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Restatement and UCC
OPTION CONTRACTS AND FIRM OFFERS
R2d § 87 Option Contract (?)
1. An offer is binding as an option contract if it
1.a. Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and
proposes an exchange on fair terms within a reasonable time; or
1.b. Is made irrevocable by statute.
2. An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the
part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice
UCC § 2-205 Firm Offer (393) An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
UNJUST ENRICHMENT/MATERIAL BENEFIT
R2d § 86 Promise for Benefit Received (417)
1. A promise made in recognition of a benefit previously received by the promisor from the promise is binding to the
extent necessary to prevent injustice
2. A promise is not binding under Subsection (1)
2.a. If the promise conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched;
or
2.b. To the extent that its value is disproportionate to the benefit
POLICING DOCTRINES
R2d § 164 When a Misrepresentation Makes a Contract Voidable (424)
1. If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party
upon which the recipient is justified in relying, the contract is voidable by the recipient.
R2d § 162 When a Misrepresentation is Fraudulent or Material (424)
1. A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the
maker
1.a. Knows or believes that the assertion is not in accord with the facts, or
1.b. Does not have the confidence that he states or implies in the truth of the assertion, or
1.c. Knows that he does not have the basis that he states or implies for his assertion
2. A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker
knows that it would be likely to induce the recipient to do so.
R2d § 160 When Action is Equivalent to an Assertion (Concealment) (424) Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.
R2d § 161 When Non-Disclosure is Equivalent to an Assertion (434) A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:
a. Where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a
misrepresentation or from being fraudulent or material
b. Where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which
that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing
c. Where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a
writing, evidencing or embodying an agreement in whole or in party
d. Where the other person is entitled to know the fact because of a relation of trust and confidence between them
DURESS
R2d § 175 When Duress by Threat Makes a Contract Voidable (459)
1. If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no
reasonable alternative, the contract is voidable by the victim
R2d § 176 When a Threat is Improper (459)
1. A threat is improper if
1.a. What is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining
property
1.b. What is threatened is a criminal prosecution
1.c. What is threatened is the use of civil process and the threat is made in bad faith, or
1.d. The threat is a breach of the duty of good faith and fair dealing under a contract with the recipient
2. A threat is improper if the resulting exchange is not on fair terms, and
1.e. The threatened act would harm the recipient and would not significantly benefit the party making the threat
1.f. The effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior
unfair dealing by the party making the threat, or
1.g. What is threatened is otherwise a use of power for illegitimate ends
DURESS & MODIFICATION
UCC 2-209 Modification, Rescission and Waiver (478)
1. An agreement modifying a contract within this Article needs no consideration to be binding
2. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified
or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party
3. The requirements of the statute of frauds section of the Article (§ 2-201) must be satisfied if the contract as modified is
within its provisions
UNCONSCIONABILITY
UCC 2-302 Unconscionable Contract or Clause (482)
1. If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it
was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result
2. When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties
shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination
R2d § 208 Unconscionable Contract or Term (483) If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable results.
INCAPACITY
R2d § 15 Mental Illness or Defect (550)
e. Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of
performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:
a.3. Express terms prevail over course of performance, course of dealing, and usage of trade;
a.4. Course of performance prevails over course of dealing and usage of trade; and
a.5. Course of dealing prevails over usage of trade.
GAP FILLERS
R2d § 204 Supplying an Omitted Essential Term (598) When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.
UCC 2-311 Options and Cooperation Respecting Performance
1. An agreement for sale which is otherwise sufficiently definite (subsection (3) of Section 2-204) to be a contract is not
made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.
2. Unless otherwise agreed specifications relating to assortment of the goods are at the buyer’s option and specifications
or arrangements relating to shipment are at the seller’s option
GOOD FAITH
R2d § 205 Duty of Good Faith and Fair Dealing (608) Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement
UCC 1-304 Obligation of Good Faith (608) Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.
PAROL EVIDENCE RULE
UCC 2-202 Final Written expressions: Parol or Extrinsic Evidence (648) Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
a. By course of performance, course of dealing, or usage of trade, and
b. By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete
and exclusive statement of the terms of the agreement
MISTAKE
R2d § 152 When Mistake of Both Parties Makes a Contract Voidable (669)
1. Where am mistake of both parties at the time a contract was made as to a basic assumption on which the contract was
made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154.
2. In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of
any relief by way of reformation, restitution, or otherwise.
R2d § 154 When a Party Bears the Risk of a Mistake (679) A party bears the risk of a mistake when
a. The risk is allocated to him by agreement of the parties, or
b. He is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the
mistake relates but treats his limited knowledge as sufficient, or
c. The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
MUTUAL UNILATERAL
MISTAKE MISTAKE
- The mistake relates to facts in existence at the time of the contract
- The mistake relates to facts in existence at the time of the contract
- The mistake is shared by both parties
- The mistake may be by one party only
- The mistake relates to a basic assution on which the contract was made
- The mistake relates to a basic assumption on which the mistaken party made the contract
- The mistake has a material effect on the agreed exchange of performance s
- The mistake has a material effect on the agreed exchange of performances that is adverse to the mistaken party
- The complaining party did not bear the risk of mistake
- The mistaken party did not bear the risk of the mistake
- Either (a) the effect of the mistake is such that enforcement of the contract would be unconscionable or (b) the other party had reason to know of the mistake or his fault cause the mistake
CHANGING CIRCUMSTANCES
R2d § 261 Discharge by Supervening Impracticability (695) Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.
UCC 2-615 Excuse by Failure of Presupposed Conditions (698) Except so far as a seller may have assumed a greater obligation
a. Delay in delivery or non-delivery in whole or in party by a seller is not a breach of his duty under a contract for sale if
performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid
(1) A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.... (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.
CONTRACT DAMAGES AND THE BENEFIT OF THE BARGAIN
R2d § 344 Purposes of Remedies (799) Judicial remedies under the rules stated in the Restatement serve to protect one or more of the following interest of a promisee:
a. his “ expectation interest ,” which is his interest in having the benefit of his bargain by being put in as good a position
as he would have been in had the contract been performed,
b. his “ reliance interest ,” which is his interest in being reimbursed for loss caused by reliance on the contract by being
put in as good a position as he would have been in had the contract not been made, or
c. his “ restitution interest ,” which is his interest in having restored to him any benefit that he has conferred on the other
party
BARGAIN DAMAGES
R2d §347 Measure of Damages in General (811) Subject to the limitations stated in §§ 350-53, the injured party has right to damages based on his expectation interest as measured by
a. the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus
b. any other loss, including incidental or consequential loss, caused by the breach, less
c. any cost or bother loss that he has avoided by not having to perform
UCC 1-305(a) Remedies to be Liberally Administered (834) The remedies provided by [the Uniform Commercial Code] must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in the UCC or by other rule of law.
UCC BARGAIN DAMAGES
UCC 2-712 “Cover”; Buyer’s Procurement of Substitute Goods (837)
1. After a breach... the buyer may “cover” by making in good faith and without unreasonable delay any reasonable
purchase of or contract to purchase goods in substitution for those due from the seller.
2. The buyer may recover from the seller as damages the difference between the cost of cover and the contract price
together with any incidental or consequential damages as hereinafter defined (§ 2-715), but less expenses saved in consequence of the seller’s breach.
3. Failure of the buyer to effect cover within this section does not bar him from any other remedy.
UCC 2-713 Buyer’s Damages for Non-Delivery or Repudiation (837)
1. Subject to the provisions of this Article with respect to proof of market price (§ 2-723), the measure of damages for
non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (§ 2-715), but less expenses saved in consequence of the seller’s breach.
2. Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of
acceptance, as of the place of arrival.
UCC 2-714 Buyer’s Damages for Breach in Regard to Accepted Goods (841)
1. Where the buyer has accepted goods and given notification (subsection (3) of 2-697) he may recover as damages for
any non-conformity of tender the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner which is reasonable.
2. The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value
of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amounts.
3. In a proper case any incidental and consequential damages under the next section may also be recovered.
UCC 2-706 Seller’s Release Including Contract for Resale (843) Under the conditions stated in 2-703 on seller’s remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (§ 2-710), but less expenses saved in consequence of the buyer’s breach....
UCC 2-708 Seller’s Damages for Non-Acceptance or Repudiation (843)
1. Subject stop subsection (2) and to the provisions of this Article with respect to proof of market price (§ 2-723), the
measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (§ 2-710), but less any expenses saved in consequence of the buyer’s breach.
2. If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as
performance would have done then the amuser of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (§ 2-710), due allowance for costs reasonable incurred and due credit for payments or proceeds of resale.
LIMITATIONS ON BARGAIN DAMAGES
UCC 2-710 Seller’s Incidental Damages (878) Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer’s breach, in connection with return or resale of the goods or otherwise resulting from the breach.
UCC 2-715 Buyer’s Incidental and Consequential Damages (878)
1. Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt,
transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.
2. Consequential damages resulting from the seller’s breach include
2.a. any loss resulting from general or particular requirements and needs of which the seller at the time on
contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
2.b. injury to person or property proximately resulting from any breach of warranty.
NONECONOMIC NONCOMPENSATORY DAMAGES
R2d §355 Punitive Damages Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitve damages are recoverable.
AGREED REMEDIES
R2d §356 Liquidated Damages and Penalties (897)
1. Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the
light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty...
UCC 2-718 Liquidation or Limitation of Damages; Deposits (897 & 936)
1. Damages for breach by either party may be liuidated in the agreement but only at an amount which is reasonable in the
light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
2. Where the seller justifiably withholds delivery of goods because of the buyer’s breach, the buyer is entitled to
restitution of any amount by which the sum of his payments exceeds
2.a. the substitution of a right of the assignee for the right of the assignor would materially change the duty of the
obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or
2.b. the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or
2.c. assignment is validly precluded by contract.
UCC 2-210(2) Assingment of Rights (960) Except as otherwise provided in Section 9-406, unless otherwise agreed, all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on hi by his contract, or impair materially his chance of obaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor’s due performance of his entire obligation can be assigned despite agreement otherwise.
R2d §311 Contractual Prohibition of Assignment (967)
1. Unless the circumstances indicate the contrary, a contract term prohibiting assignment of “the contract” bars only the
delegation to an assignee of the performance by the assignor of a duty or condition
2. A contract term prohibiting assignment of rights under the contract, unless a different intention is manifested,
2.a. does not forbid assignment of a right to damages for breach of the whole contract or a right arising out of the
assignor’s due performance of his entire obligation
2.b. gives the obligor a right to damages for breach of the terms forbidding assignment but does not
render the assignment ineffective
2.c. is for the benefit of the obligor, and does not prevent the assignee from acquiring rights against the assignor
or the obligor from dischargin his duty as if there were no such prohibition
R2d §318 Delegation of Performance of Duty (972)
1. An obligor can properly delegate the performance of his duty to another unless the delegation is contrary to public
policy or the terms of his promise
2. Unless otherwise agreed, a promise requires performance by a particular person only to the extent that the obligee has
a susbstantial interest in having that person perform or control the acts promised.
3. Unless the obligee agrees otherwise, neighter delegation of performance nor a contract to assume the duty made with
the obligor by the person delegated discharges any duty or liability of the delegating obligor.
R2d §328 Interpretation of Words of Assignment (972)
1. Unless the language or the curcumstances indicate the contrary,... an assignment of “the contract” or of “all my rights
under the contract” or an assignment in similar general terms is an assignment of the assignor’s rights and a delegation of his unperfomred duties under the contract....
UCC 2-210(1), (5), and (6) Delegation of Performance (972) (1) A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.... (5) An assignment of “the contract” or of “all my rights under the contract” or an assignment in similar general terms in as assignment of rights and unless the language or the circumstnaces (as in an assignment for security) indicating the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the originial contract. (6) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (2-206).
