CONTRACTS OUTLINE

Sources of Law:
 Common Law
 Restatement of Contracts – restatements are not law, but are used to apply law
 Uniform Commercial Code (UCC) – Governs the sale of goods

I. Offer and Acceptance

a. MUTUAL ASSENT

 Requires Offer an acceptance

 Determined under objective theory:
o What would a reasonable person in the position of each party
believe based on the other party’s words and conduct, regardless of
what each party may have actually subjectively intended
o Only matters what parties both outwardly manifested
 Both prongs of objective theory must be satisfied:
1. A reasonable person in that position of the promise must believe the
other party intended to be bound.
2. The promise must have actually believed.
 Can be bound before writing unless it is understood between the parties that
no obligation shall exist until the agreement has been put in writing, then
neither party is obligated.

Lucy v. Zehmer:
The objective, outward expression of a party’s intent to be bound in an agreement, as
opposed to that party’s subjective mental assent to the agreement, is all that matters when
determining the existence of a valid and enforceable contract.

Meyer v. Uber:
A smartphone app user has reasonably conspicuous notice of the app’s terms of service if
a reasonably prudent user would have known about the terms and the conduct that would
be required to assent to them.
o The purpose of the case was to understand what it means to accept the
terms of an agreement
Stepp v. Freeman:
In Ohio, a plaintiff alleging a breach of contract implied-in-fact must show that the
circumstances surrounding the transaction make it reasonably certain that an agreement
was intended between the parties.

b. OFFER

 In General:
 Offer: is a promise by one party, made to another party, to do or not do
something in the future, contingent upon the other party’s acceptance.

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 o Objective theory is used when determining whether a particular
communication constitutes an offer.
o If so, the offeree has the “power of acceptance”
 Offers can be spoken, written, or implied
 Different contracts that exist:
1. Express Contract: requires proof of all terms. Formed by language,
oral or written.
2. Implied in Fact Contract: the courts have to infer the presence of an
offer/acceptance by previous behavior; the more regular and consistent
the behavior, the easier it is to make an implied in-fact claim. Formed
by conduct.
3. Quasi-Contract or Implied in Law Contract: not contracts at all.
Constructed by courts to avoid unjust enrichment by permitting the
plaintiff to bring an action in restitution to recover the amount of the
benefit conferred on the defendant.
 An offer must either directly or indirectly through words or conduct:
o Be communicated
o Indicate a desire to enter into a contract
o Be directed at some person(s)
o Invite acceptances
o Create a reasonable understanding that upon acceptance a contract
will arise
 Something is not an offer because the offeror intended to make an offer
(“actual meeting of the minds”), but because a reasonable person in the
offerees position would believe based on the language used and all of the
surrounding circumstances, the offeror intends to be bound.
 Price Quotes / Public Advertisements
 Two types of communication that frequently create uncertainty about whether
an offer is made:
1. Price quotes
2. Public advertisements
 General Rule: Neither are an offer; because merchants need freedom to
deliver information about their goods without committing.
o Merchant invites offer not makes an offer
o Reserving the right of final assent to the merchant
o Comes down to the facts, circumstances, and what it is reasonable
for the recipient for the price quote or advertisement to infer in
relation to the intent of the person making the quote or ad.
o If ad is clear, definite, explicit, and leaves nothing open for
negotiation then it is an offer.
 Different from rewards (offers) because making an offer to one person for a
bargained for act. (e.g., reward if you find my dog)

PFT Roberson, Inc. v. Volvo Trucks North America, Inc.:

No definitive offer to enter into a contract has been made where necessary details to the
contract are still being negotiated.

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Lefkowitz v. Greater Minneapolis Surplus Store, Inc.
An advertisement constitutes a binding offer if it is clear, definite, and explicit, and
leaves nothing open for negotiation.
 Example: Defendant store advertised a particular coat worth $140 for $1 on a first
come, first served basis. Held: valid offer to the first person accepting on this
basis as nothing was left open for negotiation.

Continental Laboratories v. Scott Paper Co.

An oral agreement does not create a binding contract if either party intends not to be
bound in the absence of a fully executed written contract.

c. TERMINATION OF OFFER

Second Restatement of Contracts

§36 Methods of Termination of the Power of the Acceptance

1) An offeree’s power of acceptance may be terminated by

a. Rejection or counter-offer by the offeree, or
b. Lapse of time, or
c. Revocation by the offeror, or
d. Death or incapacity of the offeror or offeree.
2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any
condition of acceptance under the terms of the offer.

 Four ways to terminate an offer:

1. Rejection: Occurs when the offeree declines the offer. (Expressed or implied)
1. “No” – Expressed rejection (ends offer)
2. A Counteroffer – Implied rejection (creates a new offer for original
offeror to accept or decline)
Restatement Second of Contracts
§38. 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.

2. Lapse: an offer lasts as long as the offeror says it will last for – assuming it is
not earlier terminated by rejection or revocation.
a. An offer for an unstated period remains open for a reasonable time.
i. A reasonable time depends on all the facts and circumstances,
including market conditions and any prior course of dealings with
the parties.
ii. General Rule: Face-to-face offerors lapse when parties are no
longer face-to-face unless offeror stipulates otherwise.

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 Second Restatement of Contracts
§ 41 Lapse of Time

1) An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no
time is specified, at the end of a reasonable time.
2) What is a reasonable time is a question of face, depending on all the circumstances
existing when the offer and attempted acceptance are made.
3) Unless otherwise indicated by the language or the circumstances, and subject to the rule
stated in § 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at
any time before midnight on the day on which the offer is received.

Loring v. City of Boston

An offer is considered to expire after a reasonable time has passed and the offer has not
been accepted.
 Though the offer wasn’t explicitly limited, it wasn’t intended to be perpetual

Philips v. Moor
If a sale of specific goods or chattel is completed except for the transfer of property from
the seller to the buyer, the buyer bears the risk of any loss to the property that occurs
before the transfer.
 Bailment: when someone temporarily has your possessions, they don’t take
ownership or responsibility of them.

3. Revocation: an offeror retains complete mastery and control over the offer
until acceptance and can modify or revoke the offer at any time  “offeror is
king” (see Firm Offer Rule)
1. Direct Revocation – offeror withdraws offer by notifying the offeree of
the revocation
2. Indirect Revocation – occurs when the offeree learns from someone
other than the offeror that the offeror is no longer interested in the deal.
 Once the offeror learns from a reliable source that the offeror is
going to revoke then there is no longer mutual assent, and the offer
is terminated because of objective theory.
 If offeree is not aware of the offeror’s revocation (either directly or
indirectly) and the offeror makes a deal with another party, the
offeror has two enforceable contracts, meaning there is a breach
because the offer was never revoked (since there was no
communication to the original offeree).

Dickinson v. Dodds
An offer may be revoked by the offeror without an express or actual statement of
revocation communicated to the offeree provided there has been no meeting of the minds
and the offeree is aware of conduct by the offeror demonstrating intent to revoke the
offer.

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  Dickinson should’ve gone to Dodds with an options agreement. He should have
offered him money to keep the option open so Dodds couldn’t sell to someone
else in the meantime.

4. Death (or incapacity) of the offeror/offeree: the offer terminates

automatically and without regard to whether the offeree was notified or aware of
the death (or incapacity) of the offeror or offeree.
a. Note: the rule on automatic termination does not apply after acceptance.
i.e. death ends the offer NOT a contract
b. Applies to the death of an offeror and offeree

Restatement Second of Contracts

§48. Death or Incapacity of Offeror or Offeree
An offeree’s power of acceptance is terminated when the offeree or offeror dies or is
deprived of legal capacity to enter into the proposed contract.

d. OPTION CONTRACTS

Restatement (Second) of Contracts

§ 87 Option Contract
(1) An offer is binding as an option contract if it
a. Is in writing and signed by the offeror, recites a purported consideration for the
making of the offer, and proposes an exchange on fair terms within a reasonable
time; or
b. Is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or forbearance of
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.

 A promise to hold the offer open for X days is not enforceable unless
supported by consideration (apart of exchange transaction)
 To keep the “option” open the offeree will have to give something in
return for keeping the promise open, separate from what the contract is
for.
o Ex. In return for $1 will you hold your offer open to sell your car
to me for a week? Yes – Option contract is mad
o Meaning the offeree now has a week to accept or reject without
fear of revocation because the offer is not considered an
Irrevocable offer.

1464-Eight, LTD. v. Joppich

The failure to deliver nominal consideration recited in an option contract does not
preclude enforcement of the option contract.

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  Firm offer UCC §2-205. Firm Offers.
 An offer made by a merchant in the business of selling goods of a
specific kind in writing, that provides it will be held open, may not be
revoked, even without consideration, for the period states, or if no
period is stated, for a period not to exceed three months.

 Reliance as a basis to create an option

 An offer that foreseeably induces detrimental reliance of a substantial
character by the offeree may be enforced as a binding option contract,
to the extent necessary to prevent injustice, despite the absence of both
1) a promise of irrevocability and 2) consideration in support of that
promise.

SUMMARY:
 All offers, standing alone, are revocable
 Even offers that are stated to be irrevocable are revocable unless:
o The promise not to revoke is supported by consideration (option contract)
o The promise is made enforceable by statute (firm offer)
o The promise induces substantial reliance

e. ACCEPTANCE
 Acceptance: a manifestation of assent, objectively determined, to be bound
by the terms of the offer.

Second Restatement of Contracts

§50. Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise

(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.
(2) Acceptance by performance requires that at least part of what the offer requests be
performed or tendered and includes acceptance by a performance which operates as a
return promise
(3) Acceptance by a promise requires that the offeree complete every act essential to the
making of the promise.

 Three Rules of Acceptance:

 The offeree must have knowledge of the offer (intent to accept)
 Only the offeree can accept an offer
 The acceptance must be in the form authorized by the offer
A. Intent to Accept
 An offeree cannot manifest assent to an offer he doesn’t even know
about (i.e., offeree cannot claim an award after he has returned the
dog if he didn’t know there was an award being offered for the dogs
return)
 However, if an offeree learns of the offer in the midst of the requested
performance, the completion of performance is sufficient to constitute

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 acceptance, since there is no point in requiring the offeree to start
over.
B. Who may accept?
 Power of acceptance is the offerees; someone who was not made an
offer cannot accept it
C. Manner of Acceptance
 An acceptance, to be effective must conform to any and all
requirements specified in the offer. Meaning the time, place, or
manner of acceptance.
 Restatement: unless otherwise indicated, an offer will be treated as
inviting acceptance in any manner reasonable in the circumstances,
including return promise or performance of what is requested by the
offer.

 Communication and Effectiveness of Acceptance

A. General Rule
 Unilateral: Seeking acceptance by an act
 Bilateral: Seeking acceptance by a return promise
 Acceptance is only proper if done through the manner requested
o Therefore, if the offeror offers $20 for wash and wax the only way
to accept is to do the work (Unilateral)
o Or if the offeror says I will pay you $20 if you agree to wash and
wax (Bilateral)
i. Acceptance of an offer by return promise is not effective
unless communicated.
 An offer may be accepted by any reasonable manner of assent unless the
offer leaves no doubt that it can only be accepted in the manner stipulated in
the offer.

Davis v. Jacoby
An offer is to enter into a bilateral contract as opposed to a unilateral contract when only
a promise to perform and not actual performance is requested by the offeror as proper
acceptance.

B. Mailbox Rule
 Definition: Unless the offer prescribes to the contrary, an acceptance
sent by a reasonable means is effective on dispatch not receipt.
 Applies when there is a gap between dispatch and receipt of an
acceptance.
 Rationale: Since the offer was made by mail, the offeror had
impliedly authorized acceptance in the same manner.
 Rejections, counteroffers, and revocation are not effective until
receipt
 Applies only to acceptance
 Dispatch rule does not apply for:

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 a. Irrevocable offers (option contracts) only effective if
received within the option period
b. Communication is near instantaneous (email, texting,
facebook)
c. Acceptance follows a rejection or counteroffer
 Examples:
a. If offeree sends in acceptance before receiving the offerors
revocation letter, then a contract is formed on the mailing of
the acceptance.
b. No contract if offeror dies on the day the offeree receives the
offer.
c. If offeree misaddresses the acceptance, then the dispatch rule
is rendered ineffective.
d. If the offeree sends an acceptance and a rejection, a contract
formation depends on which letter is received first.

Morrison v. Thoelke
A contract becomes binding when a notice of acceptance is put in the mail.
NOTE: The mailbox rule does not apply under options contracts. Acceptance must be
received within the option period.
 Putting a contract in the mail is unequivocal assent to the contract.
 Limited to mail (not email, text, etc.)
 Deposited acceptance rule

C. Effectiveness of Acceptance
 The offeror’s duty to perform is discharged if the offeree who has
rendered performance fails to take reasonable steps to ensure that the
offeror learns of the performance
o Offeror goes on vacation after offering to pay offeree to wash
his car. Offeree washes the car but does not reasonably try to
make offeror aware, thus offeror may be discharged from
having to perform.
 Partial performance is a form of acceptance.

 Imperfect Acceptance (Counteroffer) and the “Battle of the Forms”

 There is an important distinction between whether common law or the
UCC governs a transaction
 Common Law – uses the “mirror image rule” meaning the acceptance must
mirror the offer exactly and by changing the terms it becomes a counteroffer
and not an acceptance.
o Mirror Image Rule: an acceptance had to be an unconditional
expression of assent to the terms of the offer without addition or
variation – anything less than that would be regarded as a
counteroffer – thereby placing the power of acceptance back in the
hand of the original offeror.

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Princess Cruise Lines, Inc. v. General Electric Co.
The Uniform Commercial Code does not apply to maritime contracts that are
predominately for services.
 Coakley Factors:
(1) Language of the contract
(2) Nature of the business supplier
(3) Intrinsic worth of materials supplied

 The Uniform Commercial Code – if an offer for sale of goods adds or

changes terms look to UCC §2-207
 If an offer is about the sale of goods and either 1) the offer and response
adds or changes terms or 2) negotiations with additional or different
terms are in writing then look to §2-207.

Uniform Commercial Code

§2-207. Additional Terms in Acceptance or Confirmation
(1) A definite and seasonable expression of acceptance or a written confirmation which is
sent within a reasonable time operates as an acceptance even though it states terms
additional to or different from those offered or agreed upon, unless acceptance is
expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract.
Between merchants such terms become part of the contract unless:
a. The offer expressly limits acceptance to the terms of the offer;
b. They materially alter it; or
c. Notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
(3) Conduct by both parities which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writing of the parties do not otherwise establish
a contract. In such case the terms of the particular contract consist of those terms on
which the writings of the parties agree, together with any supplementary terms
incorporated under any other provision of this Act.

 Is there a contract? § 2-207(1)

o Generally, there is a contract even though the response to the offer or
summary has additional or different terms. Yes Contract
o Limitation: if attempted acceptance contains additional or different
terms based on the condition of acceptance of the other party’s assent
to those terms then no contract. (I accept on the condition that you
agree to delivery by Friday.)
 “Subject to” – is not conditional
 If there is a contract, then §2-207(2) which is only for additional terms –
what are the terms?
o Generally, additional terms are not a part of the contract they are mere
proposals that only become part of the contract upon assent from the
offeror

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 o Merchant exception:
 If both parties are merchants, additional terms will be part of
the contract only if they are not objected too, materially
altering the contract, or offer expressly precludes additional
terms.
 §2-207(3) only applies if 2-207(1) finds NO CONTRACT. When can there
be a contract under 2-207(3) when there is not one under (1)?
o Contract when there is conduct between the buyer and seller. (goods
have been delivered and buyer kept and paid for them) then there is a
contract.
o Then contract is limited to the terms agreed by buyer and seller with
any gaps being filled by the court or UCC §2-204
 Terms both parties have in their forms are kept and different
terms are knocked out – gap fillers take their place

Commerce & Industry Insurance co. v. Bayer Corp.

Under UCC 2-207(3), where two merchants exchange conflicting forms and one
merchant expressly conditions acceptance on the other’s assent to his terms, a contract
can still be formed based on the parties’ subsequent conduct, but the parties will only be
bound to the terms they agreed upon.
 Integration Clause: Malden Mills explicitly said they were not agreeing to additional
terms.

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  Their integration clause fits perfectly within §2-207(2)(a) to knock out potential for
added terms so we look at subsection (3) of §2-207
 Arbitration clause was unenforceable because there were no common terms

Merchantability: shorthand for the goods being sold or purchased should function as they are
supposed to. Implied warranty of merchantability.
 Note 4 of §2-207 says a contract is materially altered if it negate merchantability.

Hudson v. Town and Country True Value Hardware, Inc.

Can Article II of the UCC apply to a sale that is comprised of both goods and non-goods,
but where the non-goods substantially predominate the sale? – No.

4. Acceptance by Silence (or inaction)

Second Restatement of Contracts

§ 69 Acceptance by Silence or Exercise of Dominion

1) If an offeree does not reply to an offer, the silence signifies and acceptance if:
a. The offeree takes the benefit of the offer with reasonable opportunity to reject and
understands that they were expected to compensate for the offer.
b. The offeror has clearly signified to the offeree that assent can be given through
silence.
c. It was reasonable for the offeree to know they need to notify the offeror if they do
not intend to accept.
2) An offeree who acts inconsistently with the offeror’s ownership of offered property is
held to the offered terms unless they are manifestly unreasonable.

 General Rule: Silence cannot constitute an acceptance.

 Circumstances where silence is an acceptance:
o Silence in the face of a receipt and enjoyment of a benefit with
knowledge of an expectation of payment creates a contract. (Taking a
hotdog from a vendor – expectation of payment for the benefit)
o Silence (or acquiescence) when construed against prior course of
dealing might constitute acceptance. (If after multiple occasions you
receive a hotdog and paid for it, then this could be regarded as
sufficient meaning to your conduct that your silence is enough for
acceptance the next time).

Day v. Caton
A party impliedly accepts an offer by permitting the other party to perform a valuable
service without objection, knowing that the other party expects payment in return.

 The Postal Reorganization Act of 1970. § 3009 Mailing of Unordered

Merchandise
 Except for (1) free samples clearly and conspicuously marked as such, and (2)
merchandise mailed by a charitable organization soliciting contributions, the

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 mailing of unordered merchandise or of communications prohibited by
subsection (c) of this section constitutes an unfair method of competition and
an unfair trade practice.
 Any merchandise mailed in violation of subsection (a) of this section, or
within the exceptions contained therein, may be treated as a gift by the
recipient, who shall have the right to retain, use, discard, or dispose of it in
any manner he sees fit without any obligation whatsoever to the sender.
 No mailer of any merchandise mailed in violation of subsection (a) of this
section, or within the exceptions contained therein, shall mail to any recipient
of such merchandise a bill for such merchandise.
 Unordered merchandise means merchandise mailed without the prior
expressed request or consent.

f. INDEFINITENESS AND DEFERRED AGREEMENT

Corbin on Contracts §29
We must not jump too readily to the conclusion that a contract has not been made from
the fact of apparent incompleteness. People do business in a very informal fashion. A
transaction is complete when the parties mean it to be complete. – page 150.

 Indefinite and Missing Terms

 Traditional standard: If either (a) the terms of the contract are so indefinite
that it would be difficult or impossible for the court to detect a breach, or (b)
even if breach would be detected, it is difficult or impossible for the court to
fashion a remedy, then the contract is “too indefinite” to enforce
o i.e., vagueness is tolerated, but “way vague” is too much.

UCC § 2-204(3)
(4) even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a reasonably
certain basis for giving an appropriate remedy.

 Indefinite analysis:
o Whether the parties intended to enter into a legally binding deal and
if so;
o Whether there is a reasonably certain basis for the court to fashion
an appropriate remedy.
 If the parties do not specify the time or amount for performance then the
court will conclude that the time must be a reasonable time and the price
would come from the market rate for comparable services.
 “gap filler” – default rules that apply whenever the agreement is silent as to
the subject of the gap filler.

Walker v. Keith
To be enforceable and valid, a contract to enter into a future covenant must specify all
material and essential terms and leave nothing to be agreed upon as a result of future
negotiations.

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  An agreement to agree in the future is not enforceable.
 It’s not the court’s job to make a contract where there isn’t one
 Set a binding arbitration

Rego v. Decker
To the extent possible, where a contract contains uncertain terms, the court should fill in
the gaps in the contract to ensure the reasonable expectations of the parties have been
met.

UCC § 2-305. Open Price Term (Page 34)

 Deferred Agreement
o Agreements to agree
 Useful where performance may span several years and neither party
wants to accept the risk of setting a price for goods today that will be
rendered into the future. [price will be set closer to performance]
 If parties fail to agree the court will decide whether the agreement is
too indefinite to enforce or whether the court can supply the missing
terms.
II. CONSIDERATION
Corbin on Contracts §110
…a true contract will always contain at least one promise, and in a typical commercial setting,
that promise will be exchanged for something else… that something else is consideration.

Restatement (Second) of Contracts

§ 71. Requirement of Exchange; Types of Exchange
1. To constitute consideration, a performance or a return promise must be bargained for.
2. A performance or return promise is bargained for if it is sought by the promisor in
exchange for his promise and is given by the promise in exchange for that promise
3. The performance may consist of
a. An act other than a promise, or
b. A forbearance, or
c. The creation, modification, or destruction of a legal relation.
4. The performance or return promise may be given to the promisor or to some other person.
It may be given by the promise or by some other person.

Hamer v. Sidway
A party's agreement to incur a detriment constitutes adequate consideration.
 Waiver of legal rights constitutes consideration

Williams v. Ormsby
Moving into another person’s home to resume a romantic relationship is not sufficient
consideration to support a contract granting the moving person an ownership interest in
the home.
 Love and affection are not sufficient forms of consideration

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  In General
 Defined: something given in exchange for the promise that is bargained-for.
o Promise must induce consideration (be bargained-for)
o Exchanged promises
 Promises without consideration are not enforceable.
o Ex) Offeror promises to give offeree money in a week and offeree accepts –
there is an agreement, but no consideration. This is a gift.
 Gift promises – are not enforceable
 Ex) Uncle promises to give money if nephew does not sewar smoke or drink until
21.
o Court ruled: the detriment necessary to constitute good consideration for a
promise is a legal not an actual detriment.
 It was sufficient for nephew to restrict his lawful freedom of action to
constitute as good consideration.
 If the promise incurs a legal detriment then the promisor has obtained
a legal benefit.
 Past consideration is not consideration
o Ex) save my husband’s life and I promise to pay you but I never do – no deal
because past consideration
o Something that happened before a promise cannot be consideration for that
promise
o You can’t bargain for something that’s already been done.

Restatement (Second) of Contracts

§82. Promise to Pay Indebtedness; Effect on the Statue of Limitation
(1) A promise to pay all or part of an antecedent contractual or quasi-contractual
indebtedness owed by the promisor is binding if the indebtedness is still enforceable or
would be except for the effect of a statute of limitations
(2) The following facts operate as such a promise unless other facts indicate a different
intention:
a. A voluntary acknowledgment to the obligee, admitting the present existence of
the antecedent indebtedness; or
b. A voluntary transfer of money, a negotiable instrument, or other thing by the
obligor to the obligee, made as interest on or part payment of or collateral security
for the antecedent indebtedness; or
c. A statement to the obligee that the statute of limitations will not be pleaded as a
defense.

 Adequacy of Consideration
o Courts ae more concerned with the existence of consideration rather than the
adequacy of the consideration
 “a mere peppercorn will suffice to satisfy the requirement of
consideration”

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Batsakis v. Demotsis
Although a valid contract requires all parties to provide consideration, mere inadequacy
of consideration will not void a contract.
 $25 in return for $2,000 doesn’t concern the courts because they don’t want to get
involved with determining value.

Schnell v. Nell
A promise to make a gift for nominal consideration or out of moral obligation is
unenforceable for lack of consideration.
 Opposite of Batsakis
 The family was trying to make a legal structure out of a gift, that was the actual
issue.
 The penny was a symbolic exchange, not a consequential one.

 Forbearance as Consideration
o For forbearance to be valid:
 The is a subjective requirement that the plaintiff has a good faith belief for
the claim
 There is an objective requirement that there is a reasonable basis for the
claim.

Fiege v. Boehm
Refraining from bringing a legal action, or dropping a pending action, constitutes
adequate consideration when there is some question to be resolved at the time of
agreement, even if the claim is later unsuccessful.
 She really thought the baby was his and she had grounds to sue for bastardy

 Nominal Consideration
o A promise should not be enforced if the consideration was not truly bargained
for. [gift disguised as a bargain]
 Nominal consideration is significant because it serves as a red flag that the
true nature of the transaction needs to be scrutinized more closely.
 Consideration from or received by a third-party
o Doesn’t matter who gives the consideration or who incurs the benefit or
detriment.
 Promise as Consideration
o A promise of performance an serve as consideration for promise of a
performance.
 Mutuality of Obligation and Illusory Promises
o Mutual Obligation – an exchange of promises typically creating a binding
contract, with each party’s promise constituting the consideration for the other
party’s promise.
 When each party is bound to the other by a promise
o Illusory promise – a promise that appears on its face to be so insubstantial as
to impose no obligation on the promisor; an expression cloaked in promissory
terms but actually containing no commitment by the promisor.

15
 1. The promisor holds discretion over the proposed
performance
2. When a real promise is exchanged for an illusory
promise, neither promise is enforceable.
 Not supported by consideration because illusory
promises are not “real”
3. Includes promises for which they are based on
conditions that cannot occur

Restatement (Second) of Contracts

§ 77 Illusory and Alternative Promises
A promise or apparent promise is not consideration if by its terms the promisor or
purported promisor reserves a choice of alternative performances unless
(a) Each of the alternative performances would have been consideration if it alone had been
bargained for; or
(b) One of the alternative performances would have been consideration and there is or
appears to the parties to be a substantial possibility that before the promisor exercises his
choice events may eliminate the alternative which would not have been consideration.

(Corbin on Contracts §156)

A promise is not illusory if it “states a limitation on the promisor's future liberty of action”.

Wood v. Lucy, Lady Duff-Gordon

(1) A contract may be enforced when there is no evidence of a promise, exchanged as
consideration, in the explicit terms of the contract.
(2) A promise to use reasonable efforts may be implied from the entire circumstances of a
contract.

o Requirement Contract: Two parties agree that one will provide the other
with as much product as the other requires. Prices and delivery are agreed
upon but there is no limit on quantity for the life of the contract.
o Output Contract: Agreement of seller to provide any quantity they can find,
and the purchaser agrees to buy whatever that amount is. Cost is based on
market price at the time of each shipment.

UCC
§2-309. Acceptance of Specific Time Provisions; Notice of Termination
(2) Were the contract provides for successive performances but is indefinite in duration it is
valid for a reasonable time but unless otherwise agreed may be terminated at any time by
either party.
(3) Termination of a contract by one party except on the happening of an agreed event
required that reasonable notification be received by the other party and an agreement
dispensing with notification is invalid if its operation would be unconscionable.

UCC

16
 §2-306. Output, Requirements and Exclusive Dealings
(1) A term which measures the quantity by the output of the seller or the requirements of the
buyer means such actual output or requirements as may occur in good faith, except that
no quantity unreasonably disproportionate to any stated estimate or in the absence of
stated estimate to any normal or otherwise comparable prior output or requirements may
be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of
goods concerned imposes unless otherwise agreed an obligation by the seller o use best
efforts to supply the goods and by the buyer to use best efforts to promote their sale.

Sylvan Crest Sand & Gravel Co. v. United States

An unrestricted power of cancellation does not constitute an illusory promise where a
reasonable time limit is understood by the terms of the contract.
 The argument is that since there was unrestricted cancellation on the government
part, the contract then became illusory
 Wrong because the requirement was that they give notice of cancellation within a
reasonable time. (commercial reasonableness)

McMichael v. Price
Mutuality of obligation exists when there is a limitation on the ability of both parties to
cancel the contract according to their discretion alone.
 Requirement contract because one was going to give everything the other needed
and they would pay for it.
 But it was missing terms because there was no quantity
 The missing quantity does not make it an illusory promise under UCC §2-306

b. Promissory Estoppel (Promise + Unbargained for Reliance)

 Defined:
 Under the doctrine: a promisor is estopped from asserting the non-existence of
consideration as a defense (substitute for when no consideration is given) if these
elements are satisfied:
1. A promise
2. Justifiable and detrimental reliance on such a promise by the promise
3. Foreseeability of the reliance by the promisor
4. Injustice can only be avoided by the enforcement of the promise
 When invoked, it forms the basis for a claim against a party
o Used as a sword (basis for a claim) to enforce a claim that would
otherwise be unenforceable because of lack of consideration.

Restatement of Contracts
§90. Promise Reasonably Inducing Definite and Substantial Reliance
A promise which the promisor should reasonably expect to induce action or forbearance
of a definite and substantial character on the part of the promise and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

17
 Restatement (Second) of Contracts
§90 Promise Reasonably Inducing Action or Forbearance
(1) A promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promise or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise.
The remedy granted for breach may be limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1)
without proof that the promise induced action or forbearance.

Allegheny College v. National Chautauqua County Bank

A party's acceptance of a portion of a pledged donation constitutes sufficient
consideration to enforce the promise to pay the remainder of the donation.
 Can you enforce a promised gift?
 If you make a promise and someone relies on it then you can’t renege

III. REMEDIES (DAMAGES)

 Damages: Three sets of Interest

i. Restitution Interest: requires the defendant to give up any gains they obtained
from the plaintiff
ii. Reliance Interest: putting the plaintiff where they were before the contract was
entered
iii. Expectation Interest: putting the plaintiff in the position they would have been
in had the contract been formed

Restatement § 347. Measure of Damages in General

Subject to the limitations state in §350-353, 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, minus
(c) Any cost or other loss that he has avoided by not having to perform.

Types of Damages: Easier formula  (K price – cost) + (spent – paid)

i. Expectation Damages
a. damages awarded to put the plaintiff in the position they would have
been if had the contract been performed
b.
Hawkins v. McGee
If one party breaches a contract, the non-breaching party may recover damages based on
the difference between the value of the contract as fully performed and the actual value of
the non-breaching party’s present condition, plus any incidental damages reasonably
foreseeable to all parties at the time of contract formation. Bare

Peevyhouse v. Garland Coal and Mining Co.

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 Regardless of any agreement of the parties, damages awarded for breach of an agreement
to perform remedial work on property should normally be measured by the reasonable
cost of performance of the work; but, when the contract provision breached is merely
incidental to the main purpose in view and where the economic benefit which would
result to the owner from full performance is grossly disproportionate to the cost of
performance, damages should instead be limited to the diminution in value resulting to
the premises because of the non-performance.

ii. Consequential Damages

a. Special damages that reflect losses over and above standard expectation
damages.
 Usually lost profit
b. May be recovered only if at the time the contract was made, a
reasonable person would have foreseen the damages as a probable result
of breach.
c. Plaintiff must show the breaching party knew or had reason to know of the
special circumstances giving rise to the damage.
iii. Reliance Damages
a. Reliance damages award the plaintiff the cost of her performance. (Put
the plaintiff in the position she would have been in if the contract was
never formed).
b. Ex) I contract your to paint, you buy the paint and I repudiate the contract.
You have a reliance based interest, and I must repay your for the paint as
damages.
c. Restatement § 349
 The injured party has a right to damages based on his reliance
interest, including expenses made in preparation for performance
or in performance, less an loss that the party in breach can prove
with reasonable certainty the injured party would have suffered
had the contract been performed.
Sullivan v. O’connor
Pain and suffering and emotional distress that flow naturally from a breach are
compensable contract damages under either an expectancy or reliance measure.

Anglia Television LTD. v. Reed

A nonbreaching party may recover expenditures in lieu of lost profits, including those
expenditures incurred both before and after the agreement was made.

Freund v. Washington Square Press

The injured party should not recover more from a breach of contract than he would have
gained had the contract been performed.

Humetrix, Inv. V. Gemplus S.C.A.

A breach of contract plaintiff may receive an award of lost profits if it can show that the
defendant’s failure to perform was the cause of plaintiff’s lost profits.

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 iv. Restitution Damages
a. Measured by the value of the benefit conferred on the promisor in the
course of performance (require the defendant to give up any gains they
obtained from the plaintiff.)
b. Objective is not to put the promise in the same position as before, rather to
put the breaching party back the in the position as if the promise had not
been made.
c. It does not take into account the expectation or reliance that produces the
benefit.
d. Least generous
e. Differentiate from quasi-contract because there is a definitive promise.
f. Quantum Meruit – allow a promise to recover the value of services he
gave to the defendant irrespective of whether he would have lost money
on the contract and been unable to recover in a suit to the contract.
(reasonable value of employees services – damages caused by the breach)
 a claim or right of action for the reasonable value of services
rendered.
v. Incidental Damages (sale of goods)
a. Includes expenses reasonably incurred by the buyer in inspection, receipt,
transportation, car, and custody of goods rightfully rejected and other
expenses reasonably incident to the seller’s breach, and by the seller in
storing, shipping, returning, and reselling the goods as a result of the
breach.
 Does not include attorney fees unless provided in statute
 Formula for Calculating Expectation Damages
 Restatement (Second) of Contracts § 347
o (Loss in value + other loss) – (Cost avoided + loss avoided)
 LV – difference been what was promise and what was received
 For payee (seller/supplier) – unpaid cost to complete or
repair
 For payor (buyer/recipient) – cost of substitute performance
 OL (other loss)
 Incidental loss – expenses incurred as a result of the breach
that would not have occurred if but for the breach
o Any consequential loss that resulted
 CA – cost avoided
 LA – loss avoided – gain made possible (mitigation)
 Understandable way from class
o (Expected Pay – Actual Pay) = ?
o (? – amount saved) = ?
o (? – amount salvaged) = expectation damages
 Example from midterm:
o Expected pay 15,000 – down payment 2,500 = 12,500
o 12,500 – 6,000 she didn’t put into project = 6,500
o 6,500 – 2,000 that she got from scrap = 4,500 she is owed in damages

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 a. Foreseeability
1. There are occasions that even if the aggrieved party is awarded or
benefit of damages, the ultimate remedial objective to make the
nonbreaching party whole IS NOT SERVED.
 Loss in Value – there are sometimes other losses beyond
direct damages
2. Distinction between LV and OL
 Expenses incurred by the nonbreaching pary that would have
been incurred if but for the breach of contract.
 In order to resell goods and mitigate damages, nonbreaching
party might have to take additional steps to resell – incurred
costs
 Consequential Damages – typically much more substantial
 The nonbreaching party has relied on the performance when
order other affairs, and will suffer an additional loss when the
reliance is misplaced.
 Remedial objective to get the nonbreaching party to be made whole economically
 Limitation on Damages
1. Certainty
 Contract damages must be proved to a reasonable certainty in
order to be awarded to the nonbreaching party. – lost profits
must be shown with reasonable certainty

Restatement (Second) of Contracts

§ 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.

2. Foreseeability
 Applies to special or consequential damages
 The breaching party must be able to prove that, at the time of
the contract formation, it was able to reasonably foresee the
loss that could be caused by the breach of contract. – made
known during the formation process, and must be known to all

Restatement (second) of Contracts

§ 351 Unforeseeability and Related Limitations on Damages
1. Damages are not recoverable for loss that the party in breach did not have reason 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
1. in the ordinary course of events, or
2. as a result of special circumstances, beyond the ordinary course of events, that the
party in breach had reason to know.

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 3. A court may limit 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.

Hadley v. Baxendale
When one party breaches a contract, the other party may recover all damages that are
reasonably foreseeable to both parties at the time of making the contract, as well as
damages stemming from any special circumstances, provided those circumstances were
communicated to and known by all parties at contract formation.

AM/PM Franchise Ass’n v. Atlantic Richfield Co.

Lost profits recoverable as consequential damages include primary profits, secondary
profits, and good will damages so long as the jury is provided a reasonable basis from
which to calculate them.

3. Avoidability

§350 Restatement of Contracts

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.

 Mitigation – the nonbreaching party can obtain substitute

performance and minimize loss
i. Damages are denied to the nonbreaching party if
they were avoidable if only the nonbreaching party
had obtained specific performance. – Breaching
parties are not liable for damages that the
nonbreaching party could have avoided.
ii. Limitations – the nonbreaching party does not have
to mitigate damages if doing so require undue risk,
burden, or humiliation
 Because of the breach, the nonbreaching party does not have
to pay for the return performance

UCC § 2-704.
Seller’s rights to identify good to the contract notwithstanding breach or to salvage unfinished
goods.
Details the right to move forward or cease production (see UCC)

Rockingham County v. Luten Bridge Co.

When a non-breaching party in a contract for services receives notice of another party’s
breach, the non-breaching party must treat the contract as broken when notice is received,
cease performance, and sue for any losses sustained from the breach as well as profits
that would have been realized upon performance.

Parker v. Twentieth Century-Fox Film Corp.

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 The measure of recovery by a wrongfully discharged employee is the amount of salary
agreed upon, less the amount which the employee has earned or with reasonable effort
might have earned from substantially similar employment.

 Damages by Agreement: Liquidated Damages: parties can agree to damages

prior to breach through a liquidated damages clause in their contract.

Restatement (Second) of Contracts

§356(1) Liquidated Damages and Penalties
Damages for breach by either party may be liquidated in the agreement by only at an
amount that is reasonable in the light of the anticipated or actual loss caused by the breach and
the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is
unenforceable on grounds of public policy as a penalty.

 A court will not enforce a liquidated damage if it acts as a penalty or forfeiture

clause.
 Parties bargain for stipulated damages to act as a deterrent for breach of
contract.
o Avoids cost of litigation
o Promotes rational decision-making for the course of future conduct
o If damages will be difficult to assess and prove, it might be beneficial
to define terms of damages ahead of time.
o Parties might want to negotiate to minimize risk of breach
o Minimum adequate remedy
o A party has a right to either perform on a contract or pay damages. A
penalty clause would interfere with that right.
 Test for determining whether a clause in a particular contract is a vialid
liquidated damages provision:
i. Did the parties intend for the clause to operate as a liquidated damages
clause or as a penalty?
a. Evidence of specific or camouflaged effort to punish breach would
support a claim that the clause was intended as a penalty
a. Modern decisions downplay the importance of this prong and
emphasize the other two.
ii. Was the clause reasonable at the time of contracting in relation to the
anticipated harm?
a. The key question is whether there was an anticipated harm that
would be difficult to prove or for which no adequate remedy would
be available.
iii. Was the clause reasonable in relation to the harm and losses that actually
occurred due to the breach?

UCC §2-718(1) Liquidation or Limitation of Damages; Deposits.

(1) Damages for breach by either party may be liquidated in the agreement but only at an amount
which is reasonable in the light of the anticipated or actual harm caused by the breach, the

23
difficulties of proof of loss, and the inconvenience or unfeasibility of otherwise obtaining an
adequate remedy. A term fixing unreasonably large, liquidated damages is void as a penalty.

UCC § 2-719. Contractual Modification or Limitation of Remedy.

(1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding
section on liquidation and limitation of damages,

(a) the agreement may provide for remedies in addition to or in substitution for those
provided in this Article and may limit or alter the measure of damages recoverable
under this Article, as by limiting the buyer's remedies to return of the goods and
repayment of the price or to repair and replacement of non-conforming goods or
parts; and

(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be
exclusive, in which case it is the sole remedy.

(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose,
remedy may be had as provided in this Act.

(3) Consequential damages may be limited or excluded unless the limitation or exclusion is
unconscionable. Limitation of consequential damages for injury to the person in the case of
consumer goods is prima facie unconscionable but limitation of damages where the loss is
commercial is not.

 To determine if provisions disclaiming incidental and consequential damages are

unconscionable or not, then:
1. Determine the nature of the contract first (consumer vs. commercial)
2. Depending on the answer, it determines whether the provisions will be read
independently (separately for commercial purposes) or dependently (together for
transactions with consumers).
 If there is bargaining power, such as between merchants because they
understand what they’re doing, then read them independently.

Lake River Corp. v. Carborundum Co.

A contract provision that specifies a single unmodifiable sum to be paid as damages for
all breaches of the contract, regardless of seriousness, is an unenforceable penalty clause.

Schurtz v. BMW of North America

A contractual provision disclaiming incidental and consequential damages will be upheld
unless it is held to be unconscionable.

 Punitive damages
Restatement (Second) §355. Punitive Damages
Punitive damages are not recoverable for a breach of contract unless the conduct
constituting the breach is also a tort for which punitive damages are recoverable.

24
Hibschman Pontiac, Inc. v. Batchelor
Punitive damages are appropriate in a breach of contract action when elements of fraud,
malice, gross negligence or oppression are involved in the case.

 Damages under the UCC

1. Buyer’s Damages

§2-711. Buyer’s Remedies in General: Buyer’s Security Interest in Rejected Goods.

(1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or
ustifiably revokes acceptance then with respect to any goods involed, and with respect ot the
whole if the breach goes to the whole contract, the buyer may cancel and whether or not he has
done so may in addition to recovering so much of the price as has been paid
(a) “cover” and have damages under the next section as to all the goods affected
whether or not they have been identified to the contract; or
(b) recover damages for non-delivery as provided in this Article (section 2-713)
(2) Where the seller failes to deliver or repudiates the buyer may also
(a) if the goods have been identified recover them as provided in this article
section 2-502; or
(b) in a proper case obtain specific performance or replevy the goods as provided
in this article section 2-716
(3) On rightful rejection or justifiable revocation of acceptance a buyer as a security
interest in goods in his possession or control for any payments made on their price and any
expenses reasonably incurred in their inspection, receipt, transportation, care and custody and
may hold such goods and resell them in like manner as an aggrieved seller section 2-706

§2-712. “Cover”; Buyer’s Procurement of Substitute Goods

(1) After a breach within the preceding section the buyer may "cover" by making in good
faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in
substitution for those due from the seller.
(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 seller's breach.
(3) Failure of the buyer to effect cover within this section does not bar him from any
other remedy.

§2-713. Buyer’s Damages for Non-Delivery or Repudiation

(1) Subject to the provisions of this Article with respect to proof of market price (Section
2-723), the measure of damages for non-delivery or repudiation by the seller is the difference
between the market price at the time when the buyer learned of the breach and the contract price
together with any incidental and consequential damages provided in this Article (Section 2-715),
but less expenses saved in consequence of the seller's breach.
(2)Market price is to be determined as of the place for tender or, in cases of rejection after
arrival or revocation of acceptance, as of the place of arrival.

25
 2. Seller’s Damages

§2-703. Seller’s Damages for Non-Delivery or Repudiation

(1)…. [T]he seller may resell the goods concerned or the undelivered balance thereof.
Where the resale is made in good faith and in a commercially reasonable manner the seller may
recover the difference between the resale price and the contract price together with any incidental
damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in
consequence of the buyer’s breach.

§2-706. Seller’s Resale Including Contract for Resale

See UCC Page 84.
Specifically states that if private sale, notice of resale must be given.

§2-708. Seller’s Damages for Non-Acceptance or Repudiation

(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of
market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the
buyer is the difference between the market price at the time and place for tender and the unpaid
contract price together with any incidental damages provided in this Article (Section 2-710), but
less expenses saved in consequence of the buyer's breach.

(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.

Teradyne, Inc. v. Teledyne Industries

Even where a party is able to resell goods involved in a breach of contract, that party is
still entitled to expected profits less producing and selling costs saved because of the
breach.

 Restitution and Quasi-Contracts:

o A true contract is based on the intention of the parties, and this intention is found in
the express or implied terms of the agreement. Where past dealings of the parties
indicate, a contract can be implied in fact, meaning that a contract is intended by the
parties even though none of its terms are expressly agreed on. In opposition, a
contract implied in law, sometimes called a quasi-contract, is imposed upon the
parties irrespective of their actual intent. This is to prevent unjust enrichment on
behalf of the defendant. The law presumes an action in restitution. The concept of
restitution is often used:
 As an independent theory of recovery when there is no enforceable
contract because of lack of mutual assent or some other formation defect –
“quasi-contract” actions;

26
  As an alternative method to measure damages, or as an independent
remedy, for a party not in breach of an enforceable contract;
 As an independent remedy for a party who has breached an enforceable
contract;
 As an independent theory of recovery when a contract is unenforceable
because of some defect such as a lack of a requisite writing (a statute of
frauds problem), impossibility, mistake, or incapacity.
Maglica v. Maglica
Quantum meruit allows recovery for the value of beneficial services, not the value by
which someone benefits from those services.

Feingold v. Pucello
Recovery in quantum meruit is an equitable remedy that requires one party to convey a
tangible benefit to another party..

Restatement Second of Contracts § 373

Restitution When Other Party Is in Breach
1. Subject to the rule stated in Subsection (2), on a breach by non-performance that gives
rise to a claim for damages for total breach or on a repudiation, the injured party is
entitled to restitution for any benefit that he has conferred on the other party by way of
part performance or reliance.
2. The injured party has no right to restitution if he has performed all of his duties under
the contract and no performance by the other party remains due other than payment of a
definite sum of money for that performance.


Equitable Remedies: fairness
o Three types of equitable remedies:
1. Specific performance
2. Injunction
3. Restitution
PHH Mortgage Corp. v. Barker
Under Ohio law, a foreclosure involves the trial court first determining as a matter of law
that a mortgage default has occurred and then considering whether foreclosure is the
appropriate equitable remedy.

Specific Performance

Centex Homes Corp. v. Boag

A vendor of real estate is not entitled to specific performance upon default of a contract
unless the property in question is so unique that money damages would not be an
adequate remedy.

Lumley v. Wagner
A court of equity may impose a negative injunction on an individual, preventing her from
doing something.

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II. DEFENSES

a. Statute of Frauds (M.Y.L.E.G.S.)

 Restatement § 110
 The following are forbid, under the Statute of Frauds, from being enforced
unless there is written memorandum or an applicable exception:
1. A contract of an executor or administrator to answer for a duty of his
decedent (the executor-administrator provision)
2. A contract to answer for the duty of another (the suretyship provision)
3. A contract made upon consideration of marriage (the marriage
provision)
4. A contract for the sale of an interest in land (the land contract
provision)
5. A contract for the sale of goods over $500 (goods)
6. A contract that is not to be performed within one year from the making
thereof (the one-year provision)
 The purpose of the statute of frauds was to prevent false claims by an unethical
plaintiff that there was an oral agreement when there was no agreement.
 Most statute of frauds include: 1) transfers of interests in real estate, 2) services
contracts not capable of being performed within 1 year, and 3) sales of goods for
$500 or more.
 For the sale of goods, all that is relevant to the statute of frauds is the
purchase price
 Contracts for lifetime employment are not within the statute of frauds
because a party could die at any time
 Writing that satisfies the statute of frauds
 Sale of goods
 §2-201 says only thing that must be in writing is the quantity of the product,
but it does not require a price.

UCC §2-201. Formal Requirements; Statute of Frauds

(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 or
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.

Suretyship
Filo v. Liberato
Under the leading-object rule, an oral promise to pay the debt of another is not required
to be in writing pursuant to the statute of frauds if the promisor has a pecuniary interest in
the work being performed.

Land Transactions

28
Waddle v. Elrod
The statute of frauds applies to the transfer of an interest in real property.

The One-Year Provision

Professional Bull Riders, Inc. v. Autozone, Inc.
Where the terms of an oral agreement can fairly and reasonably be interpreted to define
alternate methods of performance, one or more of which can be performed within one
year, the agreement may be construed as capable of being performed within one year and
does not violate the one-year provision of the statute of frauds.

Sale of Goods
Eastern Dental Corp. v. Isaac Masel Co.
To satisfy the statute of frauds, the quantity term in a requirements contract need not be
numerically stated, but there must be some writing that indicates that the quantity to be
delivered under the contract is a party’s requirements or output.

b. Parol Evidence Rule

 The principle that a writing (only applies to written contracts) intended by the
parties to be a full embodiment of their agreement cannot be modified by
evidence or earlier contemporaneous agreements that might add to, vary, or
contradict the writing.
 This rule operates to prevent a party from introducing extrinsic evidence of
negotiations that occurred before or while the agreement was being reduced
to its final written form.

Restatement (Second) of Contracts

§213. Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)

(1) A binding integrated agreement discharges prior agreements to the extent that it is
inconsistent with them.
(2) A binding completely integrated agreement discharges prior agreements to the extent that
they are within its scope…

UCC
§2-202. Final Written Expression: Parol or Extrinsic Evidence

Terms with respect to which the confirmatory memoranda of the parties agree or which
are otherwise set forth in a writing intended by the parties as a final expression of their
agreement with respect to such terms as are included therein may not be contradicted by
evidence of any prior agreement or of a contemporaneous oral agreement but may be explained
or supplemented:
(a) By course of dealing or usage of trade (Section 1-205) or by course of performance
(Section 2-208); and
(b) By evidence of consistent additional terms unless the court finds the writing to have been
intended also as a complete and exclusive statement of the terms of the agreement.

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  Is the writing intended as the final expression?
o If writings are not the “final” expression (just preliminary drafts) then the parol
evidence rule will not bar introduction of further evidence.
o Any relevant evidence would be admissible to show that the parties did not intend
the writing to be final
 Is the writing a complete or partial integration?
o If the writing is “final” then you have to determine if it is “completely integrated”
or “partially integrated”
 If complete:
 The writing may not be contradicted or supplemented
 Merger clause: statement in writing saying the agreement is
complete – courts will usually find the agreement is complete
integrated if there is this clause.
 If partial:
 It cannot be contradicted but it can be supplemented by providing
consistent additional terms.
o Whether completely integrated or partially integrated depends on the intent of the
parties.
 Exceptions:
o You can use parol evidence to explain or provide the meaning of a written
document, even if it is completely integrated.

Thompson v. Libbey
When the written agreement is intended to be the entire agreement, parol evidence cannot
be introduced to establish terms of the agreement and parol evidence cannot be
introduced to establish whether or not the contract is intended to be the entire agreement.

Lopez v. Reynoso
Under contract law, parol evidence may be taken into consideration to determine the
intent of the parties, to properly construe the writing, and to determine whether the
writing was actually intended to be the final expression of the agreement.

 Mistake:
Restatement (Second) of Contracts
§20. Effect of Misunderstanding

(1) There is no manifestation of mutual assent to an exchange if the parties attach materially
different meanings to their manifestations and
a. Neither party knows or has reason to know the meaning attached by the other; or
b. Each party knows or each party has reason to know the meaning attached by the
other.
(2) The manifestations of the parties are operative in accordance with the meaning attached
to them by one of the parties if
a. That party does not know of any different meaning attached by the other, and the
other knows the meaning attached by the first party; or

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 b. That party has no reason to know of any different meaning attached by the other,
and the other has reason to know the meaning attached by the first party

Raffles v. Wichelhaus (the Peerless Case)

There is no contract if there is a mutual misunderstanding by both parties as to the
meaning of a term of an agreement.

 Mutual misunderstanding
 Applies when the parties agree to the use of the same term, but each attaches a
different meaning to that term.
 Peerless ships – offer thought December Peerless while offeree thought
October Peerless, so when buyer refused to accept or pay for shipment there
was no breach because there was no mutual assent.
 Restatement: applies mutual misunderstanding only in cases where a different
meaning is attached to a material term and 1) neither party knows or has reason
to know the meaning attached by the other, or 2) each party does know of have
reason to know the meaning attached by the other.
 If a party knows the other party means something else but does not clarify in
hopes they can make a claim for what they wanted, then the doctrine of mutual
misunderstanding is inapplicable, and that person would be stuck with a binding
agreement for what the seller really meant.

Restatement (Second) of Contracts

§152. When Mistake of Both Parties Makes a Contract Voidable

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. … recinded

§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.

Sherwood v. Walker
When a contract is made based on the mutual mistake of the parties that relates to a
material fact such as the subject matter of the sale, the price, or some other fact which
materially affects the agreement, the parties may rescind the contract once they learn of
the mistake.

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Wood v. Boynton
A party may rescind a contract for the sale of a good if she can establish either fraud or
mistake.

Williams v. Glash
A contractual release of claims is subject to avoidance when parties to the agreement
have contracted under a misconception or ignorance of a material fact.

 Misrepresentation
o Restatement §159
 Any manifestation by words or other conduct by one person to another
that, under the circumstances, amounts to an assertion not in accordance
with the facts.
 Even innocent misrepresentation as to existing facts can make a contract
voidable if it is material.
o Courts look at:
 How important (material) the representation was
 Whether the other party relied on the misrepresentation
 Whether reliance was reasonable
o Fraudulent or Material Misrepresentation

Restatement (second) of Contracts §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.

Restatement (second) of Contracts §164.

When a Misrepresentation Makes a Contract Voidable

If a party’s manifestation of assent is induced by either a fraudulent or a material

misrepresentation by the other party upon which the recipient is justified in relying, the contract
is voidable by the recipient.

Vokes v. Aruthur Murray, Inc.

A statement of opinion may be actionable as a misrepresentation where the party stating
his opinion possesses superior knowledge of the truth or falsity of the statement.

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