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PAROLE
EVIDENCE
RULE


1. ISSUE


 Agreement
in
writing?


 One
party
claims
prior
oral/written
agreement?


 Prior
agreement
was
not
in
the
writing
but
was
intended
to
be


part
of
K?


 WHETHER
THIS
PRIOR
AGREEMENT
COMES
IN
DEPENDS
ON


P.E.R.


2. RULE


 R
209
+
215


• 
Parties
have
intended
a
writing
as
the


final
expression
of
all
or
part
of
their


agreement
=
evidence
of
any
other
prior


term
is
not
admissible
to
contradict
the


writing


 Traynor


• Parties
to
a
written
K
have
agreed
to
an


integration(complete
and
final
embodiment
of
the
terms


of
an
agreement)
=
evidence
cannot
be
used
to
add
or


change
the
terms



• When
there
is
a
partial
integration=
rule
applies
to


integrated
part
but
PER
could
be
used
to
prove
elements


of
the
agreement
not
reduced
by
the
writing


3. WHY


 Juries
favor
underdog


 People
make
up
agreement
that
never
happened


 Certainty
in
K
interpretation


4. INTEGRATION


 COMPLETE


• ‐


• Parties
intended
the
written
K
to
be
a
final
and
complete


statement
of
the
agreement


 PARTIAL


• Parties
intended
the
writing
to
be
final
expression
of


part
of
the
agreement


1. FORMAL
INTENT:
(traditional
view)
writing
could


be
treated
as
an
integration
if
taken
as
a
whole


and
on
its
face
the
writing
appears
to
be
an


instrument
that
completely
expresses
the
parties


agreement
(writing
is
evidence
of
intent)
[Gianni


v.
Russel]1
































































1


2. ACTUAL
INTENT:
(modern
view)
writing
is
an


integration
only
if
the
parties
actually
intended


for
the
writing
to
be
integrated.

(courts
can


consider
relevant
evidence
to
determine
the


intent)
[Masterson
v.
Sine]2


 UCC
2.202(cmt
3):3


• Only
if
the
term
would
have
certainly
be
included
in
the


writing,
if
agreed
upon,
then
it
must
be
kept
from
the


trier
of
fact.


 §
216


• Naturally
test,
it
is
a
term
that
would
have
naturally
not


been
omitted
then
a
complete
integration


5. MERGER
CLAUSES


 A
provision
in
a
K
that
provides
that
“the
K
is
the
complete
and


final
statement
of
all
the
terms
the
parties
have
agreed
upon”


 ‐

























































































































































































 
Gianni
v.
Russel:
If
the
term
is
a
term
that
would
have
naturally
been
included
in
the
K
and

embraces
the
field
f
the
alleged
oral
K
then
the
court
will
not
employ
the
P.E.R.
(gave
up
rights
to
sell

tobacco
in
exchange
for
exclusive
rights
to
sell
soda;
when
another
company
began
selling
beverages)


2

 
Masterson
v.
Sine:
If
the
K
appears
to
be
complete
the
court
must
still
consider
the
parties

intent.
(rejects
Gianni)(A
ranch
was
conveyed
by
a
deed
but
reserved
the
right
to
repurchase
the
ranch
at

a
certain
rate
only
to
P
in
order
to
keep
it
in
the
family)


3


 (traditional
approach‐majority
rule)
clauses
are
determinative


on
the
question
of
whether
the
writing
is
an
integration


 (modern
approach‐minority
rule)
will
sometimes
say
it
is
one


factor
in
determining
whether
there
is
an
integration


6. DEFENSES:



 claim
it
is
unconscionable


 fraud


 duress


 mistake
[Bollinger
v.
Central
Pennsylvania]4


 illegality


7. EXCEPTIONS


 Separate
consideration


• Even
if
the
writing
is
integrated
the
PER
could
apply
if


the
written
agreement
and
the
parol
agreement
are


supported
by
separate
consideration


 Collateral
agreement


• If
the
parol
agreement
is
related
to
the
subject
matter


but
not
part
of
the
writing(collateral)
then
PER
is


admissible
































































4

 
Bollinger:
A
court
can
reform
a
K
for
a
mutual
mistake
where
a
term
that
would
have
naturally

been
included
is
left
out.
(bury
waste
on
land
so
long
as
they
covered
and
filled
the
hole
leaving
things

level)



 Naturally
omitted
terms‐R
216


• (modern
rule)‐PE
is
admissible
if
it
concerns
a
term
that


would
have
naturally
been
omitted.


1. Naturally
if
term


a. Doesn’t
conflict
with
written
integration


b. ‐


c. Concerns
a
subject
that
similar
parties


would
not
ordinarily
be
expected
to


include
in
the
writing.


i. Reasonable
person
would
have


omitted
it


ii. Actual
parties
may
have
omitted
it


[Masterson
v.
Sine]5


8. Analysis


 Did
the
parties
intend
for
the
writing
to
be
a
final


statement(integration)


 Is
it
a
partial
or
a
complete
integration?


• Gianni(writing)


• Masterson(parties
intent)


 Look
for
a
merger
clausemay
be
unconscionable
































































5

 
Masterson
v.
Sine:
Court
should
consider
the
parties
intent
when
discerning
what
terms
come

in
and
others
don’t.



 Look
for
§
216naturally
testomission


 Look
for
UCC
2.202certainly
testincluded


 Look
for
evidence
that
the
writing
was
the
final
statement


• If
it
is
a
complete
statement
§214
interpreting
evidence


can
always
be
admitted


‐

INTERPRETING
K
LANGUAGE


1. RULE


 Where
the
interpretation
of
a
expression
(words
or
conduct
of


one
party)
is
in
issue
the
expression
should
receive
an
objective


interpretation(reasonable
person
standard)


 Vague



• When
applicability
in
marginal
situation
is
uncertain
the


court
will
find
a
K
under
a
reasonable


interpretation[Frigaliment
v.
BNS]6


 Ambiguous


• Two
completely
different
ideas
of
the
meaning
[Oswald


v.
Allen]7


2. EXCEPTIONS


 When
a
term
could
easily
be
as
meaning
two
different
things


[Raffles
v.
Wichelhaus]8


 When
both
parties
interpretation
is
different
from
the
objective


meaning.
(dispute
unlikely)


 When
one
party
knows
of
the
others
interpretation
then
the


known
interpretation
rules.

A
knows
B’s
interpretation
so
B’s


wins


 When
there
is
a
common
trade
usage
[Hurst
v.
Lake]9
































































6

 
Frigaliment
v.
BNS:
Where
the
term
is
vague
the
court
will
apply
the
more
objective
definition

of
the
term.

(old
chicken
case)


7

 
Oswald
v.
Allen:
where
the
term
of
a
K
is
ambiguous
the
court
will
find
no
K
unless
one
party

knew
of
the
others
understanding(Swedish
coin
collection).


8

 
Raffles
v.
Wichelhaus:

Where
there
are
two
reasonable
interpretations
the
court
will
find
no
K.

(two
ships
called
Peerless)


9

 
Hurst
v.
Lake:
Where
there
is
a
common
trade
usage
the
court
will
employ
that
standard
to

interpret
ambiguity
(meat
scraps
case
where
the
meat
shipped
was
not
high
enough
protein)



3. INTERPRETING
TOOLS


 Plain
meaning
rule:
what
parties
reasonably
understood
term
to


mean


 Public
Interest:
(think
Peevyhouse‐court
looked
to
support


public
policy
not
the
∏)


 Expressio
unius:
to
express
one
is
to
exclude
others


 ‐


 Nascitu
a
sociss:
known
from
its
associates


 Contra
Proferentum:
against
the
author
of
K


4. EVIDENCE
NEEDED


 Evidence
internal
to
the
K


 Dictionary


 Foreign
language


 Statutes
or
regulations


 Trade
usage,
course
of
dealing,
custom


 Most
likely
intention
of
parties


























































































































































































‐

GAP
FILLING

1. RULE


 Good
faith
obligations
means
that
Party
A
will
not
do
anything


to
reduce
the
reasonable
expectation
of
party
B

and
jeopardize


the
expectation
of
the
K.



2. UCC


 R
205
&
UCC
1.203


• 
In
all
K,
there
is
an
implied
obligation
of
good
faith
on


both
parties.
(Eastern
v.
Gulf)10
































































10


 1.201(19)


• Definition
of
good
faith


 2.103


• Sale
of
goods


• Merchants
have
a
higher
standard
of
good
faith;
have
to


operate
both
subjectively
and
objectively
on
good
faith.


 2.208


• Course
of
performance‐parties
conduct
throughout
the


K[Eastern
v.
Gulf]


3. WHY


 Fairness


4. LIMITATIONS


There
was
a
good
faith
obligation
in
the
contract
but
the
good
faith
obligation
does
not

mean
best
efforts.
[Zilg]11

 ‐


 
The
implied
obligation
can’t
contradict
the
expressed
terms
of


the
K.
[Dalton
v.
ETS]12

























































































































































































 
Eastern
v.
Gulf:
Where
there
is
a
K
for
the
sale
of
goods
the
UCC
governs(2.103);
Eastern

violated
implied
term
of
good
faith;
fuel
freighting
is
a
trade
custom
(1.205);
course
of
performance

applies
under
2.208.


11

 
Zilg
v.
Prentice
Hall:
Where
there
is
an
issue
of
a
parties
obligations
to
another
party,
the
court

will
only
find
an
implied
duty
of
good
faith
not
best
efforts.
(publishing
companies
obligations
to
the

author)2.306


12

 
Dalton
v.
ETS:
Where
there
is
a
K
there
is
an
implied
obligation
of
good
faith
and
fair
dealings

so
long
as
it
is
not
inconsistent
with
the
terms
of
the
K.
(student
was
accused
of
cheating
on
a
test
and
the

board
refused
to
full
fill
their
good
faith
obligation)



 The
implied
obligation
does
not
allow
that
parties
can
add
a


term/duty
especially
if
it
would
contradict
the
expressed
terms.


[BK
v.
Weaver]13


5. Woods
Rule


 Courts
have
presumed
employment
to
be
at
will
and
that
an


employee
can
be
dismissed
at
anytime
for
any
reason


• Older
courts
place
some
public
policy
limitations
on


woods
rule
(adding
terms
to
K
for
employment
at
will)


1. Something
in
convo,
or
employment
manual

that


might
imply
firing
only
for
cause.


2. Public
Policy
exception:
at
will
employees
may


not
be
terminated
for
engaging
in
conduct
in


which
the
public
has
an
important
interest
like
1)


refusing
to
commit
perjury
2)
filing
a
workers


compensation
claim
3)
engaging
in
union
activity


or
4)
calling
the
employers
attention
to
possible


criminal
violations.
[Sheets
v.
Teddy’s]14

























































































































































































13

 
BK
v.
Weaver:
Where
a
term
is
not
included
in
the
writing
the
court
will
not
use
the
implied

obligation
of
good
faith
to
add
terms.
(BK
franchise
next
to
an
already
existing
franchise)


14

 
Sheets
v.
Teddy’s:
An
employer
cannot
violate
public
policy
by
asking
employee
to
be
at
risk
for

criminal
sanctions.

(was
going
to
report
the
shady
food
packaging
practices
and
was
fired)



3. Employment
contracts
,
am
implied
obligation
of


good
faith
and
fair
dealing…has
to
be
some


reason
for
firing
an
employee.


• Modern
courts
have
cut
back
the
above
3


1. Statutes
providing
no
good
faith
obligation


2. Disclaimers
in
employment
manuals


3. Public
policy
narrowed
considerable


4. ‐


5. Does
not
apply
to
in
house
counsel
because


violates
client
trust
(2
courts
disagree
because


attorney’s
deserve
protection
for
reporting


unethical
practices
of
their
employers)
[Balla
v.


Gambro]15


6. ANAYLSIS


 When
and
why
will
a
court
read
an
implied
term
into
a
K?


 What
meaning
will
the
court
give
to
an
implied
term
in
the
K?


 Do
the
exceptions
apply?


 Does
trade
usage
govern?
































































15

 
Balla
v.
Gambro:
an
attorney
was
fired
in
retaliation
for
reporting
unethical
practices
of
his

employer
and
the
court
provided
him
no
protection.




‐

CONDITIONS

1. RULE


 K
may
provide
a
condition
“a
party
does
not
have
a
duty
unless


a
condition
is
fulfilled


 A
parties
failure
to
perform
may
be
excused
by
the
failure
to


meet
a
condition


2. DEFINITION


 An
event
or
state
of
the
world
must
occur
or
fail
to
occur
before


a
party
has
a
duty
to
perform
under
the
K



OR


 An
event
or
state
of
the
world(occurrence
or
non
occurrence,


which
will
release
a
party
from
its
duty
to
perform
under
the
K


3. Restatements


 R2d
244


• A
condition
is
an
event,
not
certain
to
occur,
which
must


occur,
unless
its
non
occurrence
is
excused,
before


performance
under
a
K
becomes
due


 R2d
217


• Conditions‐a
reasonable
well‐accepted
exception
to
the


parol
evidence
rule.

One
is
permitted
to
use
parol


evidence
to
show
the
parties
agree
to
a
condition


precedent
to
the
effectiveness
of
a
K.


1. The
condition
cannot
contradict
the
writing
in


order
for
the
condition
to
apply


4. ISSUES


 Have
the
parties
made
a
particular
event
or
non
even
a


condition
of
one
party’s
performance
or
both
parties


performance?


 Has
the
condition,
if
it
is
one,
been
satisfied?


 ‐



 If
it
hasn’t
been
satisfied,
what
the
legal
effect
of
the
no‐

occurrence
of
a
condition?


• BOAT
EXAMPLE


1. Sarah
promises
to
carry
Carl’s
goods
in
her
ship


from
London
to
Gibraltar.

Carl
promise
to
pay


her
for
that
service
500l.

In
addition
the
parties


agree
that
in
some
fashion
Sarah
will
get
the


goods
there
in
25
days.

Two
ways
to
word
25
day


condition


a. Sarah
could
promise
to
get
the
goods


there
in
25
days.

If
she’s
later,
then
she


has
breached
her
promise
and
will
be


liable
for
damages


b. Parties
will
word
the
term
as
a
condition.



“It
shall
be
a
condition
of
Carl’s
obligation


to
pay
that
Sarah
get
the
good
there


within
25
days”

If
she
is
late,
she
hasn’t


breached,
she
just
doesn’t
get
paid.

This


excuses
Carl’s
performance.


c. It
is
almost
always
more
equitable
to


construe
language
as
a

promise
than
as
a


condition.



5. EXCEPTIONS


 If
a
reasonable
attempt
to
meet
the
condition
is
made
but
fails


the
party
is
relieved
from
performance
[Luttinger
v.
Rosen]16


 Timing
provisions:
When
a
date
is
set
for
a
payment,
payment


will
happen
on
that
day
it
is
not
conditional
because
that
is
the


day
that
contractors
usually
get
paid;
trade
usage[Peacock
v.


Modern
Air]17


 Condition
to
act
in
good
faith[Gibson
v.
Cranage]18


• ‐


• Subjective:
if
individual
taste
is
involved,
exercise


judgment
in
good
faith


• Objective:
if
economic
utility,
fitness,
marketability
or


performance
to
satisfy
a
reasonable
person


6. MITIGATING
DOCTRINES


 Prevention:
































































16

 
Luttinger
v.
Rosen:
When
a
party
makes
a
reasonable
effort
to
meet
the
condition
then
if
they

cannot
complete
the
condition
they
will
be
excused
from
performance.
(trying
to
get
approved
for
a
loan

at
a
particular
rate
and
could
not
achieve
it)


17

 
Peacock
v.
Modern
Air:
Where
there
is
a
timing
provision
for
payment
the
court
will
not
find

that
there
is
a
condition
precedent
but
rather
that
payment
should
occur
on
a
certain
date
regardless.

(sub
contractor
and
GC
said
would
pay
30
days
after
owner
paid
but
the
GC
should
bear
the
risk
of

nonpayment
not
the
SC)


18

 
Gibbons
v.
Cranage:
Where
there
is
a
condition
to
act
in
good
faith
the
court
may
apply
a

subjective
standard
when
an
individual’s
taste
is
involved
and
the
court
will
use
an
objective
test
where

there
is
an
economic
implication.
(portrait
of
dead
daughter)



• A
party
to
a
K
cannot
rely
on
the
failure
of
another
to


perform
a
condition
precedent
where
he
has
prevented


that
party
from
being
able
to
perform


 Waiver,
Estoppel
and
Election


• Waiver‐R2d
84


1. Intentional
relinquishment
of
a
known
right


2. Waiver
is
not
explicit


• Estoppel‐R2d
84(2)‐UCC
2.209(5)


1. A
party
that,
without
consideration,
has
waived
a


condition
that
is
within
the
other
party’s
control


before
the
time
of
occurrence
of
that
condition


can
retract
the
waiver
and
reinstate
the


requirement
that
the
condition
occur
unless
the


other
party
has
relied
to
such
an
extent
that
the


retraction
would
be
unjust


• Election:



1. A
party
that
chooses
to
disregard
the


nonoccurrence
of
a
condition
is
bound
by
an


election
to
treat
this
duty
as
unconditional


 Impossibility


• ‐



• Impossibility
or
impracticality
excuses
the
fulfillment
of
a


condition
of
fulfillment
of
the
condition
is
not
a
material


part
of
the
agreed
exchange
and
forfeiture
would


otherwise
result



‐

CONSTRUCTIVE
CONDITIONS
 


1. CONSTRUCTIVE
CONDITIONS
OF
PERFORMANCE


 The
duty
of
each
party
to
render
performance
is
that
the
other


party
has
rendered
its
performance
or
made
tender
of
its


performance.


 If
the
∏
breached
the
duty,
provided
that
the
performance
was


a
constructive
condition
of
the
others
duty,
then
the
∏
is
in
the


wrong.




 Without
good
security
there
is
not
duty
to
perform[Kingston
v.


Preston]19


 Work
must
be
completed
prior
to
performance
of
payment


[Stewart
v.
Newbury]20


2. MITIGATING
































































19

 
Kingston
v.
Preston:
Where
sufficient
security
is
a
requirement
the
court
will
find
it
a
condition

precedent
(apprentice
wanted
to
buy
the
business
but
needed
to
pay
a
security
and
never
did)


20

 
Stewart
v.
Newbury:
Where
the
parties
do
not
provide
otherwise
payment
will
occur
upon

completion
(contractor
completed
part
of
the
work
and
wanted
paid;
court
held
that
the
owner
could
pay

upon
completion)



 Issue


• What
sort
of
conduct
by
one
party
gives
rise
to
a
cause


of
action
for
breach
by
another
party,
or
gives
to


another
party
the
right
to
withhold
its
own


performance.


 Doctrine
of
substantial
performance
or
substantial


completion[Jacob
&
Young]21


• When
the
∏breaches
but
still
completes
performance


the
other
party
is
still
under
a
duty
to
perform


 Doctrine
of
Divisibility


• When
the
performance
has
been
or
can
be
broken
into


different
parts
and
assigned
a
value
then
the
breaching


party
can
only
recover
for
the
work
they
completed.
[Gill


v.
Johnstown
Lumber]22


 ‐


 Doctrine
of
Restitution


• Where
a
K
is
unenforceable
for
some


reason(impracticality,
frustration
etc)
but
a
substantial
































































21

 
Jacob
&
Young
v.
Kent:
Where
a
party
has
substantially
completed
the
work

they
may
request

payment
for
the
portion
completed
or
if
there
is
no
material
breach
full
payment.
(reading
pipe
case)


22

 
Gills
v.
Johstown
Lumber:
Where
a
K
provides
for
partial
payment
for
partial
completion
then

the
court
may
award
recovery
for
the
portion
completed.
(lumber
transport)



benefit
was
conferred
upon
one
of
the
parties
then
the


aggrieved
party
may
want
restitution
instead
of


expectation


• Resistance
to
this
doctrine
because
seems
unfair
to
let
a


breach
party
recover
anything.
[Britton
v.
Turner]23
































































23

 
Britton
v.
Turner:
when
a
portion
of
the
K
is
performed
the
breaching
party
may
be
able
to

recover
for
the
work
completed
to
avoid
unjust
enrichment
(began
a
project
and
walked
off)



‐

BREACH
IN
THE
COURSE
OF
PERFORMANCE

1. RULE


 Non
material
breach‐“yes
I
breached
but
your
later
breach
was


more
serious”[Walker
v.
Harrison]24


 Material
breach(factually
sensitive)‐“your
breach
excuses
me


from
performance”[K
&
G
v.
Harris]25


 Breach
at
the
time
of
performance
gives
rise
to
an
immediate


COA


• A
contractor
contract
to
build
a
milling
dollar
building


and
puts
on
some
of
the
wrong
doorknobs,
the


Contractor
will
be
liable
for
damages
but
the
owner


won’t
be
excused
from
paying(performance)


 Factors


• The
extent
to
which
the
breaching
party
has
already


performed


• Was
the
breach
willful,
negligent
or
was
it
completely


innocent
































































24

 
Walker
v.
Harrison:
Where
the
there
is
a
trivial
breach
the
court
will
not
find
a
material
breach.

(tomato
on
the
sign)


25

 
K
&
G
v.
Harris:
Where
performance
is
a
constructive
condition
to
payment
the
court
will
find

that
upon
a
breach
the
aggrieved
party
will
not
be
held
to
performance.
(workmanlike
conduct)



• The
extent
of
uncertainly
that
the
breaching
party
will


perform
the
remainder
of
the
K


• Extent
to
which
the
non
breaching
party
will
obtain
the


substantial
benefit
he
has
bargained
for


• The
extent
to
which
the
non
breaching
party
can
be


compensated


• Hardship
on
breaching
party
if
the
breach
is
material


 Repudiation


• Major
breach


• UCC
2.609


1. ‐


2. a
victim
of
a
minor
breach
should
request


assurances
of
adequate
performance
in
the


future
and
if
the
other
side
does
not
respond


then
you
can
say
they
repudiated


 Responses
to
this
defense


• I
substantially
performed


• K
is
divisible
and
you
have
to
pay
me
at
the
rate
for
the


portion
I
did
complete


• I
am
entitled
to
restitution
fo
the
K
for
the
amount
of


the
benefit
I
have
conferred
on
you



• By
breach
was
not
material
and
it
does
not
excuse
your


failure
to
act.


 LIMITATION


• Separate
K
doctrine:
a
party
cannot
breach
in
one


contract
just
because
there
has
been
a
breach
from


another
contract
[NW
Lumber
v.
Continental]


3. Application


 Is
there
an
uncured
breach?


 Is
it
a
breach
of
duty
to
perform
that
was
to
be
exchanged


under
the
exchange
of
promise?


 What
the
performance
to
be
performed
before
the
aggrieved


party’s
performance?(material
breach)


• If
not
a
material
breach
then
parties
must
perform
and


can
recover
partial
damages
but
not
cancel
the
K.


• If
a
material
breach
2
options
1)treat
at
complete
breach


or
2)treat
as
a
partial
breach


 If
a
material
breach
then
COA
for
damages
and
no
performance


from
aggrieved
party


 If
the
breach
is
not
material
then
COA
for
damages
but
other


side
must
perform



‐

ANTICIPATORY
REPUDIATION

1. RULE


 If
either
party
to
a
K,
before
time
of
performance,
repudiates,


the
repudiation
excuses
performance
of
other
party


 The
innocent
party
may
treat
AR
as
a
material
breach


 Acts
are
a
sufficient
AR[Stewart
v.
Newbury]


 Insistence
on
terms
not
contained
in
the
K
constitutes
an
AR


 Renunciation
may
be
treated
as
a
material
breach.[Hochster
v.


De
La
Tour]26


2. EXCEPTIONS


 Installment
K


• Cannot
file
breach
early
instead
must
wait
until
deadline


for
completion.


 Acceleration
clause


• State
a
default
on
any
one
payment
on
this
K
shall
cause


all
remaining
payments
under
the
K
to
be
due.


 Declaratory
judgment


• Declaration
by
court
that
buyer
breached
and
payment


will
be
due
when
K
says































































26

 
Hochster
v.
De
La
Tour:
can
you
sue
before
there
is
technically
a
breach?

Yes,
you
can
sue
early

so
that
the
aggrieved
party
can
be
free
from
his
obligation.



3. ANALYSIS


 If
the
recipient
of
a
repudiation
free
to
make
other


arrangements?


 Can
the
recipient
of
a
repudiation
to
court
immediately?


 Can
the
recipient
of
a
repudiation
ignore
the
repudiation
and


wait
for
performance?


 What
are
the
consequences
if
the
recipient
of
repudiation
urges


retraction?


 Can
a
party
withdraw
repudiation?


‐

DEFENSES

MUTUAL
MISTAKE

1. RULE


 A
mistake
by
both
parties
to
a
K
concerning
a
basic
assumption


of
fact
on
which
the
K
is
based


 (traditional)
if
the
∆
was
mistaken
concerning
the
substance
or


identity
of
the
K
subject
matter
then
K
was
voidable


• If
it
was
only
an
accident
or
a
collateral
attribute
K
was


not
voidable(barren
cow)


 (modern)
if
the
mistake
is
concerning
a
basic
assumption
of
the


fact
then
the
K
is
voidable
by
the
adversely
affected
party
I
the



mistake
has
a
material
effect
on
the
exchange
the
adversely


affected
party
did
not
bear
the
risk
of
that
assumption.


• A
race
horse
is
purchased
but
the
horse
dies
before
it


was
sold
but
neither
party
knew.
Then
the
K
is
voidable


b/c
both
parties
were
mistaken(jewelers
case)


2. DEFENSES


 Mistake
was
not
basic
enough
[R
2d
152]/question
of
value


 Parties
considered
the
possibility
of
a
major
gain
or
loss/
assume


risk
by
virtue
of
trade


 Not
a
mutual
mistake
because
“I
had
an
inkling”


• Perfect
knowledge
Duty
to
tell
person;
K
undone


• No
knowledge

mutual
mistake;
K
undone


• Middle
ground

no
duty
to
tell
for
just
a
hunch
but
not


exactly
mutual
mistake


3. RESTATEMENTS


 151


• Mistake
is
a
belief
that
is
not
in
accord
with
the
facts


 ‐


 152


• For
a
mistake
of
both
parties
at
the
time
the
K
was
made


1. Basic
assumption
has
a
material
effect
on
the


aggrieved
exchange



2. K
is
voidable
unless
voiding
party
assumed
the


risk
of
mistake


 154


• Party
bears
the
risk
where
the
party
is
aware
at
the
time


of
K
that
she
has
only
limited
knowledge
with
respect
to


the
facts,
but
treats
her
limited
knowledge
a


sufficient(conscious
ignorance)[Nelson
v.
Rice]27[Stees


v.
Leonard]28


1. I
don’t
think
the
paintings
are
very
valuable,


although
I
know
they
might
be,
so
I
will
sell
them


for
not
very
much.
I
know
I
should
have
them


authenticated
but
that
timely
and
costly.

Court


allocates
the
risk
to
one
party
on
the
ground
is


reasonable
to
do
so


 158
































































27

 
Estate
of
Nelson
v.
Rice:
When
a
party
happens
on
a
windfall
at
the
expense
of
the
seller;
the

seller
assumes
the
risk
(154)($60
painting
that
were
worth
$1
million)


28

 
Stees
v.
Leonard:
(older
and
harsher
law)
when
a
party
enters
a
K
that
party
is
bound
by
the
K

to
complete
the
K(building
that
kept
collapsing)
design
defectivebecause
they
signed
K
they
agreed

with
design;
prior
agreement
(PER)
nope
because
contradicts
K



• Either
party
can
have
a
claim
for
restitution
following
a


rescission
on
the
grounds
of
mistake(forward


looking)[Renner
v.
Kehl]29


 153


• Unilateral
mistakes[Elsinor]


‐

IMPRACTICABILITY

1. RULE‐R
2d
261


 Performance
is
excused
if
the
it
has
been
made
impracticable.


 Occurrence
of
an
event
that
was
sure
not
to
occur
at
the
time


the
K
was
made


 Adversely
affected
party
must
not
have
assumed
the
risk
of
the


event
occurring


2. SELLERS
DEFENSE


 When
an
element
of
the
K
becomes
unavailable
because
of
an


event
to
which
neither
party
is
at
fault
then
the
K
is
voidable.


[Taylor
v.
Caldwell]30































































29

 
Renner
v.
Kehl:
Where
there
is
a
mutual
mistake
the
court
will
make
both
parties
whole
again

(jojoba
plants)



 The
occurrence
of
an
event
that
simply
makes
performance


more
difficult
does
not
render
the
K
legally
impossible
or


impracticable.
[Transatlantic
v.
US]31


• Test


1. A
contingency(something
unexpected)
must


have
occurred


2. Unexpected
occurrence
must
not
have
been


allocated
for


3. Occurrence
of
the
contingency
must
have


rendered
performance
commercially


impracticable.


 UCC
2.615


• Doctrine
of
commercial
impracticability:
the
unforeseen


cost
increase
that
would
excuse
performance
must
be


more
than
onerous
or
expensive,
it
must
be
unjust
to


hold
the
parties
bound.[Eastern
v.
Gulf]


3. VARIATIONS


 Supervening
prohibition
by
law
























































































































































































30

 
Taylor
v.
Caldwell:
When
performance
is
impracticable
then
both
parties
are
excused
from

performance
(performance
hall)


31

 
Transatlantic
v.
US:
Where
performance
is
a
little
more
expensive
does
not
mean
performance

was
impracticable
(had
to
take
a
detour
and
cost
them
more
money)



 Death
of
one
party
in
a
personal
services
K


 ‐


 Destruction
of
the
subject
matter
[Taylor
v.
Caldwell]


4. HYPO


 Farmer
makes

K
to
sell
wheat
to
G,
G
sells
wheat
to
Wheaties.



Drought
occurs
and
no
wheat.

Is
the
farmer
liable
for
breach


b/c
the
G
had
to
purchase
at
a
higher
price?


• Defense:
impossibility
of
performance
or
commercial


impracticability


• Issue:
Was
the
K
for
a
particular
quantity
of
wheat
or


specifically
for
all
the
farmers
wheat?


• If
it’s
for
the
farm’s
wheat
then
performance
is


impossible
and
defense
works.

If
it
is
for
a
specific


quantity,
performance
is
not
impossible
and
then
farer
is


liable
for
breach.



‐

FRUSTRATION
OF
PURPOSE

1. RULE‐R2d
265


 Performance
may
be
excused
under
the
doctrine
of
frustration


where
the
purpose
or
value
of
the
K
has
been
destroyed
by
a


supervening
event
that
was
not
reasonably
foreseeable
at
the


time
the
K
was
entered
into?


2. BUYERS
DEFENSE


 Always
possible
for
the
buyer
to
fulfill
his
promise
to
pay,
even


if
he
gains
nothing


 Where
the
object
of
one
of
the
parties
is
the
basis
for
the
K,


performance
is
a
constructive
condition
on
the
attainment
of


that
condition.
[Krell
v.
Henry]32

































































32

 
Krell
v.
Henry:
A
change
in
value
of
the
substance
of
the
K
does
not
render
the
K
voidable

(coronation)



‐

UCC

Article
I

1. 1.102:
meant
to
be
liberally
construed
to
promote
underlying
policies


 Simplify,
clarify
and
modernize
law


 Permit
the
continued
expansion
of
commercial
practices
by


validating
trade
custom
and
usage
as
well
as
parties
expressed


agreements


 To
make
the
law
uniform
among
the
various
jurix


2. PRINCIPLES
OF
ART
II:



 Good
faith


 Commercial
reasonableness


 Facilitation
of
actual
commercial
practices
through
the


incorporation
of
course
of
performance,
course
of
dealing
and


usage
of
trade


• 2.208‐course
of
performance‐how
we
perform
the
K


• 1.205‐course
of
dealing‐how
we
performed
under
prior
K


• 1.205‐usage
of
trade‐how
the
industry
understands
K


practices


3. GOOD
FAITH‐


 2.201(19)‐Honesty
in
fact:



• Subjective
test


• So
long
as
the
person
really
believed
their
contention


that
is
good
faith


 1.203


• Obligation
of
good
faith
on
every
party
of
a
transaction


governed
by
any
part
of
the
UCC


 2.103


• ‐


• Supplements
good
faith
def.
under
Art
II
good
faith
for


merchants
includes
not
only
honesty
in
fact
but
also
the


observance
of
reasonable
commercial
standards
of
fair



dealing
in
the
trade


GOOD
FAITH
+
FAIR
DEALINGS
=


MERCHANT
OBLIG.


1. 2.104‐merchant


• Deals
in
goods
of
that
kind


OR


• By
his
occupation
he
holds
himself
out
as


having
knowledge
or
skill
peculiar
to
the


practices
involved
in
the
transaction


2. SUPER
MERCHANT‐look
for
the
broadest


definition
of
goods[wiglet
case]


3. Can’t
disclaim
good
faith
or
commercial


reasonableness
so
make
sure
the
conditions
are


not
inherently
unreasonable



‐

SCOPE
OF
ART
II

1. 2.102


 Applies
to
transactions
of
goods


• Not
just
transactions
by
merchants


• ONLY
super
merchants
make
merchantability
warranties


• Where
a
K
is
a
hybrid
(service
and
goods)
the
court
will


look
to
see
if
the
K
was
more
service
or
more
goods
or
if


the
goods
were
independent
from
the
service
part
of
K.


[Anthony
Pools
v.
Sheehan]33


2. 2.105


 Goods=all
things
movable
at
the
time
of
identification
to
the
K


other
than
money,
investment
securities,
and
things
in
action


3. TESTS[Anthony
Pools
v.
Sheehan]


 Predominant
purpose
test
































































33

 
Anthony
Pools
V
Sheehan:
where
there
is
a
hybrid
K
(service
and
goods)
the
court
will
apply

the
predominant
purpose
test




• Whether
the
predominant
factor
is
a
transaction
for
the


sale
of
goods
with
labor
incidentally
being
involved.


 Gravamen
test


• Whether
the
reason
for
the
breach
is
directly
related
to


the
fault
of
the
service
or
the
fault
of
the
good


 Policy


• If
the
test
results
in
transaction
for
services
then
it
is
not


UCC
based



‐

K
FORMATION
UNDER
UCC

1. 2.204


 K
for
the
sale
of
goods
can
be
made
in
any
manner
sufficient
to


show
an
agreement


 Still
requires
a
meeting
of
the
minds


2. 2.206(1)(a)


 A
party
may
accept
in
an
manner
and
by
any
medium


reasonable
in
the
circumstances
unless
the
offer
unambiguously


states
otherwise.


 Unilateral
K
can
be
accepted
by
a
promise
to
perform


 Option
K
is
enforceable
without
separate
consideration
(2.205)


3. 2.207
Eliminates
Mirror
Image
Rule



 4
routes


• Route
A:
a
definite
and
seasonable
expression
of


acceptance
or
a
written
confirmation
which
is
sent


within
a
reasonable
amount
of
time
operates
as
an


acceptance
even
though
it
states
terms
additional
to
or


different
from
those
offered
or
agreed
upon
(could
be


called
the
first
shot
doctrine)


1. Is
there
a
contract?

Yes


2. What
are
the
terms?

Terms
provided
by
the


acceptor.




3. Are
the
new
terms
accepted?



They
are


proposals
to
the
existing
contract;
if
they
are


merchants
then
the
terms
become
an
automatic


part
of
the
contract,
with
the
exceptions

that
the


new
terms
do
not
materially
alter
the


characteristics
of
the
original
bargain,
or
if
the


offer
limits
the
acceptance,
or
notification
of


objection
to
them
has
been
given
or
is
given


within
a
reasonable
time.


• ‐



• Route
B:
Unless
acceptance
is
expressly
made


conditional
on
assent
to
the
additional
or
different


terms.


1. Is
there
a
contract?
A
conditional
acceptance
is


usually
a
counter
offer
and
not
acceptance.

Have


to
find
that
the
offerer
has
assented
to
the
terms


of
the
counter
offer.

(last
shot
doctrine)


2. What
are
the
terms?

The
counter
offerer
controls


the
terms


3. Are
the
terms
accepted?

Not
necessarily


accepted
terms
but
are
the
terms
agreed
upon
or


are
they
implied
by
the
UCC


• Route
C:
conduct
by
both
parties
which
recognizes
the


existence
of
a
contract
is
sufficient
to
establish
a


contract
for
sale
although
the
writings
of
the
parties
do


no
otherwise
establish
a
contract.


1. Is
there
a
contract?

If
there
is
conduct


2. What
are
terms?

No
one
party
controls
them;


what
ever
was
dickered
for
and
gap
filler
terms


3. Are
the
terms
accepted?
If
there
is
conduct?


• Route
D:
an
oral
agreement
and
both
parties
send


confirmations
(one
with
a
new
term)



1. Is
there
a
contract?

An
oral
contract


2. What
are
the
terms?

Because
of
the
new
term;


we
treat
a
new
term
in
a
confirmation
the
same


way
we
treat
an
acceptance
of
route
A.


 A
party
must
expressed
unequivocal
assent
to
the
terms


[Diamond
v.
Krack]34


‐

STATUTE
OF
FRAUDS

1. 2.201‐sof


 K
for
the
sale
of
goods
more
than
$500
is
not
enforceable
by


way
of
action
of
defense
unless
there
is
some
writing
sufficient


to
indicate
that
a
K
for
sale
has
been
made
btn.
Parties
AND


SIGNED
BY
THE
PARTY
AGAINST
WHOM
ENFORCEMENT
IS


SOUGHT.


 Dispenses
writing
requirement
in
4
situations


• Btwn
merchants,
if
confirmation
is
received
in


reasonable
time
and
is
sufficient
against
sender
,
unless


objects
within
10
days
































































34

 
Diamond
v.
Krack:
Where
assent
is
not
unequivocal
then
the
term
is
not
accepted.
(tubing

manufacturing)



• When
a
seller
has
made
a
substantial
beginning
in
the


manufacturing
of
a
specially
manufactured
good
or
has


committed
itself
to
buy
goods
forma
3rd
party
it
may


enforce
an
oral
K
for
them
if
it
cannot
resell
them
in
an


ordinary
course
of
business.
(Distribu‐Dor
v.
Karadanis)35


• If
a
party
judicially
admits
the
existence
of
the
alleged
K


(2.201(3)(b)


• To
the
extent
that
the
seller
has
received
and
accepted


payment
of
the
buyer
has
received
and
accepted
the


goods,
the
Statute
is
no
bar
(2.201(3)(c)


2. Elements


 Evidence
of
K


 Must
be
signed
(2.201(39)


 Writing
must
specify
a
quantity


3. Defenses


 I
never
entered
into
a
K


 Even
if
there
was
a
K,
there
was
no
objective
meeting
of
the


minds(no
signed
K)


‐































































35

 
Distribudor
v.
Karadanis:
when

a
portion
of
the
goods
are
specially
manufactured
the
court

will
apply
them
to
the
SOF
unless
one
term
is
not
specially
manufactured
then
SOF
does
not
apply.
(mirror

and
tub
enclosures)



PAROLE
EVIDENCE
RULE

1. 2.202


 A
writing
intended
by
the
parties
to
be
a
final
and
complete


statement
of
the
terms
of
the
agreement
and
cannot
be


contradicted
by
any
prior
agreement
term


 The
final
writing
can
be
explained
or
supplemented
using
the


PER


• By
course
of
dealings,
usage
of
trade,
or
performance


• Where
there
is
a
partial
integration,
by
evidence
of


consistent
terms


2. TEST


 Is
the
writing
integrated?


 Is
the
integration
partial
or
complete?


 If
no
then
the
rule
does
not
apply!


 If
it
is
completely
integrated
then
(a)
says
it
can
still
be


explained
or
supplemented
by
course
of
dealing
or
usage
of


trade
or
course
of
performance)
(214
evidence
could
come
in


also)


 If
it
is
a
partial
integration
then
consistent
additional
terms
can


be
introduced
(b).


3. 2.209(1)


 Modification
does
not
need
consideration
to
be
binding



 Does
need
to
be
made
in
good
faith


• DURESS
AGAINST
IT


1. Oral
modifications
are
okay
unless
it
falls
under


the
SOF
or
is
bad
in
bad
faith


2. A
modification(if
fails
above)
can
operate
as
a


waiver
of
a
oral
modification
clause.


4. 2.210


 ‐


 (1)
a
party
bay
DELEGATE
its
duty
unless
the
other
pary
has
a


substantial
interest
in
performance
by
that
party(singer)


 (2)
a
party
may
assign
a
right
unless
doing
so
would
materially


change
the
duty
of
the
other
party,
or
increase
materially
the


burden
of
risk
imposed.



‐

GENERAL
OBLIGATIONS

1. GAP
FILLER


 Common
omissions
(price,
duration,
payment,
delivery
date)


 2.204


• Even
though
one
or
more
items
are
left
open
a
K
for
the


sale
does
not
fail
for
indefiniteness
if
the
parties
have


intended
to
make
a

K
and
there
is
a
reasonably
certain


basis
for
given
an
appropriate
remedy


 2.305


• Price:



1. How
do
we
know
there
is
K
without
a
price



2. Parties
intent


3. Or
when
the
price
is
not
determined
because
of


one
party
the
other
party
can
cancel
the
K
or


assign
a
price


 2.306(1)


• Quantity


1. No
quantity
unreasonably
disproportionate
to


any
stated
estimate
or
in
the
absence
of
a
stated


estimate
to
any
normal
or
otherwise
comparable


prior
output
or
requirements
may
be
tendered
or


demanded


2. OUTPUT
SELLER:
may
not
tender
an


unreasonable
quantity[Feld
v.
Henry]36


a. Seller
has
a
good
faith
obligation


b. Buyer
did
not
give
up
right
to
buy


somewhere
else


c. ‐


d. This
language
seeks
to
protect
the
buyer.


Seller
must
produce
and
the
buyer
must


pay
































































36

 
Feld
v.
Henry:
2.306
an
output
seller
has
a
good
faith
obligation
to
continue
to
have
output
and

nothing
more(breadcrumb
case)



3. REQUIREMENTS
BUYER:
may
not
demand
an


unreasonable[Eastern
v.
Gulf]


a. Seller
did
not
give
up
right
to
sell


elsewhere


b. Buyer
must
purchase
in
good
faith


 2.306(2)


• EXCLUSIVITY:
Best
efforts
for
a
exclusivity


requirement[Wood
v.
Lucy
Lady
Duff]


1. Seller
gives
up
rights
to
sell
elsewhere


2. Buyer
must
use
best
efforts


3. Like
a
requirements
K,
language
seeks
to
protect


the
seller


4. Buyer
must
operate
in
good
faith


 2.311


• Unless
otherwise
agreed
the
buyer
has
the
right
specify


the
assortment
of
goods


 2.308(a)


• Delivery


1. Sellers
place
of
business
unless
otherwise
agreed


2. If
no
place
of
business,
his
residence


 2.309


• Termination



1. Notification



 2.307‐2.310


• Parties
must
comply
with
ordinary,
reasonable


commercial
practices


1. 310(A)
buyer
pays
where
buyer
receives


shipment(the
buyer
has
possession
of
the
goods)


 ‐


 DEFENSES


• Trade
usage


• Course
of
dealings


• Course
of
performance



‐

CODE
WARRANTIES

1. 2.312‐2.318


 Commercial‐loss
is
economic


 Consumer‐personal
injury
from
a
defective
product


2. Buyer


 Establish
that
the
seller
warranted
the
goods
under



• 2.313
expressed
warranties


1. Affirmation
or
promise


a. If
the
buyer
could
have
reasonably


considered
the
statements
from
the
seller


to
be
his
opinion
only
then
there
is
no


expressed
warranty
based
on
affirmation.



b. Reliance
on
statements
are
required
in


some
states.


2. Description[Keith
v.
Buchanan]37


3. Sample(actually
drawn
from
goods)
or
model(not


drawn
from
bulk
of
goods)
[Barton
v.
Tra‐Mo]38


• DEFENSES


1. Puffing


a. Comparing
goods
to
other
goods


b. Specificity
of
the
representations


c. Relating
to
goods
quality


d. Goods
experimental


e. ‐


f. Buyers
actual
knowledge
of
goods


condition


g. Statement
written
or
oral


2. Reliance


3. Privity
(2.318)
































































37

 
Keith
v.
Buchanan:
where
a
seller
presents
a
brochure
(affirmations
of
fact)
and
where
those

representations
are
basis
for
the
bargain
there
is
an
expressed
warranty
but
if
the
buyer
does
not
rely
on

the
skill
and
judgment
of
the
S
then
there
is
no
implied
warranty.
(boat)


38

 
Barton
v.
Tra‐Mo:
Where
a
seller
presents
a
sample
or
model
for
the
buyer
to
consider
in
the

basis
for
their
bargain
the
court
will
find
an
expressed
warranty.
(fuel
tanks
made
of
an
alternative

material)



4. Expressed
warranties
can’t
be
disclaimed(2.316(1)


a. Disclaimer
is
dropped
if
inconsistent
with


expressed
warranty


5. Merger
clause


• 2.314
impliedmerchantability[Blockhead
v.


Plastic]39[Valley
Iron
v.
Thorin]40[Delano
v.
SC
Wine
Co.]41


1. Applied
to
every
sale
of
goods
by
a
merchant


with
respect
to
goods
of
that
kind


• 2.315
impliedfitness
for
a
particular


purpose[Blockhead
v.
Plastic]42[Valley
Iron
v.
Thorin]43


1. When
the
seller
had
reason
to
know
of
the
buyers


need
AND
































































39

 
Block
head
v.
Plastic:
Where
a
warranty
of
merchantability
is
effectively
disclaimed
the
court

will
not
find
a
breach(wiglet
case)


40

 
Valley
Iron
v.
Thorin:
Where
the
merchant
deals
in
goods
of
that
kind
the
court
will
provide
a

broad
application
of
goods
materials
(make
iron
collars
Tim
Ream
case)


41

 
Delano:
breach
of
merchantability
because
8000
cases
of
wine
were
unmerchantible.


42

 
Blockhead:
Where
the
buyer
specifies
or
has
more
knowledge
about
the
goods
in
question

then
the
court
will
find
no
implied
warranty
of
fitness
for
a
particular
purpose
because
the
buyer
is
not

relying
on
the
seller(wiglet
case)


43

 
Valley
Iron:
when
a
buyer
makes
their
intended
purpose
known
then
an
implied
warranty
of

fitness
applies.
(might
hit
a
rock)



2. The
buyer
is
relying
on
the
sellers
skill
or


judgment
to
select
the
goods
[Keith
v.
Buchanan‐

no
implied
warrant]


3. These
are
likely
to
have
been
included
had
the


parties
considered
such
terms.


 Prove
that
goods
delivered
did
not
conform
to
the
warranty


and
that
as
a
result
the
buyer
suffered
damage.


3. Seller


 ‐


 2.316
authorizing
certain
warranty
disclaimers[Blockhead
v.


Plastic]


 2.719
permitting
certain
remedy
limitations


 2.318
requiring
a
measure
of
horizontal
privity


 2.607
(3)
require
that
the
buyer
give
reasonable
notice
of
the


breach
[Delano
v.
Wine
Growers]44


 2.735
SOL


4. Issues



 Is
the
seller
a
supermerchant?
Does
he
deal
in
goods
of
that


kind?2.104


 Are
the
goods
merchantable
under

2.134(2)?
































































44

 
Delano
v.
Wine
Growers:
must
give
notice
of
breach
of
warranty
within
a
reasonable
time



 Did
seller
breach
warranty
of
merchantability?


 Is
the
item
being
used
for
its
ordinary
purposes
foor
for
a


particular
purpose?

Is
the
itme
specially
manufactured?



Warranty
of
fitness
2.315


 Did
seller
breach
warranty
of
fitness?


 What
defenses?


• Warranty
disclaimers
2.316…was
it
conspicuous?



• Remedy
limitation
2.719?
Will
warranty
fail
of
it
s


essential
purpose
if
this
is
enforced


• Trade
usage
(2.208)?
Can
buyer
come
back
with
course


of
dealing
response(Delano)?


• 2.607
(3):
did
buyer
give
effective
notice
of
the
alleged


breach
in
required
reasonable
time?


 Damages


• LV
–
CA


‐

SELLER
DEFENSES
TO
WARRANTY
LIABILITY

1. Warranty
disclaimer
2.316


 (1)
a
seller
may
not
disclaim
an
express
warranty


 (2)
a
disclaimer
of
the
merchantability
must
mention


merchantability
and
be
conspicuous
(if
in
writing),
a
disclaim
of



the
fitness
warranty
must
be
conspicuous
and
in
writing[Cate
v.


Dover]45


• The
manner
in
which
the
K
was
entered


• Whether
the
parties
has
a
reasonable
opportunity
to


understand
terms
of
the
K


• Whether
important
terms
were
hidden
in
fine
print[Cox


v.
Lewiston]46


2. Remedy
limitation
2.719[Moscatiello
v.
Pittsburg]47


 (2)
invalidates
any
remedy
limitation
that
causes
a
warranty
to


fail
of
its
essential
purpose


 (3)
provides
that
a
limitation
of
PJ
damages
in
a
sale
of


consumer
goods
is
prima
facie
unconscionable
[Cox
v.
Lewiston


Grain]


 ***be
aware
that
if
the
goods
have
needed
repeated
repair


then
the
limited
warranty
then
the
proper
remedy
would
be
to


replace
the
entire
good































































45

 
Cate
v.
Dover:
A
disclaimer
must
be
conspicuous
to
a
reasonable
person
2.316;
actual

knowledge
of
the
disclaimer(lifts
that
never
worked)


46

 
Cox
v.
Lewiston:
A
warranty
disclaimer
is
unenforceable
when
they
are
not
negotiated

between
the
buyer
and
seller
***
Berg
Rule:
applies
when
the
sale
has
special
requirements.

Applies
a

test
for
unconscionable
(seeds
failed
to
germinate)


47

 
Moscatiello
v.
Pittsburg:
A
disclaimer
against
must
be
conspicuous
and
can
be
off
a
different

font
or
color
and
the
remedy
limitation
was
unconscionable
because
it
was
swaying
on
one
direction

(paving
machine



3. Notice
requirement
2.607(3)


 Requires
a
buyer
to
notify
a
seller
within
a
reasonable
time
of


any
claimed
warranty
breach
or
be
barred
from
remedy

Buyer


bears
the
burden
of
proof(4)


‐

NOTICE

1. 2.607(3)
Requires
that
the
buyer
notify
the
seller
of
any
alleged


warranty
“within
a
reasonable
time”


 Cmt
4:
allows
a
retail
consumer
somewhat
more
time
to
notify,


but
for
a
merchant
a
reasonable
time
bay
be
very
short
(10
days


for
perishable
goods)


 Notice
given
immediately
upon
discovery
of
breach
ordinarily


satisfies
the
requirements


 Manner
and
content
can
be
important;
oral
notice
is
ordinarily


sufficient
may
have
to
specify
breach


 Occasionally,
direct
notice
form
buyer
to
seller
is
not
required
at


all;
when
the
seller
has
actual
knowledge
of
the
defect
of
the


product,
or
is
deemed
to
have
been
reasonably
notified
by
the


filing
of
the
buyers
complaint


2. Variations


 Seller
has
actual
knowledge
of
the
problem



 If
it
is
a
consumer
sale
that
has
resulted
in
personal
injury


3. Issues


 Prejudice
test:
would
the
seller
been
able
to
fix
the
problem
if


they
had
found
out
earlier,
has
the
car
been
driven
too
much
to


recognize
the
problem


 Effective
policy
argument:
even
if
we
had
given
notice
two


weeks
earlier,
it
wouldn’t
have
mattered


 If
the
consumer
is
actually
a
merchant,
that
person
should
be


held
to
a
higher
standard


‐

TITLE

1. When
does
title
pass?


 Only
parties
interested
in
this
are
insurance
companies
and
tax


authorities


 2.401(2)
unless
otherwise
explicitly
agreed,
title
passes
at
the


time
of
delivery
to
the
seller


 2.308
GAP
FILLER:
unless
otherwise
agreed,
delivery
is
a
the


seller’s
place
of
business


2. When
does
good
title
pass
to
the
buyer


 2.403
Voidable
title(sub1)
Entrusting
(sub2)



• Voidable
title
is
created
by
bad
checkscan
be


transferred
to
a
good
faith
purchaser


3. Difference
btwn
a
good
faith
purchaser
for
value
(voidable
title


analysis)
and
an
ordinary
course
of
business
(entrusting
analysis)


 Good
faith
purchaser
for
value
can
buy
from
anyone


• In
good
faith


• Give
value
(1.201(44)


• ∏
must
show


1. ∆
delivered
under
transaction
of
purpose


2. ∆
paid
with
a
bad
check


3. ∏
was
a
good
faith
purchaser
for
value


 If
you
are
and
entrusting
analysis,
you
have
to
buy
from
a


merchant
who
deals
in
goods
of
this
kind.

A
buyer
in
ordinary


course
of
business
is
only
buying
from
a


supermerchant[Heinrich
v.
Titus]48


• Entrusting
2.403


• Intermediary
needs
to
be
a
merchant
who
deals
in
goods


of
this
kind


• ‐
































































48

 
Heinrich
v.
Titus:
gives
us
the
voidable
v.
entrusting



• Buyer
needs
to
e
a
buyer
in
the
ordinary
course
of


business


 GOOD
TITLE
CANNOT
EVER
BE
TAKEN
FROM
A
THEIF


 UCC
allows
good
faith
purchasers
to
obtain
title
more
than
the


common
law
did


• Seller
or
entruster
is
in
a
better
position
to
judge
the


merit
of
the
intermediary
than
the
purchaser


• Stream
of
commerce

we
don’t
want
buyers
from


supermerchants
worrying
all
the
time
about
whether


they
are
going
to
get
a
good
title.



‐

RISK
OF
LOSS

1. RULES


 CL
and
US
ActROL
rested
on
the
party
holding
title
to
the


goods


 UCCROL
are
more
flexible
and
more
functional


• Places
the
ROL
on
the
party
most
likely
to
take


precautions
against
loss
(one
with
control
of
the
goods


or
the
one
most
likely
to
insure)


 2.509
Risk
of
loss
absent
a
breach


 2.510
effect
of
breach
on
risk
of
loss


4. Insurable
interest
under
the
code


 2.501‐buyer
obtains
insurable
interest
in
goods
upon
their


identification
to
the
contract.

At
this
point
the
buyer
may


insure
the
goods.


5. Types
of
delivery


 2.309


 2.320



 FOB(PLACE
OF
SHIPMENT)[Windows
v.
Jordan
Panel


Systems]49[Cook
v.
Schrlock]50


• Buyer
pays
shipment
costs
and
the
ROL
passes
to
buyer


when
goods
to
carrier


 FOB(PLACE
OF
DESTIANTION)


• Seller
pays
shipment
costs
and
ROL
passes
to
buyer


when
the
goods
are
tendered
at
the
destination
as
to


enable
the
buyer
to
take
delivery


 CIF
and
C&F
Terms


• ‐


• CIF
prices
includes
in
a
lump
sum
the
cost
of
goods


and
the
insurance
and
freight
to
the
named
destination


• C&F
Price
inc.
costs
and
freight
to
named
destination


6. Bill
of
lading


 Receipt
(document
of
title‐warehouse
receipt
is
also
a


document
of
title)
indicating
what
the
goods
are;
where
they


are
suppose
to
be
delivered.


7. 509































































49

 
Windows
v.
Jordan:
Where
there
is
a
K
for
specially
made
goods
for
shipment
but
the
K
is

ambiguous
then
ROL
passes
to
the
buyer
(shipment
of
windows
all
broken)


50

 
Cook
v.
Shrolock:

2.509
goods
transported
by
a
carrier
so
ROL
transferred
to
buyer
upon

entering
carrier
hands
but
in
a
2.504
the
seller
maintains
certain
responsibilities
(insurance)
but
the
seller

does
not
have
to
verify
insurance
(brakes
fell
out
of
truck
in
transit)



 1)
(a)[Cook
v.
Schrlock]


• ROL
on
the
buyer
once
the
goods
are
in
the
carriers


hands


 2)(b)[Jason
v.
Peter]51


• ROL
on
the
buyer
because
the
goods
were
in
the
hands


of
the
bailee
and
because
acknowledgement
had
not


been
given
to
the
buyer.


 3)[Shock
v.
Ronderos]52[
Wilke
v.
Cummins]53


• ROL
on
the
buyer
because
the
seller
is
not
a
merchant


• ROL
passes
to
the
buyer
upon
TENDER
of


delivery(payment
for
or
acceptance
of)


1. Seller
cannot
be
a
bailee


8. 510effect
of
breach
on
ROL


 ROL
goes
to
the
breaching
party;
who
but
for
the
breach
would


not
have
had
the
loss
































































51

 
Jason
v.
Peter:
When
goods
left
in
the
hands
of
a
bailee
ROL
remains
with
the
seller
until

acknowledgment
has
been
received
by
the
buyer
alerting
them
to
their
possession(ribs)


52

 
Shock
v.
Ronderos:
Where
tender
of
delivery
has
occurred
then
ROL
passes
to
the
buyer

(mobile
home
case)


53

 
Wilke
v.
Cummins:
where
the
requirements
of
the
K
are
not
fulfilled
upon
delivery
of
the
goods

the
ROL
remains
with
the
seller(gov.
generator)



 (1)
if
tender
or
delivery
of
goods
so
fails
to
conform
to
the
K
as


to
give
a
right
of
rejection,
the
risk
of
their
loss
remains
on
the


seller
until
cure
or
acceptance.[
multiplastics
v.
Arch]54[


• ‐


• Wild
card
of
negligence
here…even
if
one
party
bears


the
risk…if
the
other
party
can
show
that
the
other


parties
negligence
caused
the
damage
then
the
neg
COA


trumps
the
other.
































































54

 
Multiplastics
v.
Arch:
2.510
provides
that
ROL
passes
to
the
breaching
buyer
for
a
reasonable

time
and
seller
is
entitled
to
recover
K
price.(making
pellets)



‐

PERFORMANCE
AND
BREACH
UPON

DELIVERY

1. 2.507Delivery
is
a
condition
to
the
buyers
duty
to
accept
the
goods


and
unless
otherwise
agreed
to
his
duty
to
pay
for
them.


2. 2.511tender
of
payment
is,
unless
otherwise
agreed,

a
condition
to


the
sellers
duty
to
tender
and
complete
any
delivery


 Cmt
2explicitly
concurrent
conditions


 Practical
effectneither
party
can
sue
for
breach
w/out


properly
tendering
his
own
performance


3. Buyer
right
to
prior
acceptance


 Inspection
and
rejection


• B
can
inspect
to
ensure
conform
with
K
(2.513(1))



• B
can
contract
away
that
right
(2.513(3))


 Nonconformity


• Reject
the
goods
2.601


• Refuse
payment
and
invoke
remedies
(2.711)


• Upon
accepting
goods;
waives
rejection
right,
pay
the


price,
assumes
burden
of
proving
breach(2.607)


 Revocation


• B
can
revoke
after
acceptance
but
much


stricter(2.608)[Bowen
v.
Foust]55


• Payment
before
revocation
is
not
acceptance
(2.512(2))


 Rejection


• If
goods
or
tender
fail
to
conform
the
B
can
reject
(2.601)


• ‐


• Good
faith
to
peform
(2.103)


• Seller
has
right
to
cure
(2.508)


1. Does
seller
have
right
to
cure?


2. What
constitutes
an
effective
cure?


• B
can’t
reject
installment
K
unless
substantial
impairs
its


value
(2.612)
































































55

 
Bowen
v.
Foust:
When
a
buyer
revokes
acceptance
under
2.608
the
buyer
must
act
quickly

upon
discovery
of
the
nonconformity
(heating
and
cooling
units
that
did
not
work)



• B
can
reject
if
material
loss
ensues;
just
b/c
S
did
not


ensure
does
not
provide
right
to
reject
(2.504)


• LIMITATIONS


1. Good
faith
obligation


2. 2.612,
B
may
not

reject
shipment
for
non


conformity
unless
substantially
impairs
its
value


3. B
can’t
reject
if
already
accepted(2.607)
and
seller


has
a
right
to
cure
(2.508)


4. B
must
make
an
effective
rejection


(2.606(2))[International
Comm
v.
North
Pacific


Lumber]56


‐































































56

 
Intern’l
v.
North
Pac.
Lumber:
The
buyer
must
reject
the
goods
or
revoke
acceptance
within
a

reasonable
time
and
not
act
contrary
to
the
sellers
possessory
rights
(moldy
beans)



ACCEPTANCE
AND
REVOCATION
OF

ACCEPTANCE

1. B
Acceptance(2.606(1))


 After
reasonable
time
to
inspect


 B
fails
to
make
an
effective
rejection


 B
acts
inconsistent
with
S
rights


2. B
revocation
(2.608)[Kesner
v.
Lancaster]57


 Upon
acceptance
buyer
looses
right
to
reject(2.607)


 Requirements
of
revocation


• The
non
conformity
“substantially
impairs”
the
value
of


the
goods
and
that



• B
accepted
the
goods
either
without
discovering
the


defects
because
discovery
was
difficult
or
assumed
the


seller
would
cure
the
defect
and
he
doesn’t


 Revocation
must
be
within
a
reasonable
time
 


3. 2.605‐specify
what
the
defect
is


4. Anticipatory
repudiation(2.610)
































































57

 
Kesner
v.
Lancaster:
When
a
non
conformity
is
not
easily
discovered
and
the
buyer
accepts

based
on
the
assurances
of
the
seller
then
revocation
is
acceptable
so
long
as
done
in
a
reasonable

time(tractor)



 Reasonable
insecurity
about
performance;
demand
in
writing
a


reasonable
assurance
of
performance.

If
the
other
party
fails
to


respond
you
can
assert
an
anticipatory
repudiation


‐

REMEDIES

1. Code
wants
to
put
the
aggrieved
party
in
the
position
as
if


performance
had
occurred
(1.106)


2. Code
wants
an
aggrieved
seller
to
try
to
resale
(2.706)
and
a
buyer
to


mitigate
through
cover(712)


 S
recover
RESALE+INCIDENTAL
COSTS
‐
K
–
COST
AVOIDED


(2.706(1))


 S
doesn’t
need
to
specify
market
price
for
goods


 Cmt
2:
failure
to
act
properly
deprives
S
of
the
measure
of


damages
here


 If
S
cannot
recover
the
entire
K
price
under
2.709
or
2.706
the
S


might
recover
K‐MP
a
the
time
and
place
for
tender
plus


incidental




3. 2.703
catalog
sellers
remedies


4. 2.711
catalog
buyers
remedies


 Issues


i. When
and
where
to
measure
the
market
price


ii. What
times
to
include
in
damage
measure


iii. When
do
we
have
a
lost
volume
seller


‐

SELLER
REMEDIES


1. 3
REMEDIES


 2.709
full
K
price


• Seller
may
recover
full
K
price
if


1. Buyer
accepted
(2.606)
and
retained
the
goods



a. B
who
procedurally
rejectsno


acceptance


b. B
who
wrongfully
rejectsaccepts
the


goods(2.606)


c. B
revoking
acceptance
(2.608)
no


acceptance


2. Conforming
goods
have
been
lost
or
damages


after
ROL
passed(2.509)


3. S
tried
and
failed
to
resell
goods
or
circumstances


show
not
likely


 2.706
resaledifference
btwn
K
and
resale
price


• Most
sellers
invoke
2.706


1. If
non
breaching
party
resells
in
good
faith,
then


the
aggrieved
seller
may
recover
the
difference


btwn
K
price
and
lower
resale
price
+incidental‐

expenses
saved.


2. If
seller
makes
a
profit
does
not
have
to
share


3. Advise
client
to
act
like
it
is
their
own


money(commercially
reasonable
care)


4. Resale
privately,
must
give
notice
of
intent
to


resale
privately



5. Resale
publically,
must
give
notice
of
time
and


place


6. If
resold
unreasonably
(way
below
market
price)


can’t
get
remedies
under
2.706
but
maybe
under


2.708


 2.708K
market
penalty


• ‐


• Lost
volume
seller:
if
the
damages
of
2.708
is
inadequate


then
proceed
under
(2)
to
recover
profit(including


overhead)that
would
have
ensued
from
sellers
full


performance
+
incidental

‐proceeds
from
resale


2. 2.704
permits
a
reasonable
completion
of
½
finished
goods


 Risk:
can
lose
even
more
money
if
you
are
unable
to
resale


goods
after
you
have
finished
You
want
to
notify
the
buyer
of


your
plans
to
resale



‐

BUYER
REMEDIES


1. 2.716Specific
performance
and
replevin(like
709
sellers)


 Specific
performance
where
goods
are
unique


 Cmt
1
wants
a
more
liberal
application
of
spec
per


 Cmt
2
output/req.
K
involving
special
markets
or
sources
are


now
the
typical
commercial
spec
perf
cases.
***see
these


where
the
seller
can’t
recover***[Eastern
Gulf]


 2.716(3)
replevin



• When
cover
is
unavailable



• When
they
have
shipped

under
reservation
the
buyer


has
tendered
full
payment


2. 2.712cover(like
706)


 Without
unreasonable
delay
and
in
good
faith
a
reasonable


purchase
of
goods
in
sub
for
those
due
from
the
seller


 (2)
K
–
cover
and
any
incidental
costs‐expenses
avoided



 Cmt
2


• TEST


1. Did
the
buyer
act
in
good
faith


2. Within
a
reasonable
time


3. Irrelevant
whether
it
was
the
most
inexpensive


4. But
must
be
reasonable
[Farmers
v.
Lyle]58


 Non
covering
buyer
can
get
other
remedies
but
cannot
recover


consequential
damages
that
cover
would
have
prevented


3. ‐


4. 2.713market
price
(708
sellers)


 Recovery
between
market
price
and
the
K
price
when
the


aggrieved
party
does
not
seek
spec.
per
or
cover


 Have
to
determine
the
proper
date
and
time
for
fixing
the


damages
































































58

 
Farmers
v.
Lyle:
equitable
estoppel
may
prevent
a
party
from
invoking
the
SOF(corn
case)



• Determine
the
date
by
either
the
last
day
for


performance,
date
for
knowledge
of
breach(usually
use


the
later
date)[Cargill
v.
Stafford]59


• Determine
place
by
place
for
tender
or
if
after


revocation
place
of
arrival


5. 2.714breach
for
accepted
goods


 B
accepts
defective
goods
and
does
not
revoke
acceptance
by


nonetheless
sue
for
breach


 (1)B
may
recover
damages
“reasonable
manner”


 (2)breach
of
warranty
regarding
the
goods
the
measure
of


damages
will
normally
be
the
difference
at
the
time
and
place


of
acceptance
between
value
of
the
goods
and
the
should
have


been
value
of
the
goods
































































59

 
Cargill
v.
Stafford:
If
a
substitute
is
available
and
the
buyer
fails
to
cover
within
a
reasonable

time
then
the
price
measurement
for
damages
should
be
when
performance
was
due
unless
there
was
a

valid
reason
for
not
covering.



CONTRACTS A
FALL 2000
PROFESSOR BJERRE

FALL CONTRACTS OUTLINE


Contract is an exchange for goods, services, and behavior. Enforceable promises insure stability
and predictability (used primarily in business deals). Two remedies to enforce a contract or for
breach of a contract is either specific performance or damages.

Theories of Obligation
1. Contract – if it meets consideration
2. Quasi-Contract – if unjust enrichment can be avoided
3. Promissory Estoppel - if person is reliant

I. Traditional Contract Elements

A. Bargained for…Quid Pro Quo


1. inducement
(a) “please” test - will you give me the address please and I’ll do this… vs. give
me the address and I’ll do this….
(b) Kirksey v. Kirksey - bro-in-law: if you come and see me I’ll let you have a
place to live) - no consideration, no inducement to get her to move
(c) past consideration - no “bargain” for (Feinberg v.s Pfeffer Co. - promise of
pension is not inducement for past work)

B. Consideration

1. Detriment to promisee -- forbearance -- promisee must do something he does not have


to do, or refrain from doing something that he has a right to do. (Hamer v. Sidway –
nephew forbore on his legal right to drink); or

2. Benefit to promisor

3. Consideration Examples
(a) performance – unilateral -- 1 promisee, 1 promisor
(b) promise - bilateral
(i) both are promisees and promisors
(ii) both want assurances about the future
(c) Contracts implied in fact based on interpreting the parties’ intentions
(i) Wood v. Lucy - designer hires sales agent to use “reasonable efforts” –
no explicit promise by sales agent but ct. found implied contract
(ii) damages = what was intended
(d) Moral Obligations – Since there is a moral obligation to follow through on
every promise, every promise would be binding. Contract law focuses more on
business deals, not personal matters/promises. Contracts need to be reliable
(legally enforceable) and morality varies individually – not stable enough for
business purposes. Court refuses morality to play a role in legally enforceable
contracts. Autonomy vs. Paternalism: Law is meant to protect fair-minded
people from “Good Samaritans” that fair-minded people may feel casually
obligated to compensate people that they didn’t even bargain or request them to
do something. Casually in the sense that you may have second
thoughts…Cautionary Function – make people think twice before making their
promise. Ultimately, this protects fair-minded people in making sincere promises
with consideration that would be legally binding. Autonomy is limited by this
cautionary function (paternalism).
(i) Mills v. Wyman (∆’s son) became ill. Mills took care of him and
consequently incurred expenses. Wyman’s dad promised in writing to pay
Mills for these expenses, but he did not follow through. Court says
promise was without legal consideration – no bargaining of the “contract”.
Services of the sick son were not bestowed at his request. Π was a good
Samaritan and gave ∆’s son comfort until he died.
(ii) EXCEPTION!!! Only avail in certain jurisdictions Webb v. McGowin -
victim promises to pay $15 every 2 weeks to man who threw himself off a
roof w/ a 75lb block to save his life – enforceable against estate because
victim received material benefit of life.

4. What is NOT consideration?


(a) peppercorns
(i) Restmt 1 - peppercorn enough
(ii) Restmt 2 - peppercorn not enough
(iii) except - enough for option contracts
(b) Illusory Promises (Strong v. Sheffield – uncle said he’d promise to forbear as
long as he felt like it - back door) - 2 tests:
(i) subjective - good faith
(a) Mattei v. Hopper - Π agrees to buy land from ∆ subject to
gaining “satisfactory” leases. Passed good faith test by trying to
get good leases.
(b) contracts w/ unrestricted termination clauses are usually
illusory - alleged in Eastern Airlines v. Gulf Oil –but Eastern acted
in good faith even though mv reporter stopped reporting true mv of
oil - didn’t go crazy buying up a lot of it.
(ii) objective - reasonable person
(c) Past Performance - no inducement
(d) Gratuitous Promises
(e) Promisor Defenses to a Contract …Unenforceable w/o Reaffirmation:
(i) Infancy
(ii) Bankruptcy
(iii) Statute of Limitations expired

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II. Quasi-Contract - Contracts implied in law or fact. Court does not care about individual
intentions, but what a reasonable person would want. No consideration requirement. It’s
express purpose is to prevent unjust enrichment.

A. Requirements:
a) Conferred benefit
b) Unjust Enrichment -- Officious and Gratuitousness – To recover on the quasi-contract
theory, the Π must prove that defendant was enriched, received a benefit, and that
retention of the benefit without paying for it would be unjust. If the plaintiff is acting
gratuitousnessly and officiously than the contract is not enforceable.
Cotnam v. Wisdom – Doctor/Streetcar Case. (1) whether compensation under a legal
contract is entitled since recipient of services was unconscious…Yes.
(1) Benefactor cannot act officious --“The Meddler” -- Person voluntarily
renders services without being asked or being bargained.
(2) Benefactor cannot act gratuitous -- Presumption of gratuity if good Samaritan
voluntarily aids helpless – recovery/compensation is denied. Exceptions (1)
samaritan’s services are excessively expensive or burdensome and (2) samaritan
renders services in a business or professional capacity.
B. Amount of Recovery
a. “Implied in Fact” contract – based on the intentions of the parties; the agreement
is intended by both parties. Compensation determined by the going rate.
b. “Implied in Law” contract – intentions of the parties have little or no
determination of proper measure of damages. Restitution is not limited to the
value of the acquired benefit.

C. Quasi-Contract cannot be used to get around traditional contract obligation theory.


Callano v. Oakwood Park Homes Corp. Shrubbery Case. Π could have sued the estate of the
buyer. Quasi-contractual liability “implied in law” means the intention of the parties is entirely
disregarded on the grounds that they are dictated by reason and justice. While with “implied in
fact,” the intention is the essence of the transaction. Successful application of quasi-contract
liability… (1) Π expected remuneration from ∆ at the time the benefit was conferred; and (2)
involve either some direct relationship between the parties or a mistake on part of the person
conferring the benefit.

Paschalls, Inc. v. Dozier contends that Π must exhaust legal remedy against direct contracted
party before rightfully pursuing the other party. Therefore, if case against original direct contract
fails, Π still has an alternative party remedy under Paschalls not Callano. Justice comes from
“process” in Callanos and “outcome” in Pashcalls.

The Problem of Unsolicited Action

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A. Reliance and the Requirement of Bargain

Kirksey v. Kirksey – Widow moves for an adequate place for her to raise her family and
subsequently evicted. Court rules ∆’s promise was merely gratuitous because it was not
bargained.

Central Adjustment Bureau, Inc. v. Ingram – Bill Collector/Non-compete Case. Whether a


covenant not to compete meets consideration based on a sufficient length of future
employment…Yes, if the employee remains for an appreciable length of time after he signs the
covenant and the employee ends his employment voluntarily. Thus, a binding unilateral
contract is forged out of a former, invalid bilateral contract.

B. Reliance as an Alternative Basis for Enforcement -- Ricketts v. Scothorn -- Π alleges x


amount was in return of surrendering her employment. “You don’t have to work.” No
consideration, but Π meets the elements of estoppel in pais – affirmative defense – to make
contract binding. Estoppel in pais is defined as a right arising from acts, admissions, or conduct
which have induced a change of position in accordance with the real or apparent intention of the
party. Promisor doesn’t have to try to induce promisee, but does induce the promisee. Objective
Test – what should the promisor reasonably expect to induce promisee -- but most importantly,
promisee is induced.

III. Promissory Estoppel - Restatement §90 – Promises which foreseeably induce reliance
on the promisee’s part. Contracts are an exact rule, while Promissory Estoppel and Quasi-
Liability meets an inherently, vague indeterminate standard. Rules are better for planning
purposes because of their specificity—more business oriented. Note: Restatement Second 90
– a promise which the promisor should reasonably expect to induce action or forbearance on
the promisee is binding if injustice can be avoided only by enforcement of the promise. It also
suggests in some situations that relief may be measured by the extent of the promisee’s
reliance rather than by the terms of the promise. Note: Promissory Estoppel is distinguishable
from Equitable Estoppel because (1) the issue is the promise, not the facts; and (2) it can be the
basis for a suit instead of just used as a defense against payment.

A. Elements
a) promise
b) induces actual detrimental reliance
c) reliance is reasonably foreseeable. See Alden v. Presley - no reasonable reliance b/c
mother-in-law knew she wasn’t getting the money b/f she brought divorce suit.
d) unjust

B. Four categories:
1. Family Promises – promise made by one member of a family to another.
2. Promises to Convey Land – promises to convey land on which the promisee had relied by
moving onto the land and making improvements.

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3. Promises Coupled With Gratuitous Bailments – a bailor seeks to enforce a promise made
by the bailee in connection with a gratuitous bailment.
4. Charitable Subscriptions – enforce the promise by finding that the charity has done or
promised to do something in exchange for the subscriber’s promise. Enforceability is
particularly desirable as a means of allowing decisions about the distribution of wealth to
be made at an individual level. Charities are reliant on funding sources, thus promised
contributions are enforceable. Allegheny College v. National Chautauqua County Bank
of Jamestown (NY 1927) is the most influential case in this category.

(1) Feinberg v. Pfeiffer – Little Old Lady’s Retirement Case -- At the time the
payments were discontinued, Π was 63 years old and it was virtually impossible
for a woman of that age to find satisfactory employment.

C. Damages
a) c/b reliance interest vs. expectancy (full amt. of promise)
b) depends on the court - but bias toward reliance

Promise for a Promise


Restatement Second 71 states that consideration for a promise can be found in a return promise.
With some exceptions, a promise which is bargained for is consideration, if, but if only if, the
promised performance would be consideration.

A. Unilateral and Bilateral Contracts. Unilateral contracts entail one party making a
promise—not binding unless one party acts on the basis of the promise. Bilateral contracts entail
both parties making promises. Determination of which type of contract is identified through the
terms of right and duty. Right and duty are correlatives – there can never be a right without a
duty, nor a duty without a right. The offeree has the power to change the relationship.

B. Conditional Promises. Even though a promise is enforceable, it may still be conditional in


that its performance will become due only if a particular event/condition occurs. The event
must occur before the promisor must perform. Either party can protect their promise by making
it conditional on performance by the other party, so that it is under no duty to perform until the
other party has performed. Under Restatement 71, consideration can be a return promise –
promise for a promise. Promisor and promisee induce the making of the bilateral promise rather
than the performance.

Output Contracts – satisfaction with performance


Strong v. Sheffield -- Bilateral Contract Example -- Not Promissory Estoppel.
Π promises to actually wait for an indefinite amount of time until he wants/needs his money
(illusory promise). Whether promises can be consideration for one another (Bilateral Contract),
if one of the promises is illusory…No, Π made an illusory promise. Π is not restricted at all. He

5
can do whatever he wants without impacting the arrangement. Thus, his promise does not meet
consideration.

Note: CAB v. Ingram – court says binding contract can be forged out of a former, invalid
bilateral contract. Thus, this case (Strong) would be decided differently under those perimeters.

Mattei v. Hopper – Satisfaction Standards and Illusory Promise -- ∆ allegedly breached contract
by failing to convey her real property in accordance with the terms of a deposit receipt. Π had
the power and privilege to terminate the contract if he did not obtain the required leases. For the
contract to be enforceable, both parties must have assumed some legal obligation. If one of the
promises leaves a party free to perform or withdraw from the agreement at his own unrestricted
pleasure, the promise is deemed illusory. Court believes this case is most similar to the
subjective, good faith standard in determining the satisfactory clause. Because both parties
inserted a satisfactory clause on Π’s performance, the contract was not illusory, nor lacking
mutuality.

Satisfactory Clauses meet consideration requirement, not illusory.


1. Objective, reasonable person standard
a. Utility
b. Operative Fitness
c. Commercial value

2. Subjective, good faith honesty standard by particular person. Burden is on the party that
made the satisfactory condition as part of the contract to evaluate it.
a. Fancy
b. Taste
c. Judgment

Eastern Air Lines, Inc. v. Gulf Oil Corp -- Similar fact pattern to Strong v. Sheffield and
Mattei v. Hopper. Judge applies UCC. ∆ alleges the contact is (1) not binding because it lacks
mutuality – illusory promise since no required supply amount…could be nothing and still
compliant with contract – Π has no constraints; and (2) commercial impractical with current
economic conditions. Court says ∆ is not excused for impracticality. ∆ is unhappy with its own
promise…too bad. Contracts for output is not too indefinite since it is held to mean good faith
output. It must be reasonably proportional.

Wood v. Lucy, Lady Duff-Gordon – Designer Case. Court says even if a promise may be
lacking, the writing may be animated with an obligation. Court says this promise has value --
Π’s implied promise to share results from his reasonable efforts to bring in a profit.

C. Unrestricted Termination Clause -- A promise with an unrestricted termination clause does


not have consideration. Promisor has the explicit freedom to never follow through on their part
of the promise. For example, I promise to do Y, but I can terminate this promise at any time for
any reason. Therefore, the contract is not binding. Conversely, a restricted termination clause

6
does have consideration. For example, I promise to do Y, but I can terminate Y – no mention of
any time or any reason excuses.

THE BARGAINING PROCESS


A. The Nature of Assent (mutual agreement) – offer + acceptance = agreement
1. Objective Theory– reasonable person standard – This is the primary theory that the
courts use now. Historically, this theory treated all contract arrangements the same and
excluded consideration of the actual intentions of the parties.
2. Subjective Theory – “actual intent” or “meeting of the minds” or “will theory” --
Objectivists believed this theory placed too much stress on unique individual motivations
that would destroy legal certainty and stability.

Lucy v. Zehmer –Sold Farm in Jest -- Subjective intent is not enforceable; rather it’s the
party’s outward manifestation of intent – CITE on TEST -- If words and acts, judged by
a reasonable standard, manifest an intention to agree, it is immaterial what may be the
real but unexpressed state of his mind.

Keller v. Holderman – “Frolic and Banter Rule” -- a mere peppercorn intent lacks
consideration based on objective standard. Restatement § 75. Π not expecting to sell,
nor ∆ intending to buy.

*Gentleman’s Agreements. The legal term is a “Letter of Intent.” These agreements


arise in Securities and Bonus/Death Plan Benefits, where parties do not intend promises
to be legally enforceable.

*Formal Contract Contemplated – Objective Intent to be Bound -- parties agree on


what they consider to be the essential terms of a contract and leave details to be worked
out in preparation of a formal document that they expect to sign.

(a) Common law principles (1) that absent an expressed intent that no contract
shall exist, mutual assent of the parties, even though oral or informal, to exchange
acts or promises is sufficient to create a binding contract, and (2) that to avoid the
obligation of a binding contract, at least one of the parties must express an
intention not be bound until a writing is executed.

(b) Factors to determine whether the parties intended to be bound in the absence
of a document executed by both sides (Winston v. Mediafare
Entertainment…REMEMBER
(1) whether there has been an express reservation of the right not to be
bound in the absence of a writing.
(2) whether there has been partial performance of the contract
(3) whether all the terms of the contract have been agreed upon

7
(4) whether the agreement at issue is the type of contract that is usually
committed to writing.

Of Oil and Honor – Texaco-Penzoil Wars


Broad outline of agreement secured with a handshake deal between Penzoil and
Getty Oil Company. Meanwhile, Getty and Texaco have a contract exchanging
money for stock to buy out Getty. Penzoil finds out and says they have an
enforceable contract due to the handshake. Getty says no one signed anything.
Penzoil then sues Texaco for an intentional tort claim – tortuous interference with
a contract. Jury agrees with plaintiff and awards the highest damages in the
nation’s history over $10 billion. **Important to mention Tort Interference claim,
if contract is found unenforceable.

B. The Offer -- An offer is an act whereby one person confers upon another the power to create
contractual relations between them. Restatement Second § 24 defines offer as a manifestation of
willingness to enter into a bargain. Invitations and preliminary negotiations are not offers – no
intent to be bound. The power of acceptance is determined through an expression of will or
intention – an act that leads the offeree to reasonably believe that a power to create a contract is
conferred upon him. Mere price quotes are not legally binding.

Offer must have Reasonable Expectation, defined by…


1. Promise or undertaking to enter into a contract.
(a) Manifestation of Intent – Owen and Harvey -- outwardly expressed intent factors…
--words used, written or oral
--surrounding circumstances
--to whom the offer was made (targeted audience?)
--level of details
(b) objective standard (Lucy v. Zehmer)
2. Certainty in the essential terms
3. Communication

Owen v. Tunison – Price Quote -- ∆’s letter in response to an offer of $6K for his property may
have been written with the intent to open negotiations that might lead to a sale. “It would not be
possible for me to sell unless I received $16K.” Invitation for offer, not an offer itself.

Harvey v. Facey – Price Quote -- Bumper Hall Pen. The mere statement of “lowest price” at
which the vendor would sell contains no implied contract to sell at that price.

Fairmount Glass Works v. Crunden-Martin Woodenware Co. – Remember – Language


Mason Jar Case. A quotation of prices is not an offer to sell. The transaction is not completed
until the order so made is accepted. Appellant’s answer to it was not a quotation of prices, but a
definite offer (“for immediate acceptance to close the contract”) to sell on the terms indicated,
and could not be withdrawn after the terms had been accepted.

1. Addressee of Offer -- an offer can be accepted only by one whom it invites to furnish
the consideration. A vague ad or price quote protects a seller from unrealistic

8
expectations of the buyer – rather, specific quantity of goods and clear intentions of the
seller create a legally binding contract. The statement “first come, first served” is an
explicit offer. However, few cases exemplify this principle because most offers are
addressed to a wide audience.

Boulton v. Jones – When a contract is made, in which the personality of the contracting
party is or may be of importance, no other person can interpose and adopt the contract.

Craft v. Elder & Johnston Co. -- ∆ advertises in newspaper for $26 on sewing machines
(typo on price). In the absence of special circumstances an ordinary newspaper
advertisement is not an offer, but an offer to negotiate. No contract is formed to take a
specified quantity of the goods at that price. An advertisement is merely an invitation.

*Vague ad protects seller from unrealistic expectations of the buyer – specific quantity of
goods and clear intentions of the seller create a more legally binding contract.

Lefkowitz v. Great Minneapolis Surplus Store – Scarf for “Women” Only. When an
offer is clear and there is nothing left to negotiate, it is a contract upon acceptance.
Offeror does not have the right to modify the offer after it is accepted.

* Despite newspaper ad rule, “First come, first served” is an explicit, definite offer.

2. Knowledge of Mistake. If the offeree knows of the offeror’s material mistake until the
time of acceptance, then the offeror is not bound. Difficulty arises when the magnitude
of the mistake was such that it should have been apparent from the face of the offer.

Heifetz Metal Crafts, Inc. v. Peter Kiewit Sons’ Co. -- After Kiewit accepted Heifetz’s
offer, ∆ discovered that he had overlooked some subsidiary kitchen installations required
by the plans. Since its quotation was 1/3 less, ∆ should have known there was a mistake.
Court finds the contract enforceable because in a general-subcontractor relationship, the
subcontractor’s intent is unknown to the general contractor. Sometimes a subcontractor
has a special reason for desiring to obtain a particular job (i.e. the subcontractor wanting
to establish a favorable working relationship for future work) and would submit a figure
controlled by that consideration.

C. Acceptance: a voluntary act of the offeree whereby he exercises the power conferred upon
him by the offer, and thereby creates a set of legal relations called a contract. In the beginning,
the offeror has full control in creating power for an offeree. After acceptance, the offeror is no
longer free to change his mind and nor able to withdraw from the relationship without incurring
liability. Generally, acceptance needs to be communicated within a reasonable time frame
before work commences, unless the offer (1) includes notification within the offer, or (2) offeror
invites acceptance by means of performance (method of acceptance) and not a promise --
unilateral contract.

*Note – an executory contract is when neither offeror nor offeree has performed any element of
the contract, but the contract is still binding.

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International Filter Co. v. Conroe Gin, Ice & Light Co.-- Π manufactures machinery to
purify water in connection with the manufacture of ice. ∆ manufactures ice. Contract
states that it is binding upon prompt acceptance. Subject to change without notice for any
delayed acceptance. ∆ accepted on the same day. A few weeks later ∆ tried to
countermand the order. Court reasons that Π did accept the offer, but communication is
not required by Π when the offer includes notification within it – “contract upon prompt
acceptance.”

White v. Corlies & Tift -- Π was a builder and estimated the cost of fitting up a suite of
offices. On the same day, ∆ changed the specifications and asked Π to update his
estimate. ∆ sent note that “upon an agreement, you can begin at once.” The next day ∆
countermanded their offer. Before receipt of the countermand, Π began renovation.
Issue – whether Π has duty to give acceptance of a contract before commencing work.
Yes.

Ever-Tite Roofing Corp. v. Green -- Greens wanted a re-roof on their home. The
agreement shall become binding upon written acceptance of Π. Several days later, Π
returned to the Greens only to find someone else re-roofing. Higher court finds in favor
of Π. The contract did not specify the time within which it was to be accepted. A
reasonable time is contemplated where no time is expressed. Restatement § 54.

1. Notice in Unilateral Contracts -- when an offer proposes a unilateral contract


and invites acceptance by means of performance and not a promise.

Carlill v. Carbolic Smoke Ball Co. – IMPORTANT CASE -- ∆ offered reward


to any person who contracts influenza after using the ball a few times. The fact
that Π did not notify her acceptance was not fatal to her claim. Where a person
makes an offer expressly or impliedly intimates a particular mode of acceptance
as sufficient to make the bargain binding. Thus, buying and using the product
equates with acceptance. It is only necessary for the offeree to follow the
indicated method of acceptance (terms of the product’s contract). If one performs
the condition, notification is dispensed with.

2. Guaranty Case
Bishop v. Eaton -- ∆ wrote to Π that if Π would help his brother (Eaton) to get
money, then ∆ will see that it is paid. Π helped ∆’s brother. ∆ did not repay the
loan. ∆ is bound when he sees that action has been taken on the faith of his offer.

3. Indemnity – An indemnity agreement is one whereby a party undertakes


contingent liability for a loss threatening another. These are regularly enforced,
even when the loss envisaged is one attributable to fault on the part of the
promisee (indemnitee).

10
Allied Steel and Conveyors, Inc. v. Ford Motor Co. -- Ford ordered machinery
from Allied. A standard provision required that Allied assumed full responsibility
not only for the negligence of its own employees, but also for the negligence of
Ford’s employees in connection with Allied’s work. On this specific order, that
provision was marked “VOID”. Ford proposed to purchase additional machinery
under the same purchase order. The supplemental form did not mark “VOID” on
the provision as the last one. An employee was subsequently injured as a result of
negligence of Ford’s employees. Ford impleaded Allied in the lawsuit on the
basis of this provision, not marked “VOID”. Rule: (1) If the offeror prescribes an
exclusive manner of acceptance, an attempt on the part of the offeree to accept the
offer in a different manner does not bind the offeror in the absence of a meeting of
the minds on the altered type of acceptance. If the offeror merely suggests a
method of acceptance, other methods are not precluded. (2) If the offer requests a
return promise and the offeree without making the promise actually does what he
was requested to promise to do, there is a contract if such performance is
completed within the time allowable for accepting by making a promise.

4. Shipment of Goods as Acceptance. Under the code, the buyer’s revocation


comes too late if the seller has promptly shipped. However, the seller has bound
him/herself to deliver goods that conform to the buyer’s order. If the seller
incurred some expenses related to preparing for the shipment, a buyer can still
revocate the order since the seller has not sent an acceptance (shipment) of the
order.

5. Silence Not Necessarily Acceptance. Silence is not acceptance, unless there is


a history of filling orders as a regular practice.

Hobbs v. Massasoit – briefly touched on this case -- ∆ received goods 4-5 times
in the past and paid for the shipment. Court says ∆’s silence on the most recent
shipment coupled with ∆’s retention of the goods for an unreasonable time
amounts to an acceptance.

D. Termination of the Power of Acceptance

1. Lapse of the Offer – If no period is specified in the offer, it lapses after a reasonable
time. If the industry undergoes fluctuates in price, the time frame will shorten. The
primary factor in determining reasonableness is based on the circumstances surrounding
when the offer was made -- how the offer was communicated and the state of the world.

2. Revocation – an offeror can terminate an ordinary offer at any time before it has been
accepted.

Option Contract. An irrevocable offer is the defining characteristic of an option


contract. An option contract is a promise made by an offeror that effectively limits the
offeror’s power to revoke. Usually this type of contract directly or indirectly expresses a

11
fixed period within which the offeree must “pick up” the option. The expiration date of
any option contract is a principal element in determining its value.

Toys, Inc. v. F.M. Burlington Co. – Remember -- Π’s notice of intent to renew was
premised on a substantially different understanding of the prevailing rate. Court finds it
difficult to reconcile Π’s theory with their actions. The basic facts of this case are clear,
but the inferences to be drawn from the facts and Π’s intentions are not. The question
must be left to the fact-finder. One act/promise can meet consideration for two different
promises/acts. In this case, the offeror’s promises of a 5-yr lease + not revoke the option
is consideration for offeree’s single promise for payment. Bottomline -- plan ahead.

Dickinson v. Dodds – Remember. Objective, Reasonable Theory of Intent.


∆ appeared to make an offer to sell his property to Π. Offer was good until x time. ∆’s
agent told Π that ∆ was offering to sell the property to someone else. Π responded in
time, but property was sold to someone else. Court determined that ∆’s agent
communication to Π is the equivalent to withdrawing the offer (indirect revocation).
Court concludes that ∆’s promise was not binding and at any moment before a complete
acceptance, ∆ can seek other interested parties. Reliable news of another party’s interest
equals an indirect revocation. The time limit has no consideration. If offeree provided a
deposit to bind the promise + time limit, then the offer has consideration.

3. Rejection -- a rejection puts an end to an ordinary offer. Offeree loses power of


acceptance after rejecting the original offer. Presumes offeror’s reliance on the rejection
and the flexibility to proceed to other interested parties.

Mailbox Rule:

Acceptance Dispatched -- Adams v. Linsdell laid down the mailbox rule. It states that once the
offeree has dispatched an acceptance, is it too late for the offeree to reject the offer. The offeree
bears the burden to make sure their acceptance is received. Disadvantages to the Mailbox Rule
– burden on the offeror to rely on revocation and sells the goods to another buyer before
receiving acceptance.

Revocation Upon Receipt -- Under Restatement Second § 42, a revocation is generally effective
only on receipt, not on dispatch. Common law’s tendency is that the risks of transmission of
revocation are on the offeror. It makes the offeror’s duty of performance conditional upon
receipt of the acceptance. See Restatement Second § 63. Disadvantages to the Receipt Rule --
While the letter is in transit, offeree is free to watch the market and speculate while offeror is
unable to revoke.

Restatement Second § 64 states that § 63 does not apply when there’s a substantially
instantaneous two-way communication – email does not meet instantaneous standard.
Telephone probably would apply.

Precontractual Liability -- A court has some discretion in determining circumstances of


whether there has been an acceptance in borderline cases to protect the reliant party. A

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party whose reliance has conferred a benefit on the other may have a claim to restitution to
prevent unjust enrichment even though no contract has resulted.

A. Cronin v. National Shawmut Bank holds that the benefit from a broker’s work does
not lead to liability where there has been no employment. Contrastingly, in Hill v.
Waxberg, the parties achieved the prerequisite conditions for the agreement, but they
could not finalize the agreement between them. Π sued to recover reasonable value of
services expended during the prerequisite stage. Evidence and enrichment from Π’s
efforts were submitted as evidence. Court holds that an implied contract, which entails
services being rendered to achieve the full contract, is enforceable.

B. Restatement § 45 – REMEMBER #
(1) An option contract is created when the offeree begins the offeror’s invited
performance. Promise not to revoke needs to have consideration for the contract to be
enforceable.
(2) Offeror’s duty of performance is conditional on the completion of the offeree’s
invited performance.

Brooklyn Bridge Hypothetical


Offeror offers $100, if you walk across the Brooklyn Bridge. No acceptance of the offer
until you cross. Unilateral, option contract. Half-way across, the offeror revokes.
Offeror has no obligation. Beginning to walk across meets consideration for the offeror’s
imposed promise to not to revoke (Quasi-contract).

C. Brackenbury v. Hodgkin – Moving to Maine Case – Court held that a promise in


exchange for an act is a unilateral contract. Π moved to Maine to take care of old lady
based on her promise of a place to live when she passes away.

Reliance on an Offer that Seeks a Promise – An offer for an exchange is not meant to become
a promise until consideration has been received.

Drennan v. Star Paving Co. – Spent a couple classes on this case. -- Π is general
contractor and requested bids for paving. Π used ∆’s bid as part of an overall project
budget. The next morning ∆ rescinded. Court determines that there is no evidence that ∆
offered to make its bid irrevocable in exchange for Π’s use of its figures in computing his
bid. Thus, no consideration nor bilateral contract binding on the parties. Issue: whether
Π’s reliance makes ∆’s offer irrevocable…Yes. Rule from Restatement § 90 (Promissory
Estoppel): A promise which the promisor should reasonably expect to induce action or
forbearance and which does induce such action is binding if justice can be avoided only
by enforcing the promise.” This is not a promissory estoppel case, rather it’s creating an
option contract. Court says Restatement § 90 applies to an implied promise that forms an
option contract. Offeror cannot revoke an option contract. Acting in justifiable reliance
may in some cases serve as sufficient reason for making a promise binding. The absence
of consideration is not fatal to enforcing this promise.

Class Notes:

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Restatement §45 enforces implied promise contracts.

Unilateral allows partial performance of a promise to be enforced, while bilateral


contracts do not.

Restatement § 90 has several components – promise, reliance, foreseeable, and


detriment. Court uses 90 because the issue of revocation is not protected by 90 and the
offeror did not make a promise, but an actual offer.

The court combines Restatement § 45 and 90. 45 requires consideration which


Drennan does not achieve, but 90 replaces the consideration requirement and validates
the promise as an option contract.

Restatement § 87(2) – applies the Drennan decision in its principle. Think about the
relationship between this section and Restatement § 45. Is there overlap or intertwining?
What’s the relationship between consideration and reliance?
Implied in Fact – court supports what the parties want at the time of the deal – autonomy
Implied in Law – court does not abide by what the parties want

Channel Home Centers v. Grossman -- ∆ was in the process of acquiring ownership of a


mall. ∆ requested that Π execute a letter of intent to be shown to banks at the end of
December. After execution, ∆ says Π orally agreed to submit a draft lease within 30
days. Rule: (1) whether both parties manifested an intention to be bound; (2) whether
the terms of the agreement are sufficiently definite; and (3) whether there was
consideration. The letter of intent meets all three requirements. The letter has
consideration because it benefited ∆’s financial security in exchange for negotiating in
good faith. Court found that Π’s intent was clear in them wanting the place, but the letter
does not equate with a lease. It only assures continued negotiations, not successful
negotiations.

The Requirement of Definiteness is implicit in the principle that the promisee’s


expectation interest is to be protected. To determine a contract’s definiteness, a court must first
interpret it (trade usage and course/history of dealing) and look for implied terms supplied by
law – good faith and reasonable efforts. It is also enforceable if the agreement provides the
means for making its terms sufficiently definite by the time that performance is called for. See
Toys, Inc v. F.M. Burlington Company (1990). The court rarely finds indefiniteness the sole
reason to not enforce a contract.

THE STATUTE OF FRAUDS


Although in general oral contracts are enforceable, some contracts need to be written down to
be enforceable and signed by the party to be charged.

Contracts Required to be Written

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1. A special promise of an executor to answer damages out of his own estate.
2. A special promise to answer for the debt, default, or miscarriage of another person.
3. An agreement made upon consideration of marriage.
4. A contract for sale of real estate, or any interest in or concerning the same (see Lucy v.
Zehmer). The agreement or some memorandum of note thereof must be related to the contract.
It doesn’t have to be the actual contract -- scrawling on a napkin counts.
5. An agreement that is not to be performed within one year from the making thereof.

Some general features of the law generated by the Statute.


1. The fact that the parties have expressed an agreement in a signed writing is no assurance that
they had contracted about the matter.
2. Sometimes the Statute is a one-way street. Party 1 can enforce the agreement against Party 2,
but Party 2 cannot enforce it.

The courts have shown some disfavor towards the Statute by narrowing the classes of contract
that must satisfy its formal requirements. An oral contract is enforceable, by the prevailing rule,
if there is some possibility that it can be performed within a year.

The content of writing and the signing requirement is minimal in sale-of-goods contracts, while
more is required to satisfy other clauses of the Statute. The omission of a material term (such as
the price) may disqualify the writing.

The effect of the Statute is minimized, in varying degrees, by court-made doctrines – partial
performance doctrine and action in reliance (Restatement Second § 139).

POLICING THE BARGAIN


I. Capacity
The person executing the contract must be in a mental condition that allows he/she to be able to
comprehend the nature or consequences of the instrument he executed.

A. Minor’s Contracts -- An infant, anyone under 18 years of age, cannot enter into an
enforceable contract – Bright Line Rule. No exceptions.

B. Mental infirmity is a cognitive, volitional rule.

II. Overreaching -- Conventional Controls

A. Pressure in Bargaining
Watkins & Son v. Carrig – Cellar/9xRocks case. Halfway through Π and ∆ orally
agreed to remove the rock for 9x increase. Contract states Π is responsible for removing
all material. If Π was unwise in taking changes, his burden cannot be relieved on account
of his mistake. ∆ relies on the principle that his promise to pay more lacked
consideration since Π already began the work. Court finds that consideration is not
disregarded in spite of the net result of a promise to pay more for less, without additional

15
obligation of the promisee. The fact of recission rather than the effect of recission
determines its legal quality. ∆ is held to the new arrangement.

Austin Instrument, Inc. v. Loral Corporation – Economic Duress/Subcontractor. The


existence of economic duress is demonstrated by proof that immediate possession of
goods is threatened. A mere threat does not constitute economic duress, but an act does
(stopped deliveries).

To make a claim for duress…


(1) Improper threat.
(2) No reasonable alternative, except to comply with the threat.
B. Concealment and Misrepresentation

1. Nondisclosure – No duty to tell because before you agree to a contract, you


should get a third-party to review the condition of the property. Nondisclosure
serves as an incentive for buyers to become knowledgeable.

2. Misrepresentation entails: (1) A false statement (2) of a material fact (3) that
the other party is reliant upon. Π has the burden to establish that ∆ made the
misrepresentation knowing it to be false or at least with reckless disregard for its
truth.

Kannavos v. Annino -- Half-truth disclosures require duty for full disclosure.


∆ converted property into a multi-family apartment building fully knowing that
she violated the zoning ordinance. She advertised the property as such. Π bought
the property – unaware of the zoning violation. Court states that if a party does
speak with reference to information, voluntarily or at the other person’s request,
the party is bound to speak honestly and to divulge all the material facts within his
knowledge. ∆ intentionally deceived Π. Because ∆ did as much as she did, she
was bound to do more.

IV. Unconscionability and Problems of Adhesion Contracts

Williams v. Walker-Thomas Furniture Co. – Spent two classes on this case. This case echoes
misrepresentation (ambiguous apportionate clause), economic duress, and capacity that
culminate into shocking the conscious. Paternalistic? Π purchased household items through
monthly installments. Unconscionability includes an absence of meaningful choice (procedural)
and unreasonable terms (substance), which is negated by a gross inequality of bargaining
power.

A. Standard Form Contracts – R. 2d § 211(3) – this restatement is inconsistently applied.


Reasonable Expectations
1. Most importantly, this type of contract excludes or controls the irrational
factor in litigation.
2. The largest disadvantage is that it may be a means by which one party imposes
its will upon another unwilling or even unwitting party…Contracts of Adhesion.

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(a) Bargaining over terms may not be between equals.
(b) There may be no opportunity to bargain over terms at all.
(c) One party may be completely/relatively unfamiliar with the terms.

B. Tickets, Passes, and Stubs – If a business wishes to limit its liability for negligence, it
must give adequate notice of the contract and receive the assent thereto. In the mind of
the bailor, this stub does not rise to the dignity of a contract.

C. Duty to Read and the Right to Understand – The failure of a signer to read a written
contract is not such a mistake as will ordinarily excuse compliance with it. Yet, the
requirements of a relievable mistake have been loosened over time.

D. Insurance Marketing – The Doctrine of Reasonable Expectations – When insurance is


sold in circumstances that discourage questions, the reasonable expectations of the buyer
should be honored even though the policy terms do not support them. Example -- policy
purchased through a vending machine.

*Note – Ways to regulate paternalism – Federal Trade Commission, Truth-in-Lending,


and cooling off periods. Unconscionability is not typically used in business-to-business
relationships. Rather, the disparity in the bargaining power…little guy vs. monopoly…is
more likely for its application.

Carnival Cruise Lines, Inc. v. Shute -- On cruise tickets, all litigation was to be filed in Florida
(forum selection clause). Rule: The forum clause should control absent a strong showing that it
should be set aside; and, even if the clause establishes a remote forum for resolution of conflicts,
the petitioner should bear a heavy burden of proof. Court contends that enforceability is not
always linked with bargaining. Passengers benefit from a forum clause through reduced fares.
Court finds that ∆ does not meet their heavy burden because Florida is not a remote alien forum
and ∆ can still litigate the issue.

V. Illegality/Public Policy – Public policy condones the threat of conventional criminal


sanctions of fine and imprisonment to be more effective than the threat of unenforceability of a
private agreement.

CAB, Inc. v. Ingram -- Two approaches to modify restrictive covenants. (1) “Blue Pencil” Rule
– an unreasonable restriction against competition may be modified and enforced to the extent
that a grammatically meaningful reasonable restriction remains after the words making the
restriction unreasonable are stricken. Advantage – simple and prevents the court from rewriting
private agreements. Disadvantage – the contract still fails if the offending provision cannot be
stricken. (2) Reasonableness Rule – unless bad faith on employer’s part, a court will enforce to
the extent that they are reasonably necessary. If a contract is deliberately oppressive, then the
covenant is invalid.

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REMEDIES FOR BREACH
I. Measuring Expectation – The goal of contract remedies is to award the sum of damages that
will (through monetary extent) put the injured party in the position in which it would have been
had the promise been performed.

A. A breach of contract may affect the injured party in four ways.


1. Loss in value – The value to the injured party of the performance that should
have been received and the value to that party of what actually was received.
2. Other Loss – expenses (other than loss in value) incurred in an attempt to
salvage the transaction after breach (physical harm or property).
3. Cost Avoided – a beneficial effect through saving the injured party further
expense had the performance continued.
4. Loss Avoided – a beneficial effect through allowing the injured party to avoid
some loss by salvaging and reallocating some or all of the resources that
otherwise would have been devoted to the contract’s performance.

B. Expectancy – value of the expected performance deserves to be compensated.


Remedy = net profit + Π’s cost already invested in performing the contract.

Vitex Manufacturing Corp. v. Caribtex Corp. -- Chemically shower-proof cloth case.


Whether overhead should be considered in determining the amount of profits lost…no.
Compensation for the specific performance, not general operating costs.

C. More on Lost Life – It allows recovery for the actual or intrinsic value to the
plaintiffs, but denies recovery for any unusual sentimental value or fanciful price.

D. The Economics of Remedies – Very briefly reviewed in class -- Under the


economist’s rule of Pareto superior, a reallocation of resources in a society is considered
to be efficient if that reallocation will make some economic unit better off without
making some other unit worse off.

E. Losing Contracts
U.S. (Coastal Subcontractor) v. Algernon Blair, Inc. (1973) – restitution instead of
expectancy damages through quantum meruit. -- Blair agreed to construct a naval
hospital and breached the contract. The lower court found that since the subcontractor
would have lost $37K if it completed performance and the amount due to the
subcontractor was $37K, then the subcontractor’s damages were none. (Π entered into
really bad contract.) Issue/Holding: whether a subcontract recover in quantum meruit
the value of labor and equipment already furnished pursuant to the contract irrespective
of whether he would have been entitled to recover in a suit on the contract…Yes. While
this is a correct application of the normal rule, the appellate court believes the
subcontractor is entitled to recover in quantum meruit. Coastal, at its own expense,
provided Blair with labor and the use of equipment. Blair retained benefits without fully

18
paying for them. Thus, Coastal is entitled to restitution. Court’s formulation…restitution
– payments already made under the contract = Coastal’s damages.

II. Limitations on Damages

A. Avoidability –The injured party is simply precluded from recovering for loss that it
could reasonably have avoided. Duty to mitigate based on Hand’s Formula B<P +L.
Restatement Second § 350.

Rockingham County v. Luten Bridge Co. – County signed a contract to construct a


bridge. After public opposition to the bridge, the county notified Luten to not proceed
any further. Luten disregarded the notice. Although the county has no right to rescind
the contract, it is Luten’s duty to do nothing to increase the damages flowing therefrom.

B. The Rejection of Constructive Service Doctrine – an injured party cannot recover for
loss that could have been avoided by taking affirmative steps to arrange a substitute
transaction.

Parker v. Twentieth Century Fox Film Corp. – Shirley MacLaine Case -- Studio offered
actress a different lead with the same terms of an earlier agreement. Rule: The employer
must show that the other employment was comparable. Court rules that the studio did
not meet its affirmative defense burden since it did not offer any evidence of similar
employment.

Voorhees v. Guyan Machinery Co. – An offer of reemployment will not diminish the
employ ee’s recovery if further association between the parties would be offensive or
degrading to the employee.

Davis Chemical Corp. v. Diasonics – Medical Diagnostic Equipment Deal. Davis says
Diasonics should mitigate the damages by selling their product to another party
(alternative transaction). Whether Diasonics would have been able to fulfill both Davis
and another party’s contract and it would have been profitable for it to have produced and
sold both...yes, however, the alternative transaction does not substitute for the original,
breached contract and does not mitigate the damages.

19
Contracts Outline, Fall 1999
DeAnna M. Horne
Jim Mooney, Professor
I. What are Contracts?
A. Legally enforceable agreements
1. Ask yourself:
a. Is there a promise?
b. What are the consequences of that promise?
2. Assumpsit
a. Arose out of torts—money exchanged but it really ought
to be refunded (If I bought jeans from JC Penney that fell
apart in the washer, I really should get my money back).
b. Either an expressed or an implied promise
c. Broader and more enforceable concept of contracts than
was used prior to 16th century.
B. Equitable concept of contract law
1. Embodied in Portia—emphasizes mercy
2. Existed through 18th century
3. Features fairness
4. Courts would not enforce unfair contracts (i.e. a loan of money
in exchange for the “pound of flesh nearest your heart.”)
5. “Sound price doctrine”
a. Sound price warrants a sound commodity (agreement to
pay full price for hay implies the hay will be good and not
moldy).
b. This reflects the ethical standards of the day—the
community’s values were offended by price gouging and
like practices.
C. “Will theory” or “Classical theory” of contract law
1. Embodied in Shylock—literal interpretation of contract
2. 1815-ish modern markets and the commercial class developed
a. Old equitable conception didn’t really work
3. Features predictability
4. Parties must have the will to bargain
5. Court will not enforce contract without some type of
consideration—adequacy of consideration becomes less
important under this concept than previously
6. “Caveat Emptor” becomes the rule and the court becomes much
more hardened and impersonal
a. Courts are much less concerned with the fairness of the
contract
D. By the mid 20th century, Equitable concept began returning
II. Basis for Enforcing Promises
A. What is Consideration?
1. Either a benefit to one party or a detriment to the other (Note:
consideration does not have to be shown on both sides)
a. This is a very broad definition of a detriment—it doesn’t
have to be something bad for the party, just at forbearance
of a right or the like.
b. An example: I will give you a dollar if you don’t pick your
nose all day. Consideration is the promissee’s forbearance
of a legal (but disgusting) right. This agreement does
nothing for the promisor (except, perhaps, spare him the
sight).
2. There must also be a bargained for exchange for consideration
to exist.

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a. Past action by a party generally doesn’t count as
consideration because it wasn’t bargained for.
B. Consideration as a Basis for Enforcement
1. Consideration demands some quid pro quo for the promise—a
promise that is not “paid for” in some way is not enforceable.
2. Required to form a valid contract (with a few exceptions)
a. 2 reasons for requirement
i. Cautionary policy—you are less likely to do
something ill advised if you take the time to make
sure you are getting something in return.
ii. Evidentiary policy—provides proof that a promise
was made and intended
iii. See Feinberg v. Pfeiffer
3. Hamer v. Sidway
a. “Money for nothing” case
b. Refraining from an act to which one has a legal right, at
the request of the promisor, is sufficient consideration to
enforce a contract.
c. Consideration was the nephew’s detriment in giving up a
legal right to do all kinds of “immoral” things. In
exchange, his uncle was to give him $5000.
d. There was a detriment to the nephew in exchange for the
money—detriment to promisee and a bargain.
Consideration existed, therefore a valid contract.
C. Adequacy of Consideration
1. Restatement of Contracts § 71
a. If the consideration given is a “peppercorn,” the
consideration is inadequate and the contract is invalid.
b. For instance, Dad agrees to buy a 1963 Lincoln
Continental worth $2,000 for $1. Consideration is invalid
D. Gratuitous Promises
1. Unenforceable—no consideration
2. See Hamer v. Sidway—the court found consideration, they did
not find that the uncle owed the money simply because he had
promised it.
3. Consideration must be bargained for
4. Goes to adequacy of consideration—a “peppercorn” is not
adequate consideration, makes the promise gratuitous.
E. Fiege v. Boehm
1. The “Oh, sorry, wrong guy” case
2. Agreement to forbear a legal claim, made in good faith, is
sufficient consideration for a contract, even if the claim turns
out to be unfounded.
a. This is a departure from classical consideration doctrine
3. For an invalid claim to be valid consideration 2 requirements
must be met:
a. Must be a good faith belief in the claim
i. “I really believe you are the father”
b. Claim must be reasonable
i. “Well, we did have sex.”
4. Restatement of Contracts § 76 covers this
a. “Forbearance to assert an invalid claim…by one who has
not an honest and reasonable belief in its possible validity
[is not consideration].”
F. The Problem of Action in the Past
1. “Past” Consideration
a. Past acts can not establish sufficient consideration to
enforce a contract even if the action creates substantial
moral obligation

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i. This is “classical consideration” doctrine
ii. The court may actually create some imaginary
previous promise if a past action gives substantial
material value to the other party—see Webb v.
McGowin, below.
b. Feinberg v. Pfeiffer Co. (take one)
i. The “little old lady and her pension” case
ii. Plaintiff’s past actions did not constitute
consideration for defendant’s promise to pay her
pension. Neither was the plaintiff’s continued
service to the company valid consideration.
1 The plaintiff’s arguments did not address
the bargain issue. The pension was offered
gratuitously with out strings attached.
2. “Moral Obligation”
a. Mills v. Wyman
i. Ungrateful father case
ii. Only when the party making the promise gains
something, the person to whom it is made loses
something, is the promise enforceable.
iii. Even though this court used strong language to
describe the defendant, it stated that the moral
obligation owed to the plaintiff should not be used
to enforce the contract.
iv. Court drew a line between “legal” and “moral.”
b. Webb v. McGowin
i. Nefarious Executor case
ii. Plaintiff’s service to Defendant was sufficient
consideration for the purposes of a contract.
Where the promisor is under substantial moral
obligation because he has received substantial
material benefit, then past consideration does
count.
iii. The court tap-danced around the issue by imposing
material benefit on something that had great moral
obligation.
G. Restitution as an Alternative Basis for Recovery
1. Relatively new theory of recovery for past actions
a. Though bargained for consideration or a promise may not
exist on the facts, a party may have a cause of action on a
quasi-contract if otherwise unjust enrichment may result.
2. Theory not based on promise but on preventing unjust
enrichment
a. I.e. I pay $100 for a CZ but when I get it home, I discover
it is a 2 ct. diamond. Should I be allowed to keep it when
the jeweler discovers the mistake? Restitution says no. I
would be unjustly enriched.
3. If someone has received material benefit and been unjustly
enriched, courts may enforce payment by the enriched party.
4. Plaintiff must provide some service.
a. Plaintiff must expect to be paid and the defendant knew
(or should have known) that payment was expected.
b. Defendant had a chance to reject the services—or if he
was unconscious, a reasonable person should infer he
would have accepted the service.
c. Amount of restitution calculated—2 rules:
i. Market value of the benefit received
ii. Actual monetary benefit received
5. Cotnam v. Wisdom

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a. Streetcar doctor case
b. Harrison, the deceased, fell off a streetcar and was
injured. Dr. Cotnam ran to his aid. Harrison died
anyway. Cotnam billed the estate for services rendered.
c. Court held there is an implied contract when a reasonable
person could infer that the defendant would have
accepted the services had he been conscious.
d. Even though such services given in an emergency are
assumed to be gratuitous, if the person is acting in a
professional capacity (like an ambulance that happens
upon an injured person in the road), that assumption may
be overturned.
6. Callano v. Oakwood Park Homes, Corp.
a. “We want a…SHUBBERY (Ni!)” case
b. Court calls restitution “quasi-contract” here.
c. Contract entered into with deceased—the defendant sold
the property and was enriched by services provided by
plaintiff who was never paid.
d. Court said, “too bad.” Unjust enrichment was not proven.
Court further says that the wrong party is being
sued—compensation should be sought from deceased’s
estate.
H. The Problem of Unsolicited Action
1. Reliance and the Requirement of Bargain
a. Classical contract law says consideration must be
bargained for.
b. What is a bargain? The law says what it is not.
c. Kirksey v. Kirksey
i. Widow and Orphans case
ii. Court said there was no bargain—“if you will come
and see me, I will give you a place to live” not a
bargain.
iii. The “if…then” statement merely gives the widow
Kirksey a way to receive the gift—not
consideration for a contract.
d. Central Adjustment Bureau vs. Ingram
i. Evil bill collectors case
ii. Terminable at will employment contract that
contained a covenant not to compete
iii. When the defendants left the employ of plaintiff,
they opened their own collection agency in
violation of the covenant
iv. A covenant not to compete requires consideration
v. Normally, future employment doesn’t count as
consideration.
1 Court said the length of employment and
the value of the training was adequate
consideration for the covenant not to
compete.
vi. Covenant not to compete in the employment
contract was too broad here, though and the court
modified.
2. Reliance as an Alternative Basis for Enforcement
a. Though bargained for consideration or a promise may not
exist on the facts,
b. “Promissory Estoppel”—a substitute for consideration.
Reliance as a basis for the enforcement of promises.
i. A promisee’s foreseeable, reasonable, detrimental
reliance may serve as a substitute for consideration

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if failure to enforce the contract may result in
injustice.
c. For Promissory Estoppel to exist, there must be:
i. A promise that a reasonable person would think was
serious and would have relied upon
ii. Reliance upon the promise
iii. Detriment due to reliance
d. Ricketts vs. Scothorn
i. Rich Granddad case
ii. Grandfather promised $2000 and yearly interest to
granddaughter so she quit her job.
iii. Estate stops payment after grandfather’s death and
granddaughter sues.
iv. Court finds there was not bargained for condition
that she quit her job. Plaintiff did, however, rely
on the promise of money when she quit her job.
v. Detrimental reliance, even though not bargained
for, is sufficient to enforce a contract.
e. Expectation—Remedy under Promissory Estoppel
i. Puts the non-breaching party in the position
expected if the contract had not been breached.
f. Reliance interest—Remedy under Promissory Estoppel
i. See Restatement § 90
1 “Promise Reasonably Inducing Action or
Forbearance”
2 Puts the party back where they were
before reliance on the promise. NOT where
they expected to be based on
g. D & G Stout, Inc. v. Bacardi Imports
i. Liquored-Up contract
ii. Plaintiff passed on an offer to sell his business based
on a promise from defendant
1 The court found Bacardi liable for
damages. But which kind?
1. Expectation damages—lost income
from sales of Bacardi’s product
2. Reliance damages—difference
between the 1st offer and the final
price from the sale of defendant’s
business
2 Court says “Reliance it is!” Why?
1. Lost future earnings (expectation)
are not recoverable under P. E.
3 Stout rejected 1st purchase offer—relying
upon Bacardi’s product to hold out for a
while as an independent until a better offer
came along.
h. General Rule: Reliance can not exceed expectation
i. Feinberg v. Pfeiffer Co. take 2
i. Little old lady case revisited
ii. Under Promissory Estoppel, there is a happy ending
to this case.
iii. Ms. Feinberg relied to her detriment upon the
promise of the company to pay her a pension. She
is no longer able to work. She wins on reliance
damages.
I. Promise for Promise

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1. When a promise is given in exchange for a promise, both
parties must accept some legal obligation in order for the
agreement to be an enforceable contract.
2. 2 types of contracts made when promises are given
a. Unilateral contract
i. Only one side makes a promise—“If you mow my
lawn, I will pay you $10”
b. Bilateral contract
i. Both sides make a promise—“I promise to give you
$10 if you promise to mow my lawn.”
1 Promises constitute consideration when
given in exchange for promises.
3. Strong v. Sheffield
a. Shiftless husband and nefarious uncle case
b. Defendant claims not enough of a promise was made in
exchange for her promise.
c. Court says, “you are right!”
i. Endorsement of debtor’s note as security for a past-
due debt is without consideration when the
creditor merely agrees to extend payment until he
feels like collecting.
d. Court cannot change an implied promise to an express
promise. The promise in this case was illusory.
4. Mattei v. Hopper
a. Satisfactory leases case
b. In the agreement to sell, defendant backed out stating the
provision making plaintiff’s “satisfaction” necessary to
close the deal made the promise “illusory.”
c. Court disagreed here—the plaintiff’s duty to perform and
exercise his judgment in good faith was adequate
consideration to support the contract
d. This case sets out a “reasonable person” standard for
satisfaction.
i. The buyer should be satisfied if a reasonable person
would be
ii. Satisfaction is not dependent upon the individual
“taste or fancy” of the buyer. If it had been, there
would have been no consideration.
e. Further argument by defendant: this was merely an offer
to sell and not an agreement to sell. Because the
defendant removed her offer from the table before the
plaintiff had accepted by obtaining satisfactory leases, this
is a “concealed offer.” Court didn’t think this one would
fly either.
f. Though a contract containing a satisfaction clause may
seem to impose no real obligation, courts will typically
enforce the contract by imposing a duty of good faith on
the promising party (Mattei in this case).
5. Eastern Airlines v. Gulf Oil
a. Aviation fuel case
b. Requirements contract—seller agrees to meet the
requirements of the buyer at a specific price and the buyer
agrees to buy exclusively from the seller

6 1/7/00
c. These contracts did not used to be enforceable—not
enough predictability
i. Both the UCC and Florida law has codified them.
d. Defendant argues this contract is “void for want of
mutuality.”
i. Want of mutuality—Gulf argues that Eastern gets all
of the benefit from this contract. Court said “NO.”
Gulf’s benefit is that Eastern does not buy from the
competition.
e. Once again, the test is “good faith”—if Eastern had not
been acting in good faith in ordering aviation fuel, the
contract would have lacked mutuality and it would have
been void.
f. The court in this case finds that the contract is enforceable
in both the Florida statute and in common law.
6. Opposite of a requirements contract is an “outputs contract” in
which the buyer agrees to purchase all of the seller’s output of a
certain product.
a. Aviation fuel case is requirements contract; Glue case on
pp. 132 is Output contract.
7. Wood v. Lucy, Lady Duff Gordon
a. Titanic designer case
b. Exclusive dealing contract. Representative gets a
commission regardless of who does the selling.
i. In this case, Wood didn’t care that Lady Duff Gordon
was selling, he just cared that she didn’t turn over
_ of the profit to him.
c. Lady Duff-Gordon’s argument is that Wood is not bound
to do any work; he did not bind himself to doing anything
specific other than to account for moneys received by him.
d. Cardozo says this argument is ridiculous—if Wood
doesn’t act, he gets no money at all. His promise to work
is implied in his promise to turn over _ of the profits.
8. Termination Clauses
a. If the contract is terminable at will by one party only, the
promise may be considered illusory
III. The Bargaining Process
A. The Nature of Assent
1. Lucy V. Zehmer
a. The Farm in Jest case
b. Defendant agreed to sell Plaintiff his land—Defendant
says he was just kidding and he had no intent to sell the
farm. The court said, “Too bad.” By your actions you
showed intent to proceed with the sale despite your
drunken condition.
c. The objective words and acts of the parties became
important here. What the parties believed subjectively is
not really important.
d. Mental assent of the parties is not required to form a
contract so long as the words and actions of the parties
show a serious intent to enter into the contract. A true
“meeting of the minds” is not required.
e. If, however, one party understands the other party is
joking, no contract –see Keller v. Holderman (pp. 143,
note)
f. The law says, “You intend what you say and act.” In other
words, if the acts and the words of a party warrant a
reasonable belief that the intent is serious, there is no
backing out because you were “joking.”

7 1/7/00
g. The acts of the parties must lead a reasonable person to
believe that the contract was agreed upon. The price
agreed upon may be a large part of this objective test
i. Agreement to buy a farm for $50,000—pretty
reasonable
ii. Agreement to buy a watch valued at $15 for
$300—probably not a serious transaction.
2. Laserage Technology Corp. v. Laserage Laboratories, Inc.
a. In the break up of 2 companies founded by the same man,
who was to be forced out, the disagreement over whether
the deal that was agreed upon allowed Byrum (founder)
to maintain his shareholder voting rights.
b. Court found that the actions of the parties showed that
there was no intent to deprive Byrum of his voting rights
as a course of the agreement.
c. This case is very similar to Lucy v. Zehmer—the court
focus on the outward manifestations of the parties actions
to come to the heart of the intent matter.
3. Gentlemen’s Agreements
a. Problematic area of contract law.
b. If the parties go through all of the motions of contract but,
subjectively, neither intends to be legally bound, is there a
contract?
i. If both parties expressly state (i.e. in writing) that
there is no intent to be legally bound, no
enforcement by the court
ii. In such a case, parties act on the understanding that
so long as circumstances continue as expected,
everyone will perform.
c. So…if 2 guys walk up to each other in the street, make an
agreement and shake hands—Is there an enforceable
contract at that time?
4. Formal Contract Contemplated
a. What if in the same hypothetical as above, one of the 2
guys says, “my lawyers will be in touch.” Is there a
contract? If so, when is it effective?
B. The Offer
1. An offer is an expression of will or intention—it is an act that
allows the offeree the belief he has the power to enter into a
contract.
a. Hmm—kind of lofty.
2. Restatement Second §24 says Offer is the “Manifestation of
willingness to enter into a bargain, so made as to justify another
person in understanding that his assent to that bargain is
invited and will conclude
a. Traditionally, the courts will want to see an offer followed
by acceptance as evidence of a contract. There are some
cases where the actions of the parties lead the court to
believe that objectively they have entered in to an
agreement.
3. Things to keep in mind about the next 4 cases:
a. These cases are really pretty consistent in the courts’
insistence that contractual intent must be objectively
manifested.
b. The objective standard in evaluating intent to contract is
used in all 4 courts.
c. In cases dealing with land, the courts have been extremely
reluctant to force people to part with their land if there is
any question of intent to do so.

8 1/7/00
d. There is no offer when the “offer” comes in the form of
advertising circular. The courts are loath to call this an
offer—the seller may be overwhelmed with acceptances!
i. Note: for an ad to show that is isn’t an offer, it must
not be too specific. I.e. saying there is one fur coat
available for $1 to the first customer of the day.
e. Be careful in drafting communications! If the agreement
can be redrafted to say the opposite thing in language that
seem synonymous with the first communication, the court
will usually be persuaded.
f. There must be a mirror image between offer and
acceptance; if the acceptance adds or takes away from the
offer, the contract is invalid. Fairmount Glass made this
argument—court did not find it applicable here but it may
be elsewhere.
g. The offer must be definite. This argument was made in
Fairmount Glass as well. The defendant said an offer to
sell an indefinite quantity was not an offer. The court
said, “nice try” and found sufficient definiteness in this
instance. It may work elsewhere.
4. Owen v. Tunison
a. Plaintiff asked defendant if he could buy some of his land
for $6000. Defendant responded that he could not
possibly sell for “less than $16,000. Plaintiff agreed to the
price of $16,000. Defendant did not wish to sell his land
and refused to accept the $16,000. Plaintiff sued
b. The plaintiff offered to buy the property, but the
defendant’s wish to sell was never discussed. The court
held that there is no contract.
i. The court talks about “meeting of the minds” here,
but there are bits of objective evidence that the
defendant really didn’t expect the plaintiff to
cough up the 16k.
5. Harvey v. Facey
a. Plaintiff initiated transaction by writing to defendant
asking if he would be willing to sell a piece of property
and at what price
b. Defendant answered only the price question and the not
the willingness to sell question. Court says no offer to sell
was communicated.
c. The confusion here arose over language. Even though the
parties were communicating in writing doesn’t mean they
understood what the other was saying.
d. The courts are loathe to make people part with their land
without perfect understanding—the type of item being
sold seems to matter in this type of cases.
6. Fairmount Glass v. Grunden-Martin
a. Appellant (Grunden) invited Fairmount to quote prices on
glass jars. Fairmount responded in specific language
indulging prices, discount for cash payment, and the term
“for immediate acceptance.”
b. When Grunden accepted the quote and placed a specific
order, Fairmount was unable to fill the order.
c. The court held that the quote constituted an offer and
Grunden accepted that offer.
d. Once again the language was very important. Because the
quote contained the words “for immediate acceptance,”
the document was held to be an offer. The offeror was
empowered to enter into a contract.

9 1/7/00
i. If Fairmount had enclosed the words, “all orders
subject to stock on hand” instead of “for
immediate acceptance,” the communication would
have been a quote instead of an offer.
7. Moulton v. Kershaw
a. Salt circular
b. Kershaw sent Moulton a trade circular with a special on
salt. When Moulton ordered, Kershaw had no salt left.
c. Court says a trade circular is not an offer it was an
invitation for offers.
C. Mistaken Bids
1. In the bidding process for contracts (usually for buildings and
the like) the contractors submit bids for jobs, these bids are
considered offers. The buyer of the services chooses the bid and
accepts one.
2. What if the contractor submits a bid with a mistake in it?
3. Elsinore Union School v. Kastorff
a. The defendant submitted a bid to the Elsinore school
district. The defendant had the winning bid. The next
day, the defendant discovered he had made a clerical
error in computing his bid and the plaintiff was informed
right away. Should the defendant be held to a contract
that resulted from a mistaken bid?
b. Court held the defendant could withdraw the offer if the
mistake was:
i. Innocent
ii. Clerical
1 An error in calculating the materials
required is not allowable
iii. Material
iv. If it is unconscionable to hold the defendant to the
offer
v. If the notice of the error and intent to rescind is
prompt
vi. If the offeree can be put back in status quo (the
position it was in before the offer was accepted).
1 The offeree must have the ability to still
accept the next lowest bid
c. Here, all of these conditions were met. The contractor’s
rescission of the bid is like it was never submitted at all.
d. Note that reformation of the contract is not allowed. If the
contractor wants to do the work, he has to do it at the
price bid.
4. Bid Shopping can contribute to these types of errors. The
contractor invites sub-contractors to bid on the job. In order to
prevent the contractor from going to other sub-contractors
asking them to beat a bid, the subs submit their bids at the last
possible moment. This contributes to a high-pressure situation
for the contractor to get his bid to the bidding on time.
5. If the offeree knows of the offeror’s error at the time of the
contract, the offeror will not be bound to perform—the offeree
knows they are taking advantage.
6. Most courts are truly unwilling to grant relief to the contractor
on these types of cases. There is a real feeling that the
contractor should be held to the deal.
7. Heifetz Metal v. Peter Kiewit Sons’ Co,
a. The Subcontractor was not released from his bid to the
contractor when it was discovered they had mis-bid on
the work for a commercial kitchen.

10 1/7/00
b. The mistake was based on the amount of work they
thought needed to be done—there was more than they
had originally anticipated.
c. The contractor had submitted his bid based on the sub’s
erroneous bid. The contractor could not be placed in
status quo.
8. How are these 2 cases different?
a. Most of the cases when bidder is let out of a contract is
with a general contractor and not the sub—the contractor
has relied on the sub’s bid in preparing his.
b. The work had already been started in Heifetz. The
mistake was perhaps one of judgment and not a clerical
error.
D. The Acceptance
1. Acceptance is a voluntary act of the offeree creating a contract
through their acceptance.
a. Acceptance may occur by performance or through a
promise
i. Hamer v. Sidway—offer was by the uncle, nephew
accepted the offer by performance
ii. Promise—I promise to buy the goods you are
promising to sell.
2. Notice of Acceptance in Unilateral Contracts.
a. Carlill v. Carbolic Smoke
i. Guarantee of £100 to anyone using the Carbolic
Smoke Ball who comes down with the flu.
ii. Defendant argued that it wasn’t a real offer and, if it
were, the plaintiff had not notified of acceptance.
iii. Court said that the language of the advertisement
was so definite as to be an offer and in this
instance no notice of acceptance was required,
performance was enough.
iv. From the character and nature of the transaction,
notice of acceptance of an offer may be
unnecessary.
b. Bishop v. Eaton
i. This is an oddball case where action itself does not
constitute acceptance of the offer.
ii. Ordinarily, acceptance is perfectly fine but in some
cases, notice needs to be given of the acceptance
and the performance.
c. Allied Steel v. Ford Motor Co.
i. The offeror may prescribe a method of
acceptance—an acceptance in the manner
prescribed will bind the offeror.
1 Acceptance in a manner that is not
prescribed in this instance will not bind the
offeror.
ii. A method of acceptance may also be suggested by
the offeror. If the method is merely suggested,
other methods of acceptance are recognized.
1 Partial performance is one of these
methods and it is the one that got Allied in
trouble here.
iii. The court also says here that if here is no fraud or
deceit, the parties are bound by a contract that
they signed and had the opportunity to read.
iv. Allied whined that they did not read the
amendment to the purchase order—the court

11 1/7/00
found this to be bunkum. Allied supplied the
equipment ordered, they must have read it.
3. Shipment of Goods as Acceptance
a. A contract can, sometimes, be accepted by shipping goods.
i. I.e. the buyer sends an order and in response, the
seller ships the items.
b. If the seller ships items not ordered, is this acceptance?
i. There is no mirror image between offer and
acceptance in this instance—could be breach of
contract.
4. Silence Not Ordinarily Acceptance
a. Restatement §69 says that generally, silence alone is not
acceptance.
b. Sometimes, if there is a past relationship, however, the
offeree can be held if there is only silence.
i. Hobbs v. Massasoit Whip
1 Plaintiff sent a load of eel skins to
defendant and heard nothing in return.
2 The eel skins were not returned and the
defendant did not pay for them.
3 Because of a past relationship of doing
business in exactly this manner, the
defendant was held to be in breach of
contract.
4 Also: the defendant could have been seen
to be unjustly enriched by the plaintiff’s
merchandise.
5. Termination of the Power of Acceptance
a. Power of acceptance may be terminated by:
i. Lapse of the offer
ii. Revocation of the offer
iii. Rejection of the offer
iv. Offeror’s death or incapacity
b. Lapse of the Offer
i. If no specific time is indicated in the offer (i.e. you
must accept by Friday), the offer expires after a
“reasonable time.”
ii. Of course, “reasonable” is open to interpretation.
iii. Akers v. J. B. Sedberry
1 An offer made by one to another in the
course of a conversation only remains open
until the end of the conversation.
iv. Loring v. City of Boston
1 3 years and 8 months from the date of the
advertisement of an offer was not a
reasonable time.
c. Revocation of the offer
i. The offeror may revoke the offer at any time prior to
acceptance.
ii. Exception to this rule is an option contract
1 Option contract: for consideration, the
offeror promises to hold the offer open for
a specific period of time with no right of
revocation. —There must be consideration.
d. Rejection of the Offer
i. This is the offeree’s right.
ii. The offeree cannot accept the offer after he has
rejected it.
iii. A counter offer is a rejection of the first offer.

12 1/7/00
e. Offeror’s death or incapacity
i. Pretty self-explanatory—all bets are off.
f. Hoover v. Clements Paper
i. When is a communication a revocation?
ii. Hoover’s statement that “we have not decided, we
might not want to go through with it…” was a
revocation of the offer, Clements could not later
accept the offer.
6. Options Contracts
a. A promise, made by the offeror, which effectively limits
the offeror’s power to revoke.
b. Toys v. F.M. Burlington
i. Plaintiff entered into 5-year lease with option to
renew.
ii. Plaintiff said they would exercise the option but did
not like the price the defendant quoted for rent.
After some hemming and hawing, the defendant
listed the space for rent and plaintiff sued (after
moving out.)
iii. Court said the renewal option is more than an
agreement to agree—it was definite and contained
sufficient bargained for consideration to be
enforceable
iv. Court remanded the case for trial because there
were questions of fact as to whether the plaintiff
had exercised their option or had let the time
period lapse
1 Jury at trial found Toys to have exercised
their option but waived its right to renew
when it failed to agree before the deadline.
c. Dickinson v. Dodds (pp. 207)
i. Agreement to hold offer to sell property open for
specific amount of time did not work
ii. Court found no consideration for the agreement and
so a third party’s communication to plaintiff was
notice of revocation of the offer.
iii. A promise to leave an offer open must contain
sufficient bargained for consideration.
d. Restatement §43 allows for indirect communication of the
revocation of an offer.
i. Offeree must receive reliable information of the
offeror’s behavior.
e. Thus:
i. Offeror may revoke at anytime prior to acceptance
ii. Offeror may do so even if the offer is “irrevocable”
for a specific period of time—UNLESS bargained
for consideration is received for the promise
(Restatement §87)
iii. Revocation must be communicated in some reliable
way. Selling to someone else isn’t good enough.
iv. Communication of revocation may be indirect.
f. Ragosta v. Wilder
i. Fork Shop case
ii. Plaintiffs agreed to buy shop from defendant but
needed to obtain financing.
iii. Offer gave plaintiffs a deadline to appear with the
money at a bank. Plaintiffs appeared at the bank
before the deadline with the information on
financing.

13 1/7/00
iv. Defendant sold to someone else. Court said “That’s
OK.”
v. There was no consideration for the promise to keep
the offer open—plaintiffs’ argument that the
money they had spent in obtaining financing was
consideration.
7. Mailbox Rule
a. Restatement §63
i. Time when acceptance takes effect
1 Acceptance is effective when it leaves the
offeree’s possession
2 In an options contract, acceptance is
effective when it reaches the offeror.
b. Restatement §40
i. Rejection or Counter-offer’s effectiveness
1 Rejection or counter-offer must be
received by the offeror to be effective.
2 If an acceptance is also sent, the
acceptance must be received before the
rejection or counter-offer.
c. How these work:
i. Revocation must be received before an acceptance is
mailed to be effective.
ii. Acceptance is good upon dispatch; revocation is
good upon receipt.
iii. Acceptance of an offer eliminates the right to reject.
If the offeree attempts to reject after an acceptance
is mailed—too bad.
iv. If the rejection arrives before the acceptance, the
buyer may choose to enforce the contract unless
1 Seller has relied on the rejection and sold
to someone else.
2 If the seller has relied on the rejection and
sold to someone else at a loss, the seller
probably can recover from the 1st buyer for
the loss.
v. Acceptance dispatched after a rejection is effective
upon receipt if at all.
E. Precontractual Liability
1. General rules and info:
a. General rule: Neither party is bound until a contract is
entered into.
b. Courts may decide to enforce a promise in which one
party acts in reliance upon a future contract when a
benefit has been conferred upon the other party
c. Tension between the classical contract rules and the
human need to reach just results
2. Restitution cases:
a. Sometimes restitution is allowed, recovery not based on a
promise but on avoiding un-just enrichment.
b. Cronin v. National Shawmut Bank
i. Insurance agent revised proposal several times to
meet the wishes of a bank officer
ii. When another company received the insurance
contract, plaintiff sued.
iii. The bank never availed itself of Cronin’s proposals
and an invitation to submit proposals does not
(normally) lead to liability.
c. Hill v. Waxberg

14 1/7/00
i. Goes the opposite way from Cronin
ii. Contractor, Hill, made preparations to build on
defendant’s lot on the defendant’s promise that if
the financing could be obtained, Hill would get the
contract.
iii. Negotiations for the contract fell through and the
contract went to someone else.
iv. Court awarded restitution damages
1 Hill conferred a benefit on Waxberg and
needed to be compensated for it—the
expected profit from a contract was what
Hill undertook the expense for.
3. Wormser’s Hypothetical for Unilateral contracts
a. A promises B $100 to walk across the Brooklyn Bridge and
instead of saying, “I accept,” B simply starts to walk.
Once B gets _ way across the bridge, A yells, “I revoke!”
What is the result if B sues A?
i. Wormser initially said that the acceptance of A’s
offer is signified by the completion of the task and
not by the commencement.
1 He reasoned that B had not given A what
he had asked for—the completed walk
across the bridge and the acceptance of A’s
offer was the completed walk.
ii. Restatement Second §45 disagreed with
him—acceptance is signified by the
commencement of performance, not its
completion.
1 An option contract is created by partial
performance or tender
2 In this case, consideration for the options
contract is part performance
3 This works only in a unilateral contract:
the performer may opt out of the contract
by ceasing to perform but the offeror may
not revoke part-way through completion
b. Brackenbury v. Hodgkin
i. Ms. Hodgkin promised the family farm to her
daughter if she would move from Missouri to
Maine to care for her until her death.
ii. Problems erupted and Hodgkin threw the
Brackenburys out and they sued.
iii. The court held that since this was a unilateral
contract, a promise exchanged for action, Hodgkin
was bound by the Brackenburys acceptance
through performance
c. Davis v. Jacoby
i. This is a similar case to Brackenbury, but the letter
asked for the plaintiff to respond.
ii. The court held this to be a bilateral contract, a
promise for a promise—the performance, as
acceptance doesn't work here.
4. Reliance on an offer that seeks a promise
a. Drennan v. Star Paving
i. Sub-contractor revoked offer to contractor after the
contractor’s bid had been accepted by the client.
Contractor sued.

15 1/7/00
ii. Star Paving argued that they had made a revocable
offer and revoked it before plaintiff had
communicated his acceptance.
iii. Drennan argued that he had relied upon the
defendant’s offer to his detriment.
iv. Court called this an Implied Subsidiary Promise.
1 Defendant was aware that plaintiff would
be submitting his bid based on the lowest
bid received and understood this
procedure.
2 The defendant stood to substantially gain
from plaintiff’s winning the bid and as a
result, the offer had an implied promise to
remain open for a reasonable period of
time.
v. What is the consideration for the implied subsidiary
promise?
1 Detrimental reliance acts in place of
consideration in this situation
vi. Note: unlike the Elsinore School District case
above, the contractor plaintiff here could not be
placed in status quo. He had submitted his bid
relying on the bid from the paving contractor.
b. Restatement §90
i. Promise reasonably inducing action or foreberance
1 This is the promissory estoppel
restatement—see above.
2 It works here because it allows reliance to
act in place of consideration.
c. Restatement §87(2)
i. Combines §45 and §90
ii. Options Contracts are binding if
1 In writing and signed and states some
consideration
2 Made irrevocable by statute
iii. An offer, which the offeror expects to cause the
offeree to do something (or stop doing something)
which would give substantial benefit to the offeror
AND when the offeree relies on it, a binding
options contract is created.
1 Mooney can’t think of anywhere this is
used where it is not in the realm of
contracting.
5. Liability for failed Negotiations
a. If one party has conferred a benefit on the other during
the course of negotiations, the recipient of the benefit may
be required to make restitution.
b. Be careful, though, courts usually have accorded parties
the freedom to negotiate without the risk of
precontractual liability.
c. Goodman v. Dicker
i. Plaintiff was lead to believe his application for an
Emerson radio dealer franchise was accepted. He
spent money in preparation, hired employees and
lined up customers.
ii. When the franchise fell through, plaintiff sued.
iii. Court held an award of damages that the plaintiff
had spent in reliance upon the defendant’s
statements but denied damages for lost profits

16 1/7/00
iv. Reliance damages were awarded but expectation
was denied.
d. Prince v. Miller High-Life
i. Plaintiff entered into a contract for the distribution
of Miller beer. He spent $20,000 to build the
business and then Miller terminated the contract
and gave a profitable distribution area to another.
ii. Appellate court upheld directed verdict for the
defendant.
iii. The court stated the “Missouri Rule,” which gives
the franchisee an opportunity to recover costs sunk
into building a business IF the franchise has not
been in place a reasonable amount of time when
the franchiser takes it away.
iv. Court further said that the Missouri rule doesn’t
apply here—there was a contract that stated
“terminable at will” in the cases the plaintiff was
relying on, there were no contracts at all.
e. Grouse v. Group Health
i. This is much like Goodman v. Dicker, above
ii. Plaintiff relied to his detriment on the promise of a
job from the defendant.
iii. Court said that plaintiff could recover reliance
damages—he had not been given a good faith
opportunity to perform his duties to the
satisfaction of defendant.
f. Ragosta v. Wilder
i. See above
ii. Part 1 (above) court said no consideration for the
promise to keep the offer open
iii. Part 2 (here): court remands the case for trial on
promissory estoppel.
iv. In order to win here, plaintiff must show:
1 They relied upon the promise to their
detriment.
2 Defendant could reasonably have
inferred that the plaintiffs would incur
such a high cost of reliance
g. Hoffman v. Red Owl Stores
i. Plaintiff acted in reliance on defendant’s promise of
a franchise—sold his bakery, bought and sold a
smaller grocery store and obtained $18,000 from
his father-in-law. Defendant refused franchise
ii. Even though the parties had not finalized their
negotiations so that even an offer could be
inferred, the court awarded damages based on
promissory estoppel.
1 Should the promisor have reasonably
expected the promisee to act or forebear
based on the promise?
2 Did the promisee act or forebear?
3 Can injustice be avoided only by
enforcement of the promise?
iii. Court awarded reliance damages on the value of
the small grocery store.
h. Channel Home Centers v. Grossman
i. Mall rental case
ii. Letter of intent was a contract to negotiate in good
faith

17 1/7/00
1 Court held that Grossman breached that
contract.
iii. Contract was supported by
consideration—Grossman used it to get financing.
1 This issue is really a red herring, doesn’t
matter if it is present or not.
2 Court found that both parties were bound
by their obvious intent to be bound
i. Heyer v. United States
i. Court held that a cause of action exists against a
party who negotiates without serious intent to
contract.
F. Requirement of Definiteness
1. Two issues involved here:
a. Contractual intent
i. Whether a reasonable offeree would conclude that
the offeror intended to be bound
ii. Language of the offer is part of this element—vague
language is bad!
iii. If the offer is too vague for the court to conclude
that there is content, the definiteness is then a fatal
flaw.
b. Contract sufficiently definite to ascertain breach and
fashion a remedy.
2. Restatement Second § 33
a. Certainty
i. The terms of the offer and the contract must be
reasonably certain.
ii. Terms are certain when they provide a basis for
determining breach and giving an appropriate
remedy
iii. Lack of certainty may show a lack of intent to
contract.
3. Toys, Inc. v. Burlington
a. Take 2, see facts above
b. Defendant said the terms were too indefinite (an
agreement to agree).
c. Court says it is plenty definite—definite, ascertainable
method of determining price term for lease extention
d. Defendant still wins, see above
4. Lee v. Seagram & Sons, Inc.
a. Seagram argued that its promise to provide a
distributorship in another city with “a price roughly equal
to the capital obtained for the sale of their interest in
Capital City” was too indefinite to enforce.
b. Court held that the plaintiff had submitted enough
evidence at trial to show that the capital was indeed
definite.
IV. The Requirement of a Writing For Enforceability: The Statute of Frauds
A. Reasons to have the Statute of Frauds:
1. Evidentiary
a. We want to make sure these contracts exist before we
enforce them.
2. Cautionary
a. We really want people to think about these before they
enter into them.
3. Habit
a. We want business people (an others) to get in the habit of
writing things down.

18 1/7/00
B. Statute of Frauds Requires writing for enforcement of promises for:
1. Surety Clauses: To answer for the debt for another
a. How surety works:
i. C loans to A upon the promise of B to pay if A
doesn’t—looks like a co-signer!
ii. There are look-alikes not covered by the statute of
frauds:
1 A is not actually bound to pay
(“if you lend A money, I’ll pay it back,” says
B) but B pays anyway.
2 A&B both get benefit from C—B is a co-
principal
3 B acting to further his own economic
interests (say B is a loan-shark and covers
A’s loan in return for lots of interest).
4 New Contract (Novation)—B enters into a
new contract with C in place of A. Like the
taking over of a lease.
5 B promises A and not C—B says, “if you
buy from C, I’ll pay if you become unable
to.”
b. Party taking on the debt gets nothing so the writing is of
important evidentiary value—before this type of contract
is enforced, we want to be sure it exists.
2. Contracts that cannot be performed in a year
a. An unwritten contract may be enforceable if there is any
chance that it may be performed in a year
i. “I promise to work for you for the rest of my
life”—could be less than a year, no statute of
frauds issue
ii. “I promise to work for you for 5 years if you live
that long”—possible to perform in a year
b. Contract must be impossible to perform in a year not
simply highly unlikely or not expected.
c. Part performance in one year does not equal complete
performance—still under statute of frauds.
d. Year runs from the time the contract is made, not the time
taken to perform
i. Promise to appear 18 months from now on a 1 hour
TV program—statute of frauds issue
ii. Promise to appear 6 months from now on a 1 hour
TV program—no statute of frauds issue
e. If the contract is terminated in less than a year (by breach
or whatever) does not necessarily take the Statute of
Frauds out of the picture.
3. Convey interest in real property
a. Leases
b. Sale of Land
c. Granting of Easements
4. Sale of goods worth more than $500
a. Goods are not services
5. Agreement made upon consideration to marry
a. Not a mutual promise to marry—“Will you marry me?”
“Yes, I will marry you.” Not a statute of frauds situation.
b. An agreement to marry if a certain number of stocks are
transferred, statute of frauds issue.
i. Pre-nuptial agreements fall here
6. There are others added in some states
a. Wills must be in writing in some states.

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C. Three questions to ask when considering Statute of Frauds:
1. Does the statute apply here?
2. Assuming the statute applies, has it been met here?
a. Can we find enough of a signed writing?
i. May be several sets of writings hiding out.
ii. Courts have accepted notes, etc. to satisfy the
Statute.
3. If it has not been met, what are the consequences?
a. Defendant wins!
b. If the court decides the defendant does not have a Statute
of Frauds defense, the case will proceed on the
merits—perhaps an oral contract existed.
D. Dispensing with the requirement of a writing
1. Monarco v. Lo Greco
a. Plaintiff relied upon verbal promise that the family farm
would be his if he stayed and worked it—he worked for
15 years.
b. Plaintiff gave up any opportunity to work and buy
property of his own. The court held that the Statute of
Frauds should not be applied because:
i. Unconscionable injury to promisee would result
ii. Unjust enrichment to promisor
iii. Detrimental reliance on a verbal promise was
sufficient to defeat the requirement of writing.
c. So: promissory estoppel prevented denial of the
enforcement of this verbal promise even though the type
of contract should have fallen under the Statute of Frauds
because of the promissee’s detrimental reliance and the
promisor’s unjust enrichment.
d. Court argued by analogy—why is investing years of work
any different than investing years of money?
e. Expectation (fair market value of the land) was seen as
inadequate damages. Specific performance (the title to
the land) was awarded.
V. Policing the Bargain
A. Capacity—A party to a contract must be the member of a group whose
promises we think should be generally enforceable.
1. Drunkenness
a. In order to get out of a contract through intoxication, the
intoxicated person must be so drunk as to be unable to
comprehend the nature or consequences of the contract.
2. Minors (infants)
a. Until a person reaches the age of majority (usually 18),
any contract entered into is voidable at his option
b. Contracts entered into by them are, however, enforceable
against the other party.
c. Statutes may prevent minors from voiding contracts
entered into for things like food, clothing, and
shelter—hopefully this encourages business owners to
deal with minors for these things.
d. Banking transactions, insurance and educational loans are
all exempt from this provision—minor cannot get out of
these.
e. Ratification is frequently an issue here.
i. If the child reaches majority and ratifies the debt,
says, “I know I owe this money and I agree to pay,”
she is bound
ii. If the child ratifies by implication—waits a couple
of months and makes a coupe of payments, she

20 1/7/00
cannot then revoke the contract on the basis of
capacity.
f. In order to revoke the contract, the child must return the
merchandise (or whatever)—can’t just say, “I disaffirm!”
and then keep the car.
g. Suit is more likely to succeed on the basis of incapacity if
the minor is the defendant.
B. Unfairness—the substance of the exchange may be so unfair that it
shouldn’t be enforced at all.
1. McKinnon v. Benedict
a. Trees issue
b. Oppressive contracts will not be enforced in equity.
c. Plaintiff loaned defendants money ($5,000) to purchase a
resort upon the agreement that they would not cut down
the trees that bordered his land for a time of 25 years.
d. Defendants found they needed that land some 4 years
later to make the business profitable.
e. Court found the burden placed on the defendants was
very large, they were denied use of their land, while the
burden on the plaintiff was very small—a secured loan
which was paid back early.
i. The court called it a “great hardship”
f. This agreement was found to be substantively one-sided
and the contract unenforceable.
2. Tuckwiller v. Tuckwiller
a. Parkinson’s disease case
b. In determining the fairness of the contract we must view
it prospectively (at the time it was made).
i. While Ms. Morrison did not know how long she
would live, neither did Tuckwiller—she entered
into the contract to care for Morrison to the end of
her life willingly in exchange for the title to the
farm upon death.
c. Although Morrison only lived a month, never changed her
will, and Tuckwiller only cared for her for 2 weeks; the
court held the contract was enforceable.
d. Promise was relied upon when she quit her job.
e. Specific performance was ordered: Tuckwiller got the
farm.
i. Defendants argued that she was only entitled to
restitution for the 2 weeks she cared for Morrison.
3. Black Industries v. Bush
a. Bush was a “middle-man” who contracted with plaintiff a
manufacturer to purchase items at a certain price. Bush
then turned around and sold them at a large profit to a
government contractor.
b. Plaintiff argued that the contract was against public policy
because Bush was so inflating the prices that the taxpayers
were footing a huge bill.
c. The court held that simply getting a massive profit on the
sale of goods does not create inequality of exchange.
d. Substantive unfairness issue was not created
here—plaintiff entered contract with “eyes wide open”
and tried to back out of deal when it realized it could have
been charging more for its product.
e. Very difficult to prove Substantive Unfairness when the
party crying it is a business.
4. Void as against Public Policy
a. Brought up by Black v. Bush

21 1/7/00
b. Only allowable under 4 situations
i. Contract for penalty in guise of liquidated damages
ii. Contract to induce public official to act
iii. Contract for an illegal act
iv. Contract for collusive bidding on public contracts
C. Overreaching: Conventional Controls
1. Traditionally this includes:
a. Fraud
b. Mistake
c. Duress
d. Innocent misrepresentation
2. Remedies for these:
a. Recision
b. Avoidance at the instance of the victim
3. Pressure in Bargaining
a. Pre-existing duty rule
i. Agreeing to do what one is bound to do anyway is
not consideration
1 Very important in classical contract
thinking.
b. Duress
i. Not very popular with the classical contract thinkers
ii. It is not duress to do what one has the legal right to
do anyway was the classical thought
1 It is not duress to threaten to fire an at-
will employee
iii. Clear legal rules are very important here,
subjectiveness in this context is not very popular.
iv. A party must act like a person of ordinary firmness
in order to later claim successfully that it should be
freed of its obligations due to duress
1 This is ALWAYS an issue in a duress case
v. Duress is often associated with unlawful conduct.
vi. Duress has been expanded significantly in the last
30 years.
c. Relationship between Pre-Existing Duty Rule and Duress
i. Duress is a far better litmus test for deciding which
modifications to a contract should be enforced
ii. Pre-existing duty rule is not very helpful in making
these types of decisions.
d. Alaska Packers v. Domenico
i. Defendants were hired to perform work on a
canning ship—when the plaintiff transported them
to Alaska, the defendants refused to work unless
the agreed upon salary was increased.
ii. The foreman agreed to increase the pay but when
the work season was over, paid at the rate of the
first contract.
iii. Under the pre-existing duty rule, the court ruled
that the only money the defendants were entitled
to was the money under the first contract.
iv. Under duress, the plaintiff argued that it was so
difficult to get workers in Alaska that it had no
choice but to agree to the worker’s
demands—therefore, the 2nd contract was entered
into under duress.
1 Still sounds like a labor dispute to me
with workers exercising their right to
strike.

22 1/7/00
v. The court accepted the duress argument and the 2nd
contract was not enforced
1 Mooney says this is a hard and fast case
on duress.
e. Schwartzreich v. Bauman-Basch, Inc.
i. Torn signatures case
ii. When a 2nd contract was negotiated, the signatures
were torn off 1st contract, signifying the rescission
of the first contract.
iii. The court held the 1st contract to be void BECAUSE
of the tearing of the signatures—ridiculous. The
important act was the free bargaining between the
parties that led to the new contract and the
rescission of the old one.
f. Arzani v. People
i. Subcontractor brought suit for balance due on a
contract that included money promised him by the
contractor.
ii. Court held that because the first contract had not
been rescinded, the second contract was not
enforceable and the money owed was limited to
the unpaid portion of the first contract.
iii. Pre-existing duty rule applied here
iv. Even though the sub acted in good faith and did not
attempt to extract extra money for himself—the
suit did not work.
g. Restatement Second §89
i. Modification of Executory Contract
ii. Fixes the apparent injustice in Arzani
iii. Makes the promise to modify a contract that is not
fully performed on either side binding if:
1 The modification is fair in view of
circumstances not anticipated by the
parties when the contract was entered
2 To the extent that justice requires
enforcement in view of reliance on that
promise (sounds like estoppel!).
h. Corbin urges the courts to attempt to “separate the sheep
from the goats,” by enforcing contracts by honest
contractors and by not enforcing contracts by dishonest
contractors. Matthew 25: 31-46
i. To fix contracts that may fall under the pre-existing duty
rule:
i. Rescind the old contract and make a new duty for
the new contract:
1 I promise to be at work _ hour before
every one else.
2 Extend the length of the contract by a
month
j. To fix claims of duress:
i. Write in a clause that says something like:
1 This contract has been entered into freely
and without duress.
2 In consideration of changes in market
prices…
4. Scope of the Pre-Existing Duty Rule
a. One party owes a pre-existing duty to a third party
i. De Cico v. Schweizer

23 1/7/00
1 Promise by bride’s father to make an
annual payment to the couple in return for
their agreement not to join in breaking the
engagement.
2 An agreement by bride’s father to pay
groom annually to not break the
engagement is not enforceable
3 This agreement, however, is to induce the
couple to not join together in rescinding the
engagement contract.
4 Cardozo said the parents were bound to
pay.
b. Accord and Satisfaction
i. Accord (party agrees to accept less on a debt owed)
is not enforceable without consideration.
ii. Satisfaction (actual payment of the lesser amount)
iii. Look for duress on these cases as well
iv. Foakes v. Beer
1 Agreement to pay judgment in
installments while foregoing interest is
without consideration
2 If Foakes had said, “I will pay you the
entire amount right now if you agree to
forgive the interest” there would have been
consideration.
v. Kibbler v. Garret & Sons
1 “Payment in full” checks
2 Defendant made partial payment of debt
with a note on the check—acceptance and
endorsement of this check represents
acceptance of payment in full.
3 Court said that the defendant did not
show that there was no communication
with the plaintiff of his intent to pay less
than billed.
4 Accord and Satisfaction requires
manifestation of assent to debtor’s offer.
5. Economic Duress
a. Austin Instrument, Inc. v. Loral Corporation
i. Plaintiff entered into contract with the Navy to
supply radar sets and entered into contract with
defendant for the manufacture of parts for those
sets.
ii. After things had been rolling along for a while,
defendant sent communication to plaintiff stating
that they would stop shipment of the parts
immediately unless the plaintiff agreed to
substantial increases in prices
iii. Plaintiff was up against the wall and had to agree
so they would not breach their contract with the
Navy.
iv. Court sets out elements of an economic duress
claim:
1 Party making the claim was forced to
agree by a wrongful threat
2 Immediate possession of needful goods is
threatened, or that one party has
threatened to withhold goods

24 1/7/00
3 Threatened party could not obtain the
goods from another source
v. Pre-existing duty rule does not apply here:
1 Pre-existing duty is a defense alone
2 In order to regain money already paid,
you must claim duress.
6. Victims Options
a. When thinking duress, ask:
i. Was the victim opportunistic in yielding to the
threat?
ii. Might the victim have resisted and found
satisfactory remedy for resulting injuries?
b. A threat to sue for a money judgment is easily countered
with a defense unless:
i. Mortgage foreclosure
ii. Body seizure
D. Concealment and Misrepresentation
1. Most courts will not insist upon the degree of disclosure that a
person of exceptional scruples might make.
2. In allowing bargaining advantages to be secured by persons of
little scruple, the law may attach a disadvantage to
conscientious conduct and fair dealing!
3. Swinton v. Whitinsville Savings Bank
a. Termite ridden house case
b. Plaintiff bought a home the defendant knew to be termite
ridden. The fact was not disclosed to the plaintiff. When
the plaintiff discovered the fact and that the value of the
house was actually much smaller than the defendant
represented, plaintiff sued.
c. The court says the whole thing was OK. Because all the
defendant did was conceal a fact from the plaintiff, the
court says “Caveat Emptor” and lets it go at that.
d. The court actually says: “if this defendant is liable on this
declaration, every seller is liable who fails to disclose any
non apparent defect known to him in the subject of the
sale which materially reduces its value and which the
buyer fails to discover.” Isn’t this only fair and what we
want sellers to do?
e. Therefore: So long as there is no false statement, mere
silence or “bare nondisclosure” of defective merchandise
is OK.
4. Kannavos v. Annino
a. Defendant offered a house divided into apartments for
sale as an “income property.” Plaintiff purchased the
house with the stated intent to rent the apartments out.
b. Defendant was knowingly in violation of the zoning
ordinances when she divided the home. Soon after
plaintiff bought the house, the city started abatement
proceedings
c. Court held that the defendant was bound to disclose that
multi-family dwellings were in violation of the zoning
ordinances.
5. Distinguishing Swinton and Kannavos
a. In Kannavos there is outright duplicity—brokers
misrepresented the purposes for which the homes were
suitable. Swinton is an example of “bare non-disclosure.”
b. The buyer in Swinton could not have easily discovered the
termites infecting the house but the buyer in Kannavos
could have easily run a title check and discovered the

25 1/7/00
zoning problem—this doesn’t work because the seller in
Kannavos openly and deliberately misrepresented the
product.
c. The law distinguishes between bare non-disclosure and
misrepresentation—the difference between keeping quiet
and openly lying.
6. Misrepresentation
a. Even innocent misrepresentation is actionable and
grounds for rescission of contract.
b. Limits:
i. Must be a material misrepresentation
ii. Misrepresentation of opinion or law is not
actionable
iii. Fiduciaries have a special duty not to misrepresent
opinions
iv. Attorneys have a special duty to not misrepresent
the law.
E. Unconscionability and the Problems of Adhesion Contracts
1. Strict Construction
a. Before unconscionability became a reasonably well-
accepted defense in contract actions, the courts would
construe the language of horrible contracts in convoluted
and weird ways to make the case come out on the side of
right.
b. 3 problems with this approach:
i. Legitimizes the efforts of fancy wall-street lawyers to
draw the language in contracts so tightly that the
courts cannot construe away the advantage the
stronger party has.
ii. Fouls up future cases—lawyers will look to the
decisions and attempt to follow precedent
iii. The real issues in the cases are not addressed; the
courts look to the language and not the principles
involved.
c. UCC §2-302 was written to try to work around
this—gives courts the power to throw out contracts with
elements that are unconscionable.
2. O’Callaghan v. Waller & Beckwith
a. Plaintiff fell on the defective pavement of the courtyard of
a large apartment building and sued defendant.
b. Plaintiff had signed a lease that contained an exculpatory
clause holding the defendant harmless.
c. Court said that the exculpatory clause was against public
policy but should be taken up by the legislature.
d. The contract term barring plaintiff from suing her
landlord was upheld.
e. Was the exculpatory clause really open to bargaining or
did the landlord during a housing shortage have more
power to dictate terms than did the plaintiff?
3. Mooney says that legislatures should address public policy and
judges should not:
a. Judges are not legitimized by elections the way legislators
are
b. Judicial actions are more limited and less systematic than
legislative action
c. Courts are less well equipped to inquire into the wide
reaching merits of a contract clause.
i. Although, judges may be better equipped than we
think—they may not be able to look broadly but

26 1/7/00
they can look more deeply into one particular
situation without the self-interested hangers on
mucking things up.
4. Tickets, Passes and Stubs
a. Klar v. H. & M. Parcel Room, Inc.
i. Close case—the printing on the ticket for parcel
storage limited the parcel storage’s liability for loss
or damage of items
ii. Found not enforceable here because the defendant
was negligent and the “contract” did not
indemnify the defendant for negligence.
b. The enforcement of tickets with contracts on them
depends on:
i. How clearly the clause appears on the ticket
ii. How understandable the language is
iii. Whether a reasonable person would have
understood the terms on the ticket.
c. Restatement Second §211
i. Standardized agreements
ii. Doesn’t matter if the party has read the ticket
d. Henningsen v. Bloomfield Motors, Inc.
i. Steering mechanism on brand new car failed and
plaintiff was injured shortly after purchasing car
and sued on breach of the warranty of
merchanibility
ii. Defendant claimed the Henningsens had waived the
warranty by signing a contract in which the
smallest, tiniest print waived the warranty.
iii. Court said this is no good—absolutely
unconscionable and against public policy
1 Defendant had a significant power
advantage and the plaintiff could not have
bargained for or against the clause.
e. Williams v. Walker-Thomas Furniture
i. Defendant ran a rent-to-own furniture business;
plaintiff was a customer.
ii. Court said the terms of the contract here were so
unconscionable at the time the contract was signed
as to completely void the contract.
iii. Unconscionability is the absence of meaningful
choice on the part of one party with terms that are
unreasonably favorable to the other party.
1 This case is a textbook example
iv. Ordinarily one who signs an agreement without
full knowledge of its terms may be held to assume
risk that he has entered a one sided bargain but…
v. Plaintiff here had little choice in the matter—she
may have expected her stereo set to be repossessed
when she was unable to pay but every stick of
furniture she had purchased in the past as well?
vi. Test to apply:
1 Are the terms so extreme as to appear
unconscionable according to the mores and
business practices of the time?
f. Jones v. Star Credit Corp.
i. Door to door salesman sold a freezer to plaintiffs.
ii. Where extreme disparity in purchase price and
maximum retail value may constitute
unconscionability as a matter of law.

27 1/7/00
1 In other words, the plaintiff got hosed!
g. Carnival Cruise Lines v. Schute
i. Court found forum selection clause on passenger
ticket to be just fine.
ii. Dissent focused on the lack of bargaining power the
defendant had.
iii. The Supremes placed a heavy burden on a party
wishing to strike a clause in a contract—plaintiff
did not meet the burden
1 Must have shown the clause to be
unreasonable.
F. Illegality
1. Concern with illegality is to protect the public at large from
imposition by both parties on matters of important public
policy.
2. Court’s ideas of public policy come from the legislature and
their own feelings
3. Contracts that are entered into illegally, contain illegal
provisions, or are performed illegally are not enforceable.
4. There is a longstanding tradition that contracts arising out of
co-habitation are against public policy—we have moved away
from this type of moralism.
5. Under what circumstances are covenants not to compete
enforceable?
a. Must be written
b. Part of the employment contract
c. Based on reasonable consideration
d. Reasonable in duration and geographic limitations
e. Not against public policy
6. Hopper v. All-Pet
a. The court found that the clause not to compete here was
all right for the most part.
b. Court modified the duration of the contract from 3 yrs to
1 yr.
c. Damages were not awarded—contract damages must be
pretty definite.
d. This case is distinguishable from CAB above because of the
way the contract was imposed on the employees.
7. Over burdensome clauses and how to get rid of them
a. The whole contract can be thrown out
b. “Blue pencil rule”—the court can eliminate things it
doesn’t like
c. Modification—if the scope of the clause is too broad the
court will simply modify it.
8. Inducing Official Action
a. Aka Influence peddling
b. Most are unenforceable as contrary to public policy—i.e.
bribing a public official
c. Courts will not enforce an illegal agreement!
d. Sirkin v. Fourteenth Street Store
i. Plaintiff seller bribed the purchasing agent of
defendant. When the scheme came to light, the
defendant refused to pay for the goods that were
the result of an illegal deal.
ii. Court said the illegality of the deal barred the
plaintiff’s recovery and the importance of cracking
down on commercial bribery was too important.

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iii. Note the tension here between the court’s ruling
and the unjust enrichment doctrine—the seller still
got the merchandise and they didn’t have to pay.
e. McConnell v. Commonwealth Pictures Corp.
i. Plaintiff entered into a contract with the defendant
to promote movies.
ii. Plaintiff turned around and bribed some people to
get his job done without the defendant’s
knowledge.
iii. Defendant refused to pay.
iv. The court held that the contract between plaintiff
and defendant was not illegal BUT bribery was
directly used to obtain the benefit so, the contract
is unenforceable.
v. The principle of refusing to enforce illegal contracts
does not apply to every minute detail of a contract,
there must be a direct connection between the
contract and some important public policy (like,
don’t bribe people).
f. Licensing Laws
i. Courts will uphold contracts entered into with
unlicensed vendors so long as the purpose of the
licensing statute is to produce revenue and not
protect public health, safety, or morals
ii. It is not significantly against public policy for these
persons to be unlicensed.
iii. Contracts with unlicensed lawyers, doctors, liquor
sellers, structural engineers, etc. will most likely
not be enforced.
iv. Courts are becoming much less concerned about
the public welfare and more concerned about
unjust enrichment—more plaintiffs are winning.
g. Degree of involvement
i. if the plaintiff’s involvement with the illegal activity
is minor, the courts are more likely to enforce.
h. In Pari Delicto
i. Equally blameworthy
ii. A defense to a claim of illegality
iii. Saying, the other guy is more guilty than me.
9. Restitution in Illegal Contracts
a. In representing an unlicensed engineer (for example)
argue:
i. Licensing statute should not preclude recovery
ii. Even if the contract is unenforceable, to avoid
unjust enrichment, engineer should recover for
benefits conferred by his service
iii. Always think of avoiding unjust enrichment, then
think, restitution.
VI. Third Party Beneficiaries
A. Some types of contracts should benefit third parties and those third
parties should be allowed to sue if the contract is breached.
1. Life insurance is such a contract—the contractor has died and
named a beneficiary who is a third party to the contract and if
the life insurance company doesn’t pay up, the beneficiary may
sue.
B. Lawrence v. Fox
1. Fox owes a debt to Holly; Holly owes debt to Lawrence; Holly
says to Fox, “don’t bother to pay me, just give the money
directly to Lawrence.” Fox doesn’t pay and Lawrence sues.

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2. Fox argues that Lawrence was not a party to the contract.
3. Court found the money Fox received from Holly was sufficient
consideration for his promise.
4. The court says that parties to a contract have the power to
create rights enforceable by a person not a party to the original
contract and one of those rights is the right to sue for breach.
C. Restatement First §133
1. Definition of Donee Beneficiary, Creditor Beneficiary,
Incidental Beneficiary:
a. Donee Beneficiary: Promisee intends to give the
beneficiary the benefit of the promised performance; a
right against the promisor is conferred (a gift to the
beneficiary).
b. Creditor Beneficiary: Performance of the promise will
satisfy an obligation of the promisee to pay a debt to the
beneficiary (Lawrence v. Fox).
c. Incidental Beneficiary: Someone who doesn’t fall under
the Donee or Creditor umbrella but should be allowed to
hold the promisor to the contract.
D. Restatement Second § 302
1. Intended and Incidental Beneficiaries
a. Sets out the test for whether a party is a beneficiary or not
b. Is the beneficiary’s right to performance necessary to
effectuate the intentions of the parties?
E. Municipal Contract and Public Services
1. Moch v. Rensselaer Water
a. Business owner brought suit, his building burnt down and
there was insufficient H2O pressure at the hydrant to put
the fire out.
b. Plaintiff argued he was a third party beneficiary to the
contract between the city and the water company.
c. Cardozo found that there is no duty by the city to protect
its citizens against fire and therefore no additional duty
arose out of the city’s contract with the water company.
d. Plaintiff was not a third party beneficiary
2. Kornblut v. Chevron Oil
a. Plaintiff’s husband died as the result of a heart attack
while waiting by the side of the road for 2 hours for
Chevron to arrive and help him fix a flat.
b. Plaintiff argued that she was a third party beneficiary to
the contract between the highway authority and Chevron
in which Chevron agreed to provide service to a disabled
car within 30 minutes.
c. Users of the toll road were, indeed, intended beneficiaries
of the contract, but the death of motorist was not a
reasonably foreseeable result of the breach.
d. Damages from breach must be reasonably foreseeable.
3. Koch v. Consolidated Edison
a. As the result of a “blackout” in New York City, the
plaintiffs sued as third party beneficiaries on the contract
between the state of NY and the electric company.
b. The court found the third parties here were exactly the
claimants for whom the contract was entered into to
benefit and so the suit was allowed.
c. Again, damages were to have been reasonably foreseeable.
d. This case is often cited for the elaboration of negligence
law in Tort—when these cases are brought in Tort, it
doesn’t matter if the parties are beneficiaries to a contract.
F. Davis v. United Airlines

30 1/7/00
1. Plaintiff sued UA for discharge due to his epilepsy. In a first
cause of action under the “Rehabilitation Act” the court found
Davis had no private right to action under this legislation.
2. Plaintiff now says he is the third party beneficiary of a contract
between the US government and UA.
3. Federal law looks to the Restatement Second §302 for the
guidelines allowing the plaintiff to sue and finds that:
a. Recognition of the right to performance would NOT
effectuate the intentions of the parties
b. Circumstances do not indicate the promisee intended to
give the 3rd party the benefit of the promise.
4. This case illustrates that sometimes a 3rd party claim is made in
a creative way to attempt to avoid injustice.
VII. Assignment and Delegation
A. Most contract rights having commercial value (i.e. money) are
transferable.
1. Rights are assigned
a. Like a debt or judgment owed to you
2. Duties are delegated
a. Like a debt or a judgment owed by you.
B. What rights are assignable?
1. Restatement Second §317
a. Assignment of a Right
i. If the assignment is not precluded by statute, it is
generally OK.
ii. Right to buy or sell goods
iii. Assignment must not change the performance of
the obligor in any meaningful way
1 Personal service contracts are assignable
but if what was a pleasure to do at one time
becomes drudgery, the performance has
changed.
iv. Assignment must not be precluded by the contract
2. Intent to assign a debt must be manifested either orally or in
writing.
C. When may a duty be delegated?
1. Restatement Second § 318
a. Delegation of Performance of Duty
i. If the delegation is not against public policy, it is
generally OK
ii. If the promisee still has an interest in whether the
promise is performed then it is generally OK
iii. If the person to whom the debt is delegated doesn’t
perform, the original debtor is still liable
2. Duties by physicians, attorneys, entertainers are not delegable
3. If the delegated duty is not performed, the person who
delegated is not off the hook with the exception of when a
Novation contract is entered into.
4. The promisee may sue the third party directly—third party
beneficiary.
VIII. Remedies for Breach
A. A breach may damage a party in 5 ways:
1. May deprive party of expected return performance
a. The difference between what the party expected and what
was actually received is the LOSS IN VALUE
i. I.e. you owed me $100 and I only got $50. Loss in
value is the $50 I am still owed.
2. The breach may cause other damage

31 1/7/00
a. Additional loss like personal injury, damage to property,
expenses from trying to remedy things—OTHER LOSS
i. I.e. you owed me $100 and only paid me $50. I
owed the same $100 to Lenny the Loan Shark and
he broke my kneecaps when I couldn’t pay. Other
loss is my broken kneecaps.
3. The non-breaching party may have expected a profit
a. Profit that is lost by the breaching of a contract is
ANTICIPATED PROFIT.
i. I.e. I agree to buy 10 items from you at $5 each and I
have decided to sell the items for $15 each. You
are unable to provide them. I had anticipated
profits of $100.
4. Breach may have a beneficial effect on the injured party
a. It may save some money—this is the COST AVOIDED
i. I.e. you agreed to mow my lawn weekly at the cost of
$10 a week for a year. You came once and I paid
$10 but you never showed up again. I avoided
$510 in costs on the contract.
5. Breach may have the beneficial effect of allowing the injured
party to reallocate funds that would have gone to the contract
instead.
a. The breach may allow another use of capital—this is the
LOSS AVOIDED
i. I.e. because you breached the contract to mow my
lawn, I was able to use the $510 I saved to put in a
new hedge instead.
B. Calculating expectation damages—the fundamental damages of contract
law.
1. 2 ways to figure out the injured party’s damages:
a. Damages equals Loss in Value less Cost Avoided
i. LV-CA=Damages
1 I.e. I have agreed to do some landscaping
for the total contract price of $500. I
bought $200 worth of plants when you
breached and still had $100 worth to buy.
The loss in value is the $500. The cost
avoided is the $100 I still had to spend.
Damages=$500-$100 or $400. This
includes the money I already spent plus the
profit I expected.
b. Damages equals Cost of Reliance plus Anticipated Profits
i. CR+AP=Damages
1 I.e. same as above except to calculate the
damages, my cost of reliance was the $200
I already spent on plants and my
anticipated profit was the $200 I had
planned to make. Damages=$200+$200
or $400. Note that the end result is the
same.
2. A little damages review:
a. Note that expectation damages puts the non-breaching
party in the position he would have been in had there
been no breach.
b. Note that reliance damages puts the non-breaching party
back where they were before the contract was
breached—not where they expected to be.
c. Restitution damages avoid unjust enrichment.
C. Sullivan v. O’Connor

32 1/7/00
1. On the breach of a patient/doctor contract, the court said that
expectation damages were impossible to calculate.
2. Reliance damages were awarded, putting the plaintiff in status
quo.
a. These damages included pain and suffering for the third
operation she was forced to undergo.
D. Vitex v. Caribtex
1. Contract entered into for the processing of wool. Plaintiff had
re-opened shop in preparation for the defendant’s wool to
arrive. Defendant breached.
2. Court awards expectation damages and uses LV-CA to
calculate.
3. Defendant argues that overhead for the operation of the factory
should be subtracted from the total of damages. Court says that
this is ridiculous—overhead is always taken out of gross profits.
It is not a part of the cost avoided on any particular contract.
a. The reason no overhead should be included—it is not cost
avoided, the plaintiff still has to pay employees, pay
electricity, etc. regardless of the defendant’s breach.
E. Loss Volume Sellers
1. In order to be a loss volume seller, the seller needs to show:
a. Absent breach, it would have sold 2 items
b. Seller could have produced the second item
c. It would have been profitable for the seller to do so
2. Davis v. Diasonics
a. Plaintiff breached the contract it made with defendant to
purchase an MRI unit. Plaintiff sued for the return of its
deposit less a penalty.
b. Defendant argued it was a loss volume seller and not only
was the plaintiff not entitled to its deposit back, the
plaintiff was also liable for the balance on the unit.
c. Even though the MRI unit was sold to a third party, the
court agrees with Diasonics that a second MRI unit may
have been sold absent plaintiff’s breach and the case is
remanded.
F. Problem of Losing Contracts
1. Other types of recovery available when the contract was one
that would have lost money for the non-breaching party.
2. US v. Algernon Blair
a. The non-breaching sub-contractor sued the breaching
contractor. Because the contract would have lost him
money before the breach, he wanted something other than
expectation.
b. The contractor argued that the sub shouldn’t get anything
because they would have lost more if the contractor
hadn’t breached.
c. Restitution damages were awarded here
i. Avoided the unjust enrichment to the contractor
(getting work he never paid for)
ii. Sub-contractor got fair value of his work.
3. Acme v. Israel
a. Court awarded reliance damages to gun manufacturer
who undertook expense to prepare to manufacture guns
for defendant.
b. When defendant breached, the court put plaintiff back in
status quo.
4. Keohe v. Rutherford
a. On a losing contract, the court awarded a Pro Rata share
to a paving contractor when the city breached.

33 1/7/00
b. The court took the amount of money the contractor spent,
divided it by the amount of money he expected to spend
and multiplied the result by the contract price.
i. (Costs Incurred/Cost of Reliance)*Cost of Contract
ii. This results in the contractor eating the same
percentage of the loss that he would have had
there been no breach.
5. To calculate the damages on a losing contract:
a. Work out what the expectation would be
b. Then work out the other types of damages
i. Reliance
ii. Restitution
iii. Pro Rata
G. Limits on Damages
1. Non-breaching party has a duty to limit damages or to mitigate
them
a. Don’t keep going after the contract is breached. Stop.
2. Restatement Second § 350
a. Avoidability as a Limitation on Damages
i. Damages are not recoverable for loss that the non-
breaching party could have avoided without
undue risk, burden or humiliation
ii. If non-breaching party makes a good faith effort to
avoid damages and it is impossible, recovery is not
barred.
3. Rockingham v. Luten Bridge
a. Defendant was contracted to build a bridge. Plaintiff
breached the contract and informed the defendant that he
should stop building. Defendant finished the bridge and
brought suit.
b. Court found that the defendant had a duty to mitigate the
damages suffered by stopping when he was told to.
c. Injured party must do nothing to increase the damages.
4. Parker v. Twentieth Century-Fox Film Corp.
a. Shirley McLaine case
b. When 20th Century Fox breached the contract to make a
movie and offered plaintiff a role in a different movie
instead, the plaintiff refused and sued for the expectation
damages on the first contract.
c. Court found that an employee does have a duty to mitigate
damages:
i. Must make reasonable effort to obtain other,
comparable employment
ii. Must accept reasonably similar employment
d. The employment offered by the second contract was not
reasonably similar when the genre of the movie was
completely different and the terms of the new
employment contract were inferior.
e. Court awarded expectation damages.
5. Avoidability and Problems of Defective Performance
a. The performance in these cases is complete, the contract
was breached by substandard or defective performance.
b. The problem here is to determine the proper measure of
performance:
i. Do we award the cost to complete correctly (redoing
work probably involved here)?
ii. Do we award the diminishment in value by the
substandard performance?
c. Jacob & Youngs v. Kent

34 1/7/00
i. Redding Pipe case
ii. Defendant specified the brands of almost every
component of his custom built home including the
plumbing pipe. When he discovered the plaintiff’s
use of a different brand, he refused to pay for the
balance of the contract. Plaintiff sued.
iii. Cardozo said that the difference in the pipes used
was a trivial and innocent breach and it does not
preclude action on the part of the breaching party.
iv. The court awarded diminishment of the value of
the home by the substandard performance.
1 The court ruled that the diminishment
was nothing.
d. Groves v. John Wunder Co.
i. Plaintiff leased his land to defendant for 7 years.
Defendant intended to take sand and gravel from
the land with strict conditions that the land be left
in good condition
ii. Defendant deliberately breached contract by taking
only the best gravel and leaving a hole in the
ground—the plaintiff brought suit.
iii. The court used really strong language to chastise
the defendant for his willful breach. The cost to
put the land back the way they found it was worth
more than the land itself, but the court instructed
the lower court to award “cost of performance”
greater than the cost of the land.
e. Peevyhouse v. Garland Coal
i. Plaintiff leased land for extraction of coal with the
provision that the land would be restored after the
mining was done. The restorative work was not
performed and the plaintiff sued.
ii. Court found that the provision to restore the land
was incidental to the purpose of the contract and
because the cost of restoration was so
disproportionate to the diminution of the land
value, the court awarded diminution in value.
iii. The court also said that the jury may have given the
subjective diminution in value and not the
objective but that was OK.
6. Foreseeability
a. Hadley v. Baxendale
i. Plaintiff owned a mill and when the mill broke, he
arranged for a new mill shaft and paid for delivery
by a courier in advance. An employee of the mill
communicated the urgency to an employee of the
courier company but the mill shaft was much
delayed.
ii. Plaintiff sued the courier company for their lost
profits while awaiting the new shaft.
iii. Court overruled a lower court’s award of £50 in
damages saying the damages were not foreseeable.
iv. Damages must be:
1 Fairly and reasonably considered as
arising from the breach—arise out of the
breach itself.
2 Damages must reasonably have been
supposed to be in the contemplation of the
parties—reasonably foreseeable.

35 1/7/00
b. Restatement Second § 351
i. Unforeseeability and Related Limitations on
Damages
1 Damages are limited to those the
breaching party would have reason to
foresee when the contract was made.
2 Loss may be foreseeable because it arises
in the ordinary course of events
3 Loss may be foreseeable as a result of
special circumstances that the breaching
party knew about
4 Court may limit foreseeable damages as it
wishes
c. Spang Industries v. Aetna Insurance
i. Plaintiff was to deliver steel for a bridge but the
delivery was significantly delayed causing
defendant’s surety client to suffer damages.
1 Damages included overtime and added
shifts in order to get the work done before
winter hit.
ii. Court found that the damages were reasonably
foreseeable based on the breaching party’s
significant experience in the NY construction
business.
d. Bockman Printing v. Baldwin-Gregg
i. Plaintiff bid on printing jobs in reliance that
defendant would deliver the newly designed
“double chopper folder” machine on time
ii. Defendant was unable to make the machine work
and plaintiff sued.
iii. Court said that the defendant could not reasonably
foresee that he plaintiff would bid on jobs based on
a new, unproven design.
7. Emotional Disturbance
a. Courts are reluctant to award damages based on
emotional disturbance resulting from contract breach
b. Restatement Second § 353
i. Loss due to emotional disturbance
ii. Recovery is barred unless the breach causes a
physical harm or the emotional disturbance was a
particularly likely result from breach
c. Brown v. Fritz
i. Plaintiff sued for emotional distress over the sale of a
home when the sellers fraudulently misrepresented
the property.
ii. Court said that because the damages were sought on
a breach of contractual relationship, recovery was
barred. If the seller’s actions were sufficiently
outrageous, the plaintiff could recover under
punitive damages.
d. Lamm v. Shingleton
i. Plaintiff paid defendant to inter her first husband in
a watertight vault. During a heavy rain, the vault
rose above the ground and in the presence of the
plaintiff opened the vault and discovered the coffin
to be wet.
ii. Plaintiff suffered “considerable shock” and the
defendant refused to clean the mud out of the vault

36 1/7/00
and said, “to hell with the whole damned
business.”
iii. The plaintiff sued for breach of contract and she
recovered for severe emotional distress
iv. The court held that because the contract was
extremely personal in nature, the contractual
obligation was connected with matters of mental
concern and the sensibilities of the party to whom
the duty is owed are concerned, this is a rare
exception to the rule against emotional damages.
8. Certainty
a. Damages need to be relatively certain to be recoverable
b. Normally, lost profits are pretty uncertain
c. Fera v. Village Plaza, Inc.
i. Defendant breached contract to provide rental space
in retail mall.
ii. Court awarded lost profits here because an
established business had records that could be
taken into evidence that shows what the expected
profits were.
iii. This is an exception to the general rule
d. Evergreen Amusement v. Milstead
i. Defendant contractor was sued for delay in opening
of drive-in theatre (scheduled June 1, opened mid-
August).
ii. Court would not allow lost profits because the loss
from a new business is uncertain.
9. Liquidated Damages and Penalties
a. Liquidated damages are agreed to by the parties at the
time the contract is signed
b. Restatement Second § 356
i. Liquidated damages must be reasonable in the light
of the anticipated or actual loss caused by the
breach and damages must be difficult to prove.
ii. Unreasonably large liquidated damages clauses are
unenforceable as against public policy.
c. Wasserman’s Inc. v. Township of Middleton
i. Plaintiff entered into lease with the city for a piece of
property and agreements were made that if the city
breached and took back the property, they would
pay a pro-rata reimbursement of the
improvements and 25% of the lessee’s average
gross receipts for a year.
ii. Defendant breached and refused to pay the agreed
upon damages.
iii. Court found that the contract was not one in which
the damages were difficult to ascertain
iv. The damages were not reasonable estimate of loss
by the parties
v. Liquidated damages are assumed to be reasonable
unless, in hindsight, they are found to be
unreasonable.
vi. Court found that the liquidated damages clause was
not enforceable but that the defendant must pay
actual damages to plaintiff.
d. Dave Gustafson & Co. v. State
i. Plaintiff entered into contract to resurface highway
that paralleled an older road. The state withheld
payment of part of the contract price for liquidated

37 1/7/00
damages for a delay of 67 days at $210 per day.
Plaintiff sued for the money.
ii. The court assumed the liquidated damages clause
was fair and because the damages for a delay in
highway construction were impossible to measure,
the parties had made a fair endeavor to fix the sum
for damages.

38 1/7/00
CONTRACTS
Spring 1997
Professor Mooney

I. Finding the Law of the Contract


A. Determining the Subject to be Interpreted--(PAROL EVIDENCE)
1. Gianni v. R. Russell & Co.: π agreed not to sell tobacco and
pay an increased rent in ∆’s building, but agreed because he
thought he would have the exclusive right to sell sodas. The
stipulation was not contained in the lease, and court held that
it could not be admitted into evidence. Promise to refrain was
included, so the exclusive rights should have been. Writing is
assumed to set forth the entire agreement. But see: Hatley v.
Stafford (ORS 41.470 (1864) held classical view of parol
evidence, but Or SC “wiggled” its way around by holding that
the legislature intended to enact the common law parol
evidence rule as it existed then and as it would evolve into the
future).
2. Masterson v. Sine: πs were conveyed property from brother,
who went into bankruptcy. ∆ tried to get the land, but πs said
that the land was supposed to stay in the family--even though
the stipulation was not included in the lease agreement. Court
allowed the oral evidence because contract does not explicitly
provide that it contains the complete agreement, and the case
is not one in which the parties “would certainly” have included
the collateral agreement in the deed. Burke’s Dissent:
assignability is assumed, it is a legal contention and therefore
must be explicitly listed as non-assignable to avoid the parol
evidence rule.
Construction3. Co.:
Bollinger
“Once
v. Central
a person
Pennsylvania
enters into
Quarry
a written
Stripping
agreement
and he
builds around himself a stone wall, from which he cannot escape by
merely asserting he had not understood what he was signing.” However, in
this case πs signed agreement that omitted ∆’s promise to fill in the
stripped land. Because ∆s had filled a portion, the court held that the
parol evidence could be admitted. Mutual mistake.
4. R2d § 209: Integrated Agreements : (1) writing
constituting a final expression of terms of an agreement; (2)

1
court must first determine whether or not the agreement is
integrated before it can decide whether or not to admit parol
evidence; (3) unless other evidence shows that the writing did
not constitute a final expression, it should be considered an
integrated agreement.
5. R2d § 213: Effect of Integrated Agreement on Prior
Agreements (Parol Evidence Rule): (1) binding integrated
agreement discharges prior agreements that are inconsistent;
(2) completely integrated agreement discharges agreements
that are within its scope; (3) integrated agreements that are
voidable or not binding does not discharge a prior agreement.
It may, however, be effective to render inoperative a term
which would have been part if the agreement if it had not been
integrated.
6. R2d § 214: Evidence of Prior or Contemporaneous
Agreements and Negotiations: Parol evidence is admissible
to establish (a) that the writing is not integrated, (b) that the
agreement is completely or partially integrated, (c) the
meaning of the writing, (d) illegality, fraud, duress, mistake,
lack of consideration, or other invalidating cause, (e) ground
for granting or denying rescission, reformation, specific
performance, or other remedy.
7. R2d § 215: Contradiction of Integrated Terms: where
there is a binding agreement, either completely or partially
integrated, evidence of prior agreements or negotiations is not
admissible in evidence to contradict a term of the writing.
8. three-part test to admit oral evidence (Mitchell v. Lath):
a. the agreement must in form be a collateral one
b. it must not contradict express or implied provisions
of the written contract.
c. it must be one that parties would not ordinarily be
expected to embody in writing.
8. no-oral-modification clauses: fairly easy to get around,
especially if party can prove reliance on an oral modification.
B. Interpreting Contract Language
1. in order to show your client’s interpretation is the proper
one, change the statement slightly so the court will see it is
virtually synonymous.

2
2. ambiguous vs. vague: ambiguity will often lead to a
rescission of the contract because the courts will be unable to
determine whose interpretation is correct. Vagueness
requires courts to figure out what a certain word or phrase
means.
3. Frigaliment Importing Co. v. BNS International Sales Corp.:
The chicken case. Does “chicken” as the parties used that
term include birds suitable only for stewing? Issue is how to
determine whose definition is correct using an objective
method of interpretation of a vague contract. Court looks at
the following: the contract itself, trade usage, Department of
Agriculture definitions, the price of the chicken, the parties’
conduct. π bore the burden of proof and failed.
4. objective and subjective theories of contract
interpretation--should an objective or subjective
interpretation be used to interpret contract language?
5. Raffles v. Wichelhaus: The Peerless case. Contract to ship
goods, but there were two ships of the same name. Held that
there was no contract because there was no meeting of the
minds. The case was ambiguous. Subjective interpretation is
very rare, and usually used in “proper noun” situations.
6. Oswald v. Allen: Swiss Coin Collection or all the Swiss
Coins? “When any of the terms used to express an agreement
is ambivalent, and the parties understand it in different ways,
there cannot be a contract unless one of them should have been
aware of the other’s understanding.” Dichotomy between
ambiguous and vague.
1. rules in aid of interpretation
a. the statutory analogy: interpreting contracts can be
like interpreting statutes--look to the transactional
history.
b. purpose interpretation: look at the series of recitals
at the beginning of the contract (“whereas”) to see the
surrounding circumstances and objectives of the parties.
c. maxims: contra proferentem--levels the playing field.
When one party has very significant control, by
interpreting the language against that person, they have
slightly less advantage in interpretation.

3
expressio unius est exclusio alterius: to express one is
to exclude the rest.
d. public interest: examine public policy interests
e. plain meaning: catching on, much to Mooney’s distress.
Invoked by the party who drafted the language.
f. one should never render a piece of contract language
meaningless. This usually only works for large contracts.
Find a way in which your adversary’s interpretation
would render the contract altogether meaningless.
2. Hurst v. WJ Lake & Co.: horse meat scraps could not be less
than 50% protein, but some tested 49.53-49.96. Court allows
evidence of custom and assign to the words their common
meaning only, even though the contract is non-ambiguous on its
face.
C. Filling Gaps--when and why will a court imply a term? What
meaning will a court give to an implied term? (“good faith” or “best
efforts”) What do these terms mean in particular? (History--in ‘70’s
implied obligation of good faith and fair dealing was becoming a
celebrity in the world of contract litigation and courts were accepting it
to level the playing field. In the ‘80’s courts became frightened, and the
legislature also stepped in.)
1. Eastern Air Lines, Inc. v. Gulf Oil Corporation: ∆s accuse πs
of fuel freighting and therefore breaching their requirements
contract for lack of good faith. Court looks at the established
course of performance and dealing among the parties prior to
litigation, as well as trade custom, to determine that there is
no breach. UCC 2-306; R2d § 204.
2. Wood v. Lucy, Lady Duff-Gordon: ∆ claimed that π did not
have to promise to use reasonable efforts to perform his
duties, but court holds that good faith can be implied so the
contract does not fail.
3. percentage leases: minimum rental plus percentage of
profits
4. Dickey v. Philadelphia Minit-Man Corp.: ∆ entered into
percentage lease with π and then decided to minimize its
operations. Court is trying to decide if there is an implied
obligation to continue to conduct their business if failing to do
so results in a diminution in profits and therefore rent

4
payment. Court holds that the minimum rental fee was
substantial, and the ∆ used legitimate business judgment in
deciding to limit its business.
5. Market Street Associates v. Frey: π suing for specific
performance because ∆ did not give reasonable consideration
to its offer. The duty of good faith does not include a duty of
full candor, but here π was dishonest in its dealings by not
raising an issue once it realized ∆ did not remember.
6. Bloor v. Falstaff Brewing Corp.: express contract term that
∆ would use “best efforts” to promote and maintain high sales
of π’s beer. Court defines that “best efforts” are really
“reasonable efforts.” Court holds that π merely has to show
that ∆ did not care about sales volume and was content to
allow sales to plummet, burden then shifts to ∆ to show that
there was nothing significant it could have done to promote
π’s sales that would not have been financially disastrous. In
the discussion of damages, the court was sensible in not
requiring mathematical certainty. But see: R.C. Cola: best
efforts clause is not per se breached by a mere undertaking of
a competitive product line. It depends on the circumstances
and Frito-Lay: a covenant cannot be implied if the parties have
either expressly dealt with the matter in the contract or have
left the agreement intentionally silent on the point.
7. Zilg v. Prentice-Hall, Inc.: ∆ publishing company challenged
as not having used best efforts to promote π’s book. Held that
there was no breach of good faith, and best efforts need not be
applied, therefore ∆’s actions was not a breach.
8. Sheets v. Teddy’s Frosted Foods: at-will employee suing on
the grounds of wrongful termination based on implied contract
of employment. Court finds for π on the basis that he was
fired for conduct looked upon favorably by public policy.
(History--courts in the ‘60’s and ‘70’s were pro-employee, but
in the ‘80’s court moved to public policy exceptions to at-will
employment contracts, giving employers a way out.)
II. Performance and Breach
A. Conditions:(1) Have the parties made a particular event or
nonevent a condition of one party’s duty or both parties’ duties? (2) Has
the condition been satisfied? (3) If not, what is the legal effect of the

5
nonoccurrence of a condition?
1. effects of conditions
a. R2d § 224: Condition Defined: a condition is an
event, not certain to occur, which must occur, unless its
non-occurrence is excused, before performance under a
contract becomes due.
b. Luttinger v. Rosen: court reads the condition in the
contract very literally. A condition precedent is a fact
or event which the parties intend must exist or take
place before there is a right to performance. If the
condition precedent is not fulfilled, the contract is not
enforceable.
c. Internatio-Rotterdam, Inc. v. River Brand Rice Mills,
Inc.: December notice was a condition precedent
specifically to the seller’s obligation to proceed under
the contract. There is some concern that we have to give
dates their literal meaning so neither party is able to
take advantage of market fluctuations.
2. problems of interpretation
a. Peacock Construction Co. v. Modern Air Conditioning,
Inc.: whether or not the language in the contract
(payment by the owner) is a condition to the general’s
obligation to pay the sub’s. Courts interpret this issue
as a timing provision in cases like this one. Trade
custom that general will pay sub’s within 30 days of
when owner paid or should have paid. But see: Gulf
Construction (under no circumstances shall a general be
required to make payment to a sub until funds have been
paid by owner) and DEC Electric (same court 13 years
later held that all payment provisions between Generals
and subs that concern time of the payment shall be
construed as a matter of law. If ambiguous--reasonable
time).
b. Mattei v. Hopper: Did the buyer have a way out when
the condition of the contract was his satisfaction?
Buyer has a good faith obligation to seek and evaluate
leases. Two kinds of satisfaction conditions, each
imposing an obligation on the party whose satisfaction is

6
required. But see: Neumiller Farms (cheaper chips shows
that the law requires a claim of dissatisfaction to be
made in good faith, rather than in an effort to escape a
bad bargain) and Devoine (cheaper cherries shows that
upon satisfaction clauses goods cannot be rejected
because the buyer found a cheaper source).
(1) if satisfaction is based on fancy, taste, or
judgment, buyer must use good faith.
(2) if satisfaction is based on commercial value,
fitness, or quality, buyer must meet reasonable
person standard.
c. Gibson v. Cranage: buyer had good faith obligation to
purchase the portrait, conditional upon his satisfaction.
This could have come out either way, but court was
probably sympathetic due to the suspicious
circumstances.
3. mitigating doctrines: conditions can sometimes cause
injustice, especially if they are one-sided.
a. prevention: ex. of prevention--home owner prevents a
real estate agent from completing a sale; real estate
agent is entitled to commission just as if the condition
had been satisfied. See: Kooleraire Serv.: general rule is
that a party to a contract cannot rely on the failure of
another to perform a condition precedent where he has
frustrated or prevented the occurrence of the condition.
But see: Sheer v. NRA: the prevention doctrine does not
apply if the contract authorizes prevention.
b. waiver and estoppel:
(1) waiver: intentional relinquishment of a known
right. Party must at least give notice that it will
insist on timely payments in order to avoid waiver.
See: Mercedes Benz (implied waiver exists when
there has been a course of dealing accepting the
waiver) and R2d § 84. Waiver is difficult to prove
intent, may be retracted if gratuitous, parties may
include anti-waiver clauses.
(2) McKenna v. Vernon: owner waived the condition
of architect’s certificates through the course of

7
performance and therefore is not allowed to require
it later.
(3) estoppel: show that party reasonably relied on
some statement or nonstatement by the other side
to its detriment.
c. interpretation and forfeiture
B. Constructive Conditions of Exchange (constructive conditions
begin their lives as promises!)
1. Kingston v. Preston: three terms were involved here--(1)
seller was to sell, (2) buyer was to pay over time, (3) buyer
was to put up some security. Buyer failed to put up security
and brought suit when seller refused to convey the business.
Court held that the terms were dependent conditions. The
buyer’s obligation to provide good and sufficient surety is a
constructive condition of the seller’s obligation to convey the
property. Absent some express statement about the order of
performance, courts will use the doctrine of constructive
condition to determine it. But remember old landlord tenant
laws which refused to recognize the covenants were
dependant.
2. Stewart v. Newbury: where a contract is made to perform
work and no agreement is made as to payment, the work must
be substantially performed before payment can be demanded.
C. Mitigating Doctrines
1. substantial performance
a. Jacob & Youngs v. Kent: owner argued that the
builder’s adherence to all the terms of the specifications
in the contract is a constructive condition of his
obligation to pay. CARDOZO answered owner’s condition
with the doctrine of substantial performance--where the
builder has substantially performed the constructive
conditions, then the owner has to pay.
b. substantial performance in context: doctrine in
commercial reasonableness which recognizes that the
rendering of a performance which does not exactly meet
the terms of the agreement will be looked upon as
fulfillment of the obligation.
c. “Wrinkles” in the doctrine of substantial performance

8
(1) avoidance of the doctrine through careful
drafting
(2) primarily applies to building contracts
(3) applies to constructive conditions, not express
(4) willfully breaching parties cannot invoke
substantial performance.
(5) can argue that covenants are independent
d. R2d § 241: Determining a Material Failure:
following circumstances are significant: (a) extent to
which the injured party will be deprived of the benefit he
reasonably expected; (b) the extent to which the injured
party can be adequately compensated; (c) extent to which
the party failing to perform will suffer forfeiture, (d)
likelihood that the party failing to perform will cure his
failure, taking account of all the circumstances including
any reasonable assurances, (e) extent to which the
behavior of the party failing to perform comports with
standards of good faith and fair dealing.
2. divisibility
a. Gill v. Johnstown Lumber Co.: ∆ argued that contract
was a complete agreement and since π did not deliver all
of the logs, ∆ did not have to pay. Court held that
contract was severable/ divisible. “If the part to be
performed by one party consists of several and distinct
items, and the price is to be paid by the other is (1)
apportioned to each item to be performed, or (2) is left
to be implied by law, such a contract will generally be
held to be severable.” Same idea here as losing
contracts, but not in quantum meruit or restitution
claim.
b. Pennsylvania Exchange Bank v. United States: court
held that the contract was indivisible because it was a
four stage contract which admittedly had sums attached
to each stage, but it was clear that the three preliminary
stages were working up to the fourth, the result of which
was the only stage that mattered. See also: May v. Oakley
(“the case of the house divided”--where a contract is
without description, it is not severable).

9
c. defense against divisibility: if the part to be
performed by one party consists of several distinct
items and the price to be paid by the other is (1)
apportioned to each item to be performed, or (2) is left
to be implied by law, such a contract will generally be
held to be severable.
3. restitution--this is the most useful way around the
doctrine of constructive conditions.
a. Britton v. Turner: π suing in quantum meruit to get the
reasonable value of the services rendered, but ∆ argued
that the year’s work was a constructive condition. This
case was a real turning point, because the court held that
π should get paid for the value of services rendered--
even a “mere farmworker” should. Recovery cannot
exceed the contract price, therefore π could not take
advantage of a higher market value of his worth. But see:
Algernon Blair (difference is who breaches--buyer or
seller)
b. Kirkland v. Archbold: a breaching π is entitled to
recover for services and materials unless (1) the work
that he has done has been of no benefit to the owner, (2)
the work he has done is entirely different from the work
he was contracted to do, or (3) he has abandoned the
work and left it unfinished.
D. Breach in the Course of Performance--it is often difficult to
determine who breaches first in a contract.
1. Walker & Co. v. Harrison: tomato on the dry cleaner’s sign.
Contract included an acceleration clause in it. Lessor’s
obligation to maintain the sigh was a constructive condition of
the lessee’s obligation to pay for it. Court held that ∆’s
accusation was legally correct, but we must apply the
constructive condition doctrine with common sense, so the
failure to clean the sign right away was a non-material breach.
2. condition v. promise: courts use a slightly softer standard
for constructive conditions than express conditions. Doctrine
of substantial performance does not typically apply.
3. K & G Construction Co. v. Harris: Constructive condition was
the sub’s obligation to perform the work in a “workmanlike

10
way” in order to receive the progress payments from the
general. There was also an obligation to finish the work.
Court held that ∆ breached first when he hit the wall, and
therefore all the dominoes fall against him. This introduces an
important client counselling dilemma--try to always convince
the client to stay on the job unless it has totally deteriorated
because they will not get more in court than they would have if
they finished, and if the lose, they lose BIG.
4. NW Lumber Sales v. Continental Forest Products: Oregon
case holding that a breach by one party of one contract does
not justify the other party withholding performance on a
second contract between the two parties.
5. hindrance and prevention
E. Prospective Nonperformance
1. anticipatory repudiation
a. Hochster v. De La Tour: does π have an action for
breach if the contract was broken by ∆ before
employment began? Especially since π mitigated the
damages by getting another job. Court holds that a party
can sue early because we want to allow parties the
maximum amount of flexibility when the other party has
breached.
b. Phelps v. Herro: seller π transferred real estate and
stock to buyer ∆, ∆ was to pay in installments but only
made one payment and then repudiated. Doctrine of
anticipatory breach has no application to money
contracts.
2. periodic insurance payments--courts are reluctant to
invoke anticipatory repudiation in a situation based on “how
long will this person live” etc. Courts are reluctant to find a
complete anticipatory repudiation of the contract and will
make the person come back in every five years to reestablish
whatever is at issue.
III. Basic Assumptions: Mistake, Impracticability and
Frustration
A. Mutual Mistake
1. Stees v. Leonard: Mooney hates this case. It’s one of the
incredible old classic cases that stands for the proposition

11
that a party must keep its contracts even in the face of
quicksand and a twice collapsed building!
2. basis of relief for mistake--the big issue here is where is
the seller safe? There are two ends of the spectrum (1)
complete ignorance or (2) bare nondisclosure. Is there a safe
harbor somewhere in between?
a. Sherwood v. Walker: ROSE THE 2D!!! Contract could be
rescinded because the “substance” of the thing sold was
different than what the parties thought.
b. Wood v. Boynton: π found a pretty rock and sold it to a
jeweler for $1. When it was discovered that the rock
was an uncut diamond, the ∆ got to keep it.
c. The Dover Pool & Racquet Club, Inc. v. Brooking:
application of mutual mistake broadly. If there is a set
of facts that fundamentally change the bargain, one of
the parties will be allowed to rescind. See also:
Kannavos v. Annino (one party knew of zoning changes and
did not disclose, so contract was voided).
d. R2d § 152: When Mistake of Both Parties Makes a
Contract Voidable: (1) When a mistake of both parties
was made at the time of the contract, and the basic
assumption has a material effect of the exchange of
performances, the contract is voidable by the adversely
affected party unless he bears the risk of the mistake
under § 154. (2) To determine whether the mistake has a
material effect, the court will look at reformation,
restitution, or other relief.
e. R2d § 154: When a Party Bears the Risk of
Mistake: (a) the risk is allocated to him by agreement,
or (b) he is aware that he has only limited knowledge but
acts as if his knowledge is sufficient, or (c) the risk is
allocated to him by the court on the ground that it is
reasonable to do so under the circumstances.
B. Impracticability of Performance: began as impossibility, but the
standard has softened. Better for πs, but harder for courts to draw the
line. The doctrine typically cuts when (1) there is a destruction or
unavailability of the subject matter, (2) there is a death of a party
who has contracted to perform or receive personal services, or (3) there

12
is a supervening prohibition by law. Impracticability comes AFTER the
contract has been made, where mistake comes before.
1. Taylor v. Caldwell: π suing for reliance, and the issue is
whether the party who was contracted to furnish a music hall
is excused from performing that contract without the fault of
either party. In a contract 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 of thing shall excuse
the performance.
2. loss in relation to sales
3. Transatlantic Financing Corporation v. US: Impracticability
is usually used defensively, but here it is used offensively. (1)
a contingency must have occurred, (2) the risk must not have
been allocated, and (3) the occurrence of the contingency must
have rendered the performance impracticable. π did not meet
the third criteria--it was not impracticable just because it
would have cost some more money.
4. foreseeability
5. Canadian Industrial Alcohol Co. v. Dunbar Molasses Co.:
similar to the Rockefeller case where the parties intended
that the wood would be taken only from one particular piece of
land specified in the contract. Court held that the continued
existence on the estate was a condition and impossibility was
applied. Here, the fact that one source of molasses dried up
did not excuse performance because the molasses could have
been procured from another source since a particular source
was not named.
6. Eastern Air Lines, Inc. v. Gulf Oil Corp.: ∆ invoked a
commercial impracticability defense. A price increase to
excuse performance must be more than merely
onerous, it must be “positively unjust.” Party
invoking the doctrine bears the burden of showing
the extent to which he has suffered or will suffer.
7. Mineral Park Land Co. v. Howard: When contract was entered
into, the parties contemplated and assumed that the land
contained the requisite quantity for gravel, but a good portion
was underwater. The difference in cost was so great that it

13
made performance impracticable and “the situation is not
different from that of a total absence of earth and gravel.”
8. Eastern Air Lines, Inc. v. McDonnell Douglas Corp.: excusable
delay clause was narrowly construed by the lower court to
include only formal requests by the government, and ∆ had only
received informal requests. Parties may contract to narrow or
broaden excuses available to a promisor. A foreseeable
superseding event may even be allowed to prove
impracticability if the circumstances causing the breach have
made performance so different from what was anticipated that
the contract cannot reasonably govern.
C. Frustration of Purpose
1. Krell v. Henry: Rental of room to watch coronation, but
coronation was rescheduled. If the essential purpose for
contracting is frustrated, each party’s duty of performance is
discharged even if the performance is not impossible. But see:
Swift Canadian Bacon (shows that a response to frustration is
that one party assumed the risk either expressly or implicitly).
2. Chase Precast Corp. v. John J. Paonessa Co.: highway
contract canceled, but π suing for anticipated profit. Doctrine
of frustration of purpose may be used as a defense when an
event unforeseeable by either party, the risk of which was not
allocated by contract, destroys the object or purpose of the
contract. When this occurs, the parties are excused from any
further performance under the contract.
3. R2d § 265: Discharge by Supervening Frustration:
Where, after a contract is made, a party’s principal purpose is
substantially frustrated without his fault by the occurrence of
an event the non-occurrence of which was a basic assumption
on which the contract was made, his remaining duties to
render performance are discharged, unless the language or the
circumstances indicate the contrary.

UNIFORM COMMERCIAL CODE


IV. Beginning the Study of Article Two
A. Introduction to the Uniform Commercial Code

14
B. General Principles and a Few Definitions
1. Relevant Code Provisions: 1-201, 1-205, 2-104, 2-105, 2-
208, 2-403
2. Nelson v. Union Equity Co-Operative Exchange: π farmer
meets the requirements of “merchant” definition and “between
merchants” under 2-104 because he is knowledgeable about
the business of crops, and meets the statutory elements.
Because π was a merchant, the oral agreement confirmed in
writing satisfies the Statute of Frauds requirements under 2 -
201 and therefore must pay damages for breach.
C. The Scope of Article Two
1. three fundamental principles underlie Article 2
a. good faith: 1-201(19) defines it as “honesty in fact”-
-a subjective standard. But when involving merchants
add commercial reasonableness and it becomes objective.
1-203 imposes the obligation of good faith on every
party to a code transaction. Difficult, if not impossible,
to contract around.
b. commercial reasonableness: pervasive, a part of every
merchant’s duty of good faith.
c. the facilitation of actual commercial practices by
incorporating as central features of the law those
practices themselves. As shown through the course of
performance between parties, dealings between parties,
and trade usage.
2. Relevant Code Provisions: 2-102
3. Anthony Pools v. Sheehan: court must decide if a contract to
install a pool is for goods or for services. Bonebrake test:
whether the predominant factor, the thrust, the purpose,
reasonably stated, is a transaction of sale with labor
incidentally involved or vice versa. (The predominant purpose
test). Gravamen test: whether the reason for the breach is
directly related to the fault of the service or the fault of the
good. Also policy considerations. Once determined within the
scope, the next issue is one of warranty.
V. Contract Formation Under the Code
A. Agreement in General, and the Battle of the Forms
1. Relevant Code Provisions: 2-204, 2-207

15
2. Diamond Fruit Growers, Inc. v. Krack Corp.: ∆ included a
disclaimer of liability in order acknowledgement form. Cannot
interpret 2-207 to give one party an advantage simply because
it sent the first or last form, so issue becomes what
constitutes assent. If the offeror does not give specific and
unequivocal assent but the parties act as if they have a
contract, the provisions of 2-207(3) apply to fill in the terms
of the contract.
3. Mooney’s Routes
a. Route A: 2-207(1) “before the comma”--B -(offer)->S
contract forms when seller accepts . If they send in
different terms (2) [which applies to Routes A & D] the
different terms become proposals for addition to the
contract. Occasionally those proposals can become a part
of the contract (when between merchants and the contract is
not materially altered).
b. Route B: 2-207(1) “after the comma”--contract
formed unless it is expressly conditional on offeror’s
assent to different terms--if not it is considered a
counter-offer. Contract forms on offeror’s assent to
counter-offer. Could engage in some conduct which shows
assent.
c. Route C: 2-207(3)--cannot find either route A or B on
the papers, however both parties have acted as though there
is a contract (seller has shipped, buyer has accepted, etc) so
the code will say there is a contract formed by the conduct.
Terms on which the parties agree and all the terms
provided by Article 2 gap-fillers. (implied warranties)
d. B/C Hybrid: one of the early issues in this analysis as
to whether the counteroffer is expressly conditional or
not. Offeror does something to suggest that they have
assented to offeree’s counteroffer. (Diamond Fruit)
e. Route D: Mooney’s creation, a hybrid--pre-existing
contract (often oral) and one party sends confirmation.
Analyzed in many ways like route A. Confirmations are
treated as proposals like route A. Any different term is
run through the gamut of (2).
B. The Statute of Frauds: UCC 2-201

16
1. compare/contrast with common law: almost not included in
the UCC, only three definite requirements of the writing, four
types of situations do not require writing, definition of
signature.
2. Distribu-Dor, Inc. v. Karadanis: ∆ refused to sign contract,
stating “my word is my bond” but then decided to go with
another company after π had already ordered special mirrors.
Because mirrors were not readily resalable, the contract fits
within 2-201(3)(a). “Strict adherence to the statute of frauds
has been abandoned in favor of certain limited exceptions to
promote equity and fair dealing between parties.”
C. The Parol Evidence Rule: UCC 2-202
1. Snyder v. Herbert Greenbaum & Associates, Inc.: Multiple
issues. First, whether contract for carpet and installation is
within the scope of Article 2 (yes). Second, ∆ induced π into
contract through misrepresentation: false representations
about material facts which the rescinding party relied on and
had a right to rely on them. Misrepresentation renders a
contract voidable (no). Since the contract was not voidable
under misrepresentation, ∆s offered 5 documents that were
prior contracts. Court holds that documents were properly
excluded because the contract was intended to be a complete
and exclusive statement of contract terms. “Inconsistency”
defined as absence of reasonable harmony in terms of the
language and respective obligations of the parties. Unqualified
unilateral cancellation by ∆s not reasonably harmonious to
contract terms.
VI. General Obligations and the Concept of Title
A. “Gap Filler” Provisions
1. Relevant Code Provisions: 2-305, 2-306, 2-308, 2-309, 2-
310
2. Feld v. Henry S. Levy & Son, Inc.: output contract for all
bread crumbs produced by ∆ was breached when ∆ quit
producing. Good faith requires that party continues supplying
unless put in genuine peril (i.e.--bankruptcy); the mere fact
that the sale was not as profitable as was anticipated is not
good faith.
B. Code Warranties

17
1. Relevant Code Provisions:2-313, 2-314, 2-315, 2-316, 2-
719, 2-318, 2-607, 2-725
2. express warranties UCC 2-313
a. five important issues
(1) whether seller has actually made a warranty;
“puffing” is a defense.
(2) at common law, π had to prove reliance. Under
UCC, warranty only has to be “part of the basis of
the bargain.”
(3) privity (2-318)
(4) express warranties cannot be disclaimed. Under
2- 316(1) courts must reconcile in favor of the
warranty.
(5) watch for a merger clause--seller may make an
oral express warranty but exclude it through
written merger clause in contract.
b. sample or model
(1) sample: comes out of the production run
(2) model: made prior to production
c. Barton v. Tra-Mo, Inc.: π purchased tanks from ∆ after
seeing models. UCC 2-313(1)(c) states than an express
warranty is created when a sample or model is made as
part of the basis of the bargain, leading the purchaser to
believe that the entire order will conform. ∆ tried to
argue that the items were not really models, but the
court does not believe its argument. π wins for breach
of express warranty by model.
3. implied warranties UCC 2-314, 2-315
a. Blockhead, Inc. v. The Plastic Forming Co., Inc.: π buyer
was experienced in plastics and the wig case industry. π
rejected improvements, and approved models and designs.
No 2-315 warranty in this case, an implied warranty for
fitness for a particular purpose did not occur because the
warranty depends upon the relative skill, knowledge, and
experience of the two parties. Only happens when buyer goes
to seller asking them to select everything. No breach of
the warranty of merchantability because it was effectively
disclaimed. 2-316(3)(b) if a buyer examines goods or has

18
an opportunity to and fails, there is no implied warranty in
the case of any defects coming up after inspection. A
subsidiary issue is whether or not the ∆ qualifies a s a
SUPERmerchant--∆ argued that he was not because he had
never made wiglet cases before, but court holds that he
is an expert in plastics.
b. Valley Iron & Steel Co. v. Thorin: Hoedad case. Buyer
requested that the hoedad be durable. They were not, and
buyer declined to pay for them. Trial court found that
buyer was at fault. Buyer’s defense was breach of
warranty. Issue 1: Is there a merchantability warranty?
Depends on whether or not the seller was a merchant in
goods of this kind. The “goods” that the statute was talking
about must be understood more broadly than just “hoedad
collars” but rather do you make things of a similar nature
out of metal? That makes seller a SUPERmerchant, and an
implied warranty exists. What about the fitness warranty?
Dicta here, but they say there is a warranty for a
particular purpose--knew what the hoedad was for and
buyer left it to seller’s expertise to choose the proper
material. Seller really was asked to select the material.
Particular purpose--where you have specially
manufactured goods, the ordinary purpose counts as a
particular purpose under 2-315.
4. limitations on warranties UCC 2-316
a. K & M Joint Venture v. Smith International, Inc.:
Machine was warranted, but accessories were not. 2-
316(3)(a) disclaimer of implied warranty through the use of
the term “as is.” Then changed terms that everything was
“as is.” a route “d” case--oral contract, and then one party
sends a confirmation with a different term. Proposal for
addition to the contract that would not become part of it
because it too materially altered it. 2-316(3)(d)--on these
facts that to a reasonable buyer the “as is” applies only to
accessories and not the machine. This is not an effective
disclaimer of warranty with respect to the machine. BUT
up jumps 2-607 to knock π out of the box (3): buyer must
notify within reasonable time of a breach. Comment #4:

19
seems to provide a minimal notice o b l i g a t i o n .
Notification need only be such as informs the seller- -
notification here was inadequate because at no time did the
buyer mention BREACH. Some courts have said that
where a party claims unreasonable delay in notification
that party has to establish that the delay somehow
prejudiced it. Did the parties think there was a warranty
at all? A lot of what the buyer did suggests that the
buyer thought the repairs were on its own account.
b. Murray v. Holiday Rambler, Inc.: motor home was
warranted to be free from defects in parts and workmanship;
seller disclaimed any other warranty. 2-316(2) implied
warranties are knocked out. Remedy limitation: repair or
replace in the case of breach. 2-608: buyer’s revocation of
acceptance of the goods. ∆ said revocation was not
available because of the remedy limitation clause. The court
does not sustain the remedy limitation because under 2-719(2)
the essential purpose here failed (repair or replace). What is
the essential purpose? “Where the seller is given
reasonable opportunity to correct the defect or defects, and
the vehicle nevertheless fails to operate as should a new
vehicle free of defects, the limited remedy fails of i t s
essential purpose.” There remained only the question of
whether or not the standard of 2-608 has been met:
legally the right thing to do is GIVE NOTICE EARLY of intent to
revoke acceptance, but at the same time allow them the
opportunity to fix the goods. 2-715 consequential damages,
reduced from $2500 to $500.
5. warranty and Restatement of Torts 2d
a. Flory v. Silvercrest Industries, Inc.: in non-personal
injury cases, courts have struggled with the relationship
between tort law and contracts. In the state of Arizona
were not going to allow a breach of warranty action
against a remote seller because of lack of privity. It
would in personal injury cases, however. The court comes
up with a theory that M wouldn’t put a lot of stock in:
although there can be no UCC warranty action, there is
perhaps a breach of warranty theory outside the code which

20
does not require privity. M doesn’t get it. If this is a
sale of goods, the code applies to this action. A sizable piece
of the warranty award was affirmed against Alamo (the
dealer) and the case is remanded for trial on the non-UCC
breach theory that apparently makes no sense at all. This
case is here to show that π’s lawyers have problems
interfacing contract and tort law. You can plead all causes
of action OR look at the authorities in your jurisdiction
and see where your state is, particularly regarding
privity requirements. (Oregon has a privity requirement in
non-personal injury actions)
6. non-UCC regulation of warranties
a. Atlas Auto Rental Corp. v. Weisberg: Everybody is lying
here. If π had taken a bad check from Schwartzman, he
would have had voidable title. 2-403(1)(b). ∆ said he
paid $900, but only a deposit of $300 to show that he had
purchased for value. There is a question about whether or
not S had voidable title, but ∆ is unable to use the voidable
title defense because he didn’t purchase for value. ∆
cannot use the entrusting defense, because π did not
entrust his goods to a merchant who deals in goods with this
kind. Definition of “value” is very broad and i n c l u d e s
anything sufficient to be consideration. The value probl em
here is a good faith problem. ∆ here was a merchant a n d
therefore must prove reasonable commercial standard.
VII. Risk of Loss
A. Introduction--at common law, title orientation governed risk of
loss. The UCC provides a much easier method.
1. an insurable interest under the code (2-501)
2. types of delivery terms (2-509, 2-510)
3. Ninth Street East, Ltd. v. Harrison: who had the risk of loss
at the time the goods disappeared? Because the FOB term was
added after contract, assume it was not a part of the deal, but
still seller wins. BUT 2-503 Comment 5--> presumption under
the code for a shipment contract. Risk passed when the goods
were delivered to the carrier. Same result if it had been a
destination contract. Buyer’s last gasp argument: π filing with
carrier, rejected by court. Seller should have written a letter

21
to buyer stating that the goods are gone and we will file a claim
and apply it to your account, but we are not waiving our rights,
etc.
B. UCC 2-509: Risk of Loss Absent Breach
1. Ellis v. Bell Aerospace Corp.: seller had not sufficiently
relinquished dominion and control. 2-509(3) case--risk remains
with merchant. Facts are close, but it does seem sensible that the
buyer did not receive the goods. What about the negligence
claims? The court pushed it aside. However, in these cases,
negligence becomes important. If risk had passed to buyer, then
the buyer may have a good claim to recover the value of the
helicopter in a negligence claim against the pilot. Possibly
negligence may trump risk of loss. It is at least possible that the
seller can recover if he can prove the buyer’s negligence caused the
crash.
2. Consolidated Bottling Co. v. Jaco Equipment Corp.: contract
included the language “f.o.b. purchaser’s truck.” Long delay in
delivery and then vandals broke in and damaged the goods. π
argued that it was holding the goods within the meaning of 2 -
503(1) and therefore the risk had passed. This argument is not a
winner in any event because if (4) does not apply, so (3) would
and because the seller is a merchant, risk remains with him. Court
decides that the resolution of this case depends on 2-509(4); the
language “f.o.b. purchaser’s truck” (2-319(1)(c)) was a “contrary
agreement.”
C. UCC 2-510: The Effect of Breach on Risk of Loss
1. William F. Wilke, Inc. v. Cummins Diesel Engines, Inc.: court
applies 2-510(1) because the goods were not conforming, and
therefore risk remained with seller and buyer had right of
rejection. 2-509(3) could have also worked here because seller was
a merchant and had not officially delivered the goods yet.
(“This is my baby.”) There is also a possible negligence overlay
for both parties. Also, there is no actual breach because under
2-607 the buyer has not given adequate notice of breach.
2. Mulitplastics, Inc. v. Arch Industries Inc.: 2-510(3) case--
buyer did not take delivery within a reasonable time and therefore
breached. Risk of loss placed on the breaching party to the extent
of the other party’s deficiencies of insurance. Seller entitled

22
to recover the contract price. On the question of whether or not it
was a breach-- court held that 2-610 (anticipatory repudiation)
does not apply. (Subrogation was also and issue
here)
VIII. Performance and Breach Upon Delivery
A. 2-507, 2-511 provide concurrent conditions; at common law
these likely would have been constructive conditions
B. Buyer’s Rights Prior to Acceptance: Inspection and Rejection
1. buyer’s right to inspect (2-513)
2. buyer’s right to reject (2-602)
a. Max Bauer Meat Packer, Inc. v. Wunderlich: 2-602(1),
2- 606, 2-709. ∆ tried to argue that the first half of the
day’s delivery was too frozen and so they could not have
reworked the whole order. Court quite sensibly looked at
prejudice and the fact that the second half could have been
fixed but for the delay.
b. Zabriskie Chevrolet, Inc. v. Smith: court held for ∆ and
declared that the buyer was not bound to the transaction.
Under 2-316--warranty disclaimer was insufficiently
conspicuous. 2-606 court declared that buyer had not
accepted the car. Court says that the attempted cure was
ineffective-- this seller will not be allowed to force the
deal onto the buyer by forcing the new transmission.
Buyer’s confidence is shattered and a reasonable buyer would
not want to proceed with the transaction.
C. Anticipatory Repudiation (2-609, 2-610)
3. Ellis Manufacturing Co., Inc. v. Brant: court held that under
2-609 the contractor had no reasonable ground for insecurity.
and its withholding the goods constituted a breach and buyer
could go out and buy new goods and sue for the difference.
IX. Seller and Buyer Remedies Under the Code
A. Seller’s Remedies
1. action for the price, UCC 2-709
2. seller’s resale remedy, UCC 2-706
3. seller’s market-contract damages, UCC 2-708(1)
4. lost volume seller, UCC 2-708(2)
a. Snyder v. Herbert Greenbaum & Assoc., Inc.: explains
why the phrase “due credit for . . . proceeds of resale”

23
language in 2-708(2) does not apply to a normal lost-
volume seller case. Statutory history shows that it
applies to parts assemblers/sellers. Credit need not be
made against the lost profits by the proceeds of resale,
if the π/seller has sustained his burden of proving he is
a lost volume seller.
b. Nederlandse Draadindustrie NDI BV v. Grand Pre-
Stressed Corp.: π ordered cement from ∆, contractual
relationship broke down over a period of time. ∆ did not
show that items were defective under 2-607, and since
it did not do that and also requesting that deliveries
were adjusted so ∆ leaves here. π seeks damages under
2-708(2) and since π showed that it had sufficient
capacity to supply the contract items and more for
another order, it wins on this issue. See also: Davis v.
Diasonics and Vitex v. Caribtex.
B. Buyer’s Remedies
1. buyer’s right to specific performance or replevin, UCC 2-
716
a. Copylease Corp. of America v. Memorex Corp.: π seeks
specific performance as a remedy because ∆’s toner is a
better product than any other. Court recognizes a need to
balance state law against ordering specific performance
with 2-716. On remand, π must show the uniqueness or
degree of difficulty in covering against the difficulties
of enforcement which have caused courts to refrain from
granting specific performance.
2. buyer’s right to cover price-contract price damages, UCC 2-
712
a. Farmer’s Elevator Co. of Elk Point v. Lyle: ∆ tried to
argue that π had waited too long to cover, but court
holds that the purchases were made within a
commercially reasonable time. Comment: “It is
immaterial that hindsight may later prove that the
method of cover used was not the cheapest or most
effective.” There was a second purchase that may have
offended the commercially reasonable time, but since it
was cheaper than the first purchase, the court finds that

24
∆ was not prejudiced.
3. buyer’s market price-contract price damages, UCC 2-713
a. Cargill, Inc. v. Stafford: phone conversations that
turned into contracts--contract one was barred by the
statute of frauds (2-201), but contract two was not. The
issue then becomes when the buyer
learned of the breach--was it at the
time of the repudiation or at the time
of performance? Court finds that it
should be at the time of breach, but
then remands to determine whether or
not π should have covered. (Why would
they do this when there is no obligation
to cover?)
4. recovery for breach relating to accepted goods, UCC 2-714
a. City of New York v. Pullman Inc.: 2-714 value of goods
as warranted-value of goods delivered. What is the cost to
repair the goods? Special circumstances discussion is
over the top. Look at footnote 7--what is the more
appropriate repair procedure.

25
CONTRACTS OUTLINE, Mooney Spring 2002

PAROL EVIDENCE RULE

1. The Issue: When an agreement has been put in writing, one party claims there was also
and earlier oral or written agreement, or a contemporaneous oral agreement, that was not
included in the writing but was intended to be part of the K. In such cases, the
admissibility of the alleged additional agreement turns on the applicability of the parol
evidence rule.
2. Rules:
a. Mooney: Restatement 209 + 215: Where parties have intended a writing as the
final expression of all or part of their agreement, evidence of any other prior or
contemporaneous term is not admissible to contradict the writing.
b. Justice Traynor: When the parties to a written K have agreed to it as an
“integration” – a complete and final embodiment of the terms of an agreement –
parol evidence cannot be used to add to or vary its terms…when only part of the
agreement is integrated, the same rule applies to that part, but parol evidence may
be used to prove elements of the agreement not reduced by writing.
i. “Credibility test” – parol evidence should only be excluded if it would
mislead the trier of fact.
3. Reasons for Rule:
a. Juries may tend to favor the underdog. (Mooney doesn’t agree).
b. People might make up agreements that never happened.
c. Certainty in K interpretation.
d. Ability for people to rely on what is written to know what their legal obligations
are.
4. Integration:
a. A complete integration is where the parties intended the written K as a final and
complete statement of the agreement in writing.
b. A partial integration is where the parties intended the writing to be a final
expression of part of the agreement.
i. Formal intent: Traditional view was that a writing would be treated as
an integration if taken as a whole and on its face the writing appears to
be an instrument that complete ly expresses the parties’ agreement
(writing not only the best, but only evidence of intent). Gianni v. Russel
& Co.
ii. Actual intent: Modern view is that a writing is deemed to be an
integration only if the parties actually intended it to be an integration.
Court will consider any relevant evidence to determine intent.
Masterson v. Sine, R 209.
c. UCC comment 3 2-202: Only if the parol term would certainly have been
included in the writing, if agreed upon, then it must be kept from the trier of fact
(this likes the parol evidence rule less than the restatement).
5. Merger Clauses: Provisions in a written K that the written K is the entire K between the
parties, or is the final, complete and exclusive statement of all the terms the parties have
agreed upon.
a. Traditional approach: These clauses are determinative on the question of
whether the writing is an integration. Still the majority rule.
b. Modern courts (minority) will sometimes say it is just one factor in determining
whether it is an integration.
c. Defense can claim unconsionability.

1
6. Defenses: Can have a D for the K itself:, even if it is completely integrated. Fraud,
duress, mistake, illegality.
7. Exceptions:
a. Separate consideration: Even if a writing is an integration, parol evidence is
admissible if the written integration and the alleged parol agreement are each
supported by separate consideration.
b. Collateral agreement: Parol evidence is often admissible if the alleged parol
agreement is “collateral” (i.e. related to the sub. matter but not part of the
writing).
c. “Naturally Omitted Terms”: Widely accepted modern rule, R216, is that parol
evidence is admissible if it concerns a term that would naturally be omitted from
the written agreement. A term will be treated as naturally omitted if:
i. The term does not conflict with the written integration; and
ii. The term concerns a subject that similarly situated parties would not
ordinarily be expected to include in the written agreement.
1. Two approaches: (1) Whether an abstract reasonable person
would have omitted the term in question from the writing, (2)
Whether the actual parties might have naturally omitted the
parol agreement from the writing. Masterson v. Sine. This is
the majority view.
8. Gianni v. Russell, 1924: P claims and oral agreement (in addition to a lease) where P
agreed not to sell tobacco in exchange for exclusive rights to sell soda in the building. D
denies the oral agreement took place. D rented another space to a drug company that sold
beverages.
a. Issues:
i. Whether the parties would have naturally included the additional term in
their K? Held: Yes, because it embraces the field of the alleged oral K.
ii. P’s argument: Whether the exclusive rights to sell soda was a separate
and ind. agreement and therefore not barred by parol evidence? Held:
No. This term would have been a part of the main agreement and there
was no consideration for the separate agreement.
9. Masterson v. Sine, 1968: P conveyed their ranch to D by a written deed. The deed
provided an option to repurchase at a designated price. There was a separate oral
agreement that the option was personal to P. P’s trustee wanted to establish their option.
a. Held: Evidence of the oral agreement is not barred by parol evidence.
b. Rule: Parties’ intent needs to be considered. Case rejects classical Gianni rule
that a writing that looks complete is presumed to be complete. Traynor says that
an agreement can’t prove completeness in and of itself.
i. Traynor also uses collateral agreement to say that the parol is parol
evidence in a partial integration case (said this is a completely separate
agreement).
10. Bollinger v. Central Pennsylvania Quarry 1967: Parties entered into oral agreement
where they agreed D would deposit his waste on P’s property, but would cover the waste
when one. Written agreement did not include clause, P did not read before signing.
a. Rule: A court can reform a K for a mutual mistake in integration. Escribinor’s
error.

INTERPRETING CONTRACT LANGUAGE

1. General Rule: Where the interpretation of an expression (words or conduct addressed


by one party to another) is in issue, the expression should be given an objective

2
interpretation (interpretation of a reasonable person standing the addressee’s shoes). In
99% of cases, the court will look for an objective K interpretation.
a. Vague v. Ambiguous
i. Vague: When its applicability in marginal situations is uncertain.
ii. Ambiguous: Two entirely different connotations, so that it may be
appropriate or inappropriate.
2. Exceptions:
a. When an expression is susceptible of two equally reasonable meanings
i. i.e. John is married to two women. He leaves his house to his wife.
Which does he mean?
ii. i.e. Raffles v. Wichelhaus: Two ships called the Peerless. Both
reasonable interpretations. In this case, no K is formed.
b. Both parties have the same subjective interpretation (this will govern even if their
interpretation is not the reasonable meaning of the term). Theoretical, if this
happened, a dispute would most likely not arise.
c. One party knows of the other’s different interpretations: If A knows B’s
interpretation, then B’s interpretation is determinative.
3. Frigaliment Importing Co. v. BNS International Sales Corp., 1960: Young v. Old
Chickens case.
a. Issue: Whether the word “chicken” includes stewing chickens as well as broiler
chickens?
b. Use of the word “chicken” was too vague. Court found that P did not sustain
their burden of persuasion that the K used “chicken” in a narrower sense (i.e.
young chicken as opposed to all kinds of chickens, inc. old).
4. Raffles v. Wichelhaus 1864: Peerless case.
a. Parol evidence may be given for the purpose of showing that D meant one
Peerless and P another. It would be an imposition to hold P to a K he did not
enter into.
5. Oswald v. Allen 1969: Swiss coins case. P thought he was buying both D’s collections
for $50,000, P thought only one.
a. Rule: When any of the terms used to express an agreement is ambivalent, and
the parties understand it in different ways, there is no K unless one of them
should have been aware of the other’s understanding.
b. Interesting, borderline case according to Mooney.
c. Mooney would ask the client to look at the contract and see the description of the
coins – was it capitalized (indicating it was a specialized collection), or not
capitalized (indicating it was just all of the Swiss coins).
d. COASE THEOREM: Tells us the result of the litigation will not effect who
comes out with the coins. It doesn’t affect allocation, but it does effect
distribution of wealth.
i. This will effect rather dramatically how much the buyer has to pay for
the coins. If he wins the case, he gets them for $50,000. If she wins the
case, and they renegotiate, they will cost him a lot more.
6. Hurst v. W.J. Lake Co. 1932: Meat scraps case. Trade usage indicated that 50% protein
meant 49.5% or more. Meat contained 49.53-49.96%.
a. Rule: Trade usage is applicable, even when an instrument is non-ambiguous on
its face (trade usage trumps mathematical usage).
7. Rules in Aiding Interpretation
a. Plain meaning rule: Many courts apply this rule with much investigation into
what parties reasonably understood term to mean.

3
b. Public interest: Not widely recognized. Environmental disputes often make this
argument (Peevyhouse – court upheld K to further public interest, not really to
help the Peevyhouses).
c. Expressio unius: To express one is to exclude others.
d. Nascitu a sociss: It is known from its associates.
e. Contra Proferentum: Against its author or proffer. This works for K underdog.
8. Evidence to present:
a. Evidence internal to the K
b. Dictionary evidence
c. Foreign Language Evidence
d. Evidence from Government statutes or regulations
e. Trade usage evidence, Course of dealing, Custom
f. Evidence of the likely, and almost inevitable, subjective intention of both parties.
 Ex. Chicken/Broiler - Subjectively both should have known because they
would have been operating at a loss.
 American courts in general interpret contracts objectively, so even if the
Frigaliment case showed that the plaintiff subjectively thought they were
buying fryers, the case would have come out the same.
 This prevents dissembling (fibbing) and having to find subjective intent.

FILLING GAPS

1. Restatement 205, UCC 1-203): In every K, there is an implied obligation on both


parties to act in good faith and with fair dealing on a K.
2. Rule: Good Faith obligation means that party A will not do anything to reduce the
reasonable expectation of party B and jeopardize the expectation (or fruits of the
K).
3. Reason court will find an implied term in a K: FAIRNESS, to insure the legal system
looks at what is fair.
4. Dalton v. Educational Testing Service: Implied obligation of good faith and fair dealing
imposed on the Education Testing Service (obligation to review material presented by
Dalton that exculpates him from their allegations).
a. The obligation in theory, is that A prevents B from depriving A of the fruits of
the K that is expected,
b. If the party gives discretion in someway, the implied obligation of good faith and
fair dealing prevents the party from giving discretion arbitrarily,
c. However, the implied obligation cannot be inconsistent with express terms.
i. Typical limitation
ii. If ETS form had said ETS will have total discretion in determining
whether or not to report the score, then Dalton would have a hard time
convincing the court to allow him to submit his information.
iii. In this case, the form said that the student would have the opportunity to
provide additional information.
5. Burger King v. Weaver: No implied obligation of good faith to not put a second
franchise next to the first franchise.
a. In this jurisdiction, the court will not use the implied obligation of good faith to
add a term or otherwise vary the express terms (Dalton just said you can’t
contradict a term, didn’t mentioning adding a term)
6. Eastern v. Gulf: Gulf breached K with Easter, claiming Eastern violated their K by not
acting in good faith b/c of fuel freighting practices. In reality, Gulf was trying to weasel
out of their K with Eastern because oil prices had shot up and they wanted more money.
a. Issues:

4
i. 1st: Consideration (lack of mutuality)
ii. 2nd: Remedies: Whether Eastern could appropriately obtain specific
performance.
iii. Good Faith. Governed by UCC b/c it is the sale of goods.
b. UCC 1-201(19): Defines good faith (subjective definition) – honesty in fact
c. UCC 2-103: Sale of Goods: Merchants have a higher good faith standard, they
have to be not only subjectively operating on good faith, they have to objectively
be operating on good faith as well.
d. Throughout the entire commercial code, there is a narrow definition of good faith
e. UCC 2-208: Course of performance – how did these parties perform the K up
until the time the dispute arose.
i. In this course of performance, this fuel freighting when on for years and
years. Trade Usage.
7. Commercial leases: Often have a certain base rent per month plus a certain percentages
of gross receipts. Problem arises when tenant wants to stop the business altogether and
just pay minimum monthly rent, or it wants to cut back and the receipts go down. The
leaser argues that there is a good faith obligation on the part of the defendant. Implied
term: Best Efforts. This is similar to what is found in Wood v. Lucy Lady-Duff
Gordon.
8. Zilg v. Prentice Hall: Nature of an implied obligation on the publisher is to act in good
faith, it is not to exert best efforts on behalf of the book.
a. Trial court held that there was a bad faith decision to “privish” the book
(meaning they fulfilled technical requirements to publish, but did not do more
than that. Mooney agrees with this opinion, although the decision was reversed.
b. Court of appeals: The obligation to act with good faith in promoting the initial
promotional activities was fulfilled, and the K language dictates that a business
decision by the publisher to limit the size of a printing or advertising budget is
not subject to second guessing by the trier of fact whether it is sound or valid.
c. There are two ways Zilg could have shown breach of K:
i. Demonstrate that the initial printing and promotional efforts were so
inadequate as not to give the book a reasonable chance to catch onto the
reading public.
ii. Show that even greater printing and promotional efforts were not
undertaken for reasons other than a good faith business judgment.
9. WOOD’S RULE: If an employee was terminable at-will, then an employer could fire
her anytime for any reason.
a. Heydey of progressive contract law: Late 60’s, early 70’s - protection of
employees increased. Three grounds employee might assert:
i. Something in a conversation or in an employment manual that at least by
implication if not explicitly, gave her the right to be fired only for cause.
ii. Public Policy exception: You cannot fire someone for exercising a right
that involves some important public policy. You cannot fire a Whistle-
blower, for example.
iii. There is, in every employment K, an implied obligation of good faith and
fair dealing (employers tend to vehemently oppose this one). There has
to be some reasonable reason for firing a person.
b. 80’s and early 90’s saw all three of the above grounds wither considerably.
i. Some states passed statutes that say there is no obligation of good faith
and fair dealing in any employment.
ii. Employment lawyers began to put disclaimers in employee manuals.
iii. Even the public policy ground has been narrowed considerably.

5
c. Sheets v. Teddy’s Frosted Foods 1980: Violation of public policy exception to
firing at-will.
i. Employee should not be put in a position whether to risk criminal
sanction or to jeopardize his continued employment.
10. Balla v. Gambro 1991: Lawyer case.
a. General rule: In-house counsel does not have a claim under tort of retaliatory
discharge.
b. Appellee was required to abide by the rules of professional conduct, so public
policy was adequately safeguarded without extending the tort of RD.
c. Extending the tort of retaliatory discharge to in-house counsel would have an
undesirable effect on the attorney-client relationship (would destroy trust).
d. Inappropriate for the employer/client to bear the economic burden their counsel’s
adhering to their ethical obligations.
i. Two influential courts – CA and Massachusetts went the other way:
Because an attorney is obliged to inform someone when clients are
engaging in illegal conduct, they should have protection.

CONDITIONS

1. In General: A K may expressly provide that a party does not have a duty to perform
unless some condition is fulfilled. In such a case, the party’s failure to perform will
normally be justified if the condition was not fulfilled.
2. Definitions: Condition means either:
a. An event or state of the world must occur or fail to occur before a party has a
duty to perform under a K, or
b. An event or state of the world - the occurrence or non-occurrence of which
releases a party from its duty to perform under a K.
3. R2d 244: A condition is an event, not certain to occur, which must occur, unless its
nonoccurrence is excused, before performance under a K becomes due.
4. R2d 217: Conditions – a reasonable well-accepted exception to the parol evidence rule.
One is permitted to use parol evidence to show the party’s agree to a condition precedent
to the effectiveness of a K.
a. The alleged parol condition cannot contradict a writing in order for the exception
to apply
5. Three kinds of questions around conditions:
a. Have the parties made a particular event or non-event a condition of one party’s
performance or both parties’ performance?
b. Has the condition, if it is one, been satisfied?
c. If it hasn’t been satisfied, what’s the legal effect of the non-occurrence of a
condition?
6. EXAMPLE: Sarah promises to carry Carl’s goods in her ship from London to Gibraltar.
Carl promises to pay her for that service $5000. In addition, the parties agree that in
some fashion Sarah will get the good there in 25 days. Two ways to word the 25 day
term:
a. Sarah could promise to get the goods there in 25 days. If she’s late, then she has
breached her promise and will be liable for damages.
b. Parties will word the term as a condition. “It shall be a condition of Carl’s
obligation to pay that Sarah get the good there within 25 days.” If she’s late, she
hasn’t breached, she just doesn’t get paid. This excuses Carl’s performance.
c. It is almost always more equitable to construe language as a promise than as a
condition.

6
7. Luttinger v. Rosen, 1972: P contracted with D to purchase property and paid deposit of
$8500. K was conditioned upon P obtaining 1st mortgage in amount of $45,000 for not
less than 20 years at 8.5% financing. P contacted one institution and was unable to get
8.5%. Offered to pay the extra, but D refused and kept the money. Court ordered that D
give back the money because P had tried to meet the condition and had been unable.
a. Hornbook rule in K law: One has to satisfy a condition absolutely. No
doctrine of substantial performance. Mooney thinks this might be collapsing.
8. Peacock Construction Co. v. Modern Air Conditioning 1977: D is a contractor who had
two subs. K contained a provision that said D would pay the subs within 30 days after
full payment by owner.
a. Court held this language was not a condition – simply a timing provision.
Meaning of language is not that subs will be paid if/when contractors are paid.
Sets a normal time for payment. If payment is not forthcoming at that time, there
is still a legal obligation to pay.
b. Arguments (for sub):
i. General Contractor is in a much better position to say know the credit
standing of the owner.
ii. Sub-contracts are almost always drafted by the gen. Language is
supposed to be construed against the party drafting.
iii. Trade usage – this is how courts intend to interpret these, and this is how
the parties in the construction business tends to construe these contracts.
9. Gibson v. Cranage 1878: P solicited D’s business, offered to paint portrait of dead
daughter. Said he wouldn’t have to pay for it if not satisfied. D was not satisfied with
the product. P re-did the picture, and D wouldn’t look at it. Court held for D.
a. Repeat of Mattei and Hopper: Condition to act in good faith.
b. Two categories of satisfaction condition:
i. Subjective (if taste or fancy is involved), so long as party exercises their
judgment in good faith, that is the only obligation.
ii. Objective: If the requirement of the party’s satisfaction has something
to do with mere economic utility, mechanical fitness, or marketability, a
condition of satisfaction is interpreted to be fulfilled by a performance
that would satisfy a reasonable person.
iii. As a lawyer, advise your client to look at the portrait and reassert lack of
satisfaction.
10. Mitigating Doctrines
a. Prevention:
i. General Rule: A party to a K cannot rely on the failure of another to
perform a condition precedent where he has frustrated or prevented the
occurrence of the condition.
b. Waiver, Estoppel, and Election
i. Waiver - R2d 84
1. Traditional definition: The intentional relinquishment of a
known right.
2. Usually waiver is not explicit. Typical scenario: If your rent
payments are due to me on the 3rd, but I accept late payments
consistently, I can expect payments on the 3rd. You can retract
the waiver, however.
ii. Estoppel, R2d 84(2), UCC 2-209(5)
1. A party that, without consideration, has waived a condition that
is within the other party’s control before the time for occurrence
of that condition can retract the waiver and reinstate the req. that

7
the condition occur unless the other party has relied to such an
extend that the retraction would be unjust.
iii. Election: A party that chooses to disregard the nonoccurrence of a
condition is bound by an election to treat this duty as unconditional.
1. Common for insurers.
c. Impossibility: Impossibility or impracticability excuses the fulfillment of a
condition if fulfillment of the condition is not a material part of the agreed
exchange and forfeiture would otherwise result.
d. Fulfillment of the condition would cause a disproportionate forfeiture: Then
fulfillment of the condition may be excused unless the fulfillment of the
condition was a material part of the exchange.

CONSTRUCTIVE CONDITIONS

1. Constructive Conditions of Performance: Most important and common type of


constructive condition to the duty of each party to a K to render performance is that the
other party has rendered its performance or made tender of its performance.
a. Essentially, the promise is acting as a condition.
b. Example: Steve and Jim make a K under which Jim will paint Steve’s house by
May 30, and Steve will pay Jim $3,000 on June 1. It is then an implied condition
to Steve’s duty to pay $3000 that Jim shall have painted the house.
i. Dual legal effect: If Jim fails to paint Steve’s house by June 1, (1) the
failure is a breach of K for which Jim will be liable, and (2) The failure is
a nonfulfillment of an implied condition to Steve’s duty to pay on June 1,
so Steve does not come under that duty.
2. Kingston v. Preston, 1773: D hired P as an apprentice. Said that if P was to give him
sufficient security, then D would convey him the business. P failed to give good security,
therefore there was no obligation to perform.
a. Today we would say “the seller’s argument is that the buyer’s obligation to post a
surety is a constructive condition of my obligation to convey my business.”
3. Stewart v. Newbury 1917: Construction case.
a. Rule: If parties don’t provide otherwise, builder has to finish the work before the
owner has to pay.

MITIGATING DOCTRINES FOR CONSTRUCTIVE CONDITIONS

Fundamental inquiry: What sort of conduct by one party gives rise to a cause of action for
breach by another party, or gives to another party the right to withhold its own performance?

1. The doctrine of constructive conditions provides that if the plaintiff breached the
duty, provides that if the performance is a constructive condition of the other’s
duty, then the plaintiff is itself in the wrong.
a. In other words, if the P breached a duty of the performance that should
have proceeded the other performance or promise.
2. In a sizable number of instances, when a breaching P despite its own breach may
nonetheless sue on the contract. Three ways around the doctrine of constructive
conditions:
a. Doctrine of substantial performance or substantial completion (Redding Pipe
Case – even though the contractor breached its portion of the K, the owner may
not withhold its performance because the owner substantially performed) –
Jacobs & Young v. Kent.

8
b. Doctrine of divisibility (severability): Gill v. Johnstown Lumber (agreement
to deliver logs. Lost some in a flood, sued for those delivered): If the parties in
the K provide that part performance will result in partial payment (i.e. I’m
supposed to build you two houses each for $100,000, I build one and walk away),
the P can sue on the contract to get paid for the performance they did complete.
c. Doctrine of restitution: Where a K is unenforceable for some reason (usually
mistake, impracticability of performance or frustration of purpose), but during
the course of performance a substantial benefit was conferred upon one of the
parties. Algernon Blair: The aggrieved party may (in a losing K situation) may
want something other than expectation, may want restitution.
i. Restitution for a defaulting P: This has met the most resistance from
courts. It seems wrong to allow someone who has committed a
significant breach of K to come before the court and claim anything.
Britton v. Turner (worked for 10 months of a 1 year K, then walked off
the job. Ct. held employee may recover benefit to employer less damages
employer suffers by reason of early termination).
ii. In restitution you are not suing for the K rate, but the value of the benefit
conferred.
iii. Quantum meriut – synonymous with restitution.

BREACH IN THE COURSE OF PERFORMANCE

1. Non-material breach is a 4th way around the doctrine of constructive conditions:


Yes, I breached, but I can still sue you for your later, more serious breach because
my breach was not material and did not justify your breach.
2. An actual breach of K, at the time performance is due, always gives rise to an immediate
COA for damages. However, not every breach also excuses the other party’s duty of
performance. Whether a breach by one party excuses the other party’s duty to
performance depends if the breach is “material.”
a. Example: Contractor contracts to build a $1 million building, and puts on some
of the wrong doorknobs, the Contractor will be liable for damages, but the Owner
won’t be excused from performing (paying).
b. Each case is decided on its fact of whether it is a material breach.
3. Relevant factors:
a. The extent to which the breaching party has already performed (more likely to be
a material breach at the outset).
b. Whether the breach was willful, negligent, or the result of purely innocent
behavior.
c. The extent of uncertainty that the breaching party will perform the remainder of
the K.
d. The extent to which, despite the breach, the nonbreaching party will obtain (or
has obtained) the substantial benefit he has bargained for.
e. The extent to which the nonbreaching party can be adequately compensated.
f. Hardship on breaching party if the breach is considered material.
4. Repudiation: An otherwise minor breach, accompanied by a refusal to render any
further performance, will be considered a major breach.
a. UCC 2-609: A victim of a minor breach should request assurances of adequate
performance in the future. If the other side doesn’t respond appropriately, you
can safely say they have repudiated.
5. Walter & Co. v. Harrison 1957: P sells signs. Sold one to D, with agreement P would
clean it. The sign rusted and had tomato splatters. D stopped paying.
a. Issue: Who made the material breach? Held: D.

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b. P’s breach was minor. D should have written P a letter that said they were
holding payments in escrow until P cleaned up the sign.
6. K & G Construction Co. v. Harris, 1960: D breached its covenant to perform in a
workmanlike manner, and P thereafter declined to make good its return covenant to pay.
D refused to perform further, causing damage to P
a. This case involves periodic payments, which involves a series of alternative
constructive conditions. Thus, P’s refusal to pay D was justified and not a
breach, since the payment was conditioned on D’s performance which was not
forthcoming.
7. Responses to the Defense “I’m not liable to you for my non-performance because you did
not complete some performance that is a constructive condition of my performance.”
a. Yes, but I substantially performed.
b. Yes, but this K is divisible and you have to pay me at the K rate for the portion I
DID complete
c. Yes, but I’m entitled to restitution of the K for the amount of the benefit I’ve
conferred on you in order to avoid unjust enrichment
d. Yes, but my breach of the constructive condition was not material, and therefore
it does not excuse your failure to act.
8. Separate K doctrine:
a. NW Lumber Sales, Inc. v. Continental Forest Products, Inc.: You cannot
breach one K because of the other party’s breach in a different K. Neither the
UCC or general K law gives a party the right to breach a K performance because
the other party has breached another K between them.
b. Seller should invoke 2-609, and said you neglected to pay for the lumber we
already sent to you, we demand an adequate performance for K #3 to make sure
you’re not going to stiff us again.

ANTICIPATORY REPUDIATION

1. Anticipatory Repudiation (AR): If either party to a K, in advance of the time set for
performance, repudiates the K, the repudiation excuses the other party from performing.
In addition, the innocent party may generally treat the AR as a present material breach,
and bring an immediate action for the entire value of the promised performance.
2. Acts are sufficient (Stewart v. Newbury – walking off the job was repudiation).
3. Insistence on terms not contained in the K constitutes an AR.
4. Requirement of Unequivocal Repudiation: Only an express or implied unconditional
refusal to perform will constitute AR. A party’s language must be sufficiently positive to
be reasonably interpreted to mean that the party will not or can not perform.
5. Hochster v. De La Tour, 1853: P contracted with D to act as a courier during his
European vacation. D changed his mind prior to leaving, and refused to compensate P. P
sued prior to time for performance.
a. Held: The man who wrongfully renounces a K into which he has deliberately
entered cannot justly complain if he is immediately sued for a compensation in
damages by the man whom he is injured. The renunciation may be treated as
a breach of K.
b. Important point: Every jurisdiction in the US says this is still good law. You
may go out and get a new job, and sue early.
c. Damages would be his wages from June 1 (day he was to start working) -July 4
(July 4th is when he begins the job he got to mitigate the damages).
d. This rule is in UCC 2-610.
e. Principle justification: Make sure victim has freedom to reorganize their affairs
and take another job prior to the time performance was due.

10
f. Exception to rule: Installment contracts.
i. i.e. Seller has finishing delivering tulip bulb, and all that’s remaining is a
series of installment payments by the buyer over a period of time. Most
courts hold that the seller may not sue early for all remaining
installments, but must wait until each installment becomes due.
ii. Remember when drafting an agreement such as this one to add and
“acceleration clause”: These causes state a default on any one payment
on this K shall cause all remaining payments under this K due.
iii. 2nd way to get around this situation is a declaratory judgment:
Declaration by the court that buyer breached and payments will become
due at the times stated in the K (allows you to go back to court simply on
motion without having to file new complaint every time).

MUTUAL MISTAKE

1. Definition: A mistake by both parties to a K concerning a basic assumption of fact


on which the K is based.
2. Defenses:
a. The mistake was not “basic enough” (R2nd 152). This should come down to a
question of value.
b. Argument that the parties actually considered the possibility of a major gain or
loss, and took it into account for the sell. This is an extremely common response.
Assumed risk by virtue of trade usage.
c. It’s not a mutual mistake because I had an inkling that this was an authentic
Picasso painting. I didn’t know it, but I had an inkling.
i. Spectrum: No knowledge------------ Perfect knowledge
• If you have perfect knowledge, you have a duty to tell the
person. The K will be undone.
• If you have no knowledge, the K will be undone on a basis of
mutual mistake.
• The middle might be protected ground – no duty to tell with just
a hunch, but also is not exactly a mutual mistake.
3. Restatements Second
a. 151: Defines mistake as “a belief that is not in accord with the facts.”
b. 152: For a mistake of both parties at the time the K was made, as to a basic
assumption, has a material effect on the aggrieved exchange, the K is voidable
unless parties seeking to void it bore the risk of that mistake.
c. 154: Party bears the risk where the party is aware at the time of K that she has
only limited knowledge with respect to the facts, but treats her limited knowledge
as sufficient. A type of conscious ignorance.
i. i.e.(a) I don’t think these paintings are very valuable, although I know
they might be, so I’ll just go ahead and sell them for not very much. (b) I
know I should have them authenticated, but that’s time consuming at
costs a lot of money, so I won’t do it. (c) The court allocates the risk to
one party on the ground its reasonable to do so.
d. 158: Provides that either party may have a claim for restitution following a
rescission on the ground of mistake. A slightly more progressive, or forward
looking, Subsection 2 of 158 says the court may grant relief on such terms as
justice requires to protect a party’s reliance interest.
i. ex. Brenner v. Kehl.
e. 153: Unilateral mistake.

11
i. ex. Elsinore – K made an innocent clerical error, owner should be put in
status quo, would be unconscionable to hold contractor to mistaken bid.
4. Estate of Nelson v. Rice 2000: Rice bought two paintings for $60 at an estate sale.
Turned out they were worth $1 million.
a. Held: By selling the paintings, the seller assumed the risk they were much more
valuable. (R2nd 154)
5. Stees v. Leonard 1874: P and D enter into K to build a building. Every time
construction rose to the 3rd floor, the whole thing would collapse. D claimed this was b/c
the building was on quicksand.
a. Held: D contacted to “erect and complete the building,” meaning he was bound
to do so no matter what the circumstances.
i. Performance Specification: Requires a contractor to product a specific
result with specifying the means for achieving the result.
ii. Design specification: Specifies the design, materials, and methods, and
impliedly warrants their adequacy.
b. This case embodies older, harsher view, that parties must always perform
agreements they enter into.
c. Defenses:
i. Fundamental defense: Both parties made a mutual mistake as to a matter
that is fundamental to the performance of the contract. Court holds that
anything the person agrees to do, promises to do, the person must do it
no matter what.
ii. 2nd defense: D followed the specifications and they were faulty. Party
agreed fundamentally to just follow the expectations, so it’s not their
fault. While this didn’t work in this case, this can be a successful
defense. Especially true in government contracts
iii. 3rd argument: D said there was a prior agreement that the owner would
excavate the land. Court refused to admit this evidence because of the
parol evidence rule (just like Gianni and Russell). This is a very bad
ruling.
d. Legal doctrines on behalf of the owner to assist your argument that
rescission is inappropriate:
i. Assumption of risk is a typical response to a claim of mutual mistake.
ii. The argument would be this is the kind of risk that builders assume.
Sometimes construction turns out to be less expensive than anticipated,
and sometimes more. But, agreeing to build a building for $100,000 the
builder assumed that risk.
iii. A common instance of this type of case occurs where the parties knew
that the relevant assumption was doubtful.
6. Brenner (Renner?) v. Kehl 1986: P contracted with D to buy land. P made it clear they
wanted to grow jojoba, D thought their was plenty of water. There wasn’t. Seller’s
appeal award of consequential damages on grounds of mutual mistake:
a. Rule: Absent fraud or misrepresentation, a party who rescinds a K based on
mutual mistake may not recover consequential damages. However, when a party
rescinds on a K on the ground of mutual mistake he is entitled to restitution for
any benefit he has conferred by way of part performance or reliance.
i. Reliance is a slightly more progressive remedy. Sub. 2, Rnd 158.
7. Older test: Mutual mistake was a D if the mistake concerned the “substance” or
“identity” of the K’s subject matter (K was then voidable). If it was only an accident or a
collateral attribute, K was no voidable.
a. Example: K to sell cow both parties believed to be barren. Prior to delivery,
seller realized cow was pregnant, and thus more valuable. Under the older test,

12
the K would be rescinded b/c the parties made a mutual mistake as to the
substance of the K’s subject matter (cow was a breeding cow rather than a barren
cow).
8. Modern Rule: If the K is entered into under a mutual mistake concerning a basic
assumption of the fact, the K is voidable by the adversely affected party if the mistake
has a material effect on the agreed exchange and the adversely affected party did not bear
the risk that the assumption was mistaken.
a. Example: On May 5, seller contracts to sell her famous race horse. The horse
died on May 4, unbeknownst to either party. The K is voidable by the buyer b/c
both parties were mistaken as to a basic assumption that the horse was alive. The
mistake is material.

IMPRACTICABILITY OF PERFORMANCE

1. General Rule: Performance of a K will normally be excused if the performance has


been made impracticable. The impracticability must involve the occurrence of an even
whose nonoccurrence was a basic assumption on which the K was made, and the
adversely affected party must not have assumed the risk of that K occurring. R2d261
2. SELLER’S DEFENSE
3. Taylor v. Caldwell, 1863: D contracted with P to rent a music hall for four days for
entertainment. The music hall burned down at not fault of either party prior to the rental
days. P sued for breach.
a. Held: The music hall, having ceased to exist, without fault of either party,
excuses both parties from K.
b. Remedy P was seeking: (1) Reliance - out of pocket expenses, put us back to go,
(2) Expectation – profits expected to make on series of four concerts. Did not
sue for expectation b/c there is no way to prove what the receipts would have
been.
c. If D made a promise to absolutely perform at the music hall, there would be
a K; but if the court finds an implied condition (such as, the music hall must
be there), and the condition is impossible to fulfill, then the parties are
excused.
4. Transatlantic Financing Corporation v. US 1966: P, chartered by D, contracted to a
ship a full cargo of wheat from TX to Iran. Shipment was contemplated to go through the
Suez Canal, but a war broke out, closing the canal. P had to go 3000 extra miles.
a. Held: K was not impossible (or impracticable).
b. Definition: A thing is legally impossible (or impracticable) when it is not
practicable and can only be done at an excessive and unreasonable cost.
c. Impracticability Test:
i. A contingency – something unexpected – must have occurred.
ii. The risk of the unexpected occurrence must not have been allocated
either by agreement or by custom.
iii. Occurrence of the contingency must have rendered performance
commercially impracticable.
d. Analysis of Transatlantic under the test:
i. An unexpected contingency did occur in this case.
ii. At the time they entered into the K, we knew Egypt had nationalized the
canal, and it was very foreseeable that the canal would be closed.
Circumstances indicate that P was willing to assume abnormal risks.
iii. Sometimes a very great increase in cost will cause a court to say that a
contract is impracticable. This doesn’t apply here, because this was only

13
a fraction of the K price – no nearly enough to declare something is
commercially impractical.
5. Note on Forseeability: Though anticipating a possible turn of events, “the parties may
not have thought it sufficiently important a risk to have made it a subject of their
bargaining.” Should be factor in whether or not the party now claiming the D should
have assumed the risk.
6. Force Majeure Clauses: When, during the negotiation of a K, a party anticipates on a
more evens that it cannot readily prevent and that might impede its performance, it may
introduce this generic term intended to excuse it from performing if the impediment
arises. These clauses must be drafted very carefully.
7. UCC 2-615: Doctrine of Commercial Impracticability.
a. Eastern v. Gulf (our old friends!): Gulf used impracticability D.
b. Held: Ct. thought the events of the oil crisis were reasonably foreseeable, and
the fact it occurred was not an unexpected contingency. Even beyond that, if it
WERE unforeseeable, increased cost alone is not enough. The court can’t even
tell from the evidence if Gulf has experienced any real economic problems.
c. Rules:
i. The unforeseen cost increase that would excuse performance “must be
more than merely onerous or expensive. It must be positively unjust to
hold the parties bound.”
d. Unprofitable does not mean impossible. A mere showing of unprofitability,
without more, will not excuse performance of a K.
8. Typical impracticability subject matter:
a. Supervening prohibition by law (what you contracted to do is now illegal).
b. Death of one party in a personal services K (excuses performance of both
parties).
c. Destruction of the subject matter of availability of something in the K (Taylor v.
Caldwell).
9. Example: Farmer makes a K with grain elevator to sell his wheat crop. Grain elevator
makes 2nd K with Wheaties to resell the wheat. Draught occurs, no wheat. Is farmer
liable for breach b/c grain elevator had to purchase at a higher price?
a. Farmer’s D: Impossibility of performance or commercial impracticability.
b. Issue for court: Was K for a particular quantity of wheat, or specifically for the
farmer’s wheat.
c. If its for the farmer’s wheat, then performance is impossible and D works. If it is
for a specific quantity, performance is not impossible and then farmer is liable for
breach.

FRUSTRATION OF PURPOSE

1. General Rule: Performance may be excused under the doctrine of frustration where the
purpose or value of the contract has been destroyed (or substantially frustrated) by a
supervening event that was not reasonably foreseeable at the time the K was entered into.
R2d 265
2. Slippery slope – courts reluctant to invoke this D.
3. BUYER’S DEFENSE: This is b/c it is always possible for the buyer to fulfill his
promise to pay, even if he will essentially gain nothing for his money.
4. Krell v. Henry 1903: D paid deposit to P for the use of his apartment so he may watch a
coronation. The King became ill, delaying the coronation. D refused to pay balance, P
sued. D counterclaimed for his money. D wins on frustration of purpose grounds.

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a. Rule: 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.
5. Remedies: In general, any benefit one party has conferred on another will be returned (D
will get his deposit back).

UNIFORM COMMERCIAL CODE

ARTICLE I

1. UCC 1-102: The Code is to be liberally construed and applied to promote its underlying
purposes and policies:
a. To simplify, clarify, and modernize the law,
b. To permit the continued expansion of commercial practices by validating trade
custom and usage as well as parties’ express agreements,
c. To make the law uniform among the various jurisdictions.
2. Three fundamental principles underline much of Art. II:
a. Good Faith
b. Commercial Reasonableness (pervasive, a part of every merchant’s good faith
duty).
c. Facilitation of actual commercial practices through the incorporation of course of
performance, course of dealing, and usage of trade.
i. Course of performance (2-208) – how you and I actually perform under
this K.
ii. Course of dealing (1-205)– how you and I performed under prior K’s.
iii. Usage of trade (1-205)– how others in the industry understand K
practices
3. Good Faith
a. 1-201 (19) Honesty in fact:
i. Subjective Test
ii. No matter how absurd a person’s contention is, if they really believe
their contention is true, they made the assertion in good faith.
b. 1-203: Imposes the obligation of good faith on every party to a transaction
governed by any portion of the UCC.
c. 2-103: Supplements the general UCC Good Faith definition, by stating under
Art. II, Good faith for merchants includes not only honesty in fact, but also the
observance of reasonable commercial standards of fair dealing in the trade.
i. Merchant defined in 2-104.
ii. Can parties get rid of a good faith obligation?
iii. While generally code provisions are variable by agreement, you cannot
disclaim good faith or commercial reasonableness. You can set
standards by which you just good faith, provided that the standards set
forth in the K are not manifestly unreasonable.
4. Nelson v. Union Equity 1977: Court held defendant farmer meets the requirements of
“merchant” definition under 2-104 because he is knowledgeable about the business of
crops, and meets the statutory elements. Because D was a merchant, the oral agreement
confirmed in writing satisfies the Statute of Fraud requirements under 2-201 and
therefore must pay damages for breach.
a. 2-104 A person is a merchant if:
i. They deal in goods of the kind, OR
ii. By his occupation he holds himself out as having knowledge or skill
peculiar to the practices involved in the transaction

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1. SUPERMERCHANT: You have to be a merchant by the goods
prong of merchant (i.e. Blockhead (wiglet case): D was a
merchant, not because he had ever made wiglet cases, but
because the “goods” he dealt with were blow-molded items).
Look for the broadest definition of the goods you are talking
about (i.e.
iii. Cmt.2: For purposes of dealing with the statute of frauds (2-201), firm
offers, confirmations, and modifications, a merchant is deemed to be
almost every person in business (even a university). Mooney thinks the
merchant standard should be held to someone who answers his mail.
iv. For purposes of 2-314 (implied warranty of merchantability) or cases of
merchant good-faith (2-103), they are talking about supermerchants.
b. Merchants (lower level): When the code says merchants or between merchants,
this is what they mean.
c. Merchant who deals in goods of this kind is a supermerchant (higher level).
d. Courts are widely split on whether farmers are merchants under the UCC.

THE SCOPE OF ARTICLE II

1. UCC 2-102 states the general rule that Article Two applies to “transactions of goods.”
a. This applies to all transactions and goods, not just those by merchants.
b. Only Super-merchants make merchantability warranties, only they can transfer
an entrusters title in an ordinary course of business, but a code GENERALLY
applies to everyone (Joe Schmo sells Jack Black his golf club)
2. 2-105(1): Defines “goods” as all things…movable at the time of identification to the K
other than money, investment securities, and things in actions.
3. Anthony Pools v. Sheehan 1983: P built a pool for D, which D claims had a defective
diving board. The K between the parties had been a hybrid transaction, meaning part
goods and part services.
a. Predominant purpose test: Whether the predominant factor is a transaction of a
sale of goods with labor incidentally involved or vice versa.
b. Gravamen test: Whether the reason for the breach is directly related to the fault
of the service or the fault of the good.
c. Policy considerations: If the test results in classifying the transaction as a K for
services there would be no UCC based, implied warranties on the diving board
and this would be contrary to the legislative policy. §2-316 (1) declares a seller
of consumer goods may not contractually disclaim implied warranties.
i. Holding: K in goods, implied warranty applies. 2-316: Two
functions: 1) This is a K in goods, and the implied warranty applies, 2)
knocks down disclaimers on implied warranties.

CONTRACT FORMATION UNDER THE CODE

1. K formation is generally simpler than under common law.


2. UCC 2-204(1): A K for the sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of such a K.
3. The Code constitutes a single, broad inquiry (as opposed to the offer/acceptance):
Whether the parties have, in a reasonable manner, demonstrated agreement.
o An offer may be accepted “in any many and by any medium reasonable in the
circumstances unless the offer unambiguously states otherwise. UCC 2-
206(1)(a).

16
o A “unilateral” K may be accepted by a mere promise to perform the requested
act.
o Under certain circumstances an option K is enforceable without separate
consideration. UCC 2-205.
o 2-204 still requires an agreement of a meeting of the minds between the
negotiating parties.
4. Mirror Image Rule: Unjust results:
o Sometimes permits a party to renege entirely on an agreement, on the ground that
the K documents did not match exactly
o “Last shot doctrine” gave the party sending the last communication sole control
over the K terms (receiving it would infer acceptance). This permitted sellers to
disclaim all warranties with accompanying invoices.
5. UCC 2-207: Eliminates the mirror-image rule. (KNOW 2-207 – TESTED HEAVILY)
6. Three routes to K formation under UCC 2-207:
a. A definite and seasonable expression of acceptance.
b. Written confirmation sent within a reasonable time.
c. Conduct by both parties which recognizes the existence of a K is sufficient to
establish a K for sale although the writings of the parties do not otherwise
establish a K.
7. Conditional Nature of the assent must be “directly and distinctly stated or expressed
rather than implied or left to inference.”
a. Does UCC 2-207 apply to “different” as well as “additional terms? Courts and
commentators disagree.
8. Diamond Fruit Growers, Inc. v. Krack Corporation 1986: KC manufactured cooling
units that contained steel tubing. Bought its tubing from DFG for 10 years. KC would
send a purchase order, and DFG would send back an acknowledgement that included a
disclaimer for all liability. P sued KC for a leaking cooling unit. KC brought 3rd party
suit against DFG.
a. Held: Because KC’s conduct did not indicate unequivocally that KC intended to
assent to DFG’s terms, their conduct did not amount to the assent contemplated
by 2-207.
b. Reasoning: Public policy of the Oregon’s adoption dictates that the last-shot
rule is to be abolished. The section is to be interpreted so as to give neither party
to a K an advantage simply because it happened to send the first, or in this case,
the last form. UCC 2-207 was designed to abolish that rule, and to allow D2’s
argument to prevail, though it is compelling, would go against public policy.

STATUTE OF FRAUDS

1. UCC 2-201: A K for the sale of goods for the price of $500 or more is not enforceable
by way of action or defense unless there is some writing sufficient to indicate that a K for
sale has been made between the parties and signed by the party against whom
enforcement is sought or by his authorized agent or broker.
2. UCC drafters concluded the benefits requiring a writing would outweigh the detriments.
a. Contributes to the business habit of requiring a writing.
b. Prevents fraud by deliberate overreaching.
c. Prevents innocent mistakes.
3. All the UCC requires for enforcement is that a writing provide “a basis for believing
that the offered oral evidence rests on a real transaction.”
4. UCC 2-201 dispenses entirely with the writing requirement in four types of situations:

17
a. Between merchants, if a confirmation is received within a reasonable time and is
sufficient against the sender, it is also sufficient against the party receiving it,
unless that party objects within 10 days.
b. When a seller has mad a substantially beginning in the manufacture of “specially
manufactured” goods, or has committed itself to buy goods from a 3rd party, it
may enforce an oral K for them if it cannot resell them in an ordinary course of
business.
c. If a party judicially admits the existence of the alleged K (pleading, pre-trial
discovery, or in live testimony), she may be held to it. UCC 2-201(3)(b).
d. To the extent that the seller has received and accepted payment, or the buyer has
received and accepted the goods, the Statute is no bar. UCC 2-201(3)(c).
i. Generally, however, partial payment of acceptance does not remove the
entire K from the Statute, only the portion paid for or accepted.
5. STATUTE OF FRAUDS REQUIREMENTS:
a. Must evidence an existing K.
b. Must be signed (1-201(39)) – any name, mark, or symbol adopted with the
intention to authentic a document.
c. Writing must specify a quantity (though not necessarily a price) – this is because
a court can always find a price out of the market price.
6. Comment 1 – indicates which was the court is to tilt.
7. Sub. (2)- Farmer case….a writing good against the person who sends it is good against
the person receiving it if they don’t object.
8. Distribu-Dor, Inc. v. Karadanis, 1970: Sale of certain mirrors and tub and shower
enclosures for Tahoe Inn. Tub enclosures not specially manufactured, but mirrors and
shower enclosures are spec. manufactured..
a. Held: An express K existed for the sale of the mirrors, recovery for breach of
which, under UCC 2-201 3(a), is not barred by the statute of frauds.
b. Reasoning: This was a K for specially manufactured goods, not suitable for
resale in the ordinary courts of the seller’s business, and the seller had already
started in the manufacture of the attempt to procure the goods.
c. Tub enclosures: Court found these enclosures did not fall under the specially
manufactured exception – but once a part of a K is taken out of the statute by
3(a), then the whole K will be taken out.
i. 3(c) contemplates that only the goods which have been accepted, or for
which payment has been made.
ii. But, 2-201 3(a) has different language – if the goods have BEGUN to be
manufactured, the statute of frauds defense is lost. Therefore, 3(a) is an
all or nothing deal.
9. In all of these cases, there are two distinct defenses:
a. I never entered into a K – never considered myself bound, etc.
b. Even if we did enter into the K, there was no objective meeting of the
minds…the K is unenforceable because there is no signed writing.

THE PAROL EVIDENCE RULE

1. UCC 2-202: A writing intended by the parties as a final expression of all or part of their
agreement may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement; however, such a writing may be “explained or
supplemented”
a. by the course of dealing, usage of trade, or performance,

18
b. where it is only a partial integration (i.e. not intended as a “complete and
exclusive” statement of the parties agreement), by evidence of consistent
additional terms.
2. By and large, the UCC analysis is virtually identical to the common law analysis:
a. Is the writing integrated?
b. Is it integrated in whole or in part?
c. If its not, the rule doesn’t apply.
d. If it integrated completely (enforceable understandable merger clause, for
example), then Subsection A says it can still be explained or supplemented (by
course of dealing or usage of trade or course of performance). In addition, under
2-203 (supplementary principles of law and equity), the 2-214 evidence can come
in (evidence of fraud, duress, mistake, etc).
e. If it is a partial integration – parties intended this is as a final, if not complete
statement – then consistent additional terms can be introduced, Subsection B.
3. Snyder v. Herbert Greenbaum & Associates: Contract for carpet and installation. 3
issues:
a. Whether D was entitled to rescind the K b/c P has misrepresented a material fact,
which D relied on in forming the K. (held – no – estimate was not a fact, but an
opinion).
b. Whether court should have allowed into evidence certain documents as proof of a
prior oral agreement that all K’s between the parties could be cancelled
unilaterally prior to performance. (held – no – this clause would have been
written into the K, K was a complete integration). Mooney thinks this is a shaky
interpretation.
c. Whether damages should be 2-708(2) – lost profits – or 2-708(1) – K/market
differential formula. (2-708(2)) is appropriate b/c P may be a lost volume seller,
and part of the K is for services, so he may not otherwise recover for those
services). Mooney likes this assessment.
4. Additional class notes:
a. 2-107: Helps draw the line between goods and real estate.
i. The code only applies to goods. Well, what about minerals in a mind, or
standing timber? Are those goods?
ii. Certain kinds of things are goods if they seller severs something and
turns it over. If they buyer has to sever something, it is reality (i.e. if the
seller chops down the tress, it’s a good, if the seller does it, it’s realty).
b. 2-205: In some contexts, it reverses the rule of Dickensen v. Dodds: An offer by
a merchant in a signed writing that says it will remain open for a period of time,
does remain open even without separate consideration. (Firm offers)
c. 2-207: Additional terms in offer and acceptance.
d. 2-209(1): A modification does not need consideration to be binding. These
modifications need to be made in good faith to be enforceable. 1-103: Duress
argument against it.
i. Oral modifications are ok, unless it falls under the statute of frauds, or is
not made in good faith.
ii. A modification, if it fails for either of these two things, a modification
can operate as a waiver (i.e. agreeing to a modification can be considered
a waiver of a written no oral modification clause).
e. 2-210: (1) is most important part – a party may DELEGATE its duty unless the
other party has a substantial interest in performance by that party itself.
(Virtually identically to the Restatement section on delegation). (2) A party may
assign a right unless doing so would materially change the duty of the other

19
party, or increase materially the burden or risk imposed on him by his contract, or
impair materially his chance of maintaining a return performance.

GENERAL OBLIGATIONS AND THE CONCEPT OF TITLE

1. “Gap Filler” Provisions: Express agreements often include common omissions such as
K duration, payment, delivery date, and price.
a. UCC 2-204(3): “Even though one or more items are left open a K for sale does
not fail for indefiniteness if the parties have intended to make a K and there is a
reasonably certain basis for giving an appropriate remedy.
b. 2-305: When parties fail to agree of price, 2-305 provides one.
i. How do we know there is a K when the price term is missing?
ii. Intent of the parties. (1) Parties if they so intent can conclude a K for sale
even though the price is not settled.
iii. (3): When a price left to be fixed otherwise than by agreement of the
parties fails to be fixed through fault of one party the other may at his
option treat the K as cancelled or himself fix a reasonable price.
c. UCC 2-306(1): No quantity unreasonably disproportionate to any stated estimate
or in the absence of a stated estimate to any normal or otherwise comparable
prior output or requirements may be tendered or demanded.
i. An outputs seller may not tender an unreasonably disproportionate
quantity (outputs contracts), and a requirements buyer may not
demand an unreasonably disproportionate quantity (requirements
contracts).
ii. Reasoning: No great hardship on the seller to give her whole output to
the buyer. This protects the buyer in an output K from having huge
amounts dumped on him.
d. UCC 2-306(2): Best efforts requirements for exclusivity requirements.
e. 2-311 states that, unless otherwise agreed, the buyer has the right to specify the
assortment of goods.
f. 3-308 (a): Unless otherwise agreed the place for delivery of the goods is the
seller’s place of business or if he has none, his residence.
g. 2-309: Termination of a K by one party requires that reasonable notification be
received by the other party. Hamilton v. Delta
h. 2-307-2-310: Requires parties to comply with ordinary, reasonable commercial
practices.
i. 310(a): Buyer pays where buyer receives shipment.
1. Need to understand difference between delivery and receipt. A
party receives goods when the party actually touches them (they
arrive). A delivery depends on the term of the K, usually when
the seller gives the goods to a carrier.
i. When a party asserts a “gap filler” claim, other party may raise defense of trade
usage, course of dealing, or course of performance.
j. 2-311: K does not fail for definiteness when a party can specify certain
particulars for performance (argument used in Fairmount Glass).
2. Hamilton Tailoring Co. v. Delta Airlines, Inc. 1974: P contracted with D to make all of
their uniforms (requirements K – i.e. Eastern v. Gulf). D changed their uniforms, and
gave P a year notice that they would not longer buy from them.
a. Court held that the notification was not reasonable under 2-309(3). There was
little, if any chance, that P could obtain a substitute agreement in that time, plus
D kept ordering shorter uniforms and canceling orders.

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b. Trade usage can be introduced under 2-309, cmt. 1 to show agreement for time.
P used trade usage here to show that in the uniform industry, it is customary for
the customer to make a settlement wit the manufacturer on a reasonable basis for
the leftover inventory at hand.
3. Feld v. Henry 1975: P contracted with D to sell bread crumbs. Provision of right to
cancel with 6 month notice. It became unprofitable for D, so he said he’d continue if P
would give 1 cent more a pound. P refused, D dismantled machine.
a. Issue: Whether the outputs K carried an implication that the seller has to
continue its business throughout the term of the K, or may it cease production.
b. Holding: Under 2-306, an outputs seller has a good faith obligation to continue
to have output, but that’s all.
c. Who is going to win on remand? Probably the P buyer, because (1) the K did
contain a 6 month termination provision, therefore the seller is not locked in
forever, (2) the seller’s failed effort to extract a price increase.
4. Output or requirements contract: Feld v. Henry S. Levy & Sons
a. Seller has good faith obligation
b. Buyer did not give up right to buy elsewhere.
c. 2-306(1)
d. The party the statutory language is seeking to protect is the buyer. The seller has
the good faith obligation to continue (producing bread crumbs) in this case.
Buyer already has obligation under K to buy those bread crumbs.
5. Exclusive dealing K: Wood v. Lucy Lady Duff Gordon
a. Seller gives up right to sell elsewhere.
b. Buyer must use best efforts (in this case, to market Lucy’s fashions.
c. 2-306(2).
d. Comparable to requirements K - statute attempts to protect seller. Places on
buyer an obligation to operate in good faith.
6. Requirements K: Eastern v. Gulf, Hamilton v. Delta
a. Seller did not give up right to sell elsewhere
b. Buyer must purchase in good faith

CODE WARRANTY

1. Code Warranty (UCC 2-312-2-318) litigation arises typically in two contexts:


a. Commercial - where the loss often is purely economic,
b. Consumer – where the loss also commonly includes personal injury from a
defective or otherwise substandard product.
2. To prevail in an action for breach of warranty, a buyer must:
a. Establish that the seller warranted the goods under 2-313, 2-314, or 2-315
b. Prove that the goods delivered did not conform to the warranty, and that, as a
result, it suffered damage.
3. A seller will respond by invoking some combo of:
a. 2-316 (Authorizing certain warranty disclaimers),
b. 2-719 (permitting certain remedy limitations),
c. 2-318 (requiring a measure of “horizontal” privity,
d. 2-607(3) (requiring that the buyer give reasonable notice of the breach, and 2-
735 (the Art. 2 statute of limitations).
4. Express v. Implied warranties:
a. Express (UCC 2-313), created by:
i. Affirmation or promise,
ii. Description,
iii. Providing a sample or model.

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b. Implied:
i. Merchantability (UCC 2-314)
1. (1) applied into every sale of goods by a “merchant with respect
to goods of that kind.”
ii. Fitness for a particular purpose (UCC 2-315)
1. Arises when a seller had reason to know of a buyer’s particular
purpose for the goods AND hat the buyer is relying on the
seller’s skill or judgment to select the goods.
2. One important rationale for imposing implied warranties on
certain sellers is the likelihood that parties themselves, had they
considered such terms, would have included them in their
agreement.
5. Keith v. Buchanan 1985: P purchased boat from D, after seeing brochures claming it
was seaworthy. P had own friends look at it, who pronounced it seaworthy as well.
Turned out it wasn’t seaworthy. Held:
a. The representations regarding seaworthiness in the brochure were affirmations of
fact relating to the quality or condition of the vessel. This created an express
warranty.
b. The representations regarding seaworthiness were part of the basis of this bargain
(old rule was that buyer had to rely on seller’s warranties).
c. There was no implied warranty of fitness for a particular purpose because P did
not rely on the skill and judgment of D in selecting a suitable boat, but relied on
his friends.
6. Rules:
a. Fact/Opinion: Statements made by a seller during the course of negotiation over
a K are presumptively affirmations of fact unless it can be demonstrated that the
buyer could only have reasonably considered the statement as a statement of the
seller’s opinion.
i. Factors that indicate opinion are: (1) lack of specificity in the statement
made, (2) statement made in unequivocal manner, (3) statement which
reveals the goods are experimental in nature.
b. Reliance: The buyer’s demonstration of reliance on an express warranty is not a
prerequisite for breach of warranty, as long as the express warranty involved
became part of the bargain.
i. Reliance is not altogether dead – some states interpret the UCC to follow
the Uniform Sales Act which required the buyer to rely upon the seller’s
interpretation.
7. Express warranties 2-313, five issues:
a. Whether seller has actually made a warranty, “puffing” is a defense.
b. Reliance (see above)
c. Privity (2-318)
d. 2-316(1): Express warranties cannot be disclaimed.
i. Cmt. 1: The disclaimer drops out when the disclaimer is inconsistent
with the express warranty.
ii. Autzen v. John Taylor Lumber Sales (note case): Buyer is not
completely barred from recovering if express warranty happens after the
K, it is just extremely difficult.
e. Watch for merger clause – seller may make an oral express warranty, but exclude
it through written merger clause in K.
8. Warranty v. “Puffing”
a. Whether the representations compared goods to other goods
b. The specificity of the representations

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c. Whether they related to the goods’ quality
d. Whether they were “hedged”
e. Whether the goods were experimental
f. The buyer’s actual or imputed knowledge of the goods’ condition
g. The nature of the claimed defect
h. Whether the statement was written or oral.
9. Barton v. Tra-Mo, Inc., 1984: P purchased tanks from D after seeing models. 2-
313(1)(c) states that an express warranty is created when a sample or model is made as
part of the basis of the bargain, leading the purchaser to believe that the entire order will
conform. D tried to argue that the items were not really models, but the court thought
they were retarded. P wins for breach of express warranty by model.
10. Sample v. Model
a. Sample: Actually drawn from the bulk of the goods which is the subject matter
for the sale.
b. Model: Offered for inspection when the subject matter is not at hand and which
has not been drawn from the bulk of goods.
11. Blockhead, Inc. v. Plastic Forming Company, Inc. 1975: P buyer was experienced in
plastics and the wig case industry. P rejected improvements and approved models and
designs.
a. Warranty of Fitness: No 2-315 warranty in this case. An implied warranty of
fitness for a particular purpose did not occur because the warranty depends upon
the relative skill, knowledge, and experience of the two parties. Only happens
when buyer goes to seller asking them to select everything.
b. Warranty of Merchantability: No breach of warranty of merchantability
because it was effectively disclaimed. 2-316(3)(b) if a buyer examines the goods
or has an opportunity to and fails, there is no implied warranty in case of any
defects coming up after inspection.
c. Subsidiary issue: Whether or not the D qualifies as a supermerchant for
purposes of 2-314?. D argues that he was not because he had never made wiglet
cases before, but the court holds that he is an expert in plastics.
12. Valley Iron & Steel Co v. Thorin: D asked P to make iron collars. P said they could,
and indicated they would have to be made out of a strong material in case they hit rock.
D bought a whole bunch, and 80% of them broke. D declined to pay. P sued for
restitution (value of benefit of goods provided), D’s defenses were breach of implied
warranties of merchantability and fitness.
a. Warranty of Merchantability: P breached, because he was a merchant
(merchant of products of similar metals, even if they have never made the
collars) – for determining who is a supermerchant, need a broad definition of the
goods.
b. Warranty of Fitness: P breached. When you have specially manufactured
goods, the ordinary purpose of such goods may be equivalent to their particular
purpose for purposes of warranty. Crucial judgment turned on seller saying,
“well, these might hit rock, so they need to be made of strong material.” Buyer
made intended purpose known, material was left to the discretion of the seller.
c. Interesting 3rd issue: Trial court found the buyer was at fault somehow.
Appellate court gently points out that fault is irrelevant in most warranty
litigation.
13. Delano Grower’s Cooperative Winery v. Supreme Court Wine Co., Inc. Rotten sweet
wine case.
a. Was a breach of merchantability warranty here (8000 cases of sweet wine were
unmarketable).

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b. 2-208 – interesting statutory argument: Even if there had been a trade usage that
buyers of this wine should add sulfur, these parties course of dealing would
trump this trade usage.
c. 2-607(3) – Introduction into notion that a typically seller’s D is that buyer did not
give notice of alleged breach of warranty in required reasonable time.
d. 2-308 – Buyer’s supreme effectively revoked its acceptance of the 8000 cases, so
it was no longer responsible for the K price.
14. ISSUES TO FOLLOW ON TEST:
a. Is the seller a supermerchant? Does he deal in goods of this kind? 2-104.
b. Are the goods merchantable under 2-134(2)? This is never an easy
determination (“fair average quality, pass without objection into trade”).
c. Did seller breach warranty of merchantability?
d. Is the item being used for its ordinary purposes, or for a particular purpose? Is
item specially manufactured (there, its ordinary purpose is its particular
purpose)? Warranty of fitness 2-315.
e. Did seller breach warranty of fitness?
f. What defenses are available?
i. Warranty disclaimer 2-316? Was it conspicuous? Remember, can’t
disclaim an express warranty under sub. 1.
ii. Remedy limitation 2-719? Will warranty fail of its essential purpose if
this is enforced.
iii. Trade usage (2-208)? Can buyer come back with course of dealing
response (such as in Delano)?
iv. 2-607(3): Did buyer give effective notice of the alleged breach in
required reasonable time?
g. Damages: Formula A: Loss in value (K price) – Cost Avoided

SELLER DEFENSES TO WARRANTY LIABILITY

1. Warranty Disclaimer: UCC 2-316 (major defense)


a. (1) A seller may not disclaim an express warranty
b. (2) A disclaimer of the merchantability warranty must mention merchantability
and be conspicuous (if in writing), a disclaim of the fitness warranty must be
conspicuous and in writing.
2. Remedy Limitation: UCC 2-719 (major defense)
a. (2) Invalidates any remedy limitation that causes a warranty to fail of its essential
purpose.
b. (3) Provides that a limitation of PJ damages in a sale of consumer goods is
“prima facie” unconscionable.
3. Notice Requirement: UCC 2-607(3)
a. Requires a buyer to “notify” a seller within a “reasonable time” of any claimed
warranty breach, or be “barred from remedy.” Buyer bears the burden of proof
(4).
4. Cate v. Dover 1990: P purchased from Beech Tire Mart 3 lifts manufactured and
designed by Dover. They never worked property.
a. D’s defense: Warranty disclaimer.
b. Ct’s response: Disclaimer was not conspicuous to a reasonable person under 2-
316(2).
c. Rule: The Code appears to recognize that actual knowledge of the disclaimer
would override a question of conspicuousness.
5. Moscatiello v. Pittsburgh Contractors Equipment Co. v. Curbmaster: Paving machine
case. K has disclaimer of implied warranties which was one the front of the K and

24
referring to terms and conditions on reverse side. Also has a clause the limited remedies
to incidental and consequential damages.
a. Held: Disclaimer of implied warranties was inconspicuous, as well as
misleading. 1-201(10) – defines conspicuous.
i. Rule: A term is conspicuous when it is “so written that a reasonable
person against whom it is to operate ought to have noticed
it…language in the body of a form is conspicuous if it is in large or
other contrasting type or color.”
b. Held: Remedy limitation is not enforceable b/c it is unconscionable (2-719(3),
2-302).
i. A clause in a K is considered unconscionable and unenforceable if there
is “an absence of meaning choice on the part of one of the parties
together with K terms which are unreasonably favorable to the other
party. (Skelley Wright – from William’s and Walker Thomas…..most oft
repeated description of unconscionability).
6. These cases are a-typical. Generally, warranty disclaimers challenged as inconspicuous
will be upheld, and less that 10% conclude on facts before them that K provisions are not
enforceable.
7. Review 2-316(3)(a)-(c): Prob,6, pg. 164 – review for test.
8. Cox v. Lewiston Grain Growers, Inc., 1997: The seeds that failed to germinate.
a. Held: Warranty disclaimer is unenforceable.
i. The rule states that disclaimers are disfavored in the law and ineffectual
unless specifically negotiated between the buyer and seller. (The “Berg)
rule. The Berg rule should apply due to the specific requirements of the
sale. No negotiations occurred regarding the disclaimer or exclusionary
clause contained in the delivery ticket.
b. Held: The exclusionary clause was unconscionable.
i. In determining conscionability the court must consider:
1. The manner in which the K was entered (formation)
2. Whether the parties had a reasonable opportunity to
understand the terms of the K, and
3. Whether important terms were hidden in fine print.
c. Held: Insurance payments could not reduce the damages award against D.
i. Rule for Collateral Source: Payments received by the injured party
from a source independent of the tortfeasor will not reduce recoverable
damages by the tortfeasor.
9. 9. A progressive minority of courts not that UCC 2-316(2) applies to either exclusion or
modification of the merchantability warranty, and so require both warranty disclaimers
and remedy limitations to be in writing and conspicuous.
a. A majority of court will enforce an inconspicuous remedy limitation.
10. What attack can a buyer make on a remedy limitation under 719(3)
a. Unconscionability
b. This court concluded that the remedy limitation on these facts, even though it is a
commercial case, is unconscionable. (Cox)
11. Issue of limited remedies must often arises in cases of repair or replace.
a. If you’ve taken your car back time and time again to have the steering wheel
fixed and it doesn’t work, you have a pretty good argument that the remedy has
failed of its essential purpose. Therefore, the remedy should be to replace the
car or give you compensation for having to drive a car with a broken steering
wheel.

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b. In this case, the court decided that the remedy limitation in the delivery ticket
fails of its essential purpose because it deprives buyer of a substantial value of its
bargain.

NOTICE

1. UCC 2-607(3) requires that a buyer notify the seller of any alleged warranty “within
a reasonable time.”
a. Comment 4 allows a retail consumer somewhat more time to notify, but for a
merchant a reasonable time may by very short indeed (some courts say 10 days
for perishable products).
b. Notice given immediately upon discovery of breach ordinarily satisfies the
requirement.
c. Manner and content can be important – oral notice is ordinarily sufficient, may
have to specify “breach.”
d. Occasionally, direct notice from buyer to seller is not required at all: When seller
has actual knowledge of the defect of the particular product, or is deemed to have
been reasonably notified by the filing of the buyer’s complaint.
2. Warranty and Restatement of Torts: A careful attorney in product liability cases will
join a warranty claim with claims for negligence and SL, perhaps to avoid either a statute
of limitations defense or the “economic loss” doctrine (many courts bar tort recovery for
mere economic loss, as opposed to PJ or property damage).
3. Magnuson-Moss Warranty Act of 1975 requires that every consumer goods seller
making a written warranty disclose that warranty fully and conspicuously in simply and
readily understood language. It does not, however, compel a seller to make a written
warranty. If a seller DOES make one, whether full or limited, it may not disclaim any
implied warranty (if it only makes a limited warranty, it may restrict the duration of the
implied warranties).
4. 2 kinds of cases when filing the lawsuit satisfies notice:
a. When seller has actual knowledge of the problem.
b. If it is a consumer sale that has resulted in PI.
5. When considering if buyer gave adequate notice for breach, think about:
a. Prejudice test: Would the seller been able to fix the problem if they had found out
earlier, has the car been driven too much to recognize the problem, etc.
b. Effective policy argument: Even if we had given notice two weeks earlier, it
wouldn’t have mattered.
c. If consumer is actually a merchant (i.e. using a car for business purposes, getting
tax breaks), that person should be held to a higher standard.

TITLE

1. When does title pass?


a. Only parties interested in this are insurance companies and taxing authorities.
b. 2-401(2): Unless otherwise explicitly agreed, title passes at the time of delivery
to the seller.
c. 2-308: GAP FILLER – unless otherwise agreed, delivery is at the seller’s place
of business.
2. When does good title pass to a buyer?
a. 2-403: Voidable title (sub. 1), Entrusting (sub. 2)
3. Problems – Pg. 180 Problems 8-11 (KNOW THESE EXAMPLES)
4. Voidable title is created by bad checks – can be transferred to good faith purchaser for
value.
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5. Difference between a good faith purchaser for value (voidable title analysis) and an
ordinary course of business (entrusting analysis):
a. A good faith purchaser for value can buy from anybody. Two requirements:
You be in good faith (1-201(9)), and you have to give value (1-201(44))
b. If you are in an entrusting analysis, you have to buy from a merchant who deals
in goods of this kind. A buyer in the ordinary course of business is only buying
from a supermerchant.
c. GOOD TITLE CANNOT EVER BE TAKEN FROM A THEFT.
d. UCC allows good faith purchasers to obtain title more than the common law did.
This is because 1) The seller or entruster is in a better position to judge the merit
of the intermediary than the purchaser, and 2) Stream of commerce. We don’t
want buyers from supermerchants worrying all the time about whether they are
going to get good title.
6. Heinrich v. Titus-Will Sales Inc. 1994: P contracted with Wilson, an unlicensed broker
(held himself out as being a licensed broker) to sell a truck. Wilson negotiated with D for
the purchase of the truck. Wilson paid D with a bad check. They accepted it and gave
him a truck. Check bounced, demanded truck back. Wilson told P it needed repairs, took
the truck back to D. P asked D to give it back and D refused.
a. D’s arguments/Ct response:
1. Wilson is not a merchant b/c no inventory, nor a license. [not necessary
under UCC to have either).
2. P was not a buyer. [P was a buyer b/c he acted in good faith. Wilson’s
illegality does not taint status].
3. Truck was entrusted to Wilson after P had already paid Wilson (timing
issue). [Req. entruster to retain the burden of the risk, even when the
entrustment occurs after a 3rd party purchase for value, supports
underlying policies]
b. Policies:
1. Protects the buyer who relies on the merchant’s apparent legal ability
to sell goods in the merchant’s possession.
2. D was in a better position than P to protect itself against another
dealer/broker who may fail to pay for the goods.
3. Flow of commerce – a timing requirement would cause some delay.
c. Voidable Title - For P to prevail under this section, P must establish that
1. D delivered the truck to Wilson under “a transaction of purpose.”
2. Wilson paid D for the truck with a bad check.
3. Heinrich was a good faith purchaser for value. [req: good faith 1-
201(9), give value (any form of consideration) 1-201(44)]
d. Entrusting theory: Court says you need three elements:
1. Entrusting 2-403(3)
2. Intermediary needs to be a merchant who deals in goods of this kind.
3. Buyer needs to be a buyer in the ordinary course of business.
e. This will be on the exam – always do both voidable doctrine and entrusting
theory analysis.

RISK OF LOSS

1. At CL, and under the Uniform Sales Act, risk of loss or destruction typically rested o the
party holding “title” to the goods when casualty occurred.
2. Under the UCC, risk of loss rules are both more flexible and more functional.

27
a. In general, the UCC places risk of loss on the party most likely to take
precautions against loss (usually the one with possession or control of the goods
or the one most likely to insure.
b. 2-509 (Risk of loss absent a breach), 2-510 (Effect of breach on risk of loss)
3. Insurable Interest Under the Code
a. Under UCC 2-501, buyer obtains insurable interest in goods upon their
“indentification” to the contract. At that point, they buyer may insure the goods
(even if its long before delivery)
4. Types of Delivery Terms (2-309, 2-320)
a. Shipment contract – free on board (FOB), place of shipment
i. Under a shipment K, the buyer pays the shipment cost and the risk
passess to the buyer when the goods are duly delivered to the carrier
b. Destination contract – FOB place of destination
i. The seller pays the shipment cost, and the risk does not pass to the buyer
until the goods are “duly so tendered at the destination as to enable the
buyer to take delivery.”
c. C.I.F. and C. & F Terms:
i. CIF: price includes in a lump sum the cost of goods and the insurance
and freight to the named destination. C&F: Price inc. cost and freight to
the named desination.
d. Examples.
i. FOB seller’s plant: Risk passes when goods go into carrier’s hands.
(Shipment K).
ii. FOB buyer’s plant: Risk passes when goods are duly so tendered at the
destination as to enable buyer to make a delivery. (Destination K).
iii. FAS USS Iowa, Portland, OR: Shipment K. [319(2)] – goods delivered
alongside the vessel.
iv. FAS RR car at seller’s plant: Inside the RR car.???
v. CIF Buyer’s plant: Shipment K, don’t be misled by the term “buyer.”
[2-320, cmt 1)
vi. Ship to buyer’s plant: Shipment K [2-503, cmt. 5 – ambiguous terms].
vii. No delivery term: Not explicitly a destination K, code preference for
shipment K when there are ambiguous terms.
5. Windows Inc., v. Jordan Panel Systems Corp. 1999: Contract for specially made
window, to be “shipped to NYC.”
a. Appellate court held the buyer had assumed the risk of the loss because of the
ambiguous terms in the K.
i. The K must expressly specify a particular form of shipment. There is a
strong preference for shipment K’s, so if you want it to be another type
of contract, you have to have specific terms (such as FOB seller’s place),
or some other terms that say the seller will assume the risk until the
goods are in the seller’s hands.
ii. Just specifying the address of where to be shipped does not do this.
6. Cook Specialty Company v. Schrlock 1991: Press brake fell out of truck during
shipping. Insurance purchased by seller was not adequate to cover cost.
a. Goods are being transmitted to the buyer by common carrier, so it is a 2-
509(1)(a).
i. This is FOB place of shipment, so this is a shipment K.
ii. Where does it seems as though the risk of loss is going to be?
o Buyer (once item is in carrier’s hands).
b. Buyer’s 2nd argument about why it shouldn’t bear the risk:

28
i. 2-504: In a shipment K where the risk of transit will be on the buyer, the
seller has certain obligations towards the goods…particularly obligations
having to do with the K it makes with the carrier.
ii. Because the seller breached its 504 obligation, risk remains on the seller
(2-510).
c. Issue boils down to whether or not the seller made a proper K under 2-504?
i. Court found that the seller made an adequate K.
ii. Risk, therefore, was on the buyer when the item was damaged.
d. 2-504, cmt. 3 states that it is improper for the seller in a shipment K to agree to
an inadequate insurance. Why did the court find the insurance to be proper?
i. It is NOT improper for the seller to fail to investigate the extent of the
insurance.
ii. Here, the seller did not agree to a $5000 policy, it simply failed to
investigate the insurance.
7. Bill of lading – receipt (“document of title” -warehouse receipt is also a document of
title) indicating what the goods are, the consignor of the goods, where they are supposed
to be delivered, etc.
8. Jason’s Foods, Inc. v. Peter Eckrich & Sons, Inc 1985: Fire in warehouse that burned
all of D’s ribs. P transferred the ribs on 1/13, bailee clerk mailed receipt to D on 1/17 or
1/18. D received receipt on 1/24. Ribs burned on 1/17. Court held risk of loss had not
passed b/c acknowledge of the bailee of the buyer’s right of possession occurs when the
acknowledgement has been given to the buyer (509(2)(b)).
a. Court reasons by saying this was the intent of the drafters of the UCC, because
otherwise the code does not explicitly say that the acknowledge has to be to the
buyer.
9. Schock v. Ronderos: Mobile homes case. Risk had passed to buyer b/c they had
prepped the home for removal.
a. 2-509(3) case: Appellate court affirmed that the risk was on the buyer, because
the seller was not a merchant. Risk passed to buyer on TENDER of delivery.
b. Tender of delivery occurred on payment for and acceptance of the mobile home.
Sellers had disconnected the electricity and prepared the mobile home to be
moved. Their failure to remove the sofa and piano did not result in an
uncompleted tender of delivery.
c. Side note: Seller cannot be a bailee.
10. 2-510: Effect of breach on risk of loss
a. 2-510 shifts risk of loss to breaching party, who but-for the breach would not
have had the risk of loss.
b. 2-510 (1): If tender or delivery of goods so fails to conform to the K as to give a
right of rejection, the risk of their loss remains on the seller until cure or
acceptance.
c. SIDE NOTE: Wild card of negligence here and in a lot of cases. Even if a party
bears the risk of loss through 2-309 or 2-510, if that party can show that the other
party’s negligence caused the damage, then negligence will trump the risk of
loss.
11. Wilke v. Cummins Diesel Engines, 1969: Government generator case. Delivered it
way before due, did not run specified field tests. Did not constitute and effective
delivery, risk of loss remained on seller.
a. The delivery of the generator to the job sit, while identifying the goods to the K,
did not amount to a delivery of the goods or the performance of obligations
conforming to the K.
b. UCC 2-206(2) provides that “goods or conduct including any part of a
performance are “conforming” or conform to a K when they are in accordance

29
with the obligation under the K.” Non-conformity cannot be viewed as a
question of the quantity and quality of goods along, but of the performance of the
totality of the seller’s contractual undertaking.
c. Mooney thinks this should be a 2-509 (3) case: Seller was a merchant and
hadn’t officially delivered the goods yet (“this is my baby”) T here is also
possible negligence overlay for both parties (trumps UCC Risk of loss). Also,
there is not actual breach b/c under 2-607 the buyer has not given adequate notice
of breach.
12. Muliplastics, Inc. v. Arch Industries, Inc 1974: P and D contracted for P to make
pellets for D. D refused to release purchase orders. P continued to house the goods from
8/20-9/22. There was a fire, and the goods were destroyed.
a. Under 2-510(3): Risk passes to the breaching buyer for a reasonable time.
b. There was a breach, and 8/20-9/22 was a reasonable time.
c. 2-709(1): Seller is entitled to recover K price.
d. Subrogation also an issue here.
i. HYPO: B owes S the price of the destroyed goods under 2-709
(Multiplastics). 2-709 says one instance in which the buyer has to pay
the price is when the goods have been lost or destroyed after risk of loss
has passed (reasonable time).
1. What if seller is insured, and the insurance company pays the
buyer’s obligation to the seller. Can the insurance company use
subrogation to step into seller’s shoes and have a COA against
B?
2. No, in cannot. 2-510, cmt. 3 says that the rules of (2), (3), that
shift risk of loss only to the extent of insurance deficiency (of the
other party), are not intended to be disturbed by subrogation
principles

PERFORMANCE AND BREACH UPON DELIVERY

2-507(1): Delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise
agreed, to his duty to pay for them.
2-511(1): Tender of payment is, unless otherwise agreed, a condition to the seller’s duty to
tender and complete any delivery.
• Comment 2 says explicitly these are concurrent conditions
• Practical effect: Neither party may sue for breach without properly tendering his own
performance.
• Check bounces = no payment 2-511(3)

1. Buyer’s Right to Prior Acceptance: Inspection and Rejection


a. A buyer may inspect goods to make sure they conform to the K 2-513(1).
i. In general, a buyer of goods has a right to inspect the goods prior to
paying for them.
ii. A buyer may, however, agree explicitly or by including in their K a
method of payment inconsistent with prior inspection, contract away
their right. 2-513(3).
b. If inspection reveals a non-conformity to the K, buyer may reject the goods. 2-
601 He may also refuse to pay the K price and invoke a variety of Art. 2
remedies (2-711)
c. By accepting the goods, the buyer loses his rejection right, obligates itself to pay
the K price and assumes the burden of proving a breach (2-607).

30
d. In some cases, acceptance can be revoked – but the standard is stricter than for
initial rejection. 2-608.
e. Payment required BEFORE inspection does not constitute an acceptance of
goods or impair the buyer’s right to inspect or any of his remedies. 2-512(2).
i. Even if buyer relinquishes pre-payment inspection right, the buyer
can still reject the goods after payment (2-601) (question is just who
will be plaintiff in the lawsuit).
ii. OUTLINE PRE-PAYMENT EXPECTION PROBLEMS – PP. 228.
2. Buyer’s Right to Reject
a. 2-601: If the goods or the tender of delivery fail in any respect to conform to the
K, the buyer may reject.
i. This differs from CL, there is no substantial performance doctrine
(Jacob & Kent v. Young). This is a nearly perfect performance.
ii. 2-103: There is a good faith obligation to perform
iii. 2-508: Seller’s right to cure.
iv. 2-612: A buyer may not reject a shipment under an installment K unless
the non-conformity “substantially impairs” its value.
v. 2-504: Obligation of seller in the shipment K to make an adequate K to
the carrier. Buyer may reject the goods ONLY if material loss or delay
ensues – the fact that the seller did not insure does not allow seller to
reject the goods without material loss.
b. Limitations:
i. Good-faith obligation: UCC 1-201(19), 1-203 (cmt. 19), 2-103.
ii. Subject to the provisions of 2-612, which provides that a buyer may not
reject a shipment under an installment K unless the non-conformity
“substantially impairs” its value.
iii. A buyer may not reject goods if (1) it already accepted them, or (2) the
seller has a right to cure non-conformity. 2-607, 2-508.
3. International Commodities Export Corp. v. North Pacific Lumber Co. 1991: Moldy
beans case. Buyer attempted to reject goods 9 months after receipt.
a. Buyer could not reject the goods because they had accepted them. They accepted
them in three ways:
i. After an opportunity to accept signified acceptance of the goods. Said
they would retain them despite non-conformity and would try to sell
them.
ii. Failed to make an effective rejection of the goods (2-606(2)).
iii. Buyer exercised dominion over them. It tried and ultimately did resell
these beans
b. What is the most important legal effect of the buyer’s accepting the goods?
i. Once the buyer accepts the goods, under 2-607, it bears the burden of
establishing that the tender was defective at the time risk passed.
ii. If the seller DID breach, the aggrieved buyer has to keep the goods, but
can sue for breach – Value of good beans minus the value of moldy
beans
4. Bowen v. Foust 1996: Heating and cooling unit case. P pled that after paying D the
agreed sum, they discovered that the equipment D installed was not the equipment
specified in the bid and did not work.
a. Buyer revoked its acceptance under 2-608.
b. Court accepted that P acted quickly upon discovery of non-conformity.
c. Buyer has right to throw goods back on seller by revocation of acceptance and
recover money (2-711).

31
d. Seller claims they wanted to cure under 2-508, but ct. held that seller never
offered to cure.
e. Side note: Argument in response from the seller saying “it’s too late” to revoke:
Doesn’t matter…it would not have changed anything if we had started this suit
from day 1: No prejudice on the seller (goods would not have decomposed or
been overused).
5. Zabriskie Chervrolet, Inc. v. Smith 1968: Lemon car case.
a. Right to cure is not limitless. 2-508 Court held that attempted cure in this case
was ineffective. Seller will not be allowed to force the deal onto the buyer by
forcing the new transmission. Buyer’s confidence is shattered and a reasonable
buyer would not want to proceed with the transaction.
6. Right to cure 2-508 analysis: Two issues:
a. Does seller have a right to cure?
b. If so, what constitutes an effective cure?

ACCEPTANCE AND RECOVATION OF ACCEPTANCE

1. Buyer’s Acceptance of the Goods, UCC 2-606(1) provides that acceptance occurs
when:
a. After a reasonable time to inspect, the buyer signifies acceptance to the seller,
b. The buyer fails to make an effective rejection, or
c. The buyer does any act inconsistent with the seller’s ownership.
i. Buyer can still sue for damages under 2-714, even if they are stuck with
the goods.
ii. Auction – moving from auction yard to own house constitutes
acceptance. Miron v. Yonkers Raceway.
2. Buyer’s Revocation of Acceptance
a. Upon acceptance, a buyer loses its right to reject. UCC 2-607
b. However, it may still revoke its acceptance, and following an effective
revocation it has approximately the same rights and duties as if it had rejected. 2-
608
c. 2-608 Requires that:
i. The non-conformity “substantially impairs” the value of the goods and
that
ii. The buyer accepted the goods either (a) without discovering the defect
because discovery was difficult or (b) assuming reasonably, but
incorrectly, that the seller would cure the defect.
d. Revocation must occur within a reasonable time, as described in sub. 2.
3. 2-605: Under some circumstances, a rejecting buyer has an obligation to specify what it
thinks is wrong with the goods
4. Kesner v. Lancaster: K to sell a tractor. Seller assured buyer that the equipment was in
good shape. Seller gave cursory inspection, seemed fine. Turned out the tractor was
defective. The tractor needed a lot of repairs. P had successful revoked because the
defect substantially impaired the value of the goods under 608.
a. No perfect tender rule with revocation, you have to find substantial impairment.
b. Buyer has to show substantial impairment, has to accept goods without discovery
of the defect, and revocation has to be within a reasonable time (608 allows more
time than 601).
5. 2-610: Anticipatory repudiation.
a. If your client has reasonable insecurity about the performance, it can demand a
reasonable assurance of adequate performance by the other side. If the other side
does not do it, then without much risk you can declare anticipatory repudiation.

32
b. Hornell Brewing Co. v. Spry: Canadian beverage distribution case:
1. A K did exist (even without a distributorship agreement). 2-206: K can be
made in any manner to show agreement, 2-207: K can be shown with
conduct.
2. Three issues under 2-609:
a. Did Hornell have reasonable ground for insecurity?
b. Did Hornell make a 2-609 demand for adequate assurance or did it
just call up and say what are you going to do (this is often the most
litigated point).
c. Were the assurances given, adequate under the circumstances?
3. HELD: Adequate assurances were not forthcoming, so D had created an
anticipatory repudiation under 610, so P was free to leave the K.

REMEDIES

Code Remedies – 2 goals:


1. Aggrieved party may be put in as good a position as if the other party had fully
performed (no consequential or special or penal damages except as specifically
provided). 1-106(1)
2. Encourage a non-breaching party to minimize its damages by obtaining substitute
performance. Thus, the Code places few restrictions on an aggrieved sell attempting to
resell (706) and encourages an aggrieved buyer to mitigate losses through “cover” (712).
a. Code permits seller to recover the difference between the resale price and the K
price together with any incidental damages…but less expenses saved in
consequence of the buyer’s breach. 706(1)
b. Seller need not establish a specific market price for the goods.
c. Cmt 2: Failure to act property under this section deprives the seller of the
measure of damages here provided and relegates it to that provided in Sec. 2-708.
d. If seller cannot recover the entire K price under 2-709 or the price minus a resale
under 2-706, the appropriate damage measure will likely be the “difference
between the market price at the time and place for tender and the unpaid K price
together with any incidental damages….but less expenses saved in consequence
of the buyer’s breach.” 2-708(1).

2-703: Catalogue of seller’s remedies


2-711: Catalogue of buyer’s remedies
Issues:
1. When and where to measure the market price
2. What items to inc. in the damage measure?
3. When do we have a lost-volume seller?

SELLER REMEDIES

Three remedies for seller:


1. 2-709 Full K price
a. Most often involves seller efforts to demonstrate that the goods are not
marketable at any price.
b. 2-709 provides that a seller may recover full K price in three instances:
i. When the buyer has accepted (2-606) and retained the goods
ii. When conforming goods have been lost or damaged after risk of loss has
passed to buyer (2-509)

33
iii. When the seller has tried and failed to resell the goods, or “circumstances
reasonably indicate that such efforts will be unavailing.” (i.e. potato case
where the market was bad and the seller couldn’t be expected to resale).
c. Question whether buyer has accepted the goods for purposes of 2-709:
i. Buyer who makes a “procedurally effective” rejection does not accept.
ii. Buyer making a procedurally ineffective rejection, regardless of
substantive merit, does accept the goods under 2-606.
iii. Buyer revoking acceptance (2-608) likely must be correct both
procedurally AND substantively.
d. Advise your client (seller) to resale (706) because it is easier to prove difference
between K price and resale price + incidental fees then it is to show you
reasonably attempted to resale.
2. 2-706 Resale – difference between K price and resale price
a. Most sellers will invoke 2-706
b. If non-breaching seller resales the goods in good faith and in a commercially
reasonable manner, and in accordance with fairly minimal statutory obligations,
then than aggrieved seller may recover the difference between the K price and
the lower resale price + incidental damages, minus damages saved.
i. Incidental expenses (allowable under 2-710)
ii. Don’t forget shipping costs
c. (2) If seller makes profit on the resale, he does not have to share with the
breaching party.
d. Advise client to act as if its their own money (this will make it a commercially
reasonable care).
e. Goods resold has to be the exact same goods you were going to sale to breaching
party.
f. If seller is going to resale privately, the only notice it has to give is the intent to
resale privately. You don’t have to give notice of particular sale or date. If seller
is going to resale publicly (i.e. auction), notice of time and place has to be givern
g. If seller resales unreasonably (for way below market price), can’t get remedies
under 2-706, but can get them under 2-708.
3. 2-708 K market penalty (seller is entitled to recover difference between K price and
market price at time and place of tender).
a. (2): Lost volume seller
i. 2-708(2): If the damages measure of 2-708(1) is inadequate to put the
seller in as good a position as performance would have done, the seller
may proceed under sub. 2 and recover “profit (including reasonable
overhead),” that it would have made from seller’s full performance, plus
incidental damages, and minus payments or proceeds of resale.
ii. Lost P seller: On whose sales volume declined because of the breach.
b. (1): Third major remedy (although Mooney thinks this should be used rarely –
seller should resale under 2-706, or if it cannot, recover the K price under 2-709).
c. Place of tender: Shipment K: Buyer’s city, Destination K: Seller’s City.
d. The statutory formula will not always yield an amount equal to the seller’s actual
loss.
4. Conflict: 2-706(6) says that seller doesn’t have to share windfall from these statutory
formulas. This conflicts with 1-106, where it says if the seller is not damaged at all,
damages should be minimized.
1. 2-706(6) arises more in case of resale. It says seller doesn’t have
to give money to the buyer, but doesn’t say anything about
taking money from the buyer.

34
5. 2-704: Permits a reasonable completion of ½ finished goods. Risk: Can lose even more
money if you are unable to resale goods after you have finished. You want to notify the
buyer of your plans to resale.
6. Nederlandse v. Grande 1979: Concrete manufacturing case with steel strand. D
wouldn’t pay for the strand they ordered. Issue: Was P a lost volume seller? YES.
Could recover under 2-708(2).

BUYER’S REMEDIES

Buyer’s Right to Specific Performance or Replevin 2-716 (2-709 parallel this remedy for the
seller)
1. 2-716: Specific performance shall be granted where the goods are unique or in other
proper circumstances.
2. Cmt. 1: Without intending to impair the court’s sound discretion in the matter, this article
seeks to further a more liberal attitude than some courts have shown in connection with
specific performance of K’s of sale.
3. Cmt. 2: Output and requirements K’s involving special markets or sources are now the
“typical commercial specific performance situations.”
a. One strong indication of other proper circumstances for awarding specific
performance is the buyer’s inability to recover.
b. Eastern v. Gulf (Eastern couldn’t cover because fuel prices had shot up).
c. Copylease v. Memorex (claimed it could not reasonably cover by obtaining an
alternative source of toner because other brands of toner are distinctly inferior to
the Memorex product – goods were unique or “noncoverable”).
4. Sub. (3): Authorizes a buyer to replevy the K goods in two situations:
a. When they have been identified to the K and the cover is unavailable and
b. When they have been shipped under reservation and the buyer has tendered full
payment.

Buyer’s Right to Cover Price – K Price Damages UCC 2-712 (2-706 parallels this remedy
for the seller)
1. 2-712: Authorizes a buyer whose seller has breached to “cover” by “making in good
faith and without unreasonable delay any reasonable purchase of goods in substitution for
those due from the seller.”
2. Sub (2): If buyer does so, he may recover from the seller the “difference between the
cost of cover and the K price together with any incidental or consequential damages…but
less expenses saved in consequence of the seller’s breach.”
a. Good Faith:
b. 1-201(19): Honesty in fact
c. 2-103 (merchants): Req. they observe reasonable commercial standards of fair
dealing in the trade.
3. Cmt. 2: The test of proper cover is whether at the time and place the buyer acted in good
faith and in a reasonable manner, and it is immaterial that hindsight may later prove that
the method of cover used was not the cheapest or most effective.
a. Buyer must also make a reasonable purchase. Considerations inc. time
constraints, market fluctuations, and available supply (was buyer purchasing as if
it was with their own money?)
b. Farmers Elevator Company of Elk Point v. Lyle (Doctrine of equitable estoppel
to prevent a party to an oral agreement from invoking the statute of frauds).
c. Most courts agree that uncertainty under 2-712 should be resolved against
breaching sellers.

35
d. Hardest case is when the buyer covers by purchasing somewhat better, somewhat
more expensive goods. If no other substitute goods were available, the buyer
should still be permitted to use the cover price-K price formula.
e. A non-covering buyer can get damages from other remedies (i.e. a market price-
K price damage computation), but they may not recover consequential damages
that cover would have prevented.

Buyer’s Market Price-Contract Price Damages 2-713 (2-708(11) – parallels this remedy for
the seller).
1. 2-713: Permits buyers who do not cover or seek specific performance to recover “the
difference between the market price at the time when the buyer learned of the breach and
the K price together with any incidental and consequential damages provided by this
article.
a. Computing damages: (1) Determine the property date and place for fixing
damages.
b. Date issue: If the seller’s performance is due by a specific date, use that date. If
the buyer does not learn until later, use the second date. Most difficult case is if
the seller repudiates earlier. The sounder position is to use the date of the breach
(the later date).
i. Cargill, Inc. v. Stafford 1977: Wheat case, seller repudiates. Holding:
A buyer may urge continued performance for a reasonable time. At the
end of a reasonable period he should cover if substitute goods are readily
available. If sub. goods are readily available and buyer does not cover
within a reasonable time, damages should be based on the price at the
end of the reasonable time rather than on the price when performance is
due. If a valid reason exists for failure or refusal to cover, damages may
be calculated from the time when performance is due.
1. Statute of Frauds exception to confirmation
2. 2-201 Merchant exception (Trial court said this doesn’t apply for
2 reasons: 1) Wasn’t received within a reasonable time, 2) seller
objected to its terms within 10 days – weak argument)
3. Trial court decided there was no enforceable K under 1st K.
4. Court decided 2nd K would be enforced.
5. DAMAGES: MOONEY SAID THIS CASE COMES OUT
WRONG.
c. Location issue: Sub 2: Market price is to be determined as of the place for
tender or, in the case of rejection after arrival or revocation of acceptance, as of
the place of arrival.
i. Cmt 1: Market price should be determined at the market in which the
buyer would have obtained cover had it sought relief.
d. Time for measuring relevant market price is when the buyer learns of the breach.
708 is time and place of tender.
e. Of buyer rejects the goods following delivery, then the time and place is the
place of delivery.

Recovery for Breach Relating to Accepted Goods 2-714


1. 2-714: A buyer who accepts defective goods, and does not revoke acceptance, may
nonetheless sue for breach.
2. Sub. (1): B may recover damages “as determined in any manner which is reasonable.
3. Sub (2): The most common such case, a breach of warranty regarding the goods, the
measure of damages will normally be the “difference at the time and place of acceptance

36
between the value of the goods accepted and the value they would have had if they had
been as warranted.”
a. “Value of goods as accepted”:
i. Actual value to the particular buyer (which is usually $0, so the judgment
rescinds the K), or
ii. Their market value sold “as is.”

37
Contracts Outline
I. Contract is an agreement between 2 parties to do something the law will
enforce
A. Applicable law
1. Common Law
a. Restatement – persuasive rather than mandatory
2. UCC
a. Movable Goods
3. When a K has mixed goals, UCC or Common Law?
a. Predominant purpose:
i. Goods  UCC
ii. Services  Common Law

B. Types of Ks
1. Bilateral
a. Exchange of mutual promises
2. Unilateral
a. The offer requests performance rather than a promise
b. Promise to pay upon completion of the requested act
c. Once act is complete, K is formed
3. Option K

II. Pre K Liability


1. Detrimental Reliance
a. Acting in justifiable reliance on an offer may be enough to
make it binding
b. Absence of Condisderation is not fatal
i. Reasonable reliance = consideration
c. Misrepresentation
2. No offer / acceptance, but still remedy
a. If 1 party confers a benefit on another, restitution
i. Example: Down payment

III. Offer and Acceptance


A. Nature of Assent
1. Assent – manifest intent to be legally bound
a. Objective Theory: Bound by the intention corresponding to
the reasonable interpretation / understanding of the words
/ actions
b. Mental assent is not required for the formation of K
c. No manifestation of intent if just downloading (Specht)
2. Knowledge of Offer Necessary

-1-
3. Volitional Acceptance required (Carbolic Smokeball)
4. Some degree of motivation by the offer
5. Agreement or mutual assent is required
a. To avoid obligation, at least 1 party must express intention
of not being bound until a writing is executed
6. Obviously ludicrous offer is not an actual offer (Pepsi Harrier Jet)
7. Mirror Image Rule
a. Acceptance must be on offeror’s exact terms
i. NOT Last Shot Rule
b. ANY variation would be a counter-offer
c. Problems:
i. May be incentive to work the market
ii. Once performance begins, may be a dispute over
terms
8. Last Shot Rule
a. Last version of K prevails
9. Mailbox Rule
a. Acceptance begins as soon as letter is sent
i. UNLESS offer stipulates that acceptance is not
effective until received
b. Revocation effective upon offeree receiving info

B. Power of Acceptance
1. Conferred by the offer
2. Master of offer can dictate what the offer says
a. How or when master wants acceptance
3. Termination of power of acceptance
a. Lapse of the offer
i. If expressly limited in original offer
ii. Reasonable time depends on the transaction
 Nature of price fluctuation, industry standards,
relationship between parties, type of thing being
offered
iii. Ordinarily an offer made in face to face conversation
only stands until the conversation has ended
b. Revocation of offer
i. Any time before acceptance
c. Offeror’s death / Incapacity
d. Offeree’s rejection
i. Effective when received by the offeror
ii. Rejecting counter-offer
4. Must make an effort to reach offeror to let him know of
acceptance (in manner set forth in K OR:)
a. Communication

-2-
b. By acting / beginning performance
c. EXCEPTION I: Do not have to give explicit acceptance if it
is obvious or reasonable to think that offeror does not
expect explicit acceptance
d. EXCEPTION II: If it is a situation where completion of a
duty is enough to satisfy acceptance, no explicit acceptance
is necessary
i. UNLESS – the offeror is very far away and won’t hear
of completion of duty for a while, acceptance must be
explicitly communicated
5. Silence as Acceptance
a. Conduct / performance can be construed as acceptance
b. Usually only allow if only offeror has benefited from full
performance
c. OR if offeror tells offeree that silence will be acceptance
and offeree relies on that statement
d. Long-standing relationship  understood acceptance

6. ACCEPTANCE MUST BE:


a. Definite
b. Unequivocal
c. Unchanged from the offer
i. Usually any changes are considered rejecting counter-
offer
d. Unconditional
i. “Subject to…” maybe promise, but not acceptance

C. UCC 2-206 – offer may be accepted by any medium reasonable in the


circumstances
1. If offeror wants to limit acceptances, may still do so, but must
do so unambiguously
2. May be accepted by either performing the requested act or by a
timely promise to do so

D. Gentleman’s Agreements
1. Parties to an agreement, by express provision prevent courts
from enforcing their promises

E. Terms
1. Open terms – not yet agreed upon
2. Closed terms – agreed upon
3. When a K has mixed goals, UCC or Common Law?
a. Predominant purpose:
i. Goods  UCC

-3-
ii. Services  Common Law

F. UCC
1. Designed for quick, easy transactions
a. Shipping equals acceptance
2. Does not have to have ALL details to be sufficient offer
3. UCC 2-206(b)
a. Shipment of non-conforming goods does NOT constitute
ACCEPTANCE if seller sends as accommodation to buyer
b. As long as seasonable
c. Counter-offer
4. Revocability
a. UCC 2-205
i. ‘Firm offer’ makes offer irrevocable
ii. Only merchants can make irrevocable offers

G. Preliminary agreement
1. Agree to agree
2. When there are negotiations back and forth and one party
changed their mind
3. Formal K Contemplated – intent to be legally bound
a. Expressed reservation about not being bound in the
absence of writing
b. Is there partial performance of K?
c. Whether all terms of alleged K have been agreed upon
d. Whether agreement at issue is usually committed to writing

H. Pre K Liability
a. Detrimental Reliance
i. Acting in justifiable reliance on an offer may be
enough to make it binding
ii. Absence of Condisderation is not fatal
 Reasonable reliance = consideration
iii. Misrepresentation
b. No offer / acceptance, but still remedy
i. If 1 party confers a benefit on another, restitution
 Example: Down payment

I. Offer
1. Restatement § 24
2. Manifest intent to be legally bound
a. Offeror dictates terms of the offer
3. Master of offer can dictate what the offer says
a. How or when master wants acceptance

-4-
4. Promissory
a. CAN revoke any time before acceptance under common law
i. Time restriction on offer does not make it irrevocable
within that limit unless there is consideration for
keeping offer open
b. Cannot change offer after acceptance
c. Quoting prices is NOT an offer
i. Catalogs, advertisements MUST have an affirmative
promise to be considered an offer – fur stole case
ii. Invitation / solicitation for offers by buyers
5. Definite and Certain
a. Leaves nothing to negotiate
b. Not an offer if just replying to offer for negotiations
6. Completeness of Terms
a. If general language – not offer
7. # of offerees
a. If parties are specifically named  offer (in general)
b. If parties are indefinite  NOT an offer (in general)
8. Revocation
a. Direct revocation
i. Effective when received
 Contrast with mailbox rule
b. Indirect revocation – Restatement § 42
i. Definiteness of information
ii. Reliability of source

J. Irrevocable offers:
1. Consideration
a. Required to keep offer open (deposit)
2. Option Ks
a. Separate consideration req’d to keep option open
3. Reliance
a. Detrimental Reliance
b. When offeror could reasonably expect that the offeree
would rely to her detriment on the offer, it will be held
irrevocable as an option K for a reasonable length of time
4. Firm Offers – without consideration by merchants
a. UCC 2-205
b. May not exceed 3 months
5. Unilateral Ks
a. Seller not looking for promise  looking for performance
b. Partial performance  irrevocable
i. Example: Reward

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ii.If performance has begun – detrimental reliance
 Preparation to perform is not applicable
c. Acceptance = complete performance by offeree
i. As opposed to Bilateral K where there are 2 promises
and 2 performances

IV. Deviant Acceptance


A. Battle of the Forms – UCC 2-207
1. (1) Definite & Seasonal expression of acceptance or confirmation
operates as an acceptance of offeror’s terms even if it has
different / additional terms
a. If unmatching terms are wildly unmatched, may be not an
acceptance
b. Proviso – does acceptance fall within UCC proviso?
i. Acceptance expressly made conditional on assent to
additional or different terms
ii. Must track proviso language almost EXACTLY
 Language of proviso – is it a rejecting counter-
offer?
 Is there performance? If no, no K [STOP]
 if performance, GO TO (3)
2. (2) Additional terms are proposals for addition to K
a. Actual acceptance is required [otherwise it would be ‘last
shot rule’]
b. K Between Merchants – terms are considered proposals for
addition to the K and are automatically included in K
unless:
i. Offer expressly limits acceptance to the terms of the
offer
ii. OR Material alteration
 Consent to it can’t be presumed
 Limits warranties or limits time for recourse
 Burden of proof on the party introducing the
additional terms to show that it is not a material
alteration
 Surprise or hardship
 Not an industry standard
iii. OR Objection
 ‘We object in advance to any terms on your form
that are different from our terms’
[STOP]
3. (3) If no K under (1), but parties act as if they have K,
performance = K, and terms of K are whatever matches plus
UCC gapfillers

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4. Look to modified terms under 2-209
a. (1) – Modifications
i. No additional consideration necessary
ii. Must be in good faith
5. Mirror Image Rule does not necessarily apply – Restatement §
59
a. Can accept different terms than offered
6. Last Shot Rule does not necessarily apply
a. K formation and K terms do not necessarily happen at the
same time
b. Favors a “first shot rule”
7. K could form from conduct
a. Writing not necessary
b. Terms & gapfillers
c. If party has conditional terms, can refuse to perform until
terms are met
i. If he performs, may not get conditional terms
8. Different vs. Additional Terms (Litronic):
a. Majority Rule – Knockout Rule
i. Replace different terms with UCC gap fillers
 This is rule in IL – holding on this case
b. Minority Rule –
i. Use the original terms of the offer and ignore the
different terms
c. Preferred Rule (Judge Posner)
i. Treat different terms like they were additional terms
and perform 2-207(2) analysis
 This is rule in CA
B. Mirror Image Rule
1. Acceptance must be on exact terms of the offer
C. Last Shot Rule
1. Once performance begins, the last K offered stands

V. Validation
A. Works as a Seal
1. Evidentiary – proof that there is a K
2. Cautionary – show that the promisor gave it some thought
3. Channeling – instant enforceability

B. Consideration
1. Bargained-for exchange – agreement is motivated by the
exchange AND
2. Legal benefit to the promisor

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3. OR Legal detriment to the promisee
a. Did the person really want this, or was it a sham?
b. LOOK FOR unequal bargaining power  unfairness
4. Definite and Substantial reliance
a. Must be definite
i. Time – Not just ‘until I no longer want to’
ii. Price – ‘Prevailing Rate’ is definite enough
b. Illusory promise is no consideration
i. Promise conditioned on satisfaction is not illusory since
one cannot reject them unless dissatisfied
 Good faith is necessary – UCC § 1-304
c. Partial consideration is no consideration
d. Past consideration is no consideration
i. Material benefit is exception to past consideration
e. Gift is NOT considered “legal” detriment
i. Not all conditional gifts are consideration
ii. Act or forbearance by the promisee must be of benefit
to the promisor
f. Conditional promises can be consideration
i. Homeowner’s insurance – only get $ if house is
damaged
g. Courts don’t want to judge the value of promise
i. Peppercorn
ii. Offer something for $  YES
iii. Offer $ for something  NO
iv. Offer $ for $  NO
h. Output K
i. However many you make, I’ll buy them
ii. No quantity requirement
iii. There is Consideration because the buyer has to buy
ALL of output and the seller has to sell ALL output to
buyer
5. Consideration is whether the bargain was adequate at the time
the promises are made, not whether there has been adequate
performance after the fact (Tuckwiler)

6. Pre-existing duty rule


a. If you have a preexisting obligation, promising to do it does
not amount to a legal detriment (Alaska Packers)
b. BUT – if parties modify something and it is signed, then
that is fine
c. If there is additional consideration, then it is okay
d. UCC § 2-209(1) – parties can modify an agreement in
good faith

-8-
i. Does not need consideration
e. If there is an unanticipated problem in the K, which the
parties in good faith decide to modify, then it’s fine as long
as the modification is fair and reasonable
f. Rescission & Modification
i. If both parties rescind and modify for a new K, then
preexisting duty is gone

C. Consideration in at-will employment Ks


1. At-will employees can be fired at any time for any reason (good
or not)
2. If K is adjusted, both sides have to gain from change for it to be
enforceable
a. Raise  additional responsibilities***
b. Retirement pkg.  cont’d work
3. Rescission and Modification
a. Employee has agreement to work for $90/wk
b. Ee gets offer from another for $115/wk
c. Er then says, I’ll give you $100/wk if you stay
d. Both rescind original K  removes preexisting duty for $90
e. Enter in a new K for $100/wk

D. Detrimental Reliance – sometimes a substitute for consideration


1. Promisor foresees reliance
a. Promisor must know facts
b. Must intend that his conduct is to be acted upon or acts
must be such that other party has the right to believe it is
so intended
2. Promisee actually relies
a. Promisee must be ignorant of true facts
b. If both parties know true facts, will not be detrimental
reliance
3. Promisee relies to his/her detriment
 Results in an injustice whose only remedy would be the court’s
action

E. Moral Obligation
1. Not usually enforced
2. Material Benefit Rule
a. If promisor gets a huge material benefit, even if there is no
bargained-for exchange, can still be enforceable
i. Not all states agree

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VI. Formation Defects
A. Indefiniteness
1. Usual terms
a. Parties
b. Subject Matter
c. Quantity
d. Time for performance
e. Price
2. Agreements to agree – too indefinite
3. “A fair share”

B. Statute of Frauds – unenforceable if oral


1. Ks within the Statute of Frauds
a. Executor
b. Suretyships
i. When both debtor and surety/guarantor are obligated
to creditor/guarantor AT THE SAME TIME (collateral)
ii. Main purpose exception
 If guarantor’s main interest is to benefit his
interest, K does not need to meet the statute
 Not as concerned with the suretyship when the
guarantor gets something out of the deal
iii. Novation
 Guarantor removes debtor’s obligation’s entirely
 No longer a suretyship
c. Marriage
d. Land
e. 1 year
i. Interpreted very liberally
ii. If it COULD be performed within 1 year, given
unlimited resources, may not fall within SOF
iii. Death
 Not full performance
 Early Termination
iv. At-will employment
 Could get fired or quit within a year
 If either party COULD stop performance within a
year, does not fall within SOF
v. Lifetime Ks not within SOF
f. Goods > $500
UCC § 2-201 – 106 & 7 SOF for goods ONLY must
include:
i. (1) Evidence a K  confirmation, acceptance
 Signed by promisee

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- Signature is any authorization that
identifies the party to be charged
 Quantity
 Writing sufficient to indicate that a K was formed
ii. (2) Between merchants – if wrong party signs
 If receiver of goods knows contents & satisfies
(1)
 Has 10 days to object or it will stick
iii. (3) If no (1), but in other respects would be
enforceable, would be enforceable (orally) if:
 (a) Specially manufactured good which can’t be
resold to someone else and it’s already begun to
be made (reliance)
 (b) OR ∆ has testimony that K was made 
judicial admissions
 (c) OR if K otherwise valid but there’s no writing,
enforceable with respect to goods, if [partial]
payment has been made and accepted, or
delivery has been made and accepted  full or
partial performance [expectation]
g. Others (vary by statute)

2. Satisfying the Statute of Frauds


i. Writing
 Under Common Law, ALL terms & essential
elements must be in writing
 Identity of the party sought to be charged
 K’s subject matter
 Recital of consideration (in most states)
 Signature of party to be charged or his agent
ii. Performance
 Full
- Generally full performance removes bar
of SOF
 Partial
- Services
- Land
- Goods
iii. Judicial admission
iv. Detrimental Reliance

3. Other issues
a. Modification
i. Must satisfy SOF

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 Example: in UCC price is not required, so if
modified, price would not fall within SOF
ii. NOMO – No oral modification clause can say that any
changes, modifications, etc. have to be in writing and
signed by both parties
 UCC § 2-209(2)
iii. Waiver & Retraction – did parties intend to waive their
rights under NOMO or others
 UCC § 2-209(4) & (5)
 If waiver is relied upon, it is irrevocable
iv. Authorization
b. Remedies
i. Usually the reasonable value of the services or part
performance rendered or restitution of any other
benefit that has been conferred
 Reliance or restitution

C. Capacity to K
1. Infant in the eyes of the law
a. Infant can K for necessities
b. Even if emancipated, still may not be able to K for non-
necessities
c. Remedy: Usually Restitution
i. Equity is the issue
2. Person with mental disabilities
3. Intoxicated individuals
4. Women (back in the day)

D. Duress & Undue Influence


1. Duress
a. Can be physical, emotional or economic
b. Impermissible pressure during the initial bargaining or
attempted renegotiation (look to preexisting duty rule for
renegotiations)
i. “threat” must be unlawful
ii. Baseless claim issue
iii. Wrong party is the one pressuring
 If 3rd party is the one doing the pressuring – no
duress
iv. Partial payment
c. No duress if you are just threatening to sue for some legal
claim
d. K is voidable when free will is precluded
2. Undue Influence

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a. Over-bargaining or over-pressuring in the bargaining
process
i. Not necessarily unlawful
b. Usually in a confidential relationship
i. Power relationship
c. Elements:
i. Discussion of transaction at an unusual or
inappropriate time
ii. Consummation of the transaction in an unusual place
iii. Insistent demand that the business be finished at once
iv. Extreme emphasis on untoward consequences of delay
v. Use of multiple persuaders on the dominant side
against a single servient party
vi. Statements that there is no time to consult financial
advisors or attorneys
d. Not very common

E. Fraud & Misrepresentation


1. Fraud
a. Misstatement or omission with duty of fact
b. Scienter or materiality
i. They knew it, and it was material
c. Justifiable
i. Did the person justifiably rely on untruth or 1/2 truth
d. Reliance
2. Duty to disclose
a. Generally, no duty to disclose if at arms length (buyers and
sellers)
i. POLICY: encourage people to seek info & can’t hold
sellers responsible for disclosing every possibility
ii. Caveat emptor
b. Some jurisdictions say that if there is a latent defect (not
visible) that there is a duty to disclose
c. In OR, you have to give the buyer a list of disclosures – say
that you know or don’t know x, y, or z about the house
d. Prenuptial agreements
i. Not at arm’s length, so there is a duty to disclose all
financial info
ii. Still a duty to read
e. Opinions can be material when not dealing at arm’s length
i. Dancing case – teacher knew more

F. Duty to Read

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1. When it does not actually appear to be a K, not obligated to read
it
a. Circle of assent does not cover if doesn’t look like a K
2. Misrepresentation

G. Unconcionability
1. Procedural
a. How the K was negotiated
b. Was there fraud
2. Substantive
a. Where the terms of the K are grossly unfair
3. CA requires both Procedural and Substantive  sliding scale
4. Usually extreme cases
5. In commercial cases it doesn’t usually work
a. BUT franchisees are more sympathetic because of the
unequal bargaining power
i. Power to de-brand them
ii. Gas station franchisees are more protected
6. Remedy
a. Could void entire K
b. Sever unconscionable part

H. Illegality & Public Policy


1. Disfavors negligence waiver
2. Assent does not cover what’s on the back of ticket if it doesn’t
look like a K
3. Against public policy to advance business interests of people that
are involved in ‘bad things’ (ie drug paraphernalia)
a. Hiring a hit man
b. Paying the mob
c. Hiring someone to commit a tort
d. Clean hands doctrine
i. “He who comes into equity must come with clean
hands”
ii. Examples: agreements in restraint of trade, gambling
Ks, usurious Ks, agreements obstructing
administration of justice, relating to torts
4. In Pari Delicto – if both parties are equally at fault with regard to
the contractual dispute
5. Public Policy for licensed workers
a. No license – illegal K
b. No permit – legal K
6. Covenant not to compete
a. Ancillary to employment

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b. Ancillary to sale
c. Blue pencil rule
d. Rule of reason
i. If it’s REALLY unreasonable, won’t be enforced
ii. But there’s an incentive to make it especially
restrictive since the courts will just fix it
e. All-or-nothing
i. If any term is unreasonable, the whole thing is
unenforceable

VII. K Terms
A. Ks of Adhesion
1. Standard form K on a take it or leave it basis
2. Not usually negotiable
3. Policy
a. If duty to read allows party to absolve themselves from
negligence, may be unenforceable (close to
unconscionable)
4. Doctrine of Reasonable Expectations
a. If K is vague, unintelligible or ambiguous, will be
interpreted favorably to what the weaker party expected it
to mean
5. Must look like a K
6. Circle of Assent / Blanket Assent
a. Assent to every term that might not be outlandish

VIII. Remedies (Preview)


A. Limitations on Damage Awards
1. Foreseeable
2. Unavoidable
a. Duty to mitigate damages
3. Certain
a. Losses were certain and not speculative
4. Compensatory
5. Caused by a breach
B. Restitution
1. “Does justice require enrichment to be disgorged?”
a. Disgorge profits, fees, deposits, etc.
2. Not only relied on promise, but conferred a benefit on promisor
(payment or profit usually)
3. Least common
4. Usually when there is no K but benefit is conferred in pre-
contractual stage when parties believe K is imminent
C. Expectation

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1. Try to put injured party in the position as if there were no breach
(looking forward)
2. Meant to fill expectations that arise
3. Usually $, but could be specific performance IF product is unique
or rare (land)
4. Usually the most substantial
5. “Cover” – If had to go elsewhere to buy another widget – would
be the difference between negotiated price and price paid
elsewhere
D. Reliance
1. Looking back, to put the person in the position from BEFORE the
promise
2. Incurred expenses in preparation for the K, missed opportunities
– out of pocket loss
3. Now worse off than if the promise had not been made
4. Usually only remedy for breach of agreement to negotiate in
good faith
E. Equitable Relief – Specific performance / Injunction
1. Success on the merit
a. Or likelihood of success on the merits for injunction
2. Irreparable injury
3. Satisfy balance of the equities
a. Hardship on the ∏ is greater than the hardship on the ∆
4. Public Interest Balancing Test

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Contracts Outline
I. Applicable Law
A. Common Law
1. Restatement – persuasive rather than binding
B. UCC
1. For Movable goods
C. If the K has mixed goals, UCC or CL?
1. Predominant Purpose
a. Goods  UCC
b. Services  CL

II. Formation Defects


A. Mistake
1. Definition
a. Belief that is not in accordance with the facts
b. The facts at the time of K are misunderstood
i. NOT the same as a bad prediction
2. Mutual Mistake
a. Elements
i. Mistake has to go to a basic assumption on which the K was made
ii. Mistake has to have a material effect on the exchange
iii. Avoiding party cannot bear the risk of the mistake
- K allocates risk to 1 party
- Party has a chance to be informed, and treats lack of
information to be sufficient
- Circumstances suggest that the party bears the risk
- Custom puts risk on party
· If seller undervalues something, custom says that the
risk of undervalue is borne by the seller
· If a buyer overvalues something, custom says that the
risk of overvalue is borne by the buyer
- If BOTH parties bear the risk and mistake – can rescind the K
· If both parties hire an expert to do an appraisal and
that person’s opinion is relied upon by both, neither
took on the risk
3. Unilateral Mistake
a. Above elements Plus
i. Enforcement of the K would be unconscionable
ii. OR non-mistaken party knew / caused the mistaken party to be
mistaken
4. Ways around Mistake
a. ‘As Is’ clause
i. K in which both parties assume that the place is fit for human
habitation / merchantable
- Buyer bears the risk of the loss
5. Restitution
a. Result of a mistake is that the K is voidable
b. BUT, if a party has paid $ on reliance
i. Down payment – party gets down payment back
ii. Unjust enrichment

III. K Terms
A. Doctrine of Reasonable Expectations – Rest. § 211(3)
B. Parol Evidence
1. Rest § 213 – 216
a. A binding integrated agreement discharges prior agreements to the extent
that it is inconsistent with them
b. A binding completely integrated agreement discharges prior agreements to
the extent that they are within its scope
c. An integrated agreement that is not binding or that is voidable and avoided
does not discharge a prior agreement
2. Rule
a. Is there a final expression of one or more terms of the agreement [writing]
i. If yes  go on
ii. If no  no PER
b. PE is not admissible to contradict one of those terms
c. Is this a complete integration? Writing is complete and exclusive of the
terms of the agreement
i. If yes  PER disallows adding, varying, or contradicting
3. Compare with SoF
a. Must have a final writing
i. If no writing, no issue
4. Evidence of prior or contemporaneous agreements & negotiations
a. Agreements & negotiations prior to or contemporaneous with the adoption of
a writing are admissible in evidence to establish
i. That the writing is or is not an integrated agreement
ii. That the integrated agreement is completely or partially integrated
iii. The meaning of the writing, whether or not integrated
iv. Illegality, fraud, duress, mistake, lack of consideration, or other
invalidating cause
5. Rationales
a. If the extra promise were so important, it would be in the final writing
b. Guards against fraud
6. Tests for integration
a. Appearance
i. Does the writing look like it’s complete?
- This one has been largely rejected
b. Separate consideration – Rest.
i. If there is separate consideration to support the extrinsic
c. Natural omission – Rest.
i. Would it be natural to leave the term out?
ii. Family Ks – tend to be more squishy, so might be more likely to leave
terms out of a K within family
d. Certain inclusion – UCC
e. Writing - Wigmore

Extrinsic Evidence UOT COD COP


Not integrated All Parol Evidence is OK Consistent OK
Partially integrated – complete Consistent Add’l Terms OK – Consistent OK
as to one or more terms may not vary on extrinsic
evidence though
Complete Integration No Parol Evidence Consistent OK (unless carefully
negated by merger clause)
UCC § 2-202(b) § 2-202(a)

7. PER – UCC
a. Express Language
i. Language of the K
b. Course of performance
i. UCC § 1-303
ii. Same parties, same K
- How have the parties interpreted course of performance
c. Course of dealings
i. UCC § 1-205
ii. Same parties in an earlier K
- Last time they K’ed, that is a relevant, good indication of what
they meant this time around
d. Usage of Trade
i. Different parties, different K, but same trade industry
e. Consistent or Inconsistent?
i. Some courts consider terms consistent unless the extrinsic evidence
flatly negates or contradicts an express term in the K
ii. Other courts take a more holistic approach, considering proffered
terms consistent if they are “reasonably harmonious” with the
language and the respective obligations of the K parties
8. Ways around PER
a. Interpretation
b. Formation Defect
c. Reformation
d. Subsequent modification
e. Where PER doesn’t apply

C. Interpretation
1. In General
a. Plain meaning from the document
b. Objectively discernable meaning
i. Objective manifestations tend to be favored
2. What were the parties intending?
a. Rest § 201 – when both parties mean A, if they make a valid K, the K will be
for A, even if there is ambiguity
b. When there are 2 different parties subjectively thinking two different things,
then there is no K
3. Two-step Process:
a. Is the K clear enough? Is there a plain meaning?
i. Are there any terms of art? Interpretive maxims?
b. If the language is ambiguous, look at extrinsic evidence for explanation and
questions of interpretation will go to the jury
4. General Rules of Interpretation
a. Purpose of the parties
i. Read the K language looking for the purpose of the parties
b. Consistency
i. Words used more than once should be interpreted the same each time
c. Terms of Art
i. Respect terms with established legal meanings, or established
meanings in trade usage settings
d. Reasonable / Lawful interpretations are preferred over unreasonable and
absurd ones
i. Drafters intent & public policy
e. Public Interest
f. Handwritten is preferred over typewritten, if there is a conflict
g. K should be read consistently throughout
h. If there is general language & specific language
i. Usually specific controls
ii. BUT – atty general and wiretapping – he says that it should be
general
5. Other rules
a. Pacific Gas (CA Rule) – every word is naturally ambiguous and if we don’t
look at extrinsic evidence, we are relying on a judge’s personal experience
and definitions
i. To bring in extrinsic evidence, you have to show relevance to prove a
meaning to which the language is reasonably susceptible
ii. Problem: this holding essentially makes all Ks liable to attack through
extrinsic evidence – but it is still a minority rule
b. Sometimes a party might want to make something intentionally vague so
that it can be interpreted however you want later – but it is bad drafting to
use something that can have two different meanings
c. ∏ usually bears the burden of proof
6. Maxims of K Interpretation
a. Read things against the drafter
i. Contra preferentem
ii. Ks of adhesion – uneven bargaining power
b. Read different parts of a K as a whole, giving effect to each
i. In pari material
c. Matters of the same kind should be treated similarly
i. ejusdem generic
d. The expression of one thing is the exclusion of another
i. expression unius est exclusio alterius
ii. If K says, you may have cats & dogs – may not have hamster
e. It is known from its associates
i. noscitur a socils
IV. Special K Terms & Gap Filling
A. Arbitration
1. K determines
a. How to define dispute
b. Who decides the dispute
c. On what basis
d. With what procedure
2. Enforcement
a. Federal Arbitration Act – courts will enforce arbitral awards
b. Courts give great deference to the arbitration provision in Ks
i. To the extent that there is any ambiguity  K law applies
3. Ways around Arbitration
a. Public Policy Argument
i. Still pretty hard to overturn arbitrator’s decision
4. Usually considered an independent agreement, so if a party repudiates, usually
cannot repudiate as to the arbitration agreement
B. Good faith & fair dealing
1. Elements
a. Inherently subjective
i. Credibility
ii. Guesswork about what the outcome should have been
b. Not bad faith
c. Must cooperate with K partner – must not do something to prevent them
from enjoying the K
i. Deprivation of something that they are entitled to under the K
d. Good faith does NOT trump terms that are explicit in the K – it is a gap filler,
not a K creator
2. Rules
a. Brother’s Keeper Rule – must act as though you’re the other party’s keeper
and act accordingly
b. Law of the jungle – anything goes
c. In the middle (Posner) – can’t exploit someone’s ignorance, but can take
advantage sometimes Market Street v. Frey
3. Remedy
a. Breach of K
b. Some jxs will not hear the case if this is the only breach
4. Good faith and the UCC § 1-201(19)
a. Definition
i. “Honesty in fact in the conduct or transaction concerned” 1-201(9)
b. Express terms
i. Implied covenant of good faith and fair dealings is present in all Ks as
if it was written there by the parties 1-203(3)
ii. Good faith, diligence, reasonableness and care may not be disclaimed
by agreement, but parties may by agreement determine the
standards by which performance such obligations are to be measured
as long as the standard is reasonable
c. Course of Performance
d. Course of Dealings
e. Usage of Trade
f. As long as implied terms do not flatly negate the K terms
i. UCC allows considering UOT, COD, COP, wty, GFFD in implied terms
as long as they don’t negate express K terms
ii. Alternate standard – reasonably harmonious
C. Best efforts
1. Default rule that K implies good faith provision
a. Use such efforts as would be made by a reasonable person under the same
circumstances
b. Best efforts are really just adequate efforts
i. COD, COP, UOT – apply as to what is ‘best efforts’
- As long as they are consistent with K terms
c. So, basically just adequate efforts and good faith are all that’s req’d
i. Some courts say that it should be the same efforts as if it were your
line of work
ii. Others say same efforts to another customer that you don’t hate
2. Express terms always trump implied terms
D. Terminable-at-will
1. Woods Rule – unless parties to employment Ks specify a specific amount of time or
if they specify that termination must be for cause, then relationship is terminable at
any time for any reason or no reason at all
2. Distributorships and franchises are usually explicit as to duration and termination, if
not, then courts will decide
3. Exceptions
a. Public Policy
i. Perjury
ii. Jury Service
iii. Union
iv. Worker’s Comp
v. Whistle Blower
- OSHA
- Sarbanes Oxley
- Title VII
b. Good Faith & Fair Dealing
i. Not gotten a lot of play in at-will employment cases
ii. Usually watered-down
iii. UNLESS – opportunistic firings or uneven application of rules
c. Implied K (modification)
i. Off-hand or casual remarks
ii. Employee handbook

E. UCC Warranties
1. Madison Moss Warranty Act – If you say warranty, it means a full warranty unless it
says specifically ‘limited warranty’
a. Applies to consumer goods
2. Title
a. § 2-312
i. Warranty for title is in the K that the title is good and transfer rightful
and that it is free from liens or encumbrances
ii. The buyer can’t have reason to believe that the seller does not claim
title
b. § 2-403(1) – good faith purchaser for value gets good title if transferor has
voidable title
i. Voidable title is title that is not good because of a bad check or
something like that
ii. Void is different – it is bad like stolen
iii. Nemo dat qui non habet – can’t give what you don’t have
c. § 1-205(2) – Usage of Trade
i. A usage of trade is any practice or method of dealing having such
regularity of observance in a place, vocation or trade as to justify an
expectation that it will be observed with respect to the transaction in
question
- So, no wty for watches bought in the bathroom at the bus
station
3. Quality
a. Express – § 2-313 – representation about the quality of a product
i. Affirmation of fact/promise
- Not puff, opinion or commendation
ii. Relate to the goods
iii. Basis of the bargain (reliance on express wty)
- If statement has any substance that might have played some
part in the buyer’s decision to buy, the burden is on the seller
to prove that the buyer did not rely
- If oral  jury decides
- If written  judge decides
b. Implied – automatically in the K unless the seller does something to get rid
of them (disclaimer)
i. Not express – oral or written
ii. Merchantability § 2-314
- At a minimum goods will work: must be fit for the ordinary
purpose for which it is used
- Seller must be a merchant with respect to those goods
- Food –
· Some say that if it is a natural substance as opposed to
a foreign object – no liability
· Others permit recovery if the biter’s reasonable
expectation is that it would have been removed
iii. Fitness for a Particular Purpose § 2-315
- Buyer relies on the seller’s j’ment or skill in deciding
4. Disclaiming §§ 2-316(2) and 2-316(3)
a. Express warranties are nearly impossible to disclaim § 2-216(1)
i. The proper way to avoid liability for an express warranty is no to
make it in the first place
ii. Ways around it:
- Incomplete integration, parol evidence
- If there is complete integration, prior oral disclaimers should
be excluded
- BUT – this usually doesn’t work
b. Must be conspicuous and easily explained
c. Must mention the word merchantability
d. Warranties of title can’t really be disclaimed
5. Damages
a. § 2-719 – may limit damages
i. (2) – excluding consequential damages is okay unless exclusive term
falls in its essential purpose
ii. (3) fine unless it is unconscionable & personal injuries are by
definition unconscionable
b. Most jxs require any remedy limitation to be conspicuous in order to be
effective

V. Conditions
A. Definitions
1. An event not certain to occur, which must occur, unless its nonoccurrence is
excused, but before performance under a K becomes due, to activate an existing K
duty
a. K is formed and then one party’s performance is dependent upon the
condition happening or not
b. Can be anything except TIME
c. Conditions should be very clear to be enforceable
2. Examples
a. Sale of a house
i. Passing inspection
ii. Getting the mortgage
b. Life Insurance
i. Loss within the policy
B. Kinds of Conditions
1. Subject matter
a. A condition cannot be something like Time or something that is certain to
occur
2. Promise vs. condition vs. promissory
a. Promissory condition – not a condition at all, it is a promise
b. Because law does not like forfeitures, if there is a question whether there is a
promise or a condition, the court will err on the side of promise
i. For promises, can get $ damages
ii. For conditions, you are relieved of your duty to perform
3. Express Condition
a. “If” “provided that” “on the condition that”
b. When there is ambiguity, courts prefer to find things as mere promises
rather than conditions  less hardship
i. Ex/ subcontractor getting paid upon the completion of pool is mere
promise – even if not finished, should probably be paid at least part of
what is owed
ii. Someone asking to open a mine, and getting paid upon opening might
be conditional because there is more of a risk that it might not
happen
- Look to intentions of the parties
4. Implied Condition
a. May not be in the K, but it can be reasonably surmised that one party’s
action would be dependent on the condition occurring
5. Constructive Condition
a. Opposite of express conditions
b. Can be implied
c. Constructive – implied in law, created by courts to make a K work
i. Analysis
- Performance – independent or dependent (conclusory)
- Breach – material or immaterial
- Has there been substantial performance?
· If yes, then that constructive condition has been
satisfied
· But, there may be a claim for damages if the
substantial performance is not complete
6. Condition Precedent
a. Event that has to occur before performance becomes due
b. If one end of the bargain takes substantially more time to do (like painting a
house vs. payment for the painting) you should make this a condition
precedent
c. Can bargain around this
7. Condition Subsequent
a. Extinguishes a duty that has already arisen
b. Event that terminates a duty
c. Most common – insurance company  relieved of duty to pay if you quit
paying your premium
8. Conditions Concurrent
a. Events that must occur simultaneously
b. Very common
C. Issues
1. Interpretation
2. Conditions of satisfaction
a. Depends on how subjective the beholder has to be
i. Painting/literature (more subjective) – beholder can decide on his/her
own whether satisfaction condition is met
ii. Painting a barn (more objective) – there is an objective acceptability
b. 3rd Party Satisfaction
i. Typically in the construction context
ii. Contractor gets paid as long as the architect says that the work was
done or completed to specs
iii. As long as architect is unbiased, good faith is the standard, but it is
still subjective – more discretion
iv. NY – it is objective – could bring in other architects to judge whether
it was a good job
3. Excusing conditions (Prevention)
a. Good faith and fair dealing is part of every K
i. Cooperating and not preventing a party from getting what they are
entitled to under the K
ii. If on prevents a condition from happening, the court may excuse it
- Ex/ seller backed out, prevented the condition (sale) from
happening; brokers can say that seller prevented the
condition, so they don’t owe him money, but he still has to pay
commissions
- Ex/ life insurance – some guy applied in the a.m. for life
insurance, obligation to insure him was conditioned on getting
the okay from the actuarial algorithm; in the p.m. he dies.
Insurance co says that he would not have met the condition,
but they didn’t even run it, so since they prevented him from
meeting the condition, they lost the benefit of the condition
4. Satisfying conditions
5. Waiving conditions
a. If condition exists only for one party’s benefit, that party can waive that
condition on performance and go ahead without it
i. Party does not have to insist on a condition that would only benefit
them, they may waive that condition
ii. Must be voluntary
iii. Can unwaive or retract waiver so long as the other party has not
relied on the waiver
D. Mitigating Doctrines
1. Prevention
a. If one prevents the occurrence of a duty, one will be precluded from
asserting the non-occurrence of the condition
2. Waiver
a. Excuse of non-performance – if one wants to waive a condition, that’s fine
i. As long as waiver happens before the condition fails
ii. Election happens after
E. UCC Conditions
1. Perfect Tender Rule § 2-601
a. Whether delivery is perfect or not
b. If not perfect, then the buyer can send it back on delivery
c. If goods or tender of delivery are imperfect in any way, the buyer doesn’t
have to perform
i. NOT substantial performance
ii. Buyer can
- Reject
- Accept & sue for damages
- Accept some and reject others
iii. If time of performance hasn’t yet arrived, the seller has until the time
of the K to cure/fix any mistakes
2. If buyer has already accepted the goods, and only later buyer discovers defect, then
§ 2-608
a. If there is non-conformity, then goods have to substantially impair their
value to the buyer
3. Larger, multi-delivery K  installment K § 2-612
a. As policy we want to encourage long-term relationships
b. If there is a nonconformity with regard to one shipment, buyer can only send
it back if the goods substantially impair the value of that installment
c. Buyer can only claim breach of the whole K when there is a breach that
substantially impairs the value of the whole K

VI. Substantial Performance


A. If something is completed, if the deviations are trivial and insignificant, the K is fine
B. If someone substantially performs, you are not relieved of your obligations to perform, but
you can get damages for the difference between the K and performance
C. Applies only to Constructive Conditions – if something is expressly a condition of the K, it
usually must be satisfied exactly
1. Specifications in building Ks are not express
2. Every sings specification is a condition precedent to my obligation to pay  NOT
allowed
D. Willful deviation can preclude a finding of substantial performance

VII. Breach
A. At common law
1. Maybe the time of performance hasn’t come, but there might be something that
suggests that the party will not perform
2. Materiality
a. Not entitled to damages unless the breach is material
i. Similar to substantial performance – did you get substantially what
you bargained for? Did the breach destroy the value for you?
b. Rest 2d § 241 – Circumstances significant to determine whether a breach is
material
i. Has there been substantial performance or not?
ii. The injured party would be denied benefit of what he expected
- Departure from K trivial or significant
iii. Can injured party be compensated?
iv. Failure to perform = forfeiture?
v. Likelihood of cure
vi. Good faith
3. Substantial Performance
4. Restitution for breach
a. Divisibility and Restitution
i. If one did not breach on ALL terms, and it can be divided, person
should be compensated on the ones where there was performance
ii. Sort of Prorate the K price according to where there was performance
B. Under UCC
1. Perfect Tender Rule (old rule)
a. Whether delivery is perfect or not
b. If not perfect, then the buyer can send it back on delivery
c. If goods or tender of delivery are imperfect in any way, the buyer doesn’t
have to perform
2. Perfect Tender Rule (old rule) – if there is any deviation, material or immaterial,
buyer could reject
3. New Rule § 2-601 – allows buyer to
a. accept fully
b. reject fully or
c. accept some and reject others
4. § 2-501 allows seller a chance to cure the defect
a. If time of performance hasn’t yet arrived, the seller has until the time of the
K to cure/fix any mistakes
5. Revocation of acceptance – If buyer has already accepted the goods, and only later
buyer discovers defect, then § 2-608
a. If there is non-conformity, then goods have to substantially impair their
value to the buyer
6. Installment Ks
a. If breach is made after performance and only payments are required in
installments, repudiation does not accelerate those payments
b. In general, breach of one K in a series of Ks does not mean breach of all
c. But, could cause acceleration of installment payments

VIII. Excuses for Non-Performance


A. Formation Defect (see above)
1. Mistake
B. Suspending Performance
1. Is there an uncured breach by the other party?
a. Was it a breach of duty of an exchange of promises of performance
(dependent/independent)
2. Is the breach material?
a. Does it justify self-help?
i. Termination
ii. Suspension by the party
- As opposed to seeking a remedy from the court
b. If the breach is material
i. Injured party’s obligations are then lifted  can suspend
c. If the breach is immaterial
i. Injured party still has to perform – cannot suspend
ii. But, may still have a claim for damages
d. Rest. § 241 – Materiality
i. Is the injured party going to obtain a substantial benefit which
he could have reasonably anticipated?
ii. Can the injured party be compensated by damages?
iii. Had the party failing to perform made preparations for
performance?
iv. Hardship in terminating the K
v. Motivations of the Parties
- Willful breach
- Negligent
- Innocent
3. If the breach is immaterial, but you guess that it is material & suspend
performance, you are the one that has breached, probably materially
a. Should tread lightly
4. Usually have to give the other party a chance to cure – can’t just suspend
performance immediately
a. JX split as to after-suspension-acquired facts

C. Anticipatory Repudiation
1. Elements
a. Before the time that performance is due, someone repudiates by doing
something in their language, being sufficiently positive to be reasonably
interpreted that they cannot or will not perform
i. Language is construed broadly
- Written
- Oral
- Actions
b. May not have to wait until they actually breach to sue
i. If 1 party repudiates and their end of the bargain is dependent on the
other performing, can be treated as a present total breach
- Depends on whether other party would have been able to
perform (material)
ii. Might be better to mitigate or seek relief immediately because if you
don’t, repudiator may not be liable for excess damages
c. Anticipatory repudiation, must be by clear, unequivocal, and voluntary
expression of intent to discontinue K § 2-611
2. After Repudiation
a. Repudiating party can retract or renounce repudiation up to a point
i. Can no longer retract once the recipient relies on repudiation OR
accepts repudiation
ii. Receiver of repudiation has right to create a window within which the
repudiator has to retract
- Locus Poenitentiae – window of time where one has to retract
repudiation
3. NOT repudiation
a. Failure to take required preparations is not anticipatory repudiation – even if
it makes performance impossible
b. Expressing doubt about performance is not enough for repudiation
c. Repudiation does not relieve someone of an arbitration clause
4. One-sided K – repudiation doesn’t apply
5. Recurring payment
a. Missing a payment doesn’t necessarily create a breach of the whole K
b. May kick in an accelerated payment – term in K that creates an obligation to
pay the whole rest of the K upon missing a payment
6. UCC § 2-713
a. If seller breaches, buyer can learn of breach when
i. There is a repudiation
ii. Repudiation plus a commercially reasonable time
iii. When performance is due under the K
iv. Buyer is responsible for mitigating damages
b. If buyer intends to repudiate § 2-610
i. Must notify seller of intent to repudiate
ii. Resale – seller gets difference between K price and resale price plus
incidentals & consequentials less mitigation
iii. Hypo Resale
c. 2-713, 2-723, 2-611

D. Demanding Adequate Assurances


1. UCC § 2-609
a. Must be reasonable grounds for insecurity
i. Then there is the right to demand adequate assurances
- 2d version requires demand to be in writing, but no one has
adopted it yet
ii. May suspend performance, if commercially reasonable, until
assurances are given
iii. If there are no adequate assurances given within a reasonable time,
constitutes repudiation
2. MUST have reasonable ground
a. May not use the demand to rewrite the K
b. UOT
c. COD
d. General K interpretation
E. Damages for Repudiation
1. CL – at the time of the breach
2. UCC – whatever is a commercially reasonable time
a. Between repudiation & failure to perform
b. For non-delivery
i. Incidentals
ii. Consequentials
3. Exception: if breach is made after performance such that only duty is to finish
paying in installments

F. Impossibility, Impracticability, & Frustration of Purpose


1. Issue – Excuse for non-performance
2. Impossibility
a. Subject matter is no longer there
i. Fire
b. Failure of the agreed upon means of performance
i. If both parties depend on a 3rd party & the 3rd party goes under (if
goods are unique enough)
c. Death or Incapacity
d. Intervention of law
e. Delay by action of law
3. Impracticability
a. Changed circumstances
b. If due to those changed circumstances performance would be unbearable
from a commercial perspective, one is excused
4. Frustration of Purpose
a. If before performance is due, party’s purpose in entering into the K is
destroyed, courts will sometimes discharge one from performance
5. History
a. Traditional Rule – basic assumption that performance will be possible
b. Force Majeure Clause
i. Expressly excuses performance by Acts of God, labor unrest, etc.
ii. Largely redundant now given the modern law
- Only purpose they might serve is that it might be clearer and
enlarge upon the situations where performance is not possible
6. Modern analysis
a. Transalt. Freighting v. US
i. Suez Canal closed, transatlantic had to go around the Cape of Good
Hope; cost $43K more
ii. Shipper asked for more $$ in attempt for good faith modification of
the K
b. Analysis (UCC 2-615 & CL)
i. An unexpected contingency occurs
ii. Non-occurrence was a basic assumption on which the K was made
iii. Party seeking to invoke excuse cannot have assumed the risk
 Promisor not being able to perform
7. Compare with Mistake

Mistake Imposs/Imprac/Frustration
Belief not in accordance with the facts Contingency – something unexpected
Basic assumption of the K Non-occurrence was a basic assumption of K
Material effect of the risk Render performance ‘commercially impossible /
impracticable’ (or frustrating party’s purpose)
No assumption of risk No assumption of risk

8. Frustration of purpose
a. Excuse for non-performance
b. When something out of the party’s control happens that sort of defeats the
purpose of them performing
 no longer of value to the promisee
9. Rarely successful
a. Narrow K excuse for non-performance
b. Cannot have been caused by the party seeking the imposs/imprac defense
10. Total excuse or equitable reform
a. Commercial imposs/imprac – not that it is totally impossible to perform, just
that performance has little or no value remaining

IX. Third Party Issues


A. 3rd Party Beneficiaries
1. History
a. Privity requirement – no longer req’d
b. Lawrence v. Fox
i. Holly owes Lawrence; Holly gives $$ to Fox for Lawrence; Fox doesn’t
pay; Lawrence sues Fox
ii. Court says okay even though he is not a signatory
2. Modern Analysis
a. Intention to benefit
i. Both parties intend the 3rd party to benefit  Req’d
- Ex/ Life insurance: both the insured and the insurer intend for
the beneficiaries to benefit
ii. Unintended / Incidental beneficiaries  not enforceable
- Ex/ t-shirt seller and the bad call
st
b. Rest 1 § 133
i. Intent to benefit 3rd party
- Donee beneficiary – 3rd party beneficiary isn’t owed anything,
but rather, the parties or one of the parties intended to bestow
a kind of gift
- Creditor beneficiary – sort of an automatic intention
- Incidental beneficiary – cannot sue; are not intended by the
parties of the K to have a legal right to sue
nd
c. Rest 2 § 302
i. Parties intend to confer benefits on 3rd party
- Performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary
- Donees and other creditor beneficiaries that are not included in
above
ii. Incidentals – cannot sue
d. Public beneficiaries
i. The larger the public gets for public beneficiaries, the less likely the
parties will have intended to confer legal right to sue on all of them
3. Other issues
a. Product liability & privity
b. Vesting
i. Rest 3d § 311
- If the 3rd party justifiably relies
- If the 3rd party sues
- Manifests assent to the promise at the request of the promisor
or promisee
c. Promisee’s right to enforce
i. Promisee may sue the promisor for not conferring benefit on
beneficiary
d. ∆ against promisee
i. 3rd party can sue the promisee for not conferring the benefit

B. Assignment & Delegation


1. Nature: What, When, etc.
2. Assignability
a. Unilateral present transfer of K rights to a 3rd party
i. Obligor can’t say anything about it
ii. Must be present, not like “I will…”
b. Can be for consideration or not
i. If yes, irrevocable
c. Can be written or not
d. Gift assignment – can be revoked
3. Effect of assignment
a. Any right can be assigned unless
i. The right of the assignor would materially change the duty of the
obligor
ii. It would materially increase the risk of the obligor
iii. It would materially impair the chance of the obligor to obtain a return
performance
iv. Or, materially reduce the value of the return performance
b. ∆ against assignee
4. Delegatability
a. Someone who has a duty then delegates duty to someone else
i. If services are fungible (or $$) it’s fine
5. Efect of delegation
a. May not delegate if
i. The identity of the person is important
ii. The K says no delegation
iii. If the duty has to do with special skills/qualities of a specific person
b. Recipient can sue either the delegating party or the delegate
6. Compare: Novation
a. The only way to get the delegating party out of the picture would be to get a
novation

X. Remedies
A. Damages
1. Direct
a. Cover
b. Resale
c. Cost
2. Indirect
a. Incidental Damages – costs incurred in ascertaining that there was a breach
i. Ex/ cost of finding another job
b. Consequential damages – costs incurred indirectly as a result of breach
i. Damages are not recoverable for loss that the party in breach did not
have reason to foresee as a probable result of the breach when the K
was made
ii. Ex/ lost profits
iii. Under CL, incidental is also a consequential damage
c. UCC - § 2-715 – Incidental/Consequential Damages
i. Incidental damages resulting from the seller’s breach include
expenses reasonably incurred in inspection, receipt, transportation
and care and custody of goods rightfully rejected, any commercially
reasonable charges, expenses or commissions in connection with
effecting cover and any other reasonable expense incident to the
delay or other breach
ii. Consequential damages resulting form the seller’s breach include
- Any loss resulting from general or particular requirements and
needs of which the seller at the time of K had reason to know
and which could not reasonably be prevented by cover or
otherwise; and
- Injury to person or property proximately resulting from any
breach of warranty
3. Substantial performance
a. If SP – and the person is not going to undo and redo sub-par work, then the
difference in value is usually what’s awarded
b. If NOT SP – diminished value is used

Common Law UCC


Repudiation Same Same
Breach Substantial Performance / Perfect Tender Rule
Materiality Substantial impairment
Options Total / partial breach Perfect Tender Rule / Cure
Remedies Expectation Remedies Roundup
Reliance
Repudiation

B. 3 Interests
1. Expectation
a. Elements
i. Try to put the injured party in the position they would have occupied
if there had been no breach  looking forward
ii. Meant to fill expectations that arise
iii. Usually the most substantial
b. Formulas
i. ED = Loss in Value + Other Loss – Cost Avoided – Loss Avoided
- LIV = cost of the K
- OL = other costs of K
ii. ED = Cost of Reliance + Profit – Loss Avoided + Other Loss
- These should not include overhead and other costs that injured
party would have incurred with or without a K
c. Cover – If had to go elsewhere to buy another widget  the difference
between negotiated price and price paid elsewhere
2. Reliance
a. Definition
i. Looking back, to put the person in the position from BEFORE the
promise was made
ii. Now worse off than if the promise had not been made
b. Calculation
i. Incurred expenses in preparation for the K, missed opportunities – out
of pocket loss
ii. Usually the only remedy for breach of agreement to negotiate in good
faith
3. Restitution
a. Definition
i. Does justice require enrichment to be disgorged?
ii. Not only did the person rely on a promise, but a benefit was conferred
on the promisor
b. Calculation
i. Least common
ii. Usually when there is no K, but benefit was conferred in pre-K stage
when parties believe K is imminent
C. Equitable Relief
1. Specific Performance
a. Usually only required when ONLY that performance will suffice
b. Not required when $ can cover the harm
2. Injunctions
a. Success on the merits
b. Public necessity
c. $ damages would be inadequate
D. Limitations
1. Foreseeable
a. Damages are limited to those that arise naturally and are contemplated by
the parties at the time of contracting  Hadley Rule
b. Elements
i. Arise Naturally
- Probability vs. Possibility
ii. Communicated to the ∆
iii. Time of Contracting
iv. Contemplation of the parties
c. UCC  governed by Hadley
i. § 351(3)
- Stop-gap measure
- Assume that Hadley applies
- Court can limit damages for foreseeable loss by allowing
recovery on reliance if justice so requires to prevent
disproportionate compensation
d. Tacit agreement test – did the parties tacitly agree that these kinds of
damages would be recoverable?
i. What did the parties actually view as their responsibilities?
ii. This test has not gained favor
iii. Involves speculation
2. Unavoidable
a. Mitigation
i. Affirmative – proactive steps to avoid damages
- May have to do something in the alternative to avoid damages
- BUT, do not have to do something that is not substantially
similar to performance under the original K
· Ex/ Shirley MacLaine case – did not have to take the
other role to mitigate damages because it was not
substantially the same
ii. Negative – stopping performance when you find out that the K has
been breached
- Cannot recover for more than what could have avoided by
simply stopping work
- Can’t just rack up more and more expenses and then sue for
more money
3. Certain
a. Does not have to be 100% certainty – just has to be out of the realm of
conjecture
i. Ex/ brand new business can not collect for loss profits – no way of
knowing what lost profits would be
4. Compensatory
a. Emotional Distress
i. Usually not awarded in Ks; Could probably apply a separate tort claim
and bring emotional distress claim, but not for BoK
ii. No punitive damages in Ks
5. Caused by the Breach
E. Other Issues
1. Lost volume sellers
a. Resale is not enough
b. Without breach, would have sold more
i. Ex/ MRI machine – were able to sell the one, but if buyer had not
breached, would have sold 2 machines
2. Losing Ks
a. Should not be allowed to get more in reliance than in expectation
i. So, if they would have expected to make less money than they spent
on reliance, they are entitled to no damages even in the event of a
breach
ii. Injured party should not be better off just because there was a breach
- BUT – this is not the case with restitution  restitution is like
suing outside of the K for unjust enrichment where the injured
party has conferred a benefit on the breaching party and
should be compensated accordingly
3. Liquidated damages
a. Purpose:
i. To coerce the promisor into performing the promise
- BUT – should be about compensation, not about coercion
ii. To provide a convenient method to determine the amount to be paid
in the event of a breach
iii. To put a limit on the amount of the loss to be borne by the breaching
party
- Could be better for the breaching party
- If there was no actual loss, then there is no compensation
usually  would be unenforceable
b. Rules
i. Must be reasonable estimate of actual damages
- Reasonable in relation to estimated/forecasted amount OR the
amount of actual damages (UCC & Rest 2d)
· So, even if the stipulated damages were totally
excessive at the time of K-ing, but they end up being
actual damages, that’s okay
· BUT this is not how most jxs do it
ii. Damages are uncertain at the time of K-ing
iii. [Parties agree to stipulate damages in advance] – in some states
c. UCC § 2-718
i. Only 1 factor: whether liquidated amount is reasonable in light of the
anticipated or actual harm caused by the breach
d. Good so that parties can decide up front how much it will cost if there is a
breach
i. May not even need to sue each other
ii. May NOT be meant as a penalty for breach
- BUT calling something a penalty does not mean that it’s
automatically a penalty
· Just like calling something a K doesn’t make it a K and
calling something a worksheet doesn’t make it a
worksheet
Warranty of Title § 2-312
(1) There is in a K for sale a warranty by the seller that
(a) the title conveyed shall be good, and its transfer rightful; and
(b) the goods shall be delivered free from any security interest or other lien or
encumbrance of which the buyer at the time of K has no knowledge
(2) A wty under (1) will be excluded or modified only by specific language or by
circumstances which give the buyer reason to know that the person selling
does not claim title in himself or that he is purporting to sell only such right or
title as he or a third person may have

Express Warranty of Quality § 2-313

(1) Express warranties by the seller are created as follows:


(a) Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the affirmation or promise
(b) Any description of the goods which is made part of basis of the bargain
creates an express warranty that the goods shall conform to the description
(2) It is not necessary to the creation of an express warranty that the seller use formal
words such as “warrant” or “guarantee” or that he have a specific intention to make
a warranty, but an affirmation merely of the value of the goods or statement
purporting to be merely the seller’s opinion or commendation of the goods does not
create a warranty

Implied Warranty of Merchantability § 2-214

(1) Unless excluded or modified, a warranty that the good shall be merchantable is
implied in a K for their sale if the seller is a merchant with respect to goods of that
kind. Under this section the serving for value of food or drink to be consumed either
on the premises or elsewhere is a sale
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the K description; and
(b) in the case of fungible goods, are of fair average quality within the description;
and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, or even kind, quality, and
quantity within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may
require; and
(f) conform to the promise or affirmations of fact made on the container or label if
any
(3) Unless excluded or modified, other implied warranties may arise from COD of
UOT

Implied Warranty: Fitness for a Particular Purpose § 2-315


Where the seller at the time of K has reason to know any particular purpose for
which the goods are req’d and that the buyer is relying on the seller’s skill or j’ment to
select or furnish suitable goods, there is unless excluded or modified under the next section
an implied wty that the goods shall be fit for such purpose.
Disclaimers: Exclusion or Modification of Warranties § 2-316

(1) Words or conduct relevant to the creation of an express warranty and words or
conduct tending to negate or limit warranty shall be construed wherever reasonable
as consistent with each other; but subject to the provisions of this Article on parol or
extrinsic evidence, negation or limitation is inoperative to the extent that
such construction is unreasonable.
(2) Subject to subsection (3), to exclude of modify the implied warranty of
merchantability or any part of it the language must mention merchantability and
in case of a writing must be conspicuous, and to exclude or modify any implied
warranty of fitness the exclusion must be by a writing and conspicuous.
Language to exclude all implied warranties of fitness is sufficient if it states, for
example, that “There are no warranties which extend beyond the description on the
face hereof.”
(3) Notwithstanding subsection (2)
(a) Unless the circumstances indicate otherwise, all implied warranties are excluded
by expressions like “as is”, “with all faults” or other language which in common
understanding calls the buyer’s attention to the exclusion of warranties
and makes plain that there is no implied warranty; and
(b) When the buyer before entering into the K has examined the goods or the
sample or model as fully as he desired or has refused to examine the goods
there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to him; and
(c) An implied warranty can also be excluded or modified by COD or UOT

Limitation of Remedy (Damages) § 2-719

(1) Subject to the provisions of subsections (2) and (3) of this section and of the
preceding section on liquidation and limitation of damages,
(a) the agreement may provide for remedies in addition to or in substitution for
those provided in this Article and may limit or alter the measure of damages
recoverable under this Article, as by limiting the buyer’s remedies to return
of the goods and repayment of the price or to repair and replacement of
non-conforming goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is expressly agreed
to be exclusive, in which case it is the sole remedy
(2) Where circumstances cause an exclusive or limited remedy to fail of its
essential purpose, remedy may be had as provided in this Act
(3) Consequential damages may be limited or excluded unless the limitation or
exclusion is unconscionable. Limitation of consequential damages for injury to
the person in the case of consumer goods is prima facie unconscionable but
limitation of damages where the loss is commercial is not.
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Overview
What is a contract? A promise or set of promises for an exchange of goods, services, and behavior. Law
recognizes a duty to perform, and provides a remedy for a breach [specific performance OR damages].
Contracts focus more on business deals, then on personal matters/promises.

Importance of contracts:
1. Need to decide when promises are going to be enforceable
a. Ensure stability, certainty, predictability
2. Economic theory: world becomes a better place when a contract is made
3. Efficiency: there are limited resources so let’s move them where they’re needed

Purposes of contracts: [Sometimes formalities good in Form v Substance conflict]


1. Cautionary fcn: makes people think twice before making their promise. Protects fair-minded people who
make a contract
2. Channeling fcn: gives courts guidelines to know hen to enforce/not enforce a promise
3. Evidentiary fcn: provides evidence of people’s intent [whether contract made or not]

Moral Obligation:
1. CL: Courts refuse to allow morality to play a role in legally enforceable contracts
a. Morality varies individually
b. Moral obligation to follow through on every promise, so every promise would be binding

Autonomy v Paternalism:
1. Autonomy: freedom to contract. People agree on their own terms
2. Paternalism: Courts intruding on this freedom to protect a party in a contract from its own specified terms

Theories of Obligation:
1. Contract – if has consideration
2. Quasi-Contract – if unjust enrichment can be avoided (no promise actually made)
3. Promissory Estoppel – if a person relies on a promise made w/o bargain or consideration = a promise
which causes reasonable, foreseeable detrimental reliance

Some definitions:
1. Consideration: Something of value received by a P’r from a P’e
2. Benefit: privilege/profit/gain
3. Bargain: an agreement between parties for the exchange of promises or performances. A bargain is not
necessarily a contract because the consideration may be insufficient or the Tx may be illegal
4. Promise: the manifestation of an intention to act or from acting in a specified manner, conveyed in such a
way that another is justified in understanding that a commitment has been made; a person’s assurance
that the person will or will not do something
5. Gratuitous Promise: a promise made in exchange for nothing; a promise not supported by consideration
6. Reciprocal Conventional Inducement: directed by each other toward the others; generally accepted rule
or custom; the benefit or advantage that causes a P’r to enter a contract – a consideration will induce a
promise (which is considered of value to the P’e), and a promise will induce for supplying the
consideration (which is of value to the P’r)
7. Detriment: the relinquishment of some legal right that a promise would have been otherwise been entitled
to exercise
8. P’r: maker of promise
9. P’e: recipient of promise
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Types of Contracts:
1. Unilateral: ONE side is making a promise [other side is performing an act]
a. Ex. Hamer v Sidway : kid never “promised” to forbear, he just did
b. P’e is one who gets assurance of future, but P’r doesn’t [only gets what he wants]
2. Bilateral: both sides make a promise
a. Basic premise is that a promise can be consideration for another promise (Get RCI by each
other’s promise)
b. Both sides are P’r and P’e since each get assurance about future
c.
3. Comparison: P’e better off in a unilateral. P’r from a unilateral better off since now have future
assuarances

Conditional Promise: Conditional if its performance will become due only if a particular conditional event
occurs
1. Doesn’t mean promise is unenforceable until the event occurs, but only that the event must occur before
P’r must perform
2. Where party makes bilateral promise, it can be protected by making its own promise conditional on
performance by other party
3. Where promises not performed at same time, like service contract, usual rule is that work is made a
condition of payment

Elements of a Contract:
1. Consideration
2. Offer
3. Acceptance

CONSIDERATION

1. Traditional Theory
a. Detriment to P’e [P’e must do something he doesn’t have to do, or forebear from doing something
he can legally do. Inconsequential if P’e also benefits from harm Hamer v. Sidway] OR
i. Bjerre feels that giving up something illegal/legal are both fine for consideration since
giving up a freedom of action
b. Benefit to P’r
2. Modern Theory: RSC §71: For consideration, a performance or a return promise must be bargained for.
Bargained for if its sought by P’r in exchange for his promise and is given by P’e in exchange for that
promise. – Both parties must seek something from the other. Query: Has there been an exchange [A quid
pro quo “this for that”]?
a. Based on Holmes RCI theory: Each = motive for other; law only recognizes the state motive not
necessarily the “real” motive unless same
b. Ex. Hamer v Sidway under modern. Still works since both induced other. DOES NOT MATTER
IF IT’S A BENEFIT/DETRIMENT TO ANYONE, ONLY IF ITS ENOUGH TO INDUCE
EXCHANGE [Focus = relationship between promise and consideration]
i. This weeds out some errors of the bargain approach which doesn’t focus on relationship
between promise and consideration

Consideration considerations:
1. Need a bargained for exchange [§71]
2. Don’t care about actual motives, only care about whether intent is to induce
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Things that are not consideration: [Think of Form v. Substance theme]
1. Past performance : not bargained for, already get it [Feinberg: no consideration since pension for past
consideration instead of future employ]
2. Moral obligation
3. Mere pretense (peppercorn) – under strict RCI would qualify, but law beyond that, still a hard test since
need all the facts [Ex. P. $1 for a Porsche; Even P. $2k if continue to work could be a mere pretense if
not serious about work continuation]
4. Illusory promises: sounds like a promise has been made, but really hasn’t [Form of promise, but not
substance of one]
a. Levels
i. Unrestricted termination clause makes K illusory : no consideration b/c party w/ right to
terminate is not bound; “at any time” or “for no reason at all” sure signs of no
consideration
1. [Strong v Sheffield: no consideration since did not specify a forbearance length
“completely unfettered”. Even though did get a forebearance, never got any
assurance of one. Consideration is to be tested by agreement, not what was
done under it] [Could have been a valid unilateral K ??]
ii. Restricted termination clause – doesn’t necessarily render K illusory [either includes a
notice before termination or doesn’t include terms such as “at any time” or “for any
reason”
iii. Satisfaction Clause – doesn’t necessarily render a K illusory (Satisfaction could be
equated to “good faith” (subjective) or reasonable person strd) (objective), therefore has
substance and isn’t illusory]
1. Mattai: promised to buy land if could satisfactorily find buyers – court used
subjective test here and upheld K
iv. Requirements/Output Clause – doesn’t necessarily render a K illusory [They are valid if
requirements can be objectively determined to be reasonable]
1. Eastern court determined the term require to mean “require in good faith”,
therefore, not illusory since, although not specifically specified, “require in good
faith” could be determined as reasonable
b. RSC §77 : a promise or apparent promise is not consideration by its terms, the promisor or
purported promisor reserves a choice of alternative performance
5. Gratuitous promise – promise made w/o consideration [Many of above entail a gratuitous promise]
6. Conditional gratuitous promise not consideration [but fine line exists] (if you go around the corner, I’ll
buy you an overcoat – no inducement because P’rs motive is not to get tramp to go around the corner. If
could snap fingers and get him a coat, just as well)
a. “If…then” not good way to distinguish between contracts & gifts

REWARDS:
1. By RSC §71(2) : if one does not know of reward, not induced by it = no consideration. If knew of reward,
then induced by it so consideration.
a. As long as know of reward but have another motive, court will presume partially taking
advantage of it, so consideration

Can the court interpret a contract’s language? YES [Substance v. Form; Aids in autonomy, right to contract]
1. Court can Imply in fact a contract and enforce what was implied and not written into contract. Language
must always be interpreted. “A promise may be lacking, and yet the whole writing may be instinct with
obligation” [Cardozo in Lucy]
a. Ex. Lucy contract is upheld since Lucy bound by Ps “good faith, reasonable efforts” to sell,
although not said in so many words, is implied
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At-Will E’e Contracts: Amount to an unrestricted termination/illusory promise since can terminate/quit “at
any time”
1. Consideration for a RC as part of work can be valid if:
a. For promotion
b. Before hired as part of deal
c. For a guaranteed amount of employment time
d. Bjerre disagrees with this but CAB said After started work AND Actual continuation of
employment [Not valid since still made w/ less bargaining power, not a free exchange] – even
though had “substantial” employment, turning a bi-lat into a uni-lat K, still iffy, contradicts
Strong v Sheffield. HOWEVER, could have succeeded under PE
2. E’e bound to handbook terms even if unbargained for, giving after hire, may not have read/received it
[Policy: continued performance of duties = acceptance and necessary consideration w/ bank getting more
stable/productive work-force] [Some courts say this]
3. E’r can’t unilaterally change/modify terms to reduce E’e rights w/o providing consideration [Some courts
say this]
PE & Quasi K

General:
1. Only applies if K/promise lacks consideration making it invalid
2. Central element of K = consideration
a. PE like detriment to P’e w/o bargain
b. Quasi-K like benefit to P’r w/o bargain

Sometimes society deems it necessary to enforce “gratuitous promises”: Must ask:


1. Society better off when an exchange happens
2. Exchange is voluntary assurance that one is getting what they want
a. Whole mechanism missing with GPs – does not lead to a bettering of society

PROMISSORY ESTOPPEL

Definition: The basic fcn is to make a K enforceable if:


1. Promise is made w/o consideration
2. Reliance on the promise [Reliance doesn’t = consideration but this doctrine will preclude an individual
from not claiming consideration]
3. RST §90 PE binding when:
a. P’r should “reasonably expect” [or reasonably foresee] [objective] promise to induce action or
forbearance from P’e [or 3rd person]; AND
b. Which does induce such action or forbearance [P’e “relies” on promise]; AND
c. Injustice only avoided by enforcement of promise. [Detriment]
d. [Limited may be granted as justice requires]

When can get PE?


1. If relying on promise leaves you worse off [Ricketts: grandpa promised niece $2k gratuitously, she quits
relying on money : PE upholds this]
2. If rely on promise and condition changes during time of reliance [Feinberg: they gave her pension “gift”
for life. At first, she quit on own, but over time she got older and sicker]
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a. Hypo: Probably couldn’t get PE if P discussed quitting for 7 months prior since was not planning
on “relying” on money. Could argue changed mind about retiring before promise, but still tough
case.
3. No PE if fail “reasonable” test [Alden v Presley: executor disavowed promise so no longer foreseeable
that she should still rely on it. (Gift to pay off house if get divorced)]
4. Family Promises
5. Promises to Convey Land: Promise to convey land on which P’e relied by moving onto the land and
making improvements
6. Charitable subscriptions: possible to enforce a promise by finding an exchange amount among
subscribers for benefit of (and enforceable by) the charitable organization; or by finding the charity had
to do something in exchange for the subscriber’s promise
a. RST §90 RD2 : charitable subscriptions don’t require that promise induce reliance Policy: society
has deemed it important to encourage charitable contributions

QUASI-CONTRACT
Other names:
1. Restitution : means you got something and so you need to give something back of value in order to avoid
injustice
These 3 all mean same:
2. Constructive Contract
3. Contract implied-in-law
4. Quantum meruit

Definition: “IMPLIED BY LAW” K is not based on the intent of parties, imposes an implied promise based
on what most people would want. Its a “legal fiction”
1. Use to avoid unjust enrichment
2. Based on what reasonable person would want done
3. Different then taking K and to “IMPLY IN FACT” what the parties intended
a. “K or promise implied by law…very different [then] contract in fact, whether express or implicit.
A K implied by law rests on NO EVIDENCE. It has no actual existence”

Elements:
1. D was enriched; AND
2. Unjust to keep that benefit w/o paying for it.
3. [No requirement a promise has been made]
4. [Need to determine what does it mean to have injustice? When is there injustice?]

Who deserves claim?


1. Officious intermeddler: NO [midnight house-painter]
2. Volunteer: Gratuitous act so NO
3. Deserving Claimant: that is not just unjust for D to retain
a. Professional are not presumed to be acting gratuitously to create an incentive for them to offer
their services
i. Ex. MD helping unconscious person = implied contract since reasonable to assume would
have wanted service performed had been conscious
b. Non-Pros are presumed to be acting gratuitously, UNLESS
i. Extended period of time
ii. Very burdensome (Mills v Wyman could be a quasi-K [son got ill, father later said would
pay for services and didn’t)
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Limits:
1. Quasi-K should not be used as a way around a K supported by consideration that was actually made [i.e.
to make up for no performance, dissatisfaction, etc. on actual K]
a. Can’t let Quasi-K run “wild” or would undermine actual Ks
2. If governs same subject matter, express K overrides recognition of an implied-in-K contract
3. Exhausted all remedies against party which contracted [and Bankruptcy as well]
a. MAJ: Tough luck [risk of bness, could have demanded money earlier] -- would need to weigh
these factors against court intervention/power of quasi-k [Bjerre likes this]
b. MIN: If still has not received reasonable value for service, may be able to recover from 3rd party
after has exhausted all other remedies against person with whom contracted [Ex. A contracts w/ B
to provide service to C : A goes after C cause didn’t get paid from a bankrupt B] [Subrogation]
c. Factors to Weigh
i. How much govt. intervention do we want
ii. How much power quasi-K should have
d. Hypo based on (Callano: D gets shrubs at house for free)
i. What if no money left in estate so resources “exhausted” would court reach different
conclusion?
1. Bjerre says no based on court’s dicta [argue either way]
4. Generally presumption that married people act gratuitously [outside of contract law] but can have
exceptions:
a. When evidence of person’s expectation of compensation AND extraordinary/ unilateral effort by
one spouse benefits other spouse, then restitution appropriate (Pyeatte: Put through law school
case, agreed P goes school next but K too indefinite)
b. Unmarried couples may have chance at restitution

“BARGAINING PROCESS”

The nature of assent: 2 theories


1. Objective: literal interpretation of K excluding actual “intent” of P’r and P’e [reasonable person standard]
a. Preferred by modern courts since reliable
b. Some courts still will take some subjective elements into account [objective standard = floor not a
ceiling]
i. Ex. If person has x-tra actual knowledge, court will take into account
c. Person can’t say was merely jesting if his conduct/words warrant a reasonable person to believe
he intended a real agreement [Undisclosed intention’s immaterial] [Lucy sold farm when drunk] –
remember x-tra, subjective knowledge can still be taken into account
2. Subjective: looks beyond Ks language to determine “intent” of P’r and P’e [“meeting of the minds”
standard]

Intent to be bound: [not intent to make exchange like in consideration]


Negotiation: Do Both parties Intend to be Bound?
1. Types of contracts:
a. Type I : “agreement” on all terms of K and want to formalize in writing – both sides bound
b. Type II: “commitment” on certain terms but still leaves open for good faith negotiations.
Commitment to negotiate in good faith
i. Good faith breached when using trickery, etc.
2. Rule: Agreements to negotiate in good faith are enforceable if: [Note: only assures good faith
negotiations, not successful negotiations]
a. Whether both parties manifested an intention to be bound by agreement?
b. Whether terms of agreement are sufficiently definite to be enforced?
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c. Whether there is consideration?

3. Court reluctant to enforce since reasonable person would not expect parties to be bound:
a. Optimistic statements by MDs to patients
b. Statements between intimates for social purpose
i. Not binding since lacks contractual intent to be bound [rely on each other’s good will]
ii. Ex.
1. No recovery for broken wedding reception plans
2. No recovery for injuries resulting from crash heading to a hunting trip since P =
“guest”
4. Should weigh:
a. Freedom to contract: make K’ing available to those who’ll take pains to clarify idesas as to what
they want K about
b. Freedom from contract: no make K’ing so easy as to hook unwary signer or causual promisor

Gentlemen’s Agreements:
Comes up in “letter of intent” situations
• Best idea: MAKE intent clear! “Parties don’t intend to be bound by K”
• Keeps K law out of agreement/negotiations
• Gives parties some certainty

Formal K Contemplated
What if parties agree on essential details but leave details to be worked out for a K they are both expecting to
sign. What if one party then refuses to sign?
1. CL has 2 widely accepted principles:
a. Absent an expressed intent that no K shall exist, mutual assent [even oral/informal] to exchange
acts/promises is sufficient to create a binding K
b. To avoid obligation of a binding K, at least one party must express intention not to be bound until
a writing is excuted
2. Is written/oral terms binding?
a. Depends on what the parties intended [what would reasonable person think]
b. Factors to consider:
i. Did one party reserve right not to be bound?
ii. Any partial performance of K?
iii. All terms of alleged K were agreed upon?
iv. Is agreement at issue the type of K usually committed to in writing?
v. Detail level of agreement

OFFER

General:
1. Confers power on another to make a K
2. Offer is a voluntary proposal of an exchange; Offeror = master of offer. Offeree has power to accept.
Acceptance creates a K
3. O’r has power to:
a. Specify offer
b. Usually specify what constitutes acceptance – can be as narrow as they want
c. Can choose if it’s a Unilateral or Bilateral K
4. RSC §24 : Offer defined: “An offer is the manifestation of willinginess to enter into a bargain, so made
as to justify another person in understanding that his assent to that bargain is invalid and will conclude it”
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5. Things looking at:
a. will basically be looking at utterances to decide if they are offers
b. will try to decide if an offeror is proposing an exchange; is this a proposal for an intent to be
bound in a legally binding exchange? [reasonable person standard]
c. What offeree reasonably understands is important

Factors to evaluate whether is/isn’t an offer:


1. How people estimate
2. It would not “be possible”
3. Not specify who to sell to
4. How real estate deals work
5. Absence of detail [General language may not be offer]
6. Absence of specified quantity
a. Generally, Mere Price Quote does not equal an offer, the absence of quantity specification is a
very important circumstance that usually declares no offer
7. Reasonable expectation created?
a. Was there a promise, undertaking, or commitment to K?
i. Look beyond the language since no magic words or wooden tests [Owen: no reasonable
person thought that there was an offer]
1. Use of word “quote” does not automatically make it mere price quote
ii. More likely to be beyond mere price quote if made in response to an inquiry about cost
and specifies time/quantity limits [Fairmount Glass Works]
b. Was there Certainty and definiteness in the essential terms? (However, open terms in Ks don’t
render Ks unenforceable per se)
c. Was the offer communicated to the offeree?
8. Offer can only be accepted by party invited to furnish consideration
9. Oral agreements are enforceable
10. Offers can be limited by conditions
11. Mistake: Offeror not bound if the offeree knew or should have known of the offeror’s mistake at the
time of acceptance
12. If contractor asks for bids from sub-contractors, usually construed as the sub-contractor’s making the
offer [contractor not obligated to take highest bid]

Advertisements and relationship to offers


1. General rule, ads not offers, but rather an invitation by seller to buyer to a an offer to purchase
2. If ad is clear, definite, explicit and leaves nothing to negotiation, it could be an offer
a. “First come first served” in one ad was held as an offer
3. Rule prevents problems w/ demand if ads were considered an offer
4. Consumer Protection against False Advertising
a. Federal: FTC Act declares “unfair or deceptive practices unlawful”
b. State: many have similar protection
5. Directness to certain person still doesn’t mean offer – look at all the circumstances
6. Online proposals to sell goods more likely to be treated as offers than printed ads

Acceptance

General: Taking advantage of the offer. Using power given by O’r to make a K. Once an acceptance is made,
then both parties are bound.
1. Once O’e accepts offer, it firms up exchange
2. If close calls; courts usually default to no offer – don’t want to push people into Ks
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Notice & Acceptance: Acceptances need to be communicated to O’r EXCEPT when it is inferred that O’r
does not need communication [express or implied]
1. Notice needed unless O’r dispenses w/ it [express or impliedly]
a. If notice dispensed w/ by O’r then performance is sufficient for acceptance
b. Ex. Carbolic : accept offer of getting sick was meant to be implied or would have gotten 1000’s
of useless postcards
2. Bilateral K,
a. Acceptance: return promise given, then return promise is binding
b. Notice required [Policy: acceptance = communicative act and need to specify their obligations]
3. Unilateral
c. Acceptance: performance
d. Notice: no notice required unless performance not evident

What is not acceptance?


1. Mere doing of act does not guarantee acceptance
a. Policy: We want people to know if they are in a K
2. Silence [could be ok if agreed to by parties or if past actions indicated this was acceptable]
3. Made by person not designated by O’r
4. Changing the terms [counter-offer]
5. Not notified O’r “in some reasonable time”

Termination of the Power of Acceptance


Offers can be terminated by the parties or by law

Types:
1. Lapse of the offer, OR
a. Expiration of offer’s acceptance period
i. Offer lasts as long as O’r wants
ii. If no time, lapses after reasonable time under circumstances
2. Revocation, OR
a. CL: offer freely revocable before accepted when offer made w/o consideration [if had
consideration, would be an option K]
b. Revocation must be communicated to O’e or reasonable steps taken to do so
i. O’r can revoke a general offer in same way made general offer known, don’t need to tell
every person about it
c. If revocation happens between offer/acceptance, power of acceptance is revoked [does not matter
if O’e received info directly or indirectly]
i. RSC 43: O’es power to accept terminated if O’e indirectly learns that O’r has taken
definite action inconsistent w/ an intention to enter into proposed K
d. Iffy language will be interpreted as revocation [benefit of doubt to O’r since don’t want to force
people into Ks]
e. Revocation generally held to be effective when received [§42]
f. EXCEPTION: “Firm Offer” or Option K [Irrevocable Ks for a time]
3. O’r death or incapacity, OR
a. Rule generally holds regardless of whether o’e learns of it
b. Same rule is true for O’e
c. EXCEPTION: doesn’t terminate o’es power of acceptance under an option K [Policy: O’e gave
some sort of consideration to get time]
4. O’e rejection
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a. Act by O’e which puts an end to an ordinary offer [O’e can’t then go back and accept]
i. Words/conduct of o’r must be sufficient for reasonable person to interpret as a revocation
b. Counter-offer (changing offer not acceptance – it’s a counter-offer BECAUSE OF MIRROR
IMAGE RULE
5. Destruction of subject matter or illegality could lead court to terminate offer

MIRROR IMAGE RULE: O’e has agreed to exactly what is offered


1. CL insists acceptance must be on terms proposed by offer w/o slightest variation. Anything else is
rejection of original offer and acts as a counter-offer
2. Exceptions:
a. If sent a reply said neither accepting/rejecting just merely inquiring what is price at another
unspecified quantity [No rejection/counter-offer since made clear]
b. What if said “would you consider X quantity for Y price” – still might not be rejection
c. If say considering offer for higher quantity, but also counter-offers lower quantity : Here, could
negate counter, but original still on the table
3. Mitigations to rule:
a. Implied Term: additional or different term in the acceptance only a clarification of meaning of
original offer
b. Precatory Acceptance: acceptance of o’r terms w/ an additional offer to modify original K
4. If a dispute: party how sent the last form before performance began usually prevailed

MAIL-BOX RULE:
1. Acceptance/Rejection:
a. Assumes that dispatch of acceptance is crucial point at which K is made – after which O’r power
to revoke is terminated, O’es power to reject has ended, and risk of transmission are on the O’r
b. Once dispatched, too late to change mind
c. Policy: puts burden on O’r to rely on revocation in mail and if received before O’e mailed so will
keep O’r from selling goods to others in interim
2. Revocation
a. Ineffective if received after an acceptance has been properly dispatched
b. Generally held to be effective on receipt only, not on dispatch [See §42]
c. Policy:
i. Risk of transmission on O’r; Makes O’rs duty of performance conditional upon receipt of
the acceptance
ii. Disadvantages to receipt rule: while letter is in transit, O’e is free to watch the market &
speculate while O’r is unable to revoke
3. Option Ks : EXCEPTION : Acceptance under an Option K is not operative until received by O’r
4. Electronic Medium: RSC §64
a. Telephone or any instantaneous 2-way medium = like done in presence of person
b. Email: effective when “received” even if no-one aware of it – so when system receives it
5. RSC §40: Time when rejection or counter-offer terminates the power of acceptance. Rejection or
counter-offer by mail or telegram doesn’t terminate the power of acceptance until received by the offer,
but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise
effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the O’r
before he receives the rejection or counter-offer.
a. Note: If O’e 1st decides to reject/counter-offer and mails, but then decides to accept the original
offer and sends notice of acceptance – what happens depends on what gets there 1st. If acceptance
does, then original offer accepted, if rejection/counter offer does, then acceptance becomes
counter-offer
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OPTION Ks : promise made by O’r that effectively limits the O’r power to revoke
1. Options can be created by:
a. Consideration [mere peppercorn can be consideration]
b. Firm offers
c. Reliance by O’e
2. Rejection: doubtful that holder of a power to accept under an option K puts an end to it by rejecting the
“offer” if still within time limits since they have consideration
3. One promise can be consideration for multiple other promises

PRECONTRACTUAL LIABILITY : no party safe by relying on prospect of a contract, but could incur
liability before K formed in some circumstances

R. § 87: Option Contract:


(1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer
(PEPPERCORN DOESN’T APPLY HERE), and proposes an exchange on fair terms within a reasonable
time; or
(b) is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or forbearance of a
substantial character on the part of the offeree before acceptance and which does induce such action
or forbearance is binding as an option contract to the extent necessary to avoid injustice.

A court has some discretion in determining circumstances of whether there has been an acceptance in
borderline cases to protect the reliant party. A party whose reliance has conferred a benefit on the other may
have a claim to restitution to prevent unjust enrichment even though no contract has resulted.

§45 of Restatement:

(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory
acceptance, an option contract is created when the offeree tenders or begins the invited performance or
tenders a beginning of it
(2) The offeror’s duty of performance under any option contract so created is conditional on completion or
tender of the invited performance in accordance with the terms of the offer.
(partial performance becomes consideration for an option contract—completion of terms of offer =
acceptance)
Unilateral Ks allow partial performance; bilateral Ks don’t
Offer for exchange NOT meant to become a promise [Can’t use PE w/ offers]

[??? Review this] Drennan combines elements of 45 [partial performance] & 90 [PE] to create what later
becomes 87(2) [offer causing reliance becomes an option K]
1. Think about 87(2) v 45? Overlap?
2. What’s the relationship between consideration & reliance?

Requirement of Definiteness

Definition: Contract too indefinite will not be enforced. FCNS:


1. For court to determine if K broken, it must 1st know w/ sufficient specificity just what the K terms are
2. Implicit in principle is P’es expectation interest is to be protected
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3. In calculating damages, must know scope of promise to put person in same position in absence of a
breach

Courts will first interpret a K before concluding its too indefinite. Will look at:
1. Prelim. negotiations / prior communications
2. External sources like trade regs
3. Trade usages
4. Reference to prior history between parties
5. Implied terms supplied by law – “reasonable efforts” = sufficiently definite if content can be determined
by some external standard
6. It is enough if K provides means of making its terms sufficiently definite by time performance is called
for such as:
a. Output & requirement Ks (Eastern Airlines; Lady Duff)
b. Prevailing rate (in Toys)

Why be imprecise?
1. Too lazy to take time: prefer to rely on terms that court will supply if dispute arises
2. Reluctant to raise difficult issues for fear of losing deal
3. Don’t foresee problem
4. Prefer not to disclose info. they feel will give other party advantage

Note: Court will rarely find indefiniteness as sole reason to not enforce K. Even if finds indefiniteness
unreasonable and K unenforceable P may still be entitled to recover under PE or Quasi-K theory for
RESTITUTION [party who has performed under an agreement that is unenforceable for definiteness is
entitled to restitution [Ex. Pyeatte: wife pays for law school – K indefinite but still allowed Restitution under
Quasi-K theory]

Relational K/Complete Contingent – common in employment Ks between business who deal w/ one another
regularly – when all relevant risks can’t be assigned optimally due to unknown future contingencies (Eg
output K) – allows for more indefiniteness

Restatement § 33 Certainty:
(1) Even though a manifestation of intent is intended to be understood as an offer, it cannot be accepted
so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of
a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood as an offer or as an acceptance.

Statute of Frauds
Definition: Makes certain Ks unenforceable because they are ORAL, but general rule is that oral Ks are
enforceable [Controversial: many legislatures have enacted but many courts have blocked their enforcement].
Idea is to protect Ds against fraudulent promises never made. However, doesn’t protect against a fraudulent
D.

What Ks are required to be written?


1. Suretyship: has to do w/ paying debts
2. An agreement not to be performed within one year from making of it
3. Sale of/interests in real estate : [Lucy: scrawling on paper napkin ok for written]
a. Are leases covered? CA says if longer than one year, then need to be in writing
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POSSIBLE
4. Omission of material term [like price] for a sale-of-goods MAY be disqualify it

Important to remember about signatures and documentation:


1. Only ESSENTIAL terms need to be in writing
2. Does not to have to be formal [can be a letter, napkin] and could be oral first, then written down
3. Can be a “one way street” [Enforceable in only one direction]: K is enforceable when signed by the
party to be charged. Therefore, only needs to be signed by D, not P
a. Rationale: Trying to make sure no fraud by D, don’t need Ps signature for this
b. Good policy for both to sign though
4. Though writing & signing a set of promises is powerful evidence of the making of an agreement, it isn’t
conclusive. “The fact that parties have EXPRESSED an agreement in a signed writing is no assurance
that they have CONTRACTED about the matter” – Agreement must still be enforceable

How have courts minimized their impact?


1. Partial performance doctrine
2. Monarco v Lo Greco. 2 ways to overcome Statute of Frauds
a. Unjust enrichment (Quasi-K); OR
b. Unconscionable injury/detrimental reliance (PE)
3. RSC §139 – PE can overcome Statute of Frauds if injustice can only be avoided by enforcement of the
promise [RSC says to look at: availability/adequacy of other remedies, definite/substantial character of
action/forbearance; extent action/forbearance shows evidence of making & terms of promise [or if terms
established by other clear/convincing evidence; reasonableness of action/forbearance; P’rs foreseeability
of action/forbearance]

ELECTRONIC SIGNATURES: St. of Frauds could really hammer this so legislature made statute saying
that e-signatures will suffice
1. E-Sig in Global and National Commerce Act (15 USC 7001):
a. 101(a)(1) : E sig treated like any other sig
b. 101(a)(2): Fact a signature is E shouldn’t be used to deny its legal effect [goes right at statue of
frauds]
2. Definitions:
a. E Record: K or other record created, generated, sent, communicated, received or stored by E
means
b. E Sig: An E sound, symbol or process, attached to or logically associated w/ a K or other record
and executed or adopted by a person w/ intent to sign the record
i. Ex. Clicking “I agree” = going through a process so = a sig.

FORM V SUBSTANCE check-up : Generally, courts moving towards substance over form [sometimes will
ignore form if there is enough substance]
1. Consideration: Promise you care for $1
a. Form = exchange under old law; Modern courts look to substance and says this is a gift
2. Statute of Frauds = Erosion is part of shift
3. Form not completely worthless [Note consideration serves these same 3 Fcns]
a. Evidentiary Fcn: writing a form of evidence of existence of a K
b. Cautionary Fcn: brings a seriousness to K
c. Channeling Fcn: channels K into enforceability or non-enforceability [Makes enforceability more
straight-forward. Let’s parties know a contract has been made and can rely on this]
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POLICING THE BARGAIN

Definition: Deals w/ bargaining abuses. Although a K may meet formal requirements for enforceability, such
as assent, consideration and compliance w/ statutes of fraud, there are cases where the law may nonetheless
refuse to enforce the bargain

Main types:
1. Status of parties – disqualifies certain classes of people from committing themselves to a K
a. Historically: Minors, married women, mentally infirm
2. Behavior of parties – how they bargained in fact
3. Substance of bargain – courts can enforce highly unequal deals, but courts have found ways to disfavor
particularly lopsided deals

Court’s tools:
1. Conventional controls
2. Rescission for fraud
3. Unconscionability
4. Strict construction of harsh terms

Policy reasons for doing this:


1. Courts not paymaster to thieves
2. Won’t increase value to recipients
3. K adversely impacts society as a whole – “public policy” considerations
4. Keeps w/ general substance over form theme

I. STATUS

CAPACITY: Deals w/ those how have less than full power to contract. Lack of capacity is both a benefit and
burden to this class of people.
1. Minor/infancy: [Called: Contract is Voidable by Infant] General rule is K of minor [usually 18 or 21],
other than for necessaries, can disaffirm/AVOID at his option. So K is voidable/not void by minor, not
by adult whom contracted with.
a. Applies to emancipated/unemancipated
b. Minor can disaffirm within reasonable time after reaching majority age [ability could be lost
through parental consent]
c. Restitution after disaffirmance, minor can:
i. Goods: get restitution of payments already made on goods but must return goods
ii. Services: Split: Some Jx say service provider screwed; others feel minor should not be
allowed to be put in a superior position
d. EXCEPTIONS:
i. Statutory or Ks that deal w/ duties of imposed law (like marriage)
ii. Necessaries: like buying food
e. Rational:
i. Doctrine, no matter how unreasonable, protects minors against bad judgment and being
taken advantage of [Even if child lies of age, court would argue he doesn’t know the
ramification of his lies – others do allow deceit]
ii. Court doesn like K but feels there needs to be bright line rule
f. Burden: Puts burden on those considered “infants” but that are not children since may not be able
to contract
g. What else could legislature do?
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i. Allow parties to submit proposed K to court removing infant’s disaffirmance
ii. Establish a rebuttable presumption of incapacity replacing strict rul
iii. Statutory procedure allowing minors to petition a court for removal of disabilities
2. Elderly: some statutes popping up to protect elderly (generally over 60) against deceit
3. Mental Infirmity – If don’t have mental ability [cognition] to understand a Tx, then K is avoidable [even
if have the volition]
a. Differs from “actually” understanding K (not avoidable) from “ability” to (avoidable)
4. Intoxication Person: Only offsets K if so drunk as to have drowned reason, memory,
judgment…rendering party incompetent (Martin v Harsh)
5. Married Women: used to be considered tied to man, but not anymore

II. BEHAVIOR OF PARTIES


Overreaching – Conventional Controls. Courts have traditionally been insistent that no advantage should be
gained through gross unfairness in the process of bargaining. Focus is on: Duress, Fraud & Mistake

1. Generally: To recover monies paid in duress, must act promptly in making claim EXCEPT if to do right
away creates fear stoppage/delay
2. Duress: impermissible pressure/wrongful threat precluding free will exerted by one party over another
either during the initial bargaining or during attempted renegotiation
3. Physical Duress: “I’ll kill you unless you sign”
4. “Economic Duress” or “Business Compulsion” – Improper threat coupled w/ a lack of reasonable
alternative
a. What constitutes economic duress
i. Y
1. Immediate possession of goods is threatened ; OR
2. If one party to K threatened breach of agreement by withholding goods unless
other party agrees to some further demand
3. No reasonable alternative
ii. N
1. mere threat
a. However, threat to immediately stop delivery construed as depriving D of
free will [Austin Instrument]
2. Threatened party can obtain goods from another supplier; AND ordinary breach
remedies not adequate
b. Improper threat need not be illegal is standard not rule, could be a breach of a pre-existing
condition
i. KEY: Whether or not threat is improper because it was not made for a Legitimate
Commercial Reason
ii. Remember HALE. Separate threats from improper threats – coercion can’t be used to
distinguish 2
c. K is not void per se, but voidable by coerced party
d. Narrowly construed or it would threaten many Ks

PRE-EXISTING DUTY RULE: designed to protect against duress


If both parties RESCIND – as though they create a new K to dissolve old K – resolves both of a preexisting
duty.
1. Pure formalism looks to create consideration for 2nd K [looks for any consideration for new
undertaking, no matter how insignificant like a horse, hawk or robe]; in reality all, in substance, that
is happening is that P gets more money to do same actions under old K
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2. Modern trend is toward recognition of promises whose legitimacy the strict consideration doctrine
has placed in doubt, so long as the sincerity of the obligation is clear and the commitment is freely
made [not under duress when modified], rather than if had consideration to modify and create a 2nd
K

Summary comparison of Pre-Existing Duty Rule v. Economic Duress Standard:


1. Pre-existing duty rule is traditional way of resolving injustice relying on consideration – this rule is dying
2. Economic Duress standard: modern standard replacing pre-existing rule – by getting at the same issue,
not through consideration but whether “improper threat” and “no reasonable alternative”
3. Standard: flexible but unpredictable

RSC §89 : Modification of Executory K


A promise modifying a duty under a K not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties
when the K was made; or
(b) to the extent provided by statue; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on
the promise

CONCEALMENT and MISREPRESENTATION

Overall, no duty imposed on 1 party to tell other party any info. However, if he does speak w/ reference to a
specific point, voluntarily or at other’s request, he is bound to be honest and divulge all material facts

Nondisclosure: traditional rule is that this is not a ground on which to void a K.


1. Policy:
a. Serves as an incentive for buyers to become knowledgeable.
b. Promotes specializing – gaining advantage off special knowledge
2. Ex. House has termites but don’t tell a house buyer about it; K? NO; (Kannavos: house used for apts. If
D made NO reference to house as apt. [wholly silent], then no duty to disclose

Misrepresentation: subset of tortious fraud


1. Elements:
a. Misstatement of
b. Material Fact – Pretty important fact
c. Reasonable relied on by other party – not a license to be foolish so if rely on a completely
unreasonable offer, may not be void
d. [Knowledge of doing this] TORT ELEMENT
e. [Intent to mislead] TORT ELEMENT
2. As a rule, party to contract may avoid it even if other party obtained its assent by an innocent
misrepresentation
3. What misstatements may constitute a misrep?
a. ½ truths. Need to weigh
b. Omissions. Need to weigh
c. Not correct a prior statement [if facts change from a prior statement, compelled to say it]
d. Confidential relationship: has to do w/ trust when one party expecting other to give full disclosure
to other – 99% disclosure here may be treated as misstatement
e. Information available to public/lack of due diligence could influence court, but still can recover if
reliance on fraudulent representation
f. Presence of lawyer could influence court
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g. Fragmentary info may be as misleading as active misrep
h. Deception needn’t be direct
4. What if made after signing? Jx divided. One says can’t stamp an affirmative misrep., even after signing
an executory K when elements of fraud are present
5. Example:
a. If asked if there are termites and say “no”, void K? YES
b. If seller in a K signs off there are no termites and he knows there are, void K? YES

III. SUBSTANCE OF THE BARGAIN

Contracts of Adhesion: Boilerplate Ks. Take it or leave it K presented to many others.

They are, generally:


1. Enforceable
2. Lack negotiation, understanding when one accepts them

Other features:
1. Rules are same as other contracts w/ crucial difference that they are not consented to
2. Contingent terms: term doesn’t matter except in rare circumstance. Most people, therefore, don’t worry
about [Ie. Choice of forum clause]
3. Unilateral modification: one side has right to modify K, as long as done in good faith
4. Court less likely to enforce if given after receipt of stub [except car rental agreements, etc. say otherwise]
5. K needs to give people adequate notice, or there is no intent by P to be bound
6. Medium used to convey a contract of adhesion makes no difference
7. Although there is a duty to read K [irrelevant if have K or not], RSC §211(3) provides somewhat of an
exception for Ks of Adhesion – if there are provisions in K which a reasonable person wouldn’t expect to
be there, then particular provision won’t be enforced
a. Rest of K is enforceable
b. Is a common-sense safe-guard

Standard Form Contracts –Restatement §211—This § is inconsistently applied:


(1) Except as stated in sub (3), where a party to an agreement signs or otherwise manifests assent to a writing
and has reason to believe that like writings are regularly used to embody terms of agreements of the same
type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, w/o regard
to their knowledge or understanding of the standard terms of the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he
knew that the writing contained a particular term, the term is not part of the agreement.

Benefits:
1. Allows cheaper Ks
2. Once you get form together, all subsequent use of K is free
3. Ultimately, benefits end-users since price savings is passed
4. Adv. of lessons/experience and enables a judicial interpretation of one K to serve as interpretation of all
Ks
5. reduces uncertainty
6. saves time and trouble
7. simplifies planning and administration
8. makes risks calculable
9. increases security when taking foreseeable risks
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10. Robust economy
11. Greatest good for greatest # of people

Problems
1. Libertarian: can infringe on our liberty
2. People don’t read them
3. May be a means for one party to impose their will on other
4. One party is a “repeat player” & that gives that party an unfair advantage
5. Unequal bargaining power between parties
6. Person has no choice over terms
7. Timing problem: Ex. May want to rent car, then get handed K terms AFTER have already paid and
gotten keys

Theory from Status to K ; K to Status


Overall: ability to bargain for K gives you power to raise status, but modern trends encompassing lack of
bargaining power have effect of reducing power to K. Therefore, even though there are more Ks in existence,
less and less bargaining power
Side 1: Pg 369
Side 2: Kessler, we are not free under Ks of Adhesion.

What to query? Reasonable person under all circumstances


What if something is objectionable? Try for §211(3)
What if something is missing? Doctrine of Reasonable Expectation: if reasonable person would reasonably
expect something to be in K, but its not, then court to include it. Generally found in insurance Ks. [Example:
For home fire insurance: garage not included for fire. Would reasonable person expect it to be?] Bjeree feels
its a growth area – will extend beyond insurance Ks in future

Examples:
1. Parcel stub not K since main function is for getting bag back [film stub would probably be same thing]
2. Signs on wall: clothes left at dry cleaners 30 days will be thrown at? Reasonable person test
3. For insurance: usually goes in favor of insured
a. Doctrine of reasonable excpectations: when insurance sold in circumstances that discourage
detailed inquiries, reasonable expectations of the buyer should be honored even though policy
terms don’t support them

PUBLIC POLICY:
Concerned w/ the protection of the public at large against the imposition by BOTH parties of K. Times when
K law and all other law come into conflict. [Affects Quasi-K; PE and Ks enforceability]

Overall, How are contracts affected by outside/PP?


Normall, we either enforce a K or we don’t, so this is unusual since parties make the rules in a K. PP is a
reason outside of K law to invalidate a K. No general rule to follow.

When will courts refuse to enforce an agreement, fairly/freely entered by both parties because will
contravene “public policy”?
1. Illegal Ks: Ks that violate specific law: court won’t force an agreement to do what law explicitly
prohibits [Like a K to do a hit]
2. Activities closely related to illegal acts: (Ex. Can’t K to split spoils of a robbery. Usually not enforceable
unless legislature has specifically sanctioned enforceability)
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3. Gambling: CL says gambling illegal, so only statutes making certain aspects of it are enforceable. If no
carve-out, not enforceable
4. Covenants not to compete: must be [MAJ] reasonable under circumstances (industry/time/geography). If
K is deliberately unreasonable, oppressive, or overreaching, covenant would be invalid.
5. Restraints on alienation (alienation: to sell, give away, or transfer items to another)
6. Surrogacy Ks – Baby M case. Best interest of child primarily
7. Usury (charging more interests on loans then law permits). Generally statutes in each state set a
maximum interest rate and anything over that is usurious (good K writing – if have a high interest rate,
add a clause to state that if the state rate is usurious, will fall back on max the state will allow)
8. Prenuptial agreements [if have offer/acceptance/consideration courts will uphold]
a. Prenups/alimony as matter of PP weren’t enforceable
b. Current, under regular K law and ok if
i. Made reasonable provision/good deal for spouse OR
ii. Entered after full/fair disclosure of general financial positions
c. Paternalism: law protecting people from their own actions. Whole concept is contrary to
AUTONOMY [foundation of contract law] – parties know best what they need/want
d. Simeone court against bi. Since based on paternalism, not K law so says only ii, like normal, is
test for a valid K
e. Threat of “sign this or I won’t marry you” is not the kind of threat we protect under Duress
doctrine

For bad K clause, court has 3 choices:


1. “All or nothing rule” : [old rule] court either enforces K as written or rejects altogether [trend is away
from this]
2. Blue pencil: modify to extent that a grammatically meaningful reasonable restriction remains
a. Pro: simple, prevents court from re-write
b. Con: K still fails if offending provision can’t be stricken; form over substance
3. Rule of reasonableness: unless circumstances indicate bad faith from E’r, court will enforce covenants
not to compete to the extent that they are reasonably necessary to protect E’rs interest w/o imposing
hardship on E’e
a. Pro: Acknowledges reality that courts are interpreting the K
b. Con: Courts usually don’t like to make Ks [will do especially for non-compete clauses]
4. HOWEVER, if reasonable evidence that K is unreasonable and oppressive, then covenant is invalid

UNCONSCIONABILITY
Principle one of prevention of oppression & unfair surprise and not of disturbance of the allocation of risks
because of superior bargaining power

“Shocks the conscience”, rarely used, usually inequity of bargaining power.


1. Uncon = Absence of meaningful choice by one party [procedural] & K terms which are unreasonably
favorable to the other party [substantive] [Watkins: lady buys items, but doesn’t own 1 till owns them all]
a. Meaningfulness of choice can be negated by inequality of bargaining power
b. Manner which K entered relevant [“reasonable opportunity” to understand terms, or important
terms hidden?]
c. Test: whether terms are so extreme as to appear unconscionable according to the mores and bness
practice of the time and place?
2. Very fact-specific inquiry and no general rules
3. Some equality Ok, it is gross equality that court’s don’t like
4. Usually both substantive and procedural uncon must be met in order to prove uncon
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a. Substantive element alone in some Jx may be sufficient. Uncon [Gateway: computer mediation
term unreaonable]
5. Unequal bargaining power don’t apply when the parties are 2 companies or corps w/ access to legal
advice.

Substantive Unconscionability – fault/unfairness in bargaining outcome [Con to uncon here: undercuts


private right of contract in a manner that is apt to do more social harm than good since right to freely and
voluntary K is sacred]. Egs. [CHECK LIST/ CONTRADICTS PART OF BJERRE’S]
1. Fault/unfairness in bargaining outcome
2. High price of item/service/interest rater
3. Apportionment, dragnet of repossession clauses : payments apportioned to all items so none of them are
paid off before all are; buy several things, but don’t off one before pay off all
4. An arbitration clause’s term

Procedural Unconscionability – fault or unfairness in the bargaining process – absence of meaningful choice.
[Policy: ok for con since means not free and unvoluntary] EGs.
1. Fork K of adhesion (not inherently uncon, but factor to consider)
2. Unequal bargaining power
3. Education level of parties
4. Setting of Tx
a. Level of need for the item
b. Sharply limited choice
5. High pressure sales
6. Emotional manipulation
7. Knowing advantage-taking
8. Difficult/Complex AND/OR hidden in fine print language
9. Timing

Policy:
1. Paternalistic – interferes w/ freedom to K
2. Institutional Competence: Q of law for judge – but should legislature be the ones to address this?
Sometimes statutes in place to protect consumer
3. Counterproductive? Some argue that effect is to give people w/ bad credit or low financial resources less
opportunity to K (lenders will be less likely to lend to high risk people if their Ks invalidated by doctrine)

DAMAGES FOR BREACH OF CONTRACT

Types of remedies:
1. Equitable Remedies: will usually ONLY get if Damages are inadequate
a. Specific Performance: Ordered to perform K.
i. If performance would require very intense and sophisticated supervision, usually won’t be
ordered
ii. Court won’t order performance of K personal in nature
iii. Won’t be ordered when party claiming breach has adequate remedy at law
iv. Laclede Gas Co. : A requirements K. Hard to calculate damages because they fluctuate –
specific performance = ok
b. Injunction: Court orders not do something
2. Modern age [This is most important]
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a. Damages : Goal is to make P was well off it there would have been no breach. Pay P enough
money so that they will be “indifferent” between getting money or specific performance
3. Tort v K Damages: Tort damages put you back to where you would have been. K damages put you
forward into position you would have been [since K would have been to your advantage]

MONEY DAMAGES

1. Expectancy Damages : overall goal – put the parties in as good a position had there been no
breach. Based on circumstances – not on “reasonable” person
1. P has burden to prove
2. P entitled to benefit of the bargain – enough to put the party in the position she would have been had the
K been completed; pulls the P forward
3. Non-breaching party should be indifferent Re: whether K performed or the money damages
4. Profit
5. Purpose not to implement a benefit but to remedy a harm
a. Almost NEVER give punitive damages
6. Allows for efficient breach
a. Nobody worse off, but somebody better off due to a breach of K
b. Pareto Superior: world is in a better state – efficient breach example since everyone better off
afterwards
c. Lets things get to people who value them the most
d. Doesn’t make sense to impose penalties for breach
e. Works when taking advantage of imperfect information
1. “Perfect Market” efficient breach wouldn’t work since B1 knows how much B2 would
pay so his subjective value would immediately go up. Therefore, S would not profit
from this Tx.
7. Foreseeability and expectancy damages = default rules

GENERAL DAMGE FORMULA: Value of Ds promise – Ps cost to get what is promised


1. Overhead = continuous expense of the bness, irrespective of the outlay of a particular K
a. In a claim for lost profits, overhead should be treated as part of gross profits and recoverable as
damages, and should not be considered as part of seller’s cost [Vitex v Caribtex]
i. Overhead = part of damages because reallocation of overhead cost results in loss of profit
from other Ks. Therefore, overhead is included in amount D has to pay.

2. Restitution
• The dollar of damage = the value of the unjust enrichment.
• The court makes its own determination of its value—must be reasonable
• Used in situations of quasi –K-(Cotnam v. Wisdom—damages for the medical care Harrison
received from Dr. Wisdom).
• However, a valid K doesn’t preclude the use of restitution. If a party makes a bad K and
would not be in a better position if the K was completed, and the K was breached before
completion, the losing party/ non-breacher can recover restitution damages
• Usually K price is not ceiling to what may be recovered (“the sore thumb to the sore thumb
rule.”)

US v. Algernon Blair
Subcontractor made horrible deal, general contractor breached on the contract. Subcontractor was allowed to
recover the reasonable value of the work they had performed (equipment rental costs) up until the day of the
Bjerre Fall 2002
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breach. The promissee, upon the breach, has the option to forego any suit on the K and claim only the
reasonable value of his performance. OK b/c court wants to punish the breacher, and the breacher shouldn’t
be able to benefit from the breach.

3. Restoration
• Restore a party to the position she was in before the harm. Put the P in the position she would
have been in if the promise had never been made (and detrimentally relied upon).
• This is used in Promissory Estoppel situations
• Eg: Ricketts v. Scothorn—damages of the wages she lost from quitting her job in reliance on
her Grandfather’s promise

Notice how Q-K and PE are opposites

DIMINUTION IN VALUE v. COST OF PERFORMANCE


When breach after partial performance, and cost of fulfilling K is greater than value of doing so, which so be
awarded? Overall, the difference of which test to use has to do w/ SUBJECTIVE VALUE owner places
should determine [High subjective value, then cost of performance; low subjective value, then diminution of
value]

(a) Groves—regrading cost of performance = 60K, diminution of land value only 12K for not being
regraded—court awarded cost of performance because breach was willful.
i. Awarding cost of performance should reflect owner’s subjective value of property.
Court here says no evidence of subjective value. Bjerre disagrees.
ii. Awarding cost of performance almost punitive here which goes against K theory
iii. Awarding diminution of value fits better w/ expectancy theory of making P ‘whole’
again

(b) Peevyhouse—regarding strip mine company failed to restore a farm as required by K. Restoration
cost = 29K, value of doing so only $ 300. Court awards diminution of value b/c breach merely
incidental to K’s purpose.
i. Groves court would have awarded cost of performance because breach was wilfull
ii. Subjective value of restoration not considered here---Bjerre thinks bad outcome

LIMITING DAMAGES

1. Mitigation/Avoidability
a. After P receives a breach notice, its his duty to do nothing to increase the damages, can’t continue
to perform, then recover based on full performance
i. Rationale: P interested only in profit, so if gets this anyway on breach, could use time
more wisely otherwise
b. P has a duty to mitigate, if don’t, D not liable to other side if continue to perform for that
continued work
c. Non-breacher must actively look to mitigate by looking for a replacement K
i. “Reasonable substitute” : non-breacher not obligated to take an inferior or different Tx –
must be “substantially similar”
ii. P must make reasonable efforts to find alternative Tx [reasonable determined under
circumstances]. NO duty to take it, but it doesn’t mean shouldn’t take it since court will
assume that since it is there you should have taken it
1. B<P x L [B= cost of step; P = Probability ; L = breached money trying to avoid]
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iii. D is responsible for reasonable costs incurred in reasonable efforts (idea that D should be
responsible because effort taken for Ds benefit to reduce Ds damages)
iv. Even if deal is for less profit, then can still sue for difference
v. Example: Hypo: Buyer breaches K for sale of care for $5k. Seller sells to another for $4k.
Seller can recover $1k from breaching buyer + costs of reasonable efforts to find
substitution
d. RSC 350: Avoidability as a Limitation on Damages
i. Damages not recoverable for loss that the injured party could have avoided w/o undue risk,
burden or humiliation
ii. Injured part is not precluded from recovery by the rule stated in (i) to the extent that he
has made reasonable but unsuccessful efforts to avoid loss
e. EXCEPTION: Lost Volume Seller: seller is not just as well off from mitigating their damages
because they would have made 2 profits instead of only one.
i. Elements of LVS
1. Had capacity [Necessary condition = could hire more workers/rent more
space/etc.]
2. Would have filled it in absence of breach [Possible to do and advantageous]
[Sufficient condition]
3. Profitable [Suffcient]
a. Bjerre doesn’t think profit element as important.
i. If not profitable, D then has no reason to point to this as something
that would have mitigated damages by P in 1st place – would still
owe. Also could get other benefits other than profits from a Tx [NO
PROFIT = NO SUBSTITUTE TO FIRST SALE – 2nd SALE IS
SIMPLY MITIGATING DAMAGES]
ii. Thus, 1 & 2 most important to worry bout
b. Personal services (like movie start) classic non-LVS since can’t perform
both at same time; Construction company = classic LVS since can hire
more workers to do more jobs]
ii. Diminishing Returns
1. An example of when P wouldn’t have a LVS argument
2. A time when you’ll have to pay more to produce more (like overtime charges kick-
in) – so even though you could have produced more, you wouldn’t have
3. Can’t recover as a LVS if you would have lost money on second sale [NO
PROFITS so no LVS]
2. Foreseeability : unforeseeable damages not recoverable. Would a reasonable person have foreseen the
damages?
a. Rule from Hadley [mill crank delivery case]
i. What a reasonable person would foresee (objective) OR
ii. If K made under special circumstances and communicated to D (subjective)
b. RSC 351(3): allows court to limit disproportionate rulings
c. Drafters of contract can eliminate any confusion by writing: “In the event of a breach, we will not
be responsible for consequential damages”

Consequential damages:
Damages not “arising naturally’ but only as a result of “special circumstances under which the K was
actually made”
1. Beyond mere loss in value of promised performance (direct damages) and resulting from impact of the
breach on other Tx or endeavors dependent on the K
2. Lost profits one kind of consequential damage
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3. Example of other kind:
a. D limited to damages for fee that would cost competent person to install a transformer, not for the
consequential damages that resulted to repair it

3. Certainty: P has to prove their case


• speculative damages are not recoverable, they have to be certain enough
• P has to show certainty of the damages, cannot ask the jury to speculate
• Complete certainty is not required: a “reasonable certainty” is the standard.
• Emotional damages usually not recoverable due to too speculative

New business and speculative profits:


1. Old rule : new bness can’t prove lost profits because too speculative
2. New rule: courts moving away from this a bit since some new bness might have lots of proof about
profits. IF have enough certainty, will allow for lost profits [Showing resale Ks, experts saying new whiz
kids, market showing tremendous demand in your bness] [Fera v. Village Plaza: reflects this trend]

PENALTY v LIQUIDATED DAMAGES CLAUSE


Basic rule: penalties not enforceable but estimates of actual damages are enforceable [Liquidated
damages clause]

Increasing Damages

Lake River Corp v. Carborundum Co.


Per the contract, doesn’t take into consideration Lake River’s saved costs. The damages clause provides that
Lake River will be overcompensated. Overcompensation is a penalty.

• Basic rule: Penalty clauses not enforceable; contracts can be drafted to limit damages, but not
to expand damage
• Per Posner and academics: this is a dubious rule: can be the genuine self-interest of parties to enter
into Ks the breach of which will penalize them
• When ALL costs are up front, take-or-pay clause might well be a reasonable liquidation of damages
[K revenues would then be an excellent measure of damages from breach”
• Policy. Should this be the rule?
o Pro: when parties are powerful, competent, penalties should be enforced.
o Con: could have the effect of deterring some efficient breaches.
• Tricky lawyering: instead of a penalty, can you deny a party a bonus for breach?

Liquidated Damages Clause


Flip-side.

1. “At the time of contracting, the parties may wish to avoid disputes and uncertainty over damages if a
breach occurs. Such a provision has the effect of liquidating anticipated damages in the event of a
possible breach, and is known as a ‘liquidated damages’ clause.

Bjerre’s test (from the text pg 1123):


(a standard—not a rule)
1. reasonable estimate
2. need for an estimate (actual damages difficult to prove—eg. Shirly Mclean.
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This amount will be more like actual damages and not penalty damages.

“reasonable estimate at the time of contracting of the likely damages from breach, and the need for
estimation at that time must be shown by reference to the likely difficulty of measuring the actual damages
from a breach of contract after the breach occurs. If damages would be easy to determine then, or if the
estimate greatly exceeds a reasonable upper estimate of what the damages are likely to be, it is a penalty”

Ks that specify a single sum in damages for ANY breach and this fixed sum greatly exceeds actual damages,
then it’s a penalty

NOTICE: All the stuff we studied re: damages = a default rule. It can all be avoided by adding a liquidated
damages clause to your K.

Damages Equation
Restatement § 347:
Damages =
Plaintiff’s loss in value caused by the D’s non-performance (This is determined by deducting the
contractual value of what the plaintiff received from what she was promised)

Plus:
Any other loss (includes consequential and incidental damages)

Less:
Any cost or loss the P avoided by not having to perform
1
Contracts Outline

Philosophical Foundations for E nforcing Promi ses ............................ 3

CONSIDERATION & THE BARGAINING PROCESS ..................................................................................3


Unilateral contracts ............................................................................................................................... 3
Gratuitous Promises / Nudum pactum..................................................................................................................................... 3
Reliance / Promissory Estoppel ................................................................................................................................................. 3
Equitable Estoppel: ..................................................................................................................................................................... 4
Action in the Past: ....................................................................................................................................................................... 4
Moral Obligation does not invoke requirement ..................................................................................................................... 4
Peppercorns .................................................................................................................................................................................. 4
Bilateral contracts ................................................................................................................................. 4
Illusory Promises ......................................................................................................................................................................... 4
Implied Promises (in a specific contract to a specific person).............................................................................................. 4
Quasi Contract: (contract implied in law).............................................................................................................................. 5
Exceptions: Promises Enforceable without consideration:..................................................................... 5

The Bargainin g Process ................................................................... 6

OFFERS ..........................................................................................................................................6
When is an offer made? .............................................................................................................................................................. 6
Not Quite Offers: ................................................................................................................................... 6
Price Quotes & Invitations to make an offer........................................................................................................................... 6
Advertising.................................................................................................................................................................................... 6
Letters of Intent ........................................................................................................................................................................... 6
Oral Contracts ............................................................................................................................................................................. 6

ACCEPTANCES ................................................................................................................................7
Silence is not an acceptance ....................................................................................................................................................... 7
When do offers Lapse? ......................................................................................................................... 7
Lapse in General.......................................................................................................................................................................... 7
Revocation..................................................................................................................................................................................... 7
Option contracts .......................................................................................................................................................................... 7
Communication Breakdowns: ................................................................................................................................................... 8
Partial Performance:................................................................................................................................................................... 8
Agreements to Agree & Definiteness........................................................................................................................................ 8
Counter Offers ...................................................................................................................................... 8
Last Shot Doctrine ....................................................................................................................................................................... 8

SUMMARY TABLE .............................................................................................................................9


Hypos From Class ................................................................................................................................ 9

Defenses to Contracts .................................................................... 11


Reasons Why a Contract may be voidable ............................................................................................................................ 11
Definiteness ................................................................................................................................................................................. 11
Statute of Frauds: Written & Oral Contracts ...................................................................................................................... 11
2
Promissory Estoppel as the alternative to the statute of Frauds. ...................................................................................... 11
Electronic Signatures ................................................................................................................................................................ 12

POLICING THE BARGAIN..................................................................................................................12


Minority ...................................................................................................................................................................................... 12
Duress - Coercion....................................................................................................................................................................... 12
Mental Capacity......................................................................................................................................................................... 12
Pre-Existing Duty: ..................................................................................................................................................................... 12
MisRepresentations & NonDisclosure.................................................................................................................................... 12
Adhesion contracts ..............................................................................................................................13
Unconscionability....................................................................................................................................................................... 13
Public Policy ............................................................................................................................................................................... 14
How to Modify Contracts ......................................................................................................................................................... 14

Remedies for Breach .......................................................................15

SPECIFIC PERFORMANCE ...............................................................................................................15

MEASURING DAMAGES ...................................................................................................................15


Theories of Breach: the Holmsian Heresy ............................................................................................15
The $90 Radio Example: .......................................................................................................................................................... 15
Calculating Damages ...........................................................................................................................16
Expectancy Damages................................................................................................................................................................. 16
Losing Contracts........................................................................................................................................................................ 17
Limitations on Damages.......................................................................................................................17
Duty to Mitigate ......................................................................................................................................................................... 17
Limitations on Consequential Damages................................................................................................................................. 17
Certainty of Damages ..........................................................................................................................18
Penalty Clauses & Liquidated Damages................................................................................................................................ 18

Analyzing a Contract s Que stion ...................................................... 19


Was there a Contract ................................................................................................................................................................ 19
Was it breached? ....................................................................................................................................................................... 19
What were the consequences? ................................................................................................................................................. 19
Available Remedies ................................................................................................................................................................... 19
Key Definitions: ......................................................................................................................................................................... 19
3
Philosophical Foundations for E nforcing Promi ses

CONSIDERATION & THE BARGAINING PROCESS


Principles:
“Reciprocal Conventional Inducement” - Holmes
There must be something extracted - something sought
Restatement § 71
Page 180

Test: Was there something exchanged?


It could even be a promise – doesn’t look to the value,

Unilateral contracts
Cases where one party makes a promise
and the other party . . . either performs, or just relies.
Cases:
Hammer v. Sidway:
What is valuable consideration? A detriment to either promisor, or promisee.
Forbearance counts as consideration
Gratuitous Promises / Nudum pactum
Principles:
Gr. Promises are not enforceable.
Exception: promisee reasonably relied upon the promise.
Cases:
Feinberg v. Pfeiffer: Worked 37 years, offered pension. Gratuitous? Yes ∴ not enforceable.
But promise enforced per reliance theory
Kirksey v. Kirksey: Brother-in-law offered place to live.
Broadnax v. Ledbetter: Gratuitous Performance
Captured criminal, but didn’t know about reward.
Capture was not “induced by the reward” ∴ gratuitous.
Reliance / Promissory Estoppel
Restatement § 90:
A promise which the promisor should reasonably expect to induce action or forbearance of a
definite and substantial character on the part of the promisee and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

Estopped from taking back promise if:


1) A promise was made
2) you could have reasonably expected reliance when you made the promise.
3) the promise was actually relied upon.
4) And if injustice can only be avoided by enforcement.
Rickets v. Scothorn: Quit her job in reliance on offer by grandfather for $2,000 + 6% interest.
Feinberg v. Pfeiffer: Worked 37 years, offered pension.
Gratuitous? Yes ∴ not enforceable.
But promise enforced per reliance theory
Drennan v. Star Paving: Can’t do it for the amount we said
Promissory Estoppel: Must perform
also see under offers.
4
Equitable Estoppel:
When one party has made a statement of fact, and the other has relied upon it.
Dickenson v Dodds: may have gone the other way had this doctrine been in effect then.
π reasonably relied on the statement of fact that he wouldn’t sell the property until Fri.
Action in the Past:
Feinberg v. Pfeiffer again – her previous service did not qualify.
Moral Obligation does not invoke requirement
Mills v. Wyman: Cared for sick son – Father offered to pay then revoked.
Gratuitous – Even though it’s morally right it’s not enforceable.
Peppercorns
Principles:
If one party wants to back out: Not enforceable.
Test: Are the party making a real exchange?
Exception: Enforceable in the case of option contracts

Bilateral contracts
When promises are the exchange for other promises.
This is the most common kind of contract – don’t usually go out and do it right away.
Conditional Promises:
the promise will only become good if . . .
Illusory Promises
Principle: Promises that aren’t actually worth anything don’t qualify as consideration.
Strong v. Sheffield: Promissory note in exchange for an illusory promise
“I won’t collect on my debt until I want to.”
Not enforceable.
Termination Clauses:
E.G.: if the building burns down – landlord no longer obligated to provide housing.
Unrestricted termination clauses – can cancel at any time – make the promise illusory.
At Will Employment: Initially this seems like just an illusory promise – they usually have unrestricted
termination clauses.
It considered like a lot of one day exchanges.
When they change the handbook, and then you go to work – you’re accepting the new information.
Central Adjustment Bureau v. Ingram: does a promise not to compete have force when only exchanged
for a technically illusory (at-will employment) promise?
Yes: as the employment (i.e.: expected performance) continues, the promise becomes increasingly
binding.
Employee Handbooks: Adhesion contracts?
Implied Promises (in a specific contract to a specific person)
Principle: If the parties fail to include a promise in the contract the court can interpret it.
Wood v. Lady Duff: His performance was implied.
New Holding: The court can interpret contracts and enforce what they thought the parties meant,
rather than just what was there.
5
Schott v. Westinghouse: Suggestion Box idea for a better circuit breaker
Expected to be paid – also no pay would be unjust enrichment.
Definiteness:
Pyette v. Pyette: Wife put Husband thru law school, Husband divorced and refused to reciprocate.
Not definite enough for the court to decide,
but it was unjust enrichment (quasi – contract) and ∴ he owes – back to jury for how much.
Quasi Contract: (contract implied in law)
Principle: when you do something for someone they ought to pay what they owe.
τελος: avoidance of unjust enrichment.
Distinction from Implied promises or promises implied in fact:
Lady Duff implication was in fact.
A.K.A.:
- Contract implied in law
- restitution
- constructive contract
Constructive Employment – not contract, but keep getting paid
Constructive eviction – wasn’t kicked out, but the lights are out, and snow is coming thru the roof.
- quantum meruit (gets as much as he deserves.)
Tests:
1) Was it gratuitous?
I.e.: not professional
2) Was it meddling in the situation?
Callano v. Oakwood
1) Was the Δ enriched?
2) Would retention of the benefit without payment be unjust?
Cotnam v. Wisdom: thrown from streetcar, Drs. Operate.
There is a right to collect – how much is up to the jury
& it should be decided based on how much the service was worth, not what the Δ could pay.
Pyette v. Pyette: Wife put Husband thru law school, Husband divorced and refused to reciprocate.
Not definite enough for the court to decide,
but it was unjust enrichment (quasi – contract) and ∴ he owes – back to jury for how much.
Usually promises between spouses are not enforceable, but in this case the effort by one spouse was so
extrodinary that the court said their was a quasi contract.
Contractor’s Claims:
Sub-contractor (S) built a bathroom on HomeOwner’s (H) house per instructions from Contractor (C).
then C goes bankrupt & doesn’t pay.
S can only get re-paid by H when every avenue against C is exhausted.

Exceptions: Promises Enforceable without consideration:


1) Promise to pay a debt that has expired per statute of limitations or after bankruptcy
2) Re-affirmation of a promise made as a minor.
Principle: The promisor is not making a new promise, but
“abandoning the defense” of bankruptcy, infancy etc.
Restatement § 82 & 83
6
The Bargainin g Process

OFFERS
When is an offer made?
Definition:
When an offeree reasonably thinks an offer has been made. Offer: A statement or other act
Lucy v. Zehmer: Just kidding about the farm offer in which one person gives
another the power to make a
- Ct: offer is good because Lucy reasonably thought the offer
contract.
had been made.
Must be an expression of will or
The offeror is the “master of the contract” intention.
offeror has the power to make the terms
offeree has the power to make them binding.

Not Quite Offers:


Price Quotes & Invitations to make an offer
Owen v. Tunnison: “I would need at least $16,000 to sell it”
Ct: this was only an invitation to make an offer.
Test: If he had said I couldn’t sell it for less than $16, 221.07
then it might be considered an offer.
Harvey v. Facey: Will you sell us the property? How much will you sell for?
Answer 900£ : Then he didn’t want to sell
Court: he only answered one question. Very formalistic, leans toward status quo.
Ignores implications of statement, and possibly also local knowledge, e.g.: the property was for sale.
Fairmount Glassworks: Reply gave specific quantities and specific price & said “For immediate acceptance”
Ct: this language is an offer.
Tests: Specificity in price & time
The more specific a statement is the more likely it is that it’s an offer.
Policy: Courts lean toward status quo
Advertising
Generally advertising is an invitation to make an offer.
Exception: Very specific advertising can be an offer
Lefkowitz: fur stole for $1 to 1st person thru the door.
Carbolic Smoke Ball: Was specific enough
Usual req’t for acceptance waived.
Letters of Intent
People want to understand each other very well, but they don’t want to be bound by it.
Common with stock underwriting.
Channel Home Centers: Letters of Intent are valuable as consideration.
Oral Contracts
If you work out a deal orally – it’s binding
unless . . . one person also says “and I don’t want to be bound until we write this down.”
7
ACCEPTANCES
An acceptance is a communicative act
Offeror must be notified that the offer has been accepted.
Once the acceptance is made the contract is binding.
Bilateral contracts: you accept with a promise:
More of a communicative Act
Unilateral contract you accept with an action.
Doing of the action is generally notice.
Carbolic Smoke Ball: Req’t of Notice waived
– it would be unreasonable to have expected that everyone would notify them.
Mirror Image Rule:
Have to accept exactly what the offeror offered.
Silence is not an acceptance
Because we don’t want offerors to coerce us into doing something.
You can waive this rule by receiving consideration: CD clubs.
Regular conduct – creating an expectation.
Have always paid – can expect that you’ll pay again
Hobbs v. Massasoit Whip: Just sent eelskins to a whip making company
Silence and retention for a long enough time = acceptance.

When do offers Lapse?


When a person would reasonably expect it to.
Depends on the circumstances – a house maybe long term, stock maybe 30 seconds.
Face to Face conversations:
If only an offer is made, no acceptance, and no specific lapse time
it lapses at the end of the conversation.
Lapse in General
Loring .v City of Boston: 1837 reward for setting fires
expired by 1841
Revocation
Restatement § 63
Offers can be freely revoked
Dickenson v. Dodds: A revocation can be simply an action inconsistent with the intent to go forward.
A revocation can be good when it comes from a reasonable source, even if it’s not the offeror.
Was close to, but not an option contract – no specific consideration given for the option.
Option contracts
A contract in which the offeror promises bindingly not to revoke for a specific amount of time.
Usually req’s “earnest money” Peppercorns are OK here.
Toys v. FM Burlington: Toy store in a shopping mall
An offer cannot expire within the option period.
Even if price negotiations are ongoing.
Choosing not to exercise your option doesn’t bar your ability to accept within the space of the option.
Not revoked upon death of the offeror.
8
Drennan v. Star Paving
An offer (usually freely revocable if revocation is rec’d before acceptance)
is enforced even though revocation is technically rec’d prior to acceptance.
– essentially it suggests that it’s an option contract even though no consideration is made.
Promissory Estoppel – can’ revoke the offer once it’s been relied upon.
Restatement § 87(2)
Issue 2: Mistake in an offer – the offer is still binding
assuming it was all in good faith – reasonable person test applies here.
Holman Erection Co.: Sub-contractor’s bid used in main bid.
Then contractor did not use that sub-contractor – were they req’d to?
No – contractor not req’d to use the sub-C they included in the bid.
Implied Option Contracts: Expire when a reasonable person would expect them to.
Communication Breakdowns:
Is there recovery for work done prior to contract?
Sometimes.
Songbird: No recovery for good ideas
Precision Testing: Allowed recovery for design of an environmentally sound car.
Partial Performance:
Brooklyn Bridge hypo: Once you start the performance the offeror is bound.
Agreements to Agree & Definiteness
Generally not allowable because they are too indefinite.
Court doesn’t know how to enforce such a contract.
Channel Home Centers: an exception – just enough definiteness
they just agreed to negotiate in good faith – they were able to show that the other side wasn’t
negotiating in good faith they were leasing it out to someone else.

Counter Offers
A rejection of the previous offer, and a whole new offer.
Once a counter offer is made the other offer is considered to be revoked.
Precatory offers: acceptance of the offer as is with a recommendation to change.
Last Shot Doctrine
When companies know they’re going to agree they send forms back and forth. The last form mailed
before performance begins is the controlling contract.
9

SUMMARY TABLE
Default Rules Option rules

Promises are not binding without real Mere pretense of consideration is sufficient to hold
consideration an option open
Death of offeror terminates the power to Death of offeror during the option period
Accept has no effect on the ability of the offeree
to form a Contract by exercising the option.

Acceptances: Acceptances:
Mailbox Rule: Acceptances under options are not effective until
Acceptances are effective when mailed rec’d. § 63 they must be rec’d before the end of the
if they are mailed before any option.
rejections or revocations.
Exception: § 40:
If a Rejection is mailed first & rec’d first
an Ac, even if mailed prior to the rj rec’d,
is just a counter offer.
Overtaking rejections are not valid
unless they are relied upon – apply the
estoppel rules to see if reliance is valid.
Rejections: Rejections:
Rejections are binding when rec’d Rejections aren’t binding until the option expires.
unless an Ac has already been rec’d
Offeree can reject during the offer time and then
accept later as long as it’s within the Option time.

Revocations: Revocations:
Are effective when rec’d. Can’t revoke
(without incurring breach of contract penalties.)

Hypos From Class


Contract is made when acceptance is mailed:
This contract is in force:
1 - Offer
2 – Acceptance Mailed – Contract Made
3 – Revocation
4 – Acc Arrives

Revocations are in force when they are rec’d


1 – Offer
2 – Revocation Mailed
3 – Acceptance Mailed – Contract Made
4 – Revocation Arrives -
5 – Acceptance arrives

So if you want to revoke – go and do it in person.


10
Trade off: Certainty/Flexibility
The more of one you get, the less of the other.

Acceptances are in force when mailed.


Called “an overtaking rejection”
1 - Offer is made
2 – Acceptance is mailed
at this point the Contract is made
3 – Offeree calls and rejects by phone
4 – Acceptance Arrives

It’s too late to reject – the acceptance is effective.

But … What if the offeror goes off and makes another contract in reliance on that statement.
Equitable estoppel … when you’ve made a statement of fact, and someone relies on it
you can’t go back on your word.

Overtaking Acceptance:
Rejections are effective when received
1 – Offer
2 – Rejection is mailed by USPS
3 – Acceptance is mailed – this is the point at which contract is made.
4 - acceptance arrives by FedEx.
5 – Rejection arrives by U.S. Post.

The one that happened first controls


Contract is made when the acceptance is mailed.

Restatement § 40: Non-Overtaking Acceptances


The time when a rejection or counter offer terminates the power of acceptance.
Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until
received by the offeror,
but limits the power so that a letter or telegram of acceptance started after the sending of an
otherwise effective rejection or counter-offer is only a counter-offer
unless the acceptance is received by the offeror before he receives the rejection or counter-offer.

Non-Overtaking Acceptance
1 – Offer
2 - Rejection Mailed
3 - Acceptance Mailed
4 – Rejection Arrives – this limits the power of the traveling acceptance:
It turns the acceptance into a mere counter-offer.
5 – Acceptance Arrives

It turns the acceptance into a counter offer.


The affect of the acceptance is limited:
It becomes nothing but a counter offer.

Estoppel is not an issue here because § 40 does not deal with reliance.
But it does allow for it.
If the offeror relies on the first received rejection
They are still perfectly free to reject the counter offer.
11
Defenses to Contracts
Reasons Why a Contract may be voidable
Void or Voidable?
Void: no court will enforce it.
Voidable: one side can withdraw, but the other can’t.
e.g.: minority, mental infirmity, unconscionability, duress,
Definiteness
When is an agreement definite enough to be enforced?
Did both parties intend to be bound?
Relational contracts are looser
Transactional contracts must be more clear.
Evidence (e.g.: pre-contractual documents are used) can be used to interpret the intent.
Pyette v. Pyette found it was too indefinite.
Channel Home Centers – just shy of too indefinite.
Draftsman told “you’ll get a fair share of my profits”
Usually enforceable based on trade customs preliminary negotiations, etc.
Statute of Frauds: Written & Oral Contracts
Some contracts need to be written down to be valid.
Suretyship: promises to pay another’s debt
Real Estate
Promises that won’t be performed within a year.
Courts don’t like statute of Frauds.
If one signature is on a contract the contract can only be enforced against the signing party.
Not every last detail needs to be written out.
Writing can be evidence of te contract. It doesn’t need to be entirely written out itself.
Letter of Memorandum sent a few days later re-capping the conversation is sufficient to satisfy statute of
frauds.
Monarco v. Lo Greco: although it was a real estate deal it was enforceable
based on promissory estoppel & restitution – he was owed a part of the farm.
Rationales:
Evidentiary – proves that the contract existed
Cautionary – makes people think twice before entering into a contract
Channeling function: convenient way of separating enforceable contracts from non-enforceable
contracts.
Bjerre note: Consideration achieves all of these as well.
Promissory Estoppel as the alternative to the statute of Frauds.
Promissory Estoppel is a last resort – you should write clear contracts in the first place.
§ 139 (p. 185 Supp.)
Test for whether injustice can only be avoided by enforcement:
1) availability of other remedies
2) definite and substantial character of the action in relationship to the remedy sought
3) the extent to which the action corroborates evidence of the making of the contract.
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4) the reasonableness of the action or forbearance
5) the extent to which the action or forbearance was foreseeable by the promisor.
Electronic Signatures
§ 101 – intent to be bound must be manifested.
E-signature: an electronic sound, symbol or process.
Doesn’t necessarily have to be unforgeable.

POLICING THE BARGAIN


Minority
Age: bright line rule: under age kids can void their contracts.
Doesn’t matter if the item is damaged
– restitution must be made for loss in value, but can’t refuse to take it back.
Exception for necessities – but it must be a real necessity
Not even available for housing if there is a parent who is willing to house the minor.
Can void a contract only after a reasonable time after reaching majority.
Continued bill payment implies an affirmance of the contract.
Kiefer: Even though he misrepresented his age,
and had reached the age of majority,
the contract is still voidable.
Duress - Coercion
“A wrongful threat pre-cluding the exercise of freewill”
Physical – is a defense
Economic Duress:
Not allowed in Crim – allowed in Contracts
Austin v. Loral: Defense contractor – Gov’t is major buyer
Subcontractor stopped working at the last minute, and said pay us more or else
Contractor couldn’t go elsewhere & still deliver on time – they exhausted other avenues
They agreed to the contract, but as soon as the parts were delivered they stopped paying
Ct: they were under economic duress – the contract is voidable.
Mental Capacity
Mental Capacity:
Volitional: Capacity to control you actions
Cognitive: Capacity to understand your actions.
Inebriated people: Must be “really out of it” – KC
Modern approach: use either cognition or volition
Ortelere v. Teacher’s Retirement: Contract was ruled avoidable per volitional incapacity.
Pre-Existing Duty:
Watkins & Son v. Carrig: Hit rock 1/3 way through excavation – asked for 9x the prive to remove
Owner agreed – Does he have to pay?
New contract was enforceable, even though no new consideration was given
– pre-existing consideration. He relinquished the right to the old contract.
MisRepresentations & NonDisclosure
NonDisclosure usually not a problem – we want to encourage people to go out and get specialized
knowledge.
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Duty to Disclose:
When you know the other party has made a mistake of fact.
When false implications are made – affirmative representations must be accurate
When new information becomes available.
When a contract is voidable due to Misrepresentations:
Facts weren’t accurate
Must be a material fact (not opinion) that was misrepresented.
the other side must rely on it.
The statement must in fact be false.
Does not matter whether you knew it was false.
Can use misrepresentations to allocate the burden of uncertainty:
Put in the contract that there’s not cockroaches, then if there is seller pays to remove them.
Kannavos v. Annino: It was true that they could rent the apts, but they didn’t mention that it was illegal.
Court: it was Fraud.

Adhesion contracts
Take it or leave it
Contracts are valid to the extent that they don’t go against anything that was actually bargained for.
Are not enforceable when both parties don’t’ know and intend for the contract
e.g.: stuff piggybacking on a receipt if a reasonable person would not expect it.
§ 211 – know esp (3)
1) Claim checks & stubs are not binding if a reasonable person would not view them as a contract.
2) it doesn’t matter if you read it or not (law doesn’t want to encourage willful blindness)
3) Generally they are enforceable, but random unexpected clauses are not
Carnival Cruise Lines: Forum Selection Clause enforceable
R: All passengers benefit when the Co. knows what law they will have to defend under.

Unconscionability
“Shocks the conscience”
Procedural & Substantive unconscionability.
Test:
1) terms unreasonably favorable to one side
2) lack of meaningful choice for the other.
Restatement § 208
Like a public policy choice
- it tries to prevent people from taking “strong advantage” of others.
Walker Thomas Furniture Co.: Contract included a dragnet clause – get everything
included an apportionment clause – never pay anything off.
Coase Theorem:
If you change the balance of power (e.g.: make apportionment clauses illegal) it will economically
efficiently rebalance some other way. (e.g.: more aggressive collections.)
Gateway 2000: Form in box with new computer, Arbitration in Chicago ICC rules ($10,000 to initiate)
Substantive element alone makes the contract unconscionable.
No procedural unconscionability
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Public Policy
Contracts are void if they go against public policy
Contracts for illegal actions, gambling, usury (illegally high rates of interest)

How to Modify Contracts


Generally enforceable as long as the terms are reasonable.
Central Adjustment Bureau: Non-compete clauses (probably often modified)
Unreasonably broad they are adjusted to what’s reasonable.
Blue pencil rule.
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Remedies for Breach
Two basic kinds of Remedy:
Equitable Remedies: Specific Performance, Injunction
Remedies at Law: $$ (preferred by courts – easier to supervise)
Two ways to calculate damages:
- Diminution of Value
- Putting it back the way it was – Completion of the K.
e.g.: Gravel Pit Case
Breach of Contract is Strict Liability:
If you said you’d sell your car & a tornado takes it away – you’re still liable.
No Punitive Damages for breach
R: We want people to enter contracts
How damages are calculated:
Contracts: Expectancy Damages
Promissory Estoppel: Reliance Damages.
Quasi Contract – Quantum Meruit

SPECIFIC PERFORMANCE
Not preferred by courts – hard to supervise
Don’t like to force actions (too reminiscent of slavery)
Exception: land is usually considered unique, and not as easily translatable into $$.
Sp Perf is an equitable remedy
Court will not order an equitable remedy when there is a remedy at law available.
Lumley v. Wagner: Opera Singer – Injunction: can’t sing anywhere else in town
Didn’t require singing at π’s venue – too hard to supervise
The extent to which courts go to create supervisable orders.
Laclede Gas Co. v. Amoco Oil: Court ordered Sp. Perf. for public policy: keep propane is residences.
The performance req’d was definite enough that it could be supervised.

MEASURING DAMAGES

Theories of Breach: the Holmsian Heresy


Breach of Contract is Strict Liability:
If you said you’d sell your car & a tornado takes it away – you’re still liable.
No Punitive Damages for breach
R: We want people to enter contracts
The $90 Radio Example:
A Radio might be for sale
Current owner values it at $90 Pacta sunt servanda:
Buyer 1 values it at $110 Promises should be
Buyer 2 values it at $130 observed.

If CO & B1 make a contract to exchange at $100 they both benefit by $10.

If B1 then meets B2 and sells it for $120

But what if seller meets B2 before the exchange takes place,


and breaches the contract and sells to B2 for $120.
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Seller makes $30 profit,
but pays $10 to B1 for expectancy in breach.
but is still $20 ahead.

Why are these breaches tolerated?


The Holmsian Heresy
The radio does the best social good by being in the hands of B2.
We want the radio to be in the hands of the person that values it the most.
Arguments against the “right to breach”
Pacta sunt servanda: Promises should be observed
It just seems like the right thing to do.
Transaction Costs are difficult to calculate.
Assumes that all people value $$ the same.
Such theories leave poor people with very little.
Fuller & Purdue:
Kinds of Damages:
Restitution is most important
Reliance is next most important
Expectancy is least – so why do we award it?
1) Credit based society – assume people have what they’re expecting
2) Make plans relying on out expectations & pass opportunities relying on those expectations which
are difficult to articulate.
3) If we make people prove their reliance people will be fearful of relying – because it’s so hard to
prove.
Transaction Costs – sort of built in to the expectancy – it would be too difficult to add them all up.

Calculating Damages
Two ways to calculate damages:
- Diminution of Value
- Putting it back the way it was – Completion of the K.
Groves v. John Wonder Co.: Should the gravel pit be regarded at a cost higher than the cost of the land?
Court orders the cost of regarding.
R: put the π in the position he would have been had the contract been completed.
Accounts for subjective value of land.
(but was there even evidence of such here? He turned around and sold it as soon as it was regarded!)
How damages are calculated:
Contracts: Expectancy Damages
Promissory Estoppel: Reliance Damages.
Quasi Contract – Quantum Meruit
Expectancy Damages
Principles: Put the π in the position they would have been in had the contract been performed.
“the making of the contract is the securing of the benefit.”
Two ways to calculate damages:
- Diminution of Value ($$ - remedy at law)
Peevyhouse v. Garland Coal Mining: Only given change in value of family farm.
- Putting it back the way it was – Completion of the K. (equitable remedy – sp. perf.)
e.g.: Groves v. John Wonder Co.: Gravel Pit Case
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Simple Case Hypo:
Painter promises to paint the house.
Homeowner promises to pay $5,000
Next best price available: $7,000

If the painter decides not to paint what damages are owed for breach?
$2,000 (or whatever the difference is between $5,000 and the next best price available.)

Reasoning:
“the making of the contract is the securing of the benefit.”
Rhetoric: The expectancy is $2,000.

Vitex v. Caribtex: Only directly applicable variable costs included in expectancy calculation.
R: They would have spent the same fixed costs with or without the contract.
Incidental Reliance:
as opposed to essential reliance
Damages above & beyond the loss of profit from the contract -
actions taken in reasonable expectation that the contract wouldn’t be breached.
E.G.: rent a fruit stand & order fruit – if rental contract is breached, fruit rots – who pays for fruit?
The breachor – assuming it was reasonable for him to assume that the renter would rely on the furuit
stand and purchase the fruit.
Losing Contracts
What if the expected profit was negative?
You pay for the value received (assuming the stoppage was in good faith)
Quantum Meruit
Algernon Blair: “The standard of measuring the reasonable value of the services rendered is the amount for
which such services could have been purchased from one in the π’s position at the time and place the
services were rendered.”
The contract price acts as a ceiling.

Limitations on Damages
Duty to Mitigate
Two Methods:
- Stop the Loss Luten Bridge
- Find another transaction – Parker v. 20th Century Fox (Shirley McClain Case)
20th Century Fox: You must put forth a reasonable effort to get a substantially similar position
It must be of similar quality.
Exceptions:
Lost volume sellers – no duty to mitigate
M & R v. Michaels: Contractors are assumed to be lost volume sellers, but π can rebut that.
They had plenty to fill their time, but still were compensated for expectancy.
Limitations on Consequential Damages
They must be foreseeable & relatively certain
Hadley v. Baxendale: Mill shaft case
Can only collect what was reasonably foreseeable by the Δ at the time the Contract is made
it must arise naturally from the breach.
Modern Response: Disclaimers of liability for consequential damages.
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Certainty of Damages
Speculative Expectancy Damages:
E.g.: if my house was painted it would be in Home & Garden, and I would get a movie role . . .
Sp. Damages are an evidence issue: Court is conservative in assignment.
Incidental Reliance:
as opposed to essential reliance
Damages above & beyond the loss of profit from the contract -
actions taken in reasonable expectation that the contract wouldn’t be breached.
E.G.: rent a fruit stand & order fruit – if rental contract is breached, fruit rots – who pays for fruit?
The breachor – assuming it was reasonable for him to assume that the renter would rely on the furuit
stand and purchase the fruit.
Penalty Clauses & Liquidated Damages
Ne penalties allowed.
You only get expectancy
R: Punitive damages don’t allow efficient breach -
it makes the π better off with the poor contract with the breach
Good estimate of things that are hard to prove
Lost profits & emotional damages.
Lake River v. Carborundum: If they had just designed the penalty to pay for the cost of the bagging machine
& expected profit they would have been fine.
Take or Pay Clauses: Generally not enforceable – damages are limited to actual damages.
Even new businesses can now show certainty of profits.
Emotional damages are based on a reasonable person.
Objective -
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Analyzing a Contract s Que stion

Was there a Contract


Mutual Assent
Was an offer made?
Was it definite/certain enough to be enforced?
Was it properly accepted?
Alternatively:
Quasi Contract
Reasonably relied upon promise
Consideration
Was there mutual reciprocal inducement? Was something actually exchanged?
- or was one promise illusory
Alternatively
was there a reasonable expectation of reliance?
Defenses to Contract
Illegal Subject Matter
Minority
Capacity
Duress
Statute of Frauds
Misrepresentation
Adhesion Contracts
Unconscionability

Was it breached?
Must be a material breach actually causing damages
What were the consequences?
Available Remedies
Contracts: Expectancy Damages
Promissory Estoppel: Reliance Damages.
Quasi Contract – Quantum Meruit
No punitive damages
The Holmsian Heresy
Duty to mitigate damages
Key Definitions:
An offer vests in the offeree the power to create a contract by making an acceptance.
I. Types of Enforceable Promises

A) Promises w/ Consideration- The most common reason given for enforcing a


promise is that there is consideration for it. Consideration is a concept with a long
history, and stems from similar bases of enforceability in English common law.
At one time consideration was defined as a benefit to the promissor or a detriment
to the promissee. This definition, however, tended to be both over and under
inclusive of promises that should be enforced. The reason why contracts with
consideration should be enforceable is that consideration indicates that there has
been an exchange. Generally, it is believed that exchange is good, and benefits
both parties and society as a whole. Thus when judging whether consideration
exists, it is most appropriate, instead of looking to benefit or detriment to either
party, to consider whether an exchange has been made. This is the modern
construction of the definition of consideration. Contracts with consideration are
generally enforceable.

1) Elements of Consideration

a) Exchange- Consideration for a promise must be given


specifically in exchange for that promise. Actions taken before the
promise was made cannot constitute consideration for the promise.

i) Feinberg. Pfeiffer- Case of an office worker near


retirement who was promised a retirement pension. The
Court found that her service to the company up until the
promise could not be construed as consideration for this
promise, and ruled that the promise was not enforceable
based on consideration

ii) Mills v. Wyman- Promise was made by father of man


whom promisee had done a great deal to help, in gratitude
of those acts by the promisee. It was ruled that promisee’s
actions were not consideration for the promise because they
were not performed in exchange for the promise, or they
did not “induce” the promise.

b) Bargain- It is not enough that an action be done in response to


a promise. It must be the case that the action be done or a promise
made be done because it was bargained for by the promissor. The
promise must be induced by the action, AND the other way
around.

i) Kirksey v. Kirksey- Case where brother promised sister a


place on his farm “if she would come down and see him”.
The court ruled that his promise was not enforceable
because it was without consideration. He was not induced
to promise her a place on his farm by the prospect of her
coming down to see him on his farm, it was found, but
rather it was simply a description of a situation in which he
would offer her his gift.

2) Promises as Consideration- Promises as well as payment or


performance can be consideration for a promise. The promise is
consideration, generally, if the performance promised would be
consideration. That said, the promise must actually be a promise, in other
words an oath to do some specific thing. In addition, promises may be
interpreted by Courts to entail certain things not directly spoken or written
by the promissor.

a) Strong v. Sheffield- Wife of debtor promised to pay her


husband’s debt if creditor forbore on husband’s debt. However,
creditor did not promise to forbear for any length of time, but
rather to forbear collection until such time as he wished to collect
upon it. This meant that the creditor could have collected at any
time after promise was made. Thus, it was ruled that creditor’s
promise could not be consideration for wife’s promise to pay,
because the promise made was not really a promise, and because
the thing promised “to forbear until he didn’t want to anymore”
was not bargained for by the promissor. Statements like the one
made by the creditor in Strong are known as illusory promises.

b) Wood v. Lucy, Lady Duff-Gordon- Case of Lucy, a fashion


designer, who entered into agreement to lend her endorsement
exclusively to Wood, in exchange for half of all profits Wood
may receive for items sold with her endorsement. Lucy sued
Wood for breach because he failed to use her endorsement.
Court found that Wood’s promise to give her half of all profits
implied that he would actually use that license.

c) Central Investment Bureau v. Ingram- Employment


Contract involving non-competition agreement between Central
and employees. Issue was whether there was valid consideration
for employee’s promise not to compete. Court ruled that
employee who had signed agreement near beginning of
employment was bound because performance of continued
employment was adequate consideration. Court also ruled that
another employee was bound to his promise even though he
signed the contract sometime after being employed, because the
performance of continued employment had been tacitly accepted
by the employee.
3) Exceptions to the Consideration Requirement- In some cases courts
negate the requirement for consideration. These promises are special
because they affirm an obligation that promissor rightfully should have
anyway.

a) Reaffirmance of unenforceable promise made as a minor

b) Reaffirmance of cancelled debt.

B) Promises Relied Upon by Promissees

1) Restatement § 90- This section provides a closely adhered to rule for


reliance. The section provides that a promise is enforceable if: (1) The
reliance by promissee was foreseeable; (2) The promissee was justified in
relying on the promise; and (3) Injustice would be avoided by enforcement
of the promise.

2) Ricketts v. Scothorn- Granddaughter sued Grandfather for recovery of


funds promised to her. Grandfather promised to give her the money so
that she wouldn’t have to work anymore. She soon quit her job in
expectation of payment by grandfather. Court ruled that promise was
enforceable because granddaughter relied on the promise and because it
would be unjust under the circumstances not to enforce the promise.

C) Restitution- Sometimes damages are awarded without a promise having been


made at all. This happens when one party is “unjustly enriched” at the expense of
the other or when a contract is “implied in fact”. In limited circumstances, this
can lead to an obligation on the enriched party to recover the loss for the
enriching party.

1) Cotnam v. Wisdom- Court ruled that doctor could recover fair fees for
services rendered to a life-threatened stranger. The court relied upon the
legal concept of a contract implied in fact in its decision. This argument is
buttressed by the consideration that the patient would have agreed to pay
for the services had he been conscious, and also by the public utility
inherent in allowing doctors/hospitals to recover for services rendered to
unconscious people. Since the occasion arises so often that patients come
to a hospital, for instance, unconscious and seriously injured, it would
create a serious and intolerable financial hardship for medical
professionals not to allow recovery in such circumstances. This might
cause a serious disruption in the economics of medicine and result in a
worsening of the level of care or dramatic increase in the price for those
who ARE conscious when they decide to receive medical treatment.

a) NOTE: Generally, restitution is not allowed for services


rendered in an emergency context. Services by medical
professionals, for reasons mentioned above, are an exception to
this rule.

2) Callano v. Oakwood Parks Homes Corp- Landscapers installed


shrubberies for purchaser of home, who died before the sale went through.
Ownership reverted to seller of home, and seller sold the property with the
shrubbery. The landscapers sued under a claim of unjust enrichment to
Oakwood Parks Homes. Court ruled that landscapers were not entitled to
Oakwood parks because Oakwood was not in any way responsible for the
actions of the landscapers. Court mentioned that had there been fraud
involved on the part of Oakwood, Callanos may have been able to recover,
but refused to allow recovery in this case.

a) Note: Third party beneficiaries are generally not allowed to


“substitute” when another party is unjustly enriched but cannot
pay. There must be some sort of direct relationship between party
enricher and enrichee.

3) Pyeatte v. Pyeatte- Case of agreement between married couple that


wife put husband through law school in exchange for the husband putting
the wife through graduate school afterwards. Court ruled that terms were
too indefinite to provide a remedy under contract law, but that restitution
was appropriate. Court distinguished the case from other invalid claims
for restitution in marriage contexts for tasks ordinarily assumed to be
conferred gratuitously by married couples, like housework, etc.

II. The Bargaining Process- Every contract is formed through a process whereby two
parties agree to make an exchange. The process is starts with an offer, which must be
sufficiently definite and of a certain form, depending on the situation. Once this offer is
made, a power is bestowed on the offeree to make a contract by accepting the terms of
the offer. After acceptance, the contract is binding and both sides are bound by the
contract unless they agree together to amend or destroy the contract.

A) Assent, generally- A contract is above all an agreement. So, a valid contract


must be agreed to by both parties, with intent to be bound. That said, there is no
way to accurately judge the mental state of another party, and so the fairest way to
deal with this requirement is to look to the observable actions and words of the
parties that would indicate their intent to bound, or lack thereof. It is important to
note, however, that often courts sometimes take into account the subjective
knowledge of each party and what they in particular would be justified in
understanding from the actions of the other party, see Lucy.

1) Lucy v. Zehmer- Case of contract for sale of land, written on the back
of a restaurant check. Zehmer claimed the contract was in jest, but the
evidence suggested that Zehmer did nothing to suggest to Lucy that the
sale was in jest, and so the court ruled that Lucy was entitled to sue on the
contract.

2) Unfinished Agreements- The rule generally is that unless one party


specifies to the contrary, parties may be held to contracts that remain in
the stages of final negotiation, depending on the particulars of the deal.

3) Genleman’s Agreements- In certain situations, parties wish to


negotiate terms while still holding out on their decision to go through with
a deal. In such situations, the parties will stipulate that an offer, for
instance, is not an offer but rather a “letter of intent”.

4) Special Circumstances- In some special situations intent to be bound


is inferred to be missing unless it is particularly specified. Examples of
this are doctor’s promises to patients and spouses promises to each other.

B) Offer- Generally contract formation is affected through two steps: an Offer


made by one party including all relevant terms of the final agreement, followed by
an acceptance by the second party on those terms. Negotiation often consists of
an initial offer, followed by several counter-offers, with each of the offers and
counter-offers creating for the other party the power of accepting the offer or
counter-offer and binding both parties. There is a balance of power here between
the power of the offeror to insist that the agreement meet her terms and the power
of the offeree to accept or not accept those terms.

1) Owen v. Tunison- Disputed sale of land. Issue was whether words in a


letter from Tunison to Owen to the effect that “I would not be able to sell
for less than ______” amounted to an offer to Owen to make a binding
contract for sale of the property. Court ruled in favor of Tunison, because
his words were thought by the court likely to have been a suggestion for
an offer and not an offer itself. In point of fact, Tunison did not even say
he would sell the land if the buyer met the price stipulated, but rather that
he would not sell it at a lower price.

2) Harvey v. Facey- Suit for breach of contract based on alleged contract


for sale of tract of land, Bumper Hall Pen. Harvey contended that a series
of telegrams amounted to a contract for sale. First telegram was: “Will
you sell us Bumper Hall Pen? Telegram lowest cash price”. Response
was “Lowest Price for Bumper Hall Pen 900 Pounds” Harvey construed
this response as an offer to sell the property to him. Court rejected
Harvey’s claim because Facey did not answer the question in his response
of whether he would sell to him, but rather answered only the question as
to the price. It was ruled that Facey did not intend to confer power on
Harvey to close the deal.
3) Fairmount Glass Works v. Crunden-Martin Woodenware Co.-
Alleged contract for sale of Mason jars. Issue was whether a response to a
request to offer a price for ten carloads of mason jars was an acceptable
offer to create a contract. The court held that the response’s nature,
including all relevant terms of the deal plus the words “for immediate
acceptance” constituted an offer per request of the first letter, and that the
deal was made available to Crunden-Martin for acceptance.

4) Advertisements- Advertisements are a special brand of offer, and are


generally not taken to be offers to make a binding contract. The reasoning
behind this is partially that offers are supposed to reflect an intent to be
bound. It is utterly unreasonable to suppose that a store, for instance,
intends to be bound contractually to every person who wants a given thing
at a given price from their store. If this were so, the store would be taking
on the responsibility of being contractually obligated when a customer
wanted something that was out of stock or that they had decided not to sell
anymore. There are special cases, however, of advertisements worded in
such a way as they could be construed as an intent to be bound, because
they contain language specific to a particular class of people and/or create
an incentive to perform a particular task in order to qualify for the offer.
In these circumstances an intent to be bound is forced upon a company
because it would be reckless to take away such an offer.

a) Lefkowitz v. Great Minneapolis Surplus Store- Case of


advertisement concerning mink stole. Ad stipulated the amount of
stoles and also “first come, first served.” Lefkowitz was first to
respond to the offer and was not given the stole at the price offered
and sued. Court ruled that specificity of amount, price, and
stipulation that the first to accept would be the given the stole at
that price meant that Lefkowitz could reasonably infer an intent to
be bound on the part of the store.

5) Mistake in an Offer- A mistake in an offer will void that offer if the


offerree has reason to know that the offeror was in error.

C) Acceptance- With some exceptions, The offer determines what the offeree
must do to accept the offer. The situation determines whether an acceptance
creates a binding contract. There are very few rules with no exceptions.

1) Silent Acceptance- Though generally the offeror has the power to


create the terms of acceptance, this power does not extend to mandating
that silence equal acceptance. Silent acceptance binding an offeree would
be contrary to the universally accepted tenet that there must not be a
contract where there was definitely not a meeting of the minds. For, even
though objective considerations have replaced the subjective for proof
purposes, even the objective considerations are designed with the express
purpose of coming as close as possible with limited evidence to allowing
contracts where there is a subjective meeting of the minds. Even this rule,
however, has its exceptions

2) Carlill v. Carbolic Smoke Ball- The carbolic smoke ball was a


“medical” device. In an advertisement, the makers of the ball indicated
that it had deposited 1000 lbs. in a bank for the purposes of dispensing 100
lbs to anybody who had used the ball for two weeks as recommended and
then contracted influenza. Court ruled that Carlill’s performance as
stipulated in the ad constituted acceptance of the offer, and that it wasn’t
necessary for her to inform CSB that she had accepted the offer.

D) Termination of Power of Acceptance- The power of acceptance is


eliminated by (1) lapse of the offer, (2) by its revocation, (3) by the offeror’s
death or incapacity, or (4) by the offeree’s rejection.

1) Lapse- The length of time an offer is available for acceptance is


determined either by the offer itself or by reasonableness under the
circumstances. For example, items whose price tends to fluctuate require
a shorter time limit for acceptance, whereas the opposite is true for items
with more stable values, such as real estate.

a) Face to face rule- Generally, offers given in a face to face


conversation, unless otherwise specified, do not extend past the
end of the conversation.

2) Revocation- Generally, an offeror is free to revoke until the offer is


accepted.

a) Option contracts- Option contracts get their name from their


special nature vis-à-vis revocation. Option contracts specify an
amount of time in which the offer will be available, and the offer
must stay open during that time. Option contracts must have
consideration, but generally even a mere pretense of consideration
is valid.

b) Indirect Revocation- As shown in Dickinson, revocation need


not be expressed by the offeror herself. Any reliable information
tending to indicate that the offeror no longer intends to be bound
by his original offer will cause the offer to lapse. This is consistent
with the idea that even though a meeting of the minds does not
necessarily have to occur, that a contract can nevertheless not be
formed when there DEFINITELY ISNT a meeting of the minds.
c) Dickinson v. Dodds- Case of an option contract without
consideration. Dodds sent a letter to Dickinson with an offer and a
p.s. stipulating that the offer would be left open until 9 am on a
certain day. Dickinson, taking Dodds to be bound by this option,
did not act on his acceptance right away. However, hearing that
somebody else was about to buy the property, he hurried to meet t
he 9 am deadline. He met him before 9 am, then sued for breach
when Dodds denied to convey the property. Court ruled that the
promise to leave the offer open was without consideration and that
as such Dodds was free to sell the land to somebody else, and also
that the offer lapsed when Dickinson heard about the other
negotiations, since at that point he was no longer under the
impression that Dodds had his terms in mind and was prepared to
sell them to him under those terms; in other words, the it was
unreasonable for him to think that the offer still stood.

d) Toys, Inc. v. Burlington- Case involving Toy store who rented


space in a mall on a five year lease w/ an option to renew for
another five years. Agreement stipulated an option to renew for
five years if notice of intent to renew was given a year in advance
of expiration of original lease. A letter of intent was given, but an
argument ensued over rental price for the next five years. Lessor
contended that Lessee did not meet the deadline for renewal and
that the option in the original contract was without consideration.
This case shows, first, that one promise or performance by a party
can be consideration for multiple promises by the other party. In
this case, the payment of rent was the consideration for both the
promise to rent the space and the promise to keep the offer to
renew open until a year before expiration. Court held that validity
of acceptance was not a matter of law and sent it back for trial, but
ruled conclusively on the matter of consideration.

3) Death or Incapacity- Generally, death or incapacity of the offeror


voids the offer, but option contracts remain valid past death, until the
normal time of expiration.

4) Rejection- A rejection is a response by the offeree clearly indicating


that they do not wish to bind themselves to the terms of the offer. A
rejection takes away the power of the offeree to create the contract until a
new offer is given. Rejections include “counter-offers”, because a
counter-offers act simultaneously as rejections of the old offer and as a
new offer. There is often dispute over which party in a negotiation was
the last offeree and was therefore entitled to set the final terms of the
contract for acceptance. The question of whether a response is a
counteroffer or an acceptance is informed by the “mirror image rule”. A
failure to accept any terms of the offer, under this rule, makes the response
a counter-offer rather than an acceptance. If the parties begin performance
under the contract, the party that made this last response is entitled under
law to the terms it specified in its counter-offer.

a) Mailbox Rule- The mailbox rule is the generally adhered to


rule that the acceptance of an offer is valid upon mailing it. Or,
placing it in the mailbox. The rule was crafted to give offerees an
assurance that their acceptance would count, regardless of how late
the offer was received, etc. REVOCATIONS are not subject to the
mailbox rule, and are not effective until received. Similarly,
rejections are not valid until received. Courts generally hold that
BOTH PARTIES ARE BOUND by the mailing of an acceptance
letter, and not just the offeror. In other words, telephoning a
rejection to the offeror after mailing an acceptance does not
invalidate the acceptance. MAILBOX RULE DOES NOT APPLY
TO OPTIONS.

i) Restatement sec. 40- Mailbox rule does not apply to


acceptances sent after a rejection has already been sent.
Rather, in this situation it depends which correspondence
arrives first. If rejection arrives first, then acceptance is
only a counter-offer.

E) Precontractual Liability- This is where the “Brooklyn Bridge Hypothetical”


applies. In a case where performance is sought in exchange for a promise,
beginning to perform concludes the contract and not finishing the performance.
This rule makes sense, since the performance sought in exchange for a promise
may sometimes be long and drawn out, and can require long periods of time and
great expense to complete. It would be unfair to allow the promissor to have the
power to revoke the whole time. In addition liability is conferred in situations
where the terms of an offer are detrimentally relied upon, as in the case of the
subcontractor’s bid in Drennan v. Star Paving, below. In cases such as Drennan,
it is ruled that an implied promise (given the situation) not to change the terms of
the offer is detrimentally relied upon by the offeree. Enforceability is governed
by the same analysis as ordinary detrimental reliance, as set out by
RESTATEMENT, SEC. 90.

1) Drennan v. Star Paving Co.- This case involved a subcontractor who


made a mistaken bid to the general contractor, who in turn relied on false
bid in its bid to a school district. It was ruled that contractor could recover
difference between false bid and next highest bid based on detrimental
reliance on the terms of the original offer, since Drennan’s acceptance of
the offer was in good faith and all the requirements of Restatement sec. 90
were evident, i.e. Detrimental Reliance, Avoidance of injustice,
foreseeability of reliance. It was essentially ruled that under the
circumstances there was an implied promise not to revoke on the part of
the subcontractor that did not require consideration because it was relied
upon by Drennan.

2) Channel Home Centers v. Grossman- Dispute focused on a letter of


intent signed by Grossman, owner of a property, and CHM, a prospective
tenant. CHM became interested in the site and gave notice of their intent
to rent the property. CHM then sent a letter of intent to negotiate solely
with CHM, while requesting that CHM send a letter of intent back in order
that Grossman might show it to banks from whom he hoped to receive
financing. Court ruled that this exchange of letters of intent may have
been a valid contract, and reversed a summary judgment for Grossman on
the validity of the contract. This case shows that courts may find a valid
contract to have been made despite the fact that neither side believed that
the negotiations were finished and neither side had signed an official
agreement. The type of contract that may have been found here, however,
does not bind the parties to a lease agreement, but rather to an agreement
to continue negotiations in “good faith”.

F) The Definiteness Requirement- There is a minimum amount that must be


apparent in the words or letters exchanged by the parties to determine to a
reasonable level what agreement was meant. Perhaps “definiteness” is not the
right word, because in most cases something far from definite is required. It must
simply be clear what kind of agreement was meant by the parties, on a more
specific than general level. This, along with a prior history between the parties or
of each of the parties with the kind of contract at issue or other such informative
evidence, is usually enough for a court to find sufficient definiteness in an
agreement. The court’s attitude towards this issue is informed by their general
positive attitude towards contract as well as by a knowledge that contracts are
rarely perfect anyway. Courts prefer that an contract be enforced that imperfectly
reflects the actual intent of both parties than that no contract be enforced at all.
Even obviously vague phrases like “reasonable time” and “good faith” are found
to be sufficiently definite, given either prior history of the specific parties or even
the general behavior of the terms in contracts generally.

III. Statutes of Frauds- A statute of frauds is a statute governing the enforceability of


certain kinds of contracts. These statutes have been met with uncertainty and confusion
by the courts, and they tend to be enforced grudgingly and sparingly, since there is much
doubt as to whether the statutes encourage more fraud than they prevent, since one
party’s knowledge of the statute encourages that party to use that knowledge to lead
another party to ruin through oral agreements he intended to breech.

A) Types of Contracts Ordinarily Subject to Statutes of Frauds

1) Suretyship Contracts
2) Sale or Lease of Land to last more than 1 year.
3) Agreements not to be Executed for More than One Year
4) Contracts between Married Couples
5) Loans over a certain Amount, ex: 50000 dollars

B) Exceptions to Statutes of Frauds- Courts sometimes find exceptions to a


requirement for a contract to be in writing in cases where injustice would be
committed if statute were applied.

1) Monarco v. Lo Greco- Case involving rights to a property promised by


a couple to the son from another marriage of the wife. The son worked on
their farmland and was only kept there upon the promise to leave the
substantial value of the property to him in their will. Despite this promise,
husband never entered this promise into his will and instead left the
property in full to his son. Trial court entered summary judgment for
husband’s son. Appeals court found error in the judgment, ruling that oral
agreement should stand despite statute of frauds’ forbiddance, because
both (1) The oral promissee had changed his position to his detriment in
reliance on the promise, and (2) the promissor would have been unjustly
enriched if the promise had been found unenforceable pursuant to the
statute. Evidence of either one is enough to negate the statute.

a) General Rule for Estoppel of Statute of Frauds- The general


rules for estoppel of enforcement are similar to the general rules
for reliance on a promise (Restatement, sec. 90) and unjust
enrichment.

IV. Policing the Bargain

A) Status of Parties

1) Mental Infirmity- Generally, mental infirmity of any kind is judged to


void the contract if the mental infirmity caused the party not to reasonably
understand the terms of the contract and the other party has reason to
know of the infirmity. In extreme cases, it is not necessary for the other
person to know of the infirmity. This is true of intoxicated parties as well.

a) Ortelere v. Teachers’ Retirement Bd.- A controversial case


involving a schoolteacher who decided to exercise an option in her
pension with school to receive a large loan and to receive larger
monthly installments until death rather than receiving a smaller
monthly stipend and leave the entire remaining portion for her
husband upon her death. Court ruled that her decision was so
egregiously inappropriate that it could be inferred that her decision
was caused by her illness, and thus ruled that her decision to
change the method of payment was void.
2) Infancy- In most jurisdictions, there is a “magical age” over which
people are held responsible enough to enter into contracts and under which
the opposite. Unless the contract is for “necessaries”, any contract signed
by one under this age of majority is avoidable. An infant may disaffirm
their contracts at any time up to and a reasonable time after reaching the
age of majority.

a) Keifer v. Fred Howe Motors, Inc.- Child purchased automobile


under false pretense of being 21 years or older. Court allowed
child to disaffirm the contract, return the car, and recover payments
on it. A dissent argued that a car for a parent under 21 years old
should count as a “necessary” in today’s society, and that therefore
infant should not have been allowed to disaffirm.

3) Others

B) Preexisting Duty- It is an extension of the general rule of consideration that a


promise is without consideration that is made in return for a promise or
performance that the promissee is already bound to do. Depending on the
circumstances, the line between a new promise for a new promise and a new
promise for the old promise is blurred.

1) Alaska Packers’ Ass’n v. Domenico- Alaska Packers appealed


judgment in favor of workers who struck on board a ship for higher wages
and received them. It was ruled that the new contract bargained for on the
ship was void because it contained a new promise for payment in
exchange for work already promised to be done by the sailors. As such, it
was ruled that there was no consideration for the new promise, and that the
extra wages should be returned by the sailors to Alaska Packers.

2) Watkins and Son v. Carrig- Case similar to Alaska Packers in which


contractor bargained for increase in price when adverse conditions were
found in a basement to be excavated. Homeowner agreed to price
increase, but later claimed that it only owed the original amount because
the promise to pay the higher amount was without consideration. Judge
ruled that this was a case of rescission of the earlier contract in favor of a
new, more fair contract, and that as such it was a new promise for new
work instead of a new promise for old work.

3) Difference between Alaska and Watkins- How is the difference in


these decisions to be accounted for? One idea is that the first situation was
one of duress, and that the second was not. This idea has some weight,
although the first situation would not be a classic case of duress, since a
contract was already signed. Alaska was in a position to sue the workers
for damages from their not working, probably, and so really did not have
an excuse to sign the contract. Some courts and commentators have
explicitly adopted the rule that a modification made under duress is not
valid, or that a modification is invalid unless lack of duress is proven.

C) Duress- Despite having the outward signs of a valid contract, an agreement


must be voided if it is found that the agreement was made while one party was
under the pressure or threat of the other.

1) Austin Instrument v. Loral Corporation- Court ruled on whether an


agreement to an increase in price was made under duress and therefore
invalid. Austin Instrument was subcontracting for Navy contractor Loral
Corporation. Austin Instrument threatened to delay delivery of goods
already promised to Loral unless Loral agreed to substantial price
increases and to award Loral exclusive right to manufacture the parts for
the next contract with the navy. Court ruled that Loral’s agreement was
made under duress because they were in a position where they had no
choice but to comply with Austin’s demands, because of their pressing
obligations to the Navy, since according to Austin there was no other
source available from which they could receive the parts owed to them by
Austin on schedule.

D) Concealment and Misrepresentation- Here courts ask themselves the


question of what people can be expected to reveal to their adversaries in a
negotiating context, and also what they are expected not to do, e.g. misrepresent
or mislead. In answering this question, courts come down somewhere between
requiring a party to behave with utmost scruples and allowing the worst kind of
deviance and dishonesty to the detriment of the opposing party. Importantly,
rescission is not usually granted for “bare non-disclosure” of a factor of which
one is aware.

1) Kannavos v. Annino- Annino put property up for sale, advertising it


as a rental property, with the knowledge that the property was not zoned as
a rental property. Kannavos rented the property and then attempted to
rescind the deal. Court ruled for Kannavos, holding that the representation
by Annino that the building may be rented out amounted to
misrepresentation regarding a crucial element of the deal, and that as such
the case met the requirements of misrepresentation. Contract rescinded.

2) Elements of Misrepresentation

a) False Statement

b) Reasonable Reliance

c) Statement Must Be about a Material Fact


d) Exceptions to False Statement Rule can Apply when a
Represenation Can Be Construed as a Half-truth Instead of a
Simple Failure to Disclose

e) Another exception applies with Special Relationships, like


Lawyer/Client, Doctor/Patient, etc. where Disclosure is
Expected.

f) Misrepresentation Extends to Awareness of Mistake of


Adversary.

E) Unconscionability- Unconscionability is a relatively new policy that allows


courts to deal with contracts that, if allowed, would tend to have a profoundly
negative influence on the public at large. This is a new and controversial
development in contract law, and has been met with skepticism. The main reason
given for its development is the shift in the role of contracts in everyday life from
protector of the interests and freedom of the individual to protector of the interests
of a privileged class, usually corporations. The instrument of this shift has been
FORM CONTRACTS. Whatever the reason, courts today are willing to take into
account the terms of the contract along with the relative bargaining strength of the
parties in concluding that the terms of a contract are UNCONSCIONABLE.

IMPORTANT NOTE: SUBSTANTIVE AND PROCEDURAL


UNCONSIONABILITY- The most common rule for unsconscionability
is that a contract may only be found unconscionable if it is, at least to
some extent, both PROEDURALLY and SUBSTANTIVELY
unconscionable. For instance, unconscionability becomes an issue most
often in “adhesion contracts”. Adhesion contracts are examples of
contracts which have a procedural unconscionability element.
“Procedure” refers to the extent to which the process of contract formation
differs from the ideal situation of equal bargaining partners coming to a
fair agreement. Adhesion contracts, by their definition, depart from this
format. However, not all adhesion contracts are found unconscionable. It
is arguable that there is such thing as a “fair” adhesion contract, and such
contracts would promote the public good by allowing agreements fair to
both parties to be made in the most convenient manner possible, saving
time for the 99 percent of people who will not be unhappy with the
transaction in question. Thus there is a separate requirement of
substantive unconscionability, which refers to the unfairness in the terms
of the contract. Importantly, it is also the case that substantive
unconscionability alone is not enough (except in extreme peppercorn
cases) for a finding of unconscionability. If both parties are on equal
footing in a negotiation, it is in the public interest to let the results of the
negotiation stand, lest these sorts of negotiations be discouraged generally,
a most tragic result. This of course is a far more controversial and tricky
thing to deal with. Though both of these factors must be found, more of
one may make up for a lack in the other.

1) Boilerplate “Contracts”- Boilerplate contracts offered usually by


businesses that are assumed to be agreed to by a certain action. The
classic case involves a contract written on the back of a stub given for
receipt of a load of laundry at a dry-cleaning establishment. The terms of
such “contracts” are heavily scrutinized, and it is most certainly not the
case that their terms are generally valid. Usually, the terms will be
adhered to, but not if the terms are such that if the customer had known
about them she would not have agreed to enter into it. Judges’ response to
boilerplate contracts often fall under the category of “procedural” methods
of dealing with unconscionable contracts, because the faults often found
with them center on failure for one party to assent to the terms of the
contract, thereby causing it to lack one of the essential qualities of a
contract, regardless of substance. This method is attacked by some, who
feel that there are negative consequences resulting from dealing with
unconsionability problems by altering procedural rules.

a) Restatement sec. 211- Terms in a boilerplate contract are


generally assented to if it the party manifests his assent in a way in
which he would tend to know to be such an assent. This is an
entirely objective measurement. However, terms for which it is
adjudged that the person would not have assented had he known
about them are voidable.

2) Carnival Cruise Lines, Inc. v. Schute- Dispute centered around


validity of a forum selection clause in a cruise passage contract. Majority
ruled that clause was not unconscionable because passenger had ample
opportunity to read the contract and did not have to agree to the terms and
because the terms themselves were not unreasonable, since it required that
the suit be litigated in a state of the United States. Dissent argued,
however, that the clause should have been thrown out, partially because
the contract was only given to the passengers after the ticket had been
purchased, at which time the ticket was non-refundable. Besides this
procedural issue, the dissent took issue with the majority’s decision on the
reasonableness of the forum, since the forum, Florida, was a great distance
away from Washington, the home of the passenger, and the costs of
litigating such a great distance away were arguably too great and
unreasonable.

3) Williams v. Walker-Thomas Furniture Co.- Case involved a woman


who purchased a great many things on credit from a rent-to-own
establishment. The establishment included in its rental contracts an
apportionment clause and a dragnet clause, which effectively made it
impossible to pay off any of the items purchased until all were paid off.
Woman purchased a stereo set and missed payments on it. According to
the contract, Walker-Thomas was allowed to come and take back all of the
items purchased previously by Williams, some of which should have been
long paid off were it not for the apportionment clause. Court reversed
summary judgment for furniture company because it was not clear
whether the contract was unconscionable as against public policy. In its
opinion, the court cited the rule on unconscionability include two
elements: (1) the absence of meaningful choice on the part of one of the
parties, and (2) terms unreasonably favorable to the other party.

4) Brower v. Gateway 2000- Case involving boilerplate contract shipped


with computer upon catalog purchase. The term locked the purchaser into
binding arbitration with a firm of the computer company’s choosing. This
term was ruled unconscionable, but only because the price and location of
the arbitration firm was unreasonable, and inappropriate in a contract of
adhesion. It is important to note that it was only this problem that the
court found unconscionable. It was willing to accept everything else in
the contract, despite the fact that none of it was bargained for. The court
demonstrated a tendency to put the onus on purchasers to read contracts
and realize the implications of the terms therein. Caveat Emptor.

5) Armendariz v. Foundation Health Services- Debate in court centered


around the unconscionability of a mandatory arbitration clause imposed on
employee, Armendariz, in an adhesive employment contract. Having
decided quickly on the procedural element, the court went on to consider
the substantive unconscionability of the contract. The court found that the
a “modicum of bi-laterality” must exist in arbitration contracts, and that
such was not present in the case-at-bar. Particularly, the contract
mandated arbitration for employee’s claims arising out of wrongful
termination, whereas employer’s claims arising out of the same transaction
were not so limited. This was found to be unconscionable, enough so that
it made up for the general advantages to the public in allowing arbitration
in such situations. In addition, the contract allowed for only back-pay
damages to be awarded to the employees in arbitration for wrongful
termination, whereas there was no such limitation on the employer’s
claims.

F) Public Policy Considerations- On rare occasions courts make and enforce


rules pertaining to particular types of contracts that are by their nature against
public policy. Such types of contract include contracts to commit crimes and
contracts in restraint of trade, and used to include unreasonable pre-nuptial
agreements. Courts are reluctant to exercise their power to uphold public policy
by refusing to enforce contracts, and the situations are limited in which the issue
comes into play.
1) Central Adjustment Bureau, again- In its musings on reasonableness
of the terms of the non-compete, court considered which method would be
appropriate to deal with the unreasonableness of the contract. In the end,
the “blue pencil” method was chosen. Usually, courts deal with unfair
terms by altering them to make them reaosonable or throwing them out
altogether.

2) Simeone v. Simeone- Court refused to throw out an arguably unfair


prenuptial agreement, deciding that it was no longer a special issue of
public policy to protect women against unfair prenups, since such a policy
is contrary to the overriding policy to promote equality among the sexes.

V. Remedies

A) Specific Performance- The common law approach to remedies is to award


damages in money terms unless it would be impossible to provide an adequate
remedy otherwise.

1) Klein v. PepsiCo, Inc.- Disputed contract centered around sale of a


Gulfstream jet by PepsiCo to Klein. Trial court found that specific
performance was warranted because there were few jets on the market of
the kind, and that obtaining a new one would be an extreme hardship.
Appeals Court vacated this judgment, arguing that the plane was not
unique enough to warrant specific performance, and that a monetary
award would suffice for damages, especially since the buyer intended to
sell the plane immediately at a profit.

B) Expectancy Damages-

1) Vitex v. Caribtex Corp.- Suit by Caribtex to recover part of damages


awarded to Vitex for breach of contract. Contract was for payment for
processing of wool. The question concerned whether reasonable overhead
costs should be deducted from the gross profits on the transaction. Court
ruled that such costs should not be deducted, for several reasons. The
most compelling is that overhead costs are normally covered by the price
imposed in each transaction, so that a loss of the overhead portion of the
price of one transaction would result in a net loss for the company or a
need to increase its price for other transactions, which it should not have to
do. It was ruled that the damages awarded should only be reduced by
expenses incurred for that particular job. Also, it was found that overhead
would have remained constant, regardless of the contract, meaning that the
only expenses related to the contract were for the specific job. In addition,
the portion of overhead relating to the job might be likened to a loss
incurred.

C) Limitations on Damages
1) Avoidability- Breach is not necessarily “bad”, in a moral sense.
Rather, the only “bad” thing would be to keep parties to contracts from
experiencing the benefits of those contracts, because it might discourage
parties from entering into those contracts. Thus, parties who breach are
not treated as criminals. This explains the court’s attitude toward
avoidability. Avoidability says that when the other party breaches, there is
a duty owed by the other party to leave up with performance of the
contract. There is no right to continue the contract and actually attain the
end result, just as there is no right to specific performance. And parties
must take care not to incur additional unnecessary expenses post-breach,
for these expenses are unnecessary for purposes of upholding the values
that contract law upholds.

a) Rockingham County v. Luten Bridge Co.- A typical example


of unrecoverable expenses for work continued after breach. Bridge
was contracted by the county to be built for a road that it later
decided would not be built. It notified the Bridge constructor to
this effect, but bridge constructor continued work on the bridge
anyway, then sued to recover payment for work done on the bridge
post-breach. Court refused to award these damages, reasoning that
such damages are inappropriate because there is no right to
payment for the work, but rather only to receive the eventual
benefit of the contract, and that continuance of a breached contract
is wasteful.

b) Parker v. Twentieth Century-Fox Film Corp.- Film actress


sued to recover payment under a contract to act in a film that the
film company decided not to make. Fox argued that Parker should
not recover because she was given an opportunity to mitigate the
damages by Fox (to act in another movie) which she refused to
take. Court rejected Fox’s argument, reasoning that in order to
mitigate the damages the movie must have been a perfect substitute
for the movie originally contracted for, and that the new movie was
substantially different in substance and did not amount to a legal
substitute.

c) Groves v. John Wunder Co.- Plaintiff appealed judgment


thought to be less than appropriate. Contract was for excavation of
ground, and landowner was paid certain sum for excavation rights
and promised that the ground would be leveled after the
excavation. Defendant willfully breached the contract. Trial court
ruled that Groves’ damages for Wunder’s breach should be the
difference in value between the land value leveled and unleveled,
which left the plaintiff with a substantially smaller sum than the
price required to relevel the ground. Court overruled trial court’s
ruling, reasoning that plaintiff is owed exactly what he wanted,
regardless of the capriciousness of his wishes, and that defendants
should not be able to choose not to perform their end of a contract,
based on their view of the desirability of the outcome.

2) Foreseeability- Damages for “consequential damages” are limited to


those damages foreseeable upon formation of the contract. Foreseeability
of this kind may result either from common knowledge or specific
knowledge conferred upon one party by the other of the consequences of
breach. If these possible consequences are not disclosed, damages can not
be recovered for them. Even if possible consequences are disclosed,
damages can only be recovered for those exigencies that arise naturally
from breach. Courts must exercise considerable discretion in determining
which damages fall under this categorization, much as in “proximate
cause” analysis. Also like “proximate cause” analysis, foreseeability plays
a huge role in determining which exigencies should be covered. NOTE:
Parties may contract around this general rule by determing
beforehand which exigencies are recoverable and which are not.

a) Hadley v. Baxendale- Contract for conveyance of driveshaft


for steel mill. Judge ruled that consequential damages were
inappropriate for failure to meet delivery time, because conveyors
were not notified as to the possible consequences of breach.

3) “Losing Contracts”- Losing contracts are those which, had they been
performed, would have resulted in a loss for the injured party. Under rules
based on expectancy costs, these parties would be left with a loss.
Sometimes, however, this loss may be recovered through restitution. The
argument is that work done on a contract is benefit conferred, and that a
reasonable price should be paid for that benefit. A “reasonable price”,
obviously, should (at least) include the costs to the conferrer of conferring
the benefit. A court might feel squeamish in certain circumstances where
the conferrer’s business was especially wasteful, but in most cases
restitution makes sense.

b) U.S. v. Algernon Blair, Inc.- Subcontract for supplies for


metal work on a Navy hospital. Court ruled that restitution was
proper for benefits already conferred by the subcontractor, up to
the costs of conferring those benefits, regardless of the expectation
of expected result of performance by the subcontractor.

D) Liquidated Damages
Agreement- A contract is an agreement between two people. For two parties to truly
“come to an agreement”, both parties must have the same idea of what they are agreeing
to and must be clear that they are agreeing. The rules pursuant to these elements are
geared towards enforcing agreements that have these elements, but are focused
necessarily on the outward signs of the inward qualities of an “agreement”.
Contracts Outline

CONTRACTS

Parol Evidence Rule (PER)


In general, the PER bars evidence that certain agreements made prior to or concurrent with the
signing of the contract from being included in the agreement.
I. Generally
A. Covers extrinsic statements – statements made that are outside the K.
B. Applies only where the later expression of the agreement is in writing.
C. When a later express of intent is oral, the jury usually determines whether the parties
intended whether the intent was that the oral agreement supersede any previous
agreement
D. What a later agreement is in writing, the judge determines if it should supersede.
E. Only allowed when statements supplement the writing and are not contradictory to the
agreement.
II. Total and Partial Integration
A. Partial vs. Total Integration
1. Partial – If the parties did not intend to include all details of the agreement,
than it is considered partially integrated
a) Authoritative as to what it addresses
b) Allows extrinsic statements (oral or written) to be used to supplement
or modify, but not contradict, the agreement
2. Total – If the full intent of the parties is captured in the document, it is
considered total integration.
a) Authoritative as to all aspects of the agreement
b) Complete – covers the whole agreement
3. Unintegrated – statements can supplement or contradict
a) Not authoritative
b) Not complete
III. Summary: the PER provides that evidence of prior agreement may never be admitted to
contradict an integrated writing, and may furthermore not even supplement an integration
which is intended to be complete.
A. Gianni v. Russell & Co.
1. Facts: π enters into lease with Δ. Lease states that π will not sell tobacco. π
contends, but it is not stated in agreement, that he was to have exclusive right to
sell soft drinks in exchange for higher rent, etc.
a) Traditional approach – Looks only at what is in the writing. The
exclusive right was not in the writing. Thus, the statements (exclusive
right) were not enforceable.
b) Benefits of traditional approach
(1) More immune to attack
(2) More certain
(3) Bjerre believes this is too closed and ignores credibility.

B. Masterson v. Stine
1. Facts: Δs owned a ranch as tenants in common and conveyed it to π by grant
deed, reserving an option to purchase it back w/i 10 years for the same
consideration plus depreciated value of improvements. π went bankrupt and

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bankruptcy trustee attempted to enforce option. Δ stated there was an extrinsic


statement stating the option was not assignable or transferable.

a) Modern approach – Allows the extrinsic statements to be considered


part of the K because they supplemented and did not contradict the words
of the K. It must be determined whether the parties intended the written
agreement to be the complete and full embodiment of the terms.
b) Benefits of modern approach
(1) More subjective
(2) More fair if power is imbalanced
(3) Better reflects intent of parties.
c) Against – Too flexible.

C. Integration Clauses/Merger Clauses


1. TOOL: Can add an integration clause to the K to express the intent of the
parties that the K represents the entire agreement. This is a clause indicating that
the writing constitutes the sole agreement between the parties.
a) E.g. - “this agreement constitutes the entire agreement of the parties,
there being no other agreements or understandings pertaining to the
purchase.”
b) Not necessarily effective, but does add credence to the K.
c) Only protects against statements made prior to or concurrent with the
agreement.

D. Modifications Clauses
1. Tool: Can explicitly indicate the intent that no oral modifications made prior
to or subsequent to the K will be enforceable.
a) Effects provisions varied during conversations after a K has been
made.
2. Generally enforceable. An oral modification is enforceable under TX law
even if the K forbids oral modifications.
3. Subsequent agreements supported by consideration are OK.
4. UCC – A signed agreement which excludes modification or rescission except
by a signed writing cannot be otherwise modified or rescinded.
a) §2-209 - No oral modification clauses cannot be modified or rescinded
(but under subsection 4, what may fail to be effective as modification or
rescission may nevertheless be effective as a waiver under 5.
5. Requires real assent from both parties

IV. Exceptions
A. Mutual Mistake
1. Bollinger v. Central Pennslyvania Quarry Stripping and Construction
a) Facts: Parties enter into K whereby Δ is to remove topsoil, deposit
refuse and then replace topsoil. The K did not include the condition that
topsoil be replaced. Δ initially replaces topsoil and then refuses to replace
it. π remonstrates (formally protests) and files action for reformation.

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b) K was reformed to make it correspond to the intent of the parties. This


must be a mutual mistake. The mistake was evidenced by the Δ’s initial
actions to replace the topsoil.
2. Requirements:
a) Both parties must be mistaken
b) About “written” words/contents of the K.

B. Collateral Agreements
1. Test: would this be “naturally and normally” included in the agreement or be
a separate agreement. If not naturally and normally included, then it is a collateral
agreement.
2. Collateral agreements are related to the idea of supplementing a non-
integrated clause; sometimes it is difficult to determine whether an agreement is
collateral or should have been included in original K.
3. Gianni – Exclusive right not a collateral agreement b/c would have been
included in original agreement.

C. Fraud
1. Fraud in the inducement
a) Fraud in why you are signing
b) Is NOT about the contents of the K
c) Makes the K voidable
2. Fraud in the execution
a) One side intends to deceive the other about the words written or not
written – or
b) “knowing misstatement w/ intent that other person will rely on it.”
(1) Remedy: Reform K.

Interpretation
Interpretation deals with how the parties may show the meaning of the terms contained in a
writing.
I. Ambiguity v. Vagueness
A. Ambiguity – Language could have one of two separate meanings.
1. Usually interpreted in favor of the P with less power in the K
2. Raffles v. Wichelhaus
a) Facts: Parties made a deal to buy cotton from the ship Peerless. There
were 2 ships named Peerless. The seller and buyer had different views on
which ship was agreed to.
b) Held: No K. There was no mutual assent, thus no meeting of the
minds.
c) Rule: Where neither P knows or has reason to know of the ambiguity
or where both know or have reason to know, the ambiguity is given the
meaning that each intended it to have.
B. Vagueness – Various shades of one meaning
1. eg – green, chicken
2. Frigaliment Importing Co. v. B.N.S. International Sales Corp.

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a) Facts: π ordered “chicken” from Δ, intending to buy young chicken


suitable for broiling and frying, but Δ believed, in considering weights and
prices, that the order was for older chicken suitable for stewing.
b) Rule: The P who seeks to interpret the terms of the K in a sense
narrower than their general use bears the burden of persuasion.
c) Lesson: For interpretation, we look outside the K to find meaning.
Can look to trade usage or incorporation by reference.

II. Traditional v. Modern Approach


A. Traditional: Plain meaning test (aka four-corners approach)
1. Provides that the meaning of any writing which appears to be clear, complete
and not ambiguous on its face will be determined w/o resort to any extrinsic
evidence.
2. Adv. – certain and objective
3. Dis. – Bjerre does not like it. He believes language should always be viewed
in context.

B. Modern: Allows parties to introduce evidence of what they subjectively thought the
terms in the writing meant.

C. Steuart v. McChesney – Traditional Approach


1. Facts: Δ’s provided a right of first refusal to π to purchase a farm for m.v. as
maintained by the county. Δ obtained two offers much higher than county m.v.
2. Court looked to language of the K. Bjerre – court failed to recognize the
definition of a right of first refusal. Such a clause provides the optionee a right to
meet the terms of a 3rd party offer.

D. Pacific Gas & Electric v. G.W. Thomas Drayage & Rigging – Modern Approach
1. Facts: Δ entered into agreement w/ π to remove and replace the upper metal
cover of π’s steam turbine. Δ had agreed to accept responsibility for work and
“indemnify π “against all loss, damage, expense and liability resulting from …
injury to property.” Black’s definition of Indemnify - To reimburse another for a
loss suffered because of a third party’s act or default. During the work, the cover
fell and damaged the turbine.
2. Held: Offered evidence as to meaning of indemnify was allowed to void the
plain meaning.
3. Rule: The test of admissibility of extrinsic evidence to explain the meaning of
a written instrument is not whether it appears to the court to be plain and
unambiguous on its face but whether the offered evidence is relevant to prove a
meaning to which the language of the instrument is reasonably susceptible.

E. Stanley Fish
1. Language can never be fully understood outside of the context in which it was
written. The modern approach takes into consideration the intent of the parties
in making the agreement.

F. Delta Dynamics

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1. Facts: parties entered into a K for π to provide and Δ to sell a min # of locks
over a 4-year period. Δ did not meet the minimum.
2. Held: When the K does not address an issue, it does not mean that issue is
precluded. Here extrinsic evidence should be considered and included.

III. Maxims
A. Maxims are not decisive and are not rules. They are merely factors weighing in the
interpretation of a document.
1. Contra Preferentum – Terms are interpreted against the author or profferor.
Ambiguous terms are generally held against the drafter. Is generally given lesser
weight when both parties are represented by counsel.
a) Motivates the drafter to eliminate ambiguities
2. Ejusdem Generis – adj. Latin for "of the same kind," used to interpret loosely
written statutes. Where a law lists specific classes of persons or things and then
refers to them in general, the general statements only apply to the same kind of
persons or things specifically listed. Example: if a law refers to automobiles,
trucks, tractors, motorcycles and other motor-powered vehicles, "vehicles" would
not include airplanes, since the list was of land-based transportation.
3. Expressio unios est exclusion alterius – Latin for “the expression of the one
thing is the exclusion of another.
4. Noscitur a sociis – Latin for it is known from its associations.

IV. Trade Usage


A. Looks to the usage of the word as used by people in the trade.
B. Incorporation by reference – good method of avoiding litigation
C. Sources of meaning in the UCC
1. Course of performance – refers to the way the parties have conducted
themselves in performing the particular K at hand.
2. Course of dealing – looks at the pattern of performance between the parties
under past contracts.
3. Usage of trade – any practice or method of dealing having such regularity of
observance in a place, vocation or trade as to justify an expectation.
D. Hurst v. W.J. Lake & Co. – Modern Approach
1. Court used trade usage to determine that 50% horse-meat meant 49.5%.
E. Parol Evidence Rule Implications
1. Trade usage may be introduced to help interpret the meaning of a writing even
if it is a complete integration. §2-202(a). Sources are thus not effected by the
parol evidence rule.

V. Aids in interpretation
A. Statutory analogy
B. Purpose interpretation
1. examination of the law before enactment of the statute
2. ascertain the “mischief or defect for which the law did not provide relief”
3. analyze the remedy provided by the legislature to “cure the disease.”
4. determine the true reason for the remedy
5. apply the statute as to suppress the mischief and advance the remedy.

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C. Public interest – where K’s that involve performance that would be in violation of
some strongly rooted public interest, often expressed in a statute, may be held to be
unenforceable.

Filling Gaps
Where the K may not be completely definite as to all essential terms, the courts may supply the
missing terms where it is apparent that the parties wanted to bind themselves.

I. Terms
A. Implication – the process of when the court inserts a term into a K where none exist.
B. Interpretation – Process by which a court determines the meaning that the parties
themselves attached to their language
1. §227 (1) - The preferred interpretation avoids the harsh results that might
otherwise result from the non-occurrence of a condition and still gives adequate
protection to the obligor under the rules… relating to promises for an exchange of
performances.
C. Construction – process by which a court determines the legal effect of the language
D. Default rules – implied terms are subject to agreement by the parties.
II. Process
A. Determine whether there is a gap
B. Fill the gap

III. Purpose of gap filling


A. Secure expectations of parties during performance
B. Deal with extraordinary circumstances not anticipated in formation of K.

IV. Restatement §203


A. “When the parties to a bargain sufficiently defined to be a K have not agreed with
respect to a term which is essential to a determination of their rights and duties, a term
which is reasonable in the circumstances is supplied by the court.”
B. Duty of “good faith” – Wood v. Lucy Lady Duff-Gordon – the court supplied the
requirement that the π make good faith, reasonable efforts to promote the Δ’s fashions.
C. Duty to continue business – Going out of business can nullify a K.
1. Requirements and output Ks – Generally, the buyer in a requirements K is
required merely to exercise good faith in determining his requirements and the
seller assumes the risk of all good faith variations in the buyer’s requirements
event to the extent of a determination to liquidate or discontinue the business.
2. Courts look to the primary purpose for which the parties entered the K. If the
primary purpose appears to be achievable by both sides even though the business
is discontinued, then discontinuance will not be treated as a breach.

V. UCC
A. Reasonable price (§2-305); a place for delivery (§2-308); time for shipment or
delivery (§2-309(1)); time for payment (§2-310(a))

VI. Nanakuli Paving & Rock v. Shell Oil


A. Facts: π entered into 2 long-term agreements to have all asphalt requirements filled
by Δ. K did not mention price protection, although it was common practice.

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B. UCC 1-205(4) The express terms of an agreement and an applicable course of


dealing or usage of trade shall be construed wherever reasonable as consistent with each
other; but when such construction is unreasonable express terms control both course of
dealing and usage of trade and course of dealing controls usage of trade. Thus, express
terms have precedent over trade usage.
C. Yet, the court allowed trade usage because it was interpreted to be a gap problem.

VII. Background patterns


A. Trade Usage – What companies in the industry are doing.
B. Course of Dealing – Commonality of previous conduct by the parties to the K.
C. Course of Performance – What the parties do in the course of performing the K.

VIII. Relation to parol evidence rule


A. The court may supply a “reasonable” omitted term even if the K is a completely
integrated one. In such a situation, evidence of the parties prior negotiations or oral
agreements may be given as evidence of what is “reasonable,” but may not for the
purpose of supplying the omitted terms itself.

IX. Anti-trade usage clauses


A. Not effective – what if there is an unstated exception to the no trade usage clause?
B. An inherent problem exists b/c trade usage is meant to resolve language problems.

Conditions
A condition is a triggering event. An event which must occur before a particular performance is
called a “condition.” In general, some or all performances of a bi-lateral K will be conditional
on the happening of some event.

I. Classification of Conditions
A. Precedent/Subsequent distinction
1. Condition precedent – Any event, other than a lapse of time, which must
occur before performance under a K is due.
a) Non-occurrence discharges a contractual duty
2. Condition subsequent – event which operates by agreement of the parties to
discharge a duty of performance after it has become absolute.
a) E.g. – insurance suit which requires that a claim be brought within a
certain time, otherwise it is discharged.
b) Non-occurrence discharges a contractual duty
3. Concurrent condition – exists only when the parties to a K are to exchange
performance at the same time.

B. Express and constructive conditions


1. Express conditions may be implied-in-fact
a) An express condition is a condition on which the parties agree.
2. Constructive conditions – condition not agreed on by the parties (even by
implication), but which the court imposes as a matter of law, in order to insure
fairness.
a) E.g. – Court requires a painter to perform the work before being paid.
b) Constructive discharge – did not fire the ee, but made conditions such
that it was unbearable to work there.

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3. Importance of distinction – Important in relation to performance of a


condition. Strict compliance with express conditions is ordinarily necessary
before the other person’s duty of performance arises. By contrast, substantial
compliance is ordinarily adequate to satisfy constructive conditions.

C. Luttinger v. Rosen
1. Court held that condition of buyers obtaining a mortgage at 8.5% not met
when the best rate available was 8.75% even though sellers offered to make up
the difference. Thus, buyers need not perform.
2. This is an example of strict construction/interpretation of express condition.

D. Kingston v. Preston
1. Owner of silk store did not have to sell business to apprentice who failed to
come up with security required under the K.
2. Covenant was dependent, so Δ did not have to perform until he rec’d deposit
3. Rule: Breach of a covenant by one P to a K relieves the other P’s obligation
to perform another covenant which is dependent thereon, the performance of the
first covenant being an implied condition precedent to the duty to perform the
second covenant.

E. Dependent v. Independent Covenants


1. Dependent – covenant that is contingent upon another covenant/condition
being performed
2. Independent – covenant that is not dependent upon the other condition being
performed.
a) E.g. Promise to paint for a promise to pay $. Under the default rules,
the promise to paint would be independent and the promise to pay would
be dependent.
3. Stewart v. Newbury – Default rule for sequence of performance
a) Where K is made to perform work and there is no agreement as to
timing of payment, party cannot discontinue work until substantially
completed before demanding payment.
b) Rule: Where a K is made to perform work and no agreement is made
as to payment, the work must be substantially performance before
payment can be demanded. This is a default rule.

F. Doctrine of substantial performance.


1. If a party has materially breached his duty, he has not substantially performed,
and the other party is discharged.
2. Consequences: where a party breaches the K by deviating from its terms, but
nonetheless performs well enough that the breach is not material, the other party
always has a claim for damages resulting from the breach.
3. Jacob v. Young & Kent
a) Owner of home being built had to pay contractor even though
“Reading” pipe was not installed b/c a pipe of similar quality was
substituted.
b) Important to evaluate whether the condition, even though dependent,
can be viewed as independent and collateral when the departure is

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insignificant. Here, difference was insignificant and the inclusion of the


non-spec pipe equates to substantial performance.
c) Rule: For damages in construction K, the owner is entitled merely to
the difference between the value of the structure if built to spec and the
value it has as constructed.
4. Factors used in determining whether departure is significant:
a) Purpose to be served (intent of the parties)
b) Desire to be gratified
c) Excuse for deviation (willfulness)
d) Cruelty of enforced adherence (are goods resalable?)
e) This is no bright line rule – it is a standard.

G. Divisibility
1. See below.

II. Mitigating Doctrines


A. Doctrine of Prevention – One that prevents the occurrence or a condition of the duty
may be precluded from later asserting the non-occurrence of that condition
1. The general rule is that a P to a K cannot rely on the failure of another to
perform a condition precedent where he has frustrated or prevented the
occurrence of the condition. Kooleraire Service & Installation Corp .v. Board of
Eduction.

B. Waiver – the excuse of the nonoccurrence of a condition of a duty.


1. §84 – requirement that a condition occur may be eliminated by agreement
between the parties. Waivers can sometimes be retracted.
2. Tool: Anti-waiver Clauses – states no action or inaction by that P shall
amount to a waiver of any condition of any duty of that P. Good to include b/c
they can always be waived later.
3. Waiver after K – Waiver occurs after K formation, but before the condition
fails to occur. Since the party by “waiving” the condition has in effect modified
the K, consideration for the waiver is normally required. However, consideration
is not required when:
a) Condition is not a material part of the bargain.
b) Promissory estoppel – If the party’s manifestation of waiver induces
the other party to change his position in reliance on the waiver, the courts
will also hold the waiver binding even w/o consideration.
4. Retraction of Waiver – Can occur, even if oral. See Rest. 2d §84(2)
a) Estoppel - If the waiver was relied upon, then estoppel will preclude
retraction.
b) Election - A choice binding upon the party that makes it, even w/o
reliance by the other party.
5. Waiver after non-occurrence – After a condition has failed to occur, the
party whom the condition was intended to benefit may choose to ignore the non-
occurrence, and continue with his performance. Once the waiver after breach has
occurred, it may not be retracted.
a) Acceptance – If a person retains benefits under a K after learning that
the condition of the K has not been met, he will be held to have waived the
condition.

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(1) Only applies where the benefits rec’d by the promisor and the
performance that the promisor owes, are part of the same
exchange.
b) Election – When a condition fails to occur, the beneficiary has the
option to (1) waive the condition in which he retains the right to sue later
for damages; or (2) terminate performance and sue for breach. This is an
election. Once the election is made, he will not subsequently be able to
change his mind and cancel the K.

III. Divisibility
A. Test:
1. Is there value in the things/performance independently, or only as a whole –
look to the intent of the parties
2. Measure of damages: The rate of recovery comes from the K rate, not the full
K price, but the rate for each of the mini-Ks, minus the damages for the mini-Ks
not met.
3. Divisibility is a way around the potential harshness of constructive conditions.
B. Gill v. Johnstown Lumber Co.
1. Δ contracted with π to move logs. Court held that consideration for delivery,
as set forth in the K, was apportioned among several items at different rates per
item. As such, the K was divisible.
2. Rule: If the part to be performed by one P consists of several and distinct
items, and the price to be paid by the other is (1) apportioned to each item to be
performed, or (2) is left to be implied by law, such a K will generally be held to
be severable.

IV. Restitution
A. Defined as the value to the Δ of the π’s performance. May be awarded to the π both
in a suit on the K and in a suit brought in quasi-K.
B. Calculation of value – Market value of benefit rendered to the Δ, regardless of how
much the π was injured by the Δ’s breach.
C. Britton v. Turner
1. π was under K to labor for Δ for one year and to be paid $120 for the work. π,
w/o cause, left Δ’s employ after 9.5 mo. Court held for π in the amount of $95
based upon the π having completed 65% of the work (as opposed to having
worked 65% of the K time).
2. Rule: A defaulting P, although unable to recover on a K, may recover under a
quasi-contractual theory the reasonable value of his services less any damages to
the other P arising out of the default.

Breach
I. Breach in the course of performance
A. Factors in determining whether material breach (§275)
1. the extent to which the injured P will obtain the substantial benefit which he
could have reasonably anticipated;
2. the extent to which the injured P may be adequately compensated in damages
for lack of complete performance;

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3. the extent to which the P failing to perform has already partly performed or
made preparations for performance;
4. the greater or less hardship on the P failing to perform in terminating the K
(means the hardship to Walker if Harrison terminates);
5. the willful, negligent or innocent behavior of the P failing to perform
6. the greater or less uncertainty that the P failing to perform will perform the
remainder of the K.
B. This is a standard. It is unpredictable and not hard and fast. Must balance the factors
in determining the outcome.
C. Walker & Co. v. Harrison - Δ drycleaner entered into an agreement w/ π whereas π
would construct and install a neon sign to be leased for 36 months to Δ. Maintenance of
the sign was to be performed by the π. π failed to maintain the sign and Δ refused to
make monthly payments. Held: Failure to service sign not a material breach. If the
breach is not material, then the breach does not void the K. Especially when it is noted
that π had serviced the sign after receiving the letter from Δ.
1. Concept similar to substantial performance: Substantial performance = a
breach that is not material.
II. Total v. Partial Breach
A. Total breach: Must be a material and severe breach.
1. allows wronged party to sue immediately for damages based on the entire k.
Damages usually calculated to put the wronged party in the position he would
have been in had the k been completed.
B. Partial Breach: non-material breach
1. Does not relieve the wronged party from continuing to perform under the K.
2. Aggrieved party has an immediate right to sue for damages stemming from
breach.
a) Beware of WAIVER – treating a breach as partial can be rescinded
unless estoppel or election.

III. Anticipatory Repudiation


A. Def – when a party makes it unmistakably clear, even before his performance under
K is due, that he does not intend to perform.
B. Allows other party to suspend, and perhaps cancel, his own performance.
C. Repudiation – “a party’s language must be sufficiently positive to be reasonably
interpreted to mean that the party will not or cannot perform.
1. Ambiguity – courts are becoming increasingly willing to find that an
ambiguous statement by a party that he does not intend to perform constitutes a
repudiation.
2. Modern view: Rest. 2d §250: Categories that may constitute repudiation
a) Statement of intent not to perform
b) Action by the promisor making performance impossible
c) Indication by promisor or via some other means that promisor will be
unable to perform, although he desires to perform.
3. Expressions of doubt likely not considered AR.
D. Hochster v. De La Tour - In April, π contracted to serve as Δ’s employee beginning
on 6/1. One 5/11, Employer wrote to π that he had changed his mind and declined π’s
services. On 5/22, π brought this action for breach of K.

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1. Court allowed suit before the repudiator’s time for performance arrived.
Rationale:
a) Δ made it impossible for π to perform
b) Relationship btw parties implies promise that neither will do anything
inconsistent w/ the relationship.
c) By allowing π to recognize breach, he can mitigate damages by
finding another job or stopping his own performance.
E. Limitations on AR
1. Does not apply to installment K’s where one party has fully performed and all
that remains is for the other party to pay.
a) must sue for each payment not made – after it is due
b) This is default rule – can be contracted around by acceleration clause.
2. Will not apply whenever one party has fully performed
F. Retraction: General rule is that repudiation can be retracted. Exceptions:
1. When that repudiation has been relied upon.
2. When the other person accepts the repudiation, as the end of the contract

IV. ALLIE HAS BASIC ASSUMPTIONS – GAP FILLERS – p 335 of emmanuels

Third-party Beneficiaries
I. Doctrine of Third-party beneficiaries
A. Relevance: situations where one party makes a K the main purpose of which is to
benefit not himself, but a third party.

B. Must be an intended beneficiary (as opposed to an “incidental beneficiary) to receive


the right to sue. Categories include (§302(1)):
1. Payment of money: performance will satisfy an obligation of the promise to
pay money to the beneficiary; or
2. Intended benefit: circumstances indicate that the promise intends to give the
beneficiary the benefit of the promised performance.

C. Factors to determine intended beneficiary – whether the promise intended that the 3rd
party have the benefit of the K.
1. Reliance: If beneficiary is reasonably relying on the K as having been
intended to confer a right on him.
2. To whom performance runs: If performance is to run directly from the
promisor to the third party.
3. Beneficiary’s assent or knowledge unnecessary for right to sue.
D. Doctrine abandons the requirement for privity and consideration.

E. Lawrence v. Fox - Fox (Δ) promised Holly for consideration that he would pay
Holly’s debt to π. Held: A third party for whose benefit a K is made may bring an action
for its breach. Thus, no privity of K required.

F. Incidental beneficiary: Examples


1. B contracts with A to landscape B’s land. C, B’s neighbor, cannot sue.
2. B contracts with A to buy new car manufactured by C. C is an incidental
beneficiary and cannot sue.

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G. Getting around the rule:


1. no benefit/no inurement clauses
2. “no one can enforce this K except parties hereto.”
3. No inurement clauses theoretically can be gotten around, but are good
evidence of intent to not create 3rd party beneficiary.

Assignments and Delegation


I. Assignment and Delegation Generally –
A. Deals with attempts by a party to an existing K to substitute another in his stead.
B. Assignment distinguished from delegation
1. Assignment – when a party to an existing K transfers to a third person his
rights under the K.
2. Delegation – when the existing party appoints a third person to perform his
duties under the K.
C. Distinguished from third-party relationships in that the rights or duties are transferred
after the contract has been formed. In third-party, the beneficiary must be contemplated
at the time of K formation.

II. Assignment of Rights


A. No consideration is required. Thus, a party who is owed $$ under an existing K may
assign it to a 3rd party gratuitously, and neither the assignor nor the original obligor can
avoid the assignment on the grounds there was no consideration.
B. Assignor’s right extinguished: Upon occurrence of a valid assignment, assignor’s
rights under the K are extinguished and may thereafter only be exercised by the assignee.
C. Revocability: Assignments are revocable unless reliance or payment made.
D. Anti-assignment clauses generally unenforceable.

III. Delegation of Duties


A. Continued liability of delegator: When performance of a duty is delegated, the
delegator remains liable. Rest. 2d §318(3).
B. Not enforceable if they hurt the oblige
C. Non-delegable duties:
1. K’s involving particular skills (eg. Promisee’s own particular skills, artistic
performances, consulting, etc.)

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THE UCC
GAP FILLERS: Article 2 involves K’s for the sale of goods. It provides a series of gap-fillers.

I. §1-102 Purposes; Rules of Construction, Variation by Agreement


A. 1-102(3) The effect of provisions of this Act may be varied by agreement, except as
otherwise provided in this Act and except that the obligations of g/f, diligence,
reasonableness and care prescribed by this Act may not be disclaimed by agreement, but
the parties may by agreement determine the standards by which the performance of such
obligations to be measured if such standards are not manifestly unreasonable.

II. §2-305(1) Open Price Term


A. The parties, if they so intend can conclude a K for sale even though the price is not
settled. In such a case the price is to be a reasonable price at the time of delivery if:
1. nothing is said as to price; or
2. the price is left to be agreed by the parties and they fail to agree; or
3. the price is to be fixed in terms of some agreed market or other standard as set
or recorded by a 3rd party and is not so set or recorded.

III. §2-309 Absence of Specific Time Provisions; Notice of Termination


A. 2-309(1): The time for shipment or delivery or any other action under a K if not
provided in the Article or agreed upon shall be a reasonable time.
1. C1: Reasonable time should be based on good faith and commercial standards
set forth in §1-203, §1-204 (See next section), and §2-103.
a) §1-203: Keeps people from acting w/o good faith
b) §1-204(1): Any time not manifestly unreasonable (higher std) may be
fixed by agreement. What if we add “we agree that 6 mo notice of
termination would be reasonable notice.” The judge would likely provide
summary judgment for such a clause b/c it has been agreed to in the K.
The clause is aka a Safe Harbor
c) §1-204(2): defines a reasonable time as “what a reasonable time for
taking any action depends on the nature, purpose and circumstances of
such situation.”
d) §2-103: Definitions
2. C2: Payment time, where not agreed, is based on time of delivery. For
inspection issues see §2-513.
3. C4: Time of delivery, when open: unreasonably early offers or demands for
delivery are not final positions which amount to breach.
4. C5: When time is open, notification before a K may be treated as breached is
req’d. When both parties are silent, the reasonable time is considered to enlarge.
B. 2-309(2): Where the K provides for successive performances but is indefinite in
duration it is valid for a reasonable time but unless otherwise agreed may be terminated at
any time by either party.
1. C7: Reasonable time of duration is limited by the circumstances. When K is
has been carried on over years, the reasonable time will not term until notice.
C. 2-309(3): Termination of a K by one party except on the happening of an agreed
event requires that reasonable notification be received by the other party and an
agreement dispensing w/ notification is invalid if its operation would be unconscionable.

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1. Flexible under all the circumstances. Considers commercial practice.

D. Hamilton Tailoring v. Delta Air Lines – At issue are questions about duration and
advance notice of termination. See §2-309(3): reasonable here means π gets to sell the
rest of the uniforms to Δ. If π were making generic uniforms, reasonable time could be
shorter.

IV. §1-204 Time; Reasonable Time; “Seasonably” (p13)


A. Whenever this Act requires any action to be taken w/i a reasonable time, any time
which is not manifestly unreasonable (higher std) may be fixed by agreement. (this §
mirrors, but is more specific than §2-309(3))
B. A reasonable time for taking any action depends on the nature, purpose, and
circumstances of such action.
C. An act is taken “seasonably” when it is taken at or w/i the time agreed or if no time is
agreed, at or w/i a reasonable time.
D. Potential clause: “we agree that 6 mo notice of termination would be reasonable
notice.” Judge would likely provide summary judgment for such a clause b/c it has been
agreed to in the K. The clause is aka a Safe Harbor Clause.

V. §2-308 Absence of Specified Place for Delivery (p43)


A. Unless otherwise agreed:
1. (a) Place of delivery is seller’s place of business, or his residence if he has no
place of business
2. (b) in K for sale of identified goods which both parties know to be in a
different place, that place is the place for their delivery.
3. (c) docs of title may be delivered through customary banking channels.

VI. §2-306 Output, Requirements and Exclusive Dealings (p 41)


A. 2-306(1): Output K’s:
1. Protects the buyer who is bound by exclusivity. Output means such actual
output or requirements as may occur in good faith, except that no quantity
unreasonably disproportionate to any stated estimate. Quantities higher or lower
than the usual must be purchased by B as long as the quantity is not unreasonably
disproportionate or in the absence of a stated estimate to any normal or otherwise
comparable prior output or requirements may be tendered or demanded.
a) No unreasonably disproportionate quantity to the stated estimate by be
tendered or demanded.
b) If S keeps the quantities artificially low prior to K inception, B would
not be responsible for the full quantity during the K terms b/c S had not
acted in good faith.
B. 2-306(2): Exclusive Dealing: Applicable to of distributorships (higher standard – g/f
and hard work)
1. A lawful agreement by either the seller or the buyer for exclusive dealing in
the kind of goods concerned imposes, unless otherwise agreed, an obligation by
the seller to use best efforts to supply the goods by the buyer to use best efforts to
promote their sale.
a) Seller to supply and buyer to promote.
2. Seller: promises to sell only to B – bound by gf but not by best efforts.

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a) Note that Bjerre believes S bound by gf although section appears to


require best efforts.
b) Benefit to S: Seller gains representation in new territory.
3. Buyer: can buy from multiple sellers, not obligated to buy all S’s output, is
bound to use best efforts to promote goods.

Warranties
I. Types
A. Express §2-313
B. Implied
II. Elements needed to recover on a breach of warranty action:
A. existence of a warranty
B. Δ breached the warranty
C. breach was the proximate cause of the loss sustained.

III. §2-313 EXPRESS WARRANTIES (p46)


A. General
1. Amorphous: statement can be oral or written
2. Key: statement must be a basis of the bargain.
3. Difficult to tell whether an express warranty or puffery.
4. C1: Express warranties rest on dickered aspects of the bargain.
B. Washington SC Test distinguishing between a warranty and mere puffery: (p 96)
1. Whether the representations compared the goods to other goods;
2. the specificity of the representations;
3. whether they related to the goods’quality;
4. whether they were “hedged”;
5. Whether the goods were experimental;
6. the buyer’s actual or imputed knowledge of the goods’ condition;
7. the nature of the claimed defect; and
8. whether the statement was written or oral
C. Approaches to determine whether there is a warranty:
1. Was statement verifiable? (not an opinion: eg get 32 mpg)
2. What would a reasonable buyer think was meant? Factors:
a) Complexity of goods
b) Specificity of statement
D. Question of privity of contract. More specifically, a question of Vertical privity.
1. Vertical privity – Where goods travel from the manufacturer to the consumer.
2. Horizontal privity – Eg. Mother buys a computer from Apple dealer for
daughter. Can daughter recover from dealer.
a) See §2-318.