CONTRACTS OUTLINE

I. OFFER AND ACCEPTANCE

1. When are you bound?
a. Rule: If a reasonable man would believe he was assenting (agreeing), he is bound
even if he did not intent to be bound, undisclosed intentions of one party are
immaterial
i. A person cannot say they were kidding or not serious when his conduct
would warrant a reasonable person to believe that he intended a real
agreement.
. Restatement !"# (")(a)$ Intent$outward manifestations of intent
bind, even when one party does not mean to contract. %hen one
party knows that the other party does not know, then the parties are
bound.
a. Lucy v. Zehmer- a contract is enforced if one party agrees
but later claims he didn&t intend to agree. 'uys at bar,
(ehmer agrees to sell )ucy his farm and he signs in
agreement, but later says it was a *oke.
i. +eing drunk is ,-. a defense unless u are so drunk
you don&t understand what u are doing and the other
party knows it.
". Restatement !"#
a. If both parties attach the same meaning, it prevails
b. If both parties attach different meanings, the one who has
no reason to know that the other does not agree is the one
that prevails
i. /eeting of the minds is no longer necessary in 0s1
c. Embry v. Hargadine- 2mployee asked employer for
another year&s contract to work and employer replied, 3'o
ahead, you&re all right, get your men out and don&t let that
worry you,4 constituted reasonable assent (agreement)
regardless of his intentions.
b. 5oke 6ontracts
i. If a contract was a *oke and both parties knew it was, there is no contract,
(Keller v. Holderman) !"#()
c. -ffer 7 Acceptance vs. /utual Assent:
i. 28ample: If 9 says to +, why don&t u sell this pen to 5 and both say yes at
the same time, it is mutual assent because the offer and acceptance happen
at the same time. :arties manifest their mutual assent through offer and
acceptance.
II. OFFER AND REVOCATION
1. What on!t"tute! an o##er?
a. R;)2<:
i. 6ontract is formed when a party accepts an offer.
ii. %as it an offer= Restatement !">:

. /anifestation of a willingness to enter into a bargain

". so made as to *ustify to another person that assent (agreement) is
invited and will conclude it.
iii. 9actors to consider by 9arnsworth:
. )anguage (will 3I accept4 seal the deal=)
". 6onte8t (second to last statement)
?. 6ompleteness (clear, definite, and e8plicit, detailed)
>. ,umber of persons to whom offer is made (to others also means no
offer)
b. 28amples: @es an -ffer
". C$ear% de#"n"te% and e&'$""t% noth"n( $e#t o'en #or ne(ot"at"on
. Advertisement to sell coat for A, first come, first serve (Lefkowitz
v. Great innea!oli" #u!!ly #tore)
ii. Answer to a Buote for mason *ars e8act amount 7 price specified.
iii. Cotel reservationsD even when guest has not guaranteed reservations.
c. 28amples: ,ot an offerEonly invitations to deal (3preliminary negotiations4 !"F
i. No a)ount or *uant"ty !'e"#"ed+ less likely to be an offer. 3I want A"."G
for this seed.4
ii. For) $etter!+ are only invitation because sent to many people, further
assent reBuired. In response to an inBuiry from an ad, the seller sent a
letter describing the property and stating, 3rock bottom price is A"G##,4
for an offer to sell a house. .he letter identified itself as a 3form letter.4
(Lonergan v. #colnick)
. 9orm letter makes the response an offer and then the seller makes
the acceptance.
iii. S"(n #or !,"thb$ade -n"#e in window 3offer for sale,4 not an offer, only
an invitation, so no prosecution for violation of a statute. ($i"cher v. %ell)
iv. Ad.ert"!e)ent $etter 3we are authoriHed to offer salt at IG cents per
barrel, we shall be pleased to receive your orderD4 )anguage is too general
and offered to too many people.
v. A''o"nt)ent! for haircuts, car dealers, dinner reservations, etc..
/. Th"n(! that Ter)"nate the O##erree0! Po,er o# Ae'tane1
a. Th"n(! ,h"h ter)"nate an o##erree0! 'o,er o# ae'tane 234
i. Re*ection
ii. 6ounteroffer (&rdente- house furniture)
iii. )apse of time (!>$ &ker")
iv. Revocation by offeror
v. Jeath or incapacity of either party
b. I!!ue! to !ee "# ae'tane ,a! .a$"d
i. Cas the attempted acceptance been effective to close the deal=
ii. %as it made when the offeree still had the power of acceptance=
. La'!e
i. !>$ An offer must be accepted either:
. In a fi8ed time if it is specified
". -r in a 3reasonable time.4
"
a. :ossibly right away or at the latest$ when the conversation
ended.
ii. 6onversational offer, accept face to face during a conversation. (&ker")
iii. /ail offer, acceptance reasonable if sent by midnight on day it was
received. !>(?)
d. Re5et"on
i. A definite re*ection once communicated e8tinguishes the power of
acceptance. !?I
. %hen you re*ect it, it is over, even if it was to remain open for "
more weeks.
". ,ot a re*ection if the offeree says he will take it under advisement.
ii. Jismissing an offer and continuing in the conversation is a re*ection.
. '&ker" v. #edberry (nc.) 2mployees offered to resign, but the
employer spent all day discussing business 7 tried to accept offer
? days later but it was too late.
e. Countero##er
i. If an acceptance has conditions, it is actually a new offer (a counteroffer)
and needs to be accepted for it to be valid.
. @es counteroffer$ &rdente v. Horan- sale of house, accept but
include furniture.
a. (9reiwald says &rdente tells us that the intent of the parties
must be definite and uneBuivocal.)
b. +ut if there is a counteroffer such as 3we assume the
furniture is included, please confirm,4 and you then u re$
affirm the original offer, u can have the power of
acceptance again. Living"ton v. Evan".
". ,o, not counteroffer (*ust an acceptance):
a. )hode ("land *e!t of +ran" v. ,rovidence ))- when buyer
releases the seller of material obligation, it is considered
3collateral inBuiry, (*ust a Buestion)4 rather than a
conditional acceptance. (Jon&t remove the RR tracks and
change the name on the offer).
b. 3<igned under protest,4 is an acceptance, but it *ust says$ I
accept but I don&t like it. (,rice)
c. ReBuests do not indicate an unwillingness to accept an
offer (landlordEtenant)
ii. 6lassical contract law reBuired the mirror image rule, the offer and
acceptance had to match identically or there was no contract.
3. Po,er o# an O##eror to Ter)"nate by Re.o-"n(
a. Revocation:
". O't"on Contrat!+ Can0t be re.o-ed nor)a$$y1
. 36an accept anytime until a certain dateK4
a. <ubcontract within the contract
b. ,eed consideration to make option 3binding,4 can&t be
3nudem pactum4 (no consideration).
". 6an be made a firmEirrevocable offer if:
?
a. 6onsideration is given for subpromise
b. <ale of 'oods (;66 "$"#G) signed 7 in writing$ no
consideration needed.
c. :art performance (!>G)$ if someone accepts by starting to
perform, then that locks in a unilateral contract (:romise
:erformance)
i. 'iving the money is part performance, getting the
money is not, (obtaining financing), especially if
money obtained before agreement was even made.
()ago"ta)
ii. !>G only applies when the offeree is seeking
acceptance by performance (there was clearly no
consideration).
d. :romissory 2stoppelD Reliance (substitute for
consideration)
i. !IL$" is promissory estoppel in the options contract
setting
ii. %orks to bind offers and acceptances in contractor$
subcontractor agreements. (*rennan v. #tar
,aving- paving bid for school, then <tar :aving said
the bid was too low) so long as they are not bid
chiselers.
?. 6annot be terminated normallyD Restatement !?L
a. :ower of acceptance is not terminated normally in options
contracts by re*ection, counteroffer, or deathEincapacity.
b. .he only thing that terminates is when both parties agree to
terminate.
>. /ailbo8 Rule in -ption contracts$ acceptance not effective until
receipt.
"". Re(u$ar Re.oat"on1
. Revoke through Jirect 6ommunication !>" saying 3I revoke.4
a. %hen a person receives it or someone designated to receive
it, or if its deposited in a place to be specified it is
considered received. !FI
". Revoke through Indirect 6ommunication !>?
a. If the offeror acts in a way that shows he is revoking and
the offeree knows about it.
b. (*ickin"on v. *odd") M knew the N had revoked his offer
to sell property because he knew N had sold to another
person.
i. .his would be different if it were for the sale of
goods instead of land.
III. TRANSACTIN6 AT A DISTANCE
. 7a"$bo& Ru$e (applies for e8ample where u send out an offer and something gets
lostD what happens with the contract=)
a. 8a!"!
>
i. -ffer valid upon receipt
ii. Acceptance valid upon dispatch (ie$ even before it is received).
b. 243% Ae'tane e##et".e on d"!'ath
i. ;nless:
. .he parties specify otherwise (like performance as acceptance)
!F?
a. 28$ ; can say acceptance is only good upon receipt, !F#
O-R$
". -ption contracts they are effective upon receipt by offeror,
start counting the days from the receipt, !F?(b)
?. :: ,ote: (6ourts in other countries use the opposite of the
mailbo8 rule so that acceptance is effective upon receipt.)
ii. Jelay:
. If offeror&s fault 7 offeree does not know about it, contract is
still enforceable.
a. (&dam" v. Lind"ell)$ mailed offer to )eicestrshire
instead of %orcestershire, acceptance was late, but
party still bound, even though they had sold the wool to
someone else by then.
b. /ailbo8 rule says whether it gets there or not, there is
acceptance (including in 6A)1
". If delay is offeree&s fault, then offeror can revoke.
iii. /edium of Acceptance:
. It is reasonable if it is the one used by the offeror or is
customary.
". If it is sent in a strange way, it is operative upon dispatch if it
gets there in a regular amount of time.
a. -ffer may specify how to accept, but if not specified,
whatever is reasonable.
?. /ust be addressed correctly 7 ordinary precautions must be
taken.
>. +urden is on the offeror, because if the offeree sends it, it is
valid, even if it does not reach the offeror.
iv. 9a8es and emails$ are effective on dispatch (like the mailbo8 rule).
. 29/% Re.oat"on e##et".e u'on ree"'t
i. /ailbo8 Rule: acceptance effective upon dispatch, revocation effective
upon receipt, so if you send an acceptance and a revocation at the same
time, the acceptance supersedes the revocation (even if the revocation
is received first bEc acceptance is effective as soon as it gets in the
mail==$ 'ilberts)
ii. @ou can repudiate (disclaim) by phone before an acceptance is
received.
/. Tran!at"n( by Te$e'hone!
a. Acceptance by phone or other substantially instantaneous two$way
communication is governed by face to face rules, offer lapses when
conversation is over.
G
IV. 7ODES OF ACCEPTANCE
1. 6enera$$y% you need to not"#y o# your ae'tane% 2:4
/. Un!'e"#"ed ,ay to ae't
a. /ode of acceptance not specified, it can either be performance or promise,
(unilateral or bilateral). !?"
b. ;66 uses what is reasonable under the circumstances.
3. S'e"#"ed ,e"rd ,ay "n ontrat an on!t"tute an ae'tane e.en ,"thout
not"#"at"on
a. It can even include not communicating an acceptance, but *ust sending$ like
having a general manager ok the shipping order, so that notice of approval
was not reBuired. ((nternational $ilter -o. v. -onroe). P"G. $reiwald."
favorite.
i. 9acts$ Ice mfr. made an offer in the form of a purchase order. .he
order said 3this order becomes a 0 when approved by an 28ecutive
-fficer of 9ilter 6o.4 .hen the e8ecutive officer entered a notation of
approval, but before 9ilter 6o. gave notice of approval, Ice /fr. called
and attempted to revoke the offer. .he revocation was ineffective bEc a
contract was formed when the e8ecutive officer entered a notation of
approval.
9. 24;+ S"$ene or "nat"on doe! not e*ua$ ae'tane un$e!!1
a. -fferor takes the benefit of the offered services, knowing compensation is
e8pected. !FP()(a).
i. 28$ 9reiwald&s husband has repairman fi8 door without agreeing or
accepting, but watches him fi8 it Q acceptance through inaction. O-R$
b. -fferor has stated or given the offeree reason to believe that silence will eBual
acceptance . !FP()(b)
i. 28$ 9reiwald leaves a message and offers to pay kindergarden A# to
turn in application a week late. If she doesn&t here back from them, she
will assume its ok. O-R$
c. :revious dealings make it reasonable to infer that the offeree should notify the
offeror if he does not intend to accept. !FP()(c)
i. (/ogt v. adden)$ ,o 0 formed, farming beans was renegotiated
annually so silence was not acceptance.
ii. 28 that is 0 same situation as /ogt but in the last few years, they
have ,-. renegotiated annually.
:. Le(a$$y b"nd"n( a(ree)ent! an be )ade o.er the "nternet1
a. 6lick$wrap valid:
i. 6lick on the bo8, 3I agree,4 is valid, even if you did not read it.
ii. (-a"!i v. icro"oft 0etwork) forum selection clauses are valid when
someone clicks 3yes4 on the internet
b. +rowse$wrap not valid:
". (+icket".com)$ 5ust using the website does not mean that you are
bound.
V. INTERPRETATION<A78I6UIT=
1. O$d Ru$e P$a"n 7ean"n(<Four Corner! Dotr"ne
F
a. 3If the terms are not reasonably susceptible to being understood in more than
sense, then no e8trinsic evidence is admissible.4 .raditional
JoctrineE%illistonian.
b. 5udge determines whether the document is clear and unambiguous, e8trinsic
evidence only admitted if ambiguous.
c. #tuart v. c-he"ney- clear that property was to be sold 3right of first refusal,4 to
/c6hesney to be able to purchase below the other offers (for ta8 assessor&s
value). .oo bad it was only Ik instead of ?#k, no assessment for # years.
. +Ec 0 said if the <teuarts found a purchaser, /c6hesneys could e8ercise
their right to purchase 3right of first refusal,4 at ta8 assessor&s value
(only G#R the market value).
d. :olicy$ promotes careful contract drafting, predictability, certainty, stability,
restricts per*ury.
/. 7odern Ru$e E&tr"n!" E."dene Ad)"!!"b$e
a. /odern viewE6orbin
b. All credible evidence should be admitted to determine the intention of the parties,
even when the contract is clear and unambiguous. !""E ;66 "$"#".
c. 5ury Buestion because there is more than one way to interpret.
d. ,G 1 E- e8trinsic evidence is admissible to determine the parties& intentions to
see if ?
rd
party is covered for indemnity clause (to see if you can make someone
else responsible for the A if there was a loss).
e. +rident -enter- e8trinsic evidence admitted even when contract is clearD no
prepayment allowed for G year loan, .rident wanted to back out and use the
default provision to pay a #R prepayment penalty so he could get a better loan.
28trinsic evidence admitted.
3. D"##erene bet,een P$a"n 7ean"n( Ru$e and Paro$ E."dene
a. :arole 2vidence $ comes into play when someone is trying to effectuate a !rior
agreement.
b. :lain /eaningE6onte8t Rule $ comes into play when the *udge is asked to interpret
the meaning of language using e8trinsic evidence.
c. %hat they have in common + both have a narrow ob*ective view and are concerned
with what fact finders get to hear about and admission of evidence.
d. If both are raised on a test$ look at the plain meaning rule first, then the parole
evidence rule.
VI. PAROL EVIDENCE RULE
1. >ue!t"on! to a!-1
a. Can you ad)"t e."dene not ,"th"n the ontrat that re$ate! to the
ne(ot"at"on! and a(ree)ent! ?or doe! the Paro$e E."dene 8ar "t@?
i. Restatement !"?
ii. /akes oral agreements unenforceable which were entered into prior to the
written contract. If parole evidence does not apply, then oral evidence is
admissible.
. ;sed only when there is a written contract and one party says there are
additional factors or terms that were added to the agreement (only
applies to written agreements).
". J-2< ,-. A::)@ .- subseBuent oral -R written agreements.
L
b. Wa! the a(ree)ent "nte(rated?
i. @ou can tell an agreement is integrated bEc if the contract is very detailed2
they must have included everything.
. Wa! the a(ree)ent o)'$ete$y or 'art"a$$y "nte(rated?
i. )ook at %illiston 7 6orbin approaches (argue both)
ii. Jivides 6ontracts into three types:
. 6ontracts not in writing and also written contracts that are not
integrated
a. -ral Q not integrated (very rarely are oral agreements
integrated).
b. In writing but does not represent final agreement of parties.
i. 28$ shows what the parties meant, not in the form of a
promise or agreement, but in the form of background
discussion or surrounding circumstances (e8$ a note).
". %ritten contracts that are partially integrated
a. 2vidence of prior and contemporaneous consistent negotiations
permissible.
b. Joes not admit contradictory evidence.
c. 28$ A contract to buy a used car that is missing certain things
(so we don&t have everything we could possibly know because
it is not all in writing).
?. %ritten contracts that are completely integrated Q (3full and final
e8pression of the parties& agreement.4 !"#P$ discharges all
inconsistent prior agreements.
a. .he most protected by the :arole 2vidence Rule
b. .he only evidence that is admissible is that which is
completely outside the scope (,-. in the scope).
c. 28$ A contract to buy a car where detail is laid out
(3integrated4) in the contract.
d. F$o, Chart1
i. Is it integrated (a different thing from within the scope)=
. ,o all evidence is admissible
". @es completely or partially=
ii. 6omplete or partial=
. :artial Is the evidence consistent= (.est from Hunt)
a. @es Admit
b. ,o Jo not admit (:arole 2vidence Rule).
". 6omplete Is the evidence within the scope (that parties would
ordinarily be e8pected to put in writing)=
a. @es Jo ,-. Admit
b. ,o (its outside the scope, has no business being in the 0)
admit
i. 28$ 9reiwald sells her house and use to cut hair in the
basement. <omeone buys the home and before he buys
the house asks if he can get his haircut also. 9reiwald
says yes, but it was not written down. If 9reiwald later
I
says she won&t cut his hair, then its way outside the
scope so the *udge may hear it.
""". One e."dene "! ad)"tted% a!- "# the 'art"e! rea$$y a(ree to th"! ter) they
d"d not ,r"te "nto the ontrat?
/. T,o ."e,! to "nte(rat"on1
a. W"$$"!ton+ traditional view that the parties& intent must be determined from the face
of the document only. ,o e8trinsic evidence, ob*ective.
i. 3An earlier tentative e8pression is to be re*ected in favor of a later e8pression that
is final.4
ii. :olicy$ increases constant stabilityD reduces litigationD memory fails
b. Corb"n<UCC+Re!tate)ent<7odern A''roah+ any relevant evidence can be
admitted to determine parties intent, including circumstances, sub*ective.
i. :olicy$ effectuates intent, language is imperfect (.hayer), reduces in*ustice.
9. Ca!e!1
a. Paro$e e."dene bar! ?W"$$"!ton a''roah@+ itchell v. Lath- sale of land was
completely integrated, so the agreement to remove the icehouse is not admissible.
b. Paro$e e."dene doe! not bar ?Corb"n a''roah@+ a"ter"on v. #ine- oral
agreement that the repurchase option of the farm was non$assignable, so only
/asterson could re$buy the place, not his creditors. 6t looked at all evidence to
determine that despite the 0 language, it was implied that the land would stay
with the family. <o this is admissible, and therefore /asterson&s creditors cannot
re$buy the place.
. 6t looked at the fact that the transaction was between family members
and the difficulty of putting oral agreements into a deed.
VII. TAE 8AR6AIN PRINCIPLE AND ITS LI7ITS Per#or)ane o# a Le(a$ Duty a!
Con!"derat"onB 7od"#"at"on and Wa".er
. Pre+e&"!t"n( Le(a$ Duty Ru$e C performing a part of your legal duty does not count as
consideration.
a. Gray v. arino- /arino offered a AG## reward for finding the people that stole
her *ewelry. A police officer found the people and tried to collect the reward.
i. 6t said ,- bEc of ::$ if we allowed this than cops would prefer people
who tip.
b. *enny v. )e!!ert- +ank employees can&t get reward from a bank robbery bEc they
have a pre$e8isting duty to protect the money in the bank.
c. E3- the deputy sheriff of another county was entitled to the reward money bEc the
money was in a different county where he wasn&t under a duty to do anything.
d. :ublic :olicy$ if u are suppose to do something under a 0 and you don&t do it
until you get more from the person you owe the duty to, you are being paid twice
for the same thing.
e. Lingerfelder v. 4ainwright %rewery -o.- Architect stopped work on the Ns bldg
after the N awarded another pro*ect to his competitor, refusing to resume work
until the N promised him GR more A.
i. Rule$ %hen a party merely does what he has already obliged to do, he
cannot demand additional compensation, even if he takes advantage of the
situation and obtains a promise for more money.
ii. Cypo$ If N had agreed to do e8tra work, he could ask for GR more.
P
f. ,-.2: -nly comes into play when enforcement hasn&t taken place yet (like if the
money has not been paid yet).
". Dure!!+ If you sue to enforce a promise made under duress, not only is the promise
unenforceable, but u will also have to pay damages.
a. 2lements of 2conomic Juress:
i. .hreat not to deliver goods
ii. ,o other source of supply
iii. .he ordinary remedy for breach is inadeBuate
b. &u"tin (n"trument (nc. v. Loral -or!- " cases with different decisions about
threatening to stop work on ,avy parts sub$contract.
3. So)et")e! one+!"ded )od"#"at"on! are en#oreab$e by !ho,"n( e"ther1
a. Re!tate)ent 2D;1
i. /odification is binding if
. !IP(a)$ it is fair 7 eBuitable in view of circumstances ,-.
anticipated by the parties when the 0 was made
". !IP(b)$ to the e8tent provided by statute
?. !IP(c)$ to the e8tent *ustice reBuires enforcement in view of
change of position in reliance on the promise.
ii. &ngel v. urray- A garbageman contracted with the 6ity for additional
compensation when his route had an une8pectantly large increase in
pickups. .he court adds 3voluntary4 to the restatement test.
b. UCC /+/E;1
i. "$"#P()$ A modification of a sales 0 does not reBuire consideration to be
binding.
. "$"#P(")(a)$ An agreement cannot be rescinded or modified
without a singled writing if the original agreement is in writing 7
signed.
". "$"#P(")(b)$ .he modification must be separately signed if one
party is not a merchant and the term is on a form supplied by the
party who is a merchant.
c. If neither of the above applyD the one$sided modification will ,-. be
enforceable.
VIII. CONTRACT FOR7ATION IN A FOR7 CONTRACT SETTIN6+ CONTRACT
SETTIN6<8ATTLE OF TAE FOR7S
1. What are the ter)! o# a ontrat ,hen they on#$"t?
a. :arties don&t usually negotiate every detail, so the provisions they did not
negotiate are governed by the forms
b. C@:-$ /acy&s orders *eans from )evi&s. .hey negotiate price and delivery, but
they don&t negotiate returns and every other detail. .he purchase order is what
governs those little details and /acy&s purchase order says they have F months to
return and )evi&s purchase order says they have only ?# days to return.
/. >ue!t"on!
a. <tep one: Cas a contract been formed= "$"#L()
i. /irror Image Rule$ any difference between an offer and an acceptance, no
matter how minor, prevented the formation of the contract.
#
ii. )ast <hot Rule$ can accept by conduct, so the person who sent the last
form, their terms controlled because then the parties performed by
conduct.
iii. ;66 /odern Rule "$"#L()
. /akes response into an acceptance, varying terms are still
accepted unless acceptance says 3acceptance e8pressly made
conditional to these terms.4
". If no e8pressly made conditional clause, there is still a contract, but
we look to "$"#L(") 7 (?) to see whose terms apply.
b. <tep two: If so, whose terms control= Additional or different (as long as they are
merchants)
i. Additional .erms become part of the contract unless: "$"#L("):
. -ffer e8pressly limits the terms of the offer
". .he terms materially alter the entire contract (would not have
entered into the 0 had they known because they create surprise or
hardship)
a. If any of these things, it becomes a counteroffer.
?. ,otice of the ob*ection to them has been given -R the goods are
re*ected in a reasonable time.
ii. Jifferent .erms become part of the contract$ The Fno-out Ru$e+
"$"#L(?)
. If conduct by both parties says there is a contract, there is a
contract even if writings don&t show otherwise.
". 6onflicting terms cancel each other out, leaving ;66 gap filler in
place (knockout rule).
3. Ca!e!
a. #te! #aver v. 4y"e +ech- .erms on the bo8 top agreement disclaimed all
warranties, court found that bo8 tops cannot be e8pressly made conditions, its *ust
an acceptance.
b. Gardner Zemke v. *unham %u"h- (emke (buyer) sent a purchase order for
6hillers to Junham (seller). Junham sent an acknowledgement with a limited
warranty. .he chillers don&t work and there is a dispute over who should pay for
it.
i. -ffer Q (emke&s purchase order.EEE 6ounteroffer Q Junham&s
acknowledgement (mirror image rule$ terms don&t match) EEE Acceptance Q
(emke&s received the chillers
ii. )ast <hot Rule$ Junham&s terms control under common law
iii. +ut ;66 "$"#L$ does not like mirror image rule, so counteroffer was
really an acceptance as long as Junham&s form did not e8pressly state that
he would only deal on his own terms.
. Cas Junham made clear that the acceptance is e8pressly made
conditional on (emke&s acceptance of the terms=
a. 6ase was remanded to see.
". .2<. it must clearly reveal that he is willing only to proceed
with the offer on his term.

a. If there is an e8pressly made conditional clause, your

response does not become an acceptance$ it remains a
counteroffer.
9. /+/EG doe!n0t a''$y% out!"de the !o'e o# H8att$e o# the For)!I ,hen1
a. %hen it is not between merchants.
b. %hen terms have been negotiated or bargained with,
i. and then they are included in contradiction in the last contract, there is no
0 because acceptance becomes a counteroffer.
ii. -olumbia Hyundai v. -arll Hyundai- buyer of dealership signed
agreement and added 3current year,4 meaning he did not have to buy older
new carsD treated as a counteroffer and re*ected. ,o 01
c. %hen there is only one form
i. ,ro-*- only one form, shrinkwrap licenses valid so that prices can be
kept down. -pen shrinkwrap, bound by the terms of the contract inside,
not feasible to put the contract info details on the outside.
d. %hen a customer orders by phone and then receives by mail
i. 6ustomer is bound by the contract terms, not feasible to read the terms
over the phone. (Hill v. Gateway)
:. Pub$" Po$"y
a. +attle of the 9orms is wasteful, arbitrary, encourages tricky behavior, could lead
to surprising results and is bad for society1
b. ,2'-.IA.2 instead1 If you really want your terms to control, negotiate and
come to an agreement. :ut it out in the open, not through trickery.
IJ. 7ISTAFE
1. 7"!ta-e Ana$y!"!
a. What ,a! the ontrat #or?
b. What ,a! the )"!ta-en ."e,?
. What ,ere the atua$ #at!?
d. Do ,e $et the) out or not?
e. Rea!on!?
/. 7"!under!tand"n(
a. .wo parties attach two different (but both reasonable) meanings to their language,
no consensus or common ground, so no contract.
i. <eems like a mistake, but not a mistake in the legal sense, in the colloBuial
sense instead no common understanding.
b. )affel"- no consensus on which 3peerless4 boat was to bring the cotton, the
-ctober or Jecember, so no contract.
c. 5"wald- 6oin collection bought, but seller only intended to sell one coin, no
contract.
3. 7utua$ 7"!ta-e
a. Jefinition$ a mistaken assumption, shared by both parties as to the conditions of
the outside world.
b. After a valid offer 7 acceptance has been made, what is a valid e8cuse for non$
performance=
i. !G"$ /akes contract voidable:
. /utual mistake at the time contract was made on a
"
". +asic assumption on which the contract was made
?. .hat has a material effect.
>. 6ontract is voidable by the adversely affected party
G. ;nless he bears the risk of the mistake under !G>
ii. !G>$ %hen the party bears the risk
. .he risk is allocated to him by agreement O-R$
". Ce is consciously ignorant O-R$
?. .he court allocates the risk because it is reasonable to do so
c. @es, party can get out of it (very discretionary)
i. #herwood v. 4alker- when the mistake goes to the root of the contractD
cow was actually fertile, worth ALG# instead of AI#.
ii. Griffith v. %rymer- root of the matter, mis$belief made at am, after
cancellation of coronation was announced at #am (but parties didn&t
know that yet)D room rented for viewing coronation.
iii. 4e"t -oa"t &irline"- no intention of selling the engines in the pile of *unk
metal, and the buyer knew of their value.
iv. Garb-ko- <eller was adversely affected so the 3as$is4 G>a clause only
applies to buyersD land for a L$ severely leaking oil. 0 was avoided bEc
3as is4 clause does not relieve sellers of their statutory duty to clean up the
property.
. -nly the adversely affected party has the right to void the 0 unless
that adversely affected party trying to avoid the 0 bears the risk.
". /istaken view Q land was normal
?. Actual facts Q land was contaminated.
v. Gartner v. Eikil- root of the matterD land for commercial buildingsD
mistaken belief that buyer could build on the land, but only one building
was actually permitted, failure of a party to investigate does not always
preclude rescission, reasonable not to go to city hall.
. 6ompared to 4ood2 (diamond case)$ shows how discretionary
mistake of fact is.
vi. %eachcomber -oin"- negligent inspection does not bar a claim for
rescissionD a coin was not actually a Jenver dime, only worth # cents, not
AG##, N had been counterfeited on it. Ce was tricked, because it was
counterfeit.
d. ,o, can&t rescind the contract:
i. 4ood v. %oynton- +oth people were ignorant, but it was conscious
ignorance, she knew he did not know what the stone was so she assumed
the risk by not researching further !G>(b)$ (consciously ignorant)D he sold
it as a topaH worth A, but it was actually a diamond worth AL##.
. %hen you sell or buy something with a risk attached and the risk
eventuates, and you knew of the risk, the court will not let you out
of your deal.
ii. $ire"tone v. 6nion League- market value of a painting fluctuates, so it has
to be final at the time of the saleD no mistake here, only an opinionD belief
that it was a +ierdstadt painting worth AG##k, but it was only a 0ey worth
AG#k.
?
. ,o mutual mistake bEc when the parties made their deal there was
no mistake as to what they thought vs. the truth at the time (bEc at
the time they thought the painting was a different painter).
". .here are no facts, *ust opinions about who painted and how much
its worth depends on changing perceptions in the art world.
iii. Everett v. E"tate of #um"tad- auctioneer led the parties to believe that he
intended to sell a safe, not knowing contents, 3he did not know,4 !G>(b)$
assumed the riskD buyers got to keep the une8pected ?"k inside.
iv. Lenawee -ounty- 3as is4 contracts for sale of land shows that buyer has to
bear the risk !G>(a)D had to keep land with the apt building on it even
though the horrible sewage makes the property condemned and valueless.
9. Un"$atera$ 7"!ta-e
a. !G?
i. %here a mistake of one party at the time of the contract was made
ii. 'oes to a basic assumption on which he made the contract.
iii. %hich has a material affect (0astorff$ #R was material, )emoge$ GR
was material)
iv. .hat is adverse to him
v. 6ontract is voidable:
. ;nless he bears the risk of mistake !G>a OA,J$
a. .he other party had reason to know of the mistake or
mistake was his fault
i. Ei"en- school dist. 0new about the mistake (bEc bid
was " low) and tried to accept anyways bEc they
liked the price.
b. -R$ enforcement would be unconscionable.
i. <hocks the conscience$ too sharp for law 7 eBuity
to sustain
ii. If reliance then no e8cuse, void only if other party
can be returned to status Buo (*rennan- reliance
barred bEc Jrennan relied by committing itself to do
a deal at a lower amount.)
. 6an the non$mistaken party be put in the
pre$contractual position=
iii. %as it carelessness or a reasonable mistake=
b. 28amples (can you rescind=)
i. @es, can rescind when mistake is clerical 7 notice is promptly given:
. El"inore 6nion Elementary #chool *i"trict- a contractor gave bid
without including plumbing work in it, "k less than it should have
been, ne8t day he wrote a letter e8plaining what went wrongD
rescission permitted.
a. Jifferent from *rennan because in *rennan there was
reliance, in El"inore the party notified the other before
either lost anything.
ii. ,o, cannot rescind, where mistake of *udgment like underestimating cost
of laborEmaterials
>
c. Available less often than mutual mistake
J. TAE EFFECT OF CAAN6ED CIRCU7STANCES
1. D"##erent #ro) )utua$ )"!ta-e
a. Jifferent from mutual mistake because it is an attempt to rescind after the
performance has begun, as opposed to mutual mistake where the attempt to
rescind is before either party has done much.
/. I)'o!!"b"$"ty<I)'rat"ab"$"ty
a. !"F ImpossibilityEImpracticability (discretionary doctrine of e8cuse)
b. .his is mostly for sellers, but has also been used for buyers1
c. @es, rescind:
i. %hen a fire burns down a buildingEmusic hall the other party planned to
rent,
. ,o reliance damages are awarded in preparation for concert.
(+aylor v. -aldwell)
ii. %hen it would be e8cessively costly and the contract was loosely
constructed
. Ns agreed to take the gravel that was available, but it was
e8pensive and impractical to take more than G#R because it was
underwater. 328cessive and unreasonable costs.4 (ineral ,ark
Land v. Howard)
d. ,o, don&t rescind:
i. %hen the parties considered it in the first place:
. 9ailure to obtain financing is not a good e8cuse for not developing
a park because the parties anticipated and allocated this risk in the
contract. (*ill" v. +own of Enfield)
". %hen the parties made an e8press warranty (e8$ they put a fire
clause in their contract, and the place burns down):
a. /arcoviches tried to get out of fi8ing it because it would be
impracticableE costly to do so, but could not rescind bEc of
e8press warranty.
b. ,ot whether it is a 3bad business risk or even a very poor
deal, but whether there was e8treme difficulty, e8pense, or
in*ury or loss which goes way beyond normal range, and
whether parties allocated the risk.4 (arcovich v.
0ewberry)
3. Co))er"a$ I)'rat"ab"$"ty ?Sa$e o# 6ood!@
a. ;66 "$FG 28cuse by 9ailure of :resupposed 6onditions
i. After 0 made
ii. :arties :erformance became impracticable
iii. %ithout 9ault
iv. +y the occurrence of an 2S2,.E6-,.I,'2,6@ the nonoccurrence of
which is a basic assumption on which 0 was made
v. 0 is voidable unless the parties provided for it or it was 9-R2<22A+)2
b. Jiscretionary Joctrine with 3weasel words4
c. %ho bears the risk=
i. %hen a seller promises to sell a bushel for AG#
G
ii. :rice goes up, seller bears the risk
iii. :rice goes down, buyer bears the risk
iv. If price goes way up to A"## or down to AG, we might discuss
impracticability
. 'ross discrepancy
". :arty bargained for and anticipated a range around the number
?. It is outside the bargaining, so it is a windfall
d. 28amples:
i. @es, rescind:
. 0 for sale of building buses. %hen 3the source and supply dries
up,4 is a good e8cuseD the supplier is named in the contract and the
supplier goes bankrupt, it becomes a basic assumption. (#elland
,ontiac)
ii. ,o, don&t rescind:
. %hen it is *ust e8pensive, but not so e8pensive that it is
prohibitiveD N still had to pay late fee damages to the ;< for not
delivering the computer system on time, even though fi8ing an
engineering system would have been costly. (6# v. 4egematic)
a. ,o rescission because:
i. 3,ot costly enough,4 Impracticable
ii. 3.ruly revolutionary assumption ,o event, you
contracted on the basis of possibility when u
thought there was a risk
iii. 3)iBuidated damages for delay.4 :roblem Q they
thought about it beforehand bEc the contract covered
it and said u pay A## for every day of delay.
". %hen oil embargo was foreseeable, made coal e8pensive to deliver
(i""ouri ,ublic #ervice v. ,eabody). :eabody&s financial status
was considered, and it had enough money to cover it.
?. %arbaro""a v. (ten- when the truck supplier is not named in the
contract, it is not a basic assumption because the truck could have
been supplied from another source.
>. 6rop cases, unless it is specified that the crops come from the
seller&s farm only.
iii. -ther option:
. &lcoa 7 ;66 supports$ split the difference between drastic price
increase. .his is ,2S2R followed because it would ruin stability
3dissent into fiery hell.4
". +ut it treats contracts like marriages rather than one$night stands.
9. Fru!trat"on
a. 2lements of frustration !"FG:
i. After 0 made
ii. :arties :erformance became <;+<.A,.IA))@ 9R;<.RA.2J
iii. %ithout 9ault
iv. +y the occurrence of an event the nonoccurrence of which is a basic
assumption on which 0 was made
F
v. 0 is voidable unless the parties provided for it
b. Jifference from impracticability is the effect of the supervening event.
i. ;nder frustration, 3the performance remains possible but the e8pected
value of performance to the party seeking to be e8cused has been
destroyed by the event.4
c. 28amples:
i. @es, rescind:
. Krell v. Henry- worthless to rent the room for the viewing of the
coronation when the coronation was cancelled.
a. 6ompare$ Jifferent from 3/I<.A024 in Griffith2 bEc the
parties made the 0 at am, and at #am, it was already
cancelled. Cere, the contract was made at a time when the
coronation %A< suppose to happen. Cere it is *ust
economically unreasonable, not impossible or mistaken.
". ark" )ealty- hotel did not have to pay for advertisements in a
souvenir brochure for an event which was cancelled because of
war, even though the people putting the ad together had done a lot
of work.
?. La -umbre Golf v. #anta %arbara Hotel- the hotel did not have to
pay for a shuttle bus to the country club when the hotel burned
down and there were no guests to take.
>. -ha"e v. ,aone""a- N could not continue with highway
construction pro*ect bEc the town cancelled it, but N did not owe
lost profit damages to concrete barrier co. because there were no
e8tra barriers made yet, so no reliance damages incurred.
ii. ,o, don&t rescind:
. ,ower Engineering v. Krug- ;66 "$FG applies to frustration also.
%hen there is an embargo against selling to IraB, but the contract
did not specify that eBuipment was only being sold to IraB, the
eBuipment could be sold domestically. Risk fell on the buyer.
a. :rof says this case may have been different if they knew
IraB was the ultimate buyer.
". *erby H7,5- take a cab to Jerby and the races are cancelled,
because there is no special Bualification of the cab driver to take u
to Jerby days and driver may not know he is taking u there (so its
,-. a basic assumption of the 0).
:. Nond"!$o!ure
a. 'enerally no duty to tell unless asked. +utK
b. !F$ <ellers cannot suppress a material fact (be silent about it), or it is eBuivalent
to a false representation when he:
i. 0nows he is being fraudulent
ii. 9ails to act in good faith and fair dealing
iii. 0nows his knowledge contradicts what is written
iv. %hen the other is entitled to know because of trust and confidence (like
lawyer$client privilege, not ))$tenant)
c. !GP$ /isrepresentation is an assertion not in accord with the facts.
L
d. <ub*ective standardD if a lot of people would care and it would have affected their
decision then it is material:
i. 6A$ /aterial if the value or desirability is affected, and if he knows
something others could not find out.
. 28$ ,-. *ust thinking the bathroom was another color
". 28$ 9reiwald ghosts in apt. (possibly material=)
ii. If material, and suppressed, then buyer can rescind.
e. 28amples:
i. @es, termite 7 roach infestations are material facts which need to be
disclosed.
ii. ,o, not material:
. %hen something is a cheap imitation, but is sold cheaply (Eytan v.
%ach- paintings which looked old but only cost AG#)
". 0ronman 'theory)- when the other party could figure it out with a
little research.
JI. TAIRD PART= 8ENEFICIARIES
1. Shou$d th"! th"rd 'arty be ab$e to en#ore th"! ontrat )ade by t,o other 'eo'$e?
a. Po$"y 3 Cho"e!1
i. A$$ 3
rd
Part"e! Aa.e R"(ht! ?not the rule@1
. :ros$
a. ,ever had to worry about someone slipping through the
cracks that would have rights or someone who isn&t able$
?
rd
parties would generally be happy.
b. 6lear rule anyone who thinks to sue can sue
". 6ons$
a. ,othing ever gets done who would make such a 0= .his
would kill contracts11
b. If 0 does get made, corporation would put price of liability
on consumer, you have to cut off liability at some point.
"". No 3
rd
Part"e! Aa.e R"(ht!1
. :ros$
a. 6lear rule
b. )imit liability$ no disincentive to 0
". 6ons$
a. ?
rd
party who reasonably relied on promise would be
negatively affected especially if parties intended.
b. %hat if the second party enforcing dies=
""". So)e 3
rd
Part"e! Aa.e R"(ht!1
. In general, depends on 'art"e!0 "ntent ?not a$,ay! ea!y to
deter)"ne@% (oa$! o# F% and ,hat "! #a"r.
". 6an sue to recover what benefit was suppose to be conferred on them from one person&s
promise to another.
?. Cypo$ A is the promisor, + is the promisee, and 6 is the ?
rd
party. A makes a promise to
+ that benefits 6 (?
rd
party).
>. )ook at the ? parties$ who is ?
rd
party and what promise is he trying to enforce=
G. Is the ?
rd
party an incidental or an intended party=
I
a. !?#"$
i. Incidental$ has no rights to enforce promise$ !?G
ii. Intended$ has rights to enforce promise$ is beneficiary&s reliance
reasonable and probable=
. .he performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary $ !?#"(a) O-R$
". .he circumstances indicated that the promisee intends to give
beneficiary the benefit of the promised performance$ !?#"(b)
6. Lawrence v. Fox
a. + owes debt to 6 and promises land to A. A promises to pay price to 6. + gives
land, but A refuses to pay 6.
i. :arties:
. A$ promisor
". +$ promisee
?. 6$ ?
rd
party
b. Colding$ a promise made to one for the benefit of another, he for whose benefit is
made may bring an action for its breach$ !?#>
c. Its important that the ?
rd
party beneficiary was a creditor1 ()awrence was a
creditor of Colly).
d. 6onsideration does ,-. have to move from the person enforcing the contract
($arley)
e. )A,J/AR0 6A<2
7. Seaver v. Ransom
a. 28tends $o32 beyond debtorEcreditor cases
b. 6ircumstances indicate promisee&s intent
. C$ear$y a!e! "n ,h"h a$$o,"n( 3
rd
'arty to en#ore e##etuate! 'art"e!0 dea$
8. Salesky
a. Retired president of a company amends his employment 0 so that his wife is no
longer the beneficiary of the pension. %hen he dies, wife sues.
b. I# 3
rd
'art"e! r"(ht! ha.e not .e!ted yet% 'art"e! an )od"#y% a)end% or re!"nd
,"thout 3
rd
'art"e! a!!ent
c. ;sed to be that rights vest when 0 is made$$ !>" of original Restatement
d. ,ew Rule$ change at any time, do not vest automatically
e. !?$ Rights have vested if:
i. .erms in 0 provides that it cannot be changed
ii. +eneficiary has *ustifiably relied$ )ater"a$$y han(ed 'o!"t"on "n
re$"ane+ or )an"#e!ted a!!ent at re*ue!t o# 'art"e!
9. Rouse
a. A man bought a house and agreed to take on the previous owner&s payments for a
newly$installed heating plantD and when he later refused to make payments, the
government, which had guaranteed the debt, sued.
b. A ?
rd
party creditor beneficiary (;<) under a 0 is sub*ect to the same defenses that
the promisor (Rouse) has against a promisee (%inston)$ Rouse&s fraud defense
works
i. <till had to pay because he didn&t assume debt$ assumed arbitrary sum
ii. +eneficiary&s right rises no higher than that of the promisee
P
. I# F bet,een A and 8 "! #raudu$ent% and A a!!u)ed 80! debt to C% A doe! not
ha.e to 'ay.
i. !?#P()$ 0 formed under fraud are voidable (this is a defense both to the
promisee and to the ?
rd
party).
JII. TAE O8LI6ATION TO PERFOR7 IN 6OOD FAITA
. -bligation in every contract to act in good faith and fair dealing$ ,hat doe! 5ud(e
"ntend to ru$e out by u!e o# th"! 'hra!e?
". )ook at what parties intended:
3. R/nd+ 2/E:+ E.ery ontrat ")'o!e! u'on eah 'arty a duty o# (ood #a"th and #a"r
dea$"n( "n 'er#or)ane and en#ore)ent
9. UCC 1+/E1?1;@+ H6enu"neI )ean! hone!ty "n #at "n the ondut or tran!at"on
onerned
:. UCC 1+/E1?/E@+ H6ood #a"th%I )ean! hone!ty "n #at and the ob!er.ane o#
rea!onab$e o))er"a$ !tandard! o# #a"r dea$"n(
a. ,ote the difference btwn (P) and ("#) the new version
4. UCC /+1E3?5@+ 6ood #a"th )ean! hone!ty "n #at and the ob!er.ane o# rea!onab$e
o))er"a$ !tandard! o# #a"r dea$"n(.
8. %e"t v. 6# 0ational %ank-
a. :eople were mad when they found out how much their checking fees were
increased without notice to them. <uit was based on breach of -bligation of 'ood
9aith.
b. ;nconscionability is more about a defect in contract formation and this is about a
defect in contract performance A,J$ +ottom )ine Q it doesn&t shock the
conscience1
JIII. ASSI6N7ENT AND NE6OTIATION
. Introdut"on+ concerns cases in which A and + have made a 0 that did not benefit a
?
rd
party at the outset, but in which A subseBuently either transferred (or attempted to
transfer) his rights under the contract to a ?
rd
party or delegated (or attempted to
delegate) his duties under the contract to a ?
rd
party.
/. A!!"(n)ent+
a. .he transfer of a contract right
b. An act or manifestation by owner of right indicating the intent to assign that
right to another party.
c. An eBuitable assignment need not transfer the entire future right but rather
)ay be a 'art"a$ a!!"(n)ent o# r"(ht
d. An assignment by definition is "rre.oab$e.
3. De$e(at"on+
a. .he transfer of a duty
b. Evening 0ew" v. ,ater"on- :ost ,ews (assignor) assigned :eterson&s (obligor)
services to 2vening ,ews (assignee). :ost ,ews also delegated the duty to
pay :eterson to 2vening ,ews.
c. @ou cannot delegate contracts that rely upon the !-"$$% 5ud()ent% and ta!te o#
the de$e(at"n( 'arty
9. Atta- P$an+
a. %hat is the legal claim 7 what are the damages=
b. %as there consideration=
"#
c. .ermsE:arties: obligor, obligee$assignor, assignee=
i. .ransferor of rights Q a!!"(nor
ii. .he other party to the original 0 Q ob$"(or
iii. .ransferee of rights Q a!!"(nee
d. Is the right to assign valid and has notice been given=
i. Salid if assignor relinBuished his rights 7 retained no control OA,J$
ii. ;nder !?L:
. 6ontract does not prohibit transfer by saying 3not assignable or
delegable.4
". .he other party&s e8pectations are not impaired
a. +y materially varying the duty,
b. Increasing the burden of risk imposed by 0%
c. Impairing ability to obtain return performance, or
d. /aterially reducing its value to the obligor
?. .he transfer does not offend public policy (right to sue,
alimony)
a. 6annot assign a contract for personal services.
:. Other Th"n(! to Con!"der+
a. 6onsent 7 franchiseElease conte8t
b. Juty still there after delegation
c. Assignment by definition is irrevocable.
d. 2TA/ .I:$ If an issue of the ability to assign rights comes up, makes sure to
analyHe the r"(ht! and dut"e! o# eah 'arty !e'arate$y% bEc maybe one of the
parties can assign and the other cannot.
4. Voabu$ary+
a. Ob$"(or+ owes a dutyEconveys rights (I am the obligor of the duty).
b. Ob$"(ee+ owed a dutyEhas a right
c. R"(ht+ an owed duty
d. R"(ht! are a!!"(ned% dut"e! are de$e(ated.
G. 8reah o# A!!"(n)ent and De$e(at"on+
a. %hen a person (assignorEobligor) assigns a pot of money to go to another
(assignee), and the obligor does not transfer that money to the assignee, the
assignee can sue the obligor for the money.
i. In*ured person (assignor) assigned his settlement money to the doctor
(assignee) in e8change for surgery, but the attorneys (obligors) gave
the money back to the assignor (in*ured person) because the assignor
told them to do, so the doctor (assignee), sued the attorneys (obligor).
(Herzog v. (race)
. Rule$ an assignor may not retain a power of revocation.
b. 6ontract rights are assignableEdelegable, even for employment contracts:
i. ,o"t 0ew"week can assign the right to have :eterson as a newscaster to
2vening ,ews, who bought the .S station.
. 2ven though :eterson tried to argue he had a great relationship
with his first employer, but not the second who took over. 6t
didn&t care.
". C@:-<$
"
a. Instead of assigning to 2vening, assigned to a station in
Iowa ,-1 aterially changed duty of a""ignor.
b. Assigned to an entertainment station ,-1 aterially
changed duty.
c. 9ledgling station that was stable but crappy ,-1
aterially im!air" obligor" chance of obtaining return
!erformance (the e8posure)
d. Always on verge of going bankrupt ,-1 aterially
im!o"e" a burden or ri"k.
e. :eterson assigned his duties to another anchorman
,-1 7ou cant delegate unle"" the oblige ha" a
"ub"tantial intere"t in having that !articular !er"on.
(:eterson).
ii. Run of the mill employment contracts like providing soda vending
machine contracts can be delegated (acke v. ,izza #ho!)
. 6an&t delegate a contract which relies on 3skill, *udgment, or
taste.4 (&d -am!agin)
iii. 28clusive distributorships 6A,,-. be delegated to a competitor
without obligee&s consent.
. #ally %eauty v. 0e33u"- +est cannot delegate their duty to
distribute to <ally since ,e88us cannot rely on <ally to do a
good *ob (since they also sell the competitor&s product)$ they
have a competing interest.
a. !?I(")$ there is a "ub"tantial intere"t in <ally not
selling the ,e88us products. Juty of best efforts.
iv. %hen you delegate a duty, the oblige is the ?
rd
party beneficiary.
c. 6onsent:
i. A franchiser must consent to the sale of a franchise unless they have
good reason to withhold consent. 'ood faith 7 fair dealing. (Lare"e v.
-reamland *airie")
. ;nless it is e8plicitly stated, written, and freely negotiated.
ii. A landlord must consent to a sublet unless he has a commercially
reasonable ob*ection. (Kendall v. Erne"t ,e"tana)
d. Jelegation does ,-. discharge liability of the delegating party !?I(?),
unless the obligee agrees otherwise.
i. If delegatee fails to perform, the delegant remains liable.
ii. +est still has a duty to ,e88us.
iii. Sirginia still has a duty to :iHHa if /acke does not perform.
D. Po$"y+
a. 36redit enriches nations.4
b. +orrow now, pay back later.
c. :eople can trade their future claims for money.
d. 6ourts encourage assignment 7 delegation.
JIV. TAE DOCTRINE OF SU8STANTIAL PERFOR7ANCE
1. Prob$e)! ,"th 'er#or)ane
""
I. Sub!tant"a$ Per#or)ane+ condition or promise= If promise, then substantial
performance
i. A party who substantially performed is entitled to the other party&s
performance minus an offset for the deviation. (9acob" 1 7oung v. Kent-
owner wanted Acme plumbing pipes, builder used +aker pipes instead
(which are functionally similar). -wner is only entitled to difference
between the " pipes, not the cost of replacing the pipes).
. Jifferent from last semester because it is the breacherEcontractor
suing
". C@:-$ If the contract e8pressly stated the pipe must be
manufactured by Redding and no other brand would do outcome
would be different.
?. C@:-$ If the Redding name on the pipe were visible in the
bedroom and the owner liked the status symbol outcome could
be different.
ii. Replaces harsh background rule of the common law: 3of the builder&s
performance is defective in any way, the homeowner&s duty to pay is
discharged.
. /itigation of the 6) 7 :erfect .ender Rule:
a. Restitution (Buantum meruit to party in breach)
b. Installment 6ontracts partial payment
c. 9orfeiture (builder can forfeit work)
d. <ubstantial performance
e. .he good faith reBuirement you can&t seiHe on a minor
deviation to take advantage of a falling market
f. 6ure$ if it happens before the contract delivery time.
g. Revocation
iii. /easure substantial performance by 6ardoHo factors which look at the
parties& intent (with 9acob" 28)U
. :urpose to be servedD
a. +uild a house.
". .he desire to be satisfied (is it artistic or functional=)
a. Ce wanted Acme pipe bEc of the Buality of 3Redding.4
?. .he e8cuse for deviation (honest mistake)%
a. It was inadvertent
b. Cere is where you talk about good faith.
>. .he cruelty of enforced adherence (how cruel to make builder
replace pipes, 3oppressive retribution.4)
a. In order for the builder to e8actly perform, he would have
to tear down the house. If it were easy for him to do so,
then it wouldn&t be cruel. Its cruel because its impossible to
fi8 without a lot of money.
iv. :olicy for substantial performance
. 2nhances freedom of contracts
". 2liminates trivial e8cuses for non$performance
"?
v. %hen a contractor leaves much of the work undone, it is incomplete
performance so he can only recover Buantum meruit. (Keyer v. *ri"coll)
. Restitution damages are given because they are the least generous.
vi. %hen the work involves taste or preference, substantial performance does
not apply. (54 Grun )oofting v. -o!eru""et colored roof)
vii. If there is substantial performance, there is not material breach.
II. Cure+ if the time for performance has not yet e8pired, then the seller can 3cure4
the defect by making a conforming delivery within the contract time.
a. ;66 "$G#I()$ within contract time frame
i. A buyer re*ects non$conforming tender
ii. .ime for performance has not e8pired
iii. <eller can seasonably notify buyer of his intention to cure 7 then cure
iv. +uyer must be re*ecting goods in good faithU
b. ;66 "$G#I(")$ time has e8pired
i. A buyer re*ects nonconforming tender
ii. <eller had reasonable grounds to believe that the goods would be
acceptable
. +4 5il- seller acted in good faith and did not know about the
defects (high sulfur content of the oil).
iii. <eller can seasonably notify the buyer of his intention to cure.
iv. And can have further reasonable time to cure.
v. +uyer must be re*ecting goods in good faithU
c. /itigates harshness of the perfect$tender rule, where a buyer could re*ect any
nonconforming goods, no matter how trivial, and be e8cused when there is any
deviation.
d. ,-.2: A buyer who fails to accept Bualifying cure is himself breaching his 0.
e. A seller of new cars cannot 3cure4 when the first car was defective as soon as it
was driven off the lot and needed a new transmissionD new cars are about
dependability and safety. (Zabri"kie)
f. Jifferent from substantial performance because cure ultimately reBuires perfect
tender, more strict because seller can take goods back.
g. :ay attention to who owes whom first.
III. Re.oat"on+
a. ;66 "$F#I$ Revocation if you have already accepted 7 imperfection alters the
value of the goods:
i. /ust do it in reasonable time
ii. ,ot effective until buyer notifies seller
iii. /ust have assumed that non$conformity would be cured or must not have
discovered non$conformity
iv. <ame rights and duties as one who re*ects.
IV. Re5et"on o# 6ood!
i. /ust be in good faithD bad faith can be shown by motivation to re*ect the
goods to escape the bargain.
ii. ;66 "$F#$ :erfect .ender Rule$ A buyer can re*ect tender which fails in
any respect.
""".
">
JV. EJPRESS CONDITIONS
. Jifference between promises and conditions:
a. 6onditions are similar to promises however a condition tells us what a party )u!t
do
b. ,on$performance of a promise Q breach 7 ,on$performance of a condition Q
discharges a duty (whatever is set out in the 0).
". )anguage$
a. 3/ust4 Q the best indication of a condition, not a promise
b. 3;nless and until4
c. 3If4
?. Rst !""L applies to conditions an interpretation is preferred that will reduce obligee&s
risk of forfeiture.
>. %hen an e8press condition is specified in a contract, substantial performance does not
apply
G. Vuestions to ask:
a. -bligor= Juty=
b. .hing which did not occur= 6ondition or promise=
c. %ho suffered a forfeiture and of what=
d. Are there " sets of promises= ($ promise to sublease if consent is given, "$ actual
sublease, sale of land)
F. If there is a condition, standard is strict performance. 28ample: condition was for
3written consent.4 +ecause condition was not fulfilled, N not obliged, no 0 was formed.
6ondition precedent. (5!!enheimer)
L. 9ailure to meet a condition does ,-. lead to breach of contract liability (damages), it
leads to whatever conseBuences are set out in the contract. (erritt Hill /ineyard"-
deposit returned)
I. :romise$ when you agree to a future performance, but the liability arises before
performance is necessary. 6an be sub*ect to substantial performance, also called
3condition subseBuent.4 9ailure to perform promises leads to breach of contract damages.
Joubtful words Q promise.
P. 6ondition precedent$ condition which must be satisfied before liability on the contract
will arise. 6onditions are strict, cannot be done a day late. ,o damages for conditions.
a. %hen drafting a contract, make the first part a promise and the second part a
condition.
JVI. SATISFACTION CLAUSES+ ?allow a party to terminate a contract)
1. .2<.$ %hen can a contracting party refuse to perform based on a satisfaction clause
(the satisfaction was an e8press condition of the 0)= %hat is the limit on a parties
ability to claim lack of satisfaction when there is a condition of satisfaction=
a. -b*ective reasonable person standard$ %hether a reasonable person would be
satisfied and whether he was actually satisfied.
i. %hen the contract involves mechanical utility or commercial Buality.
:osner supports this.
b. 'ood faith sub*ective standard$ when the contract involves personal aesthetics
or fancy.
"G
i. <till sub*ect to reBuirements of good faith (can&t be claiming lack of
satisfaction to renegotiate a price$ $orman v. %en"on- approval of
buyer&s credit report).
ii. Jamages$ 6t will not award damages *ust because a party has re*ected
for honest dissatisfaction, they have to look into the facts of the case.
Jamages can be awarded based on dissatisfaction as long as they did
not breach, and as long as the other party has breached the promise.
c. <hould satisfaction be measured from an ob*ective or sub*ective standard= It
depends on the nature of the contract:
i. :ainting of a personal portrait <ub*ective satisfaction
. 'ood faith standard (of *udging satisfaction) used for personal
aesthetics.
a. $ur"midt v. Hotel- didn&t like the Buality of the laundry
and valet guy. ;se good faith standard1
ii. +uilding a factory for purposes of utility -b*ectiveEREs person
standard.
/. !""L, Illustration G$I even when honest good faith satisfaction is reBuired, the N
cannot base its claim of dissatisfaction on a gross misstatement of fact or a failure to
make a proper inspection.
3. 28amples:
a. c-artney v. %adovinac- diamond stolen from R. R&s husband accuses /rs.
/. /rs. /&s husband hires an investigator who finds /rs. / JIJ steal it. /r.
/ refuses to pay investigator because he didn&t like the result.
i. @ou must have good faith in dis$satisfaction, u can&t base
dissatisfaction on achievement of your desired result. /ust be based
on Buality of investigation.
b. orin v. %ay"tone- aluminum siding appearance not uniform is utility, so
ob*ective satisfaction. 2ven though contract referred to 3artistic effect,4 it was
a form contract, so look at the parties intentions.
c. attei v. Ho!!er- parties can build in good faith satisfaction clauses for
leases. @ou interpret the condition as placing some limit on the parties so it is
not an illusory promise.
9. 9arnsworth (theory): Risk to the contractor in satisfaction clauses can be avoided by
making the conditions of satisfaction an independent ?
rd
person, like an architect.
Architect has to inspect though, and if he makes a mistake, A can still sue +.
JVI. CONDITIONS OF PA=7ENT
. +ho". 9. *yer -o. v. %i"ho! (nt.l Engineering -o.- 6ondition in 0 said that payment will
be due G days after the owner pays the general contractor. -wner of construction pro*ect
filed for bankruptcy. 'eneral contractor sought to avoid paying the balance to a
subcontractor.
a. A contractual provision which merely states that a subcontractor is to be paid
when the general contractor receives payment from the owner, does ,-. shift to
the subcontractor the risk that the owner will not pay the general contractor.
b. 'enerally$ the insolvency of the owner is ,-. a bar for recovery for a
subcontractor from a general contractor.
"F
JVIII. 8REACA K RESPONSE
1. >ue!t"on!1
a. %ho is suing whom=
b. %hat is the timeline=
c. Is the breach material or immaterial=
d. %hat remedy is sought= (total or partial breach)
". %hen there is breach by the first party, what options does the non$breaching party have=
%hat can he do=
a. ,o performance releases the other side from performance.
?. %ho is to perform first=
a. .he law has a preference for simultaneous performance.
b. If neither party performs neither party can sue.
c. If both parties perform no breach, neither can sue.
d. If only one party shows up for performance and the other does not he can sue.
>. R;)2 .he party must show that he was 3ready% ,"$$"n(% and ab$e to 'er#or).I
G. 0anavos v. Cancock +ank$ the bank promised 0 the right of first refusal and then sold it
to a ?
rd
party without telling him.
a. %e must figure out if 0anavos was ready, willing, and able to perform.
b. 0anavos& right to recover depends on whether he had the financial ability to buy
stock at the relevant time.
c. 0anavos had the burden of proof (the bank cannot know if he is able)$ It is more
realistic for 0 to prove that he was ready 7 willing. Cow could the bank know if
he could get the money=
i. .he M had the burden of proof.
F. %hen one party breaches, what can the innocent party do=
a. %hen is one party *ustified in terminating his performance in response to the
other party&s behavior=
b. .he innocent party cannot overreact
i. )ike self$defense
ii. It cannot be disproportionate or e8cessive
c. Jisproportionate responses by a victim of a contract problem are themselves in
breach. (4alker)
G. 7ater"a$ 8reah+
a. If you are the victim of a material breach, you have " choices
i. .otal +reach
. .reating the party&s breach like a total breach.
". .erminate your performance and sue for damages
ii. :artial +reach
. .ell the other party to keep performing
D. I))ater"a$ 8reah+
a. .he other party gets to get the damages they have suffered
b. +ut the innocent party does not get to terminate his own performance
c. .reated like a partial breach .-.A) breach is ,-. an option
d. @ou must continue to perform (and then you can recover the amount of the partial
breach).
"L
P. 07' 6onstruction v. Carris$ subcontractor bulldoHed into a house, contractor said they
breached and stopped paying them, so the sub stopped work.
a. .rial 6ourt
i. .reated the bulldoHing mess as an immaterial breach$ so the withholding
of the A was a material breach$ so the sub was *ustified in stopping work.
b. Appellate 6ourt
i. .reated the bulldoHing as a material breach$ so the withholding of the A
was *ustified$ so the sub&s stopping work was a material breach.
#. V"t") o# an "))ater"a$ breah must treat it as a partial breach and continue to
perform$ they cannot withhold the money (then get damages later).
. V"t") o# a )ater"a$ breah is *ustified in withholding the payment (and suspending
performance) but /;<. give a reasonable period of time for the breacher to cure. .hen
choose$
a. .hey can choose to treat it as a partial breach and continue to perform, insist the
other party performs, and get damages later
i. ;66$ you can withhold the partial breach damages (take money back)
ii. 6ommon )aw$ they cannot do self help and subtract it from what they are
owed. .hey would have to settle it and agree on an amount.
. If they withheld the A, they would be in breach.
". +oth parties have to keep performing.
b. O-R$ they can choose to treat it as a total breach, stop performance and sue for
damages.
". Re!tate)ent 2/91+ In determining whether failure to render or to offer performance is
material, consider the following (,-.2: .his test is similar to 9acob"on-7oung test$ so u
can either know this or that)$
a. %hat benefit is the in*ured party being deprived of=
b. 6an the harm be adeBuately compensated=
c. %ill the party in breach suffer forfeiture=
d. %hat is the likelihood that the breacher will cure=
e. %as the breacher&s behavior in good faith=
:;. +he deci"ion to re!udiate i" fraught with !eril
a. %alker v. Carrison$ A dry cleaner stops making rental payments on his neon sign
when the sign company refuses to clean it according to routine maintenance
(tomato on sign). Carrison&s repudiation was its own material breach.
>. Relationship +etween /aterial +reach and <ubstantial :erformance:
a. If there is a breach close to full performance, the in*uring party will treat it as
substantial performance and the in*ured party will treat it as immaterial breach.
b. If there is a breach close to non$performance, the in*ured party will treat it as a
material breach and the in*uring party cannot treat it as substantial performance.
c. %hen can it not be analyHed as <: or breach=
i. %hen there is an e8pressly made conditional clause
d. %hen can it be analyHed as breach but ,-. <:=
i. %hen it is too early to be substantial performance so it is *ust an
immaterial breach (it would be overreacting to treat it as a material
breach).
"I
JVIV. ANTICIPATOR= REPUDIATION% PROSPECTIVE INA8ILIT= TO PERFOR7
AND ADE>UATE ASSURANCE OF PERFOR7ANCE
. %hat happens when a party announces his intention not to perform before the time of
performance=
". Re!tate)ent 2/:E+ repudiation is an announcement of a failure to perform (that would
give the in*ured party a claim for total breach)
?. %hen you say, 3I am not performing,4 it is repudiation$ if you say that before
performance is due, it is anticipatory repudiation.
>. Cochester v. J).$
a. 6an C sue before performance is due=
i. @es. Ce can rescind and *ust accept the offer to end 0 or he can wait and
see if he performs$ or he can *ust sue now.
b. 6an C recover even though he could not have actually performed on FE since he
accepted a substitute *ob=
i. @es. %e want to encourage mitigation. C does not have to hold himself
ready, willing 7 able to perform throughout the period.
c. C can sue$ it is a breach of an implied duty (the point of making promises is to
plan so the other side can rely)
d. :recedents$ If I promise to marry you and then I go marry someone else first, at
the time I marry someone else, you can sue me O-R$ if I say I will sell certain
goods to you and I sell them to someone else first, you can sue me at the moment
of the disabling act.
i. Jifference from this case Q this case, N could change his mind. 6t doesn&t
care anyways.
G. .wo 6hoices (what is the diff. btwn$ sue, accept 7 rely)
a. <ue Immediately
i. .hat means that you have treated the repudiation as a total breach.
ii. If you sue, it is advisable that you mitigate (or else that might be
subtracted from your damages).
b. %ait until performance is due and then sue
i. If you are going to wait, you should still lock in the repudiation since there
is a possibility that in the mean time, the repudiator will nullify (retract)
his repudiation
ii. Re!tate)ent 2/:4+ )ocking it in
. +y mitigating, you have relied on the repudiation and you have
locked it in.
". As long as the party has changed his position before he has learned
of the nullification, then he has locked it in.
?. As long as the notice of nullification does not come to the attention
before the in*ured party changes his position, the repudiation will
be final (nullification is good upon receipt).
c. Repudiation must be clear and definite (not *ust e8pressions of doubt).
i. 28$ If J). had said, 3I&m not sure you&re the right guy for the *ob,4 this is
,-. repudiation.
d. Repudiation can be conduct$
"P
i. Re!tate)ent 2/:E?b@+ a voluntary, affirmative act which renders the
obligor unable to perform is repudiation.
ii. 4hole"ale #and 1 Gravel- at a certain point, conduct counts$ reasonable
for the in*ured party to conclude that the obligor will not complete
performance.
iii. 28$ Instead of C receiving a letter, C learned that J). hired +rad :itt.
.his is repudiation1
e. 6reating new conditions that must be met before you continue the work is
anticipatory breach (6ni<ue #y"tem")
f. In order to recover, the in*ured party must have been ready, willing, and able to
perform if there was no repudiation ()ecord -lub)
g. If repudiation is retracted in time, it can be nullified (+aylor)
h. A clear closing of the door to the in*uring party&s ability to nullify his repudiation
is a definite action indicating that the breach is final. (#eacoa"t)
?#