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Contracts Outline

I. Introduction to Contract Law


a. Where does Contract Law come from?
i. UCC § 2-102: Scope; Certain Security and Other Transactions Excluded from this
Article
ii. UCC § 2-105: UCC § 2-105: Definitions: Transferability; "Goods"; "Future"
Goods; "Lot"; "Commercial Unit"
iii. UCC § 1-103(b): Construction of Uniform Commercial Code to Promote its
Purpose and Policies: Applicability of Supplemental Principles of Law
iv. Restatement § 1: Contract Defined
1. A contract is a promise or a set of promises for the breach of which the
law gives a remedy, or the performance of which the law in some way
recognizes as a duty.
v. CISG Article 1
1. (1) This Convention applies to contracts of sale of goods between parties
whose places of business are in different States:
a. (a) when the States are Contracting States; or
b. (b) when the rules of private international law lead to the
application of the law of a Contracting State.
2. (2) The fact that the parties have their places of business in different
States is to be disregarded whenever this fact does not appear either
from the contract or from any dealings between, or from information
disclosed by, the parties at any time before or at the conclusion of the
contract.
3. (3) Neither the nationality of the parties nor the civil or commercial
character of the parties or of the contract is to be taken into
consideration in determining the application of this Convention.
vi. CISG Article 6
1. The parties may exclude the application of this Convention or, subject to
article 12, derogate from or vary the effect of any of its provisions.
vii. UNIDROIT Principles of International Commercial Contracts, Preamble
1. These Principles set forth general rules for international commercial
contracts. They shall be applied when the parties have agreed that their
contract be governed by them.(*) They may be applied when the parties
have agreed that their contract be governed by general principles of law,
the lex mercatoria or the like. They may be applied when the parties have
not chosen any law to govern their contract. They may be used to
interpret or supplement international uniform law instruments. They may
be used to interpret or supplement domestic law. They may serve as a
model for national and international legislators.
a. The Principles set forth general rules which are basically
conceived for “international commercial contracts”*
b. Introduction to Enforcing Promises
i. Hawkins v. McGee
1. When one party breaches a contract, the non-breaching party may
recover damages based on the difference between the value of the
contract as fully performed and the actual value of the non-breaching
party’s present condition, plus any incidental damages reasonably
foreseeable to all parties at the time of contract formation.
ii. Bayliner v. Crow
1. A merchant’s opinion about a product’s potential performance does not
create an express warranty that the product will conform to that
description.
c. Introduction to Remedying Breaches
i. US Naval v. Charter Communications (Expectation Damage Theory)
1. In a breach of contract action, a plaintiff is generally entitled to recover
damages for actual losses caused by the breach
ii. Sullivan v. O’Connor (Reliance Damage Theory)
1. Pain and suffering and emotional distress that flow naturally from a
breach are compensable contract damages under either an expectancy or
reliance measure
iii. Restitution: Breaching party gives back what is owed
iv. White v. Benkowski
1. Punitive damages are not available as a remedy on a breach of contract
claim
v. UCC § 1-305: Remedies to be Liberally Administered
1. Similar to Expectation Theory
II. The Cornerstones of Contract Law – Creation of Binding Obligations
a. Consideration
i. Hamer v. Sidway
1. Adequate consideration sufficient to form a valid and enforceable
contract may consist of either a right, interest, profit, or benefit accrued
to one party, or some forbearance, detriment, loss, or responsibility
given, suffered, or undertaken by the other
a. Not about benefit/detriment – the trade is what matters
(forbearance)
ii. Dyer v. National By-Products
1. Forbearance from filing an unmeritorious legal claim that the party in
good faith believes is valid constitutes sufficient consideration for a
settlement agreement
iii. Feinberg v. Pfeiffer (Consideration Aspect – Pfeiffer Wins on Consideration)
1. A gratuitous (and thus unenforceable) promise is nevertheless
transformed into a binding and enforceable contract if the promisee
reasonably and detrimentally relies on the promise
a. This is an example of an illusory trade
iv. Mills v. Wyman
1. A promise based on a moral obligation but made without legal
consideration does not constitute an enforceable contract unless it is tied
to a preexisting legal obligation
v. Webb v. McGowin
1. If promisee gives deceased promisor something substantial, there is
consideration
2. Exception to Feinberg and Mills
3. Very Extreme Case
vi. Harrington v. Taylor
1. A voluntary humanitarian act does not constitute sufficient consideration
to support a contract.
vii. Kirksey v. Kirksey
1. A promise to provide free land for a residence that is fulfilled for a finite
amount of time and then revoked is gratuitous and thus unenforceable
despite inducing the promisee to move residences in reliance on the
promise
a. Gratuitous Promises don’t count as consideration
viii. Lake-Land v. Columber
1. Continued employment is adequate consideration to enforce a non-
competition agreement where the agreement was entered after
employment already commenced
ix. Strong v. Sheffield
1. A creditor's promise to forbear from collecting a debt cannot constitute
valuable consideration for a third party’s promise to answer for the debt,
when the terms of the promise do not obligate the creditor to forbear for
any length time
a. Example of an illusory promise
b. Since there was no forbearance, there was no consideration
x. Mattei v. Hopper
1. A clause in a real estate contract that bases a party’s obligation to
perform upon that party’s satisfaction of a condition does not render the
party’s promise to perform illusory or lacking in consideration
xi. Alaska Packers v. Domenico
1. Where parties enter a new agreement under which one party agrees to
do no more than he was already obligated to do under an existing
contract, the new agreement is unenforceable for lack of consideration
a. Example of the Pre-Existing Duty Rule
xii. Watkins v. Carrig
1. Parties may rescind an existing agreement and enter a new agreement to
pay a higher price for performance already required under the original
contract if the parties mutually agree to the change in terms
a. UCC § 2-209: Modification, Rescission and Waiver
xiii. Wood v. Lucy, Lady Duff Gordon
1. Implicit Promises can be Enforceable
b. Agreement
i. The Nature of Assent
1. Lucy v. Zehmer (Objective Theory of Contracts – look to expressed intent)
a. The objective, outward expression of a party’s intent to be bound
in an agreement, as opposed to that party’s subjective mental
assent to the agreement, is all that matters when determining the
existence of a valid and enforceable contract
2. Pepsi Harrier Jet Case
a. Objective observer would know that this was a joke and it is
therefore unenforceable
3. Specht v. Netscape
a. An offeree, regardless of apparent manifestation of his consent, is
not bound by or charged with having “inquiry notice” of
inconspicuous contractual provisions of which he is unaware,
displayed in a format whose contractual nature is not obvious
when judged according to a “reasonably prudent offeree”
standard
4. UCC § 2-204: Formation in General
ii. Offer
1. Owen v. Tunison
a. General statements made in negotiation do not create a binding
offer if they do not indicate a party’s intent to be bound by those
statements
2. Harvey v. Facey
a. Stating the lowest price to sell is not an offer because there is no
intent
3. Fairmount v. CMW
a. Where a party quotes prices and invites acceptance by another
party, a binding offer has been made that cannot be revoked once
accepted
4. Lefkowitz v. Great Minneapolis
a. An advertisement is not an offer; It is just a solicitation to offer
b. The ad was clear, definite, explicit, and left nothing open for
interpretation
c. This is an exception to the rule regarding ads
iii. Acceptance
1. Generally
a. Restatement § 50: Acceptance of Offer Defined; Acceptance by
Performance; Acceptance by Promise
b. White v. Corlies
i. To form a binding contract, acceptance by performance
must be sufficient to manifest or communicate the
acceptance to the offeror
c. Ever-Tite v. Green
i. A contract may be created by acceptance of the
offer within a time frame specified by the offer or, if no
time is specified, within a reasonable time.
d. UCC § 2-206: Offer and Acceptance in Formation of Contract
2. Termination of the Power of Acceptance
a. Power to Accept can be Terminated by:
i. Lapse of Offer
ii. Revocation by Offeror
iii. Offeror’s Death/Incapacity
iv. Offeree’s Rejection
b. Dickinson v. Dodds
i. An offer may be revoked by the offeror without an express
or actual statement of revocation communicated to the
offeree provided there has been no meeting of the minds
and the offeree is aware of conduct by the offeror
demonstrating intent to revoke the offer
1. Option Contract bypasses this problem
c. UCC § 2-205: Firm Offers
3. Acceptance Varying the Terms of an Offer
a. UCC § 2-207: Additional Terms in Acceptance or Confirmation
Offer ≠ Acceptance Terms
1. 2-207(1) [before “unless”] 2-207(2)
2. “Unless” + Offeror’s Assent Offeree’s Terms
3. Conduct [2-207(3).1] 2-207(3).2

b. Adams v. Lindsell
i. When a written offer is proposed by an offeror via postal
mail, the offeree’s acceptance of the offer is valid if mailed
within the time frame specified within the offer, if such
manner of acceptance is permitted by the offer
1. Example of the Mailbox Rule
c. Dorton v. Collins
i. Under U.C.C. § 2-207, an acceptance containing different
or additional terms is effective, and when between
merchants, the additional terms are deemed accepted
ii. Example of Battle of the Forms
d. Bayway v. Oxygenated Marketing
i. Under the Uniform Commercial Code, additional terms
that materially alter a contract between merchants are not
presumed to become part of the contract
e. Northrop v. Litronic
i. Under the Knockout Rule, additional terms in acceptance
can be replaced
4. Rolling Contract Formation
a. Step-Saver v. Wyse
i. Under the Uniform Commercial Code, additional terms
that materially alter an agreement must be assented to by
both parties in order to be binding, and a unilateral course
of conduct is not sufficient to establish both parties’ assent
to the additional terms.
b. ProCD v. Zeidenberg
i. Shrinkwrap licenses included within a product’s packaging
are enforceable unless their terms are objectionable on
grounds applicable to contracts in general, such as
violating a positive rule of law or being unconscionable.
1. UCC § 2-204(1): Formation in General
c. Hill v. Gateway
i. Under the Uniform Commercial Code, a purchaser may be
bound to terms included in product packaging if the
purchaser has an opportunity to review the agreement
and reject it by returning the product.
5. Indefiniteness
a. UCC § 2-204(3): Formation in General
i. (3) Even though one or more terms are left open
a contract for sale does not fail for indefiniteness if the
parties have intended to make a contract and there is a
reasonably certain basis for giving an appropriate remedy.
b. Oglebay v. Armco
i. A contract remains enforceable even if a key term
becomes indefinite as long as the parties intend to remain
bound by the agreement.
ii. UCC § 2-305: Open Price Term
c. Toys v. Burlington
i. In Vermont, a lease agreement that contains an option
provision will be enforced if it contains a practicable,
objective method of determining the essential terms.
c. Policing the Bargaining Process
i. Generally
1. Restatement § 12: Capacity to Contract
a. (1) No one can be bound by contract who has not legal capacity to
incur at least voidable contractual duties. Capacity to contract
may be partial and its existence in respect of a particular
transaction may depend upon the nature of the transaction or
upon other circumstances.
b. (2) A natural person who manifests assent to a transaction has full
legal capacity to incur contractual duties thereby unless he is
i. (a) under guardianship, or
ii. (b) an infant, or
iii. (c) mentally ill or defective, or
iv. (d) intoxicated.
ii. Capacity to Contract
1. Douglass v. Pflueger Hawaii (Age)
a. Hawaii’s child labor law provides for the protections of the infancy
doctrine and renders inapplicable the general rule that contracts
entered into by minors are voidable in the employment context.
i. Example of the Infancy Doctrine
2. Orterlere v. Teachers (Incapacity)
a. A contract can be declared void if a party is unable to understand
the transaction and the other party knew or had reason to know
of the incapacity.
3. Cundick v. Broadbent (Incapacity)
a. A contract entered by a party claiming to be mentally deficient is
not void, but voidable by the mentally deficient person if that
person lacked sufficient reason to understand the nature and
effect of his or her actions regarding the contract, unless there is
evidence of fraud or overreaching by the other party.
iii. Duress
1. Austin v. Loral
a. Economic Duress can void a contract when the party was forced
to agree against free will
iv. Undue Influence
1. Odorizzi v. Bloomfield School
a. Where a dominant party to a transaction uses excessive pressure
to persuade a party whose weakened mental state makes him
especially susceptible to persuasion, the weaker party may
rescind the agreement as obtained by undue influence.
i. Subjectively, there must be lessened capacity
ii. Objectively, there must be excessive strength used
b. Characteristics of Over-persuasion
i. Discussion of the transaction at an unusual or
inappropriate Time
ii. Consummation of the transaction in an unusual place
iii. Insistent demand that the business be finished at once
iv. Extreme emphasis on untoward consequences of delay
v. The use of multiple persuaders by the dominant against
the single servient party
vi. Absence of third-party advisors to the servient party
vii. Statements that there is no time to consult financial
advisors or attorneys
c. Restatement § 177: When Undue Influence Makes a Contract
Voidable
i. (1) Undue influence is unfair persuasion of a party who is
under the domination of the person exercising the
persuasion or who by virtue of the relation between them
is justified in assuming that that person will not act in a
manner inconsistent with his welfare.
ii. (2) If a party's manifestation of assent is induced by undue
influence by the other party, the contract is voidable by
the victim.
iii. (3) If a party's manifestation of assent is induced by one
who is not a party to the transaction, the contract is
voidable by the victim unless the other party to the
transaction in good faith and without reason to know of
the undue influence either gives value or relies materially
on the transaction.
v. Concealment and Misrepresentation
1. Restatement § 164: When a Misrepresentation Makes a Contract
Voidable
a. (1) If a party's manifestation of assent is induced by either a
fraudulent or a material misrepresentation by the other party
upon which the recipient is justified in relying, the contract is
voidable by the recipient.
b. (2) If a party's manifestation of assent is induced by either a
fraudulent or a material misrepresentation by one who is not a
party to the transaction upon which the recipient is justified in
relying, the contract is voidable by the recipient, unless the other
party to the transaction in good faith and without reason to know
of the misrepresentation either gives value or relies materially on
the transaction.
2. Swinton v. Whitinsville
a. A seller may not be held liable for the mere failure to disclose a
defect in the property of which he is aware and of which the
buyer is unaware.
3. Kannavos v. Annino
a. Knowingly disclosing partial facts about a transaction in such a
way that the disclosure is misleading constitutes fraudulent
misrepresentation and is a basis for rescission of the contract.
b. Restatement § 161: When Non-Disclosure is Equivalent to an
Assertion
i. A person's non-disclosure of a fact known to him is
equivalent to an assertion that the fact does not exist in
the following cases only:
1. (a) where he knows that disclosure of the fact is
necessary to prevent some previous assertion from
being a misrepresentation or from being fraudulent
or material.
2. (b) where he knows that disclosure of the fact
would correct a mistake of the other party as to a
basic assumption on which that party is making the
contract and if non-disclosure of the fact amounts
to a failure to act in good faith and in accordance
with reasonable standards of fair dealing.
3. (c) where he knows that disclosure of the fact
would correct a mistake of the other party as to
the contents or effect of a writing, evidencing or
embodying an agreement in whole or in part.
4. (d) where the other person is entitled to know the
fact because of a relation of trust and confidence
between them.
c. Non-Disclosure = Assertion
4. Speakers of Sport v. Proserv
a. A company’s aspirational sales pitch to a client of a competitor in
an attempt to lure the client away does not constitute a promise
to contract nor amount to an inducement to breach of contract.
5. Vokes v. Arthur Murray
a. A statement of opinion may be actionable as a misrepresentation
where the party stating his opinion possesses superior knowledge
of the truth or falsity of the statement.
d. Formal Requirements
i. Introduction to Statute of Frauds
1. Governs enforcement of oral contracts
2. 6 Types of Contracts Enforced only in signed writing
a. A contract by an executor or administrator of an estate to answer
for a duty of the decedent
b. A contract to answer for the debt of another
c. A contract made upon consideration of marriage
d. A contract for the sale of an interest in land
e. A contract that is not to be performed within one year of its
making
f. A contract for the sale of goods
3. NY General Obligations Law § 5-701(a): Agreements Required to be in
Writing
a. a. Every agreement, promise or undertaking is void, unless it or
some note or memorandum thereof be in writing, and subscribed
by the party to be charged therewith, or by his lawful agent, if
such agreement, promise or undertaking:
i. 1. By its terms is not to be performed within one year
from the making thereof or the performance of which is
not to be completed before the end of a lifetime;
ii. 2. Is a special promise to answer for the debt, default or
miscarriage of another person;
iii. 3. Is made in consideration of marriage, except mutual
promises to marry;
iv. 4. Repealed
v. 5. Is a subsequent or new promise to pay a debt
discharged in bankruptcy;
vi. 6. Notwithstanding section 2-201 of the uniform
commercial code , if the goods be sold at public auction,
and the auctioneer at the time of the sale, enters in a sale
book, a memorandum specifying the nature and price of
the property sold, the terms of the sale, the name of the
purchaser, and the name of the person on whose account
the sale was made, such memorandum is equivalent in
effect to a note of the contract or sale, subscribed by the
party to be charged therewith;
vii. 7, 8. Repealed
viii. 9. Is a contract to assign or an assignment, with or
without consideration to the promisor, of a life or health
or accident insurance policy, or a promise, with or without
consideration to the promisor, to name a beneficiary of
any such policy. This provision shall not apply to a policy
of industrial life or health or accident insurance.
ix. 10. Is a contract to pay compensation for services
rendered in negotiating a loan, or in negotiating the
purchase, sale, exchange, renting or leasing of any real
estate or interest therein, or of a business opportunity,
business, its good will, inventory, fixtures or an interest
therein, including a majority of the voting stock interest in
a corporation and including the creating of a partnership
interest. “Negotiating” includes procuring an introduction
to a party to the transaction or assisting in the negotiation
or consummation of the transaction. This provision shall
apply to a contract implied in fact or in law to pay
reasonable compensation but shall not apply to a contract
to pay compensation to an auctioneer, an attorney at law,
or a duly licensed real estate broker or real estate
salesman
4. NY General Obligations Law § 5-703: Conveyances and Contracts
Concerning Real Property Required to be in Writing
a. 1. An estate or interest in real property, other than a lease for a
term not exceeding one year, or any trust or power, over or
concerning real property, or in any manner relating thereto,
cannot be created, granted, assigned, surrendered or declared,
unless by act or operation of law, or by a deed or conveyance in
writing, subscribed by the person creating, granting, assigning,
surrendering or declaring the same, or by his lawful agent,
thereunto authorized by writing. But this subdivision does not
affect the power of a testator in the disposition of his real
property by will; nor prevent any trust from arising or being
extinguished by implication or operation of law, nor any
declaration of trust from being proved by a writing subscribed
by the person declaring the same.
b. 2. A contract for the leasing for a longer period than one year, or
for the sale, of any real property, or an interest therein, is void
unless the contract or some note or memorandum thereof,
expressing the consideration, is in writing, subscribed by the
party to be charged, or by his lawful agent thereunto authorized
by writing.
c. 3. A contract to devise real property or establish a trust of real
property, or any interest therein or right with reference thereto,
is void unless the contract or some note or memorandum
thereof is in writing and subscribed by the party to be charged
therewith, or by his lawfully authorized agent.
d. 4. Nothing contained in this section abridges the powers of courts
of equity to compel the specific performance of agreements in
cases of part performance.
5. Uniform Electronic Transactions Act § 7: Legal Recognition of Electronic
Records, Electronic Signatures, and Electronic Contracts
a. (a) A record or signature may not be denied legal effect or
enforceability solely because it is in electronic form.
b. (b) A contract may not be denied legal effect or enforceability
solely because an electronic record was used in its formation.
c. (c) If a law requires a record to be in writing, an electronic record
satisfies the law.
d. (d) If a law requires a signature, an electronic signature satisfies
the law.
ii. Scope
1. CR Klewin v. Flagship (One-Year Provision)
a. A contract does not fall within the statute of frauds’ one year
provision unless, by the specific terms of the contract, it is
impossible for performance to be completed within one year.
2. Central Ceilings v. National Amusements (Main Purpose Rule)
a. An agreement does not come within the Statute of Frauds’
requirement that a promise to pay the debt of another be in
writing when the main purpose of the promise to pay the debt of
another is to gain a benefit for the promisor.
3. Langman v. Virginia
a. Contract was not a suretyship so Statute of Frauds does not bar
enforcement of the mortgage assumption clause
iii. Satisfying the Statute of Frauds
1. Crabtree v. Elizabeth Arden
a. Multiple documents taken together may constitute a signed
writing sufficient to fulfill the statute of frauds if all documents
refer to the same subject matter or transaction and at least one is
signed by the party to be charged with the contractual
obligations.
iv. Exceptions to the Statute of Frauds
1. Beaver v. Brumlow (Part-Performance Exception)
a. In New Mexico, an oral contract for the sale of real property may
be removed from the statute of frauds if an outsider, viewing the
totality of the circumstances, could reasonably conclude that an
agreement regarding the real property existed.
2. Monarco v. Lo Greco (Estoppel)
a. Reliance on the Statute of Frauds by a party attempting to avoid
an agreement may be estopped when the other party relied to
their detriment on the oral promise or the party attempting to
avoid the agreement was unjustly enriched.
v. The Statute of Frauds for Sales of Goods
1. UCC § 2-201: Formal Requirements; Statute of Frauds
2. St. Ansgar v. Streit
a. Written confirmation of an oral agreement, when received within
a reasonable time, will bring an agreement within the Uniform
Commercial Code’s exception to the Statute of Frauds, if the
agreement is between merchants.
e. Obligations Without Agreement
i. Reliance as a Basis for Enforcement of Promises
1. Ricketts v. Scothorn
a. Equitable estoppel prevents a promisor from revoking an
otherwise unenforceable gratuitous promise if the promisee
foreseeably and reasonably relied on the promise to her
detriment.
2. Feinberg v. Pfeiffer (Reliance Theory – Feinberg Wins Now)
a. A gratuitous promise is still binding if the promisee relies on it to
her detriment
3. Wright v. Newman
a. An obligation to provide child support may be enforced through
promissory estoppel.
4. D+G v. Bacardi (Promissory Estoppel)
a. A promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee and which does
induce such action or forbearance is binding if injustice can be
avoided only by the enforcement of the promise.
5. Drennan v. Star Paving (No need for a Promise to have Promissory
Estoppel)
a. An offer which the offeror should reasonably expect to induce
definite and substantial reliance by the offeree, and which does
induce such reliance is binding on the offeror and enforceable
even without consideration if enforcement is necessary to
prevent injustice to the offeree.
ii. Restitution
1. Cotnam v. Wisdom
a. Where there is no agreement on which the court may enforce a
contract between the parties, as where physicians render services
to persons who are unable to contract due to their condition, the
court may use the legal fiction of a quasi-contract to require
payment for those services
2. Callano v. Oakwood Park Homes (Unjust Enrichment)
a. A quasi-contract based on unjust enrichment can be implied by
law only when there is no other remedy available.
3. Pyeatte v. Pyeatte (Unjust Enrichment)
a. In extreme circumstances of unjust enrichment, the contract will
be implied
iii. Precontractual Liability
1. Hoffman v. Red Owl Stores
a. A promise may give rise to an action for promissory estoppel even
if it does not contain all essential details of a proposed transaction
and is incapable of resulting in a binding contract so long as the
promise was one which the promisor should have reasonably
expected to induce action or forbearance of a definite and
substantial character on the part of the promisee, the promise
actually induced such action or forbearance, and injustice can only
be avoided by enforcement of the promise.
b. Restatement § 90 (First): Promise Reasonably Inducing Definite
and Substantial Action
i. A promise which the promisor should reasonably expect to
induce action or forbearance of a definite and substantial
character on the part of the promisee and which does
induce such action or forbearance is binding if injustice can
be avoided only by enforcement of the promise.]
c. Restatement § 90 (Second): Promise Reasonably Inducing Action
or Forbearance
i. (1) A promise which the promisor should reasonably
expect to induce action or forbearance on the part of the
promisee or a third person and which does induce such
action or forbearance is binding if injustice can be avoided
only by enforcement of the promise. The remedy granted
for breach may be limited as justice requires.
ii. (2) A charitable subscription or a marriage settlement is
binding under Subsection (1) without proof that the
promise induced action or forbearance.
2. Dixon v. Wells Fargo
a. Under the doctrine of promissory estoppel, a negotiating party to
an agreement may not break a promise made during negotiations
if the other party has relied on the promise to their detriment.
b. Also looked to Restatement § 90
3. Cyberchron v. Calldata Systems
a. A plaintiff may recover damages for reliance when there is a clear
and unambiguous promise, reasonable and foreseeable reliance
on the promise, and an injury resulting from the reliance, even
though no agreement between the parties exists.
4. Channel Home Centers v. Grossman (Enforcing the Agreement to Bargain)
a. A letter of intent constitutes an enforceable agreement if both
parties manifested the intent to be bound to the letter, there was
consideration on both sides of the promise, and the terms are
sufficiently definite to be specifically enforced.
III. How Does Contract Law Determine the Legal Obligations That Flow from the Bargain of
Parties?
a. What is the Agreement of the Parties?
i. Parol Evidence Rule: Excludes extrinsic evidence where there is a writing that is
a complete contract
ii. Gianni v. R Russell
1. Where the parties, absent fraud or mistake, have put their oral
negotiations in writing, the writing is not only the best evidence of their
agreement, but is the only evidence of the agreement.
iii. Restatement § 213: Parol Evidence Rule
1. (1) A binding integrated agreement discharges prior agreements to the
extent that it is inconsistent with them.
2. (2) A binding completely integrated agreement discharges prior
agreements to the extent that they are within its scope.
3. (3) An integrated agreement that is not binding or that is voidable and
avoided does not discharge a prior agreement. But an integrated
agreement, even though not binding, may be effective to render
inoperative a term which would have been part of the agreement if it had
not been integrated.
iv. Restatement § 209: Integrated Agreements
1. (1) An integrated agreement is a writing or writings constituting a final
expression of one or more terms of an agreement.
2. (2) Whether there is an integrated agreement is to be determined by the
court as a question preliminary to determination of a question of
interpretation or to application of the parol evidence rule.
3. (3) Where the parties reduce an agreement to a writing which in view of
its completeness and specificity reasonably appears to be a complete
agreement, it is taken to be an integrated agreement unless it is
established by other evidence that the writing did not constitute a final
expression.
v. Restatement § 210: Completely and Partially Integrated Agreements
1. (1) A completely integrated agreement is an integrated agreement
adopted by the parties as a complete and exclusive statement of the
terms of the agreement.
2. (2) A partially integrated agreement is an integrated agreement other
than a completely integrated agreement.
3. (3) Whether an agreement is completely or partially integrated is to be
determined by the court as a question preliminary to determination of a
question of interpretation or to application of the parol evidence rule
vi. Masterson v. Sine
1. Even when it is unclear whether a written contract is intended by the
parties to be complete, evidence of a separate oral agreement may be
admissible to prove the terms of the contract if the oral agreement is
something that would naturally be made as a separate agreement by the
parties given their actual situation and circumstances when drafting the
written contract.
vii. UCC § 2-202: Final Written Expression – Parol or Extrinsic Evidence
viii. Bollinger v. Central PA (Doctrine of Mutual Mistake)
1. A court of equity has the authority to reform a written contract in order
to conform it to the mutual understanding of the parties, even when one
of the parties denies that a mistake was made.
b. How Should the Agreement be Interpreted?
i. The Use of Extrinsic Evidence of the Parties’ Intent
1. Traditional Approach: Plain Meaning Rule
2. Pacific Gas v. Thomas Drayage (California Approach)
a. If a preliminary consideration of all credible evidence offered to
prove the intent of the parties still leaves contractual terms fairly
susceptible to at least two rational interpretations, extrinsic
evidence relevant to prove either of these meanings is admissible
3. Greenfield v. Philles Records (New York Approach)
a. A written agreement that is complete, clear and unambiguous on
its face is the best evidence of the parties’ intent and must be
enforced according to the plain meaning of its terms
4. Academics use CA Approach, Lawyers use NY Approach
5. WWW Associates v. Giancontieri (New York Approach)
a. When a contract is unambiguous and complete, it will be enforced
according to its terms
6. Trident v. Connecticut General (California Approach)
a. Under California law, a contract must be interpreted in light of
any relevant evidence of the parties’ intent, including evidence
extrinsic to the written agreement itself, even if the agreement is
clear and unambiguous on its face
ii. The Use of Extrinsic Evidence of Commercial Context
1. Frigaliment v. BNS (Usage of Trade)
a. When the parties to a contract subjectively, but in good faith,
construe an ambiguous term differently, courts may look to
external factors to determine the proper interpretation of the
term
2. UCC § 1-303: Course of Performance, Course of Dealing, and Usage of
Trade
3. UCC § 2-202: Final Written Expression – Parol or Extrinsic Evidence
4. Hurst v. WJ Lake
a. Trade usage of a contract’s terms can be admitted to show
parties’ intent of a term
iii. Limits of Interpretation
1. Raffles v. Wichelhaus
a. There is no contract if there is a mutual misunderstanding by both
parties as to the meaning of a term of an agreement.
2. Oswald v. Allen
a. If the terms of an agreement are ambiguous there is no contract
unless one party knew of the other’s understanding or, even if
there is knowledge of the other’s understanding, there will be no
contract if the court can find no sensible reason to choose
between the two conflicting understandings.
3. Restatement § 20: Effect of Misunderstanding
a. (1) There is no manifestation of mutual assent to an exchange if
the parties attach materially different meanings to their
manifestations and
i. (a) neither party knows or has reason to know the
meaning attached by the other; or
ii. (b) each party knows or each party has reason to know the
meaning attached by the other.
b. (2) The manifestations of the parties are operative in accordance
with the meaning attached to them by one of the parties if
i. (a) that party does not know of any different meaning
attached by the other, and the other knows the meaning
attached by the first party; or
ii. (b) that party has no reason to know of any different
meaning attached by the other, and the other has reason
to know the meaning attached by the first party.
4. Colfax v. Local No. 458-3M
a. Where the parties to an agreement have conflicting
understandings of an essential term due to a mutual mistake or
latent ambiguity, and neither party is more to blame than the
other, the parties may rescind the contract
c. What Obligations does Contract Law Add to the Agreement?
i. Obligations from Commercial Context
1. Nanakuli v. Shell
a. Trade usage and course of performance will be implied into
contracts if there is evidence that it is not inconsistent with the
terms of the contract, and the purported trade usage is so
prevalent that the parties would have intended to incorporate
them
b. UCC § 2-202: Final Written Expression – Parol or Extrinsic
Evidence
c. UCC § 1-303: Course of Performance, Course of Dealing, and
Usage of Trade
2. Columbia Nitrogen v. Royster
a. Evidence of course of dealing and trade usage is admissible to
supplement and explain a contract as long as the proffered
evidence can be reasonably construed as consistent with the
terms of the written agreement.
b. UCC § 2-202: Final Written Expression – Parol or Extrinsic
Evidence
c. UCC § 1-303: Course of Performance, Course of Dealing, and
Usage of Trade
ii. Gap Filling
1. Implication: Court supplies a contract term to resolve dispute
2. UCC § 2-305: Open Price Term
3. UCC § 2-307: Delivery in Single Lot or Several Lots
4. UCC § 2-308: Absence of Specified Place for Delivery
5. UCC § 2-309: Absence of Specific Time Provisions; Notice of Termination
6. UCC § 2-310: Open Time for Payment or Running of Credit; Authority to
Ship Under Reservation
iii. Warranties
1. Koken v. B+V
a. The implied warranty of merchantability requires that goods sold
by a merchant are fit for their ordinary purpose and perform as an
ordinary purchaser would reasonably expect
b. UCC § 2-314: Implied Warranty – Merchantability; Usage of
Trade
2. Lewis v. Mobil Oil
a. The implied warranty of fitness for a particular purpose arises
when the seller knows the specific use or purpose that the buyer
intends for the purchased goods and knows of the buyer's
reliance on the seller's recommendation of the proper product
b. UCC § 2-315: Implied Warranty – Fitness for Particular Purpose
3. South Carolina Electric v. Combustion Engineering
a. A contract provision disclaiming warranties will be valid where the
negotiations between the parties were sufficient to alert the party
challenging the provision to the fact that warranties were
disclaimed under the provision.
b. UCC § 2-316: Exclusion or Modification of Warranties
c. UCC § 1-201(b)(10) defines Conspicuous
i. Conspicuous", with reference to a term, means so written,
displayed, or presented that a reasonable person against
which it is to operate ought to have noticed it. Whether a
term is "conspicuous" or not is a decision for the court.
Conspicuous terms include the following:
1. (A) a heading in capitals equal to or greater in size
than the surrounding text, or in contrasting type,
font, or color to the surrounding text of the same
or lesser size; and
2. (B) language in the body of a record or display in
larger type than the surrounding text, or in
contrasting type, font, or color to the surrounding
text of the same size, or set off from surrounding
text of the same size by symbols or other marks
that call attention to the language
4. UCC § 2-313: Express Warranties by Affirmation, Promise, Description,
Sample
a. Provides the “puffing” exception
iv. Obligation of Good Faith
1. Restatement § 205: Duty of Good Faith and Fair Dealing
a. Every contract imposes upon each party a duty of good faith and
fair dealing in its performance and its enforcement.
2. UCC § 1-304: Obligation of Good Faith
a. UCC § 1-201(b)(20) defines Good Faith
i. Good faith," except as otherwise provided in Article 5,
means honesty in fact and the observance of reasonable
commercial standards of fair dealing.
3. Dalton v. ETS
a. Implicit in every contract is an obligation on the parties to
perform the terms of the contract in good faith and with fair
dealing
4. Market Street v. Frey
a. Good faith means that a party may not take opportunistic
advantage in a way that could not have been contemplated at the
time of drafting, and which therefore was not resolved explicitly
by the parties
5. Bloor v. Falstaff
a. The purchaser of a business breaches its contractual obligation to
use its best efforts to maintain a high volume of sales if it fails to
make good faith efforts to maintain the volume of sales.
d. What Limits does Contract Law place on the Bargain and its Performance?
i. Unfairness
1. McKinnon v. Benedict
a. Where consideration for a bargain is so inadequate as to be
unconscionable and there is great inequity between the parties,
an equitable remedy cannot be used to enforce the agreement
against the oppressed party.
2. Tuckwiller v. Tuckwiller
a. Specific performance may be granted without considering the
adequacy of damages where the subject of the agreement is real
property and the agreement between the parties is fair when
viewed prospectively from the time of contracting
ii. Unconscionability
1. UCC § 2-302: Unconscionable Contract or Clause
2. Williams v. Walker Thomas
a. When an element of unconscionability is present at the time of
contract formation, the resulting contract is not enforceable
3. Jones v. Star Credit
a. An excessive price set forth in a contract may be found to be
unconscionable as a matter of law.
4. Federal Arbitration Act: States cannot discriminate against arbitration as
a method of dispute resolution
iii. Public Policy
1. Bovard v. American Horse
a. A contract otherwise legal, but which facilitates an illegal activity,
may be considered void as against public policy
2. XLO Concrete v. Rivergate
a. A contract, which on its face is legal and does not call for an illegal
act in the performance of the contract, is not voidable merely
because it arose from an antitrust conspiracy.
3. Hopper v. All Pet (Judicially Created Public Policy)
a. An employer seeking to enforce a covenant not to compete bears
the initial burden of proving that the covenant is reasonable and
is related to, and necessary for, the employer's business interest
4. Sheets v. Teddy’s Frosted Foods
a. An employer's retaliatory discharge of an at-will employee is
actionable if the improper reason for the discharge violates public
policy.
5. Simeone v. Simeone
a. A prenuptial agreement is enforceable as a contract without
consideration by the court as to its reasonableness
6. Baby M
a. Surrogacy contracts involving the exchange of money for a
binding agreement by the surrogate to surrender her child upon
birth are against public policy and void as a matter of law
iv. Standard Form Contracts and Boilerplate Terms
1. Restatement § 211: Standardized Agreements
a. (1) Except as stated in Subsection (3), where a party to an
agreement signs or otherwise manifests assent to a writing and
has reason to believe that like writings are regularly used to
embody terms of agreements of the same type, he adopts the
writing as an integrated agreement with respect to the terms
included in the writing.
b. (2) Such a writing is interpreted wherever reasonable as treating
alike all those similarly situated, without regard to their
knowledge or understanding of the standard terms of the writing.
c. (3) Where the other party has reason to believe that the party
manifesting such assent would not do so if he knew that the
writing contained a particular term, the term is not part of the
agreement.
2. Graham v. Scissor-Tail
a. In California, a contract of adhesion will be enforced against the
adhering party if its terms and conditions fall within the
reasonable expectations of the adhering party and the contract
overall is not unconscionable
3. O’Callaghan v. Waller & Beckwith
a. Exculpatory clauses in contracts are generally enforced provided
they do not violate settled public policy of the state and provided
the public interest in the relationship of the parties does not
militate against enforcement.
IV. How Does Contract Law Determine Whether a Party has Performed (or Breached) its
Obligation?
a. Express Conditions
i. Restatement § 224: Condition Defined
1. A condition is an event, not certain to occur, which must occur, unless its
nonoccurrence is excused, before performance under a contract
becomes due.
ii. Luttinger v. Rosen
1. A condition precedent must be met before performance by the parties is
required under a contract, and the contract will not be enforced if the
condition is not met.
iii. Gibson v. Cranage
1. If an express contract between seller and purchaser requires that the
article to be purchased meet the unqualified approval of the purchaser,
such approval is a condition precedent to the purchaser’s obligation to
pay.
a. Good Faith is also involved here because the parents had no
intent to defraud the artist
b. Constructive Conditions
i. Kingston v. Preston
1. When one party’s performance under a contract is dependent on the
prior performance of the other party, the other party’s performance is a
condition precedent and performance will be excused unless the
condition is satisfied.
a. 3 Types of Covenants:
i. Mutual and Independent Covenants: Require each party
to perform his or her obligation, irrespective of whether
the other party has performed (old)
ii. Conditional and Dependent Covenants: Condition the
performance of one party on the prior performance of the
other
iii. Mutual Conditions Have to be Performed Concurrently
ii. Stewart v. Newbury
1. Where a contract requiring performance of work does not specify the
timing of payment, then the work must be substantially performed
before payment is required.
a. This could be different under UCC §1-303: Usage of Trade
c. Substantial Performance
i. Substantial Performance: Judges install themselves as administrators of the
execution of contracts
1. Must be a Constructive Condition
ii. Jacob & Youngs v. Kent
1. If a party substantially performs its obligations under a contract, that
party will not be forced to bear the replacement cost needed to fully
comply with the agreement but instead will owe the non-breaching party
the difference in value between full performance and the performance
received.
a. Dissent believes you should get what you bargain for
iii. UCC § 2-601: Buyer’s Rights on Improper Delivery
1. Perfect Tender Rule: A buyer was entitled to reject the goods unless the
seller made a “perfect tender”
a. Goods just have to be merchantable (fair, average quality), not
actually perfect
2. Similar to Dissent in Jacob & Youngs v. Kent
iv. UCC § 2-612: “Installment Contract”; Breach
1. Similar to Cardozo’s Majority Approach in Jacob & Youngs v. Kent
v. UCC § 2-508: Cure by Seller of Improper Tender or Delivery; Replacement
1. Limitation on the Perfect Tender Rule
2. Gives a seller whose goods were rejected under § 2-601, a second chance
to get it right under two circumstances
a. 1. Where tender/delivery by seller is rejected because the goods
didn’t live up to the contract and time for performance has not
yet expired
b. 2. Kicks in even if seller performed at the deadline and seller had a
reasonable grounds to believe that the goods would be
acceptable to the buyer
d. Divisibility
i. One Contract accomplishes a lot of things
ii. Gill v. Johnstown Lumber
1. When parties agree that payment for delivered goods will be made on a
per-unit basis, performance of that obligation is severable and
compensation can be had for units which are delivered, even if full
performance is not accomplished.
a. Buyers still have to pay the value of what they keep from the deal
in these instances
e. Anticipatory Repudiation
i. Repudiation: A party’s language must be sufficiently positive to be reasonably
interpreted to mean that the party will not or cannot perform
ii. Anticipatory Repudiation: Occurs before the time the performance has arrived
iii. Hochster v. De La Tour
1. When one party to an agreement is informed by another party to the
agreement that the second party intends to breach the agreement, the
first party has an option to file suit for damages immediately in
anticipation of the breach, or to wait until the act was supposed to be
done.
2. Doctrine of Repudiation
a. If one party repudiates their obligations under a deal, two
consequences follow:
i. If you are the innocent party, you can sue now without
having to wait
ii. The innocent party is now free from contractual obligation
iv. UCC § 2-610: Anticipatory Repudiation
1. Official Comment 1: Anticipatory repudiation centers upon an overt
communication of intention or an action which renders performance
impossible or demonstrates a clear determination not to continue with
performance
v. McCloskey & Co. v. Minweld Steel Co.
1. Renunciation equivalent to a breach of contract does not occur unless
there is an unequivocal and absolute refusal to perform the contract or a
distinct and positive statement by the party charged with the
renunciation that he is unable to perform the contract.
vi. Kanavos v. Hancock Bank & Trust
1. A plaintiff can only recover nominal or small damages against a
defendant who repudiated a contract, where it would have been
impossible for the plaintiff to perform a contractual obligation arising
shortly after the defendant's breach.
a. A repudiating seller is not liable in damages to a buyer who could
not have carried out his end of the bargain
f. Assurance of Due Performance
i. A contract imposes an obligation on each party that the others’ expectations of
receiving due performance will not be impaired
ii. UCC § 2-609: Right to Adequate Assurance of Performance
1. Need a reasonable grounds for insecurity
2. If you are the “nervous” party and don’t want to take the chance on
saying it is repudiation, § 2-609 helps resolve it
a. Subsection (4) says that if you don’t get assurance, it is now
repudiation
iii. By-Lo Oil Co. v. Partech
1. Under Michigan’s Uniform Commercial Code, a party to a contract may
demand written assurance from the other party that performance will
occur if there are reasonable grounds to believe that performance is not
likely.
V. What Remedies Does Contract Law Provide for the Aggrieved Party if the Other Party Has
Breached?
a. Specific Relief
i. Restatement § 357: Availability of Specific Performance and Injunction
1. Subject to the rules stated in §§ 359- 69, specific performance of a
contract duty will be granted in the discretion of the court against a party
who has committed or is threatening to commit a breach of the duty.
2. Subject to the rules stated in §§ 359- 69, an injunction against breach of a
contract duty will be granted in the discretion of the court against a party
who has committed or is threatening to commit a breach of the duty if
a. the duty is one of forbearance, or
b. the duty is one to act and specific performance would be denied
only for reasons that are inapplicable to an injunction.
ii. Restatement § 359: Effect of Adequacy Damages
1. Specific performance or an injunction will not be ordered if damages
would be adequate to protect the expectation interest of the injured
party.
2. The adequacy of the damage remedy for failure to render one part of the
performance due does not preclude specific performance or injunction as
to the contract as a whole.
3. Specific performance or an injunction will not be refused merely because
there, is a remedy for breach other than damages, but such a remedy
may be considered in exercising discretion under the rule stated in § 357.
iii. Restatement § 360: Factors Affecting Adequacy of Damages
1. In determining whether the remedy in damages would be adequate, the
following circumstances are significant:
a. the difficulty of proving damages with reasonable certainty,
b. the difficulty of procuring a suitable substitute performance by
means of money awarded as damages, and
c. the likelihood that an award of damages could not be collected.
iv. Campbell Soup Co. v. Wentz
1. Specific performance may be awarded for the sale of chattels when a
legal remedy would be inadequate.
v. Klein v. PepsiCo
1. Where damages can be recovered and are adequate to remedy the
breach, specific performance may not be awarded.
vi. Morris v. Sparrow
1. Equity will not use the remedy of specific performance to enforce a
contract for the sale of chattels unless special circumstances exist which
make it impossible for the party to recover damages in an action at law.
vii. UCC § 2-716: Buyer’s Right to Specific Performance or Replevin
viii. UCC § 2-709(1)(b): Action for the Price
b. Expectation Damages
i. Restatement § 347: Measure of Damages in General
1. Subject to the limitations stated in §§ 350-53, the injured party has a
right to damages based on his expectation interest as measured by
a. the loss in the value to him of the other party's performance
caused by its failure or deficiency, plus
b. any other loss, including incidental or consequential loss, caused
by the breach, less
c. any cost or other loss that he has avoided by not having to
perform.
ii. UCC § 2-703: Seller’s Remedies in General
iii. UCC § 2-706: Seller’s Resale Including Contract for Resale
iv. UCC § 2-708: Seller’s Damages for Non-acceptance or Repudiation
1. Subsection (2) picks up on the problem in the lost-volume seller situation
v. UCC § 2-709: Action for the Price
vi. UCC § 2-712: “Cover”; Buyer’s Procurement of Substitute Goods
1. Laredo Hides v. H&H Meat Products
a. Under the Uniform Commercial Code as enacted in Texas, a buyer
may recover as damages the difference between the cost of cover
and the contract price, unless the breaching seller meets its
burden of proving that cover was not properly obtained.
vii. UCC § 2-713: Buyer’s Damages for Non-delivery or Repudiation
c. Restitution
i. United States v. Algernon Blair
1. A subcontractor who justifiably ceases work under a contract because of
the prime contractor's breach may recover in quantum meruit the value
of labor and equipment already furnished pursuant to the contract
irrespective of whether he would have been entitled to recover in a suit
on the contract.
d. The Special Case of Substantial Performance and the Cost of Completion
i. Plante v. Jacobs
1. There is substantial performance when the completed performance
meets the essential purpose of the contract, unless the parties
specifically made the specifications of performance the essence of the
contract.
ii. Groves v. John Wunder (Breacher Owes the Higher Amount)
1. Damages for willful breach of a construction contract, even where there
has been substantial performance are awarded as the cost of completing
the failed performance.
iii. Peevyhouse v. Garland Coal & Mining (Only Diminished Value Owed)
1. Regardless of any agreement of the parties, damages awarded for breach
of an agreement to perform remedial work on property should normally
be measured by the reasonable cost of performance of the work; but,
when the contract provision breached is merely incidental to the main
purpose in view and where the economic benefit which would result to
the owner from full performance is grossly disproportionate to the cost
of performance, damages should instead be limited to the diminution in
value resulting to the premises because of the non-performance.
e. Limitations Based on Avoidability
i. Avoidability: Injured party is precluded from recovering for loss that could have
reasonably been avoided
ii. Rockingham County v. Luten Bridge Co.
1. When a non-breaching party in a contract for services receives notice of
another party’s breach, the non-breaching party must treat the contract
as broken when notice is received, cease performance, and sue for any
losses sustained from the breach as well as profits that would have been
realized upon performance.
a. Luten could have mitigated the damages by stopping construction
when told to
iii. Parker v. Twentieth Century-Fox Film Corp.
1. The measure of recovery by a wrongfully discharged employee is the
amount of salary agreed upon, less the amount which the employee has
earned or with reasonable effort might have earned from substantially
similar employment.