Contracts 1 Taylor Fall 2013

To win a breach of contract claim, needs:

1. Basis for enforcement (consideration, reliance = promissory estoppel, possibly moral obligation)
There must be one of these bases in order for there to be an enforceable contract:
a. Consideration = bargained for exchange. If no consideration, go to reliance
i. Consideration can be bargained for exchange or the benefit/detriment test
ii. Inadequate consideration v. nominal/sham consideration
b. Reliance/Promissory Estoppel (R2d 90):
i. Promissor must reasonably expect that his promise will induce the promisee to act or forbear
ii. Promisee must justifiably rely on the promise to his detriment
iii. Promisee must suffer injustice that only enforcement can cure
iv. *Distinguish whether it is a promise within the family, a charitable subscription, or in a
commercial context
If any of these are not met, then there is no reliance, go on to moral obligation
c. Moral obligation/Restitution (promissory restitution (R2d 86) (But most courts dont use this)
i. Implied in Fact: Enforceable contract based on a tacit promise between the parties but needs
interpretation by the court
ii. Implied in law: No regard to the parties actual assent, but the enforceability is conferred by the
court. It needs: (1) has conferred a benefit on the . (2) The has knowledge of the benefit (3)
The has accepted or retained the benefit; and (4) The circumstances are such that it would be
inequitable for the to retain the benefit without paying fair value for it.
2. Proper formation (Meeting of the minds).
You need all of these:
a. Offer (consider advertisement v. actual offer; was it revoked? Did it lapse? Terminate by death?)
i. Electronic and layered contracting: Shrink-wrap v. Browse-wrap v. Click-wrap determine
when the offer was made based on Easterbrook/Klocek approaches
b. Acceptance (must be clearly communicated, mirror image rule [if change of terms, then it is a counter-
offer, and thus both a rejection and a new offer], Mailbox rule [acceptance is effective upon dispatch for
ordinary contract, but upon receipt for option contracts], Option contract [exclusive right to accept for a
reasonable time, requires separate consideration for the option], Implied acceptance is fine, silent
acceptance is usually not)
i. Unilateral Contracts Acceptance is by complete performance
ii. Bilateral Contracts Acceptance is by a promise to perform (common point of confusion: when
a party begins performance, this can imply a promise to perform/acceptance of a bilateral K)
iii. *Make sure there was no revocation! Offeror cant revoke when:
1. Contract is already formed
2. Option is paid
a. Firm Offers under UCC
3. Promissory Estoppel
c. Assent/Intent to be bound (parties must intend to be legally bound to the same thing) (The parties
objective intent controls unless a party knows of the other partys subjective intent)
d. Definiteness (uncertainty as to key terms will void a K)
Even if any of these fail, possible recovery under reliance for pre-acceptance assurances (promises
made during negotiations), but can recover reliance damages only in those cases
3. Writing (If SOF applies: Marriage, One-Year Rule, Land, Executors, Goods over $500, Sureties; 2-207 battle of
forms [Merchant v. Non-merchant? new terms may be integrated if it is a merchant as long as theyre not
material alterations] quantity is absolutely necessary; must be signed writing juris split on whether multiple
papers may be combined when some are unsigned)
Exceptions to SOF are:
a. Part Performance
b. Unilateral Contracts
c. Promissory Estoppel (if someone relies on the oral contract, only applicable in some states)
4. No other basis for unenforceability ( may raise illusory promise, duress, fraud, mutual mistake, or incapacity)
Once you determine a contract was formed, then move on to how to interpret the meaning of the terms and
whether or not new terms may be introduced


Contracts 1 Taylor Fall 2013
The Meaning of the Agreement and Supplementing it:
1. Interpretation (When parties are confused about the terms included in the contract & the court has to fill them in)
a. Subjective approach (Peerless case) v. Objective, Reasonable person approach
b. Maxims of interpretation; R2d 201 Whose meaning prevails?; Adhesion Contract?
c. Reasonable expectations Doctrine (for insurance contracts) (half of the states have adopted this) Must
be included: (1) The term defeats the main purpose of the K, (2) It is not reasonably included, and (3)
It is a surprise that it is included and is detrimental to the insured.
2. Parol Evidence Rule (Gives legal effect to whatever intent the parties may have had to make their writing final)
a. Integration:
i. Complete: Writing is final and complete; all terms covered No extrinsic evidence may be
brought in to vary OR supplement it (explaining may be ok/allow evidence to show incomplete)
Merger clauses arent always conclusive
ii. Partial: Final with respect to terms it contains, not all terms included No extrinsic evidence
to vary, but may be supplemented
iii. Split views:
1. Corbin/Modern: Consider all evidence then determine what to allow for interpretation
should depend on the actual intent of the parties
2. Williston/Traditional: 4 corners/Plain Meaning if it is not ambiguous on its face, no
extrinsic evidence, but most courts just say no contradictions
b. Exceptions: Explanation of the meaning, agreements made after the writing, oral condition precedent,
invalidation (fraud, illegality, etc.), Scriveners error, and collateral agreements
3. Implied Terms (the K the court enforces may include terms the court decides to impose as implied)
a. Best Efforts Clause: Most courts define it as reasonableness or diligence
b. Reasonable notice: will depend on particular circumstances including the product at issue
c. UCC article 2: Provides gap fillers with the implied terms as default rules
d. R2d 201: Innocent party wins
4. Implied Obligation of Good Faith and Fair Dealing (will add meaning to the words parties use, but will not
contradict or deny express terms; explains how the parties are supposed to behave towards each other)
a. Split juris on whether or not there has to be a breach of an express term of the agreement
b. Requirements and Output Contracts: Buying exclusively from someone, or buying all of something that
the person produces.
i. Basically just have to use good faith here may be a breach if the quantity varies and must use
best efforts to sell/buy the products
c. At-Will Employees: (generally, obligation of good faith does not require a good cause for termination)
i. Exceptions: Good Faith (promised evaluation before termination), Public Policy (protecting
whistle blowers, requiring EE to commit a crime, statutory prohibitions racism, gender, etc.),
Employee Manual (juris split), Additional Consideration (more than just doing well at your
job), Promissory Estoppel (very difficult argument determine the time of repayment)
5. Warranties (Caveat Emptor = let the buyer beware)
a. Express Warranties (UCC 2-312) (Affirmation of fact made by seller Puffery not included)
i. Exclusions or modifications (UCC 2-316) Once you make an express warranty, you cant take
it away, but parol evidence rule may be a problem
b. Implied Warranty of Merchantability (UCC 2-314)(warranty that the goods do what theyre supposed to)
i. Fungible goods; Merchantable if goods would pass without objection in the trade
ii. Exclusion or Modification: Warranties are automatic unless they are expressly limited/excluded
c. Implied Warranty of Fitness for a Particular Purpose (UCC 2-315)(seller helps buyer select product
based on buyers needs and buyer relies on sellers abilities; does not have to be merchant; exclusion must
be conspicuous and in writing like writing as is on product)
d. Third Party Beneficiaries of Warranties: (UCC 2-318)(3 options differ by extension of home)
e. Implied Warranty of Habitability: (Expectation that home will not have any major defects rendering it
unsuitable for habitation Warranty of skillful construction refers to the work performed during the
building process) (Caceci v. Di Canio Construction Corp.)
f. Warranty of Title and Against Infringement (UCC 2-312) (Always a warranty that title will be rightful
and free from encumbrance unless disclaimed by specific language; Merchant who regularly deals in
goods of that kind warrants that the goods will not infringe on anothers [intellectual] property right;
if manufactured to the buyers specifications, the buyer must hold the seller harmless.)