Restatement Second (2D) Of Contracts

Front 1

1 - Contract Defined

Back 1

Promise or set of promises; Law asserts: Performance is Duty, Breach demands Remedy

Front 2

2 - Promise, Promisor, Promisee, Beneficiary

Back 2

1. Manifest of Intent to act/refrain in specified way, so made as to justify promisee in understanding commitment has been made
4. Beneficiary = person who performance will benefit

Front 3

4 - How a Promise May Be Made

Back 3

Stated in words - written OR oral
Inferred - wholly OR partly - from conduct

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17 - Requirement of a Bargain

Back 4

1. Contract formation requires bargain with manifested mutual assent to the exchange AND a consideration
2. Bargaining may be unnecessary if there is a “Formal Contract” (or under §82-94)

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17(comment A) - Formal Contracts

Back 5

Includes:
- contracts under seal at common-law
- (sometimes) negotiable instruments under UCC §3-408
- Obtaining Letters of Credit (UCC §5-105, 5-106)

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18 - Manifestation of Mutual Assent

Back 6

Present if each party either:
Makes a promise OR
Begins or renders a performance

Front 7

19 - Conduct as Manifestation of Assent

Back 7

1. Manifestation of assent may be made:
Wholly or partly by written/spoken words OR
Other acts/failures to act
2. Conduct only effective IF X:
INTENDS to engage in the conduct AND
KNOWS/hrtKnow that Y MAY infer assent from X's conduct
3. Conduct may manifest assent even if X does not assent, but resulting contract MAY be voidable (for fraud, duress, mistake, etc).

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20 - Effect of Misunderstanding

Back 8

1. NO MofMA if Ps attach materially different meanings to manifestations AND
a. neither P knows/hrtKnow meaning attached by other P OR
b. both Ps know/hrtKnow meaning attached by other P
2. BUT MofMA is operative IF:
a/b. X does not know/hrtKnow of any different meaning attached by Y, and Y knows/hrtKnow meaning X attaches

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23 - Necessity that Manifestations have Reference to Each Other

Back 9

Bargain requires: Each P manifesting assent w/ reference to manifestation of the other

Front 10

24 - Offer Defined

Back 10

- Manifestation of willingness to enter a bargain
- Such that X is justified in thinking his assent is invited and will close bargain

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26 - Preliminary Negotiations

Back 11

If X knows/hrtKnow Y does not intend to close until Y has made further MofA, then no offer!

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29 - To Whom an Offer is Addressed

Back 12

1. Manifested intention of X determines P(s) in whom is created power of acceptance
2. Offer may create power of acceptance in specific person(s)/group/class OR any/everyone who makes specified promise/performance

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33 - Certainty

Back 13

1. For an offer to result in a binding contract, it must have reasonably certain terms
2. Reasonably certain=terms provide a basis for identifying a breach AND a remedy
3. 1+ terms left open/uncertain MAY suggest manifestation not intended to be offer/acceptance

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36 - Methods of Termination of the Power of Acceptance

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1. Offeree's power of acceptance may be terminated by:
a. rejection OR counter-offer by offeree OR
b. lapse of time OR
c. revocation by offeror OR
d. death or incapacity of the offeror or offeree
2. non-occurrence of any condition of acceptance under offer's terms

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38 - Rejection

Back 15

1. Rejection of the offer by Offeree terminates his power of acceptance
UNLESS offeror has manifested contrary intention
2. Manifestation of intention NOT to accept=rejection
UNLESS offeree manifests to take it under further advisement

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39 - Counter-Offers

Back 16

1. An offer made by offeree to offeror relating to same matter as original offer AND
Proposing a substituted bargain differing from original offer
2. If Offeree makes counter-offer, terminates PofA of original offer UNLESS
Offeror/offeree manifested contrary intention

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41 - Lapse of Time

Back 17

1. Offeree's PofA terminates at time specified in offer OR at end of a reasonable time
2. Reasonable time=fact depending on all circumstances at time of offer and attempted acceptance
3. Seasonable acceptance=Acceptance mailed any time before midnight day offer is received
(UNLESS language or circumstances indicate otherwise AND subject to §49)

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42 - Revocation by Communication from Offeror Received by Offeree

Back 18

Offeree's PofA terminates when he receives a MofI from offeror not to enter into proposed contract

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45 - Option Contract Created by Part Performance or Tender

Back 19

1. Option Contract=Offer invites Y to accept by rendering performance without a promissory acceptance AND
Y tenders, begins invited performance, tenders beginning of it
2. X's duty of performance conditional on completion or tender of invited performance as accords with offer's terms.

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50 - Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise

Back 20

1. Acceptance=Y Ms Assent in manner invited or required by X
2. Acceptance by Performance requires at least part of offer's request performed
(Some performance my operate as a return promise (see §62(2))
3. Acceptance by Promise requires Y complete every act essential to promise making (see §2, 4)

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54 - Acceptance by Performance; Necessity of Notification to Offeror

Back 21

1. If offer allows A by Perf, no notification needed to A unless offer requests such.
2. If Y hrtKnow X has no adequate means of learning of Perf w/ reasonable promptness and certainty, X's duty is discharged UNLESS
a. Y exercises reasonable diligence to notify X of A OR
b. X learns of Perf within reasonable time OR
c. Offer indicates notification of A is not required.

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62 - Effect of Performance by Offeree Where Offer Invites Either Performance or Promise

Back 22

1. If offer invites Y to choose AbyProm or AbyPerf, tender/beginning of Perf=AbyPerf
2. Such an A operates as promise to render complete Perf.

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69 - Acceptance by Silence or Exercise of Dominion

Back 23

1. If Y fails to reply to an offer, his silence and inaction operate as A only as follows:
a. Y takes benefit with reasonable opportunity to reject and rtKnow compensation was expected
b. X stated/gave rtUnderstand that silence/inaction=assent, AND Y by so doing intends to A
c. Due to prior dealing/etc, it is reasonable that Y should notify X if no intent to A
2. If Y does any act inconsistent with X's ownership of offered property, Then Y is bound by reasonable terms of offer.
BUt if act is wrongful against X, it is an A only if ratified by X

Front 24

71 - Requirement of Exchange; Types of Exchange

Back 24

1. To constitute consideration, a Prom/Return Prom must be bargained for
2. Perf/Return Prom is bargained for IF:
Sought by X in exchange for his promise AND
Given by Y in exchange for that promise
3. The Perf may consist of:
a. act other than a Prom
b. a forbearance
c. creation/modification/destruction of a legal relation
4. Perf/Return Prom may be given to/given by X/Y or some other person

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72 - Exchange of Promise for Performance

Back 25

Any performance which is bargained for is consideration
(but see §73, 74)

Front 26

82 - Promise to Pay Indebtedness; Effect on the Statute of Limitations

Back 26

1. A promise to pay all/part of prior K/quasi-K indebtedness owed by Y is binding IF indebtedness still enforceable OR would be, but for statute of limitations
2. Following operate as such a promise unless other facts indicate otherwise:
a. Vol. acknowledge of such debt to the obligee OR
b. Vol. transfer of money, etc. by Y to X as part payment/collateral for such debt
c. Statement to X that statute of limitations will not be plead as defense

Front 27

73 - Performance of Legal Duty

Back 27

Consideration ~= performance of a legal duty owed to a promisor
BUT perf. differing from the duty as to be more than a pretense of bargaining=consideration

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79 - Adequacy of Consideration; Mutuality of Obligation

Back 28

If there is consideration, no additional requirement of:
a. gain/loss, dis/advantage, benefit/detriment to promisor/promisee OR
b. equivalence in values exchanged OR
c. "mutuality of obligation"
82 - Promise to Pay Indebtedness; Effect on the Statute of Limitations 1. A promise to pay all/part of prior K/quasi-K indebtedness owed by Y is binding IF indebtedness still enforceable OR would be, but for statute of limitations

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83 - Promise to Pay Indebtedness Discharged in Bankruptcy

Back 29

If bankruptcy proceedings discharged debt, but thereafter X promises to pay Y that prior debt, it is binding

Front 30

86 - Promise for Benefit Received

Back 30

1. Promise made recognizing prior benefit from Y to X is binding to extent needed to prevent injustice
2. Promise not binding under (1):
a. if Y conferred benefit as gift or X was otherwise not unjustly enriched
b. to extent that value is disproportionate to the benefit

Front 31

89 - Modification of Executory Contract

Back 31

Promise modifying a duty under a K not fully performed on either side is binding
a. IF modification is fair & equitable given circumstances not anticipated at time of K OR
b. to extent provided by statute
c. to extent justice requires due to material change in position from reliance on promise

Front 32

90 - Promise Reasonably Inducing Action or Forbearance

Back 32

1. Promise which X should reasonably expect to induce action, and does induce is binding IF injustice can be avoided only be enforcement of the promise. Remedy may be limited as justice requires.
2. Charitable subscription or marriage settlement binding under (1) w/o proof that promise induced action

Front 33

110 - Class of Contracts Covered

Back 33

1. Classes of contracts subject to Statute of Frauds (enforcement requires written memo or applicable exception) includes:
Contract:
not to be performed within 1 year of making thereof
for Executor to answer for duty of decedent
to Answer for duty of another
made upon consideration of marriage
for sale of land
2. Following previously under Statute of Frauds but now under UCC Statute of Frauds:
Contract:
for sale of goods more than $500
for sale of securities
for sale of personal property more than $5000
3. UCC requires a writing signed by debtor for any agreement which creates security interest in personal property not in possession of the secured party
4. In most states, you can extend the Statute of Limitations only by agreeing in writing (payment of principal/interest is unaffected by any such statutes)
5. In many states, other classes of contracts are subject to a requirement of writing

Front 34

129 - Action in Reliance; Specific Performance

Back 34

Contract for transfer of land may be specifically enforced notwithstanding Statute of Frauds IF:
X, in reasonable reliance on contract and continuing assent of Y has so changed his position that only specific enforcement prevents injustice

Front 35

130 - Contract Not to be Performed within a Year

Back 35

1. If any promise in a K cannot be fully performed within a year from time of K, all promises in the K are within the Statute of Frauds until 1 P to the contract completes his performance
2. When 1 P has completed perf, the 1 year provision of the Statute does not prevent enforcement of the promises of the other

Front 36

131 - General Requisites of a Memorandum

Back 36

K w/in SofF is enforceable IF writing signed by "P to be charged" which:
a. reasonably identifies subject matter of K
b. sufficiently indicates that a K has been made between Ps
c. states w/ reasonable certainty essential terms of unperformed promises of K

Front 37

139 - Enforcement by Virtue of Action in Reliance

Back 37

1. Promise which X should reasonably expect to induce action and which does, is enforceable notwithstanding SofF if injustice prevented only by enforcement
2. In determining whether injustice prevented only by enforcement, consider:
a. availability & adequacy of other remedies (particularly cancellation & restitution)
b. definite & substantial character of action in relation to remedy sought
c. extent to which action/forbearance corroborates evidence of making/terms of promise or terms are otherwise established by clear and convincing evidence
d. reasonableness of the action/forbearance
e. extent to which action/forbearance was foreseeable by promisor

Front 38

152 - When Mistake of Both Parties Makes a Contract Voidable

Back 38

1. If both Ps make a mistake at time of K as to a basic assumption resulting in material effect on exchange of Perfs, contract is voidable by adversely affected P UNLESS he bears risk of mistake under §154
2. To determine whether mistake has a material effect, consider any relief by way of reformation, restitution, etc.

Front 39

153 - When Mistake of One Party Makes a Contract Voidable

Back 39

If P makes a mistake at time of K as to a basic assumption which has a material effect on agreed exchange of Perfs that is adverse to him, contract voidable if he does not bear risk of mistake under §154 AND
a. effect of mistake is such that enforcement would be unconscionable OR
b. other P had reason to know of mistake, or his fault cause mistake

Front 40

154 - When a Party Bears the Risk of a Mistake

Back 40

A P bears risk of mistake when:
a. risk is allocated to P by agreement of the Ps OR
b. at time of K, P is aware of his limited knowledge w/ respect to facts to which the mistake relates, but finds it sufficient OR
c. risk is allocated to P by court on ground that it is reasonable in circumstances to do so.

Front 41

161 - When Non-Disclosure is Equivalent to an Assertion

Back 41

X's non-disclosure of known fact is equivalent to assertion fact doesn't exist ONLY where:
a. X knows disclosure of the fact is necessary to prevent some prior assertion from being a misrepresentation, or from being fraudulent or material.
b. X knows disclosure would correct mistake of Y as to basic assumption of contract AND IF non-disclosure amounts to failure to act in good faith and fair dealing
c. X knows disclosure would correct mistake of Y as to contents/effect of writing of agreement
d. Y is entitled to know the fact because of relation of trust & confidence w/ X

Front 42

162 - When a Misrepresentation is Fraudulent or Material

Back 42

1. Misrepresentation is Fraudulent IF X intends his assertion to induce Y to manifest assent and X:
a. knows/believes that assertion does not accord with facts OR
b. does not have confidence he states/implies in the truth of the assertion OR
c. knows he does not have basis that he states/implies for assertion
2. Misrepresentation is material IF it would likely induce a reasonable person to manifest assent or if X knows it will be likely to induce THIS person manifest assent.

Front 43

163 - When a Misrepresentation Prevents Formation of a Contract

Back 43

If a misrepresentation of character/essential terms of a proposed contract induces Y to "manifest assent" but Y doesn't know/hropportunityKnow of character/essential terms of proposed conduct, then Y's conduct is not a MofA

Front 44

164 - When a Misrepresentation Makes a Contract Voidable

Back 44

1. If Y's MofA is induced by a fraudulent/material misrepresentation (which Y can justifiably rely on) by X, then contract voidable by Y
2. If Y's MofA is induced by a fraudulent/material misrepresentation (which Y can justifiably rely on) by a 3d P, then contract is voidable by Y
UNLESS 3d P in good faith/w/o rtKnow of misrepresentation gives value/materially relies on the transaction

Front 45

175 - When Duress by Threat Makes a Contract Voidable

Back 45

1. If Y's MofA is induced by improper threat by X that leaves Y no reasonable alt., then K is voidable
2. If Y's MofA is induced by improper threat by 3d P that leaves Y no reasonable alt., then K is voidable UNLESS 3d P in good faith/w/o rtKnow of duress gives value/materially relies on transaction

Front 46

176 - When a Threat is Improper

Back 46

1. Threat is improper IF:
What is threatened is:
a. a crime/tort, or threat itself would be if it obtained property OR
b. criminal prosecution OR
c. use of civil process & threat is made in bad faith
OR d. Threat is breach of duty of good faith/fair dealing under a contract with Y
2. Threat improper if resulting exchange not on fair terms &:
a. threatened act would harm recipient and not significantly benefit X
b. effectiveness of threat in inducing MofA is significantly increased by prior unfair dealing by X
c. what is threatened is otherwise a use of power for illegitimate ends

Front 47

201 - Whose Meaning Prevails

Back 47

1. If Ps attached same meaning to promise/agreement/term thereof, it is interpreted with such
2. If Ps attached diff. meaning, it is interpreted in accord w/ meaning attached by Y, if at time of K:
a. Y did not know of any different meaning attached by X, and X knew meaning attached by Y
b. Y had NO rtKnow of any diff. meaning attached by X, and X hrtKnow meaning attached by Y
3. Except as above stated, Neither P bound by meaning attached by other, even though failure of mutual assent may result

Front 48

225 - Effects of the Non-Occurrence of a Condition

Back 48

1. Perf. of duty subject to condition cannot be due unless condition occurs/its non-occurrence is excused
2. Unless it has been excused, a condition which never occurred & can no longer discharges duty
3. Non-occurrence of a condition is not breach by P UNLESS P is under duty that condition occurs

Front 49

227 - Standards of Preference w/ Regard to Conditions

Back 49

1. If there is doubt as to whether an event is a condition of obligor's duty, an interpretation is preferred that will reduce obligee's risk of forfeiture, UNLESS event is within Ee's control or circumstances indicate he has assumed the risk
2. Unless contract is type which only 1 P generally undertakes duties
First interpretation is preferred if event is within Ee's control and it is doubtful whether:
a. duty is imposed on Ee that an event occur OR
b. Event is made a condition of oR's duty OR
c. Event is made a condition of oR's duty and a duty is imposed on Ee that event occur
3. In case of doubt, interpretation under which event is a condition of oR's duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform

Front 50

253 - Effect of a Repudiation as a Breach and on Other Party’s Duties

Back 50

1. If Obligor repudiates a duty before committing a breach by non-Perf. and before receiving all of agreed exchange, the repudiation alone gives rise to a claim for damage for TOTAL breach
2. If Perfs are to be exchanged, 1 P's repudiation of duty to Perf discharges other's remaining duties to Perf

Front 51

265 - Discharge by Supervening Frustration

Back 51

After time of K, if Y's principal purpose is substantially frustrated by an event's occurrence, without Y's fault, and the nonoccurrence of that event was a basic assumption of the K, Y's remaining duties to Perf are discharged UNLESS language/circumstances indicate the contrary.

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344 - Purpose of Remedies

Back 52

Remedies serve to protect one or more of following interests of Y:
a. Expectation interest=as good a position as if K Perf
b. Reliance interest=reimbursed for loss caused by reliance - as good as if K not made
c. Restitution interest=restore (receive back) any benefit Y conferred to X

Front 53

349 - Damages Based on Reliance Interest

Back 53

As alternative to §347, Y has right to damages based on reliance interest, including:
Expenditures made in/in preparation for Perf, less any loss X can prove with reasonable certainty Y would have suffered had K been Perf

Front 54

370 - Requirement that Benefit be Conferred

Back 54

Y is entitled to restitution only to extent that Y has conferred a benefit on X by way of past Perf or reliance

Front 55

371 - Measure of Restitution Interest

Back 55

If sum of money is awarded for restitution, it may be measure by:
a. reasonable value of what it would have cost X to obtain it from a P in Y's position OR
b. extent to which X's property has increased in value or X's other interests advanced

Front 56

373 - Restitution when Other Party is in Breach

Back 56

1. On non-performance giving rise to claim for damages for total breach (see §253) or repudiation, injured P is entitled to restitution for ANY benefit he has conferred on X by way of part Perf or reliance (subject to rule below)
2. Injured P has no right to restitution if he has completed Perf and X only needs to pay a definite sum of money

Front 57

374 - Restitution in Favor of Party in Breach

Back 57

1. If P justifiably refuses to perform on ground that remaining duties of Perf have been discharged by X's breach, X is entitled to restitution for any benefit X has conferred by way of part Perf or reliance in excess of the loss that X caused by his own breach
2. If Ps manifested assent that a P's performance is to be retained in case of breach, that P is not entitled to restitution if value of Perf as liquidated damages is reasonable in light of anticipated/actual loss caused by the breach and the difficulties of prof of loss

Front 58

Third - 39 - Profit Derived from Opportunistic Breach

Back 58

1. If breach is both material & opportunistic, injured Y can claim restitution for profit realized by X as result of breach. Liability in restitution w/ disgorgement of profit is alternative to liability for contract damages measured by injury to Y.
2. Breach is opportunistic if:
a. breach is deliberate AND
b. breach is profitable by test of subsection (3) AND
c. Y's right to recover damages for breach affords inadequate protection to Y's contractual entitlement.
In determining the adequacy of damages for this purpose, damages are ordinarily:
i. an adequate remedy if they can be used to acquire a full equivalent to promised Perf in a substitute transaction AND
ii. an inadequate remedy if they cannot be used to acquire a full equivalent to the promised Perf in a substitute transaction
3. Breach is Profitable when: it results in gains to defaulting promisor (net of potential liability in damages) greater than the promisor would have realized from performance of the contract
(essentially, if it is an EFFICIENT breach (but only if the P GAINS from the breach, not if it just results in less loss))

Front 59

Expectation interest

Back 59

Put in as good a position as if K were Performed

Front 60

Reliance interest

Back 60

Reimbursed for loss caused by reliance - put in as good of position as if K not made

Front 61

Restitution interest

Back 61

Receive back (restore) any benefit Y conferred to X