Index

Introduction Basic definitions

Contracts I / Barron

o o o

Contract (1) Promise (2) Manifestation of intention (2B, 4)

Basic requirements for the formation of a contract

Requirements (17)

Parties involved in the formation of a contract

Capacity to contract (12)

Under guardianship (13) Infant (14) Mentally ill or defective (15) Intoxicated (16, 16B)

Voidable contracts

o o o o o

Definition (7) Grounds (7B) Parties (7B) Consequences (7C)

Infants (7C)

Loss by affirmance (380)

Role of public policy in rendering a contract voidable

o o o o
Offer

Unenforceability of terms (178) Basis of unenforceability (179) Term exempting from liability for harm caused intentionally, recklessly, or negligently (195) Product liability (195C)

Basic definitions

o o o o o

Offer (24) Bargain (3) Agreement (3) Course of dealing (223) Usage of trade (222)

Has an offer been made?

o o

Factors (26) Certainty (33) Missing pieces of information

Course of dealing (223) Usage of trade (222)

Supplying an omitted essential term (204)

Preliminary negotiations (26) Quotes (26)

Ads (26B)

General offers (29B)

Manifestation of assent

Creation of power of acceptance (29B) Termination of power of acceptance (46)

o o o

Mode of assent: offer and acceptance (22) Necessity that manifestation have reference to each other (23) Conduct as manifestation of assent (19)

Reason to know (19B) Voidable manifestations (19)

Destroying the offer

Meeting of the minds (19D, 29A)

Misunderstandings (20)

o
o

Power of acceptance (35, 36) Rejection or counteroffer by the offeree

Rejection (38)

Receipt of rejection (68)

Point of receipt (68A) Misunderstanding the manifestation of intention (38B)

Counteroffer (39) Acceptance after rejection or counteroffer (40)

Lapse of time (41)

Reasonable time (41)

Indirect negotiation (41, 49) Direct negotiation (41D)

Reasonable time in fluctuant markets

Revocation by the offeror

Receipt of revocation (68)

Preserving the offer

Point of receipt (42, 68A)

Direct revocation (42) Persons [UCC 1-202(d), (e)] Organizations [UCC 1-202(f)]

Indirect revocation (43, 43C) Acquisition of information [UCC 1-202(a), (c)] Negotiations with a third person (43D) Rumors and the reasonable person standard (43D)

Death or incapacity of the offeror or offeree (48)

Option contract (25, 25A)

Requirements (87)

Signature (134)

Form (134A)

 o o o
Acceptance

Place (134B) Time (134C)

Recital of consideration (87C) Reasonable time (UCC 2-205)

Types of option contracts (25C) With consideration (25C) Without consideration (25C)

Role of reliance (87) Reliance and part performance (87E) Remedies (87E)

Effect of option contracts (25D, 37B, 37)

The offeror as the master of the offer

o o

To whom is the offer made? (29) How can the offer be accepted? (50, 60)

In case of doubt (32)

o
Mirror image rule

Acceptance by performance (50) Acceptance by promise (50)

Effect of equivocal acceptance (57)

Under classic contract law

Under the Restatements (58, 61, 59) Under the CISG (CISG 19) Under the UCC [UCC 2-207(1), (2)]

Last shot rule Under classic contract law Under the UCC [UCC 2-207(3)]

Unspecified manner of acceptance (30) Reasonableness of medium of acceptance (65)

Promissory acceptance

Circumstances relevant to reasonableness (65B)

o
o

Notification of acceptance (56) Acceptance by telephone

General rule (64) Rationale (64A) Misunderstandings (64B)

Acceptance in writing

Mailbox rule (63)

Option contracts (63) Exceptions to the mailbox rule (66C, 40)

Receipt of acceptance (68) Point of receipt (68A)

Receipt of acceptance improperly dispatched (66, 67)

o o o

Other precautions (66C)

Acceptance by performance When can acceptance by performance take place? (53) Notification of acceptance (54) Effect of performance where offer invites either performance or promise (62, 62B)

The offerees power to choose (62A) Exception (62B)

Effect of performance where offer requires performance

o o
Mistake

When does performance constitute an acceptance? (45)

Exception (45B)

When does performance not constitute an acceptance? (53)

Preparation for performance (62D, 45F) Effect of part performance without knowledge of offer (51, 51B)

Acceptance by silence or inaction (69)

o o o o

Definition (151) Mutual mistake (152) Unilateral mistake (153) Determining fault (154)

Consideration

Consideration

Definition [71(1)]

Performance [71(3), 72] Return promise (75) Bargained for [71(2)]

Adequacy (79)

Bargains and gifts (71C)

Who must receive the value of the performance or the return promise? [71(4)]

Equivalence (79C) Gross inadequacy (79E)

o o o o

Unconscionable contract or term (208)

Good faith (74B)

Factors of unconscionability (208D)

Settlements of invalid claims (74)

Conditional promises (76) Illusory promises (77)

Definition (77A)

Performance of legal duty (73) Modification of executory contracts (89)

Modification under the UCC [UCC 2-209(1)]

Past performance (86)

Threat

By a party (175)

Threat to breach (176E)

By a non-party (175) When threat may be improper (176)

Duress (174)

Promissory estoppel

Definition (90)

Statute of Frauds

Classes of contracts covered under the Statute of Frauds (110)

o
o

Interest in land (127) Land provision (125, 126) One-year provision (130)

General requisites of a memorandum (131) Consequences of non-compliance

Remedies Remedies

Unenforceability (138) Enforcement by virtue of action in reliance (139)

The justice requirement (139)

Purpose (344)

o o

Available remedies (345) Available damages (346)

Measure of damages based on expectation interest

o o

Formula (347) Loss in value (347B)

o o o

No performance (347B) Partial performance (347B) Loss of profit (347B) Alternatives to loss in value of performance (348)

Other loss (347C) Incidental loss (347C) Consequential loss (347C)

Cost avoided (347D) Loss avoided (347E)

Measure of damages based on reliance interest (349)

o o o o

Formula (349A)

Limitations Avoidability (350) Unforeseeability (351)

o o

When a loss is foreseeable (351)

Uncertainty (352) Requirement (352A) Resolving doubts (352A)

Loss due to emotional disturbance (353) Punitive damages (355)

Interest as damages (354) Availability of specific performance and injunction

o o o

Specific performance (357) Injunction (357)

Adequacy of damages (359) Factors (360)

Effect of difficulty in enforcement or supervision (366)

Introduction
A. Definition of contract, promise, and manifestation of intention

I. Contract: A contract is a promise or a set of promises for the breach of which the law grants a remedy, or the performance of which the law in some way recognizes as a duty. ( 1)

II. Promise: A promise is a manifestation of intention to act, or refrain from acting, so made as to justify a promisee in understanding that a commitment has been made. ( 2)

III. Manifestation of intention: The phrase manifestation of intention adopts an external or objective standard for interpreting conduct; it means the external expression of intention as distinguished from undisclosed intention. A promisor manifests an intention if he believes or has reason to believe that the promisee will infer that intention from his words [either oral or written ( 4)] or conduct. ( 2B)

B. Basic requirements for the formation of a contract

I. Requirements: The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange that is, an offer and an acceptance and a consideration. ( 17)

C. Parties involved in the formation of a contract

I. Capacity to contract: The parties involved in the formation of a contract must have capacity to contract, either full or partial, which may depend upon the nature of the transaction or upon other circumstances. ( 12) A person has full capacity to contract unless he is:

o o o

a) under guardianship: A person has no capacity to incur contractual duties if his property is under guardianship by reason of an adjudication of mental illness or defect. ( 13) b) an infant: An infant has the capacity to incur only voidable contractual duties until the beginning of the day before his eighteenth birthday. ( 14) c) mentally ill or defective: A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect he is unable to understand in a reasonable manner the nature and consequences of the transaction, or he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. ( 15)

i) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires. ( 15)

d) intoxicated: A person has the capacity to incur only voidable contractual duties if the other party has reason to know that by reason of intoxication he is unable to understand in a reasonable manner the nature and consequences of the transaction, or he is unable to act in a reasonable manner in relation to the transaction. ( 16)

i) A contract made by a person who is so drunk he does not know what he is doing is voidable if the other party has reason to know of the intoxication. Where there is some understanding of the transaction despite intoxication, avoidance depends on a showing that the other party induced the drunkenness or that the consideration was inadequate or that the transaction departed from the normal pattern of similar transactions. ( 16B)

D. Definition of voidable contracts

I. Voidable contract: In a voidable contract, one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or, by ratification of the contract, to extinguish the power of avoidance. ( 7)

II. Grounds: Typical instances of voidable contracts are those where one party was an infant, or where the contract was induced by fraud, mistake, or duress, or where breach of a warranty or other promise justifies the aggrieved party in putting an end to the contract. ( 7B) Public policy may also render a contract voidable. [See Section E below.]

III. Parties: Usually, the power of avoidance is confined to one party to the contract, but where, for instance, both parties are infants, or where both parties enter into a contract under a mutual mistake, the contract may be voidable by either one of the parties. ( 7B)

IV. Consequences: The legal relations that exist after avoidance vary with the circumstances. In some cases, the party who avoids the contract is entitled to be restored to a position as good as that which he occupied immediately before the formation of the contract; in other cases, the parties may be left in the same condition as at the time of the avoidance.

a) Infants: Although in many cases the power of avoidance exists only if the original situation of the parties can be and is restored at least substantially, this is not necessarily the rule in the case of an infant. An infant is allowed to avoid his contract without this qualification, so that when the infant exercises his power the parties frequently are left in a very different situation from that which existed when the contract was made. ( 7C)

V. Loss by affirmance

a) A partys power of avoidance for incapacity, duress, undue influence or abuse of a fiduciary relation is lost if, after the circumstances that made the contract voidable have ceased to exist, he manifests to the other party his intention to affirm it, or acts with respect to anything that he has received in a manner inconsistent with disaffirmance. ( 380)

b) A partys power of avoidance for mistake or misrepresentation is lost if, after he knows or has reason to know of the mistake or of the misrepresentation if it is non-fraudulent, or knows of the misrepresentation if it is fraudulent, he manifests to the other party his intention to affirm it, or acts with respect to anything that he has received in a manner inconsistent with disaffirmance. ( 380)

E. Role of public policy in rendering a contract voidable

I. Unenforceability of terms: A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable, or the interest in its enforcement is clearly outweighed by a public policy against the enforcement of such terms.

a) In weighing a public policy against enforcement of a term, account is taken of: (1) the strength of that policy as manifested by legislation or judicial decisions, (2) the likelihood that a refusal to enforce the term will further that policy, (3) the seriousness of any misconduct involved and the extent to which it was deliberate, and (4) the directness of the connection between that misconduct and the term.

b) In weighing the interest in the enforcement of a term, account is taken of: (1) the parties' justified expectations, (2) any forfeiture that would result if enforcement were denied, and (3) any special public interest in the enforcement of the particular term. ( 178)

II. Bases of unenforceability: A public policy against the enforcement of promises or other terms may be derived by the court from legislation relevant to such a policy, or the need to protect some aspect of the public welfare. ( 179)

III. Term exempting from liability for harm caused intentionally, recklessly or negligently: A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy. A term exempting a party from tort liability for harm caused negligently is unenforceable on grounds of public policy only if: o (1) the term exempts an employer from liability to an employee for injury in the course of his employment, o (2) the term exempts one charged with a duty of public service from liability to one to whom that duty is owed for compensation for breach of that duty, or

(3) the other party is similarly a member of a class protected against the class to which the first party belongs. ( 195)

a) Product liability: A term exempting a seller of a product from his special tort liability for physical harm to a user or consumer is unenforceable on grounds of public policy unless the term is fairly bargained for and is consistent with the policy underlying that liability. ( 195) This might be the case, for example, of a term in a fairly negotiated contract between two merchants for the sale of an experimental product. Such a term would not, however, affect the rights of one who was not a party to the contract. ( 195C)

F. Definition of quasi-contracts

I. Definition: Quasi-contracts are obligations created by law for reasons of justice, and are not based on the apparent intention of the parties to undertake the performances in question, nor are they promises. ( 4B)

a) Enforcement: Enforcement is based on unjust enrichment of one party over another; that is, when one party has given non-gratuitous value to another in circumstances under which the law will imply a contract in order to avoid injustice. In these cases, the court will look at the actions of the parties providing and receiving the value to determine whether it is fair to enforce the quasi-contract.

i) Ability to refuse: The party receiving the value must have had the ability to refuse and must have decided against doing so, unless the party providing the value has a reasonable excuse for not giving the party receiving the value the right to refuse it.

Offer
A. Definition of offer, bargain, agreement, course of dealing, and usage of trade

I. Offer: An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. ( 24)

II. Bargain: A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. ( 3)

III. Agreement: An agreement is a manifestation of mutual assent on the part of two or more persons ( 3); it means the bargain of the parties in fact as found in their language or by implication from other circumstances, including course of dealing or usage of trade.

IV. Course of dealing: A course of dealing is a sequence of previous conduct between the parties to a particular transaction, which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. ( 223)

V. Usage of trade: A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. It may include a system of rules regularly observed although particular rules are changed from time to time. The existence and scope of a usage of trade are to be determined as questions of fact, unless a usage is embodied in a written trade code or similar writing, in which case the interpretation of the writing is to be determined by the court as a question of law. ( 222)

B. Has an offer been made?

I. Factors: In determining whether an offer is made, relevant factors include the terms of any previous inquiry, the completeness of the terms of the suggested bargain, and the number of persons to whom a communication is addressed. ( 26)

II. Certainty: Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain; that is, if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. ( 33)

a) Missing pieces of information: Common law uses course of dealing and usage of trade in order to determine missing pieces of information in an offer.

i) A course of dealing between the parties may give meaning to, or supplement or qualify, their agreement. ( 223) ii) A usage of trade in the vocation or trade in which the parties are engaged, or a usage of trade of which they know or have reason to know, may give meaning to, or supplement or qualify, their agreement. ( 222)

b) Supplying an omitted essential term: When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court. ( 204)

 C. Preliminary negotiations

I. General rule: A manifestation of willingness to enter into a bargain is not an offer, but an invitation for preliminary negotiations, if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. ( 26)

II. Quotes: A quotation of price is usually a statement of price per unit of quantity; it may omit the quantity to be sold, time and place of delivery, terms of payment, and other terms. It is sometimes associated with a price list or circular, but the word quote is commonly understood as inviting an offer rather than as making one, even when directed to a particular customer. However, there are instances in which the word quote may be used in an offer. ( 26)

a) Language: The language and terms of the quotation or document in question must be scrutinized to determine whether an offer was intended.

III. Ads: Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell. The same is true of catalogues, price lists and circulars, even though the terms of suggested bargains may be stated in some detail. However, it is possible to make an offer by an advertisement directed to the general public, but there must be some language of commitment or an invitation to take action without further communication. ( 26B)

a) General offers: A general offer may be made by advertisement in a newspaper or other general notification to the public or to a number of persons of identity unknown to the offeror. ( 29B)

i) Creation of power of acceptance: A general offer creates separate powers of acceptance in an unlimited number of persons, and the exercise of the power by one person may or may not extinguish the power of another. Where one acceptor only is to be selected, various methods of selection are possible, such as first come, first served, the highest bidder, or the winner of a contest. ( 29B)

ii) Termination of power of acceptance: The offeree's power of acceptance is terminated when a notice of termination is given publicity by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available. ( 46)

D. Manifestation of mutual assent

I. General rule: 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, and it may be made [wholly or partly by written or spoken words, or by other acts or by failure to act ( 19)] even though neither offer nor acceptance can be identified, and even though the moment of formation cannot be determined. ( 22) However, it is essential to a bargain that each party manifest assent with reference to the manifestation of the other. ( 23)

II. Conduct as manifestation of assent: The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents. ( 19)

a) Reason to know: A person has reason to know a fact, present or future, if he has information from which a person of ordinary intelligence would infer that the fact in question does or will exist. A person of superior intelligence has reason to know a fact if he has information from which a person of his intelligence would draw the inference. There is also reason to know if the inference would be that there is such a substantial chance of the existence of the fact that, if exercising reasonable care with reference to the matter in question, the person would predicate his action upon the assumption of its possible existence. ( 19B)

b) Voidable manifestations: The conduct of a party may manifest assent even though he does not in fact assent, in which case the resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause. ( 19)

i) Meeting of the minds: A lack of mental assent does not render a contract voidable. ( 19D) If a person knows or has reason to know that he is creating an appearance of an offer or assent, the person may be bound by that appearance. ( 29A)

c) Misunderstandings: There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (1) neither party knows or has reason to know the meaning attached by the other, or (2) each party knows or each party has reason to know the meaning attached by the other. However, the manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (1) 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 (2) 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. ( 20)

E. Destroying the offer

I. Power of acceptance: An offer gives to the offeree the power of acceptance, which is the power to close the deal by acceptance of the offer, unless the power of acceptance is terminated. ( 35) The power of acceptance may be terminated by the non-occurrence of any condition of acceptance under the terms of the offer, or by rejection of counteroffer by the offeree, lapse of time, revocation by the offeror, and death or incapacity of the offeree or offeror. ( 36)

II. Rejection or counteroffer by the offeree: An offerees power of acceptance is terminated by his rejection of the offer or by his submission of a counteroffer as a way to reply to the original offer.

a) Rejection: A rejection is a manifestation of intention not to accept an offer, unless the offeree manifests an intention to take it under further advisement. An offeree's rejection of the offer terminates his power of acceptance, unless the offeror has manifested a contrary intention. ( 38)

i) Receipt of rejection: A written rejection is received when the writing comes into the possession of the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him. ( 68)

i.1) Point of receipt: A written communication may be received though it is not read or though it does not even reach the hands of the person to whom it is addressed. ( 68A) [Compare to UCC 1-202(d) and (e) on when a notification is received by a person, and to UCC 1-202(f) on receipt by an organization. See below.]

ii) Misunderstanding the manifestation of intention: If the offeror is justified in inferring from the words or conduct of the offeree, interpreted in the light of the offeror's prior words or conduct, that the offeree intends not to accept the offer and not to take it under further advisement, the power of acceptance is terminated. ( 38B)

b) Counteroffer: A counteroffer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. An offeree's counteroffer terminates his power of acceptance, unless the offeror or the offeree, by means of his counteroffer, manifests a contrary intention. ( 39)

e) Acceptance after rejection or counteroffer: Although rejection and counteroffer by mail or telegram do not terminate the power of acceptance until received by the offeror, they limit the power of acceptance so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counteroffer is only a counteroffer unless the acceptance is received by the offeror before he receives the rejection or counteroffer. ( 40)

III. Lapse of time: An offerees power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. ( 41)

a) Reasonable time: What is a reasonable time is a question of fact depending on the circumstances existing when the offer and attempted acceptance are made. ( 41)

i) Indirect negotiation: Unless otherwise indicated by the language or the circumstances, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received. ( 41) However, if communication of an offer to the offeree is delayed, the period within which a contract can be created by acceptance is not thereby extended if the offeree knows or has reason to know of the delay, though it is due to the fault of the offeror; but if the delay is due to the fault of the offeror or to the means of transmission adopted by him, and the offeree neither knows nor has reason to know that there has been delay, a contract can be created by acceptance within the period which would have been permissible if the offer had been dispatched at the time that its arrival seems to indicate. ( 49)

ii) Direct negotiation: The time for acceptance does not ordinarily extend beyond the end of the conversation unless a contrary intention is indicated. A contrary intention may be indicated either by express words or by the circumstances. ( 41D)

b) Reasonable time in fluctuant markets: A reasonable time is that which does not grant the offeree an opportunity to take advantage of the fluctuation of the market.

IV. Revocation by the offeror: An offeree's power of acceptance is terminated when the offeror revokes his offer, which, with the exception of firm offers, may happen at any time prior to acceptance.

a) Receipt of revocation: A written revocation is received when the writing comes into the possession of the person addressed, or of some person authorized by him to receive it for him. ( 68)

i) Point of receipt: Under 42, a revocation if sent from a distance must be received in order to be effectual. However, a written communication may be received though it is not read or though it does not even reach the hands of the person to whom it is addressed. ( 68A) [Compare to UCC 1-202(d) and (e) on when a notification is received by a person, and to UCC 1-202(f) on receipt by an organization. See below.]

b) Direct revocation: The offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. ( 42)

i) A person notifies or gives a notice or notification to another person by taking such steps as may be reasonably required to inform the other person in ordinary course, whether or not the other person actually comes to know of it. A person receives a notice or notification when it comes to that person's attention, or it is duly delivered in a form reasonable under the circumstances at the place of business through which the contract was made, or at another location held out by that person as the place for receipt of such communications. [UCC 1-202(d) and (e)]

ii) Notice, knowledge, or a notice or notification received by an organization is effective for a particular transaction from the time it is brought to the attention of the individual conducting that transaction and, in any event, from the time it would have been brought to the individual's attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless the communication is part of the individual's regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information. [UCC 1-202(f)]

c) Indirect revocation: The offeror takes definite action inconsistent with an intention to enter into the proposed contract (i.e. the offeror enters into a transaction which confers on a third person rights prior to those of the offeree ( 43C)] and the offeree acquires reliable information to that effect. ( 43)

i) Acquisition of information: A person has notice of a fact if the person has actual knowledge of it, has received a notice or notification of it, or, from all the facts and circumstances known to the person at the time in question, has reason to know that it exists. [UCC 1-202(a)] Discover or learn, or a word or phrase of similar import, refers to knowledge rather than to reason to know. [UCC 1202(c)]

ii) Negotiations with a third person: In some instances, mere negotiations with a third person, or even a definite offer to a second offeree, may be consistent with an intention on the part of the offeror to honor an acceptance by the original offeree. Even a binding contract with a third person may be expressly subject to any rights arising under the outstanding offer. ( 43D)

iii) Rumors and the reasonable person standard: A rumor does not terminate the power of acceptance if the offeree disbelieves it, and is reasonable in doing so, even though the rumor is later verified. The basic standard to which the offeree is held is that of a reasonable person acting in good faith. ( 43D)

V. Death or incapacity of the offeror or offeree: An offerees power of acceptance is terminated when the offeree or offeror dies, or either one of them is deprived of legal capacity to enter into the proposed contract. ( 48)

F. Preserving the offer

I. Option contract: If the offeree finds the offer attractive, but he is not ready to accept, he may ask the offeror to keep the offer open for a specified period of time. This request is known as a request for an option, which may be contained in the offer itself or may be made separately in a collateral offer to keep the main offer open. ( 25A) Should the offeror agree to the offerees request, a separate promise is made under the terms of which the offeror surrenders his right to revoke the offer for the principal contract for the agreed period of time. This separate promise is know as option contract; that is, a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer ( 25) by converting the previous offer into a firm offer.

a) Requirements: An offer is binding as an option contract if it is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time. ( 87)

i) Signature: The signature may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer. ( 134)

i.1) Form: The traditional form of signature is the name of the signer, handwritten in ink. But initials, thumbprint or an arbitrary code sign may also be used; and the signature may be written in pencil, typed, printed, made with a rubber stamp, or impressed into the paper. Signed copies may be made with carbon paper or by photographic process. ( 134A)

i.2) Place: Although it is usual to sign at the end of a document, a printed letterhead or billhead may be adopted as a signature. ( 134B) i.3) Time: Commonly, a document is signed after it is completed, but blanks may be left to be filled in later. If the signer fills a blank or adds a postscript, or if another does so with his authority, the prior signature is effectively adopted with reference to the added portion. Alterations are often separately initialed, but re-adoption of the prior signature is equally effective for purposes of fraud prevention. ( 134C)

ii) Recital of consideration: A recital in a written agreement that a stated consideration has been given is evidence of that fact as against a party to the agreement, and said agreement is not invalidated by proof that the recited consideration was not in fact given. ( 87C)

iii) Reasonable time: An offer to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or, if no time is stated, for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. (UCC 2-205)

II. Types of option contracts: The common law devices for making an offer irrevocable are the giving of consideration and the affixing of a seal, among others. ( 25C)

a) With consideration: The requirement of consideration may be met by paying money, by performing, or by promising to perform. An option may furnish consideration for another, and a single consideration may support both a present contract and a future option. ( 25C)

b) Without consideration: The option under seal is the traditional mode of making an offer irrevocable without consideration. In some cases, a negotiable instrument or a letter of credit may operate as an offer binding without consideration. Offers may also be irrevocable by statute, by virtue of reliance by the offeree, or other circumstances. ( 25C)

III. The role of reliance: An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance, and which does induce such action or forbearance, is binding as an option contract to the extent necessary to avoid injustice. ( 87)

a) Reliance and part performance: If the beginning of performance is a reasonable mode of acceptance, it makes the offer enforceable; if not, the offeror commonly has no reason to expect part performance before acceptance. But circumstances may be such that the offeree must undergo substantial expense, or undertake substantial commitments, or forego alternatives, in order to put himself in a position to accept by either promise or performance. The offer may be made expressly irrevocable in contemplation of reliance by the offeree. If reliance follows in such cases, justice may require a remedy as long as the reliance is both substantial and foreseeable. ( 87E)

b) Remedies: Full-scale enforcement of the offered contract is not necessarily appropriate in such cases. Restitution of benefits conferred may be enough, or partial or full reimbursement of losses may be proper. Various factors may influence the remedy: the formality of the offer, its commercial or social context, the extent to which the offeree's reliance was understood to be at his own risk, the relative competence and the bargaining position of the parties, the degree of fault on the part of the offeror, the ease and certainty of proof of particular items of damage and the likelihood that unprovable damages have been suffered. ( 87E)

IV. Effect of option contracts: The principal legal consequence of an option contract is that it limits the promisor's power to revoke an offer. A revocation by the offeror is not of itself effective, and the offer is properly referred to as an irrevocable offer ( 25D) in the basis that an option contract binds the offeror and gives rise to a duty of performance conditional on the offeree's acceptance exercising the option. ( 37B) Moreover, the power of acceptance under an option contract is not terminated by rejection or counteroffer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty. ( 37)

Acceptance
A. The offeror as the master of the offer

I. To whom is the offer made?: The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance. An offer may create a power of acceptance in a specified person, or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance. ( 29)

II. How can the offer be accepted?: Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. ( 50) If an offer prescribes the place, time, or manner of acceptance, its terms in this respect must be complied with in order to create a contract. However, if an offer merely suggests a permitted place, time, or manner of acceptance, another method of acceptance is not precluded. ( 60)

a) In case of doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. ( 32)

i) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. ( 50)

ii) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise. ( 50)

b) Effect of equivocal acceptance: Where notification is essential to acceptance by promise, the offeror is not bound by an acceptance in equivocal terms unless he reasonably understands it as an acceptance. ( 57)

III. The mirror image rule: Under classic contract law, a reply to an offer which purports to accept it but changes the terms of the offer is not an acceptance; instead, it is a counteroffer and terminates the power of acceptance. [See 39 under Offer>Destroying the offer>Rejection or counteroffer by the offeree>Counteroffer.]

a) Under the Restatements: An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered. ( 58) An acceptance which requests a change or addition to the terms of the offer is not invalidated unless the acceptance is made to depend on an assent to the changed or added terms ( 61); that is, a reply to an offer which purports to accept it but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counteroffer. ( 59)

b) Under the CISG: A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. [CISG 19(1)] However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. [CISG 19(2)] Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially. [CISG 19(3)]

c) Under the UCC: A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. [UCC 2-207(1)] The additional terms are to be construed as proposals for addition to the contract. Between merchants, such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. [UCC 2-207(2)]

IV. The last shot rule: The terms of the contract are those terms included in the last document sent, either by the offeror or the offeree, and control the performance of the contract. This rule is implied under both the Restatements and the CISG; the UCC, however, does away with this rule.

a) Under the UCC: Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act [UCC 2-207(3)]; that is, the terms of the contract are only those terms on which the writings of the offeror and the offeree agree.

V. Unspecified manner of acceptance: An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. ( 30)

a) Reasonableness of medium of acceptance: Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received. ( 65)

i) Circumstances relevant to reasonableness: Among the relevant circumstances may be the speed and reliability of the medium, a prior course of dealing between the parties, and a usage of trade. ( 65B)

B. Promissory acceptance

I. Notification of acceptance: Except where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance, or that the offeror receive the acceptance seasonably. ( 56)

II. Acceptance by telephone

a) General rule: Acceptance given by telephone or other medium of substantially instantaneous two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other. ( 64)

b) Rationale: Where the parties are in each other's presence, the offeree can accept without being in doubt as to whether the offeror has attempted to revoke his offer or whether the offeror has received the acceptance. Where the parties are not in each other's presence, but are able to communicate with each other without any substantial lapse of time, the situation is similar and the governing principles are the same. ( 64A)

c) Misunderstandings: Where the parties are in each other's presence, ambiguities and misunderstandings, if perceived by either party, can be cleared up on the spot. The risk of failure of telephone, teletype or other similar communication is similar in that ordinarily one or both parties will know or have reason to know of the failure, and the same principles apply. Under 20, if one party has reason to know of a failure of communication and hence that the other party's understanding may be different from his own, he runs the risk of being held to a manifestation of assent unless he takes immediate steps to clear up any misunderstanding; but if both parties are equally innocent or equally at fault, there is no contract. ( 64B) [See 20 under Offer>Manifestation of mutual assent>Conduct as manifestation of assent>Misunderstandings.]

III. Acceptance in writing

a) Time when acceptance takes effect: Unless the offer provides otherwise, an acceptance made in a manner and by a medium invited by an offer is operative, and completes the manifestation of mutual assent, as soon as put out of the offeree's possession, without regard to whether it ever reaches the offeror. ( 63)

i) Option contracts: An acceptance under an option contract is not operative until received by the offeror. ( 63) ii) Exceptions to the mailbox rule: Unless the offeror manifests a contrary intention, an acceptance is not effective on dispatch if the offeree knows or has reason to know that it will not reach the offeror. ( 66C) Moreover, a letter or telegram of acceptance started after the sending of an effective rejection or counteroffer is a counteroffer unless the acceptance is received by the offeror before he receives the rejection or counteroffer. ( 40)

b) Receipt of acceptance: A written acceptance is received when the writing comes into the possession of the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him. ( 68)

i) Point of receipt: A written communication may be received though it is not read or though it does not even reach the hands of the person to whom it is addressed. ( 68A) [Compare to UCC 1-202(d) and (e) on when a notification is received by a person, and to UCC 1-202(f) on receipt by an organization.]

c) Receipt of acceptance improperly dispatched: An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages. ( 66) However, where an acceptance is seasonably dispatched but the offeree uses means of transmission not invited by the offer, or fails to exercise reasonable diligence to insure safe transmission, it is treated as operative upon dispatch if received within the time in which a properly dispatched acceptance would normally have arrived. ( 67)

i) Other precautions: The other precautions to be taken depend on what is ordinarily observed to insure safe transmission of similar messages. In cases of acceptance by mail, the postal regulations are ordinarily controlling on such matters as the necessity for prepayment of postage. In unusual circumstances, however, as when the mails are stopped by war, reasonable diligence may require more than compliance with postal regulations. ( 66C)

ii) [See 60 under Acceptance>The offeror as the master of the offer>How can the offer be accepted? for a possible counterargument to the non-invited means of transmission argument.]

C. Acceptance by performance

I. When can acceptance by performance take place?: An offer can be accepted by the rendering of a performance only if the offer invites such an acceptance ( 53), unless the manner of acceptance is left for the offeree to choose. [See 32 (under Acceptance>The offeror as the master of the offer>How can the offer be accepted?) and 62 (under Acceptance>Acceptance by performance>Effect of performance where offer invites either performance or promise) for the offerees power to choose.]

II. Notification of acceptance: Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make an acceptance by performance effective, unless the offer requests such a notification. If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless: o o (1) the offeree exercises reasonable diligence to notify the offeror of acceptance, or (2) the offeror learns of the performance within a reasonable time, or (3) the offer indicates that notification of acceptance is not required. ( 54)

III. Effect of performance where offer invites either performance or promise: Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance, or a tender of a beginning of it, is an acceptance by performance. Such an acceptance operates as a promise to render complete performance ( 62) and renders the offer irrevocable. ( 62B)

a) The offeree's power to choose: The offeror can insist on any mode of acceptance, but ordinarily he invites acceptance in any reasonable manner; in case of doubt, an offer is interpreted as inviting the offeree to choose between acceptance by promise and acceptance by performance. ( 62A)

b) Exception: Where performance requires cooperation by the offeror, there is an offer only if acceptance can be completed by tender of performance. ( 62B)

IV. Effect of performance where offer requires performance: Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance:

(1) an option contract is created when the offeree tenders or begins the invited performance, or tenders a beginning of it. The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. ( 45)

a) Exception: If the performance is one which requires the cooperation of both parties, such as the payment of money or the manual delivery of goods, a person who reserves the right to refuse to receive the performance has not made an offer. ( 45B) [See 62B above.]

(2) the rendering of a performance does not constitute an acceptance if, within a reasonable time the offeree exercises reasonable diligence to notify the offeror of nonacceptance, or before the offeror performs his promise, the offeree manifests an intention not to accept. ( 53)

V. Preparations for performance: What is begun or tendered must be part of the actual performance invited. ( 62D) Beginning preparations, though they may be essential to carrying out the contract or to accepting the offer, is not enough ( 45F) in most circumstances. [See 87 under Offer>Preserving the offer>Option contract>The role of reliance for when preparations for performance constitute acceptance.]

VI. Effect of part performance without knowledge of offer: Under 23, it can be inferred that an offer is effective when the offeree knows about it; that is, the offeree cannot accept an offer until he is aware of it. [See 23 under Offer>Manifestation of mutual assent.] However, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance, unless the offeror manifests a contrary intention ( 51) or unless the offeree is under a legal duty to the offeror to complete the performance. ( 51B) [See 73 under Consideration>Consideration and performance of legal duty for performance of a legal duty as not equivalent to consideration.]

D. Acceptance by silence or inaction

I. Acceptance by silence or inaction: Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: o (a) Where an 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. o (b) Where the offeror has stated 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) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. ( 69)

E. Mistake

I. Definition: A mistake is a belief that is not in accord with the facts. ( 151)

II. Mutual mistake: For a contract to be voidable in favor of the affected party, as long as said party is not at fault under 154 (below), the mistake must o o be made at the time of the formation of the contract, be as to a basic assumption; that is, something critical, and materially affect the exchange of performances; that is, change either price or timing. ( 152)

III. Unilateral mistake: [In the case of a unilateral mistake, the rule for mutual mistakes applies and]:

the effect of the mistake must be such that enforcement of the contract would be unconscionable, assessed on terms of oppression and unfair surprise, or

the other party had reason to know of the mistake or his fault caused the mistake. ( 153)

a) Determining fault: A party bears the risk of a mistake when the risk is allocated to him by agreement of the parties, or he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

(the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. ( 154)

Consideration
A. Consideration

I. What is consideration?: To constitute consideration, a performance or a return promise must be bargained for. [ 71(1)] o NOTE: In determining whether consideration exists, we must focus on two main elements: (1) whether the promisee responded with a performance or a return promise, and (2) whether the performance or return promise was bargained for by the promisor.

a) Performance: The performance may consist of an act other than a promise, or a forbearance, or the creation, modification, or destruction of a legal relation. [ 71(3)] Except as stated in 73 and 74, any performance which is bargained for is consideration. ( 72)

o o

b) Return promise: Except as stated in 76 and 77, a promise which is bargained for is consideration if, but only if, the promised performance would be consideration. ( 75) c) Bargained for: A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. [ 71(2)] NOTE: In determining whether a promisor bargained for the performance or return promise of the promisee, we ask whether the promisor got something out of it.

i) Bargains and gifts: A gift is not treated as a bargain, and a promise to make a gift is not made a bargain by the promise of the prospective donee to accept the gift, or by his acceptance of part of it. This may be true even though the terms of the gift impose a burden on the donee as well as the donor. However, where both parties know that a transaction is in part a bargain and in part a gift, the element of bargain may furnish consideration for the entire transaction. ( 71C)

d) Who must receive the value of the performance or the return promise?: The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. [ 71(4)]

II. Adequacy of consideration: If the requirement of consideration is met, there is no additional requirement of: o (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee, or o (b) equivalence in the values exchanged, or (c) "mutuality of obligation." ( 79)

a) Equivalence: The parties to transactions are free to fix their own valuations because they are thought to be better able than others to evaluate the circumstances of particular transactions. ( 79C) NOTE: If the parties thought that the deal was a good one for them, then it ought to be enforced.

b) Gross inadequacy: If the consideration is grossly inadequate, we look for unconscionability, duress, fraud, or any other doctrine that may play a role in avoiding an unfair contract. ( 79E)

i) Unconscionable contract or term: If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result. ( 208)

i.1) Factors of unconscionability: Factors which may contribute to a finding of unconscionability in the bargaining process include the following:

(i) belief by the stronger party that there is no reasonable probability that the weaker party will fully perform the contract;

(ii) knowledge of the stronger party that the weaker party will be unable to receive substantial benefits from the contract;

(iii) knowledge of the stronger party that the weaker party is unable reasonably to protect his interests by reason of physical or mental infirmities, ignorance, illiteracy or inability to understand the language of the agreement, or similar factors. ( 208D)

III. Consideration and settlements of invalid claims: Forbearance to assert a claim or defense, or the surrender of a claim or defense, which proves to be invalid, is not consideration, unless: o (a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or

(b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid. ( 74) NOTE: The first prong of this section calls for an objective approach, and requires a reasonable basis in the facts or the law for some level of belief that the claim or defense may be valid. The second prong of this section calls for a subjective approach, and requires that the party forbearing or surrendering shows good faith in believing that the claim was valid.

a) The good faith requirement: The policy favoring compromise of disputed claims is clearest, perhaps, where a claim is surrendered at a time when it is uncertain whether it is valid or not. Even though the invalidity later becomes clear, the bargain is to be judged as it appeared to the parties at the time; if the claim was then doubtful, no inquiry is necessary as to their good faith. Even though the invalidity should have been clear at the time, the settlement of an honest dispute is upheld. But a mere assertion or denial of liability does not make a claim doubtful, and the fact that invalidity is obvious may indicate that it was known. ( 74B)

IV. Consideration and conditional promises: A conditional promise is not consideration if the promisor knows at the time of making the promise that the condition cannot occur. ( 76)

V. Consideration and illusory promises: A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances, unless: o (a) each of the alternative performances would have been consideration if it alone had been bargained for, or

(b) one of the alternative performances would have been consideration and there is, or appears to the parties to be, a substantial possibility that before the promisor exercises his choice, events may eliminate the alternatives which would not have been consideration. ( 77)

a) Illusory promises: Words of promise which by their terms make performance entirely optional with the "promisor" do not constitute a promise. ( 77A)

VI. Consideration and performance of legal duty: Performance of a legal duty owed to a promisor, which is neither doubtful nor the subject of honest dispute, is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain. ( 73) o NOTE: There is consideration if the duty is doubtful or the subject of honest dispute, or if the purported consideration is for a performance in addition to, or materially different from, the performance already required by contract.

a) Modification of executory contracts: A promise modifying a duty under a contract not fully performed on either side is binding: (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or

NOTE: The test is objective; that is, the question of fairness and equity must be answered by the judge or the jury.

(b) to the extent provided by statute; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise. ( 89)

i) Modification under the UCC: An agreement modifying a contract needs no consideration to be binding. [UCC 2-209(1)]

VII. Consideration and past performance: A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice, but is not binding: o (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or

(b) to the extent that its value is disproportionate to the benefit. ( 86) NOTE: This section does not overturn the rule for consideration. It provides an exception for when a performance happens before the promise to pay for it is made, and focuses on what justice requires in the eye of the judge or the jury, and on whether the value flows directly from the promisee to the promisor.

 VIII. Consideration and threat

a) By a party to the contract: If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. ( 175)

i) Threat to breach: A threat by a party to a contract to withhold performance of his contractual duty is not improper in and of itself. Indeed, a modification induced by such a threat may be binding, even in the absence of consideration, if it is fair and equitable in view of unanticipated circumstances. ( 176E) [See 89 under Consideration>Consideration and performance of legal duty>Modification of executory contracts.]

b) By a non-party to a contract: If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. ( 175)

c) When a threat may be improper: A threat is improper if:

(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property, (b) what is threatened is a criminal prosecution, (c) what is threatened is the use of civil process and the threat is made in bad faith, or (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient, or

(e) if the resulting exchange is not on fair terms, and

(i) the threatened act would harm the recipient and would not significantly benefit the party making the threat, (ii) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or

(iii) what is threatened is otherwise a use of power for illegitimate ends. ( 176)

IX. Consideration and duress: If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent. ( 174)

B. Promissory estoppel

I. Definition: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person, and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. ( 90) o NOTE: The first question we must ask ourselves is whether there was a promise. If so, did the promisor reasonably expect certain action on the side of the promisee? Did the promisee do what the promisor reasonably expected? Would it be unfair not to enforce the promise? Finally, remedy can be less that the full enforcement of the promise, as long as it is sufficient to avoid injustice.

C. Statute of Frauds

I. Classes of contracts covered under the Statute of Frauds: The following classes of contracts are subject to the Statute of Frauds, which forbids their enforcement unless there is a written memorandum or an applicable exception: o (a) a contract of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision); o o o (b) a contract to answer for the duty of another (the suretyship provision); (c) a contract made upon consideration of marriage (the marriage provision); (d) a contract for the sale of an interest in land (the land contract provision);

a) Definition of interest in land: An interest in land within the meaning of the Statute of Frauds is any right, privilege, power or immunity, or combination thereof, which is an interest in land under the law of property and is not "goods" within the U.C.C. ( 127)

b) The land provision: A promise to transfer to any person any interest in land is within the Statute of Frauds, as well as a promise to buy any interest in land, irrespective of the person to whom the transfer is to be made. When a transfer of an interest in land has been made, a promise to pay the price, if originally within the Statute of Frauds, ceases to be within it unless the promised price is itself in whole or in part an interest in land. Statutes in most states except from the land contract and one-year provisions of the Statute of Frauds short-term leases and contracts to lease, usually for a term not longer than one year. ( 125)

A contract to procure the transfer of an interest in land by a person other than the promisor is within the Statute of Frauds, but a contract to act as agent for another in endeavoring to procure the transfer of any interest in land by someone other than the promisor is not within the Statute of Frauds as a contract for the sale of an interest in land. ( 126)

(e) a contract that is not to be performed within one year from the making thereof (the oneyear provision). ( 110)

a) The one-year provision: Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance. When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties. ( 130)

II. General requisites of a memorandum: Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which: o o (a) reasonably identifies the subject matter of the contract, (b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and

(c) states with reasonable certainty the essential terms of the unperformed promises in the contract. ( 131)

III. Consequences of non-compliance

a) Unenforceability: Where a contract within the Statute of Frauds is not enforceable against the party to be charged by an action against him, it is not enforceable by a set-off or counterclaim in an action brought by him, or as a defense to a claim by him. ( 138)

b) Enforcement by virtue of action in reliance: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person, and which does induce the action or forbearance, is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires. ( 139)

i) The justice requirement: In determining whether injustice can be avoided only by enforcement of the promise, circumstances such as the following are significant:

(a) the availability and adequacy of other remedies, particularly cancellation and restitution;

(b) the definite and substantial character of the action or forbearance in relation to the remedy sought;

(c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;

(d) the reasonableness of the action or forbearance; (e) the extent to which the action or forbearance was foreseeable by the promisor. ( 139)

Remedies
A. Remedies

I. Purpose: Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee: o (a) his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,

(b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made. ( 344)

II. Available remedies: The judicial remedies available for the protection of the interests stated in 344 include a judgment or order: o o o o o (a) awarding a sum of money due under the contract or as damages, (b) requiring specific performance of a contract or enjoining its non-performance, (c) requiring restoration of a specific thing to prevent unjust enrichment, (d) awarding a sum of money to prevent unjust enrichment, (e) declaring the rights of the parties, and (f) enforcing an arbitration award. ( 345)

III. Available damages: The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged. If the breach caused no loss or if the amount of the loss is not proved under the rules stated in this Chapter, a small sum fixed without regard to the amount of loss will be awarded as nominal damages. ( 346)

B. Measure of damages based on expectation interest

I. Formula: The injured party has a right to damages based on his expectation interest as measured by: o (a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus o (b) any other loss, including incidental or consequential loss, caused by the breach, less

(c) any cost or other loss that he has avoided by not having to perform. ( 347)

a) Restatement of the formula: The loss in value to the non-breaching party of the other partys performance (LV) + Any other loss, including incidental or consequential damages, caused by the breach (OL) The cost avoided by not having to perform (CA) The loss avoided by taking steps to mitigate damages (LA) = Damages.

II. Loss in value: The first element that must be estimated in attempting to fix a sum that will fairly represent the expectation interest is the loss in the value to the injured party of the other party's performance that is caused by the failure of, or deficiency in, that performance. ( 347B)

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a) No performance: If no performance is rendered, the loss in value caused by the breach is equal to the value that the performance would have had to the injured party. ( 347B) b) Partial performance: If defective or partial performance is rendered, the loss in value caused by the breach is equal to the difference between the value that the performance would have had if there had been no breach and the value of such performance as was actually rendered. ( 347B)

c) Loss of profit: Where the injured party's expected advantage consists largely or exclusively of the realization of profit, it may be possible to express this loss in value in terms of money with some assurance. In other situations, however, this is not possible and compensation for lost value may be precluded by the limitation of certainty. ( 347B)

d) Alternatives to loss in value of performance: According to 348:

i) If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property.

ii) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on: (a) the diminution in the market price of the property caused by the breach, or (b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.

iii) If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of breach.

III. Other loss: The injured party is entitled to recover for all losses, other than the loss in value, actually suffered, incidentally or consequentially, as a result of the breach. ( 347C)

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a) Incidental losses: Costs incurred in a reasonable effort, whether successful or not, to avoid loss and/or mitigate damages. ( 347C) b) Consequential losses: These include such items as injury to person or property resulting from defective performance. ( 347C)

IV. Cost avoided: Total savings, from the breach itself, of some cost that the injured party would have incurred if he had had to perform. ( 347D)

V. Loss avoided: The injured party is limited to damages based on his actual loss caused by the breach. If he makes an especially favorable substitute transaction, so that he sustains a smaller loss than might have been expected, his damages are reduced by the loss avoided as a result of that transaction. ( 347E)

C. Measure of damages based on reliance interest

I. General rule: The injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. ( 349)

a) Formula: The difference between the loss in value of the other party's performance and the cost or other loss avoided by the injured party will be equal to the cost of the injured party's expenditures in reliance, up to the time of breach, plus the profit that would have been made had the contract been fully performed. ( 349A)

D. Limitations

I. Avoidability: Damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation. However, the injured party is not precluded from recovery by the previous rule to the extent that he has made reasonable but unsuccessful efforts to avoid loss. ( 350)

II. Unforeseeability: Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. ( 351)

a) When a loss is foreseeable: Loss may be foreseeable as a probable result of a breach because it follows from the breach in the ordinary course of events, or as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know. ( 351)

III. Uncertainty: Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. ( 352)

a) Requirement: The certainty requirement does not mean that the injured party is barred from recovery unless he establishes the total amount of his loss. It merely excludes those elements of loss that cannot be proved with reasonable certainty. The main impact of the requirement comes in connection with recovery for lost profits. ( 352A)

b) Resolving doubts: Doubts are generally resolved against the party in breach. A party who has, by his breach, forced the injured party to seek compensation in damages should not be allowed to profit from his breach where it is established that a significant loss has occurred. A court may take into account all the circumstances of the breach, including willfulness, in deciding whether to require a lesser degree of certainty, giving greater discretion to the trier of the facts. ( 352A)

IV. Loss due to emotional disturbance: Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result. ( 353)

V. Punitive damages: Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. ( 355)

E. Interest as damages

I. General rule: If the breach consists of a failure to pay a definite sum in money or to render a performance with fixed or ascertainable monetary value, interest is recoverable from the time for performance on the amount due less all deductions to which the party in breach is entitled. In any other case, such interest may be allowed as justice requires on the amount that would have been just compensation had it been paid when performance was due. ( 354)

F. Availability of specific performance and injunction

I. Specific performance: Specific performance of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty. ( 357)

II. Injunction: An injunction against breach of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty if: o (a) the duty is one of forbearance, or (b) the duty is one to act and specific performance would be denied only for reasons that are inapplicable to an injunction. ( 357)

G. Adequacy of damages

I. General rule: Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party, but the adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific performance or injunction as to the contract as a whole. Moreover, specific performance or an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under the rule stated in 357. ( 359)

II. Factors: In determining whether the remedy in damages would be adequate, the following circumstances are significant: o o (a) the difficulty of proving damages with reasonable certainty, (b) the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and

(c) the likelihood that an award of damages could not be collected. ( 360)

H. Effect of difficulty in enforcement or supervision

I. General rule: A promise will not be specifically enforced if the character and magnitude of the performance would impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm to be suffered from its denial. ( 366)