Person seeking UCC application has a burned of proof

Mixed Transactions: Predominant Purpose Test (Is the predominant purpose of the K goods or services?) The court will look at the
language of the K, nature of the supplier’s business, reason for the K, amounts charged for good and services, party seeking UCC has
the burden of proof’
- Subjective v. Objective intent - Courts look to objective intent, using reasonable person standard, to determine whether there is
mutual assent to contract.

Reasonable Expectations:
(1) Writings (2) Spoken words, actions and other circumstances at time of contracts (3) Negotiations (4) Course of
performance (5) Course of dealing (6) Usages of trade (7) Other circumstances

Modern courts primarily use objective intent in deciding whether there is a contract. They look at the outward manifestation of the
parties, which include the language (written or spoken) in the contract itself, the actions of both parties, their past dealings, and how
contracts typically work in similar situations. They use subjective intent to elaborate on what the objective evidence already showed.
What the parties intended subjectively may help explain their outward manifestations, but it will not override what the objective
evidence shows.

Questions:
1. Did the parties behave in a way that created a legally recognizable expectations in one another?
2. What were these expectations?
3. Did they fulfill the expectations?

INVALIDATING A CONTRACT
• Statute of Frauds, because Gail Ree never signed the agreement.
• Misrepresentation, because Gail represented that proceeds would be going to a group that did not
actually exist.
• Promissory Estoppel, because he relied on signing the agreement to save his life.
• Duress, because he thought he needed to sign to save his life.
• Consideration, because DART does not actually exist, so there is not a valid exchange.

DEFENSE FOR POST MOTIFICATION

• Promissory Estoppel. Gail was relying on the proceeds from the show to pay her lease.
• Duress. Nick's threatening to pull out of the deal forced her to sign the modification.
 Preexisting Duty Rule. Nick offered no change in his performance for the change in terms.
 Supervening Difficulties. Gail is afraid if she protests Nick will find out the charity doesn’t yet exist.

AVOIDING THE CONTRACT

• Fraudulent Misrepresentation: Gail knew that DART did not exist/was not in accord with the facts and used
it to induce Nick’s assent to contract. Arguably both affirmative on Gail’s part and nondisclosure on Art and
Gail’s part.
• Duress: Improper threat by Art to shoot Nick unless Nick signed the agreement.
• Unconscionability
1. Procedural: Threatening Nick with a gun
2. Substantive: Non-existence of charity, unreasonably limits the forum

In parti delicto – leave parties as court finds them; favors the defendant
1. If the plaintiff is equally (or more) blameworthy then leave defendant alone (no enforcement/no restitu)
2. Court may enforce a K despite its being illegal/against public policy if the parties are not in pari delicto
Can a parent bind a child to a preinjury waiver…court- best interest of the child

Non-competition clauses
1. Rule of Reason – (1) Duration; (2) Geographic Coverage; (3) Scope of Restricted Activity
2. Court may ask: restrictions are greater than necessary to protect interest of employee, imposes undue
hardships, injurious to the public interest
 MISREPRESENTATION / FRAUD / NONDISCLOSURE
§159 – Misrepresentation
“Assertion not in accordance with the facts” – a K is voidable by the recipient of the K if he can justify relying
on the contract (§164)
A. §162 Fraudulent Misrepresentation – meant; knowledge of truth and intent to mislead; maker intends
to induce assent (Fraud In Inducement & In the Factum) and .
 knowns or believes “not in accord with facts”
 does not have confidence “in truth of the assertion” or
 does not have “bias…for assertion”
a. Affirmation – lying
b. Concealment – omission or misdirection
c. §161 – Nondisclosure – knows the person
should have said something
i. Failure to correct
ii. Known mistake as to basic assumption
iii. Known mistake in the writing
iv. Relation of trust and confidence

B. Negligent Misrepresentation – careless; should have known

1. Failure to exercise reasonable care in obtaining or communicating information
2. Usually requires materiality
3. Disclaimer, merger or other K clauses may shield part from negligent misrepresentation
C. Innocent Misrepresentation – oops

(*materiality – the party would not enter into a contract if they had known)
Material Breach: A material breach is a party's failure to perform a major part of the contract. The breach is
substantial and prevents the contract from being completed or defeats the purpose of the contract. A non-
breaching party is thus no longer obligated to finish their performance under the contract.

Remedies
- Voidable - Victim rescinds and seeks restitution (Contracts) or enforces contract and sues for damages
- Enforceable – damages between actual value of performance and the value that it would have had as represented
UNCONSCIONABILITY
§208 – Unconscionability – decided as a matter of UCC 2-302 – courts can refuse to enforce the K,
law by the judge sever the clause, or limit the clause
(1) Procedural (choice) --result to common law for definition of
Unfair bargaining [unequal bargaining, hidden unconscionability
terms]
(2) Substantive
Unfair Terms [overly harsh, one sided]
***Burden on party challenging the K

Adhesion – take it or leave it contract (rarely enough

to make it unconscionable)
Arbitration – third party renders a binding decision,
public policy favors arbitration, arbitration is valid in
contracts
Remedies- court may refuse to enforce the K, or enforce the
remainder of the K w/out the unconscionable term, or may limit
the application of any unconscionable terms to avoid any
unconscionable result under §208

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 ANTICIPATORY REPUDIATION
Rest. 2nd
 Party says or acts in a way that it will commit
total breach (§250)
 Other party can ask for an assurance of
performance (§251)
 Once repudiation takes place, other party can sue
for breach and refuse to perform (§253)
Party can nullify repudiation if other party has not
materially changed position or indicated the
repudiation is final (§256)
UCC
 Repudiation must substantially impair value and
other party may wait for performance or resort to
their other remedies (2-610)
 Party can ask for assurance of performance and
suspend its performance until assurance received.
(2-609)
 Party can nullify unless other has cancelled or
materially changed position (2-611)

GOOD FAITH
§205- Good Faith UCC 1-201
-Every contract imposes upon each party a duty of -All sales: “honesty in fact in the conduct or
good faith and fair dealings in its performance and its transaction concerned:
enforcement -Merchanthonesty in fact and observance of
reasonable commercial standards of fair dealing in
trade

Obligation of good faith

UCC 2-306 – Outputs/Requirements – “such actual
output or requirements as may occur in good faith…”

DURESS
§176- DURESS / ECONOMIC DURESS
(1) A threat is improper if [the threat is]
(a) a crime or a tort...
(b) criminal prosecution,
(c) the use of civil process and the threat is made in bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing...

(2) A threat is improper if the resulting exchange is not on fair terms, and
(a) ...would harm the recipient and would not significantly benefit the party making the threat, or
(b) the effectiveness...is significantly increased by prior unfair dealing, or
(c) what is threatened is otherwise a use of power for illegitimate ends.

Economic Duress – one party gets another party to change the contract

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 UNDUE INFLUENCE
§177- UNDUE INFLUENCE-Trust is involved
Unfair persuasion of a party:
1. Who is under the domination of the other party; or
2. Who assumes the other party will not act in a manner inconsistent with his welfare because of their
relationship
Example: close family, clergyman/parishioners, physicians /patients, professionals – attorneys

MENTAL INCAPACITY
§ 15(1) MENTAL INCAPACTIY (INTENT)
AT THE TIME OF SIGNING is when courts look at mental incapacity
Objective- Witnesses and people around, doctor, testimonies about past behavior, medical records

Mental Incompetence Test – person who claims mental incapacity has the burden of proof
Cognitive Test - §15(1)(a)
At the time of contracting, such severe mental illness that party was unable to understand the nature and
consequences of the transaction.
Strict and objective
Volitional Test - §15 (1)(b)
Party may have understood transaction, but mental illness affected ability to act rationally in relation to the
transaction and the other party has the reason to know.
Looser and more subjective

INTOXICATION
§16- INTOXICATION
A person incurs only voidable contractual duties by entering into a transaction if the other party has reason
to know that by reason of intoxication:
(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction

PAROL EVIDENCE RULE (defense)

SUMMARY UCC 2-202 - Terms with respect to which the
-Invoked by party trying to exclude extrinsic evidence
confirmatory memoranda of the parties agree or
from admissibility which are otherwise set forth in a writing intended by
(a) Level of Integration the parties as a final expression of their agreement
(b) Purpose of Evidence Offered with respect to such terms as are included therein
a. Integration: 4 corners or contextual may not be contradicted by evidence of any prior
b. Purpose: contradictory or agreement or of a contemporaneous oral
supplemental agreement but may be explained or supplemented
(a) by course performance, course of dealing, or
-Courts assume when parties put an agreement into usage of trade (Section 1- 303); and
writing that it is the final agreement (b) by evidence of consistent additional terms
-PER used to block evidence from being used because unless the court finds the writing to have been
of possible fraud intended also as a complete and exclusive
statement of the terms of the agreement.

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-Parol Evidence Rule – Terms of a written
agreement may not be contradicted by extrinsic
evidence relating to matters that occurred prior to or
contemporaneously with the writing (includes oral
and written evidence)

Interpretation Parol/Extrinsic Evidence

Parties agree upon Parol/Extrinsic Evidence
what was said/written
in K
Court needs to Court needs 2 decide if
resolve ambiguity in outside Trms become prt
K term of K
Intent to include Intent less clear: why
clearer because term wasn’t term included in
is in K the K?

Must answer
1.Level of Integration?
Is contract full & complete on the surface?
[MERGER CLAUSE]
2.Purpose of the Evidence?
Whether the evidence contradicts or adds to the
contract
Integration
a. Partially – may allow prior or
contemporaneous parol evidence to
supplement
b. Fully – parol evidence unlikely to be
admissible
Example: Merger or Integration Clauses, Anti-
Reliance Clause

EXCEPTIONS!!!!!!!!
Argument that K is (a)voidable
1. Duress is usually a clear exception
2. Courts divided about misrepresentation and fraud
3. What if misrepresentation directly contradicts
something in written K?
4. What if misrepresentation is merely negligent?

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 UCC PERFECT TENDER RULE
UCC 2-601: If the seller makes a nonconforming delivery, buyer’s choice to accept, reject, or accept only
part
Nonconforming goods:
 Defective -Delivered to wrong place
 Not in accordance with contract -Improperly packaged
 Delivered late
IMPOSSIBILITY / IMPRACTIBILITY
Rest. 2d §261 UCC 2-615
• Not fault of party seeking relief • Unless seller has assumed obligation, relief
• Non-occurrence of event was a basic assumption available if:
• Relief available unless contrary indicated by: • Non-occurrence of contingency was a basic
• Language assumption; or
• Circumstances • Compliance in good faith on a governmental
regulation
EXCEPTIONS TO IMPOSSIBILITY:
1. Illegality
2. Death or Disability
3. Destruction/Act of God

Impracticability – Has burden of performance

drastically increased?

IMPRACTIBILITY – Subjective (I can’t practically

do it) v. Objective Impractibility
Force Majeure Clause – build in contract which
excuses against performance
 Allocates risk of certain events regardless of
foreseeability
 Excuses impacted party’s performance if listed
event occurs

FRUSTRATION OF PURPOSE
§265 UCC ?-???
• Not fault of party seeking relief • UCC 1-103 says common law contract claims may
• Principal purpose substantially frustrated still apply
• Non-occurrence of event was a basic assumption
• Relief available unless:
a. Language
b. Circumstances

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 SELLER’S CURE & INSTALLMENT CONTRACT
UCC 2-508: Cure UCC 2-612: Installment Ks
 If Seller delivers nonconforming goods prior to  If goods are coming in installments, Buyer can
delivery date, Seller can cure so long as the only reject if the nonconformity substantially
nonconforming delivery was in good faith impairs the value and cannot be cured.
 If post-delivery date cure, Seller must show cure  Difficult for Buyer to reject whole contract
is “appropriate and timely under the because nonconforming installment must
circumstances.” substantially impair value of the entire contract in
order to reject.

INTENDED or INCIDENTAL BENEFICIARY

Rest.2nd § 302 Rest. 2nd § 304
Intended beneficiary if it effectuates the intention of A promise in a contract creates a duty in the
the parties and promisor to any intended beneficiary to
(a) Performance of promise means promisee can perform the promise, and the intended
pay money to beneficiary, or beneficiary may enforce the duty.
(b) Promisee intends to give the beneficiary the
benefit of the promised performance
Courts look at
1. Parties intentions
2. Language of the contract

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 DAMAGES

Damages Type Rest. 2nd 344 Doctrinal Connections

Expectation P put in as good position as if K performed Material Breach
Reliance P put in as good position as if K had not been made Promissory Estoppel
Restitution P is restored any benefit conferred on the other Unjust Enrichment
party

EXPECTATION DAMAGES
(a) Direct/General Damages
 Expected value from the K itself
 [value of services/goods expected to receive] – [value of what actually was received]
(b) Indirect/Special Damages
 Consequential: D’s performance was essential to P’s business and breach causes P to forego expected
gains or suffer some loss
 Incidental: P’s cost of coping with the breach (such as shipping costs)

MEAUSRES OF EXPECTATION DAMAGES

(a) Market Value (TBS v. McDavid)
Difference b/w Market Price and K Price
(b) Substitute Transaction (Ed Bd v. Lukaszewski)
Difference b/w Substitute and K Price
(c) Lost Profits (Hubbell Homes v. Key) – Lost Volume Seller
Difference b/w Seller’s Cost and K Price

LIMITATIONS ON RECOVERY (DEFENSES)

 Reasonable Certainty (Rancho Pescado)
o Can’t be highly speculative; similar business; buy a business form somone
 Foreseeability
 Mitigation

PUNITIVE DAMAGES –
-damages that are meant to punish a party for bad conduct
-to put others on notice
Ex: Insurance claim forcing a party to litigate instead of paying for it

LIQUIDATED DAMAGES –
 Damages put in a contract as a clause in case of nonperformance
 Most of the time the liquidated damage clause is high and the court looks at what are the actual losses
the grieving party endured

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 Seller Breach (Goods) Buyer Breach (Payment)
 Fails to deliver  Refuses to accept conforming goods
 Delivers late  Refuses to pay for conforming goods
 Delivers non-conforming/ defective goods

UCC Buyer Damages UCC Seller Damages

 2-712 Cover: Buyer may buy substitute goods in  2-709 Action for Price: Seller makes Buyer pay
“good faith and without unreasonable delay” for the goods
= (Cover Price - Contract Price)  2-706 Substitute Sale: Seller sells goods to a
+ Incidental and Consequential different buyer
– Savings = (Contract Price - Substitute Sale Price)
 2-713 Market Price: Buyer may receive difference + Incidental Damages
between market price and contract price for the – Savings
goods  2-708(1) Market Value
= (Market Price - Contract Price) = (Contract Price – Market Price)
+ Incidental and Consequential + Incidental Damages
– Savings – Savings
 2-714 Diminution in Value: Buyer may receive  2-708(2) Lost Profits / “Lost Volume Seller”
difference between value of goods accepted and =(Contract Price – Direct Cost to Seller)
value if they had been as warranted + Incidental Damages
= (Value if as Warranted/Conforming – Savings
– Value as Accepted)
+ Incidental and Consequential

Excuse of Performance-looking where someone says we can change performance

Waiver – rescind (cement truck) Estoppel – if picked up another job
• Knowing and voluntary abandonment of a right (by • Party indicates he will perform despite
words or conduct) nonfulfillment of a condition.
• If non-waiving party wants to raise waiver, then the • Can be non- deliberate/careless.
waiver must be non- material or for consideration* • Requires justifiable reliance and detriment by other
* UCC 2-209 allows modification without consideration and some courts might party.
consider waiver for goods to be a modification
• Can be used for material changes to contract

Severability:
• Payment for each house under the K is $4,000
• Actual cost to build is $3,500.
• Builder constructs 20 houses, so expects $80,000. Refuses to build final 15 houses.
Developer finds new builder to construct final 15 houses at $5,000 each, so $15,000
more than expected

Indivisible Divisible /Severable

• Builder recovers only quantum meruit for the
houses it actually built ($70,000) less Developer’s
expectation damages ($15,000)
• Builder would therefore receive $55,000
• In MA, Builder would get no restitution
• Builder paid in full for performance rendered
($80,000) less Developer’s damages ($15,000)
• Builder would therefore receive $65,000

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Infancy/Minority
 Person is under 18 years of age
 May avoid/disaffirm contracts within reasonable time
 May ratify upon reaching majority
 Possible exception if contract is for the necessary
Exceptions to Minor Incapacity
•Ratification: Minor recognizes contract after reaching age of majority. Jurisdictions differ on requirements
•Misrepresentation: Minor misrepresented a fact that other party relied on, so minor should be estopped
from disclaiming contract.
•Necessaries: Minor may bind him/herself to contracts for essential goods and services.
•Statute: state legislature says minor can enter a contract

Restitution for Minor Disaffirmance

1. If Deemed a Necessary
a. Courts may find K fully enforceable; or
b. Major party may claim reasonable value of goods and services (quasi contract)
2. If NOT a Necessary
a. Tangible good:
b. Return and restitution; or
c. Whatever benefit still retained is returned
d. Intangible service No liability

CONTRACT INTERPRETATION – depends how courts will interpret the contract

Courts must decide whether term is anbiguous. If yes, question of fact for the jury:
Plain meaning (Traditional Approach) – definition, 4 corners of the document
vs.
Contextual (Liberal Approach) – meeting of the minds, fairness, course of trade, course of dealings, course of
performance,
1. Reasonableness – what was intended by the party [reasonable person standard]
2. Construction – legal effect
***Evidentiary battles – what evidence will court bring in to interpret the contract
***Contra Proferentum – ambiguous terms construed against the party who drafted them
i. More common with adhesive contracts
Questions to Answer What term is at issue? How important was the term to the contract? Who is
responsible? Did one of the parties assume the risk?

FINDING MEANING
Interpretive Rules (Rest. 2d. 202)
 Look at circumstances, ascertain
principal purpose
 Interpret all writings together
 Use generally prevailing meaning/definition
 Look at course of performance
 Aim for consistency
Standards of Preference (Rest. 2d. 203)
 Full Effect
 Express Terms > Course of Performance >
Course of Dealing > Trade Usage
 Specific > General
 Negotiated > Standard/Form

GAP FILLERS
§ 204 UCC 2-311
Term which is reasonable in the circumstances is  Good faith…commercial reasonableness
supplied by the court  Goods (Buyer’s Option) or Shipping (Seller’s
Option)
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MISUNDERSTANDING  parties’ understanding so different, no mutual assent (VOID)

§152 MISTAKE parties’ belief about underlying facts differ (VODIABLE--RESCIND)

1. As to fact in existence at time of K
2. Central to K: major effect on benefits/burdens
3. Unfair to allocate risk to aggrieved party
Types of Mistake
1. Mutual mistake §152 – who bears the burden? Balancing test – if it were enforced the
contract it is unconscionable?
i. Both parties share mistaken belief about the fact
ii. Ask whether it is unfair to allocate risk to the aggrieved party
2. Unilateral §153– Erroneous fact is an assumption of only one of the parties, focus on
unfairness of enforcing against mistaken party with reasonable reliance by the other party,
equity arguments even more important

CHANGED CIRCUMSTANCES (Used a defense) 

a. IMPRACTIBILITY – Subjective (I can’t practically do it) v. Objective Impractibility
Force Majeure Clause – build in contract which excuses against performance
 Allocates risk of certain events regardless of foreseeability
 Excuses impacted party’s performance if listed event occurs
b. FRUSTRATION OF PURPOSE

FRUSTRATION OF PURPOSE
§265 UCC ?-???
• Not fault of party seeking relief • UCC 1-103 says common law contract claims may
• Principal purpose substantially frustrated still apply
• Non-occurrence of event was a basic assumption
• Relief available unless:
a. Language
b. Circumstances

Consider importance, responsibility and assumption of risk

Modification
Must have consideration. Can be avoided if it is induced by duress.
- Supervening difficulties exception to preexisting duty rule=Where events following the formation of
K create a difficulty not anticipated by the parties at the time of contracting, a fairly bargained
modification of the K to take account of that unforeseen difficulty is valid.

EXPRESS CONDITION PRECEDENT – Brady does not have to pay until the terms listed in the
conditions have been met

FORFEITURE – If builders are not paid, they would have done work in exchange for no payment and the
condition itself was not a material part of the exchange

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Interpretation
I. Sources
a. Interpretive Rules: look at all circumstances, ascertain principal purpose, Interpret all writings
together, use generally prevailing meaning/definition, look at course of performance (any COP accepted
is given great weight), aim for consistency R2K§202
b. Standards of Preference: an interpretation that gives a full effect; Express terms> COP> COD> Trade
Usage; Specific terms> General terms; Negotiated terms> Standard form. R2K §203
II. Written Agreements
a. Plain meaning approach: attempts to discern the usual sense of the words used in the writing, as
understood by a reasonable person. (dictionaries, his own intuitions)
b. Contextual approach: Course of dealing, usage of trade, & course of performance (forms of parol
evidence).
III. Standard K

PROMISE CONDITION
Promise made by party to other party. Condition agreed on by parties or imposed by law.

Promise creates a duty. Condition postpones a duty.

Performance of promises discharges duty Occurrence of condition activates duty.

Promise fails  breach. Condition fails  discharge (and no damages).

Ways to Consider Contract Terms

•Type: Promise, Condition, or Promissory Condition
•Nature: Express (stricter enforcement) or Implied/Construed (more flexible enforcement)
•Timing: Precedent or Contemporaneous/Concurrent

Example -----------------------------------

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