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Table of Contents
FORMATION OF CONTRACT!.........................................................................................................!2!
I. SCOPE OF K LAW!......................................................................................................................................!2!
II. CONSIDERATION!.....................................................................................................................................!3!
III. MANIFESTATION OF MUTUAL ASSENT!......................................................................................!5!
IV. OFFER!..........................................................................................................................................................!8!
V. ACCEPTANCE!............................................................................................................................................!9!
DEFENSES TO CONTRACT ENFORCEMENT!........................................................................!15!
II. MISREPRESENTATION!.......................................................................................................................!16!
III. DURESS & UNDUE INFLUENCE!....................................................................................................!16!
IV. UNCONSCIONABILITY (shock the conscience)!.......................................................................!17!
V. LACK OF CAPACITY!............................................................................................................................!18!
VI. VIOLATION OF PUBLIC POLICY!..................................................................................................!19!
INTERPRETING CONTRACT TERMS!......................................................................................!24!
I. INTERPRETING EXPRESS K TERMS!..............................................................................................!24!
II. PAROL EVIDENCE RULE!...................................................................................................................!24!
III. IMPLIED CONTRACT TERMS!........................................................................................................!27!
PERFORMANCE AND BREACH!..................................................................................................!29!
I. SUBSTANTIAL PERFORMANCE V. MATERIAL BREACH (C/L)!..........................................!29!
DAMAGES!............................................................................................................................................!30!
I. REMEDY!.....................................................................................................................................................!30!
II. MEASURE!.................................................................................................................................................!31!
III. LIMITS!.....................................................................................................................................................!31!
KEY EXAM TIPS CHECK LIST!.................................................................................................!32!

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FORMATION OF CONTRACT

I. SCOPE OF K LAW
A. Definitions What is a K?
1. Contract: a legally enforceable agreement; promise or set of promises for the
breach of which the law gives remedy, or the performance of which the law in
recognizes as a duty. [Rest. 2nd 1]
2. Promise: manifestation of intention to act/refrain from acting that justifies
promisee in understanding that commitment has been made. [Rest. 2nd 2]
3. Agreement: manifestations of mutual assent (offer + acceptance) on the part of
two or more persons [Rest. 2nd 3]
4. Bargain: an agreement to exchange promises, exchange a promise for a
performance, or exchange performances. [Rest. 2nd 3]
B. Types of Contracts
1. Express: agreement manifested by words
2. Implied-in-fact: agreement manifested by conduct
3. Implied-in-law (quasi-contract): not true K, but obligation imposed by
court despite absence of promise in order to avoid injustice to parties
C. Sources of K Law
1. Common Law (Restatement): used for everything BUT the sale of goods
2. Uniform Commercial Code (UCC): transactions involving the sale of goods,
applying to individuals and merchants
Sale: passing of title from seller to buyer for a price
[UCC 2-106]
Good: any tangible thing that is moveable at time of
identification of K [UCC 2-105]
Merchant: deals in goods of the kind or otherwise by his
occupation holds himself out as having knowledge or skill
particular to the practices or goods involved in the transaction
If K involves both goods and services, must evaluate which
constitutes the primary purpose of the K. IF primary function of K
is to provide a service, then UCC does not apply.
D. Elements of K = O + A + C [Rest. 2nd 17]
1. Mutual Assent (O + A): K formation requires mutual assent to the same terms
by the parties, manifested through Offer and Acceptance
2. Consideration: bargained exchange in which each party incurs a legal
detriment [Rest. 2nd 71]
E. Questions re: K
1. Which body of law governs ! C/L or UCC
2. K formation ! Is K legally enforceable?
3. Breach ! Did one party breach K?
4. Damages ! What does breaching party have to pay non-breaching party?
F. Hybrid Contract ! Contains both goods and services
1. To determine if UCC or Common Law governs ! Predominate Test
2. What part of the contract are you paying the most money. Most expensive part
of the contract determines which body of law governs
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II. CONSIDERATION
A. Why is consideration required?
Distinguishes what promises are or are not enforceable, or should be enforceable
Respects autonomy, reliability, moral
Certainty enforces promises that are actually made
B. Definitions of Consideration
1. Benefit/Detriment (old defn): Promisee loss or promisor gain determines
consideration in a bargain; promisor gain or promise suffer detriment
a. Appeal of Clark [C]
Facts: Sheldon (D) promises to pay Charles & wife (P) $700 note in
return for care while he is sick
Holding: When a sick individual creates a note to pay for care, that
care constitutes consideration supporting the promise to pay.
Rule: Measure of consideration in Clark determines consideration as a
promisee loss or promisor gain. (Here, D gained by receiving care.)
b. Dougherty v. Salt [No C]
Facts: D (aunt) gives P (nephew) a promissory note of $3K for value
received ! You always have done for me
Holding: No consideration for promised payment of note.
Rule: No promisee loss or promisor gain. (Here, D did not gain by
promising $ to P, and P did not lose).
2. Mutual Inducement (current defn): mutually induced bargained exchange in
which each party incurs a legal detriment
a. Rest. 2nd 71: Consideration (elements)
" Bargained exchange: promisor makes promise in exchange for
promisee performance or return promise
" Legal detriment: promisee gives up something of value or does
something not previously obligated to perform
" Promisor and promisee must mutually induce the exchange of
promises and/or performance
b. Examples:
(i) Hamer v. Sidway (II) [C]
Facts: Uncle (D) promises to nephew $5K on his 21st b-day if
he gives up drinking, gambling & smoking
Holding: Nephews abandonment of legal right
(drinking/smoking) is sufficient consideration
Rule: Reciprocal inducement created consideration
(ii) U.S. v. Meadors [NC]
Facts: Betty Jo marries husband and signs guaranty for MJD
loan (even though no signature line for her name)
Holding: No reciprocal inducement to sign guaranty, for loan
to include BJ signature, so no consideration.
** Distinction of outcomes due to different tests: Under benefit/ detriment
test, there would be consideration in U.S. v. Meadors.
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3. NOT Consideration
a.. Testamentary gift (i.e. Appeal of Clark, Dougherty v. Salt)
b. Conditional gift only one party benefits (i.e. Pensey v. American Ash)
c. Moral consideration no inducement if there is no moral obligation
d. Past consideration promise is made in return for detriment previously
suffered (i.e. A receives gift from B. then A promises to pay B)
e. Sham/nominal consideration where consideration paid is nominal or
not in fact made, then no real bargain is present
C. Special Applications of Consideration Rule
1. C/L: Contract Modification Pre-Existing Duty Rule: when a K is
modified, consideration is still required for agreement to be legally enforceable; if
responsibility of only one party, the pre-existing duty already owed by the other
party cannot serve as consideration for new promise.
a. Rest. 2nd 73: Performance of Legal Duty (traditional rule)
Performance of a legal duty owed to promisor which is neither doubtful nor
the subject of honest dispute is NOT consideration [Traditional rule]; But, a
similar performance is consideration if it differs from what was required by
the duty in way which reflects more than a pretense of bargain
In other words: agreement to do what one is already legally obligated
to do is not consideration.
Goal of rule: prevent hold-up game (i.e. B withholding $ from A in
order to get a better deal)
b. Rest. 2nd 89: Modification of Executory K (exception to Rest. 2nd 71)
Promise modifying duty under K not fully performed is binding:
(a) if modification is fair & equitable in circumstances unforeseen when K
was made; OR
(b) to extent provided by statute; OR
(c) to extent justice required because of detrimental reliance
Rest. 2nd 89 ! test to allow consideration for modified K
** All modifications must have new consideration; Exception: [Rest. 2nd 89]
c. Ex: Angel v. Murray mod. binding in unforeseen circumstances
Facts: Garbage collector has 5-yr K with City. Large unforeseen
increase in population, so City agrees to pay Garbage collector
additional $10K. P (city resident) sues City & Garbage Collector,
claiming additional payments illegal.
Holding: Modification is enforceable.
Rule: If modification is fair & equitable, voluntarily entered into by
parties, and motivated by events not anticipated when K originally
created, then modification is binding.
2. UCC: K Modification - No Pre-existing Duty Rule
a. UCC 2-209: K Modification, Rescission, and Waiver
(1) No new consideration required to enforce modification
(2) NOM clause is enforceable ! any modification must be signed by most
parties

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D. Alternatives/Exceptions to Consideration Rule

1. C/L: Promissory Estoppel: equitable remedy when A causes B to
detrimentally rely on As promise, A is estopped by principles of promissory
estoppel
a. Rest. 2nd 90: Promise Reasonably Inducing Action/Forbearance
(Exception to Rest. 2nd 71)
(1) A promise which the promisor should reasonably expect to induce
action/forbearance on the part of the promisee or third person and which
does induce such action/forbearance is binding if injustice can be avoided
ONLY by enforcement of promise.
(2) Charitable subscription or marriage settlement is binding under
subsection (1) without proof that promise induced action/forebearance.
1) Clear and definite promise
2) Reliance intended and actually relied upon
3) Injustice only avoidable through enforcement of promise
b. Ex.) Conrad v. Fields binding promise b/c detrimental reliance
Facts: D promises to pay for Ps tuition/expenses for law school. P
quits job to attend school. D has financial issues and stops payments. P
sues D for detriment because her reliance on promise.
Holding: Under promissory estoppel, P awarded for damages.
Rule: Promises based upon detrimental reliance are legally enforceable
when 1) clear & definite promise, 2) reliance intended and actually
relied upon, and 3) enforceable to prevent justice. Promissory estoppel
implies K in law where no K exists in fact.
** Promissory estoppel is rarely used.
2. UCC: Promissory estoppel: not explicitly recognized in UCC. However,
many courts allow a party to a K for the sale of goods to involve the doctrine in
appropriate circumstances.
III. MANIFESTATION OF MUTUAL ASSENT
A. Generally
1. Manifestation of Assent: language or conduct that is directed toward other
party; communication of each partys assent to the other party
B. Objective or Subjective Mutual Assent
1. Objective Theory of K: Existence and terms of K and partys intentions are to
be determined objectively rather than subjectively.
2. Test for intent: What a reasonable person in the position of the other party
would conclude that his objective manifestations of intent meant
a. Lucy v. Zehmer
Facts: Lucy and Zehmer were at a bar, intoxicated, make agreement
for Lucy to buy farm. Zehmer thought it was a joke, but signs
agreement with wife. P contacts attorney to check title. Zehmer claims
there is no K.
Holding: A legally binding agreement was made.
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Rule: Outward manifestations/objective intent of partys can determine

enforceability of K. Outward expression can be words or conduct.
C. Assent to Indefinite or Incomplete Agreements
1. Agreement required only to major terms: parties must agree on the
essential terms of the K, not necessarily all the terms. Court can fill in minor
gaps, but parties must have intended to have a K.
2. Terms must be reasonably certain - Rest. 2nd 33: Certainty
(1) Even though manifestation of intention is intended to be understood as an
offer, it cannot be accepted so as to form a K unless the terms of the K are
reasonably certain
(2) Terms are reasonably certain if they provide a basis for determining the
existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of proposed bargain are left open or
uncertain may show that a manifestation of intention is not intended to be
understood as an offer or acceptance.
a. Quake v. AA (K) incomplete agreement
Facts: 3 manifestations of agreement: oral manifestation that
Quake was awarded K, letter sent to Quake re: date to begin
construction and cancellation clause, meeting awarding Quake the
job. Is there binding K?
Held: D manifested its intent to be bound to K with cancellation
clause in the letter of intent and orally awarding job to P.
Rule: To determine if letter of intent is enforceable, must look at
the manifestation of intent to be bound by the parties. Generally,
letter of intent is not binding K.
b. Academy Chicago Publishers v. Cheever (No K) missing terms
Facts: Letter of agreement b/w publisher and writer including that
Cheever will select stories, deliver on mutually agreeable date,
publishing date within reasonable time
Holding: No K. Too many gaps. Court cannot fill gaps re: criteria
for publishing, date delivery, length.
Rule: Terms of Offer & Acceptance must be reasonably certain.
Court must be able to determine: 1) breach, and 2) damages.
c. B. Lewis v. Angelou (K) gaps court will fill
Facts: P makes agreement with D re: literary work. Through
letters, confirm that P will have exclusive right to represent D. P
begins to market Ds work. D has personal issue and decides to no
longer work with P. D makes separate K with Hallmark. P sues D
for breach of K. Is agreement definite enough to form K?
Holding: Yes, agreement has all essential terms for enforcement.
Rule: In order for agreement to be enforced, it must be definite and
explicit so that parties intention may be determined with
reasonable degree of certainty. Price is an essential term of
agreement, but duration in K for services is not necessary.

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d. Sun Printing v. Remington (No K) gaps too large to fill

Facts: P agreed to buy 16K tons of newspapers from D. D agreed
that price would be set for first 4 months, after which parties would
negotiate price and terms with the max price no higher than
Canadian Export Co. price. Price and length of time were
incomplete terms. Can Ct. fill in terms to bind D to agreement?
Held: No, gaps too large and terms to uncertain for Ct. to fill.
Rule: Court cannot revise while professing to construe
agreement.
3. UCC: Indefinite K for Sale of Goods
a. UCC 2-204(3):
Even though one or more terms are left open a K for sale does not fail for
indefiniteness if the parties intended to make a K and there is a reasonably
certain basis for a remedy.
Open terms are OKAY in sale of good K ! terms can be
supplied by CP, CD, TU, and gap fillers
MUTUAL ASSENT

MUTUAL ASSENT

NO MUTUAL ASSENT

Preliminary!Negotiations!
(Optional)!
[Rest.!2nd!!!26]!

Counter?Offer!!
(by!Offeree)!!
[Rest.!2nd!!24;!!39]!

Acceptance!

Offer!
[Rest.!2nd!!24]!

Acceptance!!
[Rest.!2nd!!50]!

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?!Revocation,!!
?Rejections,!!
?!Lapse!of!offer,!
?!Death!

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IV. OFFER
A. Definition of Offer
1. Rest. 2nd 24: Offer Defined
Offer is the manifestation of willingness to enter into a bargain, so made as to
justify another person in understanding that his assent to that bargain is invited
and will conclude it.
Definiteness + Commitment
Offeror = Master of Offer
Offeror can change offer up until the moment that Offeree has accepted
2. Rest. 2nd 33: Certainty (see above)
(1) Terms must be reasonably certain
(2) Determine breach and craft appropriate remedy
(3) Open terms may indicated intent not to be O or A
Explicit ! fact finder left to determine what action creates what
time of intent
3. Promises contained in offer
a. Unilateral K: offer will propose an exchange of offerors promise for
offerees act/performance (i.e. promise for performance)
b. Bilateral K: exchange of promises (i.e. promise for a promise)
B. Communications that are NOT Offers
1. Party may make solicitation of bids, serving as preliminary negotiations
a. Rest. 2nd 26: Preliminary Negotiations
Manifestation of willingness to enter into a bargain is not an offer if the
person to whom it is addressed knows or has reason to know that person
making it does not intend to conclude a bargain until he has made a
further manifestation of assent.
Implicit need to look at the back & forth between parties to find
out the intent of the offer
2. Ads, catalogs, and mass mailings not offers EXCEPT when specific
language is clear and definite
a. Lefkowitz v. Great Minn. ad was offer
Facts: Store puts up 2 ads for fur coats (worth $100) and Stole
(worth $139.50) on sale for $1 to first person to arrive at store
(first come, first serve). Was ad an offer?
Held: Yes, ad constituted offer.
Rule: Offer was clear, definite, and explicit, price listed, and
nothing left for negotiation. This is exception to general rule
because ad showed definiteness and commitment.
3. Offers made in jest
b. Leonard v. PepsiCo. offer in jest not offer
Facts: Pepsi (D) commercial advertises Pepsi points and shows
Harrier Jet to cost 7 million Pepsi points. Leonard (P) believes ad
is offer for jet and collects $700K in Pepsi points. Did
commercial/ad constitute offer?
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Held: No offer. Commercial worked w/ catalog, which didnt list

jet as prize for points.
Rule: (1) Ads are not usually offers. (2) Objective person would
not reasonable believe ad to be an offer. [Rest. 2nd 24]
Distinct from Lucy v. Zehmer: there was no indication that offer
was being made in jest. Lucy reasonably relied on bargain.
4. Opinions about future results, including professional opinions
5. Statements of intention that merely memorialize negotiations (i.e. letters of
intent)
6. Price estimates (i.e. quotes)
** Summary: In order for communication to be offer, terms must be certain,
there must be expression of commitment and definiteness in offer.
C. Termination of Offer by Acceptance (see also Section V (F) below)
1. Revocation
2. Lapse
3. Rejection
4. Death

V. ACCEPTANCE
A. Definition of Acceptance v. Counter-offer
1. Rest. 2nd 35: Oee Power of Acceptance
(1) An offer gives to the Oee a continuing power to complete manifestation of
mutual assent by acceptance of the offer.
(2) K cannot be created by acceptance of an offer after the power of acceptance
has been terminated in one of the ways listed in 35.
2. Rest. 2nd 50: Acceptance of Offer Defined
Acceptance of an offer is a manifestation of assent to the terms thereof made by
the offeree in a manner invited or required by the offer
3. Rest. 2nd 39: Counter-offers
(1) Counter-offer is an offer made by an offeree to his offeror relating to the same
matter as the original offer and proposing substituted bargain differing from that
proposed by original offer.
(2) Offerees power of acceptance is terminated by his making counter-offer,
unless the offeror has manifested a contrary intention or unless the counter-offer
manifests a contrary intention of the offeree.
B. C/L: Mirror Image Rule
1. Offerees response operates as acceptance only if it is mirror image of
offer: If offerees response makes any changes to terms of offer, then response is
NOT acceptance but rather rejection or counter-offer
2. EXCEPTION: If response includes immaterial or collateral terms
that does not affect terms of original offer, then response is acceptance
2. Last Shot rule: the party who sends the last written proposal, last shot,
creates the terms of the K
a. Ardente v. Horan acceptance as counter-offer
Facts: Ardente bids $250K on house. Horans atty sends purchase
agreement to Ardente, which he signs, sends check, and letter
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confirming furniture would be included with agreement. However

Horans atty returns check and PSA saying no sale b/c furniture
not included. Ardente sues. Did letter constitute acceptance?
Holding: No. Ardentes letter was counter-offer. Included word
confirm and items not part of original offer.
Rule: Under mirror image rule, acceptance must be definite,
unequivocal, and impose no additional conditions.
b. State of RI v. PW RR acceptance can include immaterial terms
Facts: PW sold property to Promet but had to give RI 30 day notice
of sale (according to statute). RI sent letter to accept PWs offer for
property, but referenced changing name of buyer and removing
track. RI never finalized sale, so PW sold property to Promet. State
didnt show up to meeting because of change in time. Was RIs
letter acceptance of PWs offer?
Holding: Yes, RI letter was acceptance of PWs offer b/c
additional terms were immaterial.
Rule: Generally, acceptance must mirror the offer. BUT,
acceptance can add immaterial or collateral terms if they do
not equivocate what is reasonable implied in offer.
C. UCC: Battle of the Forms (Abandons Mirror-Image Rule)
1. UCC 2-207: Additional Terms in Acceptance
2. First-shot rule: terms of original offer more likely to govern
a. K for sale of goods can be formed in 2 ways: Words OR Conduct
2-207(1): Words
Definite and seasonable expression of acceptanceoperates as
acceptance even though it states terms additional to or different from
those offeredunless expressly made conditional on assent to
additional or different terms.
o K is formed even if acceptance includes additional or different
terms [rejection of mirror-image rule]
o UNLESS, acceptance is conditional on assent to the additional
or different terms [PROVISO ! allows accepting party back
into mirror image rule]
2-207(3): Conduct
Conduct by both parties which recognizes the existence of a contract is
sufficient to establish a contract for sale although the writings of the
parties do not otherwise establish a contract.
b. If K is formed by words [ 2-207(1)], then what are the terms?
2-207(2): Terms of K formed by words
Additional terms are proposals for addition to contract. Between
merchants such terms become part of contract unless:
(a) offer expressly limits acceptance to terms of offer, or
(b) materially alter offer, or
(c) notification of objection to terms has already been given or is given
within reasonable time after notice of terms is received.
c. If K formed by conduct [ 2-207(3)], then what are the terms?
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2-207(3): Terms of K formed by conduct

In such case terms of the particular contract consist of those terms
on which the writings of the parties agree, together with any
supplementary terms incorporated under any other provisions of this
Act.
o Terms on which writings agree
o Supplementary terms (i.e. UCC Art. 2 gap-fillers)
" Delivery [UCC 2-308]
" Payment [UCC 2-309]
" Warranty
[UCC 2-313: Express warranty]
[UCC 2-314: Implied warranty of
merchantability goods are fit for ordinary
purpose]
[UCC 2-315: Implied warranty of fitness for
particular purpose goods are fit for particular
purpose]
(i) Itoh v. Jordan Intl Co. K formed on performance
Facts: Itoh fills out PO for coils and sends to Jordan. Jordan
acknowledges form and said acceptance conditional on assent
to arbitration clause. Itoh agrees to sell coils to Riverview,
which end up being defective and Riverview refuses to accept.
Itoh sues Jordan, but Jordan says no K b/c Itoh didnt assent to
arbitration clause. Was K formed? If so, what were terms?
Holding: K under 2-207(3). Arb. Clause not part of terms.
(1) Under 2-207(1), K formed even though A included new
term (arbitration clause). A does not need to mirror O.
(2) Under 2-207(2)(a), K NOT formed. Language of
arbitration clause (Ss consent expressly conditional to)
triggers PROVISO ! Itohs acceptance was conditional to
assent of arbitration clause.
(3) Then look at 2-207(3), K is formed b/c both parties
performed. Writings dont agree on arbitration & UCC is
silent on arbitration ! Arb. Clause knocked out and not
part of K terms.
D. Methods of Acceptance
1. Manner
a. C/L: Rest. 2nd 30: Form of Acceptance Invited
(1) [General] Oor can require a specific manner of acceptance by
affirmative answer in words, performing or refraining from performing a
specified act, or empower oee to make selection of terms in acceptance.
(2) [Exception] If offer doesnt specify the mode of acceptance, Oee
invites acceptance in any manner and by any medium reasonable in the
circumstances.
Oor = master of offer & prescribes manner of acceptance

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b. UCC 2-206: Offer and Acceptance in Formation of K

(1) Unless explicitly stated by the language or circumstances
(a) offer to make K shall be construed as inviting acceptance in
any manner and by any medium reasonable in circumstances;
(b) order/offer to buy goods for prompt or current shipment shall
be construed as inviting acceptance either by prompt promise to
ship or by the prompt or current shipment of conforming or
nonconforming goods
Subsection (b) allows acceptance in form of promise OR
performance
2. Acceptance by Promise/Performance
a. Rest. 2nd 32: Invitation of Promise or Performance
[Generally] Oor can demand either acceptance by promise or
performance. [Exception] In case of doubt, Oee can choose to accept
either by promising to perform or by rendering performance.
b. Rest. 2nd 45: Revocation of Offer for Unilateral K
Oor cannot revoke offer if Oee has began performance. In unilateral K,
Oor is bound by a K if immediate performance is tendered within the
time stated in the offer, or within a reasonable time.
c. Rest. 2nd 62: Effect of Perf. Where O Invites Perf. Or Promise
(1) When Oee can choose acceptance by either promise or performance,
the beginning of performance is an acceptance of offer.
(2) Such acceptance operates as promise to render complete performance.
Rest. 45 binds the Oor & Rest. 62 binds the Oee
Rest. 45 limits the risk of abuse of the Oor who may try to
revoke offer before completion of performance
d. UCC 2-206: Offer and Acceptance in Formation of K
2-206 (1)(b) ! Allows for acceptance either by promise or by
performance
3. Acceptance by Silence or Inaction
a. Generally, failure to reply does not constitute acceptance.
[Rest. 2nd 19 Genl rule of Assent]
b. Exceptions: Rest. 2nd 69 Acceptance by Silence
(1)Silence or inaction can operate as acceptance in the following cases:
(a) Oee takes benefit of offered services with reasonable opportunity
to reject them and reason to know with expectation of compensation
(b) Oor tells Oee that assent can be manifested by silence/inaction,
and Oee intends to accept by remaining silent/inactive
(c) Based on prior dealings, Oee has reason to believe silence is
acceptance
(i) Houston Dairy v. John Hancock silence not acceptance
Facts: Hancock mailed commitment letter to Houston offering
to lend $ if Houston responded w/in 7 days. Houston responds
18 days later with signed letter and check. Hancock cashed
check w/o notifying Houston, but Houston meanwhile gets
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better loan and cancels with Hancock. Hancock refuses to

return check b/c K was formed. Houston sues.
Holding: No K. Houstons letter was not an acceptance b/c it
was outside of fixed time period. So it was a counter-offer.
Rules: Silence or inaction not acceptance because Houston did
not take benefit of offer, Houston was not aware that silence
would operate as acceptance, and they had no prior dealings.
[Rest. 2nd 69]
c. ANY UCC PROVISIONS?
4. Electronic Acceptance (and Offer) (p. 341)
a. User assents to terms by taking specified action such as going to
website and installing software or clicking I agree (i.e. click-wrap
agreements and browse-wrap agreements)
Click-wrap agreement: Where software is downloaded from
the internet, with the licensee being required to click on the "I
agree" button indicating agreement to the licensor's terms, such
conduct is deemed to be a binding acceptance of the licensor's
offer. (Specht v. Netscape)
b. User has not assented until:
Reasonable notice to use proposed agreement exists
Reasonable opportunity for user to review terms of proposal
agreement
Reasonable notice action will manifest assent
User takes action that manifests assent
E. Time of Acceptance
1. The Mailbox Rule: acceptance is effective upon proper dispatch
a. Rest. 2nd 63 Time When Acceptance Takes Effect
Unless offer provides otherwise, acceptance made in a manner and by a
medium invited by an offer is operative and completes the manifestation of
mutual assent as soon as put out of the Oees possession, without regard
to whether it ever reaches the Oor
b. Rest. 2nd 66 Acceptance Must Be Properly Dispatched
Acceptance by mail is operative when dispatched if mail is properly
addressed and precautions are taken to insure sage transmission
2. Electronic records time of acceptance follows UETA 15
a. UETA 15(a)-Electronic records are sent when [all 3 must be met]:
(1) Properly addressed to information processing system (IPS) that
recipient has designated/uses for getting electronic records of this type
(2) in a form that can be processed by recipients IPS, and
(3) enters IPS outside of control of sender, or enters IPS designated/used
by recipient under control of recipient
b. UETA 15(b)- Electronic records are received when:
Enters IPS of recipient and in form capable of being processed by system
F. Terminating Acceptance (see also Section IV (C) above)
1. Rest. 2nd 36(1): Methods of Termination of Power of Acceptance
a. Rejection or Counter-offer by Oee
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Rest. 2nd 38 Rejection

Rest. 2nd 39 Counter-offer
b. Lapse of time
Rest. 2nd 41 Lapse of Time
(1) Oee power of acceptance terminated at time specified in offer,
or at end of reasonable time
(2) What is reasonable time depends on circumstances existing
when offer and acceptance are made
(3) Unless otherwise indicated, offer sent by mail is seasonably
accepted if acceptance mailed at any time before midnight on day
which offer is received.
c. Revocation by the Oor
Rest. 2nd 42: Revocation by Communication from Oor
Oee power of acceptance terminated when Oee receives from
Oor manifestation of intention not to enter into proposed K
Rest. 2nd 46: Revocation of General Offer
When offer made by advertisement or general notification to
public, Oee power of acceptance terminated when notice of
termination is given publicly by advertisement or other general
notification.
Rest. 2nd 46: Indirect Communication of Revocation
Oee powere of acceptance terminated when Oor take definite
action inconsistent with intent to enter contract AND Oee acquires
reliable information to that effect.
d. Death or incapacity of Oor or Oee

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DEFENSES TO CONTRACT ENFORCEMENT

Generally
A. Void v. Voidable Contracts
1. Void: neither party can enforce a K that is void (defenses pertaining to law and
PP may render a K void)
2. Voidable: innocent party may enforce the K but the K cannot be enforced
against them (defenses that affect assent may render K voidable)
I. MISTAKE [Rest. 2nd 151-154]
Rest. 2nd 151-Mistake Defined: belief that is not in accord with the facts
A. Mutual Mistake: both parties had the same mistaken belief [Rest. 2nd 152]
1. Basic Assumption: mistake must concern basic assumption that K was made
2. Material Effect: mistake must materially effect agreed exchange of perf.
3. Assumption of Risk: party seeking to avoid K must not be the party whom the
K has implicitly imposed the risk of mistake
Rest. 2nd 154: When Party Bears Risk of Mistake
(a) risk allocated by agreement
(b) party is aware, at time K made, that it has limited knowledge of facts to
which mistake relates but treats limited knowledge as sufficient
(c) risk allocated by court
a. Lenawee v. Messerly mutual mistake not a defense
Facts: Messerly sold property to Barnes, who returned it back to
Messerly. Messerly then tried to sell to Pickles. Pickles signed K to
buy lot with apt building, but building was uninhabitable because
of septic tank violation. K contains as is clause. Pickles tried to
back out of deal.
Holding: Pickles had no defense of mutual mistake. Stuck with K.
Mistake concerned (1) basic assumption that bldg. had value as
rental property and (2) materially affected ability to rent property.
But, as is clause in K meant that Pickles (3) assumed the risk.
B. Unilateral Mistake: only one party has mistaken belief [Rest. 2nd 153]
Must show (1)-(3) of mutual mistake
1. Basic Assumption
2. Material Effect
3. Assumption of Risk
AND Must show either (4) OR (5)
4. Unconscionable to enforce K: mistaken party must show that it will be
severely harmed if forced to perform and that other party has not relied
5. Reason to Know: other party had reason to know of the mistake, or other
partys fault caused the mistake
a. Wil-Fred v. Metropolitan Sanitary unilateral mistake as defense
Facts: Wil-fred bid on job for Sanitary District, won bid, but
rescinded offer b/c cost of bid was too low and subcontractor made
mistake in calculating price. Could Wil-Fred rescind K based on
unilateral mistaeke?
Holding: Yes, rescission of K granted.
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Mistake related to (2) material feature of K, mistake occurred even

though (1) reasonable care was used, enforcement of K would be
(4) unconscionable b/c subcontractor would go bankrupt, and P did
not (3) assume risk of mistake.

II. MISREPRESENTATION
Party makes a false assertion of fact by affirmatively lying, hiding the truth, or remaining silent
A. Misrepresentation can be fraudulent or material [Rest. 2nd 162]
1. Fraudulent [Rest. 2nd 162(1)]
If maker intends his assertion to induce party to manifest assent and the maker:
(a) knows or believes assertion is not in accord with the facts, or
(b) doesnt have confidence that he states/implies the truth of the facts, or
(c) knows he doesnt have basis that he states/implies in his assertion
2. Material [Rest. 2nd 162(2)]
If misrepresentation is likely to induce a reasonable person to agree to bargain, or
maker knows it was likely to induce the other party to agree even if reasonable
person would not have been induced
a. Barrer v. WNB when material misrepresentation can rescind K
Facts: Barrers home sold at tax sale but he got loan from WNB to
keep home. WNB notified by buyer of home that Barrer lied about
finances. Barrer did not reveal how much $ he owed in mortgages.
WNB wanted to void K.
Holding: Remanded for trial b/c issues of fact.
Rule: Innocent material misrepresentation of the facts can be
basis for rescission of contract. TEST: Recipient of
misrepresentation must demonstrate maker made assertion: (1) not
in accord with the facts, (2) material, (3) relied upon (4) justifiably
by the recipient (5) to his detriment.
III. DURESS & UNDUE INFLUENCE
A. Duress: forced or coerced (by threat or physical force) into making agreement
1. [Rest. 2nd 174] Duress by Physical Compulsion Prevents K Formation
If conduct to agree is physically compelled by duress, then manifestation of assent
is not effective.
2. [Rest. 2nd 175] Duress by Threat Makes K Voidable
(1) If assent is induced by improper threat that leaves party no reasonable
alternative, K is voidable by victim.
(2) If assent is induced by third party (not part of K formation), K voidable by
victim unless other party to K values or relies materially on K in good faith &
without reason to know of duress.
3. [Rest. 2nd 176] Threat is Improper
(1) Threat is improper if:
(a) threat is crime or tort
(b) criminal prosecution
(c) threat is of civil process and made in bad faith
(d) breach of good faith duty and fair dealing
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(2) Threat improper if resulting exchange not on fair terms, and [higher threshold]
(a) threat would harm recipient and not benefit party making threat
(b) effectiveness of threat induced by prior unfair dealing
(c) power for illegitimate ends
a. Holler v. Holler
Facts: Wife sues husband for making her sign premarital agreement in
order to remain the U.S. and stay with child. Wife is doesnt
understand language of agreement and not allowed attorney. Husband
knows of deportation deadline and that wife would lose child without
signing.
Holding: K voidable b/c made under duress.
Rules: 3 part TEST K made by 1) coercion, 2) lack of quality of
mind to form K, and 3) K resulted from defective state of mind.
B. Undue Influence
1. Rest. 2nd 177 Undue Influence Makes K Voidable
(1) unfair persuasion of a party who is under domination of the person exercising
persuasion or under trust that person will not act in manner inconsistent with his
welfare
(2) If partys assent induced by undue influence, K is voidable by victim.
(3) If assent induced by third party, K voidable unless other party in K relies
material on transaction in good faith and without reason to know of undue
influence.
a. Odorizzi v. Bloomfield School District
Facts: Odorizzi teacher charges with being gay. Resigns b/c
principle and super of school come to his home and persuade him
to immediately resign or else would publicize proceeding. Tell him
no time for attorney. K made when Odorozzi under emotional
strain. Was agreement to resign invalid?
Holding: K invalid b/c of undue influence, but not b/c fraud,
mistake of fact or duress used.
Rule: Short time, consequences of delay, no attorney, multiple
persuaders, inappropriate place for transaction all resulted in
[subjective] elements of overpersuasion and undue influence.
**UCC 1-103 ! allows the C/L Rest. re: defenses to K enforcement to apply to sale of goods**
IV. UNCONSCIONABILITY (shock the conscience)
A. Unconscionability can be procedural or substantive
1. Rest. 2nd 208: Unconscionable K or Term
If K or term is unconscionable at time K is made, court can refuse to enforce K
OR may enforce part of K without unconscionable term, or limit term to avoid
unconscionable results.
2. UCC 2-302: Unconscionable K or Clause

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(1) If K as matter of law finds K or any clause as unconscionable at time K made,

court can refuse to enforce , or enforce part of K without unconscionable clause,
or limit clause to avoid unconscionable results.
(2) If K or any clause appears unconscionable to court, parties can be afforded
reasonable opportunity to present evidence as to its commercial setting, purpose
and effect to aid court in deciding.
a. Williams v. Walker Thomas substantively unconscionable
Facts: Walker-thomas keeps balance on all items bought and until
balance on all items bought are paid, all items can be liquidated
even if some items have been paid for. Williams buys stereo,
defaults on payment, and store takes back every item she has
bought. Is K unenforceable b/c unconscionable?
Holding: Yes, case remanded b/c unconscionable circumstances
Rule: Unconscionability may be absence of meaningful choice and
unreasonable K terms for one party, which is favorable for other
party. Reasonableness/fairness determined by terms of K
considered in light of circumstances existing when K made.
b. In re RealNetworks K not unconscionable
Facts: P claims that software secretly accessed and intercepted
users electronic communications and store info without their
knowledge/consent. Click-wrap agreement before installing
software, which includes arbitration clause. Is arbitration clause
procedurally and substantively unconscionable?
Holding: No
Rule: Click-wrap agreement not procedurally unconscionable if
provides fair notice of contents and reasonable opportunity to
understand terms before enforced. Arbitration Clause not
substantively unconscionable under Federal Arbitration Act.
Here, font in agreement was readable, there was time to review
provisions, and clause not buried. Also, arbitration has been
upheld in many prior cases.
3. Federal Arbitration Act
V. LACK OF CAPACITY
A. Generally
1. Rest. 2nd 12: Capacity to Contract
(1) One cant be bound by contract if they do not have the legal capacity to incur
voidable contract duties. Capacity to contract may be partial and existence may
depend on nature of transaction.
(2) Natural person has legal capacity to incur contractual duties unless he is:
(a) under guardianship
(b) an infant
(c) mentally ill or defective
(d) intoxicated
B. Exceptions to Capacity
1. Rest. 2nd 14: Infants
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Unless statute provides otherwise, natural person has capacity to incur voidable
contractual duties until beginning of day before persons 18th birthday.
a. Webster v. Sheridan
Facts: Webster entered into lease with Sheridan and Wilwerding
for apt. Both were minors, paid 2 months rent + deposit but could
not pay more and moved out. Webster demanded damages.
Sheridan claims no enforceable K.
Rule: Generally, K is voidable by infant party. Exception if
emancipated minor is liable for necessaries, i.e. things required
for maintenance of existence depending on social position and
situation of infant. If guardian/parent willing to supply
necessary, then infant not liable.
nd
2. Rest. 2 15: Mental Illness or Defect
(1) Person has voidable K duties if by reason of mental illness or defect
(a) unable to understand in reasonable manner the nature and consequences
of transaction, or
(b) unable to act in reasonable manner in relation to transaction and other
party has reason to know of condition.
(2) If K made on fair terms and other party unaware of persons mental illness or
defect, power of avoidance under (1) terminated to extent that K has been
performed in part or whole or circumstances changed making avoidance unjust.
a. Ortelere v. Teachers Retirement Board
Facts: Ortelere was mentally ill when signing K to receive all
benefits while alive and leaving nothing for husband. Retirement
committee knows of her illness when she signs.
Holding: K was voidable and husband receives benefits.
Rule: Traditional test 1) cognitive test: rational judgment/ability
to comprehend K, and 2) volitional test: unable to act reasonably
and reason to know of mental illness
3. Rest. 2nd 16: Intoxicated Persons
If party has reason to know that other party by reason of intoxication:
(a) unable to understand in reasonable manner the nature and consequences of
the transaction, or
(b) unable to act in a reasonable manner in relation to transaction.
VI. VIOLATION OF PUBLIC POLICY
A. K can be unenforceable if it violates public policy, or enforcement goes against
public interest
1. Rest. 2nd 178: Unenforceable Term on Grounds of Public Policy
(1) If legislation OR interests in enforcement are clearly outweighed by public
policy interests against enforcement.
(2) Factors weighing for enforcement of K:
(a) parties justified expectations,
(b) forfeiture of non-enforcement,
(c) special public interest in enforcement of term.
(3) Factors against enforcement of K:
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(a) strength of policy

(b) likelihood of non-enforcement furthering public policy
(c) misconduct
(d) link between misconduct and term
a. Tunkl v. Regents of University of CA
Facts: Upon entry to hospital, Tunkl signed K with hospital, which
included a Release term that released hospital from any and all
liability for negligence. Tunkl sued hospital to recover damages
for personal injuries from negligence of physicians. Was release
term enforceable?
Holding: no, release unenforceable b/c violates public policy
Rule: Legislation (statute 1668) states releases as unenforceable. K
affects public interest since hospital serves public and misconduct
lead to death. Hospital must meet public standards and regulations.
b. Johnson v. Calvert
Facts: Calverts pay Johnson to have gestational surrogacy. Issue
of who legal mother is when Johnson tries to keep baby. Is
gestational surrogacy K enforceable or barred by PP?
Holding: Calverts are natural parents and K legal and enforceable
Rules: Uniform Parentage Act create tie as to which party was
legal mother either adoptive or natural. Need to look at contract
law to determine intent of the parties. No violation of public
policy.
VII. STATUTE OF FRAUDS: When writing is required for enforcement of K
A. Generally
1. Rationales for requiring signed writing
a. Evidentiary: ensure that there is reliable and accurate evidence on
which fact-finder can rely in reaching judgment
b. Cautionary: give pause to people entering contracts so they
recognize importance and content of contract
c. Channeling: provide effective and easy rule to divide enforceable from
unenforceable contracts
2. Party against whom K enforcement is sought must raise S/F to avoid
waiving defense
3. Questions to ask re: S/F
a. Is K within S/F?
b. If yes, then is the writing sufficient to satisfy S/F requirements?
c. If not w/in S/F, do any exceptions apply?
B. Is K within classes of contracts covered by S/F?
1. Common-Law [Rest. 2nd 110]
a. Executor-administrator provision: promises made by
executor/administrator of estate to personally pay creditors sums owed by
decedent at time of death

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b. Suretyship provision: promisor who acts as surety (i.e. guaranteeing

payment of debt or default of another) must reflect promise in written
memorandum that satisfies S/F
c. Marriage provision: promises made to third parties (not mutual
promises to marry)
d. Land contract: promise to transfer or buy any interest in land
e. One-year provision: promises that are not capable of being fully
performed within one year after making of the contract
One year period measured from time of execution of K, not time it
takes for parties to perform
Complete performance must be impossible within one year
2. UCC 2-201 Formal Requirements. Statute of Frauds
(1) Except as otherwise provided in this section, a contract for the sale of goods
for the price of $500 or more is only enforceable if contract is in writing
C. Is there a writing that satisfies the S/F?
1. Common Law - Writing requirements
a. Rest. 2nd 131 General Requisites of Memorandum
Unless additional requirements are prescribed by particular statute, a contract
within S/F is enforceable if
evidenced by writing,
signed by or on behalf of party to be charged
reasonably identifies subject matter of K,
indicates K has been made or offered, AND
terms are reasonably certain
b. Rest. 2nd 134 Signature
Signature may be any symbol made or adopted with intention to authenticate
the writing as that of signer
Types of symbols: traditional signature, initials, thumbprint, or arbitrary
code sign
Place of signature: although usually at end of document, printed letterhead
or billhead may be adopted as signature
c. Rest. 2nd 136 Time of Memorandum
Memorandum can be made or signed any time before or after formation of K
2. UCC Writing Requirements
a. UCC 2-201 Formal Requirements. Statute of Frauds
Required writing need not contain all material terms of K. All that is required
is writing that affords basis for believing that offered oral evidence rests on
real transaction. Required terms of writing:
Must be signed (any authentication that identifies party to be charged)
Must evidence K for sale of goods
Quantity term (doesnt need to be accurately stated)
b. UCC 1-201 General Definitions
(37) Signed includes any symbol executed or adopted with present intention
to adopt or accept writing
complete signature not necessary
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May be initials or thumbprint, printed, stamped or written

May be found in billhead or letterhead
(43) Writing includes printing, typewriting, or any intentional reduction to
tangible form
3. UETA & E-SIGN Writing Requirements for E-Commerce
Record writings and information stored electronically & retrievable
in perceivable form
Authenticated electronic symbol attached or logically associated with
record AND executed with intent to sign
D. Does Agreement Fall Within Exception to Writing Requirement? Under some
circumstances , agreement can be enforceable even if it is not in writing
1. Common Law Exceptions
a. Part-Performance compels execution of K but not to obtain damages
for breach (usually seen with land Ks)
Party seeking enforcement of oral agreement must prove:
1) injustice in failing to enforce agreement
2) acts in performance of agreement are unequivocally referable
to the agreement
b. Promissory & Equitable Estoppel when party reasonably relied on
acts/representations (i.e. equitable estoppel) or promises (i.e. promissory
estoppel) by other party inducing such reliance, other party is estopped
from using S/F as defense
Rest. 2nd 139 Enforcement by virtue of Action of Reliance
(1) Promise that reasonably induces action or forebearance on
other party is enforceable not withstanding S/F if injustice can
only be avoided through enforcement of promise
(2) Injustice can only be avoided by enforcement of promises in
following circumstances significant:
(a) availability and adequacy of other remedies like
cancellation and restitution
(b) definite and substantial character of action in relation to
remedy sought
(c) extent that action or forbearance corroborates evidence of
making and terms of promise
(d) reasonableness of action or forbearance
(e) extent action or forbearance is foreseeable to promisor
2. UCC Exceptions
a. UCC 2-201(2)-(3)
K which doesnt satisfy requirements of S/F but is valid in other respects
is enforceable if
Merchant memo [UCC 2-201(2)]
Specially manufactured goods that are not suitable to sell to others
Party against whom enforcement is sought admits that K for sale was
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Goods for which payment has been made/accepted or have been
received/accepted

E. Examples
1. Owen v. Hendricks
Facts: Owen sues Hendricks to recover for real estate dealer commission.
Two letters written re: land, but only first letter was signed and second
letter didnt refer to first letter. Could 2 letter be taken together to
constitute a signed memorandum re: real estate commission?
Holding: No. S/F applied because land contract.
Rule: Any unsigned paper may be incorporated by reference in the paper
signed by the person sought to be charged. Here, Hendricks was sought to
be charged, but his letter was not signed and made no reference to
previous letter.
2. Crabtree v. Elizabeth Arden
Facts: Arden and Crabtree negotiate 2-year contract for Crabtree to begin
work as sales manager with yearly increase in salary. Ardens secretary
makes memo on telephone note re: terms of K, but no signature. Crabtree
not given negotiated raise. Comptroller signs payroll change, but not
approved by Arden. Arden denies existence of agreement and claims S/F
bars enforcement. Crabtree sues.
Holding: 3 writing satisfy S/F and agreement is enforceable.
Rule: K is for 2-year term, so falls within S/F. Memo can be more than 1
document as long as documents have sufficient connection and
expressly or by internal evidence refer to same subject-matter (Parol
evidence). Signature of party to be charged, i.e. Arden, satisfied by
signature of comptroller, VP, and secretary acting as agents of corp.

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INTERPRETING CONTRACT TERMS

I. INTERPRETING EXPRESS K TERMS
There are several approaches to determining whether a writing is complete or partially integrated
A. Four Corners Rule
1. If the writing appears complete and final on its face, the writing is conclusively
presumed to be a complete integration.
2. Terms to be considered are contained within four corners of K
B. Collateral K Concept
1. All final writings are deemed to be partial integrations.
C. Williston Reasonable Person Approach
1. If writing appears to be complete expression of the parties agreement, it is a
complete integration unless additional terms are such that it would be natural to
enter a separate agreement as to such terms, in which case the writing is a partial
integration. [Majority approach]
D. Corbin Intention of the Parties Approach
1. Allows all relevant evidence on the issue of intent, including evidence of prior
negotiations. This is approach incorporated in UCC 2-202 and Rest. 2nd 210.
II. PAROL EVIDENCE RULE !
! Prevents fraudulent introduction of extrinsic evidence (oral or prior agreements)
A. Generally
1. Substantive rule of law determines which terms become part of K
2. Rule of law usually applied by the Court, not the jury
3. Bars from jury all evidence of certain preliminary agreements not contained
in the final writing
" Writing intended by parties to be full and final expression of their
agreement may not be supplemented or contradicted by any oral or
written agreements made prior to the writing
4. INTEGRATION/MERGER CLAUSE: the agreement is usually considered
final statement of agreement BUT can still be explained & supplemented
" i.e. Integration/merger clause: We intend this writing to be the whole
statement of our agreement
" Two levels of integration: (1) final and (2) complete & exclusive
5. Exceptions to PE Rule PE Does Not Apply When:
" Ambiguous terms evidence always admissible to explain/clarify terms
" Course of dealing or trade usage evidence admissible to interpret K
language and to add to K terms
" Collateral agreement evidence of agreement separate from (collateral to)
writing is admissible b/c it was not intended to be part of the integrated K
" Problems of K formation evidence of duress, undue influence, mistake,
lack of consideration admissible
" Evidence to show circumstances that support remedy (recission,
reformation, specific performance)
" Subsequent negotiations or modification after K formed
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B. Steps of Parol Evidence Rule:

1. Is writing ambiguous?
2. Yes to (1) ! What did parties INTEND this writing to be?
" Final (partially integrated)?
! Parol evidence cant contradict BUT can explain & supplement
through CP, CD, TU and consistent additional terms
" Complete & exclusive (completely integrated)?
! Parol evidence cant contradict BUT can explain & supplement ONLY
through CP, CD TU
3. Apply Parol Evidence rule according to (2)
4. [FACT] Jury decides if parties K includes parol at issue
C. UCC: Parol Evidence Rule
1. UCC 2-202: Final Written Expression: Parol or Extrinsic Evidence
Termsto which confirmatory memoranda of the parties agree or which are
otherwise set forth in a writing intended by the parties as a final expression of
their agreementmay not be contradicted by evidence of prior agreement or of
contemporaneous oral agreement but may be explained and supplemented
(a) by course of dealing or usage of trade or course of performance; AND
(b) by evidence of consistent additional terms UNLESS writing is intended to be
complete and exclusive statement of the terms
2. UCC 1-303: CP, CD, and TU
(a) Course of Performance: sequence of conduct b/w parties under this K that
exists if:
(1) agreement involved repeated occasions for performance by parties; and
(2) other party, with knowledge of nature of performance and opportunity
to object to it, accepts performance or acquiesces without objection.
(b) Course of Dealing: sequence of conduct concerning previous Ks b/w parties
establishing basis of understanding for interpreting expressions and conduct
(c) Trade Usage: commercial context; peers in this country doing this same thing
** Terms are in hierarchical order, i.e. CP prevails over CD, which prevails over TU
a. Middletown Concrete v. Black parol evidence barred
Facts: MC entered K with Hydro to buy machinery system to
manufacture pies. During prelim. negotiations, MC wrote
Acceptable performance letter requesting specific terms that
were promised and not met by Hydro. K included warranty
disclaimer exclusive and in lieu of all other warranties and
merger clause. There were 3 documents that constituted contracts.
Were each document a final expression? If so, were they
complete and exclusive?
Holding: Yes, 3 writings were final but NOT complete &
exclusive. Regardless, letter prohibited by PE Rule b/c it is
contradictory.

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TEST for complete & exclusive If additional terms would

certainly have been included in document, then evidence of their
alleged making must be barred from trier of fact.
Here, 3 writings were final b/c they included merger clause. But,
writings not complete & exclusive because 3 separate integration
clauses belies conclusion that writings alone are entire agreement.
So, PE Rule allows 3 documents to be explained & supplemented
by consistent additional terms. However, Acceptable Perf. Letter
contradicted terms of 3 documents that excluded warranties, so
letter prohibited by PE Rule.
b. Sienna v. Burroughs parol evidence allowed
Facts: D recommended computer for P to use for bookkeeping. D
sold P computer that did not meet needs, and P had no way of
knowing. K included clauses: agreement superseded all prior
communications b/w parties, preventing P from providing extrinsic
evidence. Did PE Rule apply?
Holding: No b/c contracts not integrated.
Rule: Parties must intend for K to be final. PE Rule tries to
prevent fraudulent introduction of oral evidence that all terms be in
writing.
D. C/L: Parol Evidence Rule
1. Rest. 2nd 209: Integrated Agreements
(1) Integrated agreement is writing(s) constituting a final expression of one or
more terms of agreement
(2) Whether agreement is integrated is to be determined by the court preliminary
to determining interpretation or application of PE Rule
(3) Where parties reduce agreement to be complete agreement in view of its
completeness and specificity, it is taken to be integrated unless established by
other evidence that writing is NOT final expression
2. Rest. 2nd 210: Completely and Partially Integrated Agreements
(1) Completely integrated is integrated agreement adopted by parties as
complete and exclusive statement of terms of agreement
(2) Partially integrated is integrated agreement other than completely integrated
(3) Whether agreement is completely or partially integrated is to be determined by
court before interpretation or application of PE Rule
3. Rest. 2nd 213: Effect of Integrated Agreement on Prior Agreements (PE)
(1) Binding integrated agreement discharges prior inconsistent agreements
(2) Binding completely integrated agreement discharges prior agreements to
extent they are within its scope
(3) Integrated agreement that is not binding or that is voidable and avoided
doesnt discharge prior agreement. BUT, an integrated agreement (even not
binding) may be effective to render inoperative a term which would have been
part of the agreement if it had not been integrated.
a. Lee v. Seagram collateral agreements
Facts: Lee makes oral agreement with Seagram: Lee sells 50%
interest in liquor business to Seagram in exchange to relocate

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Lees sons in new business. Seagram breaches and doesnt

relocate. Does PE Rule bar Lees proof of alleged oral agreement?
Holding: No, PE Rule doesnt bar Lees proof. Oral agreement is
collateral and not contradictory to terms of written K.
Collateral TEST If parties would be expected to embody
terms of collateral agreement within written K, then PE Rule
prohibits use of collateral agreement.
Here, parties were not expected to include terms of oral K (i.e.
collateral agreement) in written K because Lee and Seagram had
close relationship. There was NO merger clause in K, which left K
open and language could be interpreted as not being final.
E. Adhesion Contracts
1. Contract drafted by one party and reduced to a form agreement that generally
presents no opportunity for negotiation
i.e. K in PDF that cant be edited
2. Subject to greater scrutiny than Ks that result from negotiation between parties
3. Rest. 2nd 211(3): in adhesion K, only the contractual provisions that a
reasonable person would anticipate and agree to should be considered part of the
contract ! protects non-drafter who is in an inferior position
III. IMPLIED CONTRACT TERMS
A. Implied by FACT: agreed to by the parties implicitly rather than explicitly
B. Implied by LAW: selected by Court to fill in gap consistent with parties choice
1. C/L Gap-fillers
If lease terms unspecified, usually month-by-month (rather than yearly)
In absence of assignment of K rights, usually assignable by obligee unless
the rights are personal to oblige
Implied duty of BEST EFFORTS
2. UCC Gap-fillers
UCC 2-309: Time for delivery, shipment, or other K actions is
reasonable time
UCC 2-308: If no place of delivery specified, goods will be delivered to
sellers place of business or, if none exists, sellers residence. But if parties
know goods are elsewhere during time K formed, the place of delivery is
where the goods are.
UCC 2-305: If no price, K price is reasonable price (usually market
value) at time of delivery
UCC 2-314 & 2-315: Goods are covered by Article 2 implied warranties,
unless seller disclaims warranties effectively
o UCC 2-314 Implied Warranty of Merchantability (goods fit for
ordinary purpose)
UCC 2-306(2): A lawful agreement for exclusive dealing imposes upon an
obligation on the seller to use best efforts to supply the goods and on the
buyer to use best efforts to promote their sale.
3. Implied terms based on circumstances of K
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ex) Wood v. Lucy Lady Duff Gordon duty of best efforts

Facts: D employed P to promote dresses and fashion for 1 year. P
would receive of all profits made by D from his endorsement sales.
Agreement included accounting monthly for all moneys received.
Lady Duff breaches by placing endorsements without Ps knowledge.
P sues D for damages resulting from Ds withholding of profits.
Holding: K was not illusory promise. Contained all elements of K
and implied that D would take REASONABLE EFFORTS to bring
profits to Lady Duff.
Rule: Court takes writing imperfectly expressed and implies a duty
of best efforts.
C. Immutable Rules Duty of Good Faith [last resort argument]
1. Rest. 205: Every K imposes on each party duty of good faith and fair dealing
" Faithfulness to agreed upon purpose
2. UCC 1-304: Every K or duty within UCC imposes obligation of good faith in
its performance and enforcement.
Varies by jurisdiction
UCC 1-201(b): good faith defined as:
(1) honesty in fact [SUBJECTIVE] and
(2) observance of reasonable commercial standards of fair dealing
[OBJECTIVE]
ex) Market Street v. Frey
Facts: JC Penny entered into K with Pension Fund (D) to finance
JCPs growth in return JCP sold property to trust. JC Penny wanted
property, tried to finance from others and couldnt, so asked Pension
Fund for money. JC Penny asked for too much money and then
invoked right to buy property for well less than the market value.
Market Street sues Pension Fund for bad faith did not disclose all
terms and negation didnt take place.
Holding: SJ reversed and remanded for trial.
Posner leaves question of good faith (intent of parties) for district court
to decide.
Party resisting MSJ gets facts construed favorably in their favor.
Fiduciary relationship = utmost good faith (i.e. doctor-patient)

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PERFORMANCE AND BREACH

I. SUBSTANTIAL PERFORMANCE V. MATERIAL BREACH (C/L)
In!order!to!determine!if!a!contract!has!been!breached,!it!must!be!determined!whether!
either!party!substantially!performed!or!materially!breached!his!obligation!in!the!contract.!
A. Substantial Performance:
Courts can interpret an express or implied condition as constructive where substantial
performance has been rendered in order to avoid forfeiture. ! Victim of breach may still
be obligated to perform contractual duties
B. Material Breach:
If party has not substantially performed, then they have materially breached. ! Victim of
breach may not only recover damages but may also suspend/be discharged from own
obligations under contract (i.e. victim can walk-away)
1. Rest. 2nd 241: Factors to determine breach
(1) Extent that injured party will be deprived benefit he reasonably expected
(2) Extend injured party can be compensated for deprived benefit
(3) Breaching party forfeiture (the more breaching party has done, the greater
the forfeiture if recovery is denied because of material breach)
(4) Likelihood of breaching party cure (more likely to cure, then less likely to
be material breach)
(5) Breaching party acted in good faith
II. PERFECT TENDER RULE (UCC)
A. Perfect Tender Rule (UCC 2-601): If goods fail in any respect to conform to the K,
the buyer may reject the goods.
1. UCC 2-601: Perfect Tender Rule
For one shot deals, if the goods or the tender of delivery fail in any respect to
conform to the K, the buyer may reject the whole, accept the whole, or accept any
commercial unit or units and reject the rest.
BUYER CAN REJECT:
2. UCC 2-602: Mechanics of Rejection
Rejection must be within reasonable time after their delivery or tender. Rejection
is ineffective unless the buyer seasonably notifies the seller.
OR BUYER CAN ACCEPT:
3. UCC 2-606: Acceptance of Goods
Acceptance occurs when buyer:
(a) after reasonable opportunity to inspect the goods, buyer says goods are OK
(b) buyer fails to make effective rejection
(c) does any act inconsistent with the sellers ownership (i.e. keeps goods without
telling seller but not intending to pay)
4. UCC 2-607: Effect of Acceptance; Notice of Breach
(1) Buyer must pay contract rate for goods
(2) Acceptance of goods precludes rejection of goods accepted and if accepted
with knowledge of non-conformity, it cannot be revoked unless acceptance was
on the reasonable assumption that non-conformity would seasonably be cured.
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(3) Where tender accepted the buyer must within a reasonable time notify seller of
any breach discovered and if the claim is for IP infringement, the buyer sued as a
result of breach must notify seller within reasonable time after he receives notice
of litigation.
(4) The burden is on the buyer to establish any breach.
! IF ACCEPT, BUYER CAN REVOKE ACCEPTANCE:
5. UCC 2-608: Revocation of Acceptance in Whole or Part
(1) Buyer can revoke acceptance of goods whose non-conformity substantially
impairs its value to him if he has accepted it
(a) on a reasonable assumption that its non-conformity would be cured
and it has not seasonably been cured; OR
(b) without discovery of defect, acceptance induced by difficulty to
discover defect before acceptance OR by the sellers assurance.
(2) Revocation must occur within reasonable time after buyer discovers defect
and BEFORE any substantial change in condition of the goods which is not
caused by their own defects. It is not effective until buyer notifies seller.
(3) Buyer has same rights and duties to goods as if he had rejected them.
IF REJECTED or ACCEPTANCE REVOKED, SELLER HAS RIGHT TO CURE:
6. UCC 2-508: Sellers Right to Cure
If tender is REJECTED, Seller can cure:
(1) Seller must have acted in good faith in order to be entitled to cure a nonconformity
(2) If time of performance has not yet expired, seller may seasonably notify the
buyer of his intention to cure and then make conforming delivery within K time.
(3) After K time expired, seller may have further reasonable time to make
conforming delivery IF seller reasonably believes the non-conforming goods
would be acceptable
B. Ex) Ramirez v. Autosport
Facts: Ramirezs create K with Autosport for trade in van. Autosport tenders a
non-conforming good and Ramirez rejects, asking Autosport to fix/cure the
problems (paint, hubcaps, wet cushions). Ramirez continued to notify seller
that goods were non-conforming. Autosport trades title without telling
Ramirez and Ramirezs ignore. Ramirezs reject and return the can.
Holding: Ramirezs had right to reject and cancel K, and awarded market
value of trade in van.

DAMAGES
I. REMEDY
A. General Rule: Monetary Damages ! Cost of Completion (i.e. cover)
1. GOAL: to put victim of breach in original position before K formed
B. Exception: If specific performance ! diminution of value (particularly when cost
of completion is an economic waste ! cost of replacement is grossly out of
proportion)
Ex) Jacob & Youngs v. Kent ! exception applied b/c substantial performance
occurred and cost of completion was grossly out of proportion
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II. MEASURE
A. General Rule: Expectation Damages
1. Assumes K and assumes performance
2. Gives value of performance to victim of breach ! benefit of the bargain
3. No windfall to Plaintiff If calculation of damages perform a windfall to P,
then Court will not award it ! causation is required b/w breach & damages
4. No penalty to D
B. Farnsworth Formula for Damages
(Direct Loss + Extra Loss) (Cost Avoided + Loss Avoided)
Direct Loss: difference between what is promised and received
Extra Loss: additional costs and losses caused by breach (including incidental
and consequential damages)
o Incidental damages: costs to clean up breach (i.e. handling defective
goods, reshipping, looking for substitute buyer, time negotiating
replacement contract for empoyee)
o Consequential damages: other losses arising from breach (i.e. lost
profits, lost customers, lost business volume, and downstream breaches);
where the $$ money $$ is
Costs Avoided: expenses avoided by victim of breach because performance
stopped early
Loss Avoided: losses victim of breach WOULD have suffered but was able to
prevent/avoid through MITIGATION
C. Exception: Reliance & Restitution
1. Reliance assumes no K and awards out of pocket value
2. Restitution assumes no K but ill-gotten gain by breaching party
III. LIMITS
A. Certainty: damage MUST be reasonably certain, but doesnt have to be exact; no
speculation permitted
B. Foreseeability: how foreseeable/remoteness of consequential damages
1. UCC 2-715: Consequential Damages
In contemplation of parties:
(a) they arise naturally in the ordinary course of events (happens all the time) OR
(b) special circumstances that parties had reason to know of at time of contracting
** Need to specifically say consequence will be harmful **
Ex) Hadley v. Baxendale
Facts: Mill Owner made agreement with Shipper to replace crank shaft for
mill to function. Shipper promised delivery next day, but delayed and mill
had to close. Mill suffered lost profits ! Could Mill recover for lost
profits?
Holding: No, lost profits were not foreseeable and mill owener didnt
communicate necessity of crank shaft for mill operation.
Rule: Consequential damages must arise naturally or be known to
breaching party at time of K.
Ex) Redgrave v. Boston Symphony ! Rule: K law can only award damages
related to K; no causal link between reputation damages and K breach
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C. Mitigation:
1. General Rule: duty to mitigate ! decrease damages to extent possible
2. Exception: (1) No duty to mitigate if the goods are non-fungible (i.e. unique
good that cant be substituted), or (2) No duty to for employee to mitigate by
taking a different/inferior job (re: employment contracts)
Ex) Parker v. 20th Century
D. Cost of Completion v. Diminution in Value
General Rule: Cost of completion is awarded
! Exception: When there is substantial performance, diminutions of value
is awarded
KEY EXAM TIPS CHECK LIST
1) Is there a K formed?
!O+A+C
! If no C, can promise be binding w/o C? (i.e. promissory estoppel)
2) If K, what are terms?
! Battle of the Forms (does acceptance vary from offer)
3) If K, is it enforceable?
! Statute of Frauds applicable and/or is satisfied? (need to be in writing?)
- Do exceptions to S/F apply?
4) Do any defenses bar enforcement?
! Mistake, Misrepresentation, Unconscionability
5) Has K been breached?
! Have the terms been breached?
- Substantial or Material (C/L)?
! Is there outside evidence to help argue breach -- PE Rule
- Multiple documents (collateral agreements)?
- Prior oral agreements?
- Integration/Merger clause?
- Warranty disclaimer?
6) Damages
! Expectation damages?
! Duty to mitigate?
! Consequential damages foreseeable?
Statute of Fraud Questions
If ORAL AGREEMENT ! Does it fit within S/F? If YES, then should be in writing.
Land K Provision: applies to sale of realty AND transfer of interest in land (i.e.
leasehold interests)
o Written land K ! Document needs to include price = essential term and
omission of term violates S/F.
o Exception for part-performance & detrimental reliance: if one party
detrimentally relies on oral agreement in way that is unequivocally referable to
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the agreement (i.e. conduct that wouldnt occur had oral K not existed), then
agreement doesnt need to be written
One-year provision: make sure that it is IMPOSSIBLE for K to be fully performed
within one year of the time it was made
o Lifetime employment & indefinite promises: if employee has possibility of
dying within a year, then K doesnt fall within one-year provision
Sale of goods
o $500: written K is required when agreement if for sale of goods of $500 or more
o Modification: if there is an oral modification of a written K for sale of goods,
calculate the total value of the K as modified to see if it meets $500 or more
o Exceptions to S/F:
" If buyer accepts goods (i.e. receives, inspects, and keeps) or pays for
goods, buyer cant assert S/F
" If there is admission that K was made, S/F cannot apply in UCC
" Written confirmation b/w merchants of oral agreement can satisfy S/F to
enforce K against party who sent written confirmation if it contains
essential terms
Memorandum Requirements
o Signature: can be stamped or typewritten; doesnt need to be handwritten; only
needs to be an intent to authenticate the document
o Unsigned documents: if there is an absence of signature on one document, see if
there are other signed documents that refer to same transaction

Parol Evidence Rule Questions ! WHENEVER THE BREACH COULD BE

SUPPORTED BY ADDITIONAL EVIDENCE
UCC: What have parties agreed to? Look at:
1) Writing
2) Course of Performance [looks at parties conduct currently]
3) Course of Dealing [looks backwards]
4) Trade Usage [what peers are doing in the same industry]
"
"

Agreement = bargain in FACT reached by parties through their words, behavior, or

performance
Contract = legally enforceable agreement of the parties ! What are the terms of
agreement that the LAW will enforce?

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