CONTRACTS OUTLINE – MOLK SPRING 2023

1. 1. BASIC CONTRACT REQUIREMENTS

Contract: an agreement that has a legal effect that can be enforced in court x
- Must have an agreement
o Contracts sometimes focused on what makes the parties better off (no children, no physical
duress, agreements as a joke)
o Most agreements we do want enforceable (make people better off – assumption of contracts)
o Emphasis on voluntary agreements – if youre not going to be better off, it is assumed you
wouldn’t voluntarily make that agreement

Bilateral contract: ones where acceptance can occur through a promise to perform. (presumption)
Unilateral contract: Offeror says acceptance can occur only by performance, not by promising to perform
 1. Performance by the offeree may be difficult to do even if the offeree wants to perform
 2. The person who makes the offer doesn’t really want to bind the offeree to perform but
only wants to encourage the offeree to perform.

MUTUAL ASSENT:

Requires a true meeting of the minds –

- Objective (not subjective: Does it look to a reasonable observer, in context, that the parties were
agreeing to the same thing when they enter the agreement?
COMMON LAW:
Rule: Shared objective intent to be bound to a common agreement

Factors:
Shared intent to be bound:
- What a reasonable person would understand is the objective interpretation of mutual assent. What the
parties were actually thinking is irrelevant. Does it look like a reasonable observer, in the context, that
the parties were agreeing to the same thing when they entered the agreement?
OR – wrote the contract together

Cases:
Ray v. Eurice: (Eurice Bro’s claimed they never saw specifications when signed on Feb 22 so they said they
would not build home) Analysis: The fact that the Eurice brothers worked in construction, marked up the
specifications in January, signed the contract, all point to mutual assent. What a reasonable person would
understand is the objective interpretation of mutual assent. What the parties were actually thinking is irrelevant.
There was mutual assent, and the Eurice brothers breached. Damages to ray. Assumption that the contract was
read.
Policy:
- Predictability – people need to rely on one another
- Fairness – should assume what people mean when they speak in English
- Concerns: reinforces dominant perspective and ignores alternate perspectives, not helpful for consumer
protections (puts people in marketplace even if they never meant to be bound)
 OFFER & ACCEPTANCE
Rule:RST. 2d 24: Offer 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. (fixed intent to be
bound without further assent needed by the offeror).
RST 2d. 50: Acceptance: An 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. (“I agree” or beginning performance)
Factors:
Offer: Fixed intent to be bound without further assent needed by the offeror
- Ask: Does it look like a reasonable person intended to be bound with no further agreement required?
Would the offeror be happy if the other person just said yes? The word “offer” is not enough. (Lonergan
v. Skolnick)
- Does not need to be in writing (verbal offers fine)
- Offeror’s are masters of their offers – they can set limitations, conditions, and can revoke or terminate at
any time until it has been accepted.
o Termination:
 Automatically after a certain specified time period within the offer
 Automatically after a reasonable period of time if no time was otherwise specified
 If they are rejected
 At any time if the person finds out from a reliable source that the offer has been
rescinded (subjective – did the person actually find out the offer was terminated?
(Normile v. Miller)
 NOT if – option contract or unilateral contract where performance has already
begun
Bilateral contracts:
- Acceptance: “I agree” or beginning performance (not exclusive – can look to anything that looks like the
recipient has accepted the terms of the offer).
o Effective at the time of dispatch as long as through an acceptable, non instantaneous method.
(mailbox rule)
o Rst. 2d. 36: the power of acceptance created by an offer will be terminated by the offeree’s
rejection (as well as by other events, such as the revocation by the offeror, or his death or
incapacity)
 The offer must be available at the time of signing for it to be legally binding.
o Must be unequivocal and unqualified
o RST 2d. 30: Unless otherwise indicated by the language or the circumstances, an offer invites
acceptance in any manner, and by any medium reasonable in the circumstances. (Allied v. Ford)
 Performance is a reasonable means of acceptance – if you want to limit acceptance, must
make it clear “must, only” etc.
 Phone call, email, letter, or other industry standards are reasonable means of acceptance
- Option contracts: where someone makes an additional promise not to terminate any offer that they have
made for some sort of period of time.
o Courts require that language must be clear if it creates an option – if you can reasonably view that
language does not create an option, the court will not find that it did (high bar)
Always combined with an offer -if you don’t have an offer, you don’t have an option.
o Makes offers irrevocable for the predetermined length of time
o MUST have separate consideration
Unilateral contract:
- Offer: The same
- Acceptance:
o RST 2d. 45: (1) where an offer invites an offeree to accept by rendering a performance and does
not invite a promissory acceptance, an option contract is created when the offeree tenders or
begins the invited performance or tenders the 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.
o Ask – would the offeror be satisfied if the offer is accepted simply by a return promise, or simply
only through return performance? Would the offeror stop shopping around if the other side just
promised to perform?
o Offeree can choose to complete or abandon performance (option)
o Once performance begins, the offer cannot be changed or withdrawn.
o Uncommon – no mutual assent until the offeree actual performs
o 2 circumstances:
 1. Performance by the offeree may be difficult to do even if the offeree wants to perform
 2. The person who makes the offer doesn’t want to bind the offeree to perform but only
wants to encourage the offeree to perform
o Example: reward contracts, inducements to buy things,
Wrinkles:
Mirror Image Rule (last shot doctrine): a qualified acceptance constitutes only a counter offer (RST 2d. 59) and
as such will have the same effect as a rejection (RST 2d. 36).
- Offer and acceptance must be of the same terms.
- Acceptance must be in the form invited in the offer
- An “acceptance” with added or changed terms that correct something more than a typo create a counter
offer that must be accepted by the original offeror to satisfy mutual assent.
- Last shot doctrine – the last document sent prior to acceptance is the one that governs
Mailbox rule: Acceptance is effective as soon as it is dispatched in an acceptable manner (includes non-
instantaneous forms of communication, not phone or IM). Does not modify only rejections sent, or rejections
sent first.
- Applies only if you only send an acceptance, or send an acceptance first and then a rejection.
- If you send acceptance first, but rejection arrives first, doesn’t matter – acceptance effective upon
dispatch.
- If rejection sent first, just look to what arrived first.
- *Can be eliminated by offeror (saying acceptances must be received promptly, you are saying
acceptances are effective upon being received.
Invitations to deal: Rst. 2d 26 cmt b: advertisements of goods by display, sign, handbill, newspaper, radio, or
television are not ordinarily intended or understood as offers to sell. To make an offer by an advertisement, there
must ordinarily be some language of commitment or some invitation to take action without further
communication.
- Ads are not offers – invitations to deal presumption can be overcome
o policy reasons (bait and switch, deliberately misleading) Izadi
 Policy reasons:
 Promote useful exchange of information for informed shopping decisions
 Want stores to be able to adjust to market conditions and mistakes
o “first come, first served” language.
Sufficient definitiveness: A contract must be sufficiently definite for the court to ascertain the parties obligations
and to determine whether those obligations have been performed or breached. The terms ofa contract are
reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate
remedy. (RJR Tobacco)
- Terms must have enough stuff so a court can figure out when an agreement has been breached and a
court can come up with some type of remedy for the breach. (essential terms)
- If there are gaps the court can:
 Use default terms to fill the contract
 If hole is too big and impossible to fill it, it lacks mutual assent – no contract.

Postponed Bargaining: Agreements to agree on essential terms are not enforceable, unless a way to compute it is
provided. (Walker v. Keith)
- Letters of intent: are not contractually binding on their own even when no final agreement follows. They
are binding if they were intended to be binding to the parties. If the parties did not intend the letter to be
binding, then a court will not enforce it. (look to facts before and at time of contract to determine intent)
- Parties can agree to negotiate in good faith for a final contract – can see them as binding agreements to
continue negotiating in good faith (doesn’t require an actual agreement)
 Breach would look like re-negotiating things that have been agreed on, or bringing in new
things that were not discussed.
Cases:
Longergan v. Scolnick: Offer: Ad in paper for property (it doesn’t look like an offer – if more work is required, there is no offer,
no price.) . Form letter (no – still preliminary negotiation). Lonergan letter (required further agreement). Scolnick letter (sets out
important details, such as what is being sold, know the price, know the agent – looks objectively reasonable). Acceptance:
condition that it was prompt (effective upon receipt). Holding: no offer a reasonable person would see that it was providing
information asking if he was interested, not an offer. “form letter” - reasonable person knows property can only be sold once
thus first person to respond would probably get it.
Izadi v. Ford: (car ad – 3k trade in value in small print) – Holding: a reasonable person would not take a magnifying glass to
small print, so did violate offer. There was an offer – although an ad, it was a bait and switch, and thus the policy reasons for the
presumption not supported.
Normile v. Miller: (conditions on offer – sold to other in that time): Normile submitted an offer (price, conditions – nothing
more needed) but no acceptance because of mirror image rule. The counteroffer was rescinded when Byer told Normile “you
snooze you lose” before Normile had accepted to accept it. If Byer had not done that and Normile had no notice, contract would
have been enforceable. (conditions on acceptance, sold during period): Normile could not accept the offer because he found out
through a reliable means that the offer had been rescinded. The offeror can rescind an offer at any time before acceptance.
Option contract – no because the language did not state that the offer would be open until 5:00 pm. Language must be clear to
create an option (if there is a reasonable alternative way to construe the language, it was not an option – also consideration.
Allied Steel v. Ford: (indemnity provision acceptance should be executed on acknowledgement copy returned to buyer received
after injury) – Language provided one way to accept the offer, but that is not the exclusive method of acceptance. Return is not
required. Performance and acceptance of benefits of the performance equals mutual assent, so indemnity provision allowed.
Cook v. Caldwell Bank: (offered commissions if reached sales) – bank made an offer, acceptance only on performance because
it is difficult even if the employee wanted to perform so it is a unilateral contract and requires performance. She had begun
performance, so offer could not be withdrawn or changed.
Sateriale v. RJR Tobacco Co. (Camel cash): There was offer for unilateral contract, acceptance by keeping camel cash to use it
to purchase merchandise. They induced reliance, so there was fixed intent to be bound. Cannot be withdrawn once performance
has begun. An offer ordinarily doesn’t exist when proposal for limited quantity RJR did not have limited inventory, and could
not have been trapped because they chose how many C notes to deliver. Definiteness: not an issue because they offered no C
notes at all, not just insufficient C notes – and can base remedy on the catalog and value of C note.
Walker v. Keith (rent for 10 year renewal): Rent was contingent on market conditions and price is an essential term – it is not
hard to specify a price. They agree to make an agreement later on – but that is not enforceable. Courts should not enforce
something the parties don’t want. Parties were commercially sophisticated and there was no prescribed method of figuring out
the amount. Cannot have an agreement to agree on a key term.
Quake Construction Inc v. American Airlines (letter of intent, cancellation clause, fired quake before work) The letter was
ambiguous on intent to be bound, so it should go back to the trial court for the trier fo fact to determine what the parties
intended. If it is sufficiently definite, the court could determine whether a breach occurred, and through the letter, could
determine a remedy.
 UNIFORM COMMERCIAL CODE:

GENERAL:
Rule:
UCC 2-102: Unless the context otherwise requires, this article applies to transaction in goods; it does not
apply to any transaction which although in the form of an unconditional contract to sell or present sale is
intended to operate only as a security transaction nor does this article impair or repeal any statute regulating
sales to consumers, farmers, or other specified classes of buyers.
UCC 2-105: “Goods” mean all things (including specially manufactured goods) 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. “goods” also includes the unborn young animals and growing
crops and other identified things attached to realty as described in the section on goods to be severed from
realty.
(Tangible, moveable property – not real property or homes)
UCC 1-103: Unless displaced by the particular provisions of the uniform commercial code, the principles of
law and equity, including the law merchant and the law relative to capacity to contract, principal and agent,
estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or
invalidating cause supplement its provisions.
(Where UCC is silent, use common law)
MUTUAL ASSENT:
Rule: Shared intent to be bound (offer and acceptance works)
ALSO –if it looks like the parties had come to an agreement after, that suggests there was an agreement

ACCEPTANCE:
Generally: additional terms may make it in automatically, contradictory terms cancel each other out.
Rule:
UCC 2-207: (1) a definite and seasonable expression of acceptance…operates as an acceptance even though
it states terms additional 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 additions to the contract. Between merchants
such terms become a 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 is given…
(3) conduct by both parties which recognizes the existence of a contract establishes 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 provision of this act.

Factors:
1. Additional terms are construed as proposals for addition to the contract (unless conditional on new terms)
- Requests must be explicitly agreed to by the parties – not automatically included unless both
merchants.
2. between merchants – additional terms become part of the contract UNLESS:
- The offer expressly limits the terms of the offer
o If acceptances are expressly made conditional on assent to the additional or different terms,
they are a counter-offer. Performance is not complete acceptance (however, conduct can
show acceptance even when writing doesn’t – but then the substance of the contract is based
 on the writings, which did not include things not agreed to or knock outs)
- They materially alter it, or:
o Ask: if I told the other party about this, would they care? ( payment due in a certain number
of days – doesn’t materially alter things) – tiny changes are automatically included, big ones
are not
- Notice of objection to them is given (if offering party says no, they do not apply) (silence is not
agreement)
- Merchant: a person who regularly deals in goods of this kind
Wrinkles:
Knockout Rule: 2-207(3) – if part of the terms of the offer and acceptance cancel each other out (contradict
each other) then they are not part of the contract
- Creates holes – if holes are too big, contract can become too indefinite to enforce
Predominant Purpose Test: If the contract is focused on goods, it is governed by the UCC. If it is focused n
services, it is governed by common law.
Internet sales:
- Browsewrap: various terms and conditions that say by using the webpage you agree to all terms and
conditions. (hyperlinked)
o Presumption: Unenforceable: only if actual or constructive knowledge (high bar) hyperlink
does not preclude a determination of reasonable notice. Additionally, a reasonable user would
know that by clicking the registration button, he was agreeing to the terms accessible via the
hyperlink, regardless of whether he actually clicked on the hyperlink. (Uber)
- Clickwrap: where it forces you to scroll through and click I agree.
o Presumption it is enforceable: it provides either actual knowledge or at least constructive
knowledge because it is put in front of your face.
- Shrinkwrap: Based on what terms are inside shrinkwrap boxes.
o Presumption it is enforceable: Shipping shrinkwrap product is the offer, then there is
presumption that the terms are part of the agreement. .
Cases:
Princess Cruises v. GE: Contract was for services, not goods because they were going to work on ship, even
though it included goods. GE rejected original offer with counter offer, Princess accepts by giving
permission to GE to work (mirror image rule) so liability limitations apply.
Brown v. Hercules: (trim press, indemnification): Goods, UCC – Price quotes are invitations to deal. Terms
expired in a month – before purchase order. Purchase order – offer to purchase – order acknowledgement,
acceptance even though there was additional terms (not conditional so exception doesn’t apply) – The offer
expressly limited acceptances to the terms, so not automatically included (also material alteration argument).
Silence is not acceptance – his acceptance was to the specifications. No indemnification provision – not in
offer, additions not automatically included, and proposal not expressly accepted.
Meyer v. Uber Technologies: (terms linked to registration process – claimed didn’t see) – reasonably
prudent smartphone users understand hyperlinks and know that hyperlinks will send them to another webpage
where additional information will be found. The design of Uber’s screen and the language used to render the
notice proved reasonable. The fact that the terms of service were available only by hyperlink does not preclude a
determination of reasonable notice. Additionally, a reasonable user would know that by clicking the registration
button, he was agreeing to the terms accessible via the hyperlink, regardless of whether he actually clicked on the
hyperlink.
Dell: (arbitration provision in shrinkwrap: The customer does not make an offer when they place the order –
Dell makes the offer which is shipping the good. They propose the customer accept by keeping the goods.
As the offeror, Dell could limit acceptance. They had the right to reject the offer by returning.
 CONSIDERATION:
Common Law:
Rule:
2 methods:
Old: Benefit/Detriment: Legal benefit for the promisor or legal detriment to the promisee – does each party to the
contract either gain a legal detriment or impose a detriment on the other party? (cannot be illegal)
Modern: Bargaining test: Performance is sought by the promisor in exchange for promise and given by promisee in
exchange for that promise.

3 scenarios where it is an issue:

- Families
- Option contracts
- Charitable giving
Factors:
1. each side of the contract tries to get the other to perform in exchange for what they are doing (does each side try
to get the other to do something because of what they will get?
- If they would perform regardless, likely a gift
- Must do test for each side
- If you don’t care what you get from the other side, not a contract.
Wrinkles:
Conditional gifts: condition not usually bargained for – not satisfy the benefit/detriment test because side that must
satisfy is imposed upon with legal burden. If satisfied courts wont go into the value of consideration made.
Nominal consideration: If the value for consideration is nominal (like $1), consideration not satisfied under the
majority test (would be under benefit/detriment).
Voluntarily taking on legal detriments: Will not satisfy consideration – if it is not being bargained for or imposed
on you by the other side, then it will fail both tests - not just about mere value, but what other side was after
Consideration cannot be based on promise to pay after the benefit was already received
Cases:
Hammer v. Sidway: (uncle tells nephew will give 5K) – bargaining test – Uncle: promised 5K to get nephew to stop
drinking. If Nephew promised to do nothing, uncle would not give him 5k. Nephew: Yes, made promise to avoid
vices to get 5K. If 5k not on the table, nephew would not have made the promise.
OPTION CONTRACTS:
Rule:
Courts will not infer an option. Options must each have their own mutual assent and consideration.
Wrinkles:
Nominal consideration: For option cases, under the majority test you need actual payment, even if it is payment the
parties are not bargaining for (could be okay under benefit/detriment) – nominal value may be okay.
Cannot rely on offers that have not been accepted:
Cases:
Barryman v. Kmoch: ($10 and other consideration -120 days to purchase house – within 120 days, Barryman asked to withdraw.
Kmoch said no – tried to purchase within 21 days) Courts will not infer option – must be clear. If you are going to enforce option, it
needs to be its own mini contract – need consideration and mutual assent that you can carve off that each specifically applies to the
option. There was mutual assent, $10 was never paid 0 no consideration for option. Time and money to get investors – no because it
was voluntary, not bargained for.
Baird Co v. Gimbel Bros: (Baird made offer for services, Gimbel to supply linoleum. Gimbel spec wrong – Baird put in bid, before
accepted Gimbel withdrew – Baird could not change offer, but could pull it, but they didn’t.) Baird did not accept by performance,
Gimbel revoked before acceptance, and sophisticated parties so unacceptable there was no agreement that it was binding even if bid
was accepted). No option because it was not explicit and no consideration.
 UCC
Rule:
UCC 2-205: Firm Offer Rule
An offer by a merchant to buy or sell goods in a signed writing by which it’s terms gives assurance that it will be
held open is not revocable, for lack of consideration, during the time or if no time is stated for a reasonable time, but
in no event may such period of irrevocability exceed three months; but any such term of assurance on a form
supplied by the offeree must be separately signed by the offeror

*options that are signed in writing by a merchant offeror are enforceable even without consideration
Factors:
1. written and signed where offeror is a merchant:
2. length of time cannot be longer than 3 months

2. NON-CONTRACT ENFORCEABLE PROMISES

PROMISSORY ESTOPPEL:
Common Law:
Rule:
RST 2d. 90:
* Don’t use for option contracts (reliance without consideration is unreasonable)
Factors:
1. Promise
- Manifestation of intention to act or refrain from acting.
- Can be inferred from conduct (also oral)
- If there is an offer, promise is satisfied (Drennan v. Star Paving co.)
2. Promisor should reasonably expect promise to induce reliance
- Reasonable for promisee to assume the promise is credible. Clear and definite statements/actions; no jokes.
3. Actual, reasonable reliance by promisee
- Objective and subjective components
- If highly sophisticated party, reliance on non-contract may be unreasonable
- If there is no consideration, reliance is often unreasonable
4. injustice can’t be avoided:
- Promisee must be worse off than she would have been if promise had never been made.
Wrinkles:
Some jurisdictions - Promise does not have to be explicit: can be inferred from actions – manifestation of intent to act
or not act in some way
Small reliance: you do not have to rely in a big way (can include time/cost) – small damages.
Precontractual reliance (offers): Offers are enough to show promise in promissory estoppel. Reasonable reliance on
offers is enforced, If you want to get out of it, make sure your offer is revokable.
**reluctant if in commercial context unless offering party know there will be meaningful expenses
- Construction bidding, growing crops, growing livestock.
Cases:
Drennan v. Star Paving Co. (bid for public school, star paving erroneous bid – Drennan awarded contract - the next day star said too
low, will do work for 2x money – Drennan finds substitute for less – wants compensation for financial loss: An implied promise to
keep an offer open once the general acts on it because the subcontractor should know that the whole point of the offer was to induce
reliance. If the offer was to induce reliance, infer intent to keep option open.
 RESTITUTION:

COMMON LAW
Rule:
RST 3d. 1: A person who is unjustly enriched at the expense of another is subject to liability in restitution
(case specific inquiry)
If you can show restitution, you are entitled to restitution damages (bad actor has to pay back any benefit they
have received)
RST 2d. 86 Material Benefit Rule (Promissory restitution)
1. A promise made in recognition of a benefit previously received by the promisor from the promisee is
binding to the extent necessary to prevent injustice (restitution)
2. A promise is not binding under subsection (1) if
a) The promisee conferred the benefit as a gift (gratuitous, no intent to charge
Types:
1. Non-promissory restitution Where someone has received a benefit they didn’t ask for, but after this they
made no promise to pay for the benefit they didn’t ask to receive. (involuntary agreement)
- Officious behavior: no restitution if the person could have been asked (unjust enrichment).
o The person must be able to consent (capacity)
- Intent to charge: if you didn’t intend to charge, there has been no unjust enrichment.
o Actions subsequent to the benefit are not evidence of an intent to charge.
2. Promissory restitution: Someone receives an unasked for benefit but then they promise to pay for it after
receiving it
- Someone promising to pay for a non-gratuitous thing of value they have already received IS enforceable
unless a gift
- Intent to charge: (officious conduct doesn’t matter) “Good Samaritans do not recover by restitution”
- Someone promising to pay for a non-gratuitous thing of value they have already received IS enforceable
unless a gift
-
Cases:
Credit Bureau Enterprises v. Pelo: (altercation with wife, placed in hospital, wont sign for insurance costs –
released 5 days later and tell him to pay it). He did receive benefit, but there was an intent to charge (hospitals
generally charge for services and bill later doesn’t matter), and no officious conduct (finding by magistrate and
doctors that he was mentally impaired and not competent to consent)
Webb v. McGowan: (working at mill, fell to save someone and received injury – McGowan offered to pay 15
dollars every two weeks for the rest of his life – does for 10 years, dies): Webb unjustly enriched when he
saved his life, no officiousness problem, but there was no intent to charge – he did it out of the goodness of his
heart – didn’t expect money so no promissory restitution.
Policy:
 3. WRITING REQUIREMENT
STATUTE OF FRAUDS:
Rule:
Must have writing that contains the essential terms signed by the party to be charged
RST 110/UCC 2-201: 6 major areas:
- Made in consideration of marriage
o Promise to marry in exchange for something else
 Does not include cases with mutual promises of marriage
 Includes prenuptial agreements and dowry
o Must be a literal marriage, and must be able to marry (
- That cannot be performed in a year
o Must be impossible to be performed within a year (assume nobody breaches or terminates early)
o If it can be completed within a year, does not fall within this category. (think big – even if
unlikely)
o Contract for life IS possible to complete in a year (if they die)
- Involving transfer of interest in land
o Leases, buying and selling land
- Made by executor to pay debt of estate with their own money
- Sale of goods over $500
o Cannot carve up (1,000 things for $1 each)
- Guaranteeing another’s debt (surety)
o Someone promising to answer for another person’s debt
Factors:
Writing:
- Combine the writings into one composite document for the purposes of satisfying the statute of frauds
o Only one document needs to be signed
o any unsigned document must refer to the same transaction/matter (in minority, needs to be
explicit)
o Signed documents need to demonstrate the existence of a contract
 Can evidence an agreement (this for this)
o Any unsigned pieces must be shown to have been agreed to by the party to be charged
 (can use oral evidence to demonstrate the things are combined and what was actually
agreed to, but not to satisfy SOF)
 If party to be charged drafted the document (or their agent)
Essential Terms:
Party to be charged:
- Can be the party to be charged, or their agent
Wrinkles:
Modification: if not originally within SOF, but modification makes it under SOF, the modification must satisfy.
If you haven’t finished the first agreement before the modification, aggregate the two together – if one runs
completely and then you have a separate thing, no modification for SOF purposes.
Only for contractual agreements:
Cases:
Crabtree v. Arden: (employment) – It is within the statute of frauds because the offer he accepted said within 2
years to make good – so it would be impossible to complete in 1 year. There were 3 things in writing, essential
terms are pay, job description, and length of time. Documents can be combined because 2 and 3 were signed, all
 refer to employment and pay, literally say “contractual agreement” and giving money for work evidences
agreement – and the unsigned docs were agreed to by the party to be charged because they prepared them.

4. CONTRACT INTERPRETATION
GOAL:

Goal 1: to maximize potential gains (make pie bigger)

- Done by altering what does and does not have to be done in the contract
o Put in terms that raise cost to one party – if done for both sides, or if benefit to one party is
greater than the cost to the other, that is good.
- If doing something benefits one party more than it will harm the other, we should include it. (vice versa)

Goal 2: Grab the biggest piece of those combined potential gains (biggest piece of pie)
- Mostly done by price terms
How to achieve goal 1:
1. Incentivize parties to act in ways that are mutually beneficial when possible
2. Allocate risks to the party best able to bare those risks (ex. non-payment, injury)
3. Ensure practical enforceability (not just in legal sense, but also in practical terms)
a. Terms easy to see when breached
2 types of general contracts (not strictly designed) may be overlap_
1. Principle agent contract: one person (principal) hires another (agent) to do work on their behalf.
2. Production contract: where we have a contract to produce something or manufacture something
4 main concerns:
1. Controlling costs
2. Controlling quality
3. How easy it is to renegotiate
4. Who is bearing the risks that are associated with the contract
Cost Quality Renegotiation Risk
Flat Fee Good Bad (producer doesn’t have Bad – you need to adjust On producer (has to deal with
(better if you incentive to produce good the entire fee if you are rising costs of production and/or
have limited $ quality work – wants to keep going to readjust at all materials) the owner really doesn’t
and don’t care costs low) have any risk – they know what
about quality they will pay – thus the cost may
or re- be higher for the owner to allocate
negotiation) risk – producer is in the best
position to take on the risk as a
repeat producer
Cost-Plus Bad Good Good – don’t have to On Buyer – if cost goes up, buyer
(better if not Producer You can change the amount renegotiate really deals with consequences.
concerned controls cost to get better quality anything – builder can
about cost but and is materials – also incentivizes say fine, I’ll continue to
care about incentivized to good work and good charge you my cost plus
high quality) inflate prices materials the amount
Quality terms: 3 main concerns:
1. Are we adequately identifying what quality stuff is / expectations?
2. Can the homeowner verify that the quality term has been complied with?
3. Can a court verify the quality term has been complied with?
Input/output based measures
 - Input: flat fee – almost never when there is discretion by the person working about how long to take and
it is hard for the other party to monitor (doesn’t incentivize hard work)
- Output: Easier to objectively verify the outcome and what it is that is being produced ( lines up with
what purchasing party wants) – almost never when based on the quality of work done because
performance is hard to measure (subjective).

AMBIGUOUS TERMS:
Common Law:
Rule:
- Do the parties share the same subjective interpretation?
- If yes, interpret it that way.
- If no then…
- Did only one party actually know / have reason to know of the other’s interpretation?
- If yes, interpret the contract that way.
- If no, then no mutual assent, and that part of the contract is removed.
*Contra proferentem: instead, adopt non-drafter’s meaning (if applies)
Factors:
1. Subjective interpretation:
- If in court, probably not.
2. Actual knowledge/ Have reason to know?
- Step 1: words resolve ambiguity in the context?
- Step 2: Extrinsic evidence (if dueling interpretations)
o Helpful evidence: trade usage, communications during negotiations, purpose of the contract,
language, market conditions (make $?)
o Incorporation by reference: if contract refers to external document, may be incorporated into the
contract (must show intent for external documents to govern)
3. Test: Majority (UCC and RST) allow extrinsic evidence whenever it would be helpful for figuring out which
interpretation was more reasonable.
- Minority: Four corners (start with contract first – can only point to extrinsic evidence if the contract is
ambiguous on its face) (? – here or PER)
Reasonable interpretation principles:
- Meaning affected by other terms / context?
- General term joined with specific term – will be deemed to include only things that are like the specific
one.
- If only specific terms, other similar items are excluded.
- Interpretation that makes contract valid is preferred.
- If two reasonable meanings, the interpretation less favorable to the drafter will be preferred.
- Writings of the same transaction interpreted together as a whole
- The principal apparent purpose of the parties given great weight in determining intention
- If two provisions are inconsistent, and the general one includes the specific situation, the specific provision
will be an exception.
- Handwritten or typed provisions control printed provisions.
- Public interest preferred.
Cases:
Joyner v. Adams: “eligible for the execution of a lot lease” – subjective interpretation (if parties are telling you
different things, no same subjective interpretation); knew/should have known: both in the trade, Joyner told
Adams she wanted construction done, escalation clause was to ensure work was done
Frigailment v. BNS: (chicken): not the same subjective (in court) – Words (contract didn’t say both birds have to
be the same type) extrinsic evidence: (Terman meaning not the same as English, incorporation by reference –
FDA provisions include both, market: should have known couldn’t sell larger birds at higher quality because
wholesale price would mean no profit and purpose was to make money).

PAROL EVIDENCE RULE:

Common Law = UCC:
Rule:
Majority (UCC/RST): Contemporaneous or prior extrinsic evidence is inadmissible to contradict or add to the
complete terms of a written document.
Factors:
1. Contemporaneous or prior (timeline)
- To when the contract was formed – nothing about evidence after the contract is formed
2. Contradict or add to
- Evidence that contradicts or adds to what the contract says – cannot be used
- Evidence used to interpret what the agreement says is not blocked by the parol evidence rule
3. Complete (applies only if the written document is integrated)
- Determination of integration:
 Majority: Allows extrinsic evidence if it is ambiguous in the circumstances
1. Look at the written agreement: Does the writing on its face look complete? (exclusive test
for minority)
o Does the writing make sense on its own? If no, suggests partial integration.
2. Look outside of the agreement:
o If extrinsic terms naturally would have been included and written down by the
parties, document is fully integrated and cannot add.
o Sophistication of parties: Do we expect people to know of PER? If no, more likely
to leave stuff out – suggest partial integration.
o Relative bargaining strength: If one side lacks bargaining power, contract more
likely to be missing terms and thus partially integrated (equal strength suggests full
integration)
o Industry custom: Is the writing typically supplemented by additional stuff in the
industry? (ex. in land transactions, custom is that everything is written down so
presumption of full integration).
 Minority: Allows extrinsic evidence only if ambiguous on its face? (FOUR CORNERS)
o Merger clause: dispositive – if the contract says the written agreement reflects the
full agreement, it is fully integrated.
- Partial integration
 Meant to be final and complete expression of all parts of the contract that it covers, but the writing
does not cover the full agreement the parties meant to reach (parts not written down)
 Stuff in writing cannot be contradicted, but you can add to the written stuff.
- Full integration
 Agreements meant to be final and complete with respect to the entire transaction (everything is
written down)
 Parol evidence rule will apply completely – cannot be added to or contradicted.

4. Written
EXCEPTION: Evidence used to interpret is allowed (even if integrated)
- Majority: You can always admit all forms of extrinsic evidence to interpret words, even if the writing is
unambiguous on its face. After viewing extrinsic evidence, if interpretation is reasonable, then evidence is
admitted for interpretation purposes. CAN CONTRADICT WRITTEN TERM IF REASONABLE (up to
jury). Then, if one party knew or had reason to know of other interpretation, you win.
 - Minority: Extrinsic evidence can only be used if contract is ambiguous on its face. If it is reasonably
susceptible to proposed interpretation when considered in the context of extrinsic evidence, then you can
bring in extrinsic evidence as to interpretation ONLY. If no, you cannot bring in extrinsic evidence
(unreasonable interpretations do not make it in)

Wrinkles:
Will not apply when:
- Interpreting terms
- Evidence that occurred after the writing was entered into
- When establishing a defense to enforcement
- Evidence that shows a lack of consideration
- Product of mistake of the parties
- Evidence to show promissory estoppel or restitution claims.
“as per our agreement” : indicates additional pieces of agreement not in writing (partially integrated)
Dividing: If you can divide things up into separate agreement supported by own consideration, analyze as its own
contractual agreement – apply PER to the entire question – if separate, PER will not block evidence.
Cases:
Thompson v. Libby: (logs – tried to admit evidence of oral agreement on log quality) – written agreement, prior to
contract, trying to add – complete? Minority test- does it look complete? (all of the necessary terms) – then fully
ingegrated (based only on terms of written contract)
Taylor v. State Farm: 3 way accident – Taylor reasonably construed agreement to only release car accident claim,
not all claims. Majority approach – after viewing extrinsic evidence, contract was reasonably susceptible to
Taylor’s interpretation, so admitted for purposes of interpretation. Insurance company likely knew of Taylor’s
interpretation so Taylor wins.

Policy: Promotes predictability in commercial context

IMPLIED TERMS:
IMPLIED TERMS: Words added to a contract that were not there originally. Because done by courts, no
PER issue.
2 types:
1. Implied in fact: Added based on particular facts of the case they are dealing with
- Designed to get at parties’ intent – extension of interpretation exercise (shared intent, what one
party knew/should have known)
- Adding things because there is a gap (contract is silent about a relevant issue)
 2. Implied in law: law will add certain implied terms, generally independent of facts or beliefs of the
parties
- Not about shared intent – about what intent parties normally have. (see Drennon v.Starr –
implied promise to hold offer open while it was used in bidding process)
Default terms: terms that apply unless the parties say otherwise
Implied terms: apply but can be removed if they don’t want to be stuck with them
Mandatory terms: terms that apply whether or not the parties want them to be there
Gap filling:
- Common law: Implied obligation of good faith, warranties.
- UCC: Specific ways to fill gaps
1. Price (reasonable price at time of delivery)
2. Location of delivery (sellers place of business
3. Time (reasonable time)
4. ** none for quantity

OBLIGATION OF GOOD FAITH AND FAIR DEALING

What would Steve do?

Common Law:
Rule: (usually includes UCC rules)
Things that are not good faith:
- Capturing benefits of contract for yourself while denying them to someone else
- Denying a party’s reasonable expectations
- Interpret contract unreasonably in light of commercial standards
- Undermine the spirit of the agreement.
3 types of cases:
1. Inclusion of terms and conditions that, while not expressly contained in the agreement, are needed to make
the agreement make business sense. (Duff Gordon)
2. Bad faith termination or other performance of an agreement, even when no breach of express term (Leibel)
3. Using contractually-granted discretion in bad faith (Sons of thunder) (state farm) (locke)
Principals for determining breach:
1. Unequal bargaining power
2. Bad intent (although good faith does not require altruism) (can be indifferent, cannot purposefully harm)
3. Good faith cannot override express contract terms.
Factors:
Implied: Add to contract when not in the contract on its face
1. Implied in fact:
2. Implied in law;
Common requirements:
- Best Efforts requirement: General implied term – assume best efforts if silent and unless the parties specify
otherwise.
- Reasonable Notice Requirement: Default term implied in law– must provide reasonable notice of
termination. Mandatory when conduct is egregious.
Wrinkles:
Illusory promise: Is this person actually bound to do anything, and consideration is satisfied? Or could they sit back
and do nothing and comply with the promise? Where promising party has complete flexibility to perform as they
choose (high bar)
Contracting around: ex. allowing termination without notice may not be enforceable because it could be in bad
faith. If it contradicts the purpose of the contract, could be wiped out.
Parol Evidence Rule: Doesn’t apply – it is a implied in every contract, so not adding language. Thus, extrinsic
evidence can be used to interpret.
Cases:
Wood v. Lucy, Lady Duff Gordon: (contract for exclusive right, she sells anyways – common law because
marketing name is services): Consideration/illusory promise: Lady promised not to sell, Wood not really BUT
implied terms (actually agreed to use reasonable efforts to bring profits and revenues into existence – the point was
to make money). There is a gap in the contract, but reasonable efforts is implied so there is consideration.
Seidenberg v. Summit Bank): Bought out Seidenberg’s firm agreeing to work together, fired them). Extrinsic
evidence allowed.
Locke v. Warner Bros: (Eastwood): Warner Bro’s had the right to make a subjective decision, but in making that
determination, Warner Bro’s is supposed to decline only for genuine disagreements. Any disagreement has to be
honest, not categorically irrespective of the merits. Had discretion, but used in bad faith. Locke entered the contract
to develop career. Warner incentivized by 750K, but undermined by agreement with
UCC:
Rule:
UCC 2-306:
(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such
actual output or requirements as may occur in good faith, except that no quantity unreasonable disproportionate to
any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or
requirements may be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned
imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer
to use best efforts to promote their sale.
Not good faith: dishonesty in fact and observance of commercially reasonable standards of dealing
Factors:
Wrinkles:
Reasonable Notice Requirement: Default term implied in law– must provide reasonable notice of termination.
Mandatory when conduct is egregious.
Penalty default term: If the parties don’t like the default term, they must contract around it and thus reveal
information they otherwise wouldn’t reveal. – if it doesn’t follow policy arguments, court not likely to include a
default rule.
Cases:
Leibel v. Raynor Manufacturing: (exclusive offer for indefinite period, 2 years later, Raynor cancels) Reasonable
notice requirement – Leibel had invested – it was implied in law. Unequal bargaining power because Raynor could
find someone else, Leibel only sold Raynor doors. If reasonable notice is implied and Raynor didn’t like it, should
have put something else in the contract to avoid the default term

WARRANTIES
EXPRESS WARRANTIES
UCC (No CL rules)
Rule:
2-313 Express Warranties: Created by any statement, description, or sample that is made part of the basis of the
bargain.
*almost always bring up Parol Evidence Rule issues
Factors:
1. Seller makes representations about the goods or provides description about the thing being sold or shows a
sample of the thing
- Must be an affirmative action
- Must be a reliable source
2. Basis of the bargain:
- Majority: presume the buyer relies on the statement, description or sample as long as the buyer is aware.
- Minority: no presumption, buyer must show.
- Reliance must be reasonable.
Objectively verifiable:
Cases:
Bayliner Marine v. Crow: (sale of boat) Prop matrix was not an express warranty because it was about a different
boat. Pamphlet was not express warranty because the term was not objectively verifiable. So no warranty.

LIMITING EXPRESS WARRANTIES:

UCC 2-316: To exclude or to modify the implied warranty of merchantability, the language must mention
merchantability, and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of
fitness the exclusion must be by a writing and conspicuous.
(3) not withstanding (2), all implied warranties are excluded by expressions like “as is,” “with all faults” or
similar language; or by course of dealing or course of performance or usage of trade.

Factors:
1. must be clear and obvious you are limiting
2. creations & limitations: cannot gut the entire express warranty.
- If you cannot read consistently, where the limitation tries to take the express warranty away, limitation is
inoperative.

IMPLIED WARRANTIES:

Common Law:
Rule:
Implied of workmanlike construction: (implied in law): Implied warranty that the construction would be good
enough for most people.
- Default – can be contracted around (must be conspicuous, clearly state its effect, and reflect both
parties expectations) – Disclaimers viewed with suspicion.
- Applies to subsequent homeowners

Wrinkles:
General Risk Management: When there is a risk of something occurring, someone will always have to deal
with that risk which is determined by the law based on:
1. Ability to mitigate risk: (whether defects are immediately discoverable)
2. Who is in the better position to deal with consequences of problematic outcomes. (builders can spread
loss)
Statute of limitations: Does not run until it was discoverable by the owner

Cases:
Speight v. Walters Development Co: (home originally bought for someone else – damage because of roof and
gutter during original construction.

UCC:
Rule:
Implied: (Merchantability): 2-314: Goods sold by merchants must (1) pass without objection within the
trade and (2) are fit for the ordinary uses for which goods are used.

Factors:
1. Without objection in the trade:
- Would large portion of buyers object to this good?
-
2. Fit for ordinary use:
- Can the goods accomplish their ordinary function?
- Has it been used? Can it be?

Wrinkles:
Idiosyncratic objections: Do not matter- only matters what most buyers would care about
Market: Where goods are sold, and who they appeal to.

Cases:
Bayliner Marine v. Crow: (sale of boat) Evidence of 30 MPH irrelevant – it does not care about particular
buyers expectations. Want evidence about ordinary standard of off-shore fishing boats, whether public (boat-
buying) would object to the boat. Evidence that the boat was used – showed it was capable of being used. The
market is wherever the goods are sold, and who they appeal to.
Case 2:

Policy:

Implied (of fitness for particular purpose):

2-315: Goods must be suitable for the purpose when seller knows of the purpose and that you will reasonably
rely on their skill to help you select that good.
Factors:
1. Seller knows of particular purpose and reasonable reliance:
- If seller helps buyer choose and knows of purpose, seller knows you are relying
- Buyer must make the seller actually aware (if normal or ordinary, not particular purpose).
- The buyer must actually rely on the seller’s skill.

Wrinkles:
Applies by Default: Don’t need merchants, but need goods.

Cases:
Bayliner: No indication that Crow told them he needed the boat to go 30MPH.

LIMITING IMPLIED WARRANTIES:

UCC 2-316: To exclude or to modify the implied warranty of merchantability, the language must mention
merchantability, and in case of a writing must be conspicuous, and to exclude or modify any implied warranty
of fitness the exclusion must be by a writing and conspicuous.
(3) not withstanding (2), all implied warranties are excluded by expressions like “as is,” “with all faults” or
 similar language; or by course of dealing or course of performance or usage of trade.

Factors:
1. must be clear and obvious you are limiting
- Merchantability: can be orally or in writing.
 If in writing must be conspicuous.
 If implied
o Must be in writing
o Needs to be conspicuous.
- To get rid of both: “as is” “with all fault” etc.
Wrinkles:
Limitations to waiver: Generally, you can recover even if the contract limits (especially for bodily harm
caused by manufacturing process, unconscionability issues, public policy issues)
Based on time of sale: Warranty is based on the actual good at the time it was sold. If no statute if limitations,
can argue about whether reasonable person would expect such damage to occur in that amount of time

5. DEFENSES TO ENFORCEMENT
If successful defense:
1. Contract deemed void: ones that are never enforceable
2. Contract deemed voidable: one party has a choice whether or not to enforce the contract (an option to
void)
3. Unusual remedy: Recission: Unwind the contract and return parties to the position they were in before
the contract had been entered into (easy to do if contract involving money for tangible stuff.
Waiver: waiving rights is a voluntary and intentional relinquishment of that right that you had (will apply to
many defenses) – cannot assert later
- Can be waived by agreeing, knowingly and intentionally giving up the right
STATUS
MINORS/MENTAL CAPACITY

Voidable (choice of the minor or the person lacking mental capacity)

Factors:
1. Age/mental capacity: Under 18 or have mental incapacity
- Some states require adults with mental capacity to have a diagnosis – others do not
- Many states DO NOT count drinking UNLESS (1) you were spiked, or (2) it was clear that you were
drunk.
EXCEPTIONS:
Become binding: Contract will become binding (no longer voidable) if not rejected within a reasonable time
after the person gains mental competence (or turns 18)
Minors who look like adults: Will not give status based offenses return in full if the person misrepresents their
status (fake ID) or engages in intentional destruction (could still treat contract is void, but you don’t get full
value so no incentive.
Necessities: Contracts for necessities with status based individuals are not voidable
- Categories: Food, clothing, housing, life insurance.
Assumption of contracts: Parties know what is good for them which facilitates voluntary agreements.

PROBLEM WITH BARGAINING PROCESS

MISREPRESENTATION
RST 164(1): If a party’s manifestation of assent is induced by either fraudulent or material misrepresentation by
the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.
Factors:
1. Misrepresentation by the other party: A statement not in accord with the facts, false statements, or misleading
statements.
 - CONCEALMENTRST 160 – Fraudulent Concealment: Action intended or known to be likely to
prevent another from learning a fact is equivalent to an assertion that the fact does not exist.
o (actively trying to prevent the other party from learning the fact you are concealing)
- NON-DISCLOSURE RST 161: (non-disclosure) A persons non-disclosure of a fact known to him is
equivalent to an assertion that the fact does not exist in the following cases only:
o B: where he knows that disclosure of the fact would correct a mistake of the other party 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
o D: Where the other person is entitle to know the fact because of a relationship of trust and
confidence between them.
2. Fraudulent or Material
- RST 162:
1. A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his
assent and the maker:
a. knows or believes that the assertion is not in accord with the facts, or
b. does not have the confidence that he states or implies in the truth of the assertion; or
c. Knows that he does not have the basis that he states or implies for the assertion
2. A misrepresentation is material if it would be likely to induce a reasonable person to manifest his
assent, or if the maker knows that it would be likely to induce the recipient to do so.
- Subjective – must actually know their statement is not in accord with the facts or don’t have confidence
- Material – misrepresentations about important stuff (objective and subjective)
3. Induces Assent Would they have done it regardless?
4. Justifiable Reliance
- RST 169: To the extent that an assertion is one of opinion only, the recipient is not justified in relying on
it unless the recipient
a. Stands in such a relation of trust and confidence to the person whose opinion is asserted that
the recipient is reasonable in relying on it, or
b. Reasonably believes that, as compared with himself, the person whose opinion is asserted has
special skill, judgment or objectivity with respect to the subject matter, or
c. Is for some other special reason particularly susceptible to a misrepresentation of the type
involved.
- Re A: look for fiduciary relationships (lawyer, accountant, family member) OR where one party has
taken steps to get the other to rely and trust by stressing common bonds (religious, geographic)
- Re C: elderly, people who are illiterate
Cases: Syester v. Banta Dance: (Dance classes) Was release valid? False/misleading (doesn’t need atty, can be prof dancer), fraud or
material (fraud because knew not professional – material because important), Induces assent (may have signed regardless, but cared
about her instructor so she did anything he suggested regardless), Justifiable (yes, he had special skill, regarding lawyer, particularly
susceptible).
Hill v. Jones: (Home purchase with termite issues – tried to hide with plant - when asked, said water damage) Fraud: The facts don’t
indicate that the jones knew it was termites. Material: yes, buyers cared because they asked, most people would care. Fraudulent
concealment: prevented them from learning with plants and boxes (treated as a misrepresentation.) Non-disclosure of previous termite
damage – but failure to disclose not likely in bad faith – should have gotten better inspector).

DURESS
Rule:RST 175:
(1) Wrong or improper threat:
- Crime or tort, OR
- Breach of duty of good faith and fair dealing (knowingly and unfairly abusing bargaining position), OR
- Exploiting financial straits that you unfairly caused.
(2) AND no reasonable alternative other than giving in
 - No viable legal recourse, AND
- No viable market alternative
**at time of contract
Factors:
1. Wrong or improper threat
- Parties can take advantage of a good position and allowed to get a good deal, but can’t be over the top.
- Could be excusable if innocent (doesn’t have the money to pay)

2. No reasonable alternative
- Legal: takes a long time – if seriously harmed during that time and file bankruptcy (not recoverable),
unreasonable.
Wrinkles:
History: Used to only be physical, now includes economic.
Limits: Courts more open than changed circumstances
- Mandatory – not waivable
Cases:
Totem Marine Tug v. Alyeska Pipeline: (Totem hired to drive boat, issues delayed, Alyeska declined to pay for
extra time. Hurricane further delayed, Alyeska unloaded pipes, Totem told them needed money now or go
bankrupt, settled for 97K when owed amount was 250K and released claims – totem sued claiming duress).
Wrong or improper (Alyeska had better bargaining position, knew, and abused it to get out of their obligations –
more than just taking advantage of good position to get a good deal, was not just based on knowing how much
they owed, or inability to pay). Also took advantage of financial situation they caused – no dispute of violation.
No market alternative- couldn’t wait 6-8 months, market couldn’t fix that. Loan unlikely.
Case 2:

SUBSTANCE
 UNCONSCIONABILITY

Remedy: Voidable, or delete the problem and leave everything else

Rule:
PROCEDURAL: Absence of meaningful choice by one of the parties:
- Unequal bargaining power
- Obscure terms
- Parties’ relative situations (sophistication, complicated terms, clickwrap, etc.)
SUBSTANTIVE: contract terms that are unreasonably favorable to the other party at the time the contract was
made
- Trade Practices
- Individual circumstances
- Commercial backgrounds
(Terms that would “shock the conscious” – very high bar)
Wrinkles:
Time: Don’t consider things that happen after the contract is made (only before and at time)
Balancing approach: You need at least some of each type, but more of one just means you can have less of the
other (certain jurisdictions say you need certain amount of both)
Add on clauses: Not unconscionable in abstract, but are when unconscionable as applied.
Cases:
Williams v. Walker-Thomas Furniture Co.: (Walker used lease agreements/installment payments – retained
title, each new leased item, a balance would become due on all items previously leased until the entire balance
for all items was liquidated – if defaulted on most recent purchase, could repossess all purchases). When an
element of unconscionability is present at the time of the contract, the resulting contract is not enforceable.
Meaningful choice: depends on consideration of all circumstances) Substantive (valuable to store, bad for
customers). Add on clauses: non unconscionable in the abstract, but are in Williams because if she misses one
payment she loses 5 years’ worth of stuff).

PUBLIC POLICY
Remedy:
- Modify the contract and enforce modified version that no longer violates public policy
- Blue pencil rule (minority): If they can cross out language that is a problem and have remainder htat still
makes sense, they will do that (doesn’t write new things or impose sanctions/penalty on whoever wrote
the contract – encourages broad restrictions)
- Strike out/not enforce entire restriction: Will not delete parts – treat the whole contract as if there was no
restriction in the first place. Discourages broad restrictions.
- Treat the entire contract as void (especially if violate statutes and are about illegal activity.
Rule:Steps:
1. Identify the public policy interest implicated in the contract:
o Look at: professional guidelines, statutes, areas where it has been recognized before (contracts in
restraint of trade, contracts that interfere with family relations) (Cannot be to commit crimes)
2. Determine if the parties have any legitimately protectable private interests in having the contract
enforced
o Does it do anything good?
3. Determine which interest is stronger
o Does contract unduly infringe on public interest?
o Is public policy interest nevertheless stronger than private interest, even if contract doesn’t
unduly infringe on public interest?
 Could you achieve your private interest in a way that has lower problems with public
policy?
Reducing competition/ability to work: only care about ability to work for relationships or information that are
important/unique to employer – cannot just be about someone you have trained or educated or just competition
(not legitimate protectable interest).
Cases:
Valley Medical: (signed non-compete that prevents taking patients or any new practice that competes for 3
years – if violated, 40% of all money) Public policy (America – care about competition, freedom to work, free
flow of labor, patients to choose doctor) Private value (society doesn’t care about one party wanting to reduce
competition unless there is useful purpose – here, preserving referral relationship and customer base) Do we
want to tolerate: Doctors interest in seeing patient and patients choice outweighs private interest – policy is
broader than necessary to protect private interest. Same interests could have been protected other way).

JUSTIFICATIONS
MISTAKE
MUTUAL MISTAKE
Rule:152: where a mistake of both parties at the time a contract was made as to a basic assumption on which the
contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the
adversely affected party unless he bears the risk of the mistake:
1. Contract explicitly assigns risk to him, OR
2. He is aware of his limited knowledge about mistaken fact, but treats that limited knowledge as
sufficient, OR
3. It is more reasonable for him to bear the risk
Factors:
At time of contract: Must have been there at the time of the contract (not in the future) but neither knew.
Assumption on which the contract was made: must be a big deal (not minor things – has to have material impact
that affects the value
Cases:
Lenawee: Bought property with building contract said “purchaser has examined” and “in its present condition.”
Stopped paying when sewage came up and prohibited from human inhabitation) – No misrepresentations
because nobody knew – Both parties mistakenly assumed property could continue to be used for investment
income – it was material and thus a very big mistake. BUT contract explicitly assigned the risk to them.
Wrinkles:
Value: usually care about mutual mistake of value decreasing circumstances – not unexpected gains
UNILATERAL MISTAKE:
Rule: Only one party is mistaken (higher burden)
Adds EITHER
1. Enforcing the contract would be unconscionable, OR
2. Non-mistaken party caused/had reason to know of mistake
(case by case analysis)
CHANGED CIRCUMSTANCES
Rule:
Impossibility: Performance is literally impossible for anyone to do.

Impracticability: Circumstances change so that one party will experience extreme and unreasonable difficulty,
expense, or loss
- External event causes impracticability
- Parties assumed nonoccurrence of that event
- Events occurrence wasn’t due to the defendant’s fault
- Defendant didn’t bear risk
Frustration of purpose: circumstance s prevent one party’s principal purpose for entering contract.
- Same elements as impracticability; applies when external event causes frustration (instead of causes
impracticability)
- Focus: Did cost of performance go up or value go down? (net gains)
Wrinkles:
limited: Courts less sympathetic – should be anticipated by parties and not bailed out. Just because contract isn’t
ax great as they thought doesn’t mean you can get out of it. Almost never (high bar)
Cases:
Mel Frank Tool v. Die Chem: Property less valuable because cant sell hazardous materials because zoning
change. As long as they can still use the property for something else, their purpose hasn’t been frustrated (can
still use it for other chemicals, or another purpose - still able to make money.)

MODIFICATION

Goal: to avoid modification in duress like circumstances

Rule:
Preexisting Duty Rule: Modifications are binding only if supported by their own mutual assent and
consideration. Affirming preexisting duty does not satisfy consideration.

Difference from Duress:

- Does not require bad faith or abuse of bargaining position
- Does not require no reasonable market alternative

*Courts more likely to enforce modification if you never intended to be bound by it (DON’T BE SNEAKY)

Exception: RST & UCC: Enforce modifications that are fair and equitable in light of new circumstances, even if
no consideration

Cases:
Alaska Packers’ Association v. Domenico: Alaska hired Domenico to work on fishing boat. Once out there,
demand 100. Alaska agreed to modification, although one who signed said he didn’t have the authority. Duress
would accomplish the same thing as the pre-existing duty rule Workers don’t have a lot of money so no sense to
sue them, also no viable market in remote Alaska.

6.PERFORMANCE AND NON-PERFORMANCE

Breach: RST 235 Any non performance of a contractual duty at a time when performance of that duty is due
Condition: RST 224, 225: an event, not certain to occur, which must occur or be excused before performance
under a contract becomes due.
- Non-occurrence of a condition is not a breach by a party unless the party is under a duty that the
condition occur
- If not satisfied, no obligation to perform
(Generally not promises to perform, just until it occurs a party does not have to perform)
Promise: One party may promise to get a condition satisfied, but not a requirement – failure to satisfy a promise
is breach of contract
- Implied promise of good faith: When a party has control over when a condition is satisfied, an implied
promise at law to use good faith to satisfy the condition
- Prevention: implied promise that a party will not take action to keep/prevent conditions from being met.

Obligor: party whose performance is conditioned on an event.

Obligee: A party to whom performance obligation is owed.

EXPRESS CONDITIONS
Rule:
Rst/case: A condition that is unambiguously expressed in the contract

Factors:
1. Unambiguously expressed
- Must be very clear – “if” “until” “when”
- Will assume no express conditions if not clear
2. Strictly satisfied, strictly enforced. (especially with sophisticated parties)

Repercussions:
Non-occurrence: If an express condition does not occur, obligor has no obligation to perform – so failure to
perform would not be a breach
- Doesn’t matter if one party will be harmed
If not a condition, treat it like: a promise or a constructive condition

LIMITATIONS:
Waiver: Intentional relinquishments of known rights that the parties have (don’t enforce express conditions
when unfair)
- Does not need consideration
- Must be intentional
- Waiver of one parties rights doesn’t affect the other’s rights at all if the condition is unilateral
- When the condition protects both parties, waiver by one does not mean the other also waives.

Cases:
EnXco v. Northern States Power: Outside forces caused late permit. Northern States Terminated. No promise,
just a condition. Since not satisfied, no damages, no performance obligations, and parties can just walk away –
says condition, says until party has met condition. Because express condition does not occur, obligor has no
obligation to perform.
 DISPROPORTIONATE FORFEITURE

Rule:
Forfeiture: Loss suffered because of reliance on occurrence of an agreed-upon exchange
Disproportionate: Large for obligee (relative to size of contract, or gains obligee expected from contract)
- Must be based on reasonable reliance on the express condition being satisfied and the other party
performing
Repercussion: Treat a condition as having been toggled on even though it was never fully satisfied (can excuse
non-occurrence of express conditions and force obligor to perform)
- Obligee must still pay for damages for their failure to comply
Factors: (Balancing)
1. Obligor must suffer no or verry little harm from forgiving compliance with condition
- Ignore that they could be compensated
- Must be in reliance of the express condition not being satisfied
2. Obligee can’t bear the risk that the condition might not occur
3. Obligee cant have meaningful control over whether the condition will occur
4. Innocent, less sophisticated obligee’s and culpable obligors usually weight in favor of finding
disproportionate forfeiture
- Ordinary negligence is excusable
- Bad faith and more extreme forms of negligence not forgiven
- If obligor responsible, more likely to forgive
Cases:
JNA Realty: (Lease for option to renew – doesn’t provide notice to renew, 4 months later saying didn’t exercise,
must vacate – had spent 15K renovating and JNA was aware – Chelsea says they didn’t know.) Express
condition – yes, that had to provide timely written notice. Promise – no, did not have to provide notice if they
didn’t want to renew. Disproportionate Forfeiture: Chelsea would suffer harm, improvements and customer
base; (1) JNA would suffer no or little harm (2) JNA bared the risk, (2) JNA could have notified Chelsea, both
parties had some control but Chelsea had more, (5) Chelsea not culpable, ordinary negligence, JNA failed to
remind but saw making changes, failed to say anything.

CONSTRUCTIVE CONDITIONS
Rule:
Definition: A condition that is not express but is implied by law, actions of the parties, and contract itself.

Goal: To address the timing issue of when obligations under the contract have to be performed when the parties
have not said in the contract.

Requirements:
Only require substantial performance – absence of substantial performance is material breach

2 types:
Constructive concurrent condition: A condition of each party’s performance being due is that the other party
stands ready, willing, and able to perform
- Applies to both parties – neither is due until the others is ready
- Satisfy it by being ready, willing and able to perform, or have already performed despite having no
obligation to do so
o After this, the other party’s performance is due
- Cannot perform early and require a party to do something unfair
o must be reasonable – can perform early but performance is not due until the reasonable date (will
come up with a date)
o When that date comes, you have to be ready, willing and able or have already performed. If not,
the other party doesn’t have to perform on that date.
Difference from express:
- Not conditions in the contract (not explicit)
- Easier to satisfy – does not require strict compliance – instead must only be substantially complied with
(substantial performance toggles on other party’s performance obligation)
- May have to pay some damages for failure to fully perform

Constructive Conditions precedent: A condition of one party’s performance being due is that there is no
uncured material failure by the other party to render performance due at an earlier time.
- Applies when performance cannot occur at the same time (blooming onion)
o Usually not money because fast (non-money paying promise is condition precedent to money
paying promise)
o Promise that will take more time to complete is the promise that is a condition precedent to the
other party’s performance obligation
o
SUBSTANTIAL PERFORMANCE:
COMMON LAW UCC:
Factors: (no material failure by the party) – none are Perfect Tender Rule:
determinative UCC 2-601: subject to the provisions of this article
1. Harm to non-breaching party from on breach in installment contracts and unless
excusing full compliance with condition otherwise agreed under the sections on contractual
2. Extent to which non-breaching party can limitations of remedy, if the goods or the tender of
be compensated for the remaining delivery fail in any aspect to conform to the contract,
performance the buyer may:
3. Harm to breaching party if the condition is (a) Reject the whole; or
enforced (b) accept the whole; or
4. Does breaching the condition frustrate the (c) accept any commercial unit or units and reject the
purpose? rest.
5. Excuse/reason for deviating from the
condition (bad faith/innocent) DIFFERENCES:
- No disproportionate forfeiture
Consequences: - Basically everything is an express condition
- Other party’s performance obligation is
toggled on, Limitations: Does not apply to
- Specially manufactured goods
Cases: - Installment contracts (repeated delivery of
Jacobs v. Young: (specification for building, said goods in multiple sets over time)
standard pipe, different brand used – told to rip out
pipes and replace, contractor refuses, architect Wrinkles:
refused to provide final payment.) It is a constructive - Obligation of good faith and fair dealing:
 condition precedent (not express because of need good reason for rejecting/cant be used in
presumption – disproportionate forfeiture unlikely opportunistic way
because contractor bore the burden of satisfying - Sellers chance to cure: we want to put the
condition and was in control of it) (not concurrent non-fully performing party on notice and give
because house had to be built before payment) them a chance to fix the issue.
Substantial performance (1) same quality pipe, no

harm. (2) can just pay damages, (3) either time and Gist: No constructive conditions
money of re-doing pipes or not receiving last - Must satisfy within the bounds of what the
payment = significant harm, (4) the purpose of why contract gives you
the homeowner wanted brand is unclear, (5) did - If you don’t satisfy strictly, the buyer can
contract or know off-brand was cheaper? No – no bad reject
faith. Performance was substantial Rejection: lower bar on when they can be rejected
because there is less risk of harm – seller bears risk of
Rejection: A service cannot be returned or re-sold – goods not conforming to standards
buyer assumes risk of imperfection – if you get
substantially what you want, you are stuck with it +
damages.

Factors: (no material failure by the party) – none are determinative

6. Harm to non-breaching party from excusing full compliance with condition
7. Extent to which non-breaching party can be compensated for the remaining performance
8. Harm to breaching party if the condition is enforced
9. Does breaching the condition frustrate the purpose?
10. Excuse/reason for deviating from the condition (bad faith/innocent)
Consequences:
- Other party’s performance obligation is toggled on,
Cases:
Jacobs v. Young: (specification for building, said standard pipe, different brand used – told to rip out pipes and
replace, contractor refuses, architect refused to provide final payment.) It is a constructive condition precedent
(not express because of presumption – disproportionate forfeiture unlikely because contractor bore the burden
of satisfying condition and was in control of it) (not concurrent because house had to be built before payment)
Substantial performance (1) same quality pipe, no harm. (2) can just pay damages, (3) either time and money of
re-doing pipes or not receiving last payment = significant harm, (4) the purpose of why the homeowner wanted
brand is unclear, (5) did contract or know off-brand was cheaper? No – no bad faith. Performance was
substantial.
MATERIAL BREACH
Rule: Immaterial breach: Failing to perform at a time performance is due but not by a lot (still substantial
performance)
Rule: Material breach: if one party has engaged in material breach, it pauses the other party’s obligations.
 Non breaching party must provide notice to the person that they have materially breached the contract and
give them a chance to cure the material breach and turn it into immaterial/substantial performance
 Can hold off performing until the other party is ready/willing/able to perform
(can sue for damages while waiting to toggle it on, but cannot cancel the contract)

If no substantial performance  material breach.

Immaterial  Material
1. Harm to non-breaching party from excusing full compliance with condition
2. Extent to which non-breaching party can be compensated for the remaining performance
 3. Harm to breaching party if the condition is enforced
4. Does breaching the condition frustrate the purpose?
5. Excuse/reason for deviating from the condition (bad faith/innocent)

Curing a material breach: Turns something material into an immaterial breach. (time given measured by days
since breach) - Not reasonable to give no time.

Total breach: Material breach becomes total breach if not cured. Entitles the other party to call off their
performance obligation entirely and sue for whatever damages may have been suffered in the contract (similar
for when express condition isn’t satisfied)
- Only material breaches can convert to total breach.
Material breach  Total breach:
1. Harm that the non-breaching party will suffer from additional delay
2. Likelihood of a cure with more time
o Look to previous cures, time that has passed
3. Agreements indication that performance without delay is important.

*Discharging performance obligations before total breach is a breach

Sackett v. Spindler:
ANTICIPATORY REPUDIATION
Rule:
1. A statement by the obligor to the obligee indicating that the obligor will commit a total breach, or;
2. A voluntary affirmative act which renders the obligor unable or apparently unable to perform without a
total breach.
Can be withdrawn unless:
- Non-repudiator has materially relied on repudiation; OR
- Non-repudiator has said it considers repudiation final.
*Accelerates future total breaches (that we have a strong indication will happen in the future) and tells parties
they don’t have to wait for the future to occur, and will allow non-breaching party to treat it as a total breach
today and obligee can call off performance obligation and sue for damages

Wrinkles:
Clear and ambiguous indications:
- Suggestions to modify contracts are not repudiation
Limits
- If you are incorrect and call off breach too early, could be a breach.
Cases:
Truman L. Flatt & Sons Co v. Schupf: Express condition for land to be rezoned (public hearing postponed) –
Truman Flatt knew wouldn’t get passed, so they withdrew. Truman said they would pay lower price due to
lower value. No waiver. Modification not in bad faith or unreasonable, no obligation to buy because conditions
precedent not met. Was a modification, not an anticipatory repudiation – not clear enough. Schupf says no,
Truman agrees to pay the original price, then Schupf says no. No express condition meant to protect Schupf –
cant insist that it be satisfied because the buyer waived it and was ready, willing and able. No anticipatory
repudiation – if they sold it would have been material reliance which cant be undone.

ADEQUATE ASSURANCES
Rule:
RST 251: Whether an assurance of due performance is “adequate” depends on what is reasonable to require in a
particular case taking account of the circumstances of that case. The relationship between the parties, any prior
dealings that they have had, the reputation of the party whose performance has been called into question, the
nature of the grounds for insecurity, and the time within which the assurance must be furnished are all relevant
factors
What is a reasonable time within which to give assurance will also depend on the particular circumstances.

Gist: Once on hold for time to cure after material breach, the party can demand adequate assurances from the
other party that they will perform.

- Other party has to provide evidence that they are capable and willing to perform in the future.
- If assurances not provided, treat as anticipatory repudiation.
Factors:
Reasonable Grounds: Must reasonably believe they wont perform due to stuff that occurred AFTER the contract
was formed - entitled once material breach, or new events that change the other party’s actual or apparent
financial situation not at the time the contract was formed, or a series of former minor breaches, or if you see
the party breaching other party breaching contracts with other people
Reasonable time: UCC– cannot exceed 30 days, otherwise must be reasonable (good faith)
Not responded to adequately or not responded at all
- Prior relationships, what people expect, (see rule)

IF adequate assurances provided in a reasonable time – you must perform and you are not entitled to demand
assurances again, unless that party’s circumstances have again worsened (need new grounds),

*not required before declaring total breach

Wrinkles:
Must occur before total breach or anticipatory repudiation:
Wrinkle 2:

Cases:
Hornell Brewing Co. v. Spry: Distributor to pay within 14 days of receiving. Spry sold less product, not paying
on time 80 K due. Hornell asks Spry to pay what they owe and will give 300K credit to draw against to buy
product but must make future payments on time. Spry gets financing from factoring organization who say 1.5
million in credit from financing agencies. Hornell wants personal guarantee. Hornell finds out spry doesn’t
actually exist (don’t have employees, don’’t sell much, don’t have warehouse). Spry doesn’t do anything.
Hornell sues to invalidate. Incomplete performance – turned to material breach so Spry entitled to put
obligations on hold. Not total breach because must give chance to cure. Reasonable for adequate assurances,
spry didn’t respond – either repudiation by Spry.
Case 2:
 7.DAMAGES
Can get damages: whenever there is a breach (even immaterial)
Cannot get damages (Failures of express conditions or contracts voided by a contractual defense)

EXPECTATION DAMAGES
Definition/Goal: Payment to put the non-breacher in the position they would have been in if the contract had
been fully performed
Policy reasons:
- Breach is not inherently bad faith – a contract is to either perform or to pay the other party damages
(both are equally good)
- Theory of Efficient Breach:
1. Encourage breaches of contract where breach is efficient or a good one that allocates things to a
higher valued use, and deters breach when it is not economically advantageous.
Potential problems
- Rewarding people for breaking promises (ignores intrinsic value)
- To make calculation, need to know how much loss non-breaching party is going to suffer – wont always
know that.
- Damages will be under-compensatory (there are limits on expectation damages). If we
undercompensate, means non-breaching party is not indifferent and worse off as result of the breach.
RST 2d. 351: Damages have to be foreseeable as a probable result of the breach measured at the time that the
contract is entered into.
- Not foreseeable unless (1) naturally follow the breach, (2) special circumstances where breacher
otherwise has reason to know
Limitations
- General type of loss needs to be foreseeable
- Losses cannot be unduly speculative
1. Damages only recoverable for losses only reasonably certain to have occurred due to the breach.
Damages =
Loss in Value (Direct Loss)
+ Other Loss (Incidental & Consequential Loss)
- cost avoided
- loss avoided
DIRECT LOSS
ASSET SALE:
Difference will only matter when (1) it takes significant time to cover for the breaching party’s breach after the
breach takes place and (2) the breaching party can prove that the ultimate sale price was not market price at the
time of the breach (if both are not satisfied, no difference)
Common Law: UCC
Rule: Rule:
Asset Sale: Difference between contract price and Asset sale: Difference between price and cover price
value at time of breach (common law) if cover is in good faith and commercially reasonable
Crabbys v. Hamilton: The difference between what manner.
you were promised and what you received at the time - The difference between the contract price and
 of breach. the ultimate sale price ( so long as non-
Wrinkles Sale price is good indicator (presumed) breaching party attempts to cover the breach
unless distressed. (if only valuable to you, other in good faith and in a commercially
buyers would be zero but contract with you would be reasonable manner).
valuable. - Risk is on the breaching party

SERVICES/PRODUCTION CONTRACTS:

COST OF COMPLETION (DEFAULT)

Rule:
American Standard v. Sheckman: Apply cost of completion if any of the factors required for diminiution in
markret value are lacking.

DIMINUTION IN MARKET VALUE

Rule:
American Standard v. Sheckman: (clear rout land) Loss in market value of the thing under the contract due to
the breach
Only if:
- No substantial performance, AND
- No economic waste, AND
- Breach was not in good faith.
If any are not satisfied, then use cost of completion.

Minority: If it something only of value to you beyond money, you get nothing in diminution in market value
(use cost of completion) (Gargoyle)
- If you only care about money, diminution of market value usually works better (don’t apply)
OTHER LOSS
additional expenses they didn’t expect to incur at the time of the contract

INCIDENTAL Extra out of pocket costs incurred while trying to deal with the other party’s breach
Florafax
- Costs in dealing with the breach are only recoverable if reasonable
1. Stuff on the outer bounds is not recoverable because it is not reasonably foreseeable
2. Look for a more reasonable substitute
CONSEQUENTIAL Additional losses that follow indirectly from the breach (typically from collateral
contracts)
(Hadley v. Baxondale)
Must be foreseeable: (just the type, not the amount)
- Follow in the ordinary course of events (foreseeable) OR
- Breacher otherwise has reason to know (was told)
Cannot be unduly speculative
- Must show non-zero loss with reasonable certaintty
- 4 types:
1. Lost profits on another contract because of the breach with this contract (Florafax)
 Determine time period: How long would the contract have continued without breach?
 Assume that contracts will not be cancelled early
 Presume contracts with no end date will resume indefinitely
o Breaching party has the burden to overcome this presumption
 Ask: What would the circumstances look like if the breach had not occurred?
  Speculative rule: Lost profits from collateral sources (like contracts) are not awarded
unless those losses were reasonably certain to have not been loses absent the breach
 Ask: Is it reasonably certain that some profits would have occurred if the breach
did not occur?
o Amount does not need to be certain and undisputed
o With reasonable certainty, must show that there were some profits – once
you show that the jury determines the amount.
o Problem for small businesses (hard to show lost profit because no history
2. Harm to reputation
3. Lost business opportunities/profits
4. Physical harm to property or people because of the breach
Bonus losses following indirectly: Not always recoverable - Least likely to satisfy the foreseeability
requirement of RST 351
It is a penalty default rule:
- When liability is higher, prices rise and bargaining power is better – need to be able to adjust the
contract terms to address possible damages. Without this sort of rule, people will not reveal useful
information
COST AVOIDED / LOSS AVOIDED
Rule: Matter only where there was a total breach and non-breaching party ceased performance, avoiding costs
and losses.
LIMITS ON EXPECTATION DAMAGES
- Damages not recoverable if not foreseeable by parties at the time of the contract
1. Unless they:
 Naturally follow the breach
 Special circumstances (know or have reason to know)
- Losses cannot be unduly speculative
1. Damages only recoverable for losses reasonably certain to have occurred due to the breach
 Need to show with reasonable certainty that there are positive losses, not what the
positive amount is (this is a question for the jury)
 Impact: Bad for small businesses
- Incidental losses need to be reasonable and foreseeable
- Mitigation: (Rockingham County v. Lutent Bridge)
1. Non-breaching party has to take reasonable steps (not costless) to limit damages the breaching
party will have to pay (this is the reason for anticipatory repudiation – so that parties have to
begin mitigating early)
 Non-breaching party’s recovery is reduced by the amount of damages thy could have
mitigated or the amount they did mitigate (whichever is higher)
 If you unnecessarily incur costs or fail to avoid losses, those costs and losses will not be
compensated.
 Mitigation only needs to be reasonable – do not have to go above and beyond normal
attempts
*Can increase damages (incidental loss)
- When a contract is fully executory (nobody has taken steps, relied, or taken affirmative action) the
breaching party still has to pay expectation damages (full payment minus the non-incurred costs)
- If the full loss can be avoided, damages will be zero (look for parties doing stuff they otherwise
wouldn’t be able to do – that will lower the damages)
 NON-RECOVERABLE DAMAGES
Prejudgment interest

Prejudgment interest: Interest amounts on money owed between the time it was owed and when judgment
comes in from the court.
Default rule: No prejudgment interest (some jurisdictions will if it meets requirements of RST 354, some
jurisdictions only if breach was in bad faith)
1. Breach + (a breach is not bad faith – have to have more, such as failing to pay what you know
you owe, or trying to get money at the expense of the other party)
- Recoverable only if: RST 354: (need to meet both)
1. Liquidated sum (value of the expected compensation): Breach consists of:
 A failure to pay a definite sum of money OR
 Breach was a failure to render a performance with fixed or ascertainable monetary value
(look at market prices or contract terms – needs to be easily ascertainable)
2. 2. When amount was due: From the time for performance on the amount due
- Discretionary: Not awarded unless breached in bad faith (failing to pay due to good faith dispute is not
bad faith)

Attorneys fees
Default rule: Not recoverable (very strong presumption)
- Exceptions:
1. Contract says attorney fees are recoverable (would be for both) (still subject to unconscionability
and public policy defenses)
2. Courts order them to be paid because of abuses in the litigation process
 Zappata: can only be to punish misconduct within the litigation, not misconduct leading
to litigation.
 Look for attorneys lying or stretching out litigation for no good reason
o *NOT refusing to pay damages
3. Specific statutes allow payments of attorney fees (usually one way fee shifting statutes for
certain claims like civil rights, insurance, and employment contracts)

Punitive damages
Default: Not allowed for breaches of contract
- Exceptions:
1. If it is an independent tort, can get punitive damages for the tort
 Such as fraud (never intending to pay in the first place)
Emotional distress damages
Default: Overwhelmingly not foreseeable, and will fail Hadley foreseeability test
- Exception:
 Contract is the type where severe emotional distress or bodily harm was likely (Ex.
Funeral arrangements)
 RESTITUTION DAMAGES

Rule: Pay value of the benefit you received, offset by value of any benefit you provided.
Use when:
- Restitution action
- If party asserts contract should be voided because of valid contract defense
- Requested in breach of contract cases where completing contract would have cost more money
- Only damages that can be requested by the breaching party
- Party severely undercharged
- Costs and losses avoided are greater than direct loss and other losses
- Where unjust enrichment (but not through expectation damages or promissory estoppel)
o If non breaching party can be made whole and there is something left over, then breaching party
should be able to recover (for reasonable benefits they provided minus reasonable harm)
Factors:
Benefit
- If cannot be returned, then market value
Wrinkles:
- Typically not reduced by avoided losses (beneficial for contracts that would have ended up losing
money)
- If performance fully completed, not available

RELIANCE DAMAGES
Rule: Pay to return non-breacher to pre-contract position (out of pocket expenses)
- Non breaching party expected losses will be deducted
Use when:
1. Lost profits are unduly speculative (ex. reputation damage)
2. Where lost profits were nor reasonably foreseeable when the contract was entered into
3. Promissory estoppel cases (only for these cases!)
Factors:
Out of pocket expenses: does not include foregone earrings you could have gotten
- Foreseeability (???)
- Must be within scope of original operation
- (limited – not always returned to pre-contract position)
Mitigation
- Again, doesn’t have to be unreasonable
Cases:
Hightower: Wanted to set record for sitting on mobile flag pole, starts raising money, hiring, sell stock – law
firm says no more from investors. Expenses: old job salaries, outside investors, promoter investment, employee
salaries, loans, consultants. Not expectation (profit too speculative) – Spent money that, without the contract,
they would not have? – everything in claim but lost salaries.
 SPECIFIC PERFORMANCE
Rule: Where courts order contract to be performed rather than payment of money
- Discretionary, not required (rare)
- Only if equitable under the circumstances:
1. Monetary remedies would be inadequate
 Unique good (like land or heirloom), unduly speculative losses, cant collect monetary
award (breaching party lacks money or it is unavailable)
2. Specific performance results in minimal hardship to defendant or third parties (relative to
plaintiff’s benefit)
 More than financial, or huge financial losses
 Harm to third parties makes it very unlikely
3. Whether granting specific performance would not impose significant expenses on court (hard to
enforce?)
 Special masters, arbitration process
*can still be bought out – then don’t have to perform

Limitations:
- Contracts to render personal services are not subject to specific performance (employees- look like
involuntary servitude)
- Cannot include specific performance as a liquidated damage

LIQUIDATED DAMAGES
Rule:
1. Must be reasonable estimate, at the time of contracting, of future expected damages.
2. The amount of future expectation damages must be uncertain.
(if you get them, you cannot get any other type of damages)

Factors:
Cannot operate as a penalty (must be extreme)
Should not deter efficient breaches:
Majority: No mitigation requirement
- Minority: should assess whether penalty when the contract is formed, and at breach.

- Cannot include specific performance or punitive damages

Cases:
Barry v. School:
 3. 8. THIRD PARTIES
Rule:
Default: third parties that are affected have no standing or right to enforce those contracts.
- Can, if:
1. Promisee intends to provide benefit to third party when forming the contract (could be a group)
2. Promisor has reason to know of a promisee’s intent at the time of contract formation (reasonable)
Gist: Party whose shoes they are trying to step into intended to provide benefit, and party they are suing had
reason to know there was going to be a benefit to the third party
Exceptions:
- Agents can act on someone’s behalf
- A child can sue for a will
Factors:
1. Intent to provide benefit?
- Benefit to that specific person
- No:
o Incidental beneficiaries – unintended beneficiaries
o Unintended victims: instead, try to regulate the behavior directly
 Externality regulation: things that have impacts on other parties (like pollution)
Have reason to know of intent?
Wrinkles:
Must be foreseeable:
Cases:
Vogaan: Hayes incorrectly certified to Mid America that build was finishes, leaves unfinished. Settlement with
Mid-America. Then try to sue Hayes. Intended to provide benefit – unclear (only care about money, but also
was some way to sign Vogans up to go with Mid-America).
ASSIGNMENTS
Rule:
Assignments must be intentional and irrevocable
- Cannot have any control over the right they are assigning – no strings attached
Assignments can be either partial or full
- Even if partial, must still be irrevocable
Assignments cannot
- Violate public policy
- Materially harm obligor (including changing the obligation)
- Violate anti-assignment contract language
Assignment of rights: transferring pieces of value in a contract to third parties that a party would be happy
about.
Delegating obligations: one party has to do a costly thing under the contract and hires someone else to provide
the service instead
- Original party to contract still liable
- Personal service cannot be delegated without permission from the other party
- Cannot delegate if it would give rise to irreconcilable conflict of interest (Mcdonalds/burger king)
Cases:
Herzog: Doctor works for jones, Jones doesn’t have money – has pending legal case. If successful, would get
paid. Makes partial assignment for recovery to doctor. Lawyers get the money, give to jones (not doctor) –
lawyers sue doctor.