Antonio Paris.

Contracts Spring Final - HotSheet

Chapter 16
Defenses: Misrepresentation and Nondisclosure

A. Defense of Misrepresentation: If party’s manifestation of assent induced by fraudulent

or material misrepresentation and is justified in relying, contracts voidable by v.
 Elements:
i. Misrepresentation: false statement of fact (in existence @ time statements
made). Or by conduct (ie. pics, diagrams... etc)
1. If party states an honest opinion (even if incorrect) = no
misrepresentation (but still possible to rescind if material in
entering contract)
2. If party knowingly gives false opinion = misrepresentation
ii. Fraud or materiality
iii. Inducement
iv. Justifiable reliance
 Intentional Misrepresentation = Fraudulent Misrepresentation
 Innocent Misrepresentation = Material Misrepresentation
a. Fraudulent Misrepresentations: maker intends … to induce party to manifest
his assent and maker:
i. Knows or believes assertion isn’t in accord w/ the facts (Intent to misrep);
ii. Doesn’t have confidence that he states or implies in truth of the assertion;
or
iii. Knows he doesn’t have the basis he states or implies for the assertion.
iv. Fraudulent misrepresentation is intentional misrepresentation where
maker:
1. Knows or should’ve known facts are untrue, &
2. Makes statement w/ intent to mislead other party (ie. induce other
party).
v. If statement was false and satisfies other elements, then contract can be
rescinded by innocent party, even if misrepresentation doesn’t
significantly affect value of contract.
b. Material Misrepresentations: if it’s 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. (ie. Maker knows specific recipient likely induced even if
reasonable person wouldn’t be induced).
i. Material misrepresentation encompasses a representation where maker had
no knowledge that statement was false.
ii. Innocent misrepresentation which is material may allow party to rescind
contract.
iii. Don’t have to prove intent to deceive but have to prove materiality.
iv. Objective Standard: Ask: was the misrepresentation important enough
that a reasonable person would enter into a contract if the statement were
true?
v. Subjective Standard: If maker has knowledge of individuals preference
or knows of the subjective reasons of the recipient, then misrepresentation
is likely material.

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c. Inducement: If misrepresentation “substantially contributes” (ie. relied on misrep

as true) to a party’s decision to enter the contract, then the party has been induced
by the misrepresentation. (Inquire into motives party had to enter into the
agreement)
d. Justifiable Reliance: Look to whether receiving party of misrepresentation knew
or should have known about the falsity of the statement.
i. If should have known and was consciously ignorant, then their reliance not
justified.
B. Defense of Nondisclosure: withholding a (1) material fact, which affects the value of the
transaction and isn’t (2) readily observable or known to nondisclosing party, amounts to a
misrepresentation.
a. Doctrine of Caveat Emptor (“buyer beware”): puts the responsibility of being
informed on each party by requiring purchasers do their own investigations and
sellers need not disclose all of the reasons against entering the contract.
i. If one party has superior knowledge, then merely acting on that knowledge
to one’s own benefit is not a failure to act in good faith.
ii. Modern Rule: requires disclosure in some transactions.
b. Exceptions:
i. Disclosure Required by Statute: Many consumer protection statutes
require customers receive disclosure of material information to deter
deceitful practices.
ii. Intentional Concealment
1. Intentional Concealment: the act of the cover-up (ie. If party
takes specific action likely to prevent other party from learning
truth of a matter, then that action of concealment paired with
nondisclosure is “an assertion that the fact does not exist.”)
2. Active Concealment: when a party purposely “hides something
from the other, as when the seller of a building paints over a
defect,” it’s treated as a misrepresentation (ie. as if the “defect does
not exist.”)
3. Indirect Concealment: Occurs when “a party prevents the other
from making an investigation that would have disclosed a defect.”
(ie. by misdirecting other party to investigate in way or place
where defect will not be found…misdirection = misrepresentation)
iii. Relationships of Trust and Confidence: Sometimes requires a
heightened duty to disclose facts that might have a material effect on the
transaction. (ie. when a party is a fiduciary (ie. financial advisor, attorney,
guardian, or executor of an estate) or relationships one w/ expectation of
disclosure such as family members or doctor-patient relationships.)
iv. Duty to Disclose to Correct a Mistake: if one party knows the other
party made a mistake on a basic assumption of the contract, there’s a duty
to disclose to correct the mistake or it’s a breach of duty of good faith and
fair dealing.
C. Remedies for Misrepresentation and Nondisclosure: rescission (restore parties to pre-
contract positions) or reformation (allows court to rewrite terms in contract to accurately
reflect parties intentions), and damages.

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Chapter 17
Defenses: Unconscionability

A. Overview
 Applies to two aspects of contract:
o (1) procedures used in formation (procedural unconscionability)
o (2) substantive terms (substantive unconscionability)
o Ie. are terms or process of entering contract unfair?
 RULE – Unconscionability: Courts that find any contract or clause to be
unconscionable at the time it was made can refuse to enforce the contract or limit
the unconscionable clause to avoid an unconscionable result.
o Elements:
 Procedural Unconscionability
 Substantive Unconscionability
o Sliding scale allows greater degree of one element and lesser degree of
another.
a. Policy Considerations
i. rooted in equity and fairness protecting parties who can’t protect
themselves.
b. Unconscionability Must Exist at Contract Formation
i. Ie. if terms are fair at formation and become unfair later unconscionability
won't apply.
c. Remedies
i. Rescission
ii. Severance: rather than rescission, court partially enforces & severs
offending terms.
iii. Reformation: court replaces unconscionable terms w/ fairer ones.
1. Rare as remedy, courts reluctant to rewrite terms.

B. Procedural Unconscionability
 Deals w/ unfairness in bargaining process.
 Proving duress, undue influence or misrepresentation establish procedural
unconscionability element.
o But can be proven w/o these defenses.
 Demonstrated by:
o Gross inequality in bargaining power: when party lacks meaning choice
 Ie. adhesion contracts (unless P had a choice of entering contract w/
another party.)
o Unfair surprise: reasonable expectations of one party disappointed from
bargaining process.
1. Lack of Actual Knowledge of Terms: weaker party doesn’t
understand terms b/c poor education or poor cognitive skills
(doesn’t need to reach level of mental incapacity).
a. Cases often focus on P’s uneducated, very young or old.

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2. Sharp Bargaining Practices: market techniques bordering

dishonesty and misleading.
3. Complex and Hidden Terms in a Complicated Document:
a. look at factors: font size, bold headings, placement of
terms, length of document, and clarity of language.
b. If parties had to separately initial important terms, it’s
evidence terms weren’t hidden.

C. Substantive Unconscionability: unfairness of the terms (ie. where one party receives
little value, & others unduly rewarded).
a. Overly Harsh Allocation of Risks
i. Disclaimer of Liability for Intentional Torts: often can be voided under
unconscionability or matter of public policy.
ii. Disclaimer of Liability for Gross Negligence: unconscionability defense
more successful against physical injuries than injuries to property.
iii. Mandatory Arbitration Clauses: Frequently appear in employment and
consumer contracts.
b. Great Price Disparity (adequacy of consideration): parties don’t have to
exchange things of equal value. (Important in determining contracts
unconscionable)
i. Test: compare price paid by complaining party to similarly situated
consumers in similar transaction.

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Chapter 18
Defenses: Public Policy and Illegality

A. Overview
 RULE – Public Policy and Illegality: contract or provision may be void or
voidable if subject matter or consideration is illegal or against public policy at
formation.
a. Contracts Against Public Policy
i. Contracts involving illegality (torts or crimes);
ii. Contracts restraining trade;
iii. Contracts impairing family relations; and
iv. Contracts violating licensing laws.
b. Balancing Test: court should balance importance of enforcing contract against
public policy before voiding.
i. Importance of Enforcing Contract (consider):
a. What were the parties’ justified expectations of benefits
they’d receive from contract enforcement?
b. Will one party experience significant forfeiture if contract
or clause is voided?
***courts favor enforcement b/w private parties and are reluctant
to interfere w/ right to enter contracts freely.***
ii. Importance of Furthering Public Policy (consider):
a. Any special public interest affected by the outcome?
b. How strong’s the public policy (look @ legislation and
judicial decisions)?
c. Will voiding out contract/clause actually further public
policy?
d. What is seriousness of any misconduct (ie. bad faith)
involved?
c. Rescission vs. Partial Enforcement
i. Blue Pencil Rule: court may rescind contract if performance violates
public policy or to enforce partially by severing offending term.
1. (courts consider whether party whom enforcement benefits acted in
good faith.)
ii. Partial Enforcement: divisible or severable
iii. ASK: whether severed portion was essential to performance of contract?
iv. Reformation: courts insert different term to replace severed term.
d. Availability of Restitution: if contract rescinded b/c of violation of public policy,
restitution generally not available.
1. Exceptions:
a. A disproportionate forfeiture would occur absent restitution
b. One party is excusably ignorant of the public policy
c. One party was not equally in the wrong as the other party
d. One party withdrew from performance before the improper
purpose was achieved

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ii. Generally, Not Available: In Pari Delicto: court refuses adjudication b/c
of wrongful actions of both parties. (ie. left parties w/o restitutionary
remedy for illegal contracts)
a. Granting restitution to illegal conduct wouldn’t further
policy goal of equity.
iii. Exceptions: When Restitution Is Available: look to if parties knew of
illegality or weren’t as culpable as other.

B. Contract Involving Illegality: won't be enforced if it breaks laws.

C. Contracts that Restrain Trade: if performance would limit competition in any business
or restrict promisor in gainful occupation.
a. (In some states, all post-employment non-compete agreements are void.)
b. Reasonability Factors:
i. Legitimate Interest of the Promisee (Employer): protecting trade
secrets or preventing competition if promisor sold business and expects
seller not to start a new business competing w/ old one sold.
ii. Hardship to the Promisor (Employee): courts concerned w/ restraints
leaving employee destitute and w/o way of making a living.
iii. Injury to the Public: public interest in receiving goods/services that can’t
be met elsewhere?
c. Extent of Restraint: scope (ie. type of work), geography, & time.

D. Impairment of Family Relations

a. Contracts That Prohibit Marriage: freedom to marry shouldn’t be impaired w/o
good reason (ie. if only to prevent marriage, court may void)
i. If rationale purpose on restraint, court will uphold
1. (ie. contractual promise for support (ie. alimony) as long as spouse
doesn’t remarry)
b. Contracts Affecting Custody of a Child: must be in best interest of child.

E. Contract that Violate Licensing Laws: contract entered w/ unlicensed party may be
voidable if operating w/o license is strongly against public policy (ie. hairdressers, liquor
stores, doctors, lawyers, etc.).
a. Whether the contracts void/voidable turns on purpose of license.
i. If purpose to regulate an industry (ie. doctors or lawyers), likely voidable
by the other party.
ii. If only purpose of license to generate tax revenue, more likely upheld.
b. Whether unlicensed party in substantial compliance w/ licensing statute.

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Chapter 19
Excuses: Mistake

A. Mutual Mistake: where both parties made a mistake at formation on basic assumption
which contract was made having a material effect on exchange of performances, contract
voidable by adversely affected party, unless he bears the risk of the mistake…
a. Analytic Framework (focuses on what occurred at formation):
i. Exception: mutual mistake is not available to excuse a party who bears
the risk of the mistake.
b. Made a Mistake
c. Basic Assumption: parties, at formation, assumed they didn’t make a mistake of
facts upon which contract was formed. (***Poor judgment doesn’t count***)
i. Look at motivation of parties in entering contract.
d. Material Effect: must show resulting imbalance so severe, party can't fairly be
required to carry out performance.
i. Ordinarily by showing exchange not only less desirable but its more
advantageous to other party.
ii. Look at effect of mistake has on both parties
e. Bears Risk of mistake when:
i. Risk Allocated by Agreement (most common): reflected in express
language but could arise through conduct.
ii. Conscious Ignorance (aka assumption of risk): when party knows he isn’t
fully informed on some aspect of transaction and doesn’t take any
affirmative action to determine facts.
1. If party makes reasonable efforts to be informed of true facts, but
still wrong, a court may determine that party shouldn’t bear risk.
2. If parties are unsure of the facts but consult an expert familiar, the
consultation will likely be considered sufficient to avoid liability
for assuming the risk.
iii. Allocated by the Court: If risk not allocated in agreement and neither
party consciously ignorant, a court may use all of the surrounding
circumstances to determine that one party is more at fault than the other.
(provides the court will great flexibility)

B. Unilateral Mistake: a mistake made by only party.

 Scrivener’s errors: accidental mistakes
 Courts require a high degree of unfairness. (ie. b/c resulting contract is
unconscionable or b/c the other party knew of the mistake or caused it).
***Use the same standards and test: Mistake; Basic assumption; Material effect &
No risk bearing*** Plus:
i. Effect of mistake would make enforcement of contract unconscionable, or
ii. Other party had reason to know of mistake or his fault caused the mistake.
b. Unconscionable (requires both):
i. Procedural unconscionability (shown by either):
1. Inequality in bargaining power, or

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2. Unfair surprise.
ii. Substantive unconscionability (shown by either):
1. Overly harsh allocation of risks not justified by circumstances, or
2. Great price disparity.
c. Knowledge of the Mistake or Fault in Causing the Mistake
i. Knowledge of the Mistake: other party knew (or should’ve known)
mistake was made and didn’t correct it, contract may be undone provided
there’s no risk shifting.
1. Contractor-bidding mistake: knowledge shown by a large disparity
b/w the lowest and next highest bid.
2. Palpable Mistakes: egregious mistakes other party should’ve
known about.
ii. Fault in Causing the Mistake: If other party caused mistake, court would
let party suffer consequences of a rescinded contract.

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Chapter 20
Excuses: Changed Circumstances

A. Overview
a. Assess the risks of potential change in circumstances.
b. If the change was that which the parties didn’t contemplate at contract formation,
then there may be relief through the doctrine of changed circumstances.
c. General Rule: a promisor takes on the risk that an event might occur after the
contract was formed, which makes performance more difficult, if not impossible.
i. Threat of liability encourages parties to plan ahead and protect against
adverse events that have a real possibility of occurring.
d. Limitedly, courts will relieve a party of its duty to perform b/c of changed
circumstances only when it’s in the interest of equity and justice.
e. Doctrine of changed circumstances constitutes defenses to excuse contractual
duties:
i. Impossibility: to assert, performance must literally be impossible.
ii. Impracticability: performance must result in extreme and unreasonable
difficulty, expense, injury or loss, to excuse performance.
iii. Frustration of purpose: when performance becomes meaningless.

B. Impossibility: event causes party’s performance to become impossible.

a. Analytic Framework:
i. After Contract Formation: changed circumstance must occur after
formation.
1. If circumstances existed at formation, don’t use change
circumstances (consider using mistake).
ii. A Supervening Event Occurs W/o Fault: of party seeking relief (directly
or indirectly) (prohibits intentional and negligent actions causing event to
occur).
1. If one breaches and makes it impossible for other party to perform,
not changed circumstances and breaching party at fault.
iii. Impossibility of Performance (judged objectively not subjectively) and
performance literally impossible by anyone.
1. Doesn’t apply if only impossible for party w/ duty to perform (ie.
where that party has limited capacity or resources to deal w/
change in circumstances).
2. If possible, for another party, performance not impossible just
more difficult. (consider using impracticability).
3. Typical scenarios: destruction of a thing or death of a person.
iv. Basic Assumption That the Event Would Not Occur: event must not
have been assumed (explicitly or implicitly) by parties at formation.
1. Event doesn’t need to be unforeseeable, rather, probability low
event would occur.
v. Allocation of Risk: party seeking relief must not bear the risk. (either by
contract, b/c one of parties knew or should’ve known, or by court based on
equity and fairness).

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1. Force Majeure Clause (“superior force”): excuses party from

performance when conditions are beyond control of the parties.
a. Standard clause in many contracts
b. Conditions must be:
i. External forces outside parties control;
ii. Not reasonably foreseeable; &
iii. One that materially affects performance of party’s
duties.
c. Typical conditions: “acts of God” (ie. natural disasters like
earthquakes, floods, etc.), severe weather & human-made
(ie. fires or explosions); Outside forces (ie. civil unrest,
terrorism, war); Strikes or other labor disputes; & New
government legislation
b. Remedies
i. Rescission and Restitution: If changed circumstances elements met,
parties are excused from performance… may recover for restitution to
extent of unjust enrichment.
ii. Partial Impossibility & Enforcement, and Reformation
1. If only temporarily impossible, duties suspended until performance
is possible.

C. Impracticability: event causes a party’s performance to be impracticable. (1,2,4,5,6)

a. Extreme and unreasonably difficulty, expense, injury, or loss. Or risk of injury to
person or property, to one of the parties or another, disproportionate to the ends
attained by performance.
i. mere change in degree or difficulty or expense from increased wages,
prices of raw materials, or costs of construction, unless well beyond
normal range, not enough.
b. UCC Approach (Excuse by Failure of Presupposed Conditions): excuses
seller from timely delivery of goods, where performance becomes commercially
impracticable b/c of unforeseen supervening circumstances not w/in
contemplation of parties at formation.
***Courts reluctant if risk could’ve been protected against***

D. Frustration of Purpose: event causes a party’s performance to become substantially

frustrated. (1,2,4,5,6)
a. Substantially Frustrated: performance meaningless, not impossible or difficult.
i. Ask: is “principle purpose” of contract “substantially frustrated” making
performance of one party worthless to the other?
ii. Object must be complete basis of contract, to both parties, w/o transaction
wouldn’t make sense.
iii. Not enough transactions less profitable or will sustain a loss, rather so
severe it’s not fair to be w/in the risks he assumed under the contract.

E. Typical Scenarios

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a. Destruction of a Thing: Must be impossible to replace the “thing” (“thing”

doesn’t have to be unique, it could be a commodity or something else easily
obtainable)
***If destruction of “thing” makes performance more difficult, use
impracticability***
b. Death/Incapacity of a Person: Normally, death wont discharge, estate can fulfill
obligation.
i. If personal/unique service (ie. painting a portrait) estates likely excused.
ii. If duty can be delegated, use impracticability if delegations extremely
difficult or it’s a personal services contract (involve a relationship of trust,
like, lawyer, doctor, teacher).
c. Government Action: If gov. action makes performance illegal (use impossibility)
i. Contracts illegal at formation subject to public policy defense.
ii. Contracts illegal after formation subject to one of the changed
circumstances defenses.
iii. If complying w/ new law makes performance more costly,
(impracticability – level of difficulty)

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Chapter 21
Parol Evidence Rule

A. Overview
a. C/L favors written evidence over oral, mostly

B. Defining Terms
 Parol Evidence Rule: when parties agree the writings a final and complete
expression of their agreement, then a court shall not admit extrinsic evidence of
prior or contemporaneous agreements that supplement or contradict the writing.
i. Extrinsic Evidence: evidence outside the final and complete expression
of their agreement (either oral or additional writings).
b. Consistent Additional Terms: term doesn’t conflict w/ existing terms, rather
evidence supplements written agreement and isn’t inconsistent w/ rest of the
contract.
i. Determined by interpreting writing in light of all circumstances, including
additional term evidence.
ii. Inconsistency in Terms: “the absence of reasonable harmony in terms of
the language and respective obligations of the parties.”

C. Analytic Framework
 If agreement is entirely oral, parol evidence not at issue!!
 Parol Evidence legal issue scenarios:
o At least two parties entered into contract, and there’s a writing that is
evidence of contract.
o One party asserts that the writing (and only the writing) contains all the
terms of their agreement,
o The other party asserting there was an oral agreement (or some other
writing) that reflects some terms of their agreement.
 Analytic Framework (use when parol evidence issue is determined):
o Determining Integration (level of integration determines what
evidence, if any, is admissible):
 Ask: is the writing totally integrated, partially integrated or not
integrated? (is the writing partially or totally integrated? Yes,
continue)
o Admissibility of Evidence
 Ask: what type of evidence is being introduced (contradictory or a
consistent additional term)? (is the evidence contradictory or a
consistent additional term?)
 Total Integration: neither type is admissible.
 Partial Integration: consistent additional terms admissible
 Not Integrated: both contradictory and supplementary
evidence is admissible.
o Exceptions:
 Ask: if the evidence cannot be admitted, does one of the five
exceptions apply?
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a. Determining Integration
 Ask:
o Did the parties intend the writing to be a final expression of
at least some terms of their agreement?
 If yes, then at least part of the agreement was
integrated.
 If no, then there is no integration.
 Purpose: to exclude preliminary drafts.
o If the writing is final, then did the parties intend the
writing to be a complete expression of all of the terms of the
agreement?
 Focus: on degree which this integrated writing is the
complete agreement of the expression.
 Purpose: important to determine whether agreement is
totally or partially integrated.
 Jurisdictional split in determining whether a writing is totally or
partially integrated.
o Turns on whether a judge considers only the writing itself or all
of the surrounding facts and circumstances to determine the
parties intent.
i. Classic Jurisdiction (Minority Rule) (“plain meaning rule,” “four
corners rule,” or the “Williston approach”): if writing appears
complete and unambiguous on its face, then terms can only be determined
from four corners of writing and not from extrinsic evidence. An
agreement with merger clause automatically deemed totally integrated.
1. “Four Corner” Test: judge determines on its face if doc. appears
to be missing terms (or w/in the four corners of the document).
a. If it appears to have all terms necessary to carry out
intentions of parties, then it’s considered completely
integrated.
b. Written contract with blank spaces were terms would go,
wouldn’t be integrated.
2. Merger Clause (“integration clause”): statement in written
contract explicitly stating it represents the entire agreement b/w the
parties.
a. Attorneys include in most contracts to show the parties
intended to create a totally integrated agreement.
ii. Modern Jurisdiciton (Majority Rule): judge may consider all
surrounding facts and circumstances (including writing, extrinsic evidence
and the context of contract formation) to determine whether a writing is
integrated. presence of merger clause creates a strong presumption of
integration but is not dispositive.
1. Merger Clause: May be considered a boilerplate term if other
evidence shows parties intended agreement to be partially
integrated.
2. Consider:

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a. The amount of detail in writing: if missing key terms

needed for performance, it suggests doc. wasn’t a complete
expression of parties.
b. The nature of the writing: drafted as a formal contract or
scribbled on a napkin (less likely to be considered complete
than one negotiated over time and drafted by attorneys)?
i. Partial integration especially likely to arise when
writing is in standardized form w/o ability to insert
additional terms.
c. The formalities observed in drafting and executing the
agreement: presence of attorneys suggests parties intended
writing to be final and complete, unless facts indicate
otherwise.
d. Type of transaction and business practices: is it common
in industry to have side oral or written agreements? (courts
will consider customs surrounding such agreements)
e. Relationship of parties and past dealings: have parties
routinely had side agreements in past similar deals?
i. (ie. may establish course of dealing lending
credibility to assertion that present deal may also
have had side agreement)
f. The nature of the parol evidence: is evidence being
introduced the type normally and naturally included or
subject to a side agreement? (see test below)
iii. Terms Naturally Omitted… Ask: whether the parties would’ve naturally
omitted consistent additional terms from the writing?
1. If yes, then writing only partial integration. (Useful when the
writing is a standardized form).
iv. Outcomes: Three Possibilities
1. Total integration (“full integration” or “complete
integration”): document reflects both final and complete
expression of parties
2. Partial integration: document reflects final agreement of parties
only to some terms but not complete.
3. No integration: document doesn’t reflect final agreement of
parties.
b. Admissibility of Evidence
 Whether evidence is admissible, consider:
1. The level of integration
2. Whether the evidence is contradictory or a consistent additional
term.
 Total integration: precludes both contradictory evidence and consistent
additional terms.
 Partial integration: precludes contradictory evidence but allows
consistent additional terms.
 No integration: allows all extrinsic evidence to be considered.

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 If court determines evidence is not admissible, then it will look to see if

an exception applies.
i. Procedural Issues: Role of the Judge and the Jury
1. Deciding admissibility and the integration status is the judge’s job
2. The jury then decides whether the admissible evidence is
persuasive enough to vary or supplement the written agreement.
c. Exceptions (not precluded by parol evidence rule):
 Exceptions listed allow introduction of evidence regardless of
jurisdiction (classic or modern), integration (partial or total), or evidence
(contradictory or consistent additional term).
i. Evidence Offered to Interpret an Ambiguous Term
1. Classic jurisdiction: term has to be ambiguous on its face to
consult extrinsic evidence as to meaning.
2. Modern jurisdiction: judge may consider any evidence to
determine if terms ambiguous.
ii. Subsequent Agreements (Oral or Written)
1. If parties make agreement after formation its admissible since
evidence occurred after formation.
2. “no oral modification clauses: prohibit oral modifications to
agreement.
a. Modern jurisdiction courts routinely refuse to enforce
b. Often a boilerplate term attorney includes in every contract
c. If court determines clause isn’t reflective of true intent of
parties, then it rationalizes there’s been a waiver of the
clause.
iii. Showing of Fraud, Mistake, Duress, Undue Influence, or Other
Voidability: Extrinsic evidence admissible (even if it contradicts the
writing) if it shows one party has a defense (ie. incapacity, duress, or
fraud) or if there’s some other factor the makes the contract void (ie. lack
of agreement during bargaining process or lack of consideration).
iv. Collateral Agreements (w/ Separate Consideration): where parties had
a contract and also agreed to enter into second related (collateral) contract
for a separate consideration.
1. Must be independent of primary contract in terms of meeting all
formation requirements (such as separate consideration).
2. Terms aren’t in conflict w/ terms in primary contract
3. Must be one parties wouldn’t ordinarily expect to embody in
integrated writing.
v. Condition Precedent to the Formation of a Contract: If parties have
also agreed (orally or in different writing) a condition (some event) must
occur before full integration occurs, the evidence of the condition will be
admitted (in order to prove condition never occurred and contracts
ineffective).

D. UCC Parol Evidence Rule §2-202: parties intended and agreed terms in writing are final
expression of their agreement and such terms may not be contradicted by evidence of any

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prior agreement or of a contemporaneous oral agreement but may be explained or

supplemented
a. By course of dealing or usage of trade or by course of performance; and
b. By evidence of consistent additional terms unless court finds writing intended a
complete and exclusive statement of the terms of the agreement.
c. UCC §2-202 uses “final expression” rather than “integrated”.
i. If agreement is final expression, then contradictory evidence is excluded
but consistent additional terms allowed (same as c/l partially integrated
agreement).
d. UCC uses “complete and exclusive statement of the terms of the agreement”
rather than “totally integrated agreement”
i. Excluding both contradictory and consistent additional terms (like c/l).
e. Interpretative evidence is admissible in both final expression and complete
exclusive statement.

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Chapter 24
Breach of Contract

A. Overview
a. Discharged duty: If a party fully performs their contractual obligations
b. Any deviation, even slight, in performance is a breach of contract.
i. However, not all breaches lead to an award of damages.
c. Efficient Breach: where a party intentionally breaches a contract b/c it is cheaper
to pay damages to non-breaching party than perform.
d. RULE – Breach, Restatement (Second) of Contracts §235(2): when
performance of a duty under a contract is due any non-performance is a breach.
e. Partial Breach: consists of minor deviations where the breaching party has
substantially performed.
i. The non-breaching party must still perform their side of the bargain but
can seek damages for losses suffered.
f. Material Breach: when a party has not substantially performed.
i. Allows non-breaching party to suspend performance and provide
opportunity for breaching party to cure its breach.
1. If breaching party cures material breach, then it becomes a partial
breach.
2. But if no cure, then it becomes a total breach.
g. Total Breach: when a party materially breaches an agreement and is unwilling or
unable to cure the breach.
i. Non-breaching party justified in not performing and may then terminate
contract and seek damages.
h. Obligor: the party who owes a contractual or other legal obligation to another.
i. Obligee: the party to whom a contractual or other legal obligation is owed.

B. Levels of Breach
a. Partial Breach/Substantial Performance (“minor breach,” or “immaterial
breach”): Substantial performance occurs and there are only small deficiencies in
quantity or quality of performance where precision is not critical.
i. No Right to Terminate: non-breaching party may not terminate for
partial breach and must still perform obligations.
ii. Right to Damages: non-breaching party may recover damages for any
harm caused by the partial breach.
b. Material Breach: when a party doesn’t substantially perform.
i. If party materially breaches contract, the non-breaching party may
terminate contract unless circumstances suggest breaching party will cure
its breach.
ii. If breaching party is given chance to cure breach, the non-breaching party
may suspend performance.
iii. If material breach remains uncured, its a total breach and non-breaching
party may withhold performance and terminate the contract.
iv. Right to Suspend Performance and Opportunity to Cure

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1. Minimally, material breach allows non-breaching party right to

suspend performance.
2. Courts favor giving breaching party time to cure b/c no one’s
perfect and we should give people second chances.
3. If non-breaching party doesn’t give time to cure and terminates, it
risks possibility of court determining the breaching party would’ve
corrected given the choice and in such a case, the non-breaching
party would’ve committed a total breach and turns into the
breaching party.
v. How Much Time Does a Breaching Party Have to Cure?: time of
performance in contract helps inform court what reasonable time to cure
should be.
1. Curing doesn’t have to be fully performing rather substantial
performance or transforming a material breach into a partial
breach.
2. After cure, non-breaching party may no longer suspend
performance.
vi. “Time is of the Essence” Clauses (typically stating): a party totally
breaches if performance doesn’t occur by a certain date and time and
usually negates the right to cure. (ie. if party misses deadline (even by
small amount) they’ve totally breached).
1. Some courts consider these as boilerplate terms and excuse the
performance.
2. To be enforceable, they should be clear of intent by parties that
performance must be complete by certain date and time and
anything less would be considered a total breach.
3. Attorney’s will (and should) usually include “time is of the
essence” clauses, where timing is important.
c. Total Breach: If breach isn’t curable, then it’s a total breach (ie. “uncured
material breach”)
i. Right to terminate and damages: if breaching party won’t cure breach,
non-breaching party may:
1. Withhold performance,
2. Terminate the contract (duties under contract are discharged), and
3. Sue for damages.

C. Determining the Materiality of the Breach

 Whether a party’s performance is a partial material breach or total breach
(question of fact and courts consider all the surrounding circumstances and no
single factor is determinative).
a. Amount of Benefit not Received
i. Focus: on degree which injured party hasn’t received full performance
expected by contract (how much of a loss occurred?).
1. The more non-breaching party deprived of benefit, the more
material the breach … & vice versa … the greater benefit received,
the less material breach.

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2. The more the breaching party has delivered what’s expected by

non-breaching party, the more substantial the breaching party’s
performance.
ii. Courts focus on both quality and quantity of breaching party’s
performance and look to overall purpose of the contract to determine
degree which injured party has received their benefit of bargain.
b. Adequacy of Damages (important if party seeking performance as remedy)
i. Courts may find breaching party substantially performed if it’s possible to
accurately estimate cost to complete performance.
ii. Courts grant specific performance when they determine damages are
inadequate as remedy.
c. Forfeiture Suffered by Breaching Party
i. Courts may favor determination that breach isn’t material if terminating
contract results in forfeiture to breaching party.
d. Likelihood of Cure
i. More likely breaching party will cure their breach and fully perform, more
likely court will find for substantial performance.
e. Lack of Good Faith and Fair Dealing (important to materiality)
i. If breaching party not operating with intention to fulfill implied duty of
good faith and fair dealing, court may conclude that the breach is more
material.
ii. A bad faith breach wouldn’t transform a partial breach into a material
breach if non-breaching party substantially received benefit of bargain and
any damage are adequate.

D. Discharge of Duties (created at formation): when party fully performs their contractual
obligation.
a. Full Performance (If any performance left undone, duty isn’t discharged)
b. Tender (act of offering to perform duty) of Performance That is Rejected
i. Traditionally, tender refers to offer to pay money due under contract or to
deliver goods under sales contract.
ii. If one party tender’s performance, but it’s rejected by other party then
their duty is discharged.
c. Agreement by the Parties: Parties mutually agree to terminate contract (ie.
contract of promises by parties to forgo their original contractual rights and
obligations).
i. Both parties’ duties must be executory (ie. still significant performance
obligations under contract exist). If one party fully performed, there’s no
consideration for mutual rescission.
d. Valid Defense or Excuse
e. Occurrence of a Condition: contract specifies a condition that activates or
terminates a contractual duty.
f. Total Breach/Repudiation by the Other Party: If one party totally breaches
contract, non-breaching party may justifiably terminate the contract.

E. UCC Nonperformance Rules

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 Substantial performance doctrine doesn’t apply when seller breaches, but seller
may have opportunity to cure breach, his performance must be perfect or buyer
may reject deviation, as long as it’s done in good faith.
a. Sellers Nonperformance
i. Nondelivery: If seller doesn’t deliver good, buyer may sue for breach and
seek remedy (ie. money damages for economic loss) or if goods are
unique or there’s a shortage of commodity, buyer may seek specific
performance.
ii. Failure to Make Perfect Tender: Seller must perform exactly to terms of
contract or buyer may refuse delivery of goods.
iii. Breach of Warranty: If buyer accepts non-conforming goods, seller may
still be liable for warranty damages but buyer no longer has right (under
perfect tender rule) to terminate contract.
1. Instead, buyer can receive damages equivalent to difference b/w
value of goods as they were delivered and value of goods as
warranted.
iv. Anticipatory Repudiation: Seller repudiates contract if, before delivery
due, informs buyer he won’t perform contractual duties (buyer may
cancel/terminate contract and declare breach)
b. The Perfect Tender Rule: if goods or tender of delivery fail in any respect to
conform to the contract, the buyer may:
1. Reject the whole (if goods fail to conform to contract terms, even
if defect not material); or
2. Accept the whole; or
3. Accept any commercial unit or units and reject the rest.
 Perfect tender rule only applies to contracts for single sales or purchases
and if buyer rejects goods before acceptance.
1. (ie. If installment contract (series of transactions) then rejection
may only occur if non-conformity substantially impairs the value.)
 The goods delivered have to conform “perfectly” to terms of contract,
not necessarily “perfect” quality.
i. Rationale of perfect tender: to set high standards among sellers to help
protect buyers from purchasing shoddy merchandise.
1. If buyer can reject for any imperfection, sellers less likely to put
defective goods into market or at least more likely disclose
imperfections.
ii. Acceptance, Rejection and Reasonable Time Requirement
1. Acceptance: if buyer accepts good or fails to reject goods, in
reasonable time, he loses right to reject goods.
2. Rejection: If buyer rejects, he must “seasonably notify the seller”
of rejection, if not done w/in reasonable time, he’s deemed to have
accepted the goods.
a. If buyer in possession of goods after rejection, he must hold
goods w/ reasonable care giving seller chance to retrieve.
3. Reasonable Time: depends on transaction, parties could also
explicitly agree on time buyer has to reject goods.

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iii. Revocation of Acceptance: If buyer accepts and later discovers goods

don’t conform and substantially deviate from contract terms, buyer may
revoke his acceptance w/in reasonable time after discovering non-
conformity and before substantial change in condition of goods but must
care for goods until seller can retrieve (w/in reasonable time).
iv. Sellers Right to Cure: Seller, as long it’s in good faith, has right to cure,
if time for performance not expired and must give notice to buyer his
intention to cure and make delivery of conforming goods by contract
deadline.
1. If time of performance passed, seller has second chance to cure
under certain limited circumstances.
a. Seller must have “had reasonable grounds to believe [it’s
nonconforming tender] would be acceptable w/ or w/o
money allowance” (such as if parties had prior course of
dealing where non-conformity was allowed w/in limits).
b. Seller, after seller seasonably notifying buyer, then has
“further reasonable time to substitute a conforming tender”,
c. ***Protects seller from surprise rejection at time when
performance is due.***
v. Exception: Installment Contracts: requires or authorizes delivery of
goods in separate lots be separately accepted
a. Buyer can only, reject installment if “non-conformity
substantially impairs value of that installment” and non-
conformity can’t be cured by seller; and can only cancel
entire installment contract if “one or more of the non-
conforming installments substantially impairs the value of
the whole contract.”
c. Buyers Nonperformance
i. Wrongful Rejection of Goods (buyers breached):
1. If seller offers perfect tender but buyer refuses;
2. If seller has additional time to cure imperfect tender and buyer
refuses opportunity to cure; or
3. If it’s established party buyer acted in bad faith in rejecting goods
(some courts won’t let buyer use perfect tender rule to avoid
performance).
ii. Failure to Make Payment
1. Time of Payment: if contract doesn’t specify when payments due,
seller can refuse tendering of goods until payment is made.
**Most commercial contracts provide terms for payment**
**Failure to pay according to the agreement is a breach**
2. Form of Payment: if form of payment not specified, buyer can
tender payment “by any means or in any manner current in the
ordinary course of business” (ie. cash, check, credit cards, band
transfer, etc.)
a. Exception: Seller can demand cash if buyer given
reasonable amount of time to get the cash.

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iii. Anticipatory Repudiation: Results when buyer informs seller before

performances due, that buyer will not perform… thus, sellers duty to
deliver goods is discharged and can withhold or stop delivery of any goods
in transit &/or terminate contract and seek damages.

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Chapter 25
Conditions to Performance

A. The Basics of Conditions

a. Conditions (a future event that’s uncertain to occur) w/ Duties = trigger to either
activate or terminate a party’s contractual obligation.
i. Event could be external to both parties or the obligee (party who will
receive benefit of obligation) could be in control of the event.
b. Conditions Can Lead to Harsh Consequences
i. If party commits only partial breach (minor deviation), then nonbreaching
party must still perform but can seek damages from partial breach.
ii. Conditions act to regulate whether party has a duty.
1. Doctrine of substantial performance doesn’t apply (ie. if the duty
of the obligor is conditioned on full performance by obligee,
obligee must perform perfectly. If only substantial performance,
the condition hasn’t occurred then obligor has no duty).
**Courts enforce a term as express condition only when the parties clearly
intended the provision to be a condition**
c. The doctrine of substantial performance doesn’t apply to express conditions but
does apply to constructive conditions.

B. Characteristics of Express Conditions

a. Distinguishing Promises from Conditions: contractual promises create legal
duties and rights, while conditions act to limit or modify a promise.
i. Contractual Promises
1. Events: force of nature (ie. weather); control by 3rd party (ie.
decision by a lender to finance a project); something normally
beyond control of any individual entity (ie. market prices); or in
control of obligee, if obligee doesn’t cause event to occur, then
obligor has no duty to perform (w/o duty, there can be no breach).
**Event must be subject to uncertainty (ie. passage of time alone isn’t
considered an event that constitutes a condition)**
ii. Implied Duty of Good Faith: If the condition is influenced by the
obligor, there’s an implied duty of good faith that obligor makes to satisfy
the condition.
1. (If they acts in bad faith to satisfy a condition, then a court may
find a breach of the agreement.)
b. Condition Precedent vs. Condition Subsequent
i. Condition Precedent (“conditional duty”): an event that must occur
before the duty or right arises (ie. creates a duty or right).
1. Most conditions are framed as condition precedents.
ii. Condition Subsequent: an event that terminates a duty or legal right (ie.
discharges a duty or terminates a right).
1. Frequently used by attorneys to specify events that might allow
parties to avoid ongoing duty or terminate the contract altogether.

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C. Analytic Framework
a. Did the Parties Intend to Include an Express Condition in the Contract?
i. Express Conditions: conditions that arise from express language (ie. clear
and unambiguous) of the parties. (ie. term in contract @ formation).
1. Language often used: “on condition that,” “provided that,” “in
the event that,” “must,” “but only if,” “if,” and “if, then.”
***If there’s any doubt of intent by the parties, courts will characterize the
term as a promise rather than a condition.***
b. Has the Condition Occurred? (ie. it must’ve occurred before duty to perform
manifest (ie. condition precedent) or is terminated (ie. condition subsequent)).
c. If the Condition has not Occurred, has the Condition Been Excused?
 (The excuse has the same effect as if the condition occurred.)
 Acceptable Excuses:
1. Wrongful hinderance by party with duty to perform
2. Avoidance of disproportionate forfeiture (if condition is not
material)
i. Express Waiver: consideration necessary if material.
1. Ie. contract stays in place, but one party chooses not to enforce a
particular term (ie. relinquishes legal right of one party under the
contract) but consideration needed if term being waived is material
(or waiver may be retracted).
2. (Different from contract modification where parties change terms
to form a new modified agreement).
ii. Estoppel: detrimental reliance on promise to waive
1. Ie. If one party promises to waive condition, and the other takes
reasonably foreseeable actions to their detriment in reliance on that
promise, a court will enforce the promise to waive to extent
necessary to prevent injustice.
iii. Wrongful Hinderance by the Party with the Conditional Duty to
Perform. If party w/ conditional duty to perform acts in bad faith to
prevent condition from occurring = courts will excuse the condition.
iv. Avoidance of Disproportionate Forfeiture: if condition is not material.
1. Ie. a court may, limitedly, temper harsh results by excusing
conditions, if one party experiences disproportionate forfeiture and
it’s not material to contract.

D. Constructive Conditions (Implied by Law): treated like ordinary promises (ie.

substantial performance applies) and prevents the harsh consequences of express
conditions – (primary application) when parties haven’t specified in agreement the
sequence each party performs it’s duties, it allows a court to lend order and place them
into a reasonable sequence of performance.

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Chapter 26
Anticipatory Repudiation

**Policy: it may be more cost efficient and lower overall damages from the repudiation to allow
non-repudiating party to act sooner rather than wait for time of performance. ** TALK ABOUT!
A. Analytic Framework
a. Has a Party Repudiated the Contract?
o Anticipatory Repudiation: A party has anticipatorily repudiated a contract
when, before performance is due, a party:
 Makes an unequivocal and definite statement that he will commit a
total breach, or
 Engages in any conduct that renders that party unable to perform its
duties.
i. Before Performance is Due
1. ***Repudiation analysis only applies if repudiating party does it
before performance is due (if at or after, use breach analysis).***
a. (Appropriate to use even if there’s a series of discrete
performances under one contract)
ii. Unequivocal and Definite Statement: showing a party’s intent to commit
(in this case, a total breach)
1. “mere expression of doubt as to his willingness or ability to
perform is not enough to constitute a repudiation.”
2. ***Repudiation must be made directly to person who’s a party to
the contract, indirect communication through someone who’s not a
party won’t be considered a repudiation***
iii. A Good Faith Dispute is not Necessarily a Repudiation: (ie. merely
making a demand b/c of an honest dispute is not necessarily an
anticipatory repudiation)
iv. Conduct as Repudiation: If a party (voluntarily and affirmatively)
engages in conduct w/ result of making his performance (actually or
apparently) impossible to perform.
1. (An act that falls short of these requirements, however, give
reasonable grounds to believe that the obligor will commit a
serious breach.)
v. Special Case: Insolvency: If a party’s insolvent (ie. unable to pay debts)
then insolvency alone isn’t repudiation but likely to result in request for
adequate assurance of performance by other party.
***Often bankrupt party can still operate and fulfill some of its
contractual obligations to pay off its debts.***
b. Rights of Non-Repudiating Party: After repudiation, the non-repudiating party
may:
i. Suspend performance (if performance, not suspended, mitigation may
limit it’s damage award);
1. Mitigation principle: requiring party suffering a loss take
reasonable steps to minimize loss suffered.

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ii. Terminate the contract and sue for breach immediately (ie. total breach
and w/o giving opportunity to cure); or
iii. Continue to treat contract as valid and wait for time of performance, to see
if repudiating party changes its mind and performs its contractual duties,
before bringing suit. (if repudiating party hasn’t performed, use breach
analysis).
c. Retraction of Repudiation: the repudiating party may retract its repudiation at
any time before performance is due and before non-repudiating party:
i. Gives notice that it chooses to treat the contract as rescinded or
terminated;
ii. Brings suit; or
iii. W/ or w/o notice materially changes its position in reliance on the
repudiation.

B. Request for Adequate Assurance of Performance: party may request/demand, in

writing, adequate assurance of performance if they have reasonable grounds (ie. good
faith) to feel insecure that other party won't perform and until assurance is received, if
commercially reasonable, suspend any performance (but w/o reasonable basis, it’s a
breach and possible violation of duty of good faith and fair dealing) that he hasn’t already
received the agreed return/benefit.
a. If assurance is not given, the party can treat the contract as repudiated.
b. If party gives assurance, contract remains in place and parties move forward.
***B/w merchants reasonable grounds for insecurity and adequacy of assurance
offered is determined according to commercial standards.***
***Acceptance of any improper delivery or payment does not prejudice the
aggrieved party’s right to demand adequate assurance of future performance.***
***After receipt of a justified demand failure to provide within a reasonable time
not exceeding thirty days such assurance of due performance as is adequate under
the circumstances of the particular case is a repudiation of the contract.***
c. Reasonable Grounds for Insecurity: (ie. an obligor has financial troubles, a
labor strike, experiences shortages of essential supplies needed for their business,
minor breaches, or indirect communication and it depends on all circumstances of
the business, business climate and overall context)
d. The relationship b/w the parties, any prior dealings they’ve had, the reputation of
the party whose performance is questioned, the nature of the grounds for
insecurity, and the time w/in which the assurance must be furnished are all
relevant factors.

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Chapter 27
Introduction to Remedies and the Expectation Interest

A. Overview of Themes
a. Money is the preferred remedy since it compensates for damage done by breach.
b. Substitutional Remedies (ie. money damages substitute to actual
performance) vs. Specific Remedies
i. Specific remedy: gives the party specifically what they bargained for (ie.
actual performance)
c. Exception: specific performance is readily available for land sale contracts and
the sale of unique goods, when money wouldn’t be an adequate remedy.
d. Specific performance is exception, not the rule.
e. Purpose is to Compensate the loss, Not Punish the breaching party: done by
returning the non-breaching party to its original economic position had he
received the full benefit of the bargain and awarding money damages.
i. C/L Exception to punitive damages: when the breach amounts to an
independent tort and in some very limited cases of bad faith breach, courts
will use against breaching party.
f. Efficient Breach: party might opt to intentionally breach a contract “when it
costs less… to pay the other party compensatory damages than it would to
completely perform the contract.” (encouraged under traditional contracts
remedies doctrine)

B. Three Interests (Theories) of Recovery

a. Overview
i. Courts try to protect one or more of these interests of the plaintiff in
seeking a recovery.
b. Expectation Interest (favored, most common relief, usually yields best
recovery for P): Attempts to give benefit of the bargain by putting P “in as good
a position as he would’ve been in had the contract been performed by either:
i. Money Damages: compensation for breach by quantification of loss in
economic terms.
1. (ie. economic condition P’s in b/c of breach and economic position
P would’ve been in if contract were fully performed)
a. In simple cases, the difference would be the non-breaching
party’s expectation money damages.
ii. Specific Performance (ordered in extraordinary circumstances):
1. More completely meets the expectation interest than money
damages would.
2. Consider the following factors:
a. Whether money damages are inadequate,
b. Whether the terms of the contract are certain enough to
provide a basis for a court order,
c. What the balance of the hardships is on the parties if the
order issues and if it does not,
d. Whether there is an important public policy involved, and

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e. What the feasibility of court supervision is.

3. P doesn’t have a right to specific performance and the court has
complete discretion in ordering it (and will not order it if result
would be unfair or inequitable).
4. Looks to the future and tries to value what might have happened.
c. Reliance Interest: Attempts to reimburse P for loss caused by reliance (ie. any
foreseeable out-of-pocket costs that the P incurred related to the contract) by
being put in as good a position as he would have been in had the contract not been
made.”
i. Looks to the past and tries to correct the economic damage done is used
when it’s difficult to calculate damages w/ certainty
***Normally reliance awards less money than expectation but can be
higher sometimes.***
d. Restitution Interest: Restores P “any benefit he’s conferred on the other party.”
i. Focus: is on the D and disgorging any unjust enrichment that occurred b/c
of breach.
ii. Two types of Restitution:
1. Monetary Restitution (“market value restitution”): money
damage award. (ie. calculate fair market value of property or
services P conferred on breaching party and breaching party pays
that economic benefit back.
2. Specific Restitution: seeks to restore an identifiable thing or piece
of property to the injured party.
iii. Normally less in monetary terms than expectation.
e. Courts normally award only one of the interests to prevent double recovery but in
some circumstances, expectation damages include aspects of reliance and
restitution concepts.

C. The Expectation Interest and Money Damages

a. Restatement Expectation Measure of Money Damages: subject to the
limitations [of certainty, foreseeability, and mitigation], the injured party has a
right to damages based on his expectation interest as measured by:
i. The loss in the value to him of the other party’s performance caused by its
failure or deficiency, plus
ii. Any other loss, including incidental or consequential loss, caused by the
breach, less
iii. Any cost or other loss that he has avoided by nothing having to perform.
iv. Loss in value:
1. if performance is defective or partial:
a. loss in value = difference b/w expected performance and
what’s delivered.
2. If breaching party didn’t deliver anything to injured party:
a. Loss in value = total value to injured party
v. Other Loss: consequential and incidental damages
vi. Cost Avoided: if non-breaching party doesn’t incur expected costs b/c
other party breach then any amount saved is deducted from recovery.

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vii. Loss Avoided: any savings injured party had by terminating contract and
reallocating resources they were going to use in their performance.
b. Difference b/w general and consequential is ordinary damages and damages from
special circumstances.
c. Limits to Avoid Overcompensation
i. Courts may limit damages through the following:
1. Certainty: must be reasonable certainty a loss occurred b/c of
breach and certainty on dollar amount of damages.
a. Mathematical precision not required on amount of loss, but
damages can't be speculative.
2. Causation: to recover damages, loss must’ve been proximately
caused by breach.
3. Foreseeability: damages must’ve been foreseeable to a reasonable
person familiar w/ the circumstances (or put on special notice) at
time of contract of formation.
a. Courts only award damages if parties knew what the
consequences of breach would be at contract formation.
(party can plan and determine what damages they might be
liable for).
4. Mitigation (Avoidable Consequences): law won’t allow non-
breaching party to recover damages that could’ve reasonably been
avoided, even if non-breaching party has to take some alternative
steps to avoid the loss.
a. Non-breaching party need only take reasonable action and
not mitigate if it would cause undue risk, burden, or
humiliation.
5. To award money damages, they must be certain, caused by the
breach, and foreseeable but mitigation isn’t required (rather it
limits availability of damage award if non-breaching party
could’ve avoided the loss).

D. Types of Damages:
a. General Damages (Direct Damages): be established w/ reasonable certainty,
proximately caused by breach, and foreseeable at formation (ie. losses that flow
directly or naturally, from the breach, under ordinary circumstances when a
particular type of contract is breached).
i. If non-breaching party can mitigate damage and doesn’t, damages may be
limited.
b. Two categories of general damages:
i. Replacement Cost: additional cost incurred over and above contract price
to purchase replacement goods or services
ii. Difference in Value: b/w value of performance tendered and value of
performance promised.
c. Measure of General Damage (formula used by courts in calculating damages)
i. Contracts types for measures of damages (chart on pg. 655):
Type of Contract Measure of General Damages for Common

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Law Contracts
Real Estate The difference b/w the contract price and the
fair market value of the property at the time of
the breach.
Employment Contract The additional cost incurred by the employer
(Employee Breach) to purchase the same services.
Employment Contract The salary due under the contract less any
(Employer Breach) amount earned in other employment.
Construction/Service Contract The reasonable additional cost or the
(Contractor Breach) diminution in value of the property caused by
the breach.
Construction/Service Contract The costs expended by the contractor up until
(Contracting Party Breach) breach plus the profit the contractor would
have earned had the contract been fully
performed.
ii. Reason by analogy (to appropriate measure) if particular contract not
listed.
iii. General damages must.
1. Damages awards will also be adjusted for any prepayments, costs
savings, or gains that occurred b/c of breach.

E. Consequential Damages (“Special Damages” or “Indirect damages”): losses incurred

that were contemplated as probable result to breach b/c of special circumstances
(communicated to D or D knew of them at formation) surrounding the particular contract
breached.
o Elements:
 Caused by breach;
 Foreseeable at formation; &
 Established w/ reasonable certainty.
o ***Could be nearly any type of loss or expense arising from special
circumstances (provided it meets all requirements).***
a. Examples:
i. Lost Profits Arising from Collateral Contracts: similar lost opportunity
to make an economic gain.
b. Breach Causes Plaintiff Liability to a Third Party: (ie. breach of a contract
causes the innocent party to breach another contract that results in liability to P)
c. Injury to Person or Property Caused by the Breach (contracts involving risk
of injury): (ie. contacts involving sale of dangerous or hazardous goods, it may
be foreseeable a breach will injure a person or harm property)
d. Loss of Use Damages (unable to use thing or piece of property)
i. (Ex. Sale of residential property, it’s foreseeable buyer may need sale to
close by certain date or they’ll need rent accommodations…. Ie. If damage
is foreseeable to seller (and contract doesn’t exclude that damage) buyer
may recover for “loss of use” of property caused by breach.)
ii. ***If losing use was foreseeable at formation, rental value may be
recoverable by non-breaching party.***

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Antonio Paris. Contracts Spring Final - HotSheet

e. Plaintiff Incurs Fines or Government-Imposed Fees Because of the Breach

(pg. 659)

F. Incidental Damages: reasonable costs incurred in an effort, whether successful to not, to

mitigate losses associated with the breach. (ie. Typically, small amounts of money
(compared to general and consequential damages) and usually related to finding
substitute contract or otherwise trying to avoid the damage caused by the breach)
i. Typical example is brokerage fees paid to locate a substitute contract.
b. Limits damages if non-breaching party could’ve made reasonable efforts to avoid
loss. (non-breaching party need only make reasonable efforts and not incur any
undue risk, burden or humiliation).
c. Common Error: extra cost of replacement contract is a part of the general
damage award, not an incidental damage, rather, merely the additional costs
incurred to arrange a substitute transaction are considered incidental.

G. Adjustments and Offsets: If P somehow reduced normal damage award, that amount is
offset against the damage’s b/c allowing P to be overcompensated by D would be unjust
enrichment.
 Three principle ways money damages should be offset or adjusted:
a. Prepayments Made by Breaching Party: Any benefit conferred (through
prepayments or performing some of the contractual duties) to non-breaching party
by breaching party, should be considered when calculating damages.
b. Non-Breaching Party Reduces Loss Through Mitigation: damage award
reduced to the degree the non-breaching party could’ve reduced or avoided the
loss through mitigation. (ie. loss avoided).
c. Breach Results in Gain for Non-Breaching Party: If the non-breaching party is
more profitable than they would’ve been under the breach contract, damages are
normally offset by the gain made b/c of the breach

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