Contracts Spring 2022 (Breen, LUC)

Common Law Formation

Was A Contract Formed?

I. Contract Formation
a. What is a contract?
1. Contract – A promise or a set of promises for the breach of which the law gives a remedy, or the performance of
which the law in some way recognizes as a duty.
a. Contract = Mutual Assent (Offer & Acceptance) + Consideration
b. Elements:
i. The agreement in fact between the parties
ii. The agreement as written
iii. The set of rights and duties created by (1) and (2)
2. .A contract is formed by a three-legged stool—offer, acceptance, and consideration. If any of
these are missing, the contract has not been formed.
3. A promise is illusory if the performance is optional for the promisor—if the promisor reserves
the right to terminate at will without any notice. If it is illusory, there is no mutual obligation and
no contract.
4. A bilateral contract is a promise for a promise. A contract in which the offeror requires an
acceptance to be in the form of a return promise. There must be “a thing sought”.
5. A unilateral contract is a contract where acceptance and consideration are executed through
actual performance—it is a promise for performance or an act. The offer invites the offeree to
accept by rendering a performance. An offeror can revoke unless the offeree has substantially
performed. An option is created when the offeree begins the performance. See R§45- where an
offer incites an offeree to accept by rendering performance and does not invite a
promissory acceptance, an option contract is created when the offeree tenders or begins the
invited performance or tenders a beginning of it
§ Not every promise is a contract (Rest. §1 (Pg. 157))
§ Learned Hand standard- not intent but subjective
b. Rule: A contract is formed when there’s an offer and two parties express assent to a bargain where
there is consideration
§ Mutual Assent: Agreement to the exchange
§ Bargain: Agreement to exchange promises or to exchange a promise for performance or to
exchange performances
§ Consideration: Each party gives up something of value
· What one gets back from the bargain must be beneficial of what the other is giving up
2. Rest. §17. Requirement of a Bargain (Pg. 163)
§ (1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which
there is a manifestation of mutual assent to the exchange and a consideration.
§ (2) Whether or not there is a bargain a contract may be formed under special rules applicable to
formal contracts or under the rules stated in §§82-94.
§ Consideration is required

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II. Intention to be bound

a. Objective theory → Mutual Assent

 Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or
render a performance. Mutual assent is determined by the outward conduct of the parties
that shows that there is an agreement of mutual obligation. The parties are saying ‘yes’ to
the same thing. This is an objective standard judged by whether a reasonable person
would find that the parties agreed to the same thing. See R§17- the formation of a
contract requires a bargain in which there is a manifestation of mutual assent to the
exchange and consideration.
i.
b. Subjective theory → Meeting of the Minds
i. Ray v. Eurice Bros.
1. Rule: Absent fraud, duress, or mutual mistake, one having the capacity to understand a written
document who reads and signs it, or, without reading it or having it read to him, signs it, is bound
by his signature in law.
2. (Held) There was no fraud or duress in the making of the contract, and any mistake regarding
which specifications were part of the contract was unilateral on appellee builder’s part. Appellant
owners intended that their specifications were to be used, and that was clearly stated in the
contract that integrated those specifications. Appellee signed the contract and was bound by its
contents. Appellee’s actual intent was immaterial because it had agreed in writing to a clearly
expressed intent to the contrary. Parties have a “duty to read” what they are signing. Accordingly,
appellee breached the contract.
II. Manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one
party followed by an acceptance by the other party or parties

III. Offer & Acceptance

1. Offer

An offer is a definite, invitational communication that indicates a willingness to commit to a proposed bargain.
It calls for a yes, and if yes, there is a deal. An offer is the manifestation of willingness to enter into a bargain,
which another person justifiably understands that his assent to that bargain is invited and will conclude it. An
offer ends the need for further assent. The offeror (person extending the offer) is the master of the deal and
retains the power to revoke at any time before acceptance. R§24.
In Lonergan, the court held that a form letter and preliminary negotiations that did not express a
commitment or invitation to accept was not an offer. The ruling ultimately stated that the entire context
of the transaction can be used to determine if there was mutual assent, objectively determined R§26
Even if a manifestation of intent is meant to be understood as an offer, it cannot be accepted unless the terms
of the contract are reasonably certain. The terms are reasonable if they provide basis for determining breach
or giving appropriate remedies. The fact that one or more terms are left uncertain may show that the
manifestation of isn’t intended to be an offer or acceptance. R§33.
a. Certainty of Terms (QTPPPS) (Rest. §33): A valid offer contains clear and definite terms:

Q: Quantity of goods, services

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 T: Time for the contract to be performed

I: Identity of the parties who are contracting

P: Price

S: Subject matter of Contract

b. If the classical contract contains those elements, then acceptance is merely an expression of assent.
Missing terms are evaluated on a fact-specific basis with gap fillers used as required.

Rest. §24 (Pg. 165)

§ Offer: Manifestation of willingness to enter into a bargain, made as to justify another person
assent
§ Special Offer Rules:
· [a]: Advertisements
o Invitations to receive offers from the public where the advertiser has an option to accept,
negotiate, or reject the public’s offer
o Obvious jokes in communications are not offers
§ [ex]: Leonard v. Pepsico – An ad doesn’t constitute an offer unless its terms are sufficiently clear
& leave nothing open for negotiations
· [b]: Price Quotes
o Invitations for offers
§ [ex]: Fairmount v. Cruden: When a party quotes a price & invites acceptance by another party, a
binding offer has been made that cannot be revoked once accepted
· [c]: Letters of Intent
o Two Enforceable Letters of Intent:
§ [a]: Letter sign intending to sign contract in the future; or
§ [b]: A contract one actually signs with intention to enforce in the future
· [ex]: Store Properties v. Neal
· [ex]: Diesel Power v. ADDCO
· [d]: Request for Bids
o When a general contractor seeks bids from subcontractors, the general contractor’s
request for bids is an invitation for others
§ The offeror is the one who can change the manner of the rules
3. Acceptance (Rest. §30, 32, 50-53, 56)

A. An acceptance: a manifestation of assent to a bargain. It must be the mirror image to the offer.
See R§50. An acceptance must be given within the specified time or within a reasonable time. See
R§41.

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 a. A manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
b. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and
includes acceptance by a performance which operates as a return promise.
c. Acceptance by promise requires that the offeree complete every act essential to the making of the promise.
d. §43: Power of acceptance
i. Offeree’s power of acceptance terminated when offeror takes action inconsistent w/intention to enter into
proposed contract & offeree acquires reliable info to that effect

Manner of Acceptance: An offer may invite or require acceptance to be made by an affirmative

answer in words, or by performing or refraining from performing a specified act, or may empower the
offense to make a selection of terms of one’s acceptance
· Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any
manner & in any way reasonable under the circumstances
§ Silence & Dominion of Acceptance
· Rule: Mere silence is not an acceptance
· Silence signifies mere acceptance where offeror has stated or given the offeree a reason to believe
that assent may be given by silence or inaction and the offeree in doing so intends to accept
§ The Mailbox Rule
· Rest. §63. Time When Acceptance Takes Effect
o (a) An acceptance made in a manner and by a medium invited by an offer is operative and
completes the manifestation of mutual assent as soon as put out of the offeree’s possession,
without regard to whether it ever reaches the offeror; but
o (b) An acceptance under an option contract is not operative until received by the offeror.
§ When the acceptance is out of the offeree’s hand, the acceptance is therefore accepted, regardless of
whether it is received by the offeror.
 Does NOT apply to option contracts → only effective by acceptance, NOT when the contract is
mailed.
· [RS § 18] – Manifestation of mutual assent 
i. Manifestation of mutual assent requires that each party either make a promise or begin or render
a performance. 
· [RS § 19] – Conduct as manifestation of assent 
i. (1) The manifestation of assent may be made wholly or partly by written or spoken words or by
other acts or by failure to act. 
ii. (2) The conduct of a party is not effective as a manifestation of his assent unless he intends to
engage in the conduct and knows or has reason to know that the other party may infer from his
conduct that he assents 
iii. (3) The conduct of a party may manifest assent even though he does not in fact assent. In such
cases a resulting contract may be voidable because of fraud, duress, mistake, or other
invalidating clause.
· Mutual Assent (Rest. §§18-19)
i. Mutual Assent: Both parties agree to make a contract

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  In Normile, the court held that a conditional acceptance is a rejection of the offer, and a counteroffer. A
counteroffer has the legal effect of a rejection of the original offer and creates new offer. It terminates
the offeree’s power of acceptance. A counteroffer is an offer made by the offeree relating to the same
matter as the original offer but proposes a substituted bargain. The offeree becomes the offeror and the
offeror now has the power of acceptance. R. §59 & §39.
o Under the last shot rule, the last counteroffer/form before performance governs the terms of the
agreement.
o Under the mail box rule, acceptance is executed, and a contract is formed the moment the
promisee sends it, even if the offeror does not receive it until a later time
B. Communication of Present Commitment

i. Each party must communicate a present commitment to form a contract

ii. One party’s expression of commitment is an offer & the other party’s expression of commitment
is an acceptance; when both parties communicate a present commitment, mutual assent is present
iii. Only need an outward manifestation of assent to enter into a bargain
iv. Does not have to take the form of offer and acceptance
· Embry Objective (Reasonable Man) Standard: Regardless of the parties’ subjective or actual
intent, if a reasonable man could infer from their conduct (outward action/expression) intent to
enter into a binding and enforceable contract, a binding and enforceable contract is presumed to
exist.  
(1) An objective man knowing what was knowable to the promise would have concluded an acceptance was
made, and 
(2) The promise did in fact so conclude. [Subjective he did in fact understand it as such] 
[objective reasonable man + subjective twist] 
§ If you make an offer but then revoke it or it lapses before acceptance, then there’s no
contract
§ If you make an offer and it is accepted, then there is a contract
§ If you make an offer and it is accepted but then you try to revoke it, you cannot. There is
already a contract & failing to follow through is a breach of contract
C. Postponed Bargaining – Agreements to Agree
Postponed bargaining occurs when there is a mutual expression of agreement, but a failure to complete the
deal into a contract. The agreement will be upheld if the parties express an intention to bind and when there is a
way of determining the essential terms. Agreements to agree can be enforceable if there is a method for
calculating the future agreement. The agreement must specify the essential terms or method of calculating the
essential terms—the more indefinite, the less likely the parties intended to be bound. R§26
 In Walker, the court held that where the parties did not agree on a way of determining an essential term
(how to determine the calculation of rent), there is no enforceable agreement to agree.

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 D. Manifestations of assent that are in themselves sufficient to conclude a contract will not be
prevented from operating because the parties manifest an intention to prepare and adopt a written memorial,
but the circumstances may show that the agreements are preliminary negotiations. R.§27. This is because
“Actions speak louder than words”.
 In Quake, the court held that it was ambiguous on whether the letter of intent was meant to be binding as
a contract. See R§27. This occurred after there was confusion over a cancellation clause in a contract
that led to further confusion regarding whether one can cancel a contract with a written letter in place or
not.
 To determine whether there is an enforceable contract, consider the extent to which the express
agreement has been reach on all the terms to be included, whether the contract is the type usually
put in writing, whether it needs a formal writing for its full expression, whether there are many or
few details, whether the amount involved is large or small, whether it is a common or unusual
contract, whether a standard form contract is typically used in similar contracts, and whether
either party has taken action in performance during the negotiations. This can be shown by oral
evidence or correspondence or other preliminary / partially complete writings.

4. Termination of Offer
 The power of acceptance terminates by rejection or counteroffer by the offeree, a lapse of time,
revocation by the offeror, death or incapacity of the offeror and offeree, or by any express condition of
acceptance in the terms of the offer. R. §36.
 A rejection terminates the offer and the power of acceptance. A rejection can be a manifestation of
intent to not accept an offer unless the offeree manifests an intent to take it under further advisement.
R.§38.
 Revocation: An offeror can revoke the offer through a manifestation of intent to not enter into the
proposed bargain—the offeror takes away the invitation. The offeree’s power acceptance is terminated
when the revocation is received. R§42.
 An offeree’s power of acceptance can be revoked if the offeror takes definite action inconsistent with an
intention to enter into the bargain and the offeree acquires reliable information to that effect. R. §43.

III. Consideration
Consideration is the thing sought (the promise or returned promise must be the thing sought), or the bargain for
exchange—it can be a benefit to the promisor or a detriment to the promisee.
à A promise which is sought or bargained for can be consideration for a promise to be exchanged. See R§71.
Performance of a legal duty owed to the promisor is not consideration. See R§73.
à If the requirement of consideration is met, there is no additional requirement of a benefit to the promisor,
detriment to the promisee, equivalence in the value of the things exchanged, or mutuality of obligation. See
R§79. For the most part, courts do not police the adequacy of consideration because the courts want to avoid
interfering with the private ordering of the parties (because that would be communism).

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  In Hamer, the court held that forbearance of a legal right (like drinking, gambling and other legal
vices) was sufficient consideration. However, a general obligation does not qualify.
 In Pennsy, the court held that an offer that induced acceptance to the other party’s detriment (took
the hazardous waste) was adequate consideration when that party benefitted from the deal by not
having to dispose the waste.
 In Dougherty, the court held that past consideration is not consideration.
 In Dohrmann, the court held that consideration will not be questioned unless there is grossly
insufficient consideration. ($4mill. for adding a third middle name in his son’s names which they could
change)
 In Plowman, the court held that moral consideration (moral obligation) is not consideration. Giving
the laid-off workers a stipend because it was the right thing to do was not consideration, and the thing
sought was not the workers coming to pick up their check—it was a condition on their gift.
 In Marshall Durbin, the court held that an action can be consideration. (the thing sought was a high-
level employee staying/stabilizing the company during difficult financial times until the triggering
event)
NOTE: A failure of consideration = BREACH. An absence of consideration = NO CONTRACT.
a. Consideration can take the form of:
§ [1]: Money;
§ [2]: Property;
§ [3]: Promise; or
§ [4]: Act or forbearance
b. Rest. §71. Types of Exchange (Pg. 179)
§ (1) To constitute consideration, a performance or a return promise must be bargained for.
§ (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for
his promise and is given by the promisee in exchange for that promise.
§ (3) The performance may consist of:
· [a] an act other than a promise;
· [b] a forbearance; or
· [c] the creation, modification, or destruction of legal relation.
c. Types of Consideration:
§ [1]: Adequacy of Consideration: A promise, act, or forbearance. Consideration must be adequate,
of reasonably exchange of value
· Nominal consideration is not adequate consideration
§ [2]: Past & Moral Consideration: Both are insufficient for consideration
§ [3]: Pre-existing Duty
· Rule: If there is a pre-existing duty, there is no consideration; a promise to do what one is
already obligated to do is not consideration.
· Rest. §73. Performance of Legal Duty (Pg. 180)
o Performance of a legal duty owed to a promisor which is neither doubtful nor subject to
honest dispute is not consideration; but a similar performance is consideration if it differs
from what was required by the duty in a way which reflects more than a pretense of bargain.
§ [4]: Accord & Satisfaction

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 · Accord & Satisfaction: An agreement between two parties to a contract, which has a legal claim
against the other, released the other party from its obligation in return for some form of
compensation
o Agreement – accord; compensation – satisfaction
o [ex]: A contract between a creditor and a debtor for settlement of a claim by some
performance other than which is due

Agency Law
Agency refers to a consensual relationship in which one person, the agent, agrees to act on the behalf of, and
subject to the control of another person (which can be a corporation), the principal. The actions of the agent
bind the principal. It can create a fiduciary relationship, which is a relationship of trust and confidence in which
the agent is bound to act in the interest of another.

Actual Authority means that the principal is bound to the agent’s actions as if the principal had engaged in
those actions himself.

Express Authority is when the principal tells the agent to do something—explicit instruction to take certain
actions or forbearances. Implied Authority is when the principal allows the agent to have general
responsibilities or to do something generally, but the actual provisions, actions, and decisions on how to execute
are left to the agent. It is something incidental to the position—it is not spelled out, but it carries out the
principal’s objectives.
To determine whether there is express or implied authority, consider whether the agent had reasonable
belief that the agent had the power to act because the principal’s actions.

Apparent Authority is when the agent does not have actual authority, but the agent’s actions bind the principal
nevertheless.
To determine whether there is apparent authority, consider whether the principal’s actions gave the 3rd
party a reasonable belief that the agent can act.
In Plowmen, the court held that the vice president of the company did not have the authority to create a
binding contract on the refinery because the board of directors never ratified of the agreements and
never had notice of the agreements.

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UCC FORMATION
NOTE: Common law principles fill in the gaps of the UCC.
STEP 1: Does the UCC apply? The UCC Art. II applies to transactions of goods. See §2-102. A good includes all
things which are movable at the time of identification other than money (unless it’s a coin), securities, and things in
action. A good occupies time and space. See §2-105. A contract for sale applies to present and future sales. A sale
is the passing of title from the seller to the buyer for a price. §2-106.
STEP 2: If the contract involves goods and services, when does the UCC apply?
STEP 2.5: A hybrid contract is a contract for the exchange of goods and services.

 To determine this, the court should use the predominant factor test to inquire into what the contract was
really about—consider the language of the agreement, the kind of business the parties are engaged in, and the
price of the goods and services.
o In Princess Cruises, the court held that a contract for services and goods was not governed by the
UCC when the services was the main substance to the contract, and thus would be governed by
common law.
Under the alternative Graveman Test, the court should determine whether on the face of the agreement, if it
was a contract for goods or for services. It is a pleadings test. Is the plaintiff complaining about goods and
failure of consideration there or complaining about the performance of a service?
o In Jannusch, the court held that there was a contract for the sale of goods because the parties conduct
indicated there was a contract through the delivery and acceptance of the goods and other
circumstances that indicated a contract.

STEP 3: A contract can be formed by a definite and seasonable expression of acceptance.

Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a contract shall be
construed as inviting acceptance in any manner and medium reasonable in the circumstances. See §2-206.

 An offer to make a contract invites acceptance in any manner or medium reasonable in the circumstances.
To determine whether there is a contract, look for the (1) dickered terms; (2) the intent of the parties manifested by
their conduct; (3) the basis for remedy.
o The dickered terms are quality, quality, price, and delivery.
 In Styberg, the court found that there was not a contract because the actions of the parties did not ever result
in a conclusion of a deal—they were engaging in continuing negotiations because there was never a price, an
essential makeup of the dickered terms.

A contract can be formed in any manner sufficient to show agreement. An offer is what the common law defines an
offer as, because the UCC does not offer an explicit definition and the code will then “fill the gap”. An agreement
can be sufficient even though the moment of its making is undetermined. One or more of the terms can be left open
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if the parties intended to make a contract and there is a reasonably certain basis for an appropriate remedy. §2-204.
Actions speak louder than words.
Requirements Contract: Under 2-306, a term which measures the quantity of output of the seller or
requirements of the buyer means that the output or requirements that may occur in good faith—no quantity
unreasonably disproportionate to any stated estimate or if the estimate is absent, any normal/comparable prior
output or requirements may be tendered or demanded.
Under 2-306, a lawful agreement for exclusive dealings in the kind of goods imposes an obligation on the seller
to use best efforts to supply the goods and the best efforts of the buyer to promote their sale.
Firm Offer Provision: **lowest order of merchant** Under §2-205, an offer by a merchant to buy or sell
goods in a signed writing that gives assurance that the offer will be held open is not revocable, even for lack of
consideration, during the time stated, or if no time is stated, a reasonable amount of time not more than three
months.
UCC Definitions §1-201

 An agreement means the bargain of the parties in fact, as found in their language or inferred from other
circumstances, including course of performance, course of dealings, or usage of trade.
 A contract, as distinguished from an agreement, means the total legal obligation that results from the
parties’ agreement as determined by the UCC supplemented by any other applicable laws.
 Signed includes any symbol executed or adopted with the present intention to adopt or accept a writing.
 Writing includes printing, typewriting, or any other intentional reduction into tangible form.
 Course of dealings is a sequence of conduct concerning previous transactions between the parties to a
particular transaction that is fairly to be regarded as establishing a common basis of understanding for
interpreting their expressions and other conduct.
 Usage of trade is any practice or method of dealings having such regularity or observance in a place,
vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in
question. The existence and scope must be proven as facts. Most general evidence of the parties’ agreement.
 Course of performance or course of dealing between the parties or usage of trade in the vocation or trade in
which they engaged or of which they are or should be aware is relevant in ascertaining, the meaning of the
parties’ agreement, may give particular meaning to the specific terms of the agreement, and may supplement
or qualify the terms of the agreement. How the parties have acted in this contract specifically.
 A merchant (2-104) is a person who deals with goods of the kind; holds himself out as having knowledge or
skill particular to the practices or goods involved in the transaction; or such knowledge can be attributed to
him by his employment of an agent who holds himself out as having knowledge/skill. This can be based on
specialized knowledge of the goods involved, business practices, or both. Provisions dealing with the statute
of frauds, firm offers, and 2-207, rest on normal business practices typical and familiar to any person in
business. Thus, almost every person in the business would be a merchant because nonspecialized business
practices include answering mail. This only applies to merchant in his mercantile capacity.

2-207 Battle of the Forms

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 Battle of the Forms
When there is a dispute between the agreement and an acceptance or written confirmation, are the additional
terms a part of the contract? Consider whether there is agreement on the dickered terms, whether there are
additional or different terms, whether there is a proviso clause, whether the parties are merchants, whether the
additional terms materially alter the contract, whether notification of objection was provided, if different terms
—whether the double knockout rule applies, whether there was performance—code fills the gaps.

Under the §2-207, a definite and seasonable expression of acceptance / written confirmation sent within a
reasonable time operates as an acceptance, even though it states terms additional/different from those agreed
upon, unless acceptance is made conditional on assent to the additional or different terms.
1. If acceptance is made conditional on assent, the parties must expressly assent.
2. If acceptance is not made conditional on assent to the additional terms…
a. If they are accepted by the offeror, the proposals become a part of the contract.
i. Assent must be forthcoming. If there is no assent, the terms drop out.
b. If the parties are not merchants and are not accepted by the offeror, the additional terms become
proposals for addition to the contract.
c. If the parties are merchants, the additional terms become a part of the contract.
i. A merchant is a person who deals in goods of the kind; holds himself out as having
knowledge/skill particular to the practices involved in the transaction; or a person whose
skill/knowledge may be attributed to his employment who holds himself out as having
knowledge or skill. **lowest order of merchant**
d. The additional terms do not become a part of the contract if…
i. The offer expressly limits acceptance to the terms of the offer.
1. Executed through a proviso clause. It must be stated with specificity and
ask for assent. Silence is insufficient. If there is no express acceptance,
there is no deal, unless the parties act as if there is a deal. (See #3)
ii. The additional terms materially alter it. Terms that materially alter a contract result in
surprise (if it would result in significant change) or hardship if incorporated.
1. If the alternation would cause surprise, it would be
unfair to make the term a part of the contract
because if the party knew, the party would not have
agreed to the term. It is judged by what a reasonable
person would consider a surprise. Failing to read the
contract is not enough.
2. In Brown Machine, the court held that a term in a
form that did not expressly condition acceptance on
assent would not be included in the contract because
the indemnification clause materially altered the
contract.
3. In Gottlieb, the court held that hardship was not
sufficient to prevent a term from being incorporated
into a contract and that surprise requires a showing
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 that a reasonable merchant would not have
consented to the additional term.
iii. Notification of objection to the additional has already been given or is given within a
reasonable time after notice of them is received.
a. Double Knock-Out Rule: Majority Approach to Different Terms
1. Construe the writing as addition and include different terms.
2. Different terms cancel each other out because they object to one another.
3. The UCC fills the gaps.
b. Scribner’s Error: Minority Approach to Different Terms
1. Leave out different terms on accident.
2. Different terms that materially alters the agreement drop out.
3. If the parties perform, then the conduct of the parties creates a contract even though the writings are
contradictory. The terms are the agreed upon terms, and the UCC fills the gap for terms where there is
no agreement.

COUNTEROFFER vs. ACCEPTANCE

When the offeree adds additional or different terms to the offer and sends it back (orally or on paper) – is this an acceptance or a
counteroffer?

A counteroffer operates as both a rejection that terminates the original offer AND as a new offer.

MIRROR IMAGE RULE Under the common law, the terms in the acceptance must match the terms of the offer exactly –
otherwise it is not an acceptance, it is a counteroffer.

UCC 2-207 ("BATTLE OF THE FORMS") Under the UCC, the acceptance does not have to mirror the offer and can include
different or additional terms from those in the offer

. UCC § 2-207(1) determines whether the purported acceptance (containing different or additional terms) will operate as an
acceptance or as a counteroffer. It states: (1) A definite and seasonable expression of acceptance or written confirmation; (2)
which is sent within a reasonable amount of time; (3) operates as an acceptance even though it states terms additional to or
different from those offered or agreed upon; (4) unless acceptance is expressly made conditional upon assent to the additional or
different terms. (UCC § 2-207(1)).
If the purported acceptance is a valid acceptance under UCC § 2-207(1), the next issue is whether the additional or different
terms in the acceptance will govern the contract or whether UCC gap fillers will be implemented.

UCC § 2-207(2), the different or additional terms will govern the contract if BOTH parties are merchants UNLESS: (1) the
initial offer expressly limited acceptance to its terms; (2) the different or additional terms materially alter the deal; or (3) the
offeror objects to the different or additional terms within a reasonable amount of time. If either party is NOT a merchant, or any
of the 3 exceptions above apply, the different or or additional terms will NOT control and UCC gap fillers will be implemented.

THE KNOCKOUT RULE Most courts apply the knockout rule with UCC § 2-207(2) to determine whether the new terms
control or whether UCC gap fillers must be implemented. Under the knockout rule, a distinction is made between "different"
and "additional" terms. A different term is a term that was not included in the original offer that conflicts with the terms of the
original offer. An additional term is a term that was not included in the original offer that does NOT conflict with the original
offer. Under the knockout rule, different terms in the original offer and acceptance knock each other out creating a gap in the
contract. UCC gap fillers are then used to plug this gap (regardless of whether the parties are merchants). The knockout rule
does not apply to additional terms added in the acceptance. UCC § 2-207(2) will determine whether the additional terms control
or whether UCC gap fillers must be implemented.

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17 Wayne
 Promissory Estoppel:
Promissory Estoppel is when promise which the promisor should reasonably expect to induce action or
forbearance of substantial nature on the promisee, and does induce the action or forbearance, is binding to
the extent injustice can only be avoided by enforcement of the promise. See R§90. Reliance damages are
only available.
The essential justification for promissory estoppel is to avoid the substantial hardship or injustice that would
result if such a promise were not enforced. -Pop’s v Resorts
(1) a clear and definite promise by the promisor;
(2) the promise must be made with the expectation that the promisee will rely thereon;
(3) the promisee must in fact reasonably rely on the promise, and
(4) detriment of a definite and substantial nature must be incurred in reliance on the promise.
The detriment is induced—not sought.
 In Harvey v. Dow, the court held that the absence of a definite promise did not preclude enforcement of
it when the promisee engaged in substantial action in reliance of the promise, which resulted in a
definite change of position.
 In Pops Cones, the court held that there must be leniency to the requirement that the promise has to be
clear and definite. Defendant was liable once it induced the plaintiff to rely to its detriment because they
think there will be a deal. Assurance is sufficient.
A charitable subscription is binding under R§90 without proof that the promise reasonably induced action or
forbearance. However, gifts are not enforceable unless there is detrimental reliance.
 In King, the court held that charitable subscriptions can only be enforced if there is detrimental reliance.
Detrimental reliance is the equivalent of consideration—it does not have to be forbearance of a legal right, a
change in position is sufficient.
 In Katz, the court held that voluntarily changing positions (K chose to step down from his job and
change his position) in reliance of a promise is sufficient detrimental reliance.
 In Acevas, the court held that giving up a legal right (to a type of bankruptcy) was sufficient detrimental
reliance. Note: this is really an issue about whether the reliance is reasonable.

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 Option Contracts / Limitations on the Offeror’s Ability to Revoke
An option contract is a promise which meets the requirements of formation of a contract and limits the
promisor’s power to revoke an offer. See R§25. When an offer invites an offeree to accept with performance, an
option contract is created when the offeree begins the invited performance.
An option contract can be binding if it is in writing, signed by the offeror with purported consideration.
R§87. However, this is generally only applied to situations in which construction contracts are in question.
 Note: this is not commonly held. Further, under that section, an offer which the offeror should
reasonably expect to induce action or forbearance of a substantial character on the part of the offeree
before acceptance and does induce such action or forbearance is binding as an option contract to the
extent necessary to avoid injustice.
 In Berryman, the court held that when there is not performance or alternate contract for an option, there
is no option contract. Further, preparations to enter into a contract do not constitute performance.

 In James Baird, the court held that reliance on an offer does not create an option contract.

 In Drennan, the court held that justifiable reliance on an offer may be sufficient for making a promise
binding. (usually with contractor and subcontractor agreements and related to §86(2) only)

 In Pops Cones, the court held that assurance is sufficient as a promise for a party to obtain relief through
promissory estoppel when the party reasonably relied, and it was the only way to avoid injustice. (site
for the ice cream shop on the boardwalk (really about §90—is there a clear and definite promise.
promissory estoppel is meant to address fewer formal settings, should be leniency that the promise be
clear and definite. Even if no formal duty has concluded, the defendant cannot just back out of death
without liability once it had induced the plaintiff to act in his detriment. Only enforce promise to the
extent to avoid injustice. Cannot walk away from a deal within the party has acted on the notion that
there will be a deal and you caused that.)

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 Restitution
Restitution is a remedy that can be awarded if a benefit has been provided without a bargain, the benefit has
been given and knowingly accepted and retained, and there would be injustice if the party was not required to
compensate for that benefit. It is commonly referred to as unjust enrichment. The absence of a promise.
 In Watts, the court held that restitution is a remedy for familial relationships where domestic services are
rendered. However, courts are reluctant to apply restitution because presumption that services rendered
between family members are gratuitous.

Rescission is placing the parties at their pre-contractual position. The basic expectation of restitution is to
“make the plaintiff whole” by either placing parties in their pre-contractual position or making it so that parties
will be at the point they thought they would be in should the contract have been fulfilled.

Unjust enrichment is when one person confers a benefit on another person, which is knowingly accepted, the
law implies a promise to pay for the reasonable amount of the benefit conferred and enjoyed.

A person is entitled to restitution if that person inofficiously performs, supplies, or obtains professional
services necessary for another person’s life or health. R.3rd §20. This is not available if the person is competent
and refuses the services. There must be no reason to think that the party would not consent if they could
consent. Preventing harm to the person during an emergency.
 In Pelo, the court held that restitution can be recovered without the consent of the person retaining the
benefit if it was for their health or life.

A person who takes effective action to protect another’s property from threatened harm is entitled to restitution
if the circumstances justify the decision to intervene without request. It is only justified if it is reasonable to
assume the owner would wish the action to be performed. Damages is loss avoided or reasonable charge for the
services—whichever is less. R.3rd§21. Preventing harm to the property during an emergency.

Contract Implied-In-Law: A person who, pursuant to a contract with another, has performed services or
transferred property or otherwise conferred a benefit is not entitled to compensation other than in accordance
with the terms of the bargain, unless the transaction is rescinded for fraud/mistake/duress/undue
influence/illegality or unless other has failed to perform his part of the bargain. It is inferred that a person who
requests another to perform services for him or transfer property bargains to pay for it. R.3rd§107.
 In Commerce Partnership, the court held that the subcontractor could recover from the client that it was
never in privity with for restitution after the subcontractor wasn’t paid by the general contractor for work
done in the client’s property AND if the client never paid anyone for the services.
You cannot go after the owner if the owner already paid someone for the benefit conferred.
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Promissory Restitution: It can be a revival of a previous obligation. An obligation to pay a debt (in whole or in
part) that has lapsed because the statute of limitations can be enforceable if there is a voluntary
acknowledgement of the prior debt, the voluntary transfer of money/negotiable instrument/thing for payment of
the debt, and a statement that the statute of limitations will not be a defense. R. §82/83. (§83—Express promise
to pay for all or part of a debt discharged/dischargeable in bankruptcy is binding.)
 In Mills, the court held that a party can be bound by reviving a previous obligation by promising to pay
for their son’s care before he died by an innkeeper.

Under the material benefit rule, if a person receives a material benefit from another, other than gratuitously, a
subsequent executory promise to compensate the person for rendering the benefit already received is
enforceable. A moral obligation in some cases can become a legal obligation. The value of the promissory
benefit must not be disproportionate to the benefit received. R§86.
 In McGowin, the court held that party can recover for restitution if the party who received the benefit
promised compensation. (employer’s promise to care for the employee who was severely injured after
blocking something from falling on the employer)

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 Statute of Frauds
When determining whether to enact the statute of frauds, one must consider:
(1) Does the contract come within the scope of the Statute of Frauds?
(2) Does the writing comport with the Statute of Frauds?
(3) Can the contract nonetheless be exempt from the Statute of Frauds?

The Statute of Fraud requires that certain contracts meet formalistic requirements to be enforced. It is the key
to the courthouse door. A contract is enforceable if it is a writing, signed by the party against whom
enforcement is sought, reasonably identifies the subject matter of the contract, sufficiently indicates that
there is a contract between the parties, and states with reasonable certainty the essential terms of the
unperformed promises. The Statute of Frauds serves as a gatekeeping functions—contracts are not
automatically enforceable because they comport with the Statute of Frauds. R.§131.
At common law, contracts that are subject to the Statutes of Frauds include wills, suretyship, marriages, sale of
land, and contracts where the performance will not be finished within one year. R. §110. Further, a
memorandum can satisfy the Statute of Frauds and read together if it includes various writings, of which one is
signed, and they all closely relate to the same transaction via the doctrine of linkage.
 In Crabtree, the court held that additional documents regarding the same transaction, linked by parol
evidence, can be viewed in the amalgam to satisfy the Statute of Frauds.

Exceptions: A contract for the transfer of an interest in land can be enforced despite the failure to comport with
the Statute of Frauds if the party seeking enforcement, reasonably relied on the contract and continuing assent
of the party against whom enforcement is sought, and injustice can only be avoided by specific enforcement.
See R§129.
 In Beaver, the court held that a contract for the transfer of an interest in land can be enforced, even
though it does not comport with the statute of frauds, when the party seeking enforcement executed
partial performance of the contract. This indicates a reasonable reliance and continuing assent of the
plaintiff party, and thus comports with the statute of frauds exception.
The parol evidence must be unequivocally referable for the purchase and sale of land although there is
no writing to state that.

à When there is a promise not in writing where the promisor should reasonably expect to induce action or
forbearance by the promisee, and does induce action or forbearance, is enforceable notwithstanding the
Statute of Frauds if injustice can be avoided only by enforcement of the promise. The court should consider
the adequacy of other remedies, the definite and substantial character of the action/forbearance, the extent to
which the action/forbearance corroborates evidence of the making and terms of the promise or the making and
terms are otherwise established through clear and convincing evidence, and the extent to which the action or
forbearance was foreseeable by the promisor. R§139.
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  In Alaska Democratic Party v. Rice, the court found that a party could recover on promissory estoppel
when her employment contract did not comport with the Statute of Frauds and she reasonably relied.
Many states do not follow this section because it is a situation that the Statute of Frauds is meant to
prevent.
Many courts have held not only that writing is required when the modification brings the contract under SOF,
but also that all modifications must be in writing when the original contract was under SOF. However, other
courts require a memo that specifies only quantity, other terms (like price) may be oral.

UCC: Under §2-201, contracts for the sale of goods for the price of $500+ is not enforceable unless there is a
signed writing that indicates a contract for sale has been formed and signed by the party (or party’s agent)
against whom enforcement is sought. A writing is not insufficient because it omits or incorrectly states an
agreed upon term. It is not enforceable beyond the quality shown in the writing.
 Between merchants, if a written confirmation is sent and received within a reasonable time, is sufficient
against the sender, and the recipient has reason to know of its contents, it is enforceable against the
recipient unless the recipient objects to it within 10 days of receipt. This applies even to the lowest order
of merchants, or “one who answers their mail”. **lowest order of merchant**
NOM clauses are usually not enforceable under the common law. Under UCC, though, they are enforceable as
they create a private SOF between parties.
EXCEPTIONS:
 Goods that are custom made and are not suitable for sale to others in the ordinary course of the seller’s
business. Custom made goods indicate, via actions, that a contract for the goods was in place even if it
was not in writing.
o Further the seller must have made a substantial beginning of their manufacturing or
commitments for their procurement before repudiation is received or under circumstances which
reasonably indicate that the goods are for the buyer.
 Actions speak louder than words.
 Goods which the parties admit that a contract for the sale was made, but the contract is not enforceable
for the quantity stipulated.
 Goods for which payment has been made and accepted or which have been received and accepted.
 In Buffaloe, the court found there was a contract even though one party tried to terminate it because that
party accepted payment for the goods already.

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24 Wayne
 Parol Evidence Rule
The parol evidence rule is a substantive rule that defines the subject of interpretation of contracts. It is a rule of
exclusion which limits the evidence that can be considered. Note that integration is the final written form of the
agreement which stands for everything in the past.

In order to determine whether to put the parol evidence rule in place, the following steps must be considered:
STEP 1: Is it a completely integrated agreement?
An integrated agreement is a writing or writings constituting a final expression of one or more terms of an
agreement. R§209.
The determination of whether an agreement is integrated is a question that precedes interpretation
analysis and application of the parol evidence rule. R§209.
Where the parties reduce an agreement to a writing which in view of its completeness and specificity
reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless other
evidence establishes that it did not constitute a final expression. R§209.
A completed integrated agreement is an integrated agreement adopted by the parties as a final and exclusive
statement of the terms of the agreement. R§210.
Exclusive means there is no other agreement. Finality means that the agreement is finished.
A partially integrated agreement is an integrated agreement other than a completely integrated agreement. It
deals with some, but not all aspects of the transaction. R§210.

STEP 2: What other evidence can be admitted?

A binding, integrated agreement discharges prior agreements to the extent that it is inconsistent with them. A
binding, completely integrated agreement discharges prior agreements to the extent to which they are within the
scope. R§213.
Evidence and agreements prior or contemporaneous with the adoption of a writing are admissible in evidence to
establish that the writing is/isn’t an integrated agreement; the integrated agreement is partially/completely
integrated; the meaning of the writing; illegality/fraud/duress/mistake/lack of consideration/other invalidating
cause; grounds for granting or denying rescission/reformation/specific performance/other remedy. R§214.
 In Sherrod, the court held that evidence of fraud cannot contradict the terms of the contract.
In Riverisland, the court held the parol evidence rule can never be used to bar a claim of fraud because
the agreement would be invalid if fraud is proven.
Where there is a binding agreement, evidence of prior or contemporaneous agreements are not admissible to
contradict a term of the writing. R§215.
Evidence of a consistent additional term is admissible to supplement an integrated agreement the agreement
was completely integrated. R§216.
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 An agreement is not completely integrated if the writing omits a consistent additional agreed term which
is either agreed to for separate consideration, or which might naturally omitted in the writing.
NOTE: PER does NOT exclude evidence offered to interpret or explain the meaning of the agreement; does not
apply to agreements made after the execution of the writing; does not apply to evidence showing that
effectiveness of the agreement was subject to a condition precedent; doesn’t apply to show the agreement is
invalid for any reason (i.e. fraud); doesn’t apply to establish a right to an equitable remedy; does not apply to
establish a collateral agreement between the parties. R§214.
In Thompson, the court held that evidence establishing an oral warranty was excluded by the PER because it
was not collateral to the agreement

UCC: Under the §2-202, the terms set forth in a writing which is intended to be the final expression of their
agreement by the parties may not be contradicted by evidence of any other prior agreement/contemporaneous
oral agreement but can be explained/supplemented by the course of performance/course of dealing/usage of
trade or by evidence of consistent additional terms unless the court finds that the writing was intended to be a
complete and exclusive statement of the terms of the agreement.
Unless explicitly negated with specificity, usage of trade/course of performance/course of dealings are always
included because the background is necessary to understand the agreement in fact. Contradiction requires a
complete negation.
In Nanakuli, the court held that construing ‘posted price’ to mean price protection proven by extrinsic
evidence did not contradict the evidence.

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 Interpretation
When there is ambiguity (meaning the word or phrase can have several reasonable meanings) or vagueness
(aware of the meaning, but unsure if the instance falls within the range of the meaning), courts must interpret
the contract to find the meaning that the parties intended.

Under the modified objective approach, when there is a dispute over what the written contract means, courts
interpret the contract with the innocent party’s meaning.

Interpretation of a promise, agreement, or term is the ascertainment of its meaning. R§200.

 Where the parties have attached the same meaning to a promise, agreement, or term, it is interpreted in
accordance with that meaning. R.§201.
 Where the parties attach different meanings to a promise, agreement, or term, it is interpreted with the
meaning attached by one of the parties, if at the time the agreement was made… R§201.
o That party didn’t know of any different meaning by the other, and the other party knew the
meaning attached by the first party. R§201.
o That party had no reason to know of any different meaning attached by the other, and the other
had reason to know the meaning attached by the first party. R§201.
 In Joyner, the court held that typical business meaning can guide the analysis of whether one of the
parties should have known the meaning attached by the other party.
 In Frigaliment, the court held that the party failed to show that the parties agreed to a narrow meaning of
the word in light of testimony about the usage of trade, government standards, course of performance,
and price.

Note: There is no manifestation of mutual assent in an exchange if the parties attach materially different
meanings to their manifestations and…
Neither party knows/had reason to know of the meaning attached by the other.
Each party knows or each party has reason to know the meaning attached by the other.

Interpretive Principles R.§202

 The meaning of a word in a series is affected by others in the same series.
 A general term joined with a specific one will be deemed to include only things that are like the specific
one.
 An interpretation that makes the contract valid is preferred to one that makes it invalid.

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  A writing or writings that form a part of the same transaction should be interpreted together as a whole
—every term should be interpreted as part of the whole and not isolated from it.
 The principal apparent purpose of the parties is given great weight in determining the meaning to be
given to manifestation of intention.
Preference in Interpretation R. §203.
 Interpretation for lawful and reasonable meaning to all the terms is preferred to an interpretation which
leaves a part unreasonable, unlawful, or of no effect.
 Express terms are given greater weight than the course of performance, course of dealing, and usage of
trade
 Specific and exact terms are given more weight than general language
 Separately negotiated or added terms are given more weight than standardized terms/terms not
separately negotiated.
When choosing between the reasonable meanings of the agreement, the interpretation against the drafting
party is preferred. R.§206. When choosing between the reasonable meanings of the agreement, the meaning
that serves public interest is preferred. R.§207.
Usage is habitual or customary practice. R§219. An agreement is interpreted in accordance with relevant usage
if each party knew/had reason to know of the usage and neither party knew/had reason to know that the
meaning attached by the other was inconsistent with the usage. R.§220. An agreement is supplemented or
qualified by usage with respect to agreements of the same type if each party knows/has reason to know of the
usage and neither knows/has reason to know that the other party has an intention inconsistent with the usage.
Usage of trade is a usage having such regularity/observance in a place, vocation or trade that justifies an
expectation that it will be observed in an agreement. R.§222.
The course of dealing is a sequence of previous conduct between the parties to an agreement which can be
fairly regarded as establishing a common basis of understanding for interpreting their expressions and their
conduct.
An Adhesion Contract is a contract, which is typically a standard form contract, which has some degree of
imbalance of bargaining power. The terms stick—you cannot get around them. It is offered on a take-it-or-
leave-it basis with little to no room for bargaining or negotiations between the parties. Typically, the drafting
party participates in numerous transactions while the adhering party enters into few. The adhering party’s
principal obligation is the payment.
Where a party to an agreement signs/manifests assent to a writing and has reason to believe that the writing is
regularly used to embody the terms of agreements of the same type, he adopts the writing as an integrated
agreement with respect to the terms included in the writing. R.§211.
 The writing is interpreted wherever reasonable as treating alike all those similarly situated, without
regard to their knowledge or understanding of the standard writing.
 Where the other party has reason to believe that the party manifesting such assent would not do so if he
knew that the writing contained in a particular term, the term is not a part of the contract.
In C.J. Fertilizer, the court held that a provision in an insurance policy was not a part of the contract because it
rendered the policy useless.

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 Implied Terms
Sometimes courts will recognize terms that are not express in the contract, but implicit in the parties’ words and
conduct. (if the document makes no sense without the term, read it in) When the parties bargain to a sufficiently
defined contract, but have not agreed to an essential term to the determination of their rights and duties at time
of formation, the court may supply the term if it is reasonable in the circumstances. R.§204.
In Lady Lucy Duff, the court found one of the parties had an implied duty to market the designs because
the agreement gave the party rights to half the profits. The agreement would not have made sense
without that duty.
UCC: Under 2-309, termination of a contract by one party except on the happening of an agreed even requires
that reasonable notification be received by the other party. Parties can contract out of this provision. Parties
cannot contract out of implied term of good faith.
In Leibel, the court held that the UCC imposed an implied term of reasonable notification for
termination of an agreement for the sale of goods in a dealer-distributorship relationship. A term is
unconscionable if there is not such a notice implied within the transaction.
Good Faith
Every contract imposes on each party a duty of good faith and fair dealing in performance and enforcement.
R§205. Good faith is in the eye of the beholder—you know it when you see it. Bad faith has a bad motive, more
than acting in a certain way for a business reason (can be a concealment or lack of diligence) to deprive the
other party of the reasonably expected fruits of the contract. It can include concealing something, abusing of
bargaining power, denying someone their fruits of the contract, and acting in a way that is not a good business
reason.
This calls for honesty in fact in the conduct or transaction concerned. Bad faith conduct usually involves
violating community standards of decency, fairness, or reasonableness.
Discretion is bounded by the implied term of good faith.
In Locke, the court held that a party was bound to act in good faith with honesty in exercising their discretion
when they hold power over the other party
In Seidenberg, the court determined that bad faith is determined via a trier of fact. It was also found that,
because good faith is implied in a contract, the parole evidence rule cannot be applied, as there is nothing to
look for extrinsically.

When it is a condition of the obligor’s duty that he be satisfied in respect to the obligee’s performance, and it is
practicable to determine whether a reasonable person in the position of the obligor would be satisfied, the
interpretation of a reasonable person in the position of the obligor is preferred. R§228. If the terms of the
contract expressly provide that the subjective approach to satisfaction applies, then the court will apply that.
The subjective approach looks at the individual obligor to determine whether in their heart of hearts, is
the obligor satisfied. Under the objective approach, the consideration is whether a reasonable person
would be satisfied.

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 In Morin, the court held that the objective standard for the obligor’s satisfaction applied because the
contract did not expressly require that it be based on the subjective standard. This indicates that the
nature of contracts is what will typically govern a court’s decision to use the subjective cs. Objective
approach
In Getsen it was found that employers cannot act in bad faith to deny an employee benefits he could
reasonably expect, even if he is an at-will employee

UCC: Under §1-304, every contract imposes an obligation of good faith in performance and enforcement. This
requires honesty in fact and observance of reasonable commercial standards of fair dealings. §1-201(20). A
failure to perform or enforce a specific duty/obligation in good faith constitutes breach.

Electronic & Layered Contracts

Shrink-wrap terms occur when a purchaser orders a product and receives possession of it wrapped in plastic.
When the purchaser opens the plastic, he/she can inspect the product and terms. After a time-period for return
has passed, the purchaser has agreed to the terms.
Clickwrap terms occur when a purchaser must scroll through the seller’s terms and conditions and click ‘I
agree’ or the equivalent. If the purchaser refuses, the seller will not complete the sale.
Browswrap terms occur when the user accesses a site but is not required or encouraged to scroll through the
terms and conditions or click ‘I agree.’ These are usually enforceable if the user is provided with adequate
notice of the terms; the user has meaningful opportunity to review the terms; and the user is provided with
adequate notice that specified actions manifest assent to the terms.
In Defontes, the court held that §2-207 did not apply because there were not two forms (the oral
agreement was not considered a ‘form’) and therefore, the additional subsequent terms were
enforceable.
In Hines, the court held that when terms are inconspicuous or hidden, they were not enforceable against
users of the website.

30 Wayne
 Warranties – UNDER THE UCC
The Warranty of Title provides that a seller warrants that title conveyed shall be good and transfer is rightful,
and that the goods delivered are free of any security interest or other lien/encumbrance of which the buyer at the
time of contracting has no knowledge. §2-312.

The Warranty of Quality asks what the seller agreed to sell. There are many types under different provisions
of the UCC…… (See below)

Express Warranties can be created by the seller through… §2-313.

 Any affirmation of fact or promise made by the seller to the buyer relating to the goods which become
the basis of the bargain.
 Any description of the goods which is made part of the basis of the bargain.
 Any sample or model which is made part of the basis of the bargain.
The goods must conform to the affirmation/promise; description; or sample/model.
An affirmation of the value of the goods or the seller’s opinion of the goods DO NOT create a warranty.
Further, the words ‘warrant’ or ‘guarantee’ do not necessary create a warranty.
Whether the representation would have reasonably considered an express warranty.
The buyer does not have to rely on the statement in order to find a violation of the warranty

The Implied Warranty of Merchantability provides a warranty that the goods shall be merchantable in a
contract for their sale if the seller is the highest order of merchant, dealing in goods of the kind. §2-314.
Under this warranty, the goods must…
 Pass without objection in the trade
 Be of fair average quality
 Be fit for the ordinary purposes
 Be adequately contained/package/labeled as the agreement may require
 Run (within variations permitted by the agreement) of even kind, quality, and quantity within each unit
and among all units.

The Implied Warranty of Fitness for a Particular Purpose provides that where a seller, at the time of
contracting, has reasoning to know of any particular purpose for which the goods are required and that the buyer
is relying on the seller’s skill or judgement to select or furnish suitable goods, there is a warranty that those
goods shall be fit for such purpose, unless excluded. §2-315.

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In Bayliner, the court held that an express warranty wasn’t created because the buyer looked at a model of a
different boat than the one that he bought, and there was no warranty for a particular purpose because the buyer
never indicated the specific requirements he needed for competitive fishing.

Third-Party Beneficiaries of Warranties: Warranties can be extended to parties besides the buyer… §2-318.
 A seller's warranty can extend to any natural person who is in the family or household of the buyer or
who is a guest if it is reasonable to expect that such person can use, consume, or be affected by the
goods and who is injured by breach of the warranty. Seller cannot limit this.
 The seller’s warranty extends to any natural person who may be reasonable expected to use, consume, or
be affected by the goods and who is injured in person by breach of the warranty. Seller cannot limit this.
 A seller’s warranty extends to any person who may be reasonably expected to use consume or be
affected by the goods and who is injured by breach of the warranty.

In Speight, the court held that a warranty for workmanlike construction could extend to future buyers of a home
from which there was no privity with the builders.

Exclusion of Implied Warranties

Exclusion of express warranties: Words/conduct relevant to the creation of an express warranty and
words/conduct tending to negate or limit the warranty shall be construed wherever reasonable as consistent with
each other, but subject to the parol evidence negation. If not, the limitation is inoperative to the extent that the
construction is unreasonable. §2-316.
It there is a conflict between the writing and the warranty, warranty wins out.

Exclusion of the implied warranty of merchantability: To exclude or modify the implied warranty of
merchantability, the language must mention merchantability and in the case of a writing, must be conspicuous.
§2-316.

Exclusion of the implied warranty for a particular purpose: Language to exclude all implied warranties of
fitness must be in writing and conspicuous. It is sufficient if it states, “there is no warranties which extend
beyond the description on the face hereof.” §2-316.

Unless the circumstances indicate otherwise, all implied warranties are excluded by the expressions like ‘as
is’ or ‘with all faults’ (language that commonly calls the buyer’s attention to exclusion of warranties and
makes plain that there is no implied warranty). §2-316.

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If the buyer, before entering into the contract, has examined the goods/sample/model or has refused to examine
the goods, there is no implied warranty regarding defects which would have been revealed upon examination.
§2-316.

An implied warranty can be excluded or modified by the course of dealings, course of performance, or usage of
trade. §2-316.

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 DEFENSES
Infancy
Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties
until the beginning of the day before the person’s 18th birthday. R§14.
 Once the infant reaches age of majority, the person can affirm or disaffirm any contractual obligations.
 If the infant has reached the age of majority and has not expressly affirmed or disaffirmed a contractual
obligation, the person is deemed to have affirmed it once a reasonable amount of time has lapsed. This
operates as implied validation.
Under the common law rule, the infant can rescind the contract.

Modern Rules: Where the minor has not been unduly influenced, the contract is fair and reasonable, and the
minor has paid for and used the article purchased, the minor cannot recover the amount actually paid without
allowing the vendor to recover the reasonable compensation…
 For a deduction of the minor’s use of the consider he/she received under the contract.
 For the use, depreciation, or damage to the article while it was in the minor’s home.
In Dodson, the court held that the minor could rescind the contract, however, the minor was still liable for the
depreciation of value of the truck which the minor totaled.

Exceptions: If the infant has induced the contract based on fraud, the infancy defense cannot be used.
If the infant has married, the infancy defense cannot be used.
If the infant is purchasing necessities (food/clothing/shelter), the infancy defense cannot be used.

Mental Incapacity
A person incurs voidable contractual duties by entering into a transaction if by reason of mental illness or
defect… R. §15.
 He is unable to understand in a reasonable manner the nature and consequences of the transaction and
the other party has reason to know if his condition. R. §15.
 He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to
know of his condition. R. §15.
If the contract is fair and the other party has no knowledge of the mental illness/defect, the power of avoidance
terminates to the extent that the contract has been performed in whole/in part or the circumstances have so
changed that avoidance would be unjust. R. §15.

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NOTE: DOES NOT require proof that the party claimed mental illness or defect had a significant duration or
was permanent. Without medical/expert testimony that the mental condition interfered with the party’s
understanding of the transaction/her ability to act reasonably in relation to it, the evidence will not be sufficient
to support a conclusion of incapacity.

Cognitive Test: Whether the person could not understand the nature and quality of the transaction or grasp its
significance.
Volitional Test/Modern Test: Under the modern test, you ask whether the transaction is the kind a reasonably
competent person would make. The other party’s perception of the situation is also in question- do they know
of the condition pled? Under Sparrow, the court held that medical tests would have been needed to excuse the
contract, and that she, as a reasonably competent person, could have made the deal in question.

Intoxication: A person incurs only voidable contractual duties by entering into a transaction if the other party
has reason to know that by reason of intoxication… R. §16.
 He is unable to understand in a reasonable manner the nature and consequence of the transaction.
 He is unable to act in a reasonable manner in relation to the transaction.

Duress
If conduct appearing to be a manifestation of assent by a party who does not intend to engage that conduct is
physically compelled by duress, the conduct is not effective as a manifestation of assent. R§174. (no K formed)

If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim
with no reasonable alternative, the contract is voidable. R§175.

If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is
voidable by the victim unless the other party to the transaction in good faith and without reason to know of the
duress gives value or relies materially on the transaction. R§175.

In Totem Marine, the court held that using a party’s dire economic situation to forge a lower deal was a form of
duress because the party only had the options of bankruptcy or agreeing.

A threat is improper if… R.§176.

 It is a crime or tort.
 The threat is criminal prosecution.

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  The threat is the use of civil process and the treat is made in bad faith.
 The treat is a breach of the duty of good faith and fair dealing under a contract with the recipient.

A threat is improper if the resulting exchange is not on fair terms and…

 The threatened action would harm the recipient and not significantly benefit the party making the threat.
 The effectiveness of the treat inducing the manifestation of assent is significantly increased by prior
unfair dealing by the party making the threat.
 The threat is otherwise a use of power for illegitimate ends.

Undue Influence
Undue influence is unfair persuasion of a party who is under the domination of the person exercising the
persuasion or who, because the relation between them, is justified in assuming that a person will not act in a
manner inconsistent with his welfare. R§177. This renders the contract voidable by the victim.
The mere fact that the party is weak, infirm, or aged does not suffice, however, it can be a factor.

In Odorizzi, the court found that over-persuasion usually includes several of the following…
1. Discussion of the transaction in an unusual/inappropriate time
2. Consummation of the transaction in an unusual place
3. Insistent demands that the business be finished at once
4. Extreme emphasis on the consequences of delay
5. Use of multiple persuaders by the dominant side against a single servient party
6. Absence of third-party advisors to the servient party
7. Statements that there is no time to consult with financial advisors or attorneys

In Odorizzi, the court found that there was undue influence when the party’s employers came to his home at
night after he was arrested for engaging in homosexual sex, held in jail, hadn’t over 40 hours without sleep, and
was pressured into immediately accept the agreement without counsel.
Two circumstances when Undue Influence can be found:

1. Susceptibility due to weakness of mind

a. Coercive, high pressure to person in weakened spot
2. Susceptibility due to a special relationship
a. Fiduciary or other special relationship

Duress as defined in Odorizzi is significantly narrower than in modern times.

Misrepresentation
A misrepresentation is an assertion that is not in accord with the facts. R§159.
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A misrepresentation induces a party’s manifestation of assent if it substantially contributes to his decision to
manifest assent. R§167.
 If a party’s manifestation of assent is induced by either a fraudulent or material misrepresentation by
the other party and the recipient is justified in relying, the contract is voidable, unless the other party acts
in good faith and without reason to know of the misrepresentation relies materially on the transaction.
R§164.
 If a misrepresentation as to the character or essential term of a proposed contract induces a
manifestation of assent by one who neither knows or has reasonable opportunity to know of the
character or essential term of the proposed contract, his conduct is not effective as a manifestation of
assent. R.§163.
A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest the assent
and the maker… R.§162.
 Knows or believes that the assertion is not in accord with the facts
 Doesn’t have the confidence that he states/implies in the truth of the assertion. (can be an opinion if
false)
 Knows that he doesn’t have the basis that he states/implies for the assertion.
Fraud misrepresentation can be executed through an affirmative misstatement, which is a deliberate lie;
concealment (hiding the truth); or nondisclosure (keeping silent).
Concealment: An action intended/known to be likely to prevent another from learning a fact is equivalent to an
assertion that the fact does not exist. R§160.
Nondisclosure as an Assertion: A non-disclosure of a fact known to him is equivalent to an assertion that the
fact does not exist only when… R§161.
 The person knows that disclosure of the fact is necessary to prevent a previous assertion from being a
misrepresentation/fraudulent/material.
 The person knows that disclosure would correct a mistake of the other party as to a basic assumption on
which the party is making the contract and nondisclosure amounts to failure to act in good faith and fair
dealings.
 The person knows that disclosure of the fact would correct a mistake of the other party as to the contents
or effect of a writing embodying an agreement in whole or in part.
 The person is entitled to know of the fact because a relation of trust and confidence between them.
In Strechtschulte, the court held that an opinion was a fraudulent misrepresentation when the person lied about
their opinion.
In Park 100, the court held that there was a fraudulent misrepresentation when the parties signed a document
which the other party had mislead them about the contents and legal effect of the writing.

A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if
the maker knows that it would be likely to induce the recipient to do so. R.§162.

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 Negligent misrepresentation is an honest, but careless misrepresentation. It occurs when a party
breaches a duty of ascertaining facts.
Innocent misrepresentation is an incorrect, but blameless misrepresentation.

An opinion is an assertion that expresses a belief without certainty to the existence of a fact or expresses a
judgement as to the quality, value, and authenticity, or similar matters. R§168.
 If it is reasonable to do so, a person hearing an opinion as to facts not disclosed or otherwise known to
that person can interpret it as an assertion if…
o The facts known to that person are not incompatible with his opinion
o He knows facts sufficient to justify him in forming it
If an assertion is an opinion, the person hearing it is not justified in relying on it unless the person…
 Is in a relationship of trust and confidence with the person asserting & it’s reasonable to rely on it.
 Reasonably believes that the person giving the opinion has a special skill/judgment/objectivity with the
subject matter.
 For some other reason, is particularly susceptible to a misrepresentation of the type involved.

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 Unconscionability
Some contracts may not be enforceable because enforcing it would be too shocking to the conscience of the
court. If a term of the contract is unconscionable, the court may enforce the remainder of the contract without
that term or limit the application of the term to avoid any unconscionable result. R.§208. Basically, same under
the UCC §2-302.
Procedural Unconscionability occurs when there is a lack of choice by one party or some other defect in the
bargaining process.
Substantive Unconscionability is when the terms are so one-sided that they are unfair or result in unfair
surprise.
In Williams, the court held that add-on clause to contract to sell household goods to a poor woman was
unconscionable. (Add-on clause keeps a balance on all goods purchased on credit rather than first-in-first out)

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In Higgins, the court found that a mandatory arbitration clause was unconscionable but enforced the remainder
of the contract.
In Quicken Loans, the court found that predatory lending policies rendered provisions of a contract to be
unenforceable.
Step One: Is this an adhesion contract? (A standardized contract that is imposed and drafted by the party of superior
bargaining strength and relegates to the other party only the opportunity to adhere to the contract or reject it.)

Step Two: if yes, then the court must determine whether other factors are present which, under established legal rules-
legislative or judicial- operate to render it unenforceable (unconscionable provisions would fit.) Unconscionability has
both a procedural and a substantive element, the former focusing on “oppression” or “surprise” due to unequal
bargaining power, the latter on “overly harsh” or “one-sided” results. The prevailing view is that both must be present to
render the contract unenforceable, but do not have to be present to the same degree. The more substantively
oppressive, the less evidence of procedural unconscionability is required.

Step Three: Does the petition challenge the entire agreement or just part? If it truly is only part, is that part
unconscionable?

Factors that may indicate procedural unconscionability:

Inconspicuous placement of the clause in question

Sophistication and experience of the parties

The party not being given time to examine the document

Factors that may indicate substantive unconscionability:

Harsh, one-sided practices

Set up in such a way as to preclude the claimant from seeking relief

Lacking a modicum of bilaterality- one side burdened unfairly

Unconscionability in arbitration clauses has been narrowed considerably. Now expected is a “firm showing” that the
arbitral costs would likely be prohibitive to the plaintiff. Both parties need not always be bound to arbitration, this does
not automatically indicate substantive unconscionability.

Public Policy
A term or contract can be unenforceable on grounds of public policy if the legislation provides that it is
unenforceable or the interest in its enforcement is clearly outweighed by public policy against the enforcement.
R §178.
In weighing the interest in enforcement, consider…
 The parties’ justified expectations
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  Any forfeiture that would result if enforcement was denied
 Any special public interest in the enforcement
In weighing a public policy against enforcement, consider…
 The strength of the policy as manifested by legislation or judicial decisions
 The likelihood that refusal to enforce the term will further that policy
 The seriousness of any misconduct involved and the extent to which it was deliberate
 The directness of the connection between that misconduct and the term
A public policy against enforcement can come from legislation or the need to protect some aspect of public
welfare, like restraint of family members and interference with other protected interests. R§179.
In In re Baby, the court held that traditional surrogacy contracts that depending on the surrender of the child or
termination of parental rights was not enforceable on public policy grounds.

A promise is unenforceable for public policy if it is an unreasonable restraint in trade. A promise restrains
trade when it limits competition in any business or restricts the promisor from gainful occupation. R §186.
If the agreement isn’t ancillary to an otherwise valid transaction or relationship, it is unreasonable. R §187.
Promises for restraints include…
 Promise by the seller of the business not to compete with the buyer in a way that would injure the value
of the business sold
 Promise by an employee or another agent to not compete with his employer/principal
 Promise by a partner not to compete with a partnership
A restraint that is ancillary can still be unreasonable if… R §188.
 The restraint is greater than needed to protect the promisee’s legitimate interest
 The promisee’s need is outweighed by hardship to promisor and the likely injury to the public
In Valley Medical, the court held that patient’s right to choose their doctor was a strong public interest and the
geographical scope, time duration, and material scope of the noncompete agreement was unreasonable.

The Blue Pencil Approach can make revised agreements enforceable if a grammatically cognizable agreement
without the objectionable portions can be found by crossing out those portions.
Moral Hazard: Creates an incentive to act unethically because the courts will just cross out anything
unreasonable.
Mistake
A mistake is a belief not in accord with the facts. R§151.
This is about fact—not a prediction of the future or a matter of opinion.

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A mutual mistake is an error of fact by both parties at the time the contract was formed as to a basic
assumption of the contract which had a material effect and the adversely effected parties does not bear the risk
of the mistake. R.§152.
A party bears the risk of the mistake if…
 The contract says so (as is clauses)
 Conscious ignorance (assumed risk)
 Court decides so (reasonable in the circumstances)
The contract is voidable by the adversely affected party.
In Lenawee, the court held that the party bore the risk of the agreement because the contract contained an ‘as is’
clause.

A unilateral mistake is an error of fact by both parties at the time the contract was formed as to a basic
assumption of the contract which had a material effect and the adversely effected parties does not bear the risk
of the mistake. R.§153.
A party bears the risk of the mistake if…
 The contract says so (as is clauses)
 Conscious ignorance (assumed risk)
 Court decides so (reasonable in the circumstances)
o Can be negligence on the side of the mistaken party, which could preclude relief or tip balance in
favor of the other party.
AND Equity must favor relief for the mistake. This requires weighing hardship to the person suffering
the mistake against the unfairness to the other party.
 The effect of the mistake would render enforcement to be unconscionable
 The other party has reason to know of the mistake or cause the mistake.
o Nondisclosure as an Assertion: A non-disclosure of a fact known to him is equivalent to an
assertion that the fact does not exist when… R§161.
 The person knows that disclosure would correct a mistake of the other party as to a basic
assumption on which the party is making the contract and nondisclosure amounts to
failure to act in good faith and fair dealings.
The contract is voidable by the adversely affected party.
In DePrince, the court held that negligence of the adversely affected party could impact their defense for
unilateral mistake.
Test: The following facts must be established to qualify for rescission based on mistake of fact:

1. The D made a mistake regarding a basic assumption upon which the D made the contract
2. The mistake has a material effect upon the agreed exchange of performances that is adverse to the d
3. The d does not bear the risk of the mistake
4. The effect of the mistake is such that enforcement of the contract would be unconscionable
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R154 Allocation of Risk: A party bears the risk of mistake when

a) The risk is allocated to him by agreement of the parties or

b) He is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to
which the mistake relates but treats his limited knowledge as sufficient or
c) The risk is allocated to him by the court on the ground that it is reasonable to do so

Allocation of risk of mistake is really assigning responsibility for knowing the truth of the matter and bearing the burden
of ignorance.

Who is in a better position to know the truth of the matter?

IF 154 does not apply => R157

Impossibility, Impracticability & Frustration of Purpose

These are events that occur after the contract is formed, which are so different from the assumptions on which the contract
is based that it would be unfair to hold the adversely affected party to its commitments. If established, this will excuse
performance. Impracticable means that it is not feasible or doable.

Impossibility (DEATH OR DESTRUCTION)

If the existence of a particular person is necessary to perform a duty, his death/incapacity makes performance
impracticable is an event, which the nonoccurrence was a basic assumption on which the contract was made. R§262.
If the existence of a specific thing is necessary to perform a duty, its nonexistence, destruction or deterioration which
makes performance impracticable is an event, which the nonoccurrence was a basic assumption on which the contract was
made. R§263.
In Taylor, the court held that a party was not discharged from contractual obligations when the music hall being rented out
burnt down.
If the contract requires goods identified when the contract was made, and the goods are destroyed without fault of either
party before the risk of loss passes to the buyer…

 If the loss is total, the contract is avoided

 If the law is partial or the goods have deteriorated so badly that they no longer conform to the contract, the buyer
can demand inspection and decide whether to avoid the contract or accept the goods with a discount for the
deterioration/deficiency in quantity but without further right against the seller.

UCC: Under §2-613, if the contract requires for performance goods identified when the contract is made, and the goods
suffered casualty without the fault of either party before the risk of loss passes to the buyer…

 If the loss is total, the contract is avoided.

 If the loss is partial or the goods have been deteriorated so that they no longer conform to the contract, the buyer
can treat the contract as avoided or accept the goods with allowance from the contract price for the
deterioration/deficiency, but without further right against the seller.

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Impracticability (Unduly Burdensome)
After a contract is made, if a party’s performance is made impracticable without his fault by the occurrence of an event,
the nonoccurrence of which is a basic assumption the contract was made, the party’s duty to render that performance is
discharged unless there is language or circumstances indicating the contrary. R§261. Generally, decreased profits will not
be enough.
In Hemlock v. Sachsen, the court found that market shifts were not enough to warrant an adjustment to the contract and
surrounding terms.

UCC: Except when the seller assumed a greater obligation… §2-615.

 Delay in delivery or non-delivery in whole/in part by a seller is not in breach of his duty if performance as agreed
is impracticable by the occurrence of a contingency, the nonoccurrence of which is basic assumption of the
contract.
o If the causes only affect a part of the seller’s capacity to perform, the seller must allocate production and
deliveries among his customers in any manner which is fair and reasonable.
o The seller must notify the buyer seasonably that there will be a delay or non-delivery, or the estimated
quota if allocation is required.
Where the buyer receives notice of material/indefinite delay or an allocation justified under §2-615, and where the
prospective deficiency substantially impairs the value of the whole contract… §2-616.

 The buyer can terminate and discharge the unexecuted portion of the contract
 Modify the contract by agreeing to take his available quota in substitution

Frustration of Purpose (Pointless)

After a contract is made, if a party’s principal purpose is substantially frustrated without his fault by the occurrence of an
event the nonoccurrence of which was a basic assumption of the contract, his remaining duties for performance are
discharges unless language or circumstances indicating contrary. R§265.
The reason of the bargain goes away. This doctrine only applies if the primary purpose of the contract is frustrated.

In Mel Frank Tool, the court held that the inability to store hazardous waste was not the primary purpose of the lease and
the lessor still received value from the lease, so frustration of purpose did not apply.

Modification
Under the pre-existing duty rule, a person cannot promise to do something that the person was already legally
obligated to do. A similar performance is consideration if it differs from what was rewired by the duty in a way
which reflects more than a pretense of bargain. R.§73.
In Alaska Packers, the court held that a modification for the same exact performance of the original contract but
for more compensation was not enforceable.
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A promise modifying a duty under a contract not fully performed by either side is binding… R.§89.
 If the modification is fair & equitable in view of the circumstances not anticipated by the parties when
the contract was made. (unanticipated circumstances)
 To the extent provided by statute. (statute)
 To the extent that justice requires enforcement in view of a material change of position in reliance of the
promise. (reliance)

UCC: Under UCC §2-209, an agreement modifying a contract needs no consideration to be binding.
 Between a merchant and non-merchant, when no oral modification is permitted, form supplied by
merchant must be signed by the nonmerchant. (No oral agreements clauses are ok)
 The statute of frauds must be satisfied.
 If the above are not satisfied, the attempt to modify may work as a waiver.
 Waiver can be retracted on notice, unless material change by other party in reliance on waiver.
 If an attempt at modification or rescission doesn’t satisfy the requirements, it can operate as a waiver.
 A party who has made a waiver can retract the waiver by reasonable notification received by the other
party that strict performance will be required of the term unless the retraction would be unjust due to
material change of position in reliance of the waiver.
The modifications must be in good faith.
In Brookside, the court held the changes to the basil and price changes were enforceable despite the NOM
clause and modifications didn’t comport with the S of F because the party waived.
In Kelsey-Hayes it was found that you cannot frustrate/ adjust a contract when there is an inbalance of power.
You can also reserve rights to a particular form of a contract under UCC §1-308

Conditions
A condition is an event which is not certain to occur but must occur before performance of a contract becomes
due. R.§224. Performance of a duty subject to condition cannot become due unless the condition occurs or the
non-occurrence is excused. Non-occurrence of a condition is not breach by a party unless he is under a duty that
the condition occur. Unless the non-occurrence of the condition is excused, the non-occurrence of the condition
discharges the other party’s duty to perform. R. §225.
A condition can be created by agreement between the parties or by a term supplied by the court. R. §226.

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 If nonoccurrence of the condition excused, the obligator’s failure to perform can become breach because
the conditional duty becomes an unconditional duty.
The obligator is the person who is seeking the precedent obligation, their performance is conditioned on
satisfaction of the obligation. The obligee is the person that has a duty to perform the condition and is seeking
performance after the condition.

An express condition is a condition that arise out of agreement between the parties. In order to performance to
be due, the condition must be exactly satisfied/exact compliance. (LOOK for “provided that”/“if”)
Unless: waiver / disproportionate forfeiture
An implied condition is one that is read into the contract by the court. It is a condition that is not expressly
listed but is a condition that is necessarily there. Exact performance of the condition is not required. The
condition only needs to be substantially performed, meaning that close is good enough.

A party can waive a condition that is for that party’s benefit.

In determining whether an event is an express or implied condition, an interpretation for an implied term is
preferred when possible to avoid the obligee’s risk of forfeiture, unless the event is within the obligee’s control
or the obligee has assumed the risk. R.§227.

When it is a condition on the obligator’s duty is his satisfaction with the obligee’s performance or something
else, an interpretation is preferred which the condition occurs if a reasonable person in the position of the
obligator would be satisfied. R.§228.

If the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-
occurrence of the condition unless its occurrence is a material part of the agreed exchange. R.§229.
Forfeiture is a loss resulting in the breach or non-occurrence of some event. When one party expends
effort or investment for performance and cannot recover the loss because the failure of a condition.
In eXXco, the court found that there was no forfeiture when the party’s retained ownership of the things, but the
market only rendered them less valuable.
In JNA Realty, the court held that there was forfeiture because the parties’ invested in the restaurant which
would be a dead loss.
Material Breach and Substantial Performance
Full performance of a contractual duty discharges the duty. When performance of a contractual duty is due, any
nonperformance is a breach. R.§235.

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Total breach is a claim for damages based on all of the injured party’s remaining rights to performance.
R.§236.
Material, incurable/uncured breaches are total.
Partial breach is a claim for damages based on only a part of the injured party’s remaining rights to
performance. R.§236.
Nonmaterial or cured breaches are substantial performance.

If performance to be exchanged under an exchange of promises can be apportioned into corresponding pairs of
part performances so that each pair are agreed equivalents, a party’s performance of his party in a pair has the
same effect on the other party’s duties to perform of the agreed equivalent. R.§240. (A divisible contract)

To determine whether a breach is material, consider… R. §241.

 The extent the injured party would be deprived of the benefit of the bargain.
 The extent that the injured party can be adequately compensated for the part of the benefit which he will
be deprived.
 The extent which the failing party failed to perform will suffer forfeiture.
 The likelihood that the breaching party will cure his failure (account for all circumstances/reasonable
assurances).
 The extent to which the behavior of the breaching party comports to the standard of good faith and fair
dealings.

To determine whether at what time a party’s uncured material failure to perform discharges the other party’s
remaining duties to perform, consider… R.§242.
 The factors in §241
 The extent to which it reasonably appears to the injured party that delay may prevent or hinder him in
making substitute arrangements.
 The extent to which the agreement provides for performance without delay. A material failure to
perform or an offer to perform after the stated date does not discharge the party’s duties unless the
circumstances, like the language of the agreement, indicate that performance by that date is important.

Substantial performance and material breach are mutually exclusive.

Where there is substantial performance, a party can recover an allowance for the difference between the
value of what was actually performed and what was contracted for. The parties are not discharged from

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their duties. We assume that the parties are acting reasonably. There is a defect in performance that is
not material.

In Jacobs Youngs (laying pipe), the court found that there was substantial performance when the party built the
home, but used the wrong brand of pipes which were the same kind as the ones in the contract.

UCC: Under §2-507, tender of delivery is a condition to the buyer’s duty to accept goods and his duty to pay
for them. When payment is due on delivery, the buyer’s rights against the seller is conditional on making the
payment.

Under §2-511, unless otherwise agreed, the tender of payment is a condition to the seller’s duty to tender and
complete delivery. Tender of payment is sufficient by any means or manner in the ordinary course of business.

Cure: Under §2-508, If any tender or delivery is rejected because it is nonconforming and time for performance
has not expired, the seller can seasonably notify the buyer of his intention to cure and make a conforming
delivery within the contract time.
If the buyer rejects non-conforming tender which the seller had reasonable grounds to believe would be
acceptable with or without money allowance, the seller may (if he seasonably notifies the buyer) have further
reasonable time to substitute a conforming tender.

Perfect Tender Rule: Under §2-601, if the goods or tender of the delivery fail to conform to the contract, the
buyer can reject in whole, accept in whole, or accept some and reject the others. The rejection must be within a
reasonable time of their delivery or tender, and it is ineffective unless the buyer seasonably notifies the seller.
Any exercise of ownership over the goods by the buyer after rejection is wrongful, and the buyer must take
reasonable care of the goods if the buyer has possession for a time sufficient for the seller to take them. §2-602.

Buyer’s Duties: Under §2-603, the merchant buyer has a duty to follow any reasonable instruction received by
the seller, and in the absence of those instructions, must make reasonable efforts to sell them if they are
perishable for the seller’s accounts. Buyer is entitled to reimbursement for reasonable expenses in caring and
selling the goods as well as commission that is usual in the trade. The buyer must act in good faith. Under §2-
604, if the seller gives no instruction within a reasonable time after notification of rejection, the buyer can reject
goods for the seller’s account, reship them, or resell them with reimbursement for reasonable expenses in caring
and selling the goods as well as commission that is usual in the trade.

Under §2-606, acceptance of goods occurs when the buyer…

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  After reasonable opportunity to inspect signifies to the seller that the goods are conforming/retain them
in spite of their nonconformity
 Fails to make an effective rejection
 Does any act inconsistent with seller’s ownership
Acceptance of a part is acceptance of the whole.

Under §2-607, the buyer must pay at the contract rate for any goods accepted.

Under §2-612, an installment contract is a contract that requires the delivery of goods in separate lots to be
separately accepted, even though the contract contains a clause that ‘each delivery is a separate contract’.
 The buyer can reject a nonconforming installment if the non-conformity substantially impairs the value
of the installment and cannot be cured.
 Whenever the non-conformity substantially impairs the value to the contract as a whole, there is a
breach to the whole.
 The injured party reinstates the contract if he accepts a non-conforming installment without seasonably
notifying of cancellation or if he brings an action in respect to past installments or demands performance
of future installments.

Anticipatory Repudiation
A repudiation is… R§250.
 A statement by the obligator to the oblige that the obligator will commit a breach that would give the
obligee a claim to damages for total breach. Statement indicating that they will be in breach or unwilling
to perform.
 A voluntary affirmative act which renders the obligator unable or apparently unable to perform without
a breach.

Where there are reasonable grounds to believe that the obligator will commit breach through nonperformance,
the obligee may demand adequate assurance of due performance and may (if reasonable!) suspend any
performance for which he has not already received the agreed exchange until he receives the assurance. R.§251.
 If the obligator fails to provide assurance within a reasonable time, the obligee can treat that as
repudiation if its adequate in the circumstances.

If the obligator repudiates a duty before breach and before he has received all of the agreed exchange for it, his
repudiation gives rise to a claim for damages for total breach.

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If the performances are to be exchanged under an exchange of promises, a repudiation of a duty to render
performance discharges another party’s remaining duties to render performance.

A party can retract their repudiation if notification of the retraction is given to the injured party before he
materially changes his position in reliance of the repudiation or indicates to the repudiating party that he
considers the repudiation to be final. R. §256.
The effects of events other than a statement which repudiate a contract or a repudiation under §251
is nullified if, to the knowledge of the injured party, those events have ceased to exist before he
materially changes his position in reliance or indicates that he considers it to be final.

UCC: Under §2-609, a contract imposes an obligation on each party that the other’s expectation of performance
will not be impaired. When there are reasonable grounds for insecurity, the other party may demand adequate
assurance of performance in writing and until he receives such assurance and if it is commercially reasonable,
he can suspend any performance for which he has not already received the agreed return.
 Between merchants, the reasonable of grounds for insecurity and adequacy of assurance is determined
by commercial standards.

Under §2-610, if a party repudiates a contract where performance is not yet due and the loss will
substantially impair the value of the contract to the other, the injured party can…
 For a commercially reasonable time, wait for performance.
 Resort to remedies even though he has notified the repudiating party that he would await
performance and urge retraction (sue for breach)
 Suspend his own performance or proceed under §2-704.

Under §2-611, until the repudiating party’s performance is due, he can retract his repudiation unless the injured
party has materially changed his position or otherwise indicated that he considers the repudiation to be final.
 Retraction may be executed through any method that clearly indicates that the repudiating party intends
to perform and must include any assurance justifiably demanded under §2-209.
 Retraction reinstates the repudiating party’s rights under the contract with allowance and excuse to the
injured party for any delay by the repudiation.

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 Remedies
There are three kinds of damages that can be recovered—restitutionary interest, reliance interest, and
expectation interest. The expectation interest is typically the baseline and provides the party with the benefit of
his bargain. Damages for the restitutionary and reliance interests are second best remedies because they place
the party back at his precontractual position, without the benefit of the bargain.
Damages can only be recovered if they can be established with reasonable certainty. R.§352.

If the party is recovering reliance interest, the injured party can recover damages for expenditures made in
preparation for performance or in performance less any loss that the breaching party can prove with reasonable
certainty that the injured party would have suffered if the contract had been performed. R.§349.

If the injured party is recovering restitutionary interest, the party can recover to the extent that that party
conferred a benefit onto the other party through past performance or reliance. R.§370.

Under R.§347, when there is a total, uncured breach, an injured party has the right to damages based on his
expectation interest which can be measured by the loss in value to him caused by the other party’s deficiency
or failure to perform, as well as any loss caused by the breach, less any cost or loss avoided by not having to
perform. Get benefit of bargain.
When the contract has only been partially breached, the injured party can recover the loss in value
caused by the other party’s deficiency in performance as losses caused by the breach.
Diminution in value or costs of completion (typical for construction contract). if substantial
performance, get diminution in value unless intentional (Jacobs Young)
Mitigation: Damages are not recoverable if the injured party could have avoided the loss. However, a party is
not precluded from recovery if the party has made reasonable, but unsuccessful efforts to avoid loss. R. §350.
Foreseeability: Damages are not recoverable for loss that the breaching party did not have reason to foresee as
a probable result of breach when the contract was formed. A loss may be foreseeable if it follows from the
breach in the ordinary course of events or if the party had reason to know of it. R. §351.
In Hadley, the court held that lost profits could not be awarded when the breaching party had no reason to know
that it would incur lost profits as a result of their breach. (the mill press case)
Interest: If the breaching party fails to pay a definite sum of money, interest is recoverable from the time of
performance less all deductions which the breaching party is entitled.
Punitive Damages: Punitive damages are not awarded. R.§255.
Emotional Damages: Emotional damages are not awarded unless there is a personal injury arising out of a
breach of warranty.
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TOTAL BREACH FORMULA: loss of value + other loss - cost avoided – loss avoided.
Loss of value is the difference between what is received and what was promised (contract price).
Other loss are consequential (losses suffered as a result of breach) and incidental (losses suffered from
affirmative actions to mitigate damages) damages.
Cost avoided is the costs of performing which the party does not incur because the breach discharges the
duty to perform.
Loss avoided is the costs that a party does not lose because they reallocate the materials.
PARTIAL BREACH FORMULA: loss of value + other loss

SPECIFIC PERFORMANCE: Specific performance requires that the duties of the contract be performed
instead of awarding damages when justice requires. R.§358. Specific performance will often be rendered when
the contract involves the sale of the land because land is unique.
It will not be awarded if damages would adequately protect the injured party’s expectation interest. The
adequacy of damages does not preclude specific performance to the contract as a whole. R.§359.
Specific performance will not be enforced if the contract is a promise to render personal services. R.§367.
Specific performance will not be granted if it would be against public policy. R.§365.

UCC: Waiver: Under 1-306, a claim arising out of an alleged breach may be discharged in whole or in part
without consideration by agreement of the injured party in an authenticated record.

UCC Seller’s Damages

Under §2-706, the seller can recover damages for the difference in the contractual price and the resale price plus
incidental damages minus costs avoided.
The seller is obligated to have a competitive resale in good faith.

If there is no competitive resale or any resale, under §2-708, the seller can recover for the difference in the
contractual price and the market price of the goods plus incidentals minus costs avoided.

Under §2-708, the seller can recover for loss volume. The seller must prove that they would have sold the resale
goods even if the contract with the buyer went through. Thus, the seller can recover for the goods which were in
breach as well as the sale of the additional goods thereafter. Entitled to damages because resold goods for same
contractual price, suing for lost profits from

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UCC Buyer’s Damages
Cover Price Differential: Under §2-712, after breach, the buyer can cover by making in good faith/without
reasonable delay any reasonable purchase/contract to purchase goods in substitution with the goods due from
the seller. The buyer can recover the difference between the cost of coverage and contract price as well as
incidental or consequential damages.

Market Price Differential: Under §2-713, the measure for buyer’s damages for non-delivery or repudiation by
the seller is the difference between the market price at the time the buyer learned of breach and the contract
price as well as incidental and consequential damages.

Accepted Goods: Under §2-714, the buyer can recover damages for non-conformity of tender the loss resulting
in the ordinary course of events from the seller’s breach determined in any reasonable manner.
The measure for breach of warranty is the difference at the time and place of acceptance between the value of
the goods accepted and the value that they would have been if they had been warranted—unless there are
special circumstances.
In proper cases, incidental and consequential damages may be recovered.

Consequential and Incidental Damages: Under §2-715, incidental damages include expenses reasonably
incurred in inspection’ receipt, transportation, care, custody of goods rightfully rejected; any commercially
reasonably charges; expenses or commissions in connection with effecting cover, and any other reasonable
expenses incident to delay or other breach.
Under §2-715, consequential damages include any loss resulting from general or particular requirements/needs
that the seller had reason to know and could not be prevented by cover; or injury to person or property resulting
from a breach of warranty.

Specific Performance: Under §2-716, specific performance can be granted where the goods are unique or in
other proper circumstances. This may include enforcement of terms and conditions such as the payment of
price, damages, or other relief.
A buyer has the right to replevin for goods identified to the contract if, after reasonable effort, he is unable to
cover the goods or circumstances reasonably indicate that such effort will be unavailing.

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