CONTRACTS 2

ALWAYS ASSUME A K HAS ALREADY BEEN FORMED

CONDITION – is an event, the occurrence or nonoccurrence of which determines if or when a party
must perform.

TYPES OF CONDITIONS
• Express
• Implied in Fact
• Constructive

• Mere passage of time is NOT a condition.

• A condition cannot be breached; it fails.
• The court can infer the parties intent concerning the order of performances from their:
o Conduct
o Surrounding circumstances
o Sense of contract (implied in fact condition)

EXPRESS CONDITIONS
• condition on which the parties have agreed explicitly or implicitly.
• When a party’s duty is subject to an express condition, strict compliance with the condition is
ordinarily required before the performance will be due.

Condition v Promise
Promise – also called a covenant, a contractual undertaking, breach of which leads to liability for
damages or equitable relief.
• Where it is doubtful whether words create a promise or an express condition, they are usually
interpreted as creating a promise, thereby avoiding forfeiture.
o Words of CONDITION are “provided that”, “on condition,” “is not liable”,” “shall
be void,” “shall be a condition,” “as soon as,” and “after.”
o Words of PROMISE are “promise to”, “agree to”, “shall/ not (do something)”, “is/
not to do (do something)”,

Guidelines to distinguish Condition from Promise

1. Construe to avoid forfeiture
2. Construe the clause against the drafter.
3. When in doubt make it a promise.
4. Don’t construe as condition unless language requires.

Forfeiture – the resulting denial of compensation where the nonoccurrence of a condition of an

obligor’s duty causes the Oee to lose his right to the agreed exchange after he has relied substantially on
the expectation of that exchange, by preparation or performance.
Elements of forfeiture
• Nonoccurrence of condition
• Oee loses right to exchange
• Oee relied on exchange by performance of preparation

§ 261 Interpretations of Doubtful Words as Promise or Condition

Where it is doubtful whether words create a promise or an express condition, they are interpreted
as creating a promise; but the same words may sometimes mean that one party promises a performance
and that the other party’s promise is conditional on that performance.
 • In resolving doubts as to whether an event is made a condition of an obligor’s duty, an
interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is
within the obligee’s control or the circumstances indicate that he has assumed the risks.
• The provisions of a contract will not be construed as conditions precedent in the absence of
language plainly requiring such construction.
o HOWARD v. FEDERAL CROP INSURANCE CORP, Federal Crop Insurance Corp.
D claimed that Howard's violation of a condition precedent negated its obligation to
pay. , the offending clause did not specify that Howard's D agreement not to destroy
evidence of an asserted claim constituted a condition precedent to FCIC'S D obligation
to pay. Thus, a condition precedent will generally not be found. accordingly, summary
judgment in FCIC's D favor was improperly granted. Reversed and remanded.
• The nonoccurrence of a condition prevents the promisee from acquiring a right or deprives him
of one but subjects him to no liability.
• Promissory condition – when an event is both a promise and condition, you don’t get the agreed
exchange but must pay damages.
o JONES ASSOCIATES v. EASTSIDE PROPERTIES; After Jones prepared a
feasibility study and plat application for Eastside's property, the parties disputed
whether payment to Jones was conditioned on approval of the plans by the county. The
language of the agreement between Jones and Eastside is ambiguous. The approval of
the county was out of the control of both of the parties. Therefore, since there was no
evidence that Jones assumed the risk of disapproval, and nonperformance by Eastside
would result in forfeiture to Jones , the provision should be interpreted as a promise.
Jones is entitled to performance under the contract as long as it can prove that the
necessary requirements were performed. Reversed and remanded.

Implied Conditions
• A breach of an implied condition in a contract between master and servant may, as a matter of
law, justify voiding the contract.
o BRIGHT v. GANAS; Ganas was to have received $20,000 under a testamentary
contract with his employer, Darden, conditioned on Ganas's serving the employer
faithfully until Darden's death. Upon Darden's death his executor, Bright , refused to
award Ganas the $20,000 on the theory that Ganas had not served Darden faithfully.
There are cases so flagrant and manifestly contrary to the implied conditions arising from
the relationship between master and servant that they can be decided by the court as
matters of law. This is such a case. Reversed.

Conditions Precedent - v - Conditions Subsequent

• Conditions Precedent – Duty Condition must occur before performance is due.
o If condition occurs performance is due.
o Triggers liability
o Burden of Proof on P
o Example: Agreement to buy Blackacre for $100,000 unless zoning is changes. If zoning
is changed, no duty to pay $100,000 or transfer deed.

o Conditions Subsequent – Condition cuts off already existing

o If condition occurs duty to perform is excused
o Terminates liability
o Burden of Proof on D
o If proof is nonexistent whoever has the BOP loses.
 o Example: An agreement to pay $10,000 “if my house is sold by April 1.” No payment
unless house is sold by April 1.
• If a party to a contract can avoid his duties under the contract on the happening of a certain
event, that party has the burden of proof as to the happening of that event.
o GRAY v. GARDNER; Gardner promised to pay an extra 25 cents a gallon for whale oil
if a certain amount of oil came into port by October 1. The court held that since
Gardner was going to be able to avoid some of his duties under the contract if more
whale oil came into port this year than in the previous year, he had the burden of proof
to show the happening of that event. Gardner was bound by his promise to pay 85 cents
a gallon for the whale oil unless a subsequent condition occurred and that promise
remained in force until he could show the happening of the condition. It was necessary
for Gardner to show that the vessel in question had come to anchor or had been moored
and since he could only show that the vessel was coming towards the port on October 1,
he didn't sustain his burden of proof. Therefore, the court found for Gray .
• In pleading the performance or occurrence of conditions precedent, it is sufficient to aver
generally that all conditions precedent have been performed or have occurred. A denial of
performance of occurrence shall be made specifically and with particularity.

COMMON TYPES OF EXPRESS CONDITIONS

• Satisfaction Clauses
• Pay When Paid Clauses
• Time of the Essence Clause

Satisfaction Clauses
Standards
• Objective - Where the satisfaction clause requires satisfaction as to such matters as commercial
value or quality, operative fitness, or mechanical utility, dissatisfaction cannot be claimed
unreasonably.
• Subjective - Matters that involve fancy, personal use, or judgment, then a subjective standard is
applied.
o The obligor is required to act in good faith and can avoid the contract if he is reasonably
dissatisfied.
• To determine look to language.
• Always presume objective, UNLESS
1. Individual taste, convenience
2. K calls for subjective standard
3. Where objective standard is impractical
4. Where satisfaction is judged by a 3rd party (Supersedes all others)
o HUTTON V MONOGRAMS PLUS, INC.; P entered into agreement with D to franchise
monogram shop, P had a later clause added that states that the contract is conditioned
on whether or not he found suitable financing. He checked with a couple places got
rejected gave up and demanded $25,000 deposit back. TC awarded, COA reversed
saying he did not act reasonably.

Pay When Paid

• If the condition is precedent there is no liability to pay.
• If the provision is a time term/promise need to pay within reasonable time.
• To determine look to the intent of parties.
o GULF CONSTRUCTION V SELF; Self was a subcontractor for Gulf, and was hired to
work on a project. The company who hired the GC to do the project breached and did
not pay GC. GC in turn did not pay the subcontractors sighting provision in K that
 states they will be paid once the GC has been paid. However the provision constituted a
promise not a condition precedent because it was a time term, GC had to pay
subcontractors.

Time of the Essence

• Where time is of the essence, performance on time is a constructive condition of the other party’s
duty.
• Time may be made of the essence of a K by a stated it in the K.
• TOTE clauses make timely performance an express condition precedent.
o Substantial performance does not apply.
• Differ from deadlines, because deadlines can be missed.

Goods V Services
• Does not apply to goods because of UCC 2-601 the Perfect Tender Rule.
• In hybrid contracts break K down to determine what is predominate goods or services.
• T(I/N)OTE for construction contracts unless stated in K.
o CARTER v. SHERBURNE CORP; Carter entered into four written agreements with
Sherburne Corp. for performance of various construction projects. Two of the contracts
called for completion dates and forfeitures for non-completion on schedule. P also
performed work for D outside of the contracts, without compensation, under a promise
for additional work which was never fulfilled by D. D eventually terminated the
contracts on the basis of delay and withheld approximately $10,000, or 20% of the
amount billed to it by P who sued. Trial court found that many of the delays were
occasioned by acts of D, and that P has substantially performed and was due the entire
invoiced amount. The trial court also held that P could recover for work performed
without compensation on a quantum meruit basis. On appeal it was held that
ordinarily, in contracts where time is not of essence, a failure to complete the work
within the specified time will not terminate the contract but will subject the contractor to
damages for delay. While two of the contracts called for completion dates and forfeitures
for non- completion on schedule, the inclusion of dates in construction contracts does not
make time of the essence. Since most of the delays in this case were due to the actions of
D, it was not proper for D to withhold payment. Additionally, with respect to the
recovery granted P, D failure to perform gives rise to several remedies, one of which is
quantum meruit. Affirmed.
• Quantum Meruit – is payment for value of services rendered minus what it would cost to have
someone else do it

§ 2-601. Buyer's Rights on Improper Delivery.

Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless
otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719),
if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.

Limitations on Perfect Tender Rule

• Rejection of goods for non-conformity.
o If there is a rejection it must be in good faith.
o PRINTING CENTER OF TEXAS, INC. v. SUPERMIND PUBLISHING CO., INC.;
In Supermind's action against Printing Center for refund of a deposit made under a
written contract to print 5,000 books, contended that it rightfully rejected the books
 upon delivery because the books failed in all respects to conform to the contract. On
appeal it was held contended that if nonconformities existed, they were minor, and that
rejected in bad faith. has failed to carry its burden to prove that rejected the books in
bad faith. Printing Center's contentions that the alleged nonconformities should be
classified as minor are inappropriate. A jury could reasonably conclude that books with
crooked or wrinkled pages, off-center cover art, and inadequate perforation are not fit
for sale to the public. Evidence is sufficient to support the jury's finding that the books
did not conform to the contract. Affirmed.

o CAPITOL DODGE SALES v. NORTHERN CONCRETE PIPE, INC.; Northern took

possession from Capitol of a truck, but stopped payment on the check for the purchase
price a few days later when, after repositioning the snowplow attachment as directed and
having the truck serviced by , the truck continued to overheat. On appeal it was held that
the U.C.C. provides that acceptance of goods occurs if the buyer, after a reasonable time
to inspect them, signifies to the seller that they are conforming or that he will retain them
despite their nonconformity. The evidence shows that did not signify to that the truck
conformed, or that it would accept the truck despite its nonconformance. Reversed.
• PTR ends when goods are accepted, acceptance of goods occurs if the buyer, after a reasonable
time to inspect them, signifies to the seller that they are conforming or that he will retain them
despite their nonconformity. 2-606
• PTR ends when acceptance is revoked a buyer may revoke acceptance of goods whose non-
conformity substantially impairs their value to him. 2-608
o COLONIAL DODGE, INC. v. MILLER; Miller , who bought a car from Colonial
Dodge, Inc. , renounced the sale the following day upon discovering that the car had no
spare tire, and that no spare tire was available. On appeal it was held that Colonial
argues that the missing spare tire did not constitute a substantial impairment in the value
of the car; however, the relevant statute provides that a buyer may revoke acceptance of
goods whose non-conformance impairs their value to him. In this case, D’s concern with
safety is evidenced by his ordering aspecial package which included special tires. D’s
occupation required that he travel extensively, and D testified that he was afraid of a flat
tire on a Detroit freeway during the early morning hours. Since the non-conformity
substantially impaired the value of the vehicle to D, his timely revocation of acceptance
was proper. Reversed.

§ 2-508. Cure by Seller of Improper Tender or Delivery; Replacement.

(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for
performance has not yet expired, the seller may seasonably notify the buyer of his intention to
cure and may then within the contract time make a conforming delivery.
(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to
believe would be acceptable with or without money allowance the seller may if he seasonably
notifies the buyer have a further reasonable time to substitute a conforming tender.

§ 2-606. What Constitutes Acceptance of Goods.

(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are
conforming or that he will take or retain them in spite of their non-conformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does
not occur until the buyer has had a reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act is wrongful as against the
seller it is an acceptance only if ratified by him.
 § 2-608. Revocation of Acceptance in Whole or in Part.
(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity
substantially impairs its value to him if he has accepted it
(a) on the reasonable assumption that its non-conformity would be cured and it has not been
seasonably cured; or
(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the
difficulty of discovery before acceptance or by the seller's assurances.
(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or
should have discovered the ground for it and before any substantial change in condition of the goods
which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he
had rejected them.

CONSTRUCTIVE CONDITIONS
• a condition that was not agreed upon by the parties, but that is supplied by the court to ensure
fairness.
o Only substantial (not strict) compliance with constructive conditions is generally
required.
o Where the intent is unclear, a court may use a constructive condition.
o Used to fill in the blanks concerning the timing of performances.
o HYPO: If X has promised to build a bridge for Y, the court may find that the completion
of the bridge is a constructive condition of exchange to Y’s promise to pay for the
construction.

Conditions of Exchange - determines who goes first.

• Concurrent
• Precedent
• Divisible v Entire Contract

Conditions of Performance – what’s good enough.

• Substantial Performance/ Measure of Recovery
• Perfect Tender

Concurrent – Condition are to occur at the same time.

• If one condition has occurred, performance of the other is due.
• Example Agreement to pay $100,000 for Blackacre. Money and deed exchanged in same
transaction.

§234 Order of Performances

(1) Where all or part of the performances to be exchanged under an exchange of promises can be
rendered simultaneously, they are to that extent due simultaneously, unless the language or the
circumstances indicate to the contrary.
(2) Except to the extent states in subsection (1) where the performance of only one party under such
an exchange requires a period of time, his performance is due at an earlier time than that of the
other party, unless the language or the circumstances indicate the contrary.
e. where the performance of one party requires a period of time and the performance of the other
party does not, their performance cannot be simultaneous.
o Geared toward bilateral contracts and concurrent exchange.
Precedent – the performance of one depends on the prior performance of another, and, therefore, till
this prior condition is performed, the other party is not liable to an action.
o KINGSTON V PRESTON; Preston D agreed to sell his business to Kingston . Kingston
agreed to give sufficient security for his payments. Kingston's personal worth was
negligible. Kingston failed to provide sufficient security, and thereafter Preston D
refused to sell. The condition to provide security is precedent and Preston’s promise to
sell is dependent upon this, he is not required to perform until the other party has
performed.

Divisible v Entire Contract

- Can K price be apportioned into equal parts
§ 240. Part Performances as Agreed Equivalents
If the performances to be exchanged under and exchange of promises can be apportioned into
corresponding pairs of pert performances so that the parts of each pair are properly regarded as agreed
equivalents, a party’s performance of his part of such a pair has the same effect on the other’s duties to
render performance of the agreed equivalent as it would have if only that pair of the performances had
been performed.

- Independent K – both parties performance is separate from the other.

o When K is Independent
 Real Estate Leases
 Child Support
 Language makes promise independent
- Dependent K – parties performance is joined.

Conditions of Performance
- Substantial Performance - fulfillment of the obligations agreed to in a contract, with only
slight variances from the exact terms and/or unimportant omissions or minor defects
o Does NOT apply to express conditions
o Cardozo Factors
1. Weigh the purpose to be served
2. Desire to be gratified
3. Excuse for deviation
4. Cruelty of enforced adherence
5. Willfull trangression
o Material Breach – less than substantial performance
 Total breach terminates K
o Minor Breach – substantial performance
 Partial breach, preserves K
o If the breach is material, can treat it as a total breach or as a partial breach.
o if the breach is minor, she can only treat it as a partial breach.
o If the performance was substantial (minor breach), then the breaching performer can
recover the contract price, minus damages for the breach
o No real measure of substantial performance.
o If performance is less than substantial cannot sue for damages but may sue under
Quantum Meruit.
 Quantum Meruit – reasonable value of services rendered minus what it would
cost to have someone else do it.
 Cannot be more than K price.
AVOIDING CONDITIONS
- Conditions can be avoided for the following reasons
o Interpreted as promise
o Excuses
 Prevention
 Extreme Forfeiture
 Waiver
 Estoppel
 Election
 Impossibility

- Prevention - when part is prevented from performing by the other party.

o Implied condition of cooperation is present.
- Extreme Forfeiture -
Restatement §302:
A condition may be excused without other reason if its requirement
a) Will involve extreme forfeiture or penalty, AND
b) Its existence or occurrence forms no essential part of the exchange for the promisor’s
performance.
- Restatement § 229:
To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a
court may excuse the non-occurrence of that condition unless its occurrence was a material part
of the agreed exchange.
- Waiver and Estoppel –
o Waiver - intentional relinquishment of a known right
o Estoppel – foreseeable detrimental reliance
o Waiver + reliance = estoppel
- Election – party adopts a course of action showing that they will ignore or not enforce the
condition precedent. Can not come back and try to enforce the condition.
- Impossibility
§ 271 Impracticability As Excuse For Non-Occurrence Of A Condition
Impracticability excuses the non-occurrence of a condition if the occurrence of the condition is
not a material part of the agreed exchange and forfeiture would otherwise result.

Elements
1. Condition not material
2. Forfeiture would occur
o Excuses a breach and a condition
o Must be unforeseen and unavoidable
o Prevents conditions from occurring
o Ex. Illness and death, etc.

ANTICIPATORY REPUDIATION - Breach of a contract subsequent to formation but prior to the

time performance is due.
• Must occur before law day( date of performance of K)
• Making unreasonable demands forms anticipatory repudiation
 • A plaintiff may bring suit for breach of contract prior to the time for performance of the contract
if the defendant has repudiated the contract.
§250. When a Statement or an Act is a Repudiation
A repudiation is
(a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would
of itself give the obligee a claim for damages for total breach under § 243, or
(b) A voluntary affirmative act which renders the obligor unable or apparently unable to perform
without such a breach.
1. Can terminate the K now
2. Can sue now
3. Can mitigate( make less sever)

Prospective Inability to Perform

• Assurance - Guarantees; security.
o A party who has breached the contract may not demand assurances from the other party
before suspending performance.
o A party who has breached the contract may not demand assurances of performance from the
other party. U.C.C. § 2-609 governs the demand for assurances and states that a written
demand for adequate assurances may be made after there is reasonable grounds for
insecurity regarding performance by the other party.

• Insolvency - condition of having more debts (liabilities) than total assets which might be available to
pay them
§ 252. Effect Of Insolvency
(1) Where the obligor's insolvency gives the obligee reasonable grounds to believe that the obligor
will commit a breach under the rule stated in § 251, the obligee may suspend any performance for
which he has not already received the agreed exchange until he receives assurance in the form of
performance itself, an offer of performance, or adequate security.

(2) A person is insolvent who either has ceased to pay his debts in the ordinary course of business or
cannot pay his debts as they become due or is insolvent within the meaning of the federal bankruptcy
law.

• Application to Money Payments

o The doctrine of anticipatory repudiation does not extend to unilateral contract.
o The majority rule is that a plaintiff may only recover accrued and unpaid installments under a
disability policy.
o In a unilateral contract for payment of installments, one of more defaults will not amount to
an anticipatory breach of the rest of the installments.

• Retracting Repudiation
o A repudiator is able to retract UNLESS
 Reliance by victim (acting in mitigation)
 Filing suit by victim
 Formal cancellation of the K

THIRD-PARTY BENEFICIARIES - a person who is not a party to a contract, but has legal rights to
enforce the contract or share in proceeds because the contract was made for the third party's benefit.
• A 3PB contract may exist even if the beneficiary is not names, not identifiable, or not yet in
existence, so long as the beneficiary is identifiable or in existence when the time for performance
arrives.
Classification of 3PB’s
• First Restatement (most commonly used)
§ 133. Definition Of Donee Beneficiary, Creditor Beneficiary, And Incidental Beneficiary
(1) Where performance of a promise in a contract will benefit a person other than the promisee,
that person is, except as stated in Subsection (3):

(a) a DONEE beneficiary if it appears from the terms of the promise in view of the
accompanying circumstances that the purpose of the promisee in obtaining the promise of all or
part of the performance thereof is to make a gift to the beneficiary or to confer upon him a right
against the promisor to some performance neither due nor supposed or asserted to be due from
the promisee to the beneficiary;
• Seaver v Ransom; One Mrs. Beman, on her death bed, wished to leave some propertyto
her niece, Seaver . Her husband induced his dying wife to sign a will leaving all property
to him by promising that he would leave a certain amount in his own will to Seaver . Mr.
Berman died without making such a provision for Seaver . Seaver now brings suit
against Ransom , as executor of Berman's estate, for Berman's breach of his promise to
his dying wife. Niece allowed to recover as done, because agreement was made for her
benefit as a gift.

(b) a CREDITOR beneficiary if no purpose to make a gift appears from the terms of the
promise in view of the accompanying circumstances and performance of the promise will satisfy
an actual or supposed or asserted duty of the promisee to the beneficiary, or a right of the
beneficiary against the promisee which has been barred by the statute of Limitations or by a
discharge in bankruptcy, or which is unenforceable because of the Statute of Frauds;
• Lawrence v Fox; One Holly owed Lawrence $300. Holly loaned $300 to Fox in
consideration of Fox’s promise to pay the same amount to Lawrence, thereby erasing
Holly's debts to Lawrence. Fox did not pay Lawrence and Lawrence brought this action
for breach of Fox’s promise to Holly.
Is a third party precluded for want of privity (a person in a contractual relationship) of
contract from maintaining an action on a contract made for his benefit?
No. "[In the case of] a promise made to one for the benefit of another, he for whose
benefit it is made may bring an action for its breach." This principle, which has been
long applied in trust cases, is in fact a general principle of law

(c) an INCIDENTAL beneficiary if neither the facts stated in Clause (a) nor those stated in
Clause (b) exist.
• H.R. Moch Co. v Rensselaer Water; Rensselaer Water Co. contracted with the City of
Rensselaer to furnish the city with water. During a fire on the premises owned by H.R.
Moch Co. , Rensselaer Water did not supply sufficient water to save the building. H.R.
Moch sued under the contract, contending that it was a third party beneficiary.
Can one claim to be a third party beneficiary of a contract involving a municipality
merely by virtue of being a resident of that municipality?
No. One cannot claim to be a third party beneficiary of a contract involving a
municipality; the benefits to that party must be immediate and primary. Every contract
involving a city should be for the benefit of the public, and such incidental benefits are
not sufficient to confer third party benefit status. To hold otherwise would extend
limitless liability to city contractors. Here, the benefit to H.R. Moch was no greater than
benefit to the public at large, so H.R. Moch was not a third party beneficiary.

(2) Such a promise as is described in Subsection (1a) is a gift promise. Such a promise as is
described in Subsection (1b) is a promise to discharge the promisee's duty.
 (3) Where it appears from the terms of the promise in view of the accompanying circumstances
that the purpose of the promisee is to benefit a beneficiary under a trust and the promise is to
render performance to the trustee, the trustee, and not the beneficiary under the trust, is a
beneficiary within the meaning of this Section.

• Second Restatement
Novation – an agreement by which 1 party is substituted for another and a discharge of the 1st
person’s duty by agreement of offering.
Elements
(1) Substitution
(2) Discharge
All parties must have agreed

§ 280. Novation
A novation is a substituted contract that includes as a party one who was neither the obligor nor
the obligee of the original duty.
Ex. Fox’s promise to pay Lawrence on Holly’s behalf; Fox does not perform can Lawrence seek
recovery from Holly. Yes, this agreement was made absent a novation because there was no
novation, Holly is still liable.
• Agreement to substitute is not an agreement to discharge.
Ex. Professor Chalk has a speaking engagement, he cannot make it. Professor Chalk asks
Professor Podium to fill in for him. The University where he was to speak is happy with the
replacement and agreed to allow him to speak in his stead. Professor Podium does not show up,
can the University recover from Professor Chalk? Yes, there was a substitution but not a
discharge.

§ 302. Intended and Incidental Beneficiaries.

(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an
intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to
effectuate the intention of the parties and either
(a) The performance of the promise will satisfy an obligation of the promisee to pay
money to the beneficiary; or
(b) The circumstances indicate that the promisee intends to give the beneficiary the
benefit of the promised performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Other Beneficiaries
1. One who would reasonably rely on promise.
2. If named in K
3. If performance will be rendered to them

Defenses
• Formation of Defenses
§ 309. Defenses Against The Beneficiary
(1) A promise creates no duty to a beneficiary unless a contract is formed between the promisor
and the promisee; and if a contract is voidable or unenforceable at the time of its formation the
right of any beneficiary is subject to the infirmity.
Ex. Lack of mutual assent (K-I), Lack of consideration (K-I), Statute of Frauds (K-I),
Misunderstanding, Mistake, Fraud, Duress, Undue Influence, Illegality, Incapacity, and
Unconscionability
 • Post Formation of Defenses
(2) If a contract ceases to be binding in whole or in part because of impracticability, public
policy, non-occurrence of a condition, or present or prospective failure of performance, the right
of any beneficiary is to that extent discharged or modified.
Ex. Impossibility, Frustration of purpose, Nonoccurrence of a condition precedent, Occurrence
of a condition subsequent, Material breach, Anticipatory repudiation, Mutual rescission (until
vesting occurs)

Vesting
• 1st Restatement
• The original contracting parties are free to modify the contract to the detriment of the
third party beneficiary until the moment when the beneficiary’s rights vested.
• Automatic for donee.
• Requires reliance for creditor.

• 2nd Restatement
§ 311. Variation Of A Duty To A Beneficiary
(1) Discharge or modification of a duty to an intended beneficiary by conduct of the promisee or
by a subsequent agreement between promisor and promisee is ineffective if a term of the promise
creating the duty so provides.
(2) In the absence of such a term, the promisor and promisee retain power to discharge or modify
the duty by subsequent agreement.
(3) Such a power terminates when the beneficiary, before he receives notification of the
discharge or modification, materially changes his position in justifiable reliance on the promise
or brings suit on it or manifests assent to it at the request of the promisor or promisee.
(4) If the promisee receives consideration for an attempted discharge or modification of the
promisor's duty which is ineffective against the beneficiary, the beneficiary can assert a right to
the consideration so received. The promisor's duty is discharged to the extent of the amount
received by the beneficiary.

Application to Mortgages
• Promise to assume the mortgage – the buyer of the property understands a personal liability to
make the payments.
Ex. Scarlett was having issues making the mortgage payments, she sold her equity in the home to
Vivien, who assumed the mortgage. Vivien is no liable for the mortgage.
• Purchase “subject to” the mortgage – the buyer of property makes the mortgage payments but
does not assume the liability of the mortgage.
Ex. Vivien took over Scarletts mortgage subject to the mortgage, defaulted. Scarlett is liable.

ASSIGNMENT AND DELEGATION

• Concepts
– Obligor – The original contracting party whose obligation is assigned.
– Assignment - the act of transferring a right to another.
• Right – to be owed a contract obligation.
• Assignee – the person to whom the assignment is made.
• Assignor – the person who makes the assignment.
• Rights are assigned.
• Once the contract has been assigned, the assignee cannot ask for more than what
the assignor received.
• If money is owed, then there is an assignment of the right to payments.
 – Delegation – the act of transferring a duty to another.
• Duty – to owe a contract obligation
• Delegator – The person who delegates a duty.
• Delegatee – The person to whom a duty is delegated.
– Transfer – When there is both assignment and delegation.
• Transferee – the person to whom A&D is transferred.
• Transferor – the person who transfers A&D.
– Assumption - the act of taking over a debt as part of payment for property which secures
that debt.
– Novation - an agreement by which 1 party is substituted for another and a discharge of
the 1st person’s duty by agreement of offering.
• What can be assigned? Delegated?
– Rights and duties under an executory bilateral contract may be assigned or delegated
– Except
• that duties under a personal service contract may not be assigned
• Nor rights delegated where performance by the delegatee would vary
substantially from the performance of the original party.
• Nor rights to be assigned under a K with delectus personae.

§ 160. Delegation Of Performance Of A Duty Or A Condition

(3) Performance or offer of performance by a person delegated has the same legal effect as
performance or offer of performance by the person named in the contract, unless,
(a) performance by the person delegated varies or would vary materially from
performance by the person named in the contract as the one to perform, and there has
been no such assent to the delegation.

§ 2-210. Delegation of Performance; Assignment of Rights.

(1) If the seller or buyer assigns rights under a contract, the following rules apply:
(a) Subject to paragraph (b) and except as otherwise provided in Section 9- 406 or as otherwise
agreed, all rights of the seller or the buyer may be assigned unless the assignment would
materially change the duty of the other party, increase materially the burden or risk imposed on
that party by the contract, or impair materially that party's chance of obtaining return
performance. A right to damages for breach of the whole contract or a right arising out of the
assignor's due performance of its entire obligation may be assigned despite an agreement
otherwise.
(a) A party may perform its duties through a delegate unless otherwise agreed or unless the other
party has a substantial interest in having the original promisor perform or control the acts
required by the contract. Delegation of performance does not relieve the delegating party of any
duty to perform or liability for breach.
(b) Acceptance of a delegation of duties by the assignee constitutes a promise to perform those
duties. The promise is enforceable by either the assignor or the other party to the original
contract.
(c) The other party may treat any delegation of duties as creating reasonable grounds for
insecurity and may without prejudice to its rights against the assignor demand assurances from
the assignee under Section 2- 609.
A contractual term prohibiting the delegation of duties otherwise delegable under paragraph (a)
is enforceable, and an attempted delegation is not effective.
(3) An assignment of “the contract” or of “all my rights under the contract” or an assignment in
similar general terms is an assignment of rights and unless the language or the circumstances, as
in an assignment for security, indicate the contrary, it is also a delegation of performance of the
duties of the assignor.
(4) Unless the circumstances indicate the contrary, a prohibition of assignment of “the contract”
is to be construed as barring only the delegation to the assignee of the assignor's performance.

§ 9-404. Rights Acquired by Assignee; Claims and Defenses Against Assignee.

(a) [Assignee's rights subject to terms, claims, and defenses; exceptions.] Unless an account
debtor has made an enforceable agreement not to assert defenses or claims, and subject to
subsections (b) through (e), the rights of an assignee are subject to:
(1) all terms of the agreement between the account debtor and assignor and any defense or claim
in recoupment arising from the transaction that gave rise to the contract; and
(2) any other defense or claim of the account debtor against the assignor which accrues before
the account debtor receives a notification of the assignment authenticated by the assignor or the
assignee.

§ 9-406. Discharge of Account Debtor; Notification of Assignment; Identification and Proof

of Assignment; Restrictions on Assignment of Accounts, Chattel Paper, Payment
Intangibles, and Promissory Notes Ineffective.
(a) [Discharge of account debtor; effect of notification.] Subject to subsections (b) through (i),
an account debtor on an account, chattel paper, or a payment intangible may discharge its
obligation by paying the assignor until, but not after, the account debtor receives a notification,
authenticated by the assignor or the assignee, that the amount due or to become due has been
assigned and that payment is to be made to the assignee. After receipt of the notification, the
account debtor may discharge its obligation by paying the assignee and may not discharge the
obligation by paying the assignor.
[Term restricting assignment generally ineffective.] Except as otherwise provided in
subsection (e) and Sections 2A- 303 and 9- 407, and subject to subsection (h), a term in an
agreement between an account debtor and an assignor or in a promissory note is ineffective to
the extent that it:
(1) Prohibits, restricts, or requires the consent of the account debtor or person obligated
on the promissory note to the assignment or transfer of, or the creation, attachment,
perfection, or enforcement of a security interest in, the account, chattel paper, payment
intangible, or promissory note.

• Gifts
§ 332. Revocability Of Gratuitous Assignments
(1) Unless a contrary intention is manifested, a gratuitous assignment is irrevocable if
(a) the assignment is in a writing either signed or under seal that is delivered by the
assignor; or
(b) the assignment is accompanied by delivery of a writing of a type customarily accepted
as a symbol or as evidence of the right assigned.
(2) Except as stated in this Section, a gratuitous assignment is revocable and the right of the
assignee is terminated by the assignor's death or incapacity, by a subsequent assignment by the
assignor, or by notification from the assignor received by the assignee or by the obligor.
(3) A gratuitous assignment ceases to be revocable to the extent that before the assignee's right is
terminated he obtains
(a) payment or satisfaction of the obligation, or
(b) judgment against the obligor, or
(c) a new contract of the obligor by novation.
(4) A gratuitous assignment is irrevocable to the extent necessary to avoid injustice where the
assignor should reasonably expect the assignment to induce action or forbearance by the assignee
or a subassignee and the assignment does induce such action or forbearance.
(5) An assignment is gratuitous unless it is given or taken
 (a) in exchange for a performance or return promise that would be consideration for a
promise; or
(b) as security for or in total or partial satisfaction of a pre-existing debt or other
obligation.

• Assignments for Consideration

§ 324. Mode Of Assignment In General
It is essential to an assignment of a right that the obligee manifest an intention to transfer the
right to another person without further action or manifestation of intention by the obligee.
The manifestation may be made to the other or to a third person on his behalf and, except as
provided by statute or by contract, may be made either orally or by a writing.

§ 326. Partial Assignment

(1) Except as stated in Subsection (2), an assignment of a part of a right, whether the part is
specified as a fraction, as an amount, or otherwise, is operative as to that part to the same
extent and in the same manner as if the part had been a separate right.
(2) If the obligor has not contracted to perform separately the assigned part of a right, no
legal proceeding can be maintained by the assignor or assignee against the obligor over his
objection, unless all the persons entitled to the promised performance are joined in the
proceeding, or unless joinder is not feasible and it is equitable to proceed without joinder.

• Limitations
– UCC § 2-210
§ 318. Delegation Of Performance Of Duty
(1) An obligor can properly delegate the performance of his duty to another unless the
delegation is contrary to public policy or the terms of his promise.
(2) Unless otherwise agreed, a promise requires performance by a particular person only
to the extent that the obligee has a substantial interest in having that person perform or
control the acts promised.
(3) Unless the obligee agrees otherwise, neither delegation of performance nor a contract
to assume the duty made with the obligor by the person delegated discharges any duty or
liability of the delegating obligor.
–
• Defenses – whatever defenses could be used against the assignor can be also used against the
assignee.
– Setoff
• Deducting a certain amount from recovery.
• Not related to K.
• Ex, have gym K and gym manager runs over your dog, running over dog not
related to K so setoff allowed only if it happened before receipt of assignment.
– Recoupment
• Recovery for incidents related to K
• Assignee is always subject to recoupment because take assignment subject to K.
• Ex. Had K with gym and got weight dropped on foot, can recoup damages from
assignee because related to K, notice is not required.
– Modifications
• Any modifications to the original K have to be in good faith. Defense would
argue it was in bad faith.
• Creation of third-party rights
– 3PB has claim as assignee or delegatee only if assignee or delegatee assumed duty.
– Would normally be creditor under 1st Rst and intended beneficiary under 2nd Rst.
 – Ex. Vera is to dance for Diana’s company but gets better offer after signing K, asked
friend Carla to fill in for her, Carla agrees to fill in , and Diana agrees to the substitution.
Carla never shows up, Diana can chose who to sue, she can sue Vera because she was
never discharged sjust substituted. She can sue Carla as a 3PB because she was the 3PB
of the K between Carla and Vera.
– Restatement Waltz: after the general assigning there is a presumed assumption of the
duty which in turns creates 3PB rights.
§ 164. Interpretation Of Words Purporting To Assign A Bilateral Contract; Effect Of
Acceptance Of The Assignment
(1) Where a party to a bilateral contract which is at the time wholly or partially executory on
both sides, purports to assign the whole contract, his action is interpreted, in the absence of
circumstances showing a contrary intention, as an assignment of the assignor's rights under
the contract and a delegation of the performance of the assignor's duties.

(2) Acceptance by the assignee of such an assignment is interpreted, in the absence of

circumstances showing a contrary intention, as both an assent to become an assignee of the
assignor's rights and as a promise to the assignor to assume the performance of the assignor's
duties.
– 2nd Rst is the same but does not apply to land
• Implied Novation – applies if and only if the delegator delegates his duty and the repudiates any
remaining liability and Obligee accepts without protest and knowing delegator has repudiates.
– Can be avoided by rejecting delegatee performance or protesting.

PAROL EVIDENCE RULE

• The rule: Parol evidence cannot be used to prove terms additional to or inconsistent with an
integrated (define) contract.
– Parol Evidence – evidence of oral or written agreements or negotiations that are prior to
or contemporaneous with a writing intended to the the complete or partial integration of
the parties final agreement.
– Integrated – final representation of agreement
• Can be Partial or complete
• Partial integration allows for additional terms but not inconsistent terms.
• Complete integration does not allow for any additional or inconsistent terms.
§ 213. Effect Of Integrated Agreement On Prior Agreements (Parol Evidence Rule)
(1) A binding partially integrated agreement discharges prior agreements to the extent
that it is inconsistent with them.
(2) A binding completely integrated agreement discharges prior agreements to the extent
that they are within its scope.
•
• The exceptions: Parol evidence can be used with –
– subsequent modification
• A modification to K after formation.
• May see No Oral Modification (N.O.M.) clauses but these do not hold up in court.
• Problem 107 – Hiram told Jane after the contract had been formed that she could
use a different kind of nail. PE accepted because of oral agreement to use
different nails was said after formation, subsequent modifications.
– collateral agreement
• Collateral – something separate and distinct, and not closely connected to the
agreement.
• Oral agreements can alter written when:
• The agreement must be in form a collateral one
• It must not contradict express or implied provisions of the written contract
 • It must be one that parties would not have ordinarily be expected to
embody in the writing
– agreement supported by separate consideration
– terms additional to (but not inconsistent with) a partial integration
• if K includes integration of merge clause then it is complete.
• Integration and merger clause – statements that this written K is a final
and complete representation of the parties’ agreement.
• Four corners test (Williston) – look at K as completed embodied within the 4
corners of the page.
• Corbin View – take the circumstances around the K into consideration to
determine whether partial or complete.
– construction terms:
• usage of trade – the custom within the industry
• course of dealing – the parties conduct in past dealings
• course of performance – what the parties do while performing
• Inconsistent Terms:
• Williston – look for harmony in the K
• Corbin – look to see if there is head on conflict
– Avoidance – attempting to get evidence in that would avoid the K
– Reformation
– condition precedent to formation of the contract
– ambiguity
• Evidence of ambiguity (“Ambiguity is in the eye of the bewildered”)
– Willistonian -vs.- Corbinian approaches
• Willistonian: 4 Corners rule, if it looks ambiguous on face then it is, and when
facially unambiguous and contains an express integration clause.
• Corbinian: look to the circumstances of the K to interpret ambiguous clauses
• Rules of interpretation
– Interpretation by judge or jury?
• Judge, who will first look at it under what ever school of thought, and then hand
over to jury. May then allow evidence to clear up ambiguities under W, will
allow evidence of the circumstance surrounding under C
– Standards of preference between conflicting terms
§ 202. Rules In Aid Of Interpretation
(1) Words and other conduct are interpreted in the light of all the circumstances, and if
the principal purpose of the parties is ascertainable it is given great weight.
(2) A writing is interpreted as a whole, and all writings that are part of the same
transaction are interpreted together.
(3) Unless a different intention is manifested,
(a) where language has a generally prevailing meaning, it is interpreted in
accordance with that meaning;
(b) technical terms and words of art are given their technical meaning when used
in a transaction within their technical field.
(4) Where an agreement involves repeated occasions for performance by either party with
knowledge of the nature of the performance and opportunity for objection to it by the
other, any course of performance accepted or acquiesced in without objection is given
great weight in the interpretation of the agreement.
(5) Wherever reasonable, the manifestations of intention of the parties to a promise or
agreement are interpreted as consistent with each other and with any relevant course of
performance, course of dealing, or usage of trade.
 § 203. Standards Of Preference In Interpretation
In the interpretation of a promise or agreement or a term thereof, the following standards
of preference are generally applicable:
(a) an interpretation which gives a reasonable, lawful, and effective meaning to all
the terms is preferred to an interpretation which leaves a part unreasonable,
unlawful, or of no effect;
(b) express terms are given greater weight than course of performance, course of
dealing, and usage of trade, course of performance is given greater weight than
course of dealing or usage of trade, and course of dealing is given greater weight
than usage of trade;
(c) specific terms and exact terms are given greater weight than general language;
separately negotiated or added terms are given greater weight than standardized
terms or other terms not separately negotiated.

§ 206. Interpretation Against The Draftsman

In choosing among the reasonable meanings of a promise or agreement or a term thereof,
that meaning is generally preferred which operates against the party who supplies the
words or from whom a writing otherwise proceeds.

§ 207. Interpretation Favoring The Public

In choosing among the reasonable meanings of a promise or agreement or a term thereof,
a meaning that serves the public interest is generally preferred.

MISUNDERSTANDING & MISTAKE

• Misunderstanding – where there was no meeting of the minds, or there is ambiguity about a
material issue, no contract has been formed.
• § 20. Effect Of Misunderstanding
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially
different meanings to their manifestations and
(a) neither party knows or has reason to know the meaning attached by the other; or
b) each party knows or each party has reason to know the meaning attached by the other.
(2) The manifestations of the parties are operative in accordance with the meaning attached to
them by one of the parties if
(a) that party does not know of any different meaning attached by the other, and the other
knows the meaning attached by the first party; or
(b) 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 first party.

 Raffle v Wichelhaus; Raffles contracted to sell cotton to Wichelhaus to be delivered from

Bombay at Liverpool on the ship "Peerless." Unknown to the parties was the existence of two
different ships carrying cotton, each named "Peerless" arriving at Liverpool from Bombay,
but at different times.
Did a latent ambiguity arise showing that there had been no meeting of the minds, hence, no
contract?
Yes. While the contract did not show which particular "Peerless" was intended, the moment
it appeared two ships called "Peerless" were sailing from Bombay to Liverpool with a load
of cotton, a latent ambiguity arose, and parole evidence was admissible for the purpose of
determining that both parties had intended a different "Peerless" to be subject in the
contract. When there is an ambiguity, it is given the meaning that each party intended it to
have. However, if different meanings were intended there is no contract if the ambiguity
relates to a material term. Consequently, there was no meeting of the minds and no binding
contract. Judgment for defendants.
• Mistake – belief not in accordance, and contrary to the existing facts, or a shared or common
mistake that goes to the substance of the contract.
 Belief not in accordance with facts
 Shared or common mistake
 Goes to the substance of K
Mutual Mistake - where both parties are mistaken.
• Typically remedied by allowing either party to rescind.
o Rescission – an equitable decree by which the contract is simply cancelled.
• Restitution of consideration is usually ordered by the court.
• Other damages fall where they may.
• The mere presence of a mutual mistake does not always afford relief to the party
adversely affected by the mistake.
• A party is to bear the risk of a mistake when he is aware at the time of formation that
he has limited knowledge to the facts the mistake relates to.
Unilateral Mistake – where the mistake was made by only one party.
• Relief is usually denied to the erroneous party.
• Can Rescind under following
1. The mistake is of such consequence that enforcement would be
unconscionable
2. The mistake must relate to the substance of the consideration
3. The mistake must have occurred regardless of the exercise of ordinary care
4. It must be possible to place the other party in the status quo
5. It is generally required that the bidder give prompt notification of the mistake
and his intention to withdraw
• Sherwood v Walker; The Walkers , having sold a cow to Sherwood in the mistaken
belief that it was barren, refused to deliver it.
Does a mutual mistake of a material, underlying fact afford a basis for rescission of a
contract for the sale of personal property?
Yes. Where the thing actually delivered or received is different in substance from the
thing bargained for and intended to be sold, there is no contract. However, the
mutual mistake must not only be as to some material fact, but must also affect the
substance of the whole consideration. Here, the mistake was as to a crucial, material
fact. The parties would not have made the contract if they knew that the cow was
capable of breeding. A barren cow is a different creature than a breeding one. The
cow was sold for beef, when in fact she had considerable value as a breeder. As a
result, there was no contract formed.
• Ignorance – where both parties are ignorant to the mistake. (No Relief)
 Where a party later finds out he under or overpaid he is not entitled to rescission.
• Wood v Boynton; : Boynton purchased an uncut stone from Wood for $1. Neither
party realized the stone was a diamond worth $700. Where both parties to a sale are
mistaken as to the nature and value of the article sold, but the thing sold was the
same as the thing delivered, and the vendee has committed no fraud, may the vendor
rescind the sale? No. The only reasons for rescinding a sale and revesting title in the
vendor are that the vendee has committed some fraud in procuring the sale, or that
there has been a mistake made by the vendor in delivering an article other than the
article sold. In the absence of such circumstances, mutual mistake affords no basis
for rescission of a contract of sale. Here, there was no fraud since both parties were
ignorant as to the stone's true value. And there was no pretense of any mistake as to
the identity of the thing sold. When the sale was made, the stone was open to the
investigation of both parties, and since neither knew its intrinsic value, they both
fraud or mistake has here been made out. Affirmed.
 • 1st Baptist Church v Barber; Barber submitted a construction bid to First Baptist
which contained a miscalculation, causing Barber to withdraw the bid. Does a
mistake by one party to a contract allow the agreement to be rescinded? Yes. An
unintentional mistake by one party allows that party to rescind the agreement. The
mistake must involve a fact material to the contract and must be an unintentional act,
omission, or error. Even if the mistake was caused by negligence, the contract may
be avoided if the opposing party would not be prejudiced. Barber's miscalculation in
computing the bid price was an unintentional error about a fact material to the
contract. Therefore, it was a unilateral mistake which allows for rescission of the
contract. Even if the error could be considered negligent, First Baptist was not
prejudiced since they stood to lose only the advantage of Barber's mistake. Barber's
summary judgment motion granted.

• Reformation - the correction or change of an existing document by court order.

 Arises with a mistake in expression.
 BOP is on person seeking reformation.
• The BOP is greater than what is required to bring an ordinary civil suit.
• Bailey v Ewing; Bailey brought suit to eject Ewing from a disputed piece of land
between their properties. Ewing filed a counterclaim against Bailey and third party
Erhardt, personal representative of the estate, to reform the deeds. The trial court
found for Bailey and Erhardt. Ewing appealed. Did the trial court err in ruling that
any mistake concerning the location of the boundary line was a unilateral mistake by
Ewing? Yes. Erhardt clearly intended to sell the whole house on Lot 5 and believed
the boundary line was somewhere east of its subsequently determined "true" location.
Ewing shared this belief. Thus, Ewing and Ernhardt made a mutual mistake as to
the boundary of lot 5. Where there is mutual mistake, parol evidence is admissible to
show what the true intent was; in this case to deed the whole house on lot 5 to
Ewing . However, Ewing's deed can only be reformed if such relief will not prejudice
the rights of Bailey , if Bailey is a bona ride and innocent purchaser. Judgment
reversed and remanded for proceedings consistent with this opinion.

State of Mind: Result:

Misunderstanding No contract
Conscious Ignorance No relief
Mistake in Formation
Mutual Mistake Rescission

Unilateral Mistake
Generally No relief
If other party (1) knew of
or (2) caused the mistake, > Rescission
or (3) facts fit "mistaken
bidder" profile

Mistake in Expression Reformation

FRAUD
Broken into
• Fraud
 • Duress
• Undue Influence

Fraud
• Misrepresentation - a false statement of fact made by one party to another party, which has the
effect of inducing that party into the contract.
Elements
1. Misrepresentation
2. Intentional or Material
3. Reliance
4. Justification
o Can be intentional and innocent
o Must be a statement of fact and not opinion
 Exceptions:
• Where there is a fiduciary relationship (relationship based on trust). OR
• Where there has bee some artifice of trick employed by representor. OR
• Where the parties do not in general deal at “arm’s length”. OR
• Where the representee does not have equal opportunity to become apprised of
the truth or falsity of the fact represented.
o Statements made by persons of superior knowledge are considered fact.
o Rescission is the usual remedy.
• Concealment – where D takes affirmative steps to conceal a problem.
o D must know that P would not have gone through with transaction had they known the truth.
o Actionable for the following reasons:
1. Fiduciary relationship.
2. An assertion is made to a party who later finds it to be untrue.
3. Party A knows Party B is laboring under a misconception and says nothing.
4. Where silence will let a dangerous condition go undiscovered.
• Silence
§161. When Non-Disclosure Is Equivalent To An Assertion
A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does
not exist in the following cases only:
(a) Where he knows that disclosure of the fact is necessary to prevent some previous
assertion from being a misrepresentation or from being fraudulent or material.
(b) where he knows that disclosure of the fact would correct a mistake of the other party as to
a basic assumption on which that party is making the contract and if non-disclosure of the fact
amounts to a failure to act in good faith and in accordance with reasonable standards of fair
dealing.
(c) Where he knows that disclosure of the fact would correct a mistake of the other party as
to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
Where the other person is entitled to know the fact because of a relation of trust and
confidence between them.
• Election of Remedies – can only get either damages or rescission cannot get both.
• Punitive Damages – can receive if there was a fiduciary relationship or there was intentional fraud.

Duress – to compel someone to do something based upon a wrongful act or threat, where there is no
reasonable alternative.
• Elements
o Wrongful act or threat
o No reasonable alternative
• Economic Duress exist where:
o One party involuntarily accepted the terms of another.
o Circumstances permit no other alternative.
o Circumstances were result of coercive acts of the other party.
 Wrongfulness depends on the facts in each case.
 What constitutes an alternative is a question of fact.

Undue influence – unfair or improper persuasion of one person by another who has attained a position
of domination or power, consent to K, transaction, relationship, or conduct.
• Undue susceptibility
• Dominant strength
– Confidential relationship – putting trust in someone else
– BOP on D to prove there was no undue influence\
– Duty to place P’s needs above own
– No confidential relationship

Avoiding K
Illegality - K or clause involved is void as a matter of public policy.
• No QM because K is illegal
• Broken into:
o Violation of Law
 No recovery for guilty party
o Cohabitation
 No rights, no recovery unless state has CL marriage.
o Lack of License
 No license, no QM, no recovery
o Non Compete Clauses
 Not enforceable
• Except
• Ancillary (secondary) to sale of business
• Ancillary to Employment K
o Unless
o Unique talents, knowledge, or ability
o Area of injunction is reasonable
o Time period is reasonable
 Not applicable to lawyers and doctors
 Blue pencil – when a judge rewrites non-compete clauses to what is reasonable.
• Cant blue pencil Employment Ks
Incapacity
• Minors – may disaffirm
o Except for
 Ks for necessaries, food, clothing, and shelter
 Married, emancipated, active in military
• Mental Infirmity – a K signed by someone who has been declared mentally infirmed judicially is
void.
• Intoxication – person asserting defense must have been so intoxicated they could not
comprehend actions.

Unconscionability – When a contract is too unfair to enforce.

 • Matter of law.
• Must exist at K formation.
• Damages cannot be awarded
• Court can refuse to enforce the K, enforce the remainder of the K w/o the unconscionable term,
or limit the application of unconscionable terms.
• Procedural - unconscionability that derives from the process of making a contract rather than
from inherent unfairness or unreasonableness in the terms of the contract.
• Substantive - unconscionability of a contract that arises from the terms of the contract and esp.
from terms that are found to be one-sided, unjust, or overly harsh.
§ 208. Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to
enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or
may so limit the application of any unconscionable term as to avoid any unconscionable result.

§ 2-302. Unconscionable Contract or Term

(1) If the court as a matter of law finds the contract or any term of the contract to have been
unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce
the remainder of the contract without the unconscionable term, or it may so limit the application of any
unconscionable term as to avoid any unconscionable result.

(2) If it is claimed or appears to the court that the contract or any term thereof may be unconscionable,
the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting,
purpose, and effect to aid the court in making the determination.

• Williams v Walker-Thomas; Walker-Thomas Furniture Co. (Walker-Thomas) , a retail furniture

company, began using a standard form contract for all credit transactions which contained, inter
alia, a clause by which the company reserved the right, upon default by a purchaser, to repossess
all items contemporaneously being purchased by the buyer at the time of the repossession. This
clause was accompanied by one which stated that all credit purchases made from Walker-Thomas
were to be handled through one account, with each installment payment spread pro-rata over all
items purchased (even where purchased separately and at different times), until all items were paid
for, Williams began purchasing items from Walker- Thomas in 1957. In 1962, she bought a stereo
set there. When she defaulted on a payment soon thereafter, Walker-Thomas filed this action to
replevy (i.e., repossess) all items she had purchased (and was still paying for) since 1957.
May a court refuse to enforce an unreasonable contract, even though no evidence of fraud can be
produced?
Where, in light of the general commercial background of a particular case, it appears that gross
inequality of bargaining power between the parties has led to the formation of a contract on terms
to which one party has had no meaningful choice, a court should refuse to enforce such a contract
on the ground that it is unconscionable.

• Weaver v American Oil; American Oil sued Weaver for indemnification for damages that occurred
on premises leased by Weaver from American Oil , pursuant to certain clauses contained in a
standard form contract. When a party can show that a contract is in fact an unconscionable one,
should the unconscionable contract provision, or the contract as a whole if the provision is not
separable, be unenforceable on the grounds that the provision is contrary to public policy?
When a party can show that a contract is in fact an unconscionable one, the unconscionable
contract provision, or the contract as a whole if the provision is not separable, should be
unenforceable on the grounds that the provision is contrary to public policy.

• Scott v Cingular; Plaintiffs brought class action against cellular telephone service provider,
alleging provider had overcharged consumers by unlawfully adding roaming charges and hidden
 charges. The Superior Court, King County, Joan B. Allison, J., granted provider's motion to compel
individual arbitration. Direct review was granted. class action waiver in arbitration clause of
standard subscriber contract for cellular telephone service, which waiver prohibited class action
litigation and class action arbitration, violated Washington State public policy and therefore was
substantively unconscionable. An agreement that violates public policy may be void and
unenforceable.

Impossibility
• GR is not an excuse.
• It the event occurs before then it is mistake.
o Ex. Rose died before K was formed but neither party knew.
• If it occurs after K formation use impossibility.
• Farmers are discharged from duty from the destruction of the crop.
• Exceptions
1. Perishment of thing or person where the K is for its continued existence.
2. Further performance excused
3. Pro-rata recovery for partial performance
• Krell v Henry; Henry paid a deposit of £25 to Krell for the use of his apartment in Pall Mall,
London, for the purpose of a viewing sight for King Edward VIl's coronation procession. The King
became ill, causing a delay of the coronation upon which Henry refused to pay a £50 balance for
which Krell sued.
Where the object of one of the parties is the basis upon which both parties contract, are the duties of
performance constructively conditioned upon the attainment of that object?
Where the object of one of the parties is the basis upon which both parties contract, the duties of
performance are constructively conditioned upon the attainment of that object.

• Taylor v Caldwell; Taylor contracted to let Caldwell's hall and gardens for four fetes and concerts,
for four days, for £100 per day. Taylor expended money in preparation and for advertising, but
Caldwell could not perform when the hall burned down without his fault.
In contracts in which the performance depends on the continued existence of a given person or
thing, is a condition implied that the impossibility of performance arising from the perishing of the
person or thing shall excuse the performance?
In contracts in which the performance depends on the continued existence of a given person or
thing, a condition is implied that the impossibility of performance arising from the perishing of the
person or thing shall excuse the performance.

Frustration of Purpose
o Factors
1. What is the foundation of the K
2. Was the performance prevented
3. When K was formed was the event unforeseeable and a material adverse change (MAC)
to K.