Contract Skeleton 2a3j6

Theories of Obligation Consideration – the predominant theory a. Informs us that the parties entered into an agreement b. Court is able to determine what was in the contract and whether the person who made the promise intended for the promise to be enforced 2. A bargained for exchange 3. The exchange must be sufficient but need not be adequate a. Sufficient – promisor and promisee must get and give a something i. Both parties must act 1. Gratuitous promise does not equal consideration ii. See also Mutuality of Obligation b. What is a something i. A return promise (bilateral contract) ii. Performance (unilateral contract) c. Need not be adequate i. Peppercorn theory 4. Bargained for requires reciprocal inducement a. The promise need not inquire as to the promisor’s motivation 5. The bargain is one where each party incurs a legal detriment a. Legal benefit to promisor = legal detriment to promisee i. We might not be able to tell what the benefit was but the court doesn’t care – we assume the benefit is that the promisor got whatever he wanted b. Legal detriment i. Doing or promising to do (or forbearing) something one was not legally obligated to do c. Preexisting duty rule i. One who promises to do something that he was already legally obligated to do = no legal detriment 6. There must be mutual obligation a. Both parties must be bound or neither party is bound b. Can be saved on good faith i. What appears to be non-mutual can be upheld if one can infer that the parties intended an implied promise c. Satisfaction clause – where contracts make duty of performance of one of the parties conditional upon his satisfaction, the contract may still be given effect i. Objective test – if satisfaction of commercial value or quality is required then dissatisfaction cannot be claimed arbitrarily or unreasonably – reasonable person standard ii. Good faith test – if satisfaction of fancy, taste or judgment is required then dissatisfaction must be restrained by good faith d. Mutuality does not require equivalence, only that each party has an obligation under the contract 7. Bargained for exchange vs. condition for a gift a. Fact sensitive inquiry i. Condition: move here, you can stay in my empty house ii. Consideration: move here because I need a house and pet sitter while I go away, you can stay here without paying rent b. Will the happening of the condition benefit the promisor? c. Where the promisee has incurred some detriment on the faith of the promise the court is less likely to view it as a condition/gratuitous promise 8. Remedies available

a. Lost expectancy damages – puts P in the position they would be in had there been full performance i. Damages for incomplete performance where cost of performance greatly exceeds diminution in value resulting from the breach 1. Cost performance rule – where the performance is incomplete, the loss in value will ordinarily be measured by the cost to complete 2. Rejection of cost performance rule – where the economic benefit which would result from full performance of the work is grossly disproportionate to the cost of performance then the damages recoverable are limited to diminution in value resulting to the premises because of non-performance (P gets greater benefit from breach than could be gained from full performance) ii. Damages for incomplete performance where non-breaching party subsequently covers with a new contract 1. Cover is a manifestation of mitigation of damages 2. Rule – the non-breaching party will be able to recover the difference between the original contract and the cover contract from the breaching party to the degree that the replacement contract covers the same work as the original contract (P can only recover what it has cost him to complete the same work as called for in the original contract) 3. UCC and cover costs a. Damages for non-delivery by seller = difference between the market price when the buyer learned of the breach and the contract price with any incidental or consequential damages b. After breach the buyer may cover by making in good faith and without unreasonable delay any reasonable purchase or contract to purchase goods in substitution – buyer may recover difference between cost of cover price and original contract plus any consequential damages c. Damages for non-acceptance of buyer is difference between the market price at the time and place for tender and the unpaid contract plus incidental damages – if this is inadequate to put seller in as good a position as performance, then the measure of damages is profit which the seller would have made from full performance plus consequential damages allowance for costs incurred and credit for resale d. Incidental damages – include any commercially reasonable charges, expenses, commissions in connection with stopping delivery and return or resale of goods iii. Other issues for awarding expectancy damages for failed performance 1. Value of performance is the value to the non-breaching party 2. Recovery for mental distress – where the contract breached is a personal agreement involving matters of mental concern damages for emotional suffering are recoverable (Stewart rule) 3. Calculation for damages ceases at the point of the breach 4. Damages for incomplete performance where the non-breaching party is the buyer and does not cover = difference between the market price at the time the buyer learned of the breach and the

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contract price minus expenses saved by the non-breaching party (buyer) Recovery for lost profits 1. In order to award lost profits there must be a reasonable way to calculate lost profits a. Where there is a contract price it is easy to calculate lost profits 2. Volume sale – to people who have an unlimited supply of standard priced goods a. New business rule – harder to prove because no past history Recovery for consequential damages 1. General damages – those that everyone suffers from breach 2. Special/consequential damages – those that are unusual, idiosyncratic, and particular to a certain party 3. Rule of certainty and foreseeability – damages must be foreseeable by the breaching party a. Natural and probable result of breach b. Consequence of special facts and circumstances relating to the specific transaction they are not recoverable unless at the time of contracting the breaching party had reason to know of these special facts and circumstances and thus they were foreseeable Expectancy recovery and mitigation of damages 1. Rule – when a contract is breached the non-breaching party has an affirmative duty to take reasonable steps to mitigate his damages 2. Wrongful discharge – measure of recovery by a wrongfully terminated employee = the amount of salary agreed upon for the period of service minus the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned a. Employer must show that the other employment was comparable or substantially similar to that which the employee was deprived – failure to seek employment of different or inferior kind may not be resorted to in order to mitigate damages b. Courts won’t hold non-breaching party to mitigation of damages where the only (or least damaging) alternative is to accept another contract from the breaching party Expectancy and efficient breach – still a breach but interests of nonbreaching party are fully compensated and the breaching party is still better off than had it performed Damages for defective performance 1. Rule – where performance is defective the proper measure of damages should be the cost to correct the defect a. Sub-rule – where correcting the defect would be economically wasteful the owner will ordinarily be limited to the diminished market value of the structure (unless it involves safety – then the cost to correct will be recoverable)

b. Contracts with liquidated damages clauses – parties to a contract may negotiate specific damages to be paid in event of breach i. Where effectively crafted, liquidated damages are the only damages that can be recovered 1. Harm that is caused is one that is incapable of or very difficult to estimate 2. Amount stipulated is a reasonable forecast of the just compensation for the harm (if it’s the same no matter how big or small the breach then on its face its unreasonable) a. If liquidated damages clause much higher than actual damages then might use actual damages to show the unreasonableness of the forecast – but this challenges the necessity for having a liquidated damages clause in the first place ii. Liquidated damages clause is deemed a penalty if it is void iii. Liquidated damages may be awarded in absence of actual damages in some jurisdictions c. Reliance damages as an alternative remedy where there is a breach of contract with consideration – puts P in the position she was in before the contract was entered into i. Sometimes in an agreement with consideration we won’t be able to tell what expectancy would have been – in that case reliance is an appropriate measure of damages 1. Only going to award reliance if the reliance damages are foreseeable to the breaching party ii. P can recover any expenses incurred between the g of the agreement and the breach of the agreement that are proven iii. Reliance and losing contracts 1. We are not going to put the non-breaching party in a better position than they would have been in had there been full performance 2. Rule – the promisee may recover his outlay in reliance subject to the privilege of the promisor to reduce it by as much as he can show that the promisee would have lost, if the contract would have been fully performed iv. Recovery of overhead in reliance measure of recovery 1. Can only get overhead where an alternate contract could have been obtained d. Specific performance where damages not available – applicable where damages won’t compensate you for the breach i. Land is always unique ii. Anything weird iii. Family heirlooms, etc. iv. Courts will not order a particular individual to do something (no specific performance for personal service contracts) but can order him not to do something v. Courts will not order specific performance if it is impossible to make sure performance happens vi. Buyer must demonstrate that the item is unique vii. Specific performance is the entire remedy – can’t get damages too! Promissory Estoppel 1. Restatement § 90 – promise reasonably inducing definite and substantial action

a. It must be foreseeable that the promise will induce action b. Person must have relied to his detriment – adverse consequences such that justice cries out for enforcement c. Reliance requires you were doing something you wouldn’t have otherwise been doing without the promise d. Reliance does not require the same mutuality component as consideration 2. 2 theories of reliance a. Reliance as a substitute for consideration that creates a contract i. You can tell what the contract would have been ii. If you can’t tell expectancy recovery, then you don’t have enough to say there’s a contract b. Reliance that does not create a contract but estops the promisor from denying a promise was made i. Red Owl – here there was clearly no contract only contract negotiations and we can’t tell based on P’s reliance what the contract would have been but we can award reliance measure of damages 3. Common situations of promissory estoppel a. A contract has not been fully executed but one party has acted b. Indefinite contracts – there exists a contract but the are too vague to actually be enforced i. Where the promisee has failed to bind the promisor to a legally sufficient contract but has acted in reliance upon a promise to his detriment the promisee is entitled to recover reliance damages measured by the detriment sustained c. Preliminary contract negotiations – where one party encourages the other to engage in activities that would facilitate entering into a contract but which would be detrimental to such a party if the transaction is not in fact consummated (Red Owl) i. Rule – to recover on a theory of promissory estoppel the promise giving rise to the cause of action need not be so comprehensive in scope as to meet the requirements of an offer that would ripen into a contract if accepted by the promisee d. Intra-family promises e. Letters of intent f. Offers that become irrevocable 4. Remedy a. Expectancy available where reliance creates a contract b. Reliance: available where reliance doesn’t create a contract i. Rule – one who by his acts or language leads another to do something he would not otherwise have done shall not subject that person to loss or injury Unjust Enrichment 1. Restatement: a person who has been unjustly enriched at the expense of another is required to make restitution to the other 2. Almost never leads to the formation of a contract 3. Ps are often the breaching party 4. Restitution may lead to recovery for gratuitous promises 5. There must be both unjustness and enrichment a. Benefit conferred b. Unjust for the recipient to keep the benefit conferred i. The amount awarded to P for D’s unjust enrichment must also take into any benefit to P

ii. It will be difficult to obtain restitution where the court is unable to value the unjust benefit iii. Rules: 1. Where one retains good received in part performance of a contract a promise to pay for them is ordinarily implied since he has the option either to pay for or return them a. Example: someone agrees to send you 20 books then only sends you 10 – they have breached the contract but if you don’t send them back you have accepted the benefit and must pay 2. Where work has been done upon one’s land the benefit cannot be returned and acceptance of the benefit cannot be implied from retention of the possession of the land 3. Where the contract is to labor from day to day for a certain period the party for whom the labor is done accepts it day to day even though the full period of time may never be completed there is necessarily an acceptance of what was already done – party accepting the labor will have to pay for the work done iv. Sometimes restitution can afford P a recovery for a gratuitous promise 1. General rule – courts will allow D to retain a benefit without compensating P where the benefit was given gratuitously without expectation of payment a. Overcoming the characterization as a gratuitous promise i. Behavior of the party doesn’t look gratuitous ii. Use a contract that although not enforceable demonstrates not gratuitous 1. Land contract that does not meet statute of frauds can still be used to show that it was not gratuitous v. Even where there is a contract, the non-breaching party may choose to sue under a quantum meruit theory 1. But the court is still going to look at the contract to dictate recovery vi. The court will still try to protect the non-breaching party first in any unjust enrichment case 1. Ex: if the court finds that the breaching party can recover for the value of services conferred the non-breaching party can sue for damages first and the value of any benefit conferred by the breaching party will be deducted from the non-breaching party’s award 2. Ex: where P paid $1070 of $1500 purchase price to D and where D then resold for $1300 P is entitled only to the difference in original purchase price and cover purchase price ($200) and D recovered the remaining $870 vii. Remedy – restitution: P awarded the value of any benefit conferred on D 1. Most often see restitution damages where a. No contract but a benefit conferred b. Losing contract situation where P is the non-breaching party i. Don’t have to sue under contract because the other party has breached it – “with the breach falls the rest of the contract”

1. As a result the contract is no longer a ceiling on recovery ii. Restitution = first choice when you are in a losing contract situation 2. How do we value what has to be given back? (options) a. What it would cost to get someone else to do the work b. Extent to which the other person’s property has increased in value as a result of the work 3. Restitution is not available where there has been full performance a. Cant sue in restitution for a losing contract if no breach occurred Promises for Benefit Received (Moral Obligation, Past Consideration) 1. Promise for payment/exchange is made after the benefit has been conferred on the promising party a. The subsequent promise to pay operates as an acceptance of the benefit conferred 2. Rule – a moral obligation is sufficient consideration for an express promise in cases where at some time or other a good or valuable consideration existed 3. Rule – where the promisee cares for, improves, and preserves the property, even without the promisor’s request it is sufficient consideration for the promisor’s subsequent agreement to pay when there was a material benefit received a. P saves man’s life and is crippled as a result. The man pays P for his efforts until he dies but then his executor (D) refuses to continue to pay. The court found this promise enforceable for 3 reasons: i. Benefit received is material 1. Saving a man’s life is always material 2. Services that are beneficial and not intended to be gratuitous 3. Humanitarian acts are not material ii. Something he would have requested if he could have iii. Prior obligation – the benefit to the man and the injury to P was sufficient prior obligation for the man’s agreement to pay Tort 1. Situations where the non-breaching party can get punitive damages a. Promissory Fraud – the promisor did not intend at the time of promising to perform her promise b. Where the breach of the contract is an independent tort 2. Contract and tort merge where the content of the contract is set by tort a. Rule – breach of a contract amounting to a failure to perform in accordance with its does not constitute a tort and the aggrieved party must proceed in contract b. Rule – when a contract imposes a legal duty on a party which duty exists apart from the specific contract, the neglect of the duty is a tort and in such an instance P may elect to sue for breach of contract or in tort i. Legal duty? 1. Statutory enactment or legislature 2. Any duty imposed by common law ii. Common examples of where legal duties implied in contract 1. Principal/agent 2. Bailor/bailee 3. Attorney/client 4. Physician/patient

5. Performance of skilled services (architectural, engineering, mechanical) Statutory Warranty 1. 3 kinds of warranties that can arise out of the sale of goods a. Express warranty i. Created by affirmation of fact, promise, description of the goods or any sample or model that has become part of the basis of the bargain for the sale of goods but any statement purporting to be the seller’s opinion of commendation of the goods does not create a warranty 1. Affirmation of fact vs. statement of opinion a. Rule – statements made during the course of negotiation of contract are presumptively affirmations of fact unless it can be demonstrated that the buyer could only have reasonable considered the statement to be one of opinion b. Factors indicating an opinion statement i. Lacks specificity ii. Made in equivocal manner iii. Reveals the goods are experimental c. But the court is never going to allow a statement of safety to be treated as puffing – always going to be treated as affirmation of fact 2. Basis of the bargain test a. Rule – buyer does not have to rely on the warranty to prevail in breach of warranty b. Rule – a warranty statement made by a seller is presumptively part of the basis of the bargain, and the burden is on the seller to demonstrate that the bargain does not rest at all on that representation c. Rule – where the seller demonstrates that the buyer has knowledge of the true condition prior to the making of the contract, he might sufficiently prove that the statement was not relied upon for part of the bargain b. Implied warranty of merchantability i. Exists in all sales by a seller who is a merchant with respect to the goods of that kind – accompanies all products sold ii. Means that the goods will without objection in the trade and are fit for the ordinary purpose for which such goods are used c. Implied warranty of fitness for a particular purpose i. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods there is an implied warranty that the goods shall be fit for such purpose ii. Applies to transactions between anybody iii. Usually comes up in unusual situations 1. Example: your neighbor wants to borrow your lawnmower to use as a golf cart motor iv. Very fact sensitive – must demonstrate 1. The buyer has a particular purpose in mind for the goods 2. The seller has reason to know of this particular purpose 3. The buyer relies on the seller’s skill or judgment to furnish goods suitable for the purpose

4. The seller must know or have reason to know that the buyer is relying on his skill and judgment

Statute of Frauds What is it? 1. A formal requirement for the enforceability of agreements a. For certain classes of s we require that the contract be i. In writing ii. Signed by the party against whom enforcement is being sought (usually D) b. These requirements are in addition to finding a bargain i. Example: a writing to satisfy the statute of frauds does not dispense with P’s obligation to prove offer, acceptance, and consideration c. An agreement is either i. Within the statute of frauds ii. Within the statute of frauds but covered by an exception 1. Leading object/main purpose rule 2. Reliance 3. Full performance a. Promise not to be performed within one year may be removed from statute of frauds if one party has fully performed iii. Not within the statute of frauds 2. Traditional transactions to which it applies? a. Charge a personal representative, upon any special promise to answer for damages out of the own personal representative’s estate b. A special promise to answer for the debt, default, or misdoings of another i. Exception: Rule – where the leading object of the promisor is to serve some interest of his own, notwithstanding the effect to discharge the debt of another, it is not within the statute of frauds 1. Based on the totality of the circumstances surrounding the transaction, what was the intent, purpose, and object of the promisor – was the promise mainly desired for the promisor’s benefit? c. An agreement made in consideration of marriage d. An agreement for the leasing of real property for longer than 1 year or for the sale of real property or of an interest therein e. An agreement that by its is not to be performed within a year from the date it is made i. Time is measured from the time of the making of the agreement, not from the date performance is scheduled to begin ii. Exception: Restatement: if reliance then the contract will be enforceable notwithstanding the statute of frauds if injustice can be avoided by enforcements of the promise – the following circumstances are significant: 1. Availability and adequacy of other remedies 2. Definite and substantial character of the action or forbearance in relation to the remedy sought 3. Extent to which the action or forbearance corroborates evidence of the making and of the promise 4. The reasonableness of the action or forbearance 5. The extent to which the action or forbearance was foreseeable by the promisor

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Note: close to § 90 but the requirement of consideration via reliance is more easily displaced than the requirement of writing f. An agreement that by its is not to be performed during the lifetime of the promisor 3. UCC Requirements a. Contract for sale of goods for price of $500 or more is not enforceable unless there is a writing to indicate contract for sale has been made

Offer and Acceptance Primary concern – what did the parties intend? 1. There must be a meeting of the minds – both parties must agree to the same thing in the same sense a. Party is bound by objective manifestation of intent i. Law imputes to a person an intention corresponding to the reasonable meaning of his words and acts – it is immaterial what is his real but unexpressed state of mind ii. Objective manifestation may be undercut by actual knowledge of a party’s intent 2. Best way to determine party intent? – Look at the contract! a. Sometimes the contract won’t be enough i. Peerless case (buyer didn’t know there were 2 ships named Peerless) b. So then – courts will hear evidence as to what the parties meant i. Example: a price quote plus surrounding circumstances may lead a reasonable person to believe there was an offer 3. Effect of misunderstanding – Restatement § 20 a. There is no manifestation of mutual assent if the parties attach materially different meanings to their manifestations and i. Neither party knows or has reason to know the meaning attached by the other (Peerless) ii. Each party knows or each party has reason to know the meaning attached by the other b. The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if i. That party does not know of any different meaning attached by the other and the other knows the meaning attached by the 1st party ii. That party has no reason to know of any different meaning attached by the other and the other has reason to know the meaning attached by the 1st party iii. Effectbind the party with superior knowledge 1. There will be a contract and it will be the contract that the party that does not know thinks it is Offer 1. An offer generates the power of acceptance 2. Where there is no offer there can be no acceptance a. Court will look at whether the offeror’s conduct and words would warrant a reasonable person to believe that the offeror intended a real agreement 3. Where the offer contains a mistake a. Rule – where a party knows that there is a mistake in the offer they do not have the power to accept the offer b. If the mistake is not made known to P until after he has already relied on the mistake (post-acceptance) then the mistake can no longer be corrected by the offeror 4. If something is not an offer it might be…

a. Invitation to receive an offer i. Doesn’t generate the power to accept ii. Response – offer by another party (response is the offer) iii. Then, acceptance by original party who invited offers iv. How to distinguish between offer and counteroffer? 1. Even if something says it’s a price quotation, where it calls for immediate acceptance that language suggests that it is a present offer that will close the contract when immediately accepted 2. $100 or best offer a. $95 = counteroffer b. $100 = acceptance b. Nothing 5. An offer can be revoked at any time before acceptance unless it’s an option contract 6. Offers to enter into a unilateral contract a. In order to accept a unilateral offer you must perform 7. Offers vs. ments a. Rule – generally where goods are d for sale at a certain price, it is not an offer and no contract is formed – such an ment is merely an invitation to bargain rather than an offer b. Rule – the test for whether a binding obligation may originate in ments addressed to the general public is whether the facts show that some performance was promised in positive in return for something requested Acceptance 1. What acceptance does an offer call for? a. The offeror is the master of the offer and can specify the of acceptance i. Rule – if the offeror prescribes an exclusive manner of acceptance an attempt on the part of the offeree to accept the offer in a different manner does not bind the offeror in the absence of a meeting of the minds on the altered type of acceptance ii. Rule – if the offer requests a return promise and the offeree without making the promise actually does or tenders what he was requested to promise to do there is a contract is such performance is tendered within the time allowable for accepting by making a promise iii. Rule – silence doesn’t satisfy acceptance unless the offeror had stated that assent may be manifested by silence, or may if there is some industry standard (book of the month club) iv. Does the offer call for performance or return promise? 1. In case of doubt – presumed that an offer calls for a return promise by the offeree to perform what the offer requests rather than actual performance (presume bilateral contract) 2. If offeree begins performance instead of return promise then it is acceptance if the offeror was aware of said performance b. Improper acceptance = no acceptance i. But the offeree must be made known the mode of acceptance c. Where the offer does not specify how acceptance is to occur it must be in any manner and by any medium reasonable in the circumstances d. Offeree must communicate his acceptance to the offeror before any contractual obligation comes into the being – intent is not sufficient i. Partial performance can operate as acceptance (buying materials to begin work) but the offeror must know that you have begun performance in order for it to operate as acceptance 2. Acceptance with conditions – can be

a. Acceptance – where the person conveys they would accept even if the other person denies the grant of conditions then it is still an acceptance i. Acceptance must be clearly independent of the condition b. Counteroffer – where conditions are so powerful such that the seller doesn’t think that the buyer will buy without them i. Counteroffer creates the power of acceptance in the original offeror 3. An offeree’s power of acceptance may be terminated by a. Rejection by the offeree b. Counteroffer by the offeree c. Lapse of time i. Rule – offer must be accepted within reasonable amount of time 1. Measured from the offeree’s position – what time would be thought satisfactory to the offeror by a reasonable man in the offeree’s position 2. Question of fact where the answer is dependent on many circumstances which do not continually recur 3. Question of law in commercial transactions that happen in the same way day after day and where the time taken is so clearly reasonable or unreasonable that there is no doubt as to the proper answer 4. Mailbox rule: a. Offer is made when it is received by the offeree b. Acceptance occurs when it is placed in the mail i. But offeror can protect himself by putting in the offer that it is not effective until receipt of the acceptance ii. Rule for conversational offers – an offer made by one to another in a face to face conversation is deemed to continue only to the close of the conversation and cannot be accepted thereafter unless the surrounding circumstances indicate that the offer is intended to continue beyond the immediate conversation d. Revocation of the offer (by offeror) i. An offer can be revoked at any time before acceptance 1. An offeree’s power of acceptance is terminated when the offeree receives from the offer a manifestation of an intention not to enter into the proposed contract 2. Saying you have until a certain date to respond is in absence of consideration just a bare promise 3. Generally revocation must be received before the offeree’s power of acceptance is terminated a. Exception: reward type cases where offer and revocation are via publication – where the person who performs doesn’t see the revocation publication the revocation is still effective ii. Exception: option contract 1. An option contract is a contract in which an offeror has made an enforceable promise not to revoke the offer 2. Amount paid for option has little to no significance – impossible to put a value on options so we let the parties value it 3. Offer to enter into a unilateral contract – where the offer invites acceptance by performance an option contract is created when

the offeree begins performance (beginning of performance operates as consideration) a. Right to revoke before full performance is lost in the name of fairness b. Once performance has begun the offeror can’t make full performance impossible but if offeree does not complete through no fault of the offeror the offeree can’t recover c. But if offeror doesn’t know performance has begun he can still withdraw 4. Reliance as consideration for an option contract a. An offer which the offeror should reasonably expect to induce reliance before acceptance (and does) is binding as an option contract to the extent necessary to avoid injustice 5. Mailbox rule for option contracts – 2 approaches a. Restatement approach: i. An acceptance under an option contract is not operative until received by the offeror b. Worms v. Burgess approach – same mailbox rule as usual 4. Parol Evidence Rule – oral evidence is not issible to change written of an agreement (or evidence outside the contract itself) – however, you can let in evidence if it shows ambiguityit gives the contract meaning a. The ambiguity makes the court decide that there is no way to tell so therefore there is no contract

Policing Problems Procedural Problems – nature of consent, problems with assent Substantive Problems – content of the contract Duress 1. Test – has the person complaining been constrained to do what he otherwise would not have done? 2. Rule – there must be some compulsion/coercion which controls the conduct of the party making the payment – some threatened exercise of power or authority over his person or property which can be avoided only by making the payment 3. Rule – threat to refuse performance of a contract is not duress 4. Rule – where the source of duress is not from one of the parties but from state of circumstances defense of duress is not available