Contracts I Outline

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CONTRACTS OUTLINE
I. Scope
a. Geographic
i. Which state’s law governs the transaction? (Jurisdiction and
venue)
b. Subject Matter
i. Which law within the state governs the transaction, statutes
and codes, common law, case law, etc. Is the transaction
governed by statute or code on the one hand or case law on the
other.
ii. Restatement of Contracts is not a statue or code, or the law. As
the product of a Kx, it is extremely influential and is frequently
cited by courts. Where a restatement provision thus becomes
part of a judicial opinion, it becomes part of the case law of that
jurisdiction.
II. Kx Formation- Kx or Gift Promise?
a. Gift Promise
i. Gift promises are not enforceable by law, unless there is
proven reliance.
ii. Gratuitous Promises v. Completed Gifts
1. Completed gifts- where something is actually transferred by
one party to another is enforceable.
2. The economics of enforcing every gift promise, however, is
unreasonable.
b. Contract Promise
i. Offer & Acceptance
1. Offer- The prevailing theory is the objective theory: whether
assurances amount to an offer is a matter of appearances
reasonable understood, rather than a matter of the
unexpressed, subjectively held motives of the parties.
a. Preliminary Negotiations- become an offer according to
restatement §24- “so as to justify another in understanding
assent will conclude the bargain.” Whereas to this point out
focus has been what are the requisites of an offer, the focus
shifts to when is there an offer.
b. Owen v. Tunison- Would the reasonable man find the
statement an offer or merely negotiations?
c. Harvey v. Facey- Restatement §24: would a reasonable
person think an acceptance would result in a Kx? No there
must be an offer. “Lowest price” or “not less than” are not
offers but negotiations.
d. Fairmount Glass v. Crunden- Price quotes generally are
not offers but invitations to sell, however, because the price
quote was in response to a quote request, it qualifies as an
offer to sell at the quoted price and not just an offer.

e. Lefkowitz v. Great Minneapolis- Ads are generally not
offers, however when there is a number/quantity term there
is no risk of acceptances beyond the capacity of the seller to
meet. If the quantity is named, the recipient of the ad has a
reasonable expectation that the ad is an offer to sell the
stated quantity and no more.
f. Bids- Bids are not offers, even a bid that says. “to the
highest bidder” because even the highest bid may not be
enough.
2. Acceptance- An acceptance consists of a return promise for
the promisee or performance, the price for that return promise
or performance, and consideration therefore.
a. Promise: an unequivocal assurance that something will or
will not be done.
b. Performance: an act or omission, as distinguished from an
assurance or assertion something will or will not be done.
c. The price for the promisee’s return promise or performance
is the promisor’s promise. The price must be consideration for
the promisee’s return promise or performance
i. The promisor’s promise must be either beneficial to the
promisee or detrimental to the promisor (in some
jurisdictions)
ii. The promisor’s promise must have been sought by the
promisee (all jurisdictions)
d. Restatement §50(1)- an acceptance is a manifestation of
assent to the terms of the offer.
e.Change their mind: The offeror is no longer free to
change her mind once the acceptance has been made. The
offeror is “master of the offer” until it is accepted. The offeror
is free to name the method and manner of acceptance and
can revoke at any time until acceptance.
f. Unilateral- Where performance is the method called for,
no Kx is formed until acceptance by full performance.
i. Advantage- Offeror is not bound by his promise until
full performance.
ii. Disadvantage- Neither party is bound, which creates
risk of finding a better offer.
iii. Restatement §54(1)- No notification acceptance is
required where the offer invites acceptance by
performance, unless the offeror expressly requires it in
the offer.
iv. Restatement §45- a direct assault on the traditional
rule that they offeree is not vulnerable to revocation
after beginning performance based on reliance.
g. Bilateral- Invited acceptance by return promise in fact,
expressed or implied. Far and away most Kx’s are bilateral.

i. Advantage: Offeror gets a commitment in advance of
performance. Offeree is responsible to perform.
ii. Disadvantage: Offeror is bound upon the offeree’s
making a promise before he gets the performance
sought.
iii. White v. Corlies and Tift- In a bilateral Kx, an offer is
accepted in the terms set by the promisor, and the
contract is not enforceable until the promisor has
knowledge of the acceptance. An act may imply a return
promise, but it must be unambiguous, a manifestation of
assent recognizable as such by reasonable persons and
so recognized.
iv. Ever-Tite Roofing Co. v. Green- Where the method
of acceptance is return promise and the offer specifies
that the manner of acceptance may be by beginning
performance, contract is formed upon the offeree’s
commencing performance and the offeror may no long
revoke the offer. Offers are revocable until accepted, but
the revocation is not effective until communicated to the
offeree. The rule is designed to protect the offeror.
v. International Filter Co. v. Conroe Gin, Ice & Light
Co.- Re. 2d §56- requires notice to be given promptly
and seasonably received by the offeror unless it is
waived by the offeror.
vi. Allied Steel v. Ford Motor Co.- In a bilateral Kx,
where the offeror specifies the exclusive manner or
acceptance, at attempt to accept in another manner is
not an acceptance. However, where an offer suggests
the manner of acceptance, other manners of acceptance
are not precluded. (Beginning performance operates as
an implied return promise and acceptance).
vii. Precontractual Liability- §87(2)- if the offer invites a
promise to which the offeree can reasonable rely, there
is Precontractual liability.
viii. Liability for failed negotiations? Generally no, the
court permits parties to bargain without fear of liability
absent Kx’s. However, there is always a possibility of
restitution in Quasi=Kx.
ix. Hoffman v. Red Owl- the doctrine of estoppel (§90) is
freestanding is does not require an offer, just reasonable
reliance.
1. Not widely accepted- Courts are reluctant to
enforce this because it seems inappropriate to treat
failed negotiations as an occasion to asses damages
against one party for costs incurred, even if
foreseeable.

h. Silence- Re. 2d §69 provides a general rule that silence is
not acceptance, except maybe in light of past dealings
between the parties, where silence may amount to
acceptance.
i. Termination- Re. 2d §36, Four ways in which the offeree’s
power to accept is terminated:
i. Revocation- effective on receipt.
1. Dickinson v. Dodds- An offer is revocable until
accepted. Re. 2d §42, an offer is revoked when the
offeror indicates in some manner an intention to revoke,
either by words or an act inconsistent with the intent to
enter into Kx.
ii. Reliance- Re. 2d §45- The consideration for the
implied promise is such performance has been
completed.
1. Drennan v. Star Paving - the option promise implied
under §45 is enforceable based on consideration, the
basis for enforcing the implied option under §90 is the
oferee’s reliance. §45 the proposition is that option
promises can be implied from beginning performance. In
unilateral Kx, an offeree’s beginning performance in
reliance on the offer implied a promise not to revoke.
iii. Death or incapacity of the offeror- Re. 2d §48, the
death of the offeror or the offeree, terminates the power
of acceptance. However, the death of either party does
not terminate the power of acceptance where there is an
enforceable option. §37
iv. Rejection- Terminates the power of acceptance §38. A
later attempt to accept will be deemed a new (counter)
offer. A counteroffer §39(1) constitutes rejection, §39(2).
Effective on receipt.
1. §38(2)- Rejection does not terminate the power to
accept if the Offeree manifests an intent to “take
under further advisement”
2. §39(2)- The offeror or the offeree can prevent
termination of the power of acceptance by way of a
counteroffer by manifesting a contrary intent.
3. §37- The rejection of an irrevocable offer does not
terminate the power to accept.
4. §40- trumps the Mailbox Rule, or “limits the power
to accept” such that an acceptance sent after a
rejection has been sent is effective only if it is
received before the rejection. If not, it’s a counteroffer.
(acceptance is sent after rejection).

v. Lapse/expiration-If the offer states no lapse time, the
offer lapses after a ‘reasonable time’ depending on the
circumstances. (subject matter)
vi. Face to face- offers lapse at the end of the
conversation.
vii. Telephone-lapse when the parties hang up.
j. Mailbox Rule- Re. 2d §63(a)- acceptance in the form
invited by the offer is effective when the manifestation of
assent is put out of the offeror’s possession. (Effective on
dispatch) BUT an acceptance under an option Kx is effective
on receipt by the offeror.
i. Limitations- Offeror expresses differently, (§63), if the
offer is silent on the manner/medium for acceptance,
then the acceptance is effective on dispatch if made in
the manner “invited” by the offer.
1. §66- The MB Rule still applies even though the
acceptance was not done in the manner provided for
or invited IF the improper manner selected is at least
as expeditious as the manner provided for or invited.
ii. Offeree Bound? Offeree is bound by MBR or else the
offeree would be given an option Kx they never had to
bargain for.
iii. U.S. Life Ins. Co. v. Wilson- Generally the mailbox
rule applies to online and electronic communications,
although it is not altogether resolved.
k. Option Promises- Offer is a promise not to revoke the
offer.
i. Mail Box Rule- doesn’t apply to option promises
because it assumes the offeree needs protection that
they can proceed on the basis that Kx has been formed,
however where the parties have expressly agreed how
long the offer will last, there is no need to resort to
default rule to protect the offeree.
l. Mirror Image Rule- An acceptance that varies the offer
in any particular amounts to a rejection and counter offer.
i. Mitigating Doctrines- Declares the variation
“precatory” (non-essential or implied).
1. Absent the applicability of a mitigating docrtrine, an
acceptance varying the offer is a counteroffer and
rejection under the common law mirror imaging rule.
ii. Battle of the Forms- The varying terms are typically
printed and appear on the back and so are unread by the
clerk or other functionary who simply completes the
forms and files them away.
iii. UCC §2-207- Courts held that accepting the goods
was an acceptance to an offer and under the “Last Shot

Doctrine” whichever party fired the last shot dictates the
varying terms of the Kx. HOWEVER 2-207 dispensed the
Mirror Image Rule and says that the result in varying
terms is that an acceptance varying an offer still may be
an acceptance under the provision.
1. Sub§(1)- Rejects the MIR a definite and seasonable
expression of acceptance is effective as an
acceptance even if it has terms that are different from
or additional to the terms in the offer. UNLESS the
acceptance is expressly conditioned upon offeror’s
agreeing to those terms. “My terms and my terms
only”.
2. Sub§(2)- If both parties are merchants, the
additional terms are in unless there is an expressly
conditioned statement, the additional term “materially
alters” the Kx, or the offeror had already been given
notification of the addition and objected it. If only one
party is a merchant, the additional terms in the
acceptance are merely proposals for their addition or
rejection.
m. Conflicting Terms
i. Knockout Doctrine (MAJORITY VIEW)different/conflicting terms knock each other out. Favors
the offeree.
ii. Fallout Doctrine (STRONG MINORITY VIEW)- the
conflicting term “falls out” such that the original offer
term is in. Favors the offeror.
iii. Treat same as Additional- §2-207(2) (MINORITY
VIEW)- between merchants- they are accepted.
iv. §2-207(3)- Applies only if there is no Kx on the
writings, if the parties perform such as there is a Kx,
then the Kx is established by the conduct of buyer and
seller.
n. Dorton v. Collins- When a Kx is formed based on conduct;
its terms include those agreed to together with gap filers
implied in the Kx by operation of law under Article 2. §2207(3)
o. Materiality- would inclusion of the additional term result
in surprise or hardship.
p. Bayway Refining v. OMT- If the additional term is specific
and not open ended, fails to show unfair surprise or hardship,
as well as not materially altering the term, 2-207 does apply.
q.Article 2 (all jurisdictions)- Kx’s for the sale of goods, no
consideration is required to make an option promise (firm
offer) binding.
ii. Promise & Price

1. Unilateral- Refers to a promise given for a performance in
return. Restatement §71(1). The price is the performance.
2. Bilateral – A contract in which parties exchange promises.
The price for the promisor’s promise will be the promisee’s
return promise.
3. Defining Promise: An unequivocal assurance that
something will, or will not, be done.
iii. Consideration- Promisee’s performance must be
consideration for Promisor’s promise.
1. Benefit/Detriment- To be consideration, a performance
must either be a benefit to the promisor, OR constitute a
detriment to the promisee. Enforced by about a half-dozen
jurisdictions.
i. Ex) Forfeiting a legal right.
ii. To be a detriment: a promisee must suffer a detriment
in forgoing something the Promisee otherwise has a right
to do.
b. Hamer v. Sidway- A promisee’s performance is
consideration for the Promisor’s promise if it is either
beneficial to the promisor or detrimental to the promisee.
Forgoing the exercise of a legal right constitutes a detriment
to the Promisee.
i. Benefit-Detriment a requirement for Consideration.
Benefit must be measureable; detriment is forfeiting a
legal right.
c. Restatement §71/§79- A performance or return promise
is consideration if bargained for; benefit/detriment
abandoned (majority view). Small group of states retains
Ben/Det requirement.
d. Fiege v. Boehm- Forbearance to asset an invalid claim is
consideration provided there is an honest and reasonable
belief that the claim is valid. (Re. §44)
i. Forfeiting what proves to be an invalid claim is
consideration for a promisor’s promise if Promisee held
an honest and good faith belief in the validity of the
claim at the time of Kx Formation. I.e., beneficial to
Promisor/detrimental to Promisee at the time of Kx
Formation.
e. Restatement §44(1)- Failure to assert an invalid claim is
consideration if Promisee honestly believed claim was valid.
f.Dyer v. National By-Products, Inc.- Failure to assert an
invalid claim is consideration for a promise provided the party
forbearing has a good faith belief in the validity of the claim.
i. Objective- Reasonable person standard
ii. Subjective- Person at issues believed
iii. Nondisclosure

g. Peppercorn
2. Bargained For
i. Lucy v. Zehmer- Because the price is reasonable and
no peppercorn is present, in a subjective standard, the
reasonable person would recognize a Kx and the law
cannot take into the account one’s mindset in every Kx,
therefore regardless the intention, if the Kx on its face
seems reasonable, it is enforceable.
b. Action in the Past
i. Feinberg v. Pfeiffer- To be consideration for the
promisor’s promise, the promisee’s performance must
be bargained for (Re 2d, §71(1)), the promisor must have
made the promise in order to get the promisee’s
performance. Action in the past cannot be bargained for.
ii. Restatement §71- To be consideration for the
promisor’s promise, the promisee’s performance or
return promise must be bargained for- sought by the
promisor in exchange for its promise.
c. Moral Obligation
i. Mills v. Wyman- If the promise was not bargained for,
then there is not consideration and the contract is not
enforceable.
ii. Harrington v. Taylor- If the act is not bargained for,
the contract is not enforceable and there is no remedy.
iii. Webb v. McGowin- The moral obligation becomes
sufficient consideration when the promisor has received
a material benefit from past performance: this works as
if the promisor had made an implied promise to induce
this performance in the past. MINORITY VIEW.
3. Categories of Kx’s
a. Family Contracts- Non-commercial, regularly personal,
family relationships, frequently oral and frequently gift
promises.
b. Settlement Contracts (Forbearance)- If a party gives
up a valid claim against another, that certainly constitutes
consideration.
4. Promises as Consideration
a. Mattei v. Hopper- If a promise, with implied duty of good
faith, is capable of being broken such that the promisee
would be liable for breach of Kx, then the promise, though
illusory on its face, is not illusory when the implied good faith
term is included.
b. Strong v. Sheffield- Kx Formation requires a Promise plus
price, a promise is an unequivocal assertion something will or
will not be done. An equivocal promise cannot be broken- and
therefore is not an enforceable contract.

c. Wood v. Lucy Lady Duff-Gordan- Termination clauses
are not illusory if the other contracting party has a mutual
right to terminate or if there is some restriction on their use.
i. An illusory promise- one that makes performance of
the promise entirely optional is not consideration.
ii. Restatement 2d of Contracts §77- A promise or
apparent promise is not consideration if by its terms the
promisor or purported promisor reserves a choice of
alternate performances unless:
1. The alternative performances would have been
consideration if it alone was bargained for, or
2. The alternative performances would be
consideration and when promisor exercises his event
it eliminates the alternatives there weren’t
consideration.
5. Rewards
a. Broadnax v. Ledbetter- The action of assumpsit
developed to the point where a Promisee’s return promise
could be consideration even without any performance or
change of position in reliance on Promisor’s promise by the
Promisee.
6. Reliance (§4)
a. Kirksey v. Kirksey- The promise was not bargained for.
The promisor did not make his promise seeking promisee’s
return promise or performance, there was never a contract on
which she should have relied.
b. Ricketts v. Scotthorn- If the promisee takes an action in
reliance to the promisor’s promise, the promisor is estopped
to deny there is consideration for his promise. Therefore there
is consideration and the promise is enforced as though it
were a Kx promise.
c. Feinberg v. Pfeiffer- Under §90, the promise to pay a
pension was an enforceable NON Kx promise because her
actions proved reliance.
d. Restatement First §90- the action of definite and
substantial character and in so injustice could only be
avoided by enforcing the contract. (ESTOPPEL)
e. Restatement 2d §90(2)- supplanted the doctrine of
estoppel in Kx- MAJORITY VIEW. Under the first restatement
they would be estopped from denying consideration and the
promisee would get the entire promise even if it was
ridiculous. However, under the second restatement the
promise would be enforced ‘to the extent necessary to
prevent injustice’ but no more. (A promise to pay B $50,000
to drive to Dallas. B does and A backs out- restatement first
$50,000- restatement 2nd $30 for gas, $100 lost wages)-

awarded expectation interest. The restatement first was
either all or nothing, the restatement second is expectation
damages.
7. Restitution Quasi Kx)- Restitution is not another basis for
enforcing promises, but an alternative cause of action or basis
to recover where no action for Kx lies. Restitution allows
recovery to avoid “unjust enrichment”.
a. Cotnam v. Wisdom- A promisee can recover on restitution
when there is no formal Kx if there is significant proof of
unjust enrichment, and therefore should receive expectation
damages to the services of a normal person in his situation
(professional).
b. Callano v. Oakwood Park- Plaintiff must show that the
defendant was enriched and that it would be unjust to permit
defendant to retain the benefit conferred without paying for
it. Enrichment without payment is unjust where Plaintiff had
an expectation of payment from the defendant.
c. Pyeatte v. Pyeatte- Where the defendant is unjustly
enriched, the plaintiff may recover expectation damages.
d. Categories of Estoppel
i. Family Promises- Regardless of the motivation, if the
reliance seems sought after, there is consideration. If a
promisee’s action in reliance to the promisor’s promise
should be expected, there is consideration.
ii. Promises to Convey Land- Where promisee moves
onto the land and makes improvements, promisor will be
estopped to deny consideration. (IMPROVEMENTS)
iii. Promises made in conjunction with a gratuitous
bailment- A freebee for the bailor, forbearing to secure
insurance himself is an act in reliance.
iv. Charitable Subscriptions- promise by other
subscribers to match donation is consideration for
Donor’s promise. That is, consideration comes from a
third party.
III. Enforcement
a. Indefiniteness- an enforcement matter, it presupposes a Kx is
formed. A promise may be unequivocal and susceptible of breach,
but if it is impossible to fashion a remedy, the Kx is unenforceable
for lack of definiteness.
i. Toys Inc v. Burlington- A term that can be argued and
defined and that was a reasonable term to agree toward is
enforceable.
b. Statue of Frauds- requires certain contracts to be in writing.
i. Evidentiary- The prospect exists for a party to declare falsely
that a Kx was formed when there was none, or when it is agreed
to, but one can claim false assertions as to terms.

ii. Cautionary- Parties are more inclined to reflect seriously
before reducing a promise to writing.
1. Suretyship- One agrees to pay the debt of another. Needs
writing because there is no significant consideration for the
surety.
a. Strong v. Sheffield
b. Exception: “Leading Object Rule”- the Surety is promising
to satisfy the obligation of another out of self-interest.
Corporation officer agrees to surety an employee to keep the
corporation afloat.
2. Contracts that can’t be fulfilled within one year of
their making.-memories fade, witnesses may “remember”
differently.
3. Kx’s involving Transfer of an Interest of Land- the
importance of ownership of real property.
iii. Ameliorating Rules- Has no application to unilateral
contracts or if a Kx has been fully performed by one side, or
quasi-Kx/Restitution.
1. Estoppel and Reliance- in common law, there was a
general disinclination to avoid the statute of frauds based on
reliance on a promisor’s promise, but in recent times there have
been inroads on the traditional view. §139
a. Reliance Cases- If there is a misrepresentation about the
statute of frauds (asks for written agreement and says they
don’t need one) then it can apply. Also, a promisor may be
estopped to raise the statute of frauds based on the
promisee’s reliance on the promise.
iv. Statute of Frauds under UCC §2-201
1. Kx of $500 or more- must have writing sufficient to indicate
a Kx for the sale of goods signed by the party to be charged.
a. Omits a term or contains incorrect term? The writing
will satisfy the requirement, but will not be enforceable
beyond the quantity stated in the writing. Says 500 instead of
1000 hoola hoops- only liable for 500.
2. Kx needs signature of party to be charged UNLESS:
a. Between merchants: within a reasonable time, writing in
confirmation, sufficient against the sender, recipient has
reason to know contents, signature requirement satisfied
absent written objection within 10 days. (sub§2).
v. UCC and Estoppel- The doctrine of estoppel is also available
to enforce an oral Kx where §2-201(1) is not satisfied. §1-103(b)unless a provision in Article 2 expressly displaces (rules out)
common law doctrine and principles, those principles
supplement the provisions of article 2.
vi. Policing the Bargain: The bases for non-enforcement are
premised on (1) capacity or status, (2) behavior of the parties in

the course of bargaining and (3) the substance of the bargain
itself.
c. Capacity-denying enforcement of a Kx owing to the status of a
party is based on the proposition that some groups need protection
from the Kx’s they make. Denying enforcement on that bases is
paternalistic and comes at a cost to freedom to Kx.
i. Minority- protect minors from errors in judgment owing to
their youth and inexperience. Minors may “disaffirm” Kx’s they
make while minors and up to and within a “reasonable time”
after they reach majority. Minority is defined by statute, now 18
years of age in most states. A minor may disaffirm a Kx entered
into as a minor even after reaching majority, but must do so
within a “reasonable time” defined by statute. (OKLA- 1 year)
1. Kiefer v. Fred Howe Motors, Inc.- Minors may disaffirm
their Kx’s., the rule is to protect minors, however they might
appear, not those who know or should know they are minors.
a. Jurisdictions- Some jurisdictions require that, to disaffirm
a Kx, the minor must make restitution to avoid unjust
enrichment. In many jurisdictions, the minor need only make
restitution, not full restitution. The minor need only return the
car, whatever the condition. Some jurisdictions would require
fill restitution- damage or wear and tear deducted from
minor’s recovery.
b. Ratification- Kx’s of minors are not void, but voidable at
the election of the minor. A minor may ratify a Kx
unenforceable based on minority after reaching majority.
Upon majority, they may make a new promise to fulfill the
unenforceable obligation and remove the bar to enforcement.
Re. 2d §85.
c. Misrepresentation of Age- Some states deny protection
of the general rule and do not permit minors to disaffirm
where they lied about their age, and may be liable for torts,
however isn’t that the very immaturity and lack of judgment
the law is trying to protect?
ii. Mental Infirmity- As with the Kx’s of minors, the Kx’s of
those suffering from mental infirmity are voidable at the
instance of the protected party.
1. Ortelere v. Teacher’s Retirement Bd.- Under Re.2d §15
(a) if the party seeking to avoid the Kx passes the Cognitive
test, the Kx is voidable. (b) Provides a less stringent test and
represents the modern view. If the condition from which the
party suffers impedes the ability to make a sound decision,
the impairment is sufficient, as long as the other party has
reason to know of the condition. This test balances the
interest of both parties, that of the party in need of

protection owing to incapacity, against that of those who
deal with that party.
a. Cognitive Test- party lacks capacity and creates only
voidable Kx’s if he lacks the capacity to understand the
nature and consequences of the transaction.
2. Cundick v. Broadbent- Court only applies Cognitive test,
but there was too much thought to be qualified for mentally
incompetent- rewrites and help.
iii. Overreaching- behavior of the parties in the bargaining
process.
iv. Pressure in Bargaining
1. Physical Compulsion- one agrees under physical
compulsion (physical force), if this is the case there is simply no
assent and the Kx is void ab initio.
d. Duress- one party improperly threatens another and the
threatened party had no reasonable alternative but to assent.
a. Threat-Manifestation of intent to inflict some loss or harm
on another by words or conduct.
b. Improper- Early on, it was improper if the action
threatened was wrongful (physical violence). Today, there
may be duress even where the threatened action is not
“wrongful”, they may still constitute duress when undertaken
in bad faith.
i. Examples- threat to instigate criminal action, threat of
civil suit, threat to breach Kx.
c. Induced victim to assent- subjective cause, the victim
must have in fact assented to bargain because of the threat.
(rarely at issue)
d. Gravity- Must be sufficiently grace such that the victim is
left with no reasonable alternative other than to assent.
i. Early on- this was the objective standard. The test
shifted to a subjective standard, did the threat deprive
THIS victim of her free will, taking into account age,
experience, bargaining power, access to advice, etc.
ii. Prevailing Standard: The threat must be sufficiently
grave such that the victim is left with no reasonable
alternative other than to assent to the Kx. Gravity
requirement is best understood in the context of the
cases: threat of civil suit- it may not be wrongful but if
it’s not brought in good faith it could still qualify,
however in many cases such a threat does not amount
to duress.
e. Pre-Existing Duty Rule: threats to breach unless the
other party agrees to new terms, the Kx would be analyzed
as an enforcement matter under the doctrine of duress. PED
arises in a specialized set of circumstances- where one party,

by threat of breach of an existing Kx, induces another to
assent to a modification there of, or a new Kx.
f. Alaska Packers’ v. Domenico- A promise to do
something you already owe a duty to do can’t be
consideration. Performing a Kx duty already owed is not
consideration for a promise. No reasonable person would
bargain for something they already have.
g. Schwartzreich v. Bauman- The Pre-Existing Duty Rule
can be avoided by entering into an express Kx of Recession,
obviating the party’s rights under the first contract.
h. Watkins and Son v. Carrig- Where there is an
unforeseen circumstance that changes terms of the original
contract, there is an implied rescission, and a new contract is
formed disregarding the pre-existing duty rule.
i. Jurisdictions- Some courts have found an implied
rescission Kx even in the absence of unforeseen
difficulties or changed circumstances. Few courts have
abandoned the rule altogether. Another technique is to
find that any variation in the promisee’s promise in the
new/modified Kx from that in the old renders the PED
Rule inapplicable (virtually any additional term will do)
ii. Partial Payment- a promise to pay part of a debt in
full satisfaction of the claim is consideration to accept
the lesser amount provided the claim is in dispute as to
liability. UCC §3-311 “Accord and Satisfaction”
i. Jurisdictions- some legislatures have modified the PED
rule, New York and Michigan have legislation providing that
signed writing is a substitute for consideration to support a
Kx modification.
j. Other duties: If the duty is owed from a statute or other
requirement, PED can still operate. (An officer cannot seek
claim for capturing criminals).
k. Third Party: A few courts have gone so far as to apply the
PED Rule where the duty is owed not to the promisor, but to a
third party. The prevailing view is Re. 2nd §73 (rejects it).
ii. Concealment and Misrepresentation
1. Concealment- To what extent must one bargainer disclose
facts known to her but not known to the other?
i. Swinton v. Whitinsville Bank- Caveat Emptor (no
duty to disclose) there is no duty to disclose facts
unknown to the party.
1. Exceptions: fiduciary relationships, or active
concealment (misrepresentation). General rule: caveat
emptor has been attenuated by legislation requiring
harmful information be known.

ii. Kannanos v. Annino- Having made assertions with
reference to the disclosed information, there was a duty
to reveal facts unknown to the other where a party
makes reference to the matter.
e. Misrepresentation- Re. 2d §159- A misrepresentation is
fraudulent where the party making it knows the facts are not as
stated. Fraudulent misrepresentation is a tort.
a. Fraud in the Factum- Formation matter, there is simply
no Kx formed. (rare) A says sign this receipt B for food but it
actually signs away rights to their house.
b. Fraud in the Inducement- The defrauded party knows
they are entering into a Kx, but was fraudulently induced to
agree. It is unenforceable and may be disaffirmed.
i. Misrepresentation must be made: assertion not in
accord with the facts- Re. 2nd §159.
ii. Misrepresentation must be of fact: The assertion is
of a fact at the time it is made. As assertion of future
event is not misrepresentation. Must be made in the
form of words or conduct. Active concealment of that
sort would constitute an assertion of fact by conduct and
would amount to misrepresentation.
iii. Misrepresentation must be Fraudulent or
material- Re 2nd §162
1. Fraudulent- misrepresentation is fraudulent when
it is both consciously false and intended to mislead.
2. Material- a misrepresentation is material if it would
have been likely to induce a reasonable person to
enter into Kx.
iv. Relied- party seeking to avoid the Kx must have relied
on the misrepresentation in agreeing. Need not be the
sole basis, but it is enough that it contributed
substantially to the decisions entering into the Kx.
(reliance must be justified)
c. Vokes v. Arthur Murray- A statement of opinion will
amount to misrepresentation where the party making the
assertion has special skill or knowledge with respect to the
subject of the opinion.
2. Parties’ Obligation- That is the business of the Parol
Evidence Rule: to what extent may evidence be introduced that
the parties had agreed to terms that did not find their way into
the agreement in its final written form?
a. Gianna v. Russell-Parol evidence cannot be introduced to
prove a term in addition to those in the writing or a term that
conflict with the terms in the writing, where such term was
made prior to, or contemporaneously with, the final written

agreement. RULE MUST APPLY & KX MUST BE FULLY
INTEGRATED
i. Standard: if it would be natural to include it and
they didn’t they meant to exclude it.
b. Masterson v. Sine-Parol evidence cannot be introduced
to prove a term in addition to those in the writing or a term
that conflict with the terms in the writing, where such term
was made prior to, or contemporaneously with, the final
written agreement. RULE MUST APPLY & KX MUST BE FULLY
INTEGRATED
i. Standard: Was the specific subject matter
covered and if so, would the parties have
naturally included the term in a separate
agreement?
c. Two different standards- Gianna v. Masterson
d. Merger Clauses- “This writing represents the final
agreement of the parties” or something like that- is powerful
evidence that the parties intended the writing to be fully
integrated. Such clauses are conclusive of the parties’ intent.
3. Ambiguity & Vagueness
a. Patent Ambiguity- the ambiguity is apparent on the face
of the writing. (Attorney told client he needs more
information. Who?)
b. Latent Ambiguity- the ambiguity is not apparent from
the face of the writing, but becomes apparent in
consideration of information outside the writing. *Parolevidence is always admissible to prove a term in a written Kx
is ambiguous.
c. Raffles v. Wichelhaus- The objective theory would assign
meaning to the term with reference to what a reasonable
person would conclude, matching it to the meaning assigned
to the term by one of the parties.
4. Unfairness
a. McKinnon v. Benedict- When deciding to grant
performance or injunction, the court will balance the benefits
to the party seeking the remedy and the cost to the party
against whom the equitable relief will be enforced, all in light
of the consideration received.
b. Tuckwiller v. Tuckwiller- That a plaintiff will be denied
equitable relief where the Kx is unfair- as where the
consideration is grossly inadequate and where the costs of
granting that relief outweigh the benefits.
5. Adhesion Contracts- Standardized Kx’s are not Kx’s of
adhesion, but may be so deployed where one party imposes its
will on another in the course of Kx formation.

a. One party enjoys considerably more bargaining power than
the other
b. One party has no real power or opportunity to bargain over
terms
c. One party may lack sophistication to understand the
unfamiliar terms stamped in small print on the back of a
standardized form.
f. Unconscionability- when a court or legislature protects a class, it
protects the entire class, such that all members can disaffirm their
Kx’s.
i. Williams v. Walker- A Kx or Kx clause is unconscionable
where (1) there is an absence of meaningful choice + (2) Kx
term or terms unreasonably favorable to the other party.
g. Public Policy- Where a Kx is unenforceable because it violates
public policy, the concern is the public at large, and protecting it
against imposition by perhaps, both parties.
i. Illegality- A Kx, which is not illegal, may still violate public
policy as determined by a court and so be unenforceable.
1. Subject Matter
a. Bovard v. American Horse Enterprises- The subject
matter of the Kx violated public policy, although the Kx itself
was not illegal.
2. Procurement
a. Sirkin- A Kx is unenforceable where, though legal on its
face and not illegal as to its subject matter, is procured
illegally.
3. Performance
a. McConnell- The contract was not illegal in its subject
matter nor procured illegaly. It was illegal in its perofmance.
The illegality must be major and must be directly connected
to the obligation sued upon.
i. Restitution? There would be little disincentive to enter
into illegal Kx’s if restitution was granted.
1. Exceptions: If a party to an illegal Kx withdraws
within the time for repentance, he may recover in
restitution for the other for the value of any benefit
conferred..
IV. Performance and Breach
a. Conditions- Restatement §224- A condition is an event that
must occur before performance of a thing promised is due. It does
not mean no Kx is formed- it means there is no duty to perform what
was promised unless and until the condition precedent is met.
i. Condition Precedent- a contingency that must occur before
there is a duty to perform the thing promised. “duty-creating”
ii. Condition Subsequent-terminates a duty to perform.
iii. Condition Concurrent- must happen simultaneously.

b. Breach by defendant-(no breach, compliance) did not
perform. Anytime there’s an allegation of breach, the party against
whom it is alleged gets to respond. The first response we address is
“no breach compliance.”
i. Covenant- must follow Rule of Reason. The covenant cannot
work an ‘undue hardship’ which would result in unreasonable
scope, duration or geography preventing an employee form
working.
1. Hopper v. All Pet Animal Clinic- A covenant not to
compete in enforceable to the extent it is reasonable in scope,
duration and geographic limits. The covenant must impose only
such limitations as are necessary to protext the employer’s
legitimate business interest. After that, the covenant will still be
unenforceable if it works an undue hardship on the employee or
injures the public.
ii. Condition Precedent1. Luttinger v. Rosen- A condition precedent is a fact or event
which the parties intend must exist or take place before there is
a right to performance.
iii. Promissory Duty v Promissory Condition- Conditions may
be either events outside the control of the parties (I promise to
play golf if it reaches 85 degrees before noon), or events within
the control of the parties, promissory condition (I promise to
play gold with you tomorrow on condition that you buy lunch at
the clubhouse first.
1. Promissory Duty- stand independent of each other. I
promise to give you $50 if you promise to mow my lawn. Your
not mowing my lawn does not excuse my promise to give you
$50, I can sue and get damages for your not mowing my lawn.
2. Promissory Condition- depend on each other. I promise to
give you $50 on the condition that you mow my lawn. If you do
not mow my lawn, I do not have to give you $50. Event within
the control of one of the parties.
3. Internatio-Rotterdan v. River Brand Rice- In cases of
doubt, the court prefers to find duty versus condition to avoid
“harsh results”.
4. Gubson v. Cranage- Where parties thus deliberately enter
into an agreement which violates no rule of public policy, and
which is free from all taint of fraud or mistake, there is no
hardship whatever in holding them bound by it. If it’s a
condition, even if it seems ridiculous, based on satisfaction, it is
was plainly stated- you must abide by it.
a. Third Party Satisfaction- to reduce the risk of forfeiture
associated with conditioning performance on a contracting
party’s satisfaction, performance is frequently premised on

the satisfaction of a third, independent party, such as an
expert.
iv. Mitigating Doctrines1. Prevention: the No breach, compliance owing to an express
condition precedent is not available to a party who prevents the
event/condition from occurring.
2. Waiver and Estoppel: Contracting parties can waive
express conditions in their Kx. The party waiving the contract
may retract the waiver provided the time for the condition’s
occurrence has not passed. The waiver cannot be retracted,
however, if the other party has relied on the retraction
(estoppel). Waiver of a condition after the time for its
occurrence has passed may not be retracted, whether or not
there has been reliance on the retraction.
3. Election: Where the time for the condition to occur has
expired, the party whose performance depends on the condition
being met may ‘elect’ to disregard the condition and proceed
with performance.
a. McKenna v. Vernon- The condition was waived because
of failure to abide by the condition throughout the process
produced reliance on the contract.
b. Hicks v. Bush- Parol evidence is always allowed to prove
an express condition, provided the condition does not
contradict the terms of the writing. The rule barring
supplementary parol evidence when the agreement is fully
integrated is subject to an exception in the case of a
condition.
c. Constructive Conditions (No breach, Justification)- although
I am not performing, my non-performance is justified by your breach.
Thus there is an admission of non-performance, though not breach,
such that the plaintiff’s breach forecloses the Kx action.
i. Four elements of Justification Response
1. Plaintiff was in breach
a. Doctrine of Substantial Performance- Constructive
Conditions (implied conditions in every contract) perform
ENOUGH to satisfy condition. It doesn’t mean your not in
breach. “breach was immaterial”, “mostly performed”. I did
breach but they are not justified in noncompliance.
i. Jacob & Young v. Kent- Using Reading Pipe was a
promissory duty for the builder’s performance, not an
express condition. Full performance is a constructive
condition to which the other must pay. Substantial
performance is enough to satisfy the constructive
condition.

2. Defendant’s duty to perform was dependent on
plaintiff’s performance (MUTUALLY DEPENDENT
COVENANTS)
a. Concurrent conditions: neither performance is a
condition precedent, but issues a constructive condition.
Where conditions are concurrent, both parties must at least
‘tender’ (offer, be prepared to offer) performance. In order for
breach, there has to be a tender of performance. “I would
have performed”.
3. Plaintiff’s performance was a condition precedent to
defendant’s performance (DEPENDENT COVENANTS)
a. Kingston v. Preston- Kingston’s breach was justified by
Defendant’s breach, not providing security. Each party’s
performance is an implied condition that must be met before
the other party must perform.
b. Stewart v. Newbury- When there is no set timeline for
pay, sufficient work must be done prior to a demand to pay.
i. Basic default rule: where one party is to do
something, and the other pay, absent language to the
contrary, performance by the party to do something is a
condition precedent to the other’s having to pay. ALL
JURISDICTIONS
4. Plaintiff’s breach was of sufficient magnitude to justify
defendant’s withholding its performance
(INDEPENDENT?)
ii. Mitigating Doctrines
1. Express condition- Where a promissory condition is
express, nothing short of strict adherence to the terms of the
condition will satisfy it. In short, ‘real close’ won’t do to satisfy
an express condition.
a. Failure of a condition, express or constructive, works a
forfeiture on one party-the breaching plaintiff.
2. Substantial Performance- with the dependency of
promises (one party’s performance is a constructive condition
precedent of the other’s duty to perform) firmly entrenched in
kx law, the risk of forfeiture is elevated and the potential for
harsh results increases. It is one thing to insist on meticulous
satisfaction of an express condition precedent that was the
subject of negotiation, it is another to insist on fastidious
satisfaction of a constructive condition.
d. Practical Evidence Theory
V. Remedies
a. Cost to Complete- Fix errors and go back and do it how they
asked.
b. Diminution in value- How much value was diminished.

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