Contract Law Outline

Exam Plan of Attack for Essay Questions:

1. Is it a sale of goods? IF yes than apply UCC if not then apply
common law of contracts.
2. Do I have an enforceable contract? Contract formation, and
possible defenses: Mutual Assent (offer and acceptance) and
consideration, and Statute of Frauds (if it applies).
3. Do I have an enforceable promise under Promissory Estoppel? 4
elements and possible defenses.
4. Do I have an enforceable promise under promissory restitution
theory?
5. Can I use restitution without a promise for a remedy?

I. Formation of a Contract
II. Mutual Assent
III. Offer and Acceptance in Bilateral Contracts
IV. Offer and Acceptance in Unilateral Contracts
V. Postponed Bargaining
VI. Consideration

I. FORMATION OF A CONTRACT

(A) What is a Contract?

Contract – A promise or set of promises for the breach of which the law gives a remedy,
or the performance of which the law in some way recognizes as a duty (§ 1 on page 138).

Promise- A promise is a manifestation of intention to act or refrain from acting in a

specified way, so made as to justify a promisee in understanding that a commitment has
been made. (§ 2 Page 139).

Promisor- The person manifesting the intention is the promisor (§ 2, pp 139).

Promisee- The person to whom the manifestation is addressed is the promisee (§2, pp
139).

Beneficiary- Where performance will benefit a person other than the promisee, that
person is a beneficiary (§ 2, pp 139)

How a Promise May Be Made- A promise may be stated in words either oral or written,
or may be inferred wholly or partly from conduct.
- Not all promises have a legal remedy, only contracts.

- Contracts support market economy and capitalism. You can’t have capitalism
without contracts. If no contracts, economy is reduced to a barter system.

- So what makes a promise a contract?

II. MUTUAL ASSENT – Issue spot, dispute about whether or not

there was an intention to be bound? Is there a disagreement of
terms?

(A) RST § 17 (pp 140) - Formation of a Contract requires a Bargain in which

there is a manifestation of mutual assent to the exchange and a consideration.

RST § 21 - Intention to be legally bound- 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.

Objective Standard – Physical manifestation of Mutual Assent required for intention to

be legally bound. Can be in written form, verbal, or conduct.
Examples:
Written - Written contract signatures and seals
Verbal - Words that manifest assent: “you have a deal,” “I accept your offer,” etc.
Conduct – Handshake, performance of bargain etc.

Subjective Standard – Meeting of the Minds - Term used by the courts occasionally to
describe that both parties have the same understanding of terms and conditions but not
necessary for formation of a contract. Mutual Assent necessary not Meeting of the Minds.

(B) Ray v. Eurice Bros:

Rule of Law: Manifestation of mutual assent. In this case assent made manifest by
physical presence of a written contract signed by both parties.
- Each party has duty to perform full contract. Therefore both parties should read
full contract before manifesting assent.
- The Fairness of the contract comes from the mutual assent.

III. OFFER AND ACCEPTANCE IN BILATERAL CONTRACTS

(A) RST § 22 (pp. 140) – The manifestation of mutual assent to an exchange

ordinarily takes the form of an offer or proposal by one party followed by an acceptance
by the other party or parties.
Though manifestation of mutual assent may be made even though neither offer nor
acceptance can be found.

(B) Offer – RST § 24: An offer is the manifestation or willingness to enter into a
bargain, so made as to justify another person in understanding that his assent
to that bargain is invited and will conclude it.

Option Contracts – An option contract is a promise which meets the requirements for
the formation of a contract and limits the promisor’s power to revoke an offer (§ 25 pp
141).

Preliminary Negotiations – A manifestation of willingness to enter into a bargain is not

an offer if the person to whom it is addressed knows or has to know that the person
making it does not intend to conclude a bargain until he has made a further manifestation
of assent.

Offer Hypo 1: Alice says to Ben “I offer to buy your watch.” Is this an offer?
- No just because she says offer doesn’t mean its an offer. This statement satisfies
first element of an offer “a manifestation or willingness to enter into a bargain”
but it fails to satisfy the second element “so made as to justify another person in
understanding that his assent to that bargain is invited and will conclude it. In this
case not enough specific terms and conditions to lead another person in
understanding that his assent to that bargain is invited and will conclude it.

Offer Hypo 2: Alice says to Ben – “I promise to give you $1000 in cash by 5:00 p.m. on
Friday, July 7, 2006.
- This is not a real offer because it fails to satisfy 1st element of an Offer. Although
it is specific enough to satisfy second element, it is completely one sided and
therefore not a bargain.

(C) Power Of Acceptance

Acceptance – RST § 50: (1) Acceptance of an offer is a manifestation of assent to the

terms thereof made by the offeree in a manner invited or required by the offer.

Acceptance by promise – Requires that the offeree complete every act essential to the
making of the promise. (RST § 50).

RST 36 An Offeree’s power of acceptance may be terminated by:

(1) Rejection or counter-offer
(2) Lapse of time (as stated in the offer, if not stated then court may impose a
“reasonable time”).
(3) Revocation of the offer by offeror.
 (4) Or Death or incapacity of offeror or offeree.

Rejection – (1) An offeree’s power of acceptance is terminated by his rejection of the

offer, unless the offeror has manifested a contrary intention.
(2) A manifestation of intention not to accept an offer is a rejection unless
the offeree manifests an intention to take it under further advisement. (RST § 38)

Counter-Offers – (1) A counter-offer is an offer made by an offeree to his offeror

relating to the same matter as the original offer and proposing a substituted bargain
differing from that proposed by the original offer.
(2) An offeree’s power of acceptance is terminated by his making of
a counter-offer, unless the offeror has manifested a contrary intention or unless
the conter-offer manifests a contrary intention of the offeree.

Lapse of Time – Offeree must accept offer before offer is revoked or in a reasonable
time.
RST §63 Unless the offer provides otherwise,
(a) an acceptance made in a manner and by a medium invited by an offer is
operative and completes the manifestation of mutual assent as soon as put out
of the offeree’s possession (mailbox rule), without regard to whether it ever
reaches offeror; but,
Mailbox rule – Sometimes acceptance is effective as soon as it is dispatched
but only when offeror has not indicated otherwise does mailbox rule apply.
(b) an acceptance under an option contract is not operative until received by the
offeror.

Revocation - A revocation of an offer must be communicated to be effective.

Communicated meaning that it is either said, read or expressed so both parties know.

IV. OFFER AND ACCEPTANCE IN UNILATERAL CONTRACTS

Unilateral Offer – An offer inviting acceptance by rendering a performance.

Classical Approach: Petterson approach; offeror can revoke at any time prior to
completion of performance. Williston’s classic Brooklyn bridge example: A: “B I will
give you $100 dollars to walk all the way across the Brooklyn bridge.” B walks half way
across the bridge and A yells “I revoke.” For classical approach of Unilateral contracts
than A properly revoked and therefore no contract.
Modern Approach – Option contract is created when the offeree tenders or begins the
invited performance. Limits offerer, not allowing offeror to revoke the offer once
performance has begun; however, offeree can still reject the offer by not completing the
performance. Beginning performance is different than taking preliminary steps prior to
performance. Think mowing the lawn example: beginning to mow the lawn is beginning
performance, buying gas etc. is not.
Irrevocable Offers- Generally offers are revocable any time prior to acceptance. There are
however four exceptions to the rule:
1) Option Contract
2) Part Performance for Unilateral offers
3) Reliance §87(2) offeratory estoppel
4) Firm Offer

V. CONSIDERATION – look for gift or donation scenarios for

consideration in dispute.
A. Not all promises are enforceable. Only promises that make up a contract are
enforceable. A contract is formed through a mutual assent and Consideration
B. Courts utilize more than one definition for Consideration:
1. Benefit / Detriment test (Holmes)
2. Bargained for Exchange Test (Restatemtn).

C. Consideration seperates a contract from a promise to make a gift. Promise to

make a gift (a gratuitus promise) is not legally enforceable.

D. Benefit / Detriment Test – Consideration is found either through a benefit to the

promisor or a detriment to the promisee. Detriment should be thought of as a
change in position. Either refraining from doing something or doing something
one wouldn’t have otherwise done. Detriment doesn’t mean harm. Giving up a
legal right. “I could be home watching Ellen.”

E. Bargained for Exchange - § 71 To constitute consideration a performance or a

return promise must be bargained for. A performance or return promise is
bargained for if it is sought by the promisor in exchange for his promise and is
given by the promisee in exchange for that promise. Quid Pro Quo (This for
That).

VI Sale of Goods

Determine first whether goods or services predominate in a particular transaction,

for factors that are significant in determining the nature of the contract use Princes
Cruises 3 (maybe 4) part test:
1) The language of the contract,
2) The nature of the business of the supplier, and
3) The intrinsic worth of the materials.
4) Some courts may add fourth part, consider the nature of the dispute at hand.
Is the dispute about goods or services part of the contract?

VII UCC 2-207

Purpose and Overview of the Section

A) Drafters of UCC dissatisfied with the common law rule mirror image rule because
unfair results, last shot results.

2-207 (1) Any Sale of goods. Do terms in first offer govern

contract?
To prevent the last shot from determining the terms of the contract purported acceptance
would be treated as an acceptance, even if it contained additional or different terms. At
common law such a document would have been treated as a counteroffer.

1. § 2-207 (1) does not mention the need for an offer, but assumes that one
has been made. Common law rules determine whether an offer has been
made
2. If the offeree manifests assent to the offer a contract is formed even if the
acceptance contains additional or different terms not found in the offer.
3. Two important situations a response to an offer will not be treated as an
acceptance. 1) the response may not be an “expression of acceptance.” 2)
The “unless clause” if an offeree expressly conditions its acceptance on
the offeror’s assent to the additional or different terms, the response will
be treated as a counteroffer.
4. A response to an offer will be treated as a conditional acceptance only if it
has clear and explicit language making it a conditional acceptance.

§ 2-207 (2) – If contract is not between Merchants then the additional terms
are proposals and do not become part of the contract. IF BETWEEN
MERCHANTS such terms become part of the contract unless: found in 2-207
(2) (a,b,c).
1. Additional or different terms not agreed to in offeree boilerplate become
part of the agreement UNLESS covered under 2-207 (2). Are additional
Terms in or out?
2. “Additional” or “different” terms: “Different” terms contradict or qualify
an express term of the offer or contradict a term of the oral agreement in
the case of a confirmation. “Additional” term adds to the terms of the offer
or oral agreement.

A. Additional Terms
1. If the agreement is not between merchants (if one party is a consumer) the
additional terms do not become part of the agreement.
2. If the agreement is between merchants, the additional terms become part
of the agreement unless 2-207 (2) (a), (b), or (c) apply. A Big Uless!
3. 2-207 (2) (a) – If the offer contained express language limiting acceptance
to the terms of the offer, the additional terms would not become part of the
contract. Brown v. Machine (pp. 170).
 4. 2-207 (2) (b) – The additional terms become part of the agreement unless
they “materially alter” the terms of the offer. Comment # 4 sets fourth
clauses which typically will materially alter the offer. Included in theses is
a disclaimer of warranties. Comment 5 describes clauses that normally do
not amount to a material alteration. Courts have also used the reference to
“surprise or hardship” in comment 4 as a guide to finding materiality.
5. 2-207 (2) (c) – If the offeror gives notification of objection to the
additional terms, either before or after receiving the acceptance, the
additional terms do not become part of the contract.

B. Different Terms – courts divided on different terms, three approaches found in

case law.
1. Different terms do not become part of the agreement because the language
of the section indicates that it only applies to additional terms. However,
comment 3 can be used to rebut this argument; it states: “Whether or not
additional or different terms will become part of the agreement depends
upon the provisions of subsection (2).”
2. Different terms should be subject to the same analysis as additional terms.
3. “Knock out “ rule. Under this rule if the offer and acceptance have
different terms, they knock eachother out of the agreement. The contract
then consists of the terms on which the offer and acceptance agree, plus
any additional terms that would be implied as a matter of law (such as
implied warranties of quality).

Official Comments:
4. Examples of typical clauses which would normally “materially alter” the
contract and so result in surprise or hardship if incorporated without
express awareness by the other party are: (1) a clause negating such
standard warranties as that of merchantability or fitness for a partifular
purpose in circumstances in which either warranty normally attaches
(Negate warranty that guarantees the fitness of the product where a
standard warranty applies); (2) a clause requiring a guaranty of 90% or
100% deliveries in a case such as a contract by cannery, where the usage
of the trade allows greater quantity leeways ( a little leeway in
Transportation of goods); (3) a clause reserving to the seller the power to
cancel upon the buyer’s failure to meet any invoice when due (leeway for
payment or ordering); (4) a clause requiring that complaints be made in a
time materially shorter than customary or reasonable (have to give people
a reasonably time for complaints).
5. Examples of clauses which involve no element of unreasonable surprise
and which therefore are to be incorporated in the contract unless notice of
objection is seasonably given are: (1) a clause setting forth and perhaps
enlarging slightly upon the seller’s exemption due to supervening causes
beyond his control, similar to those covered by the provision of this article
on merchant’s excuse by failure of presupposed conditions or a clause
 fixing in advance any reasonable formula of prorations under such
circumstances (clause that protects selling party in case of emergency or
supervening cause); (2) a clause fixing a reasonable time for complaints
within customary limits, or in the case of a purchase for sub-sale,
providing for inspection by the sub-purchaser; (3) a clause providing for
interest on overdue invoices or fixing the seller’s standard credit terms
where they are within the range of trade practice and do not limit any
credit bargained for; (4) a clause limiting the right of rejection for defects
which fall within the customary trade tolerances for acceptance “with
adjustment” or otherwise limiting remedy in a reasonable manner. (can’t
return if you change or alter product,

C. § 2-207 (3)

1. If buyer’s offer contains a clause stating that acceptance is expressly

limited to the terms of the offer and also the seller’s acceptance states that
it is expressly conditional on the buyer’s assent to the terms of the
acceptance. Suppose further that despite these clauses the parties exchange
nonmatghing documents and then proceed to behave as if a contract had
been formed, by actually rendering the agreed-on performance (wholly or
in part) or at least by making substantial preparation for performance.
2. Deals with cases in which examination of the documents indicate that a
contract was not formed because the offer and acceptance contradict
eachother but the parites nonetheless have acted as if a contract has come
into existence. In essence says that the parties actions speak louder than
their words and a contract is formed. Its terms consist of those on which
the documents agree, plus other implied-in-law terms, such as the code’s
provisions on implied warranties and remedies.

i. Three Different Types of Modern Forms

1. Shrinkwrap- Hidden in the box and can’t be seen until the
product is purchased.
2. Browsewrap- Hyperlink provided on the website; Purchase
does not logistically require clicking on the hyperlink
3. Clickwrap – Clicking on terms and conditions before making
a purchase.

ii. 2 Views on Formation

1. Early Formation View- Offer=Phone/Internet Order and
Acceptance=Shipment
2. Late Formation View – Offer=Shipment and Acceptance=Keep
Goods/No Return within reasonable timeframe. May be better
 for consumer because then consumer has the option to send it
back. Shrinkwrap must be very clear, visible and expressed. If
it is not visible and not expressed clearly then if customer
merely keeps the product then it is not acceptance. Must be
clear and unambiguous language.

VII. Promisorry Estopel

A. PE is not a contract. (1) It helps when consideration is doubtful and (2) when in
doeubt whether parties have reached Mutual Assent.
B. Elements of PE are – (1) A Promise, (2) Reliance (induce action or forebarence),
(3) Promisor reasonably expects reliance, (4) Injustice (Only way to avoid
injustice is to enforce promise).
C. Always ask first if the promisee could argue a Contract formation instead of PE
because K argument is more convincing to courts.

2. Promissory Estoppel (PE) – RST §90(1)

a. General Elements
i. Promise
ii. Reliance – “Give up a legal right” “Change of Position”
iii. Promisor reasonably expects reliance
iv. Injustice

b. Key Difference between and PE and Consideration

i. Detriment does not need to be sought for PE, while it must be sought
for consideration.

c. Consideration is not necessary if the facts indicate that the promisor should
be estopped from not performing. A promise is enforceable if necessary to
prevent injustice if:
i. The promisor should reasonably expect to induce action or
forbearance;

ii. And such action or forbearance is in fact induced.

iii. If the elements for promissory estoppel are present, some jurisdictions
will award expectation damages (i.e., what was promised under the
contract), but the Second Restatement provides that the remedy “may
be limited as justice requires.”
 1. Examples: 1) Alberto Alum promises to bequeath State
University $5 million for a new School of Management
building. State University puts up a plaque announcing the new
building and hires an architect to design it. If Alberto Alum
does not bequeath the money, expectation damages would be
$5 million, but State University would likely recover only the
cost of the plaque and the architect’s fees under the Second
Restatement approach.

2. Tom offers to give Betty $15,000 if she will buy herself a new
car. Betty buys a car for $13,000. The expectation damages are
$15,000, but Tom is liable to Betty for only $13,000 under the
Second Restatement approach.

VIII. Liability in Absence of Bargained for Exchange- Restitution, Quasi Contract,

Unjust Enrichment etc.

- Always better to argue B of K first before arguing restitution because more persuasive
and damages in K are contract price. In Restitution damages only amount benefit to D.

Restitution- A person who is unjustly enriched at the expense of another is subject to

liability of restitution. – Enrichment (benefit) and Unjust.

Implied in Law - A kind of Restitution theory.

Implied in Fact – A contract implied, like when you go into a restaurant and order a
cheeseburger. No express verbal consent but still a contract.

Unjust Enrichment – Apply all three tests to each unjust enrichment that follow.

1) Pure Restitution (without a promise) 1st definition (CB 282 §116 RST) – More
Traditional Rule (Credit Bureau enterprises v. Pelo). A person who has supplied
things or services to another, although acting without the others knowledge or consent is
entitled to restitution therefore from the other if:
1. He acted unofficiously and with intent to charge therefor; and
2. The things or services were necessary to prevent the other from suffering serious
bodily harm or pain; and
3. Person supplying them had no reason to know that the other would not consent to
receiving them, if mentally competent; and
4. 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.
Copy in RST
- (286) §20 Protections of anothers life or health
- (287) §21 Protection of anothers property.
2) Posner’s Ex-anti analysis – There should be recovery when transaction costs are very
high and not recovery when transaction costs are not very high. Transaction costs are the
cost of bargaining.
High transaction costs – pelo case where transaction costs could potentially be serious
injury or death.
Low transaction costs – Violin player example. Transaction cost would be “if you give
me a dollar I’ll play you a song.”

3) Pure Restitution (without a promise) 2nd Definition – Commerce Partnership v.

Equity Contracting. (Quasi Contract) – subcontractor sues owner because general
contractor went bankrupt.
1. Plaintiff conferred a benefit on Defendant; and
2. Defendant has knowledge of the Benefit; and
3. Defendant has accepted or retained the benefit conferred; and
4. Circumstances are such that it would be inequitable for the defendant to retain
the benefit without paying for value of it.
To Element Four, Court Generally looks for: 2 tests! (ASK WHERE TO FIT THIS
IN?).
1. Did subcontractor exhaust all remedies against the general Contractor.
2. Did, remain unpaid and that the owner had not given consideration to any person
for improvements furnished by the subcontractor. In other words was
subcontractor paid?
3. Possibly statutory claim as well which should be exhausted. Claim against
property (mechanics lean). Don’t usually use this.

Promissory Restitution – Not PE because no reliance, not B of K because no

Consideration only moral obligations.

 Moral Obligations (Mills v. Wyman): Expressed promises with pre-existing

obligation. In the past there was an actual obligation which is no longer
enforceable; non-the less the promissor promises to pay anyway and that promise
is then enforceable. For Example:
- Promise to pay a debt barred by time, § 82 RST Promise to Pay
Indebtedness; Effect of the Statute of Limitations.
- Promise to pay a debt discharged in bankruptcy, § 83 RST Promise to
Pay Indebtedness Discharged in Bankruptcy
- Promise to pay a debt incurred while a minor,
- § 85 RST Promise to Perform a Voidable Duty

 Material Benefit § 86 RST (Webb v. McGowin) – Promissor receives a material

benefit (Webb v. McGowan)
- Promise made in recognition of a benefit received.
- Not conferred as a gift
- Value of the promise is not disproportionate to the benefit received.
Material benefit- Is a significant benefit, material meaning “it matters.” Sometimes
refers to tangibility or ability to quantify the benefit.

IX. Ways to limit offeror’s power of to Revoke:

- Create an option contract

- §45 RST (for part performance of a offer of a unilateral contract) –

(1) where an offer invites an offeree to accept by rendering a performance and
does not invite a promissory acceptance, an option contract is created when the
offeree tenders or begins the invited performance or tenders a beginning of it.
(2) The offeror’s duty of performance under any option contract so created is
conditional on completion or tender of the invited performance in accordance
with the terms of the offer.

- § 90 RST – Promissory Estoppel

- § 87(2) RST – Contractor / subcontractor option contract. Reliance based theory,

just like Promissory Estoppel except offer instead of a promise.

- By Statute, UCC 2-205

An offer by:
1. A merchant
2. to buy or sell goods
3. in a signed writing which by its
4. terms gives assurance that it will be held open is not revocable, for lack of
consideration,
5. during the time stated or
6. if no time is stated for a reasonable time,
7. but in no event may such period of irrevocability exceed three months;
8. but any such term of assurance on a form supplied by the offeree must be
separately signed by the offeror. Then look to official comments.

SETTLED LAW TO: § 87(2) RST for General Contractor / Sub. Contractor Fact
Pattern. Just like PE except instead of Promise for element one, Offer. Schooner
calls Offertory Estoppel.
RST § 87(2): An offer which the offeror should reasonably expect to induce action or
forbearance of a substantial character on the part of the offeree before acceptance and
which does induce such action or forbearance is binding as an option contract to the
extent necessary to avoid injustice.
Elements of 87(2):
1. Offer
2. Offeror should reasonably expect reliance.
3. Reliance
4. Injustice if allow offeror to revoke
General Contractor / Sub. Contractor Fact pattern STEPS –
1. Subcontractor offers to install drywall for developers project
 2. General Contractor offers to build the project
3. Project developer accepts general contractors offer
4. Subcontractor revokes its offer to general contractor

X. Statute of Frauds – Some contracts need to be in writing, especially very important

and big contracts.
- If statute applies and is not met don’t have an enforceable contract.
- Not necessarily a statute, refers to any rule that requires a contract to be in writing in
order to be enforceable.
Examples in RST §110 of contracts typically within the statute of frauds:
 Contracts that connot be performed within one year. E.G. on Jan. 1 2014 A
promises B that A will perform a concert on April 1, 2015.
 Contracts for the Sale or Leas of an Interest in Land. E.G. A grants B an
option to purchase A’s Farm.
 Agreements Not to be Performed during the Lifetime of the Promisor. E.G. A
promises to pay B $1000 if B sings A’s favorite song at A’s funeral.
 Contracts for the Sale of Goods over a certain dollar amount. 2-201(1) but
see 2-201(3). Typically over $500.
 Suretyships: Promises to be responsible for the debts or liabilities of others.
E.G. A’s mother guaranties payment of A’s car loan.
 Miscellaneous Consumer Contracts – E.G. Certain loans, vehicle repairs.

Framework for Analysis:

1. Is the contract within the statute of frauds, i.e. is it one that must be in writing to
be enforceable? RST §110.
2. If the Contract is within the statute of frauds, is there a sufficient memorandum to
comply with the statutes writing requirements and must be signed by defendant?
See Crabtree v. Elizabeth Arden and §131 RST.
3. If the contract is within the statute, and no sufficient memorandum is available, is
the contract nonetheless enforceable under an exception to the statute. In this case
we say “the statute of frauds is “barred.” See Beaver v. Brumlow.
When is the Statute of Frauds Defense Barred?
 1. Sufficient Memorandum – Memorandum can be pieced together from many
writings, no need for conclusive memo.
 2. Part Performance. Beaver v. Brumlow. For sale of realistate (RST §129).
RST §129 – A contract for the transfer of an interest in land may be
specifically enforced notwithstanding failure to comply with the Statute of
Frauds if it is established that the party seeking enforcement, in reasonable
reliance on the contract and on the continuing assent of the party against
whom enforcement is sought, has so changed his position that injustice
can be avoided only by specific enforcement.
Two requirements to exception:
1. Party seeking enforcement “changed positions” in reliance on oral
contract.
2. That reliance must be reasonable
- Court looked at:
 1. whether they took up residency
2. whether they made improvements
3. etc.
 3. RST §139. Enforcement by Virtue of Action in Reliance
1. A promise which the promisor should reasonably expect to induce action
or forbearance on the part of the promisee or a third person and which
does induce the action or forbearance is enforceable notwithstanding the
statute of frauds if injustice can be avoided only by enforcement of the
promise. The remedy granted for breach is to be limited as justice requires.
2. In determining whether injustice can be avoided only by enforcement of
the promise, the following circumstances are significant:
a) The availability and adequacy of other remedies, particularly
cancellation and restitution;
b) The definite and substantial character of the action or forbearance
in relation to the remedy sought’
c) The extent to which the action or forbearance corroborates
evidence of the making and terms of the promise, or the making
and terms are otherwise established by clear and convincing
evidence;
d) The reasonableness of the action or forbearance;
e) The extent to which the action or forbearance was foreseeable by
the promisor.
 4. UCC § 2-201 – Has its own exceptions in §2-201(3).
o 2-201(1) – Except as otherwise provided in this section a contract for the
sale of goods for the price of $500 or more is not enforceable by way of
action or defense unless there is some writing sufficient to indicate that a
contract for sale has been made between the parties and signed by the
party against whom enforcement is sought or by his authorized agent of
broker. A writing is not insufficient because it omits or incorrectly states a
term agreed upon but the contract is not enforceable under this paragraph
beyond the quantity of goods shown in such writing.
o 2-201(2) –
 1) Between merchants
 2) if within a reasonable time a writing in confirmation of the
contract and sufficient against the sender is received and
 3) the party receiving it has reason to know its contents,
 4) it satisfies the requirements of subsection (1) against such party
 5) unless written notice of objection to its contents is given within
10 days after it is received.
o 2-201(3) – A contract which does not satisfy the requirements of
subsections (1) (not in writing) but which is valid in other respects is
enforceable:
 1) If the goods are to be specially manufactured for the
buyer and
 2) are not suitable for sale to others in the ordinary course
of the seller’s business and the seller,
  3) before notice of repudiation is received and under
circumstances
 4) which reasonably indicate that the goods are for the
buyer,
 5) has made either a substantial beginning of their
manufacture or commitments for their procurement; or
(b) if the party against whom enforcement is sought admits in his
pleading, testimony or otherwise in court that a contract for sale was
made, but the contract is not enforceable under this provision beyond the
quantity of goods admitted; or
(c) with respect to goods for which payment has made and
accepted or which have been received and accepted (Sec. 2-206).

Cases:
 Crabtree v. Elizabeth Arden (sufficient memorandum). Fell within the statute of
frauds due to one year provision “2 years to make good.” All documents signed
and unsigned can be looked at together if they are related by subject matter or
same transaction. Memorandum can be pieced together from many writings, no
need for one conclusive memo.
 Beaver v. Brumlow – Part performance showed existence of a contract with no
sufficient memorandum.
 Alaska Democratic Party v. Rice - §139 RST enforcement by virtue of action in
reliance. Promissory estoppel gets around no writing. 1 year limitation. §139 like
PE (§90) Theory but a rebuttal to S of F Defense and adds (a-e) requirements.
 Buffalo v. Hart – UCC § 2-201 exceptions included in §2-201(3) Statute of
Frauds applying to merchants, sale of goods over $500.

XI. The Meaning of The Agreement

I. Principles of Contract Interpretation
a) Assume an enforceable K exists or at least have a bargain.
b) Three basic theories:
i. Subjective
1. Meeting of the minds
a) What parties thinking at moment they entered into K
b) About protecting autonomy
2. Raffles v. Wichelhaus (Eng.)
a) Big K for delivery of Cotton; two ships called Peerless
b) P though cotton was coming on earlier Peerless
c) Holding: no meeting of the minds so no K
3. Problems:
a) Often prevents K’s from being enforced, not what most want
b) Doesn’t recognize words that have certain meaning in normal
usage
ii. Objective:
1. What reasonable person would conclude based on words and conduct
of parties
 2. Sophisticated business and attorneys often like, judges favor as well
3. Problem:
a) Neither party may have thought what reasonable person
thought and court may enforce a contract no one wanted.
4. Land’s End Hypo:
a. Specific industry definition of red.
b. You didn’t get red you wanted and Land’s end red doesn’t follow
industry definition.
iii. Modified-objective
1. Most identified with Prof. Corbin
2. Three step approach RST §201:
a) (1) if parties attach same meaning to term it has that
meaning
b) (2) A is the innocent party, use A’s interpretation when:
i) If A didn’t know B thought different, but B knew
what A thought
ii) If A had no reason to know B thought different, but
B did have reason to know what A Thought.
iii) This adds knowledge of the other parties meaning
and allows that to play into the argument.
iv) Person with the higher degree of knowledge of
other parties meaning will lose.
v) Who ever knows or has reason to know better the
other parties meaning will lose.
vi) Actual knowledge supersedes reason to know.
c) (3) If neither party knows or has reason to know what other
party was thinking then no K exists.
d) Knowledge “at the time of the agreement was made”!
3) Joyner v. Adams – What does “Developed” means.
i) P joyner originally K with brown investment co. to develop office park. Brown
has financial difficulties, lease amended to substitute D Adams.
ii) K includes term if fail to develop by end of Sept., then rent escalates under
price Index formula. Parties disagree about what “developed” means.
iii) Adams claims “developed” means gets lots ready for construction (water,
sewage etc.)
iv) Joyner claims developed means constructing buildings on all lots.
Holding: Court remands it instructing trial ct. to discuss What the parties knew
or had reason to know of the other party’s meaning of “developed” (RST
§201).

4. Frigaliment v. Intel sales co., (chicken case). What does chicken mean?
P says means young chicken, D says means young and old chicken.

List of types of Contract interpretation Arguments:

1. Language of the contract (subjective)
2. Negotiations (subjective)
 3. Trade usage. How does custom in industry define the term. (objective)
4. Extrinsic sources – Info outside the contract. We can in interpreting a
written contract look at the extrinsic evidence. Dictionary, other
sources that provide persuasive authority etc. In chicken case dept. of
Ag. (objective)
5. Maxims of Interpretation – An abstract rule that helps us interpret a
contract. How it should be reasonably or practically interpreted.
(examples on page 382-383). (objective)
6. Course of Performance – How did the parties behave under the
contract? After the contract was formed. (subjective)
7. Course of Dealing – Evidence of these two parties have prior contracts
and the terms of those contracts. (subjective)
8. RST § 201 (from joyner) Parties knowledge of other parties meaning
of term. Very persuasive. AS long as there is ambiguity in the
language. (modified objective – subjective and objective).

1. Doctrine of Reasonable Expectations: Only applies to K of Adhesion and Boiler

plate terms and Not adopted by all courts. But essentially for Contracts of
adhesion Court interprets non-dickered terms with regard to reasonable
expectations of non-drafting party even if express language contradicts those
expectations. If you have an adhesion contract, then non-dickered clauses (not
negotiated) mutual assent is in question.
Definition (398) – Standardized agreements (boilerplate) parties are not bound to
un-known terms which are beyond the range of reasonable expectation. Smilarily
a party who adheres to the other party’s standard terms does not assent to a term if
the party has reason to believe that the adhering party would not have accepted
the agreement if he had known that the agreement contained the particular term.
Such a belief or assumption may be shown by the prior negotiations or inferred
form the circumstances. Reason to believe may be inferred from the fact that the
term is bizarre or oppressive, fro the fact that it eviscerates the non-standard terms
explicitly agree to, or form the fact that it eliminates the dominant purpose of the
transaction.

2. K of Adhesion qualities:
a. boiler plate language or standard form.
b. Disparity in bargaining power
c. Take it or leave it language (cant edit or dicker)
d. Examples of K of Adhesion: Insurance K is always adhesion, some medical
waivors, also some bank contracts etc. Know insurance is always.

3. Defeats doctrine reasonable expectations if: Court used four below to check if
contract does not meet reasonable expectation standard. (C & J Fertilizer, Inc. v.
Allied Mutual Insurance Co. page 398)
a) Eliminates dominant purpose of transaction
b) bizarre or oppressive
c) Eviscerates non-standard terms explicitly agree to.
 d) if terms were dickered over or negotiated then Reasonable
expectations can not apply.

XII. Parol Evidence Rule – RST§ 213, 214, 215, 216 and UCC § 2-202

PER Plan of Attack:

1) do we have a written contract? (PER only applies to written K)
2) Extrinsic evidence is excluded (refers only to evidence outside written
agreement)
3) Extrinsic evidence has to be prior too or contemporaneious with the written
contract.
 An Exclusionary rule
 Purpose –
- Provides certainty for parties
- Prevents the introduction of unreliable evidence
- Deters attempts to rewrite agreements with hindsight
 Belongs only when interpretating written statements
 Evidence rules don’t say who wins only determines what evidence can be
used.
 Exclusionary rule. What evidence must be excluded.
Rule – Evidence of prior or contemporaneous [prior to or contemporaneous with the
executive of written contract] communications [between the parties to the contract]
introduced to add to or contradict a written agreement is not admissible.

Integrated Agreements
 Parol evidence rule applies only to integrated agreements
 An integrated agreement is a writing or writings constituting a final expression of
one or more terms of an agreement. (RST §209(1)).

Complete Integration: A completely integrated agreement is an integrated agreement

adopted by the parties as a complete and exclusive statement of the terms of the
agreement. Complete and exclusive statement of the terms of the agreement §210(1).
- If completely integrated, then evidence of prior or contemporaneous conmmunications
cannot be offered to add to or contradict the written agreement.

Partial Integration: A partially integrated agreement is an integrated agreement other

than a completely integrated agreement. §210(2).
- If partially integrated, then evidence of prior or contemporaneous communications
cannot be offered to Contradict the written agreement.

Merger Clause: A clause that attempts to negate other evidence by making a written
agreement final. Example: Entire Agreement. This document constitutes the entire
agreement of the parties and there are no representations. Warranties, or agreements other
than those contained in this document.

Determining Integration: Two Approaches

 1. Four Corners Approach (Thompson):
 Look at written contract only
 Merger clause is conclusive
 Broad exclusionary rule, narrow exceptions
2. Contextual Approach:
 Look for parties actual intent
 Consider all facts and circumstances
 Merger clause is not dispositive.

Exceptions to Parol Evidence Rule: Evidence NOT EXCLUDED by P.E.R.

1. Collateral Agreements – evidence of collateral agreements will not be excluded
by the parol evidence rule.
- Another agreement between same parties for example the warranty that
can be purchased in addition to the product.

2. Evidence to show Collateral Agreemtns- A collateral agreement is a separate

contract between parties.

3. Evidence to show that there was no agreement or that the agreement is

invalid:
- Incapacity
- Fraud
- Duress
- Undue Influence
- Mistake
- Lack of Consideration
- Lack of Mutual Assent
4. Evidence of Agreements made after the contract was made.
5. Evidence to explain the AMBIGUITY in the language of the contract. §214(c)
i. How to determine whether a term whether a word or clause is
ambiguous?
- Plain Meaning Approach- Look only at the language of the
written contract, no extrinsic evidence or parol evidence.
- Modern Approach- Extrinsic and parol evidence allowed to
determine whether the language is reasonably susceptible to
different meanings. To determine is it is reasonable to determine
term is ambiguous.
- UCC § 2-202 approach. (look up write down)
6. Oral Condition – Oral evidence is permissible to show that the agreement would
not take effect unless some specified event occurred.
7. Evidence to show entitlement to an equitable remedy. E.g. reformation of the
contract.
Implied Terms and Good Faith
Warranties

RST §2-313 Express Warranties by Affirmation, Promise, Description,

Sample

(1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or
model.
(2) It is not necessary to the creation of an express warranty that the seller use
formal words such as “warrant” or “guarantee” or that he have a specific intention
to make a warranty, but an affirmation merely of the value of the goods or a
statement purporting to be merely the seller’s opinion or commendation of the
goods does not create a warranty.

RST §2-314 Implied Warranty: Merchantability; Usage of Trade

(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a merchant with
respect to goods of that kind. Under this section the serving for value of food or
drink to be consumed either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods, are of fair average quality within the
description; and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, of even kind, quality
and quantity within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may
require; and
(f) conform to the promises or affirmations of fact made on the container or label
if any.
(3) Unless excluded or modified (Section 2-316) other implied warranties may arise
from course of dealing or usage of trade.

RST § Implied Warranty: Fitness for Particular Purpose

Where the seller at the time of contracting has reason to know any particular purpose for
which the goods are required and that the buyer is relying on the seller’s skill or judgment
to select or furnish suitable goods, there is unless excluded or modified under the next
section an implied warranty that the goods shall be fit for such purpose.

Theories to Avoid Enforcement of a Contract

Minority
Mental Incapacity
Duress
Undue Influence
Misrepresentation
Non-disclosure
Unconscionability
Public policy

Minority

RST § 14 – Unless a statute provides otherwise, a natural person has the capacity
to incur only voidable contractual duties until the beginning of the day before the
person’s eighteenth birthday.

Case – Dodson v. Shrader – The 16 yr old that bought the car, the K was still
voidable but the court reduced it by the price of wear and tear.

Exceptions to the General Rule with regard to Contracts by Minors:

- Benefit and use rule (Dodson)
- Contracts for Necessities
- Disaffirmative once minor reaches majority within a reasonable
time.
- Misrepresentation by minor and other tortous conduct
- Statutes

Mental Incapacity

RST §15 Mental Illness or Defect

(1) A person incurs only voidable contractual duties by entering into a transaction if by
reason of mental illness or defect
 (a) he is unable to understand in a reasonable manner the nature and consequences
of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction and the
other party has reason to know of his condition.
(2) Where the contract is made on fair terms and the other party is without knowledge of
the mental illness or defect, the power of avoidance under subsection (1) terminates to the
extent that the contract has been so performed in whole or in part or the circumstances
have so changed that avoidance would be unjust. In such a case a court may grant relief
as justice requires.

General Rule – “A person incurs only voidable contractual duties by entering into a
transaction if by reason of mental illness or defect.” (a) he is unable to understand in a
reasonable manner the nature and consequences of the transaction [cognitive incapacity]
or (b) he is unable to act in a reasonable manner in relation to the transaction and the
other party has reason to know of his condition [volitional incapacity].

Case – Haur v. Union Bank – Adopts the Cognitive test (545).

All courts accept the cognitive test and it is the traditional test, only some courts adopt
the volitional test.
- For volitional think of Note 3 on 551 in the book. The teacher that
changes retirement benefits that are less beneficial because she is
going to die.

Duress

RST § 175 When a Duress by Threat makes a contract voidable.

(1) If a party’s manifestation of assent is induced by an improper threat by the other party
that leaves the victim no reasonable alternative, the contract is voidable by the victim.
(2) If a party’s manifestation of assent is induced by one who is not a party to the
transaction, the contract is voidable by the victim unless the other party to the transaction
in good faith and without reason to know of the duress either gives value or relies
materiality on the transaction.

Elements:
1) Assent induced by
2) Improper threat (§176 defines improper)
3) No Reasonable Alternative

Improper Threat
RST §176 When a Threat is Improper
(1) A threat is improper if
(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a
tort if it resulted in obtaining property,
(b) what is threatened is a criminal prosecution,
(c) what is threatened is the use of civil process and the threat is made in bad
faith, or
(d) the threat is a breach of the duty of good faith and fair dealing under a contract
with the recipient.
(2) A thereat is improper if the resulting exchange is not on fair terms,
(a) the threatened act would harm the recipient and would not significantly
benefit the party making the threat,
(b) the effectiveness of the threat in inducing the manifestation of assent is
significantly increased by prior unfair dealing by the party making the threat,
or
(c) what is threatened is otherwise a use of power for illegitimate ends.

Undue Influence

RST §177 When undue influence makes a contract voidable

(1) Undue influence is unfair persuasion of a party who is under the domination of
the person exercising the persuasion or who by virtue of the relation between
them is justified in assuming that the person will not act in a manner inconsistent
with his welfare.
(2) If a party’s manifestation of assent is induced by undue influence by the other
party, the contract is voidable by the victim.
(3) If a party’s manifestation of assent is induced by one who is not a party to the
transaction, the contract is voidable by the victim unless the other party to the
transaction in good faith and without reason to know of the undue influence either
gives value or relies materially on the transaction.

Elements:
(1) unfair persuasion [excessive pressure]
(2) by a dominant person (or someone in a confidential relationship) [undue
susceptibility].
7 factors from Odorizzi v. Bloomfield
Over persuasion is generally accompanied by certain characteristics:
1. Discussion of 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 advisers to the servient party.
 7. Statements that there is no time to consult financial advisors or attorneys.
If a number (not necessary to have all) of these elements are simultaneously present, the
persuasion may be characterized as excessive.

Misrepresentation

Defined RST §159 – “A Misrepresentation is an assertion that is not in accord with the
facts.”

RST §164 When a misrepresentation makes a contract voidable

(1) If a party’s manifestation of assent is induced by either a fraudulent (162(1)) or a
material (162(2)) misrepresentation by the other party upon which the recipient is
justified in relying, the contract is voidable by the recipient.
(2) If a party’s manifestation of assent is induced by either a fraudulent or a material
misrepresentation by one who is not a party to the transaction upon which the
recipient is justified in relying, the contract is voidable by the recipient, unless the
other party to the transaction in good faith and without reason to know of the
misrepresentation either gives value or relies materially on the transaction.

RST §162 When a misrepresentation is fraudulent or material

(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a
party to manifest his assent and the maker
(a) knows or believes that the assertion is not in accord with the facts, or
(b) does not have the confidence that he states or implies in the truth of the
assertion, or
(c) knows that he does not have the basis that he states or implies for the
assertion.
(2) A misrepresentation is material if it would be likely to induce a reasonable person
to manifest his assent, or if the maker knows that it would be likely to induce the
recipient to do so.

Non-Disclosure

RST§ 161 When non-disclosure is equivalent to an assertion

A persons non-disclosure of a fact known to him is equivalent to an assertion that the fact
does not exist in the following cases only:
(a) where he knows that disclosure of the fact is necessary to prevent some previous
assertion from being a misrepresentation or from being fraudulent or material.
(b) (b) where he knows that disclosure of the fact would correct a mistake of the other
party as to a basic assumption on which that party is making the contract and if
 non-disclosure of the fact amounts to a failure to act in good faith and in
accordance with reasonable standards of fair dealing.
(c) Where he knows that disclosure of the fact would correct a mistake of the other
party as to the contents or effect of a writing, evidencing or embodying an
agreement in whole or in part.
(d) Where the other person is entitled to know the fact because of a relation of trust
and confidence between them.

Unconscionability

(1) Absence of material choice (procedural unconscionability) and

(2) Contract terms which are unreasonably favorable to the other party (substantive
unconscionability).

1. The concept of unconscionability allows a court to refuse to enforce a provision

or an entire contract (or to modify the contract) to avoid “unfair” terms. It is
sometimes said that there are two types of unconscionability: substantive
unconscionability (i.e., unconscionability based on price alone) and procedural
unconscionability (i.e., unconscionability based on unfair surprise or unequal
bargaining power).

a. 2 Elements
i. Absence of a Meaningful Choice ie lack of bargaining power
(procedural)
ii. Contract terms are unreasonably favorable to the other party
(substantive)

Public Policy

RST §178 When a term is unenforceable on grounds of public policy

(1) A promise or other term of an agreement is unenforceable on grounds of public
policy if legislation provides that it is unenforceable or the interest in its
enforcement is clearly outweighed in the circumstances by a public policy against
the enforcement of such terms.
(2) In weighing the interest in the enforcement of a term, account is taken of
(a) the parties justified expectations
(b) Any forfeiture that would result if enforcement were denied, and
(c) Any special public interest in the enforcement of the particular term.
(3) In weighing a public policy against enforcement of a term, account is taken of
(a) the strength of that policy as manifested by legislation or judicial decisions,
(b) the likelihood that a refusal to enforce the term will further that policy
(c) the seriousness of any misconduct involved and the extent to which it was
deliberate and
(d) the directness of the connection between that misconduct and the term.
Restraint of Trade non-compete agreements (covenants of non-competition)

RST §187 Non-Ancillary Restraints on Competition

A Promise to refrain from competition that imposes a restraint that is not ancillary to an
otherwise valid transaction or relationship is unreasonably in restraint of trade.

RST §188 Ancillary Restraints on Competition

(1) A promise to refrain from competition that imposes a restraint that is ancillary to
an otherwise valid transaction or relationship is unreasonably in restraint of trade
if:
(a) the restraint is greater than is needed to protect the promisee’s legitimate
interest or
(b) the promisee’s need is outweighed by the hardship to the promisor and the
likely injury to the public.
(2) Promises imposing restraints that are ancillary to a valid transaction or
relationship include the following:
(a) a promise by the seller of a business not to compete with the buyer in such a
way as to injure the value of the business sold
(b) a promise by an employee or other agent not to compete with his employer or
other principal
(c) a promise by a partner not to compete with the partnership.

Mistake
Defined
RST § 151 Defined: A mistake is a belief that is not in accord with the facts.

Bilateral Mistake

RST §152 When mistake of both parties makes a contract voidable

(1) Where a mistake of both parties at the time a contract was made as to a basic
assumption on which the contract was made has a material effect on the agreed
exchange of performances, the contract is voidable by the adversely affected party
unless he bears the risk of the mistake under the rule stated in §154.
(2) In determining whether the mistake has a material effect on the agreed exchange
of performances, account is taken of any relief by way of reformation, restitution,
or otherwise.

Unilateral Mistake

RST § 153 When Mistake of One Party makes a contract voidable.

Where a mistake of one party at the time a contract was made as to a basic assumption on
which he made the contract has a material effect on the agreed exchange of performances
that is adverse to him, the contract is voidable by him if he does not bear the risk of the
mistake under the rule stated in §154, and
(a) the effect of the mistake is such that enforcement of the contract would be
unconsciouanble or
(b) the other party had reason to know of the mistake or his fault caused the mistake.

Bearing the Risk

RST §154 When a party bears the risk of a mistake:

A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited knowledge
with respect to the facts to which the mistake relates but treats his limited
knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the
circumstances to do so.

Impracticability

RST §261 Discharge by Supervening Impracticability

Where, after a contract is made, a party’s performance is made impracticable without his
fault by the occurrence of an event the non-occurrence of which was a basic assumption
on which the contract was made, his duty to render that performance is discharged, unless
the language or the circumstances indicate the contrary.

1. Test for Impracticability – RST 261 - The test for a finding of impracticability
is that the party to perform has encountered:
a. Extreme and unreasonable difficulty and/or expense;
b. Its nonoccurrence was a basic assumption of the parties.
c. Occurs after the contract was made.

i. Mere changes in the degree of difficulty or expense due to such

causes as increased wages, prices of raw materials, or costs of
construction, unless well beyond the normal range, does not
amount to impracticability, because these are the types of risks that
a fixed-price contract is intended to cover. Thus, the fact that
something is more expensive— even much more expensive—is not
impracticability.
2. Contracts for the Sale of Goods - Article 2 generally follows the above rules for
impossibility and impracticability. If performance has become impossible or
commercially impracticable, the seller will be discharged to the extent of the
impossibility or impracticability. [U.C.C.§2-615]
 a. Allocation of Risk - Generally, the seller assumes the risk of the
occurrence of such unforeseen events and must continue to perform.
However, if it is fair to say that the parties would not have placed on the
seller the risk of the extraordinary occurrence, the seller will be
discharged.

Frustration

RST §265
Where, after a contract is made, a party’s principal purpose is substantially frustrated
without his fault by the occurrence of an event the non-occurrence of which was a basic
assumption on which the contract was made, his remaining duties to render performance
are discharged, unless the language or the circumstances indicate the contrary.

1. Frustration will exist if the purpose of the contract has become valueless by virtue
of some supervening event not the fault of the party seeking discharge. The
elements necessary to establish frustration are as follows. (RST 265)
a. There is some supervening act or event leading to the frustration;
b. At the time of entering into the contract, the parties did not reasonably
foresee the act or event occurring;
c. The purpose of the contract has been completely or almost completely
destroyed by this act or event; and
d. Event’s nonoccurrence was a basic assumption of the parties at the time
the contract was agreed to.

Modification

RST §89 Modification of Executory Contract

A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated
by the parties when the contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of
position in reliance on the promise.

2. Consideration - Under general contract law, a final contract cannot be modified

unless the modification is supported by new consideration. Under the U.C.C.,
however, promises of new and different terms by the parties to a sales contract are
valid without consideration, but good faith is required to make a modification
enforceable.
a. Pre-existing Duty Rule – RST 73
i. Dissimilar performance means not new consideration, but a
different performance can mean new consideration established.
 b. UCC 2-209 – Consideration NOT required but the modifications must be
made in good faith
c. RST 89 – Promise that modifies duty in contract is not fully binding if
i. Fair and equitable or
ii. Provided via statute or
iii. Justice requires

Third Party Beneficiaries

RST §302 Intended and Incidental Beneficiaries

(1) Unless otherwise agreed between the promisor and promisee, a beneficiary of a
promise is an intended beneficiary if recognition of a right to performance in the
beneficiary is appropriate to effectuate the intention of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay
money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the
benefit of the promised performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

RST §311 Variation of a Duty to a Beneficiary

(1) Discharge or modification of a duty to an intended beneficiary by conduct of the

promisee or by a subsequent agreement between promisor and promisee is
ineffective if a term of the promise creating the duty so provides.
(2) In the absence of such a term, the promisor and promisee retain power to
discharge or modify the duty by subsequent agreement.
(3) Such a power terminates when the beneficiary, before he receives notification of
the discharge or modification, materially changes his position (RELIANCE) in
justifiable reliance on the promise or brings suit on it or manifests assent to it at
the request of the promisor or promisee.
(4) If the promisee receives consideration for an attempted discharge or modification
of the promisor’s duty which is ineffective against the beneficiary, the beneficiary
can assert a right to the consideration so received. The promisor’s duty is
discharged to the extent of the amount received by the beneficiary.

Assignment
RST §317 - Assignment of a Right
(1) An assignment of a right is a manifestation of the assignor’s intention to transfer it
by virtue of which the assignor’s right to performance by the obligor is
 extinguishable in whole or in part and the assignee acquires a right to such
performance.
(2) A contractual right can be assigned unless
(a) the substitution of a right of the assignee for the right of the assignor would
materially change the duty of the obligor, or materially increase the burden or
risk imposed on him by his contract, or materially impair his chance of
obtaining return performance, or materially reduce its value to him, or
(b) the assignment is forbidden by statute or is otherwise inoperative on grounds
of public policy, or
(c) assignment is validly precluded by contract.

Delegation

RST §318 Delegation or Performance of Duty

(1) An obligor can properly delegate the performance of his duty to another unless
the delegation is contrary to public policy or the terms of his promise.
(2) Unless otherwise agree, a promise requires performance by a particular person
only to the extent that the obligee has a substantial interest in having that person
perform or control the acts promised.
(3) Unless the oblige agrees otherwise, neither delegation or performance nor a
contract to assume the duty made with the obligor by the person delegated
discharges any duty or liability of the delegating obligor.

Conditions

RST §224 Condition Defined – A condition is an event, not certain to occur, which must
occur, unless its non-occurrence is excused, before performance under a contract
becomes due.

Rule – RST §225 Effects of the Non-Occurrence of a Condition

(1) Performance of a duty subject to a condition cannot become due unless the
condition occurs or its non-occurrence is excused.
(2) Unless it has been excused, the non-occurrence of a condition discharges the duty
when the condition can no longer occur.
(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty
that the condition occur.

RST §227 – Standards of Preference with Regard to Conditions –

(1) In resolving doubts as to whether an event is made a condition of an obligor’s
duty, and as to the nature of such an event, an interpretation is preferred that will
reduce the obligee’s risk of forfeiture unless the event is within the obligee’s
control or the circumstances indicate that he has assumed the risk.
(2) Unless the contract is of a type under which only one party generally undertakes
duties, when it is doubtful whether
 (d) a duty is imposed on an oblige that an event occur, or
(e) the event is made a condition of the obligor’s duty, or
(f) the event is made a condition of the obligor’s duty and a
duty is imposed on the oblige that the event occur, the first
interpretation is preferred if the event is within the
obligee’s control.
(3) In case of doubt, an interpretation under which an event is a condition of an
obligor’s duty is preferred over an interpretation under which the non-occurrence
of the event is a ground for discharge of that duty after it has become a duty to
perform.

RST §228 Satisfaction of the Obligor as a Condition

When it is a condition of an obligor’s duty that he be satisfied with respect to the

obligee’s performance or with respect to something else, and it is practicable to determine
whether a reasonable person in the position of the obligor would be satisfied, an
interpretation is preferred under which the condition occurs if such a reasonable person in
the position of the obligor would be satisfied. (Morin Decision page 485)

RST §229 Excuse of a Condition to Avoid Forfeiture

To the extent that the non-occurrence of a contract would cause disproportionate

forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence
was a material part of the agreed exchange.

Constructive Condition

RST §237 Effect on Other Party’s Duties of a Failure to Render Performance

Excepts as stated in § 240, it is a condition of each party’s remaining duties to render

performances to be exchanged under an exchange or promises that there be no uncured
material failure by the other party to render any such performance due at an earlier time.

Defense to express condition arguments:

Contract Interpretation
a. no express condition
b. even if, condition was met
Waiver
Interference
Excuse of a condition to Avoid Forfeiture –RST 229 and JNA Reality
a. Forfeiture to the obligee
b. Venial inattention – good honest mistake
c. Prejudice to obligor
d. Disproportionate (RST 229)
e. Condition was Material part of the bargain (RST 229)
Material Breach

RST §241 Circumstances significant in determining whether a failure is material

(the following are factors, don’t need all, balancing test)
In determining whether a failure to render or to offer performance is material, the
following circumstances are significant:
(a) the extent to which the injured party (non-breaching party) will be deprived of the
benefit which he reasonably expected;
(b) the extent to which the injured party (non-breaching party) can be adequately
compensated for the part of that benefit of which he will be deprived; (if can be
compensated likely not material)
(c) the extent to which the party failing to perform (breaching party) or to offer to
perform will suffer forfeiture; (reliance on K then forfeiture)
(d) the likelihood that the party failing to perform (breaching party) or to offer to
perform will cure his failure, taking account of all the circumstances including
any reasonable assurances;
(e) the extent to which the behavior of the part failing to perform or to offer to
perform comports with standards of good faith and fair dealing.

Total And Material Breach

RST §242 Circumstances significant in Determining When Remaining Duties Are

Discharged.

In determining the time after which a party’s uncured material failure to render or to offer
performance discharges the other party’s remaining duties to render performance under
the rules stated in §§237 and 238, the following circumstances are significant:
(a) those stated in §241
(b) the extent to which it reasonably appears to the injured party that delay may
prevent or hinder him in making reasonable substitute arrangements;
(c) the extent to which the agreement provides for performance without delay, but a
material failure to perform or to offer to perform on a stated day does not of itself
discharge the other party’s remaining duties unless the circumstances, including
the language of the agreement, indicate that performance or an offer to perform by
that day is important.

Anticipatory Repudiation

RST §250 When a statement of an act is a repudiation

A repudiation is
 (a) a statement by the obligor to the oblige indicating that the obligor will commit a
breach that would of itself give the oblige a claim for damages for total breach
under §243, or
(b) a voluntary affirmative act which renders the obligor unable or apparently unable
to perform without such a breach.

Adequate Assurances for Reasonable Insecurity

RST §251 When a failure to give assurance may be treated as a repudiation

(Arizona Ice Tea Case)
(1) Where reasonable grounds arise to believe that the obligor will commit a breach
by non-performance that would of itself give the oblige a claim for damages for
total breach under ^243, the oblige may demand adequate assurance of due
performance and may, if reasonable, suspend any performance for which he has
not already received the agreed exchange until he receives such assurance.
(2) The oblige may treat as a repudiation the Obligor’s failure to provide within a
reasonable time such assurance of due performance as is adequate in the
circumstances of the particular case.

Retraction of Repudiation (Truman flatt case).

RST §256 Nullification of Repudiation of Basis for Repudiation

(1) The effect of a statement as constituting a repudiation under §250 or the basis for
a repudiation under §251 is nullified by a retraction of the statement if notification
of the retraction comes to the attention of the injured party before he materially
changes his position in reliance on the repudiation or indicates to the other party
that he considers the repudiation to be final.
(2) The effect of events other than a statement as constituting a repudiation under
§250 or the basis for a repudiation under §251 is nullified if, to the knowledge of
the injured party, those events have ceased to exist before he materially changes
his position in reliance on the repudiation or indicates to the other party that he
considers the repudiation to be final.

Calculating Damages

RST §347 Measure of Damages in General (expectation damages)

Subject to the limitations stated in §§350-53, the injured party has a right to damages
based on his expectation interest as measured by
(a) the loss in the value to him of the other party’s performance caused by its failure
or deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the breach,
less
(c) any cost or other loss that he has avoided by not having to perform.
RST §351 Unforeseeability and Related Limitations on Damages (from Hadley case,
foreseeability rule).

(1) Damages are not recoverable for loss that the party in breach did not have reasons
to foresee as a probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from
the breach
(a) in the ordinary course of events, or
(b) as a result of special circumstances, beyond the ordinary course of events, that
the party in breach had reason to know.
(3) A court may limits damages for foreseeable loss by excluding recovery for loss
of profits, by allowing recovery only for loss incurred in reliance, or otherwise if
it concludes that in the circumstances justice so requires in order to avoid
disproportionate compensation.

RST §352 Uncertainty as a Limitation on Damages

Damages are not recoverable for loss beyond an amount that the evidence permits to be
established with reasonable certainty.

RST §350 Avoidability as a limitation on Damages (Mitigation Principle from

Rockingham case).

(4) Except as stated in Subsection (2), damages are not recoverable for loss that the
injured party could have avoided without undue risk, burden or humiliation.
(5) The injured party is not precluded from recovery by the rule stated in Subsection
(1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.

UCC Damages

Perfect Tender Rule

§RST 2-601 Buyer’s Rights on Improper Delivery

Subject to the provisions of this Article on breach in installment contracts (Section 2-612)
and unless otherwise agreed under the sections on contractual limitations of remedy
(section 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to
conform to the contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.

Meaning Any breach (not just material breach) allows buyer to reject delivery (withhold
performance) unlike Common Law where only material breach allows withhold
performance.
Sellers Resale
RST §2-706 Seller’s Resale Including Contract for Resale
(1) Under the conditions stated in section 2-703 on seller’s remedies the seller may
resell the goods concerned or the undelivered balance thereof. Where the resale is
made in good faith and in the commercially reasonable manner the seller may
recover the difference between the resale price and the contract price.

Profits of Lost Volume Seller

RST §2-708 Seller’s Damages for Non-acceptance or Repudiation

(2) If the measure of damages provided in subsection (1) is inadequate to put the
seller in as good a position as performance would have done then the measure of
damages is the profit (including reasonable overhead) which the seller would have
made from full performance by the buyer, together with any incidental damages
provided in this Article (Section 2-710), due allowance for costs reasonably
incurred and due credit for payments or proceeds of resale.

Buyers Cover

RST §2-712. “Cover”; Buyer’s procurement of Substituted Goods

(2) The buyer may recover from the seller as damages the difference between the cost of
cover and the contract price together with any incidental or consequential damages as
hereinafter defined (Section 2-715), but less expenses saved in consequence of the sellers
breach.