Outline

I. Contract-Definition A. A contract is a promise or set of promises to do something in the future for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty. Two key elements: 1. Promise: a commitment as to the happening or non-happening of a future event 2. Enforcement: legal enforcement. Must be supported by consideration. II. Policy Considerations A. Equitable B. Consistent C. Predictable D. Freedom of Contract III. Formation --The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. (Restatement 17) A. Mutual Assent--Manifestation of mutual assent to an exchange requires each party either make a promise or begin or render a performance. 1. Objective Theory: Manifestations of intent (words and conduct) should be viewed from the vantage point of a reasonable person in the position of the other party. 2. Must Parties be Serious? Issue is whether a reasonable person in that position would conclude from other's manifestations that they were serious. Lucy v. Zehmer; Leonard v. Pepsico Inc. 3. Intent to be Legally Bound: Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract Restatement 21 (1981)See Smith v. Boyd (where no oral contract found due to lack of manifestation of intent.) 4. Intent can be inferred. i. Domestic situations--presumption is that legal relations were not intended. B. Offer Rule: A partys communication constitutes a valid offer if the partys words actions objectively manifest the partys intent to be bound and transfer the offeree the power of acceptance, which will bind both parties. 1. Validity of Certain Types of Offers a. Expressions of Opinion & Predictions: Because opinion is not a promise, it is not an offer. b. Intentions, Hopes, and Estimates--usually not offers c. Inquiry or Invitation to Make an Offer i. Question is not an offer because it seeks info and is not a commitment d. Advertisements, Catalogs and Circular Letters Rule: Advertisements are generally not offers, but rather requests to negotiate and thus do not transfer the power of acceptance to an offeree.

1. Exception: ads which contain promissory words, statement of quantity, call for action, are clear, definite and leave nothing to negotiate(directed to certain person, as opposed to general public) Leonard v. Pepsico e. Price Quotations: i. Goods--Usually a statement of intention to sell at a given unit price. When addressed to many people it is similar to an ad. Communication as a whole (using word "quote" does not preclude contract) rather than the label a party puts on it that must be interpreted. Fairmount Glass Works v. Crunden-Martin Woodenware Key Issues: 1) language of commitment 2) are terms (especially quantity) sufficiently definite? 3) Addressee 4) need for further expression of intent ii. Real Property--If owner indicates proposals to sell are addressed to others, in absence of clear promise to sell at given terms, proposal cannot reasonably be construed as an offer. Instead it is a mere price quotation. (Calamari p. 39) Lonergan v. Scolnick f. Offer vs. Preliminary Negotiations. Court will consider the following factors: a. Is communication initial communication as opposed to answer to an inquiry? (see Fairmount) b. Are words used promissory in nature? c. Are terms stated? (Are quantity and quality terms used?) d. Selectivity of Communication--is it clear that others are being negotiated with? e. Does case involve real property or goods? Courts less inclined to interpret message about real property as an offer f. Relationship of parties (husband and wife) g. Surrounding circumstances (physician in emergency) h. Usages of trade; prior practices of party C. Termination of the Offer Rule: An offer may be terminated by rejection, lapse, death or incapacity, or revocation. 1. Rejection: a statement by the offeree saying that they do not intend to accept the offer. It is effective upon receipt. It can be direct or indirect. 2. Lapse: Rule: An offeree's power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. a. Reasonable Time/Factors to consider: the nature of the proposed contract, the purposes of the parties, the course of dealing between them, and any relevant usages of trade. Minnesota Linseed Oil Co. v. Collier White Lead Co. Buyer waited 24 hours to accept offer to buy oil at certain price, and sent acceptance by telegram. Revocation crossed in transmission. Court ruled unreasonable time lapse due to nature of articles being sold and said inquiry should focus on rational intent b. If offer made in person or on telephone, offer is deemed to lapse when conversation is terminated. c. Late Acceptance: if offeree does not accept until after time for acceptance has lapsed, acceptance is invalid. However late acceptance acts as offer and may be accepted by original offeror. 3. Death or Lack of Capacity:

Rule: An offeree's power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract, unless there was a valid option contract. New Headley Tobacco Warehouse v. Gentry's Ex'r: Leasor offered extension if lessee built an addition in certain period of time. Leasor died before addition was built; option terminated as there was no consideration b. Majority view: offer terminated even though offeree is unaware of offeror's death. Possible exception: indivisible contract 4. Revocation: Rule: An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. a. Effective when received by offeree. (or published. Note: if mass offer publication must equal that of original offer). An offeree is deemed to have received the revocation when it comes into his possession, the possession of someone authorized to receive it for him, or put in his mailbox. b. Direct c. Indirect--if offeree receives 1) correct information from a 2)reliable source 3)of acts of offeror that would indicate to reasonable person the offeror no longer wants to make offer. Dickinson v. Dodds: Buyer heard either there was an offer or the property in question was sold but still insisted on accepting offer. Court ruled P reasonably should have concluded D no longer wished the offer to be operative. D. Irrevocable Offer Rule: an offer is irrevocable if it is supported by consideration 1. Option Contracts: an option contract is a separate, ancillary contract supported by consideration granting the right to purchase or lease property for a given period of time. It is effective upon receipt. It is not terminated upon the death or incapacity of the offeror. Beall v. Beall: Buyer obtained two options backed by consideration to buy seller's farm. But on the third extension, failed to obtain consideration. Without consideration, option became merely an offer. b. Common Law: Consideration must actually be paid. Board of Control of Eastern Michigan University v. Burgess: Defendant signed option which acknowledged receipt of $1.00. Never collected. Court held written acknowledgment is a rebuttable presumption. Note: textbook says not all courts agree. --Exceptions: i. Restatement 87: Offer is binding as option contract if it is in writing and signed by the offeror, recites a purported consideration and proposes an exchange on fair terms within a reasonable time. ii. UCC2-205: Merchant's Firm Offer a. merchant b. offers to sell goods in a signed writing c. Writing gives assurances it will be held open d. Offer not revocable for lack of consideration during time stated or reasonable time (not more than 3 mos iii. Detrimental Reliance : When 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 to the extent necessary to avoid injustice. Restatement 87 . Example: employment offer in book. E. Acceptance Rule: Acceptance is an objective manifestation of assent to terms of the offer in the manner required by the offeror. Once an offer is accepted, there is a contract and the parties are reciprocally bound to each other. If the manner of acceptance is not specified, the offeree may accept in any manner or medium reasonable under the circumstances. 1. Offeror's Control Over Manner of Acceptance: offeror is "master of his offer" and may prescribe the method. LaSalle National Bank v. Vega : interestingly the offeree actually created the terms which Vega offered. Some businesses do this to protect themselves from liability other than on their own terms. 2. Promissory Acceptance: When an offer calls for a promise, notice of acceptance is always essential. An uncommunicated intention to accept an offer is not an acceptance: Hendricks v. Behee (where buyers signed agreement but did not notify seller prior to revocation) 3. Mailbox Rule: Acceptance is effective upon proper dispatch. Adams v. Lindsell a. Misdirection of acceptance: most courts, UCC, and Restatement say if means is unreasonable or misdirected, acceptance is effective as long as it is received within the time in which a properly dispatched acceptance would have arrived. If not, only effective when received. b. Rejection & Acceptance: If offeree dispatches rejection first, then acceptance, acceptance is not effective unless it overtakes rejection. If acceptance is dispatched first then rejection, rejection will not undo acceptance. c. Option contracts: effective upon receipt. Rationale: mailbox rule is designed to protect the offeree against revocation while acceptance is in transit. Not needed in irrevocable contract. d. Mistake of transmission: as long as offeree does not know of mistake, contract is valid. 4. Acceptance by Performance (unilateral contract): Where the offer requires acceptance by performance and does not invite a return promise, as in the ordinary case of an offer of a reward, a contract can be created only by the offeree's performance. Ever-Tite Roofing Corp. v. Green: Contract actually stipulated that it came into effect upon "commencement of performance." Rule: Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. (Restatement 45) a. Part performance: where part performance or tender by the offeree creates an option contract, the offeree is not bound to complete performance. The offeror alone is bound, but his duty is conditional on completion of the offeree's performance. Note: offeree must do what is specified in offer within the time specified. If the offeree abandons performance, the offeror's duty to perform never arises. b. Commencement v. Preparations: i. What is begun or tendered must be part of the actual performance invited 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. Preparations to perform may, however, constitute justifiable reliance sufficient to make the offeror's promise binding under 87(2).

ii. The distinction between preparing for performance and beginning performance in such cases may turn on many factors: the extent to which the offeree's conduct is clearly referable to the offer, the definite and substantial character of that conduct, and the extent to which it is of actual or prospective benefit to the offeror rather than the offeree, as well as the terms of the communications between the parties, their prior course of dealing, and any relevant usages of trade. Restatement 45 Example: Marchiondo v. Scheck (where real estate agent was held to begin performance by "spending time and money in efforts to perform" thus creating an option contract). c. Notice of Acceptance of unilateral contract: Offeree must give offeror notice he has performed unless offeror has reason to know of performance. (UCC & Restatement 54) Carlill v. Carbolic Smoke Ball Co. (where notice of acceptance apart from performance was not required) 5. Mode Not Specified: Acceptance may be given "in any manner and by an medium reasonable in the circumstances." Restatement 30. Also: "in the case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offeror requests or by rendering the performance as the offeree chooses." Restatement 32 (1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. (2) Such an acceptance operates as a promise to render complete performance. 6. Acceptance by Silence: Rule: Silence does not usually constitute acceptance except in certain instances: a. Reason to understand silence is consent b. Acceptance of services c. Prior conduct d. Acceptance by dominion (goods) 7. Imperfect Acceptances a. Acceptance Varies from Offer. Determine whether offer applies to goods. If so, apply UCC 1. Common Law: offeree's response operates as acceptance only if it is a precise mirror image of the offer. Otherwise it is considered a rejection and counter offer. 2. UCC 2-207: i. A definite and seasonable expression of acceptance or written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon ii. Acceptance expressly conditional on assent to changes: An expression of acceptance does not form a contract if it is expressly made conditional upon acceptance of additional or different terms. iii. Additional terms in acceptance: where offeree's acceptance states additional terms, consequences depend on whether parties are merchants a. At least one party not a merchant: additional terms proposals for addition to contract

b. Both merchants: additional term becomes part of the contract unless: -offer expressly limits acceptance to the terms of the offer -they materially alter it (price, quantity, delivery); or -notification of objection to them has been given b. Misunderstanding: if two parties manifest different thoughts of what they were contracting for, there is no mutual assent. Raffles v. Wichelhaus (Where contract referred to Peerless but each thought it was a different boat). c. Indefiniteness: Rule: a proposed agreement whose terms are too uncertain to form a contract is said to be void for indefiniteness 1. Common Law: if agreement is not reasonably certain as to its material terms there is a fatal indefiniteness and agreement is void. a. Material terms include subject matter, price, payment terms, quantity, quality, duration. b. Varney v. Ditmars: where employer said he would pay fair share of the profits court said no way to measure "fair share". Note: employee was entitled to "quantum meruit" which is reasonable value of services. (quasi contract) 2. UCC: 2-204(3) Even if one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. 3. Restatement 33: Terms of the contract are sufficiently definite if they provide a basis for determining the existence of a breach and for giving the appropriate remedy. IV. Is It a Deal the Law Will Enforce? A. Consideration: a bargained-for exchange for something of legal value Rule: In order for a particular promise to be supported by consideration there must be a benefit to the promisor or a detriment to the promisee within a bargain context. 1. Bargain Element: Rule: A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. a. The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. 2. Benefit Element: a. Distinguish conditional gifts: To determine whether condition is bargained for, ask whether occurrence of condition is of benefit to the promisor. Example: Kirksey v. Kirsey (where brother in law promised sister in law place to live. She suffered detriment, but he did not bargain.) Condition: an event or circumstance which must occur before someone has the obligation to perform their promise. i. Non-economic benefits: Bargain may be present even though the promisor does not receive any economic benefit. Example: Hamer v. Sidway (where uncle promised nephew $5000 if he refrained from smoking ,etc. ) 2. Detriment Element:

Rule: A detriment is the forebearance of a legal right or responsibility undertaken by the other. It can be either a promise or performance. a. Courts will not inquire into equivalence in the values exchanged (Restatement 79) 3. Adequacy of Consideration: Rule: courts do not review the adequacy of consideration because parties are free to make their own bargains. a. Sham and Nominal Consideration: is usually an indication that there was no bargain at all. b. Moral obligation: not sufficient c. Past Consideration: not sufficient d. Mere recital: enough according to Restatement, but some courts do not follow this. 4. Illusory Promises Rule: an illusory promise is a statement which appears to be promising something but does not commit to anything at all. a. Exchange of promise for promise: a promise which is bargained for is consideration if, but only if, the promised performance would be consideration. Restatement (Second) of Contracts 75 (1981) a. A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless (a) each of the alternative performances would have been consideration if it alone had been bargained for; or (b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration. Restatement77 Hooters of America, Inc. v. Phillips (where co. retained unfettered right to decide later the nature or extent of its performance by modifying the rules or terminating the employment agreement). 4. Settlement of Claims as a Detriment a. Restatement 74 (1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless (a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid. 5. Pre-Existing Duty A. Common law: prevents modification of an existing contract without consideration if the purported consideration was already a pre-existing duty. This rule developed in order to prevent the hold up game of one party stopping performance at an advantageous time demanding modification in their favor. Example: Alaska Packers' Ass'n v. Domenico (where employer refused to pay fishermen extra after agreeing to modify existing employment contract). B. Modern View: under the Restatement (89) a promise modifying a duty under a contract not fully performed is binding if: i. the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or ii. to the extent provided by statute; or

iii. to the extent that justice requires enforcement in view of material change of position in reliance on the promise. Example: Angel v. Murray( where city agreed to pay garbage collector additional $ after unexpected housing growth). C. UCC-2-209: (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) An agreement in a signed record which excludes modification or rescission except by a signed record may not be otherwise modified or rescinded, but except as between merchants such a requirement in a form supplied by the merchant must be separately signed by the other party. (3) The requirements of Section 2-201 must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3), it may operate as a waiver. (5) A party that has made a waiver affecting an executory portion of a contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. B. Reliance and Promissory Estoppel Rule: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. Restatement (Second) of Contracts 90 (1981) 1. Originally applied to gratuitous promises, but now applied to wide variety of commercial contexts. Example: Katz v. Danny Dare Inc. (Where employee relied on promises of pension as basis of decision to retire). 2. Five Elements: -promise -foreseeability of reliance -reliance -detriment as a result of reliance -injustice absent enforcement Midwest Energy Inc. v. Orion Food Systems, Inc. (where convenience store owner relied on promises of a franchise to expand store to accommodate equipment) C. Statute of Frauds: 1. Definition: Certain agreements must satisfy the statute of frauds, which requires the agreement to: - be memorialized in a writing or record; - be signed by or on behalf of the party against whom enforcement is sought 2.Types of contracts: 1) Marriage: consideration of marriage 2) Year: agreements which cannot be performed within one year from the date the agreement was made. 3) Land: land transfer agreements 4) Executor:contract of an executor to answer for a duty of his decedent

5) Goods: agreements to buy or sell goods for $500 or more (price in contract; not objective value) 6) Surety ( you will fulfill someone else's promise if they can't fulfill it). 3. Signature: 1) Generally: -An agreement that falls within the statute of frauds must be signed by or on behalf of the party against whom enforcement is sought. An agreement may consist of several writings or records and only one need be signed if the circumstances clearly indicate that the various writings relate to the same transaction. -A signature may include any mark or symbol with which the signer intends to authenticate a writing. The signature may be written, printed, stamped, engraved, or otherwise marked on the writing. Signatures may include initials, imprinted signatures, letterhead, and firm logos. 2) Electronic Signature: UCC and UETA recognize validity of electronic signatures 3) Signed Confirmation Between Merchants: In a contract for the sale of goods between merchants, the contract may be enforced even against a merchant that did not sign the writing if: 1) within a reasonable time of the making of the oral contract, one merchant sends a signed writing to the other which would satisfy the statute of frauds as against the sender; 2) the other merchant receives the writing and has reason to know of the writing's contents; and 3) the non-signatory merchant fails to send a written notice of objection within 10 days of the date of receipt of the confirmation. [UCC 2-201(2)] 4) Signature by Party's Agent: Some jurisdictions require a signed writing to evidence an agent's authorization to sign a contract that is subject to the statute of frauds on behalf of a party. This is not the majority position however. 4. Avoidance of Writing Requirement [1] Goods Contracts Contracts for the sale of goods that fall within the statute of frauds may be enforced, at least partially, in the absence of a writing, in the following circumstances: 1) where payment has been made and accepted or the goods have been received and accepted Such partial performance makes only the portion performed and accepted enforceable, not the oral contract in its entirety. 2) in a contract for specially manufactured goods where the seller cannot sell such goods to third parties in the normal course of his business, once the seller has made a substantial beginning in manufacturing or procurement of such goods, provided that the seller can establish that the goods were intended for the buyer. 3) where the party against whom enforcement is sought admits in a pleading, testimony or otherwise under oath that a contract was made but the contract is only enforceable up to the quantity of goods admitted. [UCC 2-201(3)(c)] [2] Contracts for the Sale of Real Estate Despite failure to satisfy the statute of frauds, a contract for the sale of real property will be enforceable if the buyer has taken possession and has made permanent improvements upon it. The extent of the improvements made that will justify enforcement varies from jurisdiction to jurisdiction. [See Restatement 129, comment a]

[3] Contracts That Cannot be Completed Within One Year In a contract which cannot by its terms be completed within one year, lack of a writing will not preclude enforcement once full performance has been completed. [4] Promissory Estoppel A non-goods contract that fails to satisfy the statute of frauds may nevertheless be enforceable if the promisor's promise foreseeably induces action or forbearance on the part of the promisee or a third person and enforcement is the only means of avoiding an injustice. [Restatement 139]. In determining whether injustice can be avoided: 1) availability and adequacy of other remedies 2) definite and substantial character of the forbearance 3) the extent to which the forbearance corroborates evidence of the making & terms of promise 4) reasonableness of action or forbearance 5) foreseeability of forbearance by promisor D. Unconscionability Restatement 208 If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result. 1. Factors to consider: 1) Determine if term is both procedurally and substantively unconscionable (generally both must be present) 2) Procedural: a. Adhesion contract: prepared entirely by the party with preponderant bargaining power, and offered to the weaker party on (in effect) a 'take it or leave it' basis. i. Boilerplate form writing ii. Difficult to understand iii. Party has no meaningful choice b. Unequal bargaining power i. Weak bargaining position Ii. Lack of legal counsel or an opportunity to understand the terms iii. Lack of business acumen 3) Substantive: a. dictated by an industry b. Overly harsh or one-sided c. Not serving reasonable business purpose d. Contrary to public policy E. Mistake: a belief that is not in accord with the facts. Note: it is not an erroneous belief about what will happen in the future. 1) Mistake of Law: a. Traditional rule: cannot furnish grounds for avoidance (ignorance or law is no excuse). b. Modern View: Does not draw the distinction that is sometimes made between fact and law. Treats the law in existence at the time of the making of the contract as part of the total state of facts at that time 151 (cmt B)

2) Mutual Mistake: When Mistake of both Parties Makes a Contract Voidable Restatement a. Basic Assumption: i. Market conditions and financial ability NOT basic assumption ii. Existence of subject matter-yes. iii. Quality of subject matter-yes Example: Sherwood v. Walker (where contract was to buy a cow that was barren, but ended up being pregnant) b. Material Effect: Party must show that the resulting imbalance is so severe he cannot fairly be required to carry it out. c. Allocation of Risk: Even if party meets above two requirements, disadvantaged party cannot avoid contract if the risk is allocated to him. see below 3) Unilateral Mistake: Mistake of One Party a. Traditional rule: courts much less willing to allow rescission for unilateral mistake unless non-mistaken party knew or had reason to know of the mistake. b. Modern view: i. Three basic requirements (Basic assumption, material effect, risk allocation) PLUS ii. Either of two things must be true: --the mistake is such that enforcement would be unconscionable or --the other party had reason to know of the mistake or his fault caused the mistake 4) Risk of Mistake 154 A party bears the risk of a mistake when a. the risk is allocated to him by agreement of the parties, or b. he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or c. the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. 5) Defenses and Remedies: a. Negligence usually not a defense: Where a party seeks to avoid the contract because of his own mistake, the fact that the mistake was due to his negligence will ordinarily not prevent relief. i. Failure to act in good faith: But if the party's fault is so great that it amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing, he will not be able to void the contract. 157. Effect Of Fault Of Party Seeking Relief ii. Failure to read: Generally, one who assents to a writing is presumed to know its contents and cannot escape being bound by its terms merely by contending that he did not read them; his assent is deemed to cover unknown as well as known terms. (cmt b) b. Remedies: 158. Relief Including Restitution i. Rescission: court treats contracts as if it had never been made and will attempt to return each party to the position he was in just prior to execution of the contract. 1. Restitution--each party must return to the other benefits she has received from the other. ii. Reliance damages: court may award reliance damages as justice so requires.

iii. Adjustment to Contract: When the parties have not agreed with respect to a term that is essential to a determination of their rights and duties, the court will supply a term that is reasonable in the circumstances (cmt c) 6) Reformation a. Error in Expression: When parties orally agree on a deal, but by mistake prepare and execute a document which incorrectly reflects the oral agreement, either party may obtain a reformation so that it correctly reflects the prior agreement. b. NOTE: The right to obtain reformation may be viewed as an exception to the parol evidence rule. V. Terms A. Unwritten Terms 1) UCC Article 1-303 Course of Performance, Course of Dealing, Trade Usage: a. Course of performance: Refers to the way parties have conducted themselves in performing the particular contract at hand. b. Course of dealing: a pattern of performance between two parties refering to how they have acted with respect to past contracts. c. Usage of trade: A "usage of trade" is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law. Example: Threadgill v. Peabody Coal Co. B. Implied Terms 1) Consideration Through Implied Promise a. Wood v. Lucy: Implied promise to use reasonable efforts to market Lucy's designs sufficient detriment to P to constitute consideration for Lucy's counter-promise that she would not place her endorsement upon anyone else's designs 2) Implied Warranties: a. UCC 2-312. Imposes an implied warranty that the seller has full title to the goods and that the goods do not infringe upon any patent or trademark. 3) Implied Duty of Good Faith and Fair Dealing a. Restatement 205: Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. b. UCC 1-304: Every contract or duty imposes an obligation of good faith in its performance and enforcement. Good faith means: honesty in fact and the observance of reasonable commercial standards for fair dealing. Example: Locke v. Warner Brothers C. Parol Evidence Rule: A writing intended by the parties to be a full and final expression of their agreement may not be supplemented or contradicted by any oral or written agreements made prior to the writing. Step 1) Determine if it is an Integrated Agreement: An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement. a. Determined by court c. If writing by completeness and specificity reasonably appears to be complete, it is integrated unless other evidence contradicts that. Step 2) Determine if it is Completely or Partially Integrated Agreement

a. A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement. b. A partially integrated agreement is an integrated agreement other than a completely integrated agreement. c. Determined by court Step 3) Decide if Parol Evidence is allowed: a. Partial Integration: When a writing is a partial integration, no evidence of prior or contemporaneous agreements or negotiations (oral or written) may be admitted if this evidence would contradict a term of the writing. b. Total Integration: When a document is a total integration, no evidence of prior or contemporaneous agreements or negotiations (oral or written) may be admitted which would either contradict or add to the writing. 5) Parol Evidence in UCC 2-202 Terms with respect to which the confirmatory records of the parties agree or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be supplemented by evidence of: (a) course of performance, course of dealing, or usage of trade (Section 1-303); and (b) consistent additional terms unless the court finds the record to have been intended also as a complete and exclusive statement of the terms of the agreement . (2) Terms in a record may be explained by evidence of course of performance, course of dealing, or usage of trade without a preliminary determination by the court that the language used is ambiguous. 6) Exceptions: Restatement 214. Evidence Of Prior Or Contemporaneous Agreements And Negotiations Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish (a) that the writing is or is not an integrated agreement; (b) that the integrated agreement, if any, is completely or partially integrated; (c) the meaning of the writing, whether or not integrated; (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; (e) ground for granting or denying rescission, reformation, specific performance, or other remedy. D) Interpretation. 1. Ambiguous Terms: when parties disagree about what meaning is to be attached to terms problems relating to extrinsic evidence arise as they do in the context dealt with by the parole evidence rule. a. Judge decides existence of ambiguity: -Four Corners Rule: contract itself is the only evidence used to make determination -Plain meaning rule: Court will hear evidence of circumstances or context of making of agreement, not preliminary negotiations.

-Restatement: evidence of prior negotiations is admissible. If term is found by court to be ambiguous, extrinsic evidence must be allowed. Example: Fragaliment Importing v. BNS International Sales. Court allowed evidence of negotiations plus trade usage of the word "chicken." b. CISG: Convention on International Sale of Goods. A treaty adopted by leading trade nations affecting the trade of goods. Under CISG, there is no express rule on parol evidence. It directs courts to give due consideration to all relevant circumstances of the case including negotiations to determine subjective intent. Example: MCC v. D'Agostino (court held evidence of oral agreement to not abide by reverse of contract should have been admitted). VI. Excuse A. Condition: A condition is an occurrence, circumstance or decision which qualifies one or more promises in a contract. 1. Form: A. Express: condition exists when the parties , by their deliberate conscious action, qualify at least one of the promises being made in the agreement. And that conditionality is acceptable to both parties. B. Constructive: are imposed by the court, regardless of the lack of any discussion or agreement by the parties, in order to make it possible for the court to determine liability issues. (Note that the court does not imply the conditions based on the parties supposed agreements; it simply imposes them.) C. Implied: one on which parties at least implicitly agreed, with the court implying its existence by the need to make sense of terms actually included in the written contract. When a court finds such an implied condition, it is generally treated the same as if it were an express condition 2. Timing: A. Condition Precedent: a condition which requires one partys performance or another circumstance before the other partys promise to perform is activated. They may arise either by express agreement of the parties (an express condition precedent) or by imposition by the court (a constructive condition precedent). B. Concurrent Condition: requires both parties to perform their promises simultaneously. Normally imposed by courts, that is, it would be relatively rare for parties to expressly include a concurrent condition in a contract, but there is nothing to prevent them from doing so if they choose. C. Condition Subsequent: A condition that operates retroactively, that is, to remove an obligation that has already arisen. These conditions are rather rare and almost always arise because of the agreement of the parties (that is, as express conditions subsequent) Example: insurance contract stating suit on a claim must be brought within certain time or the claim is discharged. 3. Effect: A. IF a condition which qualifies a promise is satisfied, the promise is enforceable; it must be performed and there is liability for failure to do so. B. If a condition which qualifies a promise is not satisfied, then the promise is not enforceable: there is then no obligation on the promisor to perform it, and there is no liability for that partys failure to do so. C. Note: The promise is either enforceable or it isnt, depending on whether or not the condition which qualifies it has been satisfied. A party may therefore not receive its expected benefit from the contract, because the receipt of that

benefit was qualified by a condition. This result can have the appearance (and the reality) of one party being left without any redress or remedy for its loss of the expected benefit. 4. Satisfaction: A. Express: must be completely satisfied in order to make enforceable the promise(s) that it qualifies. In the absence of complete satisfaction, the promise that is qualified by the condition is not enforceable -- that is, it does not have to be performed, and non-performance does not result in breach. i. Satisfaction of a party: court will presume objective standard of a reasonable satisfaction. Even if the intent is an honest satisfaction, the exercise of judgment must be in accordance with the duty of good faith and fair dealing, and for this reason, the agreement is not illusory B. Constructive: substantial performance required. Once a party provides such substantial performance, the promise qualified by the condition becomes enforceable: it must be performed. Of course, since performance is only substantial (incomplete) and not complete, the promisor is entitled to some relief for not receiving the full performance which was bargained for. Failure to provide substantial performance results in a material breach. 5. Order and Tender of Performance: A. No order of performance agreed upon: 1. Where one party's work requires period of time and other's does not, the performance requiring time must ordinarily occur first. This applies to services! 2. Simultaneous Performances: Where each party's promised performance can occur at same time as the other's the court will normally require simultaneous performance. Each party must tender performance. Tender: a party tenders performance if he either performs or else offers to perform with a present ability to do so. 6. Excuse of Condition: a condition may be excused, thereby requiring the other party to perform their duty. A. Prevention Doctrine: wrongful conduct which prevents or hinders the occurrence of a condition B. Disproportionate Forfeiture: courts may excuse the non-occurrence of the condition when it would otherwise result in a disproportionate forfeiture- provided that the occurrence of the condition was not a material part of the contract. Note: It is important to distinguish between a condition and a promise. A's nonperformance of a condition will discharge B's duty. A's non-performance of a promise results in a breach, entitling B to damages. Sometimes a condition is also a promise; but not always! B. Modification, Waiver, Estoppel 1. Waiver: an intentional relinquishment of a known right. a. Express or Inferred by conduct and surrounding circumstances b. Retraction. UCC: A party who has made a waiver affecting an executory portion of the contract may retract waiver by reasonable notification received by the other party unless the retraction would be unjust in view of the material change of position in reliance on the waiver. [note: waiver can be done unilaterally; modification cannot]

2. Modification: changing of the terms of the agreement which may diminish or increase the duty of either party. Based on mutual manifestations of assent. C. Unforeseen Circumstances: Parties may be discharged from performing the contract if 1) the performance is impossible, 2) the performance is impracticable, 3) there has been frustration of purpose. 1. Impossibility of Performance: If when making contract, parties reasonably contemplated that its performance was dependent on the continued existence of a person or thing, the post formation death or destruction not caused by fault of the party seeking relief would excuse performance by that party. Example: Taylor v. Caldwell (music hall destroyed by fire). 2. Impracticability: more modern doctrine. Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. (Restatement 261) a. Must be after contract was made and unforeseen (UCC). Examples: strike, war, natural disaster, change in law. Usually not change in market conditions b. Unduly Burdensome (economic impact) c. Party seeking relief not at fault d. Party seeking relief must not have borne risk of event occurring. (force majeure clause provides allocation of risk of disruptions or calamities). 3. Frustration of Purpose: Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the nonoccurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. (Restatement 265) Example: Krell v. Henry (coronation viewing) Note: courts reluctant to use this because of the potential of letting anyone out of their contract. D. Anticipatory Repudiation: a statement or voluntary act by the obligor, indicating prior to the performance that they will commit a breach. When one party repudiates a duty to render performance they discharge the other party's remaining duties to render performance. 1. Older common law: Not allowed. 2. Hoechster v. De La Tour: When one of the parties clearly repudiates a material promise in advance, the other may treat this as a breach immediately and may seek relief for breach without delay. 3. Modern Rule: A clear, unequivocal, and voluntary repudiation by one of the parties is recognized as the equivalent of a material and total breach provided that the threatened action or failure to act would be a material and total breach if it happened at the time due for performance. a. Express: Sometimes party will make it perfectly clear that he has no intention of performing contract. i.. Statement ii. Action iii. Indication by promisor or via some other means that the promisor will be unable to perform

b. Ambiguous: It is not enough that promisor states vague doubts about his willingness or ability to perform. But even expression of such doubts may entitle promisee to request assurances of performance. Promisee may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance Failure to provide to provide performance is a repudiation in itself. c. Response of Non-Repudiating Party: i. Accept the repudiation by treating it as an immediate breach. Entitles party to refuse to render their own performance, terminate the contract and sue for relief for total breach. ii. Delay responding to see if repudiating party changes mind. iii. Mitigation of damages: The non-repudiating party may not ignore the repudiation and continue the contract if to do so would aggravate her damages. 4. Retraction of Repudiation: A repudiation may be retracted until the aggrieved party has either: Sued for breach or changed his position materially in reliance on the repudiation or Stated that he regards the repudiation as final. a. Can be written or verbal. Effective only if and when it is communicated to the repudiatee. b. UCC: like common law. Until repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. VI. Remedies A. Suit on the contract/Quasi-contract. 1. Suit on the contract: where the parties have formed a legally enforceable contract and defendant has breached (not Plaintiff), the plaintiff will sue on the contract. Court will look to the contract to calculate damages. 2. Quasi-contract: plaintiff is not asking for enforcement of the contract; instead asking for damages based on the actual value of his performance regardless of any price set in the contract. B. Equitable Relief: If remedies at law are not available court will award equitable remedies of specific performance or an injunction Factors: 1. Inadequacy of damages 2. Definiteness-yes if terms are definite enough to frame an order 3. Difficulty of enforcement or supervision-no 4. Land sales-yes 5. Personal services-no C. Remedies at Law (money damages): 1. Court can decide: a) Expectation damages: are the most common remedy. They attempt to put the plaintiff in the position she would have been had the defendant performed. When the plaintiff cannot prove them, one of the two other measures (reliance and restitution will be used instead). 1. Three factors:

Foreseeability: Damages must have been reasonably foreseeable at the time the contract was made Certainty: It must be clear at the time of the suit that the alleged losses in fact occurred and were caused by breach Mitigation: The plaintiff must make reasonable efforts to mitigate damages b) Expectation Damage Roadmap: 1. Ordinary a. SELLER BREACH 1. Before or at Performance (actual breach, repudiation, nonperformance). a. Specific Performance: --UCC allows if goods are unique. -- If services, no (lack of confidentiality, involuntary servitude, etc.) b. Damages: --Cover: or buy goods from another seller and recover difference between the K price and cover price. --No Cover: can recover difference between market price and K price. **Plus incidental damages (cost less amt. saved) and consequential damages 2. After Seller Performs (imperfect performance) a. Goods. --If warranty has been breached, buyer can recover difference between the value of the goods accepted and the value they would have had if they had been as warranted. Note: court will consider contract price as conclusive evidence of value as warranted. --To determine value of goods as delivered, courts will consider cost of repair. b. Services --Cost to complete --If cost to complete is grossly out of proportion, then difference in value. b. BUYER BREACH 1. Before or at performance a. Damages: --If resale, then difference between resale price and K price+ incidental damages --If no resale, difference between market price and K price + incidental damages 2. After Seller performs a. Damages: K price 2. Extraordinary-consequential. Lost profits. c) Reliance Damages: Reliance damages compensate the injured party for expenses or loss incurred in reasonable reliance on the contract that was breached. Reliance

damages are only awarded when expectation damages cannot be proven, and may not exceed the anticipated benefit of the bargain. d) Restitution Damages: Restitution compensates a party for the benefit conferred on the other party as a result of partial performance or reliance, and is aimed at preventing unjust enrichment. 2. Liquidated Damages: an explicit agreement as to what each party's remedy for breach of the contract shall be. A. Enforceability: Under UCC, liquidated damages must be reasonable in light of: 1) the anticipated or actual harm caused by the breach; 2) the difficulties of proof of loss at the time of contracting; and 3) the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. (not in Restatement) 4) Cannot be a penalty B. Unconscionability: even if the clause meets standard above, it may still be declared unconscionable Note: when parties freely agree to an amount in a situation in which the actual loss was difficult to prove, it is usually not a penalty (from Cali). Also note: when there is no actual damage, Restatement says clause is unenforceable. But some courts and economists disagree. D. Substantial Performance as Basis for Suit on the Contract: Where one party substantially performs (does not materially breach), the other is not relieved of his duties. If the latter refuses to perform, the substantially performing party has an action for breach of contract. The test is whether the performance meets the essential purpose of the contract. 1. Expectation Damages: a party who substantially performs may sue for ordinary expectation damages for breach of contract, if the other party fails to perform. E. Suits in Quasi-contract: Examples: 1) no contract formed, but P deserves recovery 2) attempt for form contract but nonenforceable due to Statute of Frauds, impossibility, etc. 3) Contract exists but P breaches and can't recover on the contract 4) contract exists and D breaches but P can't recover on the contract. 1. Measure of Damages: Courts almost never award expectation damages. Reliance and restitution damages are frequently awarded. 2. UCC 2-718: Breaching buyer has right to partial restitution regarding deposit made to seller before buyer breached. Seller can keep 20% of total contract price or $500, whichever is smaller.