I.

FORMATION OF A CONTRACT:
CONTRACT-
• A contract is a promise or set of promises to obligate those parties to do something that they would normally not
voluntarily do, FOR BREACH OF WHICH THE LAW PROVIDES A REMEDY.
- A contract may be written or oral
- Promise- is a manifestation of intent which is an undertaking to act or refrain from acting in a specified way at some
future time
Intent- a mental desire to act in a certain way (to enter into the contract)
Demonstrated through:
1) Outward manifestation of the parties
a. what do the parties convey outwardly—we must base intent on these outward manifestations
because there is no means to know what the parties are thinking
2) Reasonable person test
a. Would a reasonable person (the objective standpoint NOT subjective) in the position of the
offeree believe that the offeror is expressing an intent to be bound
3) Intent to be bound by legal consequences
a. A duty which is contractual must be acted upon—determine whether the offeree is seriously
expressing an offer
4) Meeting of the minds (mutual assent to be bound)
a. Do the two parties have the same intent (does the offer match the acceptance—similar terms)

DUTY TO READ--- when a person signs a document without reading it the fact that they failed to fulfill their obligation does
not negate accountability for the writing
CONTRACTS ARE ONE OF THE FOLLOWING:
1) BILATERAL- A promise in exchange for a promise. In this case there are two outstanding future promises. Both
sides make a promise.
2) UNILATERAL- A promise in exchange for an act. The offeree’s act of acceptance is also her act of performance,
so that at the instant of formation, the offeree has already performed and the offeror’s promise is outstanding. The
offeree does not make a promise, but instead just acts.
• Ordinarily there is no occasion to notify the offeror of the acceptance of a unilateral contract—if the doing
of the act is sufficient acceptance, and the promisor knows that he is bound when he sees that the action has
been performed from his offer.
THE AGREEMENT PROCESS:
For a contract there must be:
1. a mutual assent to be bound (often demonstrated through offer and acceptance)
o The ASSENT POLICY—dictates that contractual obligation which should not be imposed on a person
who did not in fact agree to be bound.
 ASSENT is looked at through the objective approach (if we could not rely on words or conduct
to determine assent then there would be no reliance on contracts)
2. consideration (or an alternative i.e.: promissory estoppel)

A. THE OFFER:
• Offer- is a manifestation of intent to enter into an agreement with another through a promise.
 The offeror is the “master” of his offer.
ELEMENTS OF AN OFFER:
1) Definite and certain terms
 TO determine if the elements were met ask:
o Would a reasonable person believe that there was intent to be bound legally, under the circumstances,
based on the outward manifestation of the parties (words/actions) that provides a meeting of the minds?
2) Intent to be bound
3) Communicate to a specific offeree
• There is NOT an offer expressed through:
a. a quote/estimate d. inquires and invites
b. opinions/predictions e. jokes
c. intention and hopes f. auctions
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 g. advertisement
o UNLESS
1. stated quantity
2. specific terms—with reasonable certainty (material terms resolved)
3. promise to sell upon acceptance

• The offeror is the “master” of his offer --- he has the power to set the terms—ask what does the offeror outwardly
manifest to the offeree--- what is his intent though these outward manifestations and what would a reasonable person believe
he is manifesting?

An offer MUST contain:

1) The offer MUST be communicated by the offeror to the offeree
a. The offer cannot take into effect until it is known by the offeree
2) The offer MUST indicate a desire to enter into a contract
a. To this it has to specify the performances to be exchanged and terms of the relationship
b. The offeror dictates the means for acceptance
3) The offer MUST be directed at some person or group of persons
a. Offers can be made to an undefined group: in this event it must be specified if the offer is only for the first
to reply or if there can be multiple acceptances
4) The offer MUST invite acceptance
a. It may or may not indicate how and by what time the acceptance is to be communicated
b. A mode and time must be set for acceptance if not then they are to be determined by court interpretation of
reasonable and timely
5) The offer MUST create the reasonable understanding that upon acceptance a contract will arise without any further
approval being required from the offeror
a. This is what distinguished a contract from a proposal

• Objective Standard determines that the offeror intends a contract to arise and expects to be committed upon acceptance
(A.K.A. power of acceptance)

• OFFER EXPRIATION BY PASSAGE OF TIME:

Determined by a reasonable amount of time if no time is stated
TERMINATION of the (power of acceptance) OFFER—before lapse of time
a. Rejection- offeree rejects it
b. Counter offer- treated as rejecting the original offer and making a new offer.
c. Death or Mental Disability- there can be no meeting of the minds if death occurs before the acceptance. Contractual
liability IF THE CONTRACT WAS ACCEPTED then becomes part of the estate UNLESS otherwise stated in the
contract. Mental Disability is treated the same way--- if mental disability occurs after the contract was accepted
then there is still a contract.
d. Revocation—the offeror can revoke the offer at any time so long as there was not an acceptance--- regardless of
whether the offeror states that it will be open.
a. Revocation takes effect when it is communicated to the offeree either directly or indirectly
i. Direct revocation--- when the offeree has notice (can be written)
ii. Indirect revocation—if the offeror took action clearly inconsistent with the continued intent to enter
a contract and the offeree obtains reliable information of this action. (i.e.: reliable someone tells his
that a property was sold, or he has read that it was sold)
• Irrevocable offers:
Options
An option contract is formed:
1) by the offeree beginning to perform under an offer that looks to acceptance by performance only
2) by a writing signed by the offeror which recites a purported consideration and proposes a fair exchange
3) by detrimental reliance
b. An option is a promise to keep an offer open for a stated period of time and must have its own separate
consideration if the option is in relation to a new contract.

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 c. Separate consideration for an option only applies in relation to the formation of a new contract that is when the
option is a promise not to revoke an offer to enter into a contract.
d. If an option is granted within an existing contract, it is part of the bundle of rights exchanged in the contract and
is supported by the grantee’s contractual consideration.
e. Example: No separate consideration is needed if the buyer is a tenant of an apartment under a lease and the lease
contains a term granting the buyer the option of purchasing the property for X amount before expiry of the lease.

2) Part Performance or Detrimental Reliance

• The offeree’s part performance or detrimental reliance may transform an otherwise revocable offer into a
temporarily irrevocable one
• A subcontractors offer:
 Once a subcontractor submits his offer to the contractor it becomes temporarily irrevocable—the contractor is
not bound because he may accept another’s offer

B. ACCEPTANCE:
• Acceptance—offeree’s manifestation of assent to the offer which may be indicated through words, performance, in writing,
or silence. Acceptance is a promise or performance with knowledge of the offer.
o This is determined through the eyes of a reasonably prudent person (objectively, like an offer)
o The offer can only be accepted by whom the offeror is extending the offer to
o The offeree must know of the offer (i.e.: reward)
• Elements of Acceptance:
1) A voluntary act (knowledge and free will)
2) Performed with the intent to enter into a contract
3) Subject to the terms set by the offeror
Rules governing mode of acceptance:
1) When the offer clearly manifests the intention that a prescribed mode of acceptance is mandatory and
exclusive their offeror’s intent must be deferred to and that particular manner of acceptance must be
complied with exactly.
2) In a manner of acceptance is specified but it does not reasonably appear intended as exclusive, any
reasonable method of acceptance is effective provided that it is consistent with the prescribed mode and
provides protection to the offeror equal to that of the stated mode
3) If the offer does not specify any mode of acceptance the test for the appropriateness of the communication is
even less stringent. The offeree may use the same mode as used by the offeror, of any other methods of
communication that is customary for transactions of that kind or is reasonable under the circumstances
Bilateral Acceptance: through a promise
Unilateral Acceptance: most courts hold that the offeree must give notice of his acceptance after he has done the requested act.
 I.e.: I’ll pay you $100 if you walk across the Brooklyn Bridge. The offeror has no means to know the offeree
completed the act unless notified.
SILENCE MAY ACT AS ACCEPTANCE IF (but is not always acceptance):
1) The offeree had a reasonable opportunity to return or refuse the property
2) If it is reasonable for the offeror to expect the offeree to give notice of rejection (based on past business)
• If one is given a good or service and has not refused them then he has accepted
• Acceptance matching the Offer:
1) Mirror Image Rule: the offeror’s response only operates as acceptance if it is the precise mirror image of the offer.
There can be no conflicts in terms (altered, or added) if so then it becomes a rejection and counter offer.
2) If some terms are not addressed in the acceptance then the terms of the offer are treated as covering the acceptance
3) If issues are covered differently in the offer and acceptance then the court applies the “knock out rule” which cancels
out the issue and they insert a gap filler.
4) If acceptance diverges too greatly from the offer then there is no contract—but if the parties perform like there is a
contract and one party ships the other a product and they keep it then a contract is formed
• When acceptance becomes effective:
1) Mailbox rule—“deposited acceptance rule”—where an offer expressly or impliedly authorizes acceptance through
the mail or another non-instantaneous means of communication the acceptance takes effect as soon as it is properly
dispatched by the offeree (placed in the mail).
a) this rule applies unless the offeror states otherwise
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 b) if the acceptance is lost in transmission or delayed this still applies if the communication was properly
addressed:
 Properly addressed means acceptance is effective at the time of dispatch even if lost had never received
by the offeror (unless the goods were sold to another or other circumstances may call for excuse)
 NOT properly addressed means the acceptance was not property dispatched (sent by unreasonably slow
means) it will be effective upon dispatch only if it is received within the time in which a properly
dispatched acceptance would normally have arrived. If it comes later than this normal time it will not be
effective until receipt.
2) Both acceptance and rejection sent by the offeree—
 Depends on which is dispatched first:
a. Rejection sent first: if the rejection is sent first, then the acceptance will be effective if and only if the
offeror receives it before he receives the rejection
b. Acceptance dispatched first: if the acceptance is sent before the rejection, the acceptance is effective
upon dispatch and the subsequently dispatched rejection (really a revocation of acceptance) does not
undo the acceptance, whether that rejection is received by the offeror before or after he receives the
acceptance.
3) Option Contracts
• The acceptance of an option contract is effective upon receipts by the offeror, not upon dispatch.
4) Risk of mistake in transmission
• The risk of a mistake in transmission of the terms of the offer is upon the offeror. That is, a contract is formed
on the terms of the offer as received by the offeror.
• However, if the offeree knows or has reason to know that there was a mistake in transmission she cannot snap
up the offer.
• Indefiniteness— where terms of the contract are not definite the court may find the contract void for indefiniteness
1) if the court believes that the parties intended to contract they will supply a reasonable valued for the missing terms
2) implied obligation of good faith and fair dealings
3) Agreement to agree—the court will generally supply a missing term if the parties intentionally leave that term to be
agreed upon later and they then don’t agree.
4) Part Performance—even if an agreement is too indefinite for enforcement at the time it is made, the subsequent
performance of the parties may cure this indefiniteness
a. I.e.: if A makes B a suit and there was no specification to material or color. A uses grey cotton and B never
objects then the indefiniteness is cured by part performance
• Misunderstanding— if the parties have a misunderstanding about what they are agreeing to this may prevent them from
having the required meeting of the minds and thus no contract is formed if:
1) The parties each have different subjective beliefs about a term of the contract
2) That term is a material one and
3) Neither party knows or has reason to know of the misunderstanding
• I.e.: the 2 ships called Peerless
• If the party knows or should have known that they had different understandings then the contract is understood in the favor of
the innocent party
o However, if the offeree fails to read or understand the offer due to his negligence then he is still bound by the terms
of the offer.
But:
o If the offeree’s misunderstanding is due to the offeror’s misrepresentation of the terms then the contract is enforced
as understood by the offeree

C. CONSIDERATION:
• Consideration: an essential element of a contract which the court may stretch to find consideration when the promise
appears to be seriously intended and fairly obtained, but may more readily apply the doctrine to invalidate a promise that
appears to have resulted from advantage taking or unfair dealing.
o requires that some quid pro quo be given for the promise by the promisee
Must consist of: the promise must induce the detriment
1. detriment to the promise or a benefit to the promisor (the promise must induce the detriment)
2. and bargained for exchange
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 a. Detriment—is any relinquishment of a legal right which can take the form of:
1. An immediate act (that is doing or giving something up),
A forbearance (refraining from something), or
3. The partial or complete abandonment of an intangible right.
o Non-economical (refrain from drinking) detriments will suffice
o Nominal amounts are adequate for consideration unless there is EXTREME disparity in value between what the
promisee gives up and receives which may suggest that a “bargain” does not exist.
o Pre-existing duty rule—one does not suffer a detriment by doing or promising to do something that one is
already obligated to do or by forbearing to do something that is already forbidden; therefore, there is no
consideration in this.
o modification must be a mutual decision, it cannot be for the sole benefit of one party
UNLESS the modification is fair and equitable in view of circumstances not anticipated by
the parties when the contract was made
b. Benefit—the promisor got what it was that he bargained for. Not always is a benefit clear it could be for the
promisee to quit smoking…etc

c. The Bargained for Exchange (bargain theory)—a promise must have been sought by the promisor and given by
the promisee in exchange for the promise. (a.k.a. an agreement—or a manifestation of mutual assent). This theory
recognizes that contracts are voluntary exchange relationships.
1. The promise to make a gift is unenforceable but after the gift has been given one cannot rescind for
lack of consideration
2. If the meeting of a condition is not really bargained for by the promisor then the condition will not be
met but if it is something bargained for then there will be consideration
o I.e.: uncle and nephew agreed that if the nephew refrained from drinking, smoking and gambling then his uncle
would give him $ for that detriment
• Nominal Consideration—is sometimes recognized by the court as consideration because it is not for courts to decide the
worth of something and if they view it as seeming to be big enough then it is enforceable but if the consideration is very
small then the court may conclude that there was no consideration
• Sham Consideration—purely for the sake of legal formality the parties may recite a sham consideration for the grant of an
option that is consideration is not actually given but merely stated to have been given to make it appear like it has. Some
courts accept this type of consideration if there is no fraud and it seems fair, but some do not.
• Illusory, Alternative and Implied Promises
1) Illusory Promises—an illusory promise is not supported by consideration and is not enforceable. This is where there
appears to be a promise but the promisor in fact did not commit to anything at all.
2) Implied promises—courts try to find consideration—perhaps through an implied promise in return
a. I.e.: reasonable efforts to market clothes/ secure a loan
• Promises Binding Without Consideration
1. Past Consideration—occurs when the promisee suffered the detriment before the promise was made. The promise
did not induce the detriment
2. Promise to pay for benefits received—services were rendered in an emergency
3. Modifications of sales contract
4. Option Contracts
5. Promissory Estoppel: A doctrine, derived from equitable estoppel, under which a court has the discretion to enforce
a non-contractual promise made with the intention of inducing reliance and justifiably relied on by the promise to her
detriment. Depending on the needs of justice, the promise may be enforced fully, or only to the extent necessary to
reimburse wasted costs and expenses.
o Promissory estoppel is a false statement treated as a promise by a court when the listener had relied on what
was told to him to his disadvantage
o Promissory estoppel is a promise which the promisor should have reasonably expected to induce action or
forbearance of a definite and substantial character on the part of the promise and which does induce the
action or forbearance is binding if the injustice can only be avoided by enforcing this promise.
• Derived from (Equitable) Estoppel.
Elements:
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 1. a promise must have been made
2. the promisor should have reasonably expected the promise to induce action or forbearance by the promisee
3. The promise must have induced justifiable action or forbearance by the promise
4. the promise is binding if injustice can be avoided only by its enforcement

5. There must have been actual reliance—to show that had that person not been induced by the promise he
would not have acted as he did and the promises reliance must be reasonably foreseeable to the promisor.
I.e.: promises to make gifts, charitable subscriptions, bailments, offers by subcontractors, promise of a job, and
negotiations in good faith.
Applicable when:
1. A promise made for good consideration is not enforceable because of noncompliance with legal formality
such as the statute of frauds.
2. Promissory estoppel may be used to hold a party to a promise made during negotiations for a failed contract.
3. Promissory estoppel may afford relief for reliance on a promise that falls short of becoming contractual
because of some defect or omission in the agreement formed by the parties.
• Damages under this equitable doctrine are limited to those necessary to prevent injustice. Plaintiff receives reliance
damages rather than expectancy damages.
• The plaintiff is placed in the position he would have been in had the promise never been made. Only damages as a result
of reliance on the promise

Mistake
There is an offer/acceptance and consideration: Now look at the terms of the agreement and the circumstances to ensure that
there is truly a contract:
Interpretation and Construction:
No contract comes into being if a material aspect of the agreement is left indefinite by the parties and the uncertainty cannot be
resolved by the process of interpretation or construction.
For a contract to fail there must be
1) an incurable uncertainty
2) and this uncertainty must relate to a material aspect of the relationship
• A material term is one which is so central to the values exchanged under the contract that it is a fundamental basis of the
bargaining
o Terms:
1. unclear terms
a. vague terms
b. ambiguous terms
2. omitted terms
3. unresolved terms
• Interpretation is the ascertainment of the meaning of a promise or agreement. It is an evaluation of facts (the evidence of
what the parties said and did and the circumstances surrounding their communication) for the purpose of deciding mutual
intent. The interpretation is to be objective or reasonable meaning of the words.
o if evidence of meaning is available it is a fact finding process for the jury
When interpreting the agreement one must take into account:
a. the language and conduct of the parties in forming the contract
• look at express terms
• then the language as a whole
b. their conduct in performing the contract after it was formed
c. their conduct in prior comparable transactions with each other
• look to prior dealings of the parties
d. and customs and usage of the market in which they are dealing
• What is standard in the trade/industry?
• Construction--- implication in law goes beyond available facts to find what the parties would or should have meant in
making the manifestations that were made.
o no evidence of meaning is available—is a matter of law and for the judge to decide
General Rules for interpretation (or construction):
1) agreement should be interpreted in light of all of its terms
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 2) it should be interpreted in a manner to encourage the contract as valid
3) pay attention to precise provisions
4) handwritten terms are weighted more than typed
5) look for general words for types i.e.: animals, primates, reptiles, modes of transportation with wheels are not
allowed on sidewalks
6) when terms are ambiguous or vague the court interprets the agreement in favor of the non-writing party

Gap Fillers
o A gap filler is a provision legally implied into a contract to supplement or clarify its express language
o gap fillers are based on common expectations, commercial practice and public policy
Examples of Gap-Fillers:
If a level of performance is not stated--- best efforts is (reasonable efforts) for the obligations of the
parties.
• I.e.: if a seller and a buyer engage in a contract for the buyer to purchase sellers land then the buyer
must use his best efforts to secure a loan—no effort to secure a loan is a breach even if there is no
expression in the contract for best efforts to be used
If the parties to an employment contract do not specify its duration it is deemed to be terminable at
will
If the sequence of performance is not specified then the performances are to be made concurrently
 BUT if one performance is instantaneous and the other needs time to perform it is presumed that
the longer performance must take place first.
 I.e.: in the sale of a house payment and title transfer are concurrent while if one builds a house
the building must take place before payment takes place.
4. If the parties do not state that rights under a contract are personal to the oblige, the oblige may transfer
(assign) those rights to another person

Mandatory Construed Terms

o the parties are to perform the contract reasonably and in good faith (this is a duty imposed on anyone who contracts)
this term cannot be excluded even if expressly excluded
Construed Terms which may be Excluded ONLY by Expressly stating so:
o These terms are more strongly implied than gap fillers

Future Terms
o If the parties are unsure of a term they may enter into the contract by:
 I.e.: if a lessors building won’t be completed for occupancy for 3 years the lessor and lessee may still enter the
contract-- $ of rent they are not sure of
1) they could use the market standard for the average rent of other comparable buildings in the area—
this must be stated in the contract
2) they could leave the price to the discretion of one of the parties—that party must comply with fair
dealing and good faith (this is risky)
3) if no rent is stated then it can be inferred that the parties agreed on a reasonable rent if it is shown
that the parties intended to agree on it later—if not then there is no contract because this term is
central

• Agreement to agree—negotiating parties may have reached an agreement in principle but may not have settled all the terms
of their proposed contract. They may decide to postpone resolution of those terms for later, agreeing to address them at a
future date. This situation is sometimes described as an agreement to agree. If the unresolved terms are material, no contract
can come into existence until they are settled, so an agreement to agree is not a contract. However, the parties may have
promised expressly or impliedly to continue to negotiate in good faith.
o There is still a commitment to each other to make honest efforts to work toward an agreement.
o If this is the case and a party breaks off the agreement the party claiming the obligation must provide credible
evidence that this was not an ordinary negotiation.
o A promise to negotiate in good faith is merely a commitment to make honest efforts to reach agreement—it is not
a promise that agreement will be reached.

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Misunderstanding: Total Ambiguity
o When parties have different understandings of their agreement, the party with the more reasonable understanding
prevails—
o HOWEVER, sometimes the parties have opposite understandings and both are reasonable… in this case the court
finds that there must have been NO contract (meeting of the minds)
 Example:
• Raffles v. Wichelhaus—the buyer agrees to purchase cotton from the ship called Peerless from
the seller. Unbeknowst to either of them there were two ships called peerless and the buyer
meant a ship which sailed in October while the seller meant the one in December--- the court
found that there was no contract and the seller did not breach it by not tendering payment
The meaning and terms must be determined by interpretation and the entire context of the transaction which could include
negotiations, past dealings and accepted usages (the next rule imposes restrictions on what may be admissible)
• Construction
The Parol Evidence Rule:
This rule only applies when a written agreement has been executed
1) the writing must have been adopted by both parties—both signatures need not be present, just proof that
the agreement was the intent of both
2) parol= “a word” a concern with oral communications (and prior written agreements)
3) not all evidence is excluded—honest and pertinent evidence of what was actually agreed is admissible
4) this is a two stage process—the judge determines if the evidence is admissible (question of law) then if it
is then it goes to the jury to determine if it is believable
 Evidence of alleged terms not included in the written record of agreement (in the contract) but claimed
by one of the parties to have been agreed to orally before or at the time of execution of the written
contract or in a prior writing.
 The written agreement is said to be the final draft which is intended to supersede earlier negotiations
and communications to the extent that its terms depart from or do not include what was formerly agreed.
 As a result evidence of any earlier agreement is irrelevant and misleading and should be kept from the
fact finder.
 Total Incorporation--- the writing clearly expresses every term in the agreement and it is intended
to be the exclusive statement of everything that was agreed--- then no terms can exist beyond those
set out in writing
o even these writings which are intended as total integration may not be so and parol
evidence could apply
 Partially Integrated- one or more of the terms have been fully, finally and clearly expressed in the
writing
 Unintegrated- when none of the terms are set out in full, final and certain form
 Parol evidence is admissible to supplement or explain the writing provided that it does not contradict or
vary anything that has been recorded in the writing.
Parol Evidence Process
 Step 1: judge decides the issue of integration— he must decide if the parties intended the writing to be a
full and final expression of their agreement through interpretation
o Traditionally: the courts looked only at the four corners of the document and if it appeared to be
complete then no parole evidence was admissible
o Modern Trend: even when the document appears to be complete the court will look at evidence
which will reveal that an apparently integrated writing was in fact not intended as such or contains an
ambiguity that is not otherwise obvious
Step 2: If the evidence is admitted then the fact finder determines whether the evidence is believable or not
o Merger Clause—this is expressly stated in a contract and states that the contract reflects the parties’ entire
agreement and there are not any other agreements. If this clause is included in the contract it carries much
weight for the court in that if there would any other terms they would have been included since both parties
signed with this clause in the contract
 Is the evidence supplements or explains the writing, it should be allowed in, but if it clashes and cannot be
reconciled with the writing, it must be excluded

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  Even if the parol term does not contradict anything expressed in the writing is could still be inconflict
with the normal legal or factual implications of the contract.
 evidence of usage, course of dealing or course of performance is admissible to explain or supplement a
writing even if it is intended as a final agreement
 trade practices are often not stated in the contract so if a party goes against those common practices then
the court should allow external evidence
o Exceptions to the Parol Evidence Rule:
1) evidence to show fraud, duress, mistake and other basis for invalidating or avoiding the contract are
admissible
2) evidence is admissible to show that a fact recited in a writing is false
3) evidence is admissible to show that the agreement was subject to a condition
• No oral modification clause in the writing means that the written contract is not subject to oral modifications, however, the
court usual admit evidence of a modification even though this is express because modifications sometimes need to be made
later

II. PERFORMANCE OF A CONTRACT: CONDITIONS AND PROMISES

• Promise: is an undertaking to act or refrain from acting in a specified way at some future time
• Condition: is an event that is not certain to occur
• Uncertain event occurring or not occurring
• these events are usually future but could be past if neither party is aware and will find out later but wish to
contract now then a past condition can be incorporated.
• When making a contract the parties agree that a particular promised performance or set of performances will not become due
until and unless a particular uncertain event occurs.
• Conditions are often used to escape risk they are referred to as escape clauses

Manner of Conditions:

1. Express Conditions: A condition is express if the language of the contract on its face and without reference to extrinsic
evidence articulates the intent to make performance contingent on the event.
• Denoted as: on condition that, subject to, provided that or if
• These conditions are applied strictly by the courts- express conditions=strict compliance.
• NEED LITERAL PERFORMANCE
• If only substantially perform then there is a breach

2. Implied in fact Conditions: (look at conduct) a condition which there is no express language creating a condition looks at
contextual evidence which may support the inference that the parties intended a performance to be condition.
• A condition can be implied in fact by interpreting the words used by the parties in light of the circumstances
surrounding the formation of their contract.
• NEED LITERAL PERFORMANCE
• If only substantially perform then there is a breach

3. Construed (constructive) Conditions: Conditions are not always expressed or inferable from the language.
The court will imply the condition as a matter of law if the circumstances and nature of the contract compel the conclusion
that the condition should exist as a matter of policy or that if the parties had addressed the issue, they reasonably would
have intended it to be part of their contract.
• trade usage, prior dealings, or statements made during negotiations
• Substantial performance is good enough

• Conditions on one party and the contract as a whole:

 When it is not apparent when the exchange is to take place then the exchange is to take place at the same time—the
exchange is dependant on one another and this concept is referred to as constructive conditions of exchange
• One party:

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 • If one party’s performance is a condition of the contract and that party does not perform then the other party
is excused from performance but if the one party decides to waive the condition then the parties can still
proceed with the transaction.
• I.e.: if there was a condition for an agreement that if the property were zoned residential then the buyer
would purchase it for $X from the seller—if the property can not be zoned residential the buyer (NOT THE
SELLER) can waive that condition and still purchase the property
• Contract as a whole:
 If the contract as a whole is conditioned then this would mean that if the condition is not satisfied then
neither party is bound and the contract fails
• Pure Promises:
 Not a condition but an undertaking
**if the promise is broken then the party is liable for breach of contract
• Pure Conditions:
 They contain no promises but merely describe an event that must occur for a duty of performance to arise
** A pure condition is intended when a party has no power to influence the happening of the event
** if the condition is not satisfied the performance obligation falls away and there is no basis for claiming breach of contract—
because it is out of the parties control
• Promissory Conditions:
 A condition where a condition and a promise that the condition will occur.
 When one party’s performance is contingent on the other party’s performance.
** When the party can play a role in affecting the outcome of an event
** If the promissory condition is not fulfilled then the party whose performance was contingent on it is entitled to BOTH
withhold counter performance and to seek a remedy for breach.
• Time Conditions:
 Conditions Precedent:
o Is a condition that must be fulfilled before a duty to perform comes into effect?
** Prerequisite to the duty arising
** Burden of proof is for the party who is seeking to enforce the condition precedent
 Concurrent Conditions:
o Where mutual performance under a contract are dependent on each other and the contract does not expressly
or impliedly set out a sequence for performance, they must be rendered at the same time—the performances
are conditioned on one another.
 Conditions Subsequent:
o Is a condition which discharges a duty of performance? The duty to perform arises immediately upon
formation of the contract but if the condition occurs, the duty falls away.
** defense to non-performance and must be proved by the party whose performance obligation has allegedly been
discharged
• Condition of satisfaction- a party could have a term included in the contract making her satisfaction a condition precedent
of her performance
 this is risky
 the contract should state a standard by which to measure satisfaction: this is measured subjectively
 But there is a preference for using the objective standard because it is fairer and more predictable
 the dissatisfaction must be in good faith
 If the court deems the condition of satisfaction fulfilled then the other party must perform—failure to do
so results in a breach
**One contract can be filled with any of the above conditions or all.
 Strict or Substantial Compliance with a condition:
• Strict Compliance:
o When a performance is subject to a condition the duty to perform does not arise unless the condition is fulfilled.
Unless the express condition is exactly satisfied then the conditional duty does not become due. The parties
have clearly chose to make performance subject to the stated event and the court will honor this intention for
nothing less than exact fulfillment--- if less than a breach has occurred.

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 • I.e.: reasoning must occur within 60 days--- strict compliance—if it occurs in 61 days it is still a
breach
o If it says rezoning must occur in a reasonable time—flexible interpretation by the factfinder
o (express and implied conditions require strict compliance)
• Substantial Compliance:
o When the condition is neither express nor implied from factual evidence but rather construed as a mater of law
based upon what the parties have reasonably intended. The court determines reasonability; therefore, it is
unlikely that they can hold the parties to strict compliance.
o (construed conditions require only substantial compliance)
 Distinguishing a Condition from an Event that sets the time for performance: Passage of time is not a condition because
it is not an uncertain event
• Performance due on an event:
o If the payment for a service is due on payday at the end of the month and the employee is fired it depends if his
getting paid was a condition to his payment for the service or if it was a set date for payment to occur.
 Excuse of Conditions
o After the contract was entered into there may arise circumstances which make the condition impossible, unreasonable
or too harsh--- the condition may be excused to prevent injustice and the performance is absolute (must be preformed
absent the condition)
1) Wrongful Prevention
• The party favored by the condition hinders its fulfillment
• If the party does not make reasonable or good faith effort
o I.e.: if the party says that they will purchase a home if they can obtain a mortgage loan--- that party has a duty to
reasonably and in good faith obtain the loan—if she does not attempt to get a loan she violates her duty and the seller
may enforce her promise absent the mortgage—if she had tried and it failed then the seller has no recourse
• The court may apply the “but for” (causation) test
2) Waiver or Estoppel
• Estoppel: equitable doctrine (when one relies to their detriment on what another says)
o Precludes a person from asserting a right when by deliberate words or conduct and with knowledge or reason to know
that the words or conduct will likely be relied on by another, the actor causes the other party detriment by inducing the
justifiable belief that the right does not exist or that it will not be asserted.
• Waiver: voluntary abandonment of a contractual right
o A waiver can be made and then retracted prior to the due date but if the other party relies on it to their detriment then
it cannot be retracted.
3) Forfeiture (i.e.: A forgot to pay car insurance on time and then gets into an accident, the court will say that the insurance
company cannot bar him from recovery for being one day late—that would be unjust there fore they forfeit that condition of
paying car insurance to allow him to recover)
• Forfeiture is an appropriate basis for excusing a condition only if its enforcement would result in an unfair
disproportionate and harsh deprivation of the rights or property of the party who expects performance and a windfall or
unfair benefit to the party whose performance is subject to the condition
Breach and Repudiation:
• Breach of Contract occurs when one fails to honor a promise of performance when that performance falls due
• To establish that a breach occurred ASK:
1) Was a promise made?—interpretation and contractual undertaking
2) When was the promised performance due?—a breach does not occur until performance is due and one fails to
perform
3) Was the performance in compliance with the promise?—any shortfall from the promised performance is a breach,
sometimes it is clear sometimes there is a disagreement as to the quality and sufficiency of what was performed
4) What is the proper response to the breach—if the promised performance was not rendered properly or at all a breach
has occurred.
Types of Breach:
• If a breach is:
 Material and total—the promisee may:
1) withhold performance
2) terminate the contract
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 3) claim full damages for breach (compensation for loss of his bargain)
 Material but NOT total (Partial)—the promisee may:
1) suspend performance
2) await a cure
3) claim compensation for any loss suffered
 Not Material (substantial performance)—the promisee may:
1) claim compensation for any loss suffered but must stick to his end of the bargain
Material Breach:
Test: a breach is material if the failure or deficiency in performance is so central to the contract that it substantially impairs its
value and deeply disappoints the reasonable expectations of the promisee.
a) The breach is a significant part of the consideration bargained for by the promisee
b) The breach need not be intentional
c) When the breach occurs could determine materiality (in the beginning or end of performance)
d) if the breach is not material then it is substantial performance
Substantial Performance:
This is a NON- MATERIAL breach; therefore, partial and occurs when one party’s performance falls short of that promised in
the contract, but performance is sufficient to qualify as substantial
Relief for Substantial Performance:
1. The usual measure of damages is the cost to place the promise in the position he would have been in had the
performance been in full compliance with the contract
2. This is the amount of money necessary to correct the shortfall in performance i.e.: if work was not completed then $ to
seek another, compensation for loss from a delay, damages for work done incorrectly or with defective products
3. The court will find damages in a case where the breach is trivial and the cost to rectify will be too great
a. Economic Waste Doctrine: If damages for rectifying a breach are disproportionate to the victim’s true loss the court
has the discretion to adjust them downwards to more accurately reflect the actual loss. The true basis for this rule is
that it would be an unfair forfeiture to compel the breacher to pay damages disproportionate to actual loss.
i. If there is no loss in value due to the trivial breach then they are entitled to no damages
Partial Breach:
• This is a breach which is potentially material when they occur but at this stage they are regarded as partial because they are
not yet serious enough to be total.
• The breacher can prevent such a breach from becoming total by curing the deficiency within a reasonable time.

 Incurable------------------------------ Total
Material  Uncured---- Total
Breach occurs  Curable (partial)
 Cured------ Substantial Performance
 Non-material (partial) ---------------------- Substantial Performance

The Breaching Party’s Recovery Following a Material Breach:

• Forfeiture of Contractual rights by a party who breaches materially.
• A material breach operates as a renunciation of the contract by the breacher, who thereby forfeits all rights under it and has no
contractual claim to enforce.
Restitution in favor of a party who has breached materially.
One is entitled to restitution by the court to restore property or its value to a party from whom the property was unjustly taken or
has been unjustly retained.

Quantum Meruit—as much as deserved is used to denote the market value of services
Quantum valebant—as much as they are worth signifies the market value of goods

Divisibility—a contract is divisible if the mutual performances promised by the parties can be split up into a number of smaller,
self sufficient exchanges. That is, the contract can be divided into independent self contained sets of matching performances
Breach:
A breach occurs after performance falls due
Anticipatory Repudiation:
• Anticipatory Repudiation occurs before performance falls due.
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• When one makes it clear by words or actions that she will breach when performance falls due. Clear, unequivocal and
voluntary repudiation is recognized as a material and total breach.
• A repudiation may occur between the time that the contract is made and the time due for its performance—that is one of the
parties repudiates before either party has begun performance under the contract.
• It may also occur after performance under the contract has begun but before the due date of the repudiated performance.
• Anticipatory Repudiation allows one the opportunity to mitigate his loss by seeking relief for a breach without delay and
before the actual breach occurs.
o Anticipatory Repudiation is a clear, unequivocal and voluntary repudiation by one of the parties which is recognized
as the equivalent of a material and total breach, provided that the threatened action of failure to act would be a
material and total breach if it happened at the time due for performance.
• The advanced indication of prospective breach also amounts to an advance failure of the condition. If the repudiated
performance would have been due before the return performance it is a condition precedent to it.
• When a promise is dependant upon a performance that promise is a construed condition of the performance.

Elements of Repudiation: the promisor must clearly, unequivocally and voluntarily communicate an intention not to render the
promised performance when it falls due which is communicated by words or conduct.
1) Can qualify as a material and total breach
a. An advanced repudiation must be clear that it is material and total through words and conduct
2) The promisor’s statements or conduct must clearly indicate to the reasonable promisee that the promisor intends to
breach materially when the time for performance arrives
a. Use the objective test
3) The promisor’s statement or conduct in repudiating must be voluntary, that is, it must have been deliberate and
purposeful rather than inadvertent or beyond the promisor’s control
a. Did the promisor repudiate or rather did they merely express their lack of confidence to perform or complain
about the terms of the contract.
• Once repudiation occurs the other party can:
1) accept the repudiation by treating it as an immediate breach
a. She may then refuse to render her own performance, to terminate the contract and to sue for relief for total
breach.
b. By terminating the contract she takes the chance that the other party will deny that he repudiated and declares
her termination to be a breach.
2) Or she may delay responding to the repudiation to see if the repudiating party repents.
a. If she delays in responding the court may find that she aggravated her damages by not terminating immediately
and taking action to mitigate her loss.

Dangers of Dealing with Possible Repudiation- Retraction and Assurance of Performance:

• When there is any degree of uncertainty about the existence and extent of the right claimed to have been repudiated or when it
is unclear if the conduct amounts to the repudiation or when there is doubt about the appropriate level of response there is a
risk to both the promisor and promisee.
• The promisor could overact in response and that in itself could result in repudiation. At this point both parties believe that
they are in the right but one is wrong and is going to be found to have repudiated the contract.
• Since a repudiation occurs before performance falls due the promisor can take back the repudiation unless the promisee has
treated it as final and has taken action in reliance on it resulting in a significant change in her position.
• The promisee who does not wish to remain passive has the option to demand an assurance of performance provided that he
has reasonable grounds for insecurity regarding the other’s performance she may make a written demand for an adequate
assurance of due performance.

Installments:
It is difficult to know if the breach affects only the defective installment or is so serious as to undermine the contract in its
entirety operating as a repudiation of all remaining installments.

Remedies for Breach of Contract:

• Breach of Contract can be settled by negotiation, mediation, arbitration or litigation.
• The following remedies suppose that a valid and enforceable contract has been entered into and that one of the parties has
materially breached that contract.
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• After determining that there was a contract, consider what type of breach occurred.
o Then consider:
1) The nature and extent of the plaintiff’s compensable loss requires consideration not only of the plaintiff’s injury—the
harm suffered as a result of the breach but also the extent to which the law recognizes the availability of recompense for
it.
2) Then decide upon the remedy that most effectively redresses the injury. Consider the different means that may be
available to rectify the harm and the rules that govern the calculation or measurement of compensation. There may be
more than one remedy—discuss both then pick the best.
3) Consider if there are any policies or principles that may apply to limit the defendant’s liability for the loss.

Damages/Remedies:
• Equitable remedies—must have clean hands, innocent and injured and no adequate remedy at law
• Specific performance—unique or rare goods/land
• Injunction

• When there is a contract and one has materially and totally breached: (partial performance is a total and material breach)
o Expectation— what you expect to receive had the K been performed
 Value of the defendants promised performance less the benefits to plaintiff for not having to perform further
o Direct—losses incurred by the victim for substitute performance
o Consequential—going beyond the mere loss in value—damages resulting from the impact of the breach on other
transactions or endeavors
o Reliance— expectation damages cannot be determined or are not adequate (or for a quasi contract)
 Use this for promissory estoppel
• essential reliance
• Direct reliance
• incidental reliance
• Above and beyond the losses which are enjoyment or other benefits.
o Restitution— value to the defendants of the plaintiffs performance (unjustly enriched the defendant) on the contract or
in quasi contract (promissory estoppel)
o Quasi-contract—when an enforceable contract was never formed or rendered unenforceable:
o Damages: the reasonable value of the services
o Liquidated damages—the parties agree upon the damages in the event of a breach in the contract
o Punitive Damages—ordinarily not recoverable unless the breach was also a tort—foreseeable from fraud

Goal of Remedies for Breach:

• Is to place the victim of the breach in the position that she would have been in had no breach occurred; therefore, to protect
the victims expectation interest’s and to give the victim the benefit of her bargain.
• Expectation interest is the value of the performance to her based on the purpose of the contract, as gleaned from its wording
and the circumstances surrounding the contract’s formation.—Contracts are interpreted objectively so expectations must be in
accordance with what a reasonable person in her position would have expected as the benefit of the transaction, given the
language used by the parties and circumstances.

Specific Performance—an order granted by the court requiring the defendant to perform as promised.
• Called for when:
1) the item is unique
2) this is granted in equity
• Specific performance was traditionally only granted by courts of equity.

Expectation Relief:
1) $ is awarded to put the plaintiff into the economic position she would have been in had the contract been performed—
there is not always a perforce remedy but the aim is to get as close as possible. The burden of proving loss is on the
plaintiff
2) Courts do not take into account non-economic injury. Inadvertent breaches and willful and purposeful breaches are not
distinguished.
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 3) A contractual promise is a commitment either to perform the promise or to pay compensation for not doing so.
Breaching a contract is wrong in the moral sense and damages may account for this by the factfinder.
4) Efficient breach is a breach of contract which is said to be efficient if the defendant’s cost to perform would exceed
the benefit that performance would give to both parties. Efficient breaches can only be achieved if all the conditions are
right: the market must be competitive and stable so that the relative costs and benefits of performing and breaching can
be gauged.
a. The efficient breacher must pay compensatory damages to the plaintiff (but will still come out ahead).
b. From the economic standpoint the breach does not harm the plaintiff who receives the financial benefit of his
bargain, and yet it improves the defendant’s position.
c. Damages do not take into account reliability, fairdealings, inconvenience, disappointment or frustration.
d. A party contemplating breach must:
i. Be capable of acting voluntarily and rationally
ii. And must have sufficiently full and reliable information to enable her to make a prediction of likely
losses and gains
iii. And the transaction costs must be small enough so as not to eliminate any advantage achieved by the
breach
1. Transaction costs are those costs incurred by both parties in dealing with the breach and any
substitute transactions.
a. These include any cost to the breaching party of entering into the other transaction
perceived as more profitable
b. The costs of finding and making a substitute contract
c. The costs of litigation
5) An award for damages which is not paid may be enforced through a writ of execution issued by the court to the sheriff to
find, seize and sell property to pay the beft.
a. A judgment in law for damages is called in rem—it is enforceable only against the property of the defendant,
and if the defendant has no property, the plaintiff loses in the end, having incurred substantial legal costs in the
process.
Calculation of Expectation Damages:
The aim of expectation damages is to simulate as closely as possible the plaintiff’s economic situation in the absence of breach.
To determine:

Damages
• Plaintiff’s loss in value caused by the defendant’s non-performance (determined by deducting the contractual value of what
the plaintiff received from what she was promised)
+ Any other losses (this includes consequential and incidental damages)
—Less any cost or loss the plaintiff avoided by not having to perform.
1) Substitute Transaction made by the plaintiff: Damages are based on the loss incurred as a result of having to make
the substitute contract.
a. I.e.: A purchases 10 voice lessons for 1,000 from B. B breaches the contract and A seeks to find an alternative.
A finds 10 voice lessons for 1,500. B owes A 500 in damages. Those damages will place A in the position she
would have been in had a breach not occurred.
2) The plaintiff could have made a substitute transaction but did not or failed to do so: Damages are measured by a
comparison between the contract price and the market value of a substitute
a. I.e.: if the substitute A chose cost 2,000 but the market value of a voice teacher is 1,500 then B will still only be
awarded 500 because she could have found a teacher for the market value.
b. Location, Time and Place: where there are multiple locations it is difficult to determine market value, or where
the market value fluctuates or the person waited too long to obtain a substitute then it is reasonable to consider
the market in the time and place under the contract.
3) Contract for services, where a breach results in lost income and cannot be recouped: Damages may be equivalent
to the full value of the expected performance
a. I.e.: employment contract in which the employee’s only performance is her labor. B reneges on the
employment contract with A and A cannot find an alternative job. A is entitled to the full amount of the contract
because she spent nothing and was to get a salary for the work.
4) Breach of Contract Resulting in Plaintiff Losing Income but Saving Costs: Damages are measured by deducting
savings from expected returns
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 a. I.e.: If A incurs costs as a result of B reneging on the contract then those costs that would have been incurred
and paid for are deducted from the amount B would have had to pay. A must pay 500 for an acompaniest for
voice lessons for B. A charges a total of 1,000. B reneges. B must pay 500 not 1,000 for the breach because
500 is how much A would have made. A incurred no expense for the breach.
b. I.e.: If A had a contract with the accompanist and would have breached it as a result of B then A would have
had to pay 500 therefore A could recover the full amount so that he could pay the pianist.
c. This is calculated: Gross profit + Reliance—Payments or proceeds + other loss (consequential or incidental
damages)
i. Contract Price: 75,000 to build a recording studio for A. A paid B one installment of 5,000. A
terminated the contract. B did not complete performance but could show that his total costs would have
been 60,000. His costs to this point were 10,000.
1. Contract price = 75,000
Total direct cost — 60,000
= 15,000
+ Reliance expenditure
(amt spent up to the breach) + 10,000
Total (profit = reliance) = 25,000
Less payments received -- 5,000
Recovery = 20,000

• Direct and Consequential Damages:

1) Direct Damages: Losses incurred by the victim of a breach in acquiring the equivalent of the performance promised under
the contract, so as to substitute for the performance that should have been rendered by the breacher.
o In some cases the breach caused further losses in other transactions or endeavors that were dependent upon the
contract.
2) Consequential Damages: Losses suffered by the victim of a breach going beyond the mere loss in value of the promised
performance (direct damages) and resulting from the impact of the breach on other transactions or endeavors that were
dependant on the contract.

• Limitations on Expectation Recovery: To recover the following must be satisfied or considered

1) Foreseeability :The extent and scope of damages should be consistent with what was reasonably contemplated by the
parties at the time of contracting
a. Foreseeability
i. Determined objectively
ii. Foreseeability is an event or consequence when a reasonable person would realize the likelihood of its
occurrence.
iii. Damages are foreseeable when at the time of making the contract the party who ultimately breached
reasonably should have realized that those damages would be a likely consequence of the breach.
iv. It is not fair to impose liability on a breaching party if she could not have reasonably anticipated the loss
when contracting.
v. All direct damages should be foreseeable (i.e.: loss profits).
vi. Consequential damages are not foreseeable
1. I.e.: Hadley v. Baxendale: owners of a mill delivered a broken mill shaft to a carrier for
shipment to the manufacturer to use as a model for a new one. There was a delay in shipment
and the mill had to be closed for those days and they lost profit. They sued the carrier on this
basis. The court found the carrier to not be accountable for the loss because the loss was not
foreseeable because they did not know the mill had to be closed. They should have been told at
the time of contract. Had they been told by the mill owners then the carrier would have been
held responsible.
2. Court held that only losses which are reasonably contemplated by the parties at the time of
contract as a reasonable consequence of the breach may be recovered on
a. Consequential damages are those which flow from the breach.
b. Reasonable contemplation must be conceived of as a probability no just a possibility
2) Mitigation: If the plaintiff worsens the loss of the breach she cannot be compensated for her behavior
a. Mitigation
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 i. Mitigation is a principle where the plaintiff has through bad faith or unreasonable actions or inactions
aggravated her damages, the defendant is not held responsible for the increase in loss caused by the
plaintiff.
ii. The plaintiff has a duty to mitigate damages (owes this duty to herself to keep her losses down).
1. A loss caused by the plaintiff’s improper actions is not reasonably foreseeable and the plaintiffs
conduct breaks the chain of causation between the breach and the loss.
2. Determined objectively
b. Substitute Transaction as Mitigation:
• The victim of the breach has the duty to mitigate but it must be a reasonable equivalent.
• Did the victim use reasonable means to obtain an equivalent (not every conceivable step need to be
exercised)
• I.e.: a voice lesson teacher whose student repudiates need not take a job at a fast food restaurant to mitigate
her damages. It is reasonable for her to put up signs to get new students.
c. Post-breach Transactions are not Substitutes:
• I.e.: if the voice teacher is booked and the student repudiates, it follows that she cannot be sued if the teacher
then takes on a new student. There is a valid substitution. If the teacher was not booked then the students’
repudiation is a breach and the teacher may recover.
• I.e.: for large volumes such as appliance warehouses where they have many products a repudiation can be
recovered on but if one person is selling one dishwasher and the buyer repudiates but someone else buys the
dishwasher for the same price he cannot recover because he incurred no loss. If he sold it for less then he
could recover the amount he was asking less the amount he sold it for.
• I.e.: if a friend buys the dishwasher from the store in place of the repudiator then he serves as a substitute.
3) Causation: Damages are intended to compensate for losses resulting from the breach and therefore, must show a causal
connection between the breach and the loss
a. Causation
i. There must be a link between the breach and the loss
ii. Not usually an issue where direct damages are concerned unless the plaintiff broke the chain of
causation by aggravating damages
4) Reasonable Certainty: Remedies are concerned with economic loss; therefore, the plaintiff must show that the breach
resulted in financial loss and must provide evidence of a monetary loss
a. Reasonable Certainty
i. The plaintiff must show her loss by the preponderance of the evidence (more likely than not caused by
the defendant) then she will not be able to recover damages. This is determined by the fact finder
5) Unfair Forfeiture: When rigid enforcement would have an unjustifiably harsh effect on the party against whom those
rights are asserted then the court exercises discretion
a. Unfair Forfeiture
i. Forfeiture is a loss of some benefit or privilege because of the negligence of a duty.
ii. Where expectation damages calculated in accordance with the above principles would have the
absurd and unfair result of placing a great burden of liability on the defendant far in excess of the
real loss suffered by the plaintiff the court has the discretion to confine damages so as to reflect the
plaintiffs’ true economic loss.
iii. If the deviation from the promised performance is material then and it must be rectified at large
costs incurred to the breaching party then this is not unfair. This does not apply when there is a
non-material breach (substantial performance)
1. I.e.: Roofer is told to use brown shingles—he uses bright red (material) if he had used dark
tan then that would be a partial breach.
• Reliance and Restitution as Alternatives to Expectation:
o Expectation damages are the primary remedy for breach of contract but they can only be recovered to the extent that
the plaintiff can prove that the breach deprived her of an economic gain that would have resulted from the
performance promised by the defendant. She must be able to show that she received less than her entitlement under
the contract or was other wise precluded from realizing an expected gain. If a breach causes no economic loss
because a substitute transaction was found or s lower cost substitute was found.
o She may be able instead to show that she has suffered losses other than her defeated expectation.
1) Reliance damages- are those costs and expenses incurred in reliance on the contract (or in promissory estoppel, in
reliance on the promise) and wasted once the contract or promise is breached. If the cost or expense is incurred in
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 performing duties is required by the contract it is direct or essential reliance. If the cost or expenses is incurred
for the purpose of enjoying or using a benefit reasonably expected from the contract, it is incidental reliance.
a. This is a remedy based on affirmation of the contract—enforcement of the contract
b. These damages aim to refund expenses wasted or equivalent losses by the plaintiff in reliance on the
contract thereby restoring her to the status quo ante—the position she would have been in had no contract
been entered.
2) Restitution- is premised on the theory of disaffirmance it treats the breach as having caused the contract to fall
away.
a. Restitution seeks to return the plaintiff the value of any benefit conferred on the defendant under the
breached contract. This focuses on not the plaintiff’s expectation or expenditure but rather on the extent
of the defendant’s enrichment at her expense.
• Reliance Damages
o The distinction may be difficult to draw and may need interpreted to determine the parties’ contractual
obligations.
• The basis of awarding reliance damage is waste. Something of value has been wasted and cannot be
salvaged.
1) Essential Reliance—or direct reliance
o This is reliance that is directly based on the contract and essential to fulfilling the party’s contractual
commitment.
o If one cannot prove that he would have made a profit on the contract had it been fully performed he cannot
claim a loss of profit. If one can prove profit then there is no purpose to only claim reliance damages
2) Incidental Reliance Damages—
o These are losses which are incurred in consequence of having made the contract and for the purpose of using or
enjoying the benefits expected under it.
o These damages must have been incurred after the contract was entered into.
o Damages incurred prior to the contract in anticipation of the contract are not covered. (promissory estoppel
allows for this recovery)
o Lost gains and opportunities fall into this category but are difficult to prove
 I.e.: A is opening a video store and pays a 5,000 deposit to rent commercial space and printed flyers for
1,000 additionally he quit his job and turned down another commercial space offer. The lessor breaches. He
is out 6,000, his job and the other space. He cannot claim expectancy damages because he does not know
how much he would have made. He can claim reliance damages. The 5,000 is direct reliance because he
was required to put a deposit down. The 1,000 was his own choice to spend for flyers, which are incidental.
His job and commercial space are lost opportunities which are incidental.
o These are only recoverable (incidental) if the lessor could have foreseen that as being a consequence. The
lessee needed to mitigate his damages.
• Restitutionary Damages
o The purpose of restitutionary damages is to restore to the plaintiff the value of a benefit unjustly conferred on the
defendant.
o Unlike unjust enrichment for when there this no contract, restitution is also available when there is a valid contract and it
has been breached because the plaintiff has the option of either suing on the contract for expectation or reliance or of
disaffirming (operating under the legal fiction that the contract does not exist) the contract and suing in restitution for the
recovery of benefits conferred under the now-defunct contract.
o When the defendant commits a material breach the plaintiff will, when possible, usually seek full enforcement of the
contract to recover the value of her expectation. If she cannot prove expectation damages or if she has a negative
expectation she may sue based on reliance or restitution.
• Reliance is part of Expectancy Damages.
o If suing in Restitution the party is claiming that the breach ended the life of the contract and the defendant is no longer
justified in retaining the benefit of any performance that the plaintiff rendered to her under it because that value retained
unjustly enriches her.

• Equitable Remedies:
o For equitable relief the party claiming must show:
1) Innocent and injured
2) Clean hands
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 3) No remedy at law is adequate
• Specific Performance: require the parties to perform and put the parties in the position they would be in had a breach not
occurred.
1) in come cases it is easier to award a sum of money when there is an alternative available
a. real property is unique therefore awarding damages rather than requiring the seller to perform as promised is
inadequate—equity grants specific performance
2) It could be intrusive and harsh to require one to perform as promised
a. This operates in personal the court commands one to perform and if they fail to they can be sanctioned for
contempt of court and jailed.
3) When one is forced to perform there is a risk that the performance will fall below the performance expected. The court
may hire a mediator when specific performance is required to ensure the level of performance.
4) Specific performance does not have to be an all or nothing remedy it can be partial combined with monetary damages.
If the breach caused a monetary loss and the court orders specific performance, damages can be awarded for the loss.
5) A person who seeks specific performance must be willing to render the return performance to the defendant. The court
may condition the defendant’s performance on the plaintiff’s performance.
• Injunction
o Specific performance is the order of the court to compel the defendant to perform an affirmative act.
o A negative order is an injunction which prohibits the defendant from doing some particular act.
o This could remove the motive for breach.
 I.e.: A signed a contract to sing for B at a convention Friday. C offers A more money so A repudiates. B may get
an injunction barring her from singing for C so A may then perform for B.
o Caution: injunctions are sometimes sought out of spite and not the desire to have them perform

• Remedies in Law:
o Liquidated Damages—is a term in a contract under which the parties agree that in the event of a breach by one of
them, the breacher will pay damages in a specified sum or in accordance with a prescribed formula.
 This clause has the power of settling in advance what damages will be due in the event of a breach (meaning of
this clause is a matter of interpretation).
 One may claim specific performance if the liquidated damages clause dose not state that this is the exclusive
remedy (liquidated damages is limiting damages to this but equitable relief could be imposed)
 Liquidated damages are more efficient to obtain relief if a breach occurs because the plaintiff does not have to
establish foreseeability, mitigation and certainty. The defendant likewise has a predicted cost of breaching.
 These damages are not always accurate; they could undercompensate or overcompensate the plaintiff.
 These damages discourage breach by imposing a penalty by making the breach look unattractive therefore
unlikely
 Sometimes these will not be enforced if they serve only as a penalty but those which serve to determine damages
for breach.
 Liquidated Damage clauses will not be enforced and will be void as a penalty unless the amount it fixes as
damages is:
1) reasonable in light of anticipated harm
2) Or actual harm caused by the breach.
• Incidental Damages, Attorney’s Fees
o Rescission: voidable contract where the parties are returned to the position they were in prior to the breach
• Statute of Frauds
o Contracts may be oral or written except for those under the statute of frauds which must be written and signed.
• The Judicial Regulation of Improper Bargaining and of Violations of Law and Public Policy
o The court may refuse to enforce any contract or contractual provision that offends some basic public policy.
• Public Policies most familiar and fundamental policies of contract law:
1) the assent policy inherent in freedom of contract
2) the policy of protecting reliance and ensuring the security of transactions

REMEDY:
• Avoidance and Restitution-
o Void Contract—is not a contract at all and never existed and cannot be enforced
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 o Voidable Contract—is a valid contract that remains fully effective unless the aggrieved party elects to exercise the
right to terminate it (avoidance is a term for this situation)
o When a contract is avoided, the general rule is that both parties are entitled to restitution (any benefit received before
avoidance by one party from the other must be returned).
• Excision or Modification of the Offending Term-
o Avoidance is usually the remedy sought the aggrieved party may have prefered to keep the contract but have its terms
adjusted to remove the effects of the other party’s improper bargaining (so long as those terms are not the very basis
of the contract).
o The Availability of damages- (usually for a tort)
o The above remedies are the usual means to handle improper bargaining but the victim sometimes has the option to
leave the contract fully in force and to claim damages to compensate for the economic consequences of the wrongful
bargaining.
• The following concern the problem of the undermining of a party’s will by the oppressive or dishonest conduct of the other
targeted at improper behavior in the bargaining process: trickery, pressure or unfair persuasion that undermines the victim’s
free will.
o Void—missing elements of the contract
1) Fraud in the factum- when there is fraud in the facts of the contract
o Voidable (Avoidable) — there is a contract but it is not enforceable for one of the reasons below
1) Minor/Infant (capacity)
2) Fraud in the inducement- really did have the intent to enter into the contract (tricked)* induced into doing
something even though it is not true
3) Insanity
4) Duress
5) Mistake
6) Intoxication
**Contracts with minors are voidable unless they are a necessity—i.e.: food, shelter
 Remedy for Voidable Contracts for equitable relief
1) Rescission
DEFENSES—illegality, duress, misrepresentation, unconsionability and lack of capacity
• Misrepresentation: is an assertion not in accord with the facts
1) fraudulent misrepresentation- is one that is make with knowledge that it is false and with the intention of inducing the
other party’s agreement
Elements:
A. a false representation of fact (not opinion)
1. if the party has no intention of performing their A promise or no belief in their assertion then this is a
false representation
B. made with the knowledge of its falsity and with intent to induce the other party to enter the contract
1. scienter—knowledge of falsity and the intention to mislead
C. which does in fact deceive the other party
D. to the other party’s injury or detriment
1. misrepresentation which was relied on by the party
 Fraud in the factum—this makes a contract void
 Fraud in the inducement—voidable contract
 Fraud gives the victim the option to affirm or disaffirm:
 Affirm- option to keep the contract and sue the perpetrator for damages to compensate for the
difference between the actual value of the performance and its value as represented.
 Disaffirm- option to avoid the contract by rescinding it and claiming restitution
2) negligent misrepresentation- not a deliberate lie but is a carelessly made assertion--- parol evidence rule does apply to
exclude this evidence
3) innocent misrepresentation- an incorrect statement made innocently—parol evidence does apply to exclude this evidence
• Duress
1) one of the parties must make a threat
2) the threat must be improper
3) the threat must induce the apparent assent, in that it leaves the victim no reasonable alternative but to agree
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 makes a contract voidable
• Undue Influence
1) when one party has a strong influence over another
2) and abuses this position of dominance to persuade the subservient party to enter a disadvantageous contract
makes a contract voidable
• Unconscionability
o Originated in the court of equity – some courts are reluctant to adopt this.
o When the court refuses to enforce because it would offend its conscience.
o To obtain relief one must show:
1. the bargaining was unfair
2. which resulted in unfair or oppressive terms
o most appropriate remedy is to not enforce the contract at all
DEFENSES--Mistake, Impracticability & Frustration:
These doctrines are concerned with:
1) Materiality—how fundamental is the discrepancy between the expected and the actual exchange? What is the effect of
mistake or altered circumstances on the bargain that was anticipated by the parties? Relief is only available when the
impact is so material that it changes the very basis of their bargain.
2) Risk—which party should be made to bear the consequences of this defeat of the original expectation? How should the
risk be allocated?

• Mistake: a belief that is not in accord with the facts

• Mutual Mistake—both parties have the mistaken belief (calls for avoidance of the contract)
a. the mistake must concern a basic assumption on which the contract was made—and both parties must share in
this erroneous belief concerning fact
b. The mistake must be a material effect on the agreed exchange of performance
c. both parties must conclude that they would not have made the contract at all had they known the truth
d. The risk must be able to be allocated—through interpretation
• Unilateral Mistake—only one of the parties has the mistaken belief (one party knows of the true facts and the other does
not. Difficult for avoidance to occur and they must show the requirements under mutual mistake and the additional
requirements:
A. unconscionability—the mistake is such that enforcement of the contract would be unconscionable
B. the other party had reason to know of the mistake or other party’s fault caused the mistake
C. the mistaken party is not at fault if it were caused by the negligence of the other
• Remedies for mistake:
1) Avoidance (rescission)
a. This is the most common remedy. This treats the contract as if it has never been made which returns the parties
to the position he was in before the contract was made.
2) Reliance
a. Reliance damages where restitution/avoidance would not work because one party has suffered loses but the
other has not received benefits.
• Impracticability/Impossibility of Performance:
o Concerns whether a post-formation change of circumstances has such a serious effect on the reasonable expectations of the
parties that it should be allowed to excuse performance.
o Types:
1) Destruction of subject matter—only where the matter is essential to the performance of the contract (i.e.: property)
2) Impossibility of intangible but essential mode of performance
• When impracticability fully defeats the feasibility of performance by a party it is a complete defense to that
party’s failure to perform, relieving him of the duty of performance and liability for damages.
3) Non-essential mode of performance—post office goes on strike therefore goods cannot be delivered
4) Death or illness—this could be a temporary impossibility if once one is better they may need to tender performance
BUT usually this discharges them from performance.
• Frustration of Purpose: where a party’s purpose in entering into the contract is destroyed by supervening events,
most courts will discharge his from performance (doctrine of frustration of purpose)
• Factors:
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 1) Foreseeability—the less foreseeable the event the more likely the party’s obligation will be discharged
2) Totality—the more totally frustrated the party is the more likely he will be discharged.
Incapacity
• Protection from exploitation is the central rationale for permitting avoidance by a minor or mentally incompetent person.
• Minority: based on objective attributes
• Cannot be bound by contract and could make the contract voidable by disaffirming it.
• Determined by age (if under 18, even if by a day, then still a minor)
• Minors can incur legal liability:
1) for good or services that are deemed necessity (for the minors livelihood—food, shelter)
2) marriage terminates minority
3) deliberately misrepresented that she was a major
• Minors are shielded by liability beyond the duty to return her present economic advantage, does not have to pay for use, if
destroyed or lost.
• Mental Incapacity: based on subjective attributes
o TEST FOR MENTAL CAPACITY TO CONTRACT:
 Even if she knew what she was doing at the point of contract she could not resist due to the mental capacity—if she
had the mental capacity at the time of contract but became mentally ill at a later time the contract is still valid
o A contract may be voidable based upon mental capacity if
1. A person entered the contract and chose as he did as a result of the mental illness or defect
2. He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of
his condition
 This makes a contract voidable not void—the parties must be restored to the status quo ante.
 Money and property must be returned—unless the other party knew of the mental capacity then she is excused from
paying to the extent that benefits received did not ultimately enrich her.
• Lancellotti v. Thomas
o Buyer breached their contract but now wants to get their money back
o The common law rule does not allow for a party who has breached to recover.
• Recission: undo the contract and put the actors back in the position they were prior to the contract
• Restitution: action to get back what was yours (expanded to the concept of Quasi-contract which was traditionally the
equitable remedy to prevent unjust enrichment)
• Scavenger, Inc v. GT Interactive Software, Inc.
o Scavenger—developer (seller)
o GT Interactive—distributor (buyer)
• Divisible Contract—when the contract is divided up into partial contracts
• Divisible contracts are not the norm—if claimed then that person has the burden to show that it was a divisible contract
• Prospective failure of Conditions and Breach by Repudiation:
o Doctrine of Estoppel—is designed to prevent a person from asserting a right and taking a position that
contradicts or is inconsistent with his earlier words or action on which another justifiably relied.
 The doctrine of estoppel only applies when the offeror reasonably intended the offeree to rely on the
statement or conduct and the offeree did in fact justifiably rely on it, incurring some loss or detriment.
o Promissory Estoppel—is a basis for providing relief to a promisee under circumstances when a promise made does
not qualify as contractual because it lacks consideration but the equities of the situation demand that the promise be
enforced wholly or in part.
 promisee must establish that the promise was deliberately made with the reasonable expectation of inducing
her to rely on it, that she did act or refrain from acting in justifiable reliance, and that she suffered some
detriment as a result.
 Example: A was offered a job by B and given until Friday to accept it. A quits his job and moves to a
new city to take the job. He then calls B to accept the job and B says “sorry” it has been filled. There
was no consideration to hold the offer open but it was stated that it would be held open and A would
have suffered a detriment. It only seems fair based upon this reliance to enforce this as a contract.
Options
• The offeror can not lawfully revoke the option prior to its expiration. If the offeree changes her mind she is able to
countermand the rejection by communicating acceptance before the end of the period.

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• HOWEVER, the doctrine of estoppel may protect the offeror who relied on the rejection and therefore relying on that
detriment contracted with someone else.
CONTRACTUAL OPTIONS:
• When speaking of a contractually option there are two offers and acceptance
1) this type of contract has an underlying contract which is not binding until is has been accepted
2) and the agreement to hold open to the optionee the opportunity to accept
Assignment, Delegation and Third-Party Beneficiaries:
• A person who is not a party to a contract cannot be bound by it and acquires no rights under it except:
3. A third party may have rights when the parties to the contract either expressly or impliedly agree at the time of
making it that the performance of one of them will be rendered to or for the benefit of a person who is not a party
to the contract and that the non-party will have the right to enforce that commitment
4. The assignment of contractual rights and the delegation of contractual duties does not involve any conferral of
rights on a non-party at the time of contracting. The rights or obligations by one of the parties are transferred
some time after the contact was executed.
Third Party Beneficiaries:
Intended: A person who is not a party to a contract, but upon whom the parties intend to confer the benefit of performance
together with an independent right to enforce that performance, they have the power to enforce.
Incidental Beneficiaries: The benefit they anticipate was purely chance and incidental result of a transaction between others.
Contracts are not made for the purpose of incidental beneficiaries. They have no rights to sue on the contract.
o I.e.: A new convention center may benefit the business of surrounding hotels and restaurants but it was not built with
that purpose.
Promisor and Promisee:
• Promisor is the party who renders the performance to the beneficiary.
• Promisee is the contracting party whose right to performance has been conferred on the beneficiary. (This is unlike a bilateral
contract where each is the promisor of their own performance and a promisee with regard to the performance promised by the
other.
• The name of the third party should be in the contract if not the court is likely to interpret that person as being incidental.
Lawrence v. Fox
• Holly lent money to Fox. Holly was indebted to Lawrence for the same amount, so Holly and Fox agreed that Fox would
repay the loan amount to Lawrence. When he failed to pay Lawrence sued Fox. Fox defended by saying that Lawrence had
no standing because there was no privity between them. The court stated that even where no agency or trust is established, the
parties to a contract do have the power to create rights enforceable by a person who is not a party to the contract, and that
person can sue the promisor to enforce the performance undertaken to the promisee for his benefit.
• Right of Performance the right to enforce the performance is the beneficiary’s when it is the manifestation of intent of the
contracting parties.
• Intent is judged from the objective standard in the position of the beneficiary.
• The promisor and promisee must know that the benefit is imposed on the third party beneficiary.
• There must be some relationship between the promisee and the beneficiary from which it can be inferred that the parties had
the beneficiary’s interests in mind when entering the contract—this reinforces intent.
• Creditor Beneficiary 3rd party who gets the benefit for repayment of a debt
• Donee Beneficiary there is no obligation for one to give the donee $/ they give no consideration—money is given for any
motive
• The parties who contracted to give a third party rights may modify the contract and take them away or change them ONLY if
they have the consent of the third party
• If the parties change the contract only the promisee and promisor are bound by it unless they are given the consent of the
third-party, if not the third party may enforce their rights under the original contract.
• When does the benefit begin?
o She manifests assent (similar to acceptance) or she materially changes her position acting in justifiable reliance on
it.
• The promisee still has the right to enforce that the promise be rendered to the beneficiary; this right is discharged when the
promisor renders performance to the beneficiary
• When damages are not adequate as a remedy then the promisee has a right to ask for specific performance.
• The promisee might also have a claim for damages based on her contractual expectation.

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• This will consist of her direct damages measured by the loss in value of the promised performance. If the failure to perform
results in a foreseeable and unavoidable increase in the promisee’s liability to the beneficiary or other consequential loss,
consequential damages may also be claimed.
Promisor’s Defenses against the Beneficiary
• The promisor may raise any defenses which are available to the beneficiary arising out of a defect in the formation of the
contract (such as invalidity due to lack of consideration, voidability on the grounds of fraud, duress or some other bargaining
defect, or unenforceability for failure to comply with the statute of frauds) or based on the promisee’s breach of contract, or
arising out of post-formation occurrences that affect the very basis of the contract such as supervening impracticability and the
non-occurrence of a condition.
• The beneficiary by accepting the benefits does not have imposed upon his any liability from the promisee (such as improper
behavior)
• Any purely personal defenses must be raised by the promisor to the promisee directly ($ owed in other transactions).
The Beneficiary’s Rights against the promisee in the event of the promisor’s Non-Performance
• If the beneficiary is not satisfied with his claim against the promisor (the promisor not having any $ or assets or she is able to
raise a defense against the beneficiary) then the beneficiary may proceed against the promisee if he is a creditor NOT a donee.
• A donees relationship is not supported by consideration therefore the beneficiary has not enforceable claim against the
promisee in the even that the is unable to recover form the promisor.
• A creditor relationship may proceed against the promisee to enforce the promisee’s debt.
• Novation traditionally if the beneficiary proceeded against the promisor unsuccessfully then he cannot then sue the
promisee
• The modern trend is to allow the beneficiary to enforce the benefit against the promisor even if he unsuccessfully enforced
against the promisee first.
• The promisee becomes a surety for the beneficiary to get payment.
• The promisee then may attempt to recover against the promisor.
Citizens’ Claims as Intended Beneficiaries of Government Contracts:
• Government contracts have the intention of conferring a benefit on the citizenry at large.
• Was there an intent to create an independent right of enforcement in the non-party—the contract must be interpreted to
determine if the contract manifests the intent to confer a direct cause of action of the beneficiary.

• We must determine what the legislation had in mind when creating the contract and what is the underlying public policy.

• Generally, citizens are merely incidental beneficiaries of government contracts unless a private right of enforcement is clearly
conferred by the contract or statute.

Assignment and Delegation:

• Assignment: transfer of rights
• Delegation: transfer of duties
• One may assign and delegate—transfer her rights to a third person and appoint the latter to perform her duties.
• Assignor: assigns a contractual right to the assignee
• Obligee is an assignor to the assignee
• Obligor is a delegator to the delegate
• Unless a contract specifically prohibits a party from transferring her rights acquired and duties assumed under it or party’s
reasonable expectations or would offend public policy a party has the power to transfer contractual rights and obligations.
• Assignment and Delegation is only possible after a contract has been formed
o An assignment is a voluntary manifestation of intention by the holder of an existing right to make an immediate transfer
of that right to another person
1) the assignor must voluntarily manifest intent to assign the right and
a. the assignee must indicate a willingness to accept the assignment
2) The right must be in existence at the time of assignment and its transfer must take effect immediately
• Rights which are not assignable:
1) Most personal services
2) Insurance policies—where the risk will vary from person to person
3) Impairment of obligor’s chance to obtain return performance

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Restitution: Unjust Enrichment and Moral Obligation
• When no contract exists but a promise must be enforced
• Restitution—a remedy which is an act of restoring something or its value
• Unjust enrichment—a cause of action where a benefit has been conferred on a recipient under circumstances in which it is
unfair to permit him to retain it without payment, the cause of action of unjust enrichment is available to the person who
conferred the benefit. The conferrer may claim the remedy of restitution under which the court will restore the benefit or its
value to her.
1) When the recipient has been unjustly enriched at the expense of the grantor and there is no legal justification for the
retention of the benefit without pay.
2) There is no actual agreement (NO contract) benefit conferred results in unjust enrichment and contract is implied in law
for the purposes of giving a remedy (Quasi Contract)
• Also: plays a role when there is a valid contract and a BREACH occurred. (when expectancy damages cannot be proved)
• Restitution (remedy)
1) Restitution as an alternative remedy when a valid contract has been breached
a. Buyer gives seller 5,000 as a deposit to purchase his home. Seller reneges on the sale. Usually one claims
expectancy damages which would place the person in the position they would have been in had the contract
been performed. This is the amount the buyer was going to buy sellers house less the amount he finds another
house for. Seller must pay the difference. If seller’s house is overpriced and is more than the other house then
the buyer gets nothing and the seller has been unjustly enriched by 5,000. And the buyer may sue in restitution
to restore what he lost.
2) Restitution when a benefit is conferred pursuant to an invalid or unenforceable contract
a. In the above example if the buyer and seller enter into an oral contract for the sale and the seller reneges the
buyer is out 5,000. There was no enforceable contract because contracts for property must be in writing. The
buyer can claim unjust enrichment and sue in restitution to get the 5,000 back.
3) Restitution when a benefit is conferred on the strength of a promise without consideration
a. Owner writes a promise to donate the home to charity. The charity does improvements on the house. Owner
decides not to sell. There was no consideration because this was a gift therefore no consideration. The owner’s
home has been improved. The charity can claim unjust enrichment and get back the value of the improvements
through restitution.
b. This is similar to promissory estoppel and sometimes the claimant has a choice of remedies. Restitution focuses
on restoration of the value of the benefit conferred while promissory estoppel is more concerned with the costs
incurred by the claimant.
4) Restitution in cases when no contractual interaction occurred.
a. A doctor encounters a victim who is unconscious and cannot consent and he administers treatment. The doctor
can only recover based on unjust enrichment because he received a benefit one would pay for in the
marketplace. There is no contract.
• Quasi-Contractor contract implied in law is a fictitious contract created for remedial purposes. Payment under a quasi
contract were never agreed on because there was no contract therefore it is fair market value.
a. Unjust Enrichment:
 Elements of Enrichment:
1) Economic benefit received (money or property) even if it does not enlarge the recipient’s net worth
• Unjust:
1) When there was an intent to charge and one got an economic benefit without charge when there was not a gratuitous
intent (from the position of a reasonable person in the place of the guarantor).
2) When there was no imposition: request, emergency or acceptance
Restitution (a remedy)
Is an act of restoring something or its value
• A judicial remedy under which the court grants judgment for the restoration of property (specific restitution) or its value
(monetary restitution) to a party from whom the property was unjustly taken or has been unjustly retained.
• Restitution focuses on cases in which one party has obtained a benefit at the expense of another under circumstances that
make it unfair for the recipient to retain the benefit without paying for it.
• Unjust Enrichment (cause of action)—is the basis for Restitution
o This is an independent theory of liability in cases when no contract exists
o Also important when a valid contract does exist but has been breached
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 a. Restitution as an alternative remedy when a valid contract has been breached
b. Restitution when a benefit is conferred pursuant to an invalid or unenforceable contract
i. I.e.: the sale of property must be in writing so in the event that it is oral the court will still
provide this remedy
c. Restitution when a benefit is conferred on the strength of a promise without consideration
d. Restitution in cases when no contractual interaction occurred
Quasi-contract (contract implied in law)—this is not a real contract but rather it is a legal fiction created for remedial
purposes.
• To qualify one must neither be a volunteer (one who confers the benefit without intent to charge for it) or an officious
intermeddler
• Contract implied in fact—is an actual contract in which agreement is inferred from conduct rather than express words.
• When a benefit has been conferred on a recipient under circumstances in which it is unfair to permit him to retain it without
payment, the cause of action of unjust enrichment is available to the person who conferred the benefit. Using this cause of
action the conferrer can claim the remedy of restitution under which the court will restore the benefit or its value to her.
• In order to fit this cause of action into legal forms, common law courts used fictions—implied in law contract--- which is
where no contractual relationship actually exists between the conferrer and the beneficiary.
Elements of Unjust Enrichment:
1) the recipient must have been enriched at the expense of another
2) and the circumstances must be such as to make this enrichment unjust
• Enrichment: is an economic benefit (money, property, goods). Enrichment occurs whenever something of value is received,
even if it does not directly enlarge the recipient’s net worth.
• Something is unjust when:
1) one had intended to charge for the item
a. Objective test is used to measure whether one intended to charge for something--- a gift or gratuity is not
meant to be paid for
2) and it was not imposed on the recipient
a. cannot seek payment from someone who did not ask for that benefit
b. officious intermeddlers--- one who does something of benefit to another without their request and then seeks
payment
c. in the case of an emergency one may act without a request to do something, it assent is impracticable and
the person believes another would have wanted the action
Damages under Restitution:
• When a contract does not exist restitutionary damages are determined through what the recipient gained.
• Methods for measuring Enrichment
1) Market value—the going wage for a service or property (the standard)
a. The value of services is expressed through Quantum Meruit—as much as deserved is used to express market
value
b. The value of goods is determined through quantum valebant—as much as they are worth
i. These values are determined through expert testimony
2) The net fiscal gain—used when the recovery of market value is excessive or inadequate
a. This may be determined subjectively or objectively based upon the circumstances
i. Subjective gains may be charged for but that person perceives that gain as being worthless to him in his
situation
ii. Objectively valuation is based on the worth of the benefit in market terms of the ultimate gain measured
by the market standards.
Market value is preferred because it is considered the fairest and most balanced basis of compensating the conferrer at a rate that
could reasonably be expected by the beneficiary.

Moral Obligation or Material Benefit Rule- a promise based on a prior benefit

• Promissory estoppel relief is precluded because: the action was not induced by a promise
• Elements of the Material Benefit Rule:
1) the promisor has been unjustly enriched by a benefit previously received from the promisee
2) The benefit was not given as a gift
3) The promisor subsequently makes a promise in recognition of the benefit
• If these requirements are met then they are binding to the extent necessary to prevent injustice.

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• The making of the promise is an indication that the promisor considered their benefit to be of worth.
• The promise must have been made voluntarily.
Public Policy—is sometimes enough to enforce a promise
• Moral obligations enforceable by law (man who saved the man below him by falling with the cement block and becoming
severely disfigured--- it was a detriment to the falling man and a benefit to the man below him—had he done nothing the other
man would have suffered--- moral obligation to enforce the promise through past consideration)
Discharge of Contracts
I. Rescission
A. Mutual rescission: as long as a contract is executory on both sides (i.e., neither party had fully performed), the parties
may agree to cancel the whole. This is a “mutual rescission”.
1. No writing: in most states, a mutual rescission does not have to be in writing. This is true even if the original
contract fell within the Statute of Frauds.
2. Fully performed on one side: If the contract has been fully performed on one side, a mutual rescission will
not be effective, because there is no mutual consideration.
• Copeland Process v Nalews
o RULE: Parol evidence regarding the circumstances of an agreement to rescind a contract may be
introduced in order to determine the parties’ intent.
o Under traditional law, once evidence is entered to prove latent ambiguity, extrinsic evidence may be
introduced to interpret contract. (does not apply to patent ambiguity) However, law has been overruled and the
patent ambiguity of this contract was not discussed, and allowed parol evidence.
B. Unilateral rescission: Where one of the parties to a contract has been the victim of fraud, duress, mistake, or breach
by the other party, he will generally be allowed to cancel the contract, terminating his obligations under it. Some courts
call this a “unilateral rescission.” But it is better to say that the innocent party may “cancel” or “terminate”.
II. Accord and Satisfaction
A. Executory accord generally: An executory accord is an agreement by the parties to a contract under which one
promises to render a substitute performance in the future, and the other promises to accept that substitute in
discharge of the existing duty.
o (Example: Debtor owes Creditor $1,000 due in 30 days. Creditor promises Debtor that if Debtor will pay
$1,100 in 60 days, Creditor will accept this payment in discharge; Debtor promises to make the $1,100
payment in 60 days. The new agreement is an executory accord)
o Goldbard v Empire State Mutual Life
 RULE: Whether or not a subsequent agreement supersedes an existing contract must be determined by
reference to the objectively manifested intentions of the parties.

B. Consequences: Executory accords are enforceable. However, an accord does not discharge the previous
contractual duty as soon as the accord is made; instead, no discharge occurs until the terms of the accord are
performed. Once the terms of the accord are performed, there is said to have been an “accord of satisfaction”/
1. Failure to perform accord: If a party fails to perform under the terms of the executory accord, the
other party may sue for breach of the original agreement, or breach of the accord, at her option.
o (Example: On the facts of the above example, if Debtor fails to make the $1,100 payment, Creditor
may sue her for either $1,000 plus damages for failure to get the money in 30 days, or $1,100 plus
damages for failure to get the money in 60 days.)
III. Substituted Agreement
A. Nature of substituted agreement: A “substituted agreement” is similar but not identical to an executory accord.
Under a substituted agreement, the previous contract is immediately discharged, and replaced with a new
agreement.
o (Example: On the facts of the above example, if the new agreement were be found to be a
substituted agreement rather than an executory accord, and Debtor then failed to make the payment
in 60 days, Creditor would only be able to sue on the new promise, not the old promise)
2. Distinguishing: In determining whether a given agreement is a substitute agreement or executory
accord, an important factor is whether the claim is a disputed one as to liability or amount—if the
debtor in good faith disputes either the existence of the debt or its amount and obligation are
undisputed, that presumption will be that there is an executory accord.
a. Level of formality: Another important factor in distinguishing substituted agreements from
executory accords is the level of formality: the more deliberate and formalized the agreement,
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 the more likely it is to be a substituted agreement. For instance, an oral agreement is very likely
to be an accord, not a substituted agreement, because of its informality.
B. Writing: If the substituted agreement would have to satisfy the Statute of Frauds were it an original contract, the
substituted agreement must be in writing. (Some states also require the substituted agreement to be in writing if the
original is in writing, even where neither falls within the Statute of Frauds)
IV. Novation
A. Definition: A novation occurs where the obligee under an original contract (the person to whom the duty is
owned) agrees to relieve to obligor of all liability after the duty is delegated to some 3rd party. A novation thus
substitutes for the original obligor a stranger to the original contract, the delegatee.
(Example: Contractor agrees to paint Owner’s house for $10,000. Contractor does not have enough time to get
the job done, so with Owner’s consent he recruits Painter to do the job instead. If Owner agrees to release
Contractor from liability, the result is a novation: Painter steps into the shoes of Contractor, and only Painter,
not Contractor, owes a duty to Owner.)
B. Consent: The oblige must consent to the novation. But the obligor, who is being discharged, need not consent.
(Example: On the facts of the above example, Owner must consent to the novation, but Contractor need not
consent, at least to the delegation/release aspect of it.)
V. Account Stated
A. Generally: Where a party who has sold goods or services to another sends a bill, and the buyer holds the bill for
an unreasonably long time without objecting to its contents, the seller will be able to use the bill as the basis for
a suit on an “account stated”. The invoice is not a dispositive proof that the amount is owing, but the burden of
proving that the invoice is wrong shifts to the buyer.
VI. Releases
A. Generally: Where a contract is executory only on one side, the party who has fully performed may give up his
rights by virtue of a release, a document executed by him discharging the other party
B. Formal requirements: In most states, a release must either be supported by consideration, or by a statutory
substitute (e.g., a signed writing)
• Bargains that are Illegal or Against Public Policy
o Hewitt v Hewitt: Unmarried couple living together and had 3 kids, “wife” wants half of assets even though not
married.
 RULE: Contracts granting marital rights to unmarried couples are unenforceable as being against public
policy.
o Troutman v Southern Railway Co.
 RULE: A contract to use one’s access to present another’s case to high officials is not unenforceable as a
contrary to policy.

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