[Ariel Chou]

Contract & Sales

Applicable Law
1. Common Law
2. Article 1&2 of the UCC
Common Law All contract except sales of good
- Real estate
- Service contract
Article 1&2 of the UCC Primarily for sales of goods
- Tangible
- Personal property
- Anything movable
Mixed Deal Predominance purpose test
- What is more important part of the contract?
Exception: Divisible contract
- If contract expressly divides payment, then apply UCC to sale of
goods part and common law to the rest

Formation
Contract Formation Reasons for not enforcing an agreement
1. Offer 1) Lack of consideration or consideration substitute
2. Termination of offer 2) Defendant promisor’s lack of capacity
3. Acceptance 3) Statute of Frauds
4) Illegality
5) Public Policy
6) Misrepresentation as a reason not to enforce agreement
7) Nondisclosure
8) Duress
9) Undue Influence
10) Unconscionability
11) Ambiguity
12) Mistake of fact
Offer
General Test – Object Test: Whether a reasonable person in the position of the offeree would
Manifestation of commitment believe that his assent creates a contract.
Missing price term in sales contract Common law (real state) – Price and land description required
UCC – No price requirement, intent of parties test where no price term
Vague and ambiguous material [Appropriate, Fair, Reasonable]
terms  Not an offer
Requirements contract [All, Only, Exclusive, Solely]
Output contract  Requirements / output contracts are not vague or ambiguous and are valid
Increase in requirements: Buyer can increase requirements so long as the
increase is in line with prior demands. No unreasonably disproportionate
limitation on increases.
Advertisement / Price Quotation An ad or price quotation is not offer
Exception:
a) Any advertisement can be a unilateral offer if it is in the nature of a reward
b) An ad can be an offer if it specifies quantity and expressly indicates who
can accept
c) Price quotation can be an offer if sent in response to an inquiry
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Termination of offer
Lapse of time
Death of a party prior to acceptance
Revocation
(Words / Conduct of offeror)
Effective revocation
Multiple offers
Irrevocable offer – Option
Irrevocable offer – UCC “Firm Offer
Rule”
Irrevocable offer – Reliance
Irrevocable offer – Unilateral
contract
Rejection
(Word / Conduct of offeree)
Counteroffer
Conditional offer
Addition terms to a common law
contract
Additional or different terms to a
UCC contract
[Ariel Chou]
Time stated or reasonable time has lapsed
General rule: Death or incapacity of either party after the offer, but before
acceptance, terminates offer
Exception: Irrevocable offers
a) Later unambiguous statement by offeror to offeree of unwillingness or
inability to contract
b) Later unambiguous conduct by offeror indicating an unwillingness or
inability to contract that offeree is aware of
 Revocation of an offer sent through the mail is NOT effective until received
 An offer cannot be revoked after it has been accepted
Making similar offers to other people would not revoke the offer automatically
An offer cannot be revoked if the offeror has not only made an offer but also:
i) Promised to not revoke; and
ii) This promise is supported by payment or other consideration
An offer cannot be revoked for up to 3 months, if:
i) Offer to buy or sell goods
ii) Signed written promise to keep the offer open
iii) Party is a merchant
An offer cannot be revoked if:
i) There has been reliance
ii) That is reasonably foreseeable
iii) Detrimental
The start of performance pursuant to an offer to enter into a unilateral
contract makes that offer irrevocable for a reasonable time to complete
performance.
 Mere preparation is not enough to make offer irrevocable
1. Counteroffer
2. Conditional acceptance
3. Additional terms
Counteroffer generally terminates the offer and creates a new offer
 Counteroffer do not terminate options
 Bargaining does not amount as counteroffer, thus does not terminate the
offer
[If, only if, provided, so, long as, but, on, condition that]
General Rule: A conditional acceptance terminates the offer
Common law: Rejects and becomes a counteroffer that can be accepted by
conduct
UCC: Rejects but not a counteroffer that can be accepted by conduct
Mirror Image Rule: A response to an offer that adds new terms is treated like a
counteroffer rather than an acceptance
Seasonable expression of acceptance: A response to an offer that adds
additional or different terms, but does not make the new terms a condition of
acceptance, is generally treated as an acceptance.
The additional term is not part of the contract, unless
1) Both parties are merchants; and
2) The additional term is NOT of “material” or objected to by the original
offeror
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Acceptance
Expressed method of acceptance The offeror can control the method of acceptance, the time that a distance
acceptance is effective, or whether the offeree must give notice that is has
accepted by performance.
However, a lot of time, the offer is silent as to the method of acceptance, time
of acceptance, or notice of acceptance.
Silence General rule: Silence is not acceptance
Exception: If custom indicates silent acceptance is reasonable, or offeree by
words or conduct agrees that silence is acceptance then silence is acceptance.
The offeree starts to perform Bilateral contract: Start of performance is acceptance
Unilateral contract: Start of performance is not acceptance, completion of
performance is required
Distance and Delay in 1. All communications other than acceptance are effective when received.
communications ONLY acceptance is generally effective when mailed. (mailbox rule)
2. If a rejection is mailed before an acceptance is mailed, then neither is
effective until received.
3. You cannot use the mailbox rule to meet an option deadline
The seller of goods sends the General rule: Acceptance and breach
“wrong” goods Exception: Accommodation/Explanation – counteroffer and no breach
Person who accepts An offer can be accepted only by:
1) A person who knows about the offer at the time she accepts
2) The person to whom it was made
 Non-assignability of offers
 Assignability of options
Lack of consideration or consideration substitute
Consideration 1. “Bargained for” – asked for by the promisor in exchange for her promises
2. “Legal detriment”
3. Promise as consideration (watch out for illusory promise)
4. Adequacy consideration – not relevant
Past consideration General rule: Not consideration
Exception: Expressly requested by promisor and expectation of payment by
promise
Pre-existing contractual or statutory Common law
duty rule General rule: Doing what you are already legally obligated to do is not new
consideration for a new promise to pay you more to do merely that
Exception:
a) addition to or change in performance
b) unforeseen difficulty to severe as to excuse performance
c) third-party promise to pay
UCC
New consideration is not required to modify a sale of goods if in good faith
Part payment as consideration for Due and undisputed: Not consideration for release
release Not yet due (or disputed): Can be consideration
Consideration Substitute – A written promise to satisfy an obligation for which there is a legal defense
Obligation with Legal defense (e.g. Statute of Limitations) is enforceable without consideration
Consideration Substitute – i) Promise
Promissory estoppel ii) Reliance that is reasonable, detrimental, and foreseeable,
iii) Enforcement necessary to avoid injustice
Consideration Substitute – If your state still recognizes seals as a consideration substitute, your state
Seals supplement will so state
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Defendant Promisor’s lack of capacity
1. Infancy – under 18
2. Mental incompetents
3. Intoxicated persons – if the other party has reason to know
Consequence of incapacity
Statutes of Frauds
1. Is the contract within the Statute of Frauds? Other S/F issues:
2. If sim is the Statute of Frauds satisfied?
3. Is there a Statute of Frauds defense?
Contract within the S/F
Suretyship
More than a Year rule
Transfer of interest in real estate
Sale of goods for $500 or more
Promise in consideration of
marriage
Promise by executor or
administrator to pay the estate
Satisfying S/F
Performance
Transfer of Real Estate
Service Contract
Sale of Goods Contract
[Ariel Chou]
1) Right to disaffirm by person without capacity
2) Implied affirmation by retaining benefits after gaining capacity
(ratification)
3) Quasi-contract liability for necessaries (obligated to pay for food, clothing,
medical care or shelter)
1) Written proof of authorization to enter into contract for
someone else
2) Written proof of contract modification
3) Contract provisions requiring written modification
Promises to answer for the debts of another (suretyship/guarantee)
Exception: “Main purpose” – If the main purpose of the obligation allegedly
guaranteed was to benefit the guarantor, then not even that guarantee is
within the S/F
Service contract not “capable” of being performed within a year from the time
of the contract:
a) Specific time period, more than a year
b) Specific time, more than a year from date of contract
S/F does not apply:
c) Task (nothing said about time) – ignore what actually happened
d) Life-long contract
Term of more than a year
Exception: Leases of year or less
Including exactly 500$
Not merely a promise to marry, but rather, a promise to do something or
refrain from doing something, if get married
Not merely a promise to pay the estate’s expenses but rather a promise to pay
the estate’s expenses from his own funds
 Transfer of real estate
 Service contract
 Sales of good contract
Part performance satisfies the S/F in transfer of real estate, require 2 of the 3:
i. Improvements to the land
ii. Payment
iii. Possession
Part performance of services contract does not satisfy the S/F
Full performance by either party satisfies the S/F
Ordinary goods
Seller’s part performance of a contract for the sale of goods satisfies the S/F,
but only to the extent of the part performance.
(e.g. In the case of delivered and undelivered good, S/F is satisfied to the
extent that are delivered)
Specially manufactured goods
S/F is satisfied as soon as the seller makes a “substantial beginning”
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Writing Common Law
1. Contents – all material terms test (who and what)
2. Signature
UCC
1. Contents – material term test – (how many)
2. Signature – Exception: transactions between two merchants where there
is a delay in responding
Judicial Admission If the D asserting a S/F defense admits in a pleading or testimony that he had
entered into an agreement with P, S/F is satisfied
Estoppel P’s reliance on D’s oral promise to put the agreement in writing can estop the
D from asserting a S/F defense.
Other S/F Issue
Authorization to enter into contract Equal Dignity Rule: The authorization must be in writing only if the contract to
for someone else be signed is within the S/F
Contract modification 1) Look at the deal with the allege change (after the change)
2) Whether the deal with the alleged change would be within the S/F
Contract provisions requiring Common law: ignore contract language
written modification UCC: Effective unless waived
Illegality
Illegal subject matter If the subject matter is illegal, the agreement is not enforceable.
Illegal purpose If the subject matter is legal, the agreement is enforceable if the plaintiff did
not have reason to know of the defendant’s illegal purpose.
Public Policy Courts can refuse to enforce an agreement because of public policy.
Misrepresentation 1) False assertion of fact
2) Concealment of fact
 No wrongdoing required for material misrepresentations
Nondisclosure A person making a contract has no duty to disclose what she knows
Duress 1. Physical duress
2. Economic duress:
i) improper threat; and
ii) no reasonable alternative
Undue Influence 1) Special relationship between the parties; and
2) Improper persuasion of the weaker by the stronger
Unconscionability 1) Unfair surprise (procedural) and oppressive terms (substantive) are
2) Tested as of the time the agreement was made
Ambiguity No contract, if:
1) Parties use a material term that is open to at least two reasonable
[If one party knew but did not interpretations
inform the other party, the contract 2) Each party attaches different meaning to the term
is formed under innocent party’s 3) Neither party knows or has reason to know the term is open to at least
knowledge] two reasonable interpretations
Mistake of Fact Mutual material mistake of existing fact
1) Both parties are mistake
2) Basic assumption of fact
3) Materially affects the agreed exchange
Unilateral mistake of material fact
 Palpable mistake – If the other party to the contract knows or should have
known of the mistake, courts grant relief to the mistaken party.
 Mistakes discovered before significant reliance by the other party may
relief
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Terms
1. Words in the written contract
2. Pre-contract words of parties and parol evidence rule
3. Conduct
4. UCC – “Default Terms”

Pre-contract words of parties and parol evidence rule

Parol Evidence Rule Final writing supersedes prior oral negotiations and agreement.
Changing / contradicting terms in Evidence of earlier agreements cannot be considered for the purpose of
the written deal contradicting the terms in the written contract.
Mistake in integration The court may consider evidence of such terms for the limited purpose of
(clerical mistake) determining whether there was a mistake in integration.
Defense The court may consider evidence of earlier words of the parties for the limited
(getting out of a written deal) purpose of determining whether there is a defense to the enforcement of the
agreement, such as misrepresentation, fraud, or duress.
Ambiguous The court may consider evidence of earlier agreements to resolve ambiguities
(explaining term in the written deal) in the written contract.
Adding to the written deal The parol evidence rule prevents a court from considering evidence of earlier
agreements as a source of consistent, additional terms unless the court finds:
1) That the written agreement was only a partial integration; or
2) That the additional terms would ordinarily be in a separate agreement
Conduct
Conduct 1st – course of performance: same people, same contract
2nd – course of dealing: same people, earlier dealing
3rd – custom and usage: other people, similar contracts
UCC – Default Terms
A. Delivery obligations of seller of goods if delivery by common carrier
B. Risk of Loss
C. Warranties of quality
D. Limitations on warranty liability
Delivery obligations of seller of goods
Shipment contract Seller completes its delivery obligation when it gets the goods to a common
carrier and makes reasonable arrangements for delivery, and notifies the
buyer.
 FOB - where the seller is or where the goods are
Destination contract The seller does not complete its delivery obligation until the goods arrive at
the destination.
 FOB – any city other than where the seller is or where the goods are
Risk of Loss
Risk of Loss 1. Agreement: agreement of the parties’ controls
2. Breach: breaching party is liable for any uninsured loss even though
breach is unrelated to problem
3. Common carrier deliver: risk of loss shifts from seller to buyer at the seller
completes its delivery obligations
4. Merchant-seller rule: when no agreement, no breach, no delivery by a
carrier
- Risk of loss shifts from a merchant-seller to the buyer on the buyer’s
“receipt” of goods.
- Risk of loss shifts from a non-merchant-seller to the buyer when he
“tenders” the goods

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Warranties of quality
Express warranty
Implied warranty of merchantability
Implied warranty of fitness for a
particular purpose
Limitations on warranty liability
Limitations on warranty liability
[Ariel Chou]
Fact vs. Opinion
Only the expression on facts could constitute express warranty
1) Seller is a merchant that deals in goods of that kind
2) Warranty: Goods are fit for ordinary purpose
1) Buyer has particular purpose
2) Buyer is relying on seller to select suitable goods
3) Seller has reason to know of purpose and reliance
4) Warranty: Goods are fit for particular purpose
Statute of limitations: 4-year limitation starts running on possible warranty
actions when the “tender of delivery is made”, not when the buyer learns that
the product is defective.
Privity: P contracted with D
Buyer’s examination of goods: There are no implied warranties as to defects
which would be obvious on examination.
Disclaimer:
- Express warranties generally cannot be disclaimed
- Implied warranties of merchantability and fitness can be disclaimed
(conspicuous language of disclaimer)
Limitation of remedies: Enforceable unless unconscionable (personal injury is
prima facie unconscionable)
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Performance
1. Perfect Tender
2. Rejection of goods option for buyer if not perfect tender
3. Rejection limited by seller’s option to cure if
4. Rejection limited by Installment contracts
5. Rejection not possible after acceptance
6. Revocation of acceptance
7. Payment concept
Perfect Tender Only applies to sales of goods
The goods and delivery must completely comply with the contract terms
Rejection of the goods A less than perfect tender generally gives the buyer the option to reject the
goods so long as the buyer acts in good faith
The buyer must take reasonable care of the goods and cannot continue to use
the goods
 The option of rejection is limited by the concepts of cure, installment
contract and acceptance
Cure 1. Time for performance has not yet expired
2. Seller has reasonable ground to believe tender would be acceptable
perhaps with a money allowance (refer to prior dealing)
Installment contracts An installment contract requires or authorizes:
1) Delivery of the goods in separate lots
2) To be separately accepted
 The buyer has the right to reject an installment only where there is a
substantial impairment in that installment that can’t be cured.
Acceptance of the goods If the buyer accepts the goods, it cannot later reject them
 Payment without opportunity for inspection is not acceptance
 Failing to rejection: Rejection must be timely. Failure to reject after the
buyer had reasonable time to reject is acceptance
 Retention as acceptance: Retention after opportunity for inspection
without objection is an implied acceptance
Revocation of acceptance of goods Requirements:
1) Nonconformity substantially impairs the value of the goods
2) Excusable ignorance of grounds for revocation or reasonable reliance
on seller’s assurance of satisfaction
3) Revocation within a reasonable time after discovery of nonconformity
Payment Concepts 1) Cash unless otherwise agreed
2) Buyer can pay by check
3) Seller does not have to take the check but that gives the buyer an
additional reasonable time

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Remedies
1. Specific performance
2. Reclamation
3. Reformation
4. Money damages
Equitable remedy Look for adequacy of remedy at law or unclean hands
Special Performance Contracts for sale of real estate
Generally gets the SP, but would not order SP if BFP is involved.
Contract for sale of goods
Unique goods, antiques, art, custom-made
Contract for service
No SP, possible injunctive relief
Reclamation Right of an unpaid seller to get its goods back
1) The buyer must have been insolvent at the time that it received the goods
2) The seller demands return of goods within 10 days of receipt
3) The buyer still has goods at the time of demand
Reformation Court reforms the contract
a. Mistake in writing the agreement (omission, clerical error, etc.); or
b. Fraudulent misrepresentation as to what is in the agreement
Entrustment (Protection of BFP) If an owner leaves her goods with a person who sells goods of that kind and
that person wrongfully sell to 3rd party, such good faith purchaser prevails.
Money Damages Measure of damages:
1. Expectation interest – P, contract had been performed
2. Reliance interest – P, contract had never happened
3. Restitution interest – D, contract had never happened
Additions and limitation:
1. Incidental damages
2. Consequential damages
3. Less avoidable damages
4. Less damages that cannot be established with reasonable certainty
General approach Expectation: Put P in the same position as if contract had been performed
Damages rules for sales of goods Seller breaches
Buyer keeps the goods:
 fair market value if perfect - fair market value as delivered
 cost of repair
Seller has the goods: (whichever is greater)
 market price at time of discovery of the breach - contract price
 reasonable replacement price - contract price
Buyer breaches
Buyer keeps the goods:
 contract price
Seller has the goods:
 contract price - resale
(Unless seller cannot resell, in which case the seller can recover the contract
price and in some situations provable lost profits – inventory)
Plus incidental damages Cost incurred in dealing with breaches are always recoverable
Plus foreseeable consequential P can recover damages arising from P’s special circumstances, if D had reason
(special) damages to know of these special circumstances at the time of the contract
Duty to mitigate No recovery for damages that could have been avoided without undue burden
on P:

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Damages cannot be speculative
Contract provisions regarding
damages
[Ariel Chou]
- Continuing to perform after the other party’s breach
- Turning down other, comparable opportunities
Less damages that cannot be established with reasonable certainty – reliance
recovery may be applied instead of expectation recovery (new business or new
business activities)
Test:
1) Damages were difficult to forecast at the time contract was made; and
2) Provision is a reasonable forecast
 Single set lump sum that does not vary the severity of the breach is
generally not enforceable.
 Limitation of remedies – the amount recoverable, is it unconscionable?
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Excuse
1. Other party’s material breach
2. Other party’s anticipatory repudiation
3. Insecurity about whether the other buy is going to perform
4. Improper performance
5. Nonoccurrence of express condition
6. Later agreement
7. Later occurrences that affect the ability to perform or mutually understood purpose of performance
Other party’s material breach
(nonperformance)
Other party’s saying it is not going to A. Unambiguous statement or conduct that the repudiating party will not
perform (anticipatory repudiation)
Insecurity about whether the other
guy is going to perform
Improper Performance
Nonoccurrence of an express
condition (watch out for conditional General rule: Strict compliance
acceptance which is not express
condition)
Elimination of Express condition
Later Contract
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A party is excused from performing if the other party does not perform
perform made prior to the time that performance was due excuses the
other party’s duty to perform and give rise to an immediate claim for
damages for breach. (Unless the claimant has completed her performance)
B. Retraction: Anticipatory repudiation can be withdrawn so long as there
has not been a material change in position by the other party. If the
repudiation is timely retracted, the duty to perform is reimposed but
performance can be delayed until adequate assurance is provided.
If the words or conduct of one party give reasonable grounds for “insecurity”,
then the other party can:
1) In writing, demand adequate assurance and
2) If it is “commercially reasonable”, can suspend performance until it gets
adequate assurance
Common law:
- Damages can be recovered for any breach
- Only a material breach by one guy excuses the other party from
performing a contract
- Divisible contract corollary (lump sum or per performance basis)
UCC: Perfect tender rule
When does express condition satisfied?
Exception:
a) Forfeiture: When enforcement of the condition would cause excessive
harm to the other part
b) Honest and good faith dissatisfaction: Conditions of personal satisfaction
of one of the contracting parties  Whether a reasonable person would
be satisfied
Person protected by the condition – Estoppel & Waiver
Rescission (cancellation):
Whether performance is still remaining from each of the contract parties
Accord and satisfaction (substituted performance):
If the new agreement (the accord) is performed (satisfaction), then
performance of the original obligation is excused
If the accord is not performed, then the other party can recover on either the
original obligation or the accord, but not both
Modification (substituted agreement):
Agreement by parties to an existing obligation to accept a different agreement
in satisfaction of the existing obligation
Novation:
An agreement between both parties to an existing contract to the substitution
of a new party (same performance, different party)
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Later, unanticipated event
Subsequent law or regulation
Death after contract
[Ariel Chou]
Common law:
1) Something that happens after contract formation but before the
completion of contract performance
2) That was unforeseen
3) That makes performance impossible or commercially impracticable or
frustrates the purpose of the performance
UCC:
a) Risk of loss on buyer: buyer pays
b) Risk of loss on the seller: buyer doesn’t have to pay
1. Later law makes performance of contract illegal – excuse by impossibility
2. Later law makes mutually understood purpose of contract illegal – excuse
by frustration of purpose
Death does not make a person’s contract obligations disappear
Exception: Death of party to contract is “special” person excuses performance
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Third-Party Problems
1. Third-party beneficiary
2. Assignment
3. Delegation
Third-party beneficiary
Defense
Assignment of right
Limitations on assignment
Requirements for assignment
Who can sue whom
Implied warranties of assignor in an
assignment for consideration
Multiple assignments
Delegation
[Ariel Chou]
 Promisor – making promise to benefit 3rd party beneficiary
 Promisee – obtaining promise to benefit 3rd party beneficiary
 Third-party beneficiary
- Intended (mentioned in the contract) – will have contract right
- Incidental – no right
General Rule: Beneficiary cannot recover from promisee
Exception: Creditor beneficiary can recover from promisee but only on pre-
existing debt
If the 3rd party beneficiary sues the promisor, the promisor can assert any
defense that he would have had if sued by the promisee
1) Assignor 2) Assignee 3)Obligor
a) Prohibition – take away the right to assign but not the power to assign
b) Invalidation – take away both right and power to assign
 Common law bars an assignment that substantially changes the duties of
the obligor:
- Assignment of right to payment (never substantial)
- Assignment of right to contract performance other than right to
payment (usually substantial)
Consideration not required, but gratuitous assignments can be revoked
1. Assignee can recover from obligor
2. Assignor for consideration cannot recover from obligor
3. Obligor has same defenses against assignee as it would have against
assignor
4. Payment by obligor to assignor is effective until obligor knows of
assignment
5. Modification agreements between obligor and assignor are effective if the
obligor did not know of the assignment
1) The right assigned actually exists
2) The right assigned is not subject to any then existing defenses by the
obligor
3) The assignor will do nothing after the assignment to impair the value of
the assignment
4) The assignor does not warrant what the obligor will do after the
assignment
 Gratuitous assignment – last assignee generally wins
 Assignment for consideration – first assignee for consideration wins
Exception: assignee does not know of the earlier assignment and is the first to
obtain payment/judgment/novation/indicia of ownership
Contractual duties are generally delegable, UNLESS:
1) Contract prohibits delegations / prohibits assignments
2) Personal service contract that calls for very special skills
Nonperformance by delegatee:
1) Delegating party always remains liable
2) Delegatee is liable only if she receives consideration from delegating
party
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Applicable Law
 This is a contract for services, so it is governed by the common law of contracts rather than UCC Art.2.
 Unlike service contract, the contract for the sale of goods is governed by Art. 2 of the UCC.
To form an enforceable contract
 To form a enforceable contract, there must be mutual assent (offer and acceptance), consideration, and the
absence of any formation or enforcement offenses.
Consideration (Past performance)
 Consideration is a bargained-for exchange that has legal value.
 There is no bargain when one party gives a gift to another. Legal value is usually considered to be either a benefit
to the promisor or a detriment to the promisee. Most courts focus on the detriment element. The promise must
induce the detriment and the detriment must induct the promise. Therefore, past consideration is insufficient.
 While the general rule is that something already given or performed cannot be consideration, some courts have
created exceptions. Under a modern trend, some courts will enforce a promise if:
i) It is based on a material benefit that was previously conferred by the promisee on the promisor, and
ii) The promisee did not intend to confer the benefit as a gift.
 The Second Restatement, which follows this view, also includes the limitation that the promise is unenforceable
to the extent it is disproportionate to the benefit conferred.
Promissory Estoppel
 If necessary to avoid injustice, a court will enforce a promise without consideration if:
i) The promisor should have expected the promisee to change his position in reliance on the promise
ii) The promisee did change his position; and
iii) The change in position was to the promisee’s detriment.
Modification of original agreement
 A modification is also an agreement. As such, it requires an offer, an acceptance, and consideration.
 At common law, which governs here, any different or additional terms in an acceptance results in a rejection and
counteroffer.
 This agreement need not be in writing to be enforceable. A written contract may be modified orally – even if the
written contract contains a provision prohibiting oral modification. Thus, no writing is required to make the
modification enforceable. Parol evidence of an earlier or contemporaneous agreement is not admissible to vary,
add to, or contradict a fully integrated written contract. However, parol evidence is admissible to prove the oral
modification. Because a modification is subsequent, not prior or contemporaneous, the parol evidence rule does
not apply.
 If a party who has a duty of performance subject to condition prevents the condition from occurring, the
condition is excuse, provided the prevention was wrongful. (i.e. the other party would not have reasonably
contemplated or assumed the risk of this type of conduct).
 Each contract imposes on each party a duty of good faith and fair dealing.
Consequential Damage
 Contract damages should put the non-breaching party where he would have been had the promise been
performed. The damages are usually measured by the expectation or benefit of the bargain standard. In addition,
a party may recover consequential damages, which are special damages reflecting losses over and above standard
expectation damages. Consequential damages result from the non-breaching party’s particular circumstances.
 Thus, they may be recovered only if, at the time the contract was mad, a reasonable person would have foreseen
the damages as a probable result of breach.
Punitive Damage
 Punitive damages are awarded to punish a defendant for wrongful conduct, they are generally not awarded in
contract cases. If the defendant’s conduct is tortious, the plaintiff would be able to collect punitive damage.
Common law - Consideration (Pre-existing duty)
 Under the common law, every contract requires consideration to be enforceable, and any modification to a
contract requires new consideration.
 Consideration is bargained-for exchange of something of legal value. Under the preexisting duty rule, the promise
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to perform a legal duty already owed to a promisor is not consideration.
 It is true that some courts now will allow a contract to be modified without additional consideration if the
modification is “fair and equitable” in view of circumstances not anticipated when the contract was made. This
usually means that a party encountered difficulties in performing bordering on impracticability. Since such an
unanticipated event significantly increases the cost of performance, a court might allow a modification of the
contract’s price without additional consideration if it would be fair and equitable to do.
 While some courts have allowed for parties to mutually rescind a contract and then enter into a new contract at a
difference price, that scenario is not what occurred here. The facts clearly state that the parties changed the
original contract, not that they rescinded the contract and entered into a new one.
UCC - Consideration
 Art 2 of the UCC does not follow the common law rule requiring new consideration for contract modification.
Under Art 2, contract modifications sought in good faith are binding without consideration. Only those
modifications that are extorted from the other party in bad faith are unenforceable.
 Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. In
essence, there must be a legitimate commercial reason for the modification.
Duress
 A contract can be voided based on duress when a part’s assent to a contract is induced by an improper threat by
the other party that leaves the victim no reasonable alternative. Generally, taking advantage of another person’s
economic needs is not duress. However, withholding something someone wants or needs will constitute
economic duress if:
i) The party threatens to commit a wrongful act that would seriously threaten the other contracting part’s
property or finances; and
ii) There are no adequate means available to prevent the threatened loss.
Substantial Performances
 In every contract, the duty of each party render performance is impliedly conditioned on the other party
rendering his performance or making a tender of his performance.
 In contracts not involving the sale of goods, the condition of complete performance may be excused if the party
has rendered substantial performance. The rules for determining whether performance is substantial are the
same as those for determining whether a breach is minor or material. If the breach is minor, performance is
substantial; if the breach is material, performance is not substantial.
 To determine whether a breach is material, the court looks at: the amount of benefit received, the adequacy of
damages, extent of performance, hardship to the breaching party, and whether the breach was negligent or
willful.
Delay
 A reasonable delay in performance is usually considered a minor breach unless the nature of the contract is such
as to make performance on the exact day vital importance or the contract, but its terms, provides that time is of
the essence, and the delay will be a material breach.
 To determine whether time is of the essence, the trier of fact looks at the instrument itself as well as all of the
surrounding circumstances.
Divisible Contract
 If a contract is divisible, a party who has performed one or more parts is entitled to collect the contract price for
those parts even if it breaches the other parts. It’s not condition precedent to the other party’s liability that the
whole contract be performed.
 However, the non-breaching party has a cause of action for each of the unperformed units and may withhold
counter-performance for those unites.
 For a contract to be divisible:
i) The performance of each party must be divided into two or more parts under the contract,
ii) The number of parts due from each party must be the same; and
iii) The performance of each part by the party is agreed on as the equivalent of the corresponding part from
the other party.

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 [Ariel Chou]
 Divisibility questions involve contract interpretation and generally turn on fairness.
Restitution
 We look at whether the party will be unjustly enriched.
 If the plaintiff is the party who breached the contract, it may still recover in quasi-contract the value of the
services performed minus any damages incurred as a result of the breach.

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