THE OBJECTIVE THEORY OF CONTRACT

1. Rules:
 §2 Promise, Promisor, Promisee
 §4 How a Promise May be Made
 §17 Requirements of a Bargain
 §21 Intention to Be Legally Bound
2. Mutual Assent vs. Meeting of the Minds
 Meeting of the Minds: Subjective view in that the actual intention of a party, rather than that
party’s conduct, determines the party’s legal obligations
 Manifestation of Mutual Assent: Objective view in that it looks at the conduct of the parties from
the perspective of a reasonable person rather than their actual intentions
o The process is generally some form of negotiation, during which, at some point, one party
makes a proposal (an offer) and the other agrees to it (an acceptance)
o An actual subjective meeting of the minds is not necessary
 Courts use an objective measure, by which each party is bound to the apparent
intention that he manifested to the other
 Objective assent: A reasonable person in like positions would take as assent
 Subjective assent: Internal interpretation of the circumstances

3. Intention to be Legally Bound R §21

 Neither real nor apparent intention that a promise be legally binding is essential to the formation of
a contract, but a manifestation of intention that a promise shall not affect legal relations may
prevent the formation of a contract
o The law looks merely for a sufficient expression of commitment to perform
Ray v. Williams G. Eurice & Bros., Inc. (Anal Home Buyer Case)
o Ct. held that the builder breached his contract based on the interpretation of their contract
from a reasonable person in the position of the parties

4. Seriousness of the Promisor

 Lucy v. Zehmer (Contract in a Bar Case)
o Land-purchase contract was enforced despite the setting because the past dealings between
the parties made it reasonable for the buyer to believe that the seller was serious, and the
seller should have reasonably have known that
 Leonard v. PepsiCo, Inc. (Harrier Jet Pepsi Points Case)
o Ct. held for Pepsi stating that no reasonable viewer could have understood that the jet plane
shown in the ad was seriously offered

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OFFER & ACCEPTANCE

Bilateral Contracts
1. Offer-Bilateral Contract: R §24
 Offer Defined
o An offer is the “manifestation of willingness to enter into a bargain, so made to justify
another person in understanding that his assent to that bargain is invited and will
conclude it.”
o AKA an offer is a statement showing intention to be bound
o Offer must contain these elements either expressly or by implication:
1. Must be communicated to the person to whom it is addressed
2. Must indicate a desire to enter into a contract by specifying the performances to
be exchanged and the terms that will govern the relationship
o May also include the manner and time for an effective acceptance
3. Directed as some person or group of persons
o If multiple persons, must decide if it contemplates multiple acceptances or
may be accepted only by the first person to reply.
4. Must invite acceptance
o If mode of acceptance prescribed, must be followed.
o If not, court decided whether acceptance was reasonable and timely.
5. Must engender the reasonable understanding that acceptance will create the
contract
o Contract will arise without any further approval being required from the
offeror.
 An exchange of promises by both side of performance to take place in the future
 At minimum, must contain subject matter and ID of the parties
 §33 Certainty: A manifestation of intention can be accepted to form a contract if the terms are
reasonably certain.
o Terms in the contract must be certain, without certainty of terms there is no basis for
determining breach or for giving appropriate remedy (as in if one or more terms are left out
or ambiguous)  may show that it is not intended to be an offer.
2. Acceptance-Bilateral Contract: R §50-69. UCC §2206
 R§50: acceptance of offer defined
 When is power of acceptance created?
 Manner/mode of acceptance
 No foisting: Ex. cannot throw the money at someone, have them catch it, and say that is
acceptance.
 When acceptance takes effect
o R§63 Mailbox rule
 Unless the offer provides otherwise, acceptance is valid upon dispatch (Note: if the
offeror MAY prescribe a particular manner of acceptance R.60 its terms must be
complied with in order to create k)

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  Because in most states a revocation is effective only upon receipt, under the mailbox
rule if the offeree dispatches an acceptance before he receives a revocation sent by the
offeror, a contract is formed.
 This is true even though the acceptance is dispatched after the revocation is dispatched and received
after the revocation is received.
 Under an option k, acceptance is valid upon receipt r§63
a. Note: For international contracts, the acceptance valid upon dispatch BUT the offer must
reach offeror.
 R§69 Acceptance by silence or exercise of dominion
o Silence or inaction operates as acceptance only when:
(a) Offeree takes the benefit with reasonable opportunity to reject those services, yet has
reason to know expectation of compensation
(b) Where offeree has reason to know that assent may be manifested by silence or
inaction
(c) Previous dealings make it reasonable that the offeree should actively indicate
rejection
 Counter-offers = non-acceptance:
o R§39 Counter-offer relates to the same matter as the original offer and proposes a
substituted bargain
o R§59 Mirror Image Rule… Varying acceptance (conditional to terms additional or
different from the offer) is not acceptance but rather a counter-offer, preventing the
contract from being made on the terms of the original offer. Acceptance must be the exact
same as original offer. Normille case
 Gray area: de minimus change doesn’t interfere with the creation of k
o Last shot rule: determines when a counter-offer is accepted by “firing the last form” and
conduct indicating a lack of objection to it

Unilateral Contracts
1. Offer-Unilateral Contracts
 R §32: an offer invites the offeree to accept by promising or rendering performance: If in doubt, this
rule allows you to construe it to be bilateral
 One party makes a promise in exchange for an act. Offeree’s rendering of performance would
constitute acceptance

2. Acceptance
 Unilateral contracts accepted upon completion of the performance
 Partial performance: R §45:
o Applies where the offer calls for performance as the exclusive mode of acceptance, so that
commencement of performance cannot be an acceptance by promise, because such an
acceptance is not authorized.
o Treats the beginning or tender of performance as creating an option in favor of the offeree,
so that the offeror loses the right to revoke once performance has been tendered or begun.
 Offeree still must complete performance within a reasonable amount of time, or
option is not exercised and offer lapses.
 Rule does not usually apply when the offeree is only preparing to perform.
 However, if it was substantial preparations that constitute detrimental reliance, promise could be
binding to the extent of the detrimental reliance under R §§45, 87, 90

3. Cases

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  Petterson: (OLD WAY) Pre R2nd. The offeror may say, “I revoke” anytime before the offeree
accepts regardless of how brief the interval of time. He did not accept the $ & start revoking offer
before “agreement to accept” could be fulfilled
 Cook: Ct. held that ’s actions in staying with the company to ensure she was eligible for her bonus
(consideration) and high performance that employer was aware of/accepting initial bonus money
(acceptance) barred  from revoking the offer: A promise to pay a bonus in return for an at will
employee’s continued employment is an offer for a unilateral contract, which becomes enforceable
when accepted by employee’s performance
o Substantial Performance concept was introduced with this case.
 When promisee has performed, consideration is supplied, and the contract is
enforceable to the extent performed.
 Substantial performance of act: Offeror may not revoke the offer

4. Preliminary Negotiations: R §26: a statement showing merely an invitation to bargain constitutes

preliminary negotiations. If further assent is required, its only prelim negotiations.
 Includes advertisements and form letters
 The offeree must express his fixed purpose to conclude a bargain, without which, it is still in the
preliminary negotiations stage
 Lonergan v. Scolnick (Newspaper Ad for Land Case): ad considered only preliminary
negotiations because the language used was not intended as an expression of fixed purpose.
 General Rule: Advertisements are not considered offers because it is presumed that the consumer
knows it is just an invitation to offer and the product is not guaranteed.
 UNLESS they invite acceptance without further negotiations in clear, definite, express, and
unconditional language.
 Lefkowitz v. Great Minneapolis Surplus Store
 “First come, first served” was sufficient to be an offer
 Izadi v. Machado (Gus) Ford, Inc. (Shady Car Dealer Case)
o Ct. held that the deceptive ad was an offer, which the  accepted
o “If a contract contains clauses which are apparently repugnant to each other, they must be
given such an interpretation as will reconcile them.”
o “This situation invokes the applicability of a line of persuasive authority that a binding offer
may be implied from the very fact that deliberately misleading advertising intentionally leads
the reader to the conclusion that one exists.”
o If deliberately misleading ad though bad faith tactics and a reasonable person (reading the ad
objectively) would have though it conveyed a binding offer then court would likely rule in
favor of protection for the consumer rather than focus on duty to read

Counteroffer: R§39, 40
 The counteroffer is both a rejection of the offer and a new offer by the former offeree for a contract on
different terms.
 R §40, time when counter offer takes effect
 Counteroffer as a Rejection

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 o Offer made by the offeree to the offeror that contains the same subject matter as the original
offer, but differs in its terms.
o Classical Common Law
 Mirror Image Rule: acceptance must correspond exactly with the offer.
o Modern Common Law
 Response is only a counteroffer if it has a material discrepancy from the offer.
 BUT offeree’s changes do not automatically become part of the contract-
variations simply fall away.
o Mere Inquiry ≠Counteroffer
 Not terminate the offer when it is still keeping the original proposal under consideration.
 Test= Whether a reasonable person would believe that the original offer had been
rejected
 §59 Purported Acceptance which Adds Qualification: Conditional acceptance is a counteroffer
o UNLESS: ex. Offeree says would you consider other terms instead? I will accept if you do,
but if you don’t I will take your offer.

Conditional Offers: See R. statement page

Option Contract: R§87

 If u have a binding option contract, it removes the right of the offeror to revoke the underlying
contract (does not need to explicitly address revoking-can be something like, won’t sell to another)
 2 contracts in option contracts, the option contract, and the underlying contract
 If you don’t exercise option and accept during the time specified, offer not invalid/revoked-still on
the table until offeror revokes it.
 In an option contract, still must establish offer, acceptance and consideration as well, but sham
consideration ok for the option part
 Exception to mailbox rule with option contracts, valid upon receipt R§63
 If R. 87 is satisfied, then it is not revocable, regardless of what the wording says

Firm Offers: R§87(1)(b), UCC §2205

§ 2-205 Firm Offers
o Circumstances in which a promise to keep an offer open is enforceable even if no consideration
has been paid to keep the offer open:
 If a merchant; (MUST be by a merchant)
 2-104(1) Merchant is one who deals in goods of the kind involved in the transaction
or who otherwise, by trade or profession, represents that he has skill or knowledge in
regard to the goods or the transaction.
 (ii) Offers to sell goods in a signed writing; and
 Can be in electronic form
 If form supplied by the offeree, the offeror must sign the assurance separately
 (iii) The writing gives assurance that it will be held open
 (iv) The offer is not revocable for lack of consideration during the time stated, or if not
times is stated, for a reasonable time (but in no event may exceed 3 months)
o If an option is granted within an existing contract, it is part of the bundle of rights exchanged in the
contract and is supported by the grantee’s contractual consideration
 No additional consideration needed

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MERCHANT’S FIRM OFFER VS. OPTION CONTRACT
1. Similarities
 Both create an additional contract over the same subject-matter as the underlying contract
 The offeror cannot lawfully revoke the option prior to its expiration
o Option doesn’t come to an end if the offeree rejects it (or makes a counter-offer) before
the end of the option period.
o Common Law Exception: Offeror detrimentally relied on the rejection
 Must be in writing
o Firm Offer requires merchant’s signature, and
o If prepared by the offeree- separate, additional signature for the particular clause
 Effective on receipt- Mailbox Rule doesn’t apply
2. Differences
o Every Firm Offer is an Option Contract, but not every Option Contract is a Firm Offer
 Consideration
o Option Contract- Required (in addition to original consideration)
o Firm Offer- Not required
 Duration
o Option Contract- “Reasonable time”
o Firm Offer- “Not to exceed 3 months” (renewable)
 Parties
o Option Contract- Any type of offeror
o Firm Offer- Offeror must be a Merchant

POSTPONED BARGAINING

 UCC 2305 for incomplete K’s, and R 33 e tries to expand that to non goods contracts
 Formal contract contemplative FCC=where you know that the contract is and its agreed to, but needs
to be put in formal legal writing. UCC 2204 and R sec. 27

Missing or Vague Terms

 UCC § 2-204(3)
o Contract may be made in any manner, including conduct recognizing contract. Contract
may be found even if moment of making is unclear. One or more terms left out doesn’t
make a contract fail if parties intended contracting
o Allows a contract to arise even if some terms were left open
o But, more terms left open = less likely they intended to conclude a binding agreement
Article 2 Gap Fillers
 Open price terms: §2-305: Usually enforceable under UCC, but not under common law
o The parties if they so intend can conclude a k for sale even though the price is not settled.
In such a case the price is a REASONABLE price at the time for delivery if…
a. Nothing is said as to the price; or
b. The price is left to be agreed by the parties and they fail to agree; or
c. The price is to be fixed in terms of some agreed market or other standard as set or
recorded by a third person or agency and it is not so set or recorded
o A price to be fixed by the seller or buyer means a price for him to fix in GOOD FAITH
o When a price left to be fixed otherwise than by agreement of the parties fails to be fixed
through fault of one party the other may at his option treat the k as cancelled or himself fix
a reasonable price

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 o Where, however, the parties intend not to be bound unless the price be fixed or agreed and
it is not fixed or agreed there is no k. in such a case the buyer must return any goods
already received or if unable so to do must pay their reasonable value at the time of
delivery and the seller must return any portion of the price paid on account

 Critical to determine if parties intended to be bound despite missing terms

o Factors that indicate parties did not intend to be bound:
1. Contract is a type which requires writing for enforceability under the Statute of
Frauds
1. Contract contemplated involves large sums of money
2. Contract has many detail
3. Contract is an unusual one, for which a standard form is not available or
appropriate
4. Parties were apparently unwilling to proceed with any performance until the
formal document was prepared and signed
o Factors that indicate the parties meant to be bound:
1. No legal requirement of a writing for enforceability
2. Proposed contract appears relatively; no long term obligations
3. Contemplated “formal” contract is a standard-form document
4. Parties themselves, without waiting for the formality of execution, have proceeded
to perform, in a way that suggests they believed full and binding agreement to
have been reached.
Cases
 Pennzoil Texaco
o Formal Contract Contemplated. Even without signed contract, if have FCC and both parties
act as if they are in contract (i.e. hand shake, booze, press release, can be binding)
 Walker v. Keith
o The agreement to agree was unenforceable because it didn’t specify any formula by which it
could be fixed with certainty: need an objective and verifiable method for determining such
terms
o Ct. said that if the parties had not mentioned the term at all then they would have added it for
them  problem was that the parties tried to address it but were unsuccessful

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THE UCC
WHEN TO USE THE UCC PROVISIONS
1. §1-103 Construction of UCC to Promote Its Purposes and Policies; Applicability of
Supplemental Principles of Law
 Apply to commercial transactions
 Unless displaced by UCC provision, Common Law applies to transaction
2. §2-102 Scope
 Transaction must deal with sale of goods
o UCC applies to Sales of Goods regardless of merchant status of parties, BUT different
standard may apply depending on merchant status
 UCC does NOT cover contracts for the sale of real estate, contracts to provide services, or
contracts to lease goods
3. Begin EVERY UCC Analysis With Two Questions
1. Is the contract for a sale of goods?
o § 2-105 Goods are movable at the time of sale
o Make sure it is predominantly a sale for goods instead of services
2. Are the parties merchants?
o UCC applies when (i) both parties are merchants (ii) only 1 party is a merchant (iii) no party
is a merchant
o Merchant status may change the standard that is applied in some situations.
4. UCC vs. Restatements
 UCC allows for easier, more equitable contract formation
o R §59 “Mirror Image” Rule
 Common Law treats “varying” acceptance as only considered a counter-offer preventing
the contract from being formed on the terms of the original offer.
o “Last Shot” Rule
 Common Law determines when a counter-offer was accepted by conduct indicating lack
of object to it.
 This practice favors sellers, because sellers normally send the last form

CONTRACT FORMATION UNDER UCC

Changes to formation rules that the Code does make are largely reflected in Sections 2-201 through 2-
210
 § 2-204 Formation in General
o Focus on the existence of agreement between the parties, whether shown by words or conduct,
and if agreement is apparent, the court should not be concerned with technicalities.
 §2-206 Offer & Acceptance in Formation of Contract
o Offer should be interpreted as inviting acceptance by any reasonable mode unless the offer or
circumstances make it clear that the mode is restricted
OFFERS UNDER UCC
1. Written?
 UCC doesn’t define and offer, §1-103 defers to common law definition
 § 2-201 Formal Requirements; Statute of Frauds
o A contract for the sale of goods have three definite and invariable requirements under this
section:
1. Writing requirement must evidence a contract for the sale of goods or falls within an
exception
 Price of $500 or more
 Exception= Partial Performance

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 2. Signature also required from party enforcement is sought
 § 1-201(37) “Signed”- includes using any symbol executed or adopted with
present intention to adopt or accept a writing
 Alternative Signature Forms= Initial; Letterhead and Watermark (depends when
used); Email (signed by authority of “E-Sign” Act)
3. Quantity must be certain or capable of being certain
 Contract valid for the quantity stated in writing or that have been accepted (partial
performance)

QUALIFIED ACCEPTANCE: THE “BATTLE OF THE FORMS”

UCC § 2-207 Purpose and Overview
 Created from dissatisfaction with the common law rule mirror image and last shot rules because they
produced unfair results
o Favored Seller (last document) (ii) Prevented Contract Formation
 2-207(1): Overturn the mirror image and last shot rules
 2-207(2): Prevents last shot rule form determining the terms of the contract
 2-207(3): Deals with parties who have no formal contract but acted as if they had a
contractual relationship
 2-207(1) and 2-207(3) are MUTUALLY EXCLUSIVE
1. §2-207(1): Steps
o Section determines if contract was formed in two separate situations: (i) Parties exchange writings;
and (ii) Parties enter into an oral agreement followed by a confirmation of that agreement by one or
both parties.
o Parties exchange writings.
1. Was an offer made? Look to common law R §24 to determine
2. Did Offeree manifest assent to the offer?
 Manifest Assent= a “definite a seasonable expression of expression of acceptance”
 §1-205 Seasonableness- depends on the “nature, purpose, and circumstances of the
action.”
o Can look to industry standards
 [If yes to 1. & 2. (And not considered a conditional acceptance)  CONTRACT
FORMED and effect of the terms will be determined by §2-207(2)]
3. Was the Offeree’s response a “conditional acceptance” on the Offeror’s acceptance of the new
terms? (UNLESS Clause)
 Only clear and explicit language is sufficient to qualify as a conditional acceptance.
 Material difference by itself isn’t sufficient to make response conditional acceptance.
[If yes, then the response is treated as a COUNTER-OFFER]

o Parties enter into an oral agreement followed by a written confirmation.

 Was a contract formed under §2-207(1)?
 Yes, if the parties enter into an oral agreement followed by a written confirmation.
 Counteroffer (i.e. conditional acceptance) not possible once an oral agreement is made.
 Oral Agreement= Question of Fact

o What are the terms of the contract?

 Terms in written confirmation that reflect oral agreement= Part of the contract
 Additional or Different Terms not agreed to  Look to §2-207(2)

2. §2-207(2): Steps

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o Section determines whether additional or different terms found in the acceptance or confirmation
become part of the agreement after we’ve determined contract is formed under §2-207(1).
 Additional Terms: Adds to the terms of the offer or oral agreement
 Different Terms: Contradicts or qualifies an express term of the offer

o Additional Terms
 Are both parties merchants?
 If NO  Additional terms are only mere proposals.
 If YES  Additional terms become part of the contract
o UNLESS (§2-207(2)(a), (b), or (c) apply:
1. Offeror expressly limits acceptance to only the terms contained in original
offer by using language that expressly objects to any additional or different
terms. (MUST BE SUPER EXPLICIT)
2. If additional terms “materially alter” the terms of the offer
 Materially Alter= “Creates surprise or hardship”
 Dickered Terms= material terms, subject matter of contract
o Could include material terms or any term that the parties would have
to consciously assent to
o A term in which the court could fashion a remedy
3. If Offeror gives notification of objection: before or after receiving acceptance
o Different Terms are not part of the agreement: 3 reasons
1. Language of section limits applicability only to additional terms
2. Additional terms analysis would find the original terms were materially altered
3. Knock-out rule (T thinks this best): removes any terms that differ in the offer and acceptance
 UCC gap fillers if applicable

4. §2-207(3): Steps
 Do the documents indicate contract wasn’t formed?
o Offer & Acceptance Terms contradict each other
 BUT Parties have acted as if a contract has come into existence?
o Actually rendering the agreed-on performance (wholly or in-part); OR
o At least by making substantial preparation for performance
 [Result: CONTRACT FORMED  Terms consist of those on which the documents agree]

5. Cases
o Princess Cruises, Inc.
 Ct. used the Common Law “Mirror Image” and “Last Shot” Rules to determine that GE’s reply
was a counter-offer, which Princess accepted, so no incidental and consequential damages were
available.
 Predominant purpose test for mixed contracts:
 Language of the contract
 Nature of the business of the supplier
 Intrinsic worth of the materials
o Brown Machine, Inc.
 To convert an acceptance to a counteroffer under §2-207(1), the conditional nature of acceptance
must notify the offeror that the offeree is unwilling to proceed with the transaction unless the
additional/different terms are included

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TERMINATION OF OFFER
R §36: Methods of terminating power of acceptance
 Offeree’s power of acceptance can be terminated by: R §36
o Rejection or counter-offer by the offeree, or
 Once rejection has been communicated, the offeree cannot recant the rejection and
accept, because the offer has come to an end.
 The counteroffer is both a rejection of the offer and a new offer by the former offeree for
a contract on different terms.
o Lapse of time, or
 If not specified in the offer, it is based on a reasonable time
o Revocation by the offeror, or
 Must be rec’d by offeree and clearly indicate no longer willing to enter into a contract
o Death or incapacity of the offeror or offeree
 Must occur before acceptance, afterwards the offeror is bound
 Power of acceptance also terminated by the non occurrence of any condition of acceptance under
the terms of the offer

Revocation: Termination by Offeror

 Revocation terminates the offeree’s power of acceptance if it is communicated to her before she
accepts. It can be done whether or not the offer states that it will be held open for a stated time
through the following methods of communication:
o Direct Communication- directly communicated from the offeror to the offeree
 Publication- Offers made by publication may be terminated by publication through
comparable means.
 R § 40 Time When Rejection or Counter-Offer Terminates the Power of Acceptance.
Revocation valid upon receipt
 Effective only when rec’d by the offeree: when written communication comes into
possession of the person or when published
 Does NOT need to be actually read!
 Indirect Communication- Offer may be effectively terminated if the offeree indirectly receives: (i)
correct information, (ii) from a reliable source, (iii) of acts of the offeror that would indicate to the
reasonable person that the offeror no longer wishes to make the offer.
o R § 43 Indirect Communication of Revocation
 Normile v. Miller (‘You Snooze, You Loose’ Real Estate Contract)
 Ct. found that buyer no longer had the power to accept because he rec’d notice
from real estate agent that the counter-offer had been revoked.
 Option contract failed because there was not a promise to keep the offer open
AND also because there was a lack of return consideration for the alleged promise
not to revoke.
 Normile makes an offer, Miller counteroffers, Normile doesn’t reply, Miller sells
to another party. Real estate agent tells Normile “you snooze you lose,” and it
constituted revocation even though Miller never told him that she had sold.
 Mirror image rule
Rejection: Termination by Offeree R §38
 Express rejection: R §36(1)(a)

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  Effective When Rec’d by Offeror
 Revival of Offer
o If rejected, the offeror may restate the same offer in a NEW offer
 Rejection of Option
o Rejection of or counteroffer to an option does not constitute a termination of the underlying
offer.
Lapse of Time
 Must Accept Within Specified or Reasonable Time
 Look to When Offer is Rec’d by Offeree
o If the offer provides that it will expire within a particular time period, that period commences
when the offer is rec’d by the offeree
§2-309
 Absence of Specific Time Provisions; Notice of Termination. Time for shipment/delivery if not
provided is reasonable time. Unclear successive performances = can be cancelled by either party.
Termination requires either agreed event or reasonable notification received by other party is not
ok if unconscionable.
Effect of Offeree Sending Both Acceptance and Rejection
o Because rejection is effective only when received, an offeree sending both an acceptance and
rejection could create problems for the offeror is the mailbox rule were applicable; e.g., a
contract would be created when the acceptance was dispatched even if the offeror received
the rejection and relied on it before receiving the acceptance.
o Offeree Send Rejection, Then Acceptance- Mailbox Rule Does Not Apply
 If the offeree sends a rejection and the sends an acceptance, the mailbox rule does not
apply. Whichever one is received first is effective.
o Offeree Sends Acceptance, Then Rejection- Mailbox Rule Generally Applies
 If the offeree sends the acceptance first, the mailbox rule applies; i.e., a contract is
created upon dispatch of the acceptance.
o However, if the offeror received the rejection first and changed his position in reliance on it,
the offeree will be estopped from enforcing the contract.

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CONSIDERATION:
Consideration: R§71-§90
 A promise without consideration is a gift. International contract law doesn’t need consideration
UNIDROIT Principles of International commercial contracts, and in transactions covered by the
CISG
Bargain for Exchange Test: R §71
 Reciprocal conventional inducement, one promise/action induces the other promise/action
 Reciprocal conventional inducement
 Pennsy case: (Aggrite case) Don’t need actual bargaining in the traditional sense, bargaining in the
marketplace counts
Benefit Detriment Test
 Detriment=giving up of a legal right. If unsure if its consideration or a condition to a gift, look if
there is real benefit to the promisor
 Hamer v. Sidway
Sufficiency of Consideration
 Adequacy of consideration not judged by courts so long as requirements of §71 are met
 Batsakis case: Courts won’t judge the adequacy of consideration, unless it supports that
something badness in the bargaining process, or if it is really just nominal sham or pretense
 Past consideration= Not Sufficient (Plowman)
o If something was already given or performed before the promise was made, it was not given
in exchange for the promise
o Exception: Material Benefit Rule
 R § 86 Promise for Benefit Received (Restitution)
 Modern trend of some courts to enforce a promise if based on a material benefit that was
previously conferred by promisee on the promisor and if the promisee did not intend to
confer the benefit as a gift.
 Includes situations in which promisee performed an act at the promisor’s request OR
performed an unrequested act during an emergency.
 Moral consideration=not sufficient
o Moral obligation arising out of past faithful service can’t constitute consideration unless the
“moral” duty was also a “legal” one.
 Sham consideration
o Ex. I will give you 100K if you give me $1
o Never ok for a contract, unless it is for the option part of an option contract
o Putting form over substance is sham consideration (just look at facts)
o Dougherty
 Puts form over substance-just stating something is “for consideration” doesn’t count
Conditional Gifts v. Consideration:
 No contractual obligation
 Gift is from the promisor, condition is the way that the promisee must get the gift
 Ex. I will give you 100k (gift) if you come to my house to pick it up (condition)
 Ex. Tramp and coat example
 If the promisors only motivation is to feel good, a condition for a gift. Look to see if offeror is truly
getting a benefit
 Though you can find benefit/detriment test almost anywhere, conditional gifts look to how
detrimental it actually was
 When distinguishing between conditional gifts and consideration, look to the motivation of the
promisor, if the motivation is a true benefit and not just a feel good, that helps it look like reciprocal
rather than just a conditional gift
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Pre-existing Duty Rule: R §73
 No detriment (i.e. NO CONSIDERATION) when doing or promising to do something that one is
already obliged to do OR when forbearing to do something that is already forbidden.
o Only applies if the parties performance will be exactly the same
Amending Contracts
 Under common law, unenforceable if party seeking modification neither gave nor promised
anything new. Need fresh consideration
 Not applied to UCC Sale of Goods, no new consideration needed here: 2-209: Modification of
contract needs no consideration. Signed agreement excluding modification cannot be otherwise
rescinded/modified except between merchants signed by other party (but this isn’t determinative
(4)). S.O.F. still applies to modification. Waivers can be retracted by reasonable notification.

AGENCY
Three Types of Agency:
1. Actual Authority: Runs Between Principle and Agent
 Agent takes actions designated to them by principle
 2 types of actual authority
1. Express authority
 Designated by principle to agent. Specifically told to do something
2. Implied authority
 Given an umbrella of duties
 Acts necessary or incidental to achieving the principles objectives
2. Apparent Authority: Principle to 3rd parties
 Principle said or did something to lead others to reasonably believe that agent does have actual
authority
 Can be legally binding on principle
 Can come through direct communication to 3rd parties
 Can also be indirect communication (ex. Powers of position)
3. Ratification
 If agent doesn’t have authority but principle later learns of agent’s actions and agrees, the principle
is then bound
 Effective ratification requires knowledge of all material facts
 If principle knowingly entered into contract and received benefits, then ratified

ELECTRONIC & LAYERD CONTRACTING

3 Forms of Electronic Contracts:
1. Shrink Wrap: Terms that come on/with a product when you buy it
o When is a shrink-wrap contract formed?
1. At time of purchase - proposals for addition (if 2-207 applies than proposals for addition
to contract come in if: merchant or not. Non merchant- proposals to contract, merchants -
have to run 2-207(2)).
 Proposals for addition to the contract under 2-207 w/one merchant and one non-
merchant, to become part of the contract the buyer of the item must call up the seller
and agree to the terms
 If 2-204 creates presumption that buyer is offeror and seller is offeree but the
contract is formed at sale, it doesn’t matter who is the offeror or offeree. That
characterization is irrelevant.
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  HYPO: What if a merchant is selling a computer, you are a widget vendor and you
sell widgets for your livelihood - merchant of widgets. Transaction between
merchants? No. OR Yes because it depends on what you are buying the computer
for, if buying to sell the widgets and in your widget business. §2-104 Merchant.
2. Vendor is offeror when he sends products to the buyer, buyer as offeree accepts the terms
and conditions by keeping the product for more than a specified period of time, in order
to reject you have to send the item back. Contract formed at point that the period of time
expires. (No 2-207 at play here)
1. Click Through
o Pop up box; have to scroll though terms and click accept to proceed. Contract formed at
time you click accept.
2. Browse Wrap
o Tells you where terms are, but not mandatory to actually look at them
o Use fact pattern/case law to see when K formed, and if enforceable
Cases
 Hines v. Overstock.com. Hines and others (class action suit) bought items from Overstock were
not reimbursed full price when they returned them because of a restocking fee. The plaintiffs said
they were not given notice of the restocking fee or arbitration provision (Utah).
o Test: Actual or constructive knowledge?
 Actual: “I knew it”
 Constructive – the information was available, your failure to find the info is your
problem. You should have known, there was sufficient notice there to notify you
that you don’t know and you should figure it out.
o Inquiry Notice
 Something put you on notice that you should have asked questions about.
Contained within constructive notice generally.
o Court decided that there was not enough notice. It would have been enough (1) if the site
explicitly said that entering the site means you accept our terms and conditions or (2)
access to the terms and conditions required you to view the terms and conditions so that
you cannot complete a transaction without viewing a prominent showing that there are
terms and condition.
 Easterbrook: if you keep the product beyond a reasonable time, you accept the terms
 Gateway: if they give you a product and they expressly provide you the right to accept or return
you are bound by the contract. Would be ridiculous to be telling consumers about the full terms
and conditions with every purpose.
 Pro-Cd/Easterbrook: When the consumer accepts the product after shipped to them.
Consequences; have a window that they can accept or reject the terms and conditions.
Acceptance is the failure to return the goods or the decision not to. Consumer is bound when the
return period expired.
o Policy: good business practice to allow the consumer to read terms after purchase.
 Anti-Easterbrook
o When is contract formed? 2-206 - offeror is the buyer and the offeree is the vendor, when
they send the goods the contract is accepted.
o Any terms that the vendor tries to squeeze in after the fact are additional under 2-207,
passed the power of acceptance and created an offer to Amazon §24 so that their mailing
is acceptance.
o As additional terms to the contract they are proposals and must be expressly accepted by
the offeror (buyer) to become part of the contract.
 E-Sign Act: Email and electronic signatures count

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PROMISSORY ESTOPPEL
Protection of Promisee Reliance: Promissory Estoppel
1. General stuff: A promise that induces action to the detriment of the promisee
 §90 Promise Inducing Action/Forbearance: Promise promisor should expect to induce action or
forbearance by promisee and does so is binding if injustice can be avoided.
 §139 Enforcement because of Reliance: Promise promisor should expect to induce action or
forbearance by promise and does so is enforceable notwithstanding S.O.F. if injustice can be
avoided only be enforcement. (2) Significant circumstances include: availability/adequacy of other
remedies, definiteness/substantiality of action/forbearance, corroborating evidence, reasonableness
of action/forbearance, foreseeability of action/forbearance.
 §150 Reliance on Oral Modification: If parties to enforceable contract modify, S.O.F. doesn’t
prevent enforcement if reinstatement is unjust because material change in position in reliance.
 One party makes a promise to the other, and the other takes action on reliance on that promise, but
we cannot find an existence of a contract
 When promise is broken, promisee suffers. P.E makes enforceable what would otherwise be an
unenforceable promise, when there has been reliance on that promise
 What constitutes a promise? - Just look at fact pattern
 Purpose of P.E is to put the suffering party in the position they would have been in if the promise
had never been made****
 Different from equitable estoppel: E.E said to apply when one party has made a misstatement of fact
rather than a promise
 4 Elements for a Promissory Estoppel Claim: (discuss each element every time)
a. Promise-may be express or implied. Establish existence of a promise first
b. Foreseeable and reasonable reliance
c. Detrimental change in position
d. Injustice of not enforcing it (justice matters here bc there was no bargaining in the first place)
 When It Is Used
 Family
a. Promises within a family more likely to use promissory estoppel because based on
relationship, rather than formal contract
 Charitable Subscriptions
a. Middle ground; not perhaps just to enforce a pledge
b. Can protect by making contract with consideration so don’t need to worry about reliance
based damages-generally these promises lack consideration
 Commercial Contexts
a. Rare, because its expected you will be able to protect yourself in business, but applied in cases
where mutual assent is absent or incomplete

16
RESTITUTION
General stuff: No promise, just an action that resulted in unjust enrichment
 Comes into play when someone has been unjustly enriched at the expense of another
 Disgorgement of ill-gotten gains
 Party seeking remedy must show
1. The other party was enriched
2. The enrichment was unjust
 Not a contract based theory; just taking back ill gotten gains
 Argue this last
 Restitution-No promise, ground for liability is unjust enrichment
1. Unjust enrichment (overarching idea)
2. Not foisted
3. Intent to charge
4. Unjust not to enforce
1. Restitution in the Absence of a Promise
 2 Categories
1. Implied in Fact
a. Usually a better position to show implied in fact, bc if have this then you have a contract
and could prob get expectation damages
b. No explicit promises, but by the way the parties deal with each other the court can imply
there was a contract
c. Can have contract even though no price is set forth, it is assumed a reasonable rate will
apply (street curb painting example)
2. Implied in Law
a. Not a true contract, a quasi contract, so defenses to contracts are not applicable
b. Legal fiction or quasi/constructive contract
c. No dealings between parties
d. Quantam Meruit: Recovery of the reasonable value of the services performed
e. Quantam Valebut: Recovery of the reasonable value of the goods delivered (now
these two just known as unjust enrichment & restitution)
 R. Restitution §116: In the absence of a promise… a person that supplied benefit to another, although
acting without the others knowledge or consent, is entitled to restitution if it was impossible for the
other to give consent or, because of extreme youth or mental impairment, the other’s consent would
have been immaterial. (comment b: if the person is insane, or otherwise not fully mentally competent,
a person rendering necessary service is entitled to recover from such person despite his express
unwillingness to accept the things/services)
 Credit Bureau v. Pelo
o Restatement of Restitution §116 test if entitled to restitution: A person is entitled to restitution
from the other if:
1. He acted justifiably under the circumstances AND with the intent to charge therefore,
(aka if the service is something you would normally pay for-like doctors performing
CPR, but not students. Professional providing professional services for which they
would normally charge) and
2. The things or services were necessary to prevent the other from suffering serious bodily
harm or pain, and
3. The person supplying them had no reason to know that the other would not consent to
receiving then, if mentally competent, and
4. It was impossible for the other to give consent or because of extreme youth of mental
impairment the others consent could have been immaterial
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 o Posner’s view of how to determine restitution:
 Look at transaction costs, what would it cost to actually get the bargain
 If transaction costs is low, then not entitled to restitution, because it’s economically
efficient to get the bargain. Vice versa for high cost
 Can run both these tests

2. Promissory Restitution: R §86

 General Stuff: Action induced promise
 Occurs when the promise comes after conferral of benefits despite the fact that past consideration
isn’t; not all about moral obligation but rather about material benefit and detriment in the face of an
imperfect promise
 Times when a promise without prior obligation can become enforceable; aka a subsequent promise
given after the benefit was inferred
a. Bankruptcy
b. Statute of limitation
c. Debts of an infant
 All these based on the fact that there was at one time consideration
 Bottom line a promise that is not supported by consideration may be binding if it revives a prior
legal obligation, which was made unenforceable by operation of law. It allows consideration from
first contract to apply to subsequent promise, but there must have been consideration at some point
in time.
 §86 Promise for Benefit Received: (Material Benefit Rule). Promise made in recognition of
previous benefit received is binding to prevent injustice, but is not if promise is conferred as gift or
if value disproportionate to benefit.
 §82 Promise to Pay Indebtedness: Promise to pay indebtedness is binding.
 §83 Promise to Pay Discharged Indebtedness Bankruptcy: Express promise to pay discharged
indebtedness is binding.
 Material Benefit Rule: Webb v. McGowin R §86
o If a person receives a material benefit from another, other than gratuitously, a subsequent
promise to compensate the person for rendering such benefit is enforceable
 Test for Promissory Restitution:
1. Conferral of material benefit to the promisor?
 “High transaction cost” for achieving promise before the act  Court pretends that the
promise WOULD have been made if there was time (legal fiction)
2. Promise made in recognition of that benefit?
 Not binding if promisee conferred as a gift… § 86(2)(a)
 Promisor had to be aware of the benefit made in the past
 If no promise had been given, then § 116 restitution could be used – promisee has to
show “intent to charge” (favors professionals)
3. Enforcement of promise to the extent it would prevent injustice?
 Mills v. Wyman (was before promissory restitution)
o A promise that is not supported by consideration is legally enforceable if it revives a prior
legal obligation even if the promise is given after the conferral of the benefits. Its allows the
consideration from the original contract to support the new promise

PRINCIPLES OF INTERPRETATION

18
General Stuff
 In interpretation, parties agree that they agree to something, but differ as to what they agreed to
 Contractual interpretation gets at by what process a court gives meaning to contractual language
when parties attach materially different meanings to that language
 Must be ambiguous in regard to a material term
 Subjective looks to what the parties actually thought or intended. If subjective meanings do not align,
no binding contract
 Objective looks at what a reasonable person conclude. Under this approach it still may be hard to
determine outcome, or could also potentially end up with a meaning that neither party intended
 Modified Objective Approach: R §201. Used most, basically says if you know something the other
party doesn’t, tell them

R. 201: Interpretation
 Where the parties have attached the same meaning to a promise or agreement or a term thereof; it
is interpreted in accordance with that meaning
 Where the parties have attached different meanings to a promise or have to prove that one party
didn’t know the meaning given to the term
o B has to show that B didn’t know what A meant, and that A did know what B meant
o Or that B had no reason to know of any different meaning attached by A, and A had reason to
know the meaning attached by B
 If not covered by this section, neither party is bound by the meaning attached by the other, even
though the result may be a failure of mutual assent
 This encourages people as least cost providers (whoever could have easily cleared it up, who
should have known) to inform other party
Framework for interpretation R §203
 Look at express terms first
 Course of performance (after contract, how did parties act when they thought they were in a
contract?)
 Course of dealing (before contract, how did parties act when they were negotiating?)
 Usage of trade
o UCC stuff: see 1.205, 2.313 and 2.202-Rejects requirement of ambiguity as a prerequisite
to evidence of trade usage
Cases
 Peerless
o Two ships names Peerless. Contract said, “Shipped by Peerless.” Different interpretations on
Peerless term. Buyer thought it was the earlier ship, seller the later ship. Court held, no binding
contract, no meeting of the minds.
 Subjective analysis of party intent, since they didn’t align, no contract. COULD have
used objective approach, which would have uncovered what a reasonable person
would conclude.

19
 o Chicken Case
 Plaintiffs thought chicken meant one thing, defendant thought it meant another. Defendant
believed it could comply with contract by delivering stewing chickens, and their subjective
intent did coincide with one of the dictionary meanings, the Dept. of Agriculture Regulations,
some trade usage, realities of the market, and with what the plaintiff’s spokesman had said.
Plaintiff had burden of showing that “chicken” was used in the narrower rather than in the
broad sense and failed to do so. Interpreted contract for defendant because buyer/plaintiff
should have known about the other definitions of chicken.
 In order for seller to win, they would have to prove they did not know, or have reason to
know the buyer meant something else.
o C & J Fertilizer v. Allied Mutual
1. If you have an adhesion contract
a. Standard form, lots of BP rules
b. Inequality of bargaining power
c. Absence of choice other than to accept or reject contract
2. If adhesion contract, change from duty to read to doctrine of reasonable expectations: R
§211
3. If interpretation of the literal words will be bizarre or oppressive from the fact that is
eviscerates the non standard terms explicitly agreed to, or from the fact that it eliminates
the dominate purpose of the transaction, then that term wont be included
4. This violated duty to read

STATUTE OF FRAUDS: R §110, 129-134, UUC §2201

General Stuff
 In certain situations, contracts will not be enforceable unless in writing. Doesn’t say there is no
contract, just is not enforceable
 The SOF requirements must be satisfied at the time when contract is trying to be enforced. Doesn’t
matter what happened before
 SOF purpose if to prevent fraud, SOF just enables us to get into court to argue about the contract
 Compliance with SOF does not make an otherwise unenforceable contract enforceable. The fact they
have expressed an agreement in signed writing is no assurance that it will be enforceable
 Non compliance with SOF however will render it unenforceable
 If SOF precludes conversation about the contract then your done, a strong defense
 Part performance with other parties assent is exempt from SOF-common law
 Under common law, 5 things under SOF:
 Executor
 Sureityship (binding yourself to another-like a cosigner for a loan)
 Marriage
 Land
 A contract that can’t possibly be fully performed in one year
a. Contract for lifetime performance not within SOF, since could die within a year and still fully
perform
b. However, a contract for employment for 2 years would

3 Basic SOF Questions:

1) Is the contract within the SOF?
 Yes than it’s subject to SOF and must be in writing to be enforceable, move to question 2.
 No Then does not have to be in writing and can run to court to talk about it
2) If yes to 1, then is the SOF “satisfied”?
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  YesThen no issue, case can proceed: Satisfied if they meet requirements of R. 131 Meaning
they have:
a. Writing must be signed by or on behalf of the party to be charged and must contain:
o Signed writing see R. 134
 Subject matter
 Essential terms
 Quantity but ONLY if under UCC
 Can link multiple writings (see Crabtree case)
 No Then see question 3
3) If no to 2nd Q, then are there other factors in the case like performance or reliance by the ∏ that
might invoke and exception to the statutory bar?
4) Land exceptions R. 129, Promissory Estoppel R. 139

Cases
 Crabtree v. Elizabeth Arden
 As long as you can link multiple writings together with a logical connection, to get essential term,
then that’s ok §132
 Beaver v. Brumlow
 Land contracts subject to SOF so must be in writing, way around if there is partial performance
since improvements were made to the land
 AK Dem. Party v. Rice
 A claim for promissory estoppel may be brought in an employment situation even if the agreement
is unenforceable under the SOF, so long as it meets the promissory estoppel criteria.

Sale of Goods and SOF UCC §2201

 Overview
 Rule statement for SOF within UCC: A sufficient memo within universe of writings within UCC
contains signature, and quantity, and worth $500 or more
 Writing, signature, quantity needed
 Writing exception under 2201 (3) like specially manufactured goods
 Also an exception under (2) merchant confirmation exception. Typically signature were looking for
must be given by party to be charged, sec 2 takes this out. Need to have some signature, but need not
be signature form party to be charged as long as party to be charged doesn’t object within 10 days
 Under UCC, cannot orally change quantity in contract
 2201-2 merchant confirmation, exception to SOF. Exception does not require signature/writing to be
in SOF. Must be between merchants, taking an oral contract and then someone went and wrote it
down. Would have to be signed by the person sending it-must include quantity and showing that it’s
a contract. Sufficient against the sender to bind them. Would have to show that receiver knew what
was in it to be bound. Doesn’t require recipient signature.
 Framework for UCC SOF analysis:
 Is it goods or services? -Yes
 Is it for more than $500? Bc these 2 questions then put you within the SOF (yes more than $500
bc fact pattern tells us)
a. These first two get you into the SOF
 Writing
 Signed by party to be charged (means person were trying to hold to the contract)
 Quantity
a. Once in SOF, these 3 satisfy the requirements
 If not in writing, or fails another aspect, answer is no unless it falls under one of the exceptions:
21
 a. Party to be charged legally admits
b. Paid for/accepted
c. Specialty goods
d. Merchants: Under 2201, both parties must be merchants, and there be a written confirmation
of which the other party had reason to know of its contents-this exempts from signature
requirement
 Cases
 Buffaloe v. Hart
a. A check is not a sufficient writing to satisfy the statute of frauds if the party against whom
enforcement is sought does not sign it.

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AVOIDING ENFORCEMENT: DEFENSES TO CONTRACTS

3 Broad Categories of Defenses

1. Status Defenses: There is some immutable characteristic of the person against whom I am trying
to seek enforcement that justifies them in not having the contract enforced against them. These
things affect ability to bargain
a. Minor status
b. Mental incapacity (even though mental capacity not always immutable)
c. Intoxication
2. Process by Which Contract Was Entered Into
a. Fraud
b. Misrepresentation (lie) requires an affirmative statement
c. Non disclosure (must prove there was a duty of disclosure)
d. Duress
e. Undue Influence
3. Content: The ultimate result of the contract process led to a terrible substantive result of the
contract itself
a. Uncionsionability

Minority R §14
 Voidable vs. void contract: standard minority rule
 A void contract is not valid. Ex. Contract to hire a hitman. Means there was no contract
whatsoever, so neither party can see enforcement. Neither party can seek to enforce a void
contract
 Voidable contract=Where B (majority) contracts with A (a minor), B cannot enforce against
A, but A can enforce against B
 Rational for the minority rule to protect against crafty adults
 When you obtain the age of majority, you must act within a reasonable time to exercise your
right to disaffirm the contract, otherwise your bound to that contract
 Exception to the minority rule
 Necessity-contracting party can argue that the subject of the contract was a necessity, and can be
enforced
a. What constitutes a necessity?
 Educational loans not subject to infancy rule
 Child support orders

 Cases
 Dodson v. Shrader
a. The Dodson court mitigates the impact of the minority rule
b. Not going to do away with this rule, but full protection goes too far.
c. If there is no evidence of bad action on party of the adult, we will insist the minor makes some
sort of recomhence if seeking under this rule
d. Minor may seek/be entitled to recession, but it will be offset by 1 of 2 amounts:
1. The benefit received by the minor under the contract
2. The depreciation in the value

Mental Incapacity R §15

 2 tests for mental incapacity

23
  Cognitive test R. 15(1)(a): Asks if the mind was so affected as to render the person totally unable
to comprehend and understand the nature of the transaction
 Volitional test R. 15(1)(b): Asks if the other party was unable to control their behavior because of
mental disability, and other party knows or has reason to know
 Intoxication: R. 16
 Cases
 Ortelere v. Teachers Retirement Board
a. Ortlere was found incompetent at trial court for cognitive test. Appellate court says she should
have been found incompetent under volitional test because she understood the nature of the
contract but couldn’t control herself. Sends the case back down.

Duress R. 174-175
 Elements of a Duress claim
 Improper threat (Identifying the threat important to see if it was improper) and,
 Person is left with no other alternative
 Hardship is the result of the actions of the other party (for economic duress)
 Historically only could be physical duress, but can be economic duress now too. But must be a
causal link between coercive acts and circumstances of economic duress. Contracts made under
economic duress rather than physical compulsion are deemed voidable rather than void
 Cases
 Totem Marine v. Alyeska Pipeline
a. Economic duress case, tugboats chartered to go to Alaska but just about everything that could
go wrong does go wrong. Accord and satisfaction: knowing acceptance of less than what you
are due (in this case by the charterers of the boats who stopped shipment at California), then
absent a defense to contract that is a legally binding release (and tug boat operators entitled to
compensation).

Undue Influence R. 177

 2 elements of undue influence
 Excessive pressure from one party
 Undue susceptibility of other party
 No bad faith req. here. Don’t need to have knowledge of their unduly susceptible position, and the
excessive pressure doesn’t have to be unlawful/inappropriate
 Cases
 Odorizzi v. Bloomfield School District
a. 7 elements in assessing over persuasion (don’t need all)
1. Discussion of the transaction at an unusual or inappropriate time
2. Consummation of the transaction in an unusual place
3. Insistent demand that the business be finished at once
4. Extreme emphasis on untoward consequences of delay
5. The 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 financial advisors or attorneys

Misrepresentation R. 161-173
 Overview
 Always plead both misrepresentation and nondisclosure together if you have one of the two
 When analyzing misrep, first use the R.’s 164, then Syester factors
 An innocent misrepresentation only actionable when it is in regard to a material fact

24
  Misrepresentation is an affirmative statement (as opposed to non disclosure where nothing was
said)
 2 categories of misrepresentation
a. Lie, intentionally state a false fact
b. Misrepresentation of material fact
1. Material Fact R. 162(2): anything used to induce assent
 Misrepresentation makes a contract voidable when:
 A party’s manifestation of assent is induced by:
o Either a fraudulent or innocent but material statement by the other party §162
 But, generally an assertion of opinion is not justifiable because it
expresses only a belief or judgment without certainty
 Exceptions are made for relationships of trust and confidence or experts in
the field.

 Puffing R. 168, 169

 Exaggeration or opinions
 Statement of opinion only actionable if giving the opinion in a fiduciary relationship or an expert
in matters covered by the opinion
a. Must also have reasonable reliance on the statements
 Cases
 Syester v. Banta
a. These are the old rules/way
b. 7 elements that must be established:
1. ∆’s made one or more of the representations claimed by the ∏
2. One or more of said statements were false
3. Said false statements/representations were as to material matters with reference to the
entering into the contract
4. ∆ knew 1 or more or rep’s were false
5. The rep’s were made with intent to deceive /defraud ∏
6. ∏ believed and relied upon the false representations & wouldn’t have entered into
contract except for that reliance
7. ∏ was damages in some amount through relying on the representations

Fraud R. 162:When a misrepresentation is fraudulent

Nondisclosure R. 161
 Under non-disclosure, must first prove there was a duty to disclose. Once you determine there was
a duty under 161, then go to 162
 If there is a duty to disclose, an omission will be treated as an assertion
 Cases
 Hill v. Jones
a. Test of materiality: a matter is material if it is one to which a reasonable person would attach
importance in determining his choice of action in the transaction in question
b. When there is a duty to disclose is fact specific-look at 161

Unconcionability R. 208, UCC §2302

 Test for unconsionability
1. Has to be the absence of meaningful choice on one side AND
2. Contract terms that unreasonably favor the other party

25
 2 types of unconcionability
 Procedural: Lack of choice by one party, or some defect in the bargaining process
 Substantive: Relates to the fairness of the terms of the bargain
 Ruling of unconcionability almost impossible to get-has to be REALLY bad
 Cases
 Williams v. Walker Thomas Furniture:
o Williams buys goods from this furniture store on payment plan. It is set up with a cross-
collateralization provision so every subsequent purchase is added to the overall tab,
basically she is not debt free until every item is totally paid for and until then it is all
recoverable if she fails to pay.

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JUSTIFICATION FOR NONPERFORMANCE
Mistake R. 151-158:
1. Overview
 Mistake must exist at the time that the contract was formed
 Mistake=a belief not in accord with the facts R. 151
 It is not a mistake if you make a false prediction of the future
 It must run to a basic assumption of the contract (basic assumption=parties wouldn’t have entered
into that contract if that fact were otherwise)
 NOT included within the basic assumption are:
 Market conditions
 Financial ability of one party to pay
 If the contract is specific as to the subject matter of the contract, if that specific fact is in error at the
time of the contracting, then you can have a mistake claim (lumber from lot x hypo)
2. Bilateral Mistake R. 152(1)
 Mistake by both parties
 At the time contract formed
 Regarding a basic assumption on which the contract was made
i. Including dickard terms
ii. Financial ability to pay and false predictions about the future/market conditions
don’t count
 Has a material effect on the agreed exchange of performances
i. Material effect=If it drastically changes the burden on the parties
 -If all of the above met, then contract voidable by the adversely affected party UNLESS
 He bears the risk of the mistake under R. 154 (Finding who bears risk SUPER important)
3. Unilateral Mistake R. 153
 Same analysis as bilateral, BUT add on: and the effect of the mistake is such that
enforcement of the contract would be uncoincionable or the other party had reason to know
of the mistake or his fault caused the mistake
4. Cases
 Lenawee Board of Health v. Messerly
 Sewage case
 Basic assumption that the land was income generating property
 Pickels bear burden of mistake under R. 154 because of “as is” clause
 Barren Cow
 Test if the mistake affects the substance of the whole of consideration
 Wil-Fred’s v. Metro. Sanitary Dist.
 Wil-fred’s bids on a project from Metropolitan, tried to withdraw because the subcontractor
made a mistaken bid. Court found a unilateral mistake based on §153.
Changed Circumstances: Impossibility, Impracticability & Frustration
 Whenever you plead one, plead them all)
 Time is key factor between mistake and change in circumstance. Mistake happens before
contract, changed circumstances happens after contract

Impossibility R. 262-264, UCC §2613, 2615(A)

 Overview
 Excuses performance when it becomes objectively impossible to fulfill terms of the contract
 Objective impossibility (no one can do it) v. subjective impossibility (I can’t do it). Must be non
fungible

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  Restatement never actually mentions impossibility though
 §262 Death or Incapacity: If particular person is necessary for performance, his death/incapacity
makes performance impracticable and is a nonoccurrence of a basic assumption.
o Death or Incapacity = nonoccurrence of basic assumption. And under §261 – performance is
discharged.
 §263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for
Performance: If existence of specific thing is necessary for performance, its failure to come into
existence, destruction, or deterioration is a nonoccurrence of a basic assumption.
o Destruction, Deterioration or Failure to Exist = nonoccurrence of a basic assumption. Under
§261 – performance is discharged.
 §264 Prevention by Governmental Regulation or Other: If performance made impracticable by
government regulation, that regulation is a nonoccurrence of a basic assumption.
o Government regulation prevents performance = nonoccurrence of a basic assumption. Under
§261 – performance is discharged.

Impracticability R §261, 271 UCC §2615, 2616

 Overview
 Not impossible, but the performance is so much more difficult/$ that it is impracticable under the
terms stated to perform
 Change in price/market conditions not enough to render impracticability 99.99% of the time
 §261 Discharge by Supervening Impracticability: If, after formation, performance is made
impracticable without fault by occurrence/nonoccurrence of basic assumption of contract,
performance discharged.
 §271 Impracticability as Excuse for Nonoccurrence of a Condition: Impracticability excuses
nonoccurrence of condition if occurrence is not material and forfeiture would otherwise result.
 Cases
 Karl Wendt Farm Eq v. Intr’l Harvester
a.

Frustration R§265, UCC§2615

 Overview
 Will excuse performance even if performance is literally possible but something happened so that
the purpose of the contract is destroyed so even if it were performed it would be meaningless
(krell-king case)
 How you define the purpose of the contract will make big difference
 Rational behind doctrine of impracticability & frustration is whether the nonoccurrence of the
circumstance was a basic assumption on which the contract was made
 3 factors needed to establish frustration
 The purpose frustrated by the supervening event must have been the principle purpose of the
party making the contract
 Frustration is substantial
 The non-occurrence of the frustrating event must have been a basic assumption on which
contract was made
a. Examples of what is/isn’t enough to substantiate a basic assumption:
1. NO: mere “impracticality,” ordinary market failure, or lack of profit (mutual profitability
not considered a principal purpose of k-ing always because that destroys risk allocation)
2. YES: dickered terms (those bargained for) and material terms (the contracting parties
would not have made k had the term not been assumed, not discussed but just taken as

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 fundamental) e.g. “acts of god” such as a severe shortage of raw materials due to war,
embargo, local crop failure, unforeseen shutdown of major sources of supply
 Asses the fault of the parties (Taylor add on)
 Exception if the party caused the change to arise, or the language or circumstances indicate the
contrary
 UCC §2-615
 Cases
 Mel Frank Tool v. Di-Chem Co.
a. They lose because its not a total ban on the use of the property, can still use, just not for
hazardous chems. If had stipulated in contract that the sole use was for hazardous chems, then
they might win

Modification R. 89, UCC §2209

 Overview
 Modification only arises in executory contracts (where contract has not been fully performed or
fulfilled)
 Under common law, need fresh consideration. No new consideration needed under UCC
 Pre existing duty rule: At common law, a promise to perform a preexisting legal duty does not
qualify as consideration because the promisee is already bound to perform. If the promisee gives
something in additions to what is already owed or varies the preexisting duty in some detrimental
way, even if small, there will be consideration
 Exceptions for when you don’t need fresh consideration for modification
a. Unforeseen circumstances
b. Reliance
c. Mutual release
 Modification under UCC
 An agreement modifying a k within this Article needs no consideration to be binding but must be
in good faith
 No oral modification provision: If the agreement in a signed record excludes modification or
rescission except by a signed record may not be otherwise modified or rescinded (merchant
exception: this requirement must be separately signed by the other party)
a. To prevent the foisting of false modifications
b. Operates as a private statute of frauds for modifications
 EXCEPT… If an oral modification makes the contract subject to SOF (2.201) then it must be in
writing as well
 2.201 = >$500 or change in quantity of goods

 Cases
 Alaska Packers – Pre-existing duty rule. Past consideration isn’t. Workers contracted for fishing
season and then stopped working once they arrived in Alaska, demanding higher pay and
threatening to return to San Francisco otherwise. Forced manager to modify contracts.
Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of
honest dispute is not consideration; BUT 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. Court
held that the modification had no consideration (along with other issues).
 Kelsey-Hayes v. Galtaco Casting
a. In good faith provision does not preclude application of the duress doctrine to sales of goods
cases?
b.

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CONSEQUENCES OF NONPERFORMACNE

Material Breach R. 235-248

 Overview
 2 questions re: breach
a. Whether or not the injured party (a) has a continuing duty to perform, are they nonetheless
entitled to damages bc of the other parties failure to perform?
b. Even if the parties obligation to perform is not excused, are they still entitled to some
damages?

 Partial v. Total Breach

 Partial breach: does not discharge the non-breaching party, and they must continue to perform
under the contract. Can still recover, but only for the actual harm that has resulted to date, no
future harm too. R. 243 (4)
 Total breach: Discharges non-breaching parties from contract duties. Can recover actual damages
that resulted from the breach, but also for future damages that will reasonably flow from the
breach

 Options When a Party Does Not Perform

 Stop performance right away: bad idea though because non breaching party only justified in
doing so if other party totally and materially breached contract
 First figure out if it is material under R. 241
a. Immaterial/partial materialshould keep performing and get nominal damages
b. Material
1. Suspend performance, and during course of suspension allow other party to cure non
performance (can also continue to perform during cure)
2. R. 242 says when a material breach becomes total, and once its total, allowed to stop
performance and sue for full damages
 Seek Adequate assurance
 Performance Rules:
 §234 Order of Performances: If performances can be simultaneous, they are due simultaneously.
If performance of one party requires time, performance due at earlier time than other party.
 §235 Non Performance: When performance is due, non performance = breach
 §240 Divisibility: If performance can be apportioned for both parties, a party’s performance of
his part of the pair makes other party perform her side.

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  Steps in Analyzing Breach:
 R. 241: More met, more likely it is material
a. Not material: Then still must perform, but can still seek damages
b. Material: If we find it to be material, it is at least a partial material breach. Look to R. 242 to
then see if it is a total material breach
c. R. 242 steps of analysis
1. Delay will harm
2. Time of essence
d. Then if determined total material breach, look to R. 243 for damages

 Independent v. Dependant Conditions

 When we run R. 241, stipulating if it is independent or dependant
 Under 241 were saying if a failure to perform is material or not. If material, then other party
doesn’t have to perform unless other condition satisfied-- dependant condition. And then the
reverse for independent
a. Independent conditions: Must perform regardless of other parties actionImmaterial
b. Dependant conditions: no obligation to pay unless certain condition (aka use of reading pipe)
is metMaterial
 Cases
 Jacob & Youngs v. Kent
a. If there is substantial performance, then there is no material breach
(hypothetically)immaterial
b. If performance is substantial but defective, nonperformance would only be a partial breach
c. A party acting in bad faith cannot use doctrine of substantial performance
d. What if dependant condition has been substantially performed? -Then base on facts
1. Note from T: if there is some performance, and its not substantial, then analyze like
normal-if some performance, we have at least a partial breach, and go through the steps
 Sackett v. Spindler
a.

Anticipatory Repudiation R. 250-256, UCC §2610-2611

 Overview
 Even if you have not breached your contract bc the time for action is not yet dur/passed, can still
take action
 Need clear and unequivocal manifestation of intention not to perform under the contract for
anticipatory repudiation (notice) and other party must rely on it
 2 ways to make anticipatory repudiation non retractable
1. The other party acts in material reliance on the repudiation. Does not have to be
communicated to the other party
2. Treating contract as repudiated. Must communicate this fact to the repudiating party.
 Rules
 §250 When a Statement or an Act is Repudiation: Repudiation is: statement by obligor to obligee
indicating obligor will totally breach under §243, or voluntary affirmative act which renders
obligor unable to perform without breach.
 §253 Effect of Repudiation as a Breach and on Other Party’s Duties: If obligor repudiates before
breach by nonperformance and has received agreed exchange, repudiation = claim for damages
for total breach. Where performances are due under exchange of promises, one party’s
repudiation discharges other party’s remaining performance.
 §256 Nullification of Repudiation or Basis for Repudiation: If statement is repudiation
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 under §250/251, it’s nullified by retraction if it comes to attention of injured party before he
materially changes position or indicates he considers repudiation final. Events other than
statement constituting repudiation nullified if to knowledge of injured party, those events have
ceased to exist before material change in position or indication of repudiation being final.
 Adequate Assurance R§251, UCC §2609
 Failure to provide reasonable adequate assurances means the non providing party has
anticipatorily repudiated the contract (but this can be retracted)
 §2-609 – Right to Adequate Assurance of Performance. When reasonable grounds for
insecurity arise with respect to performance, the other party may demand in writing adequate
assurances, and until received suspend performance for which return is un-received. Between
merchants, commercial standards are used for insecurity standards. Acceptance of improper
delivery/payment doesn’t prejudice aggrieved right to demand adequate assurances. After
receipt of demand, failure to provide within reasonable time the assurance (max of 30 days) is
adequate for repudiation.
 §251 – When Failure to Give Assurance May be Treated as Repudiation. Where reasonable to
believe obligor will breach (giving rise to §243 claim), obligee may demand adequate assurances
and may suspend performance until he receives assurance. Obligee may treat failure to provide
adequate assurances within reasonable time as repudiation.
 Cases
 Truman & Sons v. Schupf
a. If the buyers did anticipatorily repudiate this contract, then sellers don’t need to perform.
Justified in treating contract as terminated
b. If not…?
 Hornell Brewing v. Spry
a. Steps for reasonable assurance
1. Establish you have grounds to seek reasonable assurance
2. Properly request assurances
3. Reasonable amount of time
b. Can make multiple requests only if multiple reasons for requesting occur. Can’t request for
same reason multiple times

REMEDIES

Types of Damages: Hierarchy (Contractual v. extra contractual)

 Expectation Damages: First preferred method, will give the greatest amount of damages
o There was total material breach by somebody (figure out by whom first)
o Seek to put the non-breaching party in the position they would have been in had the
contract been performed.
 Benefit of the bargain
 Obligation created by a deliberate act.
 Get lost Profits.
 Specific performance fits under this branch
 Reliance Damages:
o Promissory Estoppel
o There was no fully binding contract but the promisee has done something in reliance on
the promise and it would be unfair to not give legal obligation because promisee suffers
harm.
o Seeks to put parties back in position would have been had the contract never been made.
 Ex. Payments made to third parties in reliance on contract are recoverable.
 Will not get profits
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  Restitution Damages:
o Seeks to get back what the other party is not entitled to.
o Unjust enrichment theory – disgorgement of ill gotten gains

 §344 – Purposes of Remedies: Judicial remedies protect one or more of the following interests of
promisee:
o Expectation Interest – interest in having benefit of bargain, put in as good a position as he
would have been had contract been performed.
o Reliance Interest – interest in being reimbursed for loss caused by reliance on contract,
put in as good a position as he would have been had contract NOT been made.
o Restitution Interest – interest in having restored to him any benefit that he has conferred
on the other party.

EXPECTATION DAMAGES
Damages Rules in General
 §344 Purposes of Remedies: Judicial remedies protect one or more of the following interests of
promisee:
o Expectation Interest – interest in having benefit of bargain, put in as good a position as he would
have been had contract been performed.
o Reliance Interest – interest in being reimbursed for loss caused by reliance on contract, put in as
good a position as he would have been had contract NOT been made.
o Restitution Interest – interest in having restored to him any benefit that he has conferred on the
other party.
 §347 Measure of Damages in General: Subject to §250-53 limitations-see formula for calculating
damages
 §348 Alternatives to Loss in Value of Performance:
o If breach delays use of property, and loss in value uncertain, may recover damages based on
rental value or interest value of property.
o If breach results in defective/unfinished construction, and loss in value uncertain, may recover
damages based on: diminution of market price caused by breach, reasonable cost of completing
performance or remedying defects.
o If breach of a promise is conditioned on fortuitous event, and uncertain if event would have
occurred had there been no breach, injured party may recover damages based on value of
conditional right at time of breach.
 §349 Damages Based on Reliance Interest: Right to damages based on reliance interest,
including preparatory expenditures, less loss that breacher can certainly prove injured party would
have suffered w/contract.

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Computing Expectation Damages R. 347
 Overview
 If getting ED, there has been a total material breach.
 Contract based-meaning Typically based on the finding that there was a biding contract that has
been breached
 Aim to put the non breaching party in the position they would have been in had the contract been
performed****important
 Also called the benefit of the bargain
 Preferred method of getting damages, also usually entitled to loss of profits here too (can’t under
restitution or reliance)
 Specific performance a type of expectation damage-usually only applies with unique subject
matter, and cannot apply to labor
 Formula for calculating damages
 ED=(loss in value + other loss)- (cost avoided + loss avoided)
a. Loss in value=diff in value to the injured party from what he should have received and what
he did receive (contract price-actual amount received)
b. Other loss=incidental and consequential damages. Incidental--costs incurred in attempts to
mitigate your loss. Consequential loss--harms that are caused by the breach. Costs imposed
on you as a result of the breach
c. Cost avoided =cost the non breaching party would have incurred but now does not have to
incur bc the breach arose
d. Loss avoided=costs that are salvaged by the non-breaching party. Basically anything that
saves you $
 Net profit + [unreimbursed expenses]
 Always run both calculations
 General v. Special Damages (these are under the category of other losses)
 General: must flow naturally from the breach so by definition are foreseeable. Must be
reasonable, foreseeable, and somewhat certain
 Special: Must be communicated prior to contract, or cannot recover for them
 Cases
 Crabby’s Inc v. Hamilton
a.
 Handicapped Edu Board v. Lukaszewski
a. Economic efficiency of breach

Restrictions on Recovery of Expectation Damages

 Limitations on expectation damages
 Interest payments-if the amount of your damages if uncertain, then no interest, if its certain, then
can get interest
 Legal fees non recoverable
 No duty to mitigate, but if you don’t and the breaching party established that you could have,
your expectation damage awarded will be reduced by the amount you could have gotten through
mitigation
 No punitive damages
 Must be proven with Certainty
 Emotional distress damages
 No $$ :( insolvent
 Must be foreseeable
 Cases
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  Hadley v. Baxendale
a. Limitations on the recoverability of other losses
b. 2 categories of other loss
1. General
a. Those damages that flow naturally from the breach, what everyone would expect to
occur from the breach. By definition are foreseeable, also must be certain
2. Special circumstances
a. Known
b. Unknown
c. Special circumstances needs to be communicated at the time of the contract is
formed, not time of breach

Rules on Limits of Damages

 §350 Obligation to Mitigate: Damages not recoverable if injured party could have
avoided without undue risk, burden or humiliation. BUT not precluded from recovery if
reasonable but unsuccessful efforts made to avoid loss.
 §351 Unforeseeability and Related Limitations on Damages:
o Damages not recoverable for loss breacher did not have reason to foresee.
 And on the flip side, damages are recoverable for loss breacher did have reason to foresee
at time of contracting.
o Loss = foreseeable if follows from breach:
 In ordinary course of events, or
 As a result of special circumstances that party had reason to know.
o Court may limit damages by excluding recovery for loss of profits, allowing recovery for only
loss incurred in reliance, or if justice requires to prevent disproportionate compensation.
 §352 Uncertainty as Limitation on Damages: Damages not recoverable if uncertain.
 §353 Loss Due to Emotional Disturbance: No emotional disturbance damages, unless it
also caused bodily harm or contract/breach is kind that serious emotional disturbance was likely
result.
 §355 Punitive Damages: No punitive damages, unless conduct-constituting breach is also
a tort for which punitive damages are recoverable.
 §356 Liquidated Damages and Penalties: Damages for breach may be liquidated in
agreement but only if reasonable (in terms of risk of loss and difficulties in proof of loss).

Mitigation of Damages R. 350

 Overview
o ∏ may not recover for those injurious consequences for the ∆’s breach that the ∏ himself
could by reasonable action have avoided
o Incidental costs are attempts to mitigate
o No duty to mitigate under common law-but you should
o UCC 2-704
o Additional contracts, if already in place, don’t affect mitigation/damages
 Cases
o Rockingham County v. Luten Bridge
 The case for duty to mitigate
 Don’t pile on economic waste when there is no need
 Contracted to build a bridge, orders come down to stop building, builders believe
that will change soon and continue to build.
 Doctrine of Avoidability: If by stopping I can avoid racking up additional
damages, then they can reduce the damages award by the amount of
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 damages I could have prevented.
o Maness v. Collins
 Employment contract case. Employee stopped working while under employment
contract because the employer was acting in bad faith by preventing him from
doing his duties, and the employer was estopped from using just cause firing
defense. Firing was therefore total material breach. There was no obligation for
him to mitigate damages (he sat around for a year and built a house). Burden is
on the employer to show:
 Availability of suitable and comparable substitute (§350(1))
 Lack of reasonable diligent in finding other employment.
o Parker Case
 Comparability of employment
 If u take a non comparable job, if didn’t have to, going to reduce damages by
amount made at that job

36