Contracts Outline

BASIS OF CONTRACTS: MUTUAL ASSENT AND CONSIDERATION 3

GENERAL PRINCIPLES 3
MUTUAL ASSENT 3
OBJECTIVE THEORY OF CONTRACT (INTENT TO BE BOUND) 3
OFFER AND ACCEPTANCE IN BILATERAL CONTRACTS 3
OFFER AND ACCEPTANCE IN UNILATERAL CONTRACTS 4
CONSIDERATION 4
GENERAL PRINCIPLES 4
DEFINING CONSIDERATION 4
APPLYING CONSIDERATION DOCTRINE 5
ISSUES APPLY CONCEPT OF MUTUAL ASSENT 5
LIMITING THE OFFEROR’S POWER TO REVOKE: PRE-ACCEPTANCE RELIANCE 5
QUALIFIED ACCEPTANCE: BATTLE OF THE FORMS 6
POSTPONED BARGAINING: AGREEMENT TO AGREE 6
ELECTRONIC CONTRACTING 7

ABSENCE OF BARGAINED-FOR EXCHANGE: PROMISSORY ESTOPPEL AND RESTITUTION 7

DOCTRINE OF PROMISSORY ESTOPPEL 7
PROMISES W/IN THE FAMILY 7
CHARITABLE SUBSCRIPTIONS 7
PROMISES IN COMMERCIAL CONTEXT 8
LIABILITY FOR BENEFITS RECEIVED: PRINCIPLE OF RESTITUTION 8
RESTITUTION IN ABSENCE OF PROMISE 8
PROMISSORY RESTITUTION 8

STATUTE OF FRAUDS 9
GENERAL PRINCIPLES: SCOPE AND APPLICATIONS 9

MEANING OF AGREEMENT: PAROL EVIDENCE RULE 10

PRINCIPLES OF INTERPRETATION 10
PAROLE EVIDENCE RULE 11

IMPLIED TERMS, OBLIGATION OF GOOD FAITH, AND WARRANTIES 11

RATIONALE FOR IMPLIED TERMS 12
IMPLIED OBLIGATION OF GOOD FAITH 12

AVOIDING ENFORCEMENT: INCAPACITY, MISCONDUCT, UNCONSCIONABILITY, POLICY 14

MINORITY AND MENTAL INCAPACITY 14
DURESS AND UNDUE INFLUENCE 14
MISREPRESENTATION AND NONDISCLOSURE 15
UNCONSCIONABILITY 15
PUBLIC POLICY 16

NONPERFORMANCE: MISTAKE, CHANGED CIRCUMSTANCE, MODIFICATIONS 16

MISTAKE 16
CHANGED CIRCUMSTANCES 16

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MODIFICATION 17

NONPERFORMANCE: EXPRESS CONDITIONS AND MATERIAL BREACH 17

EXPRESS CONDITIONS 17
MATERIAL BREACH 18

EXPECTATION DAMAGES: PRINCIPLES AND LIMITATIONS 18

COMPUTING VALUE OF PLAINTIFF’S EXPECTATION 19
RESTRICTIONS: FORESEEABILITY, CERTAINTY, AND CAUSATION 19
RESTRICTIONS: MITIGATION OF DAMAGES 20

ALTERNATIVES TO EXPECTATION DAMAGES 20

RELIANCE DAMAGES 20
RESTITUTIONARY DAMAGES 20
SPECIFIC PERFORMANCE 20
AGREED REMEDIES 21

TRIVIA 22

UCC 22

PUBLIC POLICY 22

NOTES 22

CONTRACTS CHECKLIST 23

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Basis of Contracts: Mutual Assent and Consideration
General Principles
 contract = offer + acceptance
 Three types of contracts:
o Express: Agreement manifested in words
o Implied-in-fact: Agreement manifested in conduct
o Implied-in-law: ‘quasi-contract’ where court imposes obligation to avoid injustice
 Contract formed with legally enforceable promises; promises legally enforceable when:
o Made as part of bargain for valid consideration
o Reasonably induced the promisee to rely on the promise to his detriment
o Statutorily granted w/o consideration
 Offer are terms / conditions with implied assent by offeror (i.e., offeree can accept and form contract)
o Terms must be specific, i.e., enough for legal system to impose liability
o ‘Timely acceptance’ may be required, dependent on context of contracting parties
o Offers terminate when rejected, not properly accepted (e.g., delay), or death of offeror
o Performance expects party w/ longer duration to perform to go first (e.g., services, then payment)

Mutual Assent
 Current law favors ‘objective standard’ for determining parties’ intent to be bound
o Validly formed contract must provide basis for determining existence of breach and appropriate remedy (R§33)
Objective Theory of Contract (Intent to be Bound)
 Determine intent to enter into contract as ‘objective intent in context of surrounding circumstances’. Intent determined by
‘what reasonable person in position’ would have thought. (Ray v. Eurice Bros., Inc.)
o Reasonable person based on perspective of parties (e.g., if they agree ‘down means up’, reasonable party will use
that rationale to examine contract)
o P hired D based on initial bid, then P wrote formal contract, signed by D. Later, D read contract, said he needed extra payment. Trial court
invalidated, no ‘meeting of minds’. Appellate reversed, can be bound to contract even if negligent; would need duress, mistake, fraud to void
Offer and Acceptance in Bilateral Contracts
 Offer is ‘manifestation of intent to be bound contractually upon acceptance by other party’ (R§24)
o Open for stated time or for ‘reasonable period of time’
 Revocation possible at any time prior to acceptance, effective upon receipt by offeree
o Speak directly, or via actions inconsistent with intent to be bound, once offeree learns of action (Normile)
o Revocation not possible when:
 Option contract, w/ offeree giving consideration for irrevocable offer
 Offeree detrimentally relied upon implied or express promise not to revoke
 Offeree relied to his detriment on offer itself (R §87(2))
 Offeree began performance; must be given reasonable time (R§45)
 Communication of acceptance sufficient in medium ‘customary’ to parties (R§65)
o Offeree must communicate acceptance, reasonable diligence to inform offeror (R§56)
o Default assumption that acceptance effective when sent; contract can stipulate otherwise
o Option contracts different – no acceptance until received by offeror (R§63b)
 Acceptance has ‘mirror image rule’ – acceptance must conform to terms of offer, unequivocally (can propose modifications)
o UCC rejects mirror image rule (§2-207)

 Must have unequivocal sign of contractual intent and ‘meeting of minds’ with intent on both sides to create enforceable
contract. Parties must agree on the same specific thing (Lonergan v. Scolnick).
o R §25: Promise being made is not offer if it has condition requiring future assent
o D sought to sell land; P saw ad, inquired about land. D shared info, informed of urgency. D then sold property to another buyer; two days later,
received P wrote to accept offer. Trial court and appellate court sided with D, based on lack of fixed offer by P (no unequivocal sign of intent).

 Advertisement usually not sufficient as offer (R§26). However, bait-and-switch ads can be, as ‘reasonable person’ may
interpret ad this way, and courts aim for equity and to punish duplicity (Izadi v. Machado Ford, Inc.).
o Courts examine entirely of contract and balance when terms inconsistent or conflicting

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 o D placed ad offering $3K rebate regardless of trade in value; fine print restricted deal. P came to accept, but D refused. P suited,
and trial court dismissed. P won on appeal.

 Counteroffer is rejection of original offer and proposal of a new offer, which is freely revocable. Counteroffer represents
qualified acceptance, not unequivocal as needed for enforceable contract (Normile v. Miller)
o D selling property. P enters offer; D rejects, submits counter-offer. P considers, yet 3rd party purchases. Lawyer then informs D of sale before D
can accept, revoking counteroffer. Court finds for D.
o Option contracts require consideration and clear terms, including price and timeframe

Offer and Acceptance in Unilateral Contracts

 Offeree can only accept via complete performance
o When one receives benefits where he has reason to know expectation of compensation and has opportunity to reject,
must pay reasonable value (R §69); differentiates haircut from the squeegee man
 Acceptance by silence possible when reasonable based on prior dealings (R§69)

 Offeror has ability to revoke anytime before completion of performance (Petterson v. Pattberg)
o Unilateral contract enforced after performance (consideration) and can be revoked before exchange of consideration
completed. Dissent notes places one party in trap, as party can do everything but still have offer revoked upon
appearing before offeror (promissory estoppel not yet recognized).
o UCC renders some contracts irrevocable, even in absence of consideration
o D offers P ability to reduce loan principle, if pay April on time and remainder of principle by May. P pays April, arrives to pay May. However, D
sold to third party, revoked before performance of P, who had arrived to make payment but now had deal taken away.
o what about if substantial performance occurred?

Consideration
General Principles
 Consideration: Courts recognize promises are only enforceable with “promise plus something more” (consideration)
o Courts do not ‘weigh consideration’ or consider relative benefit to promisor (Hamer v. Sidway), yet can reject
consideration if only nominal (Snell’s Bank v. Hunter, R§78)
o When terms of acceptance are ambiguous, can exchange with either performance or promise (R §32)
 Unilateral contract  Performance
 Bilateral contract  Exchange of promises
o Consideration is question of law, not question of fact (Pennsy Supply)
o Consideration serves evidentiary function, show validity of promise, raises parties’ caution before engaging in
promise (‘seal’ as sign of enforceable contract served this purpose previously)
o Courts can make equity / fairness decisions that trump contract and consideration doctrine (e.g., court chose not to
enforce damages in junk mail watch offer, on basis of nuisance and litigiousness despite legal claim)
o UCC §2-205 does not require consideration, instead stipulates criteria for formal agreement (e.g., signed doc)
 Suggests 3-month window for acceptance (or shorter, depending on circumstances)
o ‘Pre-existing duty rule’ recognizes no ‘fresh consideration’ if promise already bargained for

 Various theories to understand consideration (i.e., if I promise something, I’ll get something back)
o Benefit / Detriment: Each party needs to experience some benefit or detriment in the course of the bargain
o Bargaining (Holmes): Each party actively participates in weighing and exchange of offers and acceptance
o Reciprocal-induced promises: Each party engages in exchange because of value of other’s promise

Defining Consideration
 Forgoing legal conduct is sufficient consideration to create enforceable contract (Hamer v. Sidway)
o Consideration may consist of some right, interest, profit, or benefit to one party, or some forbearance, detriment,
loss, or responsibility given, suffered, or undertaken by another
o D promises $5K if nephew forgives legal but immoral activities until 21. Nephew achieves this, passes interest to P. Later P attempts to collect; D
wins at trial, P wins on appeal. Nephew detriment was not smoking when legal; court does not have to value consideration.

 Court can assert contract formed when parties have (i) mutual understanding; (ii) exchange consideration; (iii) sufficient clarity
in bargain for Court to identify breach, damages (Pennsy Supply v. American Ash)
o Conditional gifts lack consideration, are not contracts

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 o D offers free supply of paving material. Subcontractor P uses D product for paving. Material proves hazardous, P must redo work, pursues
damages. D argues conditional gift, no contract (and no warranty). Appellate court reverses for P, argues that disposal costs for D gave material
benefit (i.e., P induced for free material, D induced to avoid disposal costs), therefore enforceable contract with implied warranty.
Applying Consideration Doctrine
 Consideration cannot be based on prior acts or based on statement alone, and requires signs of consideration, e.g., future
benefit/detriment, bargaining, or reciprocal-induced promises (Dougherty v. Salt)
o Aunt gave note to P, promising $3K for ‘value received’ and ‘what he had always done for her’. P brought suit against D (estate of aunt) for
return. Court rejected this as consideration, as writing alone is not consideration and past is not sufficient; instead, this is charitable gift.

 Inadequacy of consideration does not render contract unenforceable, if contracted terms fulfilled (Batsakis v. Demotsis)
o Follows Hamer v. Sidway logic: If consideration is not nominal, court does not weigh terms of bargain
o Agreement had P give D $2K at 8% interest when D was able to repay. D received 500,000 drachmae, valued only at $25 (executed during
WWII, when Greek currency lost value). P filed suit to execute contract. D argued failure of consideration, despite letter suggesting receipt of
terms of deal.

 Illusory promises rejected (R §77): Promise, even bargained for, does not suffice if performance is entirely optional
o Illusory promise, e.g., “I promise to do as you ask if I please to do so when the time arrives” (non-binding)

 Contract not enforceable based on past or moral consideration, or conditional promises (Plowman v. Indian Refining)
o Agency issue: contracting with corporation requires proper agent, i.e., appointed individual based on internal
guidelines, Board certification etc.
o Performance by employees may have granted consideration (e.g., waive all future employment); see Hamer v. Sidway
o Ps worked for D, claim D had manager give pension for P’s lifetimes. P claim consideration out of past relationship, D desire to provide for
welfare; P only had to arrive to collect paycheck. D terminated after 10 months. Court found no consideration, as consideration cannot be on past
performance, moral consideration not sufficient, and arriving at office is only condition to accept gift. As reasonable person would regard
Plowman’s intent is to facilitate giving gift, not performance in having people come to office for pay.

 Donative promises not typically enforceable in courts, with four major problems (R§71)
o (1) Issues of proof: difficult to distinguish promise from statement of possible intent
o (2) Execution of gift may be superseded (debts before gifts in estate)
o (3) Change in nature (no longer have funds to give)
o (4) Change in relationship (withdrawal of promise)

 Mechanisms to transfer value with legal effect:

o Promissory Note – Not enforceable as contract, allows retraction
o Promise under Seal – Common historically, yet legal force has been widely eliminated
o Executed gift – Transfer, but executed gifts cannot be reclaimed
o Testamentary gift – Gift in will
o Gift in trust

 Agency in Contracting: Consensual relationship between agent and represented party

o Authority to take action ‘implied in the principle’s manifestations’
o Perform “acts necessary or incidental to achieve the principle’s objectives”
o Authorization very specific, yet if principle leads other party to believe extended authority of agent, then principle
may be liable for agent’s activities (or can ratify agreement made by agent w/o grant of power)

Issues Apply Concept of Mutual Assent

Limiting the Offeror’s Power to Revoke: Pre-Acceptance Reliance
 Promissory estoppel: Promises become enforceable despite lack of consideration, on basis of reliance on promise
o 2nd Restatement definition – A promise, which the promisor should reasonably expect to induce action
or forbearance on the part of the promisee or a 3rd person and which does induce such action or forbearance is
binding if injustice can be avoided only by enforcement of the promise.
o Began with cases about gifts/promises that individuals’ actions relied on;
 Viewed as less applicable in commercial cases (Baird v. Gimbel Bros)
o Promissory estoppel applies only when there is no consideration (Drennan v. Star Paving)
o Operates on case-by-case basis as test of court’s ‘sense of injustice’

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  Subcontractor bid revocable before acceptance; cannot argue reliance without offering valuable consideration to subcontractor
to render the offer an enforceable contract (Baird v. Gimbel Bros.)
o D offered to subcontract for P, yet underestimated price in quote by 50%. P used this in general contractor bid. Later in the day, D sent update,
with corrected price. P did not receive until after submitting bid, which it won. D refused to perform; Court sided with D, noting that P had not
granted consideration, i.e., promise only became enforceable through estoppel once D had received something from P. Court finds that contractor
using bid does not constitute accepting subcontractor offer, so no obligation created on subcontractor. Judge (Hand) argues parties would be
smarter to protect themselves more diligently through contract
o Overturned in Drennan v. Star Paving (most courts now follow Drennan, give general chance to accept)

 Reliance can render an offer binding via promissory estoppel doctrine (Drennan v. Star Paving).
o R §90: Binding based on promissory estoppel with four conditions
 1. Clear and definite offer
 2. Reasonable expectation offer will induce reliance of other party
 3. Actual and reasonable reliance by other party
 4. Detriment that can only be avoided by enforcing offer
o Rejects Baird v. Gimbel Bros, instead holding general contractor should have reasonable opportunity to accept
subcontractor offer if awarded general contract, as it relied on contract to get offer
 Doctrine of general/sub-contractor now views this as law, give general chance to accept
 States have created restrictions preventing general contractors from substituting subcontractors after bid, to
avoid creating one-way liability, given lack of contract obligation based on Drennan
o P general contractor receives bid from D subcontractor. D bid underpriced, later readjust. P used original bid and won contract;
had to use a different subcontractor, sought damages on difference. Court awarded to P, based on reasonable reliance on offer;
had all components of promissory estoppel, and no mistake as contractor could have reasonably expected this to be valid offer.
Court holding is based on principles of ‘fairness’ in overturning Baird.

 Option contracts must be supported by consideration, yet promissory estoppel can satisfy this (Berryman v. Kmoch)
o Promissory estoppel as substitute for consideration for option contract applies with the same test as usual
 Only applicable when reliance is reasonably expected, e.g., relied on option to secure loan
o P gives D exclusive buy-option for 120 days, in exchange for $10 and other valuable consideration. D never pays. P sells to another party. P seeks
declaratory judgment of option as void; D seeks damages for sale during option period. Court sides with P, rejects as $10 was never paid and D
claim of expenses in finding another buyer is not ‘reasonably expected’ when D expected to sell to P, so no estoppel claim.
o Option contract requires fresh consideration; irrational to assume offeror gives option w/o anything in return
 Nominal consideration can be sufficient for option contract (although not for normal contracts, R§71)
o Courts reject principle of R §87(1)(a), which allows option contract w/o fresh consideration
 R §87(1)(a): Option contracts propose exchange with fair terms, w/in reasonable time, and recites
purported consideration (yet no consideration must be exchanged; follows rationale that options are odd,
different type of transaction, and ‘promise under seal’ / formal methods are sufficient)
Qualified Acceptance: Battle of the Forms
 Various techniques suggest qualified acceptance:
o “Mirror-image” rule: Expression of acceptance can be operative despite statement of additional or different terms, if
acceptance does not depend on additional terms (i.e., not central to issue at hand)
o “Last-shot” rule: Party may impliedly assent to counter-offer by conduct indicating lack of objection to it

 Courts must examine nature of contract to choose correct doctrine, i.e., common law or UCC (Princess Cruises v. GE)
o UCC governs sale of goods; otherwise, common law applies. Use language of contract, nature of parties, nature of
materials exchanged to determine intent of contract, i.e., goods or services-based.
o P extended ship maintenance offer to D. D counter-offered, with specific terms. P told D to begin work. Later, P sought damages. P claimed UCC
governs contract; D denies, cites contract based on sale of services not goods, therefore common law applies; common law dictates review of
GE’s terms, which cap liability and award damages in line with GE terms, not jury.
Postponed Bargaining: Agreement to Agree
 Contracts can be viable even with uncertain terms, so long as these are incidental to central issue of contract
o Yet ‘meeting of minds’ required: “No contract unless he is reasonable in his belief and the other party ought to have
known that the would so believe”

 Central terms of contract or option must be sufficiently specific for court to deem enforceable (Walker v. Keith)
o Controlling factor in lease-renewal is whether there is clear methodology for determining future rent
o Common law typically rejects contracts with ‘open price’ items; UCC §2-305 allows, if parties intended contract
this way, instead resting on good faith (e.g., parties agree to pay ‘market rate’ not specific price)

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 o Arguments for rejecting contracts w/o specific terms include: lack of mutual assent to key terms; excess judicial
oversight required; hinders judicial economy
o P sought enforcement of option. P and D had contract with 10-year lease option where option could be triggered, provided parties agreed to rent,
based on standard of business at that time. Trial set rent. Appellate court revered, argued terms were too speculative (need either pricing or
mechanism to determine price).
Electronic Contracting
 Shift from classical contract model, where parties (1) had equal bargaining power, and (2) engaged in bargaining process
 Three trends emerging:
o Shrink-wrap terms: Terms appear on outside of product; opening and use w/o return by warranty date is acceptance
o Click-wrap terms: Customer must click through seller terms to complete transaction, giving consent
o Browse-wrap terms: Internet provider as terms of use; implied assent by interacting with website

 Courts enforce contract based on shrink-wrap terms, recognizing vendor can be ‘master of offer’. Introduced by Easterbrook,
suggests buyer accepts by retaining product after return date (Brower v. Gateway)
o Courts hold that ‘being able to try out product’ in exchange for not seeing initial terms is fair exchange
o UCC §2-207: Invalid if party enters material alteration of agreement (since UCC does not require disclosure of all
terms before parties reach agreement)
o UCC 2-302: Unconscionable if ‘take it or leave it’ contract where party has no choice but to accept terms (e.g., if
offeror is only seller of critical product)
o P purchases computer from D. D includes terms in sale, including arbitration clause and 30-day return. P later has complaint, files for damages
based on breach, etc. Court holds that P accepted D terms in sale, but arbitration court is excessively expensive, so alternative forum required.

Absence of Bargained-for Exchange: Promissory Estoppel and Restitution

Doctrine of Promissory Estoppel
 Emerged as reasoning for courts in recent decades, peaking in 1980s
 Significant criticism; plays no role in UCC; wins 10% of claims in court
Promises w/in the family
 Gratuitous promises are not enforceable on contract principles, even if other party relied on promise and suffered loss and
inconvenience (Kirksey v. Kirksey) [note: old law no longer applicable; now, promissory estoppel would apply]
o Gratuitous promise lacks signals of bargaining, reciprocal-induced promise that suggest consideration
o Services rendered by family members to each other presumed to be gratuitous (Watts)
o D offered P place to say, after husband died. P moved w/ children to new home. Lived there for two years, before D told them to leave. P brought
breach of contract. Court sided with D, as promise was gratuitous, had no consideration, therefore not enforceable. No promissory estoppel
doctrine; this would hold that she relied on promise in leaving; her detriment would be grounds to enforce. Note: promissory estoppel would
stand in as substitute for consideration.

 PE renders promises w/o consideration enforceable, if conditions are met (Greiner v. Greiner)
o PE refers to ‘detrimental reliance’ and sense of injustice if promise not enforced
o P had land grant, gifted land to D. Later, suggested P would give D land if he moved closer to home. D agreed, and P granted specific tract of
land. P later brought action to recover land from D. Court rejected, as D had relied on promise in accepting, despite lack of consideration. As land
was definite (not original, non-specific promise), conditions for promissory estoppel were met.

 PE obligations include voluntary contractual obligations, e.g., child support (Wright v. Newman)
o PE requires only reasonable reliance, but should require demonstration of real reliance
o Promise for performance can be implied through actions (e.g., father on birth certificate entails support)
o P sought child support from D. Despite not being biological father, D had listed himself as father on birth certificate, given child name,
established parent-child relationship; along with not seeking payment from another father figure based on reasonable belief D would provide for
child, P and child detrimentally relied; therefore, can seek payment now (although dissent notes no actual demonstration of detriment)
Charitable Subscriptions (did not cover in class)
 Charitable gifts enforceable as promises based on donor’s intent or evidence of consideration or reliance (King v. BU Trustees)
o Restatement §90 suggests charitable orgs have exemption, do not need to show detrimental reliance to enforce
promises of charitable giving (yet most courts reject this premise; shows contrast to basic contracts principles)
o Primary concern w/ charitable gifts is enforcing intention of original donor
o P (estate of King) sought to return his papers from D, who had been given charitable gift by King. D has provided storage, protection, and
maintenance of papers, and invested in special library for collection; Court found ‘meeting of minds’ between King and D, as well as
consideration to enforce gift.

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Promises in Commercial Context
 PE doctrine applies in commercial context as well, e.g., detrimental reliance on pension bargained for (Katz v. Danny Dare)
o Partial damages w/ PE, as R §90 allow courts to “enforce promise to extent justice requires”
o Courts reject PE when either no ‘detrimental reliance’ or no promise on which liability can be based on
o Katz: P employed by D for 25 years, consistently asked to retire and take pension. Suffered injury, then took pension ($13K, leaving job of
$23K). D agreed, suggested he’d be fired otherwise, although never threatened this. Later, D cut payments. Court found for P, on basis of
promissory estoppel; promise made, he relied in forsaking $10K, and injustice only resolved with payment, as he cannot make up difference now
 Note: Differs from Plowman due to bargaining, reciprocal-induced promises required for enforceable contract

Liability for Benefits Received: Principle of Restitution

 Restitution is law of ‘gains-based’ recovery where courts order compensation in response to ‘unjust enrichment’
Restitution in Absence of Promise
 “Contract implied-in-law” establishes obligation imposed in law w/o regard to either party’s expressions of assent and creates
obligation to pay reasonable expense for reasonable services rendered (Credit Bureau v. Pelo). Relies on legal fiction (not
general rules of contract), and idea of constructive contracts, to pursue equitable, not contractual, aims (e.g., ensure fairness)
o Implied contract, e.g., when one renders services of value to another with their knowledge / consent, presumption is
that person renders services for compensation and that other intends to pay, thus an implied promise to pay
o Restitution exists when “had transaction costs not been prohibitive, parties would have come to terms” and bases
implied contract on those terms
o “Officious intermeddler”: Only grant restitution when reasonable to conclude person would have wanted help
o Seen in the medical field
 Third restatement §20 – you help someone in need w/ professional services entitled to
restitution that equals the value of the service.
o D involuntarily admitted to hospital under police order; hospital renders services. P collection agency enters suit after D fails to pay. Court finds
that despite no promise or agreement, when ‘reasonable’ standard followed, ‘reasonable’ recovery ordered, based on ‘contract implied in law’

 “Contract implied-in-fact” also enforceable, as tacit promise inferred from parties’ conduct, not solely words. Constructive
agreement, i.e., no express agreement exists (Commerce v. Equity Contracting; Watts v. Watts)
o Recovery under ‘quasi-contract theory’ when no enforceable or implied contract, but when defendant has received
something of value from plaintiff; elements for cause-of-action for quasi-contract are:
 1. Plaintiff has conferred benefit on defendant
 2. Defendant has knowledge of benefit
 3. Defendant accepted or retained benefit
 4. “Unjust enrichment” – inequitable for defendant to retain benefit w/o paying fair value
o Unjust enrichment cannot exist where payment has been made for benefit conferred
o Mechanic’s lien: Statutory device on real property for value of improvement made by laborer or supplier pursuant to
contract that holds value until payment
o Equity: P (subcontractor) seeks payment from D (owner), after general contractor disappears. Court holds that D cannot be unjustly enriched, but
also is not liable for payment above contracted rate; P can recover only amount D would otherwise be unjustly enriched.
o Watts: P (wife) claims ‘marriage-like’ agreement and that she should be given share of gains from their relationship, after D (man) separates from
her. Court recognizes potential for ‘unjust enrichment’ and allows trial to proceed, on basis of potential marriage ‘implied-in-fact’, which would
give her grounds for claims
Promissory Restitution
 Exceptions to classical theory that past consideration is insufficient
o Middle ground between classical contracts and pure restitution cases

 Promissory restitution not required for moral consideration or past consideration, except in select cases (Mills v. Wyman).
[Note: old case (1820) would likely be promissory restitution today]
o Good Samaritan does not receive restitution (Mills v. Wyman)
o Moral obligation not sufficient in most cases; only sufficient when:
 1. Debts barred by statute of limitations
 2. Debts incurred by infants / minors
 3. Debts of bankruptcies (promise to pay debt previously discharged)
o P cared for adult son of D, after shipwreck. D wrote P, said he would pay for care, after the fact. Later, D refused to pay; P filed suit. Courts
found for D, as there was no consideration (moral consideration not sufficient as son is adult; and this is past consideration)

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  Yet moral consideration has been used as justification for promissory restitution (Webb v. McGowin, 1935), reflects increasing
trend from rigid contract rules (yet this is still minority of jurisdictions)
o R §86, ‘Material benefit’ rule: If person receives non-gratuitous material benefit, subsequent promise to compensate
person for rendering benefit is enforceable (despite being past consideration; not all courts recognize this)
o Grant promissory restitution when:
 1. Promise made
 2. Promisor benefited from promisee’s action
 3. Benefit not fully paid for
 4. Past consideration exists (giving rise to original promise)
o P fell with 75lb block to save D’s life. P suffered life-altering injuries. D agreed to compensate. Estate of D tried to revoke; P sued. Court sided
with P, on basis of moral consideration creating enforceable promise.

Statute of Frauds
General Principles: Scope and Applications
 Compliance necessary, but not sufficient, when applicable. Types of contracts requiring statute of frauds include (R§110):
o 1. Executor or administrator to answer for a duty
o 2. Answer for duty of another
o 3. Consideration of marriage
o 4. Sale of interest in land
o 5. Contract not performed w/in one year of making agreement
 Note: Statute only applies if it is not possible to perform w/in one year (if possible, statute not apply); also,
must be performance, not possibility of termination (any contract can terminate, by death of offeror)
o (UCC, sale of goods >$5,000 in value)
 Principle intent is to clarify, avoid enforcement of spurious claims
o Courts tend to be lenient, limited in application of statute of frauds
 Lifetime contracts not subject to statute of limitations (as performance can be > one year)

 ‘Writing’ requirement of statute of frauds can be satisfied by several documents, combined with oral testimony, that establish
the clear intent of the parties; do not need one comprehensive contract (Crabtree v. Elizabeth Arden).
o Documents need not be intended to serve as evidence of intent or agreement, can be aided by oral testimony, and
must only refer to the same transaction/event to be valid together (R §132)
o P negotiated employment contract with D. P did not receive second negotiated increase; filed for breach of contract. Court found for P, on basis
that written documents combined together establish essential terms of contract (parties, salary) and that this indicates intent of parties and
evidences contract.
 exceptions
o designed to prevent fraud from ppl who use the Statue of Frauds as cover to commit injustice
o promissory estoppel - §139 of the 2nd Restatement if injustice will occur on an oral promise that the
promisor should have reasonable foreseen reliance on. The prevention of the injustice is more
important than the Statute of Frauds
 does not let ppl escape their obligations (Alaska)
 plaintiff must establish a clear and convincing case that the promise occurred
 factors that decide promise enforcement
 availability and adequacy of other remedies – cancellation and restitution
 definite and substantial character of the action or forebearance in relation to the
remedy sought
 extent that the action or forebearance corroborates evidence of the promise’s terms
 reasonableness of the action or forebearance
 foreseeable by the promisor
o partial performance (Beaver case)
 evidentiary function
 “Unequivocally referable” in land
 Has party seeking enforcement possessed the land

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  Have they improved upon it a lot
 2nd restatement does not like this test
o more lenient - if in reasonable reliance on the seller the buyer with the seller’s
consent makes changes then the contract should be enforced if injustice will
occur.
 PE, when proven, can overcome the statute of frauds requirements to enforce promise (Rice v. Alaska Dem Party)
o R§ 139: Promissory estoppel overcomes statute of frauds, including in oral contracts
 Original R§ 178: Promissory estoppel only when plaintiff detrimentally relied when promise was already in
writing or defendant would create in writing
 Some jurisdictions reject promissory estoppel exception to statute of frauds
o Necessary to demonstrate reliance and injury that would not be compensable on any other basis
 “Clear and convincing evidence” of promise’s existence; belief is that ‘estoppel to overcome statute of
frauds could only rest of either unjust enrichment or unconscionable injury’
o P accepted offer to work for D, resigned job and moved. Later D told P she could not get job. Court awarded $30K in damages to P. Appeal based
on statute of frauds. Court found oral contract can be removed from statute of frauds based on promissory estoppel.

Meaning of Agreement: Parol Evidence Rule

 Preference in contracts for formal writing > oral / informal agreements
o Exclude otherwise relevant evidence based on probability it is misleading, etc.
o When parties agree on final version of agreement in writing, neither can contradict or supplement w/ extrinsic
evidence from prior agreements or negotiations
 Parol evidence rule: Defines what is excluded; Aims to prevent one party from introducing evidence that supplements or
contradicts formal written agreement

Principles of Interpretation
 Three main approaches:
o ‘Plain meaning’ rule: Interpret based on language, assume unambiguous meaning
o ‘Reasonable person’ approach (Williston): Base decision on reasonably intelligent person’s reading of contract
o ‘Reasonable expectation of parties’ (Corbin): Use extrinsic evidence to understand intent
 Open terms permissible, when open terms do not render contract uncertain / indefinite (e.g., use ‘gap fillers’ UCC §2-305)
 Courts can fill in essential terms, when reasonable, but may otherwise reject contract (R§204, Walker v. Keith)

 Parol evidence admissible to help explain intent or ambiguities in contracts. In explanation, party seeking narrower
interpretation (relative to everyday terms) has burden of proof (Frigaliment v. BNS).
o Modified objective theory of contract interpretation: X bound to Y interpretation if X knew Y’s meaning but Y did
not know X’s (i.e., understand common denominator, if there is a ‘meeting of minds’ on interpretation)
o Plain meaning theory: Courts state plain meaning, use extrinsic evidence to resolve ambiguity
 Latent ambiguity: When situation clarified by examining context at time of contracting
 objective extrinsic evidence is permissible to establish latent ambiguity – trade
usage/testimony of neutral 3rd parties
o can overcome plain meaning
 subjective evidence – testimony from the parties about what they thought it meant is usually
not allowed b/c it is self-serving
o Examples of explanatory material: Dictionary definition; trade / market expectations; expert witnesses

 Adhesion contract terms will not be strictly enforced if enforcement results in forfeiture, when this would be contrary to
reasonable expectations of party entering into contract (C&J Fertilizer v. Allied Insurance)
o Doctrine of reasonable expectations: Applies to adhesion contracts; aims to balance interests of insurers, insured,
recognizing individuals cannot understand standardized form and rely on ‘reasonable expectations’ in agreement
o Courts refuse to enforce unconscionable clauses of contract, recognizing disparities in knowledge, bargaining
power, etc. between parties (i.e., language can be construed against writing party, R§203)
o Equity principle: Courts do not allow fine print to trump reasonable expectations of parties

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 o P had insurance policy from D, with had narrow definition of burglary. After theft, P sought to collect insurance; agreement was standard form
contract, and D refused to pay, based on definition. Appellate court reversed, found for P, on basis that reasonable expectation would have
covered this event as burglary, ignoring strict language of standard-form agreement

 Adhesion contract – only those provisions that reasonable person would anticipate and agree to should be considered part of
the contract (R§211(3)); adhesion contracts (standard-form contracts) have seven major properties:
o 1. Document is contract, legally valid
o 2. Form drafted by one party of transaction
o 3. Drafting party is repeat player
o 4. Form presented with only a few key identified items being relevant
o 5. Document signed by adherent, after discussion of terms
o 6. Adhering party is single / rare player
o 7. Adhering party has obligation to pay money

 Potential reasons to admit evidence outside parol evidence rule:

o ‘Collateral agreement’ i.e., terms omitted for expediency in original contract
o Promissory estoppel claim
o Fraud in agreement
o Necessary as explanatory evidence (e.g., clarify technical terms)

Parole Evidence Rule

 Assess writing to be ‘final embodiment of contract’
o Complete integration: expression of entirety of parties’ agreement (merger clause used as indicator)
o Partial integration: expression of only portion of the agreement
 Approaches to determine whether contract is final or partial integration:
o ‘Four corners’ or ‘plain meaning’: If writing appears complete, presumed complete
o ‘Reasonable person’ (Williston, majority ): Complete, unless natural to enter separate agreement on these terms
o ‘Intent of parties’ (Corbin): Uses evidence to decide, including prior negotiations (R§210)

 Parol evidence inadmissible to contradict or vary terms of valid written contract, and any admitted parol evidence must relate
to subject distinct from any which the written contract discusses (Thompson v. Libby)
o Written instrument perfumed to include all material terms, if it is final and complete expression of agreement
o Parol evidence rule does not apply if agreement is not complete or does not contain all terms of agreement
o Rationale for parole evidence rule: omit evidence that is ‘obvious inconvenience and injustice’ if admitted
o Integration of contract governs admissibility
 Merger clause can establish integration / finality (Holistic review can also show finality)
o D bought logs from P. D refused to accept, contending logs were not of sufficient quality and that P breached oral warranty. P sued. On appeal,
judgment for P, as parol evidence rule dictates that oral warranty cannot be submitted, as this is not subject distinct from written terms (if
warranty were important, it would be in writing), and the written instrument is final.

 Parol evidence rule rejects any evidence that contradicts specific terms of agreement, even when evidence suggests fraud
related to terms (Sherrod v. Morrison-Knudsen; note, fraud exception due to MT law; fraud usually valid exception).
o P agreed to contract for specific price, activity. Contract stipulated these were final, not subject to change. P later claims that more work was
required, but agreed to continue work as D threatened to withhold payment and suggested in oral promise that P would be paid extra. P sued for
additional payment. Court rejected, as fraud exception doesn’t apply, as the evidence contradicts explicit terms of agreement.

 Parol evidence rule does not apply when:

o Evidence offered to explain meaning of agreement (but not contradict or supplement terms)
o Agreements made after execution of writing
o Evidence to show effectiveness of agreement was subject to oral condition (e.g., need to secure loan)
o Evidence to show agreement invalid for any reason (fraud, duress, undue influence, mistake, incapacity)
o Evidence to establish right to ‘equitable remedy’ (e.g., show error due to clerical error)
o Evidence to show collateral agreement between parties (distinct from original)

Implied Terms, Obligation of Good Faith, and Warranties

 Implied term: Court holds term as ‘implied-by-law’ despite not being in parties’ agreement
o ‘Implied in fact’ agreed to by conduct of parties themselves

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Rationale for Implied Terms
 Duty of good faith can operate as an implied term that provides valuable consideration required to affect the enforceability of a
contract (Wood v. Lady Duff-Gordon).
o Court can read contract holistically to define implied terms and evaluate with implied terms read into agreement
 UCC §306-2 requires ‘best efforts obligation’ in contracts for exclusive sales
o ‘Bargain for a chance’ – Courts recognize agreement when parties have unequal bargaining power; one party
seemingly makes illusory promise that reflects rationale bargain for one party in inferior position
o D contracted to give P exclusive marketing rights for her designs, with agreement they would split profits evenly, but no explicit terms on his
services. D continued to place endorsement outside of contract with P; P filed suit in violation of contract. D aimed to declare contract invalid,
based on no term for performance of P. Court rejects this, as P has implied good faith obligation to make reasonable efforts to sell her product
(realizing profit). Court reviews contract holistically to reach decision.

 Implied terms exist as ‘default rules’ that are ‘fair / just’ when specific term is unstated, e.g., gap filling provisions in UCC.
Implication is that good faith requires reasonable notice for termination of indefinite contract (Liebel v. Raynor Mnfctg.)
o UCC justifies gap filling provisions by efficiency (promote deals, reduce transaction cost of negotiation on deals)
o Implied terms image what would arise out of good faith negotiations on provision
o P is distributor for D. Signed contract w/o duration; after declining sales, D terminated and opened new subsidiary. P sued demanding reasonable
notice, required to sell inventory and recoup investment. Court agrees, applying UCC and reading implied terms that reasonable notice required
for indefinite contracts as ‘default rule’

Implied Obligation of Good Faith

 Objective test for performance should be preferred when practical to determine whether reasonable person would be satisfied;
this is standard of commercial construction. Subjective standard of good faith should be used only when contract is
unambiguously about personal aesthetics. (Morin v. Baystone Constr.)
o Court can read form agreement and determine unconscionable promises to be illusory, not enforceable
o P subcontractor built wall to operative specifications. D refused to pay, as 3rd party did not believe product was satisfactory. P replaced, another
contractor completed job. P filed suit arguing it deserved payment. Court sides with P, holding D violated obligation of good faith in applying
incorrect standard of review (objective reasonable person for commercial construction, rather than good faith for aesthetic items)

 ‘Good faith’ required in execution of contract, as express terms detail any deviations from what might otherwise be ‘implied
good faith and fair dealing’ (Locke v. Warner Bros.)
o applies to all contracts - §205 of Restatement
o honesty in fact & observe reasonable commercial standards – UCC §1
o excludes bad faith
o performance and execution not formation?
o inadequate bargaining power and financial vulnerability are factors but not determinative
o expectations
o Subjective satisfaction difficult to evaluate, yet standard of review still requires ‘good faith effort’
o P entered agreement with D, who agreed to review her projects with right of first refusal to select her work. Communications suggest D would
not exercise option in any event, suggesting lack of ‘good faith’ review, as implied in contract. Court finds trial can proceed on this evidence.
 Implied obligation of good faith does not apply to employment at-will agreements (Donahue v. FedEx).
o only applies to at will employment if there is a benefits or compensation like issue – commissions –
Fortune case
o US is unique with ‘at-will’ employment; other nations have greater security; unions bargain for this protection
 Despite balance of power w/ employer, difficult to fire w/ no reason (statutes offer protection, e.g., cannot
fire on gender or racial grounds, cannot terminate hourly laborer leaving for jury duty)
 Employers often create internal policies to establish grounds for termination (to avoid such suits)
o ‘Good faith’ in two areas for employment: must pay promised earnings and provide promised performance review
o P worked for D for 20 years. After reporting improprieties in boss’s performance, dismissed on various grounds (misconduct, etc.). Appealed to
internal program, yet rejected. Argues in court over implied covenant of good faith in at-will employment and for public policy protections. Court
rejects both claims, finds no statutory obligation or precedent for either count.
Warranties
 express warranties – UCC 2-313
o affirmation of fact made to the buyer relating to the goods
o description of the goods where the bargain suggests the goods will fit that description
 sample/model

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  oral description/representation
o disclaimers – can contract out of or modify an express warranty
 inoperative if inconsistent w/ the terms of the contract
o parol evidence rule applies
 implied warranties
o obligations to the seller for the qualities of goods sold
o implied warrants of merchantability – 2-314
 regular seller impliedly warrants that the goods are good
 Housing Merchant Warranty
 liability for homebuilder for skillful work and quality
 replaces caveat emptor
 latent defects are the responsibility of the builder
 have superior knowledge
 merger clause no impact
 are not bargaining as equals
 implied warranty of fitness for particular purpose
 if plaintiff tells D what he needs, and the D does not provide it. D could be liable
o fitness 2-315 – buyer relies on seller’s knowledge/skill to select goods
 particular purpose – seller knows what qualities the buyer is looking for and
should make sure the goods are fit for that purpose
o habitability – in leases lessees need the owner to fix stuff
 apply w/ building codes
 make all necessary repairs
Uniform Premarital Act of 1983
 half of the states have accepted it
o can accept portions of it
 parameters premarital agreement – agreement between prospective spouses on contemplation of marriage and effective
upon marriage
o be in writing and signed (Statute of Frauds)
o marriage ceremony
 not enforceable when
o no voluntary agreement
o unconscionable – onesided, unfair, or surprise
 no disclosure of property value
 did not waive disclosure rights
 did not have an adequate knowledge of the property and financial obligations of the other party
 cannot limit child support
o support limitations put someone on welfare – must make up the difference
o duress – unlawful threat
o undue influence – husband asserting his will over the wife’s
 can contain
o rights and obligations of prop. acquired
o right to sell, buy, lease etc
o division upon separation
o ownership rights
o anything that does not violate public policy
 amended or revoked by the parties

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 o only by a signed written agreement after the wedding

Avoiding Enforcement: Incapacity, Misconduct, Unconscionability, Policy

Minority and Mental Incapacity
 ‘Infancy doctrine’ protects by enabling minors to void agreements for non-necessities (Dodson v. Shrader)
o Modern courts shifting to allow merchants to partially recover for use when minors void agreements
 ‘Benefit rule’: Upon rescission, recovery for minor diminished for use (e.g., cost of rental car)
 ‘Use rule’: Minor’s recovery deducted based on ‘use’ of product (e.g., depreciation on car)
o Traditional rule allows minors to disaffirm, even when minor can no longer return item (e.g., services)
 Minors limited, cannot void for ‘necessities’ or if engaged in tortious conduct
 At age of maturity, must void or affirm (presumption is affirm)
o Minor can disaffirm pre-injury exculpatory agreements signed by parents (settlement w/ minor must be approved by
court, cannot be disaffirmed)
o P purchased vehicle from merchant, paid fair price. Experienced mechanical problem, then damaged in accident, only 1/10 original value. Minor
sought to return; merchant rejected. Traditional law would have found for minor, but court revised law to find only partial recovery for minor.

 Incompetent persons’ transactions are voidable, and in instances of fraud or lack of good faith by other party, contract can be
reset to more favorable terms than simply returning each parties’ consideration (Hauer v. Union State Bank)
o P suffered significant mental injury. After recovering, entered into bad business deal for friend; this involved taking out loan from bank. When
loan matured, Bank attempted to reclaim. P filed suit, claiming void because she lacked mental capacity, Bank did not act in good faith by
misrepresenting loan and for not avoiding contract with her. Court held loan was void, and that Bank must return her collateral, as bank knew of
her incompetence and did not act in good faith after being put on notice of incompetence.

 Intoxication: Voidable if party has reason to know other party is unable to understand/act due to intoxication
 Two differences between infancy and incompetence:
o Minors can disaffirm w/o restoration; incompetent have to restore, except in special circumstances (e.g., fraud)
o Competence based on “volitional” test, where person lacks capacity to contract if they cannot act in reasonable
manner and other party has reason to know of condition
 Void v. voidable contracts:
o Void agreements never valid, applied retroactive to beginning of contract
o Voidable leaves option to render void to party (minors, incompetent are voidable)

Duress and Undue Influence

 Duress has three principle elements: (1) Wrongful or improper threat, e.g., bad faith representation; (2) Lack of reasonable
alternative; and (3) inducement of contract by threat (not necessarily illegal threat)
o Duress defense not applicable if plaintiff had alternatives yet failed to pursue instead of agreeing to contract

 Economic duress requires alleging party to show (1) victim of wrongful act or threat, and (2) act or threat deprives victim of
free will (Totem Marine v. Alyeska)
o Contracts under economic duress are voidable (party must choose to void)
o P enters contract to ship supply for D. P is fledgling business, struggles as D raises circumstances that challenge performance. Defendant
terminated agreement midway, yet refused to pay full termination, instead compelling P to receive only one-third of termination payment due to P
financial distress. P sues to rescind second agreement; appellate court agrees, grants on duress defense.

 ‘Undue influence’ doctrine renders contract voidable, when party faces ‘undue susceptibility’ and ‘excessive pressure’. Occurs
when persuasion is coercive; highlighted by mismatch in bargaining positions (Odorizzi v. Bloomfield School Dist.)
o R §177: Unfair persuasion when dominant person exercises persuasion and uses relationship to manipulate other
party in a manner inconsistent w/ his general welfare (relationship of parties often key factor)
o Contracts require parties have ‘real choice’ (people must be ‘free agent’ to make good contract)
o Seven parameters include: unusual time and place; demand to finish deal immediately; pressure on negative
consequences of delay; multiple persuaders v. one party; absence of 3rd party advisors and no time to consult
o P employed by district, faces criminal charge. After strenuous evening and late at night, superiors from school district arrive at his home, pressure
him to sign letter of resignation, emphasizing importance of immediacy; threatened suspension otherwise, as well as publishing embarrassing
information if he did not comply. He signed, but found not guilty, now wants job back. Files suit w/ claim of duress and undue influence,
claiming he could not enter valid contract when signing resignation. Court agrees on count of ‘undue influence’.

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Misrepresentation and Nondisclosure
 Misrepresentation - fraudulent statement made as true with no knowledge or confidence about whether it is true or not
 seven elements for fraud
o that the defendants made one or more representations claimed by plaintiff
o that said statements, or one or more of them, were false
o that said false statements or representations were as to material matters with reference to the entering into the
lesson contracts
o that the defendants knew the said representations, or one or more of them, were false
o that said representations were made with intent to deceive and defraud the plaintiff
o (6) that the plaintiff believed and relied upon said false representations and would not have entered into the
lesson contracts, except for believing and relying upon said misrepresentations, and
o that the plaintiff was damaged in some amount through relying on said
representations.
 When home seller knows facts materially affecting value which are not readily observable and not known to careful and
prudent buyer, seller has duty to disclose (Hill v. Jones, Stambovsky v. Ackley)
o Principle of caveat emptor declined in enforcement (protect buyers against mischievous nondisclosure)
o R §161(b): Promotes fair dealings over finality of contract when misrepresentation is fraudulent or negligent on
material fact (material is if reasonable person would attach importance to topic in this transaction)
 Non-disclosure Seven factors:
 difference in intelligence;
 relation of parties;
 how information was acquired;
 nature of facts not disclosed;
 class people belong to; nature of conduct;
 importance of facts;
 conduct preventing discovery
o Restatement describes four situations with affirmative duty to share information:
 1. Prevent previous assertion from being misrepresentation or fraudulent
 2. Correct mistake on basic assumption underlying agreement (cannot violate good faith)
 3. Correct mistake as to contents and effects of agreement
 4. When other party entitled to know based on relationship of trust and confidence (e.g., material facts)
o P seeks to purchase house; visited multiple times, and inquired about damage, which D claims is water damage. Also has inspectors survey
property for termite damage; party expresses concern over termite damage. After purchase, discovers extensive termite damage, files suit for
misrepresentation. Court sides with P on duty to inform.
o Stambovsky: D sold house to P, yet sold w/o informing house was haunted, which she had publicized by was not readily recognized upon
inspecting the house. P filed to void contract, on basis of nondisclosure of condition. Court finds for P.
 Note: Common law shifts to allow ‘fair/equitable result’ when necessary (see Stambovsky)

Unconscionability
 Unconscionability doctrine when
o (1) absence of meaningful choice for one party;
o (2) terms unreasonably favorable for other party (Williams v. Walker Thomas Furniture)
 Indicators: Gross inequality of bargaining power; manner in which contract entered (e.g., party with little
bargaining power enters contract w/o full understanding - does not suggest objective consent)
 Corbin: “Terms so extreme as to appear unconscionable to business practices of the time and place”
o balancing approach
 benefit for seller
 disparity between contract price and market price
 consumer impairment – lack of educ., mental impairment
 Equity principles (civil law) allow courts to refuse to enforce grossly unfair bargains (not observed in common law)
o Issue of law, not issue of fact
 UCC §2-302 applies two-part test:
o Procedural: Party lacks choice or defect (e.g., fraud) in bargaining process; also examine process of negotiation

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 o Substantive: Unfair terms to deal
 R §208: Excessive price can be grounds for unconscionability

Public Policy
 Contracts affecting custody of children are unenforceable on public policy grounds, unless consistent with ‘best interests of the
child’ (R.R. v. M.H.; R §191)
o ‘In pari delicto’ (equally culpable) doctrine: Court leaves the parties as the court found them, no remedy when both
engage in wrongful conduct
o P enters surrogacy contract with D. P and wife cannot bear children; D already has children, agrees to bear children, goes through multiple rounds
of negotiation, screening, etc. Accepts first payments, but then rejects final payment and decides to keep child. P files suit for breach, for refund
of all payments, as per terms of contract. Court finds contract invalid, so no refund, on basis that such contracts cannot be made.

 Numerous reasons for contracts to violate public policy, e.g., crime, tort, violation of licensing or trade, etc.

Nonperformance: Mistake, Changed Circumstance, Modifications

Mistake
 R §151: Rescission when mistaken belief relates to basic assumption of parties when contract is made, and materially affects
agreed performance. When deciding mistake of two innocent parties, burden falls on party w/ risk based on contract (Lenawee
County v. Messerly)
o ‘Risk of mistake’ either (a) allocated in contract; (b) to party aware of risk; (c) allocated by court, to party court
believes it is more reasonable to expect to know
 Courts deny relief on mutual mistake when contract has ‘purchase as is’ clause (shift all burden to buyer)
o Mistake cannot be discovered until after contract executed (otherwise, parties would have knowledge)
 Courts reject claims of ‘conscious ignorance’ (party assumes risk)
o Mutual mistake when contract fails to state agreement accurately  shift contract to mutual intent of parties
 Otherwise, rescission of agreement
o [Shift from previous mistake doctrine, which was based on whether mistake was central or collateral issue in deal]

 Unilateral mistake possible when ‘palpable’, i.e., other party knew of erroneous recording, did not inform or correct
o Also possible when not ‘palpable’, but unconscionable
 1) the mistake relates to a material feature of the contract,
 (2) the party making the mistake did so despite using reasonable care,
 (3) the consequences of the mistake are so grave that it would be unconscionable to enforce the contract,
and
 (4) the other party can be placed in the status quo.
 relief will not be allowed for mistakes in judgment, but only for clerical or mathematical mistakes.

 Mistakes not valid defense when party had assumed risk, is at fault for mistake
o Failure to read is not valid mistake, unless adhesion contract or writing fails to reflect existing agreement of parties
 Many courts still deny relief when contract contains an ‘as is’ clause re: purchase

Changed Circumstances
 Change between agreement and performance: impossibility, impracticability, frustration of performance
o ‘Impossibility’ when person/thing necessary for performance dies / destroyed / damaged
 Operates as literal and objective impossibility
o ‘Impracticability’ when situation is sufficiently different from what parties contemplated at time of contract
 Performance made impracticable w/o fault by occurrence of event, where parties had basic assumption that
event would not occur and did not assume risk in agreement (R§261)
 Note: Possible to perform, but court recognizes party should not have to perform (unduly burdensome)
o ‘Frustration of purpose’ when exchange has lost all value to defendant, because of unforeseeable change
 Requires frustration of ‘principle purpose of transaction’ (e.g., makes little sense to move forward) and
frustration is substantial (so severe it is not regarded w/in risks of contract) (R§265)
 Cannot remove from contract on basis of ‘economic’ or ‘commercial’ frustration (Karl Wendt)
o Impracticability and Frustration of purpose are similar; both require:

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  Substantial reduction in value of contract;
 occurrence of event, non-occurrence of which was basic assumption;
 w/o fault of party;
 party seeking relief did not bear risk of occurrence based on contract
 Rarely applied initially (only ‘Acts of God’) but gradual emergence more recently
o Change due to ‘market forces’ or financial difficulty not grounds for unilateral termination of contract
 Changed circumstances declares contracts void; determined as question of law (judge)
 Karl Wendt v. International Harvester: P was local retailer for D. D exited farm equipment sales after market valued dropped drastically; sold business unit to
another party. P filed suit, on breach of contract. D argues no breach, due to impracticability. Court rejects, as D did not reach impracticability (market forces
and financial loss not sufficient reason).

Modification
 Modification permissible with mutual assent; must be product of good faith and fair dealing (no duress)
o UCC does not require modifications to be supported by consideration (2-209)
o Modification allowed for ‘unforeseen circumstances’ w/o additional consideration (R§89a)

 Modification of contract not enforceable without additional consideration (Alaska Packers v. Domenici)
o ‘Pre-existing duty’ rule: Promising to perform existing obligation not valid consideration for added compensation
o Courts often recognize ‘mutual release’ when parties tear up and write new contracts in good faith
o R §89: Modification binding if fair and equitable response to change in circumstances not anticipated
o P employs D to fish during salmon season. After original agreement, D arrives yet withholds services arguing for extra pay. P can find no
replacement, risks losing major investment; coerced into agreeing to deal to pay D more. Upon returning, P refuses to pay D more. Court sides
with P, based on contract being invalid; no additional consideration, and cannot modify under coercion. Would have been valid with fresh
consideration, or if modification had been appropriate, per restatement.

Nonperformance: Express Conditions and Material Breach

Express Conditions
 Substantial performance not applicable as excuse for non-occurrence of express condition. Express condition has same sanctity
as contract itself; while court can overrule for equity, it generally enforces terms (Oppenheimer v. Oppenheim)
o Express condition “act or event that, unless conditions is excused, must occur before duty to perform reciprocal
promise in agreement arises” (viewed with same sanctity as contract, central issue to deal)
o Specific language signals express conditions (e.g., ‘on condition that…’)
o ‘Substantial performance’ is in sharp contrast to requirement of strict compliance with express condition
 R §237 largely rejects substantial performance doctrine
 No ‘substantial performance’ possible on express conditions
o nonoccurrence of an express condition can be excused
 if forfeiture (denial of compensation) would result for the obligee (party requiring the condition) – 2nd
restatement §229
 no prejudice to the other party
 not willfull disregard of the express condition
 in rental agreements forfeiture for the obligor can excuse
o Waiver is ‘intentional relinquishment of known right’ – minor elements can be waived; major elements require
promise from party aiming to waive (creating grounds for estoppel, prevents later damages claim by waiving party)
o P leased property in Building A, moving to B. Found sublease (D). P failed to achieve physical delivery of required permit to D; therefore D
terminated agreement (pre-contract terms). P asserts substantial performance, that D should be held responsible; note, P is indemnified for rent, so
no damages possible. Court finds with D, holding express terms should be followed and substantial performance is invalid here.

 Tenant should not be denied equitable relief from consequences of own neglect if forfeiture would result. Exception to express
condition (i.e., when party fails affirmative duty and breaches term of contract) (JNA Realty v. Cross Bay)
o Courts grant special exemption to express terms; four part test for equitable relief (R§229):
 1. Tenant made substantial good faith improvements
 2. Tenant had intent to renew lease (good faith error / negligence in not renewing per express term)
 3. Landlord not harmed by delay in notice (past express term)
 4. Lessee would sustain substantial loss if not granted equity (renewal of lease)
 Court observes that location of retail business is ‘substantial and valuable asset’

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 o ‘Forfeiture’ is denial of compensation that results when obligee loses right to agreed exchange after it has relied
substantially, by preparation or performance, on expectation of exchange’
 Courts distinguish right to renew vs. right to purchase (protect former, not latter)
 Courts aim to avoid enforcing error ‘wholly disproportionate to wrong committed’ in forfeiture
o P owns commercial property. Originally 10-year-lease w/ 10-year renewal to A. D purchased from A, renegotiated terms. P sent regular
reminders for all activity, except notice to renew. D made improvements, showed intent to stay long-term. P claims failure to renew, no right to
stay; D seeks equitable relief, right to renew contract. Court sides with D, granting equitable relief that trumps express term.

Material Breach
 partial breach – does not discharge the nonbreaching party’s duty to perform
o unlawful repudiation – if nonbreaching party fails to perform
 material breach – suspends the nonbreaching party’s duty to perform until the breach is rectified
o extent to which injured party will receive the anticipated benefit
o extent to which injured party will be adequately compensated
o partial performance of injuring party
o greater or less hardhip on party failing to perform in terminating the contract
o willful, negligent or innocent behavior of nonperforming party
o greater or lesser certainty that the party failing to perform will eventually do so
 total breach – discharges the nonbreaching party’s duty to perform
o factors of material breach plus extent that delay will prevent substitute arrangements & importance that
agreement terms place on performance w/o delay
 Substantial performance’ grants exception to express contract in select circumstances, when court deems error both trivial and
innocent, therefore not failure of condition on contract (Jacob & Youngs v. Kent)
o ‘Acceptable breach’ when omission of contract is trivial and innocent, court may view as not breach of condition
 Court weighs based on context, question of degrees, balance of justice and intent
 ‘Promises may not be treated to their utmost minutiae w/o sacrifice of justice, perversion of intention’
o ‘Doctrine of constructive conditions’ developed to achieve just results
 Substantial performance possible for promises, but not for express conditions
 Substantial performance holds that minor deviations / immaterial effects are not ‘failure’
 Willing transgressor not entitled to recovery under ‘substantial performance’
 Concern w/ this is loss of idiosyncratic value (value individual placed on having type of pipe)
o Contracts viewed with strict liability rules, focus on performance rather than intent of performance
o P built residence for D, seeking to recover final payment. D withholds, as express term (Reading pipe) not followed, although functional
equivalent was. P contends that expenses to replace would be out of proportion, so no reason to do this, despite error being due to P negligence
(good faith mistake). Court finds for plaintiff, on basis that issue was not significant, that P achieved ‘substantial performance’ of agreement.

 Constructive conditions used to determine consequences of breach when parties fail to spell out terms of agreement
o Three types of conditions: Express; Implied-in-fact (based on parties’ conduct); Constructive (interpreted by courts)

Expectation Damages: Principles and Limitations

 ‘Expectation damages’ compensate for net gain ‘if contract not breached’
o Expectation damages limited to what is foreseeable (Hadley v. Baxendale)
o General damages: natural and probable consequence of breach and deemed w/in contemplation of breaching party
o Consequential damages: arise from special facts or circumstances; must have made breaching party aware
 ‘Reliance damages’ compensate for expenses or loss incurred in reasonable reliance
o Only awarded when expectation damages cannot be proven
 ‘Restitution damages’ compensate for benefit conferred on other party via partial performance or reliance
o Based on reasonable value of benefit; available in case of breach, when contract unenforceable or voidable
o Injured party: entitled to any benefit conferred on breaching party (R§373)
o Breaching party: entitled to any benefit conferred in excess of loss caused by aggrieved party (R§374)
 Liquidated or stipulated damages allowed when specified as term in contract and:
o 1. Reflect anticipated or actual harm caused by breach
o 2. Difficulties of proof of loss
 Specific performance when ‘expectation damages’ are not adequate remedy, e.g., unique subject matter, property transactions

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  Courts reluctant to order specific performance (excess judicial oversight, infringe on personal liberties)
o Provide substitution relief (damages) to put injured party in similar position to pre-bargain
 Contracts does not provide for punitive damages, emotional damages, or attorney’s fees (unless contract says otherwise)
o Punitive damages possible in extraordinary emotional circumstances (R§355)
o No recovery of attorney’s fees unless stipulated (see Westhaven; American rule)
 Three basic interests protected in damages:
o 1. Restitution interest: Prevent unjust enrichment, pay back for what has been conferred
o 2. Reliance interest: Damages awarded to undue harm of reliance, reset to equitable position as pre-promise
o 3. Expectation interest: Set plaintiff in position equitable as post-promise
o Restitution interest most compelling for courts, yet many support expectation interest (as courts attempt to compute
and award damages so as to give plaintiff expectation gain under contract)
 ‘Efficient breach’ is that breaching party has improved position, injured party no worse off, as result of breach

Computing Value of Plaintiff’s Expectation

 Formula for damages (R §347): Sum = Loss in value + other loss = (cost avoided + loss avoided)
o Loss in value is ‘performance that should have been received minus what was actually received”
o Other loss is ‘incidental or consequential’
 Consequential damages are injury to person, property due to breach
 Incidental damages are related to activity (e.g., getting paperwork incidental to agreement)
o In total breach, costs avoided and loss avoided can be claimed (these are beneficial effects, e.g., resell leftovers)
o Real estate: Expectation damages measured as difference between contract price and market price at time of breach
o Construction: Expected net profit of entire contract plus builders unreimbursed expenses at time of breach

 ‘Expectancy principle’ reflects that party should be protected for what it bargains for, i.e., complete agreement as if everyone
had performed as promised (Handicapped Children’s v. Lukaszewski).
o Party will only recover damages if detriment shown, i.e., if breach resulted in more favorable position, cannot sue
for recovery for additional gain (e.g., hired replacement teacher at lower price and also sought damages)
 Damages claimed must be losses necessarily flowing from breach, proven to reasonable certainty
o Parties have obligation to perform due diligence to mitigate damages; in mitigating, need reasonable substitute

o D employed by P as teacher. Had substantial drive to work, paid $11K. Agreed to work for year; tendered resignation when better offer (closer to
home, higher pay) arose. Board rejected resignation. She received medical release, suggesting she could not drive to work. Filed resignation
again. P hired new teacher; attempted to mitigate damages, but had to hire more expensive (only available). P filed suit for difference; Court sided
with P, on basis that employer should be protected for breach of contract; dissent argues medical rationale should be valid reason to void contract.

 Diminution of value (rather than cost of performance) applied as damages only in select situations, including requirement of
‘substantial performance in good faith’ and application only on incidental parts of contract (American Standard v. Schectman)
o Breach of construction contract: Injured party may recover damages as direct, natural, and immediate consequence
of breach and which are reasonably in contemplation of parties when contract is made
 Diminution of value (i.e., difference in market value if work had been completed) applies when:
 Defects are irremediable; or
 Require substantial rework or tearing down required, or
 When breach is only incidental to main purpose of agreement and work is out of line with value
 Diminution of value requires breach was not intentional, show ‘substantial performance in good faith’
 Argument of minimal utilitarian value against substantial cost of rework not sufficient
o ‘Cost-to-complete’ damages reflect original bargain, favored in most circumstances (although utilitarian economic
argument stands against, if cost of work is disproportionate to value gained)
o R §348: If loss in value not proved with sufficient certainty, damages are either (a) diminution of value or (b)
reasonable cost to complete if cost not clearly disproportionate with loss in value
o P owned plot of land with equipment, buildings, etc. Contracted with D, allowing sale of equipment for payment and grading of land. D removed
acquisitions and paid, but did not grade land. P sold property for only $3K less than market value, despite failure of D to perform grading worth
$100K. Filed suit for damages. Court sided with P, granted damages, based on intentional failure of central element to agreement.

Restrictions: Foreseeability, Certainty, and Causation

 Foreseeability: D liable for damages that arise from breach, or may reasonably be supposed to arise in understanding of both
parties. If P claims special circumstances, these must have been communicated (Hadley v. Baxendale)

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 o P operate mill, had part break. Suing courier service, which had delayed delivery of critical part to manufacturer. Court rejects this, as not
foreseeable from perspective of courier that mill did not have additional part, not adequately warned of situation and liability
o Hadley rule requires general damages on breach, only provide special damages if informed and consented
 General damages: ‘Arise naturally from events’, damages everyone recognizes
 Specific damages: ‘Arises from special circumstances’, arise as consequence / collateral agreement
 If party informed and consented, can seek special damages (Florafax v. GTE Market)
 P was sale-and-distributor of flowers; contracted call center w/ D. D knew of 3rd party agreement, importance of providing
sufficient services. D failed, resulting in loss of 3rd party contract. Court found collateral damages due to loss of 3rd party
contract appropriate in this case
o Purpose to obligate contracting party to provide full transparency if it seeks to raise issue later
o Foreseeability based on time of formation of contract, not time of breach

 Certainty limitation: Court must find that some amount of damages should be awarded before raising question to jury
o Court does not weigh damages; decision left to jury

Restrictions: Mitigation of Damages

 P cannot recovery injuries from consequence of D breach that P can reasonably avoid (Rockingham Co.)
o P continued to build bridge after being told to stop by D, a breach of contract by D. However, P not able to recover for continuing to work and
exacerbating damages, as this is failure to mitigate
 Injured party has obligation to mitigate damages (Havill); mitigation of damages requires:
o Good faith effort to seek substitute employment
o Substitute employment available
o Defendant has burden to show plaintiff’s failure to mitigate damages

 Contracts are compensatory, not punitive (i.e., no penalty for failure to perform)
o Usually no ‘emotional distress’ or punitive claims (Erlich v. Menezes)
 Two exceptions: Breach causes bodily harm, or ‘emotional distress particularly likely’ w/ breach
 Reasons for no punitive damages in contracts: (a) should not improve position of injured party; (b) ‘strict liability’ system

Alternatives to Expectation Damages

Reliance Damages
 R §333: Reliance damages appropriate when ‘anticipated profits too speculative to be determined’
o Reliance damages measure reliance interest, minus loss breaching party can show was reasonably certain to occur
 Reliance damages can be found for ‘forgone opportunities’ (e.g., salary lost while in reliance)
 R §352: Principles of expectation damages apply, e.g., foreseeability, causation, certainty, mitigation
o When equal opportunity to mitigate, responsibility does not fall on non-breaching party (Wartzman v. Hightower)
o P, entrepreneur, relied on D, lawyer, to create corporation to finance project aiming for world record in high tower sitting. D fails to do work
correctly, suggests can be fixed by another lawyer. P nor D seeks this, issue escalated, project ends, with larger damages. Court finds D liable, for
P reliance interest and failure to mitigate; no higher duty for P to mitigate when both had equal opportunity after D error

 Courts can also reject recovery of lost profits for new business ventures (profits too speculative, Wartzman)
 ‘Losing contracts’ – if defendant can prove contract would have been loser, reliance can be offset by loss defendant can prove
with reasonable certainty would have occurred (R§349)

Restitutionary Damages
 R§349: If party cannot prove expectation damages w/ reasonable certainty, can still recover damages on reliance interest
o Non-breaching can elect restitutionary recovery rather than expectation up until final payment (R§373)
o Breaching party can also seek restitution for benefits in excess of loss suffered by non-breaching party (R374)
 If defendant can show net loss from performance, suit for expectation damages can be diminished or valued to zero
o Suit for restitution damages results in payment at market value for services rendered (US v. Algernon Blair)
 P subcontractor files against general contractor for breach of contract. Wins restitutionary damages after filing for this, recognizing
expectation damages would be net loss; recovery is value of performance

Specific Performance
 Specific performance rarely enforceable, must show traditional (money damages) are inadequate (three factors)

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 o (a) the difficulty of proving damages with reasonable certainty,
o (b) the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and
o (c) the likelihood that an award of damages could not be collected.
o Requires ‘unique’ item or service, e.g., land (R§360, UCC §2-716) (see City Stores v. Ammerman)
o R §367: Promises to render personal services will not be specifically enforced (Reier Broadcasting v. Kramer)
 Courts have broad discretion when grating equitable relief
o Dislikes having to enforce / supervise damages; also fearful when enforcement is servitude
o Courts may enforce negative covenants rather than order positive performance (exclude personal service from
competition, rather than ordering positive performance in terms of contract)

Agreed Remedies
 Liquidated damages: Parties specify damages for ‘event of breach’ in contract; three criteria (Barrie School):
o 1. Damages anticipated are uncertain / difficult to prove
o 2. Parties must intend to liquidate damages, not operate as penalty
o 3. Amount must be ‘reasonable forecast of just compensation’ from breach (R§356) (UCC 2-718)
 Courts can reject if stipulated damages have no relation to anticipated harm, or if absence of loss
o Also can reject ‘unreasonably’ large or ‘unconscionably’ small damages
 Courts dislike liquidated damages mechanism, removes authority from court
 no duty to mitigate if there are liquidated damages

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Trivia
 Major treatises on contracts: Williston, Corbin
 International law does not require consideration
 Contracts regarded as ‘private law”
 Adhesion contract: Standard-form contract
 Courts reluctant to grant specific relief; grant damages as substitute relief
 Performance on contracts should be rendered simultaneously, if possible
o Otherwise, performance requiring longer period should occur first (e.g., paint house, then pay)

UCC
 UCC governs transactions for goods only
o Goods defined as ‘any tangible thing that is movable’ (UCC §2-105)
o ‘Sale’ is transfer of title for price of good (§2-106)
 Despite being ‘uniform’, code interpreted differently across 50 states, has variability
 UCC (§2-205) does not require consideration; can enforce through formal mechanisms (e.g., signed agreement)
 UCC principle of counter-offer is not rejection and new offer; instead, can reach contract even if different terms are proposed
on issues not central to agreement (see §2-207, allows acceptance w/o mirror image rule)

Public Policy
 Court decisions on contracts determine what transactions are enforceable / permissible (public policy goals of protecting
certain areas of business, removing protection of others)
 At origin, contracts law did not focus on business applications, as ‘fundamental gap existed between academic view of
contracts and way the world actually works’

Notes
 Exam will include reference to ‘foreseeability’ in damages (Hadley v. Baxendale)
 Always add arguments of ‘justice’ and ‘fair dealing’ to supplement arguments on final

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Contracts Checklist
 Is there a contract (express, implied-in-fact, or implied-in-law)?
o If enforceable promise based on consideration  Mutual assent, consideration, etc.
o If enforceable promise based on ‘detrimental reliance’  Promissory estoppel
o If enforceable promise based on ‘unjust enrichment’  Restitution

 Express Contracts test

o Sufficient language and terms?
 Valid contract must have basis for determining breach and remedies (R33)
 Cannot leave vital terms ambiguous (Walker v. Keith)
o Offer presented? Not revoked?
 ‘Manifestation of intent to be bound contractually upon acceptance by other party’ (R24)
o Mutual assent?
 ‘Objective intent in context of surrounding circumstances’ (Eurice Bros)
 ‘Meeting of the minds’
 Acceptance, e.g., mirror-image rule
 Unilateral contract  Began performance, cannot revoke w/o sufficient time once begun (R69)
o Consideration?
 Courts don’t weigh, but check against nominal consideration
 Require ‘fresh’ consideration, pre-existing duty rule
 Must have bargaining (Holmes) or reciprocal-induced promises
o Option contract
 Acceptance requires notification of offeror
 Recital of consideration sufficient (R.§87); but see Kmoch
o Note: Electronic contracting allows for different rules

 Promissory estoppel (enforce promise, despite lack of consideration, based on reliance)

o Four conditions for promissory estoppel (R90)
 1. Clear and definite offer
 2. Reasonable expectation offer will induce reliance of other party
 3. Actual and reasonable reliance by other party
 4. Detriment that can only be avoided by enforcing offer
o Includes promises for voluntary obligations or any detrimental reliance
o Charitable gifts enforced by donor’s intent or evidence of consideration or reliance

 Restitution (‘gains based’ recovery, where courts compensate for ‘unjust enrichment’)
o ‘Contract implied in law’ when law creates obligation regardless of expressions of assent
 E.g., must repay if hospital saves you after emergency (reasonable services)
o ‘Contract implied in fact’ when tacit promise or constructive agreement
 Based on formation of ‘quasi contract’ with four conditions:
 1. Plaintiff conferred benefit on defendant
 2. Defendant has knowledge of benefit
 3. Defendant accepted / retained benefit
 4. Unjust enrichment, if defendant doesn’t pay fair value
o Promissory restitution?
 Not enforced for past consideration or moral consideration
 Enforced if non-gratuitous benefit with subsequent promise to compensate (Webb, 75lb block)
 Conditions
 1. Promise made
 2. Promisor benefited from promisee’s action
 3. Benefit not fully paid for
 4. Past consideration exists (giving rise to original promise)

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 Statute of frauds requirement or exception?
o Requires writing, etc., when:
 1. Executor to answer for a duty or answer duty for another
 2. Consideration of marriage
 3. Sale of land
 4. Contract not possible to perform w/in one year of agreement
 5. Sale of goods >$5,000 (UCC)
o Promissory estoppel can overcome statute of frauds to enforce promise

 Parol evidence rule allow admission?

o Limited only when ‘complete integration’ final writing of contract; test by:
 ‘Four corners’, ‘reasonable person’ or ‘intent of parties’ for final writing
o Merger clause indicates finality of writing
o General purpose to exclude introduction of evidence that supplements or contradicts formal writing
o Exceptions include:
 Collateral agreement
 Promissory estoppel claim
 Fraud in agreement or reason for avoiding enforcement
 Note: Sherrod is against this, but fraud usually valid exception
 Necessary as explanatory evidence (e.g., clarify technical terms)
 Subject distinct from terms of contract (Thompson v. Libby)

 Reasons for avoiding enforcement of enforceable promise?

o Avoiding enforcement
o (1) Minority status (Dodson v. Shrader)
 Necessity? Can enforce
 Non-necessity? Minor can void (may have to pay for use)
o (2) Mental incapacity are voidable (Hauer v. Union State Bank)
o (3) Duress, voidable when (Totem Marine v. Alyeska)
 Wrongful or improper threat
 Lack of reasonable alternative
 Inducement of contract by threat
o (4) Undue influence, voidable when (Odorizzi v. Bloomfield Schools)
 Relationship between parties is critical factor
 ‘Undue susceptibility’ and ‘excessive pressure’; seven parameters:
 1. Unusual time
 2. Unusual place
 3. Demand to finish deal immediately
 4. Pressure on negative consequences of delay
 5. Multiple persuaders v. one party
 6. Absence of 3rd party advisors
 7. No time to consult
o (5) Misrepresentation / Nondisclosure
 R§161 has four situations of affirmative duty to share information (Hill v. Jones)
 1. Prevent previous assertion from being fraudulent or misrepresentation
 2. Correct mistake about basic assumption underlying agreement
 3. Correct mistake as to contents and effects of agreement
 4. When other party entitled to know based on relationship of trust and confidence
 Seven factors for when misrepresentation occurs
 1. Difference in intelligence on subject
 2. Relation of parties
 3. How information acquired

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  4. Nature of facts not disclosed
 5. Nature of conduct
 6. Importance of facts
 7. Conduct preventing discovery
o (6) Unconscionability, voidable when (Williams v. Walker-Thomas Furniture)
 1. Absence of meaningful choice for one party (procedural)
 2. Terms unreasonably favor other party (substantive)
o (7) Public Policy, e.g., voidable when contract against policy (flag-burning, RR v. MH)
o Permissible nonperformance
o (8) Mutual mistake, voidable when mistaken belief affects performance (Lenawee Co. v. Messerly)
o (9) Changed circumstances (Karl Wendt v. Int’l Harvester)
 ‘Impossibility’ when cannot be performed (e.g., literally impossible)
 ‘Impracticability’ when occurrence of event, non-occurrence of which was basic assumption of parties,
resulting in substantial reduction in value of contract and party not bearing risk of this event
 ‘Frustration of purpose’ when makes little sense to move forward, given occurrence of non-occurrence event
 No ‘frustration of purpose’ for commercial or economic reasons
o (10) Modification of terms
 Must occur with mutual assent, good faith and fair dealing, no duress (Alaska Packers)
o Nonperformance
o (11) Express conditions:
 ‘Substantial performance’ limited, not possible when missing express condition (Oppenheimer)
 Courts can grant exemptions to express conditions, equitable relief against forfeiture (JNA Realty)
o (12) Material breach:
 ‘Substantial performance’ granted as ‘acceptable breach’ in select circumstances (Jacob & Youngs v. Kent)
 Error is ‘trivial’, ‘innocent / good faith’ (would sacrifice justice if enforced)

 What damages should the court grant?

o If damages can be calculated  Expectation damages
 Expectation damages set parties to expected result of bargain (Handicapped Children’s)
 Damages include all ‘reasonably foreseeable’ (Hadley v. Baxendale)
 Diminution of value only possible in ‘substantial performance’, otherwise, ‘cost to complete’ (American
Standard)
 ‘Substantial performance’ requires good faith breach
 Court does not weigh damages, jury assesses damages
 Injured party has obligation to mitigate damages (Havill)
 Cannot recover for injuries that injured party could avoid (Rockingham Co.)
 No damages for ‘emotional distress’ (Erlich v. Menezes)
 Unless breach causes bodily harm or ‘emotional distress particularly likely
o If damages too speculative  Reliance damages (Wartzman v. Hightower)
 Expenses of loss based on reasonable reliance; only awarded when expectation damages cannot be proven
o If damages too speculative, can also seek restitution  Restitutionary damages (US v. Algernon Blair)
 Compensate for benefit conferred via partial performance or reliance
 Both injured and breaching party can seek damages
o If ‘money damages’ not adequate relief  Specific performance (City Stores v. Ammerman; Reier Broadcasting v.
Kramer)
 Required for unique items, e.g., land or personal services
 Negative covenants often used as courts otherwise do not force personal service
o Agreed remedies also possible (liquidated damages)
 Requires three part test; court has discretion to reject
 1. Damages are uncertain / difficult to prove
 2. Parties intend to liquidate damages, not add penalty
 3. Amount must be ‘reasonable forecast of just compensation’

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