6


Contracts II Outline
Scope:  What Law Applies - K1 Outline
Formation:  Is there an Enforceable K? - K1 Outline
 
Causes of Action in Contract
I. NON-PROMISSORY Causes of Action:  Non-Contractual Equitable Remedies // Only 1 Cause of Action not based on a Promise.
A. [ Unjust Enrichment ] (aka Quasi-Contract, Implied-in-Law Contract, Implied-in-Fact Contract, or Restitution):
1. Terms Interchangeable with ‘Unjust Enrichment’:
a. Quasi-Contract = Unjust Enrichment.
b. Restitution = Also is a theory of damages; used by courts to sometimes describe the cause of action of Unjust Enrichment.
c. Quantum Meruit = as much as deserved.  Refers to the market value of services.
d. Contract Implied-in-Law = An obligation/duty that is imposed by law, as opposed to an agreement of the parties (promise).
e. Contract Implied-in-Fact = A K agreed to by non-verbal conduct, rather than by explicit words.
(1) NOTE:  Unjust Enrichment as a Cause-of-Action is available in situations where a K is unenforceable or no K exists.
2. Elements of Unjust Enrichment:
a. Benefit / Enrichment:  Donor conferred a benefit upon recipient;
(1) Court definition:  Benefit exists if you give an interest in land, money, or possessions; perform services beneficial to another; satisfy the debt of another; or in any way add to the other’s advantage.  
b. Unjust / Injustice: It would be unjust for the recipient to keep the benefit without paying the donor. 3 Factors must be satisfied to qualify as unjust:
(1) Choice: Did the recipient have a choice whether to receive the benefit?  If no, there is no obligation for recipient to pay, because the benefit it gratuitously given.
(a) Exceptions for Choice:
I. Emergency care; or
II. Return:  The benefit can be returned without hardship to the ∆; or
III. Mistakenly Given:  π renders the benefit by mistake and ∆ is not placed in a worse position by a requirement to pay.
(2) Expectation of Remuneration by the Donor: Did donor expect to be paid; i.e. benefit was NOT conferred with gratuitous intent?
(a) Exceptions for Expectation of Remuneration:  (Presumption of Gratuity)
I. Emergency; or
II. Volunteer:  Donor who confers a benefit/gift with gratuitous intent (objective intent); acting without intent to be compensated; or
III. Officious Intermeddler:  Donor who performs a service without authorization, but expects to be paid for the benefit.  To force the recipient to pay for a service given without consent is unjust and will not be supported.
IV. Family:  Family members are considered to be acting gratuitously out of Moral Obligation = Volunteers.
(3) Expectation of Remuneration to Donor by the Recipient:  Did the donor expect the Recipient to be the one to pay?  If a third party was expected to pay, then ∆ owes nothing.  If recipient was the person intended to pay, then (2) applies.
3. Remedies for Unjust Enrichment:
a. Restitution Damages:  Return of the benefit or a money judgment for its value (restitution).  (Note:  Restitution damages go hand-in-hand with Rescission/Avoidance of K.)
(1) a.  Restitution Damages:  Designed to restore to one party any benefit that he has conferred on the other party.  Designed to force the ∆ to disgorge the benefit that they received (Example:  Promisor received a deposit from promisee, court will order it to return the deposit.)  Valuation of the benefit is done when the benefit cannot be returned:
(a) Quantum Meruit (=as much as deserved):  Refers to the market value of services.
(b) Quantum Valebant (=as much as they are worth):  Refers to the market value of goods.
 
II. PROMISSORY Causes of Action: Key Question:  What Promise are you seeking to enforce?
A. [ Promissory Estoppel ] = A Promise + Detrimental Reliance without Consideration (Not a Contract, but potentially enforceable promise which becomes a K after a ruling.)  Promise is usually Gratuitous.
1. Historical
a. Reliance was often used by courts as a substitute for Consideration. (Consideration was often stretched and sometimes still is.)
b. Equitable Estoppel:  If you misrepresented facts that the other person relied on, then the court estopped the ∆ from asserting the truth as a defense.  The court recognized that consideration was not present, but altered the doctrine of equitable estoppel such that is applied to a promise making the promise effectively function as consideration.  Arises entirely from the law of equity.
c. Common Non-Commercial Situations that created PE:  charity, family, bailments, and oral promises involving land.  All involved instances where the promisee relied on the promise in some way.
d. Some legal theorists argue it is a Contractual Doctrine (thus full contractual remedies are available).  Some argue it is an independent tort-like theory (thus, full contractual remedies are NOT available).
2. Elements of Promissory Estoppel:  R2d. §90
a. A Promise
(1) Promisor had a reasonable Expectation that the promise would induce reliance in the Promisee. (by utterance & conduct)
b. Reliance:  Promisee is induced to action or forbearance; relied on the promise.
(1) Reliance is justified. (based on utterances and conduct)
c. Detriment: Injustice can be avoided only by enforcement of the promise.  (Most argued element in court.)  4 Factors to evaluate:
(1) Is enforcing the promise justified?  (It could “reasonably” be expected from a person similarly situated.)
(2) Is there mitigation for the harm; can you redress the harm from the reliance in some other way?
(3) Is the reliance reasonable?
(4) Is there substantial and detrimental reliance on the promise?  There must be a real economic loss to qualify.
d. Remedy: May be limited as justice requires.
e. EXCEPTION:  Marriage Settlements & Charitable Subscriptions (pledge drives):  Are binding without proof that the promise induced action or forbearance.
(1) Policy on Charitable Subscriptions:  Promises made to charities serve a vital social function and we wish to encourage giving, so charitable promises are enforced.
f. NOTE:  Difficult to prove in the commercial setting.
g. NOTE:  An enforced Promise under Promissory Estoppel is a Contract; but that does not mean the promissee is entitled to full contractual relief.  See remedies below.
3. π:  Offensive Promissory Estoppel (Same as above) = Enforcing the Promise/Prima Facie case of PE
a. The assertion by the π/promisee of reliance on the ∆/promisor’s promise.
b. No features of Contract are present or need to be (the features of Contract may be present, the key point is that they need not be present).
c. Only the 4 elements of Promissory Estoppel are required to have this cause of action.
4. π:  Defensive Promissory Estoppel (Detrimental Reliance)   (Applies under Breach of K under modification; this is exception in that section of outline.)
a. π pleads all of the elements of Contract, including Consideration; this is under the Breach of K cause of action.
b. ∆ defends on the ground that there is no Contract because no Consideration.
c. π rebuts with Defensive Promissory Estoppel (detrimental reliance) to estop ∆ from using lack of consideration as a defense to the existing Contract.
5. Remedies/Damages for Promissory Estoppel:
a. Expectation Damages:
(1) Williston’s Position:  Promissory Estoppel Theory that Promissory Estoppel is all about the enforcement of the promise.  Expectancy is the way in which you enforce a promise.  With Williston Promissory Estoppel the π is always entitled to expectancy damages as long as he can prove those damages (certainty, foreseeability, etc.).  If a promise is enforceable it should be full enforceable whether it is enforceable because of consideration or enforceable because of reliance; PE permits full-contractual relief in this theory.
b. Reliance Damages:
(1) Corbin/Gilmore’s Position:  Not a Breach of Contract cause of action, and doesn’t matter if Affirmative Assertion of Promissory Estoppel COA; says affirmative use and defensive are the same because you’re redressing a harm.  For Corbin/Gilmore’s theory of Promissory Estoppel is that PE is like a Tort.  With Promissory Estoppel the π is only entitled to Reliance Damages.  Because the purpose of Promissory Estoppel is to redress any injustice that arises when a promisee relies to his detriment on a promise.  As such, the remedy need only compensate the promisee for the actual losses suffered through such reliance.
c. Restitution Damages:
(1) Designed to restore to one party any benefit that he has conferred on the other party.  Designed to force the ∆ to disgorge the benefit that they received (Example:  Promisor received a deposit from promisee, court will order it to return the deposit.)
d. Specific Performance:  Require the promisor to do what was promised.  Extraordinarily rare.  (K damages is about compensation.)
6. Court Factors for Deciding on Remedy
a. Expectancy:  Generally used if the court is using Promissory Estoppel defensively (detrimental reliance).  All the elements of K are present except Bargained-For Consideration.
b. Reliance:  Generally justified if the court is using Promissory Estoppel offensively.
c. Middle-Position: Facts of the case determine whether Expectancy or Reliance Damages are justified.
B. [ Breach of Contract ]
1. Formation of Contract:  Is there an enforceable K?  Fall Semester K1 Outline (Promise, Mutual Assent, Consideration, Statute of Frauds)
a. Promise
(1) Mutual Assent
b. Consideration -- PEDR is under Duress and contract modification below....
c. Statute of Frauds
d. Defenses to Formation
e. Consideration & the Pre-Existing Duty Rule (K Modification)
(1) Pre-Existing Duty Rule (PEDR):  Common Law = A Defense Against Modified K Enforcement
(a) General Ω:  A modification of K must be supported by Consideration.
(b) General Ω:  A promise to perform a pre-existing obligation cannot serve as Consideration.
I. Translated:  Once an agreement is made, to modify it requires the promisee to change the modified agreement in some way as to detriment himself in order to have consideration.  Otherwise, any new agreement lacks consideration and is void (leaving the original agreement intact).
II. Ex.  K1=Al sells skis to Brad for $100.  K1.5=Al asks to change the price to $150; Brad agrees.  This is void, because the change in price has no Consideration to make it valid. K2=Al asks Brad to change the price to $150 and agrees to throw in socks.  This is valid because the socks are a further detriment to Al and therefore Consideration making the modification legal.
(c) No recovery for PEDR:  If you agree to pay more, and pay it, even though the K is not valid because of PEDR.  PEDR is only a defense against a party trying to enforce a K that isn’t valid because of the PEDR.
(d) Way to Eliminate PEDR:
I. New Consideration: As noted in example K2 above.
II. Mutual Rescission:  Each party agrees to cancel the first K (now called the ‘Discharge Contract’).  Then make a whole new contract.
A. Evidence:  Must show that a new K was made or new consideration was offered for I & II.
(e) Exceptions to PEDR:
I. Promissory Estoppel:  New promise supported by the other party’s reliance.  Must prove all the elements of PE.
II. Supervening Difficulties: A fairly bargained modification of the K to take account of an unforeseen difficulty is valid if:
A. After K is made, performance is subject to substantial and burdensome difficulties not anticipated at the time of K formation;
B. The party benefitting from the modification must conform to standards of honesty and fair dealing;
C. The change in performance for the party assuming increased obligations must be reasonable and manifestly fair.
III. Jurisdictional Absence of PEDR:  Some jurisdictions do not use the PEDR at all.
(2) UCC §2-209:  Contract Modification, Rescission, & Waiver for Sales of Goods
(a) Consideration is NOT required to modify a K for the Sale of Goods, but must be done in good faith.  (Note:  K modification is a K itself.)
I. Good Faith: UCC, says, Good Faith is honesty-in-fact in the conduct or transaction concerned.
II. Good Faith for Merchants: Honesty-in-fact and the observance of reasonable commercial standards of fair dealing in the trade.
III. Good v. Bad Faith:  In UCC or Common Law, it is completely fact-dependent.  Make a persuasive argument; what is reasonable for the two parties in the “relationship” helps determine whether there is good or bad faith in dealing.
(3) Note:  Common Law PEDR (not UCC), this is also used as a Policing Device.
(4) Policy:  Schwartzreich stretched the PEDR; ripping off signatures was found to be acceptable Mutual Rescission.  This is because of the court’s general hostility to the PEDR because it restricts the freedom of contract.  
2. Avoidance of Contract:  Even if a K exists, can a party get out of it?
a. Policing Contracts: Misrepresentation & Fraud, Duress & Bad Faith, Unconscionability, Incapacity
(1) Principles of Policing Contracts:
(a) Regulatory in nature;  encompasses judicial policing doctrines and public policy judicial doctrines.
(b) Looks beyond manifestation of assent toward inducement;
(c) If Court finds one party’s assent was induced by improper means, the entire K may be declared unenforceable or some aspect of it.
b. Bad Behavior
(1) Misrepresentation:  (a) Factual representation, which was (b) untrue.  Fraud:  Scienter with intent to mislead the other party.
(a) Non-Fraudulent Misrepresentation:
I. Innocent Misrepresentation:  Inducing a K by innocent misrepresentation;
A. Statements are untrue, but made without lack of care (negligent misrepresentation) or intent to mislead (fraud).
II. Remedy:  K is voidable if the Misrepresentation is a Material K Term/Fact.
A. Material Fact:  A fact likely to induce a reasonable person to manifest assent. R2d §162(2).
(b) Fraudulent Misrepresentation (aka Fraud aka Common-Law Fraud): R2d. §162.
I. Misrepresentation:
A. Affirmative misrepresentation of fact, (lying); or
B. Half-Truth; or
1. R2d. §161:  Provides the elements for this requirement if suing as a Tort action; not needed for K action.
C. Active Concealment; or
1. R2d. §160:  Action intended to be likely to present another from learning a fact is equivalent to an assertion that the fact does not exist.
D. Failure to Disclose when a Duty to Disclose exists;  ( aka Fraudulent Non-Disclosure)
1. General Ω: Caveat Emptor (Buyer Beware), aka “Arm’s Length Contract”.  Most commercial transactions are “Arm’s Length”.  No Duty to Disclose unless:
2. Duty to Disclose exceptions (exceptions to Caveat Emptor):
a. Fiduciary Relationship Exists; or
b. Trust & Confidence Relationship Exists (e.g. family, clergy, physician, lawyer); or
c. Intrinsically Fiduciary (most common = Insurance Policies);
d. Kaloti Exception:  Good Faith & Fair Dealing Ω:  Duty to disclose exists if the fact in dispute is Material;
(1) Once you begin giving information, you are obligated to give the whole information else it becomes a half-truth and is actionable.
e. Stambovsky Exception:  Where a condition which has been created by the seller materially impairs the value of the K and is peculiarly within the knowledge of the seller or unlikely to be discovered, non-disclosure constitutes a basis for rescisssion as a matter of equity.
II. Fraudulent:
A. Scienter with intent to mislead the other party.  Can be active or passive (lying or concealment of facts).
III. Material Fact was Misrepresented:
A. A material fact is one that would be to a reasonable person germane to the decision to be made; a fact which expression (or concealment) would reasonably result in a different decision.
B. Note:  Some jurisdictions do not require that a Fraudulent Misrepresentation also be material.
IV. Reliance:
A. Injured party was induced to enter into the K because of the misrepresentation.
B. This element is subjective; we don’t care if the reliance was justified.
V. Reliance was Justified:
A. The party who relied in the misrepresentation did so reasonably;
B. This is the most discretionary element for the court to determine; fact based;
1. Capacity of recipient, nature of the transaction, plausibility of the transaction, was it in writing, did the person claiming reliance do an investigation (reliance and verification are incompatible) = some factors considered by the court on this element.
(2) Pre-Existing Duty Rule (PEDR):
(a) WHY IS THIS HERE IN HER OUTLINE?  SHOULD I REMOVE IT (since it’s already noted above?).
(3) Duress:
(a) Elements:
I. A Threat:
A. ∆ uses a threat or physical compulsion against π; and  (personal or economic, Austin Instrument)
1. Identifying a Threat:  Indicates through words or conduct that one will or will not do something (not do = implied threat);
2. The thing indicated through words or conduct will inflict some harm, loss, or injury;
II. The Threat is Improper, R2d. §176:
A. Threat is a crime, tort, or the threat itself would be a crime or a tort if it resulted in obtaining property;
B. Threat is to Criminally Prosecute π;
C. Threat is to use the Civil Process and is made in bad faith;
D. Threat is a breach of the duty of good faith and fair dealing under a K with the recipient;
E. Exception: Threatening Breach of K is not considered inherently improper.
III. Causation:  The threat induced the threatened party to agree.  Three factors courts examine for causation, Steverson only wants Quasi-Objective applied:
A. Objective:  Oldest test - a person of ordinary firmness.
B. Subjective:  Did you give in?  Were you induced?
C. Quasi-Objective: Would a reasonable person situated as you are situated have given in to the threat?
1. If you have a reasonable alternative to giving in to the threat, then there is NO CAUSATION.
(b) Third-Party Duress:  R2d. §174
I. When a 3rd Party, not party to the K, uses Duress to induce assent, the K may be voidable;
II. If the 2nd Party does not know of the 3rd Party Duress and bargains in good faith and relies materially on the transaction, the K may not be voidable (Promissory Estoppel).
(c) Warrant of Attorney / Confession of Judgment:  Both mean the same thing.
I. Document a creditor has a debtor sign to appoint the creditor (or creditor’s attorney) as an agent to “Confess the Judgment” on the debtor’s behalf.  It is a waiver of the right to defend against the creditor trying to collect on a claim.
II. A ∆ claiming Duress can “open” the judgment (reverse it) so the ∆ can defend and potentially go to trial.
A. Legal Requirement:  Proof that the note (WoA or CoJ) was executed voluntarily and consciously.  If not, a ∆ could win and get the claim “opened.”
(4) Remedies for Policing of Contracts:
(a) Avoidance/Rescission:  Typical remedy; allows the improperly induced party to avoid the K or provision of the K.
I. Avoidable v. Void:  An avoidable (or voidable) K is different from a void K.  If a K is void (e.g. consideration is missing), then it is not a K at all and is a legal nullity.  Court may also declare a K void.
A. Fraudulent Misrepresentation makes a K voidable by the victim (recipient).  R2d. §164.
B. Duress makes the K voidable by the victim (recipient).  R2d. §175
(b) Damages:  General Ω:  If a K is avoided, each party is entitled to Restitution of any benefits conferred on the other under the K up to the time of avoidance.
c. Substance of the Bargain
(1) Unconscionability:
(a) Common-Law Unconscionability (R2d. §208)
I. Generally:
A. No false representation or threat;
B. K was executed under circumstances making enforcement unjust.  A transaction so unfair that it would offend the conscious of the court to enforce it.
C. Rules for Unconscionability are heavily fact-dependent.
D. Matter of Law, not fact:  Judges only rule on Unconscionability.  It is very RARELY found.
E. Most Courts require both Procedural and Substantive Unconscionability to Succeed on a claim for it.  Derived from principles of Equity.  
II. Adhesion Contracts & Unconscionability:
A. Use the tests below for Procedural and Substantive Unconscionability;
B. The key to an Adhesion K being unconscionable:  lack of “Meaningful Choice” in whether to sign a K.
C. Elements for Adhesion K:
1. Standard-Form Contract;
2. Offered on a take-it-or-leave-it-basis;
3. Inequality between the parties (offeror/promisor is much more powerful);
4. Must lack “meaningful choice” in whether to sign the K;
a. This is all highly fact-dependent, as is the concept in general, for the Judge to determine (as a matter of law).
III. Procedural Unconscionability:  (Note:  Typically, fixing Procedural Unconscionability fixes Substantive at the same time.)
A. The way the K was formed was unconscionable;
1. Absence of Meaningful Choice;
2. Factors used to Evaluate the parties:
a. Disparity in power between the parties;
b. Unfair bargaining practices;
c. Age and knowledge of the parties relative to one another;
IV. Substantive Unconscionability:
A. The terms of the resulting K are substantively unfair;
1. The bargain is severely one-sided; favors one party and overly harsh;
2. Rarely will you find Substantive Unconscionability without Procedural also;
3. The term or K lacks Meaningful Choice for one of the parties:
a. Party refused to respond to questions/concerns;
b. Party placed undue pressure on the other party to sign without time to consider;
c. The terms were such that an average person could not understand them;
4. The term or K creates oppression or unfair surprise (overly harsh);
5. Which unreasonably favors one party;
6. No alternative to obtain the good or service contracted for (“the only game in town”);
B. Policy:  To prevent oppression and unfair surprise, not to disturb the allocation of risks because of superior bargaining power.
(b) UCC §2-302: Unconscionable K or Term
I. Same analysis as the Common Law rules just regarding sales in Goods; difference:
II. Test is for Unfair Surprise and Oppression, not David v. Goliath especially with sophisticated business persons.
(c) Unconscionability Remedies:
I. Avoidance:  Court refuses to enforce the K (aka Rescission); or
II. Sever:  Court may sever the unconscionable term(s) and enforce the remainder of the K; or
III. Rewrite:  Court may limit the application of the Unconscionable term (in effect, rewrite the K to get rid of the Unconscionable effect).
d. Status
(1) Incapacity:
(a) Minors/Infants:
I. Age of Majority: The age at which someone legally has “Contractual Capacity” is fixed by statute.  In most states, 18;
II. Minority is under 18;  (Minor and Infant are interchangeable terms in the law);
III. Infancy Doctrine:  General Ω for Minors & Contracts
A. Contracts made by minors are voidable, but not void (i.e., the minor can choose to keep the K in force if they wish);
B. Within a reasonable time after reaching the age of majority, a K can be avoided as well (b/c K was entered while a minor);
C. Only the Minor can void the K; the major with whom he contracted may not.
IV. Exceptions to the Infancy Doctrine:
A. Employment Contracts;
B. Contracts for Necessities for Health and Sustenance (also called “Necessaries”)
1. Board;
2. Apparel;
3. Medical Aid;
4. Teaching/Instruction
C. Emancipation:
1. In some jurisdictions, if the Minor is legally Emancipated, they K may not be voidable.
V. Damages for Minority Status:  Restitution on Disaffirmance of K with Mitigation:
A. Traditional Rule:  
1. Minor is obligated to give back any benefit or good received;
2. If the good or benefit is damaged or depreciated they are NOT usually liable to make up the difference in value;
3. If the good or benefit is destroyed or completely gone, the minor owes nothing usually;
B. Middle Rule:  Cash versus Credit Purchases by Minors
1. Credit: If items bough on credit, Traditional Rules 1-3 apply; or
2. Cash:  If items bought with cash, the major is sometimes permitted to deduct the depreciation before refunding the cash paid.
C. New Hampshire Rule:
1. Restitution must be made by minor;
2. Including depreciation or destroyed value.
VI. Ratification:  
A. Upon reaching the Age of Majority, minors can “ratify” their contracts made as minors by affirmatively saying so;
B. No additional Consideration is required;
C. Ratified Contracts become binding on the former minor and can no longer be avoided.
(b) Mental Incapacity:  Illness or Defect R2d. §15
I. Court Presumption:  Adults are competent to engage in Contracting.
II. Presumption Mitigated by:  Mental Incapacity; measured at the “time of contracting.”
A. Exception:  “Lucid Intervals” at the time of Contracting is not binding or enforceable with someone demonstrably incapacitated (Farnum).
B. Courts take into account the degree of Mental Incompetence and ALSO;
C. Whether the vulnerability of the incompetent party attracted exploitation by the other party.
III. Two Tests for Mental Incapacity:
A. Cognitive Test:
1. Older not used much anymore;
2. At the time of Contracting;
3. The party must have had such severe mental illness that he was unable to understand the nature & consequences of the transaction.
B. Motivational or Volitional Test:  
1. More modern, used frequently;
2. The party may have understood the transaction at the time of contract formation; but
3. The mental illness affected his ability to act rationally in relation to the transaction.
IV. Remedies:  Contracts made by the mentally incapacitated are voidable, but not void (i.e., the mentally incapacitated can choose to keep the K in force if they wish).
A. Only the Mentally Incapacitated party can void the K; the party with whom he contracted may not (just like with minors).
B. Mental Incapacity must be attributable to a psychiatrically recognized condition;
C. Expert testimony in the form of a diagnosis is typically required to establish avoidance/rescission as a remedy.
(2) Policy:  To protect children and the mentally infirm; both from themselves and from exploitation by unscrupulous adults.
e. Judicial Doctrines  (Note:  Rarely applied.  Parties subject to a burdensome K are typically required to bear that burden.)
(1) Misunderstanding:  Is About Words  (Also an Interpretation issue.)
(a) Terms of the K are Misunderstood.  This is ambiguity gone wild; about language of the K.
(b) Interpretation issues are severe and insoluble; where BOTH parties attach materially different meaning to important K terms; and
(c) Neither knows or has reason to know of the misunderstanding.
(d) Contract in such cases is void.  Example case:  The Good Ships Peerless (Raffles v. Wichelhaus) two different ships named Peerless.
(2) Mistake:  Is About Facts
(a) Only arises when both parties have a mistaken belief of fact.  Voiding of K only permitted if:
I. A Mutual Mistake exists; i.e.
A. Mistake:  an erroneous factual belief;  (Note:  Promises are not facts.)
B. Mutual:  shared by both parties;
II. Is a mistake as to the facts in existence at the time that the K is made;
III. Mistake relates to a basic assumption on which the K is made;  Mistake has a material effect on the agreed upon exchange of performances;
IV. The adversely affected party does not bear the risk of the mistake.
(b) Exception:  When a Party Bears the Risk of the Mistake.  R2d. §154:
I. The risk is allocated to him by agreement of the parties;
II. The party is aware, at the time the K is made, that his knowledge of the facts is limited but treats his knowledge as sufficient;
III. The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
(3) Impossibility/Impracticability  (aka Excuse Due to Changed Circumstances)  R2d. §261 & UCC 2-615
(a) After K is made;
(b) A party’s performance is made impracticable with his fault;
(c) By the unanticipated occurrence of an event whose non-occurrence was an assumption of the K;
(d) The party’s duty to render performance is discharged;
(e) Unless the language of the K or circumstances indicate the contrary.
(4) Frustration of Purpose
(a) Not always available; in some jurisdictions this is not a separate doctrine from Impracticability.
(b) Elements:  R2d. §265
I. The purpose of the K frustrated must have been the principal purpose of that party (and understood by both parties);
II. The frustration must be substantial - so severe that it is not regarded to be within the risks assumed under the K;
III. The basic assumption of the parties that the frustrating even would not occur;
IV. No relief granted if the language or circumstances of the K should properly place the risk upon the party seeking relief;
V. If relief is granted, the party relieved has remaining duties to render performance discharged, unless language of the K or IV apply.
3. Interpretation & Scope of Contract:  If a K, what does it mean?  What do the terms of the Contract say?
a. Scope of K:  What is encompassed in K?
(1) Parol Evidence Rule  = Extrinsic Evidence Rule:  Oral and Written Evidence but for Written Agreements only & evidence pertinent to the agreement(s) BEFORE their execution.  R2d. §213.
(a) Purpose:  The rationale for filtering Parol Evidence through the Parol Evidence Rule is that an allegation of a prior consensus on an oral term is suspect when the oral term is not incorporated into the writing.  It is also to give legal effect to whatever intention the parties may have had to make their writing a final and complete expression of their agreement.  If Parol Evidence is admitted by the judge, that means it makes it to a fact-finder for decision.  (Not a Rule of Evidence, but a Rule of Substantive Law.)  Analysis begins at (b):  
(b) Scope: Is the K about a sale of Goods?
I. If yes, then use the UCC Parol Evidence Rule §2-202 (more liberal rule).
A. UCC permits, specifically, course of dealing, trade usage, and course of performance to supplement the agreement.
(c) Writing: Is there a writing?
I. NO.  If no, then the Parol Evidence Ω does NOT apply (in common law or UCC).
II. Writing must be agreed to by both parties; signature is not required, but it must be shown to be a mutually agreed to document.
(d) Integration: Is the K integrated?  (Meaning:  A final expression of the agreement of the parties on the subject-matter covered.  This is a factual question of intent on the part of the parties, but is decided as noted by the judge.)
I. NO.  If no, then Parol Evidence is permissible and the analysis is DONE.  ALL evidence is admissible for K analysis.
II. YES.  If yes, then Parol Evidence that would contradict the K is not permitted.
A. Integrated Writing/Contract:  A final expression of the agreement of the parties on the subject-matter covered; may lack completeness.  Must be adopted by all contracting parties.
B. Fully Integrated:  (aka Completely Integrated)  A writing which is final, thorough, and complete.  Parol Evidence not allowed in most cases for a Fully Integrated writing; esp. if it contains an Integration Clause.  However, linguistic ambiguity can create a doorway for Parol Evidence to get in.
1. Integration Clause / Merger Clause:  Same thing.  A clause which states that the writing/contract represents the parties’ entire agreement (e.g. “All other writings, prior communications, and negotiations are superseded by this agreement.”).  This clause makes the K “Fully Integrated” and bars Parol Evidence from being applied.
C. Partially Integrated:  (aka Unintegrated)  A summary or incomplete writing that has missing or ambiguous terms.
(e) Effect of Extrinsic Evidence:    Does the extrinsic evidence (Parol Evidence) contradict or supplement or explain?
I. Contradicts:  STOP.  If it contradicts you’re done because it is not admissible.
II. Supplements:  STOP.  If it supplements you’re done because it is not admissible.
III. Explains:  CONTINUE.  If it explains you continue because it may be admissible.
A. Implied Condition(s): CONTINUE.  General Ω:  If Parol Evidence is offered to establish that the K as a whole (not just affecting the obligation/duty to perform of one party) was subject to a Condition Precedent, it may be admitted.
(f) Kind of Integration (final step):  Is the writing Completely Integrated? (Not only final, but also the complete expression of the parties on the subject matter covered?)
I. Two Tests:
A. Four Corners Test:  (Williston’s Modified Four Corners Test) Older Test, emphasis on Objective Interpretation of the Terms.  
1. Look to agreement and ask, ‘does it appear complete?’  If yes, then it is completely integrated.
2. If a party seeks to introduce evidence of a term, it will not be admitted unless:
a. It can be shown that reasonable parties similarly situated would naturally enter into a separate agreement with regard to the additional term.
b. Collateral Agreement Ω (Limited Exception to Four Corners):  Even if a written agreement is Completely Integrated, an oral agreement that is related to the agreement may still be proved if 3 conditions are met:
(1) The agreement is in collateral form;  (Collateral K = A K where the consideration is the entry into another K and co-exists side-by-side with the main K without contradicting it).
(2) The agreement does not contradict express or implied provisions of the written K;
(3) The agreement is one that the parties would not ordinarily be expected to embody in the writing.
B. Contextual Liberal Test:  (Corbin’s Test)  Modern Approach, emphasis on the context in which the K was written.
1. Did the parties intend their writing to serve as the exclusive embodiment of their agreement?
a. To determine this the court looks at:
(1) The writing itself;
(2) The collateral agreement;
(3) Surrounding circumstances;
b. Is the evidence of intent credible?  Two tests can be chosen by the court to determine credibility?
(1) Is the agreement one that might naturally be made as a separate agreement by parties situated as were the parties to the written K?
(a) YES?  Then Parol Evidence is admissible.
(2) Are the additional terms such that, if agreed upon, they would have certainly been included in the written K?
(a) YES?  Then Parol Evidence is NOT admissible.
(g) Ambiguity:  Is the writing unclear or ambiguous?  (This Question can be asked at any time during the analysis.)
I. YES.  If yes, then extrinsic evidence is admissible but ONLY to explain.
II. NO.  If no, then extrinsic evidence is NOT admissible.
(h) Parol Evidence Ω does NOT apply to:
I. Evidence of subsequent negotiations or agreements;
II. Evidence of a distinct, separate, and independent agreement (differing subject matter).
(i) EXCEPTIONS to Parol Evidence Rule:
I. All of the Avoidance Doctrines noted above:  Fraud, Mistake, Misunderstanding, Duress, Incapacity, etc. > these will allow in Parol Evidence if proven;
II. Possibly the use of Conditions in the K. (e.g. K1 states a condition that if, Party1 get a job offer being considered, he will NOT fulfill K1’s terms.  If that condition is met, this Condition Precedent, even if oral, necessarily makes the writing “partially” or “not fully” integrated.
b. Interpretation of the Terms of K
(1) General Rules of Interpretation (These rules used extensively in Parol Evidence interpretation.)
(a) Interpretation:  Process of discerning, by court and/or fact-finder, the meaning reasonably intended by the parties to a K.  An objective or reasonable meaning is sought; not the subjective understanding of either party.  Either Oral or Written.
I. π’s Burden:  π must show that the ∆ knew or had reason to know what the term in dispute meant.
II. Extrinsic Evidence:  May only be brought in from outside the K if the K or term in it are ambiguous.
(b) Construction:  Process of adding K terms by legal implication. (Construing a K to contain certain terms even though the words or conduct of the parties did not intend or consider such terms.)
(c) Judge or Jury?
I. Judge:  Interpretation of an unambiguous writing is a question of law for a judge.
II. Jury: Interpretation of an ambiguous writing is a question of fact for a jury.
(d) Interpretation Analysis:  R2d. §202, 203 & UCC 1-303
I. The Contract:
A. Purpose:  Look to the purpose of the contract;
1. If the principal purpose is ascertainable, it is given great weight;
B. Contract as a Whole:  An interpretation that gives meaning to the entire contract is favored over one that makes part(s) of the K mere surplusage.
C. Hierarchy of Terms:
1. Court SHOULD attempt to reconcile ALL terms of the K;
2. If that is not possible, specific terms and exact terms are given greater weight than general terms.
3. Separately added or negotiated terms added via typing or handwriting are than standardized/form terms not negotiated;
D. Express Terms:  Given Greater Weight than Course of Performance, Course of Dealing, or Usage of Trade;
II. Generally Prevailing Meaning of the ambiguous term:
A. Dictionary:  where language has a generally prevailing meaning, it is interpreted in accordance with that meaning;
B. Technical Terms and Words of Art are given their technical meaning when used in a transaction within their technical field;
III. Interaction of Terms:
A. How the terms interact with one another in the K (all provisions).
IV. The Context of the Contract:
A. Subsequent Conduct:  Course of Performance  (Most Preferred)
1. Parties’ post-contractual relationship .  Sequence of conduct between the parties to a K which requires:
a. Repeated performance (from a prior K to a renewed K with the same terms, e.g.);
b. The other party knowingly accepts or acquiesces without objection.
B. Prior Relationship:  Course of Dealing (Second-Most Preferred)
1. Parties’ relationship before the contract.  Only pertinent if:
a. The earlier relationship is comparable or analogous to the K in dispute;
b. The transactions being compared must be substantially similar;
c. Term in dispute must be present in the earlier dealings.
C. Context:  Usage of Trade (Least Preferred)
1. Any applicable commercial custom, whether from a specific trade or a broader market.
a. Must be proved by facts;
b. The trade usage claimed must be pertinent to the term at issue;
c. Both parties must be sufficiently connected to the trade or market in question;
(1) If one is not, he must have known or had reason to know of the usage else Usage of Trade does not apply;
d. The Trade Usage must NOT be incompatible with the express terms of the agreement;
e. If such Trade Usage is embodied in a Trade Code or similar record, the interpretation is a Question of Law.
(2) Ambiguity
(a) Plain Meaning Rule:  Applied when a term is ambiguous.  (Older approach, only used in some jurisdictions.)
I. Court determines whether the language of the written agreement is, on its face, ambiguous (using tools of interp. above);
A. K language is ambiguous when it is reasonably susceptible to different interpretations;
B. Extrinsic Evidence (Parol Evidence) is only permitted to the writing for analysis if the terms are found to be ambiguous in step 1.
II. Interpret the language of the written agreement.
III. NOTE:  Many jurisdictions reject this approach and permit extrinsic evidence to determine whether the written agreement is ambiguous.
(b) Plain Meaning Rule of Ambiguity:  Applied when a term is ambiguous.  (Modern approach, used more often.)
I. If terms in an integrated writing have plain meanings in common usage, i.e. meanings that are clear and unambiguous on the face of the document, after resorting to tools of interpretation;
II. Then Extrinsic Evidence (Parol Evidence) is NOT admissible to explain a those terms.
III. Exception:
A. Latent Ambiguity:  Ambiguity not apparent on the face of the document, but is revealed through the examination of extrinsic evidence (Parol Evidence).
B. In determining ambiguity, the court may examine all objective evidence to determine if there is a latent ambiguity not revealed on the face of the document;
C. Language is ambiguous if a reasonable and knowledgeable insider, aware of all objective evidence