Contracts Attack Outline

Fall Semester 2002

Professor Joo
Contract: A promise that is enforceable by law. It usually has two basic elements: mutual assent
(meaning each party must intend to enter the contract and must agree with the other to do so on
mutually acceptable terms) and consideration (defined below).
Four Bases for Enforcing Promises (In order of Strength):
1. Consideration: As promise to B is supported by Consideration when there is:
A benefit to the promisor (A) NOTE: Benefit is seen as meaning simply that A got what they
bargained for, so it does not need to be shown that A received any tangible or valuable gain; and/or
A detriment to the promisee (B) NOTE: Restatement 2d 79(a) states that if the requirement of
consideration is met, there is no additional requirement of loss or disadvantage to the promisee; AND
That is bargained for in exchange for the promise (As promise) NOTE: Bargain simply means
agreement and does not suggest that the parties have to dicker back and forth or negotiate at
length
o Consideration is evidentiary it helps show that the promisor really made the promise
o Consideration is cautionary it helps promisor avoid becoming bound inadvertently,
because bargaining must take place. In other words, it makes the parties aware that theyve
made a serious legal commitment.
Kinds of Consideration: Forbearance, performance, creation or destruction of a legal relationship,
promise, return promise (but this must place some obligation on party making the return promise). NO
CONSIDERATION IF CLAIM IS LACKING IN HONESTY OR IS IN BAD FAITH!
2. Reasonable Detrimental Reliance by Promisee (AKA Promissory Estoppel) Restatement 2d
90: A promise may be enforceable without consideration if:
1. Promisor should reasonably expect to cause promisee to detrimentally rely on the promise
(objective test)
2. Promisee does rely to her detriment; and
3. Enforcement is necessary to avoid injustice
Note: Remedy may be limited, as justice requires. Reliance interest is usually less demanding than
expectation interest.
Types of Reliance cases: Family promises, promises to convey land, promises coupled with gratuitous
bailments, charitable subscriptions. It was not thought to be applicable to promises made during the
course of commercial interaction (but note the Bacardi case).
3. Moral Obligation: Based on past action if the promise is based on material benefit that was
previously conferred by the promisee upon the promisor, provided the benefit gave rise to an obligation
to make compensation. See Webb v. McGowin and restatement 2d 86
4. Finally: If theres no promise, obligation may be based on restitution. Classic case is Pyeatte v.
Pyeatte (she shelled out money for his law school; court determines restitution because they think she
should get back what she put into the agreement).

 Remedy is limited to the unjust benefit incurred by the benefiting party. Enforces not on the basis
of a well-formed agreement, but to prevent unjust enrichment.
Also enforced in cases where prior negotiation is impossible, but party would have certainly
consented to pay (Cotnam v. Wisdom case).
Its limited to cases where no other remedy is possible (that is why Callano did not win in Callano
v. Oakwood Homes).
Quasi-contract: Its like a contact (really meaning its not a contract). In these types of cases, judges
often look to their personal moral beliefs society should . . . We would enforce the contract in Cotnam
v. Wisdom because we want to encourage doctors to help others when faced with an emergency.
Requirements to Make a Bargained-For Contract:
1.
2.
3.
4.

Consideration
Mutual Assent (meaning each party must intend to enter the contract and must agree with the
other to do so on mutually acceptable terms)
Definiteness
[Writing] writing is sometimes required but not always. Its not as important as we used to
think. Getting it in writing is a good idea for practical purposes. Statute of Frauds stuff comes up
when people didnt get it in writing or in relatively casual situations.

On an entirely different legal basis, you can also get promissory estoppel.
1. Consideration See previous page
2. Mutual Assent: Offer and Acceptance
Exam Tips:
If the facts in an exam question indicate that a party has made a counteroffer, remember that the
counteroffer serves not only as a rejection but also as an offer to the original offeror. Therefore,
you should carefully examine the original offerors response to the counteroffer. If the original
offeror accepts the counteroffer, a contract is formed according to the terms of the counteroffer.
If the original offeror rejects the counteroffer or makes another counteroffer to the original
offeree, no contract is formed and you must continue to analyze the parties communications for a
valid offer and acceptance.
When answering an exam question, if you find that the parties expressions were insufficient to
form a contract, look to see if the parties performed as if a contract were formed. Such
performance may create an enforceable contract.
Remember that the general rule is that an offer is revocable unless an exception applies.
Exceptions occur because the offer:
1.
2.
3.
4.

Was supported by consideration (real or nominal)

Caused reasonably foreseeable reliance
Was a UCC firm offer, or
Was an offer for a unilateral contract in which performance had begun

Unilateral Contracts: In a unilateral contract, A makes a promise to B in exchange for Bs act. B is not
bound to perform the act, but if she does, As promise becomes enforceable. In a unilateral contract, one
party is never bound (B), nevertheless, if the act is performed As promise is enforceable. Ex. Wilma
promises to pay Barney $200 if Barney cuts down a tree in her yard. Wilma makes it clear that she wants
Barneys performance, not merely his promise. Barney never promises to cut down the tree, but he does
so. Wilma must pay Barney $200 although he was never bound. MUTUAL ASSENT IS NOT NEEDED
FOR UNILATERAL CONTRACTS!
Offers: A (the Offeror) gives B (the offeree) the power to create a contract between A & B. A
communication that omits significant terms is not likely to be an offer. As the creator of the offer, the
offeror is entitled to specify the time within which the acceptance must be made. If the offeror does not
state the duration of the offer, it must be accepted within a reasonable time. A counteroffer has the same
effect as an outright rejection in terminating the offerees power to accept the original offer.
Advertisements: Considered to be general announcements and the buyer has to come in and make an
offer for it. EXCEPTION: It is an offer if it has definite terms: circumstances indicate an intention to
make a bargain, specific action is invited without further communication, or overacceptance is unlikely.
Knowledge of Mistake: All courts agree that if the offeree knows or has reason to know of the offerors
material mistake at the time of acceptance (think of the $24 Lexus), the offeror is not bound. This goes
under the general assumption that one cannot snap up an offer or a bid knowing that it was made in
mistake. However, think of Lucy v. Zehmer there were facts to suggest it was bargained for; and if
you agree, you dont have to agree in your heart of hearts (outward acts were a manifestation that could
interpreted that he was serious).
Notice and the Method of Acceptance
Corbins definition of Acceptance: A voluntary act of the offeree whereby he exercises the power
conferred upon him by the offer, and thereby creates the set of legal relations called a contract. The
offeror has, in the beginning, the full power to determine the acts that are to constitute acceptance.
The method of acceptance is set up by the offeror. The offeror tells you how to accept, e.g., if you
accept, wire $30 to my account. In this situation, of course, the offeree can always decline.
The Offeror is the master of the offer the offeror can take back their offer before the offeree accepts.
However, once the offeree accepts (even by promise) a bilateral contract is created that binds both parties.
The importance of this is that the offer has now become a contract, so the offeror is bound and has lost the
right to revoke the offer.
An estimate is not a contract; its often saying make us an offer on these terms. If you want a new
roof, make us an offer on this estimate.
Words suggesting negotiations: Are you interested? Would you consider? Would you give? I
quote or I would consider.
Words suggesting an offer: I will sell (or buy) or I offer, suggest that an offer is intended.

There are at least two ways to accept:

1.
2.

Offeror tells offeree how to accept (send $5 today) either by a promise to perform or
By performance

Notify the offeror you have accepted but if they dont tell you to notify them youve accepted, you can
start work immediately.
Once you decide that an offer has been made, next determine if the offer is revocable. An offer can
become irrevocable by formation of an option contract, Res. 2d Contracts sec. 25, by beginning to
perform under an offer that looks to acceptance by performance only, Res. 2d Contracts sec. 45, by
detrimental reliance, Res. 2d Contracts sec. 87(2), by statute, including a firm offer under U.C.C. 2205, and by a writing signed by the offeror which recites a purported consideration and proposes a fair
exchange. Res. 2d Contracts sec. 87 (a).
After Party has made an offer, conferring upon another the power of acceptance, that power can be
terminated:
1. By lapse of the offer: The expiration of the period within which an offer can be accepted
2. By Revocation: An offeror can terminate an ordinary offer, at any time before it has been
accepted, by revoking it.
3. The Death or Incapacity of the Offeror: Rule holds whether or not the offeree learns of the death.
This import of the rule has been greatly reduced since the typical offeror is now often a deathless
corporate entity.
4. Rejection: An act by the offeree that puts an end to an ordinary offer.

3. Definiteness:
Function of Definiteness: Allows one to determine whether or not there has been a breach; allows for
the computation of expectation damages.
Note: Conditional statements (would not be able to sell unless I receive) have been held not to be
definite offers. One must show clear intent to enter into an agreement. Offers by merchants to sell
unspecified quantities, however, may be offers.
Also Note: If the behavior of the parties suggests that they intend a contract, the court will go to
lengths to interpret the agreement as a binding contract (Oglebay Norton v. Armco). Vague terms like
reasonable efforts are enforceable if content can be determined by some external standard.
Vagueness is interpreted against the drafter.
Finally: UCC 2-305 calls for courts to use a reasonable price in event of a failure of some
predefined mechanism that sets price.
Indefiniteness can be divided into three general categories:
1. The parties purport to agree on a material term but leave it too indefinite (vague). Ex. Lessor
agrees to let certain business premises to Lessee for one year in exchange for a periodic rental
payment based on a fair percentage of Lessees earnings (one cannot determine on the face of this
language the amount and the due date of the rent).
2. The purported agreement is silent on a material term. Ex. Lessor and Lessee discussed and wrote
out most of the terms of the lease, but did not address the amount of the rent orally or in writing.
3. The parties agree to later agree on a material term. Ex. Lessor and Lessee negotiated the lease,
they reached agreement on all terms of a 10-year lease, including the rent to be paid for the first year;
however, neither of them wished to commit to a fixed rental figure for the remaining years of the
lease, and they could not agree on the method for calculating the annual rent increases.

Formation of an Option Contract (italics = option contract)

Tom has offered to sell his car to Paul, but Paul cant decide until Saturday. Tom does not want to
wait, but Paul does not want to lose the offer

Paul offers to give Tom $100 in exchange for Toms promise not to sell the car to anyone before
Saturday

Tom accepts

Paul may or may not come back before Saturday and accept Toms offer to sell the car

Note: If offeror is a merchant, and its in writing, then Paul wouldnt have to give consideration for the
promise. See UCC 2-205
Note Also: In the case of an option contract, a counteroffer made during the option period does not
terminate the offerees power of acceptance, i.e. his right to exercise the option. See Humble Oil v.
Westside Investment.
Illusory Promise (Page 68): A promise that appears on its face to be so insubstantial as to impose no
obligation on the promisor; an expression cloaked in promissory terms but actually containing no
commitment by the promisor. (Ill hold it until such time as I want my money or I promise to sell it
unless I change my mind).
Binding Promises That Seem Illusory:
Requirement/Output Contract: A contract in which a seller promises to supply all the goods or services
that a buyer needs during a specific period and at a set price, and which the buyer promises (explicitly or
implicitly) to obtain those goods or services exclusively from the seller. Buy required supplies from or
sell output to another party. UCC 2-306. If the buying party acts in good faith to determine output it
cannot be grossly disproportionate to stated estimates (Eastern v. Gulf)
Satisfaction Clauses: Performance is not due until party is satisfied. Not illusory as long as satisfaction
is evaluated by good faith standard. Cannot back out for arbitrary reasons. (Mattei)
Best Efforts Contract: One party agrees to work in exchange for the exclusive right to buy/sell. Not
illusory if working party uses best efforts to carry out contract; implied promise to perform
(consideration). (Lucy v. Lady Duff-Gordon). UCC 2-306 says basically the same thing by implying an
obligation of best efforts in exclusive dealing contracts involving goods.
Indemnity Agreement: An agreement whereby a party undertakes contingent liability for a loss
threatening another.

The Mirror Image/Last Shot Rule

Under the mirror image rule, the party that sent the last form before performance usually prevailed.
This was because each later form operated as a rejection of any earlier offer by the other party and as a
counter-offer. When the recipient of this last counter-offer performed, that was taken as acceptance of
that counter-offer. This made it advantageous to fire the last shot before performance began. The UCC
rejects the mirror image rule in UCC 2-207.
The Mailbox Rule
If Offeror seeks acceptance by mail, acceptance is effective on dispatch. Offerors revocation is effective
on receipt. Does this rule apply in the modern world? Farnsworth thinks it shouldnt apply to email
email is an instant system of communication. Email is more instantaneous than mail, but not always
(sometimes it can just disappear). Always use a belt & suspenders mail something and call them and let
them know its in the mail or email them and write a formal letter too. Always be prepared!
Very Important
Common law applies to anything that is not goods (services, real estate, etc.)!
UCC/statutes applies to contracts for goods NOT necessarily merchants. Certain parts of the
UCC apply only to merchants. But you have to ask yourself first: does it apply to goods? If it
does, then UCC; if not, go to common law.
2-207 is bothersome because it can allow new terms to come in; but its not that troublesome
because if its a material alteration its not considered a contract. Only technical or minor terms
are allowed in. You cant change the price or the quantity, for example.

4. Writings
Statutes of Frauds
The Statute of Frauds is the name for any statute that requires that a contract be evidenced by a writing to
be enforceable. It is crucial to remember that the general rule is that oral contracts are perfectly good.
Therefore the Statute of Frauds represents an exception, and a pretty narrow exception at that.
You dont need both signatures! You dont need the other persons signature if youve signed it and they
want to enforce it. You need a writing that is signed by the party to be charged that showed we wanted to
agree to something.
Writing that has to be signed is the one that says, We have a contract. The writing alone is not the basis
for enforcement; its one of the requirements, but we need consideration, mutual assent and definiteness
too. Writing needs to be proof of the contract; the writing is not the agreement.
Scope of the Statute of Frauds:
Suretyship Contracts (where one assumes the debt of another)
Real estate contracts
Agreements that cannot be performed within 1 year of their establishment
Contracts for the sale of goods over $500 (UCC 2-201)
Other contracts as specified by state law
Limits on scope:
One-Year Rule: Generally, courts rigorously exclude any contract that could hypothetically be completed
in one year from the statute; complete performance by the other side can usually result in enforcement
regardless of the timeframe.
Contracts for lifetime employment exempt (lifetime could be less than one year)
Doctrine of estoppel: parties cannot invoke the statute if it would result in either unconscionable injury
to a party that has already performed in reliance on the contract, or unjust enrichment (Monarco v. Lo
Greco, p.291).
Applying Statutes of Frauds
Is a writing required? That is, is subject matter of this contract within this jurisdictions statute
of frauds?
If so, is there a written agreement OR a written memo(s) of the agreement?
If so, is the writing subscribed by the party to be charged? (UCC 2-201(2) has a merchants
exception). Signing could be manual, it could be letterhead, it could be a stamped name. This is
a lenient standard.

 If so, does the writing indicate the essential terms of the contract? (UCC 2-201 requires only
quantity)
Duress
We begin with the presumption that entering into a contract is a voluntary act. If one person improperly
pressures another party, however, then the contract may not be entered into voluntarily. The problem, of
course, is one of degree. The duress defense focuses on improper threats, while undue influence focuses
on one partys taking advantage of the relationship with the other. If the victim of duress or undue
influence proves all the elements of the claim, then the contract is avoided.
Pre-Existing Duty Rule (Alaska Packers Case, p. 327)
The rule that if a party does or promises to do what the party is already legally obligated to do or
refrains or promises to refrain from doing what the party is already legally obligated to refrain from doing
the party has not incurred detriment. As such, the rules result is that the promise does not constitute
adequate consideration for contractual purposes. The rule makes most sense when, after a contract has
been made, one of the parties takes advantage of the others dependence on his performance, by
threatening to breach the contract unless the other promises to increase her payment or other return
performance. When a modification of an existing contract has been coerced in this way, the court can
employ the pre-existing duty rule to void the unfair modification. Modification of the contract in this
instance is okay because both parties used their FREE WILL to sign the contract. Unanticipated
circumstances might make a difference. The idea is really about free will, consent, mutual assent, etc.
not really exchange of value. A contract is a relationship that can be revised over time. The UCC has
abandoned this rule and replaced it in 2-209 by a good faith test.
Policing the Bargain:
Courts might look more closely at the bargain to see if the contract should be enforced. So we have some
bases why we might not enforce a contract, even if all the required elements are there:
1. Status of parties (ex. Age, mental illness)
2. Behavior (stuff one party might do to another ex. Taking advantage of the other party)
Status: Is status enough? Can you just describe someone as belonging to a class and nullify the contract?
Capacity to contract: Is a type of status inquiry. If a person doesnt have mental capacity or theyre too
young you dont have agreement and you dont have free will. The free will is missing its a big
thing. Overreaching: taking advantage of someone.
Conventional Controls: Ways courts try to deal with overreaching by employing the traditional tools
(consideration, etc.).
Contract is voidable (i.e. the party who claims mental illness can go to court and challenge it) if:
1. Due to mental illness if due to mental illness, I was unable to understand the transaction
(traditional test). This is somewhat similar to the insanity test in criminal law. OR
2. I understand, but was unable to act reasonably in relation to the contract.

Damages Explained
Expectation (most common damage awarded): Relief granted to the aggrieved promisee should attempt
to put the promisee in the position in which it would have been had the promise been performed.
Reliance: The law might protect a reliance interest by putting the promisee back in the position in which
it would have been had the promise not been made (i.e. put promisee where they would have been if they
had not relied on the broken promise).
Restitution Damages: Make the promisor give promisee the benefit he received from the broken promise.
The law might protect this interest by putting the promisor back in the position it would have been had the
promise not been made.
Three basic rules of contract damages:
1.
2.
3.
4.

Redress breach (compensate nonbreacher), dont punish breacher

Redress means protect nonbreachers expectation (as if breach had not occurred)
Expectation is substitutional ($), not literal
There are exceptions to all these rules in extreme cases! (e.g., when damages are hard to
calculate, when breach involves position of trust or when it involves important public policy
issues (Snepp)

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Professor Joo
Attack Outline
Second Semester
2002 03 Academic Year

11

Contracts Cheat Sheet

Spring 2003
Professor Joo
Requirements to Make a Bargained-For Contract:
1. Consideration
2. Mutual Assent (meaning each party must intend to enter the contract and must agree with the other to
do so on mutually acceptable terms)
3. Definiteness
4. [Writing] writing is sometimes required but not always. Its not as important as we used to think.
Getting it in writing is a good idea for practical purposes. Statute of Frauds stuff comes up when people
didnt get it in writing or in relatively casual situations.
On an entirely different legal basis, you can also get promissory estoppel.
Breach of Contract:
1. Is it a material breach? Failure to pay on a contract is a material breach of the contract; you are
entitled to expectation damages.
UCC
When its a hybrid good and service, you should look to see what the contracts fundamental purpose is.
When movable goods refer to the UCC
When services or real estate refer to the common law
POLICING THE BARGAIN (Exceptions):
Courts might look more closely at the bargain to see if the contract should be enforced. So we have some
bases why we might not enforce a contract, even if all the required elements are there:
3. Status of parties (ex. Age, mental illness)
4. Behavior (stuff one party might do to another ex. Taking advantage of the other party)
Status: Is status enough? Can you just describe someone as belonging to a class and nullify the contract?
Capacity to contract: Is a type of status inquiry. If a person doesnt have mental capacity or theyre too
young you dont have agreement and you dont have free will. The free will is missing its a big
thing. Overreaching: taking advantage of someone.
Conventional Controls: Ways courts try to deal with overreaching by employing the traditional tools
(consideration, etc.).
Contract is voidable (i.e. the party who claims mental illness can go to court and challenge it) if:
3. Due to mental illness if due to mental illness, I was unable to understand the transaction
(traditional test). This is somewhat similar to the insanity test in criminal law. OR
4. I understand, but was unable to act reasonably in relation to the contract.

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Pre-Existing Duty Rule (Rest. 2d 73): The rule that if a party does or promises to do what the party
is already legally obligated to do or refrains or promises to refrain from doing what the party is
already legally obligated to refrain from doing the party has not incurred detriment. As such, the
rules result is that the promise does not constitute adequate consideration for contractual purposes. The
rule makes most sense when, after a contract has been made, one of the parties takes advantage of the
others dependence on his performance, by threatening to breach the contract unless the other promises
to increase her payment or other return performance. When a modification of an existing contract has
been coerced in this way, the court can employ the pre-existing duty rule to void the unfair
modification. (ex. Alaska Packers Case - fishermen demand higher wages en route to Alaska)
However, the court will see modification of the contract okay if both parties used their FREE WILL to
sign the contract. Unanticipated circumstances might make a difference. The idea is really about free
will, consent, mutual assent, etc. not really exchange of value. A contract is a relationship that can be
revised over time. (ex. Watkins v. Carrig digging the basement at 7x the price). The UCC has
abandoned this rule and replaced it in 2-209 by a good faith test.
Duress: The basic presumption remains that entering into a contract is a voluntary act. If one person
improperly pressures another party, however, then the contract may not be entered into voluntarily. The
problem, of course, is one of degree. The duress defense focuses on improper threats, while undue
influence focuses on one partys taking advantage of the relationship with the other. If the victim of
duress or undue influence proves all the elements of the claim, then the contract is avoided.
Undue Influence: Overpersuasion, but not quite coercion. A shorthand phrase used to describe
persuasion which tends to be coercive in native, persuasion which overcomes the will without convincing
the judgment. The hallmark of such persuasion is high pressure, a pressure which works on mental, moral
or emotional weakness to such an extent that it approaches the boundaries of coercion. Taking an unfair
advantage of anothers weakness of mind, or taking a grossly oppressive and unfair advantage of
anothers necessities or distress. While most reported cases of undue influence involve persons who
bear a confidential relationship to one another, a confidential or authoritative relationship between the
parties need not be present when the undue influence involves unfair advantage taken of anothers
weakness or distress.
Ex. Odorizzi v. Bloomfield School District (teacher persuaded to resign from his teaching job in exchange
for administration not publicizing the charges).
Concealment and Misrepresentation: When entering a contract, your duty is not to lie. However, you
are not under any duty to tell the other party everything though.
Ex. Swinton v. Whitinsville (termite house)
Misrepresentation is an assertation not in accordance with the truth. If the misrepresentation is made with
knowledge of its falsity and intent to mislead, it is fraudulent. In the termite case, the seller did not
misrepresent anything he said nothing at all. He did not prevent the from acquiring information about
the condition, and there was no fiduciary duty.
Ex. Kannavos v. Annino (Apartment house sale case. Partial disclosure not really a lie but worse than
not saying anything). If you bring it up, youve got to go all the way with it! If vendors had been wholly
silent and had made no references to the use of the house, they could not have been found to have made

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any misrepresentation. Where there is reliance on fraudulent representations or upon statements and
action treated as fraudulent, s are not barred from recovery just because they didnt use due diligence.
Standard Form Contracts or Contracts of Adhesion: The use of a form contract does not of itself
establish disparity of bargaining power. However, they can offer the means by which one party may
impose its will upon another unwilling or even unwitting party. There is normally no opportunity to
bargain over the terms in the standard form contract at all, because the standardized contract is often a
take-it-or-leave-it proposition in which the only alternatives are adherence or outright rejection. The
stronger party presents terms to the weaker party such that the weaker can only accept all terms or
reject all terms. It may or may not be enforceable its up to the courts discretion. Just think
thousands of these contracts are signed every day and are enforceable. We deal with these contracts every
day, but these are the ones you are more apt to look for unfairness.
Ex. OCallaghan case (apartment tenant falls in courtyard, cannot recover because of exculpatory clause
in her lease).
In determining whether clauses in Standard Form Contracts should be deemed void, courts should weigh:
1. Importance which the subject has for the physical and economic well-being of group agreeing to
release
2. Their bargaining power
3. The amount of free choice actually exercised in agreeing to the term/exemption
4. The existence of competition among the group to be emempted
Ex. Graham v. Scissor Tail (Bill Graham signs contract but he wasnt weaker party because hed dealt
with contracts like these all the time. But the contract was unconscionable because the arbitration clause
designated an arbitrator who was presumptively biased towards one side)
There are two judicially imposed limitations on the enforcement of adhesion contracts or provisions:
1. Such a contract or provision, which does not fall within the reasonable expectations of the weaker
or adhering party, will not be enforced against him
2. A contract or provision, even if consistent with the reasonable expectations of the parties, will be
denied enforcement if it is unduly oppressive or unconscionable
1.

2.
3.
4.
5.
6.

Questions to Ask When Trying to Determine Contracts of Adhesion:

See how the market looks. Was there a lot of competition? Was there collusion among vendors?
Could the plaintiff go somewhere else and contract? The apartment tenant could not because of
the housing shortage. If theres lot of competition, youll likely not find unequal bargaining
power because consumers can always go somewhere else.
DONT FORGET THAT THE UNDERLYING RIGHTS TO FREEDOM OF CONTRACT ARE
STILL RECOGNIZED BY COURTS!
Is it a contract of adhesion? Is it a standard form?
Is it unfair (hard to read, hard to understand)? An exculpatory clause might not necessarily be
unfair if theres no collusion or if the buyer knows about it before signing.
Is it unconscionable (is there are a hardship on buyers like the one on Bill Graham)?
Was there bad behavior (small font)?

Ex. Hill v. Gateway. Computer bought over the phone, warranty dispute arises. Held a reasonable
person would know that the contract wasnt formed on the phone; they had to know or should have
known other terms would be enclosed. Its easier for the approve-or-return device than to have to sit

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through a costly and dull step such as a telephone recitation. It was in the ad too the ads suggest that
there are some additional terms and strings attached.
Unconscionability:
NOTE: when deciding whether a contract is unconscionable, remember that unconscionability must exist
at the time the contract was made. Therefore, an event occurring after contract formation that makes the
terms lopsided (e.g., a drought causing the price of oranges to quadruple) cannot result in
unconscionability, alther it may sometimes provide a basis for relief under the doctrine of changed
circumstances.
Theres no one thing that will make a contract unconscionable all the time. Its up to the court to figure
that out. There is no actual fraud or misrepresentation in the contract, and people came into it freely.
People need to have freedom of contract. TO ESTABLISH UNCONSCIONABILITY YOU SHOULD
HAVE A VERY FACT-SPECIFIC CASE WE DONT KNOW THAT MUCH IN THE WILLIAMS
CASE. You need facts that show disparity in bargaining power, facts that show somebody taking
advantage of another, facts to show lack of knowledge on one partys side.
In its modern formulation, unconscionability normally consists of two elements:
1. A procedural element (i.e., an unconscionable bargaining process; unfair bargaining), and
2. A substantive element (i.e., contract terms that are unconscionable without regard to the process
by which those terms were reached, because they are lopsided; the resulting unfair terms).
Ex. Williams v. Walker-Thomas Furniture. Plaintiff had little bargaining power and the terms were
extremely unfair.
Price Unconscionability: Ex. Jones v. Star Credit Corp ($300 stove sold for $1200). Today, common
law and statutory law advises the seller, not just the buyer, to beware. New laws recognize the value of
the free enterprise system but at the same time will protect potential victims from unconscionable
contracts.
Unconscionability between Corporations: The idea of not understanding the terms is often absurd. Sue
your lawyer if you were tricked. Easy cases are big company v. big company (no way); big company v.
little guy (good chance); but the toss-up is the big company v. medium company.
Public Policy: The goal of public policy decisions is often to protect 3rd Parties.
Contracts Void for Violating Public Policy:
1. Illegal subject matter/expressly illegal (drug deal)
2. Nothing in the contract that is expressly illegal (ex. Bovard v. American Horse)
3. What happens when this contract is voided? In Bovard, the plaintiff was left holding the bag. He
was allowed to reclaim all the legitimate stuff (through self-help) but the illegal stuff is
worthless to the court anyway.
Clean Hands: Courts of equity exhibit a special sense of delicacy when confronted with unsavory claims
and claimants. Suits for equitable remedies such as specific performance and rescission are
sometimes disposed of on the colorful maxim, He who comes into equity must come with clean
hands.

15

In Pari Delicto: In circumstances of equal fault, the position of the defendant is more compelling. The
court will leave the parties as it found them. Court does not want to dirty its hands enforcing the bargain.
Ex. Bovard v. American Horse Enterprises (Bovard able to reclaim the machinery that could be used for
lawful purposes; no special public interest in enforcing the contract only interest involved was the
parties resolution of a debt). Even in the absence of a statute, it hadnt been considered illegal yet or the
legislature hadnt gotten around to prohibiting it by statute.
Commercial Bribery: Is a contract that is induced by bribery unenforceable on the grounds of public
policy? One problem with denying recovery is that the buyer retains the goods without paying for them.
If I bribe you to buy cars for your car dealership it would mess up the car business if bribery were
allowed to thrive unpunished. You might be able to get your cars back for unjust enrichment (I got a
benefit). But did you have clean hands? When someone comes into equity they must have clean hands.
Judicially created public policy: Arise when there is no clear statutory prohibition against a particular
against a particular kind of agreement. In such cases, the court must be satisfied nonetheless that a strong
public policy can be articulated. The guiding principal is one of protecting some aspect of the public
welfare.
Ex. Hopper v. All Pet Animal Clinic. Policy here is restraint of trade. Court looks at the restatement and
holds that restraint is only reasonable if it is not injurious to the public, does not impose undue hardship
on the employee, and is no greater than is required for the protection of the employer.
Ex. Simeone v. Simeone (prenuptial contracts exist in a system where individual states have their own
statutes dealing with marital property. Its basically saying, the state law is good enough for everyone
else, but weve decided it doesnt apply to us).
Personal Service Contracts: A court will not order specific performance of a contract that is personal in
nature. You dont want to compel the continuance of personal relations after disputes have arisen and
confidence and loyalty have been shaken (and in some instances, imposing what might seem like
involuntary servitude).

16

Remedies
Expectation (most common damage awarded): Relief granted to the aggrieved promisee should attempt
to put the promisee in the position in which it would have been had the promise been performed.
Reliance: The law might protect a reliance interest by putting the promisee back in the position in which
it would have been had the promise not been made (i.e. put promisee where they would have been if they
had not relied on the broken promise).
Restitution Damages: Make the promisor give promisee the benefit he received from the broken promise.
The law might protect this interest by putting the promisor back in the position it would have been had the
promise not been made. COURTS WANT TO AVOID UNJUST ENRICHMENT!
Three basic rules of contract damages:
5.
6.
7.
8.

Redress breach (compensate nonbreacher), dont punish breacher

Redress means protect nonbreachers expectation (as if breach had not occurred)
Expectation is substitutional ($), not literal
There are exceptions to all these rules in extreme cases! (e.g., when damages are hard to
calculate, when breach involves position of trust or when it involves important public policy
issues (Snepp)

Specific Performance: Rarely given in contracts cases. Only given in instances where money is
insufficient (sale of land, antique sale). In extreme cases, it can be given for things that are needed for
specific public needs or public interests (propane delivery during oil shortage). Specific performance is
an equitable remedy if you dont have clean hands, you wont get it. As a lawyer you have to prove
money is not enough in order to receive specific performance.
A Breach May Affect the Injured Party in Four Ways (P. 469):
1. (Loss in Value) It may cause the injured party a loss by depriving it, at least to some extent, of
the expected return of performance.
2. (Other Loss) The breach may cause the injured party loss other than loss in value, such as
physical harm to that person or property or expenses incurred in an attempt to salvage the
transaction after breach.
3. (Cost Avoided) The breach may have a beneficial effect on the injured party by saving that party
further expense that would have been incurred had performance continued.
4. (Loss Avoided) The breach my have a further beneficial effect on the injured party by allowing
that party to avoid some loss by salvaging and reallocating some or all of the resources that she
otherwise would have had to devote to performance of the contract.

17

General Measure of Expectation Damages:

Formula A: Damages = Loss in Value + Other Loss Cost Avoided Loss Avoided
Formula B: Damages = Cost of Reliance + Profit Loss Avoided + Other Loss
Expectation Damages Calculation Formula A
Contract Price = $1 million

Cost to complete at this point = $400,000

Expectation Damages = Loss in value + other loss cost avoided loss avoided
= Contract price + other loss cost to complete loss avoided
$1 million + $0 - $400,000 - $0 = $600,000
Expectation Damages Formula B
Formula A: Damages = Loss in Value + Other Loss Cost Avoided Loss Avoided
*Cost Avoided = Cost of complete performance Cost of reliance
So, Damages=loss in value + other loss [cost of complete performance cost of reliance] loss avoided
= Loss in value + other loss cost of complete performance + cost of reliance loss avoided
So, Formula B: Damages = expected profit + other loss + cost of reliance loss avoided
Expectation Damages Formula B
Calculating damages in the same building problem, using different (but consistent) information:
Contract Price = $1 million

Cost of complete construction = $900,000

Formula B: Damage = expected profit + other loss + cost of reliance loss avoided
= $100,000 + other loss + $500,000 loss avoided = $600,000 [same as under formula A]
Ex.: Expenses for building material: $200,000
Excavation: $50,000
(Total costs incurred so far = $250,000)
Left to Complete: $310,000
Contract: $500,000
So formula = $500,000 (contract price) - $310,000 (cost avoided) = $190,000
Or formula = $250,000 (cost of reliance, which is costs incurred in performing so far $250,000)
$60,000 expected profit ($500k contract ($250,000 incurred so far + $310k to complete = -$60,000).

18

Summary of UCC Article 2 Remedies

Buyer Breach (Nonpayment)

Seller recovers contract price

Buyer Accepts and Retains
Goods

PLUS
Incidental damages

Buyer Breach (Wrongful

Refusal of Goods)
Seller recovers contract price
minus market price at time you
learn of the breach, not at trial
(UCC 2-713)

Seller Breach (Breach of

Warranty)
Buyer recovers value goods
would have had if they had been
as warranted minus value of
goods accepted
PLUS
Incidental and consequential
damages (consequential damages
are things like lost profits)
Seller Breach (Wrongful
Failure to Tender Goods)
Buyer recovers market price at
time buyer learned of breach
minus contract price

OR
OR
Contract price minus Resale
price
Buyer Does Not Accept and
Retain Goods or Seller Does
Not Tender Goods

OR
Lost Profits (if unlimited supply)

Recovers cost of cover (i.e., cost

of substitute goods) minus
contract price (UCC 2-712)
Note: cover price includes
inflated/deflated market price and
rush delivery fees, etc.

OR
OR
Contract Price (if goods have
been identified to contract and
seller is unable to resell them)

Is entitled to specific
performance if appropriate (e.g.,
if goods are unique)

PLUS
Incidental damages
NOTE: Buyers and sellers are bound by the common law duty to mitigate. Common law rules apply in
the absence of a UCC rule. However, if a UCC rule applies, it trumps the common law rule.
Ex. I own a bike factory and I contract to buy wheels from a wheel factory. If I use wheels on my bikes,
I will make a profit. I can sue the wheel factory if they break the contract and I do nothing to mitigate.
Ill get the market price at the time I learned of the breach minus the contract price. However, if I get
wheels somewhere else I get the difference between the market price of the wheels minus the contract
price of wheels.

19

Lost Volume Seller: If a seller of goods or services has the capacity to supply the full demand for those
goods or services, a breach by one buyer is not substituted for by a subsequent sale of the goods or
services to another customer who would have bought the goods or services in any event. The breach has
caused a loss in the volume of the plaintiffs sales and can only be compensated for by an award of lost
profits.
A lost volume seller is one who has a predictable and finite number of customers and has the capacity to
either sell to all new buyers or to make the one additional sale represented by the resale after the breach.
If the seller would have made the sale represented by the resale whether or not the breach occurred,
damages measured by the difference between the contract price and the market price cannot put the lost
volume seller in as good a position as it would have been had the buyer performed. The breach
effectively cost the seller a profit, and the seller can only be made whole by awarding it damages in the
amount of its lost profit under UCC 2-708(2).
Limitations on Damages
Three Instances for Limiting Expectation Damages:
1. Avoidability (Shirley MacLaine Case)
2. Foreseeability (Hadley Case) As long as the damage is foreseeable, victim may recover
3. Certainty
A Hypothetical
Imagine you own a music store and Mick Jagger contracts with you to buy some instruments and you
dont deliver. What damages can he claim for losing out on a million dollar concert? Alternatively, what
if its just a bar band?
Foreseeability Perspective: If you find out on the day of concert that hes Mick Jagger and this is a
million dollar concert, it still doesnt matter. Damages are limited to those foreseeable to the breacher at
the time the contract was made. Its not just what was actually foreseen theres an objective standard
(you should know what a reasonable person should know).
Avoidability Perspective: Mick has a duty to mitigate damages. If possible, he should do his best to
find instruments the day of the concert. In a town like Davis, that may not be a possibility.
Certainty Perspective: Mick would need to show that that he would certainly lose $1 million dollars.
(He can just count the tickets he sold to show certainty). But what about the bar band? How do you show
with certainty how much they lost? Damages have to be proven with some reasonable certainty, but they
are going to be estimates in most situations (youre guessing to what you would have made, what it would
have been worth).
1. Avoidability: An injured party is not permitted to recover damages that could have been avoided by
reasonable efforts. You have a duty to mitigate damages. Just because the other guy broke the contract
doesnt mean you should be able to stick it to him.
Ex. Rockingham County v. Luten Bridge (County tells plaintiff to cease building bridge, plaintiff
continues doing it. Plaintiff not awarded any damages after the date he was told to stop).

20

Avoidability Under Contracts for the Sale of Goods: In a market economy, it is assumed that the
injured party can generally arrange a substitute transaction, and, under the principle of avoidability, is
expected to do so. If the seller fails to deliver goods, the buyer can go into the market and cover by
obtaining substitute goods, so that the buyers damages should be based on the difference between a
presumably greater price that the buyer will have to pay on the market and the lesser contract price.
(UCC 2-712). If the buyer fails to take and pay for goods, the seller can go into the market and resell to a
substitute buyer, so that the sellers damages should be based on the difference between the presumably
greater contract price and a lesser price it will receive on the market. See UCC 2-706.
Ex. Tongish v. Thomas (p. 495) Price of seeds goes up, Tongish breaches contract to sell to someone else.
Two sides to the argument: A seller should not be rewarded for a bad faith breach of contract (give them
damages based on UCC 2-713) this rule discourages the breach of contracts and encourages a more
efficient market; other view is that its not right for the court to award market damages even though they
are in excess of the plaintiffs loss. The goal of contract law is not to penalize the breaching party, it is to
make the injured party whole.
Wrongfully Discharged Employees: If the employer wrongfully terminates an employment contract,
the employee is under an affirmative duty to exercise reasonable efforts to locate a position of the same
rank and type of work in the same locale. The burden is on the employer to show that such other
positions were available. The general rule is that measure of recovery by a wrongfully discharged
employee is the amount of salary agreed upon for the period of service, less the amount which the
employer affirmatively proves the employee has earned or with reasonable effort might have earned from
other employment.
Avoidability and Cost to Remedy Defect: Cases of defective, as distinguished from merely incomplete,
performance may raise difficult problems of avoidability. If the performance is defective rather than
merely incomplete, however, trouble may arise. In that case, part of the cost to remedy the defect and
complete performance as agreed will probably be the cost of undoing some of the work already done.
The total cost to remedy the defect may then exceed the loss in value to the injured party so that an award
based on that cost would to that extent would be a windfall.
Ex. Jacobs & Young v. Kent (house built without Reading pipe as explicitly required in the contract). If
the defect was insignificant in relation to the project. Cardozo says that the measure of the damages
should not be the cost of replacement, which would have been great, but the difference in value, which
would be nominal or nothing.
Ex. Groves v. John Wunder (gravel case). Contrast to Cardozo case above Owner can contract for
whatever he wants plus, the defendant was WILLFUL in his breach. The land was a major part of the
contract and the amount of waste on the land were not trivial. It was the basis of the contract.
Ex. Peevyhouse v. Garland Coal (strip-mining case). Court says the main purpose of this contract was
not the restoration of the land, but rather, it was for the coal. So the provision in question was
INCIDENTAL, NOT THE MAIN PURPOSE. The mining constituted a profit for all parties the special
provisions of the lease were incidental to the main object involved.
2. Forseeability: Until the 19th century, judges left the assessment of damages for breach of contract
largely to the discretion of the jury. It was no accident that the development of rules to curb this
discretion, and the outrageous and excessive verdicts that resulted, coincided with the end of the
industrial revolution and with a consequent solicitude for burgeoning enterprise.

21

Foreseeability is not just things that are caused by the breach, but the things that were foreseeable before
the contract was signed. In Hadley, its foreseeable if it naturally rises from the breach or something
that a reasonabl person reasonably believed to be aware of. Damages have to be foreseeable to the
breacher at the time the contract was made and its not just what was actually foreseen theres an
objective standard (you should know what a reasonable person would know).
Ex. Hadley v. Baxendale (NOTE: today the principle of Hadley is normally restated to mean that
consequential damages can be recovered only if, at the time the contract was made, the defendant had
reason to foresee the damages as a probable result of the breach.)
NOTE: If an exam question involves recovery of lost profits, be conscious of potential Hadley v.
Baxendale and certainty issues. However, dont be too quick to deny relief. You should mention that
there is a possibility a court will deny recovery of lost profits because they are too speculative, but today
courts will generally award lost profits for an existing business based on prior profits. A court might also
award lost profits for a new business if sufficient evidence can be introduced (e.g., businesses of this type
in this locality usually make profits of about $x).
Foreseeability: Restatement 2d 351
Damages are limited to those foreseeable to the breacher at the time the contract was made
Foreseeable if the follow from the breach:
a. In the ordinary course of events, and/or
b. Due to the special circumstances that party I breach had reason to know
Court may limit damages to avoid disproportionate compensation.
3. Certainty: Damages can be recovered only if their amount is reasonably certain of computation.
Damages that are not reasonably certain of computation are referred to as speculative. Where the
amount is not reasonably certain, the plaintiff can recover only nominal damages. Damages for breach of
contract must be shown, by clear and satisfactory evidence, to have been actually sustained and be
shown with certainty, and no left to speculation or conjecture.
Liquidated Damages: A liquidated damages provision is a provision in a contract that fixes the amount
of damages that will be recoverable in the event of a breach. The enforceability of such a provision
depends on whether the court finds it to be a valid liquidated damages provision or a penalty. There must
be a reasonable good faith effort to estimate actual damages. If theres no good faith effort, and its too
high, it would be a penalty. If the court determines that the provision is a penalty, it is not enforceable,
and the innocent party is limited to whatever actual damages she can prove.
Ex. A promises to pay B $300/day for any delay in completing a building contract. It is clear that when
completed the rental value of the building will only be $300/week. The contractual provision is an
unenforceable penalty, because it is not a reasonable forecast of the damages that will result from breach.
Note: Contract Terminology is not controlling. So a provision calling for $10,000 as liquidated
damages in the event of a breach may be shown to be a penalty and therefore may not be enforceable.
But doesnt this go against freedom to contract? Courts have said you cant contract a penalty even if
you agree to one up front, you still cant collect it. If it is a penalty, the court will be suspicious of even
the possibility of there being a freedom of contract.

22

The Parol Evidence Rule

PAROL EVIDENCE DOESNT NECESSARILY PROVE ANYTHING IF PAROL EVIDENCE IS
ALLOWED, ALL IT MEANS IS THAT YOU CAN SHOW IT TO THE JURY; IT DOESNT
NECESSARILY MEAN YOULL WIN!
THE CONTRACT MUST BE IN WRITING FOR THE PAROL EVIDENCE RULE TO APPLY IF
THE CONTRACT IS ORAL, ANY PRIOR OR CONTEMPORANEOUS ORAL OR WRITTEN
AGREEMENTS MAY BE USED TO EXPLAIN IT.
BEHAVIOR AFTER THE CONTRACT IS SIGNED IS NOT PAROL EVIDENCE (See Bollinger Case)
Parol evidence is evidence of prior agreements or negotiations. The parol evidence rule assumes there
was something prior to the contract. Ask:
* Was there a written contract?
* If so, would the source of the dispute naturally have been in the contract, or was it something that would
have been a side agreement?
Finding the Parol Evidence Rule Requires a Two-Step Process:
Step 1: Can extrinsic evidence be used to contradict terms of the agreement?
Ask: Have parties adopted a writing as the final expression of one or more terms?
If so, the agreement is integrated, meaning parol evidence (evidence of prior agreements or
negotiations) may not be admitted to contradict terms in the agreement (Rest 2d 209, 205)
Step 2: If integrated, can extrinsic evidence be used to add terms to the agreement?
Ask: Did parties intend the integrated agreement to be the complete and exclusive statement of the terms?
If so, the agreement is a complete integration, meaning parol evidence may NOT be admitted to add any
terms. (Rest.2d 210, 216)
Ex. Gianni v. Russell Co. (Plaintiff rents a room in s office building; as part of written agreement,
said he would not sell tobacco under the lease. claims in return he would get exclusive right to sell soft
drinks. Drugstore comes in and sues. He loses). The court admits their purpose is to stand for the
integrity of written contracts. Since this agreement was not written, it should not be accepted, as future
Giannis might make stuff up.
Ex. Bollinger v. Central PA Quarry (s allow to deposit road-building waste on their property. s
claim there was a mutual understanding waste would be placed under topsoil. It wasnt in the contract,
but s assumed the condition had been incorporated. s dont do this after a while). Held: It was a
mutual mistake that this provision wasnt included in the contract. If hadnt agreed to dump the waste
and cover it, they would never have started doing it in the first place. They did this for s neighbors
obvious there was an agreement to do this.

23

Summary of the Parol Evidence Rule (See Also UCC 2-202)

General Rule: Parol Evidence Is NOT ALLOWED If:
There is a fully integrated contract (final and complete expression of agreement)
The evidence is of an earlier written or oral agreement or a contemporaneous oral agreement
within the scope of the contract; and
The evidence attempts to vary, add, or contradict the terms of the contract
Exceptions: Parol Evidence MAY BE ADMISSIBLE If:
Contract is final but not complete something final is not there (But you might never know when
the contract is complete Tom Joo);
Its arguable its not clear (See PG&E case, below);
Offered to show lack of consideration, fraud, duress, or mistake;
Offered to show a condition precedent to effectiveness of the final contract;
Offered to explain or interpret terms of the contract;
It concerns a modification of the contract (i.e., later agreement);
It concerns a naturally omitted term; or
Separate consideration was given for the parol agreement.
Interpreting Contract Language: Subject and Objective Meanings: Trade Usage:
Sources for Interpreting Contract Language:
1. The contract itself (Plain meaning)
2. Extrinsic Evidence THE MODERN TREND IS TO ALLOW EXTRINSIC EVIDENCE
AND LET THE JURY DECIDE WHAT THEY BELIEVE!
a. Parties actions & communications (watch out for the parol evidence rule!)
b. Objective meaning
3. Trade usage: Applies to people in the trade, not to those who are new or not in it. However,
when its something that everyone should know, people not in the trade can be applied.
a. Other (e.g., government, dictionaries)
Subjective Intent: words mean what the parties think they mean.
Objective Intent: words have one definite meaning.
Note: If both parties disagree as to what the terms of the contract are, there may be no contract at all
because it lacks mutual assent.
Ex. Oswald v. Allen (Swiss coins or All Swiss coins case). Quotes Professor Young: When any of the
terms used to express an agreement is ambivalent, and the parties understand it in different ways, there
cannot be a contract unless one of them should have been aware of the others understanding. Even
though the mental assent of the parties is not requisite for the formation of a contract, the facts found by
the trial judge clearly place this case within the small group of exceptional cases in which there is no
sensible basis for choosing between conflicting understandings.
If contractual language is reasonably susceptible to an alternate meaning, then extrinsic evidence should
be considered to determine what the parties intended.
1. Usually an objective meaning will prevail
2. Another good indicator is trade usage

24

Frigaliment v. BNS: the term chicken was interpreted to include all chickens, not just young ones.
Despite s attempt to argue that everyone knows chickens to mean young ones, this was rejected. In
this case, the parol evidence rule did not apply because no one could agree on what chicken really
meant. The court looked at the subjective and objective intent of the parties. Judge Friendly came to the
conclusion that there was not an agreement as to what constituted a chicken.
Raffles v. Wichelhaus: agrees to sell cotton arriving on the ship Peerless from Bombay at a port in
Liverpool. s refused to accept goods or pay for them when it arrives b/c it turns out there was another
ship called Peerless that sailed earlier in the year that s intended to deal with. Time of sailing was NO
part of the contract. Since each side had a different ship in mind, there was no consensus, so there was no
binding contract to breach. The objective meaning prevails.
Extrinsic Evidence: Today, there is an increasing tendency to be more liberal and allow extrinsic
evidence to show what the parties intended by their words, without regard to the plain meaning of
words
PG&E v. Thomas: Repair company agrees to indemnify electric company against any injury to
property caused while repair company is fixing PG&Es machinery. Extrinsic evidence is admissible to
show that this terms means injury to the property of 3rd persons, not injury to PG&Es own property.
Filling Gaps, Duty to Perform in Good Faith, Industry Practice
Three-Step Approach to Filling Gaps
1. Identify that a gap (can I do this under the contract even though it doesnt specifically say I can or
cannot?)
exists; the parties will disagree on some point, yet the contract says nothing on the matter and there is no
parol evidence
2. Explain that gaps are usually filled by interpretation of good faith or best efforts
3. Define good faith by examining industry practice. If industry practice can be used to support either
sides argument, then explain how.
a. Evidence of prior dealings may also define good faith or best efforts
Dalton v. ETS: ETS doesnt have to consider all the information Dalton submits, but if it is relevant, they
must consider it. In order for Dalton to have some sort of protection, ETS cant have unlimited
discretion. Holding that his information is not relevant is okay, but you have to give a good-faith review
of the information first. However, if he claimed he was abducted by aliens, they dont have to consider it.
Burger King v. Weaver: Burger King opens a restaurant in Weavers area. Weaver considered this a
breach of his franchise agreements, although neither gave him exclusive right or contained a provision
relating to competition by BK. Unlike ETS, theres no contract provision that is subject to review. Hes
just trying to pull out an express provision from nowhere. Theres no gap in this case!

25

Substantial Performance
Substantial performance fits into the meaning of conditions (for services). I promise to work, you
promise to pay (condition is that you have to work first). The substantial performance doctrine is
mitigating. My work is conditional on your duty to pay. The question becomes what if my work is
defective? Has the condition been satisfied? Ive substantially completed the work, but its just a little
defective. The condition of you paying is for me to substantially perform. You dont have to pay me
everything, just the cost of my substantial performance.
Substantial performance = Contract price Cost to fix defect
OR
Substantial performance = Contract price Diminishment in Market Price
But What is the cost of defect? Is it like Jacobs & Young, which would have been taking out the pipes?
Its more like the fair market price.
Plante v. Jacobs: House built with misplaced wall, which would cost $4000 to fix but adds $0 market
value. Homeowners do recover money to fixed gutters, sidewalk and a missing bench. They could still
live in the house, so the purpose of the contract was achieved. In the boathouse case they mentioned, the
guy didnt get what he bargained for (he didnt get a boathouse).
The Perfect Tender Rule (UCC 2-601)
Based on the premise that you have to tender your GOODS perfectly (doesnt apply to services or real
estate). A buyer was entitled to reject goods unless the seller made a perfect tender. The requirement
of perfection covered not only the quantity and quality of the goods but also the detail of the shipment.
The buyers right to reject did not depend on the buyers having been harmed by the breach! So if you no
longer needed the goods or the market price had fallen, you could outright reject if tender wasnt perfect.
But if Ive tendered the goods early, the contract isnt moot I can go back and do it for you the way you
want. If seller had a good reason to believe the defect wouldnt be problematic, you could bring that up in
court too (if you indicated a wrong color might be ok, I can argue that I didnt know you didnt want that
color).
Cf. Forfeiture: After Ive done work, I cant take it back. With goods, theres less of a forfeiture problem
Changed Circumstances Mutual Mistake, Impossibility and Frustration
In ordinary language, the term mutual mistake means a shared mistake made by both of the parties to a
contract. As used in contract law, however, the term normally refers to a special kind of mutual mistake,
namely, a mistaken assumption shared by both parties as to the conditions of the outside world.
The failure of basic assumption is the idea that you made an agreement based on certain understandings
and those understandings turned out to be inaccurate.
Renner v. Kehl: The jojoba case. Renner told the sellers that water was key and EVERYONE thought
water was there. NEITHER SIDE BROKE THE CONTRACT AND NOBODY DID ANYTHING
WRONG. Theres no breach!
Cf. Watkins v Carrig (sheet rock case). No one assumed there was no rock, and the contract said All
material shall be removed. The all went forward without knowing there was rock. And this case comes
from New Hampshire, The Granite State.

26

There are two different varities of failed assumption

Mistake: There is a mistake as to what the parties are agreeing upon (Renner). We agreed to the same
thing (unlike the Swiss coin collection case, mutual assent is not missing). However, the party adversely
affected has an excuse. Contract is voidable by the affected party. Only the adversely affected party
can get out the Kehls couldnt get out.
AND
Impracticability (Frustration, Impossibility): This is known as changed circumstances. We didnt make
any changes at the time of the agreement, but afterwards, something happened. Again, contract is
voidable by the affected party.
General Rule Mutual Mistake: The modern rule is that where parties enter into a contract under a
mutual mistake concerning a basic assumption of fact on which the contract was made, the contract is
voidable by the adversely affected party if the mistake has a material effect on the agreed exchange and
the adversely affected party did not bear the risk that the assumption was mistaken.
Relief For Mistake: You can sue to rescind the contract (jojoba case). NOTE that you can only sue on
grounds to get out of the contract (cant use mistake to get expectation damages).
When is mistake an Excuse? (Rest. 2d 152)
A mutual mistake allows a party to void the contract if:
* It goes to the basic assumption (theres water there)
* It has a material effect on agreed exchange of performances (cant get jojoba here)
* I do not bear the risk of the mistake (Renner did not bear the risk of the mistake, and there was nothing
in the contract it usually is never in the contract because it is a mutual mistake)
General Rule Impracticability/Impossibility: Performance of a contract will normally be excused if
the performance has been made impossible more accurately, impracticable by the occurrence of an
event whose nonoccurrence was a basic assumption on which the contract was made, unless the adversely
affected party has explicitly or implicitly assumed the risk that the contingency might occur.
Taylor v. Caldwell: s own music hall and rent it to s. Before the party the place burned down. Court
rules for s under the assumption that they could not perform unless the hall was there (implied
assumption).
Impracticability (Restatement2d 261)
I am excused from performing if, after the contract is made:
* My performance becomes impracticable (impossible)
* Without my fault
* By an event whose nonoccurrence was a basic assumption of the contract
* [As long as the language or circumstances dont indicate otherwise]

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Mistake and Impracticability Differ in Terms of:

Time:
* Mistake (at the time we contracted, I thought there was water under the land);
* Impracticability Mistake (could you have found out and did you make reasonable efforts to do so?)
* Impracticability (not something you could have know through investigation in time. Who could have
protected this from happening in Taylor? Insurance, sprinklers, etc.)
Effect
* For mistake, it doesnt make it harder to perform (theres no water, but that doesnt necessarily make it
harder for Renner to pay for the land). Theres a basic assumption about the goods we bargained for the
wrong thing.
* Impracticability makes it harder or impossible to perform (theres no hall to hold the show)
Selland v. King: IMPOSSIBLE to make buses as plan Superior went out of business. Good lesson in
contract writing be sure to be absolutely clear to let them know what you want. If school bus bodies
from Superior are not available, we will accept the following)
Frustration of Purpose
(I can still do what I bargained for, but I dont want to anymore)
Krell v. Henry: rents out rooms for coronation. The contract is renting rooms, the PURPOSE of the
contract is to see the coronation (it was in the ad). Court finds is excused from performing his
remaining duties (he doesnt get his deposit back, he just doesnt have to pay the rest). Thus, it does
allow the parties to allocate the risk. Joo doesnt think it would be right if got his deposit back. It
should be about allocation of risk let the landlord keep his deposit, if he doesnt ask for one, he doesnt
get any.
Note: Frustration is a defense, not a cause of action (its a shield, not a sword). The tenant cannot say I
can sue you now to fulfill the purpose, because the cancellation is beyond the landlords control (no
indication he breached).
Frustration (Restatement 2d 265)
I am excused from performing my remaining duties if, after the contract is made:
* My principal purpose is substantially frustrated
* Without my fault
* By an event whose nonoccurrence was a basic assumption of the contract
* As long as language or circumstances do not indicate otherwise
Swift Canadian: Swift didnt promise to bring the pelts into the USA. Lamb pelt case. Since s
purpose was to get them into the USA, their purpose is frustrated. Court says this argument cannot stand
because the rest of the world is open to s (principal purpose not substantially frustrated). If this were
something you could only use in Pennsylvania, then you could get out of it.

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Condition (I promise to wash your car IF the weather is nice) and Duty
Condition: Classic example is Luttinger v. Rosen. The condition is that IF the homebuyer can find an
8.5% mortgage they will meet their duty to buy a house. You CANT sue them for not finding the
mortgage because they did a reasonable search and tried as hard as they could to find one.
Duty and Condition: You promise to wash my car (Duty) I promise to pay (Duty)
Condition: You will get paid IF you wash the car or you will only was the car IF you get paid first (Our
culture is work first, pay later). Somebodys got to go first.
Carmen will argue that she has performed the contract, but H will argue that his promise to pay was
conditional on Carmen making the building face Main, or that Carmen failed to substantially perform the
contract.
Exam responses to ponder:
Wong might argue that the contract was divisible and that he was to be paid $50,000 for each hotel.
Under this theory, he would be entitled to $40,000 for the first hotel. Alternatively, he may seek damages
based on Pennys unjust enrichment rather than his expectation. So he will claim the $35,000 she
received from selling to the state. It is unfair for Penny to renege on a deal then profit from it.
Penny will respond that it is not clear that all the $35,000 is unjust enrichment due to Wongs work. The
buildings probably at least had some value before Wong did the work. Penny will insist that Wong prove
how much of the $35,000 was due to his work and that his damages be limited to that amount.
Penny will argue that is was a single contract. Wong cant have it both ways if he insists hes entitled to
expectation damages on the first hotel, then he is entitled only to expectation on the second hotel, which
would net him no damages. He cant break a single losing contract into a profitable one and a losing one.
Shell say even if she is in breach, Wong should get no damages, Penny will argue that the proper
measure of Wongs damages is expectation.
Unallocated Risk
There was an unexpected change in circumstances the risk was unallocated (contract did not say who
would bear the risk if this happened).

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