Contracts

Defenses, Consent & Public Policy

100

The doctrine that makes a contract voidable when one party agrees because of a wrongful threat that prevents free will.

What is duress?

• A contract is voidable if a party was forced to agree by a wrongful threat.
• The threat must preclude the exercise of free will.
• Physical duress, like a literal “gun to the head,” usually makes the contract void, not merely voidable.
• Economic duress is harder to prove.
• A mere threat to breach by nonperformance is not automatically economic duress.
• The threatened party must usually show:
  • No reasonable alternative source of performance.
  • Ordinary breach damages would be inadequate.

200

The contract-law idea that breach may sometimes increase aggregate value so long as the breaching party pays damages.

What is efficient breach?

• Contract law is not usually focused on blame or moral fault.
• Sometimes breach is acceptable, or even socially useful, if damages make the non-breaching party whole.
• Example:
  • Harry contracts to buy robots for $1 million and expects $200,000 profit.
  • Peter later offers Robin $1.5 million for the same robots.
  • If Robin breaches, sells to Peter, and pays Harry $200,000, Harry is made whole and Robin is better off.
• The goods move to the party who values them more.
• This explains why contract law usually gives damages, not punishment.

300

The doctrine involving coercive persuasion that overcomes the will without convincing the judgment.

What is undue influence?

• Undue influence is persuasion that is coercive in nature.
• It overcomes a person’s will without actually persuading their judgment.
• It is distinct from capacity:
  • Capacity concerns ability to form reasoned judgment.
  • Undue influence concerns impaired volition.
• It is distinct from duress:
  • Duress involves wrongful threats.
  • Undue influence involves unfair persuasion.
• It is distinct from fraud:
  • Fraud requires deception or misstatement.
  • Undue influence does not.
• It often involves either:
  • A confidential relationship, or
  • A weakened party susceptible to unfair persuasion.

400

The Odorizzi-style indicia of undue influence.

What are unusual timing, unusual place, urgency, pressure, multiple persuaders, absence of advisors, and discouraging consultation?

• Courts look for a pattern of overpersuasion.
• Relevant indicia include:
  • Discussion at an unusual or inappropriate time.
  • Consummation of the transaction in an unusual place.
  • Insistent demand that the business be finished immediately.
  • Extreme emphasis on negative consequences of delay.
  • Use of multiple persuaders against one weaker party.
  • Absence of third-party advisors.
  • Statements that there is no time to consult lawyers or financial advisors.
• These factors are not automatically enough.
• Many high-pressure bargains satisfy some factors but are still enforced.
• The key is whether persuasion became unfairly coercive.

500

The public-policy limits on exculpation clauses and non-compete agreements.

What are strict construction against future-negligence releases, no exculpation for gross negligence or intentional torts, and reasonableness limits on non-competes?

• Exculpation clauses:
  • Clauses releasing liability for future negligence are often allowed but disfavored.
  • They are strictly construed against the party seeking protection.
  • They need clear and explicit language.
  • They generally cannot excuse gross negligence or intentional torts.
• Non-compete agreements:
  • Some jurisdictions reject them categorically or almost categorically.
  • Most jurisdictions enforce them only if reasonable.
  • They must protect legitimate employer interests, such as trade secrets or customer contacts.
  • They cannot merely suppress ordinary competition.
  • They must be narrowly tailored geographically and temporally.

Interpretation, Implied Terms & Parol Evidence

100

The contractual term that exists even though it is not expressly written in the agreement.

What is an implied term?

• An implied term is part of the contract despite textual absence.
• It fills a gap in the agreement.
• It may arise from the structure of the bargain.
• It may arise from what a reasonable party would understand.
• It cannot contradict the express terms of the contract.
• Classic example: Wood v. Lucy, Lady Duff-Gordon.
  • Wood had the exclusive right to market Lady Duff-Gordon’s endorsements.
  • The contract did not expressly say Wood had to try.
  • The court implied a duty of reasonable efforts.

200

The implied covenant that prevents a party from sabotaging the other side’s contractual rights.

What is the implied covenant of good faith and fair dealing?

• This covenant is read into every contract.
• It requires parties not to destroy or frustrate the other party’s right to receive the benefits of the bargain.
• It is measured by context.
• It cannot override express contractual terms.
• It does not save a party from a bad bargain.
• It does prevent bad-faith use of contractual discretion.
• A party may have discretion, but cannot exercise that discretion dishonestly or abusively.

300

The rule that generally blocks evidence of prior negotiations when interpreting a final written contract.

What is the parol evidence rule?

• Parol evidence includes:
  • Pre-contract negotiations.
  • Pre-contract discussions.
  • Earlier drafts of the final agreement.
• Courts generally refuse to use this evidence to interpret a written contract unless:
  • The writing is incomplete.
  • The writing is ambiguous.
  • The writing is the product of fraud, mistake, or similar bargaining defect.
• Parol evidence cannot contradict express terms.
• In a partially integrated agreement, parol evidence may supplement but not contradict.
• In a completely integrated agreement, usually shown by a merger clause, parol evidence is more strongly barred.

400

The difference between patent ambiguity and latent ambiguity.

What is patent ambiguity appears on the face of the document, while latent ambiguity appears only after considering outside context?

• Patent ambiguity:
  • The ambiguity is obvious from the text itself.
  • Example: “Performance is due March 3, 2025 (3/5/2025).”
• Latent ambiguity:
  • The text looks clear at first.
  • Outside facts reveal uncertainty.
  • Example: contract says property may be picked up by “Cathy or Bob,” but context shows “or” might mean “and.”
• Four-corners courts are reluctant to use extrinsic evidence to create latent ambiguity.
• UCC and provisional-admission approaches are more willing to consider outside evidence.

500

The hierarchy and tools courts use to resolve contractual ambiguity.

What are express terms, course of performance, course of dealing, usage of trade, linguistic canons, and substantive canons?

• Express terms usually control first.
• Course of performance: How the parties performed this same contract.
• Course of dealing: How these parties performed prior contracts with each other.
• Usage of trade: How the relevant industry understands similar language.
• Linguistic canons include:
  • Plain meaning.
  • Technical meaning.
  • Grammar rule.
  • Meaningful variation.
  • Same-kind rule.
  • Negative implication.
  • Avoiding surplusage.
• Substantive canons include:
  • Contra proferentem: construe ambiguity against the drafter.
  • Presumption of lawfulness.
• Canons can conflict, so courts often face a “thrust and parry” problem.

Warranties, Conditions & Contractual Obligations

100

The three ways a seller can create an express warranty under UCC § 2-313.

What are affirmation of fact or promise, description of goods, and sample or model?

• An express warranty may arise from:
  • An affirmation of fact or promise relating to the goods.
  • A description of the goods.
  • A sample or model.
• The statement must become part of the basis of the bargain.
• Express warranties are about performance.
• They ask whether the seller delivered what was promised.
• They are different from false statements, which usually go to contract formation and rescission.
• Under the UCC, express warranties do not require the same reliance showing as misrepresentation

200

The implied warranty that applies when a merchant sells goods of the kind involved in the transaction.

What is the implied warranty of merchantability?

• Applies when the seller is a merchant with respect to goods of that kind.
• The goods must be merchantable.
• Merchantable goods must:
  • Pass without objection in the trade.
  • Be of fair average quality.
  • Be fit for their ordinary purpose.
• Example:
  • Food sold by a restaurant may carry an implied warranty of merchantability.
  • Goods that are defective for ordinary use may breach this warranty.
• This warranty can often be disclaimed by clear and conspicuous language.

300

The implied warranty that arises when the seller knows the buyer’s special purpose and knows the buyer is relying on the seller’s skill or judgment

What is the implied warranty of fitness for a particular purpose?

• Requires:
  • Seller knows the buyer’s particular purpose.
  • Seller knows buyer is relying on seller’s skill or judgment.
  • Buyer actually relies on that skill or judgment.
• The goods must be fit for that particular purpose.
• This is different from merchantability:
  • Merchantability concerns ordinary use.
  • Fitness for a particular purpose concerns a special use.
• Example:
  • Buyer tells seller they need a horse, machine, or product for a specific job.
  • Seller recommends one.
  • If it cannot do that job, the warranty may be breached.

400

The three main categories of contractual obligations: promise, representation/warranty, and condition.

What are promise or covenant, representation or warranty, and condition?

• Promise / Covenant:
  • Commitment to act or refrain from acting.
  • Breach usually means perform or pay damages.
• Representation / Warranty:
  • Assertion of fact that induces the agreement or allocates risk.
  • If false, may lead to rescission or damages.
• Condition:
  • Uncertain event that must occur or be excused before performance becomes due.
  • If the condition fails, the related obligation usually does not become due.
• Important exam move:
  • Determine whether language creates a promise, a condition, or both.

500

The rule for distinguishing conditions from promises, and the consequences of failing each.

What is conditions trigger or excuse performance, while promises create duties whose breach leads to damages?

• A condition is an event that must occur before performance is due.
• If the condition does not occur:
  • The duty usually never matures.
  • The party may not owe performance.
• A promise creates a duty.
• If a promise is broken:
  • The breaching party may owe damages.
  • If the breach is material, the other party may stop performing.
• Courts look for language like:
  • “Subject to”
  • “Conditional upon”
  • “Provided that”
• If language is truly ambiguous, courts often prefer interpreting it as a promise rather than a condition because conditions can cause forfeiture.

Excuse, Breach & Performance

100

The doctrine that intentionally relinquishes a known contractual right.

What is waiver?

• Waiver is the intentional relinquishment of a known right.
• It can be express or implied.
• A party may waive a condition or right through conduct.
• Waiver is often revocable.
• But revocation may be barred if it would create injustice.
• Detrimental reliance by the other party can make waiver harder to revoke.
• Related concept: equitable estoppel.

200

The distinction between mutual mistake and impossibility or impracticability.

What is mutual mistake concerns errors existing at formation, while impossibility or impracticability concerns events arising during performance?

• Mutual mistake:
  • The problem exists when the contract is formed.
  • Both parties are mistaken about a basic assumption.
• Impossibility / impracticability:
  • The problem arises after formation.
  • Performance becomes impossible or impracticable because of a later event.
• Example:
  • If the concert hall was already destroyed before contracting, that is mistake.
  • If it burns down after contracting, that is impossibility or impracticability.
• The doctrine often works like an implied condition:
  • The parties assumed the essential thing would continue to exist.

300

The doctrine that excuses performance when an unforeseeable event destroys the foundation or value of the contract.

What is frustration of purpose?

• Frustration applies when both parties can technically perform.
• But the event destroys the reason for the bargain.
• Key questions:
  • What was the foundation of the contract?
  • Was the purpose of the contract prevented?
  • Was the event outside the parties’ contemplation when they contracted?
• Loss of profit is not enough.
• There must be near-complete destruction of the contract’s basis.
• No defense if:
  • The event was foreseeable.
  • The event was controllable by the promisor.
  • Performance remains materially valuable.

400

The common-law doctrine that prevents trivial, innocent breaches from excusing the other party’s performance.

What is substantial performance / material breach?

• Substantial performance and material breach are inverses.
• If a party substantially performs, any remaining breach is not material.
• If a party commits a material breach, they have not substantially performed.
• A trivial and innocent defect usually leads to damages only.
• It does not allow the other party to refuse performance entirely.
• Factors include:
  • Deprivation of expected benefit.
  • Adequacy of compensation.
  • Risk of forfeiture.
  • Likelihood of cure.
  • Good faith and fair dealing.
• Willful breaches are treated more harshly.

500

The doctrine that allows an injured party to sue immediately when the other party unequivocally renounces before performance is due.

What is anticipatory repudiation?

• Occurs when a party clearly indicates they will not perform.
• It is treated as breach of an implied promise not to repudiate.
• The injured party may:
  • Sue immediately, or
  • Wait until performance is due, holding the contract open.
• Repudiation can sometimes be retracted.
• Retraction is allowed if it occurs before the injured party:
  • Materially changes position in reliance, or
  • Indicates the repudiation is final.
• Related doctrine:
  • Reasonable grounds for insecurity may allow a party to demand adequate assurance.

Remedies, Damages & Specific Performance

100

The three major money-damages interests in contract law.

What are expectation, reliance, and restitution?

• Expectation damages:
  • Put the non-breaching party where they would be if the promise had been kept.
  • This is the default contract remedy.
• Reliance damages:
  • Put the non-breaching party where they would be if the promise had never been made.
  • Used when expectation is too speculative.
• Restitution damages:
  • Return benefits unjustly retained by the breaching party.
  • Approximates unjust enrichment.
• Contract law usually prefers expectation damages if they can be measured.

200

The expectation-damages formula from construction-completion cases like Lewin.

What is amount paid plus cost to complete or fix minus the original contract price?

• Proper evidence includes:
  • Original contract price.
  • Amount already paid to the breaching contractor.
  • Amount paid to third parties to complete or fix the work.
• Formula:
  • Expectation damages = amount paid + completion/fix cost − contract price
• This puts the non-breaching party in the position they expected.
• It avoids overcompensating the plaintiff.
• This is usually a cost-of-completion approach.

300

The remedial limitation that may prevent cost-of-completion damages when the cost is disproportionate to the economic value gained.

What is economic waste?

• Cost of completion is often proper for service contracts.
• But courts may limit damages if completion cost is grossly disproportionate to the benefit.
• Groves favored cost of completion, especially where the breach was willful.
• Peevyhouse favored diminution in value where restoration cost greatly exceeded market-value increase.
• The tension:
  • Cost of completion protects the subjective bargain.
  • Diminution in value avoids economically wasteful awards.
• Willfulness matters:
  • Courts are less sympathetic when the breaching party deliberately ignored the contract.

400

The three limitations on expectation damages: certainty, mitigation, and foreseeability.

What are damages must be proven with reasonable certainty, avoidable losses are not recoverable, and consequential damages must be foreseeable at contracting?

• Certainty:
  • Damages cannot rest on conjecture or guesswork.
  • Lost goodwill, reputation, and future profits face a stricter evidentiary burden.
• Mitigation:
  • Non-breaching party cannot pile up avoidable damages.
  • Must use reasonable, practical efforts.
  • No need for extraordinary efforts.
• Foreseeability:
  • Consequential damages are recoverable only if foreseeable when the contract was made.
  • Foreseeable if:
    • They arise in the ordinary course of events, or
    • The breaching party had reason to know special circumstances.
• Hadley v. Baxendale is the classic foreseeability case.

500

The rules for liquidated damages and specific performance.

What are liquidated damages are enforceable if compensatory rather than punitive, and specific performance is available when damages are inadequate?

• Liquidated damages:
  • Damages agreed in advance by the parties.
  • Useful when loss would be hard to calculate.
  • Enforceable if reasonable in light of:
    • Anticipated or actual loss.
    • Difficulty of proving loss.
  • Not enforceable if they operate as a penalty.
  • Contract remedies are compensatory, not punitive.
• Specific performance:
  • Equitable remedy ordering actual performance.
  • Usually unavailable when money damages are adequate.
  • More likely for unique property, especially real estate.
  • May apply to unique goods under the UCC.
  • Courts generally will not order personal services.
  • Courts may refuse to supervise complex or taste-based performance.