Contracts Outline

Agreement Process
Intent to be bound
If a reasonable person would perceive a binding offer has been made (for goods, with a
reasonable price), it is binding regardless of the subjective intent of the offeror or missing
terms unless the offeror makes it objectively clear that the offer is not to be binding as will be
determined by a trier of fact
Reasonable Person:
Leonard v. Pepsico
Reasonable person would not assume a Harrier Jet could be purchased using Pepsi Points (~$750k in PPs,
actual cost: $34 mill.)
Subjective Intent:
Lucy v. Zehmer
Intoxication/jests subjective intent of offeror do not excuse if otherwise offer is reasonably understood as
binding (Lucys didnt mean to sell their farm but went in to a lot of detail about deal)
Under CISG
Subjective intent of the offeror is a part of the standard for intention to be bound (subjective standard)
Objectively clear that offer is not binding/Letter of Intent
Venture v. ZDS
Letter of Intent explicitly states not a binding contract but was only intended to be binding and only intended
to be a basis for the two parties to negotiate further in good faith.
Matter of Fact
Arnold Palmer v. Fuqua
The intention to make parties legally bound by an offer must be determined by a trier of fact.
Reasonable Price/Missing Terms
Under UCC 2-305, parties may form a binding contract even if a set price is not made. In such a case, the
price is reasonable if:

Nothing is said as to price

Price is left to be agreed by the parties and they fail to agree
The price is to be fixed in terms of an agreed market/other standard and is not set
A price to be fixed means it must be done in GF
If a price is left to be fixed and a party fails to do so, the other party may treat the contract as cancelled or fix
his own reasonable price.
Arbitron v. Tralyn: Contract and escalation clause were definitive enough to determine a reasonable amount
for the additional stations added w/ the contract

Public Policy Exceptions:

Promises made between patients and doctors (e.g. this surgery will work!) are not included in this intent to
bind unless the promise is the result of an unusual solicitation
Gault v. Sideman does not count as agreement because doctors promises must be protected from this law
so they may offer medically therapeutic assurances to patients
Hawkins v. McGee (hairy hand) does not fall under this exception because doctor solicited surgery to patient
for 3 years before he became a majority
Normal agreements between husbands and wives are not included
Balfour v. Balfour
Husband promised to pay for his wifes expenses but did so under his normal duty as a husband
Normal Agreements include things like taking care of children, financial support between them, etc. (would
clog the court system)
Agreements to Agree
Palokous v. Intermountain Chevrolet
Color of truck ordered was not available and dealership tried to get out of
contractual obligation by stating the order was not specific enough
UCC 2-204: that some terms are undetermined does not defeat the existence of
a contract provided that the parties intended to make a contract and there is a
reasonably certain basis for a remedy.

Offers: An offer is the manifestation of 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.
Assessed primarily from the perspective of the party who is receiving the offer: what a
reasonable person in their position believes.

Preliminary Negotiations v. Offers

An offer is distinguishable from preliminary negotiations/invitations to make a deal when, under
all relevant circumstances, a reasonable person would understand the solicitation to have power
of acceptance and it has clear, definite terms i.e. the offeree could say I accept!
Preliminary negotiations/invitations to make a deal
Pico v. Cutter Dodge
Advertisements are not offers unless they explicitly state that they are offers
Exception:
Lefkowitz v. Great Minneapolis Surplus Store
When an advertisement is clear, definite and leaves nothing open for negotiations it is an offer (like the
offer to be first in line to pay $1 for fine scarves)
Reasonable person would understand the offer to be acceptable under relevant circumstances
Southworth v. Oliver
A reasonable person would have assumed the letter with the lands price quotation was a valid offer given
the history of the negotiation and the language that implied an intent to be bound
Do not have to include explicit language like offer to make it binding
But not an offer if include in price quotation this is not an offer
Clear, definite terms
Maryland Sup. v. Blake
The terms for concrete supply were definite in that price, quantity and duration were all listed making it an
offer, not a preliminary negotiation
Interstate Industries. v. Barclay
A published price list for paneling is not an offer because it does not have definite enough terms to give it
power of acceptance
Note on Interpretation:
These documents are always analyzed within their context and their role in offer/acceptance will hinge on
their use by the parties in question and their relation to other documents

Identifying the Offeror and Offeree

Customers may sometimes be offerors, especially in the case of unilateral contracts
BC Tire v. GTE Directories
A yellow pages company was considered the offeree because their contract for printing an ad was a
unilateral contract (bargained for act was printing the advertisement) and customer was offeror

Duration of Offers
Duration of offers begin the moment the offeree becomes aware of the offer except when no
duration of an offer is provided, the default rule is the offer is valid for a duration that is
reasonable from the perspective of the offeree and made in GF.
Moment offeree becomes aware of the offer
Caldwell v. Cline
Duration of a contract made by mail/etc. begins when the offeree receives it as is the case if the offer were
made in person (duration begins when the offer strikes the ear of the offeree)
Requirements for the means of acceptance must be included in the offer if they are to be specific (master of
offer)
Reasonableness
Vaskie v. West American Insurance Co.
The court held that, given the circumstances, a Ps acceptance of a PJ settlement offer was unreasonable (it
was done nearly 2 years after the accident occurred and after the SofL ran out)
Public Policy
The reasonableness standard is from the perspective of the offeree because the offeror is the master of the
offer and should include a duration for the offers validity if they do not want it to fall under the default rule
If included by offeror, time frame can be as unreasonable as they wish
Reasonableness for duration of contracts involving securities tends to be short given their rapid fluctuation in
value
UCC
2-309 applies this reasonableness standard to contracts for goods that do not have a timeframe (generally
shipment/delivery contracts)
In cases involving successive performances without duration specified, the contract is terminable at any time
unless otherwise stated in the contract
CISG
Duration of offer begins the moment letter/telegram is sent

Termination of Power of Acceptance

Power of Acceptance can be terminated by revocation, rejection, counter offer and/or
death/incapacity of the offeror
Rejections
A rejection of an offer may be done by any means that informs the offeror that the offeree terminates their
power of acceptance
Rejection will not terminate the power of acceptance if either:

The offeror indicates that the offer still stands despite any rejections;
The offeree states that although she is not now accepting, she wishes to consider the offer further later.
Chaplin v. Consolidated
The court held that the Ps had terminated their PofA by negotiation to change the terms of the offer when
the condition of the offer were full acceptance of all terms
Revocations
Revocations may occur at any point before acceptance and does not have to be communicated by the offeror
directly to the offeree as long as the offeree is made aware of the revocation from a reliable source
Can be done through a reliable third party or by the actions of the offeror
Dickenson v. Dodds
Reliable 3rd party informed offeree of revocation, offeree knew that offeror had revoked offer and
unsuccessfully tried to accept anyway
Hoover Motors v. Clements
Offerors actions and telephone conversation with offeree were inconsistent with the offer still being valid,
thus serving as revocation despite ambiguity of language used in telephone conversation
Indirect Revocations:
Any act which is inconsistent with the offer is sufficient to revoke, as long (and as soon) as the offeree knows
about it (e.g. selling a house to another buyer)
Counter Offer
Terminates original power of acceptance. Any acceptance that varies the terms of the offer is a C/O because
makes new terms conditional to acceptance of offer (mirror image rule)
Ardente v. Horan
Court held that letter asking for different terms of house sale (inclusion of furniture, etc) constituted CO
because it conditionally changed terms of offer
Death/Incapacity
Death/Incapacity of a party of offeror or offeror himself serves to terminate acceptance
Beal v. Beal
Court held that the death of the husband in an offer to sell land as a joint married couple terminated the
offerees PofA because offerors had power to sell together only
No requirement that offerors death be communicated to offeree, leads to injustice of offer being revoked by
death of offeror before offeree has chance to consider/accept
Option Contracts
Separate contract under which the offeror surrenders the power to revoke in exchange for some
consideration provided by the offeree
The option holder has a firm and dependable basis for decision
Power of acceptance is absolute for the time agreed upon in the option contract
The option holder has no interests needing protection he can act promptly and w/
confidence in reliance on the contract

Public Policy
The courts have attempted to protect the offeree from having the offer revoked before they
have ample time to accept and also allowing them to accept after rejection has been sent
Default rules for acceptance if not stated by the offeror in the offer:
When is the offer effective-When received
When is Acceptance effective-when mailed (mailbox rule), CISG states it is effective when
received
Note: If rejection is sent first, acceptance cannot be sent after in an attempt to invoke mailbox rule
When is rejection effective-when received
When is Revocation effective-when received

Irrevocable Offers
Offers can be made irrevocable through 1) the formation of an option contract, 2) by proving
reliance on the original offer or 3) partial performance of a unilateral contract
Option Contracts
Formed to allow offeree a reasonable time frame to accept offer without worrying about chance that offer will
be revoked while considering it, req. sep. consideration
Orlowski v. Moore
The court held that a revocation of an option contract(a right of first response lease agreement) was valid
because it was done outside a reasonable time frame given the offerees poor credit, history of payment,
etc.
Note: Offeree can still accept an option contract they rejected/counter offered if it is done so within the
option contracts time frame
Can be revoked when the offeror has relied/acted on the rejection/CO (e.g. sold to 3rd party)
Part Performance on Unilateral Contract
Where the offer is for a unilateral contract, the beginning of performance by the offeree makes the
offer temporarily irrevocable b/c of reliance. As long as the offeree continues diligently to perform,
the offer remains irrevocable until he has finished.
Dahl v. Hem
Court held that completion by patients of a medicine trial constituted performance of a unilateral contract,
making it irrevocable
Petterson v. Patberg
Court ruled that a unilateral contract may be revoked before it is performed even if the reason for failure of
performance is the revocation of the offer
Petterson tried to buy his house on a right of first refusal lease within a unilateral contract to buy the house
for a reduced $780 rate but owner had already revoked the offer
Under 2nd Restatement, Offerees clear/definite beginning of offerrors invited performance makes an option
contract (thus irrevocable)
Reliance/Firm Offers
If an offer/promise is reasonably expected by the offeror to induce action/forbearance on the offeree, the
offer is irrevocable to avoid injustice
Written offers giving assurance that they will be held open are irrevocable (UCC 2-205)
A firm offer requires more than a mere statement of duration it requires assurance that it will be held open
during the time stated or, if no time is stated, for a reasonable time, in no event to exceed three months
(UCC 2-23505)

Only offeror has to be merchant to apply

Any term of assurance made by the offeree must be signed by the offeror

Pavel v. Johnson
The court held that if an offer/price quote by a subcontractor in a general contractors bid caused the offeree
(GC) to rely on that offer, it would be irrevocable (court found otherwise b/c GC was bid shopping proving
they were not reliant on the offer)

Nature of Acceptance
Can only accept an offer if offeror gave power of acceptance to that person, they are aware of
the offer and have volition to do so
Aware of Offer
Simmons v. US
Court held that performance to accept a unilateral contract can be done even if the offeree does not
intentionally perform as long as aware of the offer
Catching Diamond Jim III constituted performance even though just meant to catch fish
Exception/Public Policy: Public unilateral contracts do not fall under this rule as a person may perform without
knowledge of the offer and still be bound by it (civic duty is to give the info)
e.g. giving authorities information about a crime without knowing there is a reward would not prohibit the
person from retroactively collecting the reward
Volition
Carlill v. Carbolic Smoke Ball
Court held that the performer of a unilateral contract must have the ability to intentionally perform the
bargained for act
Using the smoke ball is performance but must get the flu as well which the offeree has no control over:
negates acceptance

Manner of Acceptance
The manner of acceptance is generally set by the offeror (can be waived if assented to by
offeree), does not include accommodation, is understood to be peformance/receipt of benefit in
unilateral, cannot be silence and the offeror must be notified by the offeree of start of
performance.
Manner of Acceptance set by offeror/waive of form
In common law, as master of offer, offeror generally sets the manner of acceptance and asks for either
performance or promise (can waive requirement for form if assented to by offeree)
Empire v. Litton
Court held that conduct by offeree to go ahead with contract inferred their assent to ambiguous manner of
acceptance in the offer (and actions could be used as manner of acceptance)
UCC states that a contract with a doubtful manner of acceptance is the typical one

Unless unambiguous manner of acceptance, offer may be accepted by either promise or performance
Performance in place of promise is acceptable: not for reciprocal
Accommodations
When shipment of goods is manner of acceptance, no contract is formed if there is an explicit statement that
shipment of nonconforming goods (defined by the offer) is an accommodation and not an acceptance
Cornthian v. Lederle
Court held that Ds shipment of non-conforming goods (not quantity of vials ordered) was an accommodation
to the PO and not an acceptance of it did not form a binding contract
UCC 2-206 requires a seller to seasonably notify the buyer that their non-conforming performance is an
accommodation and not an acceptance
Public Policy
Allows seller to refrain from accepting offer while still making partial performance as gesture of good will
Performance/Receipt of Benefit
If the offeree begins performance or receives a benefit from the offer, the offeree is understood to have
accepted the offer
Arduini v. Board of Educaiton
Court held that teacher who began teaching for school year and received pay check accepted an offer to
teach for the school year, including provisions that would penalize him for quitting (which he did)
In this instance, requirement that offeree be aware of all terms is not a defense
Silence as Acceptance
Silence is generally not considered valid acceptance unless previous dealings would make it reasonable for
offeror to believe it would be appropriate form of acceptance
Vogt v. Madden
Court held that it was not reasonable for the offeror to expect that silence would constitute acceptance given
their previous dealings
However, receipt of benefit and performance of bargained for act would make acceptance valid even if there
is silence
Notice Requirement
An offeree must notify the offeror of his start of performance of a bargained for act UCC 2-206(2)

Petersen v. Thompson
Court held that an offeree must notify the offeror of performance as pursuant to UCC 2-206(2)
Generally, the performance is not something the offeror would not know occurred but in rare case it is,
offeree must inform offeror of its start/completion
Warranty, only under UCC Art. 2
Refers in contracts to the sellers obligation as to the quality of the goods (can occur in as is basis meaning
buyer assumes all risk)
3 types:
Express Warranty
Goods must match factual quality in contract unless disclaimer by seller
Buyer is entitled to receive goods as described since his reasonable expectation is that the quality of the
goods will match the description

Implied Warranty, only merchant sellers

Goods meet reasonable buyers expectation of quality (reasonable # of repetitious imperfections are permissible)

Implied Warranty for Specific Purpose of Good

Buyer relies on sellers skill in making good up to req. quality for spec. purp.

Deviant Acceptance-Battle of the Forms

To avoid the common law last shot rule, UCC 2-207 allows for discrepancy in non-dickered terms
of an offer and its acceptance as long as offerees acceptance is not conditional to additional
terms
Common law/CISG last shot rule
In this scenario, the last form sent between the parties (when negotiation of terms has many different
stages) will be the one that is contractually binding because additional terms would not mirror the original
offer thus making additional forms sent counter offers.
UCC 2-207
Acceptances can still be valid if they contain additional terms (considered proposals for addition to the
contract)
Between merchants, these become part of the contract unless they materially alter contract, other party
directly objects to them or original offer limits acceptance to set list of terms
Material alterations cause surprise or hardship on the other party

Dorton v. Collins
Court held UCC 2-207 was applicable as long as dickered terms were not changed (price, quantity, items in
question)
Hypo:
Assume there is an additional term
Both merchants: then proposal for addition becomes part of the contract unless
the 1st offer expressly limited itself to the terms of the offer or term materially
alters the contract
So is the inclusion of the new provision on arbitration made by the seller
a material alteration of the contract
Generally what these issues come down to
If not material, it becomes part of the contract
If the buyer, after seeing this additional term, objects
The inclusion of the arbitration clause is considered a material alteration and thus the
arbitration clause is not considered a part of the contract
Change the hypothetical:
Now, the seller sends their letter of acknowledgment and includes the arbitration clause.
Also their acceptance is made expressly conditional to the consent of the buyer to all of
the terms of these additional terms
If the seller includes this provision, sub-paragraph 1 tells us that we dont have a deal
Unless the buyer continues to perform anyway, the additional term will
be eliminated and replaced by a gap filler that is applicable to the subject
There is no gap filler in this case for arbitration so the default would
allow the parties to sue in court
Rolling Contracts
Offer is extended until all the terms have been seen by the consumer
Pro CD v. Zeidenberg and Hill v. Gateway
Both involved consumers purchasing a product that it then discovered to have disagreeable terms that are
viewed as additional terms. Court held that the offer extended until the offeree had reasonable chance to
read the terms which they could then decide to reject by sending product back with full refund

The Validation Process

Formalistic Devices
Consideration
Promissory Estoppel
Moral Obligation

Consideration
Seal on option contracts
Outdated, unused (except in Mass.) b/c people can read
Replaced by requirement of exchanged promises
Something of non-nominal value given by both parties to a contract that induces them to enter
into the agreement to exchange mutual performances.
Generally courts do not review adequacy of consideration except when inadequate consideration
results from an unfair dealing or when the consideration is so obviously inadequate, it cannot be
consideration at all
Requires:
Detriment to promisee or benefit to promisor; must be equitable and emphasis on detriment to
promisee
McKinnon v. Benedict
PP: Detriment/benefit to offeree was unconscionably worse than detriment/benefit to offeror, thus inequitable
Bargained for exchange
Moral considerations not binding, money for money always reviewed by court
Schnell v. Nell

Penny consid. For $200 and love for his dead wife not adeq. Cons. b/c $ for $ and moral
Failure to pay consideration on options gen. fatal to contract but courts split on whether just
citing consideration is enough (TX is)
1464 v. Joppich
Subdivision plot owner failed to pay consideration listed in option, TX adopts rest. So citing cons. Makes
contr. Enforce.
Illusory Promise dont count, must be real promise
Future event in unilateral contr. not cons. for contr. b/c not promise of anything real

Requirement/Output Contracts/Exclusive Dealings

Req: Seller agrees to supply goods to meet buyers requirements
Req. may change if done in GF (market shifts, etc.)
Vulcan v. Atofina
Atofina changed req. to 0 units in BF to curb losses (GF is reductions b/c of extern. events)
Output: Buyer agrees to buy all of sellers output
Exclusive Dealings: UCC
Req. changes must be made after best effort by both parties
Lewis v. Angelou
Angelou didnt show best effort in making the original excl. deal work
Infancy
Millicic v. Basketball Marketing
Millicic didnt have capacity to contract b/c only 18: had to return considerations (gifts given)
Pre-Existing Duty Rule
A person who is already duty bound to commit an action cannot have that action serve as a performance to
accept a binding contract.

Slattery v. Wells Fargo

Lie detector operator already had duty to give test results so cant say promise to give test results of liedetector test is consideration
Can be consideration if promisee takes obligation not required by pre-existing duty, even if
involves same perf.
Betterton v. 1st Interstate Bank of AZ
Debtor promised bank to have old debts paid by broker thus no pre-existing duty, and valid consideration,
to have broker pay debts (had been he was req.)
UCC Modifications to agreements do not require additional considerations if done in GF (Common
law do req. consideration for modifications)
Accord/Satisfaction: New agreements made after breach of original agreement, req.
consideration
Accord: New, separate agreement that requires obligee to accept a compromise or modification
of original agreement
Satisfaction: Fulfilling obligation by paying a party what is due after breach

Promissory Estoppel, Restatement Only (UCC is diff. on PE)

A promise which the promisor should reasonably expect to induce action/forbearance on the part
of the promisee (or 3rd Party), and which does induce such action or forbearance, is binding if
injustice can be avoided only by enforcement of the promise. (No BforE req.)
Reasonable Expectation:
Feinberg v. Pfeiffer
Old lady relied/retired on promise of stipend paid by former employer, which was reasonable for promisor to
expect, and unjust if not enforced
PP: 3rd Party Reliance
Hofman v. Red Owl Stores
If promisor reasonably should foresee reliance on promise by 3rd party, PE applies
Reliance in Agreement Negotiation stage
If reliance is reasonably made by party before agreement occurs, PE can apply if no enforcement
of promise is unjust
Pops Cones v. Resorts Int. Hotel
Reasonable reliance on promise by auth. that agreement would be made resulted in closing of current
store/loss of lease, injustice if not enfor.

Past Consideration
Past consideration is a misnomer b/c it means no bargained for exchange occurred where
promise was exchanged for consideration
Passante v. McWilliam
Passante made consideration after promised performance had been completed meaning no real
consideration and no real promise

Moral Obligation
Not an enforceable consideration because any serious promise would have this (cant have every
promise enforceable then)
In Re Hatten
Monsteds provided Hatten with services thus not expecting payment (no BE at time of performance)
Material Benefit Rule
Statutory rule that allows promises made for benefits previously received to be enforceable
when, if not enforced, would cause injustice
Only enacted in a few states, doesnt apply to gifts or where value is disproportionate to benefit
Moral obligation for debtors
Promises to pay debts too old under SofL are enforceable
1st Hawaiian v. Zukerkorn
Debtor promised to pay an old debt in order to get new CC but not specific enough about which old debt to
enforce, not enforceable
Had it been specific, couldve enforced

Statute of Frauds
Restatement lists contracts required to be in writing (MYLEGS):
Upon consideration of Marriage
W/out agreement, no marriage and if no marriage, no effect on the agreement
Normally, have to be in writing, exception:

Dewberry v. George
PP of agreement made it not under SofF req., enforceable even if oral
Contracts that must be performed within one Year
Dont look at how long it actually takes but rather if agreement says it will take one year:
Klewin v. Flagship
Contractors oral agreement for building said within a year but it actually tok over a year: not under SofF so
no req. of writ.
Contract for sale of Land
Exception: Deposits as PP
Cain v. Cross
Not good enough to just put down deposit, must possess land or make improvements to meet req. of PP
Exception: Leases up to one year (not in SofF)
Agreements must be made in rem
Includes Easements
Contracts involving transfer of property not nec. Req. in writing
Cont. to build on certain land not w/in this clause of SofF
Contract of an Executor for a duty of his decedent
Contract make trade of Goods (UCC 2-201)
Contract to make Suretyship
If the Obligor doesnt pay you Obligee, I will as Surety
Leading Object Exception: If main purpose of promisor is his own interest, not a suretyship under SofF
Armbruster v. Baron

Personal guarantee, not nominal, by owner of corp. for money paid for bowling alley construction project was
leading object surety b/c he had pers. Interest in surety
Part Performance Exception:
Establishes the presence of an oral agreement (thus not under SofF)
Distinct from PP of Unilateral: PP of Uni prevents revocation, PP of SofF shows agreement existed
Req. of Writing/Memorandum:
Reasonably identify Sub. Matt. of contract
Sufficient to indicate contract/offer made b/w parties
Reasonable certainty essential terms of promises
May consist of sev. writings if one related one is signed
Signature can be any mark intended to authenticate
UCC 2-201 SofF, only applies to merchants
Written contract only asserted up to quantity of goods that agreement discusses (no req. of
price, terms, etc. just quant.)
When analyzing these start with 1 and, if not satisfied, go down the list to 2 and 3
1.

Contract for $500 or more

Sufficient to indicate contract for sale
Signed by party against whom enforcement is sought
Only enforceable to quantity of goods listed

2.

B/w merchants if w/in reasonable time, writing is received and party receiving has reason to know its
contents
Not enf. if written objection is given to agreement w/in 10 days

3.

If not enforceable under 1, can still be enforc. If:

Goods are specially manufactured for buyer and not suitable for sale to others (incl. if seller has
made subs. Start/commitment of manufacture)

Party against whom enforcement is sought admits that contract for sale was made
Goods have been paid for/accepted/received
Writing can be in any form , not nec. To exist at form. Of agreement
If lost/destroyed, oral testament to its existence can be considered
Promissory Estoppel in SofF
Many courts are prepared to use PE in enforcing oral contracts that otherwise must be in writing
under SofF
Standard of evidence is Clear and Convincing
Under UCC, manufacturing rule is narrow exception invoking PE

Parol Evidence Rule

Limited in scope, only applies to prior/contemporaneous agreements to overall agreement (does
not apply to FRAUDELENT oral misrepresentations)
PER in effect when there is question over whether prior agreement was to be final or whether
past agreements were to be integrated into final agreement
If final is fully integrated, no outside evidence allowed
If every term of final agreement included, fully int.
Merger Clauses: Separate terms that state that the contract is fully integrated and therefore no PE
If final is partially integrated, court hears outside evidence
All terms in agreement final but other terms can be included/talked about in prior agreement
Masterson v. Sine
Dispute over option contract being exclusive, P wanted to include evidence that it was. Court held it was
natural that this would be sep. agreement thus option contract fully integrated/enforceable.
Tests for levels of integration
Restatement:
Separate consideration test (was benefit to parties when separate agreement happened?)

Natural Omission Test: was it natural that other element would have its own contract
If so, not integrated part of contract and will have own, distinct agreement
UCC:
Certain Inclusion test: If element would certainly have been included in a final agreement, agreement is fully
int.
Toughest standard/gives court most flexibility
Allows terms of agreement, listed in the following hierarchy, to be supplemented (not contradicted) by:
Course of performance: perf. Of parties and what they do/dont do in the contract is relevant to determining
integration
Smith v. Rosenthal Toyota: if perf. Of agreement is conditional to orally stated condition, not fully integrated
in regards to that condition
Course of Dealing: What parties have understood certain terms to mean/what will be included (considered in
relation to all dealing)
Columbia Nitrogen v. Royster: CofD established that min. req. in contract was not meant to be literal min.
Usage of Trade: In whatever industry 2 parties are, allows what the industry standard is for terms
Gen. applies to terms parties can show would be assumed as being included
Ralphs v. AMF allowed P to show that exclusivity of distribution of snow mobiles was assumed industry
standard

Subsequent Modifications
Parties, after forming agreement, make changes/modifications and then disagree about what
those were
Opposing views under UCC whether writing reqs. apply to entire agreement (maj.) or only
proposed modified terms (min.)
Zemco v. Navistar
Contract extension must be in writing b/c over $500
Can make private agreement that all modifications must be in writing: UCC requires all mods of
quantity be in writing, NOM (No Oral Modification clause)
Party who wants to keep mod. can say that 2-209(4) means that modification is waiver of term of
the modified contract and they relied on that waiver
Analysis:

If no NOM clause/no writing, look at whether 2-201 requires a writing of the modified element
If still no, go to 2-209(4) and (5):
4: Modification can operate as waiver of that term
5: Party making waiver may retract waiver by reasonable notification received by the other party that strict
performance will be required of any term waived
Unless retraction is unjust b/c of reliance on the waiver
Hypo:

Buyer and seller contract in writing for the purchase and sale of 20,000 unites of plastic at $10 per unit. There is no NOM clause in the
writing. Two weeks before delivery is due, buyer telephones seller and asks for an additional 5k unites at the same price and seller agrees.
The seller later delivers only 20k. Buyer wants the additional 5k units.
Buyer has suffered a loss by not getting the additional 5k units
In this case, look at 2-209(3) meaning you must look at whether there was a writing under 2-201
There wasnt: under the majority view, you would need a writing to make an enforceable modification
Under minority view, would only need writing for the term attempting to be modified
But the quantity is what is being modified which, even under the minority view, would require it to be in
writing
Buyer is still not out of luck as you could argue that there was a waiver by the seller to that term
In this case, the buyer is requesting the change so is slightly complicated
How do we know that the seller waived anything?
Can look at whether the buyer relied, to their detriment, on the modification
Could say that the buyer had relied on the modification for the additional 5k units, and had suffered a
significant loss as a result of the failure to enforce the modification

Interpretation
Much of time, court hear both parties opposing views on interpretation of terms to determine
where ambiguity lies
Will consider
Contextual basis

Was offer interpreted so that too good to be true?

Industry standard
Purpose of Parties
Transaction as a whole
Reasonable, Lawful, Effective Interpretation
Generally the first analysis
Theories of Interpretation
Contra Proferentem
If question of what term means, will rule against the party who drafts contract b/c did not make it clear
Expressio Unius Est Exlusio Alterius (rare application)
If party gave examples but didnt include disputed term, court assumes drafter meant to exclude it
Ejudsdem Generis
If make a list, defense against this is inclusion of phrase the list is not limited to these items
Otherwise, court may assume list is exhaustive
Ultimately end up being very practical considerations of interp.
Frigaliment v. BNS
Interp. Of chicken was too ambiguous b/c could mean many things to industry (fowl, young chicken, etc),
offer was too good to be true under Ds interp., economics did not work for agreement if interp. Was as D
said it was
Latent Ambiguity
Raffles v. Wichelhaus
Ship name listed in contract actually name of two ships, each with different delivery dates. Both innocent
parties to mistake, no contract.
If seller knows about ambiguity, no longer an innocent party

Court will say contract formed but on terms of the innocent party (the buyer here)

Mistake: a belief not in accord with the facts

Unilateral
One party is mistaken
Mutual
Both parties are mistaken if neither assumes risk, no contract
Applies to unknown facts
LaFleur v. CC.-sprained toe/unknown preexisting condition
Mistakes must pertain to/be:
Basic assumption of the agreement/essence of agreement
Materially effects the agreement
Likely parties would not have formed agreement if mistakes were true
One Party should bear risk if:
Agree to bear the risk
Proceed with conscious ignorance
Nelson v. Rice: Agent told Nelsons she knew nothing about fine art, went ahead anyway
Allocating risk to party is reasonable says court
If Unilateral mistake, must require:
Effect is such that enforcement is unconscionable or;
Other party had reason to know of mistake/his fault caused the mistake
Speckel v. Perkins: agreement voidable b/c offer was inconsistent in its terms this is not a policy limit case,
heres the policy limit. Clerical error.

CISG:
Subjective (if know the intent)
Not an objective theory of contract like ours
Time for acceptance of offer-runs from date of letter, not date received
No mailbox rule
It is when the acceptance reaches the offeror, not when mailed
Firm offers
Irrevocable if it states a duration (No more formalities)
Uses the Last Shot principles
Not Statute of Frauds and no Parol Evidence Rule

Abuse of Bargaining Process/Agreements Against Public Policy

Improper Threats (includes physical and emotional duress)
Cannot threaten
Criminal prosecution
What is threatened is a crime or a tort
To use civil process in bad faith
To breach the duty of GF
Threats are:
An act that does not benefit the threatenor but only harms the threatee
Uses of power for illegitimate ends

Misrepresentation
An assertion/concealment not in accord with the facts
Can include not being as objectively confiendt in reality as the party asserts to gain assent of
the other party
Fraudulent:
When the misrepresentor intends to gain assent of the other party through its misrepresentation
Material:
When the misrepresentor should reasonably know the misrepresentation will gain assent of the other party
Either fraudulent or material, misrepresentations make contract voidable by party who was
misrepresented to

Undue Influence
Very narrowly crafted description of when somebody is under the domination of
somebody else or by their relationship they assume the person will act in accordance
with their welfare (and then they dont)
Sometimes b/w physicians and patients, older and younger (b/c of relationship of
trust)
Gives the innocent party the ability to avoid the contract
Third Party undue influence make contract void
Unless, other party to contract was unaware of 3 rd partys actions/acted in GF
and gave value to the contract or materially relied it

Duty to Read
For the most part, when you do not read an agreement you have agreed to the terms even if you
do not read them
Exceptions:
Parties must be aware that there is something to be read meaning that they must know they
should be reading
Magliozzi v. P&T: A written modification on a ticket or receipt handed to a delivery/low level employee does
not constitute a modification that should have been read by the other party

Standardized Contracts
Adhesion Contracts: Standardized contract prepared entirely by one party for the acceptance of
the other parties which, given the disparity in power b/w the two parties, must be
accepted/rejected on take it or leave it basis w/out bargaining

Quick and cheap but not always fair b/c no real negotiation
If there are hidden/technical language terms that a reasonable person could not understand, a
court will enforce what the consumer expected of these terms

Duty to Disclose
If the party knows that disclosure is necessary to prevent a previous assertion from being a
misrepresentation/fraudulent
Where disclosure would correct a mistake the other party is basing its agreement on and failure
to disclose is not in GF/Fair Dealing
there is no way for the other party to determine a material fact that is essential to induce the
other party to agree, the party has a duty to disclose that information
E.g. Seller knows that an apartment complex is being bought based on buyers knowledge that a
new commercial development is being built next door. Before sale, seller finds out through its
contacts that the commercial development is not going to be built. It may have a duty to
disclose this information to the buyer b/c it is not likely that buyer will know this information
even if he uses due diligence in trying to learn as much about the agreement as possible.

Unconscionability
One of the parties (typically a party of inferior bargaining power) was reasonably
unaware of a material, risk-shifting term which that party would not have normally
assented to and which had no reasonable way to acquiesce that term
Generally an adhesion contract with a hidden/technical term and with substantive
provision that are so unfavorable to one party that the court will not enforce it
Look at context of un-conscionability claim
Defense: Furniture contract, consumer would have to pay more if the lean on the furn.
was not part of the business model
Cannot force a contract on party through duress, cannot use reasonable misrepresentation to
get assent either
Germantown: Contract signed was voidable b/c insurance adjuster used duress,
misrepresentation to get assent by innocent wife involved in embezzlement scandal
Duress: If a partys 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

Good Faith
All UCC transactions require good faith

Illegal Bargains
When two parties are equally in the wrong, courts do not grant restitution to either party in pari
delicto
When one party may not be guilty of moral turpitude, the party not in the wrong may recover his losses
Requires more than mere knowledge of illegal purpose: have to facilitate the illegal purpose

Includes any contract made to commit crime or illegal act: will not be enforced by the court if
party is directly aware of illegal activity (if ambiguous, court might enforce)
A contract that is illegal at the time it is made, does not become enforceable if before suit is
brought, the law is changed in such a way as to validate similar transactions.
Contracts can be enforceable if they violate statutory requirements/licensing statutes if the
statute is only a business oriented one of economic convenience
If statute is regulatory, court weighs interest in enforcement of contract with the public policy of
the statute (bias towards enforcing promises)

Direct Restraint
These agreements are not enforceable (Contracts to directly restrain competition)

Ancillary Restraint
These agreements must be narrow in scope and the promisees need must outweigh the burden
to the promisor: time restrictions are case by case
Fine Foods v. Dahlan: Court held that new owners of a restaurant could enforce ancillary
restraint agreement that past owner of restaurant not work in food industry w/in 25 mile radius
of the restaurant: protected new owners need to keep old owner from infringing on its business
by taking good will of past clients
If court decides restriction is too burdensome, can lessen the restricting time frame/geography:
called BLUE PENCIL RULE

Marriage Contracts
Deal only with contracts in consideration of marriage

Gambling Contracts
Where gambling contracts are not legal, courts will leave the parties where they are

Conditions, Breach, and Repudiation

Conditions
An event that must occur before performance under a contract becomes due
If ambiguous, will usually just be a promise (or whatever interpretation avoids forfeiture)
Terms in contracts that do not benefit party that included it unless it is a condition (i.e. if it were
a promise, itd be no use), the court will almost always interpret it as a condition
Fire insurance requires recovering party to have 3rd party sign that there was no fraud. As promise, it does
not real good to have this term b/c breach is nom. As condition, it requires recovering party to establish no
fraud.
Condition Precedent: Condition must happen before performance begins

Event that Terminates the Duty (ETD)

Cambria v. Gross: Failure to get disability insurance would terminate Ds duty to pay for the
contracting work done on his home
Exceptions:
Occurrence of ETD is result of BF or unfair dealings
ETD not preventable b/c of impracticability of the duty and continuance of it would have subjected obligor to
materially increased burden
Before event occurs, obligors promises to perform duty even if the event occurs
Personal Satisfaction
Objectively reasonable standard, default rule
Commercial, industry standard default used
Subjective Satisfaction Standard
GF personal taste, aesthetic
Architect approval must be done in honest satisfaction, only assess in their expertise
If they die, use reasonableness standard
UCC: buyer may return conforming goods if sale on approval
Electrol v. CJ Kern: SC and GC contract stated increased work cost would be assessed by architect
Expressed/Implied Conditions
Express
Parties have manifested an intent that duty is based on occurrence of some fact/even
Implied
Created by actions of parties
Constructive conditions

If court, in interest of equity/justice, determines contract duty should be subject to a condition even though
parties did not manifest such intention
Imposed by court b/c parties do not think of everything, generally with respect to order of performances
(default rule is performances done concurrently)
Also default, performance that takes most time goes first

Divisible and Installment Contracts

Performance must be separable, agreeable pairs of part perf.
Parts of each pair must be agreed to as equivalents
UCC: Called installment contract
Delivery of goods in separate lots to be separately accepted
E.g. ordering 100 widgets for 12 months to be delivered monthly
If there is breach, does not invalidate entire contract, just breach with the non-conformity
But if breach of installment significantly devalues entire contract, can become whole breach

Breach
Total and Material breach
Injured party can withhold performance, terminate contract, and sue for damages (no time to
cure)
Material Breach
Injured party is deprived of benefit which it reasonably expected
Injured party can suspend performance, must then wait for breaching party to cure breach, then
sue for damages
Immaterial Breach
Injured party must perform but can sue for damages
Jacobs & Young: Failure to put in Reding Pipe in mansion was immaterial b/c pipe used was effectively the
same, inj. Party not deprived of benefit it expected
Material/Immaterial Analysis, all factors equal

Analysis: Injured party must show

Be deprived of benefit it expected
Show quantifiable loss
Whether the breaching party suffers forfeiture
Likelihood of breaching party to fix breach (cure)
Whether breach was in GF or BF
Analyze likelihood the injured party cannot find substitute for breached benefit
Material/Total and Material Analysis
If the party will be forced to wait for a cure, will they be particularly harmed and is timing
important to the parties/was it written in the contract
UCC:
If goods fail to conform to contract, buyer may reject whole, accept whole, accept commercial
units and reject rest
May be able to reject but not want to b/c it is expensive to reject
Nonconformity of good is not enough to, in itself, revoke acceptance
If seller breaches and there is time in the contract to cure, has an absolute right to cure
If not, may/may not have right to cure based on whether buyer reasonably wouldve accepted goods
Failure to reject after having reasonable opportunity to inspect constitutes an acceptance
Failure to cure gives buyer power to reject
Perfect Tender Rule in that buyer can reject goods for any nonconformity but rejection does not
terminate entire contract

Repudiation and Excused Conditions

Excusing conditions to avoid forfeiture
Benefit to the injured party in having condition is not outweighed by hardship placed on the
other party to meet condition

If there is a waiver (if imp. condition, must have sep. consideration for waiver: if not, no req. of
consid.)
If the party insisting on the condition acts as if the condition has been satisfied (even though it
has constructive knowledge it was not), the court will excuse the condition
Rohde: insurance co. knew the house might be vacant but issued fire insurance anyway, court will excuse
condition that house be occupied b/c insurance co. acted inconsistently with upholding the condition
Rose: Failure to get a title for the sale of land is a material condition to the contract, thus cannot be excused
If condition is material term of contract, cannot be waived w/out separate consideration
Breach of contractual condition of cooperation (BF)
Results in no duty by innocent party to perform
Repudiation
A manifestation by a party to a contract that he will not perform his contractual duty: generally
results in injured party not having to perform
Restatement: If a reasonable person thinks the repudiation indicates the other party will not
perform
Breaching party can retract repudiation unless
It causes material alteration of other partys position, no notice req.
Injured party tells repudiating party repudiation is final
Repudiation includes refusal to complete performance even if based on genuine mistake of contract duty
Repudiation of unilateral contract by performing party is not repudiation b/c contract does not
exist until performance is complete
UCC: Injured party can treat the repudiation as a contemporaneous breach
Uses reasonable person standard for repudiation
Adequate Assurances, only for UCC and long term commercial
If party has reasonable grounds for insecurity (insolvency does not count), party may demand
that other party give assurance that it will perform
Until assurance accepted, party does not have to perform (may suspend performance)
If assurance not sent w/in reasonable time (30 days for UCC), original party doesnt have to perform

Can be deposits, escrow accounts (reasonable and appropriate)

Scott v. Crown: Buyer of wheat had bad reputation, seller requested assurance but oral assurance was
enough

Risk Allocation
Impossibility
Taylor v. Caldwell: Performance hall burned down b/f performance could be completed,
performance is impossible: party allowed to breach
Always applies unless agreement explicitly states that one party assumes risk of impossibility of
contract

Impracticability
Transatlantic: Wheat going to Iran Is diverted around Cape of Good Hope b/c of Suez Crisis.
Going around is more expensive but not impractical and certainly foreseeable (shipper in better
position to buy war insurance)
Contingency must occur (unexpected event)
Risk of contingency not allocated to either party by agreement or custom (may be, e.g., given
custom of trade)
Occurrence of contingency rendered performance commercially impracticable
Court never allows a party to just get out of a bad deal
Force Majeure
Exculpable delay which seeks to excuse a party for various events beyond its control (Acts of Gd, fires, floods, war, etc.)

Frustration of Purpose
Party can still perform but reason it contracted is no longer valid
Only applicable when the drafters include in the contract, if the purpose of contract is no longer
valid, performance can be excused
Piper v. LOLFF: Purpose of sale of weaned pigs was for LOLFF to sell to a 3 rd party finisher. This
was included in contract. When 3rd party finisher stopped purchasing pigs through no fault of
LOLFF, LOLFF got out of output contract to buy Pipers pigs
King Jamess coronation: no reason to rent hotel room if Kings parade is not happening

Gross Inequity Clauses

In long term contracts, excuse party from performance if gross inequity from unusual economic
conditions that are not contemplated by parties at time of agreement occur

Remedies
Efficient Breach
Not legal term: where breaching a contract and paying the damages is cheaper/more efficient
than performing the contract
Generally overly simplified b/c doesnt take into effect transactional costs

Expectation Interest
Puts the breached party in the same position it would have been in if the breaching part had
completed the contract (req. contract)

Reliance Interest
Party wants the money it put in to the contract back (req. contract)
If party wouldve lost money on contract, court subtracts that loss from out of pocket expenses

Restitution Interests
Quantified benefit that the injured party conferred on to the breaching party is recovered (does
not req. contract, quasi)

Foreseeability limitation
Applies to expectation and reliance
There is a limit on damages to what the parties forming the contract would reasonably foresee
as a possible damage

Certainty Limitation
Courts move away from rule that business profits are not recoverable
Now require a strict presentation of evidence showing what lost potential profits were
Can always use reliance or restitution damages

Emotional Distress Limitation

Usually accompanied by an independent tort
Hotel/funeral situation

Bodily harm accompanies breach

Mitigation-avoidable consequences
If injured party could have avoided losses w/out undue burden, humiliation, or risk , those extra
losses will be subtracted from the damages awarded (reasonable, but unsuccessful, attempts
does not preclude recovery)
Like the employee who is wrongfully terminated and needs to go out and find some
new work (what they couldve found will be reduced from their damages against the
breaching employee)
UCC 2-715: damage recovery barred if injured party unreasonably fails to attempt to
cover

Liquidated Damages
Parties agree to how much will be paid if there is a breach
Court doesnt necessarily accept the agreement, analyzes context/reasonableness regarding
likelihood of loss
Lind Buidling: Court determined increased deposit of $250k was significantly unreasonable in
relation to contract for sale of land worth $9 mill b/c seller sold land for $1 mill. more than
original buyer was offering (suffered no real loss)

Lost Volume Seller

Seller cannot sell product that was supposed to be bought (but breached) and sue for damages
Analyze whether injured party will make the same profit from finding a substitute sale
(sometimes will or wont)

Construction Contracts
For owner breaches
Contract Price Cost of Completion = Builders Damages
Look at expectation damages by looking at injured party and determining what must be given to
make them whole
For builder breaches
Cost of cover, if more than original contract price (finding replacement builder) + remaining cost
of completion
Use diminution of value if there is substantial performance
Refers to decreased value of the property as a result of the material breach
If contractor has substantially performed and cost of contractor to repair their breach is really
large in relation to their damage, court will require them to pay difference of value of property
b/c of breach instead of damage equivalent to repairing their breach (Reding pipe case)

UCC Buyers Remedies

Cancel: Simply say contract is cancelled if seller repudiates/fails to ship goods or buyer rightfully
revokes acceptance (can recover price paid to seller)
Cover: Buyer may recover different in cost b/w contract price and cover price and
incidental/consequential damages
Hypothetical cover: Damages can be difference between market price of the good at time of
breach/repudiation and contract price
Sue for damages as difference b/w value of the good at time of contract and value of
damaged/flawed good (breach of warranty)

UCC Sellers Remedies

Resale: Seller may sell good for less than buyers contract price, damages will be the difference
If sell it for more, there are no damages
Hypothetical Resale: Same as buyers hypothetical
No consequential damages
Put in to position seller would have been in had they completed contract (includes incidental
costs)

Specific Performance
Not primary form of remedy, CISG it is
UCC allows SP when goods are unique, gives court leeway on dickered terms (price, damages,
etc), can include replevin

Third Party Beneficiaries

TPBS:
Incidental TPB does not have right

Intended TPB does have right to suit

Identify the Promisor, Promisee, and TPB
TPB must be intended in language of contract, must be identifiable group of persons
UCC:
TPBs include persons who are reasonably understood to be beneficiaries/affected by the goods
Modifications:
Promisor and promisee may modify duty to TPB if no term exists in the contract forbidding them
to unless:
The duty to the TPB in the contract forbids modification or discharge of the duty
Sues on the agreement
Materially changes his position/relies on the orig. agree.
If the promisee receives consideration for the modification which is ineffective for the benef.
TPB does not take away ability of original promisee to sue the original promisor for breach of
agreement
Defenses:
Promisors may assert any defense it would normally have against the promisee against a suing
TPB as long as the defense does not arise from a different contract b/w the promisor and
promisee (cannot use defense against TPB in cont. #2 it would use against promisee in cont. #1)
TPB can sue both the promisor and the promisee BUT CANNOT DOUBLE DIP/WIN TWICE

Assignments:
Transfer of rights, generally contractual rights (not a contract)
No consideration needed
Must be tangible/actual rights at time of assignment
Speelman v. Pascal: assignment of rights to royalties of Pigmalion was acceptable b/c even though play had
not been produced at time of assignment, the future right to royalties was a real right he could assign
Delegation is transfer of duties/obligations (Same as assignment under UCC and Rest.)

Usually, all rights and duties are assignable

Not assignable if assignment:
Materially alters the duty of the obligor
Increases the burden of risk/materially alters the chance that the obligor will receive the returning
performance
Performance must be with one particular person
E.g. contract to have a famous painter to a portrait cannot be assigned
Cannot assign right to damages
Is of partial assignments
Delegating a duty to one party does not mean the delegator is off the hook to the person who
had a right to the duty under the original agreement without the original obligees consent
Rosenberg v. Son: Delegation of duty to pay for a DQ is passed along to three subsequent buyers, all of
whom are still liable to the original seller for last buyers breach of payment on the DQ because obligee never
consented to discharge right of suit

Partial Assignment
If it is a risky assignment (obligor is unsure he will be forced to perform twice), obligor does
not have to allow assignment unless it there is court proceedings telling it to or if both parties
agree to it

Obligors defenses against the assignee

Whatever they have against the promisee including defenses against the promisee including
obligations from other contracts if those obligations occurred before the assignment (thus
assignee would be aware of them)

Article IX
There can be no limits on assignment of accounts receivable under Art. IX