---
tags: PCL, Law School
image: https://i.imgur.com/VwVhmwJ.jpg
---

# **Starter Rules**

Some suggested rules to memorize. You can use alternative rules from other sources, so long as they contain all of the legal elements found in authoritative legal sources including the *Restatement (Second) of Contracts*, and Article-2 of the *Uniform Commercial Code*.

## Preliminary Issues

**Contract (K)**

A contract is a promise or a set of promises that the law will enforce. [1] 

**Advertisements**

Advertisements are generally not considered offers, but instead are invitations to negotiate.

**Preliminary Negotiations**

Negotiations that manifest a willingness to enter into a bargain, but are not an offer. Preliminary negotiations generally include advertisements, invitations to bid, price quotations, and statements of intention.

**Express Contracts**

Express contracts are formed by language, oral or written.

**Implied Contracts** (aka Implied in Fact Contracts)

Implied contracts are formed by manifestations of assent other than oral or written language. Implied contracts are often formed by the parties' conduct.

**Quasi Contracts**

Quasi contracts are not valid contracts, but are constructed by courts as a remedy to avoid situations of unjust enrichment.

**Unilateral Contracts**

Traditionally a unilateral contract is where an offeror requests performance rather than a promise. The offeror promises to perform on completion of the performance requested from a promisee.

*(At Common Law the offeror may revoke the offer at any time before completion of performance. Modernly, many jurisdictions consider the start of performance by an offeree to represent an option contract preventing revocation of the offer if the performance is completed in a timely manner.)*

**Bilateral Contracts**

The traditional bilateral contract is one consisting of the exchange of mutual promises—a promise for a promise—in which each party is both a promisor and a promisee.

### Governing Law

**Common Law (CL)**

Common Law is a body of judicial decisions that govern contracts for services, intangibles, real property, and employment. [2]

**Uniform Commercial Code (UCC)**

The UCC is a statute that governs all contracts and transactions for the sale of goods.

**Goods**

Goods are moveable, tangible objects identified in the contract or at time of sale.

**Merchants**

A merchant is one that regularly deals with the goods in question, or holds themselves out as an expert on the subject matter. Special rules apply to merchants, and merchants are held to a higher standard of good faith dealing.

## Formation

### Valid Contract

To be enforceable a contract must have a valid offer, acceptance, and consideration with no valid defenses to formation.

### Offer

**Offer**

Outward manifestation of present contractual intent, communicated to the offeree in certain and definite terms, and inviting acceptance.

**Certain and Definite Terms**

For common law offers the follow terms must be present: quantity, time of performance, identity of parties, prices, and subject matter.

(we used the mnemonic  QTIPS)

**Output Contract**

A seller promises to sell to a certain buyer all of the goods the seller produces, and the buyer agrees to buy that amount from the seller. The quantity cannot be unreasonably disproportionate from what the parties have established in a stated estimate, or comparable prior output.

**Requirements Contract**

A buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer. The quantity cannot be unreasonably disproportionate from what the parties have established in a stated estimate, or comparable prior output.

**Offer Termination**

An offer terminates on revocation, rejection (or counteroffer), lapse of time, incapacity, death of a party, destruction of subject matter, intervening illegality.

*(we used the mnemonic  RRLIDDI - railroad liddi)*

**Option Contract**

An option is a distinct contract in which the offeree gives separate consideration to have an offer held open. The offeror may not revoke the offer during the time specified in the option, or if none is specified, a reasonable time.

**Merchant's Firm Offer**

If an offeror 1) is a merchant; 2) makes an offer regarding goods in a signed writing that; 3)  provides assurance that an offer will remain open, then the offer will remain open without consideration for the time specified, or a reasonable time, but in no case longer than three months.

(remember that the courts will find most things from a merchant to be a signed writing: letterhead, email from a company domain, etc.)

**Missing Terms/Gap Fillers**

Under the UCC if the parties intended to contract, the court can supply reasonable terms for missing terms. The only term generally required is quantity, although subject matter must be ascertainable. Gap fillers for terms like price at the time of delivery, and time will be reasonable. The court will sometimes look to course of performance, course of dealing, or trade custom to determine terms.

**Course of Performance**

The performance under the current contract where there has been repeated occasions for performance and the other party hasn't objected to the performance.

**Course of Dealing**

The performance of the parties in previously contracted transactions can be used by the court as evidence of the parties understanding. This can be used to establish terms in a new contract.

**Trade Usage**

Trade usage of custom can explain a term. The court looks to the trade's practice or method of dealing to determine terms.

### Acceptance

**Acceptance**

Acceptance is a manifestation of unequivocal assent to the terms of the offer. At common law the mirror image rule applies. Under the UCC an offer may be accepted by any reasonable means.

**Mirror Image Rule**

At common law, an acceptance must mirror the terms of the offer.

**Mailbox Rule**

Acceptance by mail or similar means is effective upon proper dispatch, where proper dispatch means correctly addressed with correct postage.

**Acceptance by Shipment**

An offeree can accept an offer to buy goods for current or prompt shipment by either a current or prompt shipment or a promise to ship.

**Shipment of Nonconforming Goods**

A UCC offer to buy for current or prompt shipment may accepted by current or prompt shipment. In the case where an offeree ships nonconforming goods and provides notice of accommodation to the offeror prior to receipt of the goods, there will be no breach, but the offeror can choose not to accept the goods.

**Battle of the Forms** UCC 2-207

Additional terms in acceptance will become part of the contract if: 1) both parties are merchants, 2) the offer was not expressly limited to its terms, 3) the terms do not materially alter the terms of the offer, and 4) the offeror does not object in with a reasonable time (generally 10 days).

Differing terms are treated as additional terms by some jurisdictions, while others apply the "knockout rule" which discards the differing terms and supplies the term using UCC gap fillers.

### Consideration

**Consideration**

The bargained-for exchange that imposes a legal detriment on the promisee. Typically in a bilateral contract, both parties are induced by a promise to incur a detriment.

**Gifts**

Generally gifts are not valid consideration.

**Preexisting Legal Duty**

Where a party has an existing legal duty, a promise to perform or the performance of that duty is generally not consideration.

**Mutuality**

There must be a binding promise on both parties.

**Promissory Estoppel — Detrimental Reliance**

Is a substitute for consideration and prevents a party from arguing against the existence of a valid contract where: 1) promisor makes a promise inducing reliance; 2) promisee actually and reasonably relies on the promise to their detriment; 3) injustice would otherwise result if not enforced.

## Defenses to Formation

**Statute of Frauds**

To be valid, certain contracts must be evidenced by a writing, with sufficiently ascertainable terms, and signed by the party that the contract is being enforced against. Contracts in consideration for marriage, contracts that will take more than a year to complete, contracts for interests in land, contracts for executors to personally pay estate debts, contracts for the sale of goods for $500 or more, and contracts for suretors to pay the debt of another fall under the Statute of Frauds.

(We used the mnemonic MYLEGS. Remember that the courts will find many things to be a signed writing: letterhead, email from a company domain, a signed check, etc. Read facts carefully, and argue, sometimes both ways, as needed.)

**Illegality**

Contracts with either illegal subject matter or consideration are void and unenforceable.

**Infancy**

A defense for those under the age of majority. Voidable by infant, but binding on adult. Generally must disaffirm or affirm at age of majority, and must return anything remaining under contract at time of disaffirmance. Necessities of life are an exception to disaffirmance.

**Mental Incapacity**

A defense for those who at the time of contracting lacked capacity to understand nature and quality of the contract. Generally may disaffirm during a lucid period. Necessities of life are an exception to disaffirmance.

**Intoxication**

Only a defense when a party is so intoxicated that they, at the time of contracting, lacked capacity to understand nature and quality of the contract. Generally may disaffirm only if the other party knew of the intoxication. Necessities of life are an exception to disaffirmance.

**Duress**

A contract is void if a defendant was physically forced to enter the contract. A party that is placed under an immediate threat, with no reasonable alternative may assert duress and contract is voidable by that party. Economic duress is generally not a defence.

**Undue Influence**

Considered a form of duress, undue influence occurs when a susceptible party is subject to excessive pressure by another party that they have a confidential relationship with (e.g. attorney, adult children taking care of elderly, etc.)

**Ambiguity**

When language of a material term has at least two possible meanings, the awareness of the ambiguity by the parties determines result. There is no contract if both parties are unaware of the ambiguity, or if both parties are aware, unless they intended the same meaning. If one party is aware of the ambiguity, then there is a contract according to the subjective intent of unaware party.

**Mutual Mistake**

Where both parties are mistaken about existing present facts that are a basic assumption of the contract, the mistake is material, and the party asserting the defense did not assume the risk.

**Unilateral Mistake**

Unilateral mistake generally does not prevent formation unless the nonmistaken party knew or had reason to know of the mistake.

**Fraudulent Misrepresentation**

Where a party misrepresents material facts with intent to deceive, and the innocent party reasonably relies on the misrepresentation. The contract is voidable.

**Misrepresentation**

Where a party misrepresents material facts, the innocent party reasonably relies on the misrepresentation, and the innocent party would not have entered the contract but for the misrepresentation. The contract is voidable.

**Unconscionability**

Terms that so unfair and one sided, usually because of unequal bargaining power, that the court will refuse to enforce that specific term or the entire contract.

**Adhesion Contract**

A form of unconscionability where a buyer is in a position where they can only take it or leave it. Courts only find this where a buyer cannot get a necessity from any seller without agreeing to the same terms.

**Undue Influence**

Considered a form of duress, undue influence occurs when a susceptible party is subject to excessive pressure by another party that they have a confidential relationship with.

(e.g. attorney, adult children taking care of elderly, etc.)

## Terms and Conditions

**Parol Evidence Rule**

Evidence of prior or contemporaneous written or oral agreements that are not in the final writing are inadmissible to vary the terms of the writing. The analysis looks to see if the parties 1) intended the writing as their final expression, and 2) whether the writing is a complete or partial integration of that intent.

**Complete Integration**

Writing may not be contradicted or supplemented.

**Partial Integration**

Writing may not be contradicted, but may be supplemented by showing additional terms that are consistent with the contract.

**Merger Clause**

A clause in the contract indicating that the writing is a complete integration.

**Promise/Covenant**

A commitment to do or refrain from doing something.

**Condition**

An event or state of the world that must occur or fail to occur before a party’s absolute duty to perform arises. Alternatively, an event or state of the world the occurrence or nonoccurrence of which releases a party from an absolute duty to perform.

**Condition Precedent**

A condition (event) that must occur before a party’s duty to perform arises.

**Conditions Concurrent**

Conditions (events) capable of occurring together simultaneously.

**Condition Subsequent**

Condition (event) the occurrence or nonoccurrence of which cuts off an existing duty to perform.

**Express Condition**

An explicit provision of the contract, where there is language stating the condition.

**Constructive (Implied) Condition**

The nature of the duties contracted implies a condition of performance.

**Promisor's Satisfaction—Fitness, Utility, or Marketability**

Performance conditioned on satisfaction for mechanical fitness, utility, or marketability uses an objective reasonable person test.

**Promisor's Satisfaction—Personal Taste or Judgement**

Performance conditioned on satisfaction for personal taste or judgement uses a subjective test. Party must be satisfied. There is a good faith requirement.

**Promisor's Satisfaction—Third Party Satisfaction**

The majority view is that performance conditioned on satisfaction of a third party uses a subjective test. Party must be satisfied. There is a good faith requirement.

**Hinderance (Prevention)**

A condition will be excused if the party protected by it prevents the condition from occurring or fails to cooperate, and the prevention is wrongful.

**Excuse by Breach**

Breach by the other party excuses a duty of performance at common law if the breach is material and under the UCC.

**Anticipatory Repudiation**

Where a promisor, prior to performance, unequivocally states or indicates that they will not perform under contract, it excuses the promisee's perfomance and provides an election of: suing immediately, suspend performance and wait for other party's performance, treat as a recision and discharge, ignore without giving up the above options and urge promisor to perform. Both parties must still have unperformed (executory) duties remaining and the repudiation must be unequivocal.

**Retraction of Anticipatory Repudiation**

Repudiating party can retract their repudiation so long as nonrepudiating party has not: canceled; relied on repudiation and changed position, or otherwise shown they considered the repudiation final.

**Prospective Inability or Unwillingness to Perform**

Where a party has reasonable grounds to believe the other party will be unable or is unwilling to perform. Distinguished from anticipatory repudiation by a lack of an unequivocal statement of nonperformance from the other party. The innocent party can suspend performance and request assurances. if assurance aren't provided, may treat as repudiation.

**Divisibility**

At Common Law divisibility is where a contract may be divided up into discrete units to avoid forfeiture by the party not fully performing. Divisibility will excuse any condition precedent to performance by one party to the extent that the other party performed units of the contract. For divisibility all three concurrent tests must be present: 1) performance of each party is divided into two or more parts; 2) each party must perform an equal amount of parts; 3) each part is agreed to be equivelent to the corresponding part by each party.

**Installment Contracts**

Under the UCC a contract that specifies deliveries in several lots will allow for the court to apportion payment between lots and a seller that doesn't completely perform may obtain payment for the lots delivered unless there's evidence of contrary intent.

**Waiver by Estoppel**

If a party waives a condition to performance prior to event occurring, and the other party detrimentally relies (changes position), the the waiving party will be estopped from raising the condition. The waiver can be retracted prior to the other party detrimentally relying.

**Waiver by Election**

When a condition doesn't occur or a duty of performance is broken, the party protected by the condition can elected to either: 1) terminate their liability and performance, or 2) continue under contract having waived the condition. Neither consideration nor estoppel are required, and the waiver cannot be retracted. The waiving party does not waive their right to damages for the other party's defects in performance.

**Installment Contract Waivers**

A party not enforcing a condition for prior installments has waived them, though they may enforce the condition on future installments where there is no consideration or detrimental reliance by the other party.

**Substantial Performance**

At Common Law a condition protecting a party from performance will be excused if the other party is found to have substantially performed their duties under contract. Generally the condition must be constructive, the breach must be minor and not willful, and non-breaching party is entitled to offset damages from their own performance. (AKA Part or Partial Performance).

## Discharges

**Discharge By Performance**

Full and complete performance discharges their duites and the contract.

**Discharge by Occurrence of a Condition Subsequent**

Condition (event) the occurrence or nonoccurrence of which cuts off an existing duty to perform.

**Discharge by Impossibility**

Must be objective impossibility that no one could perform the contract. Must have become impossible after formation. Both parties duties are excused. Recision and restitution are available. Partial impossibility only is discharged by that extent.

**Temporary Impossibility**

Suspends, rather than discharges, duties. When performance is possible again the duty is due unless burden is substantially increased or is different than originally contracted.

**Discharge by Impracticability**

A court may discharge a contract as being impracticable when the following elements are found: 1) performance would be extreme and unreasonable in difficulty or expense; and 2) its nonoccurence was a basic assumption of the parties.

**Discharge by Frustration of Purpose**

Courts may discharge duties when contract becomes valueless because of a supervening event that the party have no role in the event. Duties will be discharged even if they are possible. The following elements must be found: 1) there is a supervening event or act leading to frustration; 2) at the time of contracting it was not reasonably foreseeable, the purpose of the contract is destroyed by the event or act, the purpose of the contract was know by both parties at formation.

**Discharge by Novation**

A contract will be discharged when there is a valid novation substituting a party. Novation requires 1) a valid existing contract; 2) agreement by all parties, including the new party to the novation; 3) immediate extinguishment of the existing contract; 4) a valid new contract.

**Discharge by Substitute Contract**

A contract may be discharged by a substitute contract. The revocation of the original contract may be express or implied and the cout will look to intent of the parties.

**Discharge by Accord and Satisfaction**

A contract may be discharged by accord and satisfaction. An accord is where one party agrees to receives different performance than they believed was originally agreed. There is a consideration requirement, which is often satisfied if the consideration is of a different type or to be paid to a third party. If the accord is satisfied, then both agreements are discharged. If not, then the innocent party can choose between enforcing the accord or the original contract.

## Breach

**Breach of Contract**

When a promisor is under an absolute duty to perform, and their duty is not subject to discharge, they are in breach if they do not perform. The non-breaching party must demonstrate that they were willing, ready, and able to perform in order to bring an action for breach.

**Material (Major) Breach**

A material breach occurs at common law when a party does not receive a substantial benefit of their bargain as a result of the breaching party's defective performance or failure to perform. The nonbreaching party does not owe any counter-performance, and is entitled to an immediate right to remedies.

**Minor Breach**

A minor breach occurs at common law when a party receives a substantial benefit of their bargain. Damages are available for the defective portion of the performance, and the nonbreaching party still obligated to perform their duties under contract.

**Determining Materiality of Breach**

A court will look to the following factors to determine materiality of a breach: Amount of Benefit Received; Adequacy of Damages; Extent of Part Performance; Hardship on Breaching Party; Negligent or Willful Behavior; and Likelihood of Full Performance.

**Perfect Tender Rule — Sale of Goods**

If goods or their delivery fail to conform to the contract in any way, the buyer generally may: reject all; accept all; or accept any commercial units and reject the rest.

**Commercial Unit**

A unit by which the commercial usage treats as a single whole which, if divided, materially diminishes its value.

**Seller’s Right to Cure**

If a buyer rejects and the time of performance is not yet due, the seller can give reasonable notice of intent to cure and make a new tender of conforming goods.

**Breach by Buyer**

Seller can treat any of these as material breach: refusal to accept conforming goods or rejection of conforming goods; nonpayment.

## Damages

**Expectation Damages**

Damages that put plaintiff in the place they would have been had the other party performed.

**Reliance Damages**

Damages that put plaintiff in the place they would have been had contract never been formed.

**Consequential Damages**

Damages reasonably foreseeable at the time of contract that reflect losses over and above expectation damages (typically lost profits). Plaintiff must show that breaching party knew or had reason to know of special circumstances.

**Incidental Damages**

Reasonable expenses associated with goods rejected under the Perfect Tender Rule

**Certainty Rule**

Damages must be certain and ascertainable, not speculative.

**Liquidated Damages**

Expressly defined in the contract. The requirements for enforcement: the damages must have been difficult to estimate or ascertain at the time of formation; must have been a reasonable forecast of damages; must not function as a penalty.

## Third Party

**Third-Party Beneficiaries**

When a promisor and a promisee make an contractual agreement that the promisor will tender their performance (a benefit) to a party other than the promisee, we have a third party beneficiary situation. We analyze by asking 1) Is the third party an intended beneficiary? 2) Can the promisor and promisee change contract terms or have the third party's rights vested? 3) What are the rights of the parties?

**Incidental Third Party Beneficiary**

A party that may benefit, but it is **NOT** the primary purpose of contract to benefit them. They have **no** contractual rights and no right to sue.

**Intended Third Party Beneficiary**

There are two types of intended beneficiaries: 1) creditor, where the promisee owed the third party an obligation; 2) donee, where the promisee wanted to confer a gift on third party.

**Vesting of Rights**

Three ways to vest: 1) justifiable detrimental reliance on the promise; 2) lawsuit to enforce the promise; 3) manifest assent to agreement at request of either contracting party.

**Assignment**

An assignment is a present transfer of rights under a contract. A valid assignment requires: 1) an existing valid contract; 2) assignor making present words of assignment. No consideration is required and generally neither is a writing. Generally, all contracts are assignable.

**Exceptions to Assignment**

Substantially change obligor's duty, increases risk, or reduces contract value. Doesn't disproportionally alter quantities in Output or Requirements contracts. Is for personal services requiring judgment, skill, or special trust or taste. Contract expressly prohibits assignment.

**Revoking Assignments**

Gratuitous assignments are always revocable unless there has been justifiable detrimental reliance. There a number of circumstances that revoke an assignment as a matter of law. Assignments for value are irrevocable, as are performance or payment tendered by obligor to the assignee.

**Delegation**

A delegation is a present transfer of duties under a contract. A valid delegation requires: 1) existing valid contract; 2) delegator making present words of intent to delegate. No writing required.

**Exceptions to Delegation**

Duties involving personal judgment, skill, or special trust or taste, materially changes obligee's expectancy of performance, contract expressly prohibits delegation or assignment.

**No Assignment Clauses**

Clause prohibiting assignment of "the contract" generally construed to bar delegation. Clause prohibiting assignment of rights provide obligor ground for suit, but assignment is still valid. Clause stating attempts to assign with be **VOID** render void.

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*notes*

*[1] In the alternative, you could learn a longer version from the Restatement: "A contract is a promise or a set of promises for the breach of which the  law gives a remedy, or the performance of which the law in some way  recognizes as a duty."*

*[2] We learned to memorize using SIR, but you'd be better served with SIRE.*