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Understanding Contracts

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This Understanding treatise is designed for first-year law students enrolled in Contracts. The text explains common law principles of contract law using cases and examples that students commonly encounter in this first-year course. It draws illustrations from the Restatement (Second) of Contracts, and from Article 2 of the Uniform Commercial Code as it has been adopted in all fifty states. This edition includes expanded material on the United Nations Convention on the International Sale of Goods, and the UNIDROIT Principles of International Commercial Contracts, appropriate to a basic course in Contracts, and on modern statutes regarding electronic contracting.

Understanding Contracts was written with the understanding that Contracts will be one of the most challenging courses first-year law students will take. It explains how key concepts apply in several recurring basic fact patterns. It then builds on those fact patterns to explain how the law is more difficult to apply in business transactions with more complex facts. A key feature of Understanding Contracts, that is not found in other similar books, is its conscious incorporation of basic explanations of the common business practices to which the law of contracts applies. The feature helps students, many of whom have not had any background in the business world, understand contract law in the business settings in which it frequently applies. The book also provides detailed topic headings that students can use to develop their own comprehensive course outline.

Professors and adjunct professors may request complimentary examination copies of LexisNexis law school publications to consider for class adoption or recommendation. Please identify the book(s) you wish to receive, provide your institutional contact information, and submit your request here.

Table of Contents

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Chapter 1 INTRODUCTION................................ 1

§1.01 THE MEANING OF CONTRACT............................. 1

§1.02 TYPES OF CONTRACTS................................... 3

[A] Express and Implied Contracts ............................... 3

[B] Formal and Informal Contracts .............................. 6

[C] Bilateral and Unilateral Contracts............................. 7

[D] Executory Contracts...................................... 8

[E] Adhesion Contracts...................................... 9

[F] Void, Voidable, and Unenforceable Contracts ................... 10

[G] Contracts Involving "Merchants" and Those for "Consumer Goods or Services" ....................................... 11

[1] Rules Applicable to Merchants ............................ 12

[2] Rules Governing Transactions with Consumers ................ 13

[a] Consumer Protection Legislation ......................... 13

[b] Unconscionability................................... 15

[H] Contracts for the Sale of Goods............................. 15

[1] Domestic Sales under U.C.C. Article 2 ...................... 15

[a] Defining Goods ..................................... 16

[b] Hybrid Transactions .................................. 17

[2] International Sales under the Convention on International Sale of Goods ............................................. 19

§1.03 HISTORY OF CONTRACT LAW ............................ 22

[A] Roman Law of Contracts .................................. 22

[B] Early English Writs ..................................... 24

[C] The Writ of Assumpsit................................... 25

Chapter 2 CONTRACTS AS A LAW SCHOOL COURSE ......... 29

§2.01 ORGANIZATION OF CONTRACTS COURSES................. 29

[A] The Beginning of the Course ............................... 29

[1] Mutual Assent ........................................ 29

[2] Contract Remedies .................................... 30

[3] Enforceability ........................................ 31

[B] The Remainder of the Law of Contracts....................... 31

[1] Performance and Breach................................ 32

[2] Contract Defenses ..................................... 32

[3] Interpretation ........................................ 33

[4] The Statute of Frauds................................... 33

[5] Rights of Third Parties .................................. 33

[6] Sales of Goods Under U.C.C. Article 2 ...................... 34

[7] International Transactions ............................... 34

§2.02 STUDYING CONTRACT LAW .............................. 35

[A] Contracts in the First-Year Curriculum ........................ 35

[B] Contracts Cases ........................................ 37

[C] Contracts Statutes ....................................... 38

§2.03 SOURCES OF CONTRACT LAW ............................ 40

[A] Common Law......................................... 41

[1] Stare Decisis......................................... 41

[2] Common Law Decisionmaking ............................ 42

[3] The Law Merchant .................................... 44

[B] Uniform Law .......................................... 44

[1] Uniform Commercial Code .............................. 45

[2] United Nations Convention on Contracts for the International Sale of Goods ............................................. 50

[3] UNIDROIT Principles of International Commercial Contracts ...... 52

[4] Principles of European Contract Law....................... 52

[5] Electronic Contracting: UETA and E-Sign.................... 53

[6] Uniform Computer Information Transactions Act ............... 54

[C] The Restatement (Second) of Contracts....................... 55

[D] Treatises and Contract Scholarship ........................... 56

[1] Contracts Treatises .................................... 56

[2] Contract Theory and Scholarship.......................... 57

Chapter3 CONSIDERATION .............................. 63

§3.01 ENFORCEABILITY OF PROMISES.......................... 63

§3.02 FORMAL ALTERNATIVES TO CONSIDERATION.............. 66

[A] The Seal ............................................. 66

[B] The Uniform Written Obligations Act ......................... 69

[C] Formality and Ritual in Contract Law ......................... 70

§3.03 CONSIDERATION—A BARGAINED-FOR EXCHANGE .......... 72

[A] Transactions of Exchange ................................. 72

[B] Consideration as a Flow of Benefits and Detriments ............... 74

[C] Promises as Consideration ................................. 77

[D] Performance as Consideration .............................. 79

[E] Forbearance as Consideration .............................. 79

§3.04 PROMISES TO MAKE A GIFT .............................. 81

[A] Gift Promises Unenforceable ............................... 81

[B] Conditional Gifts ....................................... 82

[C] Charitable Pledges...................................... 84

§3.05 ADEQUACY OF CONSIDERATION.......................... 85

[A] No Inquiry into Adequacy ................................. 86

[B] Exchanges of Sums of Money .............................. 87

[C] Settlement of Disputed Claims .............................. 89

§3.06 PRETENSE OF CONSIDERATION ........................... 91

[A] Sham Consideration ..................................... 91

[1] Family Gift Promises................................... 92

[2] Contract Modifications .................................. 93

[B] Recitals of Consideration .................................. 95

[1] Recitals Ineffective .................................... 95

[2] Recitals in Option Contracts .............................. 96

[3] Recitals in Guaranty Contracts ............................ 97

§3.07 PREEXISTING LEGAL DUTY RULE ......................... 99

[A] Payment of Portion of a Preexisting Debt ..................... 101

[B] Modification of a Contract................................ 103

[C] Enforcement of Modifications Without Consideration ............ 108

[1] Modification Due to Unanticipated Circumstances ............. 108

[2] Reliance on a Modification .............................. 110

[3] Good-Faith Modification of Contracts for the Sale of Goods ...... 111

[4] International Transactions .............................. 112

[a] Modifications in International Sales of Goods ............... 112

[b] Modifications in Other International Contracts.............. 113

[D] Other Preexisting Duties ................................. 113

§ 3.08 PAST CONSIDERATION AND MORAL OBLIGATION: THE MATERIAL BENEFIT RULE ........................................ 114

[A] Past Consideration is No Consideration....................... 114

[B] Moral Obligation as Grounds for Enforcing a Promise ............ 115

[C] Material Benefit Rule................................... 115

[D] Promises to Pay Obligations Discharged by Operation of Law ....... 118

[1] Debts Discharged in Bankruptcy.......................... 118

[2] Debts Barred by the Statute of Limitations ................... 119

[3] Obligations Incurred by Minors and Others Suffering from Incapacity .......................................... 120

[4] Debts Discharged Due to Failure of a Condition ............... 120

§ 3.09 ILLUSORY PROMISES: MUTUALITY OF OBLIGATION ......... 121

[A] Illusory Promises...................................... 122

[B] Exclusive Dealing Contracts: Duty to Use Best Effort ............. 123

[C] Contracts Subject to a Condition ........................... 126

[1] Conditional Promise as Consideration ..................... 126

[2] Promisor in Control of Occurrence of Condition ............... 126

[3] Conditions of Satisfaction ............................... 127

[D] Right of Unilateral Termination ............................ 129

[E] Output and Requirements Contracts ......................... 130

[F] Alternative Performances................................ 132

[G] Mutuality of Obligation in Arbitration Agreements.............. 132

§ 3.10 CONSIDERATION IN GUARANTY CONTRACTS.............. 133

Chapter 4 PROMISSORY ESTOPPEL: DETRIMENTAL RELIANCE................................... 135

§ 4.01 INTRODUCTION TO PROMISSORY ESTOPPEL ............... 135

§4.02 ORIGINS OF PROMISSORY ESTOPPEL ..................... 138

[A] Equitable Estoppel ..................................... 138

[B] The Emergence of Promissory Estoppel ...................... 141

[1] Misrepresentation of Fact Different from Broken Promise........ 141

[2] Promissory Fraud .................................... 142

[3] Reasonable Reliance on an Unenforceable Promise ............. 143

[4] Cases Before Development of the Consideration Doctrine........ 144

[5] Emergence of Promissory Estoppel ........................ 144

[6] Procedural Mechanism of Promissory Estoppel ............... 145

§ 4.03 PROMISSORY ESTOPPEL AS A SUBSTITUTE FOR CONSIDERATION...................................... 146

[A] Family Gift Promises................................... 147

[B] Promises to Convey Land................................ 148

[C] Gratuitous Bailments and Agency Relationships ................ 149

[D] Charitable Subscriptions ................................. 150

[E] Commercial Settings .................................... 152

[F] Promissory Estoppel to Satisfy the Statute of Frauds ............. 155

§ 4.04 PROMISSORY ESTOPPEL AS AN INDEPENDENT CAUSE OF ACTION .............................................. 155

[A] Promissory Estoppel in the Restatements ...................... 156

[B] Precontractual Liability .................................. 159

§4.05 REMEDIES FOR PROMISSORY ESTOPPEL ................... 162

§ 4.06 PROMISSORY ESTOPPEL IN INTERNATIONAL TRANSACTIONS............................ 164

[A] Reliance Principles in the CISG ............................ 164

[B] Reliance in Other International Transactions ................... 165

Chapter 5 MUTUAL ASSENT — CREATING AN AGREEMENT................... 167

§5.01 INTRODUCTION TO MUTUAL ASSENT ..................... 167

§ 5.02 OBJECTIVE THEORY OF CONTRACT FORMATION........... 168

§ 5.03 DETERMINING WHETHER AN OFFER HAS BEEN MADE ....... 174

[A] Offer and Acceptance................................... 174

[B] The Offer............................................ 175

[1] Unequivocal Language ................................. 175

[2] Reasonable Understanding of the Offeree.................... 177

[3] No Additional Steps Required ............................ 177

[4] Effect of Specific Words................................ 178

[5] Expression of Present Intent Not an Offer.................... 179

[6] Effect of Indefinite Terms ............................... 179

[C] Preliminary Negotiations ................................. 181

[1] Price Quotations ..................................... 181

[2] Advertisements...................................... 183

[a] Advertisements Not Offers ............................ 183

[b] Advertisements Making Definite Offer .................... 185

[c] Effect of Consumer Protection Statues on Advertisements ...... 187

[D] Jokes and Hoaxes...................................... 188

§5.04 ACCEPTANCE......................................... 189

[A] Unequivocal Acceptance ................................. 190

[1] Grumbling Acceptance Effective.......................... 191

[2] Conditional Acceptance Ineffective ........................ 191

[B] Time for Acceptance .................................... 192

[C] Who Can Accept? ...................................... 194

[1] Acceptance by Person to Whom Offer is Directed.............. 194

[2] Assignability of an Irrevocable Offer (Option Contract) .......... 195

[3] Offer to Office Holder ................................. 196

[4] Offers to Multiple Persons .............................. 196

[a] Offers of a Reward .................................. 196

[b] Auctions......................................... 197

[5] Crossed Offers...................................... 198

[6] Intent to Accept...................................... 198

§5.05 MANNER OF ACCEPTANCE .............................. 199

[A] Limited by the Terms of the Offer.......................... 199

[B] Reasonable Manner of Acceptance.......................... 202

[1] Acceptance by Return Promise ........................... 203

[2] Beginning Performance as a Promise....................... 204

[a] Prompt Shipment of Goods ............................ 205

[b] Preparing to Perform................................ 206

[3] Acceptance by Performance Alone: Unilateral Contracts ......... 207

[C] Notice of Acceptance................................... 209

[D] Silence as Acceptance................................... 212

[1] Unsolicited Merchandise ............................... 213

[2] Negative Option Agreements ............................ 215

[3] Effect of Course of Dealing............................. 215

[E] Means of Communicating Acceptance....................... 216

[F] Contemplation of a Final Written Contract and "Letters of Intent".... 217

[G] Assent to Standardized Form Contracts....................... 219

[1] Reasonable Expectations ............................... 220

[2] Assent to Unconscionable Terms.......................... 222

[H] Rolling Contracts...................................... 222

§5.06 TIME ACCEPTANCE IS EFFECTIVE ........................ 227

[A] Instantaneous Communications: Acceptance Effective Upon Receipt…..227

[B] Delayed Communication: Acceptance Effective Upon Dispatch..... 228

[1] Reasons for the Dispatch Rule; Criticism.................... 229

[2] Limitations on the Dispatch Rule ......................... 230

[3] Identifying the Time Acceptance is Sent.................... 230

[4] Dispatch Rule in Domestic Sales of Goods ................... 231

[5] Time of Acceptance in International Transactions.............. 232

[6] Mailbox Rule a "Default Rule" ........................... 232

[7] Electronic Commerce .................................. 232

[C] Conflicting Communications .............................. 234

[1] Revocation of Offer................................... 235

[2] Rejection Followed by Subsequent Acceptance ............... 235

[3] Acceptance Followed by Subsequent Rejection ............... 236

[D] Option Contracts — Acceptance Effective Upon Receipt .......... 236

§5.07 OFFER AND ACCEPTANCE IN AUCTIONS ................... 237

[A] Auctions with Reserve................................... 237

[B] Auctions without Reserve................................ 238

[C] Withdrawal of Bids ..................................... 238

[D] Government Auctions................................... 239

§5.08 TERMINATION OF OFFERS .............................. 239

[A] Expiration of Time for Acceptance.......................... 240

[B] Revocation by the Offeror................................ 242

[1] Revocation Effective Upon Receipt ........................ 242

[2] Indirect Communication Sufficient ........................ 243

[3] Revocation of Offers Made to the Public.................... 243

[4] Revocation Before Deadline for Acceptance .................. 243

[C] Rejection............................................ 244

[D] Counteroffer .......................................... 245

[1] Deviant Acceptance as Counteroffer....................... 246

[2] Counteroffer While Considering Offer ...................... 247

[3] Acceptance That Defines Implied Terms.................... 247

[4] Acceptance with Suggestions ............................ 248

[5] Counteroffer Creates Power of Acceptance ................... 248

[E] Death or Incapacity of the Offeror.......................... 249

§5.09 IRREVOCABLE OFFERS ................................. 250


[A] Traditional Option Contracts .............................. 251

[1] Consideration for Promise of Irrevocability .................. 251

[2] Nominal or Recited Consideration for Option Contract .......... 251

[3] Reliance on Promise of Irrevocability ...................... 252

[4] Proof of Promise of Irrevocability ......................... 252

[B] Beginning Performance .................................. 253

[1] Preparing to Perform .................................. 255

[2] Notice of Performance ................................. 256

[C] Reliance on an Offer .................................... 257

[D] Firm Offers Under U.C.C. §2-205.......................... 259

[1] Signed Written Promise of Irrevocability.................... 259

[2] Preprinted Forms Supplied by the Offeree ................... 260

[3] Traditional Option Contracts Enforceable ................... 261

[4] Reliance on a Promise of Irrevocability ..................... 261

[E] Irrevocability in International Transactions.................... 262

[1] International Sales of Goods............................. 262

[2] Revocability in Other International Transactions ............... 262

§ 5.10 MIRROR-IMAGE RULE AND THE BATTLE OF THE FORMS UNDER U.C.C. §2-207......................................... 263

[A] The Common Law "Mirror-Image" Rule ...................... 266

[B] Creation of a Contract by a Deviant Acceptance Under U.C.C. 2-207(1) ............................................. 269

[1] Response to an Offer .................................. 270

[2] Acceptance Containing Different or Additional Terms........... 271

[3] Definite and Seasonable Expression of Acceptance ............. 272

[4] Acceptance Expressly Conditional on Assent to Different or Additional Terms .......................................... 275

[5] Written Confirmations ................................. 276

[C] Treatment of Different or Additional Terms.................... 277

[1] Additional Terms ..................................... 277

[a] Proposals to Modify the Contract if Not "Between Merchants" . . . 278

[b] Inclusion of Additional Term in Transactions "Between Merchants" ....................................... 278

[I] Offer Expressly Limits Acceptance to Its Own Terms........ 278

[II] Additional Term is a Material Alteration................. 279

[III] Timely Objection to Additional Terms .................. 281

[c] Additional Terms in Written Confirmation................. 281

[d] Acceptance of Proposal for Modification .................. 281

[2] Different Terms...................................... 282

[D] Contracts Formed Through Conduct ......................... 284

[E] Proposed Revisions to U.C.C. §2-207....................... 286


[F] Battle of the Forms in International Transactions ................ 287

[1] International Sale of Goods............................. 287

[2] Other International Transactions.......................... 288

§ 5.11 INDEFINITE TERMS AND AGREEMENTS TO AGREE .......... 288

[A] Effect of Missing Terms on Contract Formation................. 290

[1] Indefinite Terms and the Intent to be Bound .................. 290

[a] Agreements to Agree ................................ 290

[b] Letters of Intent .................................... 292

[2] Indefinite Terms Affecting Enforcement.................... 293

[3] Illusory Contracts .................................... 295

[B] Indefinite Agreements for the Sale of Goods ................... 296

[1] Open Price Term—Reasonable Price ...................... 296

[2] Time and Place for Delivery............................. 298

[a] Delivery at Reasonable Time ........................... 298

[b] Place for Delivery .................................. 299

[c] Shipment and Destination Contracts; Mercantile Terms, and "Incoterms" ....................................... 299

[3] Time for Payment .................................... 301

[4] Quantity ........................................... 302

[a] Output and Requirement Contracts ....................... 302

[b] Duty of Good Faith .................................. 303

[C] Indefinite Agreements in International Transactions.............. 304

[1] Indefinite Terms in International Sales of Goods ............... 304

[2] Indefinite Terms in Other International Contracts.............. 305

§5.12 PRECONTRACTUAL LIABILITY ........................... 306

[A] Binding Agreement with Formal Written Document to Follow ...... 308

[B] Unjust Enrichment ..................................... 308

[C] Misrepresentation...................................... 309

[D] Promises Made During Negotiations ......................... 309

[1] Irrevocable Offers .................................... 309

[2] Promissory Estoppel .................................. 310

[E] Duty to Bargain in Good Faith............................. 310

[F] Letters of Intent ....................................... 312

[G] Good-Faith Negotiation in International Transactions ............. 314

Chapter 6 INTERPRETATION AND CONSTRUCTION OF CONTRACTS ................................. 315

§6.01 DETERMININGTHE TERMS OF A CONTRACT ............... 315

§6.02 INTERPRETING EXPRESS TERMS ......................... 320

[A] Plain Meaning ........................................ 320

[B] Contextual Interpretation ................................. 322

[C] Maxims of Construction and Interpretation.................... 323

[1] Construe Language Consistently Where Possible.............. 323

[2] Contra Proferentum - Ambiguity Resolved Against the Drafter . . . 324

[3] Expressio Unius Est Exclusio Alterius - The Expression of One Excludes Others .................................. 325

[4] Ejusdem Generis - Of the Same Kind or Class ............... 326

[5] Specific Terms Govern General Terms ..................... 327

[6] Negotiated Terms Govern Boilerplate Terms................. 327

[7] Contract to be Construed Consistently with the Public Interest..... 328

§6.03 EFFECT OF MISUNDERSTANDING ........................ 328

§ 6.04 USAGE OF TRADE, COURSE OF DEALING, AND COURSE OF PERFORMANCE ....................................... 330

[A] Usage of Trade ........................................ 332

[B] Course of Dealing...................................... 333

[C] Course of Performance .................................. 333

§6.05 THE PAROL EVIDENCE RULE ............................ 334

[A] Meaning of "Parol" Evidence .............................. 335

[1] Oral and Written Evidence as Parol ........................ 336

[2] Evidence of Prior and Contemporaneous Agreements Excluded.... 336

[3] Substantive Rule of Contract Law; Not a Rule of Evidence ....... 337

[B] Integrated Written Contracts .............................. 337

[1] Effect of a Fully Integrated Written Contract................. 338

[2] Effect of a Partially Integrated Written Contract ............... 339

[3] Determining if the Writing is Integrated ..................... 339

[a] Four Corners of the Contract ........................... 340

[b] Extrinsic Evidence .................................. 341

[c] Parol Admissible to Show Lack of Integration ............... 341

[4] Effect of a "Merger Clause"............................. 342

[5] Role of the Court ..................................... 344

[C] Supplementing Partially Integrated Contracts .................. 344

[D] Resolving Ambiguity and "Plain Meaning".................... 345

[E] Evidence of Usage of Trade, Course of Dealing, and Course of Performance .......................................... 348

§6.06 EXCEPTIONS TO THE PAROL EVIDENCE RULE.............. 350

[A] Conditional Formation .................................. 350

[B] Invalid Contract: Illegality, Fraud, Duress, Mistake, Lack of Consideration......................................... 351

[C] Reformation Due to Mistake in Integration.................... 353

§ 6.07 PAROL EVIDENCE IN INTERNATIONAL TRANSACTIONS ...... 353

Chapter 7 IS A WRITING REQUIRED?: THE STATUTE OF FRAUDS ..................................... 357

§7.01 INTRODUCTION TO THE STATUTE OF FRAUDS.............. 357

§ 7.02 HISTORY AND PURPOSE OF THE STATUTE OF FRAUDS ....... 358

§ 7.03 WHICH CONTRACTS? THE SCOPE OF THE STATUTE OF FRAUDS............................................. 361

[A] Contracts for Real Estate ................................. 361

[B] Contracts That Cannot be Performed Within a Year.............. 362

[1] Performance Requiring More Than a Year ................... 363

[2] Likelihood of Performance Beyond a Year ................... 363

[3] Performance "for Life" ................................. 364

[4] "Permanent" Employment .............................. 364

[5] Effect of Right to Terminate within a Year ................... 365

[6] Contracts for Goods Lasting More than a Year ................ 365

[C] Contracts to Pay Someone Else’s Debt: Suretyship Agreements..... 366

[1] Nature of Suretyship Agreements ......................... 366

[a] Surety for Family Member ............................ 367

[b] Surety for Affiliated Corporation ........................ 367

[c] Performance Bonds and Professional Sureties ............... 367

[2] Consideration for Suretyship Promise ...................... 368

[3] Principal Debtor or Surety .............................. 369

[4] Leading Object Exception .............................. 370

[5] Promise Made to the Principal Debtor ...................... 371

[D] Contracts for the Sale and Lease of Goods ..................... 372

[E] Contracts in Consideration of Marriage....................... 373

[F] Other Contracts Required to be in Writing ..................... 375

[G] Statute of Frauds in International Transactions .................. 376

§7.04 TYPE OF WRITING REQUIRED ............................ 376

[A] Form of the Writing Irrelevant............................. 377

[B] Contents of the Writing: Essential Terms ..................... 378

[C] Signature............................................ 380

[D] Sufficient Writing Does Not Prove Mutual Assent ............... 381

[E] Precontractual Writings .................................. 381

§ 7.05 THE EFFECT OF PART PERFORMANCE AND RELIANCE ....... 382

[A] Part Performance...................................... 382

[1] Contracts for Real Estate ............................... 383

[2] Contracts Not to Be Performed Within a Year ................ 385

[B] Promissory Estoppel .................................... 387

§ 7.06 STATUTE OF FRAUDS IN DOMESTIC CONTRACTS FOR THE SALE OF GOODS .............................................. 390

[A] Price of $500 or More................................... 390

[B] Writing Signed by the Party Resisting Enforcement.............. 391

[1] Writing............................................ 391

[2] Writing Sufficient to Show a Contract ...................... 391

[3] Quantity Term ....................................... 393

[4] Signature .......................................... 394

[a] Signature by the Party Against Whom Enforcement is Sought .... 394

[b] Party or its Agent................................... 394

[c] Any Symbol is Sufficient .............................. 394

[C] Confirmatory Memorandum Between Merchants ................ 395

[1] Confirmation ........................................ 396

[2] Between Merchants................................... 397

[3] Sufficient Against the Sender ............................ 397

[4] Receipt............................................ 397

[5] Reason to Know Contents .............................. 398

[6] Failure to Object ..................................... 398

[D] Specially Manufactured Goods............................. 399

[E] Goods Accepted or Payment Made.......................... 401

[F] Admission That a Contract Existed.......................... 403

[G] Nonstatutory Exceptions to U.C.C. §2-201.................... 404

§ 7.07 CONSEQUENCES OF FAILURE TO SATISFY THE STATUTE..... 406

[A] Unenforceability ....................................... 406

[B] Restitution for Part Performance ............................ 407

§ 7.08 ELECTRONIC CONTRACTING AND THE STATUTE OF FRAUDS…… 408

Chapter8 MODIFICATION OF CONTRACTS ................ 411

§8.01 AGREEMENTS TO MODIFY CONTRACTS ................... 411

§8.02 CONSIDERATION REQUIREMENT ......................... 412

[A] Preexisting-Duty Rule................................... 413

[B] Modification Due to Unanticipated Circumstances ............... 416

[C] Economic Duress Inducing Modification ...................... 417

[D] Good Faith Modifications in Contracts for the Sale of Goods ....... 418

[E] Modification Enforceable Due to Reliance ..................... 419

[F] Enforceable Modifications in International Transactions........... 419

§8.03 ACCORD AND SATISFACTION ........................... 420

[A] Undisputed Claims ..................................... 420

[B] Disputed Claims ....................................... 422

[C] Use of a "Payment in Full Check" as an Accord and Satisfaction..... 423

[D] Effect of Failure to Perform an Accord....................... 424

[E] Substitute Contract and Novation Compared ................... 425

§8.04 WRITTEN MODIFICATION REQUIRED ..................... 426

[A] Modifications and the Statute of Frauds....................... 426

[B] Agreements That Modifications Must Be Written ................ 427

§8.05 WAIVER AND ESTOPPEL................................ 429

Chapter9 WARRANTIES................................ 431

§ 9.01 INTRODUCTION TO CONTRACT WARRANTIES.............. 431

[A] Transactions Involving Warranties.......................... 431

[B] Meaning of Warranty................................... 432

[C] Sources of Warranty Law................................ 434

§ 9.02 EXPRESS WARRANTIES AS TO QUALITY OF GOODS ......... 434

[A] Express Warranties Under U.C.C. §2-313 ..................... 434

[1] Affirmations of Fact................................... 435

[2] Relate to the Goods................................... 437

[3] Description of the Goods ............................... 438

[4] Sample or Model ..................................... 440

[5] Basis of the Bargain................................... 441

§ 9.03 IMPLIED WARRANTY OF MERCHANTABILITY.............. 443

[A] Seller a Merchant with Respect to Goods of the Kind ............. 443

[B] Meaning of "Merchantability"............................. 446

[1] Fit for the Ordinary Purpose............................. 446

[2] Pass without Objection in the Trade under the Description........ 448

[3] Fungible Goods — Fair Average Quality within the Description.... 448

[4] Adequately Contained, Packaged, and Labeled ................ 449

[5] Goods Must Conform to Promises or Facts Stated on the Label.... 450

§ 9.04 IMPLIED WARRANTY OF FITNESS FOR PARTICULAR PURPOSE ............................................. 450

[A] Buyer’s Particular Purpose................................ 451

[B] Reliance on Seller's Skill or Judgment....................... 453

[C] Seller’s Reason to Know of Buyer's Reliance .................. 454

§ 9.05 IMPLIED WARRANTY OF GOOD TITLE AND AGAINST INFRINGEMENT ....................................... 455

[A] Warranty of Good Title .................................. 455

[B] Warranty Against Infringement ............................ 456

[C] Disclaimer or Exclusion of Warranty of Good Title or Against Infringement......................................... 457

§ 9.06 IMPLIED WARRANTY OF THE HABITABILITY OF RESIDENTIAL REAL ESTATE......................................... 458

§9.07 WARRANTYDISCLAIMERS .............................. 462

[A] Disclaimers of Express Warranties.......................... 463

[B] Disclaimers of Implied Warranties.......................... 465

[1] Language Used in the Disclaimers ......................... 465

[2] Disclaimer Must Be Conspicuous ......................... 466

[3] Warranty Exclusion Through Buyer's Opportunity to Inspect ...... 468

[4] Disclaimer Through Course of Dealing, Usage of Trade, or Course of Performance .................................. 469

[5] Effect of Magnuson-Moss Warranty Act.................... 470

[C] Limited Remedies...................................... 471

§9.08 DEFENSES TO WARRANTY CLAIMS....................... 472

[A] Failure to Give Notice................................... 472

[B] Defenses Based on the Plaintiff's Conduct ..................... 474

[C] Absence of Privity ..................................... 476

[1] Horizontal Privity .................................... 477

[2] Vertical Privity...................................... 479

[D] Statute of Limitations................................... 481

§ 9.09 WARRANTIES IN INTERNATIONAL TRANSACTIONS ......... 485

[A] Express and Implied Warranties in International Sales of Goods..... 485

[B] Disclaimers of Warranties in International Sales of Goods ......... 486

Chapter 10 CONDITIONS AND THE ORDER OF PERFORMANCE .............................. 487

§10.01 INTRODUCTION TO CONDITIONS ......................... 487

§10.02 MEANING AND EFFECT OF CONDITIONS ................... 491

[A] What is a Condition? .................................... 491

[B] Use of Conditions to Facilitate Performance ................... 492

[1] Establishing the Sequence of Performance ................... 492

[2] Excusing Performance ................................. 492

[3] Procedural Conditions ................................. 493

[4] Alternative Performances ............................... 493

[5] Ensuring Satisfaction .................................. 494

[C] Consequences of Failure of a Condition ...................... 494

§ 10.03 DISTINGUISHING CONDITIONS FROM PROMISES ............ 498

[A] Construction as Promise Preferred.......................... 499

[B] Time for Performance................................... 500

§10.04 CLASSIFYING CONDITIONS............................. 502

[A] Conditions Precedent, Conditions Subsequent, and Concurrent Conditions ........................................... 502

[1] Conditions Precedent .................................. 502

[2] Conditions Subsequent ................................. 503

[3] Concurrent Conditions ................................. 504

[B] Express, Implied, and Constructive Conditions................. 504

[1] Express Conditions................................... 504

[2] Implied Conditions................................... 505

[3] Constructive Conditions................................ 505

§ 10.05 CONDITIONS REQUIRING SATISFACTION OR APPROVAL..... 508

§10.06 EXCUSE OF CONDITIONS ............................... 510

[A] Impossibility of Ancillary Conditions ........................ 510

[B] Interference with Occurrence of the Condition .................. 511

[C] Repudiation .......................................... 512

[D] Waiver and Estoppel of Conditions.......................... 513

[1] Time of Waiver...................................... 514

[2] Waiver of a Condition ................................. 514

[3] Estoppel against Conditions............................. 518

[4] Reinstatement of a Condition ............................ 521

[5] Waiver, Estoppel, and Modifications Compared ............... 522

[6] Effect of "Anti-Waiver" Provisions ........................ 522

[E] Excuse to Avoid a Forfeiture .............................. 523

§ 10.07 CONDITIONS IN INTERNATIONAL TRANSACTIONS .......... 526

[A] Conditions in International Sale of Goods ..................... 526

[B] Conditions in Other International Transactions................. 527

Chapter 11 SUBSTANTIAL PERFORMANCE AND MATERIAL BREACH ..................................... 529

§11.01 EFFECT OF PERFORMANCE .............................. 529

[A] Performance and Informal Dispute Resolution .................. 529

[B] Performance as Discharge of Contractual Duties ................ 530

§ 11.02 THE EFFECT OF BREACH: MATERIAL BREACH, SUBSTANTIAL PERFORMANCE, AND CONSTRUCTIVE CONDITIONS ......... 531

[A] Material Breach and Substantial Performance .................. 532

[B] Rights of Injured Party After Material Breach .................. 535

[C] Constructive Conditions and Substantial Performance ............ 538

[D] Divisibility of Contracts ................................. 541

[E] Restitution for Part Performance ............................ 543

[F] Fundamental Breach in International Transactions ............... 544

§ 11.03 PERFORMANCE AND BREACH IN CONTRACTS FOR GOODS . . . 545

[A] Seller’s Duty to Tender Delivery ........................... 546

[1] Tender by Seller ..................................... 546

[2] Payment and the Buyer’s Right to Inspect ................... 548

[3] Breach in Single Delivery Contracts: The Perfect Tender Rule ..... 549

[a] Perfect Tender Rule in Domestic Sales .................... 549

[b] Perfect Tender in International Sales ..................... 551

[4] Breach in Installment Contracts ........................... 551

[a] Rejection of Single Installment ......................... 552

[b] Breach of the Whole ................................. 553

[B] Fundamental Breach in International Sales of Goods ............. 555

§ 11.04 REJECTION, ACCEPTANCE, AND REVOCATION OF ACCEPTANCE IN CONTRACTS FOR GOODS....................... 555

[A] Consequences of the Buyer's Acceptance ..................... 556

[B] Rejection or Acceptance ................................. 556

[1] Manner of Rejection .................................. 557

[2] Buyer’s Acceptance of Goods ............................ 558

[C] Revocation of Acceptance................................ 559

[1] Substantial Impairment................................ 560

[2] Revocation of Acceptance Permitted....................... 561

[3] Notice and Timing of Revocation of Acceptance.............. 562

§11.05 BREACHING PARTY’S RIGHT TO CURE.................... 563

[A] Seller’s Right to Cure................................... 563

[1] Cure in Domestic Sales................................ 564

[2] Cure in International Sales .............................. 565

[B] Common Law Right to Cure .............................. 566

[C] Cure in International Transactions.......................... 566

§11.06 ANTICIPATORY REPUDIATION ........................... 567

[A] Manner of Repudiation .................................. 568

[1] Threat of Material Breach ............................... 569

[2] Definite and Unequivocal ............................... 569

[3] Performance Impossible................................ 571

[B] Effect of Repudiation................................... 572

[1] Immediate Action to Recover Damages for Total Breach ......... 572

[2] Repudiation of Unilateral Obligations ...................... 572

[3] Discharge of Aggrieved Party's Remaining Obligations; Excuse of Conditions......................................... 574

[4] Aggrieved Party's Response to Repudiation .................. 575

[5] Retraction of Repudiation ............................... 576

[C] Repudiation in Contracts for Domestic Sale of Goods ............. 577

[D] Repudiation in International Transactions ..................... 578

§ 11.07 PROSPECTIVE INABILITY TO PERFORM AND THE RIGHT TO ADEQUATE ASSURANCE OF
PERFORMANCE ............... 579

[A] Reasonable Grounds for Insecurity.......................... 581

[B] Demand for Adequate Assurance of Performance ................ 582

[1] Manner of the Demand ................................. 582

[2] Adequacy of the Assurances............................. 582

[3]Time for Assurances .................................. 583

[C] Consequences of Failure to Provide Adequate Assurances ......... 584

[D] Prospective Inability to Perform in International Transactions ....... 584

Chapter 12 CONTRACT DEFENSES ........................ 587

§12.01 TYPES OF CONTRACT DEFENSES ......................... 587

§ 12.02 CONTRACTS CONTRARY TO PUBLIC POLICY; ILLEGAL CONTRACTS .......................................... 589

[A] Contracts That Violate Public Policy ........................ 589

[1] Contracts for an Illegal Purpose.......................... 589

[2] Contracts in Restraint of Trade ........................... 590

[3] Contracts in Violation of Public Licensing Laws ............... 594

[4] Contracts Affecting Family Relationships ................... 595

[5] Gambling Contracts................................... 598

[6] Limited Remedies and Liability Waivers.................... 598

[B] Effect of a Finding of Illegality ............................ 600

[1] Void or Voidable ..................................... 600

[2] Severability of Illegal Terms............................. 601

[3] Restitution for Benefits Conferred ......................... 601

[C] Illegal International Agreements ............................ 602

§12.03 INCAPACITY .......................................... 603

[A] Minors .............................................. 603

[1] Obligation to Pay Restitution ............................ 604

[2] Ratification After Age of Majority ......................... 606

[3] Misrepresentation of Age ............................... 607

[4] Liability of Minors for Necessities of Life ................... 607

[5] Enforceability of Liability Waivers ........................ 608

[B] Mental Incapacity...................................... 609

[1] Adjudication of Incompetence ........................... 610

[2]Cognitive and Volitional Tests of Incapacity................. 610

[3]Mental Impairment Due to Alcohol or Other Drugs ............. 613

[C] Incapacity in International Transactions ...................... 613

§ 12.04 OBTAINING ASSENT IMPROPERLY; FRAUD, DURESS, AND UNDUE INFLUENCE .......................................... 614

[A] Improper Persuasion .................................... 614

[B] Fraud, Misrepresentation, and Nondisclosure ................... 615

[1] Relationship Between the Tort of "Deceit" and Misrepresentation in Contract ........................................... 616

[2] Voidability Due to Misrepresentation ...................... 617

[a] Fraud in the Factum and Fraud in the Inducement ............ 617

[b] Misrepresentation of Fact............................. 618

[c] Intentional or Reckless Misrepresentation .................. 618

[d] Fraudulent or Material Misrepresentation .................. 619

[e] Negligent and Innocent Misrepresentations................. 619

[f] Reasonable Reliance ................................. 620

[3] Nondisclosure ....................................... 621

[a] Fiduciary Duty ..................................... 622

[b] Effect of Subsequent Discovery of Falsity .................. 623

[c] Example of Duty to Disclose ........................... 623

[d] Material Nondisclosure ............................... 623

[4] Effect of Contractual "No-Reliance" Provisions ............... 624

[C] Improper Threats...................................... 625

[1] Physical Duress...................................... 626

[2] Extortion .......................................... 627

[3] Threats to Take Other Legal Action ........................ 628

[4] Economic Duress ..................................... 629

[a] Hard Bargaining Distinguished ......................... 629

[b] Duress in Obtaining Assent to a Modification ............... 630

[D] Undue Influence ....................................... 632

[E] Unfair Bargaining in International Contracts ................... 635

§12.05 UNCONSCIONABILITY .................................. 637

[A] Equitable Foundations of Unconscionability ................... 637

[B] Standardized Form Contracts - Adhesion Contracts ............. 638

[C] Direct and Indirect Techniques for Refusing to Enforce One-Sided Deals............................................... 640

[D] Substantive and Procedural Unconscionability .................. 641

[E] Unconscionability Between Merchants....................... 644

[F] Form of Relief ........................................ 645

[G] Unconscionability and Freedom of Contract ................... 646

[H] Unconscionability in International Transactions................. 648

[1] Unconscionability in International Sales of Goods ............. 648

[2] Unconscionability in Other International Transactions........... 648

§12.06 DUTY OF GOOD FAITH ................................. 649

[A] Meaning of the Duty of Good-Faith Performance ................ 651

[B] Duty to Use "Best Efforts"................................ 653

[C] Duty of Good Faith in Specific Circumstances .................. 654

[1] Requirements and Output Contracts ........................ 654

[2] Discretion to Set Price ................................. 655

[3] Unilateral Termination ................................. 656

[4] Contract Modifications ................................. 657

[5] Employment at Will................................... 657

[6] Lender Liability...................................... 658

[7] Percentage Leases .................................... 659

[8] Insurance Contracts................................... 659

[D] Good Faith in International Contracts ........................ 660

Chapter 13 EXCUSES: MISTAKE AND CHANGE OF CIRCUMSTANCES ............................ 663

§13.01 EXCUSE FROM CONTRACTUAL DUTIES ................... 663

§13.02 MISTAKE............................................ 665

[A] Relief Due to Mutual Mistake............................. 667

[1] Mistake of Fact...................................... 667

[2] Basic Assumption of the Contract ......................... 669

[3] Material Effect on the Exchange.......................... 670

[4] Assumption of the Risk................................ 671

[B] Unilateral Mistake ..................................... 674

[C] Relationship of Mistake to Warranty, Misrepresentation, and Fraud . . . 676

§ 13.03 CHANGE OF CIRCUMSTANCES: IMPOSSIBILITY, IMPRACTICABILITY, AND FRUSTRATION OF PURPOSE ....... 677

[A] Excuse Due to Impracticability of Performance................. 679

[1] Origins of the Doctrine: Impossibility...................... 679

[2] Commercial Impracticability............................ 682

[a] Basic Assumption of the Contract ....................... 683

[b] Performance Impracticable ............................ 686

[c] Circumstances Beyond the Control of the Parties ............. 687

[d] Assumption of the Risk ............................... 687

[3] Casualty to Identified Goods  ............................. 689

[B] Frustration of Purpose................................... 690

[C] Effect of "Force Majeure" Clauses.......................... 692

[D] Risk of Loss in Contracts for the Sale of Goods................. 693

[1] Risk of Loss in Domestic Sales ........................... 693

[2] Risk of Loss in International Sales ......................... 694

§ 13.04 REMEDIES FOR CHANGE OF CIRCUMSTANCES ............. 695

[A] Apportionment of Divisible Contracts ........................ 695

[B] Restitution for Part Performance ............................ 696

[C] Abatement of the Price and the Effect of Insurance ............... 698

[D] Adjustment of the Contract ............................... 699

§ 13.05 MISTAKE AND CHANGE OF CIRCUMSTANCE IN INTERNATIONAL TRANSACTIONS ....................................... 701

[A] Mistake in International Transactions ........................ 701

[B] Change of Circumstances in International Transactions........... 702

Chapter 14 REMEDIES: EXPECTATION DAMAGES........... 705

§14.01 INTRODUCTION TO CONTRACT REMEDIES................. 705

[A] Remedies in General .................................... 705

[B] Purposes of Contract Remedies: Expectation, Reliance, and Restitution Interests ............................... 707

[C] Types of Remedies ..................................... 710

[1] Procedural Remedies .................................. 710

[2] Money Damages as a Substitute for Performance.............. 711

[3] Equitable Remedies................................... 711

§ 14.02 DAMAGES BASED ON THE INJURED PARTY'S EXPECTATIONS ……... 711

[A] Expectation Damages................................... 711

[B] Punitive Damages...................................... 713

[C] Nominal Damages ..................................... 715

[D] Economic Analysis of Contract Damages ..................... 715

§14.03 CAUSATION .......................................... 717

§14.04 LIMITS ON DAMAGES: FORESEEABILITY .................. 718

[A] Direct and Consequential Damages.......................... 720

[1] Direct (General) Damages .............................. 721

[2] Consequential (Special) Damages ......................... 722

[B] Test of Foreseeability................................... 723

[1] Reason to Foresee .................................... 724

[2] Foreseeability of Lost Profits ............................ 725

[3]Tacit Agreement Test .................................. 727

[C] Foreseeability in Domestic Sales of Goods.................... 727

[D] Foreseeability in International Transactions.................... 728

[E] Limit on Recovery for Emotional Distress ..................... 729

§14.05 LIMITS ON DAMAGES: MITIGATION ...................... 731

[A] Mitigation in Employment Contracts ........................ 734

[B] Mitigation by Dealing with the Breaching Party................. 736

[C] Defendant’s Equal Opportunity to Minimize Loss ............... 738

[D] Lost Volume Transactions................................ 739

[E] Expenses Incurred in Mitigation ............................ 741

[F] Mitigation in International Transactions ...................... 742

§ 14.06 LIMITS ON DAMAGES: REASONABLE CERTAINTY........... 743

[A] Lost Profits of New Businesses ............................ 744

[B] Rational Basis Test ..................................... 745

[C] Market Value of a Chance................................ 745

[D] Reasonable Certainty in Domestic Sales of Goods ............... 746

[E] Reasonable Certainty in International Transactions.............. 746

§ 14.07 LIMITS ON DAMAGES: ATTORNEYS' FEES AND LITIGATION COSTS; INTEREST............................................ 747

[A] Attorneys' Fees and Litigation Costs ........................ 747

[B] Interest ............................................. 748

§ 14.08 REMEDIES IN CONTRACTS FOR THE SALE OF GOODS - BREACH BY THE SELLER ....................................... 750

[A] Buyer's Procedural Rights................................ 750

[1] Buyer's Procedural Rights in Domestic Sales of Goods .......... 751

[2] Buyer's Procedural Rights in International Sales ............... 752

[B] Breach by the Seller: Repudiation, Nondelivery, Rejection, or Revocation of Acceptance ....................... 753

[1] Recovery of Down Payment............................. 754

[2] Damages Based on the Cost of Cover ...................... 755

[a] Good-Faith Cover ................................... 756

[b] Reasonable Substitute................................ 757

[c] Without Unreasonable Delay ........................... 758

[d] Cover in International Sales ............................ 759

[3] Damages Based on the Market Value....................... 759

[4] Market Value in Repudiation Cases ........................ 761

[5] Specific Performance .................................. 763

[C] Buyer's Damages for Accepted Goods — Breach of Warranty ...... 763

[D] Buyer's Incidental Damages .............................. 764

[E] Buyer's Consequential Damages ........................... 765

[1] Reason to Know ..................................... 766

[2] Preventable......................................... 767

[3] Speculative Profits .................................... 768

[F] Expenses Saved as a Result of the Breach ..................... 769

[G] Price Reduction in International Transactions .................. 769

§ 14.09 REMEDIES IN CONTRACTS FOR THE SALE OF GOODS - BREACH BY THE BUYER ....................................... 770

[A] Seller's Procedural Rights................................ 770

[1] Identification of Goods to the Contract ...................... 771

[2] Unfinished Goods .................................... 771

[3] Right to Stop Delivery ................................. 771

[B] Damages Based on the Resale Price ......................... 772

[C] Damages Based on the Market Value ........................ 773

[D] Lost Profit for Lost-Volume Sellers ......................... 774

[1] Lost-Profit Damages in General.......................... 774

[2] Lost-Volume Sellers .................................. 775

[3] Calculating the Lost-Volume Seller's Lost Profits.............. 776

[4] Due Credit for Payments or Proceeds of Resale ............... 777

[5] Lost Profits in International Sales ......................... 778

[E] Recovery of the Contract Price............................. 778

[F] Seller's Incidental Damages ............................... 779

[G] Seller's Consequential Damages ............................ 780

§ 14.10 REMEDIES IN CONTRACTS FOR REAL ESTATE.............. 780

[A] Specific Performance of Contract for Real Estate ................ 781

[B] Damages for Breach of Contract for Real Estate................. 781

[1] Buyer's Damages .................................... 782

[2] Seller's Damages ..................................... 783

§ 14.11 CONSTRUCTION AND OTHER SERVICE CONTRACTS ......... 783

[A] Breach by the Builder: Cost of Performance or Difference in Value................. 784

[B] Breach by the Recipient .................................. 788

§14.12 EMPLOYMENT CONTRACTS............................. 792

[A] Breach by the Employee ................................. 793

[B] Breach by the Employer: Wrongful Discharge .................. 793

Chapter 15 RELIANCE AND RESTITUTION .................. 795

§ 15.01 RELIANCE AND RESTITUTION AS ALTERNATIVES........... 795

§ 15.02 DAMAGES BASED ON THE RELIANCE INTEREST ............ 797

[A] Circumstances in Which Damages Based on Reliance Are Used..... 798

[1] Expectation Damages Speculative or Uncertain ............... 798

[2] Promises Enforceable Under Promissory Estoppel ............. 799

[3] Public Policy to Limit Damages.......................... 801

[B] Essential and Incidental Reliance ........................... 803

[1] Distinction Between Essential and Incidental Reliance .......... 803

[2] Illustration of Essential & Incidental Reliance Expense .......... 803

[3] Incidental Reliance Distinguished from "Incidental Damages"..... 805
[C] Lost Opportunity for Profit as Reliance Expense ................ 805

[D] Reliance Damages in Contracts for the Sale of Goods ............. 806

[1] Reliance Damages in Domestic Sales ...................... 806

[2] Reliance Damages in International Sales.................... 807

§15.03 LIMITATIONS ON RELIANCE DAMAGES ................... 807

[A] Precontract Expenses................................... 808

[B] Foreseeability of Reliance Expenses ......................... 809

[C] Mitigation of Reliance Expenses ........................... 810

[D] Reasonable Certainty................................... 811

[E] Loss Contracts — Expectation as Limit on Reliance Damages ....... 811

§ 15.04 RESTITUTION — PREVENTING UNJUST ENRICHMENT........ 812

§ 15.05 RESTITUTION AS AN ALTERNATIVE REMEDY FOR BREACH . . . 815

[A] Restitution in Sales of Goods .............................. 817

[1] Restitution in Domestic Sales ............................ 817

[2] Restitution in International Sales.......................... 819

[B] Loss Contracts — Expectation as a Limit on Restitution........... 820

[C] Divisibility ........................................... 822

§15.06 RESTITUTION FOR THE BREACHING PARTY ................ 822

§ 15.07 RESTITUTION WHEN CONTRACT IS UNENFORCEABLE ....... 826

§ 15.08 RESTITUTION WHERE NO CONTRACT EXISTS: QUASI-CONTRACT ..................................... 828

Chapter 16 AGREED REMEDIES ........................... 831

§16.01 INTRODUCTION TO AGREED REMEDIES ................... 831

[A] Limited Remedies...................................... 831

[B] Liquidated Damages .................................... 832

[C] Enforceability of Agreed Remedy Provisions ................... 832

§16.02 LIMITED REMEDIES .................................... 832

[A] Types of Limited Remedies ............................... 833

[B] Limited Remedy Optional if Exclusive....................... 834

[C] Unconscionability of Limited Remedies ...................... 834

[D] Failure of Limited Remedy to Achieve its Essential Purpose........ 837

[E] Federal Magnuson-Moss Warranty Act....................... 839

§16.03 LIQUIDATED DAMAGES................................ 839

[A] History of Liquidated Damages: The Penal Bond ................ 840

[B] Penalty or Enforceable Liquidated Damages ................... 841

[1] Purpose of the Agreed Damages Provision ................... 842

[2] Difficulty of Determining Actual Damages ................... 842

[3] Reasonableness Compared to Anticipated or Actual Harm........ 845

[C] Alternative Performances and Bonuses....................... 848

[D] Effect of Agreed Remedy Provisions on Specific Performance ...... 848

[E] Unconscionability of Liquidated Damages Provisions ............ 849

[F] Agreements to Pay Attorneys' Fees and Other Costs of Litigation.... 849

[G] Agreed Remedy Provisions in International Transactions .......... 849

§16.04 ALTERNATIVE DISPUTE RESOLUTION ..................... 850

Chapter 17 EQUITABLE REMEDIES ........................ 853

§17.01 DEVELOPMENT OF EQUITABLE REMEDIES................. 853

§17.02 TYPES OF EQUITABLE REMEDIES ........................ 856

[A] Specific Performance................................... 856

[B] Injunctions ........................................... 856

§ 17.03 EQUITABLE JURISDICTION: INADEQUACY OF THE LEGAL REMEDY ............................................. 858

[A] Contracts for Real Estate ................................. 860

[1] Inadequacy of Damages for Buyer of Land ................... 860

[2] Inadequacy of Damages for Seller of Land ................... 861

[B] Contracts for the Sale of Goods ............................ 862

[1] Specific Performance for the Buyer ........................ 863

[2] Specific Performance for the Seller ........................ 864

[3] Specific Performance in International Sales of Goods........... 864

[C] Contracts for Services................................... 865

[1] Difficulty of Supervision ............................... 865

[2] Injunctions as an Alternative............................. 866

[D] Effect of a Liquidated Damages Provision ..................... 868

§ 17.04 BALANCING THE EQUITIES: PRACTICALITY AND FAIRNESS…. 869

[A] Mutuality of Remedy................................... 870

[B] Unreasonable Hardship .................................. 870

[C] Indefinite Contract ..................................... 871

[D] Unfairness ........................................... 872

[E] Mistake ............................................. 872

[F] Unclean Hands ........................................ 872

[G] Public Policy......................................... 873

[H] Performance Impossible or Impracticable ..................... 874

§ 17.05 EQUITABLE REMEDIES IN INTERNATIONAL TRANSACTIONS…. 874

Chapter 18 THIRD-PARTY BENEFICIARIES................. 877

§ 18.01 INTRODUCTION TO RIGHTS OF THIRD PARTIES ............. 877

[A] Transactions Involving Third Parties ......................... 877

[B] Parties in a Third-Party Beneficiary Contract ................... 877

[C] Privity of Contract ..................................... 878

[D] Consideration in Third-Party Beneficiary Contracts.............. 880

§18.02 TYPES OF THIRD-PARTY BENEFICIARIES .................. 881

[A] Credit or Beneficiaries................................... 882

[B] Donee Beneficiaries .................................... 884

[C] Intended Beneficiaries................................... 886

[D] Incidental Beneficiaries .................................. 889

[E] Beneficiaries of Warranties for Goods ........................ 889

[1] Third-Party Beneficiaries in Domestic Sales .................. 890

[2] Third-Party Beneficiaries in International Sales ............... 890

[F] Third-Party Beneficiaries in Specific Settings .................. 891

[1] Government Contracts ................................. 891

[2] Construction Contracts ................................. 893

[3] Professional Service