Professional Documents
Culture Documents
7 Questions of Contracts:
2. Is there any reason that this agreement or promise should not be enforced?
6. How do courts enforce agreements OR what are the consequences when someone first makes an agreement
but then doesn't do what was agreed to do?
7. When do people who did not make the contract have either rights or duties under the contract?
Vocabulary
Correct use of vocabulary phrases is easiest way to create confidence in blue book and answer sheet
Seven Groups of Terms (difference between…)-
Agreement - Contract
Bilateral - Unilateral
Condition - Duty
Delegation - Novation
Expectation Interest - Reliance Interest
Impossibility - Frustration of Purpose
Parole Evidence - Statute of Frauds
A) Consideration
1) Define: Bargained for detriment/exchange - each party must give up a legal right and
must bargain for it
a. Restatement 71 –Requirements of Exchange, Types of Exchange
i. Defines consideration
b. Issues with Consideration:
i. Amount
ii. Forbearance
iii. Past Consideration
iv. Bargained For
v. Past Consideration
c. Can be an act, requested promise, forbearance
d. Restatement 81- Inducing Reliance
i. Explain
(a) Consideration must induce reliance
ii. Earle v. Angel - payment after death is sufficient (aunt paid for nephew to attend funeral)
iii. Hammer v. Sidway – giving up legal right (uncle – restrict lawful actions)
iv. Diamond Jim – fishing, wasn’t “bargained for” but was accepted
v. Klick Lewis – shooting golf
2) Amount of Consideration/Nominal
a. Adequacy is irrelevant UNLESS about two different sums of money
b. Investment – can be consideration (selling the land)
c. Ptaskis – inadequate but bargained for, contract acted upon by both parties
d. Fisher v. Union Trust – love and affection is not enough, must bargain (deed for $1, but father did
not pay the mortgage, dollar was not bargained for)
e. Schnell v. Nell –
f. Embola v. Tupula - Goldmine Plot of Land – investment in the land, even though inadequate,
acceptable, probable loss of money was not a loan (50 for 10,000)
4) Forbearance as Consideration:
a. Forbearance Rule [Duncan v. Black]
i. Must be done in good faith - must uphold part of bargain, AND
ii. Claim of forbearance must have some foundation
b. Restatement 74 (pg. 222) - REMEMBER THE "OR" "GOOD FAITH"
i. Forbearance is NOT consideration UNLESS
(a) Uncertainty, OR
(b) Good faith
ii. Exception – Written Tool
5) Past Consideration
a. Restatement 86 - Past Consideration (previously conferred) - IMPLY A PROMISE
i. A promise made in recognition of a benefit previously received by the promisor from the
promisee is binding to the extent necessary to prevent injustice
ii. A promise is not binding under subsection 1:
(a) If the promisee conferred the benefit as a gift or for other reasons the promisor
has not been unjustly enriched; OR
(b) To the extent that its value is disproportionate to the benefit.
8) Contract Modifications
a. Pre-Existing Legal Duty –
i. If modification is something that someone was already obligated to do, then this is not
consideration
b. UCC 2-209 - Modification of Contract for Sale of Goods –
i. No consideration needed
c. Accord in Satisfaction – getting around consid to modify contract
i. Elements:
(a) Bona fide dispute [good faith]
(b) Tender [of lower amount]
(c) Cash is checked or accepted [take payment]
(d) Dispute is settled
b. Restatement 89
i. Elements:
(a) No consideration for modification if unforeseen
(b) If fair and equitable under circumstances, AND
(c) Have not have not fully performed
B) Statute of Frauds
1) What is it?
a. Statute, each state has its own laws
b. Purpose - preventing people from coming to court and claiming that there was a contract
when there wasn't
c. If not satisfied - courts will not enforce a contract
2) Covered Under:
a. Marriages
b. Year
i. Services contract and transfer of land; "Theoretically Possible with Unlimited Resources" -
filled within a year; Task v. Time Period Term; Multi-year contracts are very difficult -
could pay in advance and problems arise;
ii. Must be theoretically IMPOSSIBLE to be completed in the year to be a part of
statute of frauds - must be MEASURED in time; 1 Year Lease - not within Statute of
Frauds => for real estate deals it is more than one year test;
iii. Hypo - agree to do a lecture 13 months later and date given for 3 hour lecture; because
the date was specified it is impossible for it to occur one-year later, do not have to work
straight through it's can it be completed within a year of contracting
c. Land
i. Transfer of an interest in land - to use or own; Easement to use the land that will be for 2
years (over a year)
d. Executor (doesn't really apply)
e. Goods - SALE OVER $500
i. Goods over the value of $500 - Uniform Commercial Code
f. Surety :
i. Transfer of a debt - standing for a debt; example: co-signing for a loan (promising to pay
debt if you can't)
v. Restatement 24 - Offer
(a) Defining the offer
(d) Reliance
(1) Offer has been Relied on in a way that is REASONABLE and FORESEEABLE
iii. When
(a) When is response NOT effective as an acceptance?
(1) Reasonable Time has passed
(2) Offeror - time/death/revoke
(3) Rejection: when Offeree indicates intent NOT to be bound, Kills the offer,
offer is off the table
(4) Indirect Rejection (3 forms):
o Counter-Offers
Response by offering new terms = rejection of original offer and
replacement of a new offer
DOES apply to sale of goods
o Conditional Acceptances
Material changes reject the offer ALWAYS an indirect
rejection
Leading words - "if... provided… but… so long as…"
DOES apply to sale of goods
o Additional Terms
Adding terms to the offer - no agreement, no acceptance of the
offer
When a response adds a term it is an INDIRECT rejection
(5) Mirror Image Rule – (not to sale of goods)
o Any change in the response, not an acceptance
(6) Deviant Acceptance Rule –
o Offer is terminated with the inclusion of new material terms
v. Cases
(a) Allied Steel v. Ford Motors – performance was reasonable acceptance of terms in the
contract regardless of the indemnification clause and failure to return – objective
c. Electronic Acceptance
i. Shrink Wrap Rule
(a) Accept the terms at usage
(b) Enforceable once terms clicked and accepted
(c) Unless terms or conditions are unjust, AND
(d) Can reject through return of product
ii. Pro CD - acceptance for electronic goods occurs at clicking to use software (2-207 does
not apply because terms are not being added), 2-204, acceptance is expressed by offeror
iii. Hill v. Gateway 2000 – contract was not formed until the terms were read, option to
return was sufficient to hold open ability to return
D) Certainty
1) Restatement 33
2) UCC 1-201
II) Defenses
A) Pre-Formation Defenses
2) Statute of Frauds
a. Failure to satisfy the statute of frauds
4) Mental Incompetence
a. Restatement Section 15 - Elements of Mental Incompetence...
i. By reason of [cause]
(a) Cannot understand the consequences of the contract, OR
(b) Cannot understand the consequences of the Act, AND
(1) Other party has a reason to KNOW [other party]
b. Contesting Mental Incompetence
i. Elements of contesting defense:
(a) No Knowledge of the condition, AND
(b) Contract done in fair terms, OR
(c) Because of performance or other factors, avoidance is unjust [basically one cannot
restore the status quo – probably get reliance]
9) Mutual "Mistake"
a. Elements:
i. Mutual belief in a mistake, AND
ii. Basic assumption on which the contract was made, AND
iii. Both parties know that the K is based on an assumption of the set of facts, AND
iv. “Whole Substance" of the Transaction [material effect on the transaction]
v. UNLESS parties did not "Assumed the Risk" -
(a) If the parties know of the risk but do nothing about it they have assumed it
b. Conscious Ignorance - as long as the parties are aware of a risk, and don’t do anything to
protect, one assumes the risk
c. Sherwood v. Walker - case about the thought about a barren cow; turns out that cow was fertile;
both parties thought the cow was barren - question of what the parties believed about the facts
of the case when the deal was made
d. Raffles v. Wichellhaus – mistake about the ship and timing, material mistake about definiteness
and court says that contract will not be enforced
e. Klick-Lewis – golf shot (consideration = publicity for right of shooting shot), granted because P
did not mistake and did not have reason to know that offer was not valid (work off his
knowledge)
b. In the inducement (real/actual fraud) = Statements about facts that are fraudulent that lead
you into a contract
i. Elements
(a) Misrepresentation (statement of fact that is not true - no mention of intent)
(b) Fraudulent OR About a Material Fact
(c) Justifiable Reliance
ii. Builder-Vendor Exception
(a) Any statement of fact will become a foundation for the contract and will be a
warranty
(b) Remedy - Expectations, put parties where they would have been if the contract had
been fulfilled
B) Post-Formation Defenses
1) Unforeseen Occurrences
c. Unconscionability
i. Factor Test (do not have to be equal but must meet 100%):
(a) Procedural Unconscionability -
(1) One side had greater bargaining power
(b) Substantive Unconscionability
(1) The contract/terms of contract are UNFAIR
(c) Issues to Decide Unconscionability
(1) Oppressiveness of K
(2) Unfair surprise
(3) Allocation of risks is unsubstantially distributed
(4) Gross disparity in consideration
(5) Evidence that stronger party knowingly took advantage of weaker party
(6) Presence of high pressure sales tactics or misrepresentation
ii. UCC 2-302 - Unconscionable Contract or Term
(a) Applies in ALL contracts, sale of goods and all others
iii. Always tested as of the TIME OF THE CONTRACT - where conditions are
"oppressive"
d. Cases
i. Walker v. Furniture- terms in the sale of furniture was unfair because all goods were
taken with failure to pay for one good
ii. Waters Case - drug abusing woman who sold annuity - unconscionable because boyfriend
was part of the deal and had greater knowledge and induced the sale
iii. Gateway - sale and service was not unconscionable BUT the requirement that disputes in
Int'l Arbitration Commission were unconscionable
(2) Subsequent - something that happens "later" that gets one out of
impending deal
o Unless… [something happens]
o Must be proved by party trying to get out of the contract or trying to
say should not perform
c. Time Conditions
i. “Time is of the Essence” – if expressive, makes time in contract extremely important -
strictly construed
ii. Implied – court will assume reasonableness
iii. Boiler plate – allowable unless dropped through Adhesion or Battle of Forms
iv. Real Estate – generally court will be more reasonable to remedy reasonable defects for
performance
d. Illusory Conditions
i. Unfettered discretion - makes a condition illusory
ii. "Satisfaction" we fall into Omni case and we fall into good faith and whether possible to
objectively measure
(a) Objective Standard – all else
(b) Subjective Standard – fancy/taste
f. Payment Disputes
i. In payment disputes, if a check is cashed for an amount (no matter if condition of “not
satisfied” is written) – the dispute is settled over the sum owed
ii. Marton Remodeling – cashes check with reservation written, not acceptable
d. Cases
i. Ziehen v. Smith - Both parties don’t show up, and buyer sues for breach; duty to perform
only arises if one party shows up; conditionality - b/c performances are conditioned;
breach will only occur if one party shows up
(a) Buyer argues that she was ready but seller was not - COURT SAYS seller's inability
is not an impossibility (she could have just paid off the mortgage), had to show up
to see if she actually satisfied the condition, but since buyer did not show up, no
possible breach
e. Performance in Lots
i. If can be delivered in lots or group, can split
f. Constructive Condition
i. This is an IMPLIED CONDITION - Court PRESUMES REASONABLENESS - court
assumes performance is complete performance
ii. For implied relationship, need only reasonably substantial completion for performance,
but must "satisfy the central purpose of a contract"
iii. Cutting performances into pieces -court may imply separate performances when ...
(a) Different Prices - Parties chopped it in 2 pieces with price
(b) Parties Knew the Difference - Factually parties knew there would be different
kinds of performance
(c) Performanes were Actually Different
(d) Tipton v. Feitner - sale of pigs, some dead now, live were supposed to come later -
didn't and court split so payment was necessary on first performance
iv. Whether house is "habitable" - can someone live in a house, then substantial enough
(a) If it's close enough - there is STILL A BREACH, get expectation interest; put at
place where would have been if promise had been fulfilled
v. If not substantial performance => becomes condition where not satisfied
(a) If homeowner says
(b) Restitution Claim - because party can seek RECISSION (voiding a contract)
vi. Non-Substantial Performance = Material Breach
(a) Breach is material and party has a right to rescind
vii. Material Breach (non-substantial performance) –
(a) So undermined the relationship that takes away the purpose
III) What is in the Contract?
A) Implied Warranty
1) UCC 2-314 - Implied Warranty of Merchantability
a. Element:
i. If seller is in business of selling goods of this kind then UCC will tell us that goods are fit
for ordinary use
b. The person must be in the business of selling what is being sold of goods of that kind
B) Misunderstanding in Definiteness
1) Restatement Section 20 - Effect of Misunderstanding
a. No mutual assent if parties attach materially different meanings to their manifestations and
i. Neither party knows or has reason to know the meaning attached of others (equally
ignorant)
ii. Each party knows or each party has reason to know the meaning attached by others
(equally knowledgeable)
b. Manifestation is operative the meaning if ONE
i. Party does not know of any different meaning attached by the other, AND the other
knows the meaning attached by the first party; OR
ii. That party has 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
5) Cases
a. Mundy v. Lumberman’s Mutual Insurance – silver 1000 stolen and not covered under change
in claim – court says that the print was readable and so it was integrated and PER in effect
b. Weisz v. Parke-Bernet Galleries – warranty disclaimer on front of handout, accepted because
displayed prominently
XIV) Breach & Remedy
A) Basics - K formed, one party did not perform, question becomes - how did a court respond?
B) Breach
1) Expressed Conditions (strictly construed - "time is of essence")
2) Constructive Conditions
a. Order of Performance
i. Who must perform first?
b. Breach Options:
i. Material Breach
(a) Define: Non-substantial performance
(b) Breach is SO great that non-breaching party can sue for TOTAL breach
ii. Partial Breach –
(a) Define: Non-Material Breach
(b) If close, still breach, but other party must perform, but will have damages claim
against
i. Real Estate - always get specific performance because it's the land or real estate that is
desired (societal connection – not able to be “valued” – must have the piece)
iii. Covenant Not to Compete – addition to contract that precludes a party from
competing; contract to be treated on own
(a) Judges have started to put regulations on these covenants:
(1) Could not be excessive (invalidation)
(2) Blue-Pencil
(3) Limited Enforcement
(4) Enforce Covenant but Only to Reasonableness
o Reasonableness for Covenant (harm):
Geography
Length (2 yrs)
Extent of Market of Employer
Administerability
Scope
(5) Basis: must have consideration – new contract when employee-at-will
(continued employment with us is MOMIB)
(6) Defenses:
o Good Faith (employment at will, no good faith needed)
o Consideration
o Adhesion
iv. Sale of Goods - only used if the goods are "unique" (works of art, antiques, custom
made)
v. Not Possible (too much harm/stress) – court will not order specific performance
when something is so severe that court feels uncomfortable about it
f. Restatement 360
i. Adds whether party will be able to collect to determine
5) Cases:
a. Van Wagner v. S&M Enterprises – will that damages be adequate, reluctant to require specific
performance
1) Punitive Damages - not recoverable for breach of contract, damages designed to punish
2) Compensatory Damages - giving money to compensate for breach
3) Liquidated Damages - contract provision that sets the amount of damages (listed in contract)
a. Pacheco Test for Liquidated Damages – Element Based:
i. Damages must be difficult to predict at time contracting in estimating, AND
ii. Amount must be reasonable in light of what parties expected to happen
b. Restatement Section 356 – Factor Based (foreseeability & reasonableness):
i. Damages for breach of either party may be liquidated in agreement but only at an amount
(a) That is reasonable in the light of the anticipated damages OR
(b) Actual loss caused by the breach
ii. And difficulties of proof of loss.
iii. A term fixing unreasonably high damages is unenforceable on grounds of public policy of
penalty
b. Reliance Interest (value spent)- putting P in the same position as if there never had been a
contract, compensating P (non-breaching party)
i. Restatement Section 349
(a) Alternative to expectation, injured party may recover reliance interest, including
expenditures made in preparation of performance, less any loss that party in
breach can prove with reasonable certainty the injured party would have suffered
had the contract been performed
(b) Possible to maintain "incidental reliance" - costs incurred by relying on contract
ii. Notes about Rest. Sec. 349
(a) Proving losses avoided by breaching the contract may show that reliance recovery
is completely diminished by avoidance
(b) Typically the “expenses incurred in the performance of the contract”
(c) Expenses must be REASONABLY FORESEEABLE for recovery
iii. Example of Reliance Interest
(a) i.e. franchise with McDonalds for $100,000 to build a restaurant. P then builds an
arch over building in preparation - reliance interest is for 7000 because wouldn't
have built arches, expectation would be $0.00 because no economic loss because
of breach
iv. Cases
(a) Chicago Coliseum Club v. Dempsey – Court does not allow Coliseum to recover $
spent in procurement of contract, does allow reliance money spent in changing the
(b) Security Stove & MFG v. American Ry Express -
d. Calculation
i. +Net Expectation (profit)
(a) Profit = Income - costs
(b) What goes into costs? Fixed Costs NO - Variable Costs relating to specific K -
YES
ii. +Wasted Reliance
(a) money spent in performing under the contract (before and up to the breach) - cut
by mitigation doctrine
iii. +Other Losses (Consequential Damages)
(a) other damages that were not part of the specific contract language
iv. -Less Benefits
(a) any benefits that occurred as a result of the breach (must be reasonably
foreseeable under circumstances)
e. Calculation Notes
i. All damages must be: caused, unavoidable, foreseeable, and reasonably
calculated - issues arise with new businesses
(a) New Businesses - issues of good faith/bad faith will be considered, may use
expert analysis to determine damages
ii. Damage Recovery –
(a) Expenses incurred BEFORE the contract – depends…
(1) If the expenses are REASONABLY foreseeable – recoverable
a. Caused –
i. Define: Must show with reasonable certainty the damages were caused by the breach
ii. Damages must be proved with REASONABLE CERTAINTY - question of fact
iii. Must prove that damages occurred
iv. Hawkins - very difficult to prove the value of a perfect hand
ii. To recover for consequential damages, the damages must have been foreseeable at the
time the contract was entered into - foreseeable BY THE DEFENDANT
v. Cases:
(a) Hadley v. Baxendale - mill in small village in England and no one could fix the
machine so had to transfer shaft to another village. Issue was damages in shipping
shaft to other area, should lost profits be included? Hadley, the mill worker, wants
to recover loss profits, court says that the lost profits of mill were not foreseeable
(1) Net Expectation = cost of 1 say shipment (where would have been) - 7 day
shipping (where party is)
(2) Remoteness of Damages
(b) Victoria Laundry - company told engineer manufacturers they were responsible even
though they didn't have experience. Court says objective standard of the parties
involved.
IS there a contract
Is there a defense
Are they obligated to perfrom
Is there a breach?
Whats the remedy.