Contracts Works Real

  1. Pre-existing Duty Rule
    • Generally, performing a legal duty which is
    • already owed under a contract does not constitute consideration, unless that duty
    • is unclear or honestly disputed. That is, once a party agrees to do something
    • under a contract, that party cannot change the terms without consideration and
    • expect the new terms to be enforceable
  2. Bargain for exchange
    A mutual agreement or contract between two parties which is voluntary and involves the exchange of consideration (money, goods, services, or a promise for a promise).
  3. Executory Contract
    Not fully performed on either side
  4. R2K 90 Liability
    Not always restricted to actual detrimental reliance
  5. 2-201(3)(c)
    To say that partial performance satisfies the SOG SOF; it does, but only "with respect to goods for which payment has been made and accepted or which have been received and accepted.
  6. R2K 45 (PMA Performance Only Creates Option Contract)
    • - Where offer does not invite promissory acceptance, an option contract is created when offeree begins performance.
    • - The offeror’s duty to perform is conditional upon the completion of the performance
  7. R2K 50 (PMA)
    • - Performance: Only part performance necessary to accept by performance.
    • - Promise: All acts essential to making the promise must be completed to accept by promise
  8. R2K 54 (Notice of Acceptance for Performance)
    • - PMA is Performance: notification not necessary unless the offer requests it.
    • - If offeree has reason to know the offeror has no adequate means of learning of the performance, the offeror’s duty is discharged unless:
    • o offeree exercises reasonable diligence to notify
    • o offeror learns of the performance within reasonable time
    • o offer indicates that notice is not required
  9. R2K 62 (Beginning of performance creates return promise)
    - Where offeree can choose between acceptance by performance or promise, the beginning of performance creates a return promise that binds both parties.
  10. R2K 69 (Acceptance by Silence or Exercise of Dominion)
    - Silence operate as an acceptance in the following cases only:

    o   Offeree takes benefit, could have rejected it, and knows there is an expectation of compensation

    o   Where the offeror gave the offeree reason to understand that assent can be manifested by silence and offeree intends to accept by silence

    • o   Because of previous dealings, the offeree should know that he needs to notify the
    • offeror if he does not intend to accept.

    - An exercise of dominion over the offeror’s property can also act as an acceptance
  11. R2K 86 (Promise for Benefits Received)
    - a promise made in recognition of a benefit previously received by the promisor from the promisee is binding unless:

    o the promisee conferred the benefit gratuitously

    o the promise’s value disproportionately outweighs the benefit
  12. R2K 87  (Option Contract)
    - An offer is binding as an option contract if:

    • o   It is in writing, recites consideration,
    • reasonable time OR made irrevocable by statute


    o   If it is an offer on which offeror knows offeree would rely, and offeree does rely. (Binding to the extent it avoids injustice)
  13. R2K 89 (Modification of Executory Contract)
    - A promise  modifying a duty under a contract is binding if:

    o  not fully performed by either party

    o  fair and equitable, and not anticipated when the contract was made

    o   if necessary to abide by a statute, or if justice requires
  14. R2K 90 (Elements of Promissory Estoppel)
    • - A promise
    • - which the promisor reasonably foresees reliance
    • - and which does result in reliance
    • - is binding if injustice can be avoided only by enforcement of the promise.
    • - (charitable organizations do not have to show reliance)
  15. R2K 131 (Satisfying the SOF – Memorandum)
    - SOF is satisfied if there is in writing, signed by the party to be charged, which:

    - Identifies the subject matter of the contract

    - Indicates that there was a contract made between the parties

    - States with reasonable certainty the essential terms
  16. R2K 211  (Standardized Agreements)
    • - Although the party is typically bound by the
    • standardized agreement without even knowing the terms in detail, they are not
    • bound to unknown terms which are beyond the range of reasonable expectation
    • - Where the other party has reason to believe that the assenting party would not do so if they were aware of a particular term, the term is not part of the agreement.
  17. § 2-201. Formal Requirements; Statute of Frauds.
    - Contract for sale of goods for the price of $500 or more is not enforceable unless there is some writing indicating the quantity of the goods, and it bares the signature of the party against whom enforcement is being sought.

    - Between merchants, signature requirement is satisfied where a confirmation writing is sent, and not objected to within 10 days.

    - Contracts that are enforceable even though there is no writing are:

    1. agreements involving specially manufactured goods

    2. if the party admits in court pleadings that a contract for sale was made

    3. where one party has fully performed (payment has been made and accepted, or goods have been received and accepted)
  18. § 2-205. Firm Offers.
    - An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable; max 3 months.
  19. 2-206. Offer and Acceptance in Formation of Contract.
    - Unless stated, an offer can be accepted by any medium reasonable in the circumstances

    - An order/offer to buy goods can be accepted by prompt promise to ship or prompt shipment

    - Shipment of non-conforming goods is a counter-offer if notice of accommodation is sent before or with shipment; without notice, the shipment of non-conforming goods is a breach.
  20. § 2-207. Additional Terms in Acceptance or Confirmation.
    - Definite and seasonable expression of acceptance is an acceptance even though terms in the acceptance are in addition to or different, unless the acceptance is expressly made conditional on the additional or different terms.
  21. § 2-207 Additional Terms
    - Between non-merchants, the additional terms are to be construed as proposals for addition to the contract – additional terms are only added if offeror accepts them

    - Between merchants, such terms become part of the contract unless:

    • - Offer expressly limits acceptance to terms of the offer
    • - They materially alter it
    • - Offeror has already objected to the terms or rejects them within a reasonable amount of time after notice of them is received.
  22. § 2-207 Different Terms
    - Conduct by both parties that recognizes an existence of a contract will establish a contract although the writings may not establish a contract.  In this case, the terms will consist of agreed upon terms, plus any UCC gap-fillers.
  23. § 2-209. Modification, Rescission and Waiver.
    - An agreement modifying a contract involving a sale of goods needs no consideration to be binding.
  24. § 3-311. Accord and Satisfaction by Use of Instrument.
    • - This article applies where a person against whom a claim is asserted proves that:
    • 1) that person in good faith tendered an instrument claiming paid in full
    • 2) the amount of the claim was unliquidated OR subject to a bona fide dispute
    • 3) the claimant cashed the instrument
  25. § 3-311 When Claim Is Discharged
    - The claim is discharged if the person against whom the claim is asserted proves that the instrument contained a conspicuous statement indicating that the instrument was tendered as full satisfaction of the claim – unless: other slide

    - However a claim is discharged no matter what if the person against whom the claim is asserted proves that, before the check was cashed, the claimant, or agent of the claimant responsible for handling a disputed obligations, knew that the instrument was tendered as full satisfaction of the claim.
  26. § 3-311 When Claim Is Not Discharged
    - the claimant was an organization and proves that, before the tender, they sent out a conspicuous statement asserting that instruments tendered as full satisfaction of a debt are to be sent to a designated office or person and that the instrument was not sent to that office or person.


    - the claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant refunded the payment.
  27. Restitution
    Defendant can be forced to disgorge benefit, if:

    1. Plaintiff conferred measurable benefit on Defendant; and

    • 2. Plaintiff was not acting:
    • a) officiously, or
    • b) gratuitously; and

    3.Defendant had opportunity to decline benefit but did not decline.
  28. Misrepresentation
    • 1. Did D make a statement of past or present fact?
    • 2. Statement was false
    • 3. Was the falsity material or fraudulent?
    • 4. What is reasonable for P to rely.
    • 5. P did rely
  29. Nondisclosure
    • a. Defendant had a duty to disclose information (based on pre-existing relationship)
    • b. Defendant remained silent.
    • c. Silence was material.
    • d. Reasonable for Plaintiff to rely.
    • e. Plaintiff did rely.
  30. Mistake
    • a. P made a material mistake of past or present fact
    • b. P did not assume the risk of mistakes
    • of that kind
    • c. Possible to get D back to status quo ante (no detrimental reliance by D)

    d. Either

    • i. D knew or had reason to know of P's mistake, OR
    • ii. Failure to give R&R would result in an unconscionable "gross disparity of exchange"
  31. Duress
    • 1. Threat against plaintiff
    • 2. Threat was improper
    • 3. Threat induced plaintiff’s assent
    • 4. Threat left Plaintiff no reasonable alternative
  32. Undue Influence
    • 1. Persuasion of Plaintiff (persuasion is different than threat)
    • 2. Persuasion unfair given relationship of persuader and persuaded (must be someone with special relationship)
    • 3. Persuasion induced plaintiff’s assent
    • 4. Circumstances make it reasonable for plaintiff to be persuaded
  33. Unconscionability - Eisenberg
    • Distress
    • Unfair Persuasion
    • Price Ignorance
    • Transactional Incapacity
  34. Ambiguous Terms
    • • Semantic Ambiguity: ex is “light object”
    • • Syntactic Ambiguity: confusing statement when strung together; EX: 3 pizzas: Sausage, Green Pepper, & Onion
    • • Structural Ambiguity: person looking at thick packet of pages. Be skeptical about structural ambiguity.
  35. §201. Whose Meaning Prevails
    (1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.

    (2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time agreement was made:

    (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

    (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

    (3) Except as stated in this Section, neither party is bound by the meaning attached by other, even though the result may be a failure of mutual assent.
  36. Plain Meaning
    Definition used by everyone.  Often found in dictionary.
  37. False Consensus Bias
    Not everyone has same definition that you do. Be wary of plain meaning.
  38. § 202.  Rules in Aid of Interpretation
    (1) Words and other conduct are interpreted in light of all the circumstances, and if the principal purpose of parties is ascertainable, it is given great weight.

    (2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.

    (3) Unless a different intention is manifested,

    (a) Where language has a generally prevailing meaning, interpret it in accordance with that meaning;

    (b) Technical terms and words of art are given their technical meaning when used in a transaction within their technical field.

    (4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement. [TIP: This could be used against repeat players]

    (5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade. (Vaguness)
  39. §203. Standards of Preference in Interpretation
    • In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable:
    • (a) Reasonable, lawful and effective meaning to all terms preferred.

    (b) Hierarchy of precedence:

    • i. Express terms
    • ii. Course of performance
    • iii. Course of dealing
    • iv. Usage of trade

    (c) Specific and exact controls over general.

    (d) Separately negotiated or added terms control over standardized terms.
  40. § 204. Supplying an Omitted Essential Term
    When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

    Comment d. Supplying a term: The court should supply a term which comports with community standards of fairness and policy.
  41. §206. Interpretation Against the Draftsman
    In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.
  42. Deciding Interpretation
    • • (a) deciding against the party who bears the burden of proof; or
    • • (b) declaring the contract void for vagueness and using restitution to return the parties to the status quo ante.
  43. Parol Evidence Rule
    Limits the extent to which a party may establish that discussions or writings prior to the signed written contract should be taken as part of the agreement. In some circumstances, the rule bars the fact-finder from considering any evidence of certain preliminary agreements that are not contained in the final writing, even though this evidence might show that the preliminary agreement did in fact take place and that the parties intended it to remain part of their deal despite its absence from the writing.
  44. Partial Integration
    A partial integration is a document that is intended to be final, but that is not intended to include all details of the parties agreement. R2K 210

     RULE: When a writing is a partial integration, no evidence of prior or contemporaneous agreements or negotiations (oral or written) may be admitted if this evidence would contradict a term of the writing.
  45. Total Integration
    A total integration is a document that is not only a final expression of agreement, but that is also intended to include all details of the agreement. R2K 209

     RULE: When a document is a total integration, no evidence of prior or contemporaneous agreements or negotiations may be admitted which would either contradict or add to the writing.
  46. §213 Effect of Integrated Agreement on Prior Agreements
    (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.

    (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.

    (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which whould have been part of the agreement if it had not been integrated.
  47. §214 Evidence of Prior or Contemporaneous Agreements and Negotations
    Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish:

    (a) that the writing is or is not an integrated agreement

    (b) that the integrated agreement, if any, is completely or partially integrated

    (c) the meaning of the writing, whether or not integrated

    (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause

    (e) ground for granting or denying rescission, reformation, specific performance, or other remedy.
  48. §2-202.  Final Expression in a Record: Parol or
    Extrinsic Evidence
    (1) Terms with respect to which the confirmatory records of the parties agree or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be supplemented by evidence of:

    (a) course of performance, course of dealing, or usage of trade

    (b) consistent additional terms unless the court finds the record to have been intended also as a complete and exclusive statement of the terms of the agreement.

    (2) Terms in a record may be explained by evidence of course of performance, course of dealing, or usage of trade without a preliminary determination by the court that the language used is ambiguous.
  49. R2K § 211 (Standardized agreements can be integrated)
    (1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the agreement

    (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing.

    (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not a part of the agreement.
  50. 2-314 Implied Warranties
    Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale IF the seller is a merchant with respect to goods of that kind. For goods to be merchantable, they must be at least such as:

    i. Pass without objection in the trade under the contract description,

    ii. In the case of fungible goods, are of fair average quality

    iii. Fit for the ordinary purposes they are used for

    iv. Adequately contained, packaged, and labeled

    v. Conform to the promise or affirmations of fact made on the container or label if any.
  51. 2-313 Express Warranties
    Express warranties by the seller to the immediate buyer are created as follows:

    - Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

    - Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods will conform to that fact or promise.

    - Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

    - HOWEVER, an affirmation merely of the value of the goods or a statement of the seller’s opinion or commendation of the goods does not create a warranty.
  52. Inquires When There Is A Breach
    • (1) Nature and extent of the loss of the non-breach party.
    • (2) Which means of remedy best compensate (i.e., mainstream, restitution, reliance, etc…)(3) Policy or Principle limiting defendant’s liability
  53. • Expectation (R2K §347):
    Damages = Pl’s expectation position ex post – Pl’s actual position ex post

    o Puts person in a position they would have been had the contract been carried through.

    o Interpreted objectively; must be in accordance with what a reasonable person in her position would have expected as the benefit of the transaction, given the language of the contract and underlining circumstances

     Enforce by specific performance of the contract or (the usual preference) monetary relief
  54. Reliance (R2K §349)
    Damages = Pl’s status quo ante – Pl’s actual position ex post
  55. Restitution (R2K 371)
    Damages = D’s actual position ex post – D’s status quo ante
  56. Damages for Breach
    Defendant breached his contractual obligation, thus making himself liable for damages caused by the breach if those damages satisfy the certainty, foreseeability, and unavoidability constraints.
  57. Calculability [§352]
    Court must refrain from submitting to the jury the issue of damages where the evidence is such that it cannot determine that issue without indulging in speculation and conjecture.
  58. Foreseeability [§351] [Hadley’s 2-Prong Test]
    Where two parties have made a K which one of them has broken, the damages which the other party ought to receive in respect of such breach of K should be

    (1) such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things . . .or

    (2) such as may reasonably be supposed to have been in contemplation of both parties, at the time they made the K.
  59. Unavoidability [§ 350]:
    General rule is that the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. However, before projected earnings from other employment opportunities not sought or accepted by the discharged employee can be applied in mitigation, the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived.
  60. Calculability of Damages
    Damages can’t be speculative or uncertain [El Fredo case]. Evidence must be sufficient to persuade the factfinder that the loss is more likely to have occurred than not, and must give the factfinder enough basis for calculating a monetary award.
  61. §352 Uncertainty as a Limitation on Damages
    Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty

    .• Plaintiff has the burden to show what the “reasonable damages” are between plaintiff’s expected ex post and actual ex post.
  62. Application of §352:
    A plaintiff who claims that he would have made profits had the defendant not breached must show:

    • (1) That there would have been profits

    • (2) The likely amount of those profits (to a reasonable certainty)
  63. Profits From a New Business
    Where the plaintiff claims profits from a business or venture which at the time of breach was not yet in actual operation, the courts are reluctant to award such lost profits, due to their speculative nature, unless:

    • Old business used for estimation: Courts may be willing to allow recovery of prospective profits from a new venture if the plaintiff can show that he ran a previous operation of a similar nature, or had experience in that particular industry.
  64. The Hadley Test for Forseeability
    A plaintiff suing for a breach of contract may recover damages only if the damages:

    • Prong 1: Arise naturally out of the usual course of things, from the breach of contract itself; OR

    • Prong 2: May have been in the contemplation of both parties (Forseeability) at the time the contract was made!

    o Prong 2 allows Plaintiff to get greater special recovery if he discloses the special circumstances
  65. §351 Unforseeability and Related Limitations on Damages
    (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.

    (2) Loss may be forseeable as a probable result of a breach because it follows from the breach (a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.

    (3) A court may limit damages for forseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.
  66. §350.  Avoidability as a Limitation on Damages
    (1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.

    (2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
  67. Liquidated Damages
    To be enforceable, the liquidated damages must be “reasonable” compensation at the time the contract was formed OR ex post. Damages construed as a “penalty” will be unenforceable on public policy grounds.
  68. UCC §2-718(1) & §356
    Allow damages reasonable at the time contract was made, OR reasonable after the fact:

    The UCC allows a court to consider actual damages to validate a liquidated damages clause.  Even if the clause was not a reasonable forecast of damages at the time of the contract formation, it will be valid if it was reasonable in light of the subsequent actual damages.
  69. §356 Liquidated Damages and Penalties
    (1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on ground of public policy as a penalty.

    (2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence.
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