Contracts

Introduction
A contract is a promise that courts enforce: "a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in someway recognizes as a duty" (2nd Restatement of Contracts 1).

Common law: Applies to all contracts except those falling under the UCC. UCC (Uniform Commercial Code): Applies to all contracts for the sale or lease of goods. The UCC is applicable regardless of whether or not either or both parties are merchants.

By Formation

Express: The terms of a contract are in written or spoken words. Implied: The terms of a contract are implied based on an action by the parties. Constructive: The law treats the parties as if they had formed an enforceable contract and infers the terms based on the circumstances.

By Acceptance

Bilateral: The contract is formed by an exchange of promises (e.g., "Because you promise to paint my house, I promise to pay you"). Unilateral: The contract is formed by an exchange of a promise for an act (e.g., "If you capture the criminal, I will pay you $1,500").

By Enforceability

Voidable: The contract is enforceable at an aggrieved partys choice. Either party can avoid the legal requirements by disaffirming the contract. Void: The contract is treated as if it never existed. Unenforceable: The court will not enforce the contracts terms, but the court may allow one party to collect on a reliance or restitution theory of damages, rather than an expectation theory of damages.

Offer
An offer occurs when there is a willingness to enter an agreement.

The offeror (or "master of the offer") invites an acceptance. Such an acceptance must conclude the deal. If the offeree can respond, "yes, I accept," then an offer has been made.

Manifestation of Intent Intention forms contracts, but parties (the offeror and offeree) must manifest their intentions objectively to enter into a bargain. Concealed intentions do not form contracts. To determine whether intent has been manifested by either party, the following must be examined:

Definite propositions Example: "I will pay you $100 to paint my house" is more indicative of intent to form a contract than, "I would like my house painted."

Method of communication Example: A published advertisement is less likely to indicate intent to make a deal than a personal conversation.

Actions consistent with the intent to enter into an agreement Example: After Roger asks Fred to paint Rogers house, Fred arrives at Rogers house with paintbrushes.

Previous dealings between the parties Example: Every time Lori leaves crates of apples on Jennys loading dock, Jenny sells them in the grocery store.

Custom or trade usage Example: A grocery store customer who picks up a frozen pizza and takes it to the cashier expresses intent to enter into a deal because that is how grocery stores customarily work.

Certainty of Terms

An offer must be definite in its terms, particularly as to:

Subject matter Price Time of performance Quantity

Not all terms need to be detailed completelyonly well enough to make the agreement clear.

Advertisements usually are considered invitations to deal, and not offers, because they lack definite terms, such as quantity.

Termination of Offers Offers may be revoked in several ways: 1. Revocation: An offer is freely revocable, except when: o The offeree gives consideration to the offeror to keep the offer open (e.g., an option contract). o Firm offers: If a merchant makes an offer in a signed writing, then that offer is irrevocable for a maximum of three months. If the offer is promised to be held open for more than three months, the time will be reduced to three months (see UCC 2-205). o Foreseeable detrimental reliance: An offer cannot be revoked if there has been reliance by the offeree that is reasonably foreseeable (e.g., a subcontractors bid upon which a general contractor relies.) o The party attempting to accept a unilateral contract by performance began performance.When some value has been conferred on the offeror, the offeror must give the offeree a reasonable time to perform. Until value has been conferred, the offeror may revoke the offer. 2. Rejection by the offeree. 3. Lapse due to time. If the offer does not specify a time, a reasonable time must be established. o Determining a reasonable time depends on: Subject matter; Price fluctuation; Medium of the offer; and Business custom. o A reasonable time often expires with the end of the conversation. 4. Counteroffer, which expresses a willingness to enter into different terms, and implicitly, an unwillingness to enter into the proposed terms. Note: Not all responses are counteroffers. Sometimes an offeree may respond with acceptance, but ask for additional terms.

Example: "I agree to buy the car for $5,000, but can you also include the ski-rack," is a request for further dealings, whereas "I agree to pay $5,000 for the car only if you include the ski-rack," is a counteroffer. 5. Supervening illegality by the passage of a law making the contract illegal. 6. Death or incapacity of the offeror.

Acceptance
An offeree finalizes contract formation by unequivocally accepting the terms of the offer. Acceptance of an offer may be communicated by:

Promise: A party may accept an offer to enter into a bilateral contract by giving a promise in return. Example: An offeree stating, "I accept your proposal and promise to perform."

Performance: Example: A bounty hunter bringing back a wanted criminal.

Silence: This can happen only when custom between the particular parties makes silent acceptance reasonable. Example: Allowing a supplier to leave the goods on a loading dock.

Mailbox rule: Acceptance is effective on dispatch. A revocation of an offer or acceptance is effective on receipt. o Exceptions: Offer otherwise expressly provides Rejection mailed, then acceptance mailed: If rejection is mailed, then acceptance is mailed, whichever arrives first controls. Acceptance mailed, then rejection mailed: The mailbox rule applies, unless the rejection is received first and relied upon by the offeror. Option deadlines: The mailbox rule does not apply to the deadline for an option contract. Acceptance is valid only upon receipt. Mirror image rule: Under the common law, the terms of the acceptance must be exactly the same (the "mirror image") as the terms of the offer. Form contracts (UCC 2-207): The UCC modifies the Common Law rules by allowing courts to enforce contracts even when the parties do not agree exactly on the terms. The following are possible rules to determine which terms of a contract to enforce: o First shot: Contract formed on the terms of the offer. o Last shot: Contract formed on the terms of the acceptance.

Knock-out and gap filler: The conflicting terms are eliminated and UCC default rules are applied.

Rules for contradictory terms

Consideration
Consideration is a bargained-for exchange of legal value. The adequacy of consideration cannot be questioned as long as the parties bargained for it (e.g., you cannot go to court because you got a bad deal on a car, or because you regret buying an expensive blouse). The parties are assumed to be the best judges of value (e.g., a court will not allow a party to argue, "I agreed to pay more than I should have"). To better understand consideration, compare it with promises that are not bargained-for exchanges and not enforceable:

Gifts

Example: "I will give you $1,000 on your birthday."

Past consideration Example: "I will pay you $1,000 for many years of loyal service."

Illusory promises: These give the promisor absolute freedom of action. Example: "I will buy your painting if I feel like it."

"A WORD IS NOT A CRYSTAL, TRANSPARENT AND UNCHANGED; IT IS THE SKIN OF A LIVING THOUGHT AND MAY VARY GREATLY IN COLOR AND CONTENT ACCORDING TO THE CIRCUMSTANCES AND TIME IN WHICH IT IS USED." OLIVER WENDELL HOLMES Substitute for Consideration When only one party makes a promise, the promisee may not enforce the promise as a contract, but may seek redress on a theory of promissory estoppel (90 2nd Restatement).

Promissory estoppel can occur when a promise, on which the promisor should reasonably expect to induce action or forbearance (and actually causes action or forbearance), requires enforcement. The party relying on the promise will be put back where he or she would have been had the promise never been made, not where she would have been had the promise been fulfilled.

Implied Contracts
Contracts may be implied. Even if the parties did not agree explicitly with words or actions, a court can find that one party owes the other party damages. Contracts may be implied in fact or implied in law.

Implied in fact contracts are real contracts formed by implicit assent rather than explicit consent. Example: If a person raises his or her hand during an auction, consent to pay the price is implied.

Implied in law contracts are not real contracts but merely a label given to certain actions that give rise to liability for unjust enrichment. o Theoretically the difference is clear, but in practical terms, these two kinds of contracts are very similar.

The status of the plaintiff may determine the availability of recovery on a contract implied in law. Officious intermeddler: A plaintiff who confers benefit without consent or request from the defendant. The officious intermeddler recovers nothing because retaining the benefit is not unjust. Example: Mark paints Nancys car while Nancy sleeps, without Nancys actual or implied consent, and can recover nothing.

Self-serving intermeddler: A plaintiff who helps himself and must confer benefit on the defendant. Example: Mark builds a wall between his property and Nancys. Nancy did not ask for the wall to be built but receives some benefit nonetheless.
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The self-serving intermeddler recovers if the defendant had the opportunity to disclaim responsibility. Example: If Mark builds the wall during Nancys vacation, Mark may not recover because Nancy had no opportunity to clarify the situation. If Mark builds the wall while Nancy watches, Mark may recover. Nancy had ample opportunity to ask that she not be responsible for the wall.

Altruistic intermeddler: A plaintiff who helps the defendant when the defendant cannot consent. The altruistic intermeddler receives fair value for the services because consent is implied. Example: Mark treats Nancy after Nancy is knocked unconscious in a car accident. Mark recovers the fair market value of the services.

Terms and Interpretation

Interpretation
When interpreting a contract, assess what the parties intended. Courts give effect to the parties intentions by examining the following factors:

Terms of the contract: The plain meaning of the terms of the contract. Example: If David wrote to Betty, "paint this room black," Betty must paint Davids room black.

Course of performance: How the parties behaved while performing the contract. Example: If, during the performance of a contract between a homeowner (David) and a painter (Betty), Betty painted the bedroom and living room black when David wrote to Betty, "paint these rooms the specified color" and Betty agreed to paint the kitchen "the specified color," Betty must paint it black.

Course of dealing: How the parties performed in past contractual dealings. Example: If Betty routinely paints houses for David and has painted a room black every time David has written to Betty, "paint this room the specified color," then the court will interpret the "specified color" to be black.

Trade usage: How other parties similar to those in the lawsuit would perform under similar circumstances. Example: If painters paint rooms black when homeowners ask them to "paint this room the specified color," then the court will interpret the "specified color" to be black even though David, the homeowner, never specified any color to Betty, the painter.

Ambiguity Ambiguous terms will be interpreted in favor of the party who had less reason to know of the ambiguity. Terms will be interpreted against the drafting party since he or she had the power to clarify the terms.

SELLER Validity if ambigous contract terms Knew or should have known Did not know

Knew or should have known Invalid contract BUYER Did not know Interpret for buyer

Interpret for seller Invalid contract

Parol Evidence Rule Testimony of an earlier written agreement or contemporaneous oral agreement can contradict a written agreement. This testimonial evidence is not admissible if the writing was a final and complete expression of the parties agreement (i.e., an integrated agreement). Oral evidence is admissible to:

Prove a condition that precedes the formation of the contract. Example: Jack told Sabrina he would not agree to buy the property unless Sabrina removed the ugly shack from the neighboring property.

Argue that the writing was not intended to be a final written expression. Example: Ask whether the parties would naturally omit this term from a written agreement.

Interpret the written agreement or clarify ambiguity. Example: A court will admit evidence that Kim wrote to Jessica "when I write sell, I really mean buy" to prove that Kim agreed to sell, even though the "plain" (dictionary) meaning of the writing is the opposite.

Good Faith
All contracts are assumed to include a term requiring performance in good faith. This term requires each party to remain faithful to an agreed-upon purpose and to exhibit behavior consistent with the justified expectations of the other party. Good faith is particularly important in the following:

Output or requirement contracts Example: I will buy all the chocolate I need from you. I will sell to you all the chocolate I produce.
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The contracting parties may not limit their needs or outputs to evade the contract, but may decide to go out of business entirely.

Example: Brad, the owner of a messenger service, promises to have all cars repaired at Jackies auto repair shop. Brad does not breach the covenant of good faith by switching her business to an allbike messenger service.

Exclusive agency contracts Example: When the contract reads, "I will promote your line of clothing and only your line of clothing," the court will read a term into the contract and interpret the promise as, "I will use [reasonable efforts] to promote your line of clothing."

Breach and Material Breach

A breach occurs whenever one party fails to follow the terms of the contract.

A material breach threatens the value of the contract and justifies the non-breaching party suspending performance or canceling the contract. The non-breaching party may not suspend performance if the breach is not material, but may seek damages.

To determine whether a breach is material, the following questions must be asked:

To what extent is the injured party deprived of reasonably expected benefit? To what extent will damages adequately compensate the injured party? Example If Steven fails to paint Janies house by June 1, but completes the job by June 3, and Steven had to stay in a hotel for two extra days, then Janie receives the benefit of the contract and may be compensated for damages. But if Janie wanted the house painted so he could host his daughters wedding on June 2, then Janie receives almost no benefit from the contract and damages cannot compensate him.

To what extent will the party failing to perform suffer forfeiture? Example: If Aaron promises to begin painting Brents house by May 1, but: Aaron has not started on May 3, then Aaron suffers no loss if Brent cancels the contact; but o If Aaron begins painting on May 3, and Brent cancels the contract on May 9, then Aaron forfeits six days of work. What is the likelihood the party failing to perform will cure, taking into account reasonable assurances? Example: If Bryan promises to begin painting Craigs house by May 1 and to finish by June 1, but: Bryan begins painting on May 3, then Bryan can likely cure the breach; but if Bryan begins painting on May 29, then Bryan is unlikely to cure the breach and complete the job by June 1. To what extent does the behavior of the party failing to perform comport with standards of good faith and fair dealing?
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Anticipatory Breach

When a party indicates a definite and unequivocal manifestation of intent not to perform, the non-breaching party may:

Sue without waiting for the time of performance: The non-breaching party must demonstrate his or her ability and willingness to perform. Wait for the performance date to sue: The breaching party may revoke the repudiation of the contract so long as both he or she can still perform, and the non-breaching party has not changed his or her position. Example: Bike messenger Laura contracts with Larry to deliver a package across town by 5:00 PM. Laura repudiates her contract with Larry at 9:00 AM. At 10:00 AM, Laura revokes her repudiation and delivers the package well before 5:00 PM. The contract is still enforceable. In contrast, if Larry had hired a new bike messenger at 9:50 AM, Laura could not deliver the package and enforce the contract because Larry changed his position.

Rescind the contract. Attempt to cure the breach. Example: Hire a similar employee. Note: The anticipated breach must still be material and the response proportional.

Substantial Performance
A contract is substantially performed when its value has been substantially conveyed, but some term has been breached. The breaching party receives the contract price, but must deduct damages to complete performance of the contract. Whether a contract has been substantially performed is a case-by-case factual inquiry. Examples of substantial performance

The contract specifies the use of "Redding" cast iron pipes, but the contractor uses an identical iron pipe of a different brand. The court will award the contract price to the contractor and not require replacing the pipe. The contract specifies the contractor to roof the entire house. The contractor roofs all but a small part of the house. The homeowner must pay the full value of the contract, but the contractor must pay the homeowner the cost of completing the roof. The contract specifies the contractor to roof the entire house in red tiles. The contractor uses black tiles. The contract has been substantially performed, but the cost to cure the breach (i.e., the damages) exceeds the contract price.

Conditions
Conditions are terms that, if unfulfilled, relieve the non-breaching party from any legal obligation.

Condition precedent triggers the obligation to perform. Example: The insurance company will not offer car insurance until the insured obtains a drivers license.

Condition subsequent extinguishes the obligation to perform. Example: The insurance company will not pay unless the insured allows the company to inspect the damaged vehicle.

Conditions are most useful when damages are uncertain or difficult to calculate.

Condition or Promise

Intent determines whether a contractual term is a condition or a promise. Example: The insurance company does not intend to offer insurance to unlicensed drivers.

Courts try to avoid the forfeiture of a contract unless the event is within the control of the party assuming the obligation or risk of the event. Example: If the insured could not allow an insurance company to inspect the car because the police seized it as evidence, a court may not allow the company to deny coverage. This is because the insured would forfeit the benefit of the contract for reasons beyond his or her control. But the same court would allow the insurance company to deny coverage if the insured took his or her own car to the wrecking yard immediately after the accident. The insured would forfeit the benefit of the contract because he or she controlled whether the car was destroyed or inspected.

Failure to perform promise Leads to damages Failure to fulfill condition Terminates contract

Modification
Parties may not modify contracts when the parties have a "preexisting legal duty." A preexisting i legal duty exists when the parties have already formed a contract. Example: Jennifer promises to paint Andreas house for $100. Jennifer asks Andrea to increase the price to $150. Andrea signs a second contract for $150. Jennifer may not enforce the second contract because Jennifer already has a preexisting legal duty to paint Andreas house. Three exceptions to the "legal duty rule" allow modification: 1. New or different consideration offered; Example: Jennifer promises to paint Andreas house within one week, rather than within one month. 2. An honest dispute over the duty where the modification settles the dispute; and Example: Jennifer agrees to use unexpectedly better paint. 3. Unforeseen circumstances. Example: Andreas house is ruled to be a historic landmark and requires special care.
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Unforeseen circumstances that were part of the risk of the contract do not justify modification. Example: Jennifer discovers that Andreas house is rotting after she starts painting. As a painter, Jennifer should have inspected the property before bidding.

Note: These exceptions swallow or overwhelm the legal duty rule. Fair modifications are probably enforceable. The UCC allows parties to modify contracts if the modification is done in good faith.

Remedies
Expectation
A court, enforcing a contract, attempts to put the non-breaching party where he or she would have been had the contract been performed (benefit of the bargain).

Expectation: Lost benefits to plaintiff. Reliance: Cost to plaintiff. Restitution: Benefit to defendant.

The court calculates damages by taking the value of the contract (actual damages) and subtracting costs avoided, but adding the consequential damages and incidental damages.

Actual damages: Profits lost, or the additional cost to replace the subject of the contract. Costs avoided: Any cost the breach allowed the non-breaching party to avoid. Consequential damages: Damages that are not part of the contract, but occur because of the breach. Incidental damages: Costs that the non-breaching party incurs while trying to mitigate damages or secure the value of the contract. Often this includes transaction costs (costs of completing the transaction).

Example of an expectation calculation Elizabeth agrees to rent a car from Carlye for two days at $30/day plus $10 insurance so that Elizabeth can visit clients at $100/hour. But Carlye cannot deliver a car, so Carlye has breached the contract. After an hour, making one phone call from a pay phone to other rental agencies, Elizabeth rents a car from Emily for $45/day, but Emily does not require Elizabeth to buy insurance.

Actual damages = The additional cost to rent the car ($30 for two days) Costs avoided = The insurance premium that Emily did not charge ($10) Consequential damages = The fees Elizabeth could not collect while waiting an hour for another car ($100) Incidental damages = The cost of the phone call ($0.50) $30 $10 + $100 + $0.50 = $120.50

Limitations on Damages Certainty: The fact of damages must be certain, not speculative.

Example: A breach of a contract that destroys a new business often has uncertain damages because new businesses may not be profitable.

The amount of damages need not be absolutely certain, but no damage award will exceed the amount supported by the evidence.

Example: Past receipts provide sufficient evidence of damages for an existing business, but damages will not be awarded on the basis of a hope for a particularly good holiday season. Foreseeability: Consequential damages are recoverable only to the extent that the breaching party, at the time the contract was made, had reason to foresee that the damages are the probable consequence of a breach. Example: A shipping company has no reason to foresee that their failure to deliver a package will cause billions of dollars in lost profits rather than mere inconvenience. Note: Actual shipping contracts almost always limit consequential or incidental damages. Mitigation: After a breach, the non-breaching party has the duty to mitigate the damages. Mitigation does not require heroic efforts, only reasonable efforts. Examples of mitigation

When the county indicates it will breach a construction contract, the contractor must stop building the bridge. The contractor will receive the expected profit (contract price minus expenses), and the county will not pay for materials it does not need. When a shipper indicates it cannot ship the sellers product, the seller must attempt to find another shipper and recover the increased costs of shipping, rather than the lost profits on the contract. When an employee breaches a contract, the employer must hire a reasonably comparable employee and the employee must pay any additional cost. When an employer breaches a contract, the employee must find reasonably comparable employment. But the employer bears the burden of showing comparable work was available in the same area. Determining what constitutes comparable work is a difficult factual question. Generally, an employee will not be required to move, and the employees subjective preferences will be given significant weight. Example: The assistant manager of a fast-food restaurant will likely have to take a similar position at another fast-food restaurant. In 1970, however, Shirley MacLaine was not required to work in a dramatic Western shot in Australia rather than in a musical filmed in Los Angeles.

If an employee takes a job he or she deems to be inferior to the lost job, the earnings from that job reduce the damage award.

Example: Kay fires Robert wrongfully from Roberts job as an attorney earning $100,000. To earn money during litigation, Robert works as a paralegal for $30,000. Although the doctrine of mitigation does not require Robert to work as a paralegal, the damage award will be reduced by $30,000 because Robert did work.

Money spent to mitigate damages is recoverable, even if the attempt is unsuccessful and ultimately aggravates the damages. Example: Kay fires Robert wrongfully. Robert spends $100 mailing resumes, but cannot secure any other employment. Robert may recover lost wages as well as the expense of attempting to mitigate.

Punitive damages: Contract remedies do not allow for punitive damages. Pain and suffering or mental damages are assumed to be part of the consideration. Example: A football player cannot sue his team for the damage done to his knees because his salary and benefits compensate him for the pain he suffers. Damages for pain and suffering or mental distress are included only if:

They are particularly likely and unique given the nature of the contract. Example: Breaching a contract for a hotel room is more likely to justify damages for emotional distress if the travel agent sold the plaintiff a honeymoon package as opposed to lodging for business trip.

They arise from a separate tort. Example: A courier who wrecks a vehicle may breach the contract to deliver a package as well as commit negligence. Note: Breaching the implied covenant of "good faith" may be considered a separate tort, but this view is not widely followed outside of insurance contracts.

Specific Performance Courts order the breaching party to perform only when monetary damages do not adequately redress the injury and the court can enforce performance. Example: Land is considered unique, and a court can order a deed conveyed.

The more unique an item is, the more likely a court is to order specific performance. Courts will never order specific performance for personal services, but may enjoin the breaching party from offering his services to a competitor.

Example: A court will not compel the defendant opera singer to sing at the plaintiffs opera hall, but will forbid her from singing at any other. Liquidated Damages Liquidated (or stipulated) damages are damages specified in the contract by agreement between the parties (e.g., for every day late, the breaching party must pay the other $100 in damages). The court will enforce a liquidated damages clause when actual damages are:

Uncertain or difficult to determine; and Reasonably estimated at either the time of the formation or at the time of the breach of the contract. Example: Alex specifies that Emily must pay $100 for each day that Lyssa is late completing a manuscript, "to cover increased editorial burdens." Liquidated damages of $100 per day are likely valid because actual damages are difficult to determine and $100 is a reasonableif not preciseestimate of the actual damages. Note: In the past, the clause was enforceable so long as it was a reasonable estimate of damages at the time of the formation of the contract.

Courts will not, however, enforce penalty clauses that make the non-breaching party better off than if the contract had been performed. Example: Madison specifies that Shannon must pay $1 million for each day that Shannon is late completing a manuscript. Madison is probably happier if Shannon is late than if Shannon fulfills the contractual terms. Thus, $1 million per day is likely an invalid penalty clause.

Liquidated damages attempt to measure uncertain damages from a breach, whereas a penalty clause attempts to prevent breach.

Reliance
Reliance puts the parties where they would have been had the contract or promise never been made, not where the party would have been had the promise been fulfilled (see 90 2nd Restatement). Refunds costs incurred: Occurs when a party receives the costs of relying on the promise. Example: Richard spends $100 to start a business, relying on Katherines promise to join him. Richard may recover the $100 from Katherine, but not the expected profit from the business.

Expectation to measure reliance: Occurs when a party forgoes another opportunity by relying on a broken promise. Expectation damages may measure the partys reliance. Example: Richard spends $100 to start a business and forgoes a second business opportunity, relying on Katherines promise to join him. Richard may recover $100 from Katherine, plus the lost profits from the second business opportunity, minus the start-up costs of the second business. Reliance to measure expectation: Occurs when the fact of damages is certain, but the amount of damages is speculative. Reliance damages may measure the partys expectation. Example: A shipping company failed to deliver a new model of computer to a trade show. The computer manufacturer may collect the cost of attending the trade show from the shipping company. It is not certain that the new computer would have sold successfully, but it is reasonable to assume that the computers appearance at the trade show would have generated enough sales to cover the cost of the display booth.

Restitution
Restitution restores any benefit that has been conferred on the other party. Also known as quasicontract or quantum meruit. The focus is on what the defendant is obliged to pay, not on what the defendant promised to do. Restitution requires that two elements be met:

The defendant has received some benefit; and Example: Madeline contracts with Doug to build a machine. Madeline begins building a machine for Doug, but Doug repudiates the contract. Madeline may not receive restitution because Doug has received no benefit.

Retaining the benefit is inequitable. If no contract has been formed or consideration has failed, but some value has been conferred, the party that receives value rescinds the contract. Example: Jason paints Deborahs 1967 Mustang but later discovers that he should have painted Deborahs 1968 Mustang.

To prevent unjust enrichment (something for nothing at anothers expense), the plaintiff may receive either the: o Increase in value of the defendants property; or

Example: If Deborahs partially restored 1967 Mustang was worth $5,000 before Jason painted it, but $5,500 after painting, Jason may collect $500.
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Reasonable value of the performance on the open market. Example: If the market price for painting a car is $300, then Jason may receive $300.

If the plaintiff performed fully, then the contract price is the best evidence of "reasonable value," even though the contract is not enforceable. Example: If Jason agreed to accept $250, which is below the market price of $300, then Jason may collect $250.

Defenses
Defenses to the Agreement
When one party can show that the parties did not genuinely agree on the contract, that party may have a defense to the terms of an otherwise valid contract. Such defenses commonly fall into several categories. Mutual Mistake

Both parties make a factual error about a fundamental issue that has a material effect on the agreed exchange. The adversely affected party may rescind the contract. Example: If both the buyer and seller believe the zirconium is a diamond, the buyer may rescind the contract.

Recision is not available when the adversely affected party assumes the risk of a mistake. Example: If neither seller nor buyer knew that the rock is an uncut diamond, no recision is available because both parties took the risk that the rock would be worth more or less.

Unilateral Mistake

Courts are less likely to allow recision when only one party makes a mistake, unless the mistake was: o Honest and excusable; o Without negligence; and o Promptly corrected prior to detrimental reliance by the non-mistaken party. Mistakes meeting these requirements are often clerical. Example: A mistaken bid.

Courts will not permit a non-mistaken party to enforce a contract if that party knew or should have known of the other partys mistake.

Changed Circumstances

Performance of a contracts requirements will be excused when circumstances change in a way that the promisor had no reason to anticipate, did not cause, and that renders performance impossible. The following are changed circumstances: o Supervening illegality: The contract becomes illegal between formation and performance.

Example: Brewing contracts were excused with the passage of the Volstead Act. Supervening destruction: The nonexistence of subject matter or specified means supply. Death or illness: This circumstance can affect a personal services contract. Cost becomes too large (commercial impracticability): This is a factual inquiry to which courts are becoming more receptive.
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Examples of changed circumstances

Contractor promises to repair a building that is destroyed through the fault of no party. Contractor is excused from performance. Contractor promises to build a building that is destroyed through no ones fault during construction. Contractor must rebuild the building. Lori promises to sell her dog Hunter to Jonathan. Hunter dies. Lori and Jonathan are excused from the contract. Lori promises to sell Jonathan a golden retriever. Lori planned to sell Jonathan her golden retriever Hunter, but Hunter dies. Lori must find another golden retriever to sell to Jonathan.

Misrepresentation

Misrepresentation includes untrue statements made in good faith or those made negligently. Example: "The house has no termites," and the seller did not know there were termites.

Misrepresentation makes the agreement voidable if the innocent party relies on the representation to his or her detriment. Example: If Jeremy, a buyer, would not have bought the house had he known of the termites, he has relied to his detriment. On the other hand, if Jeremy knew of the termites and bought the house anyway, he has not relied on the misrepresentation.

Fraud A deliberate lie or omission harming the deceived party may arise either:

In the execution: When the instrument signed is completely different from the one the party intended to sign. The contract is void. In the inducement: When a party relies on the false statement when deciding to form the contract. The contract is voidable.

Intoxication Intoxication is a defense to contract formation if the following is true:

Promisor was truly impaired; Promisor attempted to annul the contract within a reasonable period of time; and Promisee knew of the impairment.

Duress

Physical duress voids the contract. Example: "Either the brains or your signature will be on this contract.

Economic duress requires an improper threat, making agreement the only reasonable alternative. Example: A subcontractor refuses to deliver parts that the general contractor needs to complete a project for a developer unless the general contractor pays a higher price.
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The contract is voidable by the adversely affected.

Statute of Frauds

Contracts for the following subject areas will not be enforced unless memorialized in writing (MY LEGS): o Promises to Marry o Contracts that cannot be performed within one Year o Conveyances of Land o Agreements to personally pay an Estates debts o Goods of $500 or more (see, however, the UCC for its specific requirements for goods) o Agreements to pay the debts of another as a Surety (cosigner) Courts construe the Statute of Frauds strictly. Example: If a contract could be performed within a year, however unlikely, a writing is not required.

Part performance excuses the need for a writing. Example: If possession of land has changed and some of the price paid, then a court may excuse the need for a writing. The extent to which a contract for the sale of land must be performed before a court will enforce it in the absence of a writing depends on the law of real property for an individual state.

Defenses to the Terms

When one party can show that, although the parties genuinely agreed on the contract, the contractual terms are flawed, the party may avoid the contractual obligations. This can be done most often if the contract is: Illegal: Contracts to perform illegal acts are void. Example: A contract for John to cultivate marijuana for Ted is void because the subject matter is illegal. However, a contract for John to provide Ted with fertilizer, even if Ted uses the fertilizer on his marijuana crop, is valid and enforceable. The validity of the contract is not, however, a defense to a criminal conspiracy charge. Against public policy: The contract need not always be specifically illegal but merely against public policy. Courts will not, however, easily find a contract against public policy. Example: Even in the absence of specifically applicable prohibitions, racially or religiously discrimatory terms may be against public policy. Unconscionable: A contract is so onerous that it could not have been formed with true consent. The result must be shocking to the court. Look for two factors:

Procedural unconscionability: The formation and negotiation of the contract is somehow flawed. Example: A lawyer negotiated with a barely literate gas-station owner, or the form contract cannot be understood even if read.

Objectively and severely disproportionate exchange of value: Although courts will not usually question the judgment of parties, when the exchange is so disproportionate as to shock the court, it may be unenforceable as an unconscionable contact. Example: Paying $1,000 over the life of an installment contract for a refrigerator sold door-to-door that could be bought for $100 if purchased from a department store.
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When a contract contains an unconscionable term, courts will refuse to enforce it as a whole, refuse to enforce only the unconscionable term, or enforce the unconscionable term only to a limited degree.

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