form of notice, where notice is required, may be a different thing from the acceptance itself; the
latter constitutes the meeting of the minds, and the former merely relates to that pre-existent fact. The rules
requiring such notice do not necessarily need to be in any particular form or manner, unless the parties
themselves have so prescribed.

 See White v. Corlies & Tift – Plaintiff was a builder that was asked by defendants to furnish their office
suites. The alleged offer said that “Upon agreement…. You can begin at once.” Builder understood that as
an offer and started performing right away; however, this was an offer that sought the promise of
performance through “an agreement,” to then finalize the contract through the acceptance of the offer. The
acceptance of the offer must be manifested by an appropriate act (not a “mental determination not indicated
by speech.”) He had the intent to accept, but the act itself with no indication of speech does not constitute
acceptance. PS: If he had at least mailed the acceptance that would have sufficed (MAILBOX RULE.)
 Note: PERFORMANCE can be acceptance; that is, by beginning to do the work there is acceptance of
the offer. However, in this case, there was no manifestation of assent that offeror was aware of since the
plaintiff started working without acknowledging the offeror (see R2 § 54(2).)

 See Ever-Tite Roofing Corporation v. Green – Court held that the signed document to set out the work and
payment details, plus the acceptance was a completed contract. The contract said that the agreement would
be binding if the Contractor gave written acceptance of it, OR upon commencing performance of the work.
The performance commencement is when they started loading the truck to take it all to the residents’ house
on which they were doing the work in.
 Note: This case differs from White because there was no “upon agreement” provision in there; it
specifically asked that upon the agreement of both parties the work could then be commenced (promise of
the performance). Here, we see that the actual action and performance would be seen as acceptance.
 Note: In Louisiana, the rule is that the offeror cannot revoke offer before “reasonable time.” Whereas the
common law usually states that the offeror can revoke at any time before acceptance.

a. Offeror is Master of Offer, R2 §§ 60

 R2 § 60 – Acceptance of Offer Which States Place, Time or Manner of Acceptance: “If an offer
prescribes the place, time or manner of acceptance its terms in this respect must be complied with in order
to create a contract. If an offer merely suggests a permitted place, time or manner of acceptance, another
method of acceptance is not precluded.”

 R2 § 58 – Necessity of Acceptance Complying With Terms of Offer: “An acceptance must comply with
the requirements of the offer as to the promise to be made or the performance to be rendered.”

b) Manner of Acceptance
 i. Promise, which may be manifested by:
i. Language, or
ii. Other conduct, including the commencement of performance.

ii. Performance

iii. R2 § 30(2) – Form of Acceptance Invited: “Unless otherwise indicated by the language or the
circumstances, an offer invites acceptance in any manner and by any medium reasonable in the
circumstances.”

iv. R2 § 32 – Invitation of Promise or Performance: “In case of doubt an offer is interpreted as inviting the
offeree to accept either by promising to perform what the offer requests or by rendering the performance, as
the offeree chooses.”

v. R2 § 62 – Effect if Performance by Offeree Where Offer Invites Either Performance or Promise: “(1)
Where an offer invites an offeree to choose between acceptance by promise and acceptance by
performance, the tender or beginning of the invited performance or a tender of a beginning of it is an
acceptance by performance; (2) Such an acceptance operates as a promise to render complete
performance.”

vi. UCC §§ 2-204(1)(2) – Formation in General: “(1) A contract for sale of goods may be made in any
manner sufficient to show agreement, including conduct by both parties which recognizes the existence of
such a contract; (2) An agreement sufficient to constitute a contract for sale may be found even though the
moment of its making is undetermined.”

vii. UCC § 2-206(1) – Offer and Acceptance in Formation of Contract: “(1) Unless otherwise
unambiguously indicated by the language or circumstances: (a) an offer to make a contract shall be
construed as inviting the acceptance in any manner and by any medium reasonable in the circumstances,
(b) an order or other offer to buy goods for prompt or 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 seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.”

c) The Requirement of Notice

a. re promissory acceptances

 R2 § 56 – Acceptance by Promise; Necessity of Notification to Offeror: “Expect as stated in § 69 or

where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the
offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the
acceptance seasonably.”

b. re performance acceptances

 R2 § 54 – Acceptance by Performance; Necessity of Notification to Offeror: “(1) Where an offer invites

an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance
effective unless the offer requests such a notification. (2) If an offeree who accepts by rendering a
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: (a) the offeree
exercises reasonable diligence to notify the offeror of acceptance, or (b) the offeror learns of the
performance within a reasonable time, or (c) the offer indicates that notification of acceptance is not
required.”

 See Allied Steel and Conveyors, Inc. v. Ford Motor Co. – The agreement stated that “this purchase order
agreement is not binding until accepted. Acceptance should be executed on acknowledgment copy which
should be returned to buyer.” This offer did not mean that the “acknowledgment copy” return was the only
 way to demonstrate acceptance. The “should” does not limit acceptance of other manners of acceptance
(such as the one they did, which was a tendered performance.)
 Rule: If an offeror merely suggests a permitted method of acceptance, it does not exclude other
methods of acceptance.
 Comparing this to White, the performance there was not acknowledged by the offeror, which had no
reasonable way to know he had begun performance. Here, however, the Ford employers had Allied
working at their factory, which means they saw Allied tendered performance, and Allied provided
performance by simply showing up to the factory.

 Doubtful Offers (not specified): either return promise or performance as acceptance.

c. Acceptance by silence – general rule is that silence alone is not acceptance, unless one of these following
scenarios is present;
 Silence as acceptance is different for services or goods.

 R2 § 69 – Acceptance by Silence or Exercise of Dominion: “(1) Where an offeree fails to reply to an

offer, his silence and inaction operate as an acceptance in the following cases only: (a) Where an offeree
takes the benefit of offered services with reasonable opportunity to reject them and reason to know that
they were offered with the expectation of compensation; (b) where the offeror has stated or given the
offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in
remaining silent and inactive intends to accept the offer; (c) Where because of previous dealings or
otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.”

d. Termination of power of acceptance (re ordinary, revocable offers)

 R2 § 36 – Methods of Termination of the Power of Acceptance:

a. Lapse of time

(1) Per express terms of offer

(2) After a reasonable time (absent express provision)

 A face-to-face offer ends at the end of the conversation (lapse of time is at the end of such conversation;
e.g.: telephone, face-to-face, etc)
 The “reasonable time” depends on subject matter.

 R2 § 41: (1) An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no time
is specified, at the end of a reasonable time; (2) What is a reasonable time is a question of fact, depending
on all the circumstances existing when the offer and attempted acceptance are made; (3) Unless otherwise
indicated by the language or the circumstances, and subject to the rule stated in R2 § 49, an offer sent by
mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the
offer is received.

b. Revocation – to be effective, it must reach the offeree; this occurs when offeror EQUIVOCATES,
or in general revokes the offer. (e.g.: “I am not sure if we are ready to proceed with this offer =>
revoked offer; see Hoover Motor Express Co. v. Clements Paper Co., CB 180.)

 If offeror makes an offer that says “Offeror reserves the right to cancel this order at any time before X,”
until X arrives, a contract is not formed.

(1) Direct
 R2 § 42 – Revocation by Communication From Offeror Received by Offeree: An offeree’s
power of acceptance is terminated when the offeree receives from the offeror a manifestation of an
intention not to enter into the proposed contract.
 R2 § 46 – Revocation of General Offer: Where an offer is made by advertisement in a
newspaper or other general notification to the public or to a number of persons whose identity is
 unknown to the offeror, the offeree’s power of acceptance is terminated when a notice of
termination is given publicly by advertisement or other general notification equal to that given to
the other offer and no better means of notification is reasonably available.
(2) Indirect
 R2 § 43 – Indirect Communication of Revocation: An offeree’s power of acceptance is
terminated when the offeror takes definite action inconsistent with an intention to enter into the
proposed contract and the offeree acquires reliable information to that effect.

 See Dickinson v. Dodds – plaintiff Dickinson failed to prove he had a binding contract with Dodds for the
sale of his land; revocation of offer requires reliable source AND definite action showing intent to not
enter into proposed contract. Here there was no definite action. Dodds offered to sell the land to someone
else while Dodds had not accepted it, and that does not constitute a definite action; only if he had actually
SOLD the land it would have been definite action. (Also, if there had been an option-contract to keep the
offer open (e.g.: $100 to keep the promise open – bargained-for), it would be enforceable because it would
be an irrevocable offer.

c. Death or Incapacity – Not terminated under an option-contract, or unilateral contracts that

performance has begun (irrevocable offers); also, notification or knowledge is not necessary.

 e.g.: person X promises Y that if Y paints his house by February 10th, he will pay Y $1,000.
On February 2nd Y starts painting the house, and on February 3rd X dies. The power of
acceptance is not terminated since he started performance.

 R2 § 48 – Death or Incapacity of Offeror or Offeree: An offeree’s power of acceptance is

terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the
proposed contract.

d. Rejection and Counteroffer

 R2 § 38 – Rejection: (1) An offeree’s power of acceptance is terminated by his rejection of the

offer, unless the offeror has manifested a contrary intention; (2) A manifestation of intention not to
accept an offer is a rejection unless the offeree manifests an intention to take it under further
advisement.

 R2 § 39 – Counter-Offers: (1) A counter-offer is an offer made by an offeree to his offeror

relating to the same matter as the original offer and proposing a substituted bargain differing from
that proposed by the original offer; (2) An offeree’s power of acceptance is terminated by his
making of a counter-offer, unless the offeror has manifested a contrary intention or unless the
counter-offer manifests a contrary intention of the offeree.

 The Mirror Image Rule – the acceptance to an offer must be absolute, unconditional, and identical with the
terms of the offer. It must in every respect meet and correspond with the offer; any qualification of or departure from
the terms invalidates the offer.

 R2 § 50(1): Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a
manner invited or required by the offer.
 R2 § 58: An acceptance must comply with the requirements of the offer as to the promise to be made or the
performance to be rendered.
 R2 § 59: A reply to an offer which purports to accept it but it is conditional on the offeror’s assent to terms
additional to or different from those offered is not an acceptance but is a counter-offer.
 R2 § 60: If an offer prescribes the place, time or manner of acceptance its terms in this respect must be
complied with in order to create a contract. IF an offer merely suggests a permitted place, time or manner of
acceptance, another method of acceptance is not precluded.
 R2 § 61: An acceptance which requests a change or addition to the terms of the offer is not thereby
invalidated unless the acceptance is made to depend on an assent to the changed or added terms.
e. Making Offers Irrevocable

(1) Consideration: Consideration is the most common basis for enforcing a promise, and by creating a binding
contract, the offer is irrevocable. (see Chapter 1, supra)

(2) Firm offers – formalistic validation.

 UCC § 2-205 – Firm Offers: An offer by a merchant to buy or sell goods in a signed writing which by
its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time
stated or if not time is stated for a reasonable time, but in no event may such a period of irrevocability
exceed three months; but any such term of assurance on a form supplied by the offeree must be separately
signed by the offeror.

 Definition of signed: includes any symbol executed or adopted with present intention to adopt or accept a
writing.
 Definition of writing: includes printing, typewriting, or any other intentional reduction to tangible form.
“Written” has a corresponding meaning.
 Definition of merchant: means a person who deals in goods of the kind or otherwise by his occupation
holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction
or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other
intermediary who by his occupation holds himself out as having such knowledge or skill.

HYPO: S, a used car dealer, writes to B, on S’s business stationary: “I will sell you [a specified] 2014 Ford Taurus
for $18,000.  This offer will not be kept open beyond 100 days.” – This is not a firm offer. It is signed by
stationary, it is in writing, but by its terms was no assurance that it will be held open; otherwise it is a firm
offer (it said it will not be kept open beyond 100 days, so it is not assuring it will be open for the 100 days.)

(3) R2 § 87(1)(a) – Option Contract; formalistic validation.

 An offer is binding as an option contract if it: is in writing and signed by the offeror, recites a purported
consideration for the making of an offer, and proposes an exchange on fair terms within a reasonable time

(4) R2 § 45 – Option Contract Created by Part Performance or Tender

 (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory
acceptance, an option contract is created when the offeree tenders or begins the invited performance or
tenders a beginning of it; (2) The offeror’s duty of performance under any option contract so created is
conditional on completion or tender of the invited performance in accordance with the terms of the offer.

(5) Detrimental Reliance/Promissory Estoppel

 R2 § 87(2) – Promissory Estoppel: An offer which the offeror should reasonably expect to induce action
or forbearance of a substantial character on the part of the offeree before acceptance and which does induce
such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
 See Drennan v. Star Paving Co. – Drennan was a general contractor, who while preparing a school
contracting job, requested bids from different subcontractors. The bids received were put in a list, and Star
Paving Co. sent the lowest bid, and won. Later, he tried to revoke his bid, but Drennan claimed he had
relied on it, and thus promissory estoppel made the offer irrevocable. Other ways to achieve an irrevocable
offer would be through: consideration (no manifestation of assent by using the bid, there is no
consideration here, so not irrevocable); bargained-for option contract (if Star Paving had paid Drennan to
keep offer open or revocable, but no evidence of exchange to support the bid being open); and a firm offer
(it is a sale of services, not a contract of sale of goods, so not irrevocable); thus, reliance worked.

(6) Effect of rejection, counteroffer or death of the offeror on irrevocable offers

  R2 § 37 – Termination of Power of Acceptance Under Option Contract: Notwithstanding §§ 38-49, the
power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation,
or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual
duty.
 
a. The Mailbox Rule – “dispatch rule;” acceptance is effective upon delivery of it.

 R2 § 56 – Acceptance by Promise; Necessity of Notification to Offeror: Except as stated in § 69 or

where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the
offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the
acceptance seasonably.
 R2 § 63 – Time When Acceptance Takes Effect: Unless the offer provides otherwise: (a) an acceptance
made in a manner and by a medium invited by an offer is operative and completes the manifestation of
mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the
offeror; but, (b) an acceptance under an option contract is not operative until received by the offeror.
 CISG Art. 18(2) – different than common law “mailbox rule,” because it requires acceptance to be
received to be effective: An acceptance of an offer becomes effective at the moment the indication of
assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the
offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being
taken of the circumstances of the transaction, including the rapidity of the means of communication
employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate
otherwise.
 CISG Art. 16(1) – (1) Until a contract is concluded an offer may be revoked if the revocation reaches the
offeree before he has dispatched an acceptance; (2) However, an offer cannot be revoked: (a) if it indicates,
whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or, (b) if it was
reasonable for the offeree to reply on the offer as being irrevocable and the offeree has acted in reliance on
the offer.

 See United States Life Insurance Company v. Wilson – John Griffith was a holder of a life insurance
policy, but he was not paying his premiums, and the policy expired. He had until August 14th to reinstate
the policy, and on July 23rd he accessed his online bank account, and by July 25th the payment had been
sent. On July 28th he died, and the payment was received only on July 30th. The medium of acceptance was
the payment, and it was an acceptable medium (it was a unilateral-contract seeking performance of
payment.) According to the mailbox rule he had effective acceptance by July 25th when deliverance was
made.

A.  Acceptance Varying the Offer: K formation and K terms

 
 The Common Law Mirror Image Rule - the acceptance to an offer must be absolute, unconditional, and
identical with the terms of the offer. It must in every respect meet and correspond with the offer; any qualification of
or departure from the terms invalidates the offer.

 The “Battle of the Forms” 

 UCC § 2-207 – Additional Terms in Acceptance or Confirmation:

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a
reasonable time operates as an acceptance even though it states terms additional to or different from those
offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or
different terms.

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

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a
contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of
the particular contract consist of those terms on which the writings of the parties agree, together with any
supplementary terms incorporated under any other provisions of this Act.
 
a) Is there a K?
 
i. Under §  2-207(1)?
ii. If no K under § (1), is there a K under § (3)?
 
b) If there is a K, what are its terms?
 
i. If K under § (1), go to § (2)
ii. If K under § (3), go to § (3)

 Requirements for § 2-207(1): (a) express acceptance; (b) match dickered terms (subject matter, price, quantity
– only items that are required to match); (c) not be expressly conditioned on offeror’s assent to terms in
acceptance.

 See Dorton v. Collins & Aikman Corp. – In the fine print behind the forms from Collins and Aikman there
was an arbitration term; Carpet Mart claimed that there existed no binding arbitration agreement between
the parties. Thus, is there a K? Yes, under § 2-207(1) because the arbitration proviso was “not directly and
distinctly stated or expressed rather than implied or left to inference.” The terms, then, will be under
§ 2-207(2). The arbitration term would be added to the agreement if it did not materially alter the nature
of the agreement; thus, the case was remanded for further findings.
 See C. Itoh & Co. (America) Inc. v. Jordan Int’l Co. – Itoh sent a letter to Jordan to purchase some goods.
Jordan sent back the acknowledgment form, which had some terms in the reverse side of it, including an
arbitration clause. There were no objections to it, the delivery was completed, and paid for. Later Itoh sued
Jordan, and Jordan moved to stay the proceedings pending arbitration. Is there a K? Yes, under § 2-207(3)
(because the performance of Itoh’s purchase order and Jordan’s counter-offer were not a contract,
the contract was then formed on the subsequent performance by both parties.) The terms, then, will be
under § 2-207(3). The terms are that supplementary terms under provisions of this Act are incorporated.
The supplementary terms are found in Art. 2 as “gap-fillers,” and they do not include arbitration terms;
thus, unless specified and agreed upon, there is no arbitration under § 2-207(3).
 See Bayway Refining Co. v. OMT – Rule extracted from case: the party opposed to the inclusion of an
additional term under § 2-207(1) bears the burden of proving that the term works a material alteration.
Materiality per se was not found, because an objective surprise was not proved since it was an industry
custom to include the additional term that plaintiff complained about.
 A material alteration is found if these terms are present: surprise (objective and subjective), OR/AND a
hardship (which is a consequence of the material alteration.)

 See Northrop Corp. v. Litronic Industries – C.J. Posner argues that there are three views in discussing the
terms of the contract that is brought into being by the offer and acceptance:

(1) Majority view: “Knockout Rule” – Article 2 of UCC will be used as a “gap-filler,” and the different
terms are dropped.
(2) Minority view: “Drop Out” – Offeree’s terms are dropped, and the offeror’s terms are adopted.
(3) Preferred view (Add’l = Different) – In determining the terms, consider whether the new terms in
acceptance are materially different from terms in offer.
a) If materially different: operates as a proposal, subject to offeror’s acceptance of offeree’s new terms.
b) If not materially different: becomes part of the contract (both offeror’s and offeree’s terms)
  See Step-Saver Data Systems, Inc. v. Wyse Technology – Contract was under § 2-207(1), so the terms
were under § 2-207(2)  if terms materially alter: not included. The court rejected the claim that if you
open the box and “if you do not like it, return it” = expressly conditional acceptance.
 Thus, of all these cases, Itoh is the only one that has “acceptance expressly conditioned” on terms, which
makes it not a contract under § 2-207(1).

 Quick note: see ProCD and Hill  Judge Easterbrook wrote both opinions; in this case, there was a software
that could only be read upon use of the software. Upon reading it, and using the software after reading it, it was
implied that the person using it had accepted its terms. The court held that this transaction (having one form
only) was not formed under § 2-207(1), but instead § 2-204(1) formed and enforced a valid contract creation
(i.e. the conduct of both parties may recognize a contract for sale of goods.)

 Compare CISG Article 19

 CISG Art. 19 is equivalent to the MIRROR IMAGE RULE (common law.)

E. Precontractual liability  not liable for inviting pre-negotiations.

 
1. Traditional View – No liability before acceptance of offer, except where party may recover on a claim for
restitution (conferred a benefit) or misrepresentation.

2. Modern Doctrine

a. Reliance on an offer that seeks performance: R2 §§ 45, 87(2) 

 R2 § 45: reliance on an offer that seeks performance – part performance tendered; and, it induces
the action.

b. Reliance on an offer that seeks a promise: § 87(2)

 R2 § 87(2): reliance on an offer that seeks promise – action induced and it enforced option to avoid
injustice.

c. Liability for failed negotiations:

 R2 § 90 – Promissory Estoppel

 See Hoffman v. Red Owl Stores – The court held that precontractual liabilities can be recovered under
promissory estoppel; and the terms of the agreement DO NOT have to be so comprehensive as to be
equivalent to an offer to be recoverable under R2 § 90.
 Parties contemplated a bargained-for exchange promise, but there is no agreement; only the promise of it.
A promise is ≠ than an offer (sufficiently definite and clear.)

d. Indefiniteness

 Agreements to Agree – Not enforceable under common law because these are not sufficiently definite.

 See Channel Home Centers v. Grossman – an agreement to agree (agreement to negotiate in good faith in
this case) becomes binding if both parties manifested an intention to be bound by the agreement, the
terms of the agreement are sufficiently definite, and there is consideration. There was a contract to
negotiate in good faith, but there is liability for failed negotiations.
 In Channel the agreement was to negotiate in good faith. Thus, both Channel and Grossman exchanged
letters of intent with each other. The terms were that Grossman would withdraw the store from the market,
and Channel would materialize its desire to lease the store. They satisfied the conditions to make a binding
agreement to negotiate in good faith.
  Also see Toys, Inc. v. Burlington Store – Toys had a 5-year lease with the option to renewal; the renewal
would be subject to renegotiating under “prevailing rate within the mall.” After Toys exercised this option,
they were unable to agree on a rent for 10 months.
 The court held in Toys that there was a valid option contract, because renegotiate does not mean to start all
over. The term within the renewal option was sufficiently clear and definite, so it is enforceable.

 R2 § 33 – Certainty: “(1) Even though manifestation of intention is intended to be understood as an offer,

it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of
a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an
appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show
that a manifestation of intention is not intended to be understood as an offer or acceptance.”

 Essential because the court needs to know the contract’s definite terms to 1) know there is a contract
in the first place, 2) decide whether that contract has been broken, 3) be able to calculate remedies
from that contract being broken (e.g. expectation damages cannot be calculated without proper K
terms.)

 UCC § 2-204(3) – “Even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an
appropriate remedy.”

CHAPTER 3: STATUTES OF FRAUDS

A. Introduction: Terminology; Analytical Approach to SOF problems

 A contract within the scope is unenforceable unless it is in sufficient signed writing by the party to be
charged.
 Non-compliance is usually unenforceable.
 Analytical Approach:

(1) Is there a contract (through consideration, mutual assent, and sufficient definiteness)?
(2) Does the contract fall within the statute? (If not, oral contract is enforceable);
(3) If so, is the contract in sufficient (signed) writing?
(4) If not, is the contract within one of the SOF exceptions?

B. Agreements Covered by the SOF (briefly noted)

(a) Agreements not to be performed within a year;

(b) Agreements for the sale of an interest in land (real property);
(c) Suretyship agreements/promises to answer to the debt of another;
(d) Contracts for the sale of goods for a price of $500 or more;

 Compare CISG Article 11 → “A contract of sale need not be concluded in or evidenced by writing and is
not subject to any other requirement as to form. It may be proved by any means, including witnesses;” thus, we see
that the CISG does not have requirements such as the SOF that is used in the United States. Also, most countries that
had adopted the SOF in the past (since 1677) have appealed most of it, besides the U.S.

C. Justifications and Criticisms of the SOF

 Justifications: Evidentiary function, Cautionary function, Channeling function; and, Clarifying function,
and Managerial Function (CB 278-79)

 Criticisms: The benefits are outweighed by the cost of implement written contracts, and other costs; and the
SOF itself may be used to promote fraud instead of discouraging it (e.g.: if one party to a contract knows
that the contract falls within the SOF, it may choose to keep contract oral; if it is beneficial to him, then
 he/she will perform, if not, then it may choose not to perform and assert the SOF as its defense to make it
unenforceable.)

D. Effect of Non-Compliance With the SOF

 Non-compliance with the SOF makes the contract unenforceable and/or invalid and void.
 Unenforceable: cannot be sued or enforced in court (not void, just unenforceable; however, even if
unenforceable, evidence of contract may be reasonable to expect compensation, then breached party may
recover under restitution.)
 Invalid or void: a legal nullity, contract of no force or effect.

 THUS, IF WITHIN THE SOF IT IS ONLY ENFORCEABLE IF IN SUFFICIENT WRITING (OR AN

EXCEPTION EQUIVALENT TO IT.)

 HYPO #1: A agrees to employ B within a week for a year → NOT performed within a year, WITHIN
statute.

 HYPO #2: A agrees to employ B 1-year starting now → NOT WITHIN statute (performed within a year.)

E. Promises Covered by the SOF

1. Promises Not to be Performed Within a Year of Making

a) Application:

 An agreement that cannot be performed within the year following its making is unenforceable unless
circumstances persuade a court otherwise (period is from when the contract is made to the end of
performance);
 See HYPOs above! (HYPO#1 and HYPO#2)
 Must be in writing if cannot be performed in one year; exception to rule: employment agreements.
 See C.R. Klewin, Inc. v. Flagship Properties, Inc. – Flagship was a developer of a project, and Klewin was
the construction manager orally hired to do the project. The project consisted of various buildings. After
Klewin (P) finished the first phase, Flagship was unsatisfied with result and hired someone else to finish
the project. Klewin sued for breach of K, and Flagship claimed that the oral contract was within the SOF,
and thus it was unenforceable.
 Rule: if time is not explicitly specified to be done within a year, the K is indefinite, and therefore not
covered by SOF; an oral contract is enforceable when it does not explicitly say that it should take longer
than a year, even if it is highly unlikely to be complete within the year, i.e. if it does not explicitly say it
should take longer than a year, then it is indefinite, and it is enforceable without writing.
 This enforces the idea that the SOF application must be “as narrow as possible.”
 Majority Rule: Narrow scope of the one-year provision, must expressly state the duration of the time
performance. Indefinite – comparable to be completed in one year.
 Minority Rule: Courts look if it is even possible to fulfill performance in one year, and looks at the intent
of the parties – if they intended to complete the performance in one year.
 NOTE: if there is two options in the K (one within a year, and one not) then it DOES NOT fall under SOF,
because it is possible to be completed in a year.
 HYPO#3: A employs B for a year starting a week from now, or starting now.

b) Overlap with Other Provisions → it can overlap with suretyship relationships.

2. Ks for the Sale of an Interest in Land

 Within SOF → sell real estate, option to purchases, contract with partners to sell the land by one to another,
gift of land, joint venture land for enterprise, mortgage, leases of real property, subleases.

 Not within SOF → partners to enter into a partnership to buy land, apportion of profits, short-term leases.
3. Suretyship Agreements

a. Promise is collateral, not original

 A debtor is the original obligor; a creditor is the obligee.

 A surety is a person who promises the creditor to pay another person’s debt, so that if the other person fails
to pay the debt, the surety is obliged to pay for it.
 The promise is collateral if the surety makes a promise to the creditor to pay the debt that debtor owes to
creditor;
 The promise is original if the surety assumes the debt as its own, instead of promising to pay someone
else’s debt.

 See Langman v. Alumni Association of the University of Virginia → Defendant Association received a
gift deed to a commercial property, given by donor (plaintiff); the mortgage of the property was to be paid.
The Association signed a deed with the donors holding the donors harmless “from further liability on such
obligation.” Plaintiff had to pay part of the debt and brought action against Association for reimbursement.
 Because they did not promise to pay the mortgage, but instead they assumed the debt for themselves, the
Association made its claim original, rather than collateral.
 A grantee who assumes an existing mortgage is not a surety. The grantee makes no promise to the
mortgagee to pay the debt of another, thus it is an original promise.

 It is not a novation (if the surety is taking the place of the principal rather than merely guaranteeing that the
principal will perform; thus, the newcomer is a principal, and not a surety) however, because the
Association did not make agreement WITH THE CREDITOR himself to assume debt; thus, it is still
original and not collateral.

b. Exception: Main-Purpose/Leading Object Rule

 Main-Purpose Exception: IF surety acted primarily not to benefit the principal, but itself; if the surety’s
main purpose is its own pecuniary or business advantage, then the SOF does not apply. (e.g.: if Langman
had applied this exception, it would probably work.)  THIS IS THE ONLY EXCEPTION TO
SURETYSHIP AGREEMENTS.
 See Central Ceilings, Inc. v. National Amusements, Inc. → National (owner of the project/plaintiff) hired
Old Colony (prime contractor) for its project, and Old Colony hired Central (subcontractor) for the project.
Old Colony ran out of money, and to continue job National promises Central to pay Central if Old Colony
defaults.
 This is not a novation → it is a collateral and not original promise; THUS, enforceable if signed writing,
OR… main-purpose exception (which makes it enforceable even if covered by SOF.)
 Rule: an oral agreement may still be enforceable if the circumstances of the transaction show that the
promise was given primarily or solely to serve the promisor’s own interests
 (National wanted to continue the job to open the theater to a specific deadline – business advantage and
pecuniary value.)
 Applied in three circumstances: (1) Third-party is indebted; (2) there is no novation (where one debtor is
substituted for another); (3) a third party’s duty to the creditor will be terminated by the performance
promised by the defendant.

4. Ks for the sale of goods for a price of $500 or more, UCC § 2-201(1)

 Requires compliance with the statute where the total price of the goods sold under the K is $500 or more,
so the price of all items sold under the contract must be added together to determine if it is subject to the
statute.
 As in writing, it only requires (1), (2), (3), and in (4) is only requires the quantity.
 The only term needed specified is QUANTITY.

F. Satisfying the SOF, see R2 §§ 131-137

  R2 § 131 – General Requisites of a Memorandum: Unless additional requirements are prescribed by the
particular statute, a contract within the SOF is enforceable if it is evidenced by any writing, signed by or on
behalf of the party to be charged, which: (1) Reasonably identifies the subject matter of the contract; (2) Is
sufficient to indicated that a contract with respect thereto has been made between the parties or offered by
the signer to the other party, and; (3) States with reasonable certainty the essential terms of the
unperformed promises in the contract.

 Thus, it must: (1) identify parties; (2) evidence a K, (3) set subject matter/nature of K, (4) set forth all
essential K terms with reasonable certainty.
 There can be different forms that together consist of sufficient writing; the two leading views on
that are:
(1) There must be a reference between signed and not signed writing;
(2) There is sufficient connection if the signed and unsigned writing documents have the same subject
matter.
 See Crabtree v. Elizabeth Arden Sales Corp. – the court held that three different writings had same
subject matter, and one was signed, and thus they constituted sufficient writing with all essential terms
of a contract (whereas separately they would not.)

 Compare Requirements Under UCC § 2-201(1) and Comment 1: (1) Except as otherwise provided in
this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or
defense unless there is some writing sufficient to indicate that a contract for sale has been made between the
parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A
writing is not sufficient because it omits or incorrectly states a term agreed upon but the contract is not
enforceable under this paragraph beyond the quantity of goods shown in such writing.
 There are two exceptions to the UCC SOF: a) The exceptions stated in § 2-201(3); and (b) estoppel – §
1-103.
 Contracts may overlap (e.g. one-year provision + $500 sale, etc)
 The FORM is IRRELEVANT, and may not necessarily be the agreement itself.

G. Exceptions to the SOF – if there are TWO provisions at once, you must satisfy both of their exceptions to
exclude it from SOF.

1. Reliance-based Exceptions

a. The Part-performance Exception to the Land Provision: “Clear and convincing evidence” that part
performance BY BOTH PARTIES occurred.

1) Taking possession of the property and making valuable, permanent, and substantial
improvements to the land; (e.g.: R2 § 129, comment (d): transfer of possession.)
(i) Possession
(ii) Substantial improvements
(iii) Payments

 See Beaver v. Brumlow – part performance in part of the buyers of real property made the specific
performance of K “unequitable to deny effect thereto.” The performance does not have to be
“unequivocally referable” to the agreement; rather, an outsider must simply “naturally and reasonable”
conclude that the K exists, not that there must be no other plausible explanation for part performance.

b. The Part-performance Exception to the One-year Provision: Full performance is required as

exception to one-year SOF provision (full performance of ONE party; whereas for sale of land it is only part
performance.)

 See Problem, CB 322: has TWO provisions (one-year provision + sale of interest in land); must satisfy
both to exclude from SOF. In this case, both are satisfied (full performance of 3 years managing the
development), and improvements done (satisfying the part-performance exception to the land provision.)
2. Promissory Estoppel, see R2 § 139

 The breached-against party could invoke estoppel only if it had relied on a misrepresentation by the
breaching party. If, for example, the breaching party had falsely stated that it would execute a writing, then
it could be estopped from asserting the SOF as a defense to enforcement. The same would apply if one
party falsely assured the other that no writing was necessary, at least if the assurance came in a context that
would justify the recipient in relying upon it (see below Monaco v. Lo Greco.)
 Monarco v. Lo Greco – the court held that the doctrine of estoppel excludes the SOF application if there is
an unconscionable injury that would result from denying enforcement of the K after one party has
been induced by the other seriously to change his position in reliance on the contract OR in the
unjust enrichment that would result if a party who has received the benefits of the other’s
performance were allowed to rely upon the SOF.
 If used AS-APPLIED: Unjust enrichment AND reliance;
 If used AS-READ: Unjust enrichment OR reliance.
 This gave rise to R2 § 139; but it is not universally followed.

CHAPTER 4: POLICING THE BARGAINING PROCESS

A. Status/Capacity

 There are three basic policing concerns:

a) The status of party seeking relief;
b) The behavior of parties during bargaining process;
c) The substance of resulting bargain.

1. Minors, R2 § 14

 A minor may disaffirm K in its entirety during minority, or within a reasonable time (the contract
is voidable); however, upon disaffirming, the minor can be restituted of all payments done to a seller,
but must return goods (unless the good is not restorable, such as a service.)
 A K is binding if minor is contracting for NECESSITIES (shelter, medical care, clothing, etc.)
 Note 2, CB 346: If a parent can provide necessities, then if minor enters into K for housing it may
not be enforceable.

2. Mental Incompetence, R2 § 15

 The standard test is the cognitive test: whether the mind was so affected as to render him wholly
and absolutely incompetent to comprehend and understand the nature of the transaction.
 R2 § 15(1)(a) => Cognitive Test; R2 § 15(1)(b) => Motivational Test
 See Ortelere v. Teachers’ Retirement Bd. – 60-year old schoolteacher who was on leave due to
mental illness took big retirement loans that would make husband unable to take his own upon her
death. She died two months later. Court used the cognitive test to rule that she was indeed
mentally incapacitated, and the court remanded for lower court to apply the motivational test as
well.
 The detriment and/or magnitude of the injustice are not material for decision.
 Being feeble-minded (stupid) is not an excuse; see Cundick v. Broadbent (court held that the
contract could not be disaffirmed because the wife was present during negotiations, and because of
his own conscious actions, the contract could not be voided/disaffirmed.)

3. Intoxication, R2 § 16

B. Behavior/Overreaching

1. Duress (brief introduction), R2 §§ 175(1), 176(1)

  Can be used defensively for plaintiff, or offensively asking for a rescission of an agreement because it was
procured under duress.
 Overreaching: no advantage should be gained through gross unfairness in the process of bargain; duress is
a form of overreaching. The promise is not enforceable if done under duress (includes bodily harm and
person’s property).
 Duress: (i) improper threat; (ii) induces assent (subjective); (iii) leaves no reasonable alternative to assent
(objective)

2. The pre-existing duty rule, R2 § 73

 An adjunct to the consideration doctrine; because there is a pre-existing rule duty to a third party, there is no
consideration.

a. Justifications and Criticism

 Justification: safeguard against coercion of formation of Ks, and modification.

 Criticism: § 2-209 abolishes it (with caveat for sale of goods which has no pre-existing duty rule);
parties usually make good faith modifications, but R2 § 73 prohibit it. So it is a bad rule regarding
consideration (i.e. it precludes consideration of good faith deals made by parties.)

b. Limitations on Application of the Rule

(1) Additional Detriment, see R2 § 73: the bargain for different services and/or additional
services gives consideration.

(2) Rescission Followed by a new K: “A recession followed shortly afterward by a new

agreement in regard to the same subject-matter would create the legal obligations provided in the
subsequent agreement.”

 See “S” Case (CB 363-64): The parties made a K of $90 a week; later they made a K
$100; and the third K was of exchanging duties of first K recession (discharge 1st K duties
assented by both parties.) This discharged them from pre-existential duty.
 See Alaska Packers’ Ass’n v. Domenico (K modification) – A group of workmen made
K for $50 with Alaska Packers to make a sail from San Francisco to Alaska. Once they
reached Alaska, they demanded $100 instead of $50. Alaska Packers acquiesced, but only
paid $50 upon their return.
 The court held that the K for $100 had no sufficient consideration because: 1) there was a
pre-existential duty for the services offered in the first and second Ks; 2) the second K
came under terms due to coercion (duress)  they had no alternative but to accept it.
 If they had offered different or more services, however, there would be no pre-
existential duty.

c. Modifications of the Rule

(1) UCC § 2-209(1), and Comment 2: An agreement modifying a contract within this
Article needs no consideration to be binding IF it is in good faith.

(2) R2 § 89(a): “A promise modifying a duty under a contract not fully performed
(executory) on either side is binding (a) if the modification is fair and equitable in view of the
circumstances not anticipated by the parties when the contract was made; or…”

(3) CISG Art. 29(1), UNIDROIT Principles Article 3.2: there is no pre-existential rule for
CISG.
  Ever-Tite Problem, CB 363: it is not a sale of goods, so § 73 apply (which there is a
pre-existential duty). If sale of goods, then §2-209 applies, and if it is in good faith,
then it is enforceable.

d. Partial Payment and the Rule in Foakes v. Beer

 According Acceptance; “payment of a lesser sum on the day [i.e. on or after the due
date of a money debt] cannot be any satisfaction of the whole.”  Less than the full
payment accepted as payment of debt that is matured, liquidated, and undisputed, IS
NOT ENFORCEABLE.
 HYPO: $1,000 owed to bank, and bank says that $750 will satisfy the debt  bank can
still sue for the remaining $250 because the $750 did not satisfy debt.

 Accord and Satisfaction:

 See Foakes v. Beer—matured (due), liquidated (fixed $, and easily calculated amount),
and undisputed (good faith dispute/no doubt about debt.)
 Accord: agreement made after maturity or breach of K to accept a stated performance in
satisfaction of an existing unliquidated or disputed obligation.
 Satisfaction: performance of accord.
 If the accord is not performed, you go back to the original K.
 HYPO: Seller sells goods to buyer for $5,000. There is a dispute about the goods’
quality; the seller then proposes an accord of the buyer paying $4,000, $1,000 per
month in FULL SATISFACTION of the debt. If the buyer does not pay the $4,000 =
not satisfaction; if the buyer stops paying the $4,000, the seller can sue for original
amount of $5,000 (or whatever is remaining).

3. Duress (more than a brief introduction), R2 §§ 175(1), 176(1)

1) Improper threat: a threat is improper if a) what is threatened is a crime or a tort, or the threat
itself would be a crime or a tort if it resulted in obtaining property; b) criminal prosecution; c) the use of civil
process and the threat is made in bad faith; d) the threat is a breach of duty of good faith and fair dealing under
contract with the recipient (see Alaska Packers.)
2) Induces assent, and
3) Leaves no reasonable alternative to assent

 If the re-negotiation of K (negotiation of second K) comes under duress, even if the

modification is valid, it becomes a voidable second K.

4. Undue Influence, R2 § 177

a. Unfair persuasion; and

a. Domination, OR a Confidential relationship

 See also Austin Instrument, Inc. v. Loral Corporation—duress of one party to get a
higher price for the products sold to plaintiff. Plaintiff sought to recover RESTITUTION
rather than denying enforcement of the K for lack of consideration. This difference is
because the recover here was of performing from the K done under duress.

 HYPO: illiterate old man depends on his nephew’s care and support, and he says “I
will no longer support you if you don’t agree to sell your property to me,” old man
sells the property to nephew. This is avoidable under undue influence because of his
unfair persuasion and domination over the old man.”

5. Misrepresentation, Concealment and Nondisclosure, R2 §§ 159-164

 It is voidable, but not void from the beginning.

 a. Assertion not in accord with the facts

i. Factually wrong assertion;

ii. Arising from a “half-truth”, so further information is necessary to correct assertion from being a
factually wrong or incomplete (see Kannavos.)
iii. Non-disclosure may amount to assertion in scenarios below.

 Assertion to PAST or PRESENT fact;

 No misrepresentation for FUTURE ACTS;
 Concealment: action to PREVENT other party to not learn the truth (an assertion not in
accord with the facts)

 When does non-disclosure = assertion? See R2 § 161: when the circumstances impose
a duty on the party to disclose the information.

 If it is an assertion under one of the circumstances shown in R2 § 161(a) and (b);

1) When a person’s non-disclosure knows that disclosure of the fact is necessary to
prevent some previous assertion from being a misrepresentation;
2) Where he knows that disclosure of the fact would correct a mistake of the other party
as to a basic assumption on which that party is making the contract and if non-disclosure
of the fact amounts to a failure to act in good faith and in accordance with reasonable
standards of fair dealing;
3) Where he knows that disclosure of the fact would correct a mistake of the other party
as to the contents or effects of a writing, evidencing or embodying an agreement in whole
or in party.
4) Where the other person is entitled to know the fact because of a relation of trust and
confidence between them.

 See Swinton v. Whitinsville Sav. Bank, where the nonliabiltiy for bare nondisclosure did
not amount to misrepresentation or concealment because there was no affirmative
statement and the buyer did not ask if there were termites in the house before buying
it.
 The rule’s incentives were that the seller did not actively conceal, he was quiet and the
question was never brought up; and, buyers would be less able to find defects in
house than seller, which is why this rule is not necessarily efficiently economic.
 This rule however is not the majority rule; R2 § 161(b) would allocate disclosure to seller
because he is in the better position—bare nondisclosure is an assertion not inaccurate
with facts.
 Buyer would not have to disclosure any known facts of the property if there was interest
in obtaining information (capital investment, for example.)

 Non-disclosure that amounted to misrepresentation:

i. Laidlaw* (CB 387, not sure if misrepresentation or not.)
ii. Note 2, CB 388—Kidd Creek: buyer made investment to find information about the land he was going to
buy; nondisclosure of finding oil there was not misrepresentation because of how he attained the
information.

 Non-disclosure that was not misrepresentation:

i. Swinton (nonliability bare nondisclosure)
ii. CB 387; corn arriving at Rhodes.

b. That is either material or fraudulent

  Material—induce reasonable person to enter K (R2 § 162(2)); the buyer would not enter
into agreement if he had known. Avoiding it with big boys clause: “as is” + each party
does its own investigation.
 Fraudulent—party making assertion knew it was false.

c. Actual reliance
 Avoiding reliance would include terms like “selling as is;” both parties agree not to rely on
assertions but instead on own findings.

d. Which is justifiable

 At least justifiable; the higher level of it would be REASONABLE reliance.

 See Kannavos—not reasonable because of lack of due diligence, but still justifiable.

 Opinions:

 Expression of opinion can be misrepresentation IF parties do not stand at arm’s length and one
party has superior knowledge (see Vokes, the dancer case.)
 Vokes—not puffing; statement of opinion is not a misrepresentation but there is an exception in
this case because of the undue influence and superior knowledge of the instructor.
 Opinions regarding the law => not misrepresentation, only opinion (unless one party has superior
knowledge.)

 Promissory Fraud:

 See ProServ—one who makes a promise with no present intention to perform commits the tort of
a promissory fraud (the substantive state of mind needs to be proven, so it is hard to do so.)

CHAPTER 5: DETERMINING THE PARTIES’ OBLIGATIONS UNDER THE CONTRACT

A. The Parol Evidence Rule

1. The Rule

a) When parties to a contract embody their agreement in a writing or writings, and intend the writing(s) to be the
final (but not complete) expression of their agreement, the written terms may not be contradicted (but may be
supplemented) by evidence of prior or contemporaneous negotiations or agreements; and
b) When parties to a contract embody their agreement in a writing or writings, and intend the writing(s) to be the
final and complete expression of their agreement, the written terms may be neither contradicted nor
supplemented by evidence of prior or contemporaneous negotiations or agreements.

 Completely Integrated: no extrinsic evidence allowed that either contradicts OR supplements the
agreement;
 Partial Integration: extrinsic evidence is allowed to supplement the agreement.
 Rule is only applied if the parol understanding is made at/before integration.

Question: Is there integration? If so, is it final (integrated) or final AND complete (full
integration)?

2. The Various Tests for Determining Partial vs. Complete Integrations:

a. The Four Corners Test—complete within itself; looking at four corners of paper
agreement and interpreting from that only.
 b. The Natural Inclusion Test—if the parties would naturally and normally include the one
in the other, and if they relate in subject-matter, and are so interrelated that both would be executed at the same
time/same K, the subsidiary parol agreement must not be included.

c. The Wigmore/”Dealt with” Test—if the extrinsic negotiation subject is mentioned,

covered, or dealt with in the writing, then the writing was meant to represent all of the transactions of that element;
and, if it is not, then probably the writing was not intended to embody that element of the negotiation.

d. R2 § 216(2)—an agreement is not completely integrated if the writing omits a consistent

additional agreed term which is (a) agreed to for separate consideration, or (b) such a term as in the circumstances
might naturally be omitted from the writing (natural omission test); see Masterson v. Sine.

(1) Separate Consideration Test-- R2 § 216(2)(a)

(2) Natural Omission Test— R2 § 216(2)(b)

e. UCC § 2-202, Comment 3—terms with respect to which the confirmatory memoranda of
the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their
agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior
agreement or of a contemporaneous oral agreement but may be explained or supplement by (a) course of
dealing or usage of trade or by course of performance; and (b) evidence of consistent additional terms unless the
court finds the writing to have been intended also as a complete and exclusive statement of the agreement.

 Basically if alleged parol agreement is one of that parties certainly would have included, then
parol evidence would be excluded.

3. The Justifications for the Rule—the later agreement discharges prior agreements; it allows the
court to control the tendency of the jury to find through sympathy and without a dispassionate assessment of the
probability of fraud or faulty memory that the parties made an oral agreement collateral to the written contract, or
that the preliminary tentative agreements were not abandoned when omitted from the writing.

1) Accuracy; jurors may give too much weight to parol evidence.

2) Discharge earlier agreements;
3) Judicial efficiency; waste of time to introduce evidence if integrated, etc (efficiency >
exception of unfairness.)

4. Compare CISG Article 8—the CISG precludes the application of the parol evidence rule, which
would otherwise bar the consideration of evidence concerning a prior or contemporaneously negotiated oral
agreement.

1) Subjective intent;
2) Party knew of the intent.

5. Merger Clauses—this instrument may help to resolve the issue of whether the agreement is
completely integrated. It says, for example, that “there are no promises, verbal understandings, or agreements of
any kind, pertaining to this K other than specific herein.” In consumer Ks, the merger clause is a presumption of
parties’ intent, but not BINDING.

6. When the Parol Evidence Rule does not apply, see R2 §§ 214, 217

 R2 § 214 exceptions:

1. Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in
evidence to establish:
a. That the writing is or is not an integrated agreement;
b. That the integrated agreement, if any, is completely or partially integrated;
c. The meaning of the writing, whether or not integrated;
 d. Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;
e. Ground for granting or denying rescission, reformation, specific performance, or other remedy.

 See Bollinger— R2 § 214(d): actions of person showing agreement was made as he alleged; (real
and actual evidence.)
 See Masterson v. Sine—R2 § 214(c): understand/interpret language; parol evidence allowed (not
supplementing or contradicting; only interpreting.)
 Subsequent modifications (oral): no parol evidence rule here because modification was done
AFTER integrated/formed.

 R2 § 217 exception:

1. Where the parties to a written agreement agree orally that performance of the agreement is subject to the
occurrence of a stated condition, the agreement is not integrated with respect to the oral condition.

7. NOM Clauses

 “Modified except in writing”—not binding!

 UCC § 2-209(2): accepts NOM, but there is an exception in paragraph 5.

B. Contract Interpretation/Whose meaning prevails?

 R2 § 201—Interpreting Ks:

Contested Term → Court decides if K is ambiguous—2 views: (1) 4-corners; (2) preliminary consideration of
extrinsic evidence. → IF no: evidence excluded; IF yes → Does interpretation depend on credibility of
evidence? → IF yes: question for trier of fact; IF no: matter of law; but clearly erroneous standard of review
(i.e., de novo, start over for questions of law, and only reverse trial court decision if clearly erroneous.)

1. The choice of meaning, R2 § 201

 R2 § 201(1)—A and B attached same meaning to K term; that meaning prevails. (regardless of objective
meaning.)
 R2 § 201(2)(a)—A and B attached different meanings to K term; A knew B’s meaning, B did not know
A’s (but may have had reason to know of A’s). B’s meaning prevails.
 R2 § 201(2)(b)—A and B attached different meanings to K term; A had reason to know B’s meaning, B
had no reason to know A’s. B’s meaning prevails.
 R2 § 201(3)—A and B attached different meanings to K term; (1) Neither A nor B knew or had reason to
know of the other’s meaning, or (2) A knew B’s meaning, and B knew A’s, or (3) A had reason to know of
B’s, and B had reason to know of A’s. Neither A nor B is bound by the other’s meaning.

 See Raffles v. Wichelhaus: different meaning to K term, and no evidence on either side. Whose
meaning prevails? No evidence, so no enforceable K—example of R2 § 201(3).
 See Frigaliment Importing Co. v. B.N.S. (chicken case): in this case, both believed their own
meaning; both had evidence, but plaintiff did not carry burden to show that its interpretation
was the valid one. In this case, both the P and D used several different sources of meaning of Ks;
Plaintiff: K terms, prior negotiations, and usage of trade; Defendant: usage of trade, DOA
requirements incorporated in K (terms of K), and realities of market (surrounding circumstances.)

2. Rules in aid of interpretation, R2 § 202, and standards of preference in interpretation, R2 § 203

 See R2 § 202—Rules in Aid of Interpretation.

3. Sources of meaning: terms of K, course of performance, course of dealing, usage of trade, prior
negotiations, other extrinsic evidence
  R2 § 201 includes usage of trade; but if in conflict: express terms of K > course of performance
> course of dealing > usage of trade > prior negotiations > other extrinsic evidence.

C. Filling gaps/Omitted cases/default rules

 The duty of good faith and fair dealing, R2 § 208 and UCC § 1-304

(1) Default Rules—found elsewhere in Art. 2, for example (price, when/how payment made,
how/when goods delivered, etc.)
(2) No default rules for everything— R2 § 204: “reasonable under the circumstances” terms.

 Performance of agreement: obligation of good faith and fair dealings.

Chapter 6: Limits on the Bargain and its Performance

A. Substantive Unfairness in equity, see R2 § 364(1) (previously R1 § 367)

 R2 § 364—Effect of Unfairness:

(1) Specific performance or an injunction will be refused if such relief would be unfair because:
(a) The contract was induced by mistake or by unfair practices;
(b) The relief would cause unreasonable hardship or loss to the party in breach or to third persons, or;
(c) The exchange is grossly inadequate or the terms of the contract are otherwise unfair.

 See McKinnon v. Benedict—Court did not enforce equitable remedy (e.g.: specific
performances, constructive trusts, injunctive relief, etc) against one who suffered from
harshness of K terms and oppression.
 Equitable relief: at court’s discretion because there is no other adequate remedy at law; thus, they
may look at consideration adequacy because it is in their discretion to limit it/grant it.
 Monetary damage: “Even peppercorn will do, as long as it is bargained-for.”
 Court held in McKinnon that the K had no adequacy of consideration because of the relative
hardships of parties, and sharp bargaining from the party seeking injunctive relief.

B. Standardized Agreements

1. General Rule: parties are presumed to have read and understood a written agreement and are
bound by its terms.
2. Traditional Limitations on the general rule: strict construction of harsh terms;
Manipulation of K formation rules; R2 § 211(3); Statutory requirements for conspicuous or
plain language; Public policy

1) Strict construction of harsh terms: CB 507, Note 3.

2) Manipulation of K formation rules: Klar (“boilerplate agreement,” CB 511)
3) R2 § 211(3): Graham CB 508, K of adhesion; Darner CB 512-513 (insurance.)
4) Statutory requirements for conspicuous or plain language: Doe v. Great
Expectations
5) Public Policy: O’Callaghan
 1) Galligan v. Arovitch: plaintiff fell on lawn, and sued the apartment building for negligence;
landowner excluded liability of the owner for injury arising from her use of hallways and other
areas, but not the lawn area. Thus, the court’s judgment was for plaintiff, claiming that “a lawn
and a sidewalk are clearly different locations.”
2) Klar v. H. & M. Parcel Room, Inc.: the coupon’s terms did not arise to the dignity of a contract
by which he agreed to just because it said “CONTRACT” in the coupon, even if it was all written
there (in small letters.) Thus, the court held that plaintiff was not bound by it.
3) Graham v. Scissor-Tail, Inc.: plaintiff signed a K of identical form known in the industry,
which was an adhesive contract (“take it or leave it”). The court held that the K’s arbitration
term was not enforceable. Those terms are enforceable unless: (1) they are outside the reasonable
expectation of plaintiff, or (2) they are unconscionable. The court used (2).
4) Doe v. Great Expectations: Dating website violated the Dating Services Law; Plaintiffs
recovered restitution damages for all money spent on website because the dating website failed to
provide the clients with their statutory rights according to the N.Y. Dating Service Law. Also see
CB 515 for examples of other state/federal legislations.
5) Court determines if it is contrary to public policy—O’Callaghan v. Waller & Beckwith
Realty Co.: tenant was injured in her apartment building, but when she brought suit to recover for
D’s negligence, she was not able to recover because of the exculpatory clause contained in the
lease. Court held that the exculpatory clause in tenants/landlord (private) matters was not against
public policy of the State to solve housing scarcity. Public matters, however, such as common
carriers, telephone companies, employer/employee, precludes exculpatory clause. Thus, the
legislature should remedy it, not the courts. Also, the court should not remedy it because the
judicial determination in this matter cannot be dictated by “sporadic and transitory
circumstances.”

 See Tuckwiller v. Tuckwiller—plaintiff sought specific performance, which makes it appropriate

for court to look into adequacy of consideration, to receive the farm that Mrs. Morrison had
promised to plaintiff. The court held that the K was not unfair, unconscionable, and it was
supported by adequate consideration. The court said that the “transaction must be viewed
prospectively, not retrospectively.” Thus, the adequacy of consideration is to be looked at
when the K is formed, and not upon the dispute arises. Here, the plaintiff promised to take
care of Mrs. Morrison in exchange of the farm. She died right after, but it could have been
years and years of taking care of her, which suffices the consideration for it when the K was
formed.

C. Unconscionability, R2 § 208, UCC § 2-302

 “Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one
of the parties together with contract terms which are unreasonably favorable to the other party. Whether a
meaningful choice is present in a particular case can only be determined by consideration of all the
circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a
gross inequality of bargaining of power”—see Williams v. Walker-Thomas Furniture Co. (holding that the
dragnet clause of the contract was substantively and procedurally unconscionable given the sharp-bargaining,
unequal bargaining power, and harsh terms.)

1. Two elements: These are determined when K is formed, not when the dispute arises; it is a
matter of law, not of trier of fact; Court can either enforce the remainder of the contract
without the unconscionable term, or refuse to enforce the contract, or may limit the
application of any unconscionable term to avoid any unconscionable result.
 Procedural Unconscionability—unfairness in the bargaining process: absence of meaningful choice; unfair
surprise; “bargaining naughtiness”; surrounding circumstances; sharp bargaining practices; lack of opportunity
to read/understand terms (education level, convoluted language); bargaining power (see UCC § 2-302, cmt. 1,
where they claim not to look at bargaining power. However, they do in cases.)

 Substantive Unconscionability—unfairness in the resulting contract: term unfairness/oppression/harshness (in

light of surrounding circumstances and commercial norms; unreasonable allocations of risk.)

 Generally courts will have both procedural and substantive unconscionability.

 See Jones v. Star Credit Corp.—holding that the price disparity between the freezer’s maximum retail price
and the price it was sold for was a substantive unconscionable term (harsh term); and, that the unequal
bargaining power of the parties was procedurally unconscionable.

2. Unconscionability in Commercial Cases

 Unconscionability applied between businesses very RARE—bargaining power equality, sophistication/choice

individuals may not have makes it very hard for it to be applied in this setting.

3. Unconscionability in Arbitration Clauses

 FAA: Federal Law that favors enforcement of arbitration clauses because they are cheaper and faster.

 See Armendariz (California Case): this case established the essential arbitration terms:

1. Neutral arbitrator;
2. Adequate discovery;
3. Written decision (limited judicial review on arbitrator decision if not written);
4. Limits on cost;
5. Both parties must be able to arbitrate (no “one-sidedness.”)

 See Scott v. Cingular Wireless—California case that held that a class-action waiver within an
arbitration clause by the phone company was unconscionable and unenforceable because it was
substantively unconscionable because the terms were too harsh (normally the court looks at both
procedural and substantive unconscionability, but this case was particular because it held it was
unconscionable under substantive only.)

 See AT&T Mobility v. Concepcion—Supreme Court case that found that California’s unconscionability
doctrine was a bright line that claimed that class action waivers are unconscionable. This, the Court held,
is treating the class arbitration materially from individual arbitration, and that this would be preempted by
FAA. It “overruled” Scott because it held that class-arbitration waivers cannot be invalidated en bloc.

D. Other, legislative and administrative constraints on K terms

 Sale of Goods—See UCC § 2-316(2): you can disclaim implied/express warranties IF language is
CONSPICUOUS (where a reasonable person ought to have noticed it.) The court can still hold it
unconscionable even if you follow statutory/conspicuous language requirements.
 Good Faith/Fair Dealing (§ 205 and UCC § 1-304) implied obligation (subjective and objective).
 See Dalton v. ETS—ETS failed to exercise good faith in its duty to consider the relevant material Dalton
had offered to consider his SAT scores; court held that specific performance would make ETS consider
material WITH GOOD FAITH.
 K performance good faith/fair dealing: Positive AND negative aspects—perform duties in good faith,
AND not do something in good faith of others.

E. Public Policy, see R2 § 178

1. Introduction/Overview

a. Public Policy derived from legislation, and developed by courts

 From legislation, and courts’ “conceptions rooted in common law” (e.g.: restraint of trade,
interference with other protected interests, impairment of family relations.)

 2 Categories:

a. Contracts that violate specific criminal laws; “illegal Ks.” A court will generally not enforce a
private agreement to do what the law explicitly prohibits.
b. Courts often detect or derive policy from legislation related to the subject of the agreement,
again, even when statutes themselves are silent on contractual enforceability.

b. In Pari Delicto—If not enforceable under public policy, they are not enforced and are
left wherever they are (person can perform K, and not get paid, for example.) Restitution
usually not granted.

Parties at equal fault; court will leave them as it finds them.

i. Court does not get involved in agreement that violates public policy; or,
ii. Acts as a sanction.

c. Commercial Bribery—Contract is not illegal but legislation prohibiting bribery

makes it illegal. Courts will not aid either party to an illegal agreement; there must be at
least a direct connection between the illegal transaction and the obligation sued upon.

d. Exculpatory Clauses—As a general rule, when all that is being exculpated is

negligence, they are generally enforceable. Statutes that say that Ks that exculpate
landlords (for example) from liability are VOID though (see Scott, where the court held
that the exculpation of the phone company because of the class-action waiver was
unconscionable.)

e. Ks by unlicensed professionals, R2 § 181—If purpose to require license is public

safety, there will not be enforcement of K by unlicensed; if license is for revenue, then
court will allow recovery.

2. Restraints on trade, R2 § 188

 CNTC is enforceable if it is:

(1) Ancillary (part of agreement)

(2) Protects legitimate interest of the promise
(3) Is reasonable in scope – time and territory; and
(4) The promisee’s need outweighs hardship to the promisor and any injury to the
public
  See Hopper v. All Pet Animal Clinic—an ancillary CNTC stated that Dr. Hopper could not work
within 5 miles in the practice of small animals for three years; the court held that the CNTC was
unreasonable in the duration, but not in its scope.
(1) It was ancillary;
(2) It protects legitimate interest: skill, knowledge, unfair competition.
(3) Time was unreasonable (scope), but territory was reasonable.
(4) Public not injured.

 Remedy: overbroad in scope; a solution is to enforce to extent that is reasonable (rule of

reasonableness).

 3 different approaches of overbroad CNTC:

a. Rule of Reasonableness: The CNTC will be enforced only to the extent reasonably necessary
to protect the employer’s interest.
b. “Blue pencil” Rule: Courts cross out, or blue pencil, words “to the extent that a grammatically
meaningful reasonable restriction remains after the words making the restriction unreasonable are
stricken.”
c. “All or Nothing” Rule: Either enforceable as written, or reject it altogether.

3. Termination of at-will employees

 See Sheets v. Teddy’s Frosted Foods: wrongful discharge claim (tort claim)—“An employee
should not be put to an election whether to risk criminal sanction or to jeopardize his continued
employment;” an employer cannot fire someone in retaliation for that person following the law.
 Rule: An employee should not be put in a position where he has to choose between clear
mandate policy v. continued employment.

4. Ks concerning family relations

a. Prenuptial Agreements

 See Simeone v. Simeone—The terms of any prenuptial agreement must be regarded as

binding, without regard to whether the terms were fully understood by other party (same
principles of normal K enforceability.)

b. Surrogacy Ks

 See In the Matter of Baby M—Surrogacy Ks invalid because it conflicts with public
policy.

CHAPTER 7: REMEDIES FOR BREACH

A. Specific Relief, see R2 §§ 359(1), 360

 Guarantees promisee to be put where K would have placed him/her.

1. No Adequate Remedy at Law: “make it whole”

a. Uncertainty of Damages—Difficult or impossible to determine loss.

 Example: Landlord leases property to new business (no track record); see Hopper, McKinnon, and long-
term output requirement Ks.

b. Unavailability of a Substitute/uniqueness
 Example: If substitute readily available = no specific performance; Uniqueness of product (e.g.: Picasso
painting), specific performance will be enforced.

 See Campbell Soup Co. v. Wentz: no adequate remedy at law was found because there were no options
available in the open market, and the K was a long-term output requirement one.
 See Klein v. Pepsi Co., Inc.: specific performance not adequate because the damages are recoverable and
adequate, as here. The buyer just wanted to resell for profit, and an increase in cost of a replacement does
not merit the remedy of specific performance (also because there were 3 other jets that cost more, but he
could have bought those and asked for the difference.)
 See Morris v. Sparrow: because the cowboy trainer the horse, and made it “unique” in nature, there was
no way to calculate damages there, thus specific performance is appropriate.

c. Ks for sale of land—Each land is unique, thus specific perform required.

1. Discretion of the Court

a. Fairness Limitations—(i) One who seeks equity, must do equity; (ii) one who comes
into equity must come with “clean hands”; (iii) equity aids the vigilant.

 See CB 630: “clean hands” example.

b. Practical Limitations—(i) Indefiniteness: not clear enough to allow court to order to

perform; (ii) Supervisory Difficulties: courts not experts in, for example, construction, so do not
have expertise to enforce and supervise performance.

 See Northern Delaware Industrial Development Corp. v. E.W. Bliss Co.: The court did not grant specific
performance here because of the impracticability to enforce the number of workers to be present at the
construction at all times.

 See Note 4, CB 629; no practical to enforcing K performance (thus they instead chose a negative
injunction; which court ordered that the player CANNOT play to another team; CANNOT sing in the
other opera, etc; see also personal services K, Note 3 CB 629, and Campbell Soup unconscionability.

2. Compare UCC § 2-716(1) and CISG Arts. 46(1), 28—adopted civil law of rule where specific
performance is the norm.

B. Measuring Expectation, R2 §347

1. Review: the expectation, reliance and restitution interests, see R2 §344

 The usual remedy is expectation damages (see Chapter 1).

1. Measuring expectation damages: loss in value caused by the breach + other loss - costs and
other loss avoided.

 See R2 §347;
 See Laredo Hides Co., Inc. v. H & H Meat Products: The buyer was entitled for $153,000 for the
difference between the cover price and the contract price because the buyer in this case complied with § 2-
712, which is covering with good faith and w/o reasonable delay any reasonable purchase of or contract to
purchase goods in substitution for those due from the seller.

 Buyer’s Remedies:

i. UCC § 2-712 IF with substitution (difference between the cover price and the contract price)
ii. UCC § 2-713 IF without substitution (market price difference).
+
 iii. UCC § 2-715: incidental/consequential costs.

 Seller’s Remedies:
i. UCC § 2-706 IF good faith and reasonable manner (resale price and K price difference)
ii. UCC § 2-708 IF not in good faith and reasonable manner (difference between K price and market
price plus incidental)
+
iii. UCC § 2-710: incidental and consequential costs.

2. Losing Ks, see R2 §§ 349, 373

 See L. Albert & Son v. Armstrong Rubber Co.: “The promisee may recover his outlaw in preparation for
the performance, subject to the privilege of the promisor to reduce it by as much as he can show that the
promisee would have lost, if the contracts had been performed”—Plaintiff would have lost money in the K
(speculative nature of what was doing to calculate future profit); plaintiff incurs out-of-pocket, and
defendant has burden of proof to reduce value.
 See Problem CB 658;
 See United States v. Algernon Blair, Inc.: Coastal (subcontractor) would have spent/lost more than the
$37,000 they had already lost in that K; thus their RESTITUTION DAMAGES (not in K, quantum
meruit instead, which is not subject to reduction) was the $37,000—“the impact of quantum meruit is to
allow a promisee to recover the value of service he gave to the defendant irrespective of whether he would
have lost money on the contract and been unable to recover in a suit on the K.

 Notes:

i. If K fully performed, then there is no payment (breach), and no claim in restitution after full
performance (other than payment.)
ii. Less than full performance  value of benefit conferred higher than K value, then quantum meruit has
no cap; other courts will give cap on quantum meruit for the K value/price.

3. Measuring expectation damages where costs to correct or complete > diminished value

 Parties seeking a remedy following partial or defective performance must overcome a preliminary
hurdle of showing that the nonconforming performance justified the sought remedy.
 The court must turn to the matter of relief, which particularly in construction or building contracts often
entails a choice between the difference in market value of the expected and received performances on
the one hand, and the cost of completing or remedying the nonconforming performances on the
other hand.

(a). Jacobs & Young—Difference in value (diminished value rule)

 Substantial performed contract—not material breach.

 Cost to complete grossly inadequate to difference in value;
 No evidence as to purpose of having other pipes;
 Breach not willful; acted in good faith;
 Economic waste.

(b). Plante v. Jacobs—Difference in value

 Substantial performance—not material breach.

 Cost to complete grossly inadequate to difference in value;
 No evidence that owners cared about wall misplacement;
 Breach not willful; acted in good faith;
 Economic waste.

(c). Groves—Cost to complete (only case)

  No substantial performance;
 Willful breach;
 No economic waste;
 Owner is free to make improvements that are not cost efficient.
 Dissent:
 Willfulness is irrelevant; no proof element of taste, so $ may not be used to repair the
nonconforming performance (see Advanced, Inc.), so the remedy should be difference in value.

(d). Peevyhouse—Difference in value

 Unperformed promise merely incidental to the main purpose of K;

 Cost to complete grossly disproportionate to difference in value;
 It is a personal property rather than commercial enterprise.

(e). Advanced, Inc.

 Intention to use the $ to complete performance or not dictates it:

i. If yes = cost of completion.
i. If not = difference in value

(f) R2 § 348(2)

 Similar to Jacob & Youngs.

4. Limitations on Damages

a. Avoidability, R2 § 350

 See Rockingham County v. Luten Bridge Co.: “A plaintiff cannot hold a defendant liable for
damages which need not have been incurred; or, the plaintiff must, so far as he can without loss to
himself, mitigate the damages caused by the defendant’s wrongful act”—refrain to continuing
performance to not pile up damages! (Negative avoidability).
 See Parker v. Twentieth Century-Fox Film Corp.: “The measure of recovery by a wrongfully
discharged employee is the amount of salary agreed upon for the period of service, less the
amount which the employer affirmatively proves the employee has earned or with reasonable
effort might have earned from other employment—the employer must show that the other
employment was comparable, or substantially similar, and not inferior.”
 In Parker, she recovered it because the principle of mitigation did not apply since the alternative
job offer was different and inferior (Positive avoidability).

b. Unforeseeability, R2 § 351; UCC § 2-715(2)(a); CISG Art. 74

(1) The two rules of Hadley v. Baxendale

 Damages are recoverable when they are foreseeable. They are foreseeable when:

i. Foreseeable in usual course of things/naturally (regardless of knowledge of special circumstances);

ii. Or should know during K formation through communication (special circumstances that promisor was
made aware of); tell in advance that losses will be incurred if K obligation not completed, thus this increases
credibility of other party to come through, otherwise liable for those losses.

 A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing
recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so
requires in order avoiding disproportionate compensation (see R2 § 351).
(2) Compare R2 § 351, UCC § 2-715(2)(a) and CISG Art. 74—§ 2-715 is more strict because in the CISG the
language is “possible consequences.”

 See Delchi v. Rotorex: It was foreseeable that Delchi would require the A/C suppressors to make
the A/Cs for the season, so Rotorex is liable for the losses (i.e., incidental AND consequential
damages under § 2-715.)

(3) Emotional Distress, R2 § 353

 Usually not recoverable because NOT FORESEEABLE, unless § 353.

c. Uncertainty, R2 § 352

 R2 § 352: “Damages for breach of K must be shown, by clear and satisfactory evidence, to
have been actually sustained, and be shown with certainty, and not left to speculation or
conjecture.”

 See Fera v. Village Plaza: new business case (i.e., speculative nature of profits); just because it
was a new business, it does not mean that it will ALWAYS BE UNCERTAIN (i.e., it is not a per
se rule). Here they had a trial for days to show the profits, and jury ruled for the new business.

C. Stipulated Damages, see R2 § 356; UCC § 2-718(1)

 If unenforceable – Penalty Clause.

 If enforceable – Valid Liquidated Damages Clause.

 See Dave Gustafson & Co. v. State: liquidation damages are ordinarily sustained when
fair/reasonable attempts to fix just compensation for anticipated loss caused by breach of K is put
in place. Examples are: damages for delay in constructing new highway are impossible of
measurement post-breach; the amount stated in the K as liquidated damages indicates an
endeavor to fix fair compensation for the loss, inconvenience, added costs, and deprivation
of use caused by delay. Daily damage is graduated according to total amount of work to be
performed.

 See Lake River Corp. v. Carborundum Co.: Rule in R2 § 356(1). Court here held that the
liquidated damage clause was instead a penalty clause because it was not a reasonable damage in
light of the anticipated/actual loss, as it says below:

 Is stipulated damages reasonable in light of EITHER:

i. Anticipated OR actual loss, AND difficulties of proof of loss.

 See also “blunderbuss” clauses: stipulated damages for same amount of $ independently of
what breach is, and when it was breached (at what point of the K—e.g.: 55% completed
performance, etc)—these are usually unenforceable.

Conditions—Chapter 8

 Breaches

 Material and Total breach: non-breaching party can withhold further performance, terminate contract,
and seek full monetary damages.
 Material and not Total breach: non-breaching party can suspend performance, wait for cure (if
applicable), and seek monetary damages for any loss. Or it may just treat it as a partial breach, which
then becomes a substantial performance, which makes the non-breaching party unable to
rescind/terminate K.
  Not material breach: non-breaching party can seek monetary damages for any loss (difference in value v.
cost of completion); non-breaching party must continue to perform contractual duties.

 Conditions: (1) is it a condition? Preference for duty rather than condition (2) is it expressed or not?
Preference for interpretation that avoids forfeiture (3) is satisfaction subjective or objective? Preference
for objective rather than subjective (4) if nonoccurrence, is there mitigation? Substantial
performance/Divisibility/Restitution.

First, did the parties intend a performance to be excused if the event does not occur? If the answer is yes, the
event is a condition of that performance. If the answer to the first question is affirmative, the second question
is whether the parties intended that one of them would be responsible for the event’s occurrence and would
be liable for breach of contract if it does not occur. If the answer is no, the event is a pure condition. If it is
yes, it is a promissory condition.

 Expressed: nonoccurrence of an expressed condition = total breach/grounds to rescind K; it may serve to

allocate the risk to parties (e.g.: selling land for farm purposes; the party buying the land wants it to be
rezoned for commercial purposes, thus, it will only enter the K IF the seller can rezone it—allocates the
risk to seller so buyer does not have to buy land it won’t use), it serves to sequence performances (e.g.:
those that take time are first), and also setting procedural requirements (e.g.: insurance requires insured to
give proof of loss before reimbursing).
 Promissory condition: a condition that is also a promise, that is, one of the parties will assume a contractual
duty to bring about the event to which the other party’s performance is conditioned—i.e.: non-performance
of that promissory condition will lead the non-breaching party to both rescind the contract, and sue for
breach of contract.
 Construed: discretion of court; created by the court; thus, substantial performance applies to mitigate it.
They are presumed to be dependent. Other mitigation doctrines are divisibility, and quantum meruit
(restitution). Conditions, being dependent, have order of performances: if the performance takes time, it
must occur first. These are dependent because almost always, in exchange transactions, the promises
exchanged are dependent on one another to prevent one party having to perform even when the other has
failed to do so.

 Mitigation Doctrines for Expressed Conditions:

1. Prevention—breach of duty of good faith/prevention to allow condition to occur or failure to cooperate.

2. Election (waiver after occurrence)—modification/waiver of expressed condition; no consideration is
required. When the time for a condition has expired, the party whose duty is conditional has a choice
between taking advantage of the nonoccurrence and discharge the duty, or disregard the nonoccurrence and
treat the duty as unconditional.
3. Estoppel (waiver before occurrence)—a party that waived the condition that is within the other party’s
control before the time for occurrence of the condition can retract the waiver and reinstate the requirement
that the condition occur unless the other party has relied to such an extent that retraction would be unjust. If
there is such reliance, estoppel will preclude retraction of the waiver.

 Mitigation Doctrines for Construed Conditions:

1. Substantial Performance—not applicable to express conditions; if a party has substantially performed

under the contract obligations, the non-breaching party cannot rescind the K or terminate it, but may sue for
damages incurred (if any). If a breach is so dominant or pervasive as in any real or substantial measure to
frustrate the purpose of the contract, it cannot be a substantial performance; also, if the breach is willful, it
generally precludes substantial performance. A material breach may include factors such as the extent to
which the injured party will be deprived of its reasonable expectations under the contract, the extent to
which the breaching party may cure the breach, the extent to which the injured party may be compensated
by the benefit he is deprived of, the extent to which the party failing to perform comports within standards
of good faith and fair dealing, etc. see Jacob & Youngs v. Kent
2. Divisibility—it mitigates the harsh construction of conditions because if the performance “consists of
several and distinct items, and the price to be paid by the other is (1) apportioned to each item to be
 performed, or (2) is left to be implied by law, such a contract will generally be held to be severable . . . but
if the consideration to be paid is single and entire the contract must be held to be entire, although the
subject of the contract may consist of several distinct and wholly independent items.” Thus, if the contract
is not entire, and the breaching party fails to perform one of the portion of it, it will be considered to have
breached that one part of the contract, but it may still be paid for the remaining given that it performs
accordingly, and given that the breach of that one part of the contract does not constitute of a material
breach. See Gill (holding that plaintiff did not substantially perform, but may still recover some of the
portions of the K that was performed since the K was severable). But see Pennsylvania Exchange Bank
(holding that even if the party performed three of the four phases stipulated in the K, they were considered
“incidental” to the last step, which was the ultimate objective/central purpose of the K. These steps were
not properly regarded as agreed equivalents).
3. Restitution—If the breaching party has not substantially performed, nor is the contract severable, it may
still recover under the principle of unjust enrichment. If the non-breaching party has accepted to receive
benefit given by breaching party, it is under obligation to pay for it (rationale: it is unjust to put someone
who did 75% of the job in the same position as someone who did nothing). The breaching plaintiff,
however, may not recover amount if it exceeds amount/value of K (cannot recover if restitution damages >
price of K). For example, in construction contracts, a builder who has supplied work and labor, but has
departed from the terms of the contract, is entitled to recover for the work and labor unless (1) the owner
incurred no benefits from the work; (2) the work he has done is entirely different from the work which he
has contracted to do; (3) he has abandoned the work and left it unfinished (willful breach).

 Suspending Performance and Terminating the Contract:

 In contract breaches, the analytical framework to decide whether it was justified is: (1) is there an
uncured breach? (2) if yes, is the uncured breach a breach of a duty of performance that was part of
an exchange of promises (are they dependent covenants)? (3) What is the order of performance
(whether the breach went to a performance that was to take place before of the aggrieved party)? (4)
if not, which breach occurred first (i.e., the first material breach may excuse any later breaches)? If
yes, is the breach material? (i) if the breach is not material, there is substantial performance, and the
non-breaching party has no choice but to continue performance and treat the breach as a partial
breach (i.e., the non-breaching party has right to damages incurred to that point, but there is no right
to suspend performance or terminate the K); (ii) if the breach is material, the non-breaching party
can either continue performance and treat it as a partial breach, or stop performing and treat the
breach as a total breach. If the party chooses to treat it as a total breach, because of the constructive
conditions of exchange, it may terminate its own performance; and, it may also collect damages
against the breaching party for the entire contract. If it treats as a partial breach, it may either sue
for partial breach (damages incurred to that point), and continue performance, or wait for the
breaching-party to cure the breach, to the extent that if it does, it becomes a substantial performance
(non-material breach), and if it does not, then it may then terminate the contract and sue for
damages of the entire contract.

 Anticipatory Repudiation: only actionable if the promisor’s words/actions/silence/or inaction are

communicated to the promisee in definite and unequivocal terms prior to the time the performance is
due under the contract.

 § 250: Repudiating party voluntarily says or does something to show that cannot/is unwilling to
perform K through statement.
 § 251: Repudiation may come about by party having reasonable grounds that other party won’t
perform, and may be able to make a demand to provide adequate assurances, if party fails to provide
it, there may be repudiation (law for sale of goods).

 Responses to repudiation:
(1) Treat K as terminated and seek damages; if party is mistaken, and it is actually not repudiation, treating
the K as terminated may itself constitute repudiation, which is a total breach.
(2) Urge retracting of repudiation; risky because non-repudiating party may fail to mitigate damages.
(3) Ignore repudiation and await performance; failing to refrain from acting, which may pile up damages,
and constitute failure to mitigate.
 Chapter 9: Mistake, Impracticability, and Frustration of Purpose

 Mistake: a belief that is not in accord with the facts, see Renner.

a. Mutual mistake:

1. At the time of contracting, the parties must have shared an error of fact—present at the time of
contracting; not a future prediction.
2. The erroneous fact was a basic assumption on which the contract was made—the mistake is so
fundamental that the parties would not have entered the contract had they known the truth.
3. The mistake must have a material effect on the agreed exchange of performances—material difference
on bargain, material effect on the exchange; whether the error creates an overall imbalance between the
parties making the exchange less desirable to the adversely affected party and more advantageous to the
other.
4. The adversely affected party must not have borne the risk of the mistake—main point of discussion: if
the adversely party bore the risk of mistake, there can be no avoidance of the contract. To determine risk
allocation, courts look at difference factors:
(i) The contract itself: if the agreement expressly allocates the risk to one party, there is no discussion.
(ii) By context (surrounding circumstances): the court assigns the risk in the way most reasonable under the
circumstances, based on general expectations and general practices in the marketplace or community, and
whether mistaken party was “consciously ignorant” of mistake.

b. Unilateral mistake: see Goodyear (holding that an offer that was “too good to be true” due to a
unilateral mistake by Goodyear was not an offer capable of acceptance).

1. At the time of contracting, the parties must have shared an error of fact—present at the time of
contracting; not a future prediction.
2. The erroneous fact was a basic assumption on which the contract was made—the mistake is so
fundamental that the mistaken party would not have entered the contract had he known the truth.
3. The mistake must have a material effect on the agreed exchange of performances—material difference
on bargain, material effect on the exchange; whether the error creates an overall imbalance between the
parties making the exchange less desirable to the adversely affected party and more advantageous to the
other.
4. The adversely affected party must not have borne the risk of the mistake—main point of discussion: if
the adversely party bore the risk of mistake, there can be no avoidance of the contract. In unilateral
mistakes, however, negligence automatically places risk allocation to the mistaken part. To determine risk
allocation, courts look at difference factors:
(i) The contract itself: if the agreement expressly allocates the risk to one party, there is no discussion.
(ii) By context (surrounding circumstances): the court assigns the risk in the way most reasonable under the
circumstances, based on general expectations and general practices in the marketplace or community, and
whether mistaken party was “consciously ignorant” of mistake.
5. The equities must favor relief for the mistake—courts weigh the hardship that enforcement would have
on the mistaken part (whether enforcement of the contract would be unconscionable), and also whether the
other party had reason to known of the mistake or his fault caused the mistake.

c. Reliefs for mistakes:

1. Avoidance of contract, normally is the main remedy.

 Impracticability/Impossibility: “A thing is impossible in legal contemplation when it is not

practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable
cost.”

 Applies when events following the contract formation are so different from the assumptions on which the
contract was based, that it would be unfair to hold the adversely affected party to its commitments. It is
 concerned with whether a post-formation change of circumstances (contingency) has such a serious effect
on the reasonable expectations of the parties that it allows for the performance to be excused.
 The issue is not to be forced to perform. Rather, it is whether failing to perform constitutes a breach of
contract. If failure is excused under the impracticability doctrine, it is not a breach, and it would excuse the
adversely affected party’s performance. If a party has partly-performed, then it may restore these benefits
under the unjust enrichment principles.
 See Transatlantic, and Taylor v. Caldwell.

1. Contingency after contract made;

2. Renders a party’s performance impossible/impracticable;
3. Non-occurrence of the contingency was a basic assumption of the contract;
4. Risk of contingency not allocated to the adversely affected party;
(i) Agreement itself + surrounding circumstances;
(ii) Foreseeability;
(iii) Which party is better able to control the risk.

Remedies may include both RELIANCE and RESTITUTION (see Young v. City of Chicopee)

 Frustration of Purpose: extension of doctrine of impracticability/impossibility. It provides relief

when a party could not show that an unexpected supervening event rendered the performance
impossible, yet it so destroyed the value of the transaction for him that the contract’s underlying
purpose was frustrated—see
Krell v. Henry.

1. Contingency after contract made;

2.Which substantially frustrates principal purpose of contract;
3. Non-occurrence of the contingency was a basic assumption of the contract;
4. Risk of contingency not allocated to the adversely affected party;
(i) Agreement itself + surrounding circumstances;
(ii) Foreseeability;
(iii) Which party is better able to control the risk.