CONTRACT OUTLINE E&E

Paul Haagen | Fall 2014

INTRODUCTION: CONTRACT
I. What is a contract?
A. Meaning of Contract (k)
i. Relationship made by oral or written agreement by two or more persons
a. act with free will and intent to be bound and agreement
b. Freedom to contract as essential in the United States: economic efficiency
c. Imbalance of bargaining power and adhesion as a factor weighed
ii. Exchange relationship
a. act of something for another, promises of economic value that are
reciprocal
iii. At least one promise: something is foregone for something
iv. It is enforceable:
a. courts tend to be averse to force enforcement of a privately
ordered system like contract and in choosing remedies
b. burden of proof is on the party seeking enforcement
B. Development of Contract Law
i. Origins
a. Mostly based on precedent, not codified for the most part (judges mostly)
b. Influenced by Law & Society: social theories that should influence law
Legal Realism: dynamics of legal process, looser more flexible
approach to the law; most prevalent view today
Law & Economics: Economic principles such as economic
efficiency; facilitation of exchanges in the free market, conduct not
to be regulated as a means of social engineering
c. Equity and Law: was once dual system, not incorporates both, remedies
ii. The Uniform Commercial Code (UCC)
a. Only look at Article II which deals with the sale of goods, etc. in contract
b. The UCC has been enacted by most states in the same form
c. UCC applies when it is: “a sale consists in the passing of title from the seller
to the buyer for a price” UCC S.2.106(1)
1. Goods: livestock, manufactured goods, livestock and crops,
real property does not count; shares in a Corp. do count
2. Does not apply to leasing or gifts
3. Merchant status does not apply, do not care about parties
iii. Restatement (Second) of Contract
a. Secondary authority used as persuasive in contract
b. Note that in the transnational and civil code system the law-equity
distinction of favoring damages over specific performance is not present
as it is in CL
iv. Precedent and Case Law
a. Judicial decisions are vital in contract and create the rule of law; binding
later cases through “stare decisis” or decision stands
b. Advantages of a system are efficiency and predictability and fairness but
also leads to more sporadic dev. of law than with codification
c. Rationale of rules and decisions in:

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 1. Public Policy considerations: social, economic or political policy
2. Ethics or fairness: focus on some asymmetry or injustice
3. Institutional Efficiency: Avoiding litigation that is undue

OFFER AND ACCEPTANCE

I. The Objective Test: Offer and Acceptance

A. Assent
i. Agreement requires communication—the intent to enter into the contract must be
signaled by each of the parties through words and actions that are observed and given
meaning by the other
ii. Objectivity Test
a. Classical contract: if agreement was apparent from the manifestations of assent,
reasonably interpreted, a contract had been formed on the terms reflected in the
manifestation
b. Less stringent now, evidence of party’s state of mind may sometimes be helpful in
interpreting or giving a context to words or conduct, provided that the subjective
evidence is credible and compatible with the overt behavior
iii. The duty to read something assented to lies with the offerree (this is not grounds to void
assent) and holds true for electronic assent
iv. Lack of Serious Intent: Jokes and Bluffs
a. Lucy v. Zehmer (Va. 1954)
1. Court found that Lucy was in earnest and under the objective est. there
was not reason that Zehmer did not intend to sell his property, regardless of
the fact that he claimed it was a joke
b. Leonard v. PepsiCo, Inc. (S.D.N.Y. 1999)
1. Pepsi conducted a promotional campaign in which Pepsi points could be
traded in for prizes that included a “Harrier fighter for 7M points”; Leonard
sent in 15 Pepsi points and a check for $700,000 to cover the rest to earn the
jet
2. Court agreed that no reasonable person could have understood the
commercial to be a serious offer of a jet, but would have realized it was a
comical flourish; the $23M jet could also not be seen as seriously purchased
for the $700,000 offered
B. Application of the Rules of Offer and Acceptance
i. Basic Offer and Acceptance Model
a. The offeror makes an offer to another (offeree) to enter into a contract on
specified terms
b. Offer creates the power of acceptance in the offeree so that he can bring the
contract into existence by signifying acceptance of the transaction on the proposed
terms
ii. Rules under UCC Article 2
a. §2.204 court should focus on the existence of agreement between parties,
whether shown by words or conduct, and if agreement is apparent should uphold
the contract aside from technicalities
b. §2.206 technical rules on medium of acceptance and emphasis that an offer
should be interpreted as inviting acceptance by any reasonable mode unless it is
clearly restrictive
iii. Restatement §24 distinguishes offer from a preliminary proposal:
a. must be manifested
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 b. must indicate desire to enter into a contract,
c. offer must be directed as a person or persons,
d. the offer must invite acceptance and;
e. must engender reasonable understanding
iv. Indicators that something is an offer rather than a preliminary proposal:
a. Words used are always the primary indicators of what was intended
b. A communication that omits significant terms is less likely to be an offer
c. The relationship between parties and any previous dealings may help
d. Reasonable understanding factors in common practices or trade usages
v. Advertisements as Offers
a. Legal effect of advertisement depends on its intent as reasonably understood by P.
If clear and defined and leave nothing open to interpretation then an offer
b. Lefkowitz v. Great Minneapolis Surplus store, (Minn. 1957); advert of fur coats
worth $100, first come first serve for $1 but offer was then est. as “house rule” to be
for women only; the male plaintiff was still entitled since as read it was clear
C. Duration and Expiration of Offer by Passage of Time
i. In deciding what is reasonable time for an offer to expire, can ask what amount of time
would be needed to receive, consider, and reply to the offer under all the circumstances of
the transaction
ii. Restatement §36 est. that stated or reasonable duration should be thought of as the
longest period that an offer can remain open but can be terminated under circumstances
defined as :
a. Rejection: once rejection has been communicated the offeree cannot recant the
rejection and accept because the offer has come to an end
b. Counteroffer: A counteroffer terminates the previous offer and modifies anew
c. Death or Mental disability of the offerror: before acceptance these terminate
offer
d. Revocation: offeror has the power to revoke the offer at any time before
acceptance by the oferee and is effective when communicated
1. Direct Revocation of the offer by notifying
2. Indirect Revocation: court in Dickensen v. Dodd (1876) held that when
Dickensen heard from a third party that Dodd had offered and agreed to sell
to somewhere else and was aware that the indirect information counted as a
revocation of the offer
D. Problems with Acceptance
i. Inconsisttency and counteroffer:
a. “Mirror Rule”: the acceptance that is altered must correspond exactly with the
offer
b. But modern courts tend to be somewhat more flexible and treat a response as a
counteroffer only if it has a material discrepancy form the offer
ii. In acceptance the substantive terms are central, go to the heart of the relationship and
are the offeror’s dominant concerns. The instruction for acceptance are ancillary to the
offeror’s principal purpose of securing a contract
iii. Inadvertent acceptance: requiring knowledge of the offer protects from being held to
an inadvertent manifestation of acceptance—unless offeree desires the acceptance
iv. Acceptance by silence or inaction: the offeror cannot impose a duty on the offeree to
take some affirmative step to reject the offer, making failure to act an acceptance; except:
a. Silence is acceptance if offeror proffers prop. or services with the offer and the
offeree having reasonable opportunity to return or refuse them, exercises
ownership rights over the property or accepts the benefits of the service
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 b. Silence is acceptance if prior dealings between the parties or other circumstances
make it reasonable for the offeror to expect offeree to give notice of rejection
v. The Mailbox Rule
a. If acceptance by mail is permissible, acceptance occurs as soon as the offeree
deposits properly stamped and addressed acceptance in the mailbox; burden on the
offeree to prove proper dispatch, good record of mailing ad evidence is required as a
result
b. Mailbox rule does not apply if the acceptance follows a counter-offer or rejection;
c. rejection must arise before acceptance, otherwise it is considered ineffective
d. In electronic media, Restatement §64 holds that instantaneous communication
like telephone, or other media is the same as if the parties were working together
E. Acceptance by Promise or Performance
i. Bilateral Contracts
a. The offeror has the power to prescribe the time, effective date, and method of
acceptance but also in manifest action in acceptance
b. Bilateral contracts are those in which both parties have outstanding promises to
be performed in the future (promise to pay and then promise to convey something
for example)
ii. Unilateral Contracts
a. Offeree’s consideration under the contract is furnished in full immediately upon
acceptance, and the offeree has not further duty under the contract; only one party
has an outstanding offer
iii. In cases where commencing performance is considered the creation of a bilateral
contract; ex. promise to pay for cleaning up, when beginning the work tends to prove
acceptance
iv. Reverse unilateral contracts occur when the offeree accepts by promise, but the
offeror’s performance occurs and is completed at the instant of contract formation
F. Irrevocable Offers: Options and Firm Offers
i. Options and Consideration
a. Option is a promise to keep an offer open for a stated period of time; offeror
makes a binding commitment not to revoke the offer for a specified period; allows
offeree to have set time to consider and respond without risk of withdrawal by
expiry date
b. Dickenson v. Dodds (Ct. of App, Chancery, 1876)
1. Court held that Dodds was legally before its expiry date because Dickenson
had not given consideration for Dodd’s promise to keep the offer open
2. Holding: Offeree has to give something to the offeror; basic requirement
that grantee must “pay” for the option by the transferring or promising
money or other property or by sacrificing a legal right in exchange for the
promise to keep the option open
c. Restatement §87(1)(a): option is valid if in writing, is signed by the grantor,
recites a purported consideration for the offer, and purpose on exchange on fair
terms within a reasonable time
d. To accept an irrevocable offer, the offeree must communicate acceptance to the
offeror within the option period; “mailbox” rule does not apply to acceptance of a
valid option, so the acceptance is effective only on receipt.

STANDARD FORM CONTRACTS AND CONTRACTS THROUGH ELECTRONC MEDIA

I. Issues with Forms and Standard Form Contracting

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 A. Standard terms raise questions about whether a contract was formed, or if, it was whether
particular terms actually became part of the contract
i. Box-top terms: buyer should reasonably see the return policy
ii. Shrink-wrap terms: terms inside the box, in this case generally not accepted to modify
terms after the agreement has been put into motion
iii. Click-wrap terms: terms available at time of contract, duty to read them, valid if visible
iv. Browsewrap terms: set on a website available to be read before submitting an order,
lacks the requirement to click “I accept” and therefore lacking affirmative conduct is nto as
enforceable
B. Conspicuousness, Notice, and Reasonable Expectations
i. Reasonable expectations: courts are more likely to enforce standard terms that are fair
and reasonable to expect
ii. Conspicuousness and Notice: the court will deem a person to have notice of terms and
assent if it is conspicuous, courts will at times take into account sophistication of parties,
etc.
a. Specht v. Netscape, 2d Cir., 2002: court refused to uphold a browsewrap
agreement on the grounds that is was not sufficiently brought to the notice of the
offeree (the terms were on a separate page when you downloaded)
b. Feldman v. Google, ED-Pa., 2007: held that the court would uphold the agreement
because assent had been manifested by clicking “I agree”
iii. Arbitration clauses: parties agree to arbitrate any disputes out of their contract,
foregoing right to litigate disputes in court and have the dispute resolved by arbitration;
generally uphold these agreements
iv. Forum selection clauses: parties agree in advance to have disputes resolved in specific
jurisdictions; challenge can succeed in circumstances that excuse duty to read or
demonstrate unfair
C. Adhesion and Unconscionability in Standard Contracts
i. Contract of adhesions: take-it-or-leave it basis by parties makes the agreement one of
adhesion by a party with the market power to refuse contract
a. unconscionable if the contract or term is imposed on the party by unfair means
D. “Cash Now, Terms Later”: Deferred Communication of Terms and Rolling Contracts
i. Deferred Communication of Terms: terms exist even though they are not actually
mentioned in the offer; drafted the terms with any transactions subject to same terms
ii. Rolling Contracts: in a rolling contract final assent it deferred until after the non-
drafting party has a chance to read the terms
iii. For modification of standard terms, assent is not manifest by simply continuing to use
service; a clear and separate notice must be made
II. Battle of the Forms and UCC §2.207
A. Formation and Confirmation under UCC §2.207
i. Brought into force when there is conflict or disparity between terms contained in the
written communications
ii. Purpose is to resolve the question of whether a contract was formed despite the
disparity in offer, response and conflict [Battle of the Forms]
B. “Mirror Image” and “Last Shot” Rules
i. Former rule was the “Mirror rule” in which parties intended a contract, and contract
precluded by discrepancy this is why §2.207 was drafted to deal with this issue
ii. “Last Shot” rule dominates here in which contract found on the terms of the party who
sent the last communication before performance
C. Offer and Acceptance under §2.207
i. Offer est. and concentrates on whether or not the response is an acceptance
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 ii. Not an acceptance if not definite or if sent after the offer time has lapsed or if expressly
states the acceptance as conditional on assent to new terms (this would be a rejection or
counteroffer)
iii. If the response it not an acceptance it is a rejection which terminates negotiation or a
counteroffer
D. Grounds for excluding proposals from the contract
i. Additional terms do not become part of the contract unless the parties are merchants
ii. Terms do not enter a contract if it materially alters the contract
iii. Term does not enter the contract if the offer limits acceptance to its terms
iv. Term does not enter the contract if the offeror objects
E. Written Confirmation following an oral or informal contract
i. Subsequent writing cannot be an acceptance conditional or otherwise, the process of
acceptance has already been concluded

CONSIDERATION DOCTRINE

Consideration is an essential element of contract, and a promise is not recognized or enforced as

contractual unless consideration has been given for it

I. Essence and Scope of Consideration

A. Consideration: Detriment and Benefit
i. Idea of consideration is that if the promisee suffers a detriment by giving up property,
money or some legal right, the receipt of the detriment translates into a benefit to the
promisor
ii. Detriment: any relinquishment of a legal right, take the form of an immediate act, a
forbearance, or the partial or complete abandonment of an intangible right
iii. Hamer v. Sidway (1891), uncle promised nephew $5,000 if he refrained from drinking,
smoking, swearing and gambling until he turned 21; court enforced the contract against the
estate—his abstention was a sufficient detriment
iv. Benefit plays an evidentiary role
B. Bargained for Exchange
i. Performance or return promise must be bargained for to constitute consideration
C. Detriment and “Pre-Existing Duty”
i. Rule is that the performance of, or promise to perform, a pre-existing duty is not
consideration
ii. When a modification of an existing contract has been coerced, the court can employ the
pre-existing duty to rule the unfair modification void
iii. For the sale of goods UCC §2.209 states that an agreement modifying the sale of goods
needs not consideration to be binding
iv. In light of supervening difficulty, modification requiring consideration is not applied
C. Consideration in a n Agreement to settle a disputed claim or defense
i. In case of dispute over debt, and agreement between parties is supported by
consideration because by compromising the dispute, each of them has given up a right:
each is forbearing some aspect in the claim
ii. Test for legitimacy is based on Restatement, Second, §74:
Claim an objective or subjective standard in which the defense to settlement must be
objectively reasonable or the party asserting the claim or defense must have the honest
belief in its merits
D. Measurement of Detriment: Adequacy of Consideration
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 i. Generally courts are not concerned with adequacy of consideration; need not be equal
value; once court finds consideration it does not second guess the
ii. They do look into the disparity as a result of underhanded bargaining or justifiable
mistake
E. The Quality of a promise of Consideration: “Mutuality of Obligation,” Illusory, Conditional and
Alternative Promises
i. Mutuality requires that both parties must be bound, or neither is bound
ii. Wood v. Lucy, Lady Duff-Gordon NY, 1917: obligation to use best efforts to validate
exclusive dealing contract between Lucy and he business agent, court found that Lucy’s
grant of an exclusive agency necessarily gave rise to the implication that Wood was obliged
to use best efforts in generating profits
iii. Mutuality in output contracts requires that when the seller wishes to dispose of its full
production in one transaction, and the buyer is confident that it can use all that the seller
can supply; better suited if it knows that it can use everything that the seller produces
iv. Disproportionality standard is an objective measure that prevents the buyer in a
requirements contract or the seller as an output contract from demanding or tendering a
quantity of goods that is disproportionate to an estimated or historic requirement or
output; UCC §2.306 is only applicable to increases in demand or output
v. “Good faith” “honesty in fact” and “the observance of reasonable commercial standards
vi. Conditional promises requires that the contingency is genuine

Promissory Estoppel [Basis for enforcing a promise, no consideration but some reliance ]

I. Promissory Estoppel
A. Nature of Promissory Estoppel
i. §90 of Restatement, Second defined as a promise coupled with detrimental reliance on
that promise.
ii. Not a doctrine for when a contract is formed, if there is not contract then can be turned
to as an alternative basis to find contractual liability
iii. Equitable estoppel is not based on fraud but on accountability for deliberate words or
conduct that induced reliance and consequence detriment: promisor was estopped from
asserting a lack of consideration for the promise, consideration deemed to be present
B. Situations where promissory estoppel can be applied:
i. A promise made for good consideration that is not enforceable because of noncompliance
with legal formality such as the statute of frauds
ii. Upholding a party to a promise made during negotiations for an abortive contract
iii. Reliance on a promise that falls short of becoming contractual because of some defect or
omission in the agreement formed by the parties
C. Elements of Promissory Estoppel: these factors are taken into account to est. ***
i. A promise that was made by the promisor with the reasonable expectation that the
promisee would rely on it
ii. The promise did in fact induce the promisee’s action or forbearance (reasonably)
iii. The enforcement of the promise is necessary to avoid injustice
a. based in equity, the court attempting to achieve a fair result
iv. The remedy may be limited as justice requires
II. Remedy for Promissory Estoppel
A. Remedy
i. The court can grant the promisee full contractual relief or one based on reliance
damages to reimburse for actual loss or expense incurred for relying on the promise
ii. Conrad v. Fields, Minn. App. 2007
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 a. wealthy man encouraged friend, to attend law school and promised to pay for her
tuition; he then claimed financial difficulties
b. Conrad sued under promissory estoppel for reimbursement of the tuition, court
awarded her the damages because she had left her job and taken on debt in reliance
III. Promissory Estoppel in Other Contexts
A. Promissory Estoppel as a means of enforcing promises made in negotiations
Promises during negotiations are not typically enforceable under the doctrine of promissory
estoppels, in some cases a party really does make precontractual commitments on which the other
party reasonably places compensable reliance
i. Hoffman v. Red Owl Stores, Inc. Wisc., 1965
a. Hoffman approached Red Owl to set him up with a grocery franchise, encouraged
to take a series of actions to open a store; negotiations collapsed after Red Owl had
not been open about finances
b. Hoffman was awarded his wasted reliance expenses, not lost profits
B. Promissory Estoppel and At-Will Employment Agreements
i. Employment is default at-will in common law unless the parties agree to a definite term
or agree that employment cannot be terminated except for cause or following a specific
period of notice
ii. Employee is promissory estoppel cannot get damages based on expected salary,
damages would be limited to moving expenses
C. Promissory Estoppel with Options
i. Must est. that:
a. Must have a promise
b. Must reasonably have expected would rely on its promise (reasonable standard)
c. Must have relied justifiably on the promise
D. Enforcement of the promise must be necessary to avoid injustice
ii. If all four are satisfied then the remedy is the enforcement that the option not be revoked
iii. James Baird Co. v. Gimbel Bros., Inc. 2d Cir., 1933: court refused to adopt promissory
estoppel to make subcontractors bid irrevocable
iv. Drennan v. Star Paving Cal., 1958: court saw not reason to confine the doctrine to
donative promises but recognized the protection of justifiable reliance as a general value of
the law

UNJUST ENRICHMENT [RESTITUTION AND “MORAL OBLIGATION]

I. Unjust Enrichment
A. “Quasi-Contract” as the basis for unjust enrichment
i. When a claim is not based on contract but on the grounds of unjust enrichment we have a legal
fiction known as a quasi-contract; remedy based on contract implied in law
ii. When benefit has been conferred on a recipient under circumstances in which it is unfair to
permit him to retain it without payment, the cause of action is unjust enrichment***
iii. By est. a claim of unjust enrichment can then claim restitution
B. Elements of Unjust Enrichment
i. Recipient must have been enriched by an economic benefit at the expense of the claimant
a. usually a result of direct passage from one to the other
ii. Circumstances that make the enrichment unjust
a. claimant must not have intended to confer the benefit gratuitously, and;

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 b. must not have been imposed on the recipient
iii. Measurement of Benefit
a. Restitution is provided as the recipients gain, not the expectation of loss
b. Market value of the benefit: based on testimony from an expert and is the preferred
measure of recovery, most balanced.
c. Recipient’s ultimate net fiscal gain is an alternative measurement
d. Other factors in measuring recovery:
1. Court may select the lowest measure of relief where there is some fault on the
part of the conferrer
2. If one measure is disproportionately large or small, fairness or reasonable
community expectations may require it not to be selected
3. Dishonest or improper conduct by the beneficiary can result in the highest
measure being used
4. In some cases discretion is the best alternative
C. Moral Obligation and Material Benefit Rule
i. In the absence of consideration, an obligation cannot be enforced as a contract even if it is
morally binding
ii. Situations in which the court has applied the doctrine of “moral obligation”
a. A debt barred by the statute of limitations: the legal effect of expiry of the
limitation period is not the elimination of the claim, only of the right to sue on it
b. A debt discharged in bankruptcy: when a debtor becomes bankrupt, her
prebankruptcy debts are usually paid only in part by a distribution form the
bankrupt estate; but this doctrine validates a later promise of the debtor to pay the
discharged debt
c. A voidable debt: a voidable debt is one that can be avoided by the debtor because
of some defect in formation such as fraud or mistake, or lack of contractual capacity;
if ratified by a party even after under moral obligation can be upheld
iii. The Material Benefit Rule
Webb v. McGowin Ala. 1935
a. Facts: in gratitude for diverting a bock from crushing McGowin, Webb was
promised a life pension for several years until his death; Ds estate discontinued
payment
b. Holding: McGowin’s estate had a “moral obligation” (adopted in Restatement,
Second §86) to Webb because of following requirements :
1. The promisor has been unjustly enriched by a benefit previously received
from the promisee
2. The benefit was not given as a gift
3. The promisor is not binding to the extent that its value is disproportionate
to the benefit
4. The promisor subsequently makes a promise in recognition of the benefit
5. If all satisfied, the promise is binding to the extent necessary to prevent
injustice

INTERPRETATION AND CONSTRUCTION: RESOLVING MEANING AND DEALING WITH

UNCERTAINTY IN AGREEMENTS

I. Interpretation to Ascertain the meaning of an Agreement: Interpretation and Construction

A. What is the meaning in the contract? Restatement, Second §200 describes it as the
ascertaining of meaning of a promise or a agreement; evaluation of facts (that is, evidence of what
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the parties said and did and the circumstances surrounding communications
B. Interpretation as a Question of Fact of Law
i. Where interpretation involves the determination of meaning by the evaluation of
evidence, it is most appropriately performed by the finder of fact (the jury)—if it is a
question of the meaning in words then the judge determines it (in interpretation) a
legal question
ii. The evidence used in determining such questions: ***
a. Actual words of agreement [Given greatest weight as per Restatement, §203]
UCC §1.303(e) and §2.208 give greatest weight to these express terms
b. Context of the inquiry (conduct of parties during negotiations)
History of communications of the parties
c. Conduct after the contract was entered into (performance)
Conduct once agreement begins may be used as to what was intended under
indefinite terms (UCC §1.303(e) and §2.208)
1.Performance must be pertinent to question of interpretation
2. Conduct must show that the party performed or accepted w/o protest
3. Conduct by only one of the parties but not known by the other does not
prove
4. Extensive or repetitious conduct = stronger inference that interpretation is
what was intended by parties
d. Conduct in prior comparable transactions (course of dealing) only if similar
e. Customs of usage of the market (trade usage); UCC §1.303 does not limit to the
same industry, Test for trade usage:
1. Define the trade or market with which the transaction is associated
2. Prove (expert testimony) that the usage actually exists in the trade
3. Show the usage is pertinent to the dispute in matters that they dispute
4. Show that the usage is consistent with the express terms of agreement
iii. Frigaliment Importing Co. v. International Sales Corp. S.D.N.Y., 1960 [INTERPRATION]
a. Interpretation issue in which the contract called for the sale of “chicken”; seller
denied breach by delivering stewing chickens, even though the buyer contended
that the larger chickens were of lower quality and not what they wanted
b. Court held that they had to move beyond the generic word of “chicken”, experts
called in, failed to find a common intention so the buyer lost because it failed to
prove that the word was used in the narrow sense that it alleged
iv. Nanakuli Paving v. Shell Oil, Co. (9th Cir. 1991) [TRADE USAGE INTERPRETATION]
a. Illustrates inquiry into the appropriate market, the court defined the scope of the
paving trade broadly to include not only paving contractors but also asphalt
suppliers because the suppliers had a close relationship with the pavers and should
have known of the usage
b. price protection in the case was not inconsistent with intent of the parties
B. Rules of Interpretation
i. Court should try to interpret an agreement in a way that gives effect to all its terms
ii. Unless context indicates otherwise, words used in a contract should be given ordinary,
general or law meaning rather than a specialized or technical meaning
iii. The thing should rather have effect than be destroyed ( if one interpretation makes the
contract invalid and another would validate it, the one that validates it is given weight
iv. Specific or precise provisions should be given greater weight than general provisions
v. When an agreement consists of both standardized and negotiated terms, the negotiated
terms resolve them
vi. When specific and general words are connected, the general word is limited by the
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 specific one, so that it is deemed to refer to things of the same kind
vii. The expression of one thing excludes another
viii. When one party has drafted the selected language of an unfair provision, the meaning
is preferred that favors the other party

II. Gap Fillers for Intent

A. Gap Fillers
i. A gap filler is a provision legally implied into a contract to supplement or clarify its language
ii. Purpose is to supply logical inference of terms
iii. They are in many ways drawn from usage
B. Gap Fillers that Supply General Obligations
i. When a contract does not clearly specify a level of performance but it is clear that the parties’
purpose can be achieved only if the obligor puts some energy and dedicated efforts his is a general
obligation
ii. Applies to any type of contract under which the grantor of a license, distributorship, or
dealership relies on conscientiousness of the grantee to market a product effectively
iii. These are vague, and based on “best efforts” unifying purpose often must be looked into
C. Gap Fillers that Supply More Specific Rights and Duties
i. There are many, these are based on specifics of the contract
ii. Example include, at-will employment, requirement of concurrent action for simultaneous
exchange [ALL OF THESE ARE FILLED INTO THE CONTRACT]
iii. Number of them are expressed in statute regardless of whether they are written into K
a. UCC §2.312, 2.314 and 2.315 imply minimum warranties that a seller makes
b. UCC §2.305 infers reasonable price unless the apparent intent of K is otherwise
c. UCC §2.307, 2,.310 assume payment must be made on delivery of goods
d. UCC §2.307, 2.308 and 2.309 require that goods be delivered at a single lot in reasonable
time
e. UCC §2.306(1) implies both a good faith and reasonableness obligation on the party who
is to determine the quantity of goods ordered or supplied, §2.306(2) imposes best efforts
on both parties when they deal exclusively with one another
D. Supplementary Terms that Cannot be Excluded from the Agreement
i. Some legally applied terms are so strongly demanded by public policy that the are mandatory
and are a part of the K regardless of actual intent
ii. General obligation of good faith and fair dealing (UCC §1.304 and Restatement §205); would
preclude a party from taking advantage or malicious moves to drive the other out of business
iii. Some terms are always construed to not be contracted out; such as certain warranties
E. The Problem of Indefiniteness in an agreement
i. When the agreement suffers from large uncertainty or ambiguity
a. Rule is that no contract comes into being if a material aspect of the agreement is left
indefinite, but interpretation can resolve this problem
b. Must be incurably uncertain with some terms to trigger interpretation and must be
material (important component of agreement)
ii. Different causes of indefiniteness:
a. Vague Terms: issue when words used are so obscure that the meaning cannot be on its
face, wording must convey concrete terms
b. Ambiguity: ambiguous if more than one meaning can be applied (like in Frigaliment)
C. Omitted Terms: intent must be looked at to determine of the agreement as a whole
D. Unresolved Terms and “Agreement to Agree”: leaving some terms to be resolved at
later time causes some indefiniteness
1. In these cases the court will use an objective standard
11
 2. Formula used by the court requires that it be reasonable
3. Court may also leave the determination of an open term to the discretion of one of
the parties in the K
iii. Curing Vagueness or Ambiguity
a. Contextual evidence can be used to prove intent of the parties such as what they say etc
b. “Four corners” approach can be used by the court to look at meaning within the doc.
Pacific Gas an Electric Co. v. G.W. Thomas Dryage Rigging Cal. 1968
Repairer would “indemnify” the owner “against all loss, damage, expense, and liability
resulting from…injury to property” arising in the performance of the K
-Owner claimed that it made the contractor liable for damage, contractor contended that
the provision was to apply only to damage to property of third parties
-Holding: the court claimed that intent of parties required looking at intent of parties, so
looking beyond was justified to help interpret that it meant only third parties
c. Courts are wary of looking to contextual evidence
iv. Misunderstanding: Total Ambiguity
a. If parties enter a K in which the ambiguity is absolute, and there is not basis to prefer one
interpretation over the other then the conclusion is that we have no contract
b. Raffles v. Wichelhaus (England, 1864) *** [PARADIGMATIC CASE MISUNDERSTANDING]
1. A buyer and seller agreed to the sale of cotton on board the ship Peerless sailing
from Bombay; two ships named the same and leaving in Oct. and Dec.; seller had the
Dec. ship in mind and the buyer the earlier; neither knew of the other ship
2. Seller sued for breach of contract , but the court granted in favor of the buyer
since the misunderstanding prevented the creation of K
3. Each party was reasonable in believing that the agreement referred to a
particular ship and neither knew of the others understanding so no meaning is
preferred

THE STATUTE OF FRAUDS

I. Statute of Frauds
A. General Elements
i. Requirement imposed on contracts that require proof of the fact of the terms
ii. Origins in 18th century England that a person could enforce the contract based on
reliability (oral testimony could be perjured)
iii Rule: a contract within its scope may not be enforced unless a memorandum of it is
written and signed by the party to be charged; consequence of noncompliance is
unenforceability of K
iv. If used to invalidate K, the party seeking it must plead it specifically as an affirmative
defense or it is waived
v. It can also be applied to modifiations
Inquiry B. What K falls into the Statute of Frauds?
1 i. Contracts for the Sale of Land or an Interest in Land (as well as for long term leases)
ii. Contracts that cannot be performed within a year
iii. Contracts for the Sale of Goods
a. UCC §2.201(1) requires compliance with the statute where the total price of items
sold is $500 or more, this may be valued if not cash
iv. Contracts to Answer for the debt or Obligation
a. Suretyship contracts covered, creditors promise to pay another debt, formality of
writing to serve as caution of what obligation is being taken on as well as evidence
v. Contracts of Executors or Administrators for Duty to Decedents
a. Debts incurred by the decedent
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 vi. Contracts upon Consideration for Marriage
a. This is not related to the request to be married but rather to pre-nuptials/finances

Inquiry C. If the Statute Applies, then is the Contract Reflected in Writing Satisfying of
3 Requirements?
i. Written Memorandum
a. No particular requirement to fulfill this requirement, as long as it contains writing
b. As in Lucy v. Zehmer in which the agreement was written on the back of a check,
the court can deem an internal memo written for some other purpose to be enough,
it need not be written at the time of contracting
c. Memo need not be written in a single doc. Linked writings can satisfy the req.
ii. Content of the Memorandum produced
a. Evidentiary adequacy for the purpose of satisfying the statute is low, only enough
to show existence of K
b. UCC §2.201(1) provides a low threshold of only state in writing the quantity of
goods sold; and “there is some writing sufficient to indicate that a K for sale has
been made btwn parties”
b. Signature is required of the person agreeing to the K, any mark suffices
1. For multiple doc. Sig. is not needed on every doc. of memo
2. E-Signature is valid as “an electronic sound, symbol, or process attached to
or logically associated with a K or other record and executed or adopted by a
person with the intent to sign
3. UCC §2.201(2) makes an exception to signature where both parties are
Inquiry merchants-the one not wanting K should have protested and signing not req
3 D. If the Statute Applies and is not Complied with, Does the Oral K fall within any of its
exceptions?
i. There are exceptions where a K can be enforced w/o sig if in the Statute of Frauds
a. Past Performance Exception
1. UCC §2.201(3)(a) cases in which the seller has begun the manufacture of
goods specially made for the buyer and not otherwise easily saleable
2. UCC §2.201(3)(c) enforcement only to the extent payment for goods has
been made and accepted and the goods have been delivered and accepted
b. Judicial Admission Exception
1. UCC §2.201(3)(c) if during “pleading and testimony” that K was made
precludes denial, this is during litigation [Loathe to be used by the courts]
c. Protection of Reliance: Estoppel and Promissory Estoppel
1. Court may enforce on grounds of justified reliance to prevent injustice
Restatement, Second §139

THE PAROL EVIDENCE RULE

I. The Parol Evidence Rule
A. Application and Basic Purpose of the Parol Evidence Rule
i. The rule applies where an agreement is recorded in writing and one party proffers
evidence that the term was not contained in the writing or to expand on a term
ii. Rule: that the writing of K supersedes anything that might have been proposed,
discussed, or agreed to prior to execution of the writing but not recorded in writing ***
iii. UCC §2.202, to the extent that something is executed in writing it is intended to be the
final expression of agreement and not extrinsic evidence should be admitted
iv. Purpose is to exclude evidence that is unreliable or dishonest but also may produce
injustice by preventing a party from proving what was actually agreed to in K
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 v. It serves the purpose of controlling the decision making of the jury, allows the judge
to restrict what information is given to the jury; promotes efficiency, and help in
transactions
B. What is Covered as Parol Evidence?
i. Terms not incorporated into the agreement in writing such as oral and or writing before
execution of agreement
ii. The rule does not affect evidence made after the execution of the writing
iii. Course of dealing, course of performance and trade usage can be parol evidence
a. The courts are more likely to admit trade usage and use it to supplement a fully
integrated K (UCC §2.20(a))
C. Basic aspects of the rule
i. The more complete the writing the more likely the court will apply the rule and bar
ii. The basic threshold of meeting the statute of frauds has no bearing in the decision
iii. Not confined to oral communications but also covers prior written communications
iv. Applied to irrelevant things, does not preclude all parol evidence
v. Two Stage process:
1. Judge makes initial judgment of admissibility (question of law)
2. If so then moves to jury (question of fact)
II. Parol Evidence and Integration [Finality of Writing]
A. Integration
i. Impact of Parol Evidence depends on the degree to which the writing executed by parties
constitutes a comprehensive and final written memo of the agreement; if it is complete
then all parol evidence is excluded; this document is said to be totally integrated
ii. Process of dealing with Parol Evidence and Integration [THE JUDGE]
a. Judge determines integration if it is, then parol evidence is barred if it is not then,
b. Then the judge turns to whether the proffered evidence is in fact consistent with
what is written and not contradictory, if it contradicts then barred
iii. The fact finders determination [THE JURY] – the jury then gets to see the evidence and
determine
B. Determining Integration
i. “Four Corners” of the document used to determine whether the document is fully
integrated
ii. Even courts that are receptive to extrinsic evidence will bar it based on how integrated
or complete an agreement is
iii. When looking as to why a term was not in the document, UCC §2.202 Comment 3
suggests “Would the term ‘certainly have been included’ in the document had it been
agreed to?”
iv. The extrinsic evidence must both be reconcilable with the apparent intent and
demonstrate a justification for going beyond the writing
v. Masterson v. Sine (Cal. 1968) [Example whether a term absent from the agreement]
a. P. had an option to repurchase the ranch at a price to be fixed by a formula, later
became bankrupt and trustee attempted to exercise the repurchase option (P. had
sold it to his sister); D. claimed that it could not be exercised since they had orally
agreed to it being for personal use
b. Holding: the court found such an agreement was reasonable outside the
agreement
vi. Merger Clause: merger clauses can be effective at disposing with the issue of
integration and insulating from parol evidence, the clause proffers that all aspects of the
contract have been merged in writing

14
 vi. Ambiguity or Indefiniteness in Integrated Writing
a. If a term is unclear or ambiguous, then extrinsic evidence may be used
b. Evidence must be pertinent to the meaning of the unclear terms and reconcilable
with the writing
C. Contradiction rather than Consistency
i. Parol evidence cannot be admitted when two parties contradict each other
ii. Maday v. Grathwahl (Minn. App. 2011)
a. Owners of a pig farm needed a means of disposing of manure entered into
agreement with P. “manure easement agreement” in which D. could dispose of the
manure in Ps farmland; no agreement to compensation or requirements
b. Seven years later D. began to sell it to third parties, P. sued for breach of oral
agreement that they would receive all of the manure; P. appealed to allow the oral
extrinsic evidence
c. Holding: judgment for D., the agreement gave right but not duty to P., since this
was the same agreement as in writing, a separate one would not be est. and it was
inconsistent therefore inadmissible
iii. Finding a conflict depends on the proclivity of the judge to grant parol evidence, one
who like to allow parol evidence is unlikely to find conflict and vice versa
III. Exceptions to the Parol Evidence Rule
A. Collateral Agreement Rule
i. Even where a contract is integrated, if the parol agreement is sufficiently distinct from the
scope of the writing, it can be seen as a different K, related to but separate from the
integrated written agreement; evidence is then not barred because the parties may not
have attended for it to be covered by the agreement
ii. Mitchell v. Lath (N.Y. 1928) [PARADIGMATIC OF THE COLLATERAL AGREEMENT RULE]
a. Seller of a home agreed to remove an unsightly ice house on the land sold to the
buyer, the written contract was comprehensive and included ancillary things
b. Holding: majority refused to deem it a collateral agreement, related closely
enough to the sale of the property that it should have been in the writing
B. Exception for Mistake, Fraud, and other Forms of Improper Bargaining
i. Admissible to show that a party is acting inappropriately
C. Exception to show that an agreement was subject to a condition
i. General rule that the parol evidence is admissible to prove a condition precedent to the
legal effectiveness of a written agreement, provided that the condition does not contradict
the express terms of the writing

POLICING CONTRACTS: JUDICIAL REGULATION OF IMPROPER BARGAINING

I. Policing Contracts under Unfair Bargaining
A. General Avoidance of Contract for Unfair Bargaining
i. A contract induced by improper bargaining is voidable
ii. A voidable contract is not a void contract (a legal nullity in which neither party can
enforce K)
iii. A voidable K in contrast is a valid K that remains active unless the aggrieved party
elects to exercise the right to terminate it
iv. The aggrieved party can choose to avoid K by suing for a declaratory judgment
terminating it or raising it as a defense when sued on the K
v. If K is not avoided, aggrieved party can also have unfair aspects removed
vi. Damages can also be sought if the K is not avoided for the unfair bargaining
II. Misrepresentation as Unfair Bargaining
A. Misrepresentation is defined in Restatement, Second §159 as an assertion not in accord
15
 with the facts
B. Three types of misrepresentation:
i. Fraudulent misrepresentation: made with deliberate and dishonest intent, this
is the most severe form of misrepresentation (party must make false representation
of fact with knowledge of its falsity and with intent to induce the other party to
enter into K; and other party must have relied on it justifiably to injury)
Must be fact, not opinion, not prediction Types of fraudulent misrepresentation:
a. Affirmative false statements: direct statements that are false, such as saying a
vinyl sofa is leather
b. Concealment: Deliberate conduct to hide a fact is also affirmative; Weintraub v.
Krobatcsch (N.J. 1974) in which the seller concealed the presence of cockroaches in
a home sale by leaving all lights on
c. Nondisclosure (silence): disclosure is required in some cases, guidelines in
Restatement, Second, §161 two factors to determine when:
1. Should the information be the property of the party who posses it
2. Is the information readily available
Hill v. Jones (Ariz. 1986) in which termite infestation was not disclosed to buyers,
court held that the trial should proceed to determine disclosure for good faith
ii. Negligent misrepresentation: made without deliberate intent to mislead, made by
failing to act with reasonable care in ascertaining or communicating the truth
a. Can still allow for avoidance if the material of misrep. is material enough to induce
reliance
iii. Innocent misrepresentation: less culpable than negligent misrep. but rooted in issue
of whether or not enough due diligence was one for example, hard to distinguish
C. Elements in fraudulent misrepresentation that the court weights:
1. Knowledge of falsity and intent to induce the conduct
2. Materiality, substantial contribution to enter into transaction central
3. Justifiable inducement (causal link); court asks if victim was induced
4. Injury must be exist
5. Remedy can be economic or rescission for lack of desire of what K results
III. Duress
A. Nature of Duress
i. Duress from physical compulsion is rare but governed by Restatement, Second §§174-
176; treats the act of manifesting assent as lacking entirely in free will so no assent present
ii. More complex situations require the following elements:
a. Threat: indication of intent to do harm, loss, injury, or other undesirable
consequence on victim’s personal or economic interests
1. Threat can be action or refrain from acting
2. Courts must discern btwn in legitimate hard bargain and coercion
b. Impropriety: beyond the obviously criminal includes pressure beyond rights
c. Inducement: whether under all the circumstances the duress substantially
overcame the free will of this party, leaving him no reasonable alternative but to
concede
d. Remedy: up to the discretion of the victim, voiding it or seeking restitution
B. Duress in the Modification of an existing Contract
i. Alaska Packers v. Domenico (9th Cir. 1902) [MODIFICATION UNDER DURESS]
a. Fishermen in Alaska refused to continue working unless paid more, employer
acquiesced and then refused to pay extra wages
b. Court ruled against the fishermen because they incurred no new detriment in
exchange for promise of a wage increase, but also extortionate and unjustified
16
 ii. Careful evaluation of the motivation and business justification of the demand,
commercial expectations and practices, the force with which the demand is asserted, and
the pressures to which the party is subject are used to draw the line between hard bargain
and abuse of power
ii. Modification under sale of goods enables the court to invalidate unfair contract
modification with struggling with consideration issues
iii. Modifications can be enforced despite absent consideration such as circumstances so
alter that performance becomes so burdensome
C. Undue Influence
i. Case in which one party has particularly strong influence over the other and abuses the
position of dominance to persuade subservient party to enter disadvantageous K
ii. Makes a contract voidable at the insistence of the victim
iii. Restatement, Second §177 reflects the narrow scope of the doctrine confining it to
relationships of dependence and trust, three elements to be proven:
a. Relationship is one of trust and dependency existed btwn victim and other party
b. Relationship gave the other party dominance over the victim and imposed duty
to not act contrary to the interests of the victim
c. Dominant party abused his position by unfairly persuading the victim to enter K
iv. When dependency is strong, unfair persuasion can be inferred from that alone, but when
it is not as intense, evidence of improper bargaining helps
IV. Unconscionability
A. Nature and Role of Unconscionability
i. General doctrine for courts to provide relief in cases that do not fall well within the others
ii. Function of the courts of equity to do justice btwn parties, that if allowed would offend
the conscience
iii. Available for all transactions and decided by judge not jury (UCC §2.302)
iv. Also a last resort doctrine for policing K
B. Elements of Unconscionability
i. UCC §2.302: the contract or term is so one-sided as to be unconscionable
ii. Procedural Unconscionability: unfairness in the bargaining process
a. Allows courts do deal with pressure, deception and unfair persuasion that does
not fit neatly into duress, fraud or undue influence
iii. Substantial Unconscionability: unfairness in resulting K; must show that the result is
so disadvantageous to the other party
a. Terms are harsh, unfair or unduly favorable to one
b. Examples are excessive price for goods, exorbitant interest rates, harsh penalties
for default, the waiver of legal protection or the right to seek legal redress in the
correct forum
iv. Remedies: courts have much discretion in the remedy for unconscionability
a. Terminating the contract
b. Severing unconscionable parts of the K
c. Courts aim to interfere as little as possible with K terms and to correct w/o
altering fundamentally
d. A court might more readily make a fining of unconscionability if it can craft a less
drastic remedy than voiding the whole contract
C. Unconscionability and Adhesion in Standard Contract
i. A contract is one of adhesion where one party has the market power to refuse the K
except on nonnegotiable terms, and the other has no choice but to adhere to terms for want
of K

17
 ii. Adhesion more likely to be present if there is no competing provider who will contract
on different terms, and esp. when not a luxury
iii. Mazur v. eBay (N.D. Cal. 2008)
a. Clause for resolution found was procedurally unconscionable because it was
hidden and hard to read in the clickwrap and substantively unconscionable for
resolution in a matter that unduly favored the D.
iv. If adhesive standards are made available only after the K has been executed the court
may find the delay to be procedurally unconscionable
v. Courts generally uphold standard arbitration agreements unless the party challenging it
can show grounds to invalidate under principles of K law
a. Morales v. Sun Constructors (3rd Cir. 2008): court held that a Spanish-speaking
employee, who could not read English, had a duty to read and ascertain the content
and meaning of an arbitration provisions written in English
V. Illegal Contracts or Those Contravening Public Policy
A. Contracts that are illegal
i. Criminal acts warranted in contract then the court refuses to enforce
ii. In cases that an illegal contract has been entered into the court will stay aloof and not
intervene to help either party
iii. Court sends a message by not enforcing a contract that is illegal—makes those wary to
enter into such K
B. Contracts that Violate Public Policy
i. When something offends public policy the court may deem them unenforceable but
unlike with illegality more flexible with relief
ii. Examples include covenants not to compete in employment
a. Generally not liked by courts because the stifle competition but in cases where a
party violates a non-compete the court will assess its impact on competition and the
interest of the party restrained to determine

INCAPACITY
The policy of freedom to contract is only hindered by incapacity of the parties, lacking the ability to
render assent; it renders the K voidable not void. Cannot sever the K because it affects all parts of the K

I. Minority
A. Nature of Minor’s Contractual incapacity
i. A person attains the age of majority at 18 in most states, before that time lacks the legal
capacity to be bound in K, and voidable at the insistence of the minor
ii. Nothing done by the minor beforehand, including performance constitutes a waiver to
disaffirm it [MINOR’S RIGHT TO DISAFFIRM K]
iii. If a minor has not disaffirmed a K by the time he reaches majority he may ratify then
iv. Purely objective determination, no proof of maturity will be taken into account [18]
v. Parental consent may allow a parent to give assent
B. Situations in which a minor may incur legal liability [LIMITATIONS]
i. Necessaries: ex. case of extreme need to drive to work
ii. Misrepresentation of age can deprive a minor of the ability to escape liability; must be
age that was misrepresented, not parental consent:
a. Foss v. Circuit City, minor forged parental consent but not held liable, age must be
misrepresented court held
iii. Statutory Exceptions: ex. minor old enough to get a driver’s license is subject to the
same standards as anyone in majority, subject to dui for example would not allow

18
 C. Restitution or Other Relief Following Disaffirmation
i. The majority party must always restore in full the value of anything received from minor,
but the minor generally only liable to return whatever she still has left of the major’s
contract performance at the time of avoidance [Shielded and only advantage retained at
avoidance]
II. Mental Incapacity
A. Subjective Nature of Mental Capacity
i. Mental capacity determined at the time of contracting, if proven at time it can result in
avoidance even if since cured—based on the fact that assent cannot be given at the time
ii. Mental incapacity is purely based on subjective attributes
iii. Not incompetence, must be proven by expert testimony
iv. Burden lies on the allegedly incompetent party or those representing it; proof of
existence and the severity that it precludes assent
v. Balanced against reliance of the other party
vi. Unfair terms are not included since even if the terms were reasonable could not assent
vii. If incapacity found court must be careful ensure balancing undue interference of
contractual liberty
B. The Test for Mental Incapacity
i. Broader test recognizes not only cognitive disorders but also illness or defect that impairs
the ability to transact reasonably (Affective or motivational test)
ii. Narrower test requires that it is an cognitive test “unable to understand in a reasonable
manner the nature and consequences of the transaction” (Cognitive test)
a. Davis v. Davis (Or. App. 2004): parties entered into a divorce settlement, wife gave
husband full ownership of stock option, moved to avoid settlement for mental
incapacity; diagnosed with depression, PTSD, battered woman’s syndrome
Court used cognitive test it was bound to and lacking “real and serious impairment
in the capacity to make a rational decision”
c. Avoidance and its Consequences
i. Like for minors it is voidable not void
ii. Unlike for minors mental disability does not disappear on a set date
III. Incapacity Induced by Alcohol or Drug Use [Intoxication]
A. Intoxication
i. Viewed less sympathetically than other incapacity because the incapacitated party is seen
to be blameworthy to a degree
ii. If intoxication is severe enough its impairing effect can be just as profound as mental ill
iii. Restatement, Second, §16 est. that if the level of intoxication is sufficient to deprive of
understanding or ability to rationalize and the other party knew of it then it can be avoided

MISTAKE, IMPRACTICABILITY AND FRUSTRATION OF PURPOSE

Situations in which exchange between the parties turns out to be very different from what was expected
and can be raised as a defense.
Central to determining these doctrines:
1. Materiality: How fundamental is the discrepancy btwn the expected and actual exchange?
2. Risk: Which party should be made to bear the consequence of his defeat of the original
expectation?

I. Mistake: caused by some factual error made either parties at time of K so that premise is incorrect
A. Nature of Mistake
i. Confined to errors of facts—errors about some thing or event that actually occurred that
can be determined by objective evidence
19
 ii. An error in judgment is not a mistake
iii. An incorrect prediction of future events is not a mistake
iv. Mistake of meaning is not covered by this doctrine (misunderstanding)
v. A mistake of law could qualify as a fact
B. Elements of Mutual Mistake
i. Restatement, Second, §152 est. that a mutual mistake is avoidable by the adversely
affected party if it satisfied all the following:
a. At the time of K, the parties must have shared an error of fact
b. The erroneous fact was a basic assumption on which K was made
c. The mistake must have material effect on the exchange of performance
d. The adversely affected party must not have borne the risk of the mistake (by way
of risk allocation in K)
C. Elements of Unilateral Mistake
i. Restatement, Second, §155 est. that a unilateral mistake is avoidable by the adversely
affected party if it satisfied all the following:
a. The error concerns fact
b. The fact is a basic assumption on which the mistaken party made K
c. The mistake has a material effect on the exchange, adverse to the mistaken party
d. The mistaken party must not bear the risk of the mistake (through risk allocation)
D. Relief for Mistake
i. Principal relief for mistake is the avoidance of the contract, if unilateral sought by the
party who made the mistake, if mutual both parties made it and the one seeking avoidance
will be the one adversely affected
ii. Avoidance brings the K to an end and both parties restore any benefit (or value)
resulting from performance that was rendered prior to termination
iii. Value is normally determined at market value, some discretion to fault may be used
iv. In rare cases court may keep K in force with adjustment to its terms to counter mistake
a. Aluminum Company of American (Alcoa) v. Essex Group (W.D. Pa. 1980)
Court found that it would be unfair to allow Alcoa to avoid the K as a whole because
it would completely deprive Essex of the bargain and receive windfall, therefore it
adjusted the price term to give Alcoa a profit that accorded with the parties’
reasonable expectations
E. Mistake in Transcription
i. Error here induced as a result of an error in writing and it incorrectly records the parties’
agreement
ii. Case of the newspaper publishing an incorrect price for a Lexus; court held that since
both parties had different consideration of the price and dealer had not breached K by not
selling to the buyer for the erroneous price
II. Impracticability: no false premise at time of K but events change drastically enough alter formation
A. Nature of Impracticability
i. Impracticability applies when events following K formation are so different form
assumptions on which the K was based that it would be unfair to hold the adversely
affected party to its commitment
ii. Has nothing to do with problem in formation and supposes a binding K was made but
concerned with after formation the change of serious circumstance has such an effect on
the reasonable expectations that it should be allowed as an excuse
iii. Origins in impossibility doctrine
iv. Paradigmatic case is Transatlantic on wheat shipment through Suez canal from Texas to
Iran when the canal was shutdown
B. Impracticability exists if:
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 i. After the K was made, an event occurred, the nonoccurrence of which was a basic
assumption of K
a. When the parties entered into K they expressly impliedly made assumptions
about the future course of events and these assumptions were a central motivation
of K
b. Comment 1 UCC §2.615 “unforeseen supervening circumstances not within the
contemplation of the parties at the time of contracting”
c. Must identify the happening, can include: [Contingency]
1. A natural disaster, war, strike, etc.
2. UCC §2.615(a) in cases where the law changes to make exchange unlawful
d. Change in market conditions is generally NOT a contingency
ii. The effect of the event is to render the party’s performance “impracticable” or unduly
burdensome
a. Relief is only appropriate if the change is extreme and very burdensome
b. A prospective loss that is not negligible could satisfy this element
c. greater magnitude of loss makes something more impracticable
iii. The party seeking relief was not at fault
iv. The party seeking relief must not have born the risk of the event occurring
a. In absence of direct risk allocation clauses, the K may place implied risk by means
of provisions such as warranty, insurance or other commitments form which it can
be inferred
b. In Taylor v. Caldwell the absence of K of risk allocation it was inferred that the
risk of loss of property should be borne by the owner, and not the person who hires
a premise for an event
C. Relief for impracticability
i. When impracticability defeats the feasibility of performance by a party is a complete
defense to the party’s failure to perform
ii. Relieves him of the duty of performance and liability for damages and discharged duties
of the other
iii. If partially performed must return benefits
iv. UCC §2.615 recognizes the courts ability to adjust terms of k to excuse a portion of the
performance
III. Frustration of Purpose: no false premise at time of K but events change drastically enough alter
A. Frustration of Purpose
i. Designed to provide relief when a party could not show that an unexpected supervening
event rendered his performance impossible, yet it destroyed the value of the transaction
for him that the contract’s underlying purpose was frustrated
ii. Krell v. Henry (King’s Bench, 1903) [is the paradigmatic case here]
a. Krell owned and rented a flat to Henry for the coronation of Edward VII, the
would be king fell ill and the procession was postponed; Henry left with no need for
the flat and did not use them; Krell sued for remaining balance
b. Although it was not expressly stated for purpose of the coronation procession,
both parties understood the sole purpose was for that, the postponement was a
supervening event that defeated the purpose of K and excused Henry of
performance (payment)
iii. Event must not have been caused by the fault of the party whose purpose is frustrated
iv. Must also not have borne the risk of the occurrence of the supervening event

CONDITIONS AND PROMISES

21
I. Conditions
A. Nature of conditions
i. A condition is an event not certain to occur and in K can be a promise on the basis of it
occurring
ii. Until a condition occurs the next duty to perform can be suspended, if it occurs then the
duty is due and performed
iii. Condition contingency need not be affirmative t could be a non-happening as well
iv. Express Conditions: a conditions is express if the language of the K on its face
articulates its intent to make performance contingent on the event; language of “provided
that” and “if”
v. Conditions Implied in Fact: condition can be implied in fact by interpreting the words
used by the parties in light of circumstances surrounding the formation of the K, context
vi. Constructive Conditions: lacking evidence of a condition being agreed to, the court will
imply it as a matter of law if the circumstances of K compel the conclusion that if the
parties had addressed the issue they would have intended it in K
vii. Condition of one party’s performance is distinct from a condition of the K as a
whole if a condition relates to the K as a whole than its nonoccurrence discharges the right
of both parties to demands performance and neither can unilaterally waive it
a. This determination is one of interpretation of scope in the K
B. Distinction between Pure and Promissory Conditions
i. A term that is not only a condition but is both a condition and a promise that the
condition will occur is a promissory condition
ii. In determining whether something is a pure promise, a pure condition or a promissory
condition then the court looks to express language then it looks to factual evidence of
intent or if that fails than constructs the parties’ reasonable intention
iii. Significant difference lies in the different effect of promise and conditions:
a. if a condition is not satisfied then performance contingent on it is not due
b. if a pure condition the performance obligation falls away and there is not basis
for claiming breach of K
c. if contractual promise is broken then the promisor is liable for breach of K
d. If promissory condition then the party whose performance was contingent on it
is entitled both to withhold counter performance and to seek remedy for breach
iv. In determining we ask:
a. Did the parties intend a performance to be excused if the event does not occur?
Yes, then the event is a condition to performance; then ask
b. Did the parties intend that one of them would be responsible for the event’s
occurrence and would be liable for breach of k if it does not occur?
Yes, promissory condition if No, then a pure condition
v. Pure condition subject to an ancillary promise
a. Some pure conditions do have an ancillary promise attached to them that
expressly or imply one party to take steps to try and make it happen; if so the party
is released from performance only if the condition is unfulfilled despite his efforts to
make it come about
C. The Time Sequence of Conditions
i. In some cases performance is rendered concurrently, or instantaneously as is the case
with (payment of land and providing the title)
ii. Other conditions are conditions precedent; they must occur beforehand (such as a
rezoning application being granted before a land can be purchased for a purpose)
iii. If conditions precedent are not satisfied then the performance contingent on it
does not have to be rendered
22
 D. The Purpose of Conditions [CONTINGENCY AND RISK ALLOCATION]
i. Properly using conditions can provide for contingencies, allocate risks and generally
control the way in which bargain is to be performed
ii. Purposes achieved by conditions
a. The use of condition as a complete or partial “escape clause”
b. Conditions of Satisfaction: The use of a condition to permit the exercise of
judgment by one of the parties or to a third party
i. Can relate to personal tastes (as in the case of a portrait being painted)
ii. Can relate to performance by some standard (Utz potatoto chip color)
iii. Forman v. Benson (Ill. 1983): a K for the sale was conditional on the
seller’s satisfaction with the buyer’s credit report; the trial court applied an
objective standard and ruled the dissatisfaction with credit report was
unreasonable; higher court held they intended a subjective standard
c. The Use of a Condition to Provide for Alternative Performance
i. Used as a channeling device in the case that some frustration occurs
d. Condition to regulate the sequence of performance
i. Default rules are that the party with the longer performance must go first,
but in K they can change and provide the order in K by setting up
performance as they see fit
iii. Substantial compliance construed promissory conditions: if the promises role as a
condition is not expressly states by is construed as a matter of reasonable intent then the
court has more flexibility; and decide whether the delay in payment or performance is good
enough to constitute the fulfillment of a condition
E. Excuse of Conditions [Limitations to Conditions]
i. The party favored by the condition wrongfully prevents or hinders fulfillment by the
other:
a. The party has a duty to take active steps to facilitate occurrence and fails to
b. Party undertakes obstructive conduct to prevent it from occurring
c. When this occurs causal link must be est.
ii. Estoppel or waiver (Restatement, Second §§84 and 230(3)
a. Estoppel: the party who is the beneficiary of the condition may be estopped from
claiming non-fulfillment if by her words or conduct induces the other party to act to
their detriment by causing him to believe that the condition ahs been satisfied or
complied with
b. Waiver: a voluntary abandonment of a contractual right; one party agrees to
perform without asking for anything in return (unilateral act)
1. If waiver is made before occurrence of condition then it can be retracted
2. If the waiver is made after then it cannot be retracted
iii. Unfair Forfeiture (Restatement, Second, §229)
a. General principle under which the court may exercise discretion to decline the full
enforcement of one party’s legal rights where doing so would disproportionately
impact the other in a harsh manner
b. Weighs the burden of the party who would suffer if the condition is enforced
against him the harm that excuse would do to the beneficiary of that condition

BREACH AND REPUDIATION

I. Breach
A. Nature of Breach
i. A party breaches a K when failing for whatever reason to honor a promise of performance
23
 determined by four questions to determine if it has occurred:
1. Must determine the existence and content of the contractual undertaking to
ascertain the extent and nature of the promise
2. Est. the date or time that promise performance fell due
3. Decide if the performance complied with the promise
4. If breach determined to exist then must decide on the severity of the breach to
determine the right’s of the promisee to react on the breach
B. Degrees of Breach
i. Distinctions of breach determine the manner in which breach is treated
ii. Total and material breach: when a breach is profound enough to qualify as material
and total, the promisee’s expectations under the K have been completely destroyed
a. Gives promisee not only the right to claim damages but also to refuse to render
any part of performance outstanding in K
b. Materiality of breach is determined by Restatement, Second, §241:
1. the extent to which the injured party will be deprived of benefit that he
reasonable expected
2. the extent to which the injured party can be compensated for deprivation,
3. the extent to which the breaching party will suffer forfeiture,
4. the likelihood the breaching party will cure the breach, and;
5. the extent to which the behavior of the breaching party comport with
standards of good faith and fair dealing
iii. A material breach that is not total (Partial Breach and Cure)
a. A partial breach has a possible deficiency that could be ameliorated (cured)
b. Promisee does not yet have the right to terminate K, but must give breacher the
chance to cure it; if no cure than the breach is total and material
iv. Nonmaterial breach (Substantial Performance)
a. In cases where the breach is one in which performance was substantially
rendered then the promisee is obliged to stick to the contract but is entitled to
monetary adjustment to compensate for the deficiency in performance received.
b. Jacob & Young v. Kent (N.Y. 1921)
Builder had completed construction of a grand country home, the owner refused to
pay the balance of K price to builder on grounds that the builder had breached by
installing the wrong brand of plumbing pipe, it was a mistake
Holding: court found the breach unintended and trivial, seems it was more about
quality in the K and that it would cause more destruction to not hold K, not material
c. In Plate v. Jacobs the court held a deviation that made a living room a foot smaller,
this was not deemed material
d. In Contrast in Lyon v. Belosky the court held that the builder committed material
breach by installing roof of house incorrectly, it did not affect structural utility but
changed the aesthetic appearance which had been custom designed to by “russet
gold”
e. The court will also render relief for substantial performance that deals with
adjustment rather than destruction of K in order to avoid unfair forfeiture
1. In Jacob & Young this manifested with the court limiting the owners
damages to the difference in market value between a house fitted with
Reading pipe and a house fitted with pipe of the same quality made by other
brand; but the market difference was zero
f. Cure is determined as adequate to avert material breach with reference to
promisee’s reasonable expectations under K

24
 C. Substantial Performance under UCC Article 2: Perfect Tender And Cure
i. Perfect tender: Under UCC the buyer has the right to inspect the goods and see if they
conform to the K, and if they do not, the buyer may reject them. Both must be done within a
reasonable
ii. UCC §2.601: permits the buyer to reject the goods that “fail in any respect to conform to
K”; defines “conforming” as meaning “in accordance with obligations under the K”
iii. If the buyer has accepted the goods, she can only thereafter revoke her acceptance if she
satisfies a number of requirements, including the requirement that the nonconformity
substantially impairs their value
iv. Cure Under UCC Article 2
a. Where cure is possible §2.508 mitigates the harsh effect of the perfect tender rule
b. If the contractual delivery dates has passed, the unrestricted ability to cure is no
longer available, but a qualified right to cure still exists for a reasonable time
c. Reasonable amount of time, what is reasonable depends on the nature and
purpose of sale
d. See TELEVISION SET CASE FROM CASE BOOOK
D. The Breaching Party’s Recovery Following Material Breach
i. The forfeiture of contractual rights by a party who breaches materiality: results in
renunciation of the K by the breacher, who forfeits all rights under it and has no claim
ii. Retribution in favor of a party who has breached materiality, imposes a modest penalty
on a restitution in favor of a breaching party whether or not the breach was willful
E. Divisibility and Breach
i. Some K are structured in a way that allows them to be broken into sets of matching
performances so that each can be treated as a “mini-contract” within the larger K
ii. This is a matter of interpretation
iii. Carrig v. Gilbert Varker Corp. (Mass. 1943)
a. Developer and a builder, the builder agreed to complete 35 houses, repudiated K
after completing 20 houses, the court found the K to be severable because the K set
out the price and specs for each house individually(each was a self-contained
economic unit)
iv. §2.709 allows the seller to recover the price of goods that have been accepted, even if
others have been rejected, and
Comment 2 of §2.612 makes it clear that when the parties apparently intended delivery in
installment, a commercially reasonable fact-based interpretation must be used to break the
K into a set of self-standing exchanges, with the price apportioned among the deliveries
II. Repudiation
A. Anticipatory Repudiation:
i. It is possible for a party to breach in advance of performance—repudiate obligation in
anticipation, if before the time for performance, she makes it clear by words or actions that
she will breach when performance falls due
ii. Hoechster v. De La Tour (Queen’s Bench, 1853) [PARADIGMATIC CASE]
a. When one repudiates a material promise in advance the other may treat this as a
breach immediately and may seek relief for breach without delay
b. Clear, unequivocal, and voluntary repudiation by one of the parties is recognized
as the equivalent of a material and total breach, provided that the threatened action
or failure to act would be a material and total breach if it happened at the time of
due performance
B. Elements of Repudiation
i. Material and total repudiation: a repudiation is material and total if the promisor
manifests the intent of not performing at all, or of rendering a performance that deviates in
25
 a significant way from what the K requires
ii. Clear and unequivocal intent to breach: promisor’s statement or conduct must clearly
and unequivocally indicate that the promisor intends to commit a material and total breach
when the time for performance arrives.
iii. Voluntary statement or conduct: the statement to repudiate must be voluntary and
deliberate
C. Response to Repudiation: Two Alternatives:
i. Treating the repudiation as an immediate breach
a. Entitles to refuse to render performance to terminate K and sue for relief for total
breach
ii. Encouraging retraction of the repudiation
a. Delay responding to the repudiation and see if the other party repents
D. Prospective Nonperformance and Assurance of Performance
i. UCC §2.609 provides that if a party has reasonable grounds for insecurity regarding the
other’s performance, may demand a written set of adequate assurance and if commercially
reasonable may suspend performance until they receive the assurances
ii. Leaves open questions of judgment about the reasonability of the assurances sought out
E. Transactions Involving Installments
i. When a breach occurs in the performance of an earlier installment, it can be difficult to
know if the breach affects only the defective installment or is so serious as to undermine
the K in its entirety, operating as a repudiation of all remaining installments
ii. UCC §2.612 qualifies the perfect tender rule of §2.601 in K providing for delivery in
installments and (2) states that a noncomformity in an installment permits the buyer to
reject that installment only if the noncomformity substantially impairs the value of the
installment, and the noncomformity cannot be cured
iii. UCC §2.612(3) requires that the deficiency in the installment “substantially impairs the
value of the whole” K s
iv. Question is whether it is pervasive and irreparable enough to make it clear that the
promisor is incapable of rendering, or unwilling to render, substantially complaint
performance in the future

REMEDIES FOR BREACH

I. Remedies: Expectation
A. Goal of Remedy: Enforcement of Expectation Interest
i. Goal is to cure the disappointment by the giving the victim a remedy in lieu of what they
actually expected
ii. Purpose of K remedies is to put the victim in the position they would have been had no
breach occurred (UCC §1.305)
iii. A parties expectation interest is the value of the performance to her, based on the
purpose of the K as gleaned from its wording and the circumstances surrounding the
contract formation
iv. The law prefers money equivalent of expectation over the real thing due to the
traditional law and equity breakdown due to concerns of practicality, forced labor,
efficiency and the disfavoring of specific relief except in the most compelling cases
B. Principle of Expectation Relief
i. The achievement of the plaintiff’s expectation is an approximation
ii. The economic and moral dimensions of K remedies (it does not care about emotion and
noneconomic injury)

26
 iii. Efficient breach is an economic justification for confining damages to financial loss
a.breach of K is said to be efficient if the Ds cost to perform would exceed the benefit
that performance that would give to both parties; if this was the case then the D. can
pay compensatory damages to the P. (leaving no parties at a loss)
iv. Enforcement of a damage award is levied by the court with the expectation the other
party will pay
C. Calculation of Expectation Damages
i. To determine the situation of P if no breach had occurred a comparison must be made
between what the P had the right to expect and what he actually got.
ii. Restatement, Second, §347 has this formula:
Damages = Plaintiff’s loss in value)
+ any other loss (incidental and consequential)
– any cost or loss the p avoided by not having to perform
iii. Damages based on a substitute transaction
a. If transaction is substituted but P still suffers loss can claim the difference
b. UCC §2.706: a seller of goods who reasonably resells the goods at a lower price
following breach is entitled to the difference between price in K and the lower resale
price
iv. Damages based on market value of the promised performance
a. If the aggrieved did not enter into a substitute transaction, she is entitled to sue
for loss based on hypothetical substitute at market value rate (which is est. by
testimony of an expert witness usually) UCC §2.708(1)
b. Mitigation principle still applies, if the P did not seek to mitigate within a
reasonable time and the cost of substitution was much higher it limits to market
value
v. Loss of income in a K for Services
a. If K is for services such as employment, a breach by employer results in
employees loss of her entire expectation under the; in such cases damages would be
equivalent for the full consideration owed her under K
vi. Savings resulting from breach must be offset against loss
a. Direct costs reducing expected profit had the K been performed, if they are saved
as a result of breach (with reasonable expectation) then they must be deducted from
expected gains
b. Overhead expenses are not saved by the breach and are therefore not deducted
vii. Offset payment for party payment and salvage are treated as cost savings and deducted
viii. Incidental and consequential damages are added in the appropriate cases s
D. Expectation Damages under UCC Article 2
i. Essentially the same as under Common Law; UCC §1.305 remedies “shall be liberally
administered to the end that the aggrieved party may be put in as good a position as if the
other party had fully performed”
ii. Sellers Remedies
a. UCC §2.706 permits an aggrieved seller to enter a substitute transaction by
reselling the goods and provided the resale is made in good faith and in a
commercially reasonable manner, to recover shortfall between K and resale price
b. UCC §2.708(1) recognizes that damages may be based on hypothetical resale as
an alternative to actual resale
c. UCC §2.709 allows the seller to claim the price of goods only when the goods have
been accepted by the buyer or they are incapable of being resold because they have
been lost or damaged or are nor resalable

27
 iii. Buyer’s Remedies
a. UCC §2.716: the buyer’s specific performance remedy, available only when
damages cannot adequately compensate because the goods are fairly regarded as
unique under the circumstances of the case
b. UCC §2.712 covers hypothetical repurchase (assuming good faith and reasonable)
c. UCC §2.713 calculates the difference between the market price at the time the
buyer learned of the breach and the K price (damage at place of tender)
d. UCC §2.714 and §2.715 permit recovery when a buyer may not be able to make a
substitute transaction and may suffer consequential damages as a result of breach
E. Direct and Consequential Damages
i. Consequential damages are those that occur as results or consequence of the breach
ii.UCC §§2.712, 2.713, 2.714 all recognize that a buyer may suffer consequential damages
apart from the direct damages
iii. UCC §2.715(2) describes consequential damages as including “any loss resulting from
general or particular requirements and needs of which the seller at the time of contracting
had reason to know and which could not reasonably have been prevented by cover or
otherwise.”
II. Limitations of Expectation Recovery
A. Foreseeability
i. An event or consequence that is foreseeable when a reasonable person would realize the
likelihood of its occurrence [OBJECTIVE CONCEPT] What should have been, not what was
ii. Hadley v. Baxendale (Exchequer, 1864) [PARADIGMATIC CASE]
a. Owners of a mill delivered a broken mill-shaft to a carrier for shipment to
manufacturer so that it could be used as a model for a new one; delay in shipment
and it was the only shaft of the mill, delay idled activity and owner sued the carrier
for damages based on profit lost during operations
b. Holding: The court deemed this action had cost the loss but, the carrier could not
be held accountable for the loss because it was not told that it was the only mill shaft
and had no way of knowing that the delay would leave the mill idle
iii. Rule: UCC §2.715 and Restatement, Second §351
Damages for breach may only be recoverable if one of the 2 conditions is satisfied:
a. Either the loss must be one that may fairly and reasonably be considered to arise
naturally (in the ordinary course of things)
b. If, outside the ordinary course of events, the breaching party had a reason to
know of special circumstances that could reasonably give rises to such damages
iv. The “tacit agreement test”
a. More stringent test imposed by the court to est. knowledge of circumstances
b. Globe Refining Co. v. Landa Cotton Oil Co (1903) Justice Holmes, SCOTUS:
i. Recovery depends on “what liability the D may be supposed to have
assumed consciously… requires that ‘the knowledge must be brought to the
party.. under such circumstances that he must know that the person he
contracts with reasonably believes that he accepts the K with the special
condition attached to it”
c. Requires not merely the probable consequences of the breach be reasonably
foreseeable by the breaching party but that he agreed tacitly to assume liability for
them ***
v. Foreseeabiliy is not an issue for direct damages
vi. Foreseeability in relation to consequential damages is broken into two by UCC §2.715:
a. General consequential damages that are foreseeable as a probably result of the
breach in ordinary course of events (naturally flowing from the breach)
28
 b. Special damages arising out of special circumstances (requires reasonable
contemplation and subject to the information available to the breacher in relation to
reasonable accountability; strength of the connection)
c. Issue of the liability if the result of breach is disproportionate to the
consideration erned is small, calls into question the degree of proportionality of
consideration rendered (ex. paying the courier in Baxendale $100 vs. $10,000)
B. Mitigation
i. Purpose of mitigation is that if the P. through bad faith or unreasonable action (or
inaction) fails to prevent or has aggravated damages then D. is not held responsible for the
increase in loss caused by P
ii. Must be apparent that the Ps behavior in reacting to the breach was dishonest,
opportunistic, or vindictive, or that its so deviated from what would be expected that it
failed to conform to community standards of rationality
iii. Reasonableness test for determining whether the P violated the duty to mitigate;
iv. Substitute transaction to mitigate is the most ovious form:
a. Handicapped Children’s Education Board v. Lukaszewski (Wis. 1983)
D. a speech therapist breached K by resigning, the board sought to replace her, the
only applicant for the position was more senior and had to be paid more $$ the
board hired and sued D for the difference between what it would have paid her
under K and what it had to pay to replace
Holding: Board did not need or desire a more expensive teacher but had to
substitute, therefore D had to pay out
b. Parker v. Twentieth Century-Fox Film Corp. (Cal. 1970)
Actress entered into K with studio to star in a musical, studio canceled production,
thereby breaching; offered substitute in a western to be filmed in Australia; she
rejected it and sued for full amount of the fee in previous K
Holding: Court granted summary judgment for P, found the two roles different,
victim must take reasonable steps to mitigate loss, but not required to suffer undue
burden or prejudice
v. Postbreach transactions not appropriately treated as substitutes: the “lost volume”
situation [Michael Jordan case with respect to lost volume seller]
a. If a seller can est. a lost volume situation in which the second sale is not a
substitute its proceeds should be treated as reducing the full process expected
under the breached transaction (cases of having stock of items)
b. Elements to prove that you are a lost volume seller:
1. Plant or service operating at high enough efficiency that it is lost volume seller
2. Additional sale must be proven to be profitable [issue with Jordan’s K]
3.Est. that probably would made the subsequent sale even if buyer had not breached
C. Causation [Link between breach and loss must exist]
i. Breaching party cannot be accountable for loss that was not caused by breach
D. Reasonable Certainty
i. Evidence must be sufficient to persuade factfinder that the loss is more likely to have
occurred than not, and must give enough basis to calculate a monetary award
ii. Two inquiries to determine:
a. Injury must be shown
b. Whether the P has provided enough evidence to determine amount lost
ii. Direct damages: difficult to prove but once est. free to calculate
iii. Consequential damages: purely and speculative damages will not be awarded but P does
not have to prove loss with exactitude
iv. New businesses or ventures: New biz. Subject to scrutiny of profitability when lacking
29
 proof of how much profit would be made, depends on jurisdiction but generally with many
variables such as impact of new biz. on market, changes of the economic environ.,
degree of exp. and biz. plan
E. Unfair Forfeiture
i. Sometimes the court will deem it unfair to award damages in cases where a trivial aspect
will cause so much harm to the breacher
ii. Peevyhouse v. Garland Coal & Mining Co. (Okla. 1963) [PARADIGMATIC CASE]
a. Mining co. breached its K by failing to restore the land on completion of its strip-
mining operations
b. Court refused to award damages because the cost of restoring the land was
greatly disproportionate to the amount by which it would increase the market value
of the land
c. Rule: where the cost of restoration is grossly disproportionate to the diminution
of value, the unfair forfeiture principle applies
III. Alternatives to Expectation: Reliance and Restitutionary Damages
Failure to prove expectancy damages may lead to show suffering of loss other than defeated expectation
A. Reliance Damages ***
aim to refund express wasted or equiv. losses by P on reliance of K and restore ex-ante before K
Basis of awarding damages is waste or loss, the P. must be prejudiced in that something of value
has been wasted or lost and cannot be salvaged
i. Essential Reliance Damages
a. Based no essential reliance of waste in making something in K
ii. Incidental Reliance Damages
a. Incurred in consequence of having made the K for the purpose of using or
enjoying benefits expected under it; must be incurred after the K was entered into
b. Expenditure or outlay that is wasted as a result of breach, lost opportunity or gain
sacrificed in some cases
c. Only recoverable if D foresaw or should have reasonably foreseen the possibility
of loss or expenditure being incurred and both were reasonable, mitigation applies
iii. In reliance suing in K but not disaffirming
B. Restitutionary Damages ***
seeks to return to P the value of any benefit conferred on D under breach of K, focus on extent of
Ds enrichment to expense of P not on expectation or expenditure of P
i. Purpose is to restore to the P the value unjustly conferred on D
ii. If P disaffirms the K can then sue in restitution, proceeds on theory that the breach ended
K and D is no longer justified to retain benefit of performance that the P rendered and that
it unjustly enriches the D to keep benefit
iii. Issue of recovery based on making price of K the upper limit vs. not doing so
IV. Equitable Remedies: Specific Performance and Injunctions
A. Specific Performance (in personam unlike damages which are in rem)
i. Court order commands the D to perform the K as promised
ii. Reserved for extraordinary cases
ii. Inadequate Remedy at Law UCC §2.709 (seller) UCC §2.716 (buyer)
a. Specific performance used because normal legal remedy of damages would not
provide adequate relief
b. Determination of whether damages are not an adequate remedy requires an
evaluation of the purpose of K and the nature of the harm that will be suffered by P
as a result (such as in property); uniqueness is another factor
iii. Balance of equities and hardship to D
a. The court considers that impact on both parties of granting or denying the remedy
30
 based on hardship between them
b. Hardship is taken particularly serious with respect to personal services
iv. Practicality of enforcement
a. The court will take into account the ease or difficulty in enforcing the order and
the extent to which it will be required to supervise the performance and deal with
disputes, easier more likely to be given
v. Indefiniteness: vague orders are unlikely to be given
vi. Public interest and innocent third parties: court weighs the harm to the public or
innocents if specific performance is compelled
B. Injunctions
i. An injunction is an equitable remedy in which court grants an order that either compels
the D to perform a specific act—a mandatory injunction or prohibits a specified act—
prohibitory injunction
ii. Injunctions will not be issue unless the P can show that the less intrusive legal remedy of
damages is inadequate and the need to protect the rights of P under K outweighs hardship
that the injunction might impose on D and the other factors above
V. Liquidated Damages
Agreed to damages that are provisioned in K, that if a party breaches K, he will pay for damages in a sum
prescribed by a formula
A. The test for Liquidated Damages Provisions
i. Two point test the court employs:
1a. Did the parties make a reasonable forecast of harm at the time of K
2a. If they did, defer to the genuine effort and uphold clause even if actual damages
are higher or lower than projected
2b. Even if they did not attempt to forecast carefully but close enough then will hold
ii. In evaluating projected harm the court looks at two factors:
1. Expected difficulty of proving loss and
2. degree to which est. was reasonable
iii. The court will also look at factors like more mechanical methods that are reasonable
would be deemed usable for liquidated damages than cases that involve more variables
B. Damage Limitation Provisions
i. Purpose unlike in Liquidated damages is not to forecast harm and to settle the amount of
loss in advance but place a limit on the relief that a party may claim in event of breach
ii. Est. that damage limitation provisions are enforceable unless they are unconscionable
and greatly deprives non breaching party of meaningful relief (UCC §2.718 and §2.719)
VI. Incidental Damages, Interest and Attorney’s Fees
A. Interest
i. When K provides for payment of interest on an amount due the claim is simply part of
damage recovery and is included in the claim
ii. Rule is that P ma recover interest on a performance with a fixed or ascertainable money
value from the time that the performance became due to the time that payment is made
B. Incidental Damages
i. Those expenses incurred by the P after the breach in attempting to deal with it
ii. Administrative costs of coping with the breach and taking action necessary to protect
rights under K (expenses incurred to find substitution and to mitigate)
iii. For example costs of delivering goods back to breacher (UCC §§2.710, 2.715)
C. Attorney’s Fees
i. Separate from the incidental damages, attorney fees are generally not recoverable by the
winner of a lawsuit unless the K specifies them and are allowed by statute

31
 ii. General rule in the U.S. is that attorney’s fees are not recoverable by the winner in
litigation
VII. Noneconomic and Punitive Damages
A. Mental Distress and Other Noneconomic Loss
i. Generally damages are NOT awarded for mental distress, inconvenience, humiliation
or other forms of non-economic harm
ii. Chrum v. Charles Heating & Cooling, Inc. (Mich. 1982)
a. furnace bought from D caught fire and destroyed P home
b. Court refused to award damages for mental distress because the K was simple
commercial transac., breach led to property loss (could be recovered for prop.)
iii. Two exceptions:
a. Breach is a tort, tortious nature can provide compensation , but must be an
independent tort
b. K where clear and principal purpose is not to satisfy any economic or commercial
goal of the P but to give emotional, sentimental, or psychic benefit, these are
narrowed to: a nursing home’s breach of a care-giving by failure to notify of
pending death, funeral home’s breach of a burial K by mutilating the cadaver
B. Punitive Damages
i. Purpose is to punish the D for particularly egregious conduct and to deter from similar
conduct in the future; also called exemplary damages
ii. Rarely dispensed even when breach was faithless and deliberate
iii. Restatement, Second, §355 reflects attitude that punitive damages are not recoverable
for breach of K unless the breach consisted of tortious conduct for which tort law would
provide
iv. Narrowly applied to cases involving willful breach of insurer by unjustifiably failing to
indemnify the insured promptly, adequately or at all or loss covered by policy (playing the
role of deterring such behavior)

ASSIGNMENT, DELEGATION AND THIRD-PARTY BENEFICIARIES

Deals with K creating rights in a third party when the parties to the K expressly or impliedly agree at the
time of making that the performance of one of them will be rendered to or for the benefit of a person who
is not a party in the k, and that third party will have right to enforce commitment

I. Third Party Beneficiaries

A. Third Party Beneficiaries
i. Conferred at time of K creation not later
ii. These are intended beneficiaries not incidental ones
a. Incidental beneficiaries benefit incidentally of the transactions of others, the
parties do not make K with intent to confer such benefits on those parties
b. Requirement that K is for a third party with manifested intent; then only can the
third party enforce it as the intended beneficiary tend to be named
B. Intent to Confer a Benefit
i. Restatement, Second, §304: K manifests intent to beneficiary an independent cause of
action to enforce the promise, the grant of this enforcement right in the beneficiary is the
central point of third-party beneficiary doctrine and the distinguishing point
ii. Lawrence v. Fox N.Y. 1859 [Breakthrough on direct enforcement]
a. Man named Holly lent Fox $300, Holly was indebted to Lawrence for the same $,
Holly and Fox agreed that Fox would repay the loan to Lawrence; he failed to pay
and Lawrence sued who defended that he had no standing since he was not in
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 privity
b. Holding: Court rejected the defense and held that even where no agency of trust
is est. the parties to a K have the power to create and enforce rights enforceable by a
person who is not a party to a k and that persona can sue the promisor to enforce
the performance undertaken to the promisee for benefit [RULE]
ii. The right to enforce benefit only occurs if the parties intended to give that right and have
elected to create beneficiary as a part of agreement [Restatement, Second §302(1)]
a. Matter of interpretation, if not clearly in K then look at process of interpret
b. Promisor must have reasonably understood agreement to assume oblig
C. Relevance of Relationship Between Promisee and Beneficiary
i. Creditor and Donee Beneficiaries
a. Restatement, Second §302 suggest requirement beyond intent: “some relationship
between promisee and beneficiary from which it can be inferred that the parties had
the beneficiary’s interests in mind when entering into K
b. If relationship can be inferred then it can be enforced
ii. Seaver v. Ransom N.Y. 1918
a. Dying woman intended to bequeath home to her niece, will had omitted the
provision; she signed on promise that her husband would cure omission by making
provision in his own will to the niece of equivalent value
b. When he died he had not made the bequest as promised, niece sued the estate
c. Holding: court gave judgment to the niece on theory that uncle held the house as
a constructive trust for the niece; app. denied that niece was unintended beneficiary
and could not enforce promise against uncles estate
iii. RS §302(1) attempts to move form the creditor-donee dichotomy by identifying
relationships that bolster claim for third parties:
a. §302(1)(a) approximates the concept of a creditor beneficiary covering cases in
which performance of the promise will satisfy monetary obligations due by the
promisee to the beneficiary
b. 302(1)(b) encompasses categories of gratuitous motive but any where
circumstances indicate intent of promisee to give benefit of performance to the
beneficiary
D. Vesting of the Benefit and Parties’ Power to Modify or Terminate
i. The alteration or discharge of a contract like its creation is dependent on parties assent
ii. Once benefit has been conferred it becomes irrevocably settled on her so that it cannot
be changed or withdrawn by contracting party without consent
E. Defenses of the Promisor Against the Beneficiary
i. Rights of the beneficiary derive from contract so limited by any defense in contract
ii. RS §309: unless K makes it clear that it confers rights on beneficiary free of defenses
then the rights of the beneficiary are subject to limitations generally available in k such as
defects in formation of K (fraud, duress, statute of frauds, lack of consideration)
F. Rights of Beneficiary against the Promisee in the event of the Promisor’s nonperformance
i. If the beneficiary is a donee, his relationship is not supported by consideration, therefore
has not enforceable claim against the promisee in the event he is unable to recover from
promisor
ii But, if the beneficiary Is a creditor of the promisee he may upon being successful in
pursuing claim against the promisor, proceed against the promisee to enforce the
promisee’s debt
a. Some court do not hold this because they hold that once the beneficiary
proceeds against the promisor the right of action against the promisor is
substituted for and eliminates the cause of action on the debt due by the
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 promisee (NOVATION)
b. Novation is not the common view as RS §310 est.
G. Citizens’ claims as intended beneficiaries of Government Contracts
i. Although gov. K can be read to be intended for citizens at large, may not sue to enforce
performance promised to the gov.
ii. RS §313(1) treats gov. K in the same away as with third parties as intended beneficiaries
iii. Citizen must prove direct and clear intent to grant a right of enforcement to citizens
iv. Kamath Water Uses Protective Ass’n v. Patterson 9th Cir. 1999
a. Irrigators claimed they were the intended beneficiaries of a gov. agency K with a
power company for the management of a dam, claimed independent right to enforce
the power co. obligation to maintain flow levels required by K
b. Holding: The K had goal to satisfy gov. duty to water usage, but also had other
aims and nothing in K to rebut the argument that citizens who benefit from K are
incidental beneficiaries with no right to claim private enforcement rights
II. Assignment
A. Nature of Assignment
i. Voluntary manifestation of intention by the holder of an existing right to make an
immediate transfer of the rights to another person has two components: ***
a. Assignor must voluntarily manifest intent to assign the right
b. Right must be in existence at the time of assignment, and transfer immediate
ii. Transfer must be a complete relinquishment of the right by the assignor in favor of the
assignee, so that assigner retains no control over it and no power to revoke it ***
B. Restrictions on Assignment
i. Contractual Restrictions on Assignment
a. Assignment cannot be validly made if the K prohibits it through clear expression
RS §322, UCC §2.210(3)
b. Unless K makes it clear that party has complete discretion to refuse permission,
he is obliged to act reasonably in refusing it, cannot legitimately refuse permission
unless he can show that it would be unduly burdensome or risky or would
materially affect contractual rights
ii Restrictions on Assignment Resulting from the Nature of the K
a. If not expressed clearly in K, if the assignment would materially change the
obligors duty, increase the burden or risk imposed by the K, impair her prospects of
getting return performance or reduce its value then court may restrict (RS §317(2)
and UCC §2.210(2) [ICE CREAM CASE]
b. The requirement of material impact prevents obligor from resisting assignment
on the basis of a trivial change in performance of obligation
iii. Restrictions Based on Statute or Public Policy
a. If contrary to public policy or statute assignment can be restricted
b. Ex. restriction on claims of legal malpractice claims or tort personal injury
C. The Effect of Assignment
i. Not only present in sale but also transfers of security, used as collateral to secure a loan
ii. After receiving clear and adequate notification the obligor in effect holds the
performance in trust for the assignee and is obliged to ensure that he receives it. ***
iii. If the obligor disregards assignment and fails to perform for the assignor, he incurs
personal liability to the assignee and will be obliged either to perform or pay damages
D. Defenses against the Assignee
i. When the rights are assigned, assignee can get no greater right against the obligor then
the assignor had [Takes the rights and defenses with him]
ii. Assignee’s rights are subject to any such right set off that arose before a notice of
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 assignment, but cannot be defeated by one that rose after
iii. Unless otherwise indicated the assignor impliedly warrants to the assignee that the
rights assigned are valid and not subject to any defenses to make them unenforceable
III. Delegation
A. Nature of Delegation [RS §318, UCC §2.210(1)]
i. An obligor is entitled to delegate his contractual duties unless this violates the contract or
public policy
ii. Delegation unlike assignment has an impact on the party doing so
iii. In absence of clear prohibition, delegation is allowed unless the obligee has a substantial
interest in having the obligor himself perform or control the duty (such as personal
performance based on some skill or talent)
iv. Permissible and effective delegation has the effect that delegator commits no breach
of the k by having his duty performed by the delegate, and the delegate’s conforming
performance discharges delegator of contractual obligations ***
v. If performance is properly delegated but the obligee refuses to accept it, this will
be a breach by the obligee in the same way it would have been to refuse the delegator’s
own performance
vi. Unlike in assignment, no complete substitution here, obligee must agree to release the
delegate from further responsibility but cannot be unilaterally released
vii. Nonperformance or defective performance by the delegate can render the delegate
liable to the obligee
B. Some contracts can involve “assignment” of rights and “delegation” of duties and subject to both
IV. Grounds for Insecurity Following Assignment or Delegation and Assurances
A. Effect of insecurity
i. RS §317, comment d and UCC §210(5) recognize the right to demand adequate assurances of
performance [similar to the process for assurances]
a. In Assignment, the assignor can be called upon to assure the obligor that the transfer of
rights will not impair the obligor’s prospect of return performance
b. In Delegation, the obligee may demand assurance of proper performance, as
appropriate from either delegator or delegate
ii. If reasonable assurances are not given, the assignment or delegation can be objected to and
amount to repudiation by the assignor or delegator permitting other party to seek for anticipatory
breach

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