Table of Contents

Topics Page(s)

Contract basics
Type of contracts 3
Types of damages

Consideration 3-4

Intent to contract
Nominal/sufficient consideration 4-5
Unconscionability

Preexisting Duty Rule 5-6

Mutuality of obligation 6-7

Promissory Estoppel
Equitable Estoppel 7
Charitable donations

Moral obligation 8

Agreements
Mirror Image Rule
Meeting of the minds 8-9
Objective theory of agreement
Manifestation of mutual assent
Implied-In-Fact Contract

Offers 9 - 11
Auctioning

Modes of acceptance
Specified timeframe 11 - 13
Silence

Termination
Counter Offer 13 - 14
Option Contracts

Mailbox Rule 14 - 15

Counteroffer
Additional Terms 15 - 17
Form Battles

Indefinite Agreements
Incomplete Agreements 17 - 19
Gaps

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 Table of Contents

Topics Page(s)

Mistakes
Rescission 19 - 21
Reformation

Fraud
Negligent Misrepresentation 22 - 26
Nondisclosure
Duress

Unconscionability 26 - 28

Public Policy 28 - 30
Balancing Test

Parol Evidence
Statute of Frauds 30 - 32
Integration Clause
Collateral Agreement

Interpretation 32 - 33

Duty of Good Faith 33 - 34

Conditions & Warranties 34 - 35

Breach of Contract 35

Impracticability 36

Damages 36 - 38

Contracts Checklist 38 - 41

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I. Contract Basics
A contract is a product of agreements, promises, or other voluntary undertakings for the breach
of which the law gives remedy, or the performance of which the law in some way recognizes a
duty.

Types of contracts:
- Express contract: an exchange of mutually induced bargain promises, whether written or
spoken.
- Contract Implied-In-Law: quasi contract, a contract implied in law, irrespective of the parties
intentions. Requires:
1. Non gratuitous conferral of a benefit
2. Acceptance and retention of the benefit
3. Unjust enrichment not to return the benefit
- Contract Implied-In-Fact: the intention of the parties is not expressed but the agreement is
created from implied or presumed for their facts
- Unilateral Contract: a promise given in exchange for an act or forbearance
- Bilateral Contract: a promise for a promise
- Option Contract: the promise to hold the offer to sell open until the end of a time period
specified for exchange of a money
- Contracts of adhesion: standard form contracts presented on a take-it-or-leave-it basis.
Types of damages:
- Expectancy damages: ex post whole puts the party back into the position they would have
been if the promise had been formed
- Reliance damages: ex ante whole puts the party back into the position they were before the
promise
- Restitution damages: ex post whole return of the benefit conferred
Damages awarded from breach of contract
Sullivan v. OConnor: P and D have contract for better looking nose. Surgery leaves her nose
in horrible shape.
- No expectancy damage b/c it would be hard to speculate worth of promised nose.
- Reliance damages including out of pocked losses, fees, hospital expenses, and pain/
suffering P endured.
- No restitution damages b/c insufficient.
Hadley v. Baxendale: Ps crank shaft from mill stopped working and sent piece to D who
promised speedy delivery. Delivery delated, no new part, P lost profits and sued for breach of
contract.
- There is a breach of contract but P can only recover for damages arising from breach of
contract.
- D is not liable for lost profits.
II. Consideration
Consideration consists of some right, interest, profit or benefit accruing to one party and some
forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other. Only
promises enforced by consideration are enforceable contracts.

Forbearance of a right is consideration

Hamer v. Sidway: [unilateral contract] D promises P $5000 if P doesnt drink, smoke,
curse, or gamble until 21 bday later letter states once P matures. D died w/o paying $ or
interest.
- While this was in a familial/social context, Ds repetition proved seriousness.
- Refraining from action is consideration.

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Langer v. Superior Steel Corp: P was promised $100/m pension to not search for future
employment.
- Presented the issue of gratuitous gift or enforceable contract - enforceable contract
because P and D both benefitted from P not finding another job.
- Pension = past consideration and past consideration is not consideration
Implied bargain is consideration
Pennsy Supply v. American Ash Recycling Corp: P received tons of free AggRite but
AggRite created extensive cracking. P had to dispose of AggRite. D knew AggRite was bad.
- Consideration existed b/c implied bargain: D avoided disposal costs by giving
AggRite to P for free.
- Breach of contract b/c UCC 2:314 - goods must be fit for the purpose they are sold
III. Intent to contract does not make a contract
Nominal Consideration
In re Green: P was a mistress of D and paid $1 as an attempt to make contract (to pay P
$1000/m, $100,000 assigned life insurance policy, and pay rent for 4 years) enforceable.
- The promise lacked consideration b/c $1 is too nominal.
- Also recited consideration, where words can't serve as consideration where facts show
that nothing good/valuable was given at time contract was made.

The context in which the contract is made affects enforceability (Moral/Ethical)

Cohen v. Cowles Media Co.: P told reporters that he would provide them with information.
D promised anonymity. When the information was published P was not kept anonymous.
- The court finds the promise for anonymity to be social/ethical. Since it was not legal it
was not enforceable.
- Court later goes on to find that Cohen can sue for promissory estoppel.
Sufficient Consideration
Thomas v. Thomas: P is given a house by her husband in his will. D tries to evict her from the
house.
- There is sufficient consideration b/c the wife was maintaining the property and was
providing a pound yearly both of which constitute consideration. Contract was in terms
of an express agreement and shows sufficient legal consideration.
- The promise may have been gratuitous but a bargain still took place creating an
enforceable contract.
- Restatement 2nd 81(2): the fact that a promise does not of itself induce (it doesnt
have to be an only cause - you could intent a gift but in part want something if part
gift, part bargain) a performance or a return promise does not prevent performance or
return promise from being consideration from the promise.

Adequate v. Sufficient Consideration

Browning v. Johnson: P got into a contract with D to sell his practice. P changed his mind
and promised to pay $40,000 to not enforce the original contract. P regretted this and sued D.
- The original contract was not valid but both parties believed the second contract was
valid allowing the second contract to be enforceable. In addition, the $40,000 and
Johnson giving up the contract is sufficient consideration.
- A unilateral exchange b/c a promise is made for an act/forbearance. Johnson gave up the
original contract for $40,000.
- The requirement of sufficient consideration to support a promise is met by a detriment
incurred by promisee or a benefit received by promisor at request of promisor

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 - 74(1) (settlements of claims): forbearance to assert of the surrender of a claim or
defense, which proves to be invalid is not consideration unless:
a. claim or defense is doubtful b/c of uncertainty as to the facts or the law
b. The forbearing or surrendering party believes claim/defense may be fairly
determined to be valid

Sufficient consideration if there is value

Apfel v. Prudential-Bache Securities Inc: P sold service of book entries to D, claiming it
was novel. D refused to continue making payments.
- The service provided to D was of value so therefore there was consideration.
- Novelty is not required for ideas to serve as consideration. Lack of novelty is not lack
of value.

Unconscionability
Jones v. Star Credit Corp.: P brought a refrigerator from D for triple the price of what it was
worth.
- Since a good is being sold here, the UCC is triggered. UCC states that if the court finds
the contract unconscionable then the bargain can be limited.
- Three part test for unconscionability:
- Gross inequality of bargaining
- Substantive: inequality in the actual substance for the bargain (paying too much)
- Procedural: flaw in the process of the contract (fine print, language)
- UCC 2:302 if the court, as matter of law, finds the contract or any clause of the contract
to have been made unconscionable at the time it was made, the court may refuse to
enforce contract, or may enforce the remainder of the contract without conscionable
clause, or may limit application of any unconscionable clause as to avoid any
unconscionable results (is it unconscionable as a matter of law?) AND when it is
claimed/appears to court that the contract be unconscionable, parties shall be afforded a
reasonable opportunity to present evidence as to its commercial setting, purposes, and
effect to aid court in making determination (party that benefits from the cause has
to prove that it was reasonable)

IV. Preexisting Duty Rule

Restatement 2d 73 - performance of legal duty owed to promisor, which is neither doubtful
nor subject of dispute, is not consideration; but a similar performance is consideration if it
differs from what was required by the duty in a way which reflects more than a pretense of
bargain (the same performance is not consideration, need new consideration in
order to enforce a modified contract).

Modification does not occur without new consideration, unless there are unforeseen
circumstances
Levine v. Blumenthal: P leased store to D. D paid less rent because of economic problems. P
sued for remaining rent.
- There is no new consideration so there can be no modified contract (paying a lesser sum
in place of a larger sum is not consideration).

Alaska Packers Association v. Domenico: D and P entered into written agreement where
Ps fail to Alaska for fishing season and perform ship work. A month later, Ps stop working and
demand $100 for season. D said he had no authority but due to time constraints, location, and
no extra workers, he promised increase wage.
- No sufficient consideration because there is no consideration for modification. Under
preexisting duty rule, they already agreed to provide service. Nothing new is being
bargained for.
- An existing contract cant be modified under coercion and duress.

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Angel v. Murray: D provided city w/ trash collection services which provided that D would
receive $137,000/annually but he requested and got $100,000 more annually for the increased
# of houses. P claims D was overpaid.
- If 4 criteria in Restatement 2d. 89 are met, there is no need for consideration for
modification.
1. There must be agreement P and D agreed
2. Promise modifying original contract was made before contract was fully
performed on either side D did not collect all the trash before asking for raise
3. The underlying circumstances which promoted the modification were
unanticipated by both parties Neither party foresaw the increase of houses
4. The modification is clear and equitable D only asked for 50% of the fee
- UCC 2:209(1): an agreement modifying a contract needs no consideration to be
binding but must meet good faith imposed by the act:
- The test of good faith includes observance of reasonable commercial standards
of fair dealing in the trade and may require an objectively demonstrable reason
for seeking modification.

V. Mutuality of Obligation
Rule for mutuality: In construing a contract where consideration on one side is an offer or
agreement to sell, and on the other side an offer or agreement to buy, the obligation of the
parties to sell and buy must be mutual, to render the contract binding on either party, or if one
of the parties (not having suffered previous detriment) can escape future liability under the
contract, the party may be said to have a free way out and the contract lacks mutuality.

Each party should be able to sue other party for obligation

Rehm-Zeiher v. Walker: D and P entered contract where P bought a number of cases of
whiskey. If for an unforeseen reason P cant use full amount of whisky, D will release P from
contract for the amount desired by P.
- Contract was not valid because it was lacking mutuality. It was lacking mutuality
because contract wasnt binding on the wholesaler and wasnt enforceable by the
distiller.
- UCC 2:306: output or requirements means such actual output or requirements as
may occur in good faith, expect that no quantity reasonably disproportionate may
be tendered or demanded (unreasonably disproportionate quantity being demanded)
- Unilateral contracts lack mutuality of obligation no contract for promise of an act
until an act has been completed
- Only one party is under obligation, not bargaining for promises but rather
bargaining for an act,
- Bilateral contract has mutuality of performance
McMichael v. Price: P and D enter into contract where P agrees to buy all the sand he can sell
but D refuses to sell to P and P sues for breach of contract.
- Rule of mutuality applies, even when obligations of P and D differ
- P was bound by solemn covenant of the contract to purchase all the sand he was
able to sell from D and for breach of such a covenant could have been made to
respond in damages. Parties had mutual intent.

Wood v. Lucy Lady Duff-Gordon: D hired P to market her products. Under their contract,
P would have 1/2 of all profits. D broke contract b/c she placed endorsements without him and
didnt give him profits.
- Promise can be implied by judging the language, parties, context, and policy.
- Illusory promises lack mutuality of obligation

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Omni Group Inc v. Seattle First National Bank: D hired brokers who offered Ds
property to P. P wanted to have a feasibility report for the property. D refused to go through with
the sale. P sued.
- The satisfaction clause is a condition precedent to performance.
- A satisfaction clause does not mean that there is no mutuality; the feasibility report is
allowed to ensure the good is satisfactory.
- Restatement 2d 228: when it is a condition of an obligors duty that he be satisfied
with respect to the obligees performance or with respect to something elsean
interpretation is preferred under which the condition occurs if such a reasonable
person in the position of the obligor would be satisfied.

VI.Promissory Estoppel
Restatement 90: a) a promise which the promisor should reasonably expect to induce action
or forbearance on the part of the promisee or a third person and which does induce such action
or forbearance is binding if injustice can be avoided only by enforcement of the promise. The
remedy granted for breach may limited as justice requires b) a charitable subscription or a
marriage settlement is binding under Subsection (1) without proof that the promise induced
action or forbearance
Applies only when there is no consideration for a contract
Requires a reliance detriment (of relying on the promise leads to a detriment then one
can sue)
Restatement 139: Criteria for determining whether injustice can be avoided only by
enforcement of the promise: a) availability of other remedies b) definite and substantial
character of the action or forbearance c) the extent to which the action or forbearance
corroborates evidence of the making and terms of promise d) the reasonableness of the action or
forbearance e) the extent to which the action or forbearance was foreseeable

Promissory Estoppel v. Equitable Estoppel: Promissory is about a future promise.

Equitable is based on a past or existing fact.

- Equitable estoppel aims to preclude a person from asserting a right when, by deliberate words
or conduct, he or she has misled the other party into justifiable belief that the right does not
exist or would not be asserted.
- Generally only bars relief when the party asserting the rights deliberately engaged in the
misleading behavior with knowledge or reason to know it could be misleading and could
induce reliance by the other. The other must have relied on the facts in a way that would
result in some loss is the claimant is permitted to assert the right.

If the promise induced action or forbearance, promissory estoppel will be enforced to avoid
injustice
Ricketts v. Scothorn: P received a note from her grandfather for $2,000 which implied that
she did not have to work anymore. P quit her job. P sues D for the money.
- There is no contract because there is no consideration.
- Relying on the promise resulted in equitable estoppel. The promise forced the plaintiff to
quit her job on the faith of the payment (Restatement 90 applied).

Charitable donations are sufficient consideration when the conditions of the promise are met
Allegheny College v. National Chatauqua County Bank of Jamestown: D promised
to pay P $5,000 after her death if there is a memorial fund in her name. D refuted the promise.
P sued.
- Johnson requesting her name to be part of the fund is sufficient consideration according
to Cardozo.

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If there is no detriment or reliance, an oral promise to donate money is not enforceable
Congregation Kadimah Toras-Moshe v. DeLeo: D made an oral promise to donate
$2,500 to P. P planned to use money to create a library. D does not pay after his death. P sues.
- Allocating money to renovate a storage room into a library does not create reliance or
detriment.
- Since the promise was not in writing, Restatement Subsection (b) of Restatement 90 is
not triggered.

VII. Moral Obligation

Moral Obligation must meet three criteria: a) original obligation b) barred by law c) reviving
past obligation by a subsequent promise
It is a doctrine that permits enforcement of a promise without present consideration where the
promise is made in recognition of a substantial benefit previously conferred on the promisor
by the promisee, and enforcement is needed to prevent injustice.

If there is no express acknowledgement of a debtors old debts which are barred by a statue of
limitations, the promise to pay debts is not renewed
First Hawaiian Bank v. Zuckerkorn: P had two old debts that were barred by the statue of
limitations. D went to P to apply for a credit card in which he promised to make payments on an
old account. D sued P for not paying the two old debts.
- Since there was no express promise, acknowledgment of the debts, or part payment of
the debts, the two old debts barred by statue of limitations were not renewed.
- Moral obligation is not imposed when there is no express promise to pay.
Moral obligation is insufficient consideration for a promise without a preexisting obligation
Daniel Mills v. Seth Wyman: Ds son fell ill. P boarded, nursed, and cared for son for 15
days without being asked to do so, in which D claimed he will pay for expenses. D later refused
to pay.
- There was no original obligation because Ds son was an adult (stranger by law)
- No enforceable promise, services were given before Ds promise (past consideration)
benefit provided to third party so no consideration
- Ps act was purely gratuitous
- Moral obligation is a sufficient consideration to support express promise there must
be some preexisting obligation, which has become inoperative by positive law to form a
basis for effective promise.

Moral obligation is sufficient consideration to support a subsequent promise to pay where the
promisor received a material benefit
Joe Webb v. N. Floyd & Joseph F. McGowin: P fell to the ground with a block and
sustained injuries (became crippled) in order to save D. D agreed to maintain and care for P for
the rest of his life and pay $15/biweekly for the rest of Ps life. After D died, no more payments.
- Not a gratuitous service material benefit that party was expected to receive
compensation for > not a contract but a contract implied in law.
- Quasi-Contractual Obligation/Unjust enrichment (must include):
- Non gratuitous conferral of a benefit: not a gratuitous service
- Acceptance & retention of a benefit: D paid $15/biweekly
- Unjust enrichment if benefit is not returned: D was grateful for Ps action.
VII. Agreements
- Agreements are consensus on the same page. The common law rule establishes the mirror
image rule which states that both parties must mirror each others intentions. The mirror
rule doesn't apply to the sale of goods b/c of U.C.C. 2:204
- To constitute a contract, there must be a meeting of the minds of the parties, and both
must agree to the same thing in the same sense.

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 - The parties in the contract must possess a mutuality of assent as manifested by the terms
in the contract and there can be no hidden intent.

A promisor may be bound to perform for something he did not intend to promise
Embry v. Hardadine, McKittrick Dry Goods Co.: Ps contract was expiring and when he
finally met with D, he demanded unless he had another contract for the year, he would quit. D
says go ahead, you're all right; get your men out and don't let that worry you w/ this
statement, P thought contract was renewed until he was fired and D denied statement, claiming
he didn't intend to renew contract.
- If P thought he was re-employed then a contract was made.
- Reasonable person test: what would a reasonable person take this to mean?
Objective theory of agreement: a contract has nothing to do w/ personal or individual
intent of parties. A contract is an obligation attached by mere force of law to certain acts of the
parties, usually words, which ordinarily accompany and represent a known intent.
- objective meaning is the meaning that reasonable person would attach to them in those
circumstances.

Hidden intentions do not create a contract if the words and actions are seen by a reasonable
person as creating a contract
W.O. Lucy v. A.H. Zehmer: P offered D $50,000 cash for farm and D wrote up agreement
(multiple times) to sell farm. P attempted to give D $5 to bind contract but D refused. D claimed
offer was a joke and he had no intention to sell the farm.
- Look to the outward expression of a person as manifesting his intention rather than to
his secret and unexpressed intention (reasonable person test)
- The law imputes a person an intention corresponding to the reasonable meaning of his
words and acts mutual assent of parties is not requisite for formation of a contract.

There is no manifestation of mutual assent if the parties attach materially different meanings to
their manifestations and neither party knows the meaning attached by the other
Raffles v. Wichelhaus: Under contract between P and D, cotton was to arrive from Bombay
on a ship called Peerless. D refused to pay or accept goods because D wanted cotton from
different ship called Peerless. No contract because cant rely on ambiguous promise. No
consensus ad idem.
- Peerless Rule: there is no manifestation of mutual assent to an exchange if the parties
attach materially different meanings to their manifestations and (a) neither party
knows/has reason to know the meaning attached by the other; or (b) each party knows or
each party has reason to know the meaning attached by the other.
- 2nd Restatement 20 of CISG
An implied-in-fact contract is created when the intention to enter a contract is not manifested in
explicit words but is gathered by implications from the conduct/language used. One accepts a
benefit from another for which compensation is customarily expected
Wrench, LLC v. Taco Bell Corp.: P promoted Psycho Chihuahua at a licensing trade show
where D saw the chihuahua and wanted to use it as company icon for Taco Bell. D used Psycho
Chihuahua in advertisement w/o consulting P and P claimed breach of implied-in-fact contract.
- Restatement 69: Where an offeree fails to reply to an offer, his silence and inaction
operate as an acceptance where an offeree takes the benefit of offered services with
reasonable opportunity to reject them and reason to know that they were offered with
the expectation of getting compensation

VIII. Offers
R 24: An 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.

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- Offer may propose an executed sale rather than a contract or it may propose the exchange of a
promise for a performance or an exchange of promises.
- A proposal of a gift is not an offer.
- Offer creates the power of acceptance and the acceptance has to mirror the offer.
- Offers only become binding upon acceptance. To become binding, the acceptance has to be
communicated.

In order for there to be an offer, must judge based on 1) language used, 2) limited class of
parties, and/or 3) definiteness of proposal itself
1. Language used: if no words of promise or commitment, tendency is to construe the
expression to be an invitation for an offer
2. Limited class of parties: is it offered to a bunch of people or just specific people?
3. Definiteness of proposal: the more definite the proposal, the more reasonable it is to
treat the proposal as involving a commitment

Joseph Lonergan v. Albert Scolnick: D places ad in paper in which P takes interest in. D
says P should act fast as he has another buyer and sends a form letter. P responds in over a week
accepting offer but D sells to 3rd party. P sues for land.
- Advertisements arent offers b/c they are too general and generate the MAP
- Restatement 25 - language used by D made it clear that his letters didn't intent an
expression of fixed purpose to make a definite offer & was sufficient to advise P that
further expression was necessary

J.W. Southworth v. Joseph Oliver: P inquired about land D was selling. D sent P, and two
other neighbors, a letter regarding the land. P accepts offer but D mailed letter back claiming P
has misconstrued negotiations and letter was not made to be a firm offer.
- An offer because: 1) language used in offer included definite terms - reasonable person in
position of P would have believed that D were making an offer to sell 2) offered to a
limited class, and 3) there was definiteness of proposal
- Contract includes not only what parties said but also what is necessarily to be implied
from what they said

Morris Lefkowitz v. Great Minneapolis Surplus Store: D advertised fur coat for $1 1st
come first serve. P comes with $1 and D says coats are only for women. 2nd ad is for stole for $1
but D says P knows the house rule. D claims this is unilateral offer and can be withdrawn w/o
notice.
- 1st advertisement isn't offer b/c its insufficiently definite doesn't satisfy definiteness of
proposal - 2nd advertisement is an unilateral offer
- No MAP b/c 1st come 1st serve > only 1 person can get offer
- Restatement 27
John Leonard v. Pepsico, Inc.: D released commercial advertising 7,000,000 Pepsi points
for harrier jet. P sought out to obtain jet & sent in $700,008.50 w/ order form (but order form
was missing jet). D rejected submission and said jet is not part of commercial and is humorous.
- MAP applies
- Satisfies limited class b/c 1) you have to see ad, 2) have to be a Pepsi drinker, and 3) you
have to be willing to spend $700,000+ on Pepsi. But, doesnt satisfy definiteness b/c
insufficient detail.
- No objective/reasonable person could reasonably have concluded that commercial
actually offered consumers a jet.
- Solicitation of an offer and not an offer.
- Restatement 26

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Carlil v. Carbolic Smoke Ball Co.: D placed an advertisement in the paper which stated
that a reward would be given to anyone who used the product as instructed and still contracts
the flu. P used the product, got the flu, and asked for the reward. D refused.
- The advertisement was to a limited class (only those who were willing to buy the ball,
use as directed, and contract the flu), definite (instructions were clear), and there was
language of commitment (through the $1,000 reward). This shows that the
advertisement was an offer.
- The performance of the condition is sufficient acceptance without the notification of it,
and a person who makes an offer as an advertisement of this kid makes an offer which
must be read by the light of that common sense reflection.
- Restatement 23
Auctioning:
- Restatement 28(3)
- UCC 2:328(3)
- Collateral contract: promise which is enforceable to the side of the main contract the
consideration for which is entry into the main contract (promise to hold auction w/o reserve
which is acceptance for making the highest bid)
- Promissory Estoppel (Reliance/Detriment): by relying on reserve of auction, you're doing
something you don't have to do by showing up and bidding detrimental reliance b/c you
don't have to show up at the action and you rely on the promise
- Auctioneer is estopped from denying the truth of their promise
IX.Modes of Acceptance
Meeting of the minds requires objective manifestation
L.R. Bretz v. Portland General Electric Co.: P makes an offer and D makes revised offers.
The last counteroffer made by D says that have another offer but would be receptive to an offer
of $2,750,000. P says he accepts
- The letter sent by D was a solicitation of an offer as can be seen by the wording
- There is also no promissory estoppel because P did not rely on the promise
Specified terms of acceptance must be followed in order for acceptance to occur
La Salle National Bank v. Vega: The attached rider in the contract between D and P
stipulated that the document was to be signed by both parties and by the trust. The trustee did
not sign the contract.
- The document called a contract is a solicitation for an offer, when P signs it becomes an
offer, and when trustee signs it becomes a contract. Since the trustee signs there is no
acceptance therefore no contract.

An offer can be revoked at anytime prior to notification of acceptance to offeror

Hendricks v. Beehee: D makes an offer to buy land. P signs agreement but D calls Ps agent
and withdraws the offer before he is notified that D has accepted.
- Since the offer was withdrawn before there was notification of acceptance there is no
contract.
- Restatement 56
If the seller notifies the buyer that a shipment is not an offer and is an accommodation then
there is no acceptance
Corinthian Pharmaceutical v. Lederle: P obtained knowledge of Ds price hike in vials. P
ordered in bulk 1000 vials through an automated system which gave confirmation of order at
lower price. D shipped 50 vials at old price as an accommodation with a letter stating they would
ship the rest of the vials at a new price if the order was not withdrawn.
- The automated confirmation was not acceptance.

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 - Since D was specific that the 50 vials were an accommodation this means there was no
acceptance under UCC 2:206 (b)
- UCC 2:206 (b) an order or other offer to buy goods for prompt or current shipment shall
be construed as inviting acceptance either by a prompt promise to ship or by the prompt
or current shipment of conforming or non-conforming goods, but such a shipment of
non-conforming goods does not constitute an acceptance if the seller
seasonably notifies the buyer that the shipment is offered only as an
accommodation to the buyer.

If you know of the offer and perform the act, then that is enough to constitute acceptance
Industrial America Inc. v. Fulton Industries Inc.: P on behalf of Bush Hog is employed
to find and broker a merger. After a few unsuccessful attempts, P finds an offer by D for a
merger and payment of Ps services. P brings together Bush Hog and D but is left out of
negotiations after that. D refuses to pay.
- Since P knew of the offer and performed the act of bringing Bush-Hog to D, that
constituted as acceptance and the contract is fulfilled. Motive does not matter.
- Restatement 2 53 if performance is stipulated as acceptance, performance is
acceptance in the absence of a manifestation of contrary intent (the other party must
prove that you specifically did not want to accept).

You have to know of the offer at the time of performance for it to be acceptance
Glover v. Jewish War Veterans: D offered reward for anyone who provides information
leading to arrest and conviction of a murderer. P when questioned by police provides
information without any knowledge of the offer. P finds out about the reward and tries to collect.
- Rewards by private entities require the claimant when giving the information to know
of offer. In cases involving public entities the courts are likely to enforce the reward
even if the claimant does not know of the offer because of public policy.
- P manifested contrary intent (Restatement 2 53) because she did not give the
information voluntarily so it was gratuitous.

A reasonable timeframe for acceptance will be applied for contracts with no timeframe specified
Ever-Tite Roofing Corp. v. G.T. Greene: D executed instrument to obtain services of P.
Contract shall be binding upon only written acceptance or upon commencing performance of
work. P proceeded to Ds residence but at residence, others working on what P was contracted to
do. D never notified P of renovation of offer.
- The withdraw of the bi-lateral contract was not sufficient nor timely.
- If the commencement of the work precedes the withdrawal of the offer, then there is a
contract. Commencement was constituted one P loaded up the truck. The moment P sees
others working on the roof, the offer has been withdrawn.
- Commencement of performance is doing something towards the performance of the
act that signals manifestation of intent
- Cant withdraw offer once commencing
- General Rule: an offer proposed may be withdrawn before its acceptance and that no
obligation is incurred thereby
1. The power to create a contract by acceptance of an offer terminates at the time
specified in the offer, or if no time specified of a reasonable time
- Restatement 62
- Reasonable time? Depends on the nature of a contract proposed, the usages of business
and other circumstances of case which offeree at the time of his acceptance either knows
or has reason to know.
- Restatement 45: if a promise requests an act by way of consideration, tendering a
beginning of performance makes the offer firm.
- UCC 2:206(2)

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Silence is not a reasonable form of acceptance because it is unconscionable.
Exception (R69(a)): When party takes benefit of services, silence can be considered
acceptance.

Theodore Russell v. Texas Co.: P and D had contract to buy Ds land. P sent revocable
license so D can continue using land in which it stated that Ds continued use of land =
acceptance of offer. D didnt intent to accept but didnt tell P & continued using land.
- Restatement 69, 72
- To say D didn't accept would say that they committed a tort.
Silence can constitute as acceptance when previous dealings between parties establish that
notification of acceptance is not necessary for acceptance
R.L. Ammons v. Wilson & Co.: P and D had previous business relationship. P placed orders
and D would accept/ship order within week w/o notification. Ds salesman took order from P
and P received no response until 12 days letter where P was informed D rejected order.
- Restatement 69(c): Where because of previous dealings or otherwise, it is reasonable that
the offeree should notify the offeror if he does not intend to accept.
- UCC 1:303(b): A course of dealing fairly to be regarded as establishing a common basis of
understanding for interpreting their expressions and other conduct

Where the offeror has stated that assent may be manifested by silence or inaction causing the
offeree to remain silent and inactive, there is acceptance
Beneficial National Bank, U.S.A. v. Payton: D signed a credit card agreement with P. The
credit card agreement stated that D could change or amend the terms of agreement at any point
unless D notified the bank of its objections within 30 days. D did not and P added an arbitration
clause.
- This was not an illusory promise because there was a rejection and notification clause
within the agreement. These clauses were part of the original agreement that D signed.
- The agreement written by P was simple, unambiguous, and without limitation in regards
to changing and amending terms.
- Restatement 2d 69 (b) Where the offeror has stated or given the offeree reason to
understand that assent may be manifested by silence or inaction, and the offeree in
remaining silent and inactive intends to accept the offer.

X. Termination, Counter Offers, and Option Contracts

Option contract: a promise to keep an offer open for a stated period of time.
- By granting a valid option, offeror makes binding commitment not to revoke the offer for a
specified period of time (if consideration is given)

An offer can be withdrawn when the offeree is notified through a reliable third party of the
offerors intent not to contract
Dickinson v. Dodds: D gives a written offer to P to sell property which is open to acceptance
until June 12th. On June 11th, P discovers through a third party (Ps agent) that P is offering to
sell to someone else. P makes multiple attempts to accept before the deadline but D informs that
he sold the property.
- There is no meeting of minds, P receives information from a reliable third party that D
had the intention of withdrawing.
- The promise to extend the offer had no consideration so it can be withdraw prior to
acceptance.
- Restatement 2d 43: An offerees power of acceptance is terminated when the offeror
takes definite action inconsistent with intention to enter the proposed contract and the
offeree acquires reliable information to that effect.

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The power of acceptance under an option contract is not terminated by rejection or counteroffer
Humble Oil v. Westside Investment: D pays for an irrevocable option to buy property and
then writes a letter to renegotiate the terms. D gets no response so he sends a second letter
asking P to ignore the first letter and says he accepts the offer. P argues that the first letter is
rejection of option.
- An option contract exists because a) time of exercise b) consideration and c) method of
exercise were all met.
- An option cannot be destroyed, it makes the offer irrevocable.
- You have purchased the right to continue bargaining which allows you to negotiate
terms.
- Option contract restricts the offeror from withdrawing offer or offering to someone else.
Tendering a beginning of performance when performance is bargained for (unilateral contract)
makes an offer firm (Restatement 45)
Marchiondo v. Scheck: D offered to sell real estate to a specified buyer and agreed to pay P
sales commission. Offer had a six day time limit for acceptance. D revokes the offer on the sixth
day just prior to the buyer accepting offer. P sues for commission.
- Once P began the work of finding a buyer the six day offer became firm and could not be
revoked. What constitutes beginning of performance will vary case by case.
- Any action that is referable to the offer is considered tendering a beginning of
performance.
- Once you have done something to your detriment in reliance upon the offer then the
offer becomes firm.

When the wording of the contract prevents acceptance till a bid is awarded then it can be
withdrawn before the awarding of the bid
James Baird Co. v. Gimbel Brothers, Inc: D makes an offer to P and others of a bid that
contains mistakes. D calls P to inform of error but P had already submitted the bid. P is awarded
the bid two days later. D refuses to perform.
- There is an offer (based on its wording) that cant be accepted until awarding of the
contract. Since it cant be accepted until then it can still be withdrawn before the
awarding of the contract.
- This is a unilateral offer. It is not a promise until the bid is awarded so you cannot have
promissory estoppel.

Reliance by a general contractor on a subcontractor's bid makes the subcontractors offer firm
once submitted by the general contractor
William Drennan v. Star Paving Co.: D makes bid over the phone to P for $7,000 but
realizes there is an error. The contract is awarded to P before notification of error. D refuses to
do work and D finds someone else. D sues P for the difference.
- Reliance on Ps bid by D makes the offer firm. D is bound to the contract but P is not. P
does not have to use Ps bid.

XI. Mailbox Rule

Mailbox Rule: An acceptance is valid from the time of mailing a letter containing language of a
contract. Contract is completed by acceptance of the letter. Even if letter is never received,
acceptance is still binding
Adams v. Lindsell: D was selling weather fleeces and asked for answer in course of post.
Letter was misdirected and wasnt delivered until September 5. P agreed and D didnt receive
answer until September 9 (because it was misdirected). Since D didn't receive answer September
7, they sold the wool September 8.
- Restatement 63
- Sub-Rules:
- It must be reasonable to use the mail as a form of acceptance

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 - Any indication in offer that acceptance must be received negates the mailbox rule
- Acceptance has to be valid (if letter is misdirected or if it doesn't mirror the offer, then
it is not a valid acceptance)
- Offeree must choose to accept by mail (an initial rejection negates mailbox rule even
though not received you can't speculate on the fiction of receipt) [if offeree sends
letter of rejection & before it arrives decides they will accept, the letter of acceptance
mailed after the letter of rejection is effective upon receipt]
- If the rule applies, it applies strictly
- Rule will not be applied if it leads to absurdity
- Rule applies to fax, telegrams, and electronic wire transfers but not to emails
- Rule does not apply to acceptance of option contracts (acceptance letters of option
contracts are only effective upon receipt)
- If offeree rejects by a quicker means and offeror relies on the rejection, the offeree is
estopped from instating on their strict legal rights
- Mailbox rule applies to only acceptances and not rejections

XII. Counteroffers, Form Battles, UCC 2-207

An acceptance of an offer, which does not assent to the offer as made, is a rejection by the
offeree and a counteroffer to the offeror, who then acquires the right to accept or reject the
counteroffer
Minneapolis & St. Louis Railway v. Columbus Rolling-Mill Co.: P asked D to quote
prices for 500-4000 tons of steel rails, D gave price for 2000 to 5000 tons of steel rails. P
entered order for different number of rails, & D claimed they can't book order. D denied
existence of any contract between parties
- An offer to sell imposes no obligation until its accepted according to its terms so if
offer isn't accepted or rejected, negotiation remains open & theres no obligation on
either party.
- Rejection of an offer = no offer. Counteroffer = no offer (Restatement 59, 39(2), 61)
- For a valid bargain contract, there must be an offer w/ an acceptance expressing
unconditional assent to the terms of the offer.
- Case is prior UCC so its covered by the mirror image rule.
Last shot theory: the last set of terms sent govern the goods privileges the stronger party.

Terms that materially alter the contract must be assented to by the other party otherwise they
are struck out
DTE Energy Technologies Inc. v. Briggs: P sends D a purchase order (an offer which
contained price, quantity, and delivery terms); D sent an email confirming the offer (indication
of assent with no additional terms added); P sent an order acknowledgement with a Standard
Terms and Conditions of Sale (containing a forum-selection clause). D stated the purchase order
was an offer and P stated the order acknowledgement with standard terms was an offer.
- Purchase order was the offer (UCC 2:206: offer invites acceptance in any manner
reasonable in the circumstances), the email was the acceptance, and the order
acknowledgement with the standard terms are proposals for additional terms to the
contract (UCC 2:207)
- Since there are two merchants involved and there is a sale of goods then UCC 2:207
(b) applies
- The additional terms become part of the contract unless they materially alter the
contract which a forum-selection clause does. The terms that materially alter the
contract are struck out unless the other party has assented to them.

To consent to material additional terms there must be express assent

Textile Unlimited v. A..BMH and Company: D brought yarn from P 38 times. Each time,
D would send a purchase order and P would respond with an order acknowledgment containing
additional terms that arbitration would occur in Georgia (P thought this was acceptance but the

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court found this to be a counter offer). These terms gave D 24 hours to respond otherwise
silence was acceptance.
- Silence can not be acceptance because the time period is short to constitute timely
notice and UCC 2:207(1) requires specific and unequivocal assent to the
supplemental terms.
- Since there was no express assent, the knock-out clause in UCC 2:207(3) applies and
subsequent conduct creates a contract
- The terms of the contract are supplied by the UCC when the parties do not agree
on terms of the contract (the arbitration clause in this case was knocked out).

Terms sent in a box with a product that state they govern the sale are binding on a buyer who
doesn't return within the specified time period
Rich Hill v. Gateway 2000: P buyers computer over phone & box arrives containing
computer & list of terms, which contained arbitration clause. P kept computer past 30 days &
complained about computers performance, then claims he didn't rad the terms close enough to
discover arbitration clause.
- By keeping computer past 30 days, P accepted Ds offer of the terms (including
arbitration clause).
- Judge says bound to anything you could have read, purchaser could reasonably expect
there to be terms (ads said there were terms w/ the goods)
- A vendor, as a master of the offer, may invite acceptance by conduct & may propose
limitations on the kind of conduct that constitutes acceptance.

- Shrink wrap - Anything you were notified of on the shrink wrap was made
available to you (or what was on the box) sufficient notification (Gateway
Cases)
- Click wrap - Refers to electronic agreement in which a user indicates
agreement to terms by clicking on a button, checking a box, etc., usually as a
condition of using a device or piece of software. Anything read before
clicking you are agreeing to. (Specht v. Netscape)
- Browser Wrap Terms of use, often found via a link on the bottom of websites
main page, that purport to bind a user solely by virtue of his or her
continued use of the site. In a browse-wrap agreement, the terms and
conditions of use for a website or other downloadable product are posted on
the website, typically as a hyperlink at the bottom of the screen. (Cairo v.
Crossmedia)

Additional/different terms contained in the standard terms is not part of the agreement unless
the buyer expressly agrees to them
William Klocek v. Gateway: D includes standard terms w/ computer accessories, which
states keeping the computer past 5 days means you accept the terms and that any dispute should
be settled by arbitration.
- Terms shipped don't become part of sales contract where vendor doesn't expressly
make its acceptance conditional on buyers assent to the additional terms and where
the buyer doesnt expressly agree to the terms.
- If good is wrapped, messages on the wrapper than notify of the terms put purchaser
on notice inquiry.

If a reasonably prudent user would not have been aware of the terms/agreement, the party will
not bound by them (the terms need to be reasonably communicated which requires a case by
case analysis)
Specht v. Netscape Communications: P downloads Ds free software. The first software
downloaded was click wrap (there is agreement to the terms by clicking on a button). The

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second software was browser wrap (terms are found by clicking on a link) which were found past
the download button. No other notice of terms was presented.
- A reasonably prudent user would not have been notified of the terms. There needs to
be reasonably conspicuous notice of the existence of terms

A user will be bound by the terms of a website if the user repeatedly and automatically accesses
the site
Cairo, Inc. v. Crossmedia Services, Inc.: Ds website displays then you continue past
page, person agrees to abide by their terms (including forum selection clause). Ps program
bypassed the terms of use when regularly visiting Ds website. D discovered P was copying
materials on Ps website, claiming breach of terms of use.
- standard contract doctrine: when a benefit is offered subject to stated conditions, and
the offeree makes a decision to make the benefit w/ knowledge of the terms of the
offer, the taking constitutes acceptance of the terms, which accordingly become
binding on the offeree.
- A click is enough to signify agreement (clickwrap)
XIII. Indefinite Agreements, Incomplete Agreements, & Gaps
Restatement 33*

In order for a contract to be enforceable, the promise or the agreement of the parties must be
sufficiently certain and explicit so that their full intentions can be ascertained
Varney v. Ditmars: D promised P a bright future, claiming he will give P fair share of
profits (oral promise). P fell ill & was fired later b/c he didn't show up to work while ill. D
denied the (oral) agreement & didn't let P continue services.
- Statement made by D about giving fair share is vague, indefinite, & uncertain
amount can't be computed.
- The minds of the parties never met upon any particular share of the Ds profits to be
given to employees or upon any plan by which such share can be computed or
determined.
- Unjust enrichment not to provide restitution - employer gained benefit > possibility
of restitution. Employer wouldn't leave employer w/o remedy.
- For the validity of a contract, the promise, or the agreement, of the parties to it must
be certain and explicit and that their full intention may be ascertained to a reasonable
degree of certainty. Their agreement must be nether vague nor indefinite and if thus
defective parol proof can't be resorted to.

If the original agreement manifests intent to be bound over time, then the court should be
flexible in respect to applying new terms & in respect to integrating the agreement to try and
facilitate the relationship. When necessary, they should imply what is needed for the
relationship to work.
Oglebay Norton Company v. Armco, Inc.: P and D enter into contract where D is
required to have adequate shipping capacity for P to utilize if P wishes to transport iron ore.
Contract included primary and secondary price rate in which P agrees to pay regular net
contract rates as recognized by leading ore shippers. If no such regular rate, parties shall
mutually agree on rate. P and D couldn't agree on price rate & P filed claim seeking declaration
that contracts weren't enforceable.
- Parties intended to be bound despite the failure of pricing mechanisms > Armcos
right to require dedication of Oglebays bulk vessels to Armcos services in the essence
of the agreement. Parties agreed that there should be specific performance.
- Although UCC isn't applicable, UCC 2-305, 2-204 is persuasive.
- Specific performance R 362
- Neither real nor apparent intention that a promise be legally binding is essential for
the formation of a contract.

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 - If agreement is incomplete but parties intend to contract, give the parties what they
would have contracted for if they had expressly contracted.

In order to establish a contract implied-in-fact, there must be comparable terms for the court to
rely on
Robert Blinn v. Beatrice Community Hospital & Health Center, Inc.: In 2002, P
received job at Kansas Hospital, where he would've had more responsibility and make more
money than his current job. P visited administrator of current job to hand him resignation letter
but D said he doesn't want him to leave & had 5 more years of work to do. In 2003, P was asked
to resign and employment was terminated. Meant to be a unilateral contract.
- Contract is too vague & promise isn't significant of intent to contract but its something
a reasonable person would rely upon > promissory estoppel
- However, at-will employment contract & since P can be fired, theres no contract
implied-in-fact. [Embry & McKittrick]
- Language which forms the basis of an alleged employment contract must constitute an
offer definite in form which is communicated to the employee, and the offer must be
accepted and consideration furnished for its enforceability.

Where the parties have completed their negotiations of what they regard as essential elements &
performance has begun on the good faith understanding that agreement on the unsettled
matters will follow, the court will find and enforce a contract even though the parties have
expressly left these other elements for future negotiation and agreement
Metro-Goldwyn-Mayer v. Scheider: P and D enter into an oral contract that called for D to
perform in a pilot and T.V series. After extensive negotiations the essential terms of the contract
were decided except for the starting date for the T.V series which would be decided on later. D
performed in the pilot and was compensated for. Afterwards, D refused to perform in the T.V
series and said there was no contract because of the missing term.
- If the start date was an essential term then there would be no contract.
- If there is an objective method of determining the missing term and a clear
intent to contract, the court will enforce the contract.
- Since the parties completed their negotiations on what they regarded as the essential
elements of the contact and began performance on the good faith understanding that
agreement on the unsettled terms there is a contract.
- The court used trade practice in order to determine the start date for the T.V series.
In real estate cases, renewing a contract without any criteria to determine value makes the
contract unenforceable (realty contracts will be interpreted strictly)
Martin Delicatessen v. Schumacher: D leased a store to P for five years. There was a
renewal clause that allowed D to lease for an additional 5 years at a rental rate to be agreed
upon provided there was notice within 30 days. D gave timely notice and P said he would renew
for $900 (which was double the current rent). D hired an appraiser that placed the value at
$545. D sued for specific performance and P brought an eviction suit.
- It is a well settled principle that a court may enforce a contract only where the material
terms of the contract are certain and specific.
- Here, there is an agreement to agree on a material term without any details on how
to determine the price. Realty transactions need to include some basis for determining
price.
- This promise is unenforceable because there is no intent to be bound (lack of
definiteness means there is no offer) and there is no method to determine the missing
term (no method to determine rental price)
- In realty, prior course of dealings is not helpful to determine the missing term.

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Promissory estoppel will be applied where lying occurs in pre-contractual negotiations. You do
need a definite promise for promissory estoppel to be applied, all you need is a reasonable
reliance detriment
Hoffman v. Red Owl: D promised P with a Red Owl supermarket for the sum of. $18,000.
Relying upon the promise, P undertook several steps at his expense to obtain the supermarket.
At the end, D required $34,000 to obtain the supermarket. P sues for damages to recover
income he lost and expenses he incurred upon reliance of Ds promise.
- Restatement 139 provides factors to take into account in order to prevent injustice
A. Availability of other remedies
B. The definite and substantial character of the action or forbearance
C. The extent to which action or forbearance corroborates evidence of
making the promise
D. The reasonableness of action or forbearance
E. The foreseeability of action or forbearance
- There was no contract implied in fact because there was no benefit of service to D and
no mutuality of obligation (P was free to walk). However, promissory estoppel does
not require a definite promise just a reasonable reliance detriment. P incurred
substantial losses by relying on Ds statements.

A contract will not be enforced where there is an objective manifestation not to contract or a
condition precedent to performance has not been performed
Empro Manufacturing v. Ball-Co Manufacturing: P drafted a letter of intent to buy Ds
assets. The letter contained general provisions and stated that purchases would be subject to to
approval of Ps shareholders and directors. P created numerous outs for itself. D walked and
started to negotiate with someone else. P sued stating the letter of intent bound D to sell only to
P.
- Both parties through their actions show that they did not intend the letter of intent to
be binding
- Subject to is a condition precedent to performance (the letter of intent was subject to
a later definitive agreement shows an objective intent not to be bound)
- There is no reliance determinant because there was nothing to rely on
- The letter of intent does nothing more than setting the stage for negotiations
Promissory Estoppel can be applied to pre-contractual negotiations
Dixon v. Wells Fargo: P requested a mortgage loan modification and D told P to stop
paying future mortgage payments (to default) and provide financial information. D complied
and was notified of foreclosure when they defaulted.
- There is no contract and no definite promise however that does not preclude reliance
detriment
- P has been strung along and taken advantage of, D asked P to default which was the
only reason D was able to foreclosure (D created the situation causing Ps default)
- Restatement 139 is applied
Unjust enrichment will be applied when a party benefits twice and the other party receives no
benefit for the work they have done
Kossian v. American National Insurance. C0: Reichert owns Bakersfield Inn which was
destroyed by a fire. Reichert hires P to remove debris and perform demolition. Reichert claims
bankruptcy and D who holds the deed of trust files claims with an insurance company. D obtains
$135,620 which includes the cost of debris removal and demolition. P claims he is owed for his
work.
- Unjust enrichment a) non-gratuitous conferral of a benefit b) acceptance and
retention of benefit c) and it would be unjust not to award the benefit
- If D did not make the insurance claims then there would have been no retention of the
benefit meaning P could not be awarded against D. The benefit would have been

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 conferred to Reichert, you can only recover the benefit from the party who received
the benefit
- D got the value of the work (the labor) and the money from the insurance company
(the benefit of the work). D benefited twice

Unjust enrichment does not occur when one party acts voluntarily (service was rendered
gratuitously)
Bailey v. West: D buys a horse nut discovers the horse is lame and demands it be returned to
the seller. Seller refuses to accept the horse and driver, not knowing where to take the horse,
brought the hose to P. P takes care of the horse, knowing there is a conflict of ownership of the
horse, and sues D for costs.
- There is no express contract because P and D have not talked to each other and the
driver was not Ds agent
- There is no contract implied in fact because there was no intention. D claims it did not
own the horse and did not request the horse to be taken care of
- There is no unjust enrichment because P voluntarily took care of the horse (service
was gratuitous). D did not request the service and knew of the dispute of ownership.

XIV.Mistakes
Restatement 151: A mistake is a belief that is not in accord with the facts

Restatement 152: Mutual Mistake

Where a mistake of both parties at the time the contract was made as to a basic
assumption on which the contract was made has a material effect on the agreed exchange of
performances, the contract is voidable unless he bears the risk of the mistake under 154

Restatement 154: When a party bears a risk

a: the risk is allocated to him by agreement of the parties or
b: he is aware, at the time the contract is made that he has only limited knowledge with respect
to the factsbut treats his knowledge as sufficient.
c: The risk is allocated to him on the grounds that it is reasonable to do so

Restatement 153: Unilateral Mistake

Where a mistake of one party at the time a contract was made as to a basic assumption on
which he made the contract has a material effect upon the agreed exchange of performances
that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake
under the rule stated in 154, and
a: the effect of the mistake is such that enforcement would be unconscionable or
b: the other party had reason to know of the mistake of his fault caused it.

Restatement 157: Mistake from Negligence

A mistaken party's fault in failing to know or discover the facts before making the
contract does not bar him from avoidance or reformation under the rules stated in this
Chapter, unless his fault amounts to a failure to act in good faith and in accordance
with reasonable standards of fair dealing.

Rescission: the return of the two parties in equity to their previous (pre-contractual) state. For
rescission to take place the contract is voidable (not void)
- A power thats in the discretion of the court and we need to take all the factors on a case-
by-case analysis
- If a bargain is not as valuable as you hoped does not make it a mistake sufficient for
rescission.

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Reformation - A contract will be reformed where its written language does not reflect the true
intent of the parties.
- Clear, full, and decisive proof of error allows the court to reform a mistake.
- Must meet a very high threshold of proof. Mistake of expression is what can be reformed
in a contract (expression is typographical aka slip of the pen).

Void - there was never a contract ex. Raffles v Wichelhaus aka Peerless
Voidable - the contract can be rescinded

Rescission of a contract when there is a mistake by one party

Boise Junior College v. Mettefs Construction Co,: D mistakenly omitted an item
representing 14% of its bid which he submitted to P. P had expected to pay $150,000 for the
work and ended up paying another contractor $149,000. D wanted the payment for difference
because of a bid bond that D signed.
- Guideline for Rescission
2. The mistake is material (14% is material)
3. Enforcement would be unconscionable on the offeror ($10,000 loss would be
unconscionable)
4. The mistake did not result from violation of a positive legal duty to or from
culpable negligence (It was an error made during time constraint)
5. The offeree can cover (The offeree is paying $1,000 less than original and still
saving money)
6. Prompt notice of error (Prompt notice was given)

When there is a mutual mistake as to a basic assumption in regards to a material fact, rescission
can occur. The mistake must be on substance not in quality. The item here is not the same thing
as was bought and sold
Beachcomber Coins v. Boskett: D sells P a coin which both parties believe to be authentic.
P examines for 15 to 45 minutes and buys the coin for $500. P receives an offer of $700 for the
coin subject to authenticity. P finds out the coin was not authentic and sues f0r rescission of the
coin purchase.
- There is a mutual mistake since both parties believed that the coin was authentic
- Rescission was granted because what was sold and bought was an authentic coin that
ended up not existing. The false assumption was about a material element of the contract
(mistake on substance).
- UCC does not apply even though there is a sale of goods because the UCC is silent on
mistakes

Sherwood v. Walker: D sold a cow to P believing the cow was barren. SURPRISE THE COW
WAS PREGNANT and D refused to sell when he found. D believed the price of $80 was not
enough for the cow. P brought an action of replevin (an action to recover personal property
wrongfully taken).
- Court believed that the both parties believed the cow was barren, priced it as barren, and
since it ended up not being barren the contract should be rescinded.
- A barren cow and a fertile cow are two different thing. The cow being barren was a
material element of the bargain.
- Being a material element and having the possibility of rescission (both parties
returning to whole) means the court will enforce rescission.

If both parties are innocent, the court will exercise its equitable powers and determine which
blameless part should assume the loss. Rescission cannot relieve a party who has assumed the
risk of loss in connection with the mistake
Lenawee County Board of Health v. Messerys: Pickles brought a property from D,
unknowing to Pickles and D that the original owner installed a septic tank that violated a health

Page 2
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code making the land uninhabitable. P condemned the property and sought an injunction
against human habitation. Pickles sought rescission because of a mutual mistake.
- There was a mutual mistake as to a material fact. Both parties did not know of the
septic tank which would effect what was being sold which is income generating
property.
- When both parties are innocent, the court determines which party bears the loss.
- However, since there was an as is clause (purchaser has examined this property and
agrees to accept the same in its present condition. There are no other or additional
written or oral understandings) the risk is allocated to Pickles. There can be no
rescission because the Pickles assumed the risk by not throughly inspect the property
before purchasing.
- R 151, 152, 154(a)
Reformation is available when a contracts language doesn't reflect the intent of the parties
OneBeacon America Insurance Co. v. Travelers Indemnity Co. of Illinois: P is an
insurance company for vehicles owned by LAI. One of LAIs lessees injured a pedestrian but
insurance policy wasn't meant to protect lessees. P sought to reform contract to reflect that
neither P not LAI intended for insurance coverage under policy for lessees.
- Written contract may be reformed if its language does not reflect the true intent of
both parties.
- R 155
- Reformation is granted only where there is a mutual mistake in expression.
A party is held liable when during the course of dealings with another party, it makes a mistake
that causes harm
Ayer v. Western Union Telegraph Co.: P delivered message to a party in Philadelphia
through Ds service. D accidentally committed the term ten, in which party in Philadelphia
agreed & P shipped labels at error price b/c Philadelphia party said they were entitled to that
price. Mistake resulted from fault of D.
- As between sender and receiver, party who selects the telegraph as a means of
communication shall bear the loss caused by the errors of the telegraph.
- The first proposer can select many modes of communication but the receiver doesn't
have a choice
- Can the party that made the unilateral mistake rescind? No, there is no reason
that the offeree should be aware of the mistake & no reason for equity to
intervene because that party took the risk of error in transmission by
using the telegraph.

XV. Fraud & Nondisclosure

- If fraud, negligent misrepresentation, or nondisclosure occur during negotiations, they
might affect the validity of the contract.
- R 159(b): A statement may be true in respect to the facts stated, but may fail to include
qualifying matters necessary to prevent the implication of an assertion that is false.
- R 160: Action equivalent to assertion of fact
- R 161: Nondisclosure
- Nondisclosure can be misrepresentation, generally will be only in circumstances where
there is a duty to disclose.
- R 162: Fraudulent or material
- R 163: void > can be rescinded in these circumstances
- R 164: misrepresentation that makes contract voidable
- No es factum = no contract

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The duty to disclose information must be evaluated on a case-by-case basis
Peter Laidlaw v. Hector M. Organ: D delivered tobacco to P under contract but reposted it
later by force. While negotiating over tobacco, messengers brought a treaty of peace that the war
was over. D called P where the purchase was made but b/c of the news, the value of tobacco rose
30-50%. D didn't disclose info about the war ending, even when asked.
- You can't conceal information - if you conceal information then you are ethically at
fault. If theres no concealment, then theres no wrong.
- You don't have duty to disclose information in the course of the bargain, even if you
have valuable or essential information.
- But, the moment a question is asked, it is effectively fraud to lie in responsive and a
non-dispositive response is fraudulent.
- Suppression of material circumstances within the knowledge of the vendee w/o
access to the vendor is equivalent to fraud & vitiates the contract. Vendor isn't
bound to disclose.
- Asking the question triggers the duty.
Nondisclosure is a fraudulent misrepresentation
Misrepresentation: a falsehood, an assertion that is not in accordance w/ the facts (R 159)
- A statement of opinion can be misrepresentation if the parties are in a special relationship of
trust or the speaker has superior knowledge
- R 161, 168, 169
- Wrongful misrepresentation - render the contract voidable by deceived party
- Fraudulent misrepresentation: deceit - doesn't have to be material to be actionable
- Material misrepresentation: innocent, non-fraudulent misrepresentation > requires that the
misrepresentation be material to assent/central to agreement.

Audrey E. Vokes v. Arthur Murray Inc.: P spent thousands of dollars on dance lessons
after a newfound vision to become a professional dancer. P danced poorly but to get her to buy
more classes, D kept telling her she was dancing amazing & was convicted to keep purchasing
more hours. D falsely represented that P was improving, that she had excellent potential, etc.
Truth is, she sucked. D knew she sucked but withheld this info to deceive & defraud P to induce
her to purchase hours.
- They had duty to disclose although trial court dismissed it for no cause of action, P had
cause of action.
- Cause of action:
- constructive fraud in a manner that the other party can take it in a sense oreceipt
saying shes a great dancer & referencing how she will improve her great dancing is a
fraudulent representation * hardest to prove *
- intent to deceive is difficult to prove
- suppression of truth hiding something they had a duty to disclose (her lack
of knowledge of relevant skill & her lack of capacity to critically evaluate her
skill) but they didnt, they didnt disclose
- free exercise of rational judgment she cant consent b/c assent requires choice and
she doesnt have a choice b/c of the pressure DURESS, moral compulsion,
overcoming of the subjects will.
- Abuse of a special relationship - the parties are not at an arms length, there is a
degree of trust between the parties
- Abused a special relationship > parties aren't at an arms length, there is a degree of trust.
- R 168 RelianceonAssertions of Opinion
- Generally, a misrepresentation, to be actionable, must be one of fact rather than opinion.
- Doesn't apply where there is a fiduciary relationship between parties or where there has
been some artifice or trick employed by the representor, or where the parties do not in
general deal at arms length, or where the represented doesn't have equal opportunity
to become apprised of the truth or falsity of the fact represented.

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- A statement of a party having superior knowledge may be regarded as a statement of fact
although it would be considered as opinion if the parties were dealing on equal terms.
- In contractual situations where a party owes no duty to disclose facts, he must disclose the
whole truth from the face of the complaint, it should have been reasonably apparent to Ds
that her vast outlay of cash for many hundreds of additional hours of instruction was not
justified by her slow & awkward progress, which she would have been made well aware of if
they spoke the whole truth.

Sellers are under a duty to disclose facts that materially alter the value of the house.
Restatement 161: A vendor has an affirmative duty to disclose material facts where -
1. disclosure is necessary to prevent a previous assertion from being a misrepresentation or
from being fraudulent or material
2. disclosure would correct a mistake of the other party as to a basic assumption on which
that party is making the contract and if nondisclosure amounts to a failure to act in good
faith and in accordance with reasonable standards of dealing
3. disclosure would correct a mistake of the other party as to the contents or effects of a
writing, evidencing or embodying an agreement in whole or in party
4. The other person is entitled to know the fact bc of a relationship of trust and confidence
between them

Hill v. Jones: P and D entered into agreement stating that Ds were to pay for & place in
escrow a termite inspection report for the house P was buying from D. Report was to say
property was free from evidence of termite infestation. P noticed ripple in wood floor,
questioning if this was termite damage but D said it was water damage. Termite report stated no
visible evidence of infestation but it failed to note the existence of physical damage/previous
treatment. Neither party actually saw the report prior to close of escrow. Signed integration
clause. After moving into house, P noticed termite damage in floor. D didnt mention past
termite infection & treatment to realtor or to the termite inspector.
- Contract was conditioned upon termite report
- A duty exists to disclose facts
- In the context of a confidential relationship, suppression of a material fact
which a party is bound in good faith to disclose is equivalent to a false
representation.
- Where the seller knows of the material fact, 2. Knows the buyer does not know,3.
Knows buyer will not discover the fact prior to assent, 4. A fact is material (if it is one
to which a reasonable person would attach importance in decision to contract).

Duress used to require physical threat but then translated to economic duress which is threat
to economic interest > it expanded to psychological, emotional, and moral duress.
Physical duress: there was never a contract, it is void. (R 174)
Emotional duress: improper threat that leaves the person no reasonable alternative - makes the
contract voidable. (R 175)
- R 177: undue influence is unfair persuasion of a party who is under the domination of
the person exercising the persuasion
- Duress is acceptable when:
- If you exert duress to arrive at a reasonable modification (ill. 8 of R 176) that
modification is enforceable.
- If you threaten to breach on good faith grounds thats not duress
- ** Its not improper to threaten to breach your contract, unless the court believes its
in bad faith leveraging against the weakness of the other party.
- R 176(2): a threat is improper if the resulting exchange is not on fair terms, & a. The
threatened act would harm the recipient and would not significantly benefit the party
making the treat.

Page !24
A contract is voidable under duress where a party can show 1. Fear of loss of life, 2. Fear of loss
of limb, 3. Fear of mayhem, or 4. Fear of imprisonment
Horace N. Rubenstein v. Natalie Rubenstein: P, in fear of safety & under duress b/c of D,
conveyed to Ds corp all his rights, titles, and interest in a farm w/ several properties. P asserts
that D says if he would sign over titles, she promised to support children from income. P says if
he doesn't sell it, the health of the infants will be jeopardized & he was threatened w/ arsenic
poisoning. P was seized w/ great fear for his life & agreed to make the conveyance.
- Any unlawful threats which do in fact overcome the will of the person threatened, &
induce him to an act which he would not otherwise have done, & which he was not
bound to do, constitute duress.
- The age, sex, capacity, relation of the parties & all the attendant circumstances must
be considered.
- Pressure must be wrongful > the act or conduct complained of need not be unlawful
in the technical sense; it suffices if it is wrongful in the sense that it is so oppressive
under given circumstances as to constrain one to do what his free will would refuse.
- R 174: direct physical threat makes the contract void ab initio makes the contract
void b/c it precludes assent.
- R 175(1): if a partys manifestation of assent is induced by an improper threat (any
unconscionably oppressive/coercive threat) by the other party that leaves the victim
no reasonable alternative, the contract is voidable by the victim.
- ^ can be an alternative that is morally or economically threatening to other
party

A contract is voidable on the ground of duress when it is established that the party making the
claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free
will
- existence of economic duress/business compulsion demonstrated by proof that immediate
possession of needful goods is threatened or by proof that one party to a contract has
threatened to breach the agreement by withholding goods unless the other party agrees to
some further demand.

Austin Instrument, Inc. v. Loral Corp.: D entered into contract to purchase parts from P
for radar set production for the Navy. D informed P that his company would be awarded
subcontract only for those items on which it was low bidder. P said they would cease deliveries
of all parts unless D consented to increase in price provided by agreement. P did stop delivery &
after not finding another company, D acceded to Ps demand & consented to price increases.
After last delivery, D notified of its intention to seek recovery.
- D agreed to pay the price increases in consequences of economic duress.
- D had no choice when the prices were raised by P except to take the gears at the
coerced prices and then sue to get the excess back.
- A mere threat by one party to breach contract by not delivering the required items
doesn't constitute economic duress.
- Reasonable for D to feel under duress.
In order to prove economic duress, an existing and ongoing contractual relationship is generally
necessary
Machinery Hauling, Inc. v. Steel of West Virginia: P contracted w/ D to purchase steel
& have it delivered to third party but D told P that steel was unmerchantable & third party
rejected it, telling P to return the loads to D. Ds agent saying if P didnt pay them $31,000,
theyd cease business w/ P, leading to a potential loss of over $1m per year.
- Economic/business duress: where P is forced into a transaction as a result of unlawful
threats or wrongful, oppressive, or unconscionable conduct on the part of the D which

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! 5
 leaves the P no reasonable alternative but to acquiesce, P may void the transaction &
recover any economic loss.
- No economic duress - a threat not to do business isnt economic duress b/c you're not
forced to do business with anyone.
- Business Compulsion Rule: the party who asserts a business compulsion must show
that he has been the victim of a wrongful/unlawful act or threat and such act/threat
must be one which deprives the victim of his unfettered will.
- R 175(1)
XVI. Unconscionability
Unconsciousness doctrine: the exploitation of the other partys vulnerability or lack of
knowledge
UCC 2-302: permitted courts to deny enforcement of a contract unconscionable at the time it
was made
Test for Unsconscionability:
1) Gross Inequality of Bargaining Power

2) Procedural unconscionability concerns the manner in which the contract was negotiated
and the circumstances of the parties at the time.
- Oppression: arises from inequality of bargaining power which results in no real
negotiation & an absence of meaningful choice
- Surprise: involves extent to which agreed-upon terms of bargain are hidden in the
prolix printed form drafted by the party seeking to enforce the terms.

3) Substantive unconscionability focuses on the terms of the agreement & whether those
terms are so one-sided as to shock the conscience.
- Cant be unconscionable unless the terms are grossly unfair under the circumstances
that existed when the parties entered the contract.

If one refrains from reading a contract and in ignorance of its terms voluntarily assents thereto,
they will not be relieved from bad bargain AND will be bound by the terms of the contract
because one who signs a contract has a duty to read it
Williams v. Walker-Thomas Furniture Co.: P supports herself and her 7 children off
public assistance. P purchased household articles on installment plans from D. She signed 14
contracts in total, which contained long paragraphs in fine print, stating that all the payments
were to be prorated on all purchases then outstanding. This had the effect of keeping a balance
due on all items until the balance was eliminated.
- It is as much the duty of a person who cannot read the language in which a contract is
written to have someone read it to him before he signs it, as it is the duty of one who
can read to peruse it himself before signing it.
1. If you sign something, you're expressing agreement only in relation to what
you can know in the document > meeting of minds
2. UCC is synoptic legislation - simply synthesizing the law of goods the law
does already strike out unconscionable bargains

- Test for Unconscionability:

2. Lack of knowledge - lack of understanding of the contract terms arising from
inconspicuous print or the use of complex, legalistic language, disparity in
sophistication or parties, and lack of opportunity to study the contract & inquire
about contract terms.
3. Lack of voluntariness - demonstrated in contracts of adhesion when there is a
great imbalance in the parties relative bargaining power, the stronger partys
terms are unnegotiable & weaker party is prevented by market favors, timing or

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 other pressures from being able to contract w/ another party on more favorable
terms or to refrain from contracting at all.

Uniform Consumer Sales Practices Act 4(c): consider circumstances of which supplier knew or
had reason to know
1. That he took advantage of the inability of the consumer reasonability to protect his
interests b/c of his physical infirmity, ignorance, illiteracy, inability to understand the
language of the agreement or similar factors.
2. That when the consumer transaction was entered into, the price grossly exceeded the
price at which similar property or services were readily obtainable in similar transactions
by like consumers
3. That when the consumer transaction was entered into there was no reasonable
probability of payment of the obligation in full by the consumer.
- a claim of unconsionability can be established w/ a showing of substantive unconscionability
alone, especially in cases involving either price-cost disparity or limitation of remedies.

A fee charged by a service provider may constitute as unconscionable commercial practice under
deceptive trade practices legislation where it is charged to unsophisticated consumers in return
for a referral that they could obtain for free
In re Louis Fleet v. United States Consumer Council: USCC charged P an
unconscionable price for its services (services were free but D charged them $200+ for it),
knowing consumers were financially troubled & distraught.
- Must consider whether the price grossly exceeds the price at which similar property or
services are readily obtainable.
- Transaction, vulnerability, and jurisdiction is important to consider.
- Test for unconscionability: a) Gross Inequality of Bargaining Power (the parties were
vulnerable) b) Procedural unconscionability (terms were complex) c) Substantive
unconscionability (charging for free services)

To determine whether a contract is unconscionable, one must consider whether the agreement
is procedurally/substantively unconscionable & whether the agreement can stand w/o such
unconscionable terms
Misty Ferguson v. Countrywide Credit Industries, Inc.: P filed complaint against D
under several Title VII Civil Rights statutes but when P was hired, she signed Conditions of
Employment which prohibited bringing such claims & stated she must execute an arbitration
agreement. Agreement was unenforceable b/c unfairly one-side & substantively unconscionable
because agreement compels arbitration of claims employees are most likely to bring against D
but exempts from arbitration the claims D is most likely to bring against employees.
- Entirely unenforceable b/c you can't sever it. If you cant sever, remove offending
terms
- Cant use arbitration b/c since Civil Rights issue, a court is needed.
- To determine validity of an agreement to arbitrate, apply ordinary state-law principles
that govern the formation of contracts
- UCC 2-202(2)
An agreement is not unconscionable if it is not one-sided, there is no element of surprise, and it
is not oppressive
Zapatha v. Dairy Mart: P signed a franchise agreement which contained a termination
clause allowing either party to terminate without cause given a 90 day notice. P refused to sign a
new agreement after selling his store because it contained less favorable terms. D decided to
terminate without cause. P sued and sought an injunction.
- Test for unconscionability: a) gross inequality of bargaining power (No, P was a
businessman and educated) b) procedural unconscionability (No, P read the terms
and understood them. He was also told to look it over with an attorney) c) Substantive

Page !27
 unconscionability (No, both parties were allowed to terminate and P would not face
any investment loss)
- The court when looking at procedural unconscionability looked to whether there was
oppression and surprise.

It is up to the party claiming unconscionability to prove that the agreement is unconscionable.

Unconscionability is rarely found in commercial settings
Coursey v. Caterpillar: P bought goods from D and claimed they were defective and sues for
damages. D claims that his express limitation of liability for consequential damages was not
unconscionable.
- UCC 2-719(3): Consequential damages may be limited or excluded unless the limitation
or exclusion is unconscionable. Limitation of damages for injury to the person in the case
of consumer goods is prima facie unconscionable but limitation of damages where the
loss is commercial is not.
- The buyer carries the burden of proving unconscionability of a limitation of remedy
clause unless the consumer goods cause personal injuries.

XVII.Public Policy
Illegality prevents parties from acting contrary to public interest. If the purpose of the contract
is illegal, courts will not enforce the contract.
- However if you can get rid of the tainted provision within the contract, the court will
enforce the contract by severing the tainted provision.

Restatement 178: the interest in its enforcement is clearly outweighedby a public policy
against enforcement. This is a basic balancing test; the court may enforce an agreement even if it
is not legal
Restatement 179: Public policy derived from legislation, public welfare as, for example, restraint
of trade, impairment of family relations, interference with protected interests
Restatement 190: Promise detrimental to marital relationship
Restatement 197: Restitution generally unavailable
Restatement 183: the best way to sever meretricious consideration is by a process of pairing.
That means that you find a valid contract for things, goods, property that you would expect to
pay for, then the surviving pair will survive.

Public policy does not preclude an unmarried cohabitant from asserting a contract claim against
the other party to the cohabitation so long as the claim exists independently of the sexual
relationship and is supported by separate consideration
Watts v. Watts: P and D have dispute over respective interests in property accumulated over
12 year relationship. D told P to move in w/ him, quit her job, & he would provide for her in
return. Although they weren't married, acted as a couple. P worked on several businesses and
projects for D but when they separated, D barred P from returning to business.
- P is entitled to unjust enrichment because D gained benefit & in absence of a contract,
P can be compensated
- For UE to be possible, must show positively that no part of the contract is for sexual
services
- Legislature didn't intend for statute to apply to unmarried couples but disagree that
courts cant/shouldnt divide property between persons who engaged in non marital
cohabitation.
- Companionship, romance, & love IS NOT consideration
In the absence of any prior written agreement between parties, courts must balance competing
interests > balance the importance to be accorded to human life (special interest, social &
public in reproduction, interest of desire to have a child v. One's wish not to be a parent)

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Kass v. Kass: D and P enrolled in invitro fertilization (IVF) program where they signed 4
consent forms - in event of divorce, eggs can be donated to research. Couple signed uncontested
divorce agreement stating that frozen pre-zygotes should be disposed of in the manner outlined
in consent form & no one should claim them but then wife wrote she was opposed to destruction
of eggs.
- Important for courts to seek to honor parties expressions of choice made before
disputes erupt.
- Must imply the intention of parties
- Balancing test: weigh the right to life against the interest of not being forced to
biological parentage.

A.Z. v. B.Z.: P and D have previously done IVF and have twins. P and D signed a contract in
which P signed blankly and D signed and included that if they separate D would get the embryos
for implantation. P and D separate and D implants the embryo with P knowing. P becomes
aware through insurance. Implantation was unsuccessful so P wants to prevent D from
implanting the embryos again.
- The court provides five reasons as to why the contract with the provision that D
would get the embryos will not be enforced:
- The consent form did not represent what P and D would do in regards to the
embryos in the case of a dispute.
- The consent from did not contain a duration provision. It cannot be assumed
that the P an D expected the consent form to govern four years later.
- The consent form used the word should we become separated. Divorce and
separation are different.
- The consent form does not represent the parties clear intentions. P signed
blank and D signed with a provision.
- The consent form is not a separation agreement and therefore it is not
binding during divorce proceedings.
- The court points out that even if the consent form was unambiguous, it could not be
enforced as a matter of public policy. Forced procreation is not an area of judicial
enforcement. The freedom of contract is outweighed by the public policy against
compelling an individual to become a parent despite their wishes.

Damages will not be awarded where the remedy goes against public policy
Wallis v. Smith: P and D were in a consensual relationship. D told P that she was on birth
control even though she wasnt. D ended up pregnant with Ps child. P sued D for money
damages for the costs of raising the child.
- There is a statute in place that requires P to pay child support until the child turns
18. This was enacted in interest of public policy. The statute prevents the child from
becoming a responsibility of the state and forcing the hardship onto one parent.
- Enforcing an award would force the court to enter an area where it should not. The
court does not enter areas which are considered private.

XVIII. Parol Evidence

Statute of Frauds - requires writing for certain types of agreements (goods over $500, real
estate, securities, contracts that cannot be performed in under one year)the reason for this is
to prevent fraud.

Parol Evidence is always admissible to determine the scope the of the agreement to which the
writing covers. Always available to assert an alternative meaning to the agreement. If you can
prove that you meant y when you said x you are entitled to interpret the contract in such a
manner.

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Complete integration: the writing is the entire contract, a merged contract; usually contains a
merger or integration clause.
- A complete integration is a question of law, just because the parties says it is a complete
integration doesnt necessarily make it so.
- If the contract is completely integrated it excludes all extrinsic evidence, supplementary or
additional terms, be them consistent or inconsistent supplementary terms.
- Parol evidence is not excluded if there is a collateral agreement. There is a three part test:
Is it collateral? (Yes allows the test to continue)
Is it consistent with the writing? (Yes allows the test to continue)
Would we ordinarily expect it to be incorporated in the writing? (No
means evidence is allowed/Yes here means test fails and evidence excluded)

Partial Integration: allows for extrinsic evidence to plead supplementary terms which are
consistent with the writing.
- The part of the agreement that is integrated is completely integrated with respect to the
clause or terms it covers.
- Can't change or add to the terms, you can add to the agreement.
Collateral contract: a contract made prior to or contemporaneous with another contract.
Integration clause (merger clause): a provision in a contract stating that the document
represents the total and final expression of the parties agreement.

If an oral agreement is not collateral in form, it is not allowed to vary the terms of a completely
integrated written contract
Mitchill v. Lath: P wants to buy a property from D and enters into negotiations. P says she is
not interested in the property until an ice house is removed. D says he will take care of it. Both
parties sign a contract to buy the property. The contract contains no information about the ice
house. P sues when the ice house is not removed claiming the oral agreement was a part of the
contract.
- Contract between parties was completely integrated. The contract contained various
details providing proof of integration. One would not expect there to be any other terms
to be included in the contract.
- When there is a completely integrated contract, the only way to include terms would be
through a collateral agreement. There is a three part test for collateral agreement
- Is it collateral? Yes, it is collateral. The written contract was dependent on the oral
agreement.
- Is it consistent with the written contract? Yes, it is consistent. The oral agreement
does not contradict any of the terms in the written contract.
- Would we ordinarily expect it to be incorporated in the writing? Yes, a detailed
agreement about the sale of property would have included information about the
sale of property being dependent on the removal of the ice house. This means that
the oral agreement cannot be considered part of the written contract, it is excluded.
P loses.

If there is proof of a collateral agreement, evidence is allowed to be clarify terms of option within
the contract
Masterson v. Sine: P sold a ranch to D and in the agreement there was an option to buy back
the house at the same price plus depreciation value. P goes bankrupt and Ps wife and trustee
want to buy the ranch back. D says no because the ranch needs to stay within the family so
therefore the trustee cannot buy it back.
- The contract for the ranch was completely integrated. To include parol evidence there
needs to evidence of a collateral agreement.
- Is it collateral? Yes, it is collateral. Wanting to keep the ranch within the family is
related to a contract selling the ranch.

Page !30
 - Is it consistent? Yes, it is consistent. The contract is silent on assignability so it
does not contradict the terms of the contract.
- Would it ordinarily be incorporated in the writing? No, it would not be
incorporated. Keeping the ranch within the family is not something you would
see in a contract selling a ranch.
- It needs to be taken account that the parties were not lawyers.
- This was an unusual term so it would not generally be included.
- If the evidence of assignability is excluded, the fact finders are likely to be
misled.

Parol evidence restricts external evidence that contradicts the integrated (written) terms of a
contract
Alaska Northern Development, Inc. v. Alyeska Pipeline: P and D have a letter of intent
where P proposed to buy Ds inventory of Caterpillar parts. Price term is blank & letter included
language that agreement was subject to final approval of Ds owner committee. Ds manager
filled price & sent letter for approval but owner committee rejected the proposal. P sued for
breach of contract saying that subject-to-approval meant Ds owner committee was authorized
only to determine whether price was fair and reasonable.
- Was the writing under scrutiny fully or partially integrated?
- Partially integrated - price left out move on to second part of test
- Does the evidence contradict or inconsistent with integrated portion?
- Evidence is inconsistent & only option is to get evidence admitted as if it asserts
an alternative meaning > DOESNT WORK HERE.

Under the collateral contract doctrine, an integration clause can only apply to relevant subject
matter and cant be applied to any independent agreements
Suburban Leisure Center v. AMF Bowling: P and D entered into an oral agreement
where P agreed to deliver and promote Ds property in Ps stores. They also entered into an e-
commerce agreement stating that P agreed to delivery & install Ds products purchased on
the internet to customers where P did business. E-commerce agreement had a merger clause (w/
an arbitration clause) & states this agreement superseded all prior agreements between the
parties. D notified P to cease promoting/selling the items & P sued.
- D says e-commerce agreement provides arbitration clause where all disputes must be
in arbitration. But, oral franchise distribution agreement is different from e-commerce
& they can't merge > oral agreement cant be enforced.
- Independent consideration & independent subject matter.
XIX. Interpretation
Three Interpretation Rules
1) Plain meaning: strict interpretation is applied to the written contract. Use the objective
meaning unless both parties know it is not the intended meaning. Extrinsic evidence is
allowed only when the contract is ambiguous.
2) Four Corners Doctrine: look to other words within the contract; staying within the four
corners of the contract
3) Interpretation Doctrine: there is always room to interpret the meaning of the contract.
1) Burden of proof is on the party asserting the alternate meaning
2) If the court finds that there is an ambiguity in the writing, parol evidence is used
to resolve the ambiguity and bring the contract into the definition which was
intended by the parties.

Extrinsic evidence is admissible to explain the meaning of a written contract if the evidence is
relevant to prove a meaning when the language in the contract is susceptible to different
meanings

Page !31
Pacific Gas & Electric v. G.W. Thomas Drayage & Rigging: D agreed to provide work
and equipment to replace upper cover for Ps steam turbine at his own risk and expense. D also
agreed to indemnify P for any loss, damage, expense, and liability resulting from injury to
property. The cover fell and damaged the turbine. P brought suit. At trial, no extrinsic evidence
was permitted.
- Issue: Is whether the indemnification clause protects damages to a third party or P?
- Traynor says we are beyond primitive times of saying each word has a single meaning.
We have to look at extrinsic evidence for a rational interpretation.
- Restatement 212
When the parties of a contract in good faith construe an ambiguous term differently, courts may
look to external factors to determine the proper interpretation of the term
Frigaliment Importing Co. v. B.N.S International Sales Corp: D entered into two
contracts to sell chicken to P. P believed that the chickens in the contract meant stewing
chickens and not young chickens. D believed that chicken meant a young chicken. P brought
this lawsuit for breach of warranty.
- Case shows that even a simple word like chicken leaves room for interpretation. Is
parol evidence admissible to determine the meaning of one word? Yes.
- P has the burden of proof to prove the narrower meaning of the word. They failed to
meet the burden of proof and lost this case.
- Mutual mistake: Both parties assented to a contract where there is ambiguity. There
was no express meeting of the minds (Restatement 20).
- What the court looked at to determine ambiguity: four corners of the instrument,
negotiations, trade usage, expert testimony, and market price

A contract term isnt ambiguous if it aligns with its meaning & where giving it another meaning
would lead to absurd/illogical results. If theres no ambiguity, you cant plead extrinsic evidence
In re Katrina Canal Breaches Litigation: Ps owned homes which were insured under all-
risk insurance policies under D. After Hurricane Katrina, Ps homes were damaged by broken
water levees. D argues that language of policies excluded damage from hurricane but P say that
damage was from negligent design, construction, & maintenance of levees & flood exclusions are
ambiguous.
- State Farm: we do not insure under any coverage for any loss which would not have
occurred in the absence of one or more of the following - including water damage.
- Exclusion wasnt ambiguous.
- Is flood ambiguous? No, theres an accepted meaning.
- Reasonable expectation test - determine that although damage from negligence in
terms of levees wasnt expressly excluded from policy, it wouldnt be reasonably
expected to be included.
- As opposed to interpretive view: if its not expressly excluded then its included
read in favor of weaker party.

XX. Duty of Good Faith

Doesnt apply to formation of a contract but rather the performance of a contract.
- An interpretive device that will indicate what the words used mean because you give them
their good faith meaning.
- Every contract has an implied covenant of good faith.
- UCC 1-304
- R 205
Thesis of good faith:
- excluder thesis: we cant say what good faith is but it doesnt mean that we cant recognize bad
faith. Its not a positive but a negative precludes certain forms of unjust, non-cooperative
behavior.

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- Recapture thesis: good faith precludes recapture of consideration given away at the time of
bargain can't go back on your word.
- Goodrich thesis: bad faith is acting through an ulterior motive traveled outside of contract
of bargain.

What parties do, say, & how they act is important when its a subjective question of
good or bad faith.

You dont have to act to the benefit of the other party if the contract doesnt require you to do so.
Its not bad faith to look out for your own interests
Centronics Corp. v. Genicom Corp: P agrees to sell business assets to D for amount to be
determined in arbitration according to consolidated closing net book value of assets (CCNV).
Agreement requires D to deposit in escrow portion of price claimed by P pending final valuation,
which D made. P demanded portion of escrow should be paid immediately (despite that
agreement required the funds to be retained in escrow until the end of arbitration). P sued D for
breach of implied covenant of good faith.
- No bad faith here. By looking at words of contract, money wasnt allowed to be
disbursed w/o final purchase price & no discretion to release partial payments early.

Parties in a contract are under a duty to act in common interest. Parties cannot hinder, prevent,
or impede someone from doing what theyve bargained for in the contract (cannot prevent the
other party from performance)
Patterson v. Meyerhofer: D signed a contract to buy four parcels of land from D for $23,000
which P had to buy from an auction first. D goes to the auction and bids against P. D wins the
land for $620 less than what she would have paid under the contract. P sues for the difference
- There was a condition precedent to performance (buying the land in an auction) and D
prevented P from completing this condition.
- Parties cannot go against what they contracted to do and impede the performance of the
other party.
- P is claiming expectancy reliance damages; he lost $620
A party may not take opportunistic advantage in a way that could not have been contemplated at
the time of the drafting and which therefore was not resolved explicitly by the parties
Market Street Associates v. Dale Frey: P and D get into a contract in which D leases P a
mall. In the contract, paragraph 34 stipulates that a buyback provision is triggered if financing
negotiations fail. Two years later, P negotiates with D to obtain financing for the mall. D refuses
to negotiate and P does not mention the buyback provision.
- Does Ps representative need to mention clause 34?
A subject to financing clause (makes buyers obtaining financing a condition precedent to his
duty to perform) imposes a duty to make reasonable good faith efforts to satisfy the condition
Billman v. Hensel: Ds were purchasing a house from P and gave then $1k deposit as required
by the contract. Contract also had subject to financing clause - contract was conditioned upon
ability of P to get mortgage in 30 days. But, P backed out saying he couldnt get $$$. He had the
ability, just didnt exercise it. P sued for $1k but D claims P couldve secured a mortgage & just
didnt want to.
- Condition precedent to performance: ability to get mortgage precedent to finalizing
sale of house.
- Buyers didnt make reasonable good faith effort to secure necessary financing & count
rely upon condition to relieve their duty to perform. P didnt apply for mortgage but
had ability to secure one - just chose not to.
- Criteria that youre able to secure, not that you secured. If youre able to secure but
didnt, acting in bad faith.

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 - Duty is triggered by existence of contract > duty to reasonably attempt performance in
good faith when wording of contract requires this.

In an output contract, good faith cessation of production of the subject of the contract
terminates any further obligations & excuses performance by the party discontinuing production
- you can't stop production just b/c youre losing money - bad bargain.
Fred v. Henry S. Levy & Sons: P enters into written contract to purchase all breadcrumbs
produced by D from 1968 - 1969. Contract included automatic renewal provision but each party
could terminate agreement upon 6 months written notice. D stopped producing bread crumbs
saying operation was very uneconomical b/c of production equipment. Nothing was done
about equipment to make it more economical. P claimed D was obligated to continue producing
bread crumbs.
- Output contract: buyer buys all the output of the seller (bread crumbs)
- Motive for ceasing output is key to criterion under 2:306 by being uneconomical &
making no effort to fix the issue isnt an appropriate motive a contract is a contract
is a contract.
- UCC 2:306: must be a reasonable quantity & in good faith
1. A term which measures the quantity by the output of the seller of the
requirements of the buyer means such action output or requirements as may
occur in good faith except that no quantity unreasonably
2. Or they can cancel but have to give notice required in contract
- Bad v. Untenable bargain (UCC 2:615 - doctrine of commercial impracticability)
XXI. Conditions and Warranties
Terms: promises for the break of which you receive damages, but the contract persists (i.e.
wrong color isnt a deal breaker, can sue for costs of painting it red).
Conditions: goes to the heart of the contract, breach of a condition or failure relieves the other
party of their obligations under the contract.

- If you have if or subject to or condition that it will be assumed to be a condition, & not a
term unless proven otherwise by the evidence.

- Difference between a standard and a condition (quanlity of goods are just as good though not
from specified manufacturer)

- UCC 2:313(2)
- UCC 2:314(1)
- UCC 2:315(1)
- UCC 2:316(2)

When a party voluntarily enters into an express agreement contract, they are bound to perform
all conditions knowingly accepted under the contract. If they breach the condition, they are very
unlikely to recover & it relieves the other party from contractual obligation.
Dove v. Rose Acre Farms, Inc.: D held a promotional program for $5k for the employee
who competes certain construction work. Terms of the bonus stated that P must complete the
work & work 5 days a week for 10 weeks w/ no absences or tardiness. On the second to last day,
P gets a strep throat, is offered to lay at work but leaves. His opportunity to obtain the bonus is
revoked & D doesnt give P the bonus, even though the work is complete.
- P agreed to contract w/ express condition that he wasnt obligated to agree to. If has
harsh terms, dont agree.
- Purpose of contract? Encourage employees work ethic
- R 244: a condition is an event, not certain to occur, which must occur, unless its non-
occurrence is exhausted, before performance becomes due

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 - R 226: an event may become a condition either by the agreement of the parties or by a
term supplied by the contract
- R 227(1): in resolving doubts as to whether an event is made a condition...an
interaction is preferred that will reduce the obligees risk of forfeiture unless the event
is within the obligees control or the circumstances indicate that he has assumed the
risk

XXII. Breach of Contract

When one party indicates his/her intention not to perform the other party does not have to wait
until the performance would have occurred to bring an action for breach of contract (you can
bring a suit at the time the other party breaches)
Albert Hochster v. Edgar De La Tour: P was to accompany D on tour. Three weeks before
tour, D told P that he changed his mind and would not go on tour. P brought a suit before
performance was to occur for breach. D claims suit cannot be bought for breach before
performance is to occur.
- It is not rational to make a party who has been informed that the other party does not
plan on performing to wait to bring a suit for damages.

An anticipatory breach of contract occurs only when of the parties to an agreement expressly or
impliedly repudiates the contract or unequivocally refuses to perform
Taylor v. Johnston: P entered into a contract with D to breed two of its horses with Ds
stallion. D sends a letter saying they repudiate the contract because they sold their stallion. P
insists on performance and D agrees. However, every time P tries to breed his horses D says they
are busy. P breeds his horse with another stallion which proved to be ineffective. P sues for an
anticipatory breach of contract.
- D expressly repudiates the contract by selling the stallion and send a letter stating they
will not perform. P does not accept repudiation and insists on performance. D states
the deal is in place.
- After express repudiation- If you accept then you can sue for damages
(expectancy damages). If you reject then the contract is affirmed on both sides
(contract is to be performed).
- P loses the right to sue by breaching the contract themselves, they did not make any
more attempts to breed after breeding with another stallion.
- It is also necessary to seek reassurance from the other party before you can assume the
other party has repudiated the contract.
- Express repudiation has to be clear and unequivocal. Implied repudiation means it has
been impossible to perform. Neither type of repudiation has occurred by D so P cannot
sue for breach.
- Restatement 250
XXIII. Impracticability
Impracticability: Impractical to perform, defense for the party that has to perform (i.e. seller)
Frustration of Purpose: perfectly possible to perform but there is no purpose, or economic
benefit, or point to affirming. Defense for the party that has to pay, not the party that has to
perform (i.e. buyer)
- Impracticability and Frustration of Purpose are defenses, not causes of action. Cant use
them to sue, can only use them as a defense.

In a contract where the performance depends on the continued existence of a given person or
thing, a condition is implied that the impossibility of performance arising from the perishing of
the person or thing shall excuse the performance

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Taylor v. Caldwell: D, owner of Surrey Gardens and Musical Hall, agreed to rent them to D
for 4 days for 100 per day. Before the concerts took place, the contract was destroyed by a fire.
P couldnt host concert there & P claims it was a breach & resulted in loss of $$.
- Has unique thing - if that unique thing/person/animal dies or does not exist then you
cant perform and are relieved from your obligation.
- Implication of condition: if parties were asked @ time of bargain what they would
have agreed to if condition existed, they would both agree to release both parties from
contract.
- They assumed the hall would exist when making the contract. Neither party
contemplated the hall burning down and neither put it into the contract.
- Restatement 261: Where, after a contract is made, a partys performance is made
impracticable without his fault by the occurrence of an event the non-occurrence of
which was a basic assumption on which the contract was made, his duty to render that
performance is discharged, unless the language or circumstances indicate contrary.

When the fundamental purpose of the contract has been frustrated due to the of occurrence of
an event the parties assumed would not occur, the party that has to pay can be relieved of its
duty
Krell v. Henry: D pays for the use of two rooms for the day of the procession after King
Edwards coronation. The rooms are rented at a premium rate which reflects the special nature
of the procession. The nature for why the rooms are being rented is not mentioned in the
contract. The procession is postponed when the King gets sick. P sues D for remaining money
after deposit. D does not pay since the procession was postponed.
- The purpose of the agreement was to watch the procession. With the procession
postponed the purpose of the contract is frustrated.
- Restatement 265: Where, after a contract is made, a party's principal purpose is
substantially frustrated without his fault by the occurrence of an event the non-
occurrence of which was a basic assumption on which the contract was made, his
remaining duties to render performance are discharged, unless the language or the
circumstances indicate the contrary.

XXIV. Damages
3 Main Compensatory Damages
Expectancy:
- Measured at the time of bargain and after
- Plaintiff ex post whole (whole after contract) (offset expected costs)
- If you promise something and you have not provided it, then the promisee should
receive the amount necessary to put the plaintiff in the position they would have
been if the promise was performed
- Usually the most lucrative because it allows you to get lost profits (proven loss, not
speculative)
- Discounted from the expectancy is all expenses that would have been incurred by
the plaintiff in the process of performing the promise.
- Most common
Reliance:
- Plaintiff ex ante whole - Return plaintiff to their position before the bargain
- A measure of compensation at the time of breach of contract and before
- Awards the promisee all losses occasioned by reliance upon the promise
- Meant to put them back in the position they were in before the contract as opposed
to the position they would have been in after performance.
Restitution: - in equity
- Return of benefit conferred. Defendant ex post whole
- The best measure of your damage is the benefit conferred on the other party
because it would be unjust enrichment for the promisor to obtain that benefit

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 - Makes the promisor ex ante whole instead of the promisee
- Every benefit they received is returned
*All three are NOT causes of action but measure of compensation.

Disgorgement: kind of restitution + more

- Makes defendant ex post whole (after contract)
- You recover the benefit conferred but also any profits that have accrued to the defendant
based off the original benefit
- It occurs because someone acted badly so its punitive
Injunctions:
- Specific performance
- Monetary amount but it may also mean the monetary amount is not what you
want. You want the actual good and you have an entitlement to what was actually
promised under CISG - not American law
- Negative Injunctions
- You can't get specific performance to perform but you can get negative which
precludes the singer from performing anywhere else during that time

Punitive Damages:
- Tort like behavior/abuse of special relationships
- Recover damages beyond compensatory damages; to punish the defendant for the loss
they occasioned on the plaintiff

The purpose of the statute has to looked at in order to determine whether non-pecuniary
damages can be recovered
Bohac v. Department of Agriculture: P appealed her termination from her job. P claims
that her termination violated the Whistleblower Act. P asks for pecuniary damages and non-
pecuniary damages for emotional and physical suffering, loss to her reputation and damage to
her family life.
- Non-pecuniary damages cannot be rewarded under the act that only provides for
consequential damages.
- Under common law, damages for emotional distress cannot be recovered unless there
are special circumstances such as contracts for innkeepers, holiday contracts, or
transportation of dead bodies.
- The court also said that this is an issue for the legislature. If they wanted to included
damages for emotional distress they would used the word compensatory damages.
- Employment contracts generally do not involve personal and emotions. It is considered a
market contract
- Restatement 353: Recovery for emotional disturbance will be excluded unless the breach
also caused bodily harm or the contract or the breach is of such a kind that serious
emotional disturbance was a particularly likely result.

In cases of wrongful denial to pay an insurance claim, other damages should be available to the
aggrieved party than the mere face amount of the policy
Acquista v. New York Life Insurance Company: P purchased three disability insurance
policies from D. P became ill with cancer and was instructed to avoid radiation meaning he
couldnt perform his job. P made a claim under disability insurance. D gave the run around and
kept asking for more documents. P sued.
- Originally, damages available to plaintiffs who were wrongly denied coverage by
insurance companies only consisted of the value they would have received under the
policy.

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 - This court found that P, who has been denied money insurance money, is entitled to
other damages because of bad faith.
- Emotional loss damages are a form of punitive damages which is why it is necessary to
show the other party acted in bad faith.

Guideline
What is a Contract?
A contract is formed when one or both parties makes a legally enforceable promise. What is
necessary for such a promise is some manifestation of intention to act or refrain from acting in
a specified way, so made as to justify the recipient of the promise in understanding that a
commitment has been made R 2d 2(1). Contracts need to have a) consideration, b) offer,
and c) acceptance.

Contracts are legally enforceable when:

- Has been exchanged for good (sufficient) consideration
- Reasonably lead reliance on the promise to a detriment
- Or enforceable by a statute
It is not usually enforceable in social/domestic contexts/private contexts as seen in Cohen v.
Cowles Media (newspapers)
- There are exceptions as seen in Hamer v Sidway
Types of Contracts
- Bilateral: a promise for a promise - binding upon formation of contract
- Unilateral: a promise for an act - binding if and when the service is complete
- Express: an agreement manifested by words
- Implied-in-fact: agreement created by conduct
- Implied-in-law: quasi contract, not a true contract but an obligation imposed by a
court despite the absence of a promise in order to avoid an injustice

Not a Contract
- Illusory promise - an apparent commitment in which there is a free way out for one
party making the contract unenforceable
- Unconscionability is an intrinsic fraud. Requires three things:
- Gross inequality of bargaining power
- Procedural unconscionability; procedural flaw in the process of the
contract (ex: fine print)
- Substantive unconscionability: inequality in the actual substance of the
bargain (ex: paying too much for too little)

Consideration
The exchange of something legally recognized as having value (need not be of actual or
economic value). Only promises enforced by consideration are enforceable contracts.
- Consideration includes giving up something which the promisee was privileged to retain,
forbearance of an action, or doing something youre not legally obligated to do
- Must be sufficient but does not need to be adequate
- Past consideration is no consideration
- Exception: UCC - An agreement modifying a contract needs no consideration to be
binding.
- Intent to contract with the use of nominal consideration and nominal contract does not
make a contract.
- Nominal Consideration: is a lesser sum for a greater sum

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 - Recited Consideration: pretense of bargain. You can shout consideration from the
rooftops but that doesnt make it consideration
- Mixed Motive Provision: A promise does not of itself induce consideration, part gift part
bargain that still constitutes consideration.

Whether and to what extent a promise w/o consideration should be binding (the
decision to enforce a promise involves an evaluation of the conduct and reasonable
understanding of each party and the fairness of holding the promisor accountable for a promise
that would not otherwise be binding in contract law):
a. A promise was made by the promisor with the reasonable expectation that the promisee
would rely on it
b. The act did in fact induce the promisees action or forbearance
c. The enforcement of the promise is necessary to avoid injustice.
d. The remedy may be limited to justice as requires

Offer
An 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
(Restatement 24). An offer is fixed and final intent.
- An offer gives the offeree the power of acceptance. If they accept, the offer is binding
Contract.
- An offer can be withdrawn, its not binding until accepted.
- Offer is destroyed if offeree says no or there is a counter offer (anything that does not
mirror the offer is a counter offer) which destroys the original offer and creates a new
power of acceptance.
3 things Necessary for there to be an offer:
(Default Rule is that advertisements is a solicitation of an offer, it is not an offer. However if
these three things exist it can be an offer)
1) Limited Class
2) Definite Proposal
3) Language of Commitment

Acceptance
- A firm (legally binding) offer turns on the facts and circumstances of each situation
- If a document stipulates agreement it is implicitly requiring communication, notification,
and notice of the promise so that the minds can meet.
- If what is requested is an act you need to know of the offer in order to accept it even if you
perform the act...motive doesnt matter.
- Multiple Acceptance Problem is why ads are generally not offers: when there is a limited
good but multiple acceptance.

Acceptance by Silence
Default Rule is that silence is not a reasonable mode of acceptance because it places an undue
burden.
- The exception is when you take the benefit of offered services with reasonable opportunity
to reject them then silence can be considered acceptance

Mutuality of Obligation
Both parties need to be able to sue the other for breach of contract - if one has a free way out
then there is no duty no commitment no contract.
- An Illusory promise lacks mutuality of obligation
Mutual Assent

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A requirement of a valid contract that the parties possess a mutuality of assent as manifested by
the terms of the agreement and not by a hidden intent.
- Consensus/mirror image rule 2 parties have to mirror both parties intentions and
anything that doesnt mirror is precluded
- Objective manifestation meeting of the minds - does not matter what the parties believe
internally (subjectively), only matters what is expressed outwardly (objectively)
- Reasonable person test based on the words expressed. If the one party knows that the
other partys words are not meant in their ordinary, usual, reasonable meaning, then they
cannot rely on the reasonable meaning.

When there is no consideration you can try in Promissory Estoppel

Promise to do something in the future where the promisor should reasonably expect to induce
action or forbearance of a definite and substantial character on the party of the promise and
which does induce such action or forbearance is binding . Restatement 90.
- Applies only when there is no consideration for a contract.
- Requires a reliance detriment. No original contract/consideration; however, if a
reasonable person (objective, not subjective) would rely on the promise made, leading to
a detriment then you can sue.
- Promissory Estoppel v. Equitable Estoppel: Promissory is about a future promise,
Equitable is based on a past or existing fact.

If not in promissory estoppel you can try in Moral Obligation

Moral obligation a duty that is not enforceable by law, but is consistent with ethical notions of
justice. To enforce you need 3 things:
1) Original obligation
2) Now barred by law
3) Subsequent promise, reviving past obligation

If not in moral obligation then you can try for Unjust enrichment/Quasi contract
Not a contract. A contract implied in law. Need to prove all 3 of the following elements.
1. Non gratuitous referral of benefit
2. Acceptance and retention of benefit
3. Unjust enrichment if benefit is not returned

Example of Quasi Contract: Cotnam v Wisdom

Surgeon operates in the street on a man hit by street car, but man still dies. Surgeon sends bill to
family of the man
a. A non-gratuitous benefit was performed in a situation where a contract couldnt possibly be
provided
b. Acceptance and retention of benefit through the performance of surgery
c. Unjust enrichment doesnt depend on the intention of the parties

When modifying contract remember the Preexisting Duty Rule

Restatement 2d 73 - performance of legal duty owed to promisor, which is neither
doubtful nor subject of dispute, is not consideration; but a similar performance is
consideration if it differs from what was requiredand reflects more than a pretense of
bargain.
- For a modification of a contract without new consideration to be enforceable, there need be
drastic/unforeseen changes to the circumstances as seen in Angel v. Murray (the new
houses was considered unforeseen)
- Modification of a contract cannot occur under duress

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However for goods: UCC 2:209 An agreement modifying a contract needs no
consideration to be binding; must be mutual without coercion

Option Contracts
- Option contract requires: 1. Time of exercise; 2. Consideration; 3. Method of
exercise
- Nominal consideration and recital of consideration is enough to satisfy an option
- Restatement 2d 45: Tendering a beginning of performance when performance is bargained
for makes an offer firm.
- The power of acceptance under an option contract is not terminated by rejection or
counteroffer, by revocation or by death or incapacity of the offeror. (2nd Restatement 37)

Mailbox Rule
Restatement 63: Mailbox rule - acceptance is binding after being placed in the mail/out of the
hands of offeree, doesnt matter whether or not the offeror ever receives it.
- MAILBOX RULE ONLY APPLIES TO ACCEPTANCE, NOT REJECTION
- It must be reasonable to use the mail to accept
- Any indication in offer that acceptance must be received negates mailbox rule
- Acceptance has to be valid
- Offeree must choose to accept by mail (an initial rejection negates mailbox rule even
though not received you cannot speculate on the fiction of receipt).
- If the rule applies, it applies strictly
- Rule will not be applied if it leads to absurdity
- Rule applies to fax, electronic wire transfers, but not to email.
- Email Rule is that once your system receives it, its accepted regardless if the person
has actually opened it) Voicemail you are considered under a duty to check your
messages if you choose that mode of communication. (Up for Debate)
- Rule does not apply to acceptance of option contracts.
If offeree rejects by a quicker means and offeror relies on that rejection, offeree is estopped from
insisting on their strict legal rights.

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