Restatement is red

UCC is blue

Restatement that can be used in UCC cases is purple

LAW
Predominant Factors
Under the predominant purpose test, the question is whether the predominant purpose of the
transaction involves the service portion of the agreement or the goods portion. Many factors
are involved – how much of the price is allocated to the goods vs. the service being the most
significant, but also including whether the agreement is designated “Purchase Order,” whether
the parties refer to themselves as “buyer” and “seller,” how the contract itself describes the
transaction, among other things. [BMC Industries v. Barth Industries]

However, under an exclusive dealing agreement, a distributor like Pet’s Inc. also provides
services, i.e., it advertises, displays, markets and sells Nums inside its stores. Those activities are
services, and do not meet the definition of “goods” above since marketing and displaying
something are not “movable” pieces of personal property.

Contracts involving both a sales aspect and a service aspect in the same transaction are known
as “hybrid” contracts. The rule for a hybrid contract is that if the sales aspect “predominates,”
then the entire transaction is governed by the UCC. If the service aspect predominates, then any
dispute regarding the goods themselves is governed by the UCC, and service aspects are
governed by some other law. [UCC § 2-102]

In evaluating which part of a contract “predominates” courts have identified factors to evaluate,
such as whether the costs of the goods or the service aspect are greater; how the parties are
designated under the contract, e.g., as “buyer” and “seller” or as “customer”; whether the
billing under the contract coincides with the provision of services or the furnishing of goods.
[BMC Industries v. Barth Industries]. However, these factors are only non-exclusive tools to
answer ultimate question of whether “the [] predominant purpose, the[] thrust, the[] purpose,
reasonably stated, is the rendition of service, with goods incidentally involved . . . or is a
transaction of sale with labor incidentally involved.” [Id.]

Here we are not given any of the details of the contract, so a determination of costs,
nomenclature and the like is not possible. However, since the entire purpose of the contract is to
sell Nums kibble products, it is likely the predominant purpose of the agreement involves goods,
and not advertising or displaying the goods in Pet Inc.’s stores, even though the latter are
inextricably intertwined with the retail function of the stores. As such, it appears the UCC would
apply.

UCC
The rights and obligations of Belinda vs. Sam are covered by the UCC. Article 2 of the UCC
applies to transactions in “goods,” and a purchase and sale is a “transaction” under the Code.
“Goods” are defined as something “moveable” at the time of “identification” to the contract.
 [UCC §§ 2-102; 2-105] Here, Belinda purchased a computer, so there was a “transaction,” and a
computer is a “good” under the UCC because it is “movable” at the time it is identified to the
contract, i.e. at the time Sam designated the particular computer as the one to be delivered to
Belinda. [UCC §§ 2- 105(1); 2-510]. Because the good was not in existence at the time the
contract was entered into, it would be classified as a “future” good, but contracts for the sale of
future goods are covered by Article 2 [UCC § 2- 501(1)(b)].

OR

The UCC controls when there is a “transaction in goods.” [UCC §2-102.]

Article 2 of the UCC does not define “transaction” but it is entitled “Uniform Commercial Code –
Sales,” [UCC § 2-101], evidencing that a “sale” is an Article 2 transaction.

LF is selling legumes to Nums, and because a sale is a “transaction,” that part of the UCC
applicability test is satisfied.

A “good” is personal property which is “movable at the time of identification” to the contract.
[UCC § 2-105(1)]

Legumes are movable – indeed the entire point of the contract is to transport them from LF’s
farm to Nums. Goods are “identified” to the contract once they are, “shipped, marked, or
otherwise designated by the seller as goods to which the contract refers.” [UCC § 2-501(1)(b)]

At some point, the legumes that are going to Nums are “shipped [and] designated by [LF, the
seller] as the goods to which the contract refers” and thus they are “goods” as defined in the
UCC.

Together, this is thus a transaction in goods and therefore the LF/Nums contract governed by the
UCC.

Restatement

FORMATION

Contract –
Section 1 of the Restatement 2d states that, “A contract is a promise or a set of promises for the
breach of which the law gives a remedy, or the performance of which the law in some way
recognizes as a duty.” A valid contract is made up of an offer, an acceptance, consideration,
absence of defenses to formation, and intent to enter into an agreement with legal effect as
demonstrated through manifest assent.

Section 1–201(b)(12) of the UCC defines a contract as “the total legal obligation that results from
the parties’ agreement . . .” and § 1–210(b)(3) of the UCC defines “agreement” as “the bargain of
the parties . . . as found in their language or inferred from other circumstances. ” Hence, under
the UCC a contract is a legal obligation (meaning that a court will enforce it if breached)
consisting of all terms agreed to by the parties, plus terms that are implied by courts or by the
Code itself.

There are some provisions of the UCC that deal with formation, but the basic questions of offer,
acceptance, and consideration are evaluated using common law rules as set forth in the
Restatement. [UCC § 1-103(b)]

Offer
Define - the definition of an offer is a manifestation of willingness to enter into a bargain, made
so that the offeree reasonably understands that his or her assent to the offer is invited and will
conclude it. [Restatement (Second) § 24] An offer is judged under the objective theory of
contracts, meaning it is judged by whether a reasonable person in the position of the offeree
would believe an offer has been made. [Restatement (Second) § 19]

The manifestation must raise a reasonable expectation in the offeree that nothing more than
acceptance is needed by the offeree to create a contract

The offer must have words of commitment and the bargain proposed must be definite enough,
i.e., with enough material specific terms, that a court can tell when a resulting contract can be
breached and can fashion a remedy for it. [Restatement § 33]

As “master of the offer” the offeror has the right to determine when an offer may be accepted.
[R § 30]

Discuss Mailbox Rule

There are two applicable general rules here. The first is that, under the mailbox rule, offers are
presumptively effective upon receipt. The second is that when a mailed offer sets forth a
number of days in which to accept, the beginning of the period runs from the date the letter is
received, unless the offer or the circumstances suggest otherwise. However, if the offeree has
reason to know that the communication of the offer has been delayed, then the amount of the
delay is subtracted from the period stated for acceptance. [R § 49]

Not-Offers
If not an offer, discuss why it was not, preliminary negotiations, advertisement, etc.

Letters of Intent –
Texaco v. Pennzoil - (1) whether a party expressly reserved the right to be bound only when a
written agreement is signed; (2) whether there was any partial performance by one party that
the party disclaiming the contract accepted; (3) whether all essential terms of the alleged
contract had been agreed upon; and (4) whether the complexity or magnitude of the transaction
was such that a formal, executed writing would normally be expected. Teachers Insurance &
Annuity Ass’n of America v. Tribune Co. - The court recognized that multiple factors had to be
considered in order to determine whether the parties intended to be bound by the LOI. These
factors include (1) the language of the agreement; (2) the context of the negotiations; (3) the
existence of open terms; (4) partial performance; and (5) the necessity of putting the agreement
in final form.

Preliminary Negotiations –
Definition: A manifestation of willingness to enter into a bargain is not an offer if the person to
whom it is addressed knows or has reason to know that the person making it does not intend to
conclude a bargain until he has made further manifestation of assent.

Qualifying language may make a preliminary negotiation an offer. Generally, there must be some
language of commitment or some invitation to take action without further communication.

No willingness to enter into a bargain is being made in these statements; rather they are
inquiries that will require a further manifestation of assent before they become offers. Phrases
like “could you make,” “How much would,” and “I could” show no commitment to a bargain.

When the specific quantity of merchandise is specified, there is an implied “term limitation”
which may be construed as an offer

Factors as to Whether Parties Intend to be Bound Only After Written Agreement, Book p. 10

• Express Reservation in “Preliminary” Agreement

• Partial Performance

• All Essential Terms Agreed Upon

• Complexity and Magnitude of the Agreement (whether formal contract would be

expected)

• See R § 27, Cmt. c (similar)

Price quotations –
A price quotation is when someone asks how much are the apples and the grocer says, “89
cents/pound.” That’s not an offer. But here Sam was manifesting an intention to sell a good and
was describing the good he was willing to provide as well as the price he was willing to provide it
for.

Analyze whether the principal features of the subject were discussed in sufficient detail, and
offered at a particular price, “which together exhibited a manifestation of a willingness to enter
into an enforceable agreement, and would likely be taken as such by a reasonable person in the
offeree’s situation.”

Advertisements/Displays/Catalogues
The general rule is that catalogues, like advertisements, are not offers, but rather are
solicitations for offers based, usually, on the terms found in the catalogue. [Restatement § 26]
In the words of the Restatement, a catalogue is part of the preliminary negotiations of the
parties in which further actions and a later offer is contemplated.

Advertisements and catalogues are not offers unless there is a quantity

What kind of offer for what kind of contract? (Unilateral, Bilateral, Indifferent, etc.)

Types of Offers:
 Unilateral -

Bilateral -

Ambiguous/Indifferent -

General/Reward – first person to perform usually gets reward unless otherwise

specifically stated

Cross-Offers – Do not count for offer and acceptance, must specifically accept the offer

Types of Contracts
Unilateral - an offer can be accepted only by performing

Look for magic words: “offer...only by”; or a reward offer. Otherwise, it’s bilateral.

Bilateral – both parties make mutual promises to each other. (90% of fact patterns are bilateral)

Indifferent/ambiguous - a person in the offeree’s position could reasonably believe that the offer
could be accepted either by promising to do what the offer asked, or by actually doing it.

Implied in Fact - An implied contract is one that is not defined by words or in writing but is a tacit
agreement indicated by the actions of both parties. Created by conduct

Implied in Law (quasi contracts) – limited situations in which the law recognizes a contract-
example of ER services

Express - An express contract is one that is defined by terms and conditions either in writing or
verbally.

How could the offeree accept –

talk about power of acceptance - power to accept during a face-to-face, phone conversation,
email, make sure offer was directed to the person

There is an issue as to whether the face-to-face presumption applies, i.e., the presumption that
the power to accept a revocable offer presumptively terminates when the conversation
terminates. That rule is only a presumption, and can be rebutted by the circumstances. This
would only be an issue if she had not made a conditional acceptance during the conversation
itself.

How could the offeror revoke the offer

An offer for a unilateral contract can be revoked before acceptance by the offeror. A revocation
occurs when the offeree receives a manifestation from the offeror of an intention not to enter
into the proposed K [R § 42] and upon revocation, the offeree (here S) loses the power of
acceptance. [R §§ 36, 42]

Revocation
Four Methods of Termination:

Lapse of Time;
 Revocation;
Rejection;
Death;

Lapse of Time: an offer after a stated term or after a reasonable time has passed;

Watch out for dates separated by more than 1 month; (think about an offer to
sell steel rods vs. bananas (bananas will go bad in a week));

DATES MATTER; PAY ATTENTION

Timing of revocation: a revocation is effective on receipt [no mailbox rule].

An offer terminates when the offeror revokes the offer;

General Rule: an offer can be revoked any time before acceptance;

Direct Revocation: the offeror indicates directly to the offeree that he has changed his
mind about entering the deal;

Receipt does not require knowledge (e.g. doll collector hypo where collector
mails acceptance at the same time she receives rejection. Even if she hasn’t read
it yet, it’s up to the court to determine whether she effectively received the
rejection before dispatching her acceptance);

Indirect Revocation: the offeror engages in conduct that indicates she’s changed her
mind and the offeree is aware of the conduct; (must be aware)

Four Exceptions Where an Offer Cannot Be Revoked (not even by the offeree):

Option Contract: a promise to keep the offer open that is paid for;

(consideration that supports the first contract can support consideration for the
option contract)

Firm Offer (Article 2): in a sale of goods, if a merchant promises in a signed

writing to keep an offer open (for a reasonable time), then the offer is
irrevocable. [Under Article 2, the terms “merchant” and “signed” are broadly
defined].

Note you can’t make the offer irrevocable for more than 3 months;

If you want longer, pay consideration and make it an option contract;

Hypo: CarMax makes a signed, written offer to sell a 2011 Tesla

Roadster. Can CarMax still revoke? Yes → no promise to hold the
offer open.

In a sale of goods, look first for an option (no limits). If you do not have
an option, look for a firm offer (subject to several limitations);
 Foreseeable reliance before vs. after acceptance → VERY RARE

Hypo: Subcontractor S submits a bid to do the plumbing work on a

school project for $10k. General contractor G relies on S’s bid in
computing its own bid, and wins the overall school building project. Can
S still revoke? No, G was relying on S.

Part performance under the option contract –

Counteroffer
A counter-offer is an offer made by an offeree to his offeror relating to the same
matter as the original offer and proposing a substituted bargain.

An offeree’s power of acceptance is terminated by his making of a counter-offer,

unless the offeror has manifested a contrary intention or unless the counter-
offer manifests a contrary intention of the offeree.

Rejection

If rejection overtakes acceptance, offeree can rely on the rejection and

no contract is formed

Death

Death: death of either party before acceptance terminates a revocable

offer. [Warning: death doesn’t automatically terminate a contract, nor
an irrevocable offer];

Non-occurrence of an Implied Condition (death or destruction of the subject

matter, or supervening illegality);

Non-occurrence of an Express Condition.

Irrevocable Offers
When the offeree gets a “Right” instead of a “Power” to accept:

Option Contracts;

An offer is binding as an option contract if it(a)is in writing and signed by the offeror,
recites a purported consideration for the making of the offer, and proposes an exchange
on fair terms within a reasonable time; or(b)is made irrevocable by statute.(2)An offer
which the offeror should reasonably expect to induce action or forbearance of a
substantial character on the part of the offeree before acceptance and which does
induce such action or forbearance is binding as an option contract to the extent
necessary to avoid injustice.

Starting to perform a unilateral contract; (e.g. one step onto the brooklyn bridge and the offer is
irrevocable);
 However -- mere preparation to perform doesn’t count. (e.g. just buying the paint → try
to fall back on the foreseeable reliance rule at this stage);

Merchant’s Firm Offer under UCC;

Acceptance - The next issue is whether XXX accepted the offer

Define – An acceptance is a manifestation of assent to the terms of the offer, made in an
authorized manner by the offeree. [Restatement (Second) §50(1)] Acceptances are also
measured under the objective test, meaning here that there will be a valid acceptance if a
reasonable person in the offeror’s XXX position would believe that the offeree XXX accepted the
offer. [Restatement (Second) § 19]

Analyze whether what the offeree said was clear - i.e., a reasonable person in offeror xxx’s
position would think the offeree wanted the item described and was incurring a legal obligation,
especially when the offeree said _____xxxx_____.

Under Restatement – If the offer was determined as only seeking a promissory acceptance, it
would be deemed an offer for a bilateral K. Offers for bilateral contracts (a promise seeking a
promise) or indifferent offers (one where the terms of the offer reasonably appear indifferent to
acceptance by promise or performance) can be accepted by promissory acceptance. An offer for
a unilateral contract, may only be accepted by actual and complete performance.

Of course, the subjective mindset of the parties is no longer the controlling factor under the
objective theory of K, but if the offerors themselves believe their offer was accepted by promise,
it is at least a factor in determining whether a reasonable person would do so as well.

Indifferent Offers –
Under the Restatement, an indifferent or ambiguous offer may be accepted by promise. An
acceptance is a manifestation of assent to the terms of the offer as judged by a reasonable
person in the position of the offeror. [R § 50(a)] Here, S made a conditional promise that she
would sing at the wedding in the original conversation – depending on her schedule – and
seemed to make a promise to T and I that she would sing at the wedding in the phone
conversation, which likely would be taken by reasonable persons in T and I’s position that she
was accepting the terms of their offer. Her acceptance was part of a bargain between them [R §
71], and thus a valid bilateral K with offer, acceptance and consideration was formed upon her
acceptance. Hence T & I breached when they would not allow her to sing, and they would be
liable for the amount of the fee they promised her -- $100,000.

Beginning performance in response to an indifferent offer also acts as a promissory acceptance,

i.e., once performance is begun or tendered, the contract is made and it is treated as if it was a
bilateral contract [R § 62]. This means that once performance has begun, both parties are bound
and such acceptance operates as a promise to render complet performance. [Id.]. The test for
beginning performance, as opposed to preparing to perform, is the same as that discussed
above in Part A of this answer [R § 62, Cmt. d] and the above analysis would apply here
Acceptance by performance – Unilateral Contracts
Under the Restatement, when the offeree begins performance under an offer that does
not invite promissory acceptance, an irrevocable option K is implied whereby the offer
cannot be revoked until the offeree has an reasonable opportunity to complete
performance [R § 45]. In other words, the power of acceptance will be viewed as a right
to accept for a reasonable period of time upon the beginning (or the tender, or the
beginning of the tender) of performance.

The Restatement provides that to be the “beginning of performance” and trigger the
implied option contract, the acts done must be part of the actual performance invited,
as opposed to beginning preparations to perform. [R § 45, Cmt. f, “What is begun or
tendered must be part of the actual performance tendered in order to preclude
revocation under this Section. Beginning preparations, though they may be essential to
carrying out the contract or to accepting the offer, is not enough.”]

an option K was formed due to S’s foreseeable action before acceptance. [R § 87(2)].
Under the Restatement, if it is foreseeable to the offeror that the offeree will have to
take action of a substantial character before acceptance, and the offeree does in fact
take such action before acceptance, then the offeree will also be deemed to have an
irrevocable option to accept the offer within a reasonable time so long as the awarding
of such an option K is necessary to avoid injustice. [Id.]

Hence, even if the making of the dress was not in and of itself beginning performance
and only preparation for performance, T and I would have to reasonably and foreseeably
expect S to take some action and spend some money, which she did, prior to
acceptance. If this is so, the question becomes whether obtaining the dress (and the
travel costs) would be deemed action of a “substantial character.”

If the offeror does not know that the offeree has accepted by performance, the option
contract created by acceptance by performance is discharged unless the offeree notifies
the offeror, the offeror learns of the performance within a reasonable time, or the offer
indicates that notification of acceptance is not necessary.

Under the UCC (2-206), an offer to make a contract may be accepted in any manner and
by any medium under the circumstances.

An order or offer to buy goods for prompt or current shipment can be accepting by a
promise to ship or shipping the goods (or non-conforming goods). Shipment of non-
conforming goods does not constitute acceptances if the seller seasonably notifies the
buyer that it is an accommodation shipment.

If the offer requests that the offeree accept the offer by performance, the offeror needs
to be notified that the offer has been accepted in a reasonable time or the offeror can
treat the offer as having lapsed before performance.

Counter analysis – Offeree would say that their words were not words of commitment, etc. Is
further negotiation necessary to reach an enforceable contract. Was there a counteroffer?
Words of grumbling acceptance? Was it a conditional acceptance?
Acceptance by Silence and Inaction
Offeree’s silence → silence is not acceptance; [BUT recall the “custom creates duty to
speak” exception (e.g. if you’re known for silently accepting, that’s going to cut against
you)];

Counteroffer
A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the
original offer and proposing a substituted bargain. A counteroffer is a rejection of the original
offer

Rejection
A rejection is an objective manifestation not to accept the offer [Restatement (Second) § 28].

E-commerce

Shrinkwrap agreements
Customers are provided with the relevant agreement after the purchase.

They tacitly agree to its terms by keeping and not returning the product within a specified time.

Clickwrap agreements
Customers can review terms and conditions and then affirmatively indicate acceptance by
clicking on something.

Courts will uphold agreements for which customers are prompted to review terms located
elsewhere.

Browsewrap Agreements
Bind users to an agreement on a separate page that hyperlinked to pages accessed by users

A customer could use a site or service without seeing the agreement or even knowing of its
existence

If inconspicuous, courts will generally enforce it only if the customer has been provided with
actual or constructive notice of the website’s terms and conditions.

Discuss Mailbox Rule

If the acceptance is lost, it’s still effective on dispatch, and it’s still a contract

General Rule: acceptance is effective when mailed (“Mailbox Rule”);

Protects the offeree against revocation once she has mailed an acceptance;

Exceptions to Mailbox Rule:

Offer states otherwise (e.g. your acceptance must be received by x date);

 Irrevocable offer → NO mailbox protection; (e.g. options contracts override the
mailbox rule);

Remember, the mailbox rule is to protect offerees against revocation. Option

contracts already do that by making the offer irrevocable, so you don’t need the
mailbox rule.

Rejection sent first, then acceptance; [it’s a race at this point → whichever
arrives (not read) first prevails].

Under the mailbox rule, the presumption is that acceptances are effective upon dispatch,
without regard to whether the acceptance ever reaches the offeror. [R § 63(a)] The mode of
acceptance still must be one either called for by the offeror [R § 30] or one that is reasonable
under the circumstances. [R §§ 31, 50, 65]

Accordingly, if the offer was valid, and if the acceptance was timely, and if the acceptance was
valid (see issue (5) below), the offer was likely accepted by the e-mail, and the fact that Owner
never got it was irrelevant {R § 63, “an acceptance . . . is operative . . . as soon as [it] is put out of
the offeree’s possession without regard to whether it ever reaches the offeror.”].

Certainly the offer itself invited acceptance by mail, and signing and dispatching a validly
addressed and stamped letter would also constitute an acceptance [R § 66], but again only if the
offer was enforceable, and if the power of acceptance had not lapsed and if the acceptance was
valid.

Mirror Image Rule

Was it accepted according to the Mirror Image Rule?

Under common law, typically an acceptance that adds additional terms would be judged a
counter-offer under the “mirror image” rule, requiring that the offer and acceptance be mirror
images of each other.

A counter-offer is an offer made by the offeree to the offeror proposing a substituted bargain
relating to the same matter as the original offer. [R § 39(1)] Upon making a counter-offer, the
power of the offeree to accept the original offer terminates. [R §§ 36(1), 39(2)]

Stu has two arguments as to why the acceptance was not a counter-offer. The first is he could
try to characterize his additional language was only a suggestion or request to amend the offer,
i.e., he wasn’t stating that he wouldn’t take the condo without working locks and appliances, but
rather was requesting that Owner amend his offer so as to provide working locks and appliances.

The second argument Stu has is that his “locks and appliances” clause does not turn his
acceptance into a counter-offer is that the ordinance already imposed that duty on Owner.

UCC § 2-207
State rule – 2‐207(1) - Was the contract in writing OR was there a “definite” and “seasonable”
acceptance? (Is there a contract based on the exchange of forms?) If no – go to 2-207(3)

Big issue: was the acceptance “expressly made conditional”?

The UCC provides that the purported acceptance will be viewed as a counter-offer if it
provides that “acceptance is expressly made conditional on [the offeror’s] assent to the
additional or different terms” of the offer. [2-207(1)]. Here, Vegan’s APO does not
contain the words that its acceptance is “expressly made conditional on [the offeror’s]
assent” to the terms of the purported acceptance. Instead, it provided that “acceptance
is conditional on Vegan Co.’s affirmative approval of the terms of this document.” There
are two issues here. First, is the “affirmative approval” language in the APO the
equivalent of “assent” in the Code. The answer is yes.

Rules

Language construed narrowly

Must evince intention that party will not go thru with transaction unless all of
their terms are accepted

“subject to,” is not enough; but “conditional on” is

Analysis

“presuppose” and “unqualified” seem like strong terms

– more than just saying “subject to.”

But does this clearly and expressly mean that it is

conditional on acceptance of all terms?
 Probably not; “presuppose” is like “subject to” or
“included in”, and does not call for affirmative
agreement by Simpang to the add’l or diff. terms. More
like contemplating Simpang would accept them by
silence and inaction. – If conditional acceptance, then it
is a counteroffer, but this is very unlikely.

Conclusion - Accordingly, a K is formed by exchange of

writings under 2-207(1).

If no conditional acceptance, then go to 2‐207(2) to discern terms

If conditional acceptance, go to 2‐207(3).

What are the terms under 2‐207(2)?

If both are merchants, additional terms become part of agreement unless meets one of
the three exceptions apply. If not, then additional terms are only proposals.

Application: Are they both merchants?

The definition of merchant in UCC includes people who just have expertise in
the “practices” surrounding this type of transaction, like universities who order
supplies. [UCC § 2-104, Cmt. 2] so we can fairly hold them to the trade usages.
She has done catering jobs and held “several” pop-up restaurant events.

If both merchants, and have to examine 3 exceptions.

Offer limits acceptance to the terms of the offer

Offeror has objected to the additional terms

Additional terms materially alter contract

Rule re: what counts as material?

Hardship/surprise, from Cmt. 4 to 2-207

Application:

Additional Term

“PhD clause” is an additional term. Could be a hardship – PhD’s

presumably can charge more than people with MS or BS degrees.
Could be surprise– why not people with MD, MS, BS degrees, etc. So not
overwhelmingly clear, but probably this clause does not become part of
the agreement.

There was no other indication that Simpang expressly assented to the

“PhD” clause. So PhD clause probably knocked out.

Different Term
 Damages clause is a “different” term. 3 theories on how to treat
“different” terms.

(1) Under Comment 3 approach, treat different same as

additional. Would be same analysis as above regarding
material. It is likely material because of the magnitude of the
difference – both surprise and hardship/

Using this rule, between merchants, any different term in the

acceptance (here the absence of the indemnity provision) would
become part of the contract unless it “materially altered” the
terms of the contract, under 2-207(2)(b). A term materially
alters the contract if it is a term which would result in “surprise
or hardship if incorporated without express awareness by the
other party.” [UCC § 2-207, Cmt. 4]

Another argument for the indemnity clause also becoming part

of the contract under the Comment 3 approach is to classify Pat
Client’s call objecting to the absence of the indemnity clause as
a ‘notification of objection” to the different term given “within a
reasonable time after notice of them is received” under 2-207(2)
(c). In such case, again between merchants, the indemnity
clause in the offer would become the operative term. It is true
that Pat did not explicitly say “Nums objects to Vegan’s leaving
out the indemnity clause,” but by saying that Pat thought it
important to include the clause, Pat’s statements could be seen
as a viable objection.

Yet a third argument that the indemnity clause would become

part of the contract under the Comment 3 approach stems for
2-207(2)(a), which provides that if “the offer expressly limits
acceptance to the terms of the offer,” then the different term in
the acceptance, here the APO, would not become part of the
contract. Vegan’s Purchase Order had the language, “This
Purchase Order is limited to the terms found herein.” As such
the terms of the offer, including the indemnity clause, would
become operative.

(2) Under “literalist” view, the “different” terms in the offer

never become part of the deal, so the limitation on liability in
Simpang’s form would control, and the damages clause never
becomes part of the K.

Under this approach, any different term can never become part
of the contract. The idea is that while a different term in the
purported acceptance does not prevent formation under 2-
207(1), the absence of any direction for dealing with different
 terms under 2-207(2) was deliberate, and the offeree is deemed
to have accepted the terms of the offeror when there are
different terms in the acceptance.

(3) Under the Comment 6 approach, both clauses drop out

under knock out rule as both parties are assumed to object to
the other’s and Katrina gets whatever damages she would
otherwise get under the Code, i.e., no limitation of damage.

Under this approach, each party is deemed to have objected to

the different terms of the other’s writing, and thus only the
terms both parties have agreed to become part of the contract.
The different terms are therefore subject to the “knock-out”
rule. Under this approach, the indemnity clause in Nums’s offer
(and the absence of it in Vegan’s acceptance) each would be
“knocked out” and there would be no operative indemnity
clause.

If Katrina is a non-merchant, than the additional and different clauses in her agreement would
just be proposals to the K, which Simpang could accept or not. There is no evidence that it
accepted them.

2-207(3) If the contract was not in writing, look for evidence of the contract by conduct

If contract by conduct, then use the knock out rule with gap fillers for U/T, C/P, C/D

Indefiniteness
Look for indefiniteness - A contract arises from offer and acceptance, and must be sufficiently
definite that performance to be rendered by each party can be ascertained with reasonable
certainty. (Goldfarb v. Solamine)

Even when a manifestation of willingness is intended to be understood as an offer, it cannot be

accepted as so to form a contract, unless the terms are reasonably certain. To be enforced, a
contract must be definite enough and contain enough important terms such that a court is able
to determine whether one party breached and fashion a remedy for the other. [Restatement
(Second) § 33] A third way to “save” the offer would be for a court to imply a reasonable price,
payment method, etc., under its general equitable powers [R § 204]. One way to save indefinite
contracts is with reference to outside standards. Here, the reference to comparable rentals
would allow the court to determine breach and fashion a remedy [R § 33]

Unlike early common law, the UCC allows a court to insert terms into the parties’ agreement in
cases like this just to avoid having a contract fail for indefiniteness. Such terms are called gap
fillers…

Analysis - Here, while there is agreement as to subject matter and price, there is no
agreement on things like (Specify – Price, subject, delivery, quantity)

Using the appropriate gap fillers, however, a court would find that the computer would
be due in a “reasonable time” after the contract’s making [UCC § 2-309] and delivery
would be at Sam’s shop. [UCC § 2-308]

Agreements to Agree
If the parties had just made an “agreement to agree” on the lease price, and then failed
to agree on a price, it is much less likely that a valid offer would be found in Stu’s letter.
[Martin Delicatessen v. Schumacher] That is because, under the common law, courts
would enforce the agreements to agree clause, and since no agreement was ever
reached as to the rent, there would be no contract. As we discussed in class, it is
unlikely that a court will use its equitable powers [R § 204] to insert a reasonable rental
price into an agreement with an agreement to agree provision.

Course of Performance
A course of performance is “a sequence of conduct between the parties” which is
evidence of their own interpretation as to what the parties’ intentions were as to a term.
[UCC § 1-303(a), (d), 2-208; see also Restatement §§ 219-21].

Course of Dealing
Pet’s Inc.’s previous actions in putting the Nums products in the front of the aisle would
still be a “course of dealing” which is “a sequence of conduct concerning previous
transactions between the parties to a transaction that is fairly to be interpreted as
establishing a common basis of understanding for interpreting their conduct.” In other
 words, if the wording for the same obligations appear in both a previous and the present
contract, the actions of the parties under the previous agreements acts as evidence of
what the parties’ believed their obligations were as to those same obligations under the
current agreement. [UCC §1-103 (b), (d); Restatement § 223]

Usage of Trade
Usage of trade is defined as “a practice or method of dealing having such regularity of
observance . . . as to justify an expectation that it will be observed with respect to the
transaction in question.” [UCC § 1-303(c); Restatement § 222].

Consideration –
UCC –
Assuming a valid offer and acceptance, there is consideration since they entered into a
bargain, whereby offeror xxx promised the make and deliver the item in response to offeree
xxx’s promise to pay for it, and visa-versa.

Restatement –
Under modern contract law, consideration consists of a bargain between two parties where
the promises or performances by one party are made in response to a promise made by the
other, and visa-versa. [Restatement (Second) § 71] The older view requires some sort of
detriment to the promisor and a corresponding benefit to the promisee.

Was there sufficient consideration?

The peppercorn theory is the doctrine which provides a court will not examine the fairness or
equivalency in the amount of consideration exchanged by the parties, e.g., contract law does not
avoid the transaction where Joe sells his $25,000 Rolex watch for $35. [R § 79(b)]

However, when such a disparity in consideration occurs, as cmt. e to R § 79 provides, courts are
concerned that there might be a “badge of fraud,” which makes a court examine the transaction
to determine if some the contract defenses are present, which might justify rescission, such as,
“lack of capacity, mistake, duress, or undue influence.”

Also, a court may examine the transaction to determine whether the purported consideration is
“sham” or “nominal” and thus does not satisfy the requirements of R § 71; see Cmt. d to R § 79.

However, if no defense or sham/nominal consideration are present, the transaction is

enforceable.

Reciprocal promises can serve as consideration

If not why? (gift, past consideration, sham consideration pre-existing duty, not good faith,
illusory promise, etc.)

Settlement Agreements
A settlement agreement is a contract, and thus to be enforced, there must be a valid offer, and
acceptance, and consideration. The first two requirements are not at issue here – Owner made
a valid offer to settle (“I will pay you $500 in full settlement . . .”), and Stu accepted (“I accept
professor”).

The rules are that if the claim involves uncertainty as to the law or facts, or if the parties believe
that the claim or defense may be fairly determined to be valid, consideration exists. [R § 74(1)]
Settling an undisputed and liquidated claim (a claim for a sum certain or one that can be
determined mathematically) for a lesser amount would not be supported by consideration
[Foakes v. Beer]. On the other hand, settlement of an undisputed claim that is unliquidated, or
settlement of a liquidated claim that may be subject of some legitimate factual or legal dispute,
would be supported by consideration. [R § 74, Cmt. a]

Analysis -Hence so as long as Stu validly and in good faith believed he had a claim (and he did say
his studies convinced him he did, but it is not clear whether this was a good faith assertion or
simply posturing), the contract would be enforceable [R § 74(1)(b)], or if the claim was factually
uncertain (which appears to be true given the closeness of the offer/acceptance discussion
above, and because damages would not be certain because we don’t know how much the lease
would be for of Owner’s condo) [R § 74(1)(a)], then the promise would be enforceable even if
the ultimate resolution of the lease issue was in Owner’s favor.

Purported Consideration –
It is consideration that is recited as having been paid in a document, but which never was paid or
intended to be paid. The effect is that the contract is voidable, and restitution is permitted.

“Not-Consideration”
“Gratuitous or “Gift” Promises “Sham” Consideration;

Not binding if party indicates it is a gift

Not binding if promisor wasn’t the one benefitting

Not binding if value of benefit isn’t enforceable.

Was a modification of an existing contract involved?

Common law uses the pre-existing duty rule – additional consideration required for modification

The general rule is that a modification needs new consideration in order to be

enforceable under the pre-existing duty rule pursuant to R §73. A pre-existing duty is not
modification. This was why the modification in Foakes v. Beer was not effective. If Dr.
Foakes had agreed to, e.g., free medical treatment for the year for Ms. Beer, which he
was not obligated to perform originally, i.e.., new consideration, the modification would
have been effective.

The three exceptions to the general rule are found in R § 89, i.e., a modification of a
contract governed by common law principles is effective even without consideration
when:

(1) The modification is fair and equitable in view of circumstances not

anticipated at the time of contracting;
 (2) A statute makes it permissible; or

(3) Justice requires enforcement of the modification in view of a party’s material

change of position in reliance on the promise.

UCC uses 2-209 – modification has to be in writing if the agreement is within the SOF or there is
a clause requirement modifications to be in writing in the underlying contract – Posner says
reliance is needed (party requesting waiver would need to show they relied on modification)
Easterbrook says good faith is required instead of reliance (party not requesting the modification
would need to prove bad faith)

Modifications vs. Waivers –

Modifications require an agreement of both parties as to a new contract term. If the agreement
cannot be enforced as a modification, it can operate as a waiver. [2-209(4)] The difference
between enforcing it as a modification vs. a waiver is that a modification is bilateral and changes
the duties under the contract, whereas a waiver is unilateral, and is essentially an agreement by
one party not to sue if the performance called for under the contract is not complied with, so
long as the performance agreed to under the attempted modification is actually accomplished.
In addition, waivers are unilaterally retractable absent reliance, so long as adequate notice is
given. [UCC § 2-209(5)]

Whether it can be enforced as a waiver depends on which view is used to judge the admissibility
of waivers. Under Judge Posner’s view [as expressed in Wisconsin Knife Works], the person who
is attempting to introduce evidence of a waiver may do so to a judge (for the judge’s
determination as to whether the evidence can later be given to the jury) only if that party can
prove reliance on the promised waiver. Waivers are unilateral relinquishments of rights, and thus
can be accomplished by proof of only one party. For example, if A and B both agree to change
delivery from June 1 to June 10 in a contract governed by Article 2, there is a modification, and
the modification rules of 2-209(1)-(3) govern its enforceability. If the parties do not agree that
they bilaterally changed the deal as a result of an oral conversation, if A can show that B agreed
to accept delivery on June 10, A can show that B unilaterally waived her rights to sue for late
delivery so long as A delivers the goods by June 10.

Judge Posner stated that the waiver must be accompanied by reliance by the party seeking to
enforce the waiver before testimony of the waiver would be allowed. That is, B would have to
show she relied on the change from June 1 to June 10 before Judge Posner would allow her to
testify that the oral conversation took place. Without the reliance, Judge Posner would enforce
the original agreement, and B would be in breach for late delivery if she delivered on June 10.

Judge Easterbrook’s view, Stu would be allowed to testify to the jury if he convinced the judge
that his testimony about the phone conversation was offered in good faith. We are told that the
modification actually occurred, so Stu would be acting with “honesty in fact” in testifying about
the phone call, meaning he would be proceeding in good faith [UCC § 1-201(20)] and so should
be allowed to tell the jury about the phone call. This would also be true under the objective
“reasonable commercial standards” + subjective “not offered as a pretext” test fashioned by the
case law. [Roth Steel Products v. Sharon Steel]. That is, testimony as to a changed delivery term
was not offered as a pretext for some unfair extortionist advantage sought by Stu, and that
testimony would be consistent with commercial standards when circumstances change and
delivery needs to be made to an address different from that specified in the original agreement.

Judge Easterbrook would allow B to testify as to the conversation without having to establish
reliance, so long as there is no indication of bad faith – no evidence of extortion or bad faith
threats of litigation.

Note that under both Judge Posner’s and Judge Easterbrook’s view, if B is allowed to testify, it
does not necessarily mean that the jury/trier of fact will believe B. If the jury/trier of fact
believes B, then the new operative delivery date is June 10; if the jury/trier of fact does not
believe B (or if B is not allowed to testify), then the operative delivery date is June 1, and B
would be in breach if she delivered on June 10.

Illusory Promise –

Personal Satisfaction Clauses,

Seems illusory, but it’s permitted – sufficient to bind contract

Contracts with Termination-at-Will Clauses;

No notice provision = reasonable notice

Can be inferred that the contract is unconscionable

Conditional Contracts where the Condition is in One Party’s Control;

It is acceptable to give the right to a third party to judge whether job was done correct, but a
conditional promise is not consideration if the promisor knows at the time of making of the
promise that the condition cannot occur.

A promise where one party’s performance under a contract is totally at his or her unfettered
discretion, e.g., I will pay you $500 for the couch if I feel like it. An illusory promise is not
sufficient consideration to make a promise enforceable.

Good Faith
Good Faith is consideration for the following types of contracts:

K with personal satisfaction clauses

Output K

Requirement K

A contract where one party agrees to supply all the needs of another for a product is
known as a “requirements” contract. [UCC §2-306(1)], and the buyer is obligated to look
to the seller first to fulfill all its requirements under the agreement.
 Under the UCC, the person supplying goods under a requirements contract owes a duty
to supply “such . . . requirements as may occur in good faith, except that no quantity
unreasonably disproportionate to . . . any normal or otherwise comparable prior . . .
requirement may be . . . demanded.” [Id.]

Requirements contract can go down to zero (can’t act in bad faith)

Requirements Contract → governed under Article 2; (valid offer)

Watch for unreasonable increases in requirements (e.g.100,000 to a million widgets);

The issue is whether the failure to supply all Nums’s requirements is a breach. As noted
above, Nums would have no viable breach action if Nums did not act in good faith. Given
the new production on Nums-V, which apparently requires an additional level of
legumes, it appears this element is satisfied, or at least there are no facts to the
contrary.

The next issue is whether the amount of legumes Nums is now ordering is
“unreasonably disproportionate to . . . any normal or otherwise comparable prior . . .
requirement.” We are not told in the problem the quantity of legumes Nums was
ordering before production of Nums-V, so it is difficult to say whether the amount it now
seeks is “unreasonably disproportionate” to the amount it was ordering before. One of
the risks a supplier like LF takes in entering into a requirements contract is that the
amount of goods ordered will be more than it had subjectively planned. But under the
UCC there is a ceiling, but not a floor, on the amount a buyer can order, even if it does so
in good faith. Since we are not told the amounts required by Nums over the years, and
the quantity it currently requires, no conclusion as to whether LF is in breach for not
supplying the new required amounts sought by Nums can be definitively reached, but if
the new product line did substantially increase the amount of legumes demanded, LF
would not have breached by failing to satisfy the substantially increased amounts
ordered.

Exclusive Dealing K [UCC 2-309]

Exclusive right to sell the sauce – can move for declaratory judgment to get relief

Must use best efforts to promote product

Could also be a requirements contract if the language required them to only use that
product (i.e. only sell the BBQ sauce)

If the contract is governed by the UCC, using the language of the Code itself, Pet’s Inc. is
required “to use best efforts to promote [the] sale” of Nums product. [UCC § 2-306(2)].
However, as discussed in class, a “best efforts” requirements can hamper a retailer who
sells products similar to the ones involved in the exclusive dealing contract, i.e., any time
it might recommend and sell a competitor’s products, it could leave itself open to a
charge that it was not using its “best efforts” to promote the product provided under the
 exclusive dealing contract. Or is could have multiple exclusive dealing contracts and face
even more potential claims of breach. As such, many courts have held the standard is
more appropriately “reasonable efforts,” meaning that the retailer need only use
reasonable efforts to promote its exclusive dealing partner’s product. Such an
interpretation is supported by cmt. 5 to 2-306, which speaks of the retailer’s duty only to
use “reasonable diligence” in exclusive dealing arrangements.

If the agreement is governed under the common law, and if there is nothing contrary in
the contract language itself, the law provides that Pet’s Inc. will be held to have implied a
promise only to “use reasonable efforts” to market and promote Nums products. [Wood
v. Lucy. Lady Duff-Gordon]. That implied “reasonable efforts” duty thus not only provides
consideration for the transaction (it means Pet’s Inc. will have obligated itself to do
something it didn’t otherwise have to do [Restatement § 71]), but it also defines the
duties owed to Nums.

Past Consideration –
“Past” consideration is a promise made in light of action already taken by the other party [Webb
v. McGowan]. Past consideration can serve as adequate consideration of the requisites of R § 86
are met:

Enforcement of some or all of the promise is necessary to prevent injustice

The benefit was rendered to the promisor

The promisee did not confer the benefit as a gift*

The value of the promise was not disproportionate to the benefit.

*Note the provisions of Cmt. d to R § 86 in explaining the rules of when the promisee did or did
not confer the benefit as a gift in a situation like Webb v. McGowan.

Promises without Consideration

Typically a gift promise – usually should be enforced because it’s moral and the right
thing to do, but doesn’t fit into the consideration doctrine. Restitution limits the
recovery, but a subsequent promise removes doubt as to the reality of the benefit. A
positive showing that payment was expected is not then required; and intention to make
a gift must be shown to defeat restitution.

Gift is not an unjust enrichment

Benefit previously received

Under R 86 a promise made in recognition of a benefit previously received by the
promisor from the promisee is binding to the extent necessary to prevent injustice, but a
promise is not binding under § 1 to the extent that its value is disproportionate to its
benefit (received a benefit, now making a promise to support it)

Where the benefit received is a liquidated source of money a promise is not enforceable
under this section behind the amount of the benefit. Where the value of the benefit is
 uncertain, a promise to pay the sale is binding and the promise to pay a liquidated sum
may serve to fix the amount due.

We will enforce a promise based on past consideration to the extent necessary to

prevent injustice.

And when the promise is based on services which are hard to value we will generally
allow the promisor to set the value, and enforce the promise in its entirety

However, even then, too much can be too much and the promise will not be enforceable
it the value is disproportionate to the benefit

Guarantor/Surety
Co-signer hypo – A promise to be a surety for the performance of a contractual obligation made
to the obligor is binding if the promise is in writing and signed by the promisor and recites a
purported consideration or the promisor should reasonably expect the promise to induce action
of forbearance of a substantial character on the part of the promise… and the promisee does
induce such action of forbearance

Quasi-Contract
In that case look to quasi-k recovery

Act of P when he jumped on log was intended as a gift -

Enforceable promise, but not consideration

Promises to debt collectors on bad debt

Promises to BK creditors made after discharge for all or part of the debt

Defenses

Illegality
The issue here would be whether the contracts between A&B is illegal. An agreement is illegal if
either it's formation or its performance is criminal or against public policy. Such agreements are
unenforceable by either party and our void contracts.

The general rule is that if an illegal agreement is wholly executory neither party can enforce it.
An exception to this is when one party is justifiably ignorant of the facts making the contract
illegal at the time the contract was made, that party may treat the contract as voidable at his or
her option within a reasonable time of learning of such facts.

When illegal agreements are performed parties are generally left as the court finds them
however the in pari delecto doctrine holds that a party to an illegal contract is entitled to
restitutionary recovery for the value of the products or services provided if they can establish
that they were not guilty of serious moral turpitude and the other party was more blameworthy
in the transaction.

A party may also be entitled to restitution if they seek to repudiate the agreement before it its
illegal purpose has been attempted under the locus poenitentaie doctrine.

If a contract does not involve serious moral turpitude and it's possible to sever or divide the
illegal portion from the legal portion a court is entitled to do so and may enforce the legal duties
under the contract.

Common types of criminal contracts are those that are

 agreements for the performance of criminal acts

 gambling contracts
 contracts obtained by bribery
 contracts in which a party releases another from Intentional tort liability
 agreements for services provided by parties who should be but are not licensed
 agreements in which the seller knows of the buyer’s illegal purpose. The prevailing rule
is that the agreement is illegal only if the buyers intended purpose involves serious
moral turpitude or if the seller acts to assist in the illegal purpose in some way in
addition to merely supplying the goods

Capacity
Age (Voidable, Sometimes Restitution, Ratifiable)

Minor is entitled to disaffirm the K any time before minor attains majority. R §§ 12(b);
14.

• View 1: If minor has paid money to defendant, minor is entitled to return of $,

and recovery is not subject to offset for use or depreciation. R § 14, cmt. c.; Petit @ p.
324 (4th full para.).

• View 2: Minor is entitled to return of $ paid, subject to “restitution,” i.e., offset

for use or depreciation, assuming fair deal and no “overreaching” by other party. Petit v.
Liston, @ p. 324 (3d full para.).

• Watch out for misrepresentation of age – Majority allow disaffirmance, but req
restitution,. Minority view is that minor is bound to K.

If “overreaching” e.g., unfairness, fraud, etc. against minor, etc., then no restitutionary
offset. Petit @ 325.

All JD: If cash sale, minor must account for restitution. Majority of cases involve credit,
for which there is generally not an exception.

Some JD: If sale of “necessities,” minor must account for restitution.

Some JD: Formally “emancipated” minors.

Express Ratification
 “I’ll pay you for the motorcycle” after he turns 18

Implied-in-fact Ratification

Some act which doesn’t show disaffirmance, e.g., continuing to make payments
after he turns 18.

Ratification by Silence (Implied-in-law Ratification)

Takes no act to disaffirm the K for a reasonable period of time after attaining
majority. (Keeps motorcycle if, e.g. it is paid off) .

The consideration issue is taken care of by R2 85 – no new consideration is needed to

make promise binding.

Mental Illness § 15 (Sometimes Voidable, Restitution Req’d, Ratifiable)

§ 12. Capacity to Contract, Comment c. Inability to manifest assent. In order to
incur a contractual duty, a party must make a promise, manifesting his intention;
in most cases he must manifest assent to a bargain…
Cognition & Acts test
15(1)(a) the cognition test (You don’t understand it – and the other person has reason
to know of your condition)
15(1)(b) the volition (“acts”)test (You can’t act in a reasonable manner – and the
other person has reason to know of your condition)
If K is fair and the other party is w/o knowledge of the mental illness or defect, the
power of avoidance under Subsection (1) terminates to the extent that the K has
been so performed in whole or in part.
15(2) In such a case a court may grant relief as justice requires. <- This is a catch all for
the judge to rectify a fairly harsh policy.
Seller would have to know of mental illness, not just suspect it.
The reason behind these policies is to prevent people from making agreements that
they do not understand.
Ratification applies in the same way that it applies in the situation of the minors that
have reached the age of majority.
For mental disability, if you disaffirm, the court requires restitution.
Guardianship (Voidable, Not Sure Restitution, Ratifiable)
§ 13. Persons Affected by Guardianship
A person has no capacity to incur contractual duties if his property is under
guardianship by reason of an adjudication of mental illness or defect.
If a guardian is appointed for the individual without capacity, the guardian may affirm
the K at any time while the guardianship continues – R § 13.
 Intoxicated Persons (Voidable, Not Sure Restitution, Ratifiable?)
It depends on whether Peter was unable to:
-- “understand in a reasonable manner the nature and consequences of the
transaction” or
-- “act in a reasonable manner in relation to the transaction” at the time it was
made under R § 16, b/c . . .
. . . the other party (Jill) had “reason to know” of such lack of cognition or ability to
act (if it existed) by virtue of her getting Pete drunk.

Note that we will allow the aggrieved party to avoid the transaction if the elements
are satisfied even if it is on “fair” terms.
§ 16. Intoxicated Persons
A person incurs only voidable contractual duties by entering into a
transaction if the other party has reason to know that by reason of
intoxication
(a) he is unable to understand in a reasonable manner the nature and
consequences of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the
transaction.

§ 78. Voidable and Unenforceable Promises

The fact that a rule of law renders a promise voidable or unenforceable does not prevent it from
being consideration.

Duress

Duress by Physical Compulsion (Void, cannot be affirmed)

If there is duress by physical compulsion, the contract is void. Threat needs some immediacy.
Can be party or a third person who issues the threat. (R § 174). Cannot be affirmed after the
threat.

Duress by Improper Threat (Voidable, may disaffirm while threat remains,

ratifiable)

The contract is voidable by party who has received the threat or ratifiable after the threat. (R §
175)
A. Where threat is by the other contracting party (R § 175(1)).
An improper threat leaves the victim “no reasonable alternative” but to enter the
contract as a result of the threat
 Where terms of resulting K are fair (R § 176(1))
Threat is improper if what is threatened is a crime; a tort; the threat would be a crime or
tort if used to obtain property; criminal prosecution; bad faith threat of civil process; or
breach of duty of good faith and fair dealing. Depends on what a reasonable person
would state the statement as an improper threat.
Where terms of resulting K are unfair (R § 176(2))
Threat is improper if what is threatened would harm the recipient and not significantly
benefit the other; effectiveness of threat is significantly increased by prior unfair dealing
of person making the threat; or what is threatened is use of power for illegitimate ends.
Ex. Cookie supplier waiting to tell coffee shop (until shop has no other alternative) that
they will only sell the cookies for 3x more.
B. Where threat is by a third party
Contract is voidable unless other contracting party contracted in good faith and without
reason to know of the duress gives value or relies materially on the transaction. (R §
175(2))
e.g. Don Corleone tells Bill to sell Bill’s Rolex to Sonny for a fair value or “Bill will sleep
with the fishes.” Sonny may not know and so contract is not voidable.
Disaffirmance/ratification rules for K made voidable based on duress (R § 85)
An individual who has entered into a K that is voidable on the grounds of duress by improper
threat under R § § 175-176, may disaffirm the K while the threat remains. Once the threat ends,
the K becomes ratified and the K is enforceable in one of the following ways:
Express Ratification
“I’ll live up to the deal” after the threat ends.
Implied-in-fact Ratification
Receiving benefits and/or continuing to perform under the K for a reasonable
time after the threat ends.
Ratification by Silence (Implied-in-law Ratification)
Make no effort to disaffirm for a reasonable period of time after the threat ends.
Ratification under duress is very troublesome. The third party (Don Corleone) could
come to court to threaten the person trying to disaffirm
“Not Duress”
Dire economic straights not caused by other party, and w/o any threat or physical compulsion,
do not serve as legitimate reasons to disaffirm a K. (No relief for this type of “economic duress”
under “peppercorn” theory of consideration.)

Ambiguity/Misunderstanding
Misunderstanding, R § 20 (Void, except as to meaning by innocent party if known
by the other party)

No K (b/c no manifestation of mutual assent) if parties attach a different meaning to a material

term and:

- neither party knows of the other’s meaning (R § 20(1)(a)) or

- both parties know of the meaning attached by the other (R § 20(1)(b)).

However, there is a K using the meaning of the “innocent” party (a party who does not know or
have reason to know of the meaning attached by the other) when:

- the other party knows or has reason to know of the meaning attached by the innocent party.
(R § 20(2))

A misunderstanding occurs when the two parties attach different meanings to the same term in
their agreement. Misunderstanding is a formation issue and if there is a misunderstanding, if
neither party knows or has reason to know of the meaning of a material term attached by the
other then there is no contract formed. The misunderstanding must be as to a material term and
entitles the party to rescission if established. If there is a misunderstanding there is no mutual
manifestation of agreement to go forward with the same material terms. Void, except as to
meaning by innocent party if known by the other party

Mistakes
A mistake is a belief that is not in accord with the facts at the time the contract was entered into.

Unilateral mistake

A unilateral mistake occurs when only one party to a contract has an erroneous belief as to the
true facts present in an exchange R2153. It is relatively difficult for that party to avoid the
contract due to a unilateral mistake. The restatement requires that the party seeking to avoid a
contract on mutual mistake must establish that they did not bear the risk of mistake for any of
the reasons set forth in R2154 including that they did not expressly or reasonably assume the
risk of the mistaken belief and either 1 the effect of the mistake is such that enforcement against
the mistaken party would be unconscionable or two the non mistaken party either had reason to
know of the mistake or cause the mistake. The most common unilateral mistakes are those in bid
cases and mistaken payment cases a party must seek to rescind the contract based on unilateral
mistake within a reasonable amount of time after discovering mistake or the contract is
considered implicitly ratified if there is a unilateral mistake the contract is voidable by the
mistaken party. Restitution must be made if the contract is avoided

Mutual mistake

A mutual mistake occurs when both parties are under substantially the same erroneous belief as
to the true facts present at the time of the exchange. R2 152 sets forth the elements to establish
a mutual mistake
1 the mistake must be as to a basic assumption on which the contract was made, the shared
mistake must change the essential nature of the contract

2 the mistake must have a material effect on the agreed exchange of performances, that would
make it unfair to enforce the bargain, or in other words one party might be getting too large and
unbargained windfall or the other party would be suffering an unknowing risked detriment

3 the party seeking to avoid the contract must not bear the risk of that mistake. Is whether the
party seeking to avoid the agreement was reasonable in believing there is no appreciable risk
that his or her benefit was untrue

Three principles for finding whether a party bore the risk of the mistake are: (Think
breeding cow)

1 the risk was allocated to that party by the express agreement of the parties

2 the party is aware at the time the contract is made that he or she has only a limited
knowledge of true facts but decides to treat that limited knowledge as sufficient

3 the court can find it reasonable to place the risk of the mistake on that party. An
example of this is conscious ignorance on the part of the seller, because contract making
is risk allocation in the example of the seller selling the stone the seller consciously took
the risk that the stone might turn out to be more valuable than she thought and so she
cannot avoid the contract.

The adversely affected party seeking to disaffirm or avoid the contract based on mutual
mistake must do so within a reasonable time after discovering the mistake. What
constitutes a reasonable time varies depending on the circumstances but if the
disaffirms is not timely the contract will be deemed ratified by the adversely affected
party. A party may also waive the mistake and go through the deal at the parties option.
Sometimes the court may exercise reformation of the contract. Restitution is required if
a contract is avoided on the basis of mutual mistake for any benefits conferred under the
contract after the time it was avoided.

Unconscionability
A contract might be unconscionable if it is too good a deal for one party. In determining
whether a contract is unconscionable the courts generally apply a sliding scale test to
examine the factors of procedural and substantive unconscionability. Generally an
absence of meaningful choice (procedural) and unfair terms (substantive) indicate
unconscionability. Procedural unconscionability occurs when there is oppression or
unequal bargaining power between the parties or surprise (the unconscionable clause is
typically hidden within numerous terms and legal jargon of the written agreement and
not really bargained for). Substantive unconscionability occurs when there are
unreasonably favorable terms to one party in the contract. Example of procedural
unconscionability is when there is no real or meaningful equality of bargaining power
between the parties. If the court finds that a contract is unconscionable it might refuse
to enforce the entire contract or enforce the remainder of the contract without the
 unconscionable clause or clauses or modify or limit application of any clause to avoid an
unjust result. A court might also exercise reformation.

Misrepresentation/Fraud
Misrepresentation occurs during the bargaining process. A misrepresentation is an
assertion that is not in accord with the facts. When representations made by a party
turn out to be wrong and they have induced the other party to enter a contract the
process under which the parties voluntarily enter into an informed bargain can be upset.
There are three types of misrepresentation. An innocent misrepresentation occurs when
a party honestly and reasonably believed what it represented, but that representation
turns out not to be true. Negligent misrepresentation occurs when a party should have
known the truth. Fraudulent misrepresentations occur when a seller conscientiously
lies, or when the seller knows that she does not know the true facts, or when the seller
has a reckless disregard for the truth for falsity of a statement. If the misrepresentation
only goes to the inducement to enter into a contract the resulting agreement is voidable
at the option of the innocent party. A claim for misrepresentation must be asserted
within a reasonable time after discovery of the misrepresentation. Restitution is
required upon avoidance of the contract.

Whether in ordinary breach rises to the level of misrepresentation depends on the

intention of the promisor at the time the promise was made. If the promisor knew they
had no intention of carrying out the promise at the time it was made, or was
misrepresenting a fact at the time of contracting then there is a misrepresentation issue
and the innocent party can avoid the contract. If the promisor intended to carry out the
promise at the time it was made, but later failed to perform for some reason the
resulting suit is for breach of contract only and the innocent party can sue for damages
as a result of the breach but may not avoid the contract under the misrepresentation
doctrine.

Fraud in factum

If there was misrepresentation as to the very nature of the agreement itself the contract
is void. These types of contracts are fraud in factum cases. Fraud in factum occurs when
a party misrepresents the very nature of the document presented to the innocent party.
In order to establish fraud in factum under R2164 a party must demonstrate that there
was 1 misrepresentation of an existing fact(not an opinion, silence may be actionable-
duty to disclose) made by the other party, 2 the misrepresentation was either
fraudulent or material, 3 the misrepresentation was actually relied upon by the
innocent party, and that such reliance was reasonable. Reliance is established by
pointing to some change of position taken by the innocent party which was motivated,
even if only in part, by the misrepresentation. Examples are by the buyers payment of
money, or signing of a contract, in reliance on the representations of the seller. A
reliance on a misrepresentation is reasonable even if the innocent party is at fault in not
knowing, or failing to discover, the true facts, so long as such fault does not amount to a
failure to act in good faith.

The more verifiable or provable and assertion the more likely it is to be a fact. While
fraud in factum requires the misrepresentation of an existing fact, which is usually
distinguished from an opinion, there are some exceptions when a statement of opinion
can serve as a basis for a misrepresentation claim. These exceptions include when the
misrepresenting party stands in a relation of trust and confidence to the innocent party,
or when the innocent party reasonably believes the other party has special skills,
judgment, or objectivity with regard to the subject matter, or if the innocent party is
particularly susceptible to a misrepresentation of the type involved.

Fraud carries punitive damages and the contract is voidable.

Predictions of future events beyond the control of the speaker cannot serve as the basis
for misrepresentation claim.

Facts are distinguished from puffing or trade talk

Duty to disclose

Sometimes a failure to speak acts as factual misrepresentations. The party who is silent
under a duty to disclose the facts and the failure to do so acts as an affirmative and
actionable representation to the contrary.

The five situations in which a party silence can act as misrepresentation are

1 when a party has taken affirmative action to conceal a fact with the intent to make it
unlikely the innocent party will discover it

2 when before the contract is executed a party learns of subsequent information about
which disclosure is necessary to prevent a previous assertion which may have been true
when it was made but is not true now from being a misrepresentation

3 where one party knows that disclosure of a fact is necessary to correct a mistake of the
other as to a basic assumption on which the contract is based so long as non disclosure
of the fact would be a breach of good faith and reasonable standards of Fair dealing

4 where one party knows that disclosure of a fact is necessary to correct the mistake of
the other as to the effect of a writing which evidences the agreement of the parties

5 where the innocent party is entitled to know of a fact due to the relation of trust and
confidence between the innocent and misrepresenting parties

Exception for arms length transactions

 Fraudulent and Material

a statement is fraudulent according to R2162 if the deceiving party intended to induce

the innocent party to enter a contract, And the deceiving party acted with scienter
(scienter is if the deceiving party knew what they represented was not true or knew that
they were being reckless in making the representation or knew they did not have the
basis to make that representation).

A misrepresentation is material if it is likely to make a difference to a reasonable person

in deciding whether to go through with the transaction.

Misrepresentation (Voidable, Fraud carries punitive damages)

Undue Influence

SOF
Statute of Frauds - The next issue is whether the contract is enforceable because of the UCC’s
statute of frauds.
Define – The UCC’s general statute of frauds provides that, in order to be enforced, a contract for
the sale of goods for $500 or more must be evidenced in a writing and signed by the party
against whom enforcement is sought. [UCC § 2-201(1)]

Analysis - Here, there is sale of goods (the item) for $500 or more (the item was $xxx),
but there is no writing signed by offeree XXX. Offeree XXX is the party against whom
enforcement is sought, i.e., Offeror XXX is trying to enforce the oral contract against
offeree xxx. As such, under the UCC’s general statute of frauds, the contract, even if
made, would be unenforceable.

Exception - An exception to the above rule exists under the UCC, called the “merchants’
confirmatory memorandum” exception. Under it, if the recipient of a signed writing by the other
party sufficiently detailing the terms of the sale fails to object to the writing within ten days, the
recipient loses the statute of frauds defense. However, that exception only applies when both
parties are merchants, i.e. the provision begins “Between merchants . . .”. [UCC § 2-201(2)]

Analysis - Here, offeror xxx is a merchant as the owner of a business who regularly deals
in xxx [UCC § 2-104], but offeree xxx is not. As such, even though offeror xxx’s email
meets all the criteria of a merchant’s confirmatory memo, offeree xxx retains her statute
of frauds defense because she was not a merchant.] The statute of frauds defense makes
the contract voidable by offeree xxx, and she has exercised that voidability right by
refusing to pay for the item.

Accordingly, offeror xxx cannot successfully sue offeree xxx for breach of contract since
the statute of frauds means no evidence of any contract will be admitted at trial, and
without evidence of a contract, there can be no successful breach of contract claim.
 Promissory Estoppel
Estoppel after Statute of Frauds - There is a split among jurisdictions as to whether estoppel can
be used to enforce a promise rendered unenforceable by the statute of frauds. Those who argue
that estoppel is unavailable argue that the UCC’s statute of frauds contains four very specific
exceptions to the writing requirement, and estoppel is not one of them. [UCC § 2-201(2) and 2-
201(3) (a), (b), and (c)] However, the majority rule provides that estoppel is a viable theory to
“get around” the statute of frauds and point to another section of the UCC, which provides that
common law rules of estoppel apply to all transactions under the Code, unless the Code
specifically says otherwise. [UCC § 1-103(b); Restatement (Second) § 129] If this transaction
takes place in a jurisdiction which applies the majority rule, Sam may have an argument that the
promise should be enforced, at least to some extent, as explained below.

Promissory estoppel is made-up of four elements: (1) A clear and definite promise; (2) made
with the expectation that the promisee will rely on it; (3) reasonable reliance; And (4) definite
and substantial detriment.

Test for estoppel – A promise is binding if (1) the promisor should expect (“rely”) action or
forbearance from the promisee, (2) the promisee does it, and (3) injustice can be avoided by
enforcing the promise. The reliance has to be in a definite and substantial character. A promise
that should reasonably induce forbearance on the part of the promisee. If just the making of a
contract were enough to invoke the doctrine, any contractual promise would be enforceable by
promissory estoppel. [Restatement (Second) § 90]

If it is judged that no K was formed between T and I, on the one hand, and S, on the
other, she would likely be able to recover on a theory of promissory estoppel. Under the
Restatement, if: (1) the promisor should reasonably expect a promisee to take some
action in response to a promise; and (2) if the promisee actually undertakes such action;
and (3) if justice would require that the promise be enforced, then the promisee can
recover an amount for her reliance on that promise to the extent justice requires. [R §
90(1)]

Terms

Parol Evidence Rule

Conduct of Parties as a Source of the Terms - CP/CD/UT

Restatement – Performance does not have to be perfect/substantial

performance only

UCC Perfect Tender Rule or not-PTR for Installment Contracts (Cure &
Cover)Enforcement
Excuse for Non-Performance
Breach of Contract –
to prevail on a claim of breach of contract, our law imposes on the plaintiff the burden to prove
four elements: first, that the parties entered into a contract containing certain terms; Second,
that plaintiffs did what the contract required them to do; 3rd that defendants did not do what
the contract required them to do, defined as breach of contract; And 4th, the defendant’s breach
or failure to do what the contract required, caused a loss to the plaintiffs. Goldfarb v. Solamine

Anticipatory Repudiation

Failure to Give Adequate Assurance

A Later Agreement Excusing Original Obligations

Impossibility (Objectively Impossible)

Impracticability (Extremely and Unduly Burdensome)

Frustration of Purpose (Purpose of K Gone)

Failure of an Express Condition

Remedies – R § 344

Specific Performance – Only if Money is Inadequate

Expectation Damages – Restores Party to Same Position Had K Been

Performed
Expectation Damages – what you would have received it the contract had been formed
However, the wording of the Restatement itself doesn’t provide that only
reliance damages are recoverable in promissory estoppel situations – instead it
provides that a K is formed if the elements of promissory estoppel are met [R §
90, Cmt. d] and says that remedies for breach of that implied K “may” be limited
if justice requires. There are situations where a court can award the full amount
of K damages for a breach if justice would require such a result. Here that would
be the entire $100,000. It is likely, however, that a promissory estoppel recovery
by S would only be limited to her out-of-pocket, reliance damages.

Unusual to get full amount of promise

Reliance Damages – What Party Spent in Reliance of K – Returns P to pre-

K Status
Reliance interest – what are you out of pocket -what would it take to get you back to
where you were before the promise (usually less than expectation)

Generally recovery under a promissory estoppel theory is limited to reliance

damages, i.e., damages that would put S in the position she was in before the
promise was made. Typically these are out-of-pocket expenses made in reliance
on the promise. [R § 344(b)] Here, that would include the $750 she spent for the
dress; the cost of the limo (and a hotel/travel cost to the wedding if that was
necessary), etc.

Restitutionary Damages – Take Away Unjust Enrichment and Give it Back

to Party