Fall

Fall

Burk-Contracts-2014

University of North Carolina School of Law

08
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I.

FORMATION OF CONTRACT (R2K 1: Contract

Defined)
A promise or set of promises + Enforcement
a. Determining Mutual Assent (R2K 18)
i. Manifestation of mutual assent to an exchange
requires that each party either make a promise or
being or render a performance
ii. RULES
1. R2K 2: Promise(a), Promisor(b), Promisee(c),
Beneficiary(D)
2. R2K 3: Agreement Defined; Bargain Defined
3. R2K 19: Conduct as Manifestation of Assent
4. R2K 21: Intention to be Legally Bound
5. R2K 22: Mode of Assent: Offer and Acceptance
a. The manifestation of mutual assent to an
exchange ordinarily takes the form of an offer or
proposal by one party followed by an acceptance
by the other party or parties
b. A manifestation of mutual assent may be made
even though neither offer nor acceptance can be
identified and even though the moment of
formation cannot be determined

iii. Occurs in the form of an offer and an acceptance

iv. Both must outwardly manifest consent
v. Contemplating alterations to the agreement does not
affect original agreement
vi. It can be an understood agreement prior to it
becoming written
vii. CASES
1. Lucy v. Zehmer: Intent thats not manifested to
the other party is irrelevant. (R2K 16 Drunk
Enough)
2. Leonard v. PepsiCo: An offer that the offeror
manifests as not to be a serious, means offeror
does not give power of acceptance to an
offeree
3. Gleason v. Freeman: If the written words leave
the partys intent unclear, then consider the
broader context of the situation, actions, and
conduct of the parties.
viii. OBJECTIVE THEORY: What a reasonable person would
think based on all the facts and circumstances.
1. Once a contract is formed, you cannot take it
back
2. Party claiming contract formation is the person
of a reasonable person

3. FAIRNESS EXCEPTION: If facts show that the party

claiming contract formation had a subjective view that
conflicts with the objective test, the objective test is
disregarded.

b. Offer (R2K 24)

Intent + Definite Terms
i. A promise by one party, made to another party, to do
or not do something in the future, contingent upon
the other partys acceptance
1. Be communicated
2. Indicate a desire to enter into a contract
3. Be directed at some person or persons
4. Invite Acceptance
5. Create a reasonable understanding that upon
acceptance a contract will arise
ii. Intent to enter into a bargain via words that express
intent to be bound.
1. Definiteness in (a) subject matter, (b) price, (c)
quantity
iii. RULES
1. R2K 26 + b,c,d: Preliminary Negotiations
2. R2K 27: Existence of Contract Where written memorial is
Contemplated
3. UCC 1-201(b)(3) Agreement Price Quote can be an
offer.
4. UCC 1-201(b)(12) Contract
5. UCC 2-102 Scope
6. UCC 2-105(1)-(2) Definition of Goods
7. UCC 2-106(1) Defines Contract for Sale, Sale, Present
Sale
8. UCC 2-204: Formation in General

iv. CASES
1. Lonergan v. Scolnik (Joshua Tree): Invitations to
negotiate, to deal or that are preliminary are
NOT offers.
a. If the promisee knows or has reason to
know that the promisor does not intend it
as an expression of his fixed purpose
until he has given a further expression of
assent, the promisor has not made an
offer.
2. Lefkowitz v Minneapolis Surplus Store (offered
sale man wants to purchase store claims sale
only for women): When an advertisement is
clear, definite, and explicit, and leaves nothing

open for negotiation, it constitutes an offer,

acceptance of which will complete the contract.
3. MD Supreme v. Blake (Subcontract accepts
with email of guaranty): A guaranty of a certain
product at a certain price for a specific duration
constitutes an offer capable of acceptance.
c. Destroying the Offer (R2K 36)
i. Rejection (R2K 38)
1. An act by the offeree to terminate offer.
2. Effective upon reciept
3. Counter-Offers (R2K 39) = Rejection + New
Offer
a. Terminates original offer and suggests
knew one offeree becomes offeror
4. Negotiations by inquiry is not a rejection
ii. Revocation
1. By communication from offeror received by
offeree (R2K 42)
2. Effective only upon receipt by offeree
3. Indirect (R2K 43)
a. The offeree learns from someone other
than the offeror that the offeror is not
longer interested in the deal
4. CASES
a. Dickinson v. Dodds (Dickinson learns that
Dodds has sold property that was offered
to him.): Indirect Revocation. 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.
iii. Lapse (R2K 41)
1. Remains open for a reasonable amount of time
2. If offer is face-to-face it expires after walking
away.
3. CASES
a. Minnesota Linseed v. Collier White Lead
(shifting industry prices timely
acceptance required): A contract is not
formed where the delay between the
offer to form a contract and the
acceptance is unreasonable in light of the
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time contemplated by the parties. Lapse

is based on the objective theory.
i. Usage of Trade Common in trade
ii. Course of Dealings Common
between offeror and offeree
iii. Nature of the Contract
iv. Supervening Incapacity (R2K 48)
1. The offer terminates automatically and without
regard to whether the offeree was notified or
aware of the death (or incapacity)
2. Does not apply after acceptance
v. Destruction of the Subject Matter
d. Preserving the Offer Options (R2K 25) REFER TO
DIAGRAM
An irrevocable offer
i. OPTION CONTRACT (R2K 87)
1. Binding 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 by
statute.
2. Reliance if offeror should have reasonably
foreseen that offer would induce reliance by
the offeree prior to acceptance, and such
reliance occurs, then it may be irrevocable to
the extent necessary to avoid injustice
3. CASES
a. Ever-Tite Roofing v. Green: Partial
performance invokes option contracts i.e.
irrevocable. (R2K 41)
i. (A contract may be created by
acceptance within a time frame
specified by the offer, or if no time
is specified, within a reasonable
time)
ii. FIRM OFFER (UCC 2-205)
1. By its terms gives assurance that it will be held
open is not revocable, for lack of consideration,
during the time stated or reasonable time
2. Cannot exceed three months
3. By Merchant, or individual with knowledge or
skill attributed to occupation
4. Facilitates exchange between merchants and
the written aspect helps (a) insure theres

durable proof, and (b) channels & solemnizes

the parties intent.

iii. RULES
1. R2K 37: Termination of Power of Acceptance Under
Option Contract
2. UCC 1-205: Reasonable Time; Seasonableness
3. UCC 2-104(1): Defining Merchants (option contract for
merchants)
iv. CASES
1. Eastern Michigan Univ. v. Burgess: A lack of

consideration renders a contract unenforceable

under common law, even where the party
seeking to avoid the contract has
acknowledged receiving consideration.
2. Beall v. Beall (farmhouse dispute): If options
not binding b/c shown to lack consideration,
the offer still stands for reasonable time period
a. If a purported option agreement is not
supported by consideration, it is deemed
to be a mere offer, which the offeree can
specifically enforce if the offer is
accepted before it expires or is otherwise
revoked.
e. Modes and Methods of Acceptance (R2K 22)
Manifestation of assent (reasonably viewed as assent) to
the terms of the offer made by the offeree in a manner
[permitted] invited or required by the offer -- The parties
know best!
i. Assent must be voluntary and unequivocal
ii. Offerors Control Over the Manner of Acceptance
1. Offeror dictates terms on the assumption that
he knows best how to make the deal work
efficiently
2. Acceptance must conform to any and all
requirements specified in the offer
3. Offeror is King, and therefore, should not be
forced to deal on terms other than those she
has specified.
iii. RULES
1.
2.
3.
4.
5.

R2K 29: To whom an Offer is Addressed

R2K 30: Form of Acceptance Invited
R2K 32: Invitation of Promise or Performance
R2K 50: Acceptance of offer, by performance, by promise
UCC 2-204: Formation in General
a. Contract. May be made in any manner sufficient
to show agreement, including conduct by both

parties which recognizes the existence of such a

contract
b. Agreement. Sufficient to constitute a contract for
sale ay be found even though the moment of its
making is undetermined
c. 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
d. UCC 2-206: Offer and Acceptance in Formation of
Contract

iv. When is Acceptance by Promise Effective? (R2K 56)

1. Offeree exercises reasonable diligence to notify
the offeror of acceptance (dispatch), OR the
offeror receives the acceptance seasonably
(receipt)
2. MAILBOX RULE (S&H 14-16) (R2K 63(a))
Unless the offer prescribes to the contrary, an
acceptance sent by a reasonable means is
effective on dispatch (not receipt)
a. Since the offer was made by mail, the
offeror had impliedly authorized
acceptance in the same manner.
b. Necessary to allocate risk
c. Only valid when dealing at a distance
and not instantaneous
d. Acceptance is effective upon proper
dispatch via authorized means
3. Unilateral Acceptance by return promise is
REQUIRED
4. RULES
a. R2K 40: Rejection or Counter-Offer Terminates the
Power o f Acceptance
b. R2K 63: Time When Acceptance Takes Effect
c. R2K 65: Reasonableness of Medium of
Acceptance
d. R2K 66: Acceptance Must Be Properly Dispatched
e. R2K 67: Effect of Receipt of Acceptance
Improperly Dispatched
f. R2K 68: What Constitutes Receipt of Revocation,
Rejection, or Acceptance
g. UCC 1-202: Notice; Knowledge

5. CASES
a. Hendricks v. Beehee (Smiths do not
communicate acceptance prior to
revocation): An uncommunicated intent
to accept is not acceptance.
b. Adams v. Lindsell (Mailed incorrectly):
During the time of travel, a letter is
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considered a binding offer and then

completed by the acceptance by the
other party
i. WHEN: Dispatch/Mailbox Rule +
Manifestation of Assent
c. Solodau v. Organon (fetching letter out of
mailbox): Mailbox Rule
i. HOW: Once the letter is out of the
Offerees possession w/ the intent
to manifest assent = acceptance
v. When is Acceptance by Performance Effective? (R2K
54)
1. Valid upon completion of performance
a. If offeree learns of an offer after hes
rendered partial performance, then he
may complete performance to accept
offer.
b. If offeree learns of an offer after hes
rendered complete performance, then he
may NOT accept offer.
2. No notification is necessary unless explicitly
stated
3. If offeror cannot learn of performance:
reasonable diligence to notify, reasonable time,
notification is not required
4. Bilateral Acceptance by performance is
REQUIRED
5. Part performance = option contract (R2K 45)
6. RULES
a. R2K 51: Effect of Part Performance Without
Knowledge of Offer
b. R2K 62: Effect of Performance by Offeree Where
Offer Invites Either Performance or Promise

7. CASES
a. Marchiondo v. Scheck (broker had 6 days
to find buyer had actively pursued
buyer, seller revokes morning of 6th day)
Partial-Performance with a (unilateral)
leads to a contract with a condition.
b. Carlil v. Carbolic Smoke Ball: If the offeror
invited performance as a means of
acceptance, part-performance will suffice
to form an option contract until complete
performance is rendered
vi. Acceptance by Silence or Inaction (R2K 69)
1. Silence cannot constitute an acceptance
2. Acceptance ONLY when
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a. Offeree takes the benefit of offered

services with reasonable opportunity to
reject them and reason to know that they
were offered with the expectation of
compensation
b. Offeror has state or given the offeree
reason to understand that assent may be
manifested by silence or inaction and the
offeree in remaining silent and inactive
intends to accept the offer
c. Because of previous dealings or
otherwise, it is reasonable that the
offeree should notify the offeror if he
does not intend to accept
3. Offeree exercises dominion over offerors
property (An offeree who does any act
inconsistent with the offerors ownership of
offered terms unless they are manifestly
unreasonable. But if the act is wrongful as
against the offeror it is an acceptance only if
ratified by him.)
f. Imperfect Acceptance (UCC 2-207) REFER TO CHART
i. Acceptance with additional or different terms
(Rejecting Mirror Image rule)
1. With Additional Proposals = Adds new or
different terms (but not conditioned)
2. With Conditional Terms = Counter-Offer
(rejection + new offer)
3. A term is neither additional nor different if it is
negotiated on between the parties.
ii. Mirror Image Rule under common law,
acceptance must be coextensive with offer and
cannot introduce new terms and conditions
iii. GATEWAY: A definite and seasonable expression of
assent shall constitute acceptance even though it
contains additional or different terms
iv. CONDITIONAL vs UNCONDITIONAL: If the offeree
makes explicit that her assent is expressly made
contingent on the offerors further assent to the
additional or different terms contained in the
acceptance there is no contract
v. ADDITIONAL TERMS are proposals that only become
part of the contract upon the assent of the offeror.
vi. AGREEMENT BY CONDUCT: If contract was not formed
under 2-207, but the parties conduct nevertheless
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demonstrates that some contract does exist, then

the terms of that contract consist of the terms on
which the two writings agree and such other terms as
are supplied by UCC Gap Fillers
vii. DIFFERENT TERMS
1. Knockout
a. Both terms drop out of the contract
b. Majority option
2. FallOut
a. The offerees drop out
3. FadeOut
a. Treat like additional terms
b. Only if they dont materially alter the
contract
viii. CASES
1. Gresser v. Hotzler (contract alterations):
Changes dont invalidate an acceptance IF
theyre minor because they dont substantially
alter performance obligations.
a. No detrimental reliance = No equitable
estoppel
2. Dorton v. Collins & Aikman Corporation
(Carpetmart): UCC 2-207 only applies to an the
acceptance which is clearly predicated on the
offerors assent to the altered agreement Not
implied
3. Klocek v. Gateway (terms in box): 2-207 does
NOT only apply to instances with 2 forms; can
include a discussion and a form. Nonmerchants require expressed assent. The
purchaser is the offeror. Clickwrap
a. Hill v. Gateway (opposition) Probusiness, finding that 2-207 doesnt
apply to disagreements wit just one form,
and buyers knew or should have known
that there would be additional terms b/c
its how companies have to do business.
Acontract doesnt need to be read to be
effective. K in a box is valid for both
merchants and non-merchants.
g. Electronic Acceptances
i. Assent must effectively be manifested
ii. CONSIDERATIONS

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1. Whether a valid contract was concluded

between computers involving electronic
signatures and records
2. If a valid contract was formed by electronic
commerce, when was it formed?
3. If a contract was formed What are the terms?
iii. Under the UCC a parties initials or letterhead may be
sufficient.
h. Deficient Agreements
i. Misunderstood, Incomplete and Indefinite Terms
1. Applies when each party agrees to the same
term but attaches a different meaning
2. Effect of Misunderstanding (R2K 20)
a. There is no manifestation of mutual
assent to an exchange if the parties
attach materially different meanings to
their manifestations and
i. neither party knows or has reason
to know the meaning attached by
the other; or
ii. each party knows or each party has
reason to know the meaning
attached by the other.
b. The manifestations of the parties are
operative in accordance with the
meaning attached to them by one of the
parties if
i. 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
ii. 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.
ii. Indefinite Agreements Objective Test
1. Parties have made an agreement but we
cannot discern what theyve agreed upon
2. Quasi Contract Imposes a contract even
though the parties did not make one
3. Quantam Merot What was earned (services)
4. Quantum Valeba(n)t What something is worth
(goods)
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5. CASES
a. Raffles v. Wichelhaus (Ship: Peerless): No
mutual assent IF both parties attach
materially different meanings and (a)
neither party realizes or (b) both parties
realize
b. Varney v. Ditmars (architect and
draftsman): Indefiniteness can cause a
contract to be so unclear that its
undeterminable what the agreement was
= not enforceable
iii. Postponed Agreements
1. Leaves term(s) to be agreed upon at a later
date. If cannot agree, no contract.
2. Modern View Courts willing to supply terms
3. RULES
a. R2K 27: Existence of Contract Where Written
Memorial Is Contemplated
b. R2K 33: Certainty
i. (2) The terms of a contract are reasonably
certain if they provide a basis for
determining the existence of a breach and
for giving an appropriate remedy
c. R2K 34: Certainty and Choice of Terms; Effect if
Performance or Reliance
d. UCC 2-305: Open Price Term

4. CASES
a. Walker v. Keith: If the parties did not
agree upon such an unequivocal item or
upon a definite method of ascertaining it,
then there is a clear case of nonagreement
i. Agreement to Agree
ii. Dissent: Could be clear enough for
a postponed agreement
b. Moolenar v. Co-Build Cos. (Mrs. Correa
and the Shepard): Fair Market value is
specific enough for a postponed
agreement.
c. CDC v. Antonell (Christmas time architect
bonus): Act in good faith.. Courts will try
to find a contract binding and void as
little as possible.

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II.

CONSIDERATION AND ITS SUBSTITUTES

Something of value given in exchange for something else
To be supported by consideration = A promisor receives
something of value in return, that is bargained for.
a. Bargain and the Legal Concept of Consideration
i. Bargained-For (R2K 71)
1. Required of consideration
2. Doctrine of Consideration only promises
supported by legal consideration are legally
binding, even if the promisor intends to bind
himself by his promise
a. Given in return for some benefit rendered
to the promisor (Good Consideration)
b. The promise incurs a detriment by
reliance upon it (Good Consideration)
3. Cases
a. McCormick v. Dressdale A promise to
give up claims is not consideration unless
there is a good reason to be true or the
claimant honestly believes the claim to
be true.
b. Reed v. NDAD When a party signs a
waiver in exchange for something of
value, the waiver is supported by
consideration.

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i. Did Reed have a choice to

participate? Was good
consideration given?
ii. Consideration and Family Agreements
1. One purpose of consideration is to distinguish
between gratuitous and non-gratuitous
promises
2. TEST
a. What is the promise whos enforceability
is at issue?
b. What consideration supports the promise
(what did t he promsisee give/give up)?
c. Is that legally recognized consideration?
d. Was it a bargained-for exchange?
e. If not, is there something else that
makes the promise enforceable?
3. Rules
a. R2K 71: Requirement of Exchange; Types of
Exchange
b. R2K 72: Exchange of Promise for Performance
c. R2K 73: Performance of Legal Duty
d. R2K 74: Settlement of Claims
e. R2K 79: Adequacy of Consideration; Mutuality of
Obligation

4. Cases
a. Kirksey v. Kirksey (widow moves in with
brother-in-law) Distinction between
bargained-for exchange and a gift w/
conditions.
b. Hamer v. Sidway ($5,000 to not drink,
gamble or smoke) Consideration can be
either a benefit to the promisor or a
detriment to the promise.
c. Scbnell v. Nell (wife dies and promises
money to other people, husband agrees)
A mere promise is not a bargained-for
exchange. Nominal Consideration.
iii. One Promise As Consideration for Another Promise
(The Problem of the Illusory Promise)
1. Illusory Promise A promise that includes an
apparent commitment but actually leaves the
promisor with a free way out.
2. Mutuality of Obligation AN exchange of
promises typically creates a binding contract,
with each partys promise constituting the
consideration for the other partys promise

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a. When a real promise is exchanged for an

illusory promise neither promise is
enforceable
i. Illusory promise is not enforceable
because its not real
ii. Promises based on condition that
cannot occur = illusory
iii. If a good faith effort is not exerted
to complete consideration, the
inability to obtain it, does not avoid
liability for breach for promise.

3. Rules
a. R2K 75: Exchange of Promise for Promise
b. R2K 76: Conditional Promise
c. R2K 77: Illusory and Alternative Promises

4. Cases
a. Hooters of America Inc. v. Phillips With
the power to modify the promise, unless
there is some check on that power, the
promise is illusory.
iv. Consideration and Contract Modification
1. Modification of Executory Contract (R2K 89)
a. Modification prior to complete
performance is still binding IF
i. The modification is fair and
equitable in view of circumstances
not anticipated by the parties when
the contract was made OR
ii. To the extent that justice requires
enforcement in view of material
change of position in reliance on
the promise
2. Rules
a. R2K 73: Performance of Legal Duty
b. R2K 72: Settlement of Claims
c. UCC 1-304: Obligation of Good Faith ALWAYS
RELEVANT
d. UCC 2-209: Modification, Rescission and Waiver
i. (1) An agreement modifying a contract
within this article needs no consideration
to be binding
ii. Allows contract modification without
consideration if there is an observance of
reasonable commercial standards of fair
dealings
1. (Comment 2 Test of Good Faith)

3. Cases

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a. Alaska Packers Assn. v. Domenico If

there is a preexisting duty to perform or
promise, it cannot be used as
consideration old consideration new
consideration
b. Angel v. Murray (allows modification of
trash collection contract) Enforces a
voluntary modification if:
i. (1) the promise modifying the
original contract was made before
the contract was fully performed on
either side,
ii. (2) the underlying circumstances
which prompted the modification
were unanticipated by the parties,
and
iii. (3) the modification is fair and
equitable (adequacy of exchange
objective test)
b. Moral Obligations (Substitute for Consideration)
Promise to Pay for Something That Happened Before The
Promise
i. Unenforceable Obligations
1. Debt incurred by minor
2. Debt past the statute of limitations
3. Debt discharged in bankruptcy
ii. Material Benefit Rule
1. A promise made in recognition of a benefit
received is binding to the extent to prevent
injustice (R2K 86)
2. EXCEPTIONS
a. Gift
b. Promisor was not unjustly benefitted
c. To the extent that its value is
disproportionate to the benefit.
iii. Rules
1. R2K 82: Promise to Pay Indebtedness; Effect on the
Statute of Limitations
2. R2K 83: Promise to Pay Indebtedness Discharged in
Bankruptcy
3. R2K 86: Promise for Benefit Received
4. R2K 87: Option Contract

iv. Cases
1. Harrington v. Taylor (Woman saves mans life,
man offers to pay her) Saving a life is past
consideration
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2. Mills v. Wyman (Promise to pay man for caring

for son) Moral obligation is sufficient
consideration for an express promise
3. Webb v. McGowin (Sees accident and prevents
it and gets hurt) - Moral obligation is sufficient
consideration where the promisor has received
a material benefit, although there was no
original duty or liability resting on the promisor.
c. Reliance and Promissory Estoppel (Substitute for
Consideration)
i. Contemporary Application of Estoppel
1. Estoppel
a. A right arising from acts, admissions, or
conduct which have induced a change of
position in accordance with the real or
apparent intention of the party against
whom they are seeking enforcement
from
2. Equitable Estoppel
a. The effect of the voluntary conduct of a
party whereby he is absolutely
precluded, both at law and in equity,
from asserting rights which might,
perhaps, have otherwise existed, either
of property, of contracts or of remedy
3. Promissory Estoppel
a. (1) A promise that can (2) reasonably be
expected to and (3) does induce action or
forbearance by promise to the (4)
promisees detriment is (5) enforceable
to the extent to avoid injustice.
b. Enforceable to the extent to avoid
injustice, stops a party from denying a
promise is not enforceable
i. The defendant made an
unambiguous promise to her
ii. She relied on that promise
iii. Her reliance was expected and
foreseeable
iv. To her detriment
4. Definiteness/Completeness of Promise Formal
requirements
a. Whether reliance is only a substitute for
consideration

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b. Whether detriment includes forgoing

something the promisee may not have a
right to
c. Remedies sufficient to remedy the
wrong

5. Rules
a. R2K 87: Option Contract
b. R2K 89: Modification of Executory Contract
c. R2K 90: Promise Reasonably Inducing Action or
Forbearance

6. Cases
a. Ricketts v. Scothorn (G.daughter quits
job due to promise by Gpop) The full
execution of a promise may be necessary
to avoid injustice from reliance
Promissory Note
b. Dargo v. Clear Channel Communications,
Inc Consideration must not be present
in order to claim promissory estoppel
c. Dixon v. Wells Fargo Bank, N.A to
accommodate equitable loses,
bargaining-in-good-faith will be
considered a reasonable reliance.
ii. Remedial Considerations & The Diminishing
Importance of Reliance
1. R2K 90 expands the doctrine of promissory
estoppel as a basis for enforcing gift promises
inducing reliance since there was no actual
offer or promise some courts require a form
of agreement a necessary condition to a
promisees recovery
2. Expectation Damages measured by the
amount necessary to put the promise in as
good of a position as performance would have
3. Promissory estoppel can extend to pre-contract
negotiations when one party makes a specific
promise in order to entice the other party to
enter into negotiations and then the first party
breaks the promise for no reason.
4. Rules
a. R2K 87: Option Contract
b. R2K 89: Modification of Executory Contract
c. R2K 90: Promise Reasonably Inducing Action or
Forbearance

5. Cases
a. Salsbury v. Northwestern Bell Telephone
Company An exception to a bargained

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for exchange as consideration =

Charitable Subscription (or marriage
settlement)

19

III.

DEFENSES TO ENFORCEMENT
Is The Agreement Unenforceable because of Flaws in the
Agreement Process or Problems with the Substance of the
Agreement?
Problem with Agreement = Process Form Substance
a. Statutes of Frauds
i. The requirement that certain kinds of contracts be:
1. Must be in writing or evidenced by writing in
order to be enforceable
2. Marking with intent to make something a
memorialization of an enforceable agreement.
3. Enforceable only to those who sign (Does not
need to be complete)
ii. R2K 110: Classes of Contracts Covered (4 & 5)
1. Sale or interest of land: Transfers of Interests in
Real Estate
a. Purchase price is irrelevant ot the
question of whether the statute of frauds
applies to the deal
2. Contracts that cannot be performed in a Year
One-year provision: Service contracts
incapable of performance within a year of
formation.
a. Fixed Time Period Focuses only on
whether the agreement can be
performed within a year and treats
termination different from performance
b. Fixed Time Focus is not on how long a
person actually performs by whether her
performance can be complete within a
year of the date of the contract
c. Task Contracts for performance of a
specific task (as contrasted with
contracts for a specific time or time
period) are never within the statue of
frauds
i. Capable theoretically possible
with unlimited resources
d. Lifetime The agreement is capable of
being fully performed without breach
within the space of one year because an
individual can die within a year.
iii. UCC 2-201 Who signed it & Whats in writing?
1. Limited to:
a. Sales of Goods for $500 +
20

b. The recipient of a signed writing in

confirmation of the contract fails to
object in writing within 10 days (binding)
i. Must be signed by the party
against whom enforcement is
sought
ii. Only quantity needs to be in
writing
2. EXCEPTIONS: performance, estoppel,
admission of K
a. Goods specially manufactured for the
buyer;
b. Proper judicial admissions of the
contracts existence
c. Performance via proper acceptance (2606)
i. Substantial beginning OR
ii. Commitment for there
procurement
iv. Purpose
1. To prevent false claims that there was/wasnt
an oral agreement
2. Evidentiary to provide reliable evidence of the
existence and terms of the contracts, and the
classes of contracts covered seem for the most
part to have been selected because of
importance or complexity
3. Solemnization demonstrates serious intent
v. What to Consider
1. How is the Statute of Frauds requirement of
Objective Proof of the Agreement met?
2. What are the legal consequences of failure to
satisfy the Statute of Frauds
a. Losing the Statute of Frauds Defense
Losing suit lies with Burden of Proof on
all other elements of a breach of a
contract claim
vi. Rules
1.
2.
3.
4.
5.
6.
7.
8.
9.

R2K 110: Classes of Contracts Covered

R2K 132: Several Writings
R2K 133: Memorandum Not Made as Such
R2K 134: Signature
R2K 135: Who must sign
R2K 136: Time of Memorandum
R2K 137: Loss or Destruction of Memorandum
R2K 139: Enforcement by Virtue of Action in Reliance
UCC 2-201: Formal Requirements; Statute of Frauds

21

vii. Cases
1. Radke v. Brenon (dividing cost of pond land)
Memorialization of the Statute of Frauds does
not need to be complete, only complete
enough.
a. A contract for the sale of land is void
unless its in writing.
2. DF Activities v. Brown (ugly chair) Affidavit is
attached to an oath, Declarations are
statements of belief
viii. NOTES
1. Not all agreements must be in writing
2. Not all writings satisfy the Statute of Frauds
3. Promissory Estoppel = Theory of Recovery
Statute of Frauds = Defense to Enforcement
b. Fraud, Misrepresentation and Nondisclosure
i. Fraud
1. Unsure of the agreement
2. Not clear what is being assented to
3. Confusion in terms
4. Induces misunderstanding of the facts
ii. Misrepresentation of Facts
1. When false statements as to existing facts
induce an individual to enter into a contract
2. Occurs prior to formation
3. Amounts to assertion not in accordance with
the facts
4. Innocent misrepresentations as to existing
facts can make a contract void Reliance
5. Material Misrepresentation likely to induce
action or the promisor knows it would be likely
to induce action
a. Other meanings of Material
i. Major/Substantial/Super
ii. Legally Significant
iii. Anything important to the other
party cause surprise or hardship
iv. (Occurs prior to agreement)
6. Broken Promises
a. A basis for recovering damages for
breach of contract, and
b. If material, a basis for excuse of future
performance
iii. Non-Disclosure/Concealment

22

1. Non-Disclosure + Concealment =
Misrepresentation

+ Misleading Statements =

+ Knowledge of Misunderstanding =

+ Know uncertainty of terms =

+ Trust & Confidence =

a. Non-Disclosure Misrepresentation
2. A person making a contract is not required by
contract law to tell the other person all that he
knows, even if he knows that the other person
lacks knowledge of certain facts.
a. Unless material
iv. Rescission The revocation, cancellation, or repeal of
a law, order, or agreement
a. Material Non-Disclosure/Non-Disclosure +
Concealment
i. Necessary to prevent a
misrepresentation
ii. Its essential to contract formation
iii. It alters the meaning of the
contract, or
iv. The other person is entitled to
know
b. Misrepresentation
i. How material was the
misrepresentation
ii. Was there reliance on the
misrepresentation?
iii. Was the reliance reasonable?
v. Rules
1. R2K 159: Misrepresentation Defined
2. R2K 160: When Action is Equivalent to an Assertion
(concealment)
3. R2K 161: When Non-Disclosure Is Equivalent to an
Assertion
4. R2K 162: When Misrepresentation is Fraudulent or
Material
a. (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.
5. R2K 163: When a Misrepresentation Prevents Formation
of a Contract
6. R2K 164: When Misrepresentation Makes a Contract
Voidable

vi. Cases

23

1. Halpert v. Rosenthal Misrepresentation does

not need to be known to be a defense against
enforcement
2. Swinton v. Whitinsville Savings Bank
Nondisclosure alone is not a defense against
enforcement
3. Weintraub v. Krobatsch Non-disclosure +
Concealment = rescindable
vii. Notes
1. Use of conditions can protect buyers from
misrepresentation
a. Buyer has option to back out of deal
b. Not illusory because voiding of contract
is conditional not just when the buyer
feels like it
2. Defense to contract enforcement can occur at
any time after performance and before statute
of limitations
3. Consideration is only a problem when it is NOT
bargained-for
c. Mistake
Mistaken belief that is not in accord with the facts.
Assumptions about facts at the time of formation. (R2K
151)
i. (R2K 153) Both or one party was mistaken, at the
time a contract was made, as to a basic assumption
that has a material effect on agreed exchange that is
adverse to him THEN the contract is voidable by the
adversely affected party UNLESS
1. Adversely affected party bore risk (and)
2. (If UNILATERAL) Mistake makes contract
unconscionable
OR
Other party had reason to know or by his own
fault created the mistake.
ii. Mutual Mistake will be denied relief if:
1. The court concludes that there was simply a
bad judgment or ignorance instead of legal
mistake
2. There is a mutual mistake but it is not
material, or
3. There is a material mutual mistake but under
the circumstances, the person seeking relief
because of the mistake should bear the risk of
his or her mistake.
24

iii. Who has the best opportunity to prevent mistake?

iv. Critical problems in Determining Mistake = Proof,
Policy, and Rules
v. Rescission based on Mistake
1. The party seeking enforcement was mistaken
regarding a basic assumption upon which she
made the contract
2. The mistake materially affected the agreed
exchange of performances in a way that was
adverse to the party seeking enforcement
3. The party seeking enforcement did not bear
the risk of the mistake
4. The effect of the mistake was such that
enforcement of the contract would be
unconscionable

vi. Rules
1. R2K 151: Mistake
2. R2K 152: When Mistake of Both Parties Makes a Contract
Voidable (Mutual)
3. R2K 153: When Mistake of One Party Makes a Contract
Voidable (Unilateral)
4. R2K 154: When a Party Bears the Risk of a Mistake

vii. Cases
1. Estate of Nelson v. Rice (fine art appraisal) A
party bears the risk of mistake when he is
aware, at the time the contract is made, that
he has only limited knowledge with respect to
the facts which the mistake relates, but treats
his limited knowledge as sufficient
2. Grenall v. United of Omaha Life Ins. Co(Life
insurance with cancer) Even if agreement is
unconscionable now, at the time of offer there
was no unconscionability. A unilateral mistake
does not support a claim for rescission when
the party seeking rescission bore the risk of the
mistake
viii. NOTES
1. When expectations are unclear Objective
Test
2. Misunderstanding Materially different
meanings attached to a fact
v.
Mistake A belief not in accord with the facts
d. Duress and Undue Influence (Process)
i. Duress
1. By Physical Compulsion
25

a. Physically forced to commit acts

b. Party has no choice
2. By Threat
a. No reasonable alternative
i. Constrains choices to categorize
them as unfair
b. Improper Threat
i. Crime or Tort
ii. Criminal Prosecution
iii. Use of Civil Process in Bad Threat
iv. Disrupts benefits of contract
v. Unfair Terms
1. Unbalanced
3. Economic Duress
a. ONLY when the party threatens to
commit a wrongful act that would
seriously threaten the other contracting
parties properties or finances.
b. Often NOT enforceable
4. Rules
a. R2K 74: Settlement of Claims
b. R2K 89: Modification of Executory Contract
c. R2K 174: When Duress by Physical Compulsion
Prevents Formation of a Contract
i. R2K 175: When Duress by Threat Makes a
Contract Voidable
ii. R2K 176: When a Threat is Improper

ii. Undue Influence

1. Persuasion which tends to be coercive in nature
or excessive pressure to persuade on
vulnerable to such pressure
2. REQUIREMENTS
a. Lesser Weakness lack of full vigor,
physical condition, emotional anguish
b. An application of excessive strength by a
dominant subject
3. Types (2+ must be present)
a. Discussion of the transaction at an
unusual or inappropriate time
b. Consummation of the transaction in an
unusual place
c. Insistent demand that the business be
finished at once
d. Extreme emphasis on untoward
consequences of delay

26

e. The use of multiple persuaders by the

dominant side against a single servient
party
f. Absence of 3rd-party advisers to the
servient party
g. Statements that there is no time to
consult financial advisers or attorneys

4. Rules

i. R2K 74: Settlement of Claims

ii. R2K 89: Modification of Executory Contract
iii. R2K 177: When Undue Influence Makes a
Contract Voidable

iii. Cases
1. Austin Instrument, Inc. v. Loral Corp (US Gov.
Subcontractor & Contractor) A contract is
voidable due to duress when it is established
that the party making the claim was forced to
agree to it by means of a wrongful threat
precluding free will
2. Totem Marine Tug & Barge, Inc. v. Alyseka
Pipeline Service Co. A settlement and release
may be rescinded due to the existence of
economic duress
3. Odorizzi v. Bloomfield School District
Differentiates between Duress by Threat vs.
Undue influence
a. Duress bad act that unduly constrains
choices
i. Unfair bargaining power
ii. Identifiable at time by victim
b. Undue Influence Forces that overcome
someones will (mental pressure
i. Abuse of trust
ii. Persuasion
iii. May not be identifiable by victim at
the time
e. Illegality and Public Policy (substance)
Contract is illegal and voidable against public policy
i. Exculpatory Agreement agreement in which the
parties expressly agree that the plaintiff will relieve
the defendant of its legal duty toward the plaintiff
1. Exonerates an action prior to it occurring
ii. Adhesion Contract A legally binding contract
between two parties in which one side has dominate
bargaining power and uses that power to his/her
advantage
27

iii. Covenant Not to Compete An agreement where one

party agrees that upon termination of his services,
he will not engage in a similar trade or profession in
unfair competition with his former employer or
principal
iv. Severability A provision in a contract providing that,
should one or more terms of the contract be
determined to be unenforceable, then the remainder
of the terms of the contract will remain enforceable
1. Blue Pencil Rule Eliminating unreasonable
portions
2. Modification creating a new agreement for
the parties to uphold
v. Rules
1. R2K 178: When a Term is Unenforceable on Grounds of
Public Policy
2. R2K 179: Bases of Public Policies Against Enforcement
3. R2K 180: Effect of Excusable Ignorance
4. R2K 181: Effect of Failure to Comply with Licensing or
Similar Requirement
5. R2K 184: When Rest of Agreement Is Enforceable

vi. Cases
1. Hanks v. Powder Ridge Restaurant Corp. A
contractual release of liability will not relieve a
party of liability for negligence where such a
release would violate public policy.
2. Valley Medical Specialists v. Farber Restrictive
covenants will be upheld if they are reasonable
and comply with public policy
f. Unconscionability
Must be both procedurally and substantively
unconscionable (the more of one the less you need of the
other.
i. Procedural
1. Agreement Process
2. Unfair Surprise
a. Small print, sales tactics, exploitation of
bargaining power
3. Enforceability focused on the information about
the agreement
ii. Substantive
1. Substance of Agreement Terms used
2. Prevention of Oppression
3. Focused on matters of the time of the
agreement

28

a. Whether the terms were fair at the time

of the agreement, not months or years
later
4. EXAMPLE: Illegality, Public Policy problems
with the substance of the bargains
iii. Exceptions
1. Arbitration
2. Non-Compete
3. Employment Terms/Agreements
iv. Rules
1. R2K 208: Unconscionable Contract or Term
2. UCC 2-302: Unconscionable Contract or Clause

v. Cases
1. Williams v. Walker-Thomas Furniture Company
(sales to underprivileged) Reasonableness
and fairness are based on the terms of the
contract considered in light of the
circumstances existing when the contract was
made
2. Vernon v. Qwest Communications Intl A
contract must be substantively and
procedurally unconscionable to be considered
unconscionable.

29

IV.

INTERPRETATION
a. Course of Performance; Course of Dealing; Trade
Custom and Usage; Gap-Fillers; Interpretation in
Context
Deal is affirmed but the meaning is unclear; a nonmaterial
uncertainty in the contract
i. TEST
1. Is there a deal?
a. No Interpretation doesnt apply
b. Yes Move to 2
2. Is there a misunderstanding?
a. No Interpretation doesnt apply
b. Yes Move to 3
3. Is it a material misunderstanding?
a. No Move to 4
b. Yes No Contract
4. What are the terms and what do they mean?
a. Express Terms
b. Course of Performance Sequence of
conduct in the particular transaction
c. Course of Dealings Sequence of
conduct based on previous transactions
between the parties
d. Usage of Trade Regularity in place,
vocation, or trade
ii. TERMS
1. Indefinite What did they agree on?
2. Ambiguous What does the agreement mean?
iii. Rules
1.
2.
3.
4.
5.

R2K 200: Interpretation of Promise or Agreement

R2K 202: Rules in Aid of Interpretation
R2K 203: Standards of Preference in Interpretation
R2K 204: Supplying an Omitted Essential Term
UCC 1-303: Course of Performance, Course of Dealing,
and Usage of Trade
6. UCC 2-305: Open Price Term
7. UCC 2-308: Absence of Specified Place for Delivery
8. UCC 2-309: Absence of Specific Time Provisions; Notice
of Termination

iv. Cases

30

1. Threadgill v. Peabody Coal Co. (broken probe)

Trade customs are evidence of the parties
intent when the parties have actual knowledge
of the custom or the custom is so pervasive
that constructive knowledge is justified
provided the trade custom is either illegal nor
in conflict with public policy
a. Frigaliment Importing Co. v. BNS Intl
Sales (chickens) Ambiguous Terms
b. The Parol Evidence Rule
Determines what terms and obligations survive the
formation of a contract If applicable, all prior obligations
and terms that are related to the contract can be
discharged (Must be in Writing).
i. Determining Partial and Complete Integration
1. Integrated
a. Complete and final
b. Parties intend for agreement to be the
only agreement
c. If there is no integration clause
Objective Test
i. Would a reasonable person expect
it to be mentioned in the written
paper if it were to be included?
2. Partially Integrated
a. The formation of the contract did not
discharge all prior agreements but rather
only the conflicting terms
b. May apply missing/supplemental terms
3. Scope
a. It would naturally have been included in
the final expression of that deal and
would have been part of the deal.
ii. Applying the Parol Evidence Rule (Supplemental vs.
Contradictory)
1. Parol Evidence Rule
a. Limits what we can look at in determining
the interpretation of the contract
b. Applies only when the parties express the
intention to have an integrated contract
c. Only applies to agreements prior to
integration
d. Parties choose to tell the court how to
interpret
31

2. TEST
a. Have
to be
i.
ii.

the parties intended the agreement

partially or completely integrated?
Is it integrated and to what extent?
What rule does the jurisdiction
apply?
1. May always define it as
complete
iii. Anytime the agreement is
ambiguous, we will look outside the
agreement (extrinsic evidence) to
determine the intentions
b. Determine the scope of integration, what
does the agreement speak to?
i. How far does it extend and as to
what terms?
c. What is the interpretation offered?
i. Inconsistent? Different? Partial?
Complete?
d. Is there an exception?
i. Ambiguity; Usage of Trade
3. TERMS
a. Condition Precedent an event which
must take place before a party to a
contract must perform or do their part
b. Letters of Credit a bank guaranteeing
that a buyers payment to a seller will be
received on time and for the correct
amount
i. If buyer is unable to pay, the bank
is required to cover the full or
remaining amount of the purchase
c. Contemporaneous Existing or occurring
in the same period of time
d. Parol things outside the 4 corners of the
agreement that can help determine the
agreement
iii. Exceptions to the Parol Evidence Rule
1. Main Exceptions
a. Context
i. Course of dealings, usage of trade
(UCC)
ii. Circumstances surrounding deal
b. Oral Condition to Formation (Apex)
c. Defenses to Formation or Enforcement
d. Rescission; Reformation
32

e. Post-Formation Communications or
Events
f. Ambiguity (OR silent on topic)
i. Is the term reasonably susceptible
to the meaning a party wants?
1. Look at the terms of the
writing
2. Clear on its Face an
ordinary reader of English,
reading the contract, would
think its application to the
dispute at hand certain
ii. Three tests judges could apply:
1. CA Can always look to
extrinsic evidence to
determine ambiguity
2. IL Objective evidence is
permitted
3. NY Ambiguity must be
determined based on the 4
corners of the document.
2. Subjective intent has no bearing on the
interpretation of the agreement
iv. Rules
1. R2K 209: Integrated Agreements
2. R2K 210: Completely and Partially Integrated
Agreements
3. R2K 212: Interpretation of Integrated Agreement
4. R2K 213: Effect of Integrated Agreement on Prior
Agreements
5. R2K 214: Evidence of Prior or Contemporaneous
Agreements and Negotiations
6. R2K 215: Contradiction of Integrated Terms
7. R2K 216: Consistent Additional Terms
a. (2) An agreement is not completely integrated if
the writing omits a consistent additional agreed
term whit is
i. agreed to for separate consideration, or
ii. such a term as in the circumstances might
naturally be omitted from the writing
8. R2K 217: Integrated Agreement Subject to Oral
Requirement of a Condition
9. R2K 218: Untrue Recitals; Evidence of Consideration
10. UCC 2-202: Final Written Expression: Parol or Extrinsic
Evidence

v. Cases
1. Town Bank v. City Real Estate Development
Parol Evidence does not preclude the court
from considering evidence of prior agreements

33

for the purpose of determining the parties

intent to be bound
a. Once intention for agreement to be
integrated is determined, only then does
the parol evidence rule take effect.
2. Apex LLC v Sharing World (12 contracts to sell
cottonseed) Inconsistent terms/agreements
cannot be considered when determining the
meaning of an integrated contract.If
purported additional oral terms toa written
contract are such that, if agreed upon, they
certainly would have been included in the
contract, then the terms are not admissible at
trial.
3. Trident Center v. Connecticut General Life Ins.
Co Extrinsic evidence can be used in order to
determine if the parties meant for a contract to
be integrated (partially or wholly) or something
else.
vi. NOTES
1. Statute of Frauds Defense against
Enforcement
a. Doesnt have to be complete
b. Must be clear on main terms of
signficance
2. Parol Evidence Substantive Rule of Contract
Interpretation
a. Integrated Writing
b. Parties Intention to be governed
c. Terms Implied by Courts
i. Effectuate Assumed Intent

34

1. Courts will provide missing terms when they

are convinced that the parties intended to
contract but overlooked or omitted an essential
term that can be inferred from the
circumstances
2. Types
a. Obviously Omitted Terms
i. When courts can see the parties
intended a binding contract, and
can specify with some precision the
terms of the omitted provision
b. Trade Usage
i. Terms used in repetitive and
common contracts.
ii. Even if the parties may not have
thought about it the term may be
inserted into the contract
iii. Does not need to be expressly
agreed to by the parties
iv. Parol Evidence can be used to show
that it is a term of the deal
v. Applies regardless of merchant
status
ii. The Implied Duty of Good Faith and Fair Dealing

35

1. A term of a contract NOT a duty imposed

2. Measured by whether it was reasonable
3. May cases present conflicts between the
express language of the contract and the
implied covenant of good faith. Express
Language usually prevails
4. Level of control must be understood by both
parties

iii. Rules
1. R2K 205: Duty of Good Faith and Fair Dealings
2. UCC 1-3004: Obligation of Good Faith
3. UCC 1-201: [Definitions] Good Faith means honesty in
fact and the observance of reasonable commercial
standards of fair dealings

iv. Cases
1. Wood v. Lucy, Lady Duff-Gordon When parties
disagree about intentions, the court may
assume OR construe the contract to make
sense to keep the contract binding.
a. A contract may be enforced when there
is no evidence of a promise, exchanged
as consideration, in the explicit terms of
the contract.
b. A promise to use reasonable efforts may
be implied from the entire circumstances
of a contract.
2. Locke v. Warner Bros, Inc. Implied covenant
of good faith and fair dealings. Implied in ALL
contracts.

36

V.

EXCUSE
After making an enforceable deal, when are you excused from
doing what you agree to do?
a. Conditions
Non-Occurrence of Something That The Contract Expressly
Provides Must Occur As Excuse For Not Doing What you
Agreed To Do
i. Express Conditions and the Requirement of Strict
Compliance
1. Language in a contract
2. Excuses the contracts other promises rather
than creating no promise; and
a. Failure to satisfy a condition is not a
breach, there is simply a consequence
that the other promises are not required
to be upheld
ii. Consequences
1. Excuse of Performance Nonoccurrence of a
condition excuses any duty to perform
2. Strict Compliance Occurrence of a condition
requires strict compliance with the contract
language of condion
3. The nonoccurrence of a condition is not a
breach.
iii. Terms of Express Conditions

37

If

Provided that

Only if

So long as

Subject to
In the event
that

Unless

Until

When

On condition

iv. Excusing Conditions

Avoidance of Forfeiture, Prevention, Waiver,
Estoppel, and Modification
1. Performance fulfilling the action required by
the promise contract Measure of Breach
2. Failure to Satisfy Condition of Performance
a. If it does happen a party is obliged to
perform
b. If it doesnt happen they are not required
to perform
i. One party is excused & forfeits
3. Non-Occurrence of a Condition is Excused
a. Modification
i. Agreement of both sides to change
the contract. Mutual Assent
Required
1. Unforeseen change in
circumstance that are
material
2. Extent that justice requires
b. Prevention
i. Action or omission by the party
that is benefited by the condition
that prevents the condition from
being satisfied or occurring
1. Failure of condition is
excused and the contract is
enforceable Performance is
excused
c. Estoppel
i. A representation that can
reasonably be relied on to their
detriment
1. Representing party is stuck
w/ the representation
2. Estopped to deny the
representation
3. Enforceable to extent of
justice
d. Waiver
i. Voluntary relinquishment of a
known right. Unilateral act No
consideration required.
38

1. Only the party that benefits

can waive condition
2. No Reliance
3. Waiver can be taken back as
long as the other party hasnt
relied on it

v. Rules
1. R2K 224: Condition
a. An event not certain to occur, which must occur,
unless its non-occurrence is excused, before
performance under a contract becomes due
2. R2K 225: Effects of the Non-Occurrence
3. R2K 227: Standards of Preference with Regard to
Conditions
4. R2K 229: Excuse of a Condition to Avoid Forfeiture
5. R2K 84: Promise to Perform a Duty in Spite of NonOccurrence of a Condition
6. R2K 89: Modification of Executory Contract
7. UCC 2-209: Modification, Rescission and Waiver

vi. Cases
1. Evans v. Triad Architects, Ltd Express
conditions must be explicit to be considered as
a forfeiture of a parties benefit
2. Luttinger v. Rosen
3. National Fuel Gas Distrib. Corp. v. Harford Fire
Ins. Co.
4. Acme Markets, Inc. v. Federal Armored Espress
Inc. Who does the term benefit?
vii. Notes
1. Both Estoppel and Waiver can be present at
the same time because they arise from the
same facts
2. Covenant unconditional promise to do
something
3. Condition if something does or doesnt
happen then something else
4. Unless its very clear, terms re not construed
as expressed conditions, and are thought of
as promises/covenant
5. Can be communicated directly or be
reasonably understood by the parties
a. Past Actions/ Mutual Understanding
b. Impossibility, Impracticability, Frustration of
Purpose
Occurrence of Something Not Provided for in the Contract
as an Excuse for Not Doing What You Agreed To Do
i. Impracticability unreasonably costly or difficult
39

ii. Common Situations of Impracticability that Excuses

Performance
1. Destruction of a material thing thats necessary
for performance
2. Death of an individual thats necessary for
performance
3. An intervening change in the law that makes
performance illegal
4. Discharge by Supervening Impracticability (R2K
261)
a. Where after a contract is made
b. A partys performance is impracticable
c. Without the parties fault
d. By the occurrence of an event the
nonoccurrence of which was a basic
assumption on which the contract was
made
e. The duty to render the performance is
discharged
f. Unless the language or the
circumstances indicate the contrary.
iii. Rules
1. R2K 261: Discharge by Supervening Impracticability
2. R2K 262: Death or Incapacity of Person Necessary for
Performance
3. R2K 265: Discharge by Supervening Frustration
4. R2K 267: Effect on Other Partys Duties of a Failure
Justified by Impracticability or Frustration
5. UCC 2-615: Excuse by Failure of Presupposed Conditions
a. In the sale of goods, a material change in
circumstance does not excuse the condition of
payment

iv. Cases
1. Taylor v. Caldwell (burning down of Surrey
Gardens) In contracts in which performance
depends on the continued existence of a given
person or thing, a condition is implied that the
impossibility of performance arising from the
perishing or destruction of the person or thing
shall excuse the performance.
2. Route 6 Outparcels, LLC v. Ruby Tuesday, Inc.
Excuse results from circumstances that are
beyond the parties control AND are not implied
assumptions depended upon in the agreement
Beyond control is not a guaranteed excuse.
3. Krell v. Henry When a condition that is not
expressly mentioned in a contract can
nevertheless be implied from extrinsic
40

evidence as being understood by both parties

to be the subject matter of the contract, the
nonoccurrence of the condition may excuse
nonperformance of the contract by both
parties.
a. The purpose of the contract was
frustrated
c. Anticipatory Repudiation
The other parties unambiguous indication of unwillingness
or inability to perform as an excuse for not doing what you
agreed to do; reasonable insecurity and adequate
assurance of performance.
i. Anticipatory Repudiation Repudiation prior to time
due for performance
1. If material, excuses further contract
performance by the other party just like in the
case of an actual failure ot perform at the
agreed upon time of performance
2. A form of breach of contract
3. Requires an unequivocal indication of intention
no to perform
4. Gives the option to sue immediately due to
breach
ii. Protection
1. Wait until lapse to declare breach
a. Whenever anticipatory repudiation
occurs and is clear
b. Allowed prior to lapse however if its
unclear and the party is wrong that party
will be in breach
iii. How to Know when Repudiation Occurs
1. Clear unequivocal statement/indication of
repudiation
a. Objective Test
2. By Conduct
a. (Versus indirect revocation prior to
formation)
iv. If a party stops his performance because he honestly
but incorrectly interprets the other partys postcontract words and conduct as rising to the level of
an anticipatory repudiation, then it is the first party
who has actually committed the anticipatory
repudiation

41

v. Reasonable Grounds for Insecurity (UCC) provides a

basis for excuse of further contract performance by
the other party of the contract
1. A party can demand in writing adequate
assurance of performance
a. Can suspend her own performance until
she receives adequate assurance, if
commercially reasonable or
b. Stop performance altogether if adequate
assurance is not timely provided
c. TEST
i. Step 1: I feel reasonably insecure
1. Is it reasonable?
2. Is the other parties judgment
correct?
ii. Step 2: Is the assurance adequate
1. I s the parties judgment of
adequacy correct?
2. If the insecurity is unreasonable, the other
party does not have to provide adequate
assurance
3. TEST
a. Were there reasonable grounds for
insecurity?
b. Was the assurance offered adequate?
c. Was it commercially reasonable to
suspend performance until receiving
adequate assurance?
vi. Rules
1. R2K 250: When a Statement or an Act is a Repudiation
2. R2K 251: When a Failure to Give Assurance may be
Treated as a Repudiation
3. R2K 253: Effect of a Repudiation as a Breach and on
Other Partys Duties
4. R2K 256: Nullification of Repudiation or Basis for
Repudiation
5. R2K 257: Effect of Urging Performance in Spite of
Repudiation
6. UCC 2-609: Right to Adequate Assurance of Performance
7. UCC 2-610: Anticipatory Repudiation
8. UCC 2-611: Retraction of Anticipatory Repudiation

vii. Cases
1. Norcon Power Partners, LP v. Niagra Mohawk
Power Corp
viii. Notes
1. Repudiation a party unequivocally indicating
that he is not going to perform
2. UCC More Specific
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R2K Requires reasonable actions & timing

3. Actions determine breach; simply relying on
your own interpretation is dangerous
d. Material Breach
The other partys improper performance as an excuse for
not doing what you agreed to do under a common-law
contract
i. Only a material breach excuses further performance
of a contract governed by common law
1. Unless any understanding to the contrary
2. There cannot be both substantial performance
and material breach
ii. Condition Precedent A prerequisite to the parties
performance obligations
1. The non-occurrence of a condition precedent
excuses any contract performance
iii. Condition Subsequent Imposes a post-contractual
limitation on the duty to perform
1. The occurrence of a condition subsequent
excuses continuing performance
iv. Constructive Breach
1. Miss = Material Breach
2. Hit = No Breach
3. Near Miss = Non-Material Breach
a. Substantial Performance - Breach that
satisfies constructive requirements and
allows performance to go forward but
there will be remedies
b. Remedies = Difference between what
you were promised and what was
received
v. Constructive Conditions
1. Not express conditions
2. Not language in a contract that modifies
obligations created by language of promise in
the contract
3. Not subject to the strict compliance standard
4. Made up by the court and not the parties
5. Doctrine to explain why the performance by
each party to a contract is almost always
dependent on the performance by the other
contract party

vi. Rules
1. R2K 234: Order of Performances
2. R2K 235: Effect of Performance as Discharge and of NonPerformance as Breach

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3. R2K 237: Effect on Other Partys Duties of a Failure to

Render Performance
4. R2K 241: Circumstances Significant in Determining
Whether a Failure is Material

vii. Cases
1. Jacob & Young Inc. v. Kent (Reading,PA pipes)
A party who substantially performs its
obligations under a contract is entitled to
expectation damages based on full
performance of the contract, minus an offset
for defects in the partys performance

VI.

Remedies
What does the aggrieved party get? Obligation
Wrong Remedy
a. Specific Remedies
i. Remedy something to compensate the nonbreaching party for the consequences of the
breaching partys actions
1. Contract remedies are forward looking
2. Seek to place the non-breaching party in the
place s/he would have been in had there been
performance
a. Receives the benefit of its bargain as
remedy
3. Usually the amount of damages is determined
without reference to the intent of the breaching
party
4. Intentional breaches are generally treated the
same as non-intentional ones
ii. Specific Remedies are equitable and available
w/out jury and enforceable by contempt
1. Specific Performance
2. Injunction
3. ONLY available when there is no adequate
remedy of law.
iii. Substitutional Remedies are enforceable by seizing
debtors non-exempt assets and selling them at
auction to satisfy
b. Specific Performance/Injunctive Relief
i. Specific Performance
44

1. Orders the breaching party to do what was

promised when the remedy at law (monetary
damages) is inadequate to compensate and
when it is fair and reasonable to compel
performance
a. Inadequate Performance
b. Equity
ii. Injunctions
1. Negative Prevent something from occurring,
or someone form doing something
2. Affirmative Requiring an action.
c. Agreed Remedies Damages/Liquidation
i. Types of Damages
1. Direct/General Damages
a. The type of damages necessary to award
to the non-breaching party the benefit of
his or her bargain
2. Special/Consequential Damages
a. More particular, relatively narrow, a
special second contract
b. The breaching party must have been
able, at the time of contract formation, to
reasonably have foreseen the loss its
breach could ultimately cause
3. Incidental
a. Those costs necessary to respond to or
correct a breach
b. NOT lawyers fees
4. Liquidated Damages (Agreed upon in Advance)
a. Provisions in contracts that agree and
puts a fixed numerical calculation, before
a breach occurs, as to damages
b. Allowed if
i. Good Reason
ii. Clear formula
iii. Reasonable to the circumstances
c. Considerations
i. How hard will it be to figure out
damages?
ii. Is amount reasonable?
d. Notes
i. If the breach does not justify the
amount agreed It wont be
enforced

45

ii. At the time, if the agreement is

terrible but the breach is currently
justifiable it It will be enforced.
d. Money Damages
The presumptive remedy
i. Expectation Damages (Benefit of the Bargain)
1. Damages What you would have had if the
contract had been performed
2. Incidental Damages
a. Costs incurred because the original party
failed to perform
b. Usually doesnt amount to much money
3. Consequential Damages
a. Chain of Causation
i. How much is the breaching party
responsible for?
ii. Is it foreseeable OR addressed by
the parties?
ii. Limitations on Money Damages
1. Avoided Costs (Lost profits)
a. The money you would have saved if
there was no breach
2. Avoidable Loss
a. When the non-breaching party does not
have to pay for his or her return
performance
b. As a non-breaching party you must
reasonably act to keep your damages low
i. The duty to mitigate damages
denies damages to the nonbreaching party if the damages
were avoidable if only the nonbreaching party had obtained
substitute performance
1. Non-breaching party does not
have to mitigate if it would
require undue risk, burden, or
humiliation
3. Foreseeability
a. Applies primarily to
special/consequential damages
b. Follows natural course of events OR Must
show that the breaching party had
reason to foresee the injury

46

iii. When Specific Performance is necessary over

Monetary Damages
1. Cannot determine accurately
2. Process to determine is expensive
3. May have undesirable affect (confidentiality
exposure)
4. Jurys determination significantly unreliable
e. Rules
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.

R2K 344: Purpose of Remedies

R2K 345: Judicial Remedies Available
R2K 346: Availability of Damages
R2K 347: Measure of Damages in General
R2K 348: Alternatives to Loss in Value of Performance
R2K 350: Avoidability as a Limitation on Damages
R2K 351: Unforeseeability and Related Limitations on Damages
R2K 357: Availability of Specific Performance and Injunction
R2K 359: Effect of Adequacy of Damages
R2K 360: Factors Affecting Adequacy of Damages
UCC 2-716: Buyers Right to Specific Performance or Replevin
UCC 2-718: Liquidation or Limitation of Damages; Deposits

f. Cases
i. Walgreen Co. v. Sara Creek Co. (non-compete
disallowing other pharmacies) Damages are the
normal remedy for a breach of contract, but a
permanent injunction may be more appropriate if the
plaintiff shows that damages are inadequate based
on balancing the costs and benefits of the
alternatives.
ii. Groves v. John Wunder Co. (sifting gravel) Damages
for willful breach of a construction contract, even
where there has been substantial performance are
awarded as the cost of completing the failed
performance.
iii. Peevyhouse v. Garland Coal & Mining Co. (miners
neglected to restore land) 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
form full performance, damages should instead be
limited to the diminution in value resulting to the
premises because of the non-performance
iv. Hadley v. Baxendale (crankshaft) When one party
breaches a contract, the other party may recover all
47

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. The parties must agree that
it is actually part of the contract.
1. Formation #1: The damages a party would
foresee at the time the contract was made
2. Formation #2: Formation #1 + Incorporating
the risk into the contract

48