Chapter 1: Contract Formation: Offer, Acceptance, and Consideration

Introduction

Contract law begins with the foundational question: is there a valid contract? Without proper formation, no enforceable obligations arise. For both law school exams and the Uniform Bar Exam (UBE), formation questions are heavily tested and require precise application of rules. This chapter addresses the three pillars of formation: Offer, Acceptance, and Consideration, with attention to both Common Law and UCC Article 2 distinctions.

I. The Offer

A. Definition

• An offer is a manifestation of present intent to enter into a bargain, communicated to an identifiable offeree, and sufficiently definite in terms, such that a reasonable person in the position of the offeree would understand acceptance will create a binding contract.

B. Requirements for a Valid Offer

1. Manifestation of Intent
   • Objective standard: what a reasonable person in the offeree’s shoes would believe.
   • Examples:
     • Statements of intent (“I plan to sell my car”) are not offers.
     • Price quotations usually are not offers unless quantity and commitment are included.
2. Definiteness of Terms
   • Common Law: Material terms must be definite (parties, subject matter, price, quantity, time of performance).
   • UCC Article 2: Requires only quantity as essential; gap-fillers supply missing terms (price = reasonable, delivery = seller’s place of business, etc.).
3. Communication to the Offeree
   • Must be actually communicated.
   • Cannot accept an offer if unaware of it (e.g., reward cases).

C. Termination of Offers

1. Lapse of Time – after stated time or reasonable time.
2. Revocation by Offeror – effective when received by offeree.
   • Direct revocation: explicit communication.
   • Indirect revocation: offeree learns from reliable source that offeror took action inconsistent with intent to contract.
3. Rejection by Offeree – includes counteroffers.
4. Death or Incapacity of offeror or offeree (unless option contract).

D. Irrevocable Offers

1. Option Contracts – separate consideration paid to keep offer open.
2. UCC Firm Offer Rule (§ 2-205)
   • Merchant’s signed writing assuring it will be held open is irrevocable for time stated (max 3 months, no consideration required).
3. Detrimental Reliance – if offeree reasonably relies on offer to their detriment, offer may be held open to avoid injustice.
   • Example: subcontractor bids in construction cases.

II. The Acceptance

A. Definition

• An acceptance is a manifestation of assent to the terms of the offer made in a manner invited or required by the offer.

B. Requirements

1. Who May Accept – only the person to whom the offer is made.
2. Knowledge of Offer – acceptance must be with knowledge of the offer (reward cases).
3. Manner of Acceptance – dictated by the offer.

C. Common Law Rule: Mirror Image Rule

• Acceptance must be unequivocal and mirror the terms of the offer.
• Any variation = counteroffer, not acceptance.

D. UCC Rule: Battle of the Forms (§ 2-207)

1. Acceptance can still form a contract even if it contains additional or different terms, unless expressly conditional.
2. Between merchants: additional terms become part of contract unless:
   • Offer expressly limits acceptance;
   • Materially alter the contract;
   • Offeror objects within reasonable time.

E. Methods of Acceptance

1. Bilateral Contracts – promise for a promise; acceptance usually by return promise.
2. Unilateral Contracts – promise for performance; acceptance only by completing performance.
   • Modern rule: beginning performance creates option contract; offeror cannot revoke once performance has started.
3. Silence as Acceptance – generally not acceptance unless:
   • Offeree takes benefit of services with opportunity to reject;
   • Prior dealings make it reasonable;
   • Offeror states silence = acceptance and offeree intends to accept.

F. Mailbox Rule

• Acceptance effective upon dispatch (mailing).
• Revocation/rejection effective upon receipt.
• Exceptions:
  • Option contracts: acceptance effective upon receipt.
  • If offeree sends rejection first, whichever arrives first controls.

III. Consideration

A. Definition

• Consideration is a bargained-for exchange of legal detriment or benefit.
• Each party must incur a detriment or confer a benefit.

B. Key Principles

1. Legal Detriment – promisee does something not legally obligated to do, or refrains from something they are legally free to do.
2. Bargained-For Exchange – promise must induce detriment and detriment must induce promise.

C. Adequacy of Consideration

• Courts do not examine adequacy (“peppercorn rule”).
• Exception: nominal consideration may be insufficient if a sham.

D. Pre-Existing Duty Rule

• A promise to do what one is already legally obligated to do is not consideration.
• Exceptions:
  • Unforeseen circumstances.
  • New or different consideration.
  • UCC: contract modification does not require new consideration if made in good faith.

E. Illusory Promises

• A promise that leaves performance entirely optional is not valid consideration.
• Example: “I promise to buy your car if I feel like it.”
• Exceptions: implied obligations (best efforts, good faith).

F. Substitutes for Consideration

1. Promissory Estoppel (Reliance)
   • A promise is enforceable if:
     • Promisee reasonably relies on promise,
     • Reliance is detrimental,
     • Enforcement necessary to avoid injustice.
   • Common in charitable pledges.
2. Moral Obligation + Subsequent Promise
   • Generally not enforceable.
   • Modern trend: may enforce if promisor received material benefit (e.g., saving someone’s life).

IV. Mixed Contracts: Common Law vs. UCC

• Predominant Purpose Test – if the transaction primarily involves goods, UCC governs; if primarily services, Common Law governs.
• Exam tip: Always identify whether UCC Article 2 applies.

V. Exam Strategy Pointers

• Spotting Issues: Always start by asking: was there a valid offer? Was there acceptance? Was there consideration?
• Distinguish between Common Law and UCC: Especially on questions involving sale of goods.
• Pay attention to timing: mailbox rule, revocations, lapse.
• Think about reliance: detrimental reliance often saves otherwise revocable offers or missing consideration.

Recap

• A valid contract requires Offer, Acceptance, and Consideration.
• Offers terminate through lapse, revocation, rejection, or death, but can be irrevocable under option contracts, UCC firm offers, or reliance.
• Acceptance rules differ under Common Law (mirror image) and UCC (battle of the forms).
• Consideration requires a bargained-for exchange, but doctrines like promissory estoppel may substitute.
• Always analyze whether Common Law or UCC governs.

Chapter 2: Defenses to Formation and Enforcement

Introduction

Even when a contract appears validly formed with offer, acceptance, and consideration, a party may still resist enforcement by raising a defense. These defenses fall into two categories:

1. Formation Defenses – issues that prevent a valid contract from ever arising (e.g., incapacity, illegality, mistake).
2. Enforcement Defenses – issues that excuse performance or render the contract voidable even if validly formed (e.g., misrepresentation, duress, unconscionability, Statute of Frauds).

On exams, defenses frequently appear as fact patterns where one party tries to avoid performance. A systematic approach requires:

• Identifying the potential defense,
• Stating the rule and exceptions,
• Applying the law to the facts.

I. Capacity to Contract

A. Infancy

• Rule: Contracts entered into by minors (under 18 in most jurisdictions) are voidable at the minor’s option.
• Minor may disaffirm before or within a reasonable time after reaching majority.
• Minor must return goods, but need not make restitution for depreciation (majority rule).

Exceptions:

1. Necessaries (food, clothing, shelter, medical care): enforceable for reasonable value.
2. Ratification after majority (explicit or implied by conduct).

B. Mental Incapacity

• Rule: A contract is voidable if a party lacked capacity to understand the nature and consequences of the transaction.
• Modern approach: voidable if unable to act reasonably and the other party knew or had reason to know of the incapacity.

C. Intoxication

• Rarely successful. Voidable if intoxicated party was unable to understand nature and consequences and other party had reason to know.

II. Illegality and Public Policy

A. Illegal Contracts

• Contracts with illegal subject matter are void (e.g., agreement to commit crime).
• Contracts with legal subject matter but illegal purpose may be voidable if one party is unaware.

B. Public Policy

• Contracts may be unenforceable if contrary to strong public policy (e.g., restraints on marriage, overly broad non-compete agreements).
• Courts balance freedom of contract against societal interests.

III. Misrepresentation and Fraud

A. Misrepresentation

• Definition: False assertion of fact that induces assent.
• If material and relied upon, contract is voidable.

B. Fraudulent Misrepresentation

• Elements:
  1. Misrepresentation of material fact,
  2. Knowledge of falsity (scienter),
  3. Intent to induce reliance,
  4. Justifiable reliance by other party.
• Remedy: rescission and possibly damages.

C. Nondisclosure

• Silence is not fraud unless:
  • Fiduciary relationship exists,
  • Concealment,
  • Active concealment or half-truth,
  • Failure to disclose known material facts where disclosure would correct mistaken assumption and nondisclosure amounts to bad faith.

IV. Duress and Undue Influence

A. Duress

• Rule: Contract voidable if induced by an improper threat that leaves no reasonable alternative.
• Examples: threats of physical harm, unlawful threats, or wrongful threats to withhold goods/services.
• Economic duress recognized if:
  1. Party threatens wrongful act,
  2. No adequate alternative available,
  3. Threat induced assent.

B. Undue Influence

• Definition: Unfair persuasion of a party under domination or in a relationship of trust.
• Indicators: excessive pressure, unusual time or place, insistence on immediate action, lack of independent advice.

V. Mistake

A. Mutual Mistake

• Rule: Contract voidable if:
  1. Both parties mistaken about a basic assumption of fact,
  2. Mistake materially affects exchange,
  3. Party seeking avoidance did not bear risk.

B. Unilateral Mistake

• Generally not a defense unless:
  • Other party knew or should have known of mistake, or
  • Unconscionable to enforce.

C. Risk of Mistake

• If a party consciously assumes risk (“as is” clause), mistake defense barred.

VI. Unconscionability

A. Rule

• Contract unenforceable if, at time of formation, it was so one-sided that it shocks the conscience.

B. Types

1. Procedural unconscionability – unfair surprise, unequal bargaining power.
2. Substantive unconscionability – oppressive or grossly unfair terms.

C. Remedies

• Court may refuse to enforce, strike offending clause, or limit application.

VII. Statute of Frauds (SOF)

A. Purpose

• Certain contracts must be in writing to be enforceable. Writing must identify parties, essential terms, and be signed by party to be charged.

B. Categories (MY LEGS mnemonic)

1. Marriage – contracts in consideration of marriage.
2. Year – contracts incapable of being performed within one year.
3. Land – sale or interest in land.
4. Executor – promise to pay estate debt from executor’s own funds.
5. Goods – sale of goods for $500 or more (UCC § 2-201).
6. Suretyship – promise to answer for debt of another.

C. Exceptions

• Part performance (land contracts).
• Admission in court.
• Merchant’s confirmatory memo (UCC).
• Specially manufactured goods (UCC).
• Promissory estoppel (modern courts increasingly allow).

VIII. Parol Evidence Rule (Introductory Treatment)

• The Parol Evidence Rule (PER) is technically a contract term doctrine, but it often functions as a defense to enforcement.
• Rule: When parties reduce agreement to a final written expression, evidence of prior or contemporaneous agreements that contradict or vary the writing is inadmissible.
• Exceptions: interpretation, showing fraud/duress/mistake, conditions precedent, subsequent modifications.

IX. Exam Strategy Tips

• Always ask: is the contract void, voidable, or unenforceable?
• Void contracts: no legal effect (illegality, lack of capacity in rare cases).
• Voidable contracts: valid unless one party chooses to rescind (minor’s contracts, fraud, duress).
• Unenforceable contracts: valid but not judicially enforceable (Statute of Frauds violations).
• Bar examiners love fact patterns with minors, misrepresentations, or oral agreements subject to SOF.

Recap

• Defenses attack validity (capacity, mistake, illegality) or enforceability (fraud, duress, unconscionability, SOF).
• Always specify the legal effect: void, voidable, unenforceable.
• Remember exceptions: part performance, promissory estoppel, UCC merchant memos, ratification.
• On exams, carefully parse whether the issue is about formation (no contract ever existed) or enforcement (contract exists but one party seeks to avoid obligations).

Chapter 3: Statute of Frauds and the Parol Evidence Rule

Introduction

Two doctrines sit at the intersection of contract formation and enforcement: the Statute of Frauds (SOF) and the Parol Evidence Rule (PER).

• The SOF addresses whether certain contracts must be in writing to be enforceable.
• The PER limits what evidence may be introduced when parties have reduced their agreement to writing.

On exams, these doctrines often appear in fact patterns where one party resists enforcement: “We never signed anything,” or “That oral promise isn’t part of the deal.” This chapter arms you with the rules, exceptions, and analytical steps for tackling both doctrines.

I. The Statute of Frauds (SOF)

A. Purpose

• Prevents fraud and perjury by requiring written evidence of certain important contracts.
• Applies only to contracts within its scope.

B. Categories of Contracts Covered

Mnemonic: MY LEGS

1. Marriage – contracts made in consideration of marriage (e.g., prenuptial agreements).
2. Year – contracts incapable of being fully performed within one year.
   • Key: measured from the date of formation, not from the start of performance.
   • If possible within a year (even if unlikely), SOF does not apply.
3. Land – sale or transfer of interests in real property (including leases >1 year).
4. Executor – promise by an executor to pay estate debts from personal funds.
5. Goods – UCC Article 2: contracts for sale of goods priced at $500 or more.
6. Suretyship – promise to answer for the debt of another.

C. Requirements of the Writing

1. Common Law – writing must:
   • Identify the parties,
   • State subject matter,
   • Set forth essential terms,
   • Be signed by the party to be charged.
2. UCC (§ 2-201) – writing must:
   • Indicate a contract for sale of goods,
   • Specify quantity,
   • Be signed by party to be charged.

D. Exceptions to SOF

1. Part Performance

• Applies primarily to land contracts.
• If buyer has taken possession, made improvements, or paid a substantial part of price, courts may enforce without writing.

2. Admission in Court

• If party admits contract’s existence under oath, writing not required.

3. Merchant’s Confirmatory Memo (UCC § 2-201(2))

• Between merchants, written confirmation of oral agreement satisfies SOF if:
  • Sent within reasonable time,
  • Recipient has reason to know of contents,
  • No written objection within 10 days.

4. Specially Manufactured Goods (UCC § 2-201(3)(a))

• Goods not suitable for resale and manufacturer has substantially begun production.

5. Promissory Estoppel

• Modern courts increasingly enforce oral contracts within SOF where reliance is substantial and injustice can only be avoided by enforcement.

II. The Parol Evidence Rule (PER)

A. Purpose

• Governs admissibility of evidence of prior or contemporaneous agreements to add to, vary, or contradict a written agreement.

B. Rule Statement

• When parties intend a writing to be a final integration, no extrinsic evidence of prior or contemporaneous agreements may contradict the writing.

C. Determining Integration

1. Complete Integration – writing intended as full and exclusive statement of terms.
   • No extrinsic evidence admitted.
2. Partial Integration – writing final as to terms included but not complete.
   • Consistent additional terms may be admitted.

Courts differ:

• Four Corners Rule (Traditional) – judge determines from face of document.
• Modern/Corbin Approach – judge may consider extrinsic evidence to determine integration.

D. Exceptions to PER

Parol evidence admissible to show:

1. Ambiguity/Interpretation – clarify meaning of terms.
2. Collateral Agreements – separate deals not contradicting writing.
3. Condition Precedent – oral condition to contract’s effectiveness.
4. Subsequent Modifications – PER applies only to prior or contemporaneous agreements, not later modifications.
5. Defenses to Formation – fraud, duress, mistake, illegality, lack of consideration.

E. UCC Treatment (§ 2-202)

• UCC more liberal. Written contract may be supplemented by:
  • Course of performance – how parties performed under this contract.
  • Course of dealing – how parties acted in prior contracts.
  • Usage of trade – industry customs.
• Contradictory evidence barred, but consistent terms usually allowed unless writing is complete and exclusive.

III. Interaction Between SOF and PER

• SOF asks: Is a writing required?
• PER asks: What can we do with the writing once it exists?
• Both doctrines may overlap in litigation where one party challenges enforcement of oral or additional terms.

IV. Common Exam Patterns

Pattern 1: Oral Land Sale

• Facts: Oral agreement to sell land; buyer moves in and builds fence.
• Issue: SOF requires writing for land contracts.
• Analysis: Apply part performance exception (possession + improvements).

Pattern 2: Merchant Confirmation

• Facts: Seller and buyer (both merchants) orally agree on 1,000 widgets; seller sends signed confirmation; buyer does not object.
• Issue: UCC SOF.
• Analysis: Merchant memo exception; contract enforceable.

Pattern 3: Oral Promise Contradicting Writing

• Facts: Written contract says $5,000 price; party testifies oral promise of $4,000.
• Issue: PER prohibits contradiction of complete integration.
• Analysis: Evidence excluded.

Pattern 4: Oral Condition Precedent

• Facts: Written contract for sale of house; oral condition “only if I get financing.”
• Issue: PER allows oral condition precedent.
• Analysis: Evidence admissible.

V. Practical Exam Tips

1. Identify the doctrine first – Is the issue lack of writing (SOF) or admissibility of prior terms (PER)?
2. State the baseline rule – SOF requires writing for certain contracts; PER bars extrinsic evidence contradicting final writing.
3. Look for exceptions – SOF (part performance, merchant memo); PER (ambiguity, subsequent modification).
4. Always note Common Law vs. UCC – especially for goods contracts.
5. Timing matters – PER applies only to prior or contemporaneous terms, not subsequent modifications.

Recap

• The Statute of Frauds requires certain contracts to be in writing; exceptions often save oral agreements.
• The Parol Evidence Rule bars extrinsic evidence contradicting written contracts but has numerous exceptions.
• On exams, carefully distinguish between SOF (writing required for enforceability) and PER (use of evidence when writing exists).
• Both doctrines test whether the contract is enforceable as written or with additional terms.

Chapter 4: Contract Terms and Interpretation

Introduction

Formation establishes that a contract exists. The next critical step is to determine the content of the contract — what obligations were agreed upon, how ambiguous terms are interpreted, and whether certain outside evidence can shape the meaning. This chapter explores:

• The sources of contract terms,
• Rules of interpretation and construction,
• The role of implied terms (good faith, best efforts, warranties),
• How courts handle ambiguities and conflicts.

On exams, issues of contract terms usually appear where the parties dispute the meaning of a clause, or where one party claims additional terms should be implied.

I. Sources of Contract Terms

A. Express Terms

• Directly stated in writing or orally.
• Given primary weight in contract interpretation.

B. Implied Terms

1. Implied-in-Fact – inferred from parties’ conduct or course of dealing.
   • Example: a party who always delivers at 9 a.m. may be deemed to have agreed to that practice.
2. Implied-in-Law (Constructive Terms) – imposed by courts to promote fairness and efficiency.
   • Example: implied covenant of good faith and fair dealing.

C. UCC Gap-Fillers (§ 2-305–2-311)

If sales contract for goods is silent:

• Price – reasonable price at time of delivery.
• Delivery – seller’s place of business.
• Time – reasonable time.
• Payment – due at time and place of receipt.

II. The Parol Evidence Rule (Deeper Dive)

A. Relationship to Terms

• PER bars use of prior agreements to contradict or vary express terms, but permits supplementation if integration is partial.
• Exam pointer: If parties dispute whether a writing contains all terms, PER analysis is triggered.

B. UCC Approach (§ 2-202)

• Written terms may be supplemented by:
  • Course of performance (how parties performed this contract),
  • Course of dealing (how parties behaved in prior contracts),
  • Usage of trade (industry custom).

III. Interpretation of Ambiguous Terms

A. General Rules of Construction

1. Plain Meaning Rule – if language is clear, enforce as written.
2. Ambiguity – if language reasonably susceptible to more than one meaning, extrinsic evidence may be admitted.
3. Contra Proferentem – ambiguities construed against drafter (common in adhesion contracts).

B. Hierarchy of Evidence (UCC and Restatement)

When terms conflict, the following hierarchy applies:

1. Express terms control.
2. Course of performance.
3. Course of dealing.
4. Usage of trade.

C. Specific vs. General Provisions

• Specific terms control over general terms.
• Handwritten or typed terms prevail over printed terms.

IV. The Duty of Good Faith

A. Common Law

• Every contract includes an implied duty of good faith and fair dealing.
• Requires honesty in fact and observance of reasonable commercial standards.

B. UCC § 1-304

• Explicitly imposes obligation of good faith in performance and enforcement.
• For merchants: good faith = honesty + observance of reasonable commercial standards.

C. Applications

• Prevents opportunistic behavior (e.g., deliberately sabotaging performance).
• Used to strike down “bad faith” terminations under discretionary clauses.

V. Best Efforts and Output/Requirements Contracts

A. Best Efforts

• Courts imply best efforts when contract involves exclusive dealing (UCC § 2-306(2)).
• Example: distributor contract where manufacturer relies on distributor’s promotion.

B. Output and Requirements Contracts

• Valid under UCC § 2-306.
• Seller agrees to sell all output, or buyer agrees to purchase all requirements.
• Must be made in good faith and not unreasonably disproportionate compared to estimates.

VI. Warranties (UCC Article 2)

A. Express Warranties (§ 2-313)

• Created by any affirmation of fact, promise, description, sample, or model that becomes part of the basis of the bargain.
• Mere puffery/opinion not warranty.

B. Implied Warranty of Merchantability (§ 2-314)

• Applies only if seller is a merchant of goods of that kind.
• Goods must be fit for ordinary purpose.

C. Implied Warranty of Fitness for Particular Purpose (§ 2-315)

• Arises when:
  1. Seller knows buyer’s particular purpose,
  2. Seller knows buyer relies on seller’s skill or judgment,
  3. Buyer actually relies.

D. Disclaimers and Modifications

• Express warranties can be limited by clear disclaimers.
• Implied warranties may be excluded by:
  • “As is” language,
  • Buyer’s examination of goods,
  • Course of dealing or usage of trade.

VII. Conditions in Contracts

A. Types of Conditions

1. Condition Precedent – must occur before duty to perform arises.
2. Condition Subsequent – occurrence discharges existing duty.
3. Concurrent Conditions – performances due simultaneously.

B. Strict Compliance Rule

• Conditions must be strictly satisfied unless excused.

C. Excuse of Conditions

• Waiver by protected party.
• Prevention by party seeking enforcement.
• Substantial performance (for constructive conditions).

VIII. Exam Patterns and Applications

Pattern 1: Gap-Fillers

• Facts: Contract silent on price for goods.
• Rule: UCC gap-filler provides reasonable price.

Pattern 2: Conflicting Terms

• Facts: Printed form says delivery by truck; typed addition says by air.
• Rule: Typed terms prevail.

Pattern 3: Ambiguity

• Facts: Contract says “monthly deliveries” but no date specified.
• Rule: Ambiguity resolved by course of dealing or usage of trade.

Pattern 4: Warranties

• Facts: Seller advertises machine as “never breaks down.”
• Rule: Likely express warranty, unless proven puffery.

IX. Practical Exam Tips

1. Always identify governing law – UCC provides more flexible rules (gap-fillers, course of dealing, trade usage).
2. Spot implied terms – especially good faith, best efforts, and UCC warranties.
3. Check hierarchy of terms – express > course of performance > course of dealing > trade usage.
4. Conditions vs. Promises – conditions require strict compliance; promises may allow substantial performance.

Recap

• Contract terms come from express agreements, implied terms, gap-fillers, and UCC rules.
• Courts interpret ambiguous terms with canons of construction and hierarchy rules.
• The duty of good faith and best efforts are implied in nearly all contracts.
• UCC adds robust warranty protections but allows disclaimers.
• Conditions control when obligations arise, and failure to satisfy them can excuse performance.

Chapter 5: Performance, Breach, and Conditions

Introduction

Contracts are not abstract promises — they are obligations that must be performed. Once the parties have agreed and the terms are established, the law asks:

• Has each party performed as required?
• If not, is the failure a breach?
• Is the breach material or minor?
• Do any conditions affect when duties arise or are excused?

On law school exams and the Uniform Bar Exam (UBE), performance and breach issues are central because they determine liability, remedies, and defenses.

I. Performance Obligations

A. Common Law (Services, Real Estate, Non-Goods)

1. Substantial Performance Doctrine
   • Standard for constructive conditions (i.e., exchange of promises).
   • A party who substantially performs (not perfect but essential purpose achieved) may recover, though damages may be offset for defects.
   • Failure to substantially perform = material breach.
2. Material vs. Minor Breach
   • Material Breach: non-breaching party excused from performance and may sue for damages.
   • Minor Breach: non-breaching party must still perform but may sue for damages.

B. UCC Article 2 (Sale of Goods)

1. Perfect Tender Rule (§ 2-601)
   • Buyer has right to perfect tender: goods must conform in every respect.
   • If goods fail to conform, buyer may reject entire shipment, accept, or accept part and reject part.
2. Exceptions
   • Cure (§ 2-508): Seller may cure if time for performance not expired, or if seller had reasonable grounds to believe tender would be acceptable.
   • Installment Contracts (§ 2-612): Buyer may reject only if nonconformity substantially impairs value and cannot be cured.
3. Acceptance and Revocation
   • Buyer accepts by indicating acceptance, failing to reject, or acting inconsistently with seller’s ownership.
   • Buyer may revoke acceptance if defect substantially impairs value and was difficult to discover.

II. Conditions in Performance

A. Types of Conditions

1. Condition Precedent – must occur before a duty to perform arises.
   • Example: financing approval before real estate purchase.
2. Condition Subsequent – occurrence cuts off an existing duty.
   • Example: insurance coverage ceases if insured fails to notify of loss.
3. Concurrent Conditions – duties due simultaneously.

B. Express vs. Constructive Conditions

• Express Conditions – explicitly stated (“provided that,” “on condition that”). Strict compliance required.
• Constructive Conditions – implied by law to order performance. Substantial performance sufficient.

C. Excuse of Conditions

• Waiver by party protected by condition.
• Wrongful prevention by party (bad faith conduct).
• Impossibility of condition (court may excuse).

III. Anticipatory Repudiation

A. Definition

• Occurs when one party unequivocally indicates they will not perform before performance is due.

B. Rights of Non-Breaching Party

1. Treat as material breach and sue immediately.
2. Suspend performance and wait.
3. Demand adequate assurances (UCC § 2-609).

C. Retraction

• Repudiating party may retract if non-breaching party has not yet relied, canceled, or filed suit.

IV. Impracticability and Frustration of Purpose

A. Impracticability

• Performance excused if:
  1. Extreme and unforeseen difficulty,
  2. Not allocated by agreement or assumption of risk,
  3. Makes performance impracticable.
• Examples: natural disasters, unexpected government regulations.

B. Frustration of Purpose

• Performance still possible, but principal purpose of contract is destroyed.
• Example: Renting apartment to view coronation parade canceled by king’s illness.

V. Modification of Performance Duties

A. Common Law

• Modification requires new consideration (pre-existing duty rule).
• Exception: unforeseen circumstances.

B. UCC

• No new consideration required if made in good faith (§ 2-209).

VI. Breach Analysis Framework

Step 1: Identify Governing Law

• Common law vs. UCC.

Step 2: Has a Condition Occurred?

• If condition precedent unmet, duty not triggered.

Step 3: Has Party Performed?

• Common law: substantial performance or material breach?
• UCC: perfect tender or cure?

Step 4: Is There Excuse or Defense?

• Anticipatory repudiation, impracticability, frustration, waiver.

VII. Common Exam Patterns

Pattern 1: Substantial Performance

• Facts: Builder completes house with minor defects.
• Rule: Substantial performance, not material breach. Owner must pay less damages.

Pattern 2: Perfect Tender

• Facts: Seller delivers 100 blue widgets instead of red.
• Rule: Buyer may reject under perfect tender rule unless seller cures.

Pattern 3: Anticipatory Repudiation

• Facts: Seller emails “I will not deliver next month.”
• Rule: Buyer may sue immediately or wait.

Pattern 4: Condition Precedent

• Facts: Real estate purchase contingent on loan approval. Buyer denied loan.
• Rule: Condition not met, duty to purchase excused.

VIII. Practical Exam Tips

1. Always state materiality. Breach analysis turns on whether breach is material or minor.
2. Separate common law vs. UCC. Common law allows substantial performance; UCC requires perfect tender.
3. Spot conditions. If language includes “provided that” or “on condition,” strict compliance required.
4. Consider excuses. Impracticability and frustration often appear in modern exam hypotheticals.
5. Timeline matters. Anticipatory repudiation depends on whether breach occurs before performance is due.

Recap

• Performance: Common law = substantial performance; UCC = perfect tender (with exceptions).
• Conditions control when duties arise and may excuse non-performance if unmet.
• Breach: Material breach excuses the other party; minor breach does not.
• Anticipatory repudiation lets the non-breaching party act before performance is due.
• Excuses like impracticability and frustration provide defenses when unforeseen events undermine obligations.

Chapter 6: Remedies for Breach of Contract

Introduction

Once breach is established, the crucial question becomes: what remedy is available? Contract law’s aim is not punishment but to place the non-breaching party in as good a position as if the contract had been performed. This chapter covers:

• Legal remedies (damages) — expectation, reliance, restitution, liquidated damages.
• Equitable remedies — specific performance, injunctions, reformation, rescission.
• Limitations on recovery — foreseeability, certainty, and mitigation.

I. Purposes of Contract Remedies

1. Expectation Interest — benefit of the bargain.
   • Default measure: what would the party have received if the contract had been performed?
2. Reliance Interest — compensate expenses incurred in reliance on the promise.
3. Restitution Interest — prevent unjust enrichment by restoring benefit conferred.

On exams: identify which interest is being protected.

II. Expectation Damages

A. General Rule

• Measure = value of promised performance – value actually received.
• Includes direct damages (loss of value) and incidental/consequential damages.

B. Calculation Examples

1. Construction Contracts
   • Owner breaches before construction: contractor gets expected profit + costs incurred.
   • Contractor breaches: owner gets cost of completion or difference in value.
2. Sale of Goods (UCC Article 2)
   • Buyer’s Damages (§ 2-713, 2-712):
     • Market price – contract price, or
     • Cover price – contract price + incidental/consequential damages.
   • Seller’s Damages (§ 2-706, 2-708):
     • Contract price – resale price, or
     • Market price – contract price.
     • Lost volume seller: lost profit measure.

C. Incidental and Consequential Damages

• Incidental: costs incurred in dealing with breach (shipping, storage, resale costs).
• Consequential: damages from breach that were foreseeable at time of contracting (Hadley v. Baxendale).

D. Limitations

• Foreseeability (Hadley test).
• Reasonable certainty.
• Duty to mitigate (non-breaching party must take reasonable steps to reduce losses).

III. Reliance Damages

A. Definition

• Compensates expenses incurred in reliance on contract.
• Goal: place party in position as if contract never formed.

B. When Used

• Expectation damages uncertain or speculative.
• Example: reliance damages for film company when profits from unmade movie too speculative.

C. Limits

• May not exceed expectation damages.

IV. Restitution

A. Definition

• Prevent unjust enrichment by restoring value conferred.

B. When Used

1. Breach by non-breaching party — restitution alternative to expectation.
2. Breaching party — may sometimes recover value conferred (quantum meruit) to avoid unjust enrichment.

C. UCC Restitution (§ 2-718)

• Buyer who breaches may recover payments exceeding seller’s actual damages or liquidated damages clause.

V. Specific Performance (Equitable Remedy)

A. Rule

• Court orders breaching party to perform.
• Available when monetary damages inadequate.

B. When Granted

1. Real estate (unique subject matter).
2. Unique goods (one-of-a-kind art, heirlooms).

C. When Not Granted

• Personal service contracts (involuntary servitude).
• Onerous supervision required.

D. Injunctions

• Negative injunction may prevent breaching party from performing elsewhere (e.g., athlete contract).

VI. Other Equitable Remedies

A. Rescission

• Cancels contract and restores parties to pre-contract position.
• Grounds: misrepresentation, fraud, mistake, duress, incapacity.

B. Reformation

• Court rewrites contract to reflect true intent.
• Grounds: mutual mistake, scrivener’s error, fraud.

VII. Liquidated Damages

A. Rule

• Parties may stipulate damages in advance.
• Enforceable if:
  1. Damages difficult to estimate at time of contract, and
  2. Amount is reasonable forecast of actual harm.

B. Penalty Clauses

• If clause intended to penalize rather than compensate, unenforceable.

VIII. Limitations on Damages

A. Foreseeability

• Only damages foreseeable at time of contracting recoverable.
• Two categories:
  1. Arising naturally (ordinary course).
  2. Special circumstances communicated to breaching party.

B. Certainty

• Damages must be provable with reasonable certainty.
• Lost profits of new business often too speculative.

C. Mitigation

• Non-breaching party must take reasonable steps to reduce damages.
• Example: wrongfully discharged employee must seek comparable employment.

IX. UCC Remedies Compared

A. Buyer’s Remedies

1. Cancel contract and recover cover damages.
2. Specific performance for unique goods.
3. Replevin if goods identified to contract and cover unavailable.

B. Seller’s Remedies

1. Withhold delivery or stop shipment.
2. Resell and recover damages.
3. Recover market damages or lost profits.

X. Common Exam Patterns

Pattern 1: Lost Volume Seller

• Facts: Dealer contracts to sell car; buyer breaches; dealer resells at same price.
• Rule: Dealer can recover lost profit because resale did not mitigate — dealer had capacity to sell to both.

Pattern 2: Consequential Damages

• Facts: Mill contracts for new shaft; late delivery causes mill shutdown.
• Rule: Consequential damages recoverable only if foreseeable (Hadley).

Pattern 3: Liquidated Damages

• Facts: Construction contract includes $10,000/day late fee.
• Rule: Valid if damages difficult to estimate and reasonable, invalid if penalty.

Pattern 4: Restitution for Breaching Party

• Facts: Contractor builds half of house, then breaches.
• Rule: Contractor may recover value conferred (minus damages) in restitution.

XI. Practical Exam Tips

1. Always identify the interest protected — expectation, reliance, restitution.
2. Check limitations — foreseeability, certainty, mitigation.
3. Do UCC math — cover damages, market damages, lost volume.
4. Distinguish legal from equitable remedies — specific performance rare, but test-worthy in real estate/unique goods.
5. Liquidated damages — examiners love penalty vs. valid clause analysis.

Recap

• Remedies aim to compensate, not punish.
• Expectation damages are the norm, but reliance and restitution are available alternatives.
• Equitable remedies apply where money is inadequate.
• Damages limited by foreseeability, certainty, and duty to mitigate.
• UCC provides specific formulas for goods contracts.
• Liquidated damages are enforceable if reasonable, unenforceable if penalties.

Chapter 7: Third-Party Rights and Discharge of Contracts

Introduction

Contracts are not always just between the original parties. Rights and duties may extend to third parties, and contracts can also end (be discharged) through performance, agreement, or doctrines that excuse further obligations. This chapter covers:

• Third-party beneficiaries, assignment, and delegation
• Ways contracts are discharged (performance, agreement, impossibility, etc.)
• Exam strategies for spotting these issues

I. Third-Party Beneficiaries

A. Definition

• A person who is not a party to the contract but whom the parties intend to benefit.

B. Types

1. Intended Beneficiary – has enforceable rights if recognized by the parties.
   • Creditor Beneficiary – contract performance satisfies a debt owed by promisee.
   • Donee Beneficiary – contract performance is a gift to beneficiary.
2. Incidental Beneficiary – benefits as a byproduct; has no rights.

C. Vesting of Rights

Beneficiary’s rights vest when:

• Beneficiary assents to contract, or
• Reliance on contract, or
• Sues to enforce contract, or
• Rights have otherwise vested under terms of agreement.

Once vested, parties cannot modify or rescind without beneficiary’s consent.

D. Defenses

• Beneficiary’s rights subject to defenses promisor could assert against promisee (e.g., fraud, failure of consideration).

II. Assignment of Rights

A. Definition

• A transfer of contractual rights to a third party.

B. Requirements

• No formalities required — can be oral or written (unless statute requires writing).
• Must manifest present intent to transfer.

C. Limitations

• Cannot materially increase obligor’s burden or risk.
• Valid even if contract prohibits “assignment,” unless clause explicitly invalidates assignments.

D. Rights of Assignee

• Assignee stands in shoes of assignor.
• Takes subject to defenses obligor could assert against assignor.
• Multiple assignments:
  • Majority rule: First assignment in time prevails.
  • Minority/Restatement rule: First assignee to notify obligor prevails.

III. Delegation of Duties

A. Definition

• Transfer of contractual duties to third party.

B. Rules

• Most duties delegable, unless:
  1. Contract prohibits delegation,
  2. Performance involves special skill, judgment, or trust,
  3. Performance would materially change obligee’s expectation.

C. Liability

• Delegating party remains liable unless novation occurs (all parties agree to substitute new obligor).

IV. Discharge of Contracts

A. Discharge by Performance

• Completion of contractual duties discharges obligations.

B. Discharge by Agreement

1. Rescission – both parties agree to cancel.
2. Accord and Satisfaction
   • Accord = agreement to accept different performance.
   • Satisfaction = execution of substituted performance.
   • Breach of accord allows creditor to sue on original contract or accord.
3. Novation – agreement to substitute new party for original.

C. Discharge by Impossibility/Impracticability

• Performance excused if:
  • Subject matter destroyed (unique goods).
  • Supervening illegality.
  • Death/incapacity of essential party.
• UCC: seller excused if performance impracticable due to unforeseen contingency.

D. Discharge by Frustration of Purpose

• Performance possible but principal purpose destroyed.
• Example: renting room for parade canceled.

E. Discharge by Operation of Law

• Bankruptcy.
• Statute of limitations expired.
• Material alteration of contract by one party without consent.

V. Exam Patterns

Pattern 1: Third-Party Beneficiary

• Facts: A contracts with B to pay C’s debt. C sues when A fails to perform.
• Rule: C is a creditor beneficiary and may enforce contract.

Pattern 2: Assignment

• Facts: A assigns right to payment from B to X. B unaware and later pays A.
• Rule: Under majority rule, first assignment prevails. If B paid before notice, payment discharges.

Pattern 3: Delegation

• Facts: Contractor delegates painting to skilled subcontractor. Homeowner objects.
• Rule: Delegation valid unless contract for personal skill or trust.

Pattern 4: Accord and Satisfaction

• Facts: Debtor and creditor agree to settle $10,000 debt for $8,000 payment. Debtor pays $8,000.
• Rule: Satisfaction discharges original debt.

Pattern 5: Impossibility

• Facts: Opera singer contracts to perform but dies before show.
• Rule: Performance discharged by death of essential party.

VI. Practical Exam Tips

1. Identify third-party relationships — ask if person is intended beneficiary, assignee, or delegatee.
2. Check vesting — intended beneficiaries gain enforceable rights only after vesting.
3. Distinguish assignment vs. delegation — assignment transfers rights; delegation transfers duties.
4. Spot novations — if all agree to substitute party, original obligor discharged.
5. Look for discharge doctrines — impossibility, frustration, rescission, accord/satisfaction.
6. Timeline is key — especially in multiple assignment fact patterns.

Recap

• Third parties gain rights through beneficiary status or assignment, but duties may only be shifted by delegation (with novation to release original obligor).
• Contracts are discharged by performance, mutual agreement, or doctrines like impossibility or frustration.
• Exams often test subtleties: creditor vs. incidental beneficiary, assignment vs. delegation, and whether obligations remain after attempted substitution.

Book Recap and Exam Roadmap

You now have a full seven-chapter framework:

1. Contract Formation — offer, acceptance, consideration.
2. Defenses to Formation and Enforcement — incapacity, mistake, misrepresentation, duress, unconscionability, SOF.
3. Statute of Frauds and Parol Evidence Rule — when writing required, what evidence excluded.
4. Terms and Interpretation — express terms, implied duties, warranties, conditions.
5. Performance and Breach — substantial performance, perfect tender, conditions, repudiation.
6. Remedies — expectation, reliance, restitution, equitable relief, limitations.
7. Third-Party Rights and Discharge — beneficiaries, assignment, delegation, termination doctrines.

Exam strategy mantra:

• Identify governing law (Common Law vs. UCC).
• Ask: Was there a valid contract?
• Then: Are there defenses?
• Then: What are the terms?
• Then: Has performance occurred or breach occurred?
• Then: What remedies apply?
• Finally: Are third-party rights or discharge issues relevant?