Contracts Outline

I. Introduction: CONTRACT
 What is a contract? = a legally enforceable agreement; voluntary exchange relationship created by an
agreement containing at least one promise
 A set of promises for the breach of which the law gives a remedy
 The performance of which the law in some way recognizes as a duty
 Contract = [offer + acceptance] + consideration
 [mutual assent] = “meeting of the minds”
 Types of Contracts:
 Common Law = real estate; services
 UCC = sale of goods
 Moveable personal property (but not land or buildings)
 Mixed Contract = use predominant purpose test
 What is the main purpose of the contract? Sale of goods or services?
 Remedies:
 Legal:
 Expectation damages = $$$
 Award money to the aggrieved party to make them whole
 Preferred remedy of the court = more efficient
 Equitable:
 Specific performance = court requires you to do something
 Court will award if $$$ not enough
 But need to prove why money is not sufficient
 Injunction = court prevents you from doing something
 Restitution = getting back your ill-gotten gains
 Recission = tearing up the contract
 Reformation = reform the contract

 OFFER = manifestation of the intent to enter into an agreement; willingness to enter into a bargain
 Test: what a reasonable person would believe that their assent to the offeror’s words would create a
contract
 Gives the offeree the power to decide whether or not there will be a contract
 Requirements:
 Under Common Law:
 Must have a price term
 No ambiguous terms (never: “for a fair price”)
 Real estate offer must include a price term + description of the land
 Under UCC:
 Must have a quantity term
 Price is not needed
 Exception:

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  Requirements contract = a buyer and seller (usually 2 merchants) enter into a contract
with no specific $$ amount or quantity term
○ “I need as much as I need”
○ Ex: Bar buying from liquor vendor
 Termination of an offer:
 Lapse of time
 Time for acceptance is stated in offer
 If time NOT stated, then  more than a reasonable amount of time passes
 Death of offeror
 Revocation by offeror before acceptance/rejection of offeree
 Direct: offeror communicated to the offeree that offer is being revoked
 Indirect: when offeree learns that offeror engages in actions that would revoke the offer
 Counteroffer
 The counteroffer kills the first contract
 The offeree becomes the offeror
 Need acceptance on the counteroffer
 The basic test = the objective standard
 Governed by their conduct
 What a “reasonable person” would think of that conduct
 To explain the contract’s terms, may seek subjective evidence
 Duty to Read: a party’s accountability for knowledge of a contract’s terms; lack of knowledge of the
law/what you are signing is NOT an excuse
 Boxtop Terms: terms printed on the exterior of packaging
 Shrink-Wrap Terms: terms are inside the packaging
 Clickwrap Terms: terms shown by clicking through web page
 Browsewrap Terms: terms available through a link on another webpage
 Bluffs, Jokes, & Hyperboles
 Under the objective test, court will not be concerned with party’s subjective understanding that a
manifestation was not serious, but focus on the other party’s reasonable understanding [Lucy v.
Zehmer]
 No objectively reasonable person would have concluded the “offer” was actually an offer
[Leonard v. PepsiCo]
 Is an Advertisement an offer?
 Usually NO
 Ads are commonly construed as invitations to the public to make offers/bargains
 Exceptions:
 If the ad is clear, definite, explicit, and leaves nothing to negotiation [Lefkowitz Test]
 If the performance requires a specific act and leaves nothing open for negotiation, and
requires no further communication
 If an ad has no more terms or details to discuss
 The redemption of coupons is an offer
 2 Aspects of an Offer
 Substantive Aspect: substance of offer must be agreed to in full
 Procedural Aspect: how offer can be accepted

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  Irrevocable Offers
 Option Contracts: a separate contract within a bigger contract
 Can be a specific performance
 Promise to keep the offer open is supported by consideration
 Amount deposited is legally adequate no matter amount
 Offeree makes no promises to accept; gives offeree time to decide
 Is created once the offeree begins the required performance
 Although offeree has no obligation to complete it, offeror has lost the power to withdraw
offer
 Requires consideration
 Firm Offers: (merchants only)
 Merchants sell goods
 Signed (if offeree prepared the offer, the offeror must sign to make it valid)
 In writing (not oral)
 Not revokable for the amount of time stated
 But if no time give, then a reasonable amount of time
 Cannot be opened for more than 3 months
 Reasonable Reliance / Promissory Estoppel
 Contractor-Contractor Fact Pattern:
 Client wants to build a house  contract sub-contracts for anything they don’t know how
to do
 Unilateral Contracts:
 A contract that can only be accepted by rendering FULL performance
 Where performance has already begun, offer cannot be revoked

 ACCEPTANCE = the offer to whom the contract is made can accept, unless it’s an option contract
(which can be assigned)
 Measured by the objective standard (what would the reasonable person think?)
 An offer can be accepted in any reasonable way:
 A promise to perform or forbearance
 By performance (starting/full performance) - bilateral only
 By shipping goods (even wrong goods) – UCC only
 By sending acceptance in mail
 Must comply with offeror’s instructions/conditions to accept (procedural)
 Rules:
 Under Common Law
 Acceptance has to be communicated to the offeror
 Has to comply with the offeror’s instructions on how to accept
 Mirror Image Rule: acceptance cannot very the terms of the offer
 If the terms vary, this is a counteroffer or rejection
 Must accept the offer under the same terms
 Must accept while the offer is still in effect
 Mailbox Rule
 Last Shot Rule: if the parties have different terms, the last terms proposed before
performance begins is what governs
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  Under UCC
 Promising to ship goods
 By shipping conforming goods
 By [mistakenly] shipping non-conforming goods
 If non-conforming goods are deliberately sent as an accommodation, this is a
counteroffer
 Mailbox Rule:
 Acceptance is effective when mailed
 Revocation is effective when received
 Includes faxes
 Doesn’t apply to: irrevocable offers, unilateral contracts, or option contracts
 Exceptions:
 If acceptance, then rejection…
 & acceptance arrives first = an acceptance
 & rejection arrives first + receiver relies on it = a rejection
 If rejection, then acceptance…
 Whichever arrives first
 Acceptance by Performance:
 Unilateral Contract:
 Can only be accepted by full performance
 Promising/beginning to perform is not an acceptance
 Once performance begins, the contract cannot be revoked
 Ex: Lost Dog [Muffy] Flyer – returning lost dog based on reward from ad
 Bilateral Contract:
 Can be accepted in any reasonable way
 Full performance
 Promising to perform
 Starting/partial performance
 Silence as an Acceptance?
 Usually no
 If there is a counteroffer and silence, there is no contract (bc of mirror image rule)
 Exceptions:
 If the parties have some kind of pre-existing relationship, and one party has to notify the
other not to accept
 Ex: company emails you new terms; accepting unless you say no
 Offeree takes advantage of services with the expectation of compensation (and you know
that)

 CONSIDERATION = bargained for detriment or exchange

 A bargained for exchange where each party gives up something they did not have to give up by the
law (NO consideration for illegal things)
 What Suffices? A promise that is bargained for (to perform or forebear)
 Rules:
 A gift can never be a consideration – it’s not a bargained for exchange (one sided)

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  A pre-existing duty cannot be consideration
 As long as the parties bargain for an exchange, court will not upset that exchange bc of inadequate
consideration, even if that inadequacy is significant or even extreme
 UNLESS it “shocks the conscious of the court”

II. UCC
 If the UCC does not have a specific rule, default back to Common Law
 Article 2: Sale of Goods
 Formation in General:
 A contract for the 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
 An agreement sufficient to constitute a contract for sale may be found even though the moment
of its making is undetermined
 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
 Merchants are special
 The law imposes a higher duty on…
 Someone who deals in goods of a particular kind
OR
 Someone who holds themselves out as having knowledge or skills particular to the goods or
practices involved in the transaction
 2-207: Battle of the Forms (additional terms in acceptance or confirmation)
 1) Is there a contract?
 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 additional or different
terms from those offered or agreed upon
 Exception:
 Unless acceptance is expressly made conditional on assent to the additional or different
terms OR the new terms are materially different…
 NO acceptance (it’s a counteroffer)
 2) What happens to the additional terms?
 The additional terms are to be construed as proposals for addition to the contract
 Between merchants, such terms become part of the contract…
 …UNLESS
 The offer expressly limits acceptance to the terms of the offer;
 They materially alter it;
OR
 Notification of objection to them has already been given or is given within a reasonable time
after notice of them is received
 Between merchants, small additions or changes are accepted if…
 None of the parties object;
 The offer isn’t limited;
 It’s not material difference

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  3) What if there is no acceptance, but parties begin to perform?
 Knockout Rule: Any terms that conflict get “knocked out”; the UCC fills in the rest with its
default “gap fillers” where the contract is “silent”
 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 consists of those terms on which the
writings of the parties agree, together with any supplementary terms incorporated under any
other provisions of this act

 Statute of Frauds
 A definite and seasonable expression of acceptance
 Operates as an acceptance…
 even though it states terms additional to or different from those offered
 = acceptance but with different or additional terms
 Unless acceptance is expressly made conditional on assent to the different terms
 = NO acceptance (a counteroffer)
 How to satisfy SOF:
 1) Writing
 Paper; electronic; multiple docs pieced together
 2) Signature
 By the party whom the contract is being enforced against

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  Any symbol made with intention
 3) Contents
 The terms & subject matter
 Common law needs price
 Real estate must also include description of land
 Sale of goods needs quantity term
 Contracts Covered by SOF
 A contract for the sale of a good valued >$500 (UCC)
 A contract that cannot be performed within 1 year of acceptance (impossible to complete
 Contract for the sale or transfer of an interest in land
 Also:
 Suretyship (promise by a creditor to guarantee the debt of another)
 Promise by executor or administrator of a descendant’s estate to pay the debts of a
descendant
 Prenups (contract made in consideration of marriage)
 Exceptions to SOF
 Service Considerations
 Full performance satisfies the SOF
 but partial does not
 Real Estate
 Part performance doctrine
 In most courts, only need 2/3 of:
 Buyer takes possession of the land (moves in)
 Buyer makes improvements to the land
 Buyer fully or partially pays for the land
 UCC
 Specially manufactured goods, unable to be resold in the normal stream of commerce, &
maker already made a “substantial beginning”

III. Promissory Estoppel

 Someone makes a promise and does it intending to
induce your reliance & you rely on the promises to
your detriment & it would be unjust for the courts
not to step in
 Elements:
 When the courts recognize a detrimental reliance on
a promise, where consideration is absent
 The court steps in to protect the party who relied on
a promise to their detriment
 Promise Reasonably Inducing Action or Forbearance
 (1) A promise which the promisor should
reasonably expect to induce action or
forbearance on the part of the promise or a third

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 party and 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
 A charitable subscription or marriage settlement is binding under subsection (1) without proof that
the promise induce action or forbearance
 Gift to charity

IV. Unjust Enrichment

 A quasi-contract doctrine: not a contract bc it doesn’t fulfill requirements
 No contract so can’t sue for breach
 Not based on a promise
 A cause of action that arises where the claimant has conferred a benefit without paying for it
 REMEDY = restitution (when you got your ill-gotten gains back)
 How to Calculate:
 Quantum Meruit: reasonable value of one’s services
 As much as they deserve
 Refers to the market value of services
 Quantum Valebant: reasonable value of goods
 As much as they are worth
 Used to denote the market value of goods
 Elements:
 One party is enriched
 One party must have been enriched by obtaining property, services, or some other economic
benefit from the other
 It would be unjust for the beneficiary to keep the benefit without payment
 The circumstances must be such that it would be unjust for the beneficiary to keep the benefit of
that enrichment without paying or compensating the other party for the benefit
 Exceptions:
 Volunteer = when someone volunteers their services
 Recipient of those volunteer services are not being enriched
 A similar idea as a donation – a benefit is not unjustly conferred if the party conferring the
benefit intended it as a gift
 Officious Meddler = someone who makes an improvement for you and there’s no way to repay them
 It is also not unjust for a person to retain a benefit that was imposed and cannot be returned
 The person who conferred the benefit has no justification for providing it without being asked,
and the benefit cannot simply be given back

V. Parol Evidence Rule

 A rule in contracts that tries to preserve the integrity of written agreements
 Reinforces and extends the preference given to written terms
 It prohibits the introduction of prior or contemporary understandings or negotiations that seek to vary
OR contradict the terms of a written agreement
 Extrinsic Evidence: evidence outside of the written agreement that one tries to bring in to contradict or
supplement that agreement

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  Used to prevent fraud & promote commercial certainty
 What is excluded when PER kicks in?
 Oral or written agreements outside of the contract that are made before or at the same time the
contract is executed
 Under the UCC:
 Evidence of parol agreement must be excluded if the agreement would certainly have been included
in the writing
 Under Common Law (Restatement):
 Evidence of a collateral agreement can be admitted if the parol agreement might naturally have been
made separately
 2 Step Process for Admitting Parol Evidence:
 STEP ONE: the judge decides if parol evidence is admissible (aka decides if the agreement is fully
or partially integrated)
 Two approaches to determine if an agreement is integrated/final:
 Classic Approach (“The Four-Corners” Test): judge examines the writing itself within the
four corners of the document
 Contextual Approach: judge examines the intent of the parties; looks at whether
integration flows naturally from the transaction
 Fully Integrated Agreement: the writing is complete
 outside evidence cannot be used to supplement or contradict the writing
 Integration/Merger Clause = ex: “this writing is fully integrated & no outside evidence
can be used”
 STOP! NO STEP 2
 Partially Integrated Agreement: the writing is final only as to its terms
 The terms of the writing cannot be contradicted by evidence of any prior or contemporary
agreement
 However, the agreement can be supplemented by evidence of additional terms… so long
as they don’t contradict any terms in the agreement
 GO TO STEP 2!
 STEP TWO: if agreement is determined to be partially integrated…
 Judge allows evidence through
 The extrinsic evidence appears before a jury who weighs its credibility/probativeness
 Exceptions in all contracts
 you are not trying to contradict or supplement the contract; there was simply a mistake
 Interpretation Exception: trying to explain what one of the terms of a contract means bc of ambiguity
 Mistake of Integration: a typo or clerical error
 Trying to get remedy of reformation
 Fraud/Duress/Illegality/Etc.: trying to say there is no contract
 Looking for rescission
 Exceptions in UCC
 Can always allow evidence to be admissible when…
 Course of Performance:
 In a contract for a sale of goods, parties can always admit supplementary evidence
 This is past performance under the existing contract

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  Ex: contention on who pays for shipping & contract does not say anything on it; but
history shows that one party has been paying for shipping for a number of years
 Course of Dealing:
 Refers to past dealings by the same parties but under different contracts
 Ex: current contract is silent on who pays for shipping (like it was in previous contracts),
but one party had historically always paid for shipping even when past contracts were
silent
 Usage of Trade:
 This is the legally accepted method/practice used in the industry or trade
 Fully integrated contract but party wants to have a trade usage supplement regarding the
facts that one specific party will pay for shipping based on the norms of the trade

VI. Defenses (aka Excuses)

 How to get out of a contract
 Remedies:
 Recission = cancel the contract
 Restitution = get back any ill-gotten gains
 Void vs. Voidable
 Void = a legal nullity; it’s not enforceable by either party
 Defenses: fraud in inducement; duress; incapacity; misunderstanding
 Voidable = can be canceled by the victim of the wrong behavior OR enforced at their election
 Defenses: fraud in the factum; illegal contracts; against public policy
 Improper Bargaining Defenses:
 Misbehavior in the bargaining process; something about the way the contract was entered into
was wrong, so the law allows you to get out of the contract
 Fraud/Intentional Misrepresentation:
 When someone tricks you into entering into a contract
 Duress:
 When someone forces you into entering into a contract
 Undue Influence:
 Parties have a special influence & close relationship of trust, and person is abusing that to get
you to enter into a contract
 Unconscionability:
 Terns that are patently unfair; discrepancies
 Parties or Subject of Contract:
 Something wrong with one of the parties entering into the contract or the topic of the contract
 Illegality:
 Topic of contract is illegal
 Incapacity:
 Person entering is incapacity (minor, mental illness, etc.) and doesn’t understand what they are
doing
 Public Policy:
 Contract not necessarily illegal but goes against public policy

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 FRAUD = Someone lies to get you into a contract
 When a person that you are contracted with misrepresent some fact underlining the contract to get
you to contract with them
 Silent on, conceals, or misrepresents a fact
 Inducement vs. Factum
 Fraud in Inducement:
 Making a fraudulent statement to induce someone into the contract
 There is a lie in the underlining fact
 Voidable
 Fraud in the Factum:
 The contract itself is fraudulent
 Think you’re signing one thing when it’s a completely different contract
 Fraud in the execution = face of the contract is different
 Void
 Elements:
 False statement / misrepresentation of fact
 Can be made by…
 Assertion: affirmatively making a false statement of fact
 Concealment: conceal something from someone
 Non-disclosure of a fact can be fraud
 Ex: silence
 Defendant knows/believes it’s false
 Knows/believes it’s not true
 No confidence in the truth
 Reckless/wanton disregard
 Knows no basis for assertion
 Statement is material
 Negligent Misrepresentation: failed to exercise a due-diligence duty of care
 Not trying to deceive someone, but are careless
 Intentional Misrepresentation: intent to cause harm and misrepresent a fact
 Defendant intended to induce reliance & Plaintiff justifiably relied in it
 Did in fact induce
 Inducement subjectively/objectively justifiable
 Plaintiff suffers damages
 Opinion as basis for fraud?
 Usually no
 Exception:
 When the aggrieved party believes the opinion is based on fact
 Silence or non-disclosure could be fraudulent when…
 There is a duty to disclose
 Concealment; half-truth; parties have a fiduciary relationship (relationship of trust); fact not
easily discoverable

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 DURESS =
 Contract is voidable
 Elements:
 Improper threat
 The act is a crime or a tort; or the threat itself is if it results in obtaining property
 Threat of criminal prosecution
 Bad faith use of civil procedure (threatening to sue)
 Breach of duty of good faith & fair dealing under a contract
 Someone wants to make a modification and threatens to breach unless agreement made
 Exchange not on fair terms and…
 Harms recipient without benefitting party making threat
 Effectiveness of threat enhanced by prior unfair dealing
 Abuse of power for illegitimate ends
 Ordinary Market Pressure: aka hard bargaining (may need job but can still get another one)
Ordinary Market Pressure vs. Duress
“Must sign this new contract, or [ex: working at a store with “If you don’t sign this new
we will not renew current one year contract; store contract, company will
contract once it expires implements new employee terminate current contract
contract] NOW”
  Economic Duress
 Remedy = Replevin
 An order from the court seeing to get back goods from a buyer (return to seller)
 Contract Modification:
 If a modification is unfairly coerced, the victim can use duress doctrine to avoid it
 Common Law
 Cannot have a modification without new consideration bc of pre-existing duty rule
 Already had an obligation to carry out the contract
 Can’t modify without new consideration
 Exception:
 Supervening Difficulties Rule:
 When events following contract formation creates a difficulty not anticipated at the
time of contracting, a fairly bargained for modification bc of that unforeseen
difficulty is valid
 UCC
 NO pre-existing duty rule
 The modification does not need new consideration, only “good faith”
 “good faith” = (1) honesty in fact + (2) fair dealing

 UNDUE INFLUENCE = a party is influencing you but there is no threat or false statement, but they are
putting pressure on you bc of the special relationship with them
 Contract is voidable
 Elements:
 The parties have a special influence & close relationship of trust
 People who have a special relationship of trust:
 Close family members; friends; etc.
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  Person is a professional relationship that demands the professional’s faithful efforts to
protect their best interests
 Counselors; lawyers; medical practitioners; etc.
 Person is abusing that relationship to get you to enter into a contract
 Third Party Undue Influence
 The victim can avoid the contract unless the other party in the contract, in good faith, without
reason to know of the undue influence, gives value or relies materially on the transaction

 UNCONSCIONABILITY = transaction that is so unfair it would offend the conscious of the court to
enforce it (“shocks the conscious of the court”)
 Who decides?
 ALWAYS the judge; never the jury
 Tested at the time contract was made
 What the Court Looks For:
 An absence of any meaningful choice
 Contractual terms that are unreasonably favorable to one party over the other
 [sometimes] unfair surprises
 Contracts of Adhesion:
 [used by courts] a contract that is given to someone on a “take-it-or-leave-it” basis and there
is no opportunity to bargain
 Elements: based on a sliding scale
 Most courts will require that a contract have both elements, but they do not need to appear to
the same degree
 Procedural Element = unfair bargaining
 Look at the way the contract was formed
 Unfair bargaining tactics and abuse of bargaining power (basically like bad bargaining)
 Substantive Element = terms of the contract itself
 Unfair or unduly one-sided contract terms
 Remedies:
 Avoidance = the court can refuse to enforce the contract
 avoidance of the entire contract
 Severance = remove/sever the unconscionable term, but enforce the remainder of the contract
 Amend = limit the application of the unconscionable term
 Rewrite the contract to cure the unconscionability (uncommon)

 ILLEGALITY = contract violates statute or the common law

 Contract is void
 A court will not give relief to a plaintiff arising out of their illegal conduct
 Plaintiff can neither enforce an illegal transaction nor seek any other relief
 Contract itself was fairly bargained; problem is that something underlining the contract was illegal
 No one in the court will enforce the contract
 In Pari Delicto:
 If the parties are both equality guilty/liable/at fault, court will leave things where it finds them
 Flexible

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  Discretionary
 Public interest
 Not a mechanical doctrine (balancing)
 Relative guilt or fault
 Balance equities between the parties

 PUBLIC POLICY = does not violate the law, but is so contrary to the public interest that the court
concludes it should not be enforced
 Contract is voidable
 Only when the public interest not enforcing the contract is strong enough to outweigh upholding
freedom of a contract will the court consider it appropriate to refuse enforcement by allowing
avoidance of the contract as a whole or of the offending term

 INCAPACITY = minors & those with mental illness lack the capacity to enter into a contract
 Contract is voidable
 We allow these people to get out of contract bc of exploitation
 Minors
 Age of majority is typically 18 (but set by statute in each state)
 Those under the age of majority can enter into a contract and still get out of it
 Voidable: minor can choose to keep enforcing the contract or avoid it
 Disaffirmance:
 The ability of a minor to cancel the contract up until a reasonable amount of time after
reaching majority
 Ratification:
 A party ratifies a contract if they fail to disaffirm it a reasonable amount of time after
reaching age of majority
 Implied Ratification: ratify by conduct; minor continues to get the benefit of the
contract
 Expressed Ratification: ratify by words
 Exceptions = minor cannot disaffirm
 Necessaries: goods or services that are required for health, sustenance, preservation, or
enjoyment of life [depending on state]
 Food; shelter; clothing; medical care; etc.
 Emancipation: a status the minor has if their parents/guardians no longer have a duty to
support the minor
 Minor takes on adult activities or becomes self-sustaining
○ Marries; has children; a job; enlists in military; etc.
 Mental Incapacity
 Burden of proof is on the party alleging incapacity
 Tested at the time contract was entered into
 Motivational Test: party is unable to act in a reasonable manner in relation to the transaction
& the other party has reason to know of their condition
 Cognitive Test: party is unable to understand in a reasonable manner the nature and
consequences of the transaction

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 MISUNDERSTANDING = arises when the parties differ in their subjective understanding of a
contractual term (same language but different meanings attached)
 When parties differ in their understanding of a contractual term
 The court can’t find a fair and reasonable ground between the two party’s meanings
 Contract is voidable
 Elements:
 The parties attach materially different meanings to an important term;
 Neither party knows or has reason to know of meaning attached to the term by the other party;
AND
 Court cannot reasonably determine which meaning is correct

 MISTAKE = one of the parties doesn’t understand the fact correctly when entering contract, and when
they learn of the mistake, they want out of it
 Factual circumstances underlying the contract that one or both parties are mistaken to /
misapprehend at the time they enter the agreement
 Party cannot get out of the contract if they don’t bear the risk of the mistake
 The mistake is central to the contract itself
 Mistake as to the price/value of something is never a mistake
 The court asks…
 What is the nature of the mistake?
 What is the seriousness of the mistake?
 Who bears the risk of the mistake?
 Mistake vs. Changed Circumstances
 Mistake = facts previous to the time of the contracting
 Changed Circumstances = facts subsequent to the time of contracting
 Mutual Mistake
 1) mistake is shared by both parties
 2) existed at the time contract was made
 3) relates to the basic assumption (material)
 4) has a material effect on performance
 5) did one party bear the risk of mistake??
 A party bears the risk of mistake when…
 They take something “as-is” in the contract
 Party aware at time contract is made that they only have limited knowledge, but treats
that as sufficient and proceeds anyway
 Court can decide which party bears the risk of mistake
 Unilateral Mistake
 #1-5 from ‘mutual mistake’ are the same here
 6) Either:
 The effect of the mistake is such that enforcement of the contract would be unconscionable
OR
 The other party had reason to know of the mistake OR their fault caused the mistake

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VII. Changed Circumstances
 Facts change after time of contracting where everyone knows what’s happening, and the fact is
material to the contract
 Was the change in circumstances severe?
 Was the change material?
 Who bears the risk?
 Such a profound change in circumstances that reasonable expectation of the parties are defeated
(can’t come about)
 IMPRACTICABILITY =
 Test: is the increase in performance severe enough that performance should be treated as
impossible/impracticable?
 No one is at fault; circumstances made the action objectively impossible
 A reasonable person in the position of the party claiming excuse would have to be incapable of
performing it
 Death makes a personal services contract impossible to perform
 Elements:
 Supervening event
 No occurrence was basic assumption of the contract
 Impracticability
 No fault of party seeking relief
 Risk allocated
 FRUSTRATION OF PURPOSE =
 Where a change in circumstances following the contract defeated the mutually understood purpose
of the contract
 The assumption must be fundamental to the contract, and it must be shared
 Elements:
 After a contract is made
 A party’s principal purpose is substantially frustrated without their fault but bc of the occurrence
of an event
 The non-occurrence of which was a basic assumption that the contract was made upon
 Their remaining duties to render performance are discharged
 Unless… language or circumstances indicate the contrary
 Force Majeure (Act of God):
 A contractual provision allocating the risk of loss if performance becomes impossible or
impracticable
 Especially an unexpected event the parties could not have anticipated or can control

VIII. Breach
 2 types of breach: (1) material + total breach & (2) substantial performance
 Remedies differ
 Whether it is a big or small breach is a question of fact for the jury to decide
 Timeline:
 Contract is signed
 Breach occurs

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  Cure?
 Time for performance
 Material BUT partial breach??
 Uncured = material & total breach
 Cured = substantial performance
 Material & Total Breach = BIG breach
 If the breach violates a fundamental or essential obligation under the contract
 Remedies:
 The nonbreaching party is allowed to:
 Terminate the contract
 Sue for damages
 What they had to pay under the old contract and the difference in price of the new
contract
 No recovery on the contract; confined to unjust enrichment
 These remedies are put to P in the same position as if the contract has never been breached
 Breacher could ask for:
 Sue for Restitution
 Actually get: Quantum merit for services
 Ex: hired to build a house for $1M; contractor digs the foundation but then decides to dop the project
and take a different job  breached contract = total & material
 Substantial Performance = SMALL breach
 A partial breach; breach of promise but non-fulfillment of the condition precedent to the non-
breachers performance
 If you were the breaching party in the contract, you would want court to rule you did substantial
performance
 Remedies:
 The non-breaching party…
 Cannot terminate the contract
 Must perform its own obligation
 But can take an offset by the damages suffered
 How to calculate damages?
 Cost of Ratification:
 What does it cost to fix the thing? (if not too excessive) [preferred remedy]
 Reduction in the market value
 If the cost of ratifying the problem is excessively high
 Breacher could ask for…
 Cost of ratification
 Ex: hired to build house for $1M; contractor builds mansion and the last thing to complete is the
faucets; does not do it bc gets into argument  breached contract = substantial performance [must
still pay minus the cost of the faucets]
 Divisibility
 Only for common law contracts (services; real estate)
 What is tested?
 The intent of the contract

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  Intent = interpret language of the contract
 Consider…
 The overall purpose and structure of the transaction
 Is each aspect of the performance a separate economic unit, with portion of the price
allocated to each unit?
 Does the breach victim get the full benefit of the bargain contemplated for the part
performance by receiving the completed units of performance?
 “The Perfect Tender Rule”
 Only for UCC contracts (sale of goods)
 The tender of goods must be perfect in every way (delivery, packaging, location, etc.)
 If not, buyer can…
 Reject the whole shipment
OR
 Accept the whole shipment
OR
 Accept any commercial unit(s) and reject the rest
 Buyer’s Rights on Improper Delivery:
 A seller has to perfectly agree to the buyer’s contract
 If the goods received by the buyer is not perfect, buyer can seek remedy
 Extremely harsh rule (this is why we can return goods that are not right)
 Limitations to its Harshness:
 Right to Cure:
 Seller is given the right to cure before and after the time for performance has actually arrived
 If the date has not arrived…
 Seller can substitute conforming goods before the date of performance arrives
 Seller must:
 Have acted in good faith
 Give buyer timely notice
 Pay all expenses of curing
AND
 Compensate buyer for any loss caused by the breach
 Buyer obligated to accept the cure
 Installment Sales Contract:
 Allows buyer to reject any non-conforming installment of goods only if the non-conformity
substantially impairs the value and it cannot be cured
 These are contracts that require the delivery of goods in separate lots
 Follow the substantial performance doctrine
 Buyer can reject any non-conforming installment, but only if non-conformity substantially
impairs the installment
 Anticipatory Repudiation
 A party by words or conduct that
unequivocally notifies you that it will
breach
 Statement that obligator will commit
a breach that qualifies as material
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  Substantially impairs value of performance
OR
 Voluntary affirmative act rendering obligor unable/apparently unable to perform
 Right to request assurance:
 Prospective inability to perform
 No words or actions that qualify as repudiation BUT
 Obligee has reasonable grounds for insecurity
 Reasonable grounds to believe that the obligor will commit a material & total breach
 Obligee may demand for an adequate assurance of performance (if UCC = must be in
writing) and if reasonable, suspend its own performance
 If NOT reasonable…
 Obligee may have themselves breached by making the demand and suspending
performance
 If reasonable…
 Obligor must give an adequate assurance (is UCC = 30 days)
○ Obligor’s failure to provide an adequate assurance is a repudiation
 Retraction
 Must come before non-breacher…
 Changes their position
OR
 Says repudiation is final
 Under UCC:
 Obligee may await performance for a commercially reasonable amount of time by repudiating
party
 Obligee may also…
 Resort to any remedy for breach (even though they have notified the repudiating party they
will wait)
 Suspend their own performance
 Under Common Law:
 Obligee may treat the repudiation as a total breach
 Suspend performance
 Sue for damages for total & material breach

IX. Damages
 Expectation Damages
 direct damages caused by the breach
 + Consequential Damages
 Indirect damages that result from breach and that were foreseeable at the time contract was entered
(but weren’t part of the breach itself)
 Harm to reputation or goodwill
 + Incidental Damages
 Little costs to find substitutions
 = Total Damages

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 Benefit of the Bargain:
 Liquidation Damages
 Technically not damages
 Clause in a contract that sets the amount of damages for a breach
 Usually unenforceable
 Punitive Damages
 Each party gets the benefit of the bargain
 “Efficient Breach”
 Sometimes breaching a contract
is the efficient thing to do
 Nothing unethical or immoral
about breaching a contract
 Two kinds of economic loss
resulting from breach
 Direct Loss: loss caused by
non-occurrence of promised
performance
 Indirect Loss: loss caused by
the breach to other
transactions or interests
 Limitations on Damages
 Causal nexus
 Reasonable certainty
 Can’t see damages for future profits in most cases
 P must prove damages with reasonable certainty, not absolute certainty
 Court typically do not allow recovery for damages that are too speculative
 Loss of goodwill; threat to business reputation; future profits
 Damages have to be foreseeable
 Foreseeability
 The measure of damages has to arise “naturally” from the breach
AND
 Be in reasonable contemplation of both parties
 Exception:
 The non-breaching party has a duty to mitigate damages, not run them up
 Mitigation
 Non-mitigating party has no right to run up damages
 Emotional Damages
 Cost of litigation itself are not compensable
 Damages are recoverable only if certain, foreseeable, and reasonably avoidable
 AND some damages are usually not recoverable at all
 Such as damages for pain, suffering, and emotional distress
 Emotional damages are not removable for breach,
 Unless…
 The breach caused the bodily harm

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  The contract makes emotional distress a particularly likely result
 Emotional concerns make up the essence of the contract
 Exceptional Circumstances:
 Contracts for funeral services
 Contract to care for elderly
 Promise to marry
 Punitive Damages
 Are not recoverable for a breach of contract unless the conduct constituting the breaking is also a tort
for which punitive damages are recoverable
 Type of tort must consist of willful, wanton, reckless, or malicious conduct
 Some courts insist that P and D must have a special relationship
 Ex: “bad faith” denial of an insurance claim by an insurance company
 Liquidation Damages
 Not a type of damage, but a type of contract; agreed remedies
 No morality for a breach of contract
 Either fulfill the contract or pay the breach
 Penalty clause in contract is unenforceable
 When there is a clause that states how much breaching party has to pay when contract is
breached, courts will not uphold that
 Against the common law rules that penalties in contracts are going to ne unenforceable bc
they are against public policy
 They incentivize people to not breach contracts, but it’s actually okay to breach contracts
 In most cases, don’t want a liquidated damages clause in the contract
 Only time they’re acceptable is if was impossible to estimate damages at the time contract was
signed
 Elements:
 Damages are difficult to measure
 At the time contract is entered
 Clause is reasonable forecast of damages
AND
 In light of anticipated and actual loss
 Test:
 Must be reasonable…
 In light of anticipated harm or actual harm…
 At the time of breach:
 Compare actual loss to anticipated loss
 If actual loss can be determined, uphold agreed damages is the estimate is reasonable in
light of the actual loss
 Under-Liquidated = damages are too low
 Over-Liquidated = damages are too high
 Damages must be the same as the actual damages at the time of the contract
 Purpose of Remedies:
 Serve to protect the following:

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  “expectation interest” = the benefit of their bargain by being put in as good a position as they
would have been in had the contract been performed
 “reliance interest” = interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as they would have been in had the contract not been made
 “restitution interest” = interest in having restored to him any benefit that he has conferred on the
other party

X. Third Party Beneficiary

 A contract between two people that affects the rights of a 3rd person…
 Who isn’t a party on the contract & never entered into the contract
 Assignment & Delegation
 In a contract, one person has “rights” & the other has “duties”
 Assignment = transfer a “right”
 Delegation = transfer a “duty”
 No special formalities needed:
 It can be unilateral
 Consideration not needed
 It can be a gift
 It can be oral or written
 A & B make a contract intending to benefit some third person (C)
 C becomes a “third party beneficiary” of the contract
 A & B make a contract
 Assignment:
 Later, A transfers their “rights” under the contract to C
 Must give other party notice
 Obligor may still render their performance to the
obligee
 Once notice is given, only the assignee can receive
obligor’s performance
 Obligor needs to be put on notice of the assignment
 If they are not and accidentally renders performance
to the obligee, their performance to the assignee is discharged
 However, if notice is given… then only the assignee can accept their performance
 Anti-Assignment: clauses that say you can’t assign rights
 Unenforceable
 The policy of law is that rights should be freely assignable
 Therefore, court says that if a contract bars “assignment” it really only bars delegation
of duties
 Court upholds limits on the right to assign, but not on the power to assign
 THUS an assignment is usually valid even when it is specifically prohibited in the
contract
 The P may still maintain a cause of action for
breach of contract
 Delegation:

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  A transfers their contractual “duties” to C
 Original party on the contract is still on the hook
 Cannot sue the delegate unless there is a novation
○ Then, that original cause of action disappears
 Except:
 Novation: clauses that say you can’t assign rights
 Enforceable
 The original party is released from the contract
rd
 Can a 3 Party Beneficiary Enforce Contractual Rights?
 NO = Intended Beneficiary:
 3rd parties that stand to benefit from a contract between two other parties and are also given
the right of direct enforcement
 YES = Incidental Beneficiary:
 3rd parties that stand to benefit [by chance] from a contract between two other parties
 The Key is the INTENT to confer a benefit
 What needs to be shown is that:
 When they entered the contract, the original parties had the purpose of giving the 3rd party
beneficiary the right to enforce the contract
 The power of enforcement by independent action is the hallmark of these contracts
 The power can be expressly stated or inferred
 Vesting
 Normally, the parties to a contract can agree to modify its terms
 The parties can also normally rescind the contract completely
 However…
 If a contract creates a right of enforcement in a TPB, the power of the original parties to modify
it cease at some point
 Otherwise…
 They could always prevent the TPB from enforcing their rights by modifying the contract at
will
 Once vested, can’t modify contract
 Contract Vests When…
 Intended third-party changes position
 TPB materially changes their position in justifiable reliance on the promise
 TPB brings a lawsuit
 TPB brings suit on the promisor
 TPB manifested assents to the original parties
 Manifests assent to the promise at the request of the promisor or promisee
 Promisor has the same defenses they would have against the promisee
 And has other defenses against the beneficiary based on the beneficiary’s illegitimate conduct
 Rule:
 The parties to a contract can agree to modify or terminate the original contract at any time until
the benefit to the conferred “vests” in the third party
 Once the benefit has vested (become settled upon the TPB), the parties to the contract lose
the power to modify it or otherwise change the terms of the deal

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 Who has the right to enforcement?
 The TPB  The Promisor
 But only if TPB’s rights have vested
 The Promisee The Promisor
 But only for specific performance
 Unless 3rd party is a creditor beneficiary

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