I. Introduction: Contract ExpectationsHawkins: Expectation damages: value between perfect hand and hand delivered.

II. Formationa. Mutual Assent: Meeting of the minds

Objective TheoryR.2d §17 Requirement of a Bargain:

(1) Bargain with manifestation of mutual assent and considerationR.2d §18 Manifestation of Mutual Assent

Each party must make promise or begin performanceR.2d §19 Conduct as Manifestation of Assent

(1) Writing, spoken word, or conduct all assent(2) Conduct only if one intends to engage in conduct and knows/has reason to know other may infer assent(3) Conduct can assent without actual assent. Invalidating cause could negate

Objective Theory Paradox: Only objective evidence, no subjective evidence. Some unintended Ks

b. Offer Definition of an Offer

Nebraska Seed, Pepsico: Invitation to offer not offer.R.2d §22 Offer and Acceptance

(1) Mutual assent usually offer then acceptance(2) Assent can occur w/o either and even w/o determinable moment of formation

R.2d §24 Offer DefinedManifestation of willingness enough that other would understand his assent to the bargain will conclude it

R.2d §26 Preliminary NegotiationsNot offer if other party knows or has reason to know bargain not concluded w/o more assent

R.2d §29 To Whom an Offer is Addressed(1) Manifested intention determines who has power of acceptance(2) Anyone specified, who makes specified promise, or renders specified performance

R.2d §33 Certainty(1) Without reasonably certain terms, offer cannot be accepted(2) Terms certain if provide basis for determining breach and remedy(3) Leaving open terms may evidence lack of assent to offer or acceptance

UCC §1-103: UCC Purposes, Supplementing SO IMPORTANT TO APPLY COMMON LAW (FRAUD AND THE LIKE) TO UCC IF DOESN’T DISPLACEUCC §2-104: Def’n Merchant, Between Merchants, Financing AgencyUCC §2-105: Def’n Goods, Future Goods, Lot, Commercial Unit

UCC §2-205 Firm Offer: Offer in signed writing written as open is irrevocable, for lack of consideration, for time stated/reasonable time less than 3 months. Form supplied by offeree must be signed by offeror

Revocation of an Offer: Dickinson v Dodds: explicit or acquired knowledge of revocation removes consideration and no offer to be accepted

c. Acceptance: Rejection then Acceptance is new offer. Inquiry: nothing happens Mirror Image Rule: Common Law (bars Shrinkwrap)

R.2d §61 Acceptance Which Requests Change of TermsAcceptance with change or addition to terms invalidated if made to depend on assent to said terms

Last Shot Rule: If parties act like they have a contract, it is created with terms consistent with “last shot” form sent (common law, mitigates mirror image rule)

Mailbox RuleR.2d §63 Time When Acceptance Takes Effect

Unless offer provides otherwise(1) As soon as offer leaves offeree, manifestation of mutual assent

completed(2) Option acceptance not valid until received

R.2d §64 Acceptance by Telephone or TeletypeInstantaneous two-way communication, acceptance as if parties present

R.2d §65 Reasonableness of Medium of AcceptanceMedium acceptable if used by offeror or customary in similar transactions (E.g. if mailed offer, text acceptance maybe not valid)

R.2d §66 Acceptance Must Be Properly DispatchedProperly addressed and normal precautions to insure transmission of similar messages necessary for mailbox rule

Unilateral ContractsR.2d §54 Acceptance by Performance; Necessity of Notification to Offeror

(1) If offer invites acceptance by performance, no notification necessary unless requested(2) If performer has reason to know offeror wouldn’t learn of performance, no duty of offeror unless

(a) Offeree reasonably diligently notifies(b) Offeror learns of performance in reasonable time(c) Offer indicates notification not required

R.2d §30 Form of Acceptance Invited(1) Offer can invite acceptance by affirmative answer in words, performance or refraining from performing specified act (may allow terms of acceptance Hamer)(2) Unless otherwise noted, offer invites acceptance in any manner and medium reasonable in circumstances

R.2d §32 Invitation of Promise or PerformanceIn case of doubt, offeree can choose between promising to perform or performing

R.2d §45 Option Contract Created by Part Performance or Tender(1) When offer invites acceptance by performance, option contract created when tender or performance begins or beginning of performance is tendered(2) Offeror’s duty is conditional on completion or tender

R.2d §62 Effect of Performance by Offeree Where Offer Invites Either Performance or Promise

(1) Tender or Beginning of performance is acceptance(2) Operates as promise to render complete performance

Acceptance by SilenceR.2d §69 Acceptance by Silence or Exercise of Dominion

(1) Silence is acceptance if(a) Offeree takes benefit of offered services with reasonable offer to reject and reason to know they were offered with expectation of compensation(b) When offeror stated or gave reason to know that silence was manifestation, and offeree intended acceptance with silence(c) Where by previous dealing offeree should reasonably notify if not accepting

(2) If offeree acts inconsistent with offeror’s ownership, bound by offered terms. If wrongful act, offeror must ratify

d. Form Contracts Click-Wrap/Browse-Wrap Contract

Browse-Wrap: No notification of or need to read agreement before download. Duty to Read: signing is manifestation of intent even if didn’t read REASONABLY CONSPICUOUS. Netscape

Contracts of AdhesionCould argue additional terms on ticket are counter offer. Carnival CruiseCan be objective assent without subjective assent.Spann hates these. Seems like equity in terms of “fairness”R.2d §211 Standardized Agreements

(1) Signing or manifesting to writing one has reason to believe is standard for type of agreement, adopts it as integrated agreement of terms in writing(2) Treats alike all those similarly situated when reasonable(3) If party knew other would not assent if they knew of a term, said term is not part of the agreement

Shrink-Wrap Contracts: Battle of the FormsUCC §2-207 Additional Terms in Acceptance or Confirmation (GOES WITH 2-209) Cmt. 4 immaterial variation if over 90%Parties have contract?

Oral agreement followed by written confirmation; orTraditional exchange of offer and acceptance; orBy conduct

What are the terms?Oral or Traditional route: §2-207(2) to check additional and different termsConduct: §2-207(3)

Knockout Clause: Confirming forms disagree, knock each other out Fluid Acceptance

UCC §2-204 Formation in General: NEED REMEDYe. Partial Agreements

Preliminary AgreementsIndustry standards MAY have effect on good faithMoney changing hands may affect reliance/bindSpann: Letter of intent may contract to BARGAIN in good faith, and a breach of this could lead to reliance damagesR.2d §27 Existence of Contract Where Written Memorial is Contemplated

Contract may exist even if there was intent to make a later written memorial (unless shown to be preliminary negotiations). Must have objective mutual assent (Empro/Ball-Co)

Agreements to AgreeToo many open terms may be agreements to agree: No contract (CARDOZO). Can terms be closed in a way to form mutual assent? Sun Printing

Indefinite AgreementsR.2d §34 Certainty and Choice of Terms; Effect of Performance or Reliance

(1) Terms can be certain even if party(ies) have power of term selection in course of performance(2) Part performance may remove uncertainty and establish enforceable contract(3) Action in reliance may merit remedy even with uncertainty

R.2d §204 Supplying an Omitted Essential TermWhen bargain sufficiently defined to be contract, but essential term is missing, court can insert one reasonable in circumstances.

Gap FillersUCC §2-204(3): Open terms don’t make contract indefinite if basis for remedyUCC §2-305 Open Price Term: Generally reasonableUCC §2-306 Output, Requirements and Exclusive DealingsCmt 2: Shutdown for lack of order ok, shutdown to curtail losses not.UCC §2-307 Delivery in Single Lot or Several Lots: Unless otherwise apportioned, single lot and payment on tenderUCC §2-308 Absence of Specified Place for Delivery: Generally sellers place of businessUCC §2-309 Absence of Specific Time Provisions; Notice of Termination: Generally reasonable timeUCC §2-310 Open Time for Payment or Running of Credit; Authority to Ship Under Reservation: Generally time and place of buyer receptionUCC §2-311 Options and Cooperation Respecting Performance

ALSO USE 1-303, 2-703, 2-711!III. Enforceability

a. Consideration Historical Development

R.2d §95 Requirements for Sealed Contract or Written Contract or Instrument(1) Binding without consideration if

(a) In writing and sealed AND(b) Document containing promise delivered AND(c) Promisor and Promisee named in document or identifiable upon delivery

UCC §2-203 Seals Inoperative Bargained-For Exchange: Not simply gratuitous promise

Gift revocable until delivery.If/Then form evidence of considerationSpann thinks ALL promises should be enforcedGeneral Focus on Detriment to Promisee over benefit to promisor (MUST BE BARGAINED FOR MillsMechanical Test:

Promise involves detriment to promisee ANDDetriment was bargained for ANDPromise was bargained for

1. Adequacy: Cannot be nominal consideration, but if real consideration, need not second guess adequacy (Peppercorn Theory)R.2d §79 Adequacy of Consideration; Mutuality of Obligation

If consideration met, no requirement of:(a) gain, advantage, or benefit to promisor or a loss, disadvantage

or detriment to the promise(b) Equivalence in the values exchanged(c) “mutuality of obligation”

R.2d §364 Effect of UnfairnessInjunction refused if unfair because exchange grossly inadequate or terms otherwise unfair

Invalid law claim can be consideration if in good faith2. Nominal Consideration

R.2d §71 Requirement of Exchange; Types of ExchangePretense of bargain not enough. Must be real not nominal (no donative intent covered by tiny consideration)

R.2d §87 Option Contract (1) Offer binding option contract if in writing and signed by offeror, recites consideration, and proposes exchange on fair terms within reasonable time

3. Recited Consideration: Enough for option contract Modification

1. Pre-Existing Duty Rule: Detriment to plaintiff used up in first contract.

Prevents extorted modifications.Creates stability of capitalism. Can be manipulated if you can find new consideration. Alaska Packers

2. Unanticipated DifficultiesR.2d §89 Modification of Executory Contract

Promise modifying not fully performed duty binding(a) If fair and equitable in view of unanticipated circumstances by

parties when contract made(b) As provided by statute(c) As justice requires in view of material change in reliance

3. Good Faith ModificationsUCC §2-209 Modification, Rescission and Waiver (GOES WITH 2-207)Voluntary Mutual Rescission frees consideration for modified contract

b. Reliance Promissory Estoppel (On Contract)

Three Pronged TestReliance: Needs be detrimental

ForeseeableAvoidance of Injustice

Def’n: Estopped from denying promise and enforceability, especially when relied on

Reliance on an Offer: Promissory Estoppel extends relianceR.2d §90 Promise Reasonably Inducing Action or Forbearance

(1) Promise which promisor should reasonably expect to induce action or forbearance by promise or third person and induces it is binding if injustice can be avoided by enforcement of the promise.(2) Charitable subscription or marriage settlement binding w/o proof that promise induced action.

To make an irrevocable offer? OPTION: For me to consider your bid, make it an optionR.2d §87 Option Contract

(2) Offer which expected and does induce action or forbearance is binding as option contract to extent necessary to avoid injustice.

Reliance on Negotiations: Can negotiation promises be relied on? If so, are we trying to protect the little guy in an inequitable way? Red Owl Stores

Charitable ContributionsAllegheny: Charitable subscription does not need reliance, just foreseeability. Most would think consideration as GIFT. Naming of fund enough consideration?

c. Unjust Enrichment Past Consideration

Detriment not bargained for. Cannot be consideration for future promise. Exchange just a bet (clairvoyant) Moore.

Moral Obligation: Nothing to do with gains of trade, generally not enforceable unless some other pre-existing obligation.

Promising to make good on legally unenforceable past obligation becomes an enforceable promise again.

Material BenefitR.2d §86 Promise for Benefit (Material) Received

(1) Promise made in recognition of benefit previously received by promisor from promise binding to extent necessary to prevent injustice(2) Promise not binding

(a) if promisee conferred benefit as gift or promisor not unjustly enriched(b) to the extent that its value is disproportionate to the benefit

Restitution: Prevent unjust enrichmentEnrichment

InjusticeEffect of a Contract

Quasi contract: Restitution for services performed in good faith to helplessd. Statute of Frauds

ScopeR.2d §110 Classes of Contracts Covered

(1) Enforcement forbidden unless written memorandum or applicable exception:

(a) Executor or administrator to answer for a duty of decedent(b) Answer for duty of another (Surety)(c) Consideration of Marriage(d) Sale of an interest in land(e) Not to be performed w/in 1 year

(2) UCC governs(a) Sale of goods $500 or more (§2-201)(b) Sale of securities (§8-319)(c) Sale of personal property not covered, $5,000 in amount or value of remedy (§1-206)

(3) UCC: writing signed by debtor required to create security interest in personal property or fixtures not in possession of secured party(4) Cannot take case out of operation of statute of limitation unless made in signed writing, but no effect on payment of principal or interest(5) Other classes in many statesNOTE: CAN STILL GET OFF CONTRACTS REMEDIES. Can get restitution and if you want reliance make it off-contract.

R.2d §125 Contract to Transfer, Buy, or Pay for an Interest in Land(1) Promise to transfer interest in land w/in SoF(2) Promise to buy interest in land w/in SoF, irrespective of person whom transfer is to be made(3) Promise to pay price, if w/in SoF, ceases to be w/in it unless the promised price is in whole or part an interest in land(4) Short term leases less than 1 year usually excepted

R.2d §129 Action in Reliance; Specific Performance In transfer of interest of land, reliance allows specific performance notwithstanding SoF if reasonable and w/ continuing assent of other, and injustice avoided only by enforcement

R.2d §130 Contract Not to be Performed Within a Year(1) Contract not FULLY performable w/in year, all promises w/in SoF until one party complete his performance(2) When one party completes performance, SoF does not prevent enforcement of other party’s promises

ExceptionsR.2d §139 Enforcement by Virtue of Action in Reliance

(1) Promise reasonably expected to cause and causing action can be enforced notwithstanding SoF if justice requires(2) Significant circumstances

(a) Availability and adequacy of other remedies (cancellation, restitution)(b) Definite and substantial character of action in relation to remedy sought(c) Extent that action corroborates evidence of making and terms of promise (or making and terms established by evidence)(d) Reasonableness of action(e) Extent to which action was foreseeable by promisor

R.2d §143 Unenforceable Contract as EvidenceSoF does not make an unenforceable contract inadmissible in evidence for any purpose other than its enforcement in violation of Statute

UCC §2-201 Formal Requirements; Statute of Frauds: Minimal writing MUST include QUANTITY. Seller need not sign under (b) w/in 10 days§1-201 com 37 for “signed” by execution of symbal (e.g. phone number, email address) with intent to adopt or accept writingPART PERFORMANCE can give cause of action for damages for that piece of performance.

WritingR.2d §131 General Requisites of a Memorandum

SoF contracts enforceable if evidenced by any writing, signed by or on behalf of party to be charged, which(a) Identifies subject matter of contract(b) is sufficient to indicate contract made or offered by signor(c) states essential terms of unperformed promises in contract

R.2d §133 Memorandum Not Made as SuchExcept for writing evidencing contract upon consideration of marriage, Statute may be satisfied by signed writing not made as a memorandum of contract. CAN PIECE TOGETHER SIGNED WRITINGS TO MAKE A FULL CONTRACT.

Signature

E-sign §101 General Rule of ValidityElectronic Signature does not deny legal effect, validity or enforceability

IV. Termsa. Parol Evidence Rule: Bars from admissibility extrinsic evidence from prior or

contemporaneous contractDoes allow modificationsINTERPRETS contract (SoF determines enforceability)COLLATERAL AGREEMENT EXCEPTION: Would naturally be included in separate agreement

Total IntegrationFour Corners Rule: On face looks complete (especially with merger clause), totally integrated and can never be contradicted or supplementedMerger Clause: Unenforceable via form contracts/adhesion contracts principals if outside buyer’s expectation and unfair/unjust.

Partial IntegrationR.2d §209 Integrated Agreements

(1) Writing constituting final expression of term(s) of agreement(2) Determined by COURT as question preliminary to interpretation or application of PE Rule(3) If appears complete and specific enough, integrated unless established by evidence that not meant to be final expression

R.2d §210 Completely and Partially Integrated Agreements(1) Completely: Complete and exclusive statement of terms(2) Partial: Any integrated agreement not completely integrated(3) Determined by court before interpretation or application of PE Rule

R.2d §213 Parol Evidence Rule(1) Binding integrated agreement discharges prior agreements to extent of inconsistency(2) Binding COMPLETELY integrated agreement discharges prior agreements to extent of its scope(3) Integrated agreement not binding or that is voidable and avoided does NOT discharge prior agreement. Can render inoperative a term which would have been a part of agreement had it not been integrated

R.2d §214 Evidence of Prior or Contemporaneous Agreements and Negotiations

Agreements and Negotiations prior to or contemporaneous with the adoption of writing admissible in evidence to establish(a) Writing is or is not integrated(b) Integrated agreement is completely or partially(c) Meaning of writing(d) Illegality fraud, duress, mistake, lack of consideration, other invalidating clauses(e) Ground for granting or denying rescission, reformation, specific performance, other remedy

R.2d §216 Consistent Additional Terms(1) Evidence admissible to supplement partially integrated agreement(2) Not completely integrated if omits a consistent additional agreed term which is

(a) Agreed to for separate consideration, OR(b) Such a term as in circumstances might naturally be omitted from writing (included in collateral agreement), can hear PE.

UCC §2-202 Final Written Expression: Parol or Extrinsic Evidence: CERTAINLY be omitted, can’t hear evidence, otherwise can.

AmbiguityCrabtree Principle: Use PE Rule to glue together papers to make integrated writing

International Sale of GoodsPE Rule doesn’t apply. PE Rule inconsistent with freedom of contract.Loser pays attorney’s fees.

b. Interpretation Modified Objective Theory

NO PREVALATION BY 201, NO CONTRACT (Oswald)R.2d §200 Interpretation of Promise or Agreement

Interpretation is the ascertainment of meaningR.2d §201 Whose Meaning Prevails

(1) Where parties attached same meaning to promise/agreement/term, interpreted as that meaning(2) Where parties attached different meanings to promise/agreement/term, interpreted in accordance with meaning attached by one if at time agreement made

(a) That party didn’t know of different meaning attached by other, and other knew of meaning attached by first; OR(b) That party had no reason to know of any different meaning by other, and other had reason to know of first’s meaning(c) Except as stated, neither party bound by other’s meaning, even if this destroys mutual assent

R.2d §202 Rules in Aid of Interpretation(1) Words and conduct interpreted under all circumstances, principal purpose of parties given great weight(2) Writing interpreted as whole, all writings of transaction interpreted together(3) Unless different intention manifested

(a) Prevailing meaning of language is interpreted meaning(b) Technical terms/words of art given technical meaning when used in transaction in their technical field

(4) Agreements with repeated occasions for performance with opportunity to object, any course of performance accepted w/o objection given great weight

(5) Manifestations of intention of parties interpreted as consistent with each other and any relevant course of performance, dealing, or usage of trade

Context: Interpreting Ambiguous TermsUCC §1-303 Course of Performance, Course of Dealing, Usage of TradeCourse of Performance>Course of Dealing>Usage of Trade CAN BE USED WITH GAP FILLERS!

Good Faith1. Illusory Contracts

UCC §2-306 Output, Requirements an Exclusive Dealings(1) Requirements Definite Enough(2) Duty to supply and use best efforts to promote

2. Meaning of Good FaithR.2d §205 Duty of Good Faith and Fair DealingUCC §1-304 Obligation of Good FaithUCC §1-201(20) Def’n Good FaithUCC §1-302(b) Variation by Agreement: Good faith cannot be disclaimed, but standard of measure can be agreed

c. Warranties Implied Warranties

UCC §2-314 Implied Warranty: Merchantability; Usage of TradeSecond hand sellers only express warranties (Com. 4) IMPORTANTUCC §2-315 Implied Warranty: Fitness for Particular Purpose

Express WarrantiesUCC §2-313 Express Warranties by Affirmation, Promise, Description, Sample: BASIS OF THE BARGAIN. Affirmation of value, opinions, commendations all not warranties (puffing). Does this mean need reliance?(1)(c) Sample becomes warranty (E.g. video preview clip)Post contractual affirmations can be modifications (Com. 7)Buyers doubts do not disclaim warranty (may actually prove reliance) CBS v. Ziff

DisclaimersUCC §2-316 Exclusion or Modification of WarrantiesIf buyer examines, no Caveat Emptor (Com. 8)Buyer specification can exclude warranties (Com. 9)

V. Defensesa. Misconduct

FraudThree Elements:

Misrepresentation (of fact)Scienter (guilty knowledge)Materiality(Like promissory estoppel w/ scienter)

R.2d §159 Misrepresentation DefinedAn assertion not in accord with the facts

R.2d §162 When a Misrepresentation is Fraudulent or Material(1) Fraudulent if maker intends to induce assent and make

(a) Knows or believes assertion is not in accord with facts(b) Does not have confidence stated or implied in truth of assertion

(2) Material if likely to induce reasonable person to manifest assent, or maker knows likely to induce assent from recipient

R.2d §164 When a Misrepresentation Makes a Contract Voidable(1) Assent induced by fraudulent or material misrepresentation of other party that recipient justified in relying on, voidable(2) Assent induced by fraud/material misrepresentation of THIRD party that recipient justified in relying on, voidable, UNLESS other party in good faith and without reason to know of misrepresentation gives value or relies materially on transaction

R.2d §167 When a Misrepresentation is an Inducing CauseInduces party’s manifestation of assent if substantially contributes to decision to manifest

R.2d §168 Reliance on Assertions of Opinion(1) Assertion is opinion if expresses belief, w/o certainty, of fact or expresses judgment as to quality, value, authenticity or similar matters(2) Recipient of opinion as to facts not disclosed or known may be interpreted as assertion

(a) That facts known to that person are not incompatible with opinion OR(b) That he knows facts to justify it

R.2d §169 When Reliance on Assertion of Opinion is not JustifiedNot justified in relying on opinion unless recipient(a) Has trust and confidence to person whose opinion it is that they could

reasonably rely on it(b) Reasonably believes that he with opinion has special skill, judgment or

objectivity with respect to subject matter(c) Is for some other reason particularly susceptible to misrepresentation of

type involved Nondisclosure

Caveat Emptor: Let the buyer bewareBaseball Card ProblemLook to Bargaining Sphere: Inside Sphere, know what you need to know. Outside sphere, law may interveneR.2d §160 When Action is Equivalent to an Assertion (Concealment)

Action intended or known to be likely to prevent another from learning a fact is equivalent to assertion that that fact does not exist

R.2d §161 When Non-Disclosure is Equivalent to an Assertion that fact does not exist

(a) Where he knows disclosure necessary to prevent previous assertion from being a misrepresentation or fraudulent or material(b) Where he knows disclosure would correct mistake of other party as to basic assumption on which they’re making contract and if non-disclosure amounts to failure to act in good faith/fair dealing(c) Where he knows disclosure would correct mistake of other party as to contents or effect of writing, evidencing or embodying agreement in part or whole(d) Where other person entitled to know fact because of relation of trust and confidence between them

Duress (Wrongful Threat, No Meaningful Alternative)Requires scienter. Must be loss of free will.R.2d §175 When Duress by Threat Makes a Contract Voidable

(1) If assent induced by improper threat by other party leaving victim no reasonable alternative, contract voidable by victim(2) If assent induced by improper threat by third party, contract voidable unless other party in good faith and w/o reason to know of duress gave value/relies materially

R.2d §176 When a Threat is Improper(1) Improper if

(a) Threat is crime or tort or would be if resulted in obtaining property(b) Threat is criminal prosecution(c) Threat is use of civil process and made in bad faith(d) Threat is breach of duty of good faith and fair dealing under contract w/ recipient

(2) Improper if resulting exchange not on fair terms, and(a) Threatened act would harm recipient and not significantly harm threatening party(b) Effectiveness of threat in inducing assent significantly increased by prior unfair dealing by party making threat(c) What is threatened is otherwise a use of power for illegitimate ends

Undue InfluencePattern Usually Involves: Odd time, Odd place, Insistence on immediate transaction, Emphasis on consequences, Multiple persuaders, Stating no time for consulting advisersR.2d §177 When Undue Influence Makes a Contract Voidable

(1) Undue Influence is unfair persuasion of party under domination of persuader or who by virtue of relation between them is justified in assuming that person will not act inconsistent with his welfare(2) If assent induced by undue influence of other party, voidable

(3) If assent induce by undue influence of third party, voidable unless other party in good faith and w/o reason to know of undue influence gives value or relies materially

UnconscionabilityTwo Prongs:

Lack of meaningful choice by one party (Procedural)Unreasonably favorable terms to other party (Substantive)

R.2d §208 Unconscionable Contract or TermIf contract or term unconscionable, court may refuse to enforce, or may enforce remainder w/o unconscionable term, or may limit application of it to avoid unconscionable resultEvidenced By: Gross Disparity in values exchanged, Gross inequality of bargaining power coupled with unreasonably favorable terms to stronger party, SEE NOTES FOR UNCONSCIONABLE BARGAINING

UCC §2-302 Unconscionable Contract or ClauseBroad judicial discretionDirect policing of bargaining (Com. 1)One-sided at time of making (Com. 1)Prevention of oppression and unfair surprise, NOT disturbing risk allocation due to superior bargaining power (Com. 1)May also look to PUBLIC POLICY

b. Mistake: NO SCIENTER Mutual Mistake Sherwood (Cow)

R.2d §151 Mistake Defined: Quality vs. Different GoodsA belief not in accord with the facts (at time of formation)

R.2d §152 When Mistake of Both Parties Makes a Contract Voidable(1) Mutual mistake at time of formation as to basic assumption that has material effect on exchange of performances, voidable by adversely affected party unless he bears the risk under §154(2) To determine materiality, examine reformation, restitution, etc.

R.2d §154 When a Party Bears the Risk of a Mistake(a) When allocated to him by agreement of parties(b) He is aware at time of formation that he has limited knowledge w.r.t. the fact to which mistake relates but treats his knowledge as sufficient (conscious uncertainty)(c) Allocated to him by court on ground that it is reasonable in circumstances

R.2d §157 Effect of Fault of Party Seeking ReliefMistaken party’s fault in failing to know facts does not bar him from avoidance or reformation unless his fault amounts to failure of good faith or reasonable standards of fair dealing.

R.2d §158 Relief Including Restitution(1) Any party may have relief including restitution

(2) Court may grant relief as justice requires including reliance protection

Unilateral MistakeReliance on mistake by other party, contract not voidable Drennan v. Star PavingR.2d §153 When Mistake of One Party Makes a Contract Voidable

Mistake of one party to fact he assumed at time of formation which had an adverse material effect on the agreed to exchange of performances, contract voidable if he does not bear the risk of the mistake under §154 and(a) Effect of mistake is such that enforcement would be unconscionable OR(b) Other party had reason to know of mistake or his fault caused mistake

Constructive Fraud by Nondisclosure (Palpable Unilateral Mistake): You’re mistaken, I know it, I’m not going to say anything.Mistake Based Unilateral Mistake

c. Changed Circumstances: Won’t enforce contract if we think parties had no agreement in terms of that risk and it’s allocation

Impossibility: Must be OBJECTIVELY impossibleR.2d §261 Discharge by Supervening Impracticability

Where party’s performance made impracticable by occurrence of event which non-occurrence was a basic assumption of contract (risk not allocated), his duty to render that performance is discharged, unless language or circumstances indicate the contrary

R.2d §263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance

If existence of specific thing necessary for performance, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event whose non-occurrence was basic assumption of contract

UCC §2-613 Casualty to Identified GoodsUCC §2-614 Substituted Performance: Commercially reasonable substitute must be used and accepted if it exists

Frustration: Decrease of value to promisee Krell v. Henry (Coronation)R.2d §265 Discharge by Supervening Frustration

If party’s principal purpose is substantially frustrated w/o his fault by occurrence of event whose non-occurrence was basic assumption of contract, remaining duties to render performance discharged, unless language or circumstances indicate the contrary

Look for destruction of value of performance. Commercial Impracticability (Won’t enforce contract if we think party had no

agreement in terms of that risk and its allocation).

UCC §2-615 Excuse by Failure of Presupposed Conditions: Allocate among customers producible goods COM 5 OF 2-207 NO UNREASONABLE SURPRISEUCC §2-616 Procedure on Notice Claiming Excuse: Buyer can terminate or modify (30 DAYS)

VI. Conditions: WHAT RISK IS BEING ALLOCATED? SO IMPORTANTa. Express Conditions: Contract says is condition

Condition Precedent: Condition whose satisfaction is necessary for duty to ariseConcurrent Condition: Two things have to happen at same time (usually precedent of each other)Subsequent Condition: Condition whose satisfaction discharges duty that has already arisen (defendant has burden of proof)

Strict EnforcementExpress conditions are strictly enforced (Inman v. Clyde Hall Drilling)

Promise v ConditionR.2d §261 Interpretation of Doubtful Words as Promise or Condition

Where doubtful whether words create promise or express condition, interpreted as promise; but MAY mean that one party promises performance and other party’s promise conditional on that performance

R.2d §227 Standards of Preference with Regard to Conditions(1) Interpretation preferred that will reduce obligee’s risk of forfeiture, unless event is w/in obligee’s control or he has assumed risk(2) Unless contract is type where only one party generally undertakes duties, when it is doubtful whether

(a) A duty is imposed on oblige that an event occur OR (promise: damages, but no discharge of duty)(b) The event is made a condition of the obligor’s duty OR (condition)(c) The event is made a condition of obligor’s duty and duty is imposed on the oblige that the event occur (promissory condition)

First interpretation preferred if event is w/in the obligee’s control Waiver (APPLIES ONLY TO NON-MATERIAL CONDITIONS) & Estoppel

R.2d §84 Promise to Perform a Duty in Spite of Non-Occurrence of a Condition(1) Promise to perform all or part of a conditional duty in spite of non-occurrence of condition is BINDING, whether made before or after time for condition to occur, UNLESS

(a) Occurrence of condition was material part of agreed exchange for performance of duty and promisee was under no duty that it occur (e.g. Fire needs to happen to collect insurance) OR(b) Uncertainty of occurrence of condition was an element of risk assumed by promisor

(2) If promise made before time for occurrence of condition has expired and condition w/in control of promisee or a beneficiary, promisor can make his duty again subject to the condition by notifying promise or beneficiary of his intention to do so if

(a) Notification received with reasonable time to cause condition to occur AND(b) Reinstatement of requirement of condition not unjust because of RELIANCE (estoppel protects) of promisee or beneficiary AND(c) Promise is not binding apart from the rule stated in (1)

ExcuseR.2d §229 Excuse of a Condition to Avoid Forfeiture

To extent that non-occurrence of condition would cause disproportionate forfeiture, court may excuse the non-occurrence UNLESS MATERIAL

b. Constructive Conditions: Condition that exists where the covenants are dependent. Substantial Performance Jacob & Youngs v Kent

Constructive Conditions can be satisfied by Substantial Performance (to prevent forfeiture CARDOZO)

Treat substantial performance as condition satisfaction, and then get remedy for contract breach

MUST UNDERSTAND WHAT RISKS THE PARTIES WERE ALLOCATING (E.g. If Reading Pipe wanted for quality, substantial performance, but if wanted for other brand specific reason, maybe not)

Doctrine of Substantial Performance unavailable after WILLFUL breach Mitigating harshness of contracts

o Interpret as not a conditiono Use estoppel or forfeiture to make it less harsho Use Substantial Performance

Material Breach B&B Equipment Co. v Bowen If breach of contract is also breach of a condition, Material Breach Substantial Performance means no material breach and vice versa Effect of Material Breach: Non-breaching party has option to either

treat material breach as non-occurrence of condition and rescind/proceed off-contract, or treat it as a breach of contract and sue for on-contract damages.

Rescission-> All parties get restitution Only MATERIAL breach can absolve duty to perform

Partial v Total Breach: Lane Enterprises v I.B. Foster (Bridge coating. Tiny money withholding while asking for adequate assurance NOT material, failure to give adequate assurance WAS material).Partial Breach: Continue on-contract then sue for damages for breachTotal Breach: Non-breaching party can get on-contract recovery, but can also terminate and hire a substitute. ONLY AVAILABLE FOR MATERIAL BREACH

R.2d §241 Materiality Circumstances(a) Extent of deprivation of benefit reasonably expected(b) Extent injured party can be adequately compensated for part of benefit he will be deprived of(c) Extent that party failing to perform or offer performance will suffer forfeiture(d) Likelihood that party failing to perform or offer performance will cure his failure, taking account of all circumstances and reasonable assurances(e) Extent which behavior of failing party comports with standards of good faith and fair dealing

UCC Perfect Tender RuleRamirez v. Autosport: EXCELLENT application of PTR AND of gap filler provisionsUCC §2-601 Buyer’s Rights on Improper Delivery: ALL breaches material, so buyer has a LOT of rescission powerUCC §2-602 Manner and Effect of Rightful Rejection: MUST NOTIFYUCC §2-605 Waiver of Buyer’s Objections by Failure to ParticularizeUCC §2-606 What Constitutes Acceptance of GoodsUCC §2-607 Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over

1. CureUCC §2-508 Cure by Seller of Improper Tender or Delivery; Replacement

2. Revocation of AcceptanceUCC §2-608 Revocation of Acceptance in Whole or in Part: SUBSTANTIALLY IMPAIRED VALUE. EFFECTIVE ON NOTIFICATION

3. Anticipatory Repudiation: Substantial Impairment RuleCan bring suit IMMEDIATELY! We don’t want to waste human capital. Present breaches. Hochster v. De La TourUCC §2-609 Right to Adequate Assurance of PerformanceReasonable grounds, IN WRITING, May suspend while pendingUCC §2-610 Anticipatory RepudiationUCC §2-611 Retraction of Anticipatory RepudiationRequest for Mutual Rescission NOT Anticipatory Repudiation (Harrell v Sea Colony)

4. Installment ContractsUCC §2-612 “Installment Contract”; Breach

VII. Remediesa. Expectation Interest: Put promisee in position had promise been performed

(Approximate Performance) Expectation Damages

Care about COMPENSATION not PUNISHMENT

Subjective values differ (not just monetary value)Need to determine what plaintiff bargained for (money or specific product?): E.g. $60k to regrade land only worth $15k. If P thinks regrading is worth $60k, those should be his damages. But if he doesn’t, the $15k is adequate. Depends on the worth of the land to him (HIS UTILITY)Pareto Efficient Breach: When somebody could be made better off without making anyone worse off. If breach creates more utility, breach should occur! E.g. Spann sell widget to me $100, I resell for $115. He should breach to sell to other for $125, I still get $15 expectation, Spann gets $10 more. EFFICIENT MEANS PERSON WITH HIGHEST UTILITY GETS GOODS.Kaldor-Hicks Efficiency: Doesn’t matter that nobody be made worse off. As long as surplus covers injury, don’t need to actually compensate (no heed of distributional problems)R.2d §348 Alternatives to Loss in Value of Performance

(2) If breach results in defective or unfinished construction and loss in value not proved with sufficient certainty, may recover damages based on

(a) Diminution in market price of property caused by breach (ONLY WHEN COST OF COMPLETION UNFAIRLY OUT OF PROPORTION)(b) Reasonable cost of completing performance or remedying defects if that cost is not clearly disproportionate to probable loss of value to him

1. Consequential Damagesa. Foreseeability

Hadley Rule: Damages of broken contract are those fairly and reasonably considered either arising naturally or such as may reasonably be supposed to have been in contemplation of both parties AT TIME OF FORMATION (foreseeable)R.2d §351 Unforeseeability and Related Limitations on Damages

(1) Damages not recoverable for loss that breaching party did not have reason to foresee as probable result of breach WHEN CONTRACT MADE(2) Loss may be foreseeable because it follows from the breach

(a) In the ordinary course of events OR(b) As a result of special circumstances that party in breach had reason to know

(3) Court may limit damages by excluding lost profits, by allowing recovery only for reliance damages, or as justice requires to avoid disproportionate compensation

UCC §2-710 Seller’s Incidental Damages

Hadley Rule for sellers. Incidental damages after buyer’s breach (naturally arising damages)UCC §2-715 Buyer’s Incidental and Consequential DamagesHadley Rule for buyers. Consequential damages w/in contemplation (AND NOTICE RECEIVED) ONLY FOR BUYERS. Consequential includes personal injury.

b. CertaintyEven if contemplated (Hadley), if not certain, no recovery (Dempsey)R.2d §346 Availability of Damages

(1) Right to damages for any breach by a party against whom contract enforceable unless claim suspended or discharged(2) No loss or unprovable amount of loss, nominal damages

R.2d §349 Damages Based on Reliance InterestReliance interest damages recoverable minus loss that party in breach can prove w/ reasonable certainty would have been suffered had contract been performed

R.2d §352 Uncertainty as a Limitation on DamagesDamages not recoverable of loss beyond evidentiary establishment of certainty

2. Mitigationa. Common Law (See bar chart)

Duty to not pile up damages Rockinham (Bridge building)

Duty to minimize damages (e.g. discharged employee Parker). Employer has burden of proof that other employment substantially similar. Jury decides what was reasonably sufficient similar employment

Does duty to mitigate warrant Efficient Breach? Must mitigate variable costs, not fixed costs Pareto Inefficient when denying nonmonetary

compensation Must make reasonable effort to find comparable

performance.R.2d §350 Avoidability as a Limitation of Damages

(1) Damages not recoverable for loss that injured party could have avoided w/out undue risk, burden or humiliation(2) Not precluded when making reasonable (question for jury) but unsuccessful efforts to avoid loss

b. Lost Volume SellersUCC §2-718 Liquidation or Limitation of Damages, Deposits

Inexhaustible supply sellers can recover lost profitsc. UCC §1-305 Remedies to be Liberally Administrated

i. SellersUCC §2-703 Seller’s Remedies in General:Index: Includes cancellation (i.e. perfect tender for sellers)UCC §2-706 Seller’s Resale Including Contract for Resale:Preferred Remedy: Resale (built in duty to mitigate)UCC §2-708 Seller’s Damages for Non-Acceptance or Repudiation:(1) Not reselling, get difference between contract and market prices (forced resale profit)(2) Lost Volume Sellers: Get lost profit plus incidental damagesUCC §2-709 Action for the Price2-709(1)(b) unable to resell for reasonable price or effort would be unavailing (e.g. custom wand), can get price recovered (includes profit)UCC §2-710 Seller’s Incidental Damages

ii. BuyersUCC §2-711 Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods:IndexUCC §2-712 “Cover”; Buyer’s Procurement of Substitute Goods:Preferred Remedy: Cover (buying substitute goods)UCC §2-713 Buyer’s Damages for Non-Delivery or Repudiation:Forced cover difference for damagesUCC §2-714 Buyer’s Damages for Breach in Regard to Accepted Goods:Breach of Warranty Provision: Nonconformity damages (treated as non-material breach) Can recover all of 2-715 as allowedUCC §2-715 Buyer’s Incidental and Consequential Damages DO 2(a) AND (b) for consequentialUCC §2-716 Buyer’s Right to Specific Performance or Replevin: REASONABLE effort to recover otherwise must first be made. (E.g. HIV test can’t recover otherwise but by specific performance)

Specific Performance1. Equity

Specific Performance Injunction compels defendant to perform his contract with the plaintiff

2. Lando Land is presumed uniqueo Two Requirements FOR ALL EQUITABLE REMEDIES (Loveless):

Only allowed equitable remedies if legal remedies inadequate

Not entitled to equitable remedies as matter of course. Court balances equities, have right to CONVINCE court equitable remedy appropriate

o We don’t like ordering people what to doo Coase Theorem: Market will adjust and produce efficient

outcome. Want to minimize transaction costs for efficiency.o FOR EFFICIENCT, PERSON WHO VALUES OBJECT MOST MUST

GET IT Pareto: No one worse off, Kaldor-Hicks: Highest Value User (no care

about distribution), Coase: Minimum transaction costs (most efficient, because still highest value user)

3. GoodsUCC §2-709 Action for the PriceUCC §2-716 Buyer’s Right to Specific Performance or Replevin

4. Personal Serviceo No specific performance of personal service contracts. One has

right to refuse service Problem of judicial supervision Logistics of Compelling Insurmountable Efficiency concerns (may be efficient breach)

o Negative Injunction: Prevents other performance, but does not compelled contracted performance (Wagner singing) (Bars competitors from profiting from breach).

o WE DON’T LIKE COMPELLED ASSOCIATION Liquidated Damages: Parties specify damages for breach

Wassenaar Reasonableness Test: Damages or Penalty? (WE DON’T DO PENALTIES because they hurt

efficiency) Injury one incapable of estimation at the time of the contract? Stipulated damages a reasonable forecast of harm caused by the

breach?Couldn’t penalties coerce contracts to be honored more?!R.2d §355 Punitive DamagesNot recoverable for breach unless conduct of breach is also a tort for which punitive damages are recoverableR.2d §356 Liquidated Damages and Penalties

(1) Damages may be liquidated in agreement only at amount reasonable in light of anticipated or actual loss and difficulties of proof of loss. Unreasonable large liquidated damages unenforceable on grounds of public policy as penalty(2) Penalty for non-occurrence of condition of bond unenforceable for amount exceeding loss caused by non-occurrence (no penalties as a matter of public policy)

UCC §2-718(1) Liquidation of DamagesUCC §2-719 Contractual Modification or Limitation of Remedy: Will enforce them unless the remedy is unconscionable or fails in its intention. Unconscionable if waives liability for personal injury.

b. Reliance Interest: Put promise in position had promise not been made R.2d §349 Damages Based on Reliance Interest

Reliance interest damages recoverable minus loss that party in breach can prove w/ reasonable certainty would have been suffered had contract been performed

Reasonably contemplated wasted expenditures (even before contract formed) can be reliance damages. Anglia TV v. Reed

Risks can be reallocated at time of contract (e.g. reallocating already sunk costs at time of contraction in Reed).

Plaintiff elects between reliance and expectation damages (reliance is subset) Reliance is essentially expectation minus profits. E.g. Red Owl Stores Pre-contract promissory estoppel reliance. Breaching party has burden of proof as to amount of loss. But MUST deduct

provable loss (R.2d §349). EXPECTATION NEED NOT BE MONETARY: Can recover reliance damages even if

no monetary profit (unless defendant can show e.g. that $100 million dollar painting was worth less than that, plaintiff can recover $100,000 spent on security system).

Expectation damages can include opportunity costs. For the contract price, party is willing to trade expectation for the class of unknown opportunity costs.

By denying Coase theorem, second transaction makes inefficiency. BUT maybe can’t know expectation until second transaction. Thus may be necessary for efficient outcome. (Von Mises)

c. Restitution Interest: Undo unjust enrichment of promisor by promisee Quantum Meruit/Quasi Contract: Noncontract restitution (e.g. restitution to

breaching party for part performance). Britton On contract reliance suing must deduct provable loss. Off contract restitution

need not, because we are not trying to approximate performance, as it is irrelevant. Restitution subset of Reliance. SO if you want deduction, call it RELIANCE, if you don’t, call it RESTITUTION

Maybe promissory estoppel is just off-contract reliance? SEE DIAGRAM

R.2d §371 Measure of Restitution InterestIf sum award to protect party’s restitution interest, may be measured:

(a) Reasonable value to other party of what he received in terms of what it would have cost him to obtain it from person in claimant’s position, OR

(b) Extent to which other party’s property increased in value or his other interests advanced

R.2d §373 Restitution When Other Party is in Breach(1) Subject to (2), breach by non-performance that gives rise to damages for total breach or repudiation, injured party entitled to restitution for any benefits he conferred on other by way of part performance or reliance(2) Injured party has no right to restitution if he performed, and only duty of other party is definite sum of money for that performance (IF contract fully performed, want to continue on contract).R.2d §374 Restitution in Favor of Party in Breach(1) Subject to (2), if party justifiably refuses to perform on ground that other’s breach discharged his duties, party in breach entitled to restitution for any benefit he conferred by part performance or reliance in excess of loss he caused by breach.(2) To extent under manifested assent, if party’s performance retained in breach, party not entitled to restitution if value of performance as liquidated damages is reasonable in light of anticipated or actual loss caused by breach and difficulties of proof of loss.

Doctrine of Divisibility: Divide contract into component parts for restitution awards (Britton).

UCC §2-711: Buyer can recover price paid (restitution) and may obtain on contract remedies (reliance). MIGHT be able to do both at same time. Buyer can cancel and get restitution for what they paid and then also cover and get on contract remedies as well.