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Bender 2004-05 Chuck Xu

Contracts

1) Introduction
1) Introduction
a. Definition of a K is hard to define.
i. Williston: A K is a promise, or a set of promises, for breach of which the law gives a
remedy, or the performance of which the law in some way recognizes as a duty
1. Here, the promise can be expressed, or implied, or coupled with other elements.
ii. A K is a legally enforceable agreement
1. but there could be moral obligation, or past consideration
iii. Macneil: the relations among parties to the process of projecting exchange into the future
iv. USS: a Contract as the total legal obligation created by a bargain.
2) Contracts distinguished from Executed Agreements
a. A K is executory in nature. It contains a promise or promises that must be executed, that is
performed.
b. The distinction between a barter and a K is not firm.
3) Freedom of Contract
a. In medieval England, K were not enforced with regularity.
b. In 19th century, ideas that K were unrestricted. And insisted on freedom of bargaining as the
fundamental requisite of progress.
c. 20th century, moved back a little. Protect the people and the poor.
i. Controlled by federal and state laws.
d. In modern day, many Ks are not negotiatiable. Individuals must sign adhesion Ks.
e. Most of K law is premised upon a model consisting of two alert individuals, mindful of self interest,
hammering out an agreement.
f. Here the process of entering into an adhesion K, is not of haggle and cooperative process but rather
of fly and flypaper.
4) Philosophical Foundations of K law.
a. The human will as sovereignty.
b. Moral compulsion
c. Private autonomy
d. Reliance
e. The needs of trade
f. Critical race theory
5) Scope, Relevance and Adequacy of K law.
6) Sources of K law
a. Most of K law is common law, embodied in court decisions.
i. Some legislative enactments bear on the subject.
b. Restatement 1st = Williston
c. Restatement 2nd = Farnsworth and Braucher
i. Drew on views of Corbin
7) The UCC
a. By 1967, was passed in all 50 states.
b. Article 2 deals with sale of goods.
c. The K provisions of Article 2 of the code make many changes in traditional K law.
d. Different rule for K for sale than other Ks.
e. Other Ks may adopt the UCC by analogy.
8) Classification of Contracts
a. Formal and Informal Contracts
i. Before in the old days, only a few Ks were considered formal K.
ii. Now, any K that can be enforced legally is a formal K
b. Void, Voidable and Unenforceable Contracts
i. When a promise is entitled to either a money judgement, an injunction or specific
performance because of a breach, the K is said to be enforceable.
ii. A K is void when is can not be enforced in a court of law.
1. More correct to say that no K has been created
iii. A K is voidable if one or more of the parties has the power to elect to avoid the legal
relations created by the K or by ratification to extinguish the power of avoidance.
1. Usually this occurs when the K was made by fraud, duress, or mistake.
iv. Unenforceable K are those which have some legal consequences but which may not be
enforced in an action for damages or performance in the face of certain defenses, like SOL
or Statute of Frauds (SOF).
c. Express and Implied K Quasi-K
i. When the parties manifest their agreement by words express.
ii. When the parties manifest their agreement by actions implied in fact, or implied
iii. K implied in fact Ks that have express and implied agreements to the terms of the K.
iv. K implied in law Quasi-K
1. EX:
a. If a doctor gives a child necessary medical care in the face of parental
neglect, the doctor may recover from the parents, in Quasi-K, the value of his
services
v. Normally, if there has been found that no K exists, but there was performance, quasiK
maybe used to settle the dispute.
2) Intent to Contract
1) Mutual Assent
a. Usually an essential prerequisite to the formation of a K is an agreement: a mutual manifestation of
assent to the same terms.
2) Objective and Subjective Assent and Intent
a. Mutual assent is ordinarily arrived at by a process of offer and acceptance. Under the objective
theory, whether there is assent is determined by asking what a reasonable person in the position of
one party would be led to believe by the words and conduct of the other party. This is usually a
question of fact. However, if reasonable persons can reach only one reasonable conclusion, it is a
question of law.
b. Has changed through the years
i. Early common law = objective
ii. Mid common law = subjective
iii. Now = objective
c. Now, we view that the party is charged with knowledge of a RP but also with what that party
knows or should know because of that partys superior knowledge.
d. EX:
i. Lucy v Zehmer: A makes offer to B with expressed terms but conceals the fact that he is
joking. This can be put to reasonable person test, and could be considered a contract
unless there was superior knowledge. on Bs part.
1. Q: Who decides if Zehmer is serious or not serious?
The jury. This is a question of fact.
2. HYPO: The K is formed at the latest when Lucy picks up the K and puts it in the
pocket. Nothing has changed. After a few seconds, Lucy tries to give $5 for the K.
Zehmer told Lucy of the joke. Lucy has not relied on this K after a few seconds after
he puts the K in his pocket. Does that matter?

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The K was formed. Therefore reliance is not necessary. We do not need reliance here.
ii. Problem 1: A owned a $200 harness which was stolen from him. In a boastful manner A
states that he will pay $2500 for the return of the harness. P recovered the harness and sues
for recovery?
1. if a RP knows the cost of the harness, he can not get recovery.
3) Must the parties be serious?
a. If a RP would conclude that A was serious, there is a K unless B knows or should know that A is not
serious.
4) Must the parties intend to be bound?
a. The parties needn't intend legal consequences to be legally bound, but if the objective evidence
makes it clear that they do not intend to be bound there is no contract.
b. Even if both parties did not know that they could be bound by the agreement, they are still legally
bound.
c. However, if both parties expressed the agreement is not binding, then there is no legal K.
d. Social obligations and in marriage, there is an assumption that no legal consequences can arise.
e. EX:
i. Problem: A and B have written agreement that stipulates that they do not intend any legal
consequences and that they will deal with each other honorably based on the standards of
their past business relationship. The Parties break off ties.
NO K. No legal consequences
ii. Balfour v Balfour
1. Husband who lives away from wife agreed to pay wife a specific monthly amount
while she lived I England b/c of sickness
An agreement is not a valid contract unless the parties intend that it can be sued
upon = intend legal consequences. Husband and wife do not usually make
agreements with intent of legal consequences.
iii. Problem: H is living with his wife in harmony. Before H leaves on a trip they evaluate her
financial needs and agree on $1000/month. A) Is there a K under normal circumstances?, B)
Is there a K if they stipulate We intend this agreement to be legally binding?, C) Is the
agreement binding if they are separated or not living in harmony?
a) NO, a K does not exist under normal circumstances do to policy considerations and usual
lack of intent to be bound by an agreement between husbands and wives living in harmony.
b) YES, A K exists if the parties manifested an intention to be legally bound.
c) YES, A K exists if they were not living in harmony.
iv. Problem: I invite A to my house on Sunday for dinner and she agrees to come. She shows
up and I am not there. A) Is there a COA?, B) May we make it a binding obligation?
a) no
b) yes
v. Problem: I invite A up to my house in the which is 200 miles away and she agrees to come.
When A arrives I withdraw the invitation. Is there a COA?
This is still a social engagement and there is no presumption of intent of legal consequences
by the parties. There is an issue of reliance here however, which may open the door for
recovery based on the doctrine of promissory estoppel.

Cases not mentioned:


Sanchez v Life Care Centers
K.D. v ETS
MCC-Marble Ceramic Center v Ceramica Nuova DAgostino

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OFFER

5) What is an offer? Its Legal Effect


a. An offer is a promise to do or to refrain from doing some specified thing in the future conditioned
on the offeree's assent to the terms that will burden the offeree. To amount to an offer, the promise
must justify the other party, as a reasonable person, to conclude that his or her assent is invited and
will conclude the process of offer and acceptance. It is possible, but very unusual, to have a non
promissory offer.
b. An offer is a promise to do or refrain from doing some specified thing in the future conditioned on
the other partys acceptance.
c. Once it is decide that a party has made an offer, it follows that the offer invites an acceptance.
i. 1st Rest.- includes the word promise.
ii. 2nd Rest.- excludes the word promise to include executed sales and barters
offer = a manifestation of willingness to enter into a bargain so made as to justify another
person in understanding that assent to that bargain is invited and will conclude it.
iii. UCC- stresses agreement aspect and bargain of parties in fact as found in their language
or by implication from their circumstances including course of dealing, usage of trade, or
course of performance
d. The context in which the words are spoken is very important
6) Offers Distinguished from Statements That are not Offers
a. Introduction
i. Preliminary negotiations are any communications prior to an operative offer. Statements of
opinion, statements of intention, hope or desire, inquiries or invitations to make offers,
catalogs, circular letters, invitations to make bids, expressions of opinion, and price
quotations are not offers. An advertisement for the sale of goods is ordinarily not an offer
ii. There are a number of kinds of expressions that border on, but are not offers.
b. Expressions of opinion and predictions
i. An expression of an opinion is not a promise, therefore it is not an offer.
ii. Doctors opinion (generally) are not offers.
iii. RP test to determine if doctors words are actually opinions or offers taking into account the
surroundings circumstances. (ex. Emergency rooms probably not an offer or home visit )
iv. EX:
1. Hawkins v McGee: Doctor says I will guarantee to make the hand a hundred per
cent perfect hand or a hundred per cent good hand.
This was held to be an offer. Most doctors statements are opinions, but here, the
doctor guaranteed.
2. Problem 13: P was convinced that she could not have regular birth after two still
borns and requested a caesarian section from the Dr.. Dr. stated that he did not know
how to do it but that he would see to it that another Dr. would do it for her. Ds
medical opinion was that there was no need for it and he made no arrangements and
notified nobody of Ps request. Baby died when d told her to go home and not to
worry. Is there a breach of K?

Yes. The Dr. promised to have a certain procedure performed and he did not. This is
a breach of K. It is possible to make a promise that something will occur, and be
liable for it not occurring, even if you do not have control over it.
The court in this case allowed the promise to go to the Jury and the jury found that
the Doctor made a promise.
c. Statements of Intention Hopes and Desires and Estimates
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i. If A says to B, Im going to sell my car for $450., it is not an offer. It is a statement of
intent.
ii. If you paint my house, I will sell my house for $5000 offer
iii. Letters of intent are usually not offers.
iv. Statements of wishes, hopes, or desires, are usually not offers.
v. RP conclude that a person who is giving an estimate is not promising to do the job for the
price named, but thinks the job can be completed for a sum in that neighborhood.
d. Inquiry or invitation to make an offer
i. A to B: Will you sell my your property for $5000? not an offer
ii. B to A: I will not sell for less than $6000. not an offer, but inviting A to make the offer.
e. Advertisements, catalogs and circular letters
i. Advertisement: Sale! Normal $440, now $220 not an offer
ii. There is no QUANTITY.
iii. If first come, first served and quantity one per customer were written, then it would
mean that the ad was an offer.
iv. For an Advertisement to be held an offer, there must be a quantity of wares and a
language of promise.
v. Farnsworth states: a customer should not usually have reason to believe that the shopkeeper
intended exposure to the risk of a multitude of acceptance resulting in a number of contracts
exceeding the shopkeepers inventory.
vi. EX:
1. Leonard v PepsiCo
a. This is a television ad which advertised that by sending in 15 million points,
you can get a fighter jet. P said it was an offer.
Court ruled that a RP can not think this was real.
2. Carbolic Smoke Ball
3. Delta Shuttle we, (furnish, promise, offer, assure), (these four words are crossed off)
GUARANTEE a seat. Offer?

No, because if a statement can be construed as to exceed the shopkeepers


merchandise, it can not be construed as an offer. (Farnsworths words).
4.

f. Auction Sales (SKIP)


g. Invitation to bid
i. The invitation to bid specificies in detail the work thats needed to be done.
ii. The request to bid is not the offer; the bid itself is the offer.
iii. If a government is seeking bids, then the law may impose a duty for the government to
accept the lowest bid.
iv. EX:
1. A states to B that he would like certain work done and asks B for an estimate. B
says that he estimates that he can do the work for $5000. A says I accept. Is there
a K?

NO. There is no promise to work or absolute price. It is merely an approximation of


what B thinks he can do job for absent any extrinsic unknown factors. Not every
response to an inquiry will be an offer
2. A says to B that he wants certain plumbing work done and asks for an estimate. B
gives an estimate of $31K. A says go ahead, and B does work. Upon completion
B presents a bill for $42k which is a reasonable price for the job. May B collect?
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YES. B may collect the entire amount. The $31k was only an estimate an not a
promise to do it at that price. The estimate has no legal effect. The only time it does
have a legal effect is if there was wrongful intent on the part of B. B accepts by
doing the work and may collect reasonable price based on As implied promised to
pay.
3. A says to B Go ahead and do it at that price.

Then B can only collect for 31K.


4. Case:
a. US v Briggs Manufacturing Co.
i. Three Parties U.S. Briggs Toombs
K between B and T. B is seller. T is buyer.

Assume price for house is $20,000 plus port charges estimated at


$2,000. The buyer is also obligated to pay port charges.

So seller ships the houses to the buyer. The seller is obligated to pay the
US the port charges. The actual port charges are $7,000. the seller
resists paying the port charges, then the US sues Briggs for the port
charges.

Seller says, buyer should pay for the port charges.

The question is: What port charges does the buyer owe? Does the buyer
owe the actual port charges or the estimated port charges?

If using common law, Toombs should have to pay the actual port
charges. Court uses the doctrine of equitable estopple. Then the buyer
has to pay only $2,000.

Here, the seller is more aware of the costs, and the costs are published
in a book, so the court says the seller should have known the real port
charges.
b. Lonergan v Scolnick
i. D put out an ad in a newspaper for the sale of land. P wrote to D
asking if he found the correct land. D wrote back saying he has and he
needs to act fast b/c D might sell it to someone else. P then sets up an
escrow agent for the sale of land. D then sold the land before P
notifies D of the sale.

D made no offer to P. P knew of others that wanted the land. P can not
accept b/c there is no offer.
h. Price Quotations Goods and Real Property
i. Goods
1. Usually considered not an offer.
2. However, it is dependent on the other language used in the quote
3. EX:
a. CASE:

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i. Fairmount Glassworks v. Grunden-Martin Woodenware: P asked D
for price on 1000 mason jars. D answered with detailed terms, price,
quote and for immediate acceptance. P said to enter order. D
responded that he could not fill order b/c he was sold out. Court held
that D made an offer even though it was termed a quote. Normally
the buyer makes the first expression of commitment (offer) to the
buyer. In this case the sellers quote was an offer b/c:

1)Response came to inquiry looking for offer, 2)contained detailed


terms and 3) stated for immediate acceptance which is promissory
b/c it is inviting an immediate acceptance 4) response was directed to
a specific individual, 5) even though no # here, it is implied from the
correspondence. Here the court looked at the correspondence as a
whole to determine whether a K had been formed.

Samuel Williston, rather conservative, in a sale of goods case, in a


communications from the seller which states details terms including
price, and it is a statement that is detailed and it is to one person, and
quantity. This is an offer to sell.
1) individual
2) price
3) quantity
in Fairmount case there is:
1) response to inquiry
2) detailed terms including price and quantity
3) sent to one individual.

Williston is not considering the fact that the seller is


responding to the individual.

b. We quote you Hungarian Flour at $5.40 a barrel.


i. Not an offer. NO QUANTITY.
c. We quote you two barrels of Hungarian Flour at $5.40 a barrel
i. This could be an offer. Has quantity with an implied promise to sell.
d. A sends letter to B stating that due to a market swing in the salt market that
hey are authorized to offer fine salt in full car load lots at $x, and that it
was a bargain that in general would remain unchanged. It stated that they
would be pleased to receive an order. B sends an order for 2000 barrels as
offered in the letter. Is there a K?
No K. Could argue that it was an offer to sell one carload but there was no
quantity stated. What if B said, send me a million.? Even though the
correspondence said that it offered, it was not an offer. It was only inviting
an offer. If it had said We will sell you a certain amount at a certain price
= K.
ii. Real Property
1. If an owner let it be known that he is trying to sell a certain piece of property, and
more than one person knows about this, then any manifestations of promises the
owner makes is less likely to be held an offer.
2. EX:

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a. Will you sell us Bumper Hall Pen? Telegraph lowest cash price
Response Lowest price for Bumper Hall Pen is $900. Not an offer. Does
not answer the first question.
Difference between this case and Green Jar is that P knew that D was
negotiating with other people.
i. Offer v Preliminary Negotiations
i. Preliminary Negotiation means any communication prior to the acceptance.
ii. The test is: whether a RP in the position of the P would conclude that the D had made a
commitment.
1. There may be differences of opinion in this test.
iii. Factors to consider
1. Whether the communication is and initial communication as opposed to an answer to
an inquiry. The language of the inquiry is important as well.
a. An answer to an inquiry is more likely to be an offer.
2. The words used. Are the words generally associated with promise or are they
noncommittal?
3. Are the terms detailed or are only a few terms included. Do they have quantity and
quality terms.
4. Selectivity of Communication is it clear that the party who sends the
communication is treating with other people with respect to the same matter?
5. Does the case involve real property or goods?
6. Relationship of the parties: husband and wife?
7. Surrounding circumstances: whether a physician is treating a patient under
emergency conditions or not
8. Usages of the trade, prior practices of the parties.
iv. EX:
1. D wrote the following letter to a number of seed dealers including P: I have 1800
bu. Of millet seed of which I am mailing you a sample I want $2.25 for a
hundredweight for this weed D said I accept your offer

No K. This is a circular letter and B as a reasonable person should have known that
A was not making an offer to everyone, and that he was only inviting offers. Even if
B didnt know that it was being sent to others, it was still an initial communication
by seller in a non-committal manner.
Even if it were an offer, Bs acceptance is indefinite.
7) Questions of Law and Fact
a. Usually
i. Juries fact
ii. Judges law
b. It is a question of law to interpret a writing record.
8) Intent to Memorialize & Effect of Duplicate Originals
a. If the parties reach basic agreement on a transaction but agree that they will not be bound unless and
until they sign a formal agreement, they will not be bound until that time. If they intend the future
writing to be merely a convenient memorial of their prior agreement, they are bound whether or not
such a writing is executed. Intent is often a question of fact.
b. Usually 3 possibilities
i. Parties state there is no K until signed in writing
ii. Parties state that there is a K before signed in writing and writing is only memorializing the
K.
iii. Parties have not manifested their intent.
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1. this is a problem.
2. Question involves the intention of the parties, which is a question of fact.
3. RSTMT 2nd said to look to the type of K
a. Amount of details
b. Usually written in K
c. Common or unusually K
d. Other factors.
4. If a RP in the position of the other party either knew or should have known that the
other party did not intend to be bound in the absence of a formal agreement, there is
a no K until a formal agreement is executed.
5. Also is there a K when everyone signs the K or when it is delivered.
a. Again back to the intention of the parties.
c. EX:
i. Case: Texaco v Pennzoil
ii. Texaco was charged with tortious interference in a deal between Pennzoil and Getty. There
was an apparent agreement between the two in which a memorandum agreement had been
reached that reflected the terms. Press releases were issued along with basic terms. Getty
then negotiated a merger with Texaco. Texaco claims that until the memorandum agreement
was approved, no agreement existed, and that they therefore had the right to negotiate a deal.
Issue is whether parties to an agreement intended to be bound by an unexecuted K is a
question of fact.

Rationale: The term agreement in principle was not in this case enough to show lack of
intent.

the agreement here could mean


1) nothing
2) a K for the entire deal
3) an agreement to negotiate.

Pennzoil argued for 1, and lost. If Pennzoil argued for 3, then they might have won for a lot
less money.
9) Indefiniteness
a. Background
i. The more terms that are omitted, the more likely it is the parties do not intend to K.
ii. Traditional rule is that if the agreement is not reasonably certain as to its material terms,
there is a fatal indefiniteness and the agreement is void.
iii. In the end, it is the K that must definite, not the offer or the acceptance.
iv. Material terms include:
1. subject matter
2. price
3. payment terms
4. quantity
5. quality
6. duration
7. the work to be done
v. If the agreement is reasonably certain, it is enforced even though the K does not set forth its
terms with optimal specificity.
vi. Express terms = terms that the parties expressed in language. Written or oral.
vii. Implied in fact terms = not based on language. Conduct in the circumstances.
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b. The Common Law
i. Indefinite Purported Agreement on a Material Term
1. In other words: the term is vague. Vagueness of a material term
a. EX:
i. Ill sell you ___ for fair price. What is fair price?
ii. Tailor says, Ill make you a suit using nice fabric
iii. Promise to pay employee salary plus fair share of profits
iv. Promise to pay for a sumptuous living
v. Promise to build a first class theater
2. It starts as an interpretation problem, what do they mean by this language first
class nice sumptuous
a. The meaning might be clarified by the context of the writing itself.
i. tell by the rest of the language of the agreement
b. but if you can not tell by the writing itself: court could look to extrinsic
evidence
i. courts would consider extrinsic evidence (conduct) to determine what
it means
c. Courts might look to see how unfair would it be, to declare the whole thing
void
i. if there has been partial performance, then it might not be fair.
d. It could be cleared by an agreement later between the parties.
3. EX:
a. Case: Eckles v Sharman
i. Coach starts off with the warriors, then goes to the ABA team, LA
STARS, for 7 years. (start in 1968).
K said:
1) option to buy 5% of LA STARS for price to be agreed upon.
2) Pension undefined.
After going to Utah, he skips out after 3 years to go back to the
Lakers.
He is in breach, if it is a K. If the K is void for indefiniteness, then it
can no be breached.

In trail level, the severance was decided as a matter of law. In appeals


level, the severance was decided as a matter of fact
1) this clause only refers to one paragraph
2) the court should not just look to the writing and should look
to their conduct of others to see what was implied.
Evidence said
1) Sharman would never leave without the pension plan
2) But Sharman never tried to promptly resolve this issue.
So question of fact whether the parties intended to abide by the
pension plan agreement.
b. O owned a resort hotel. O was approached by Ds RR company which asked
for a right-of-way across Os land. O granted the land in exchange for a neat
and tasteful railway station. D built the RR but not the station. COA?

Yes. By itself, it maybe a purport to agree. However, with the context of the
situation, the railroad might understand that they should build a station to
help Os hotel. Os intention is to get more business for his hotel.
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May look to other stations that RR has built to see what it is.
Since RR has built the RR already, then it is better to enforce the K, rather
than pay damages.
c. Is there an K to remodel in accordance with blueprints for $27,000, but the
blueprints do not state what materials are to be used?
No. This is not definite enough. When it is the quantity or the specs of a
building, that has been held to be indefinite if not stated.
Another way to look at it is if you told a second contractor to do the same
work as the first contractor, would the work be the same? If not, then it is too
indefinite to hold as a K.
d. S wants to sell land to B. Agree on everything but price. K?
No. Probably not. This is real land. Price is important.
e.

ii. Where the Parties are Silent as to a Material Term


1. Usually the parties will agree to all essential terms. If they leave the terms out, the
concern is that they have not formed a K. the parties should make the K, not the
courts.
2. Although there might not be expressed terms, see if there are any implied in fact
terms to determine if it is possible to understand the agreement more.
3. There is an intent problem.
a. Even if yes, then there is still a rule of law of reasonable certainty.
4. Usually courts have felt free to imply terms. But only if they can come up with a
term if the parties would have agreed on.
a. Looking for fair terms
b. Objective standards.
5. Other items courts will look at in determining terms of a contract.
a. trade usage (like a carload of mason green jars)
i. EX: when baseball teams hire players, and did not mention duration,
the implied in fact duration is the baseball season (not at will)
ii. When hiring an actor for a play, the implied in fact duration is for the
run of the play. (not at will)
b. Course of dealing
i. How the parties have dealt with each other in prior contracts
c. Course of performance
i. How they are performing this current contract.
6. EX:
a.
iii. Duration Problems
1. Normally in employment contacts, is no duration is said, it is assumed at will.
2. Minority view is that if the position is permanent then the employee is entitled to
work so long as he is able to.
3. Same view occurs in lifetime employment.
4. Usually a company may terminate an employee for good cause, bad cause or even
morally wrong cause.
a. Some court say that a company can not terminate b/c of a morally wrong
cause.
b. EX:
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i. Case: Haines v City of New York
1. NY had a contract with a town saying they stop discharging
waste into water, and NY will build a plant for sewage. NY
said that they will provide for the water to the area when
necessitated by future growth and building constructions of
the respective communities.
K was in 1920, the lawsuit was in 1970.
For duration:
D argues that it is at-will.
P argues that it is perpetual.
Court doesnt agree with that. Says must perform for a
reasonable time. RT means as long as the city uses water.
ii. Case: Wagenseller v Scotsdale Memorial Hospital
1. P is a nurse at D. P works with boss, Kay Smith. KS and P
were friends for 3.5 years. KS went on a camping trip. They
fell apart during the trip. Afterwards, KS was mean to P and P
was fired. It is assumed that P is fired because of the falling
apart between P and KS during the camping trip.

3 theories of against at will firing


1) PP
Court finds a reason in PP.

2) The manuals said she had a certain amount of job security


This would be implied in fact, not expressed. Expressed
would be if the signed the agreement. Implied b/c they
adopted the terms by conduct. In Sanchez, there is not clear
enough language in the SOP to warrant a find on 2.

3) Did employer breach the good faith and fair dealing


between D and P?
no. if an employer can not go against this, then there would be
no at will hiring anymore.

if an employee were to show that there was a SOP, and


employer violated it, then employee has a COA on a K basis.

An employer may terminate an at-will employee for good


reason, and no reason but not for a bad reason that is
contrary to public policy.

Q: Supposed one gets hired at will, also gets SOP


assurances/restrictions on termination. Can that overcome the
at-will doctrine?
Yes. Implied in fact K. but in Sanchez, it wasnt clear if that
the language in the K. there was a disclaimer of contractual
intent. This is not a K. Disclaimer was trying to prevent the
SOP from operating as a K. The disclaimer did not work with
the majority opinion.

12
Q: Does the employee have to show reliance on the manual?
Reliance is not required. In Lucy, Lucy knew it was a joke
without getting out of the bar, and yet there was still a K. you
do not have to prove reliance in order for there to be a K.
Offer, acceptance, and consideration is required for a K not
reliance.
iii. A offers to hire B for $52,000 payable $1,000 a week. Is there a K for
an entire year?
Probably not. It is inferred that without otherwise notice, hiring is at-
will.
iv. H is a lawyer which practices in a jurisdiction tht does not recognize a
COA for the abusive discharge of an at-will employee. H reports
ethical violations and was fired. The firm says that a lawyer has an
obligation to report information that raises a substantial question as to
another lawyers honest, fitness, . .. COA?
Yes. This is probably against public policy.
v. What if H wrote an article for the local newspaper that was against the
company and then he was fired?
Thats ok. PP does not protect freedom of speech.
iv. Where Parties Agree to Agree or Agree to Negotiate
1. Traditional rule is that an agreement to agree as to a material term prevents the
formation of a K
a. Two reasons:
i. Such an agreement leaves a material term too vague and indefinite to
be enforced
ii. It shows a lack of present agreement
2. Restatement 2nd and UCC believe: an agreement to agree carries with it an implied
promise to negotiate in good faith.
a. Failure to negotiate in good faith = breach of K
3. EX:
a. P entered into an arrangement with D whereby P obtained an option to buy a
piece of real property for the sum of $23,500 on payments and terms to be
negotiated provided the same is exercised by June 1. By May, P offered to
pay $5,300. D refused, because he changed his mind to sell.
Court said that there was a K here and Ps proposal would satisfy a RP,
therefore court forces D to sell.
b. Case: Joseph Martin Jr. Deli v Schumacher
i. P rented from D for 5 years with a K that said the rent for a renewal
period was to be agreed upon. D wanted 900 dollars for the rent. P
was paying 650 at the end of year 5.

Where the parties say they are going to establish it at a later time, the
courts can not say they will establish a rental term later on. Court is
not invited to fill in a term. There is no gap filling in the agreement
to agree cases.

There is uncertainty in this case. The K was set 5 years in advance. If


a methodology for determining the rent was to be set, then the K
could be enforced. EX: reasonable rental or fair market rental

13
Court refuses to follow the UCC in a non-sale of goods case. This is a
real property lease. Certainty and predictability are hallmarks of real
estate contracts. Courts could apply UCC rules, but it is up to the
court to do such a thing. Here, the court is staying with the traditional
common law ideals.

if the UCC rules were applied to this case, it would be a question of


fact on the intent of the parties. If the parties intended to K, then court
can gap-fill the rest.

ii. Case: Copeland v Baskin Robbins


1. P wants to buy Ds land and property. P wants to make ice
cream to sell to D. All this has to be in the K in order for P and
D to have a deal. P and D signed a preliminary agreement that
included subject to separate co-packing agreement and
negotiated pricing to provide. Later D wrote back to P saying
they can not engage in any further negotiations of a co-
packing agreement.

ALWAYS REMEMBER. IN AN AGREE TO AGREE CASE


3 WAYS TO LOOK AT THE AGREEMENT:

1) No K at all
2) An agreement to negotiate in good faith in co-packing
agreement REMEDY limited to Reliance.
3) Intended to be bound to the co-packing agreement. This
would require the court to supply the terms that are missing.

P is arguing 2. However, P can only get reliance damages if


arguing for 2. P can not show reliance damages, so therefore
the case is dismissed.
One can say that not negotiating in good faith is like
promissory esstopple; they both allow recovery in reliance
damages.

Some courts recognize an agreement to negotiate, others do


not. Some courts believe an agreement to negotiate can only
be found in promissory estoppel, others believe it can be found
in K law.
iii. V gave P a 6 month option to buy real property which P accepted
within the six month time. The option agreement described everything
except the interest. The payment of interest and amortization of
principal shall be mutually agreed upon at the tie of entering into a
more formal K. K? what if it was a tractor?
B/c it is real land, it works under the common law. Under common
law, all material terms must be agreed to. If this was a material term,
there is no K.
If it were a tractor, then UCC applies, and therefore it would be the
intent of the parties. The intent was that they wanted to K, so
therefore there is a K.
14
c. Case: Oglebay Norton Co. v Armco
i. P is a shipping company. D is an iron ore producer. P and D worked
with each other for a long time. P and D had a K that P would ship
whatever D would produce. It would ship for the price agreed to by
the regular net contract rate. If there is no regular rate, then the parties
would agree to a rate based on vessel operators rate.
Here the court took into account the intention of the parties that they
would abide by the agreement. The K had provisions which stated the
parties intention. The parties intended to be bound, they intended to
follow the provision, and the parties have worked with each other for
a long period of time. Therefore, the court appointed rate is
satisfactory.
c. The UCC
i. guiding principle = Even though one or more terms 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
1. To satisfy this section, the parties must intent to K.
ii. This section changes the traditional common law rules.
1. A gap-filler is available even though the parties agreed to agree or purported to agree
on a term that was left indefinite.
iii. 2-204(3) = Even if one or more terms are left open, a contract for sale of goods does not fail
for indefiniteness if the parties have intended to make a K and there is a reasonable basis for
giving an appropriate remedy.
iv. EX:
1. Case: Southwest Engineering co. v Martin Tractor Co
a. P asked D for a subcontractor bid. D said 18,500. P took the bid and used it in
a general bid. P then met with D then D said, 21,500. P still agreed for the
new price. While leaving, D and P did not agree to terms of payment. Later D
tried to renegade from K saying they did not agree to payment terms.

In a sale of goods, UCC rules apply. UCC says: If the parties intend to enter
into a binding K, an agreement is still valid despite missing terms.
Here, all we have to ask is if the two parties intended to K.

Sale of goods: parties now only need to negotiate a few of the terms.
(quantity, price,) there are many default terms that if the parties do not agree
to, then the court can supply the gap fillers. This is only if the parties still
agree to sell even if they do not agree to all terms.

Common law rule: Even if the parties intend to be bound, you still needed
reasonable certainty as to all material terms.
2. A agrees to sell and B agrees to buy 1000 widgets. They agree on everything but
price. K?
Yes. UCC will gapfill. As long as they agree to sell and buy a certain amount, there is
a K under UCC.
3. A agrees to sell and B agrees to buy some widgets, the quantity to be agreed upon
from time to time. K?
No. Quantity and item HAS to be stated.

15
10) Unilateral, Bilateral and Reverse Unilateral K and Some of Their Implications
a. The Classical Approach
b. An offer looking to a unilateral contract asks for a performance; an offer looking to a bilateral
contract invites a promise. The promise may be expressed in words or communicated by conduct.
An offer looking to a unilateral contract may not be accepted by a promise. Conversely, an offer
looking to a bilateral contract may not, except under an unimportant exception, be accepted by
performance. The offeree does not become bound when starting to perform the act requested by an
offer looking to a unilateral contract.
i. Every K has at least 2 parties.
ii. If only one party made a promise = unilateral K
iii. If 2 parties made a promise = bilateral K
iv. A to B: If you run in the Marathon and finish, I will pay you $1,000. offer to a
unilateral K. B must accept by running, no other manner.
v. A to B: if you promise to run in the Marathon and finish, I will pay you $1,000 offer to
a bilateral K. B must promise to run to accept the offer. If B started to run in As presence, it
would be implied in fact that B accepted. However, if A were not around, then there is no
acceptance.
vi. Also there could be a reverse unilateral K.
1. EX:
a. S has been Bs regular supplier of various component parts for machinery
manufactured by B. Lately, S has been unwilling to sell to B on credit terms.
B sends a message Will you ship us item for $5,000 each. We have
deposited $75,000 to your account in Geneva.
This is reverse unilateral K.
A performance invites promise. A regular unilateral K: a promise invites
promise.
vii. This is the idea that the offeror is the master of the offer
viii. 1st RSTMT said that if not stated, then offer is looking towards bilateral K.
ix. 2nd RSTMT says that any reasonable manner of accepting an offer, is fine.
x. EX:
1. Grandpa says to granddaughter: If you make Phi Beta Kappa, I will give you
$20,000.
Granddaughter can not accept by promise. This is only accepted by performance.
2. A says to B: If you promise to rake my lawn I promise to pay you $25. B starts to
rake in As presence. K?
B needs to give an expression to A that he is promising to rake the lawn. He can
either tell A, or by starting to rake in As presence, he is manifesting his intent.
Therefore there is a K. A promise does not necessarily have to be in words.
3. Q: A to B: I will pay you 100 dollars to repair my engine. Car mechanic starts to
work on the engine. (This is categories as beginning of performance) Is an implied
promise to complete the performance there?
NO, because it is unclear how big a job it would be.
4. Q: On Jan. 2, A promises B to pay $7,500 if B paints the outside of As summer
house within 2 weeks from Jan. 2. A further states that this offer is open for three
days. B makes no promise but beings to paint on Jan. 4. K?
When the offer is ambiguous, remember that the classical approach is that the K is
assumed to be accepted by promise. B did not paint in As presence, so A does not
know. The conclusion is that there is no K.
Q: If this work had been completed within 3 days of Jan second, could there be a K
and the painter notified within a reasonable time?
16
Yes. But this is an EXCEPTION under common law. 1st RSTMT: if the performance
was rendered within the time the offer was open and notice is given, it is a K.
5. A to B: This agreement shall become binding only upon written acceptance by the
home office or upon commencing performance of the work.
Both offers to a bilateral K. Commencing has implied in it that the work will be
completed. K forms either by written acceptance or by starting the work.
If the word commencing was not there, then it would be both bilateral and unilateral.
The K would form at the end of the work.
c. The UCC
i. Background
1. 2-206 made extensive changes in the common law offer-acceptance.
2.
ii. Subsection 1(a)
iii. Subsection 1(b)
iv. Subsection 2
d. Restatement 2nd
11) Must the Offeree Know of the Offer?
a. If an offer looks to a unilateral contract, the offeree must know of the offer in order to accept. There
is some dispute as to when this knowledge must occur. If the offer looks to a bilateral contract, the
rule that the offeree must know of the offer may come into conflict with the objective theory of
contracts. If so, the objective theory prevails.
b. General Rule Yes
c. An acceptance has been defined as: a voluntary act of the offeree whereby the EE exercises the
power conferred by the offer and creates the K
d. In an offer towards a unilateral K, the EE must know of the offer before accepting.
e. Also, if A and B sends identical cross offers, there may be no K.
i. 2nd RSTMT adopts a rule that the identical cross-offers constitute a K despite the objective
theory b/c there is both subjective assent to the same deal and objective evidence of that
subjective intent.
f. Suppose A posts reward of lost watch. B finds watch, and then learns of reward. Can B collect?
i. 1st RSTMT: No. B must know of the offer before beginning performance.
ii. Modern view: it is sufficient that EE completes performance with knowledge of offer.
g. EX:
i. Case: State v Malm
1. There was a murder and attack of an individual. D, who was also attacked in the
same manner, provided information to leading to the arrest and conviction of the
man. The man was arrested. A couple days later, the governor offered a reward for
the crime. The man then confessed to the crime. The woman can not collect the
reward b/c she performed without knowledge of the offer.
ii. Q: A worked in a company. Company published a personnel manual promising that if any
employee had to be liad off, it would do so on seniority basis. A was 2nd most senior, but he
was still laid off. A testified that he did not see the manual and unaware of any company
policy. Does A have a COA against company?
FIND OUT ANSWER Question 47
iii. A finds lost article. A knows the owner and decides to return it. A went to owners house and
along the way, learns of reward offer. A returns article but does not mention reward. Later A
claimed for reward. Reward?
Common Law: Knowledge of the offer in the beginning of performance
Modern View: Sufficient that offeree completes the performance with knowledge of the
offer. So if A learns of offer while performing, it is ok.
17
Here, A performed without mentioning the offer. Therefore we must look to As intent to
accept.
Subjective Intent: Manifestation is ambiguous. The ambiguity here is when you have
performance of a unilateral contract, there is no idea to know if there is intent to accept, it
could be intent to give a gift. (Lucy v Zehmer)
Objective Intent: Also, could treat this as an object matter. As long as you prove actual
knowledge (subjective) of the offer, then the intent to accept becomes objective, there is a
PRESUMPTION that if you render the performance requested, you are PRESEUMED to
intend to accept.
12) Warranties in a Box; Shrinkwrap; Clickwrap
a. Gateway is a direct seller.
b. EX:
i. Case: ProCD Inc v Zeidenberg
P sells its CD but changes 2 different prices for it. To regular customers, and to businesses. It
is the same CD. D bought the CD and used it in a business fashion. D said the terms of
agreement were not on the outside of the box, so therefore it can not matter. D used the CD
as a business but only paid a consumer price for it.
D accepted the agreement that was splashed on the screen when he installed the program,
but said it doesnt matter because the terms were not disclosed at time of sale.

We never said that the warrantee that benefits the customer does not apply.
The answer to this is: the warrantee that benefits to the customer is considered a
modification of an offer. So the customer when it benefits him/her, hell accept it just by
conduct.
When it restricts the use of the customer, when it is detrimental, it would require the
customers acceptance to the offer. If the customer rejects the terms, then he can bring it back
and return it to the manufacture.

13) Must the Offeree Intend to Accept? When?


a. For a unilateral contract to arise, the traditional rule is that the offeree must subjectively intend to
accept. The offer need not, however, be the principal inducement for performing the act. The
Restatement (Second) has substituted a more objective test; an intent to accept is presumed unless
the offeree disclaims an intent to accept. An offeree to a bilateral contract can accept even if he or
she has no subjective intent to accept; all that is required is an outward manifestation of intent to
contract.
b. The EE must intent to accept the offer.
c. In an offer towards a bilateral K, subjective intent is not enough. There must be objective intent.
d. In an offer towards a unilateral K, subjective intent is necessary.
i. A to B: If you run in the Marathon and finish, I will pay you $1,000.
offer to a unilateral K.
However, B may have run the marathon without wanting to accept As offer.
1st RSTMT would say the subjective intent of B is admissible.
Modern view: Assume B accepted in the absence of words or conduct indicating the
contrary.
e.
14) Who May Accept the Offer?
a. The offer creates the power of acceptance. The acceptance creates a contract and terminates the
power of revocation that the offeror ordinarily has. The acceptance must be a voluntary act. An offer
may be accepted only by the person or persons to whom it is made. Thus, the offeree may not
18
transfer (assign) the power of acceptance to another. But an irrevocable offer may be transferred if
the transfer is consistent with the rules governing the assignment of contracts.
b. As master of the offer, the OR controls the person who can accept his offer.
c. If A makes offer to B, B can not transfer offer to C. An offer is personal.
d. If A makes an offer to XYZ Company and later that company gets bought out, the new owners
can still accept on behalf of the company.
e. A Salesman for a company can not accept a K for the company. It usually has to be accepted at the
main office.
f. EX:
i. Case: Carbolic Smoke Ball
1. D advertised a reward to anyone who contracted influenza after using the Carbolic
Smoke Ball. D refused to pay when P caught influenza after using the ball. Court
held for P. D said that there was no consideration for its promise which is false.
They profited and P was under no legal obligation to use it.

An advertised reward to anyone who performs certain conditions specified in the


advertisement, is an offer, and the performance of such conditions is an acceptance
that creates a valid K. The offer is looking to performance and thus the offeree need
not give notice of intent to perform.

Q: How many people can accept this offer?


Theoretically, as many people that meet the condition. The 1000 dollars is not
limiting the EEs, just showing sincerity.

Q: How is it accepted? What manner does this offer invite?


Accepted by performance. Does not want a promise in return. It is an offer for an
unilateral contract and is looking for some performance.

Q: How do you decide what is invited when it is offer by performance?


It is a question of interpretation. What does the offer ask for? Interpret the language
under the circumstances as usual. Take it from the RP in the position of the other
party.

Q: What is required of performance?


Buy the smoke ball and use it.
The ad just says use, but it is implicit that buying is required.
Catching the flu is NOT part of the acceptance. Catching the flu can not be done
voluntary. Therefore, catching the flu is a Condition Precedent before the duty to
perform.

Between catching the flu and using the smoke ball, P has a duty. Not until P catches
the flu, does D have to perform.

Q: Suppose she doesnt catch the flu.


If she doesnt catch the flu within a RT of the acceptance, the K elapses.

Q: Suppose P sues after 4 years. Is that notice of performance?


No. That is the SOL. Notice of performance of catching the flu is needed. However,
notice of purchase is not b/c it was assumed that it would be purchased. Notice of
performance within a RT of catching the flu is required.
19
2. Q: Jim Casey was the owner of a sporting goods store in Oshkosk and did business
under the trade name Sportserama. Everyone in town knew that Casey was the
owner of Sportserama. Bill Sent in an order address to Jim Casey for a particular rod
and reel. Casey owned money to Daly and Daly assumed that the price of the rod and
reel would be offset from the debt. On that day, Casey had sold out to Schwartz.
Schwartz accepted the offer and now asks for the money in return. K?
This depends if the offer was addressed to either Casey or Sportserama. If it was
Casey, then Schwartz can not accept. If it was Sportserama, then Schwartz can.
Q: How to determine who the offer was addressed to?
Question of interpretation. Factors to see if it was addressed to a specific person.
3.
15) Must the Offeree Give Notice of Acceptance of an Offer to a Unilateral K?
a. There are three views on the issue of whether the offeree must give notice of performance to the
offeror.
i. Notice is not required unless requested by the offer.
ii. If the offeree has reason to know that the offeror has no adequate means of learning of
performance with reasonable promptness and certitude, failure to exercise reasonable
diligence in giving notice discharges the offeror from liability, unless the offeror otherwise
learns of performance within a reasonable time or the offeror expressly or by implication
indicates that notification is not necessary.
iii. This view is the same as the second view except that no contract is consummated unless and
until notice of performance has been sent. The second view is the prevailing view and is the
view of both the first and second restatements.
b. Notice should be given if the OR can not reasonably know of the performance of the unilateral K.
c. 1st and 2nd RSTMT: K arises when performed and EE has reasonable time to tell OR of the
performance.
d. EX:
i. D, Harry Eatons brother, in Nova Scotia, wrote P, in Illinois: If Harry needs money, let him
have it, or assist him in getting it, and I will see that it is paid. The following month P
helped Harry borrow money by signing Harrys note as guarantor. After signing, P so
notified D by letter, which D never received. Harry did not pay back the debt, P paid and
sued D. What result?
D is making an offer looking to a uni-k with the performance being the loan or guaranteeing
of the loan. P performs. The issue is whether notice of performance is necessary in offer to
uni-k. D here has reason to know that D will not learn of performance with promptness and
certainty. So in this case notice is necessary According to the Rest.s. But notice does not
actually need to be received, the offeree merely needs to use reasonable diligence to give
notice and must be w/in reasonable time. The general view is that performance is
acceptance in a uni-k. As long as it is w/in reasonable time, even if have not gotten notice,
the offer may not be revoked. The notice requirement here is a condition precedent.
16) Acceptance of an Offer Looking to a Series of Ks.
a. If an offer looks to a series of contracts, a contract arises each time the offeree accepts. As to the
future, the offer is revocable unless the offer is irrevocable. Whether an offer looks to one or a series
of acceptances is a question to be determined under the reasonable person test. Care must be taken
to distinguish an offer looking to a series of acceptances from an offer looking to one acceptance
with a number of performances.
b. It is a question of interpretation of the offer to decide whether the offer is either a series of Ks, or
one big K.
c. It could be a series of Ks with a series of performances
d. Or it could be one K with a series of performances.
20
e. This makes a difference if OR wants to revoke the offer.
17) The Necessity of Communicating Acceptance of an Offer to a Bilateral K.
a. To create a bilateral contract, the offeree's promise must be communicated to the offeror or his or
her agent. However, the offeror may dispense with the need for communication by manifesting such
an intent.
b. General Rule: In the creation of a bilateral K, the EEs promise must be communicated to the OR.
c. However, as master of the offer, the OR may dispense away with the requirement for
communication.
d. R
e. EX:
i. P signed an agreement to purchase specific property from Ds salesman. The agreement was
not signed by Ds corp. It says, This Agreement has been obtained by Ss salesman or agent
who has no authority to bind S to this Agreement. This Agreement becomes a K when
accepted by B and signed by S at its executive office within 30 calendar days. A) D never
sign agreement. K? B) What if D signed it within 30 days, did no notification, and later tried
to withdrawal? C) it says: This agreement shall not be binding upon Seller unless signed by
S within 30 days.
A): NO K.
B): The agreement says that when S signs it, it is a K. So therefore it is a K. Usually there is
communication required to the other party, but if the other party decides to forgo that
requirement, then it is fine.
C): the assumption is that it is not binding on either party. The language in C does not
dispense with the need to communicate in promise. So no K. The language in C is much
more relaxed than the one originally presented. Therefore we ASSUME that B must know of
the signature after S agrees to it.

18) Acceptance by Silence Implied in Fact Contracts


a. The general rule is that silence ordinarily does not give rise to an acceptance of an offer or a
counteroffer.
i. This rule does not apply:
1. Where the offeror has given the offeree reason to believe silence will act as an
acceptance and the offeree intends by silence to accept;
a. EX: If I do not hear from you by next Tuesday, I shall assume you accept.
i. Even if one wanted to accept, one must remain silent.
2. Where the parties have mutually agreed that silence will operate as consent;
3. Where there is a course of dealing so that silence has come to mean assent;
4. Where the offeree accepts services with reasonable opportunity to reject them, and
should reasonably understand that they are offered with expectation of payment.
b. General Rule: An offer to a bilateral K requires a communicated acceptance.
c. The issue is whether the relationship of the parties and the circumstances justify the offerors
expectation of a negative reply if the offeree wishes to reject the offer.
i. When this expectation is justified, then the offeror may reasonable conclude that silence is
acceptance.
d. Normally, the EEs silence is ambiguous. It could be either rejection or acceptance.
e. 2nd RSTMT: When it is the fault of one party, either EE or OR, that party can not testify to the
subjective intent.
i. Suppose A always sends goods to B. and B always pays for goods without asking. When B
does not pay, then B can not testify to his subjective intent.
ii. Suppose A always sends orders to B and B always ships them ASAP. When A sends the
order this time, and B does not ship, then B can not testify to Bs subjective intent.
21
f. General Rule: If offeree takes offered services with reasonable opportunity to reject them and with
reason to believe that they are offered with expectation of compensation, then that silence is
acceptance.
i. Assuming
1. offeree knows of the services
2. EE has reason to know that they are offered with expectation of compensation.
ii. If a RP conclude that the services are being offered with no expectation of compensation,
then there is no K.
g. A family relationship usually means that services are being offered with no expectation of
compensation.
i. Either blood or living together as a family.
ii. A collective body of persons who form one household, under one head and one domestic
government.
iii. Once again ask: would a RP conclude that the services were rendered with the expectation of
compensation.
h. EX:
i. Case: GEM Broadcasting Inc v Minker
1. Minker worked for the company. Gem did not refuse his work. Later Minker tried to
collect for the earnings and Gem refused to pay.
The court found a K had arisen by fact. It was implied by performance and
acceptance (by silence) that Minker was to be paid for his work. Therefore there was
a K.
ii. Case: Wilhoite v Beck
1. Estate of D is being sued by P. D lived with P for more than 20 years in a manner
that did not indicate familial relationship even though she was distant family. D
always made reference of intent to pay for her stay in the future. The issue is
whether there was a gift presumption here in the family member exception. The
court found for P. 2nd cousins are not close family so gift presumption is not present
automatically. Applicable evidence was allowed to determine no gift presumption.

Q: Did Flossey implied to pay?


Ruth would offer these services to Flossey, and by conduct she is asking for
reasonable compensation. Flossey would receive these services with reasonable
opportunity to accept or reject.

Q: Did Flossey expressed her will to pay?


It can not be admitted in this case b/c she is dead. Trail court found for Ruth, against
the estate. Appeal it was unclear whether there is no family relationship. The
presumption is that compensation is expected.

Remember that Flossey was an independent woman and wanted to live the way she
wanted. Therefore, it is more likely to hold that they were not living together in a
family arrangement.

Q: In order to have a family relationship, you have to be living together as a family.


Not true. This case says you can create a family relationship, either by blood
relationship or living together as a family. A 2 prong test.

iii. Case: Hobbs v Massasoit Whip Co.

22
1. P sent D certain eel skins that were w/in the specification that D had set up a standing
order to accept. D never formally accepted the skins and there was no K between the
2 parties. There was a showing of prior course of dealing between the parties.
The court of dealing showed that D always paid for what P sent. Therefore silence is
acceptance, according to the prior course of dealing. D would be forced to notify P
that he didnt want the eel skins. By remaining silent, he accepted the K.
iv. Q: A to B: I sell 1000 jars at $85 each B says I want $82.50. Is there a K?
No. That is a counter-offer = rejection of the original offer.
v. Q: A makes an unsolicited offer to B by mail and states: If I do not hear from you by next
Tuesday, I shall assume you accept. B does not reply. K?
Yes and no. Depends on the intention of B. If later, A sues B, then no K. If B sues A, then K
vi. Q: As car is stuck, and B a tow truck owner comes by and begins to tow the car for A. If A
stands by and says nothing or does nothing, there is an implied in fact K. If B damages the
car, could he avoid liability by saying the act was gratuitous? No b/c he caused the
ambiguity by failing to mention his gratuitous intent, evidence of his subjective intent
should not be considered.
vii. Q: P and D are unmarried couple, had been living together. When the relationship ended, P
claimed D was contractually obligated to pay for her services in preparing his meals,
laundry, ect.
No. the idea of family relationship. Works for both people of blood relationship, as well as
for people living together, but without blood relations.
viii. HYPO: If youre sitting on your lawn, and someone comes up and starts to mow it. The
person is a professional lawn person and you sit there and say nothing and let him mow your
whole lawn.
They are making you an offer by conduct, by rendering conduct. Not a gift. And you are
accepting it by silence. The acceptance by silence works with (u take the services, with
reasonable opportunity to reject it and reason to know that compensation is expected)
There is an implied promise to pay for the reasonable value of the services. It is an
acceptance by silence and it creates a TOALLY implied in fact contract. Cause no one says
anything.
The K that arises is a reverse unilateral K. the offer is by performance. The acceptance is a
promise, a promise to pay, everything is silent. Acceptance by silence. With a reasonable
opportunity to reject the lawn services.
ix. P ordered shipment of 942 cases of shortning from Ds traveling salesman. This order was
went to D by salesman. 2 weeks later, P called D, and P was told the order had been
declined. Previous to this for 8 months, every order P placed with salesman resulted in a
completed K. Is there a K here?
No. Difference between whip case and this:
Whip: P sent D a whip. D usually took it and paid for it. But now claims silence. This was a
unilateral K.
Here: this is a bilateral K. theres offers exchanged.
x. A sends a book to B saying: If you wish to buy this book, send $30 within one week after
receipt hereof, otherwise notify me and I will forward postage for return. 1) B does not
reply and gives the book away 2) B puts away the book and waits for As messenger. 3) B
gives away the book, but writes back to A saying hell only pay $25 for it.
1) It is concluded that B has to pay the asking price. The reason is, had B not accepted the
book, what would have B had committed. (conversion) this is an exercise of dominion over
the book. By treating the book as ones own, youve owned it.
Does B have to pay the price in the offer, or only the RP of the book? Or does
unconsionability go in here?
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We dont want to assume that B is guilty of tort, and wed want to assume tht B is going to
pay for the book.
We are leaning backwards to find a K acceptance. We are violating a couple of principles
1a) We are deeming this to be a promise. That this is a promise to give away the book. Note
that this promise is not communicated to anyone.
1b) if you look at the traditional approach to this offer. This offer is not acceptable by a
promise. This is accepted by performance.
But this goes by the wayside, to find a K relationship between the two, rather than a tort.
2) No exercise of dominion. Leaving it on the shelf is not conversion. Therefore no K, no
tort.
3) Because he rejects the offer, you can not treat this as an acceptance. No matter how far
you lean back, you can not do this.
Therefore, the person committed conversion, and buyer can sue under quasi-K or
conversion, and the seller would get the reasonable value of the book.
However, we also allow the seller to sue under K theory, and then get the stated price for the
book because we dont want B to benefit from not paying the asking price of the book.
xi. B digs a well on As unused land and takes water which has no market value, no value to A,
and no damage to the land. A informs B, he will be charged $500 a day for each day he takes
water. Does B accept As offer?
The price being charged is unreasonable. And because of that, its treated as a tort, a rejection
of the offer.
Now A sues B under quasi-K or conversion for RV of water.
But the law doesnt allow to sue under K for the price, becase the price was set too high. If
the price is set manifestly unreasonable, then the seller is not given the option to sue under
K.
xii. In a bank card situation where they say: we can change this Agreement at any time. We will
mail you a new copy of the any changes by mail. You must notify us within 10 days, if you
dont agree to the changes, otherwise we assume you agree.
This works, because you originally had a signed transaction.

19) Acceptance by Conduct or an Act of Dominion.


a. At times, an offeree takes possession of offered goods but indicates that the offered terms are not
acceptable. This conduct constitutes the tort of conversionthe wrongful act of dominion over the
personal property of another. Because the conduct could have been rightful and referable to the
offered terms, the offeror has the option to treat the conduct as rightful, suing on a contract theory
and estopping the offeree from claiming to be a wrongdoer. There is some authority, however, to the
effect that this option is not available if the offered terms are manifestly unreasonable.
b. If A, on passing a market, picks up an apple from a box marked 50 cents each and holds it up so
that the clerk sees it and nods assent, A has made an offer by conduct and B has accepted it in the
same way.
c. A K implied in fact arises under circumstances which, according to the ordinary course of dealing
and common understanding, show a mutual intention to K.
d. A K is implied in fact where the intention is not manifested by direct or explicit words between the
parties, but is to be gathered by implication or proper deduction from the conduct of the parties.
e. Usually this is a question of fact.
f. When one exercise dominion over the personal property of another without authorization, one
commits the tort of conversion.
i. Goods are offered by A to B. Although B takes possession of them, B declares that I reject
the offer. I am a converter. Under the old rule of estoppel, A can treat Bs actions as an
acceptance of the offer, estopping B from claiming the status of tortfeasor.
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ii. This rule can be invoked whenever the offerees act of dominion is referable to the power of
acceptance granted by the offeror.
iii. Now, A can proceed on either a K, Quasi-K, or a tort theory.
g. Section 2-206 (c) UCC
i. There is an acceptance of goods when the buyer does any act inconsistent with the sellers
ownership; but if the act is wrongful as against the seller it is an acceptance only if ratified
by him. this is in accord with the common law.
h. EX:
i. USC 39
1. An exception exists to the exercise of dominion rule under legislation providing that
a person who receives unsolicited goods may treat them as a gift.
ii. Q: P and D entered into an agreement by which P gave D an option to acquire a right of way
for sewer lines across Ps property. P was to be allowed a specific number of sewer
connections. By the terms of the agreement, D was to exercise the option by giving written
notice in a specified way. D never gave such notice, began installing the lines, but did not
allow P any connections. P sues D.
2 ways to call this
1) D accepted the option by conduct. The law usually leans over backwards to find a K
acceptance, rather than a tort. So if there is a K, then P would have to hook up sewer lines.
2) The conduct is not acceptance. So P can sue either under tort, quasi-K, or K. If P sues
under K, then the result is the same.
Only if P sued in tort, would you say there is no K. Since P sued in K, then therefore, we say
there is a K between the two.
20) Termination of the Power of Acceptance
A revocable offer creates a power of acceptance. That power may be terminated in a variety of ways.
a. Lapse of time
i. An offer may expire by the lapse of time.
ii. Some offers have a time limit, otherwise it will expire after a RT.
iii. Or it may expire after a certain event.
iv. In a face to face conversation or a telephone conversation, the offer expires when the
conversation is over, if not stated otherwise.
1. stated otherwise is: go home and think about it.
v. EX:
1. Q: A sends an offer to sell oil t a fixed price at the end of the day. A and B knows the
oil is subject to rapid price fluctuations. Offer received and accepted after a rise in
prices.
b/c B knew about the price fluctations, it should be assumed the length of the time of
the offer is short. So the RT of the offer is shorter than normal.
2. Q: City of Boston sent out reward offer in 1837 for crimes of arson. Then in 1841,
after a lapse of crime, the criminal is convicted. Is the offer still valid?
No. The purpose of the offer was to prevent crimes. So the RT of the offer would be
the time after the emergency of the arson stops.
3. Q: D offers a reward of $400 for the information leading to the conviction of the
person who set a specific fire. 4 years later, the crook was caught.
Yes. The purpose of the specific information is to catch the specific crook. Therefore
it is still meaningful.
4. Q: O makes offers to 2 people but says subject to prior sale. Thats fine b/c if
someone accepts, then the offer is void to all others.
5. Q: A offers to sell B land for $5000, the offer to be open for 30 days.
a) B replies immediatey, Ill pay $4800
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b. Effect of a Late Acceptance
i. One view the acceptance is an offer itself
ii. Second view offeror may waive the lateness of the acceptance
iii. Third view if offeror receives a late acceptance but could be argued as close to RT,
offeror must notify offeree, otherwise there is a K
1. this is like first view, where the acceptance is an offer, but treats silence as
acceptance.
iv. EX:
1. Q: A makes an offer to B relating to certain hay on June 14. Slightly after the passage
of RT, B sends a card of acceptance. Was there a K?
No one knows what RT is untillitigation. When B sends the acceptance, and A does
not object, the suspicion here is that something else happens, like a market shift. As
lawyer will try to get out of it by using the RT.
2nd RSTMT when offeror does not object, this is a fact the jury can use when
taking into account when determining RT.
Some cases say B is making the counter offer and A accepted it by silence. This only
applies if the time is not stated and it is just outside of reasonable time.
2.
c. Death or Lack of Capacity of the Offeror and Offeree
i. In most jurisdictions, a power of acceptance is terminated when the offeror dies.
1. This occurs even if the offeree is unaware of the death.
ii. Minority View Offeree must be aware of offerors death
iii. If B accepts before A dies, there is a K and the only question would be whether As estate
would have the defense of impossibility of performance.
iv. For adjudication of insanity
1. Majority View All offers are revoked
2. Minority View When offeree learns of the insanity, the offers are revoked.
v. EX:
1. Case: Swift & Co. v Smigel
Smigel was an adjudicated incompetent and was a guarantor of credit sales made
by swift to a nursing home. The agreement had been entered into long before
Smigel became incompetent. Smigel died and the nursing home went bankrupt,
and P sued estate of Smigel. Court dismissed action b/c found that incompetency
of offeror revoked offer whether or not offeree had notice. Reversed and
remanded.
This is the application of the minority rule. The majority rule says the opposite.
2.

d. Revocation
i. Most obvious way of revoking an offer.
ii. A revocable offer may be revoked at any time prior to acceptance.
iii. General Rule Revocation is effective when received.
iv. Exception some states say its effective when sent.
v. The offeror can reserve the right to revoke the offer without notice.
vi. When an offer is made to the general public, the power of acceptance may be terminated by
giving equal publicity to the revocation.
vii. However, if the offeror knows of the offeree who is taking action on the offer, the offeror
must communicate the revocation to that person.

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1. if offeror makes offer in newspaper and offeree sends in information, instead of
revoking the offer by newspapers, offeror should send the information directly to
offeree.
viii. Also be terminated by reliable information from 3rd parties that the offer is no longer
available.
1. 1st RSTMT said this applied only to land
2. 2nd RSTMT said this applied to everything
3. EX:
a. S makes offer to A
S makes offer to B
A accepts S offer
when B learns of As acceptance, the offer has been rejected b/c of indirect
revocation.
critical that the facts are true and the information is from a reliable source.
e. Rejection Counter Offer
i. A counter offer is both a rejection and a new offer.
ii. But if the offeree manifests such intention, a it is possible to propose a counter offer that
doesnt reject the initial offer.
iii. EX:
1. A makes offer to B for $5000
a. B says: Ill pay $4800 counteroffer
i. B says: Ill pay $4800 A says: cannot reduce price B accepts K
1. because when A repeats the line, it is a restatement of the offer.
b. B says: Will you take $4800 counter inquiry
i. B then can accept.
c. B says: Your price is too high comment on the offer
d. B says: I accept but I would appreciate it if you gave me the benefit of a 5%
discount acceptance plus a request for modification of the K
e. B says: I accept but I still insist you drive a hard bargain grumbling
assent
f. Supervening Death, Destruction or Illegality.
i. The power of acceptance created by an offer is terminated by the death or destruction, prior
to acceptance, of a person or thing essential to performance of the L
ii. It is also terminated by illegality supervening between the making of an offfer and its
acceptance.
iii. EX:
1. Q: offer to work as a secretary. After accepting, the secretary dies. Therefore there is
no K.
2. Q: B offers to buy chemicals from S. While offer is open, new law says chemicals
are illegal. Therefore the offer is terminated, and S can not accept.
21) Acceptance Varying From Offer
a. The Common Law Rule
i. EX:
1. A makes a written offer to B to sell him Blackacre. B replies: I accept your offer if
you can convey me a good title. K?
Yes. a good title is implicit.

b. UCC 2-207
i. EX:
1. Case: Hill v Gateway and Klocek v Gateway
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a. These two cases involve the idea when a customer gets the computer, he has a
specific amount of time to accept the goods and terms or else he has to reject
it. If the customer accepts the goods, then the terms follow and he has to go
through arbitration.
In Hill, it is construed that the seller is making the one and only one offer.
The buyer is accepting it (by silence), and since the buyer did not reject it
within 30 days, it is set he accepted.
In Klocek, it is said that buyer made the offer, seller sends back out the item.
When B accepts it, the new term do not fall b/c of 2-207.
b. Case Specht v Netscape
i.
22) Effect of Part Performance on an Offer to a Unilateral K
a. Can an offer to a unilateral K be revoked or changed after the offeree has partially performed?
i. Three views
1. Classical: offer may be revoked at any time before completed performance of the act
requested by the offer.
2. Second and Obsolete View: A Bilateral K is created when offeree begins to perform.
3. Third and Prevailing view: the offer becomes irrevocable once offeree beings to
perform.
a. Offeree is not bound to complete the performance.
b. But performance must be completed within the time allowed or RT if not
said.
c. Remember: Offer is irrevocable after START OF PERFORMACE, mere
preparation is not enough.
d. Also if performance requires the cooperation of he offeror and such
cooperation is withheld, tender of part performance is the equivalent of part
performance.
b. Modern approach to Interpretation of Offers.
i. traditional approach (we are talking about manner of acceptance)
1. if it is an offer to unilateral K, we are looking if it can be accepted by performance,
or promise or both.
2. Traditional, only a single manner is invited, unless explicitly said otherwise.
a. Offer to a bilateral K can only be accepted by promise.
b. Offer to unilateral K can only be accepted by performance itself.
3. Therefore, most offers fall into one of these categories.
4. Very rarely was the offer indifferent
a. EX: you accept this offer by either performing the work or promising to do
the work.
ii. UCC and Second Restatement
1. More realistic. That offeror do not focus on manner of acceptance. Any reasonable
manner of acceptance is fine
2. Offeror is concerned with the bargain.
3. Tradition assumption is now reversed.
a. Those very rare categories, where both (performance and promise) can
accept, is now the most common
4. When a reasonable manner of acceptance is fine.
5. The idea is the offeror is considered indifferent to the manner of acceptance.
c. EX:
i. Case: Petterson v Pattberg

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1. D owed P money. P said If you pay it off totally now, Ill accept less money. D
went to Ps house and then knocked on his door, saying Im here to pay back your
money. P said, I revoke.
The dispute is: What is the performance?
3 views:
1) Completed act of payment (most tenable)
requires the cooperation of the person being paid. Tender money and take the money
2) Everything the paying person can do to pay. That is tender the money.
Q: What more do you need to do besides tendering the money, aside with the present
ability to do so?
You have to SHOW THE MONEY. This didnt happen b/c the door was still closed.
3) An Offer to perform, with the present ability to do so. (least tenable)

The Dissent says 3 is enough. The majority says 1 is necessary. The classical view is
what the majority said is necessary. Patterson v Pattberg goes with the classical view.
The Offer can be revoked anytime before full performance.
ii. Q: A says to RR, If you extend your lines to my property, I will pay your company $5000.
When RR extended the lines halfway, A revoked the offer. Should the RR continue to extend
its rails? Does RR have a COA for breach of K with A?

Key feature:
Tenable view: offeree is never bound to an unilateral K.
The only way that a K would exist is by performance.

The RR is free to start and stop. Now A is trying to revoke.

Q: Can A revoke its offer after RR have started to perform?


It seems fair to allow RR to finish. RR has relied on the promise. RR has reliance on the
performance. A specific form of reliance: actual performance. Not starting to prepare for
performance but actual
so RR has a RT to complete the time.
This is the prevailing view in both restatements.
This creates an option contract. The option is with the RR to complete the task.

Classic Approach/Logical Approach


Is the Petterson v Patberg.
Where the offer is a unilateral K, offer can be revoked anytime before full performance.

Q: Does RR have a cause of action for breach of K against A.


Both restatements, section 45, that beginning of performance creates an option contract.
So RR has a cause of action against the breach of the option K. Under Petterson v Patberg,
there is no K, so no breach.
iii. Q: Mortgagee agreed to accept a smaller amount than the total mortgage deby in
satisfaction, if mortgagor would pay it within 90 days. In reliance on the promise, mortgagor
completed a bank loan. Mortgagee revoked.
Only beginning of performance would create the option K. Completing a bank loan is not
considered beginning of performance.
iv. A appoints B as her agent for 90 days to sell her property for a certain %. B spends time and
money in trying to sell. A sells property, without B, and B sues.

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Remember that an option K is only created at the beginning of performance. What was
bargained here was that B should perform by selling As land. Not just advertisements, actual
sale. Since B did not start to sell As land, there is no option K, therefore there is no breach.
23) Time of Acceptance of an Offer to a Bilateral K
a. Parties at a Distance
i. Revocation and a rejection are effective when received.
ii. Acceptance, relies on the mailbox rule.
1. Applies even if the communication has been lost.
2. The qualification that the acceptance must be dispatched in a proper manner.
iii. Does not work when the offer prescribes the exclusive place, time or medium of acceptance
the offer controls.
1. 1st RSTMT: in the absence of contrary indications, the offer authorizes the means of
communication used in transmitting the offer and any other means customary at the
time and place received.
2. 2nd RSTMT and UCC: changed from what is authorized to what is reasonable.
iv. Despite the emphasis on reasonableness, the offeror remains the master of the offer and can
insist on a particular medium of acceptance.
v. If Offeree uses an improper medium of acceptance, then acceptance is only effective when
received, and not when mailed.
1. 2nd RSTMT exception: even if an unreasonable method of acceptance is utilized, it is,
nevertheless, effective when sent provided that it is seasonably dispatched and
provided it is received within the time a seasonably dispatched acceptance sent in a
reasonable manner would normally have arrived.
2. The same would go if the transmission were not property addressed.
3. Otherwise, the acceptance is effective on receipt.
vi. IF:
1. Rejection send, acceptance sent
a. Rejection received, acceptance received no K. the acceptance however is a
counter-offer.
b. Acceptance received, rejection received K
2. Acceptance sent, rejection sent, rejection received, acceptance received
a. Classical view no K
b. 2nd RSTMT K
c. Same thing would occur if acceptance was receive first.
3. Suppose B sends out acceptance by mail, then sends rejection by fax. A receives
rejection by fax, then sells car to C, then receives acceptance by mail.
a. Reliance would cover this. There is a K, but a non enforceable K.
vii. EX:
1. Case: Brackenbury v Hodgkin
Mom is owner of a home and is getting old. She writes to P saying that if you come
and help her, she will give P the farm after she dies. P moves and helps her. Mom did
not like P after they moved, so she sold the house to son. Son is trying to kick P out
of the house.
We are assuming moms offer was to a unilateral K.
1) Minority/Classical view: She can revoke before full performance. That is she can
revoke the offer.
2) 1st, 2nd RSTMT: Offer is non revocable after beginning of performance.

offer asked they: 1) move and 2) take care of mother

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Difference between unilateral K and option K
In a uni-K, itll become a K when accepted by full performance
Option K is that there is no full performance yet, but the offer has become
irrevocable. There is a condition that the performance be completed.

If the offer was ambiguous as to what the offer was to what type of K (either bilateral
or unilateral), then it is presumed to be bilateral.
Therefore, when D moved and took care of Mom, it could be implied in fact that D
promised to stay for the rest of Moms life.

2nd RSTMT would say any means of acceptance towards an ambiguous offer is fine.
So when D moved, it was a K.

If Petterson v Pattburg was the rule of law, the only way to argue for D is that when
they moved, it is the FULL PERFORMANCE of the offer, and the careing for the
mom is the condition precedent before D was to receive the house.

2. Case: Cantu v Central Education Agency


Aug 17, P resigned by hand delivering letter. Received Aug 20. Same day, sent out
via mail acceptance. On Aug 21, P wanted to withdrawal letter.
Note the medium sent out on 20th is not the same type of medium P used to deliver.

Prescribed means that the offeree MUST use a certain medium to accept.
If it is non prescribed, then
1st RSTMT say any that if the medium is authorized, then mailbox rule works
if the medium is unauthorized, then mailbox rule doesnt work
2nd RSTMT say that reasonable medium will work with mailbox rule provided it is
addressed and sent correctly.

Proper Medium:
R1d- any authorized medium or any customary medium works- this caused
conflict.
UCC 2-206(1) & R2d- Any reasonable medium in the circumstances. It is effective
when put out of the possession of the offeree. But offeror is still master of the offer
and may insist on any medium he wants.
Acceptance by mail is ordinarily reasonable for parties at a distance unless need
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faster mode.
Mail even proper where offer was by telegram.
Acceptance of offer made by mail, with a more rapid means is acceptable.

3. Case: Fujimoto v Rio Grande Pickle Co.


a. Ps were big execs at D and were unhappy with their ks and threatened to
quit. D gave them new Ks to sign that gave them 10% bonus of profits. Ps
signed but never returned Ks and remained there for 14 months. P and D
had discussed bonus many times. D refused to pay. Found for P b/c no
particular mode of acc. was specified. The court found that continuing to
work and discussing the terms of the K with D was sufficient evidence of acc.
by P.
Here, it was not stated how the signed K needed to be accepted. So therefore
any reasonable method of acceptance is fine. Add to that the fact that they
stayed on and worked. Therefore there is a K.
4. Q: B sends an offer to Y stating you can accept this offer only by signing your
name on the line provided below my signature. Y sends a letter of acceptance
NO K. The offeror is master of the offer and specified a specific and exclusive
manner of acceptance.
5. Q: Seller mailed a letter offering to sell goods that he was prepared to get from a 3rd
party. The letter said, please wire at once so that I can make a deposit and close
with him. B called and accepted on the phone. Is there a K?
Yes. If the offeror does not specify the medium as exclusive then any reasonable
medium is acceptable. This is a similar medium and even faster, so there is no
reason for it not to be binding.
6. Q: A writes to B: If you will paint my fence next week, I will pay you $200. B
paints but not in As presence. Is there a K?
Under traditional view, this is considered an ambiguous offer therefore going
towards bilateral offer, therefore there is no K.
Under 2nd RSTMT, if it is ambiguous, then any means of accepting is fine.
7. Q: A to B: If you paint my fence next week, I promise to pay you $200. B replies
Ill do it. Is there a K?
Under common law, no. It is asking for a promise. Under 2nd RSTMT, it is treated as
indifferent and therefore any form of acceptance is fine as long as it is not specified
by the offer.
8. Q: P sends D requesting the prompt shipment of certain items. D sent back a promise
to ship the goods. K?
Under the UCC, yes. Any form of acceptance is appropriate if not specified by the
offer. Under common law, no.
9. Q: B sends S a purchase order for 200,000 blue bottles at $1 each. S responded by
shipping 200,000 clear bottles at 90 cents each. B accepted the bottles, notified S of
the breach and sued.
At common law, S made a counter offer to sell the clear bottles. If B doesnt accept
the bottles, then S is stuck with the bottles at Bs location. If B accepted the bottles,
then B has to pay whatever S wants for the clear bottles.
called the reverse unilateral trick.
UCC changed this in 2-206. Under 2-206, when S sends the clear bottles, he has
accepted the offer for blue bottles. Therefore it is both a breach and acceptance with
the same move.
B has the normal remedies against S.
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S can protect himself if he can get a seasonable notification from B that B will accept
the non conforming goods.
10. Q: B sends S a purchase order which amount to an offer to buy goods. S begina to
execute Bs order. B knew of this. A) can B cancel? B) Can B cancel if he was
unaware of the beginning of performance?

2-206 (2) Where the beginning of a requested performance is a reasonable mode of


acceptance an offeror who is not notified of acceptance within a reasonable time may
treat the offer as having lapsed before acceptance.

So in a) B knew of the beginning of performance, therefore he can not cancel.


in b) it depends on a reasonable time. After a reasonable time, even if S began to
perform, but gave no notification to B, B can cancel.
11. Q: This offer shall be accepted by signing in the appropriate place and by returning
it to me. B called A and stated he accepted. K?
Middle of the road. shall is not the same as only. Courts are reluctant to say the
prescribed medium is the only one, unless it is very clear.
12. Q: your acceptance is effective provided when it is received P made acceptance,
but it was lost in the mail.
there is no K. the D must receive the acceptance for it to be effective. D just changed
the mail box rule.
13. A: A makes B an offer saying to be accepted by mail or messenger. B sends
acceptance by his employee. A) when does K arise? B) What if B sends private
courier service?
A) if A sends private employee, it is effective when received. Theory is the employee
is part of yourself.
B) If send private, then it is effective when dispatched. b/c it is out of Bs hands.
NOTE: If the offer wanted only a mail or messenger,
If send employee no K
if send private messenger K on sent. Mailbox rule applies.
b. Parties in the Presence of One Another
i. When the parties are in the presence of each other an acceptance is operative only if the
offeror hears it or is at fault in not hearing.
1. but even if offeror is at fault for not hearing, there still would be no contract if the
offeree knew or had reason to know offeror had not heard.
ii. Telephone Conversations are governed differently
iii. EX:
1. Q: A calls B on the telephone. A makes offer, B says accept, but A did not hear it
through the fault of the telephone company. Is there a K?

We use the law of instantaneous communication to govern, rather than mailbox rule.
As long as A does not hear, and its not As fault in not hearing, then there is no K.
also if A is at fault, and B knows A is not hearing, there also is no K.

If you apply mailbox rule, a K was formed. But most cases that apply the mailbox
rule apply it to determine which jurisdiction the law would be applied, not if there
was a K in the first place.
24) Mistakes in Transmissions by an Intermediary
a. If A wants to sell bike for $110, and tells a telegram to send it, but the telegram send it at $100 and
B accepts at $100, is there a K?
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i. Majority view, yes for 3 reasons
1. The telegraph company is As agent (not exactly true)
2. Better business conditions (debateable)
3. B had no reasons to suspect that A didnt intent to sell at $100.
a. Unless B had reason to know that the transmission was not correct, there is an
offer at $100.
ii. Minority View, no
1. The telegraph agent is a contractor of A and A is not liable for neg. on part of
contractors.
b. Once it is determined which party is to suffer a loss, perhaps they have case against the telegraph
company.
c. EX:
i. Q: S made offer to sell oranges at $2.60 a box. Transmission made error and said $1.60 a
box. B knew that oranges cost $2.30 a box. B buys 100 boxes. What results?
no K. B knew of the cost o oranges. A RP test in the position of B would make the offer
void.
Note: if the transmission said $3.60 a box and B accepted, then it would be good K b/c it
benefits S.
ii.
25) Option K Irrevocable Offers
a. What Makes an Offer Irrevocable
i. Option K is used as an irrevocable offer.
ii. One way of rendering an offer irrevocable is by the offerors acceptance of a consideration
in exchange for a promise to keep the offer open.
iii. An option may be binding even without consideration.
1. under old common law, if an offer was made under seal, it would be irrevocable.
iv. New York now has a law, saying that if the offer is in a signed writing saying it is
irrevocable, it is irrevocable despite the fact there is no consideration.
1. Same provision in the UCC
v.
b. Nature of an Option K
i. An option K is both a K and an offer.
ii. Once in effect, the ordinary rules of offer/acceptance applies
c. Termination of Irrevocable Offers
i. Introduction
1. irrevocable offer terminated by:
a. lapse of time
b. death or destruction of a person or thing essential for the performance of the
K
c. supervening legal prohibition of the proposed K
2. NOT terminated by:
a. Rejection
b. Revocation
c. Supervening death or incapacity of the offeror or offeree not essential for the
performance of the K
3.
ii. Lapse of Time
1. the offer is only good for a certain amount of time.
a. UCC law.
i. 2-205 Firm Offers
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1. under the UCC, the offer is irrevocable for the time stated and
for a RT but not more than 3 months.
2. Distinguish the power of acceptance with the power of
revocation
3. Only deals when no consideration is involved.
4. EX:
a. Offer to buy goods, irrevocable for 6 months on signed
writing.
The offer is irrevocable for 3 months, then it becomes
revocable. But buyer can still accept.
5.
b. NY general obligations law
i. This law covers everything else aside from goods.
ii. It covers items on a signed writing for the time stated, and if none is
stated, it covers it for a RT.
iii. Death or Destruction ect. and Supervening Legal Prohibition
iv. Revocation and Rejection
1. revocation does not terminate an irrevocable offer
2. Rejection
a. Traditional View rejection terminated an irrevocable offer
b. Modern view rejection should not terminate an irrevocable offer b/c the
offeree has paid a consideration for it.
i. However, if offeror had relied on the rejection, the offeree can not
accept it later.
v. Supervening Death of Incapacity of the Offeror
d. When Acceptance of an Irrevocable Offer is Effective.
i. No mailbox rule b/c the offeree of an irrevocable offer does not require this protection.
ii. Acceptance is effective upon receipt, unless the offer states otherwise.
e. EX:
i. Q: S to B: I will sell you real property for $5000 and not revoke for 5 days.
NOT irrevocable. There needs to be a payment for it to be irrevocable. A naked promise is
not binding. The option has to be supported by consideration.
ii. Q: A makes offer to B by mail which states that its open for 30 days:
Before B accepts, A calls and revokes. offer is revoked
the mailing said it is an irrevocable offer offer is irrevocable
mailing said it is a firm offer offer is irrevocable
mailing said that I must have your answer within 30 days means nothing
iii. Q: in June 1980, L agreed to lease certain commercial premise to T for a term of 10 years. A
clause of the lease gave T a right of first refusal to purchase the property during the term of
the lease. This clause provided that if L decided to sell the property and found a bona fide
purchaser ready to buy it, L would give T immediate notification of the terms of the
proposed sale. T then had the right for 30 days to purchase the property on the same terms as
those negotiated with the third party purchaser. On June 24, T received a letter from L
notifying T of the proposed sale to C, giving T 30 days to accept to purchase on the same
terms. On Julu 22, T sent out the notice of acceptance, which was received August 6.
Right of First Refusal:
2 things must happen before you buy:
1) L must want to sell
2) someone must make an acceptable offer thats accepted by L.
In an option situation, you have the first option of purchasing, and you have the security to
35
know you can buy it.

But remember, this is an irrevocable offer, therefore mailbox rule DOES NOT APPLY.
Therefore too late on the acceptance.

26) Common Law and CISG Some Comparisons.

IV Consideration
1. Introduction
a. Consideration is the glue that binds the parties to a K.
b. Donative promises generally are not enforced.
i. Historically, there has been a way to enforce donative promises by the use of the seal
c. Now donative promises are enforced maybe under promissory estoppel.
d. A gatuitous promise, made in a commercial relationship may be enforced.
e. Lack of consideration is not ground for avoiding an agreement that has been fully performed.
f. Common law usually requires that promises be made for consideration if they are to be binding.
g.
2. What is Consideration?
a. The Promisee Must Incur Legal Detriment
i. The promissee must do or promise to do what the promisee as not legally obligated to do.
ii. The detriment may be give by a person other than the promisee and run to a person other
than the promissor.
iii. Legal detriment to refrain from doing something that you are legally obligated to do, or if
you are doing something affirmative, doing something you are not legally obligated to do.
b. Detriment Must Induce The Promise
i. The detriment must induce the promise.
ii. The promisor must have made the promise because the promisor wishes to exchange it, at
least in part, for the detriment to be incurred by the promisee
iii. The promisor has manifested an offering state of mind looking to an acceptance rather than a
gift making state of mind.
c. The Promise Must Induce the Detriment
i. The promise must induce the detriment. This means as we have already seen that the
promisee must know of the offer and intend to accept.
ii. The promise must induce the promisee to exchange the promisees conduct for the promise.
1. thats why the offeree must know of the offer and manifest an intent to accept
d. The essence of consideration is legal detriment, that has been bargained for by the promisor, and
exchanged by the promisee in return for the promisors promise.
e. EX:
i. Q: A to B If you paint my house according to my specifications, I promise to pay you
$5,000. B performs. A is the promisor and B the promisee.
B has incurred legal detriment. B has performend an act (painting) that B was not legally
obligated to perfom It is a reasonable conclusion that the promisor was exchanging a
promise to pay for the act of painting and that the offeree painted knowing of the offer and
intending to accept.
ii. Q: A promises B that A will sell and deliver a set of books to B if C pays $150 for the books.
C pays, but A does not deliver. Can B sue?
C is invited to accept the offer. Note here that the promissee and the offeree are different.
The Promissee (B) did not suffer any legal detriment
C did suffer and therefore is the offeree. Legal detriment is always suffered by the offeree.
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Under American Law, third party can sue.
Under British Law, only the offeree can sue.

3. Motive and Past Events Distinguished


a. If mom says: in consideration of the fact that you are not as wealthy as your brothers, I promise to
pay you $5000 not enforceable because the promisor has neither requested nor induced
anything in exchange
b. If mom says: in consideration of the fact that you named your child after me, I promise to pay you
$5000 not enforceable b/c promise didnt induce the detriment.
c. Thats why we usually say past consideration is not consideration
d. EX:
i. Case: Hamer v Sidway
1. Uncle promises to pay nephew $5000 if he refrains from drinking, using tobacco,
swearing, and playing cards and billiards for $ till he is 21. This was a K even
though it could be argued that uncle induce the promise for the benefit nephew and
his motives were altruistic.
The forbearance of something is consideration, even if it is beneficial to the nephew.

A) the nephew refrained from doing the acts


b) The uncle told the nephew to not do those acts
c) The nephew didnt do the acts b/c of what the uncle told him

B/c there is a, b, and c, there is legal detriment.


ii.
4. Adequacy of Consideration
a. As a general rule, courts do not review the adequacy of the consideration.
b. Courts have believed that it would be an unwarranted interference with freedom of K if they were to
relieve an adult party from a bad exchange.
c. EX: Haigh v Brooks, when D contracted for the return of a guaranty, it was ineffective. D was
bargaining for a piece of paper.
d. Another K which courts might look at is a K to exchange a specific amount of money for a lesser
amount.
e. EX:
i. Case: Gottlieb v Tropicana Hotel and Casino
1. P went to the casino with her card. P waited in line for a chance to win a million
dollars. P then spun the wheel, and she claims it stopped at the prize, but the other
person said it didnt. Casino is trying to get out this by saying there is no contract.
a) She swiped the card
b) The casino bargained for her to swipe the card
c) She swiped the card b/c of the promise.
5. Conditions to Gift Distinguished
a. Case: Kirksey v Kirksey D wrote to his sister and said that he would help her if she would come
see him. She moved on to Ds land incurring expenses. Court said that it was a gift, that moving was
needed to accept the gift, and that he was not bargaining for her to come down on to his land.
i. 2 points
1. Although adequacy of detriment is not important in itself, it is relevant in
determining whether the promisor manifests a gift making state of mind or contract
making state of mind.
2. whether the happening of the contingency is a benefit to the offeror
a. if she took care of the brother, then it can be argued it was K.
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ii. A) She moved, detriment
B) Did the brother bargain for her to move or was it for a gift.
The court found that he didnt bargain for her to move, but rather moving is required to
accept the gift.
C) She moved on the promise made by her brother

So there is A and C, but no B.


May have a case under promissory estopple or something else, but she did not provide
consideration.

b. Case:
6. Of Sham and Nominal Consideration
a. Small Consideration for an option or guarantee K (consideration can either be paid or not paid)
i. Majority view does not equal consideration
ii. Minority view does equal consideration
iii. 2nd RSTMT A promise to be a surety for a performance of a contractual obligation
made to the oblige is binding if the promise is in writing and signed by the promisor and
recites a purported consideration. this is for option contracts.
b. Small considerations for real K
i. 2nd RSTMT and Majority View no K
ii. 1st RSTMT Should be allowed (this would take place of the seal)
c. EX:
i. Q: D gave property to P and stated that it was a gift. D agreed to continue to pay off the
mortgage on the property. At the same time, one of Ps brothers gave P a dollar which she
gave to the father.
Q: What happens if D didnt make a contractually binding promise to pay off the mortgage?
Then D doesnt have to pay. The owner has to pay. But if she doesnt pay the mortgage, and
the owner doesnt pay the mortgage, then the bank will foreclose on the house.
Go through:
A) did P suffer legal detriment. Yes. a dollar
B) Did P bargain for the dollar? No
C) Was dollar given for the promise? No.

Therefore there is no consideration.

Suppose: in consideration of a dollar paid to me, I promise to pay off the mortgage.
This is sham consideration, and therefore the 2nd RSTMT doesnt apply. 2nd RSTMT only
applies to option K.
ii. Q: Rcorp owned a restaurant. S is supplier. D is the principal shareholder. D said For an in
consideration of $1 paid by S I hereby guarantee to S any indebtness of Rcorp to the extent
of $10000.
At the time, R was not indebt, but later became indebt for $5000. Is D liable?
What if R was already in debt of $5000?

This is a guarantee K.
Majority view, sham consideration is never ok.
Under the 2nd RSTMT, sham consideration is ok for guarantee contracts for a fair or
reasonable amount of time.

What if R was already in debt of 5000.


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If R doesnt order anything, P has to rely on the analysis above.
If R does oreder one more pot, one good consideration is all you need. So one order of $50
is good for all the monies of $5050.

7. Mixture of Gift and Bargain


a. If A, is moved by friendship, and sells a $5000 horse to B for $1000, that is a valid K.
b. Question is how to determine if the K is of a mixture of gift and bargain, or just gift
i. This is a question of fact.
c. 2nd RSTMT if the promisee does not know or does not have reason to know that the promisor is
introducing detriment into the transaction as a pretense, then the promise should be enforced under
the objective theory, but if it is clear from the facts that the consideration is merely pretense, then
the promise will not be enforced.
d. Unless both parties know that the consideration is mere pretense, it is immaterial that the promisors
desire for consideration is incidental to other objectives and even that the other party knows this to
be so.
e. EX:
i. Q: A and B entered into a K which A would do work for $10000. After completion of the
work, B said You did such a good job I will give you $5000 more. B paid $15000. Can B
get back the money?
There is no consideration for the $5000 extra and therefore it can not be enforced.
If B paid the $15000, he can not get any money back b/c it is a completed gift.
8. Surrender of an Invalid Claim as Detriment
a. Early view Surrender of an invalid claim cannot constitute detriment b/c a person has no right to
assert an unfounded claim.
b. Modern view the surrender of an invalid claim serves as consideration if the claimant has
asserted it in good faith and a reasonable person could believe that the claim is well founded.
c. 1st RSTMT requires good faith that she doesnt know and reasonableness requirement that she
could win.
d. 2nd RSTMT it starts with the question of: would a RP believe the claim was valid? And if so,
there is no inquiry of good faith. Important to note what is bargained for.
e. EX:
i. Case: Fiege v Boehm
1. D promised to pay P her expenses and lost income and ect. and to support the child.
D asks for exchange that shell not bring the lawsuit against him for bastardy. She
will refrain from the suit as long as he makes payment. So his motivation is not to be
sued and so his mother doesnt find out. After child is born, he gets a paternatity test.
And knows that the child is not his. And then he stops paying. So when he stops
paying, she sues him for bastardy, the result is she loses. b/c he cant be the father.
Having lost the case, that he is not the father of the child, so then she sues him in K,
and she wins.
Q: how should the father have phrased the contract so that he is protected.
in the event the child is mine, I promise to pay. then the invalid claim issue goes
away. It only protects him from asserting a valid claim.

Q: suppose he said, I will pay, if you hand over a release to me, and she hands over
a release, here is a slight argument to be made, that he is bargaining not for the
claim, but only for the piece of paper.
And if thats what is really being bargained for, then you dont have to worry if the
claim is valid or not, so you only have to think that the piece of paper is the actual
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bargain.

9. The Pre-Existing Duty Rule


a. Introduction
i. If a person performs or promises to perform something that he is obligated to do, or not do,
then there is no legal detriment.
ii. It can be defeated in certain areas like a K for modification
iii. NOTE: UCC Eliminated the pre existing duty rule in ____ (find section)
b. Pre-existing Duty Rule: Duties Imposed by Law
i. If the law imposes a duty on you to do something, that duty can not be used as
consideration.
c. Pre-existing Duty Rule: Contract Duties
i. If A hires B to do work for $500 and later pays $100 more, the extra amount is actually
supported without consideration if B does not incur any more responsibility.
ii. 3 contract method is ok If parties rescinded their original K, then made a new K, then
entered into another contract, the extra payment is ok.
iii. Exceptions:
1. Some courts have held that rescission and new contract at the same time is
enforceable.
a. Where the rescission and the subsequent agreement are simultaneous the pre
existing duty rule is violated b/c the parties clearly intended the recession to
be contingent on the new contract, which in turn is contingent on the
rescission.
b. 2nd RSTMT Modification is upheld even without consideration if the
modification is fair and equitable in the view of circumstances not anticipated
by the parties when the was made and not yet full performance on either
side.
2. EX:
3. Case: Schwartzreich v Bauman
a. P was employed by D. D was paying P 90 dollars a week. Then D gets an
offer to get paid for 115 a week. Then D said Ill pay you 100 a week if you
dont go. P accepted.
NOTE: This is NOT a hiring at will. b/c if it was a hiring at will, there is no
pre existing duty issue.
Here, they allowed the recission and the new K to occur at the same time.
NY does not allow this.
4. Case: Angel v Murray
a. P was working as a trash collector for D. P was paid a set amount, but later
went to D b/c he needed more money b/c of the extra houses that were being
built. He did this twice, for a total of 20,000.
Trial judge said that you cant be paid more money to do the same amount of
work, and it was held as a violation of law.
Court used the law as given by the 2nd RSTMT and if the modification is fair
and equitable in the view of circumstances not anticipated by the parties
when the was made and not yet full performance on either side.

d. Pre-existing Duty Rule: Three Party Cases


i. A and B have a K where A has to ride the horse. C comes about and offers A more money if
A should perform.
1. Classical View no K between C and A b/c A has a pre existing duty to ride.
40
a. However, if C told A not to rescind the right to ride, then there is legal
detriment. b/c A always has to right to ask to rescind the K.
2. Modern view (both 1st and 2nd RSTMT) Cs promise is enforceable on both
unilateral and bilateral.
a. b/c As duty is to B, not C
b. less likelihood of duress or unfair pressure.
3. But modern view not effective for public officer.
ii. EX:
1. Case: Di Cicco v Schweizer
a. D entered into agreement with A in which he contracted to pay his daughter,
who was engaged to A, $2500 per year for life with the first payment to be
made on the wedding day. D made payments for 10 years. P held the rights
to the k and sued to recover. D argued that the agreement lacked
consideration. Court ruled for P holding that consideration existed and b/c it
favors marriage settlements.
Cardozo says that the offer from the father is for the daughter to not rescind
from the wedding. Therefore:
a) forebear from recession
b) is the father bargaining for this? Probably. The formality of the language
made Cardozo think that it was a bargained for.
c) It has to be given in exchange for the promise. Did the offerees intent to
accept?
The count knew of the offer, and so did Blanch. Did they intent to accept?
Cardozo imputes that they did.
Therefore the K is valid, b/c it is a K to not rescind from the marriage.
10. Part Payment Cannot Satisfy a Debt
a. Foakes v Beer case.
i. P had obtained a judgment against D for $2000. P and D agreed that D would pay it off
gradually without interest. After D pays it off, P sues for interest.
ii. Held for P. b/c part payment of a debt can not satisfy an entire debt.
iii. Only applies to liquidated debt and nothing else.
iv. If anything else is given in addition to the debt, like a horse, hawk, or robe then Foakes v
Beer may not apply.
v.
b. Minority View part payment of a debt, accepted in full payment discharged liability for the
balance.
c. 2nd RSTMT holds that if unforeseen hardships make full payment more onerous than anticipated,
acceptance of part payment will discharge the balance.
d. Injurious reliance on the credits promise to accept part payment as whole could result in
enforceability of the part payment
11. Consideration for an Accord and Satisfaction
a. Introduction
i.
b. Discussion
i. Foakes v Beer only applies to claims in which the amount is in dispute.
ii. If there is a dispute to the amount or even some other question (like method of payment),
then the claim is unliquidated.
iii. There needs to be good faith in all of this
iv. Accord offer to give or accept a stipulated performance in the future in satisfaction or
discharge of the obligors existing duty plus an acceptance of that offer.
41
v. Satisfaction have the accord been carried out.
vi. When AAS is presented, think of 3 analysis
1. Have the parties gone through a process of offer and acceptance? (accord)
2. Has the accord been carried out? (satisfaction)
3. Is the AAS supported by consideration?
vii. An offer of accord must make it clear that the offeror seeks a total discharge. If this is not
done, any payment made and accepted will be treated as part payment.
c. Cases
i. Case 1: The debtor, D, owes C, the creditor, $100 here and now undisputable due; the claim
is liquidated. D sends a check for $50 marked payment in full and C cashes the check.
1. There is no consideration for the discharge of the balance. You have assent by both
parties, the D is offering the money on certain condition offered as full payment. C
assents to it by cashing the check.
2. You have offer and acceptance on a K of accord. You have offer and acceptance.
3. Accord means that a certain performance is accepted as a substitution for the original
claim in the creditor.
4. So b/c of no extra consideration, C can sue for the remaining balance.
ii. Case 2: Assume the same facts as in Case 1 but further assume that there was a good faith
dispute between the two. C believes he should pay $100, D believes he is owed $50. D sends
a check for $75 and marks it payment in full. C cashes it.
1. Is there consideration for the accord and satisfaction here? Yes. b/c the D is giving up
his claim for tendering $25 more.
2. So when C sues D for the balance, D would assert an affirmative defense called
accord and satisfaction, this would substitute for the original claim, and the parties
have agreed to settle it.
3. The very same thing that is the acceptance of C is the performance of the C who
cashes the check.
4. This is called an accord and satisfaction. There is never an initial agreement to take
less, then followed by performance. Here, the AAS all goes together, it is all at one
time.
iii. Case 3: Same as above, however D sends a check for $50.
1. Most common fact pattern
2. The majority view is that there is a binding AAS. However, the policy favoring this
idea is strong. The result is favored, b/c of the policy favoring settlements.
iv. Case 4: P and D enter into agreement that specified the work to be done by P and that D
would pay $6000 when finished. On completion, D honestly complained that there were
defects. The parties discuss the matter and agree on $5500. D sends check for $5500 and P
cashes it.
1. there is AAS.
2. This is like the previous cases, but there is an initial agreement to take less.
v. Case 5: P owned a quantity of apples and requests D to obtain a purchaser, which D did,
collecting the price. P claimed the service was to be gratuitous; D claimed that there was an
agreement to pay 10% commission. P cashed a check for the reduced amount (given by D to
P) tendered in full payment by immediately protested to D that deduction was wrong and
brings suit for the rest of the payment
1. Initially, this looks like case 3, however D is not paying off Ds money. D is giving
back Ps money.
2. There is no AAS for policy reasons.
3. P must pay D with Ps money. D can not pay himself with Ps money.

42
vi. Case 6: D in exchange for Ps promise to do certain work promised P that P would receive
1/3 of the receipts of Ds dairy. Prior to this arrangement, P had been working for D on a
daily basis under there was due P the sum of $17.15. P received the $17.15 and signed that
this was received in full of all accounts and demands to date.
1. If the last performance is a separate/distinct liability, then payment of an admitted
liability is not consideration to discharge the separate and distinct liability.
2. This is like saying there is a new K for the new performance.
vii. UCC 3-311 revised, covers AAS by check.
1. The offer of AAS must be conspicuous
a. Conspicuous it is so written so that a RP to whom it is to operate ought to
have noticed it.
b. New York has not adopted the revised version of the UCC.
i. Under New York, creditors can cash the check and still sue for the
balance.
viii. New York General Obligations Law and UCC 2-209 (1)
1. under the NY statue, it says that you dont need consideration in NY for a promise to
modify or discharge an obligation. What is required is a SIGNED WRITING.
a. But signing the check when cashing it, is not considered a signed writing.
(this occurs in cases 1 and 6)
2. So in NY, although the UCC will not work, the NY general obligations law will
work.
3. Therefore, AAS does not work in NY, b/c it is not a signed writing.
4. but if Creditor wrote to D on a signed writing absolving D of his liability, under the
NY statute it will be absolved.
5. NOTE: Under NY, if you promise something to do something in return for past
consideration, it can be binding, provided it is in a signed writing and that the writing
has expressed the past consideration.

ix. UCC 2-209 (2) Modification of an oral/written contract


1. EX:
a. B------------S
book

Buyer has these right:


1) right of buyer to return for credit within 5 days of receipt
2) K can not be modified orally

Under COMMON LAW, 2 doesnt mean anything b/c you can just make
another K to modify the first K.
So if S told B he has 15 days to return the book, this is valid. B/c of 2-209(1),
there needs no consideration for modification of a K.

But under UCC 2-209(2), if B and S made the original K in a signed writing,
the only way it can be modified is if B and S are merchants and each signed
another writing modifying the parts.

So if S told B here that he had 15 days to return, then it is no modification.

43
b. Case: Kibler v Frank Garrett and Sons
i. P did work for D. P sent bill to B for $826. D sent check to P for
$444. In fine print on the back of the check, it said PIF. P cashed the
check w/o seeing the PIF clause. D alleges A&S. P sues for balance
due alleging lack of notice of offer of accord. Before a debt may be
extinguished by A&S, there must be a GF dispute. The dispute here
was not known to P.
The check had payment in full written on it, but it was too small for it
to hold
Also, the guy said, your bill is too high not I will not pay more
than this. Therefore there is no offer of accord.
x. UCC 2-209 (4) waiver
1. A waiver can be retracted by the same person who made it. So you see the retract
ability of the seller, unless it would be unfair for seller to retract it.

if B was returning books always on the 12th, S can not go back and sue B but must
allow reasonable time for B to return then later retract the waiver.
12. Problems arising in Bilateral K
a. Consideration in Bilateral K
i. The promise in acceptance is not the consideration, but the actual promised performance that
is the true consideration in a bilateral K
ii.
b. Mutuality of Obligation
i. Introduction
1. It is actually mutuality of consideration that is needed for a bilateral K.
ii. Unilateral K and Mutuality
1. No need for mutuality of consideration in a unilateral K.
2. offeree is never bound to do anything.
iii. Voidable and Unenforceable Promises and Mutuality.
1. a voidable or unenforceable promise is can be consideration for a counter promise.
a. EX:
i. An infant contracting with an adult. Although the infant has a
voidable K on his part, is still consideration on the adults.
2.
iv. Illusory Promises
1. an illusory promise is an expression cloaked in promissory terms, on closer
examination, reveals that the promissor has not committed to any act or forbearance.
a. EX:
i. when I feel like it
2. However, remember that the parties are free to contract as they like. So the 2nd
RSTMT has allowed the parties to give nominal consideration for option K.
3. EX:
a. A promises to pay $100 if B rakes lawn
i. No problem here.
b. A promises to pay a pre existing liquidated debt of $100 if B takes lawn
i. This is a void bilateral K. As promise is NOT illusory. This is a real
promise but pre empted by a pre existing duty.
c. A promises to pay B $100 to rake the lawn if I want to
i. That means its an illusory promise. If B accepts, it is a void bilateral
K.
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d. Case: Ridge Runner Forestry v Ann M. Veneman
i. Both sides had illusory promises in their K.
ii. Therefore it was no K.
e. Case: Miami Coca Cola Bottling Co v Orange Crush Co.
i. D agreed to give P exclusive right to sell crush in a certain territory.
The agreement was a perpetual license. P agreed to sell, bottle ,and
use best efforts. P could terminate at any time. D terminated. Court
found lack of MOO b/c promise by P was illusory. UCC does not
apply b/c most of case has to do with license agreement and only
small part is sale of goods.
B/c P can cancel at anytime, that makes it issusory and therefore the K
is void. But whatever Orange Crush did do, that can be terms as a
successful unilateral K forged out of a bad bilateral K.
v. Consideration Supplied by Implied Promise
1. Wood v Lucy, where a person must use reasonable diligence when otherwise the
promise might seem illusory.
2. UCC adopts this in 2-306 in output/requirement K where parties must use best
efforts.
3. 2-309 (2) states that a K that provides for successive performances but is indefinite
in duration is valid for a RT and may be terminated at any time by either party
4. 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 with notification is invalid if the operation would be unconscionable.
a. EX:
i. Suppose there was a 5 day notice written in.
1. Is that notice reasonable?
a. If yes, then it is ok
b. If no, then that term is striken, and that RT is put in.
ii. Suppose there was no notice written in. no time written down.
1. We assume that a RT for notice is required.
iii. Suppose that it says no notice is required.
1. This is invalid if the operation would be unconscionable.
2. if it is unconscionable, then RT is used,
3. If not unconscionable, then the UCC doesnt address that issue
and it goes to common law = void K.
a. Perillos view is that a promise should not be rendered
illusory simply b/c of a right to terminate.
iv. COMMON LAW requires notice, otherwise it is an illusory promise.
5. Basically 4 points:
a. An agreement that is silent to duration is valid, but terminates after RT.
i. Also may be terminated by reasonable notice. (good faith notice)
b. If the agreement provides that it may be terminated at any time reasonable
notice will still be required.
c. If the agreement states that it may be terminated at any time without notice
the issue is unconscionability.
i. If unconscionable, then term is stricken and RT is substituted.
ii. If not, then also think about consideration problem.
d. If time is specified (like 5 days) there might still be unconscionability
problem b/c unconscionability is judged at the time of termination (unlike 2-
302)
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vi. Are Conditional and Aleatory Promises Illusory?
1. Conditional promises are those like if it rains tomorrow
2. EX:
a. Case: Mezanotte v Freeland
i. P bought Ds land on the condition he can obtain satisfactory
financing.
This is a good contract, b/c it implies good faith that P will try to
obtain satisfactory financing.
vii. A Void K is not necessary a Nullity
1. forging a good uni K out of a bad bilateral K
a. Suppose A owes B $500. A makes deal with B saying A will pay off within
next 6 months if B doesnt sue A. B doesnt sue A , but A doesnt pay off B.
now B can sue A on As promise to pay off B, b/c although the bilateral K is
void (b/c of pre existing duty to pay off the money), it is treated like A
offered B a unilateral K. If you dont sue me for 6 months, I will pay B
performed, and therefore there is a valid K.
13. Requirements and Output K
a. Introduction
i. Requirements K B promises to buy whatever they need from S. S promises to sell
whatever B needs
1. Quantity Term is Bs requirements
2. B has the discrestion in this K
ii. Output K B promises to buy whatever S produces. S promises to sell whatever S
produces.
1. Quantity Term is Ss output
2. S has the discretion in this K.
b. Validity of Requirements K
i. Old Thought invalid b/c of no consideration
ii. Modern Thought Valid b/c buyer and seller say they will only deal with each other
iii. UCC 2-306
1. (1) the language does not apply to downward variations in quantity. The only thing
that would apply to is maximum quantity.
i. This idea is that B does not have any requirements. B can not be
forced to buy.
ii. But also B has a good faith measure to buy.
b. the buyer doesnt have to order anything as long as its in good faith.
c. B and S both have advantage in their respective K
2. (2) Exclusive dealing K
a. Both parties have same obligations, which is best efforts.
iv.
c. How much is a Requirements Buyer Entitled to Demand
i. At CL, 2 views
1. B only gets normal requirements
2. B gets actual requirements
3. Under common law, an estimate has no effect , except if made in bad faith, then it
becomes a maximum for the seller to provide.
ii. Under UCC
1. Limited to Bs good faith requirements
2. the estimate

46
a. the agreed estimate is to be regarded as a center around which the parties
intent the variation to occur
b. if there is no estimate or maximum stated in the contract, the buyer may only
demand any normal or otherwise comparable prior requirements.
3. B and S can agree to a maximum number of quantity to buy or sell.
iii. EX:
1. Case: Canusa Corp v Lobosco
a. D was working to collect newspapers. But D could not get enough newspaper
material. Court found that D did not use good faith in the K, that is, did not
take time to separate the newspaper from the trash, and therefore breached of
the K.
2. Case: Texas Gas Utility Co v Barrett
a. D contracted to buy gas from P. P was req to provide ways and means for
the provision of the gas but assumed no obligation as to quantity and quality
of gas. D refused to pay based on void bi-k theory of lack of MOO. TC
found for D. Reversed on grounds that P had obligation to provide and,
maintain facilities and equipment for the supplying of gas. This was not an
illusory promise by P b/c they were bound to provide what was available.
d. Diminution or Termination of Requirements
i. Can a B go out of business?
1. CL Different views:
a. B is free to change his business
b. B is held liable if he changed his business in bad faith
c. If B went out of business, it had to respond in damages
ii. UCC views:
1. B may go out of business in good faith
iii. Buyer has the good faith obligation to promote and sell the goods.
iv.
e. Non-exclusive Requirements K
i. Can be found as a requirements contract
ii. Usually requires prior dealing, usage of trade, comparable dealings with others, and past
performances to come up with obligations.
14. Must all of the Consideration be Valid
a. If A promises to paint for B, and B in exchange says, I will either give you $100 or I will pay back
the money I owe you, the K is void b/c B did not supply consideration for his promise.
i. 2nd RSTMT: if the chose of the alternative promises are in the promisee, then all of the
alternative performances are detrimental.
b. If A said I promise to give you my car if you promise to pay me the debt of $500 you owe and
paint my fence. The new detriment is enough to support both promises.
c. EX: (Non Competition Clauses)
i. Central Bank Agency v Ingram
1. This is a case about non competition clauses.
the Clauses must be reasonable in 3 elements:

1) Scope
for example if it collection agency, and accounting, and marketing. .ect. . .
2) Geography
This was for the entire US
3) Time
This was for 2 years.
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15. One Consideration will Support Many Promises
a. Q: D promised P that if P continued to deliver specified kinds of merchandise to Ds brother, D
would pay for all purchases, both past and present.
Here, D is responsible for all the items delivered. New consideration is enough to support old
consideration.
b.
16. Afterthoughts on Consideration

V. Duress and Statutory Changes


2nd RSTMT says:
1) bad faith threat to not perform K
2) There is no other reasonable remedy
There also needs to be avoidance promptly. As soon as deal is over, there needs to be protest of the deal.

Under the UCC, there needs to be good faith in dealing with each other. Therefore a modification in bad faith,
trying to extract more money, is not in good faith and hence is void.

Case: Roth Steel Products v Sharon Steel Corp.


D, when market was bad negotiated with P to sell a certain amount per month to P at a certain low price. When
market got better D raised prices and P was forced to comply. D fell behind on deliveries and said it was b/c of
lack of supply but was really b/c he was being paid more by another buyer. P sues on basis that modification was
made in bad faith and under duress.

Case: Austin Instruments Inc v Loral Corp.


Loral was awarded big govt K and agreed to buy parts from Austin who threatens not to deliver unless paid a lot
more and guaranteed 2nd K. Loral could not find another supplier to deliver in time and could not breach own k
with govt so they agree to mod. court found mod. was coerced. Threat to breach is not in GF and fair dealing.
R2d says a party may insist upon higher price if there is economic justification for it. Here it seems to be w/o good
cause, and with knowledge that loral has K at set price with govt, and that more charges could be detrimental too
them

VI. Promissory Estoppel

1) you need a promise


2) expectation that the other would rely
3) actual reliance
a. it has to be detrimental reliance
4) and it would be unjust to not enforce the promise

BTW: under NY LAW a promise based on past consideration and it is in a signed writing and the past
consideration is expressed in the writing. (NY LAW)

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Changes from 1st RSTMT to 2nd RSTMT
1) reliance does not have to be definite or substantial in character
2) C is empowered to limit recovery to just as required. EX: If the promise was for $15,000, and P lost $2,000 in
reliance. Only $2,000 may be awarded by C.
3) Provides for contingency of reliance by a 3rd party on a promise
4) Charitable subscription or marital settlement is binding w/out proof that promise induced action or
forbearance.

When doing PE:


1) Look for consideration
2) If not, then goto PE and reliance.

Case: Feinberg V Pfeiffer


P was employee for 40 years. Company wanted to give her $200 in pension a month. Later tried to take it back.
Q: when the company sent P the check for $100, and writes PIF on it, is it an AAS?
Yes. The company does have a good faith dispute as to the amount. Therefore AAS is applicable.
Shoemaker v Commonwealth Bank
P had a house and was required to put insurance on it. Insurance lapsed and bank said you had better put insurance
on it, or I will. P didnt respond. Later the house burned down.
Held: Found out that the requirements under the 2nd RSTMT is met.

Salsbury v North Western Bell Telephone


Someone promises to give money to a charitable institution.
Held: 2nd RSTMT says that reliance is not required for charitable institution.

Drennan v Star Paving


P wants bids and D puts in a bid. P uses Ds bid. Ps bid wins and D revokes.
Held there is reliance here.

Also PE can be used to make an offer irrevocable.


In an offer to a uni-K, it is reasonably to rely b/c you can not accept by words.

Also, once general contract wins the bid and then tries later to force the subcontractors to lower their bids, the
general contractor is not entitled to PE.

IX. Unconscionability
UCC 2-302
Earlier law doctrine of unconscionability is a defense towards equitable relief (for injunction)

The JUDGE decides if the K is unconscionable.


In a suit of unconscionability, there is no jury trial.
Notice that unconscionable is a defense. It is not the basis for a COA for damages.

Looking at unconscionability, 2 aspect


1) procedural aspect
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2) substantive aspect
So when we talk about an old person subject to a fast talker. . .the fast talking part and the old person talk is the
procedural aspect
The very little money for the farm is the substantive aspect.

Ideally, you want to find both aspects to find unconscionability.

Some case law says: that if you have very bad substantive unconscionability, you might have unconscionability.
HYPO: Suppose you go to a store and find a computer for 10 times the amount of cost, is there unconscionability?
There is substantive aspect,
b/c you are paying a lot
There is not procedural aspect
b/c you have a right to not go to the store or go somewhere else.

Parol Evidence and Interpretation


Chapter 3
1) The Difficulty of the Subject Matter
a. Few things are darker than this, or fuller of subtle difficulties
b.
2) Introduction
i. A rule of substantive law sates that whenever contractual intent is sought to be ascertained
from amount several expressions of agreement by the parties, an earlier tentative agreement
will be rejected in favor of a later expression that is final.
ii. The parol evidence rule comes into play only where the last expression is in writing and it is
a binding contract.
iii. A writing intended by the parties to be a final embodiment of their agreement should be
protected from certain kinds of evidence.
iv. A writing which represents a contract is at least a partial integration, but it also can be a total
integration.
a. Prior, Contemporaneous, and Subsequent Agreements
v. Parol evidence rule come into play on terms agreed prior to, or at the same time as the
integration.
vi. As for contemporaneous agreements
1. Williston
a. contemporaneous oral terms should be treated in the same way as prior
agreement but
b. contemporaneous writing terms should be treated as writing and therefore a
part of the integration
2. Corbin
a. Terms are either prior or subsequent and that therefore contemporaneous
merely clouds the issue
vii.
b. Policy and Analytical Rationales
viii. The policy behind the rule is to give the writing a preferred status so as to render it immune
to perjured testimony and the risk of uncertain testimony of slippery memory
ix. Also to require parties to put their complete agreement (including all oral agreements) into
writing at the risk of losing the benefit of any term agreed upon that is not in writing.
x. Critics say:
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1. rule has never had the effect of forcing people to reduce their entire agreement to
writing and that commerce has nevertheless managed to survive
2. the rule produces injustice b/c it may exclude as much truthful evidence as false
evidence
3. also too complicated and not applied correctly.
xi.
c. The Role of the Judge and Jury
xii. The parol evidence rule asks: did the parties intend an integration and did they intend it to be
total
xiii. Normally, this would be decided by a jury as it is a question of fact.
xiv. But here, people were afraid that the jury might be confused, therefore it is decided by a
judge.
xv.
d. Is the Rule One of Substantive Law or Procedure?
i. Earlier decisions had considered the parol evidence rule to be one of evidence, but now it is
a rule of substantive law.
ii. A rule of evidence excludes relevant evidence and does not define obligations.
iii. parol evidence rule can be raised on appeal even if not objected to during the trail level.
3) Is the Writing Integrated?
a. First question Whether the parties intended the writing to be a final embodiment of their
agreement.
i. If yes then there is at least a partial integration and the writing may not be contradicted
ii. If no then the parol evidence rule does not apply.
1. EX: a memo prepared by one party but not shown to the other
a. The writing is merely evidence of some agreement between the two.
b. Confirmations are also documents prepared by only one party
c. A confirmation is sent by one party to the other.
d. Confirmations have been held to be an integration if the other party makes no objection prior to
performance.
e. An incomplete confirmation can only be a partial integration
f. If the parties have regarded it as a final embodiment of their agreement.
g.
4) Is the Writing a Total Integration?
i. An incomplete final statement of part of the agreement is only a partial integration, but if the
writing is final, then it is a total integration.
ii. A partial integration can be supplemented by consistent additional terms.
a. The Four Corners Rule
i. Earliest view
ii. Means that if the instrument appears complete on its face, a determination made by the
judge by looking at the writing, then there is a total integration.
b. The Collateral Contract Concept
i. This means that even if the writing is a total integration, this does not preclude collateral
contracts from being introduced so long as the main agreement was not contradicted.
ii. So if S and B sells/buys a car for $20,000 and writes that down, but also at the same time,
they agreed orally that S would allow B to keep Bs car in Ss garage for $100 a month, that
agreement would be admissible.
iii. But if B did not provide consideration ($100 a month), then the oral testimony may or may
not be admissible.
1. Supreme court says that it is admissible only if the subject is distinct from that to
which the written contract applies.
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2. distinguishes between promises that are inherently and substantially collateral to the
main purpose of the K and those which directly relate to the main object
c. Willistons Rules
i. Williston said this doesnt work.
ii. Williston proposes these rules:
1. If the writing contains a merger clause a provision which declares that the writing
will be a full integration
a. Except parol evidence can show fraud or mistake
b. Or if the writing is obviously incomplete
2. if no merger clause, then look to the writing.
a. Consistent additional terms can be added if the writing is incomplete on its
face
3. If the writing appears to be complete on its face, then it is deemed a total integration
unless there are terms which would be natural to omit from the contract.
a. In that case, the writing would be a partial integration.
b. When a term not found in the writing is offered into evidence by one of the
parties and it would have been unnatural for the parties to have excluded that
term from the writing, there is a total integration.
c. The concept of total integration is then relative to the nature of the
proffered term.
d. Corbins Approach
i. Although Corbin says there are no contemporaneous agreements, in business practice,
there usually are.
ii. The issue for Corbin is whether the parties actually agreed or intended that the writing was a
total and complete integration.
iii. So the parties testify as to their intent.
e. The UCC Rule
i. Clause (b)
1. the clause creates the presumption that the writing does not include all of the terms;
the writing is presumed to be only a partial integration
2. This is overcome if the parties intended the writing to be a full integration or if it is
certain that parties similar situated would have included the offered term in the
writing.
3.
ii. Clause (a)
1. Deals with interpretation.
2. Therefore even a total integration is partial, with respect to course of dealing, usage
of trade, or course of performance.
3. only under the 4 corners rule would this change. All the other approaches allow
these information.
4.
f. CISG
g. 2nd RSTMT
i. Uses Corbins rule of ascertaining actual intent
ii. Even if the test leads to a determination of a total integration, consistent additional terms are
still applicable if
1. the alleged agreement is made for a separate consideration
2. the offered agreement is not within the scope of the integrated writing
3. if the offered terms might naturally be omitted from the writing
h. Is the Intention of the Parties the Test?
52
i. Williston and Corbin both talk about intention, but they differ on whose intention.
ii. Williston talks about a general intent.
1. Would it be natural for the parties to omit such a term.
iii. Corbin talks about specific intent
1. Did the parties intend to omit such a term.
iv.
5) Is the Offered Term Consistent or Contradictory/
a. EX: if a written real estate contract lists a number of obligations of the S but B offers proof that S
orally assumed an additional obligation, would the term offered impliedly contradict the writing?
i. Some say it is inconsistent b/c the writing lists all the obligation of S
ii. Others say it is consistent b/c it is more obligations
b. Sometimes the additional term contradicts an implied in fact or implied in law.
i. EX: the writing is silent as to when the performance is to be completed. It is implied it is to
be performed then under a RT. If there was an oral agreement beforehand which sheds light
on this matter, it would normally overrule the implied in law term.
ii. But if the term were implied in fact, courts are less likely to over rule.
6) Merger Clauses
a. Williston believes that the Merger Clause is final and complete and only two statements can
contradict
i. When the writing is obviously incomplete
ii. When there is fraud or mistake.
b. Now, people take the merger clause less likely if it is boiler plate and now it is only one factor used
in deciding if it is a total integration or not.
c. Used in the George case.
7) Rule Inapplicable Until It Is decided that there is a Contract?
i. Parol evidence is always admissible to show that a K was never formed.
ii. Even in the face of a merger clause, parol evidence is admissible to show that the agreement
is void.
a. Writing Was not intended to be Operative
i. A party can testify that what appears to be a total integration was never intended to be
operative.
ii. It was a sham agreement
b. Contract subject to an express condition
i. When parties agree that a specific condition precedent must occur before the contract is
effective, it is agreed that failure of the CP means that the writing will not take effect.
c. Fraud
d. Mistake
e. Illegality and Unconscionability
f. Consideration
i. When no consideration has been paid, or when there is no consideration on one side.
g. The rule of non formation of Contract under UCC
i. UCC says nothing about this, however when UCC doesnt apply, common law does.
8) Application of the rule to third persons.
a. 3rd party beneficiaries and assignees are bound b/c the policy of the rule should be the same
whether a party or a third party claiming under the K is seeking to defeat the integration.

Cases for Parol Evidence:


1. Mitchell v Lath
a. P bought some property from D pursuant to a full and complete sales K. P sought to compel D to
perform on his parol agreement to remove an icehouse on neighboring property.
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i. Rule: An oral agreement is permitted to vary a written K only if it is collateral in form,
does not contradict express or implied conditions of the K, and consists of terms which the
parties could not have reasonably been expected to include in the written K
ii. The case uses the 1st RSTMT.
1. Majority says it was natural to omit the ice house.
2. the dissent says it was not natural to omit the ice house.
b. In this case:
i. There is no question that they had an oral agreement between the two.
ii. However, she is not allowed to prove this b/c the evidence is excluded from the court.
iii. First question to ask:
1. Where is the writing and what does it relate to?
a. This relates to the purchase and selling of land. Nothing about an ice house.
iv. Then ask:
1. IS this a total or partial integration?
i. If total no extraneous evidence
ii. If partial then extraneous evidence can be introduced.
b. Different approaches
i. 4 corners approach supra
ii. Collateral Agreement supra
iii. Williston says: he would presume a total integration unless it would
be natural to omit
iv. Corbin would say: all relevant evidence would be allowed to
introduce to determine if it is a partial or total integration.
v. UCC Corbin
c. If the writing was incomplete, then there is partial integration.
v. Also remember that if there was separate consideration made for the removal of the ice
house, then this is not a problem.
1. As long as this is consistent.
2. Lee v Seagram
a. P was to sell his business to D. There was an oral agreement that D was to help Ps son start his own
business. This was not put down in the writing.
i. The cases uses the Williston test and says it would be natural to omit such a thing.
3. George v Davoil
a. Where P bought some jewelry from D and D said you can return it within a certain time, but that
was inconsistent with the writing.
i. Parol evidence rule doesnt block this form of evidence
ii. UCC presumes a partial integration. Called certain to include. That is a term is presumed
to be left out, unless it was certain to be included in the writing.
iii. Much harder to find a term that is certain to include.
4. Val Ford Realty Corp v JZ Toy World
a. P and D had a K. D says it is a real K. P says its a sham.
i. Parol evidence can be used to say that this is just a sham.

Interpretation
9) Introduction
a. Interpretation could mean two things
i. Either construction or interpretation
b. Now, we dont take into account the difference between the two.
c. Ask two questions
i. Whose meaning is to be given to a communication?
54
ii. What evidence may be taken into account in applying this standard of interpretation?
d. The thought is that although the parol evidence rule may bar some forms of evidence that is used to
create an integration, interpretation is another matter.
e. So the same piece of evidence that was barred for the parol evidence rule, may be used to interpret
the integration.
10) The Plain Meaning Rule and Ambiguity
a. Definition if a writing, or the term in question, appears to be plain and unambiguous on its face,
its meaning must be determined from the four corners of the instrument without resort to extrinsic
evidence of any kind.
b. It is for the court to say whether the meaning is plain or is thr some sort of ambiguousness.
c. This is the old rule and now the UCC, 2nd RSTMT seem to go away from this rule
11) Willistons Rules
a. Interpreting Integrations
i. Willison doesnt follow the plain meaning rule but he wouldnt admit all types of extrinsic
evidence and lays down different rules if the writing was/was not an integration
ii. His standard is what a reasonably intelligent person acquainted with all the operative usage
and knowing all of the circumstances prior to and contemporaneous with the making of the
integration would attach to the integration.
iii. Williston would exclude what the parties said to each other about meaning, and what the
parties subjectively believed the writing meant at the time of agreement.
iv. Therefore the standard of interpretation may result in one that conforms to the intentions of
neither party
b. Interpreting Non-Integrations
i. The meaning that the party making the manifestation sould reasonably expect the other party
to give it.
ii. If A says something to B, the meaning of what A said depends on what a reasonable person
in the position of B would conclude what A meant. Also the subjective knowledge of A at
that time also counts
iii. So in the case of unambiguous non integration, all extrinsic evidence is admissible except
evidence of subjective intention.
iv. But if the integration is ambiguous, then even subjective intention can be introduced
v. EX:
1. Peerless ship case. S and B had a K where S was going to sell to B some cotton on a
ship named Peerless. S thought it was one ship. B thought it was another.

Under Willisons approach, the question is whether one party knew or should have
known of the ambiguity and the other did not
2. if neither party had known or had reason to know, then there is no K.
12) Corbins Approach RSTMT 2nd UCC
a. Under Corbin, even if there is an unambiguous integration, all relevant extrinsic evidence is
admissible on the issue of meaning, including subjective intention and what the parties said to each
other.
b. In the Peerless case:
i. They agree tht if the parties meant the same ship, there is a K bcased on tht meaning, and tht
if both parties were blameless or equally at fault, there would be no K. Corbin, is willing to
allow the court to weigh relative fault. If one of the parties is more guilt than the other, the
court should apply the meaning of the party who is less at fault.
c. Corbin would say, the K exsts in accord with the meaning of the promissee could rely upon,
provided the promisor had reason to foresee that the promisee had reason to attach this meaning.

55
d. Usually, it will provide for the Reasonable expectation of the parties, like when the case where the
burglary required visible marks of forced entry.
13) Aids to Interpretation; Rules of preference
a. The old rule is that if there is an integration, is to disallow parol evidence.
b. But the modern idea is to allow the evidence to aid in interpretation.
c. The writing should be interpreted as a whole and no part should be ignored.
d. Also course of performance, course of dealing and trade useage are used in determining the intent.
COPCODTU
14) Deciding omitted terms
a. If a term is omitted from the K, then the judge will try to make a reasonable assumption based on
the two parties of what they would decide
b. Parol evidence will be admissible to determine if the parties had expressed any intention on the
matter.
c. So using good faith and reasonable notice ect, courts try to imply some criteria.
15) Questions of Fact or Questions of Law
a. Normally, parol evidence is for the judge to rule on.
b. However, if there is extrinsic evidence, then this is a question of meaning thats left for the jury.
16) Parol Evidence Rule and Interpretation
a. Williston was scared of the interpretation part undermining the parol evidence rule.
i. Therefore he kept the interpretation to a minimum.
b. Corbin believes that interpretation and parol evidence can be kept separate. But this is not true.
17) Course of Dealing, Course of Performance and Usage.
a. Common law lumps the 3 together, but the UCC has specific definitions of the 3.
b. Course of dealing as a sequence of previous conduct between the parties to a particular transaction
which I fairly to be regarded as establishing a common basis of understanding for interpreting their
expressions and other conduct
c. Course of performance involves conduct after the agreement has been made where the contract for
sale involves repeated occasions for performance by either party with knowledge of the nature of
the performance and opportunity for objection to it by the other
d. Usage of trade as 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.
e. Early common law, trade usage has to be very specific.
f. The UCC doesnt say this and allows this to be very large, only against unconscionable K and its
clauses.
g. Once a trade usage has been proved, the question remains whether the parties are bound by it.
h. The general notion is that a party who is or should be aware of it is bound. Once a trade useage is
proved, it can be used to the issue of meaning and also to add a term to the agreement.
i. However, UCC says that an express term and usage of trade an course of dealing shall be
construed wherever reasonable as consistent with each other; but when such construction is
unreasonable, express terms control. . . 1-205(4).

Cases and Notes:


1) this raises similar problems as the parol evidence rule.
2) The same piece of evidence barred from parol evidence, may be introduced as interpretation.
3) Williston objective approach
4) Corbin subjective ness.
5) The meanings we use:
a. Generally, the RP in the position of the other party
b. Objective tests
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i. Williston
1. Willison would use this when dealing with a non integration.
2. But once integrated, Williston says a reasonably intelligent person reading the
document of trade usage, course of dealing, and course of performance.
3. Willison rejects the plain meaning rule. Says in applying his test, in having an
integration, I will not consider anything but the background of negotiations, trade
useage, course of dealing and course of performance
4. Williston will not deal with what the parties said to each other about meaning and
subjective intent.
ii. Corbin
1. The reasonable understanding of a promisee, provided that the promissor had reason
to foresee that.
iii. Plain meaning that is the judges meaning
c. Subjective test
i. Mutual standard
1. where both parties subjectively mean the same thing
ii. individual standard
1. courts give meaning that was subjectively intended by one of the parties, even
though the other party didnt have that meaning.
6) Also 4 levels of extinct evidence:
a. Background of negotiations
b. Where parties said to each other about the meaning of language
c. CODCOPTU
d. Subjective intent
7) Cases:
a. Pacific Gas and Electic Co. v G.W. Thomas Drayage and Rigging Co.
i. D was working for P and D damaged a turbine. Said that D would indemnify P.
1. lower court used plain meaning to determine what that meant.
2. appeals said that there should be exrincit evidence used to show what the two parties
meant.
b. Trident Center v Conn. General Life Insurance
i. P got a loan from D at a high interest rate. Later the rates fell, so P wanted to get out. The K
was very well written.
1. held that evidence can still be introduced for interpretation.
2. But still, that all evidence must be credible.
c. Raffles v Wichelhaus
i. 2 ships of which both were named Peerless.
1. B rejects the shipment b/c its the Dec. Peerless. Says it should be the Oct. one.
2. so now, S is suing for breach. S has to prove K and breach.
3. S has to prove that B is lying about the Oct one, where B is at fault. Williston
4. or that B is more at fault, therefore there is a K in Ss favor Corbi
ii. This raises, course of dealing, course of performance, and trade useage.
1. if it add terms parol evidence
a. when it adds terms:
i. ex:
1. baseball K usually for the season
2. actors K is for the duration of the play
2. adds meanings interpretation
a. EX:
i. 2X4 not actually equal to 2X4.
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ii. White arsenic actually is black.
iii. 1000 rabbits is 1200 rabbits.
d. UCC
i. Under the UCC, most authorities will allow you to add a term.
ii. Highest priorty:
1. express terms
2. course of performance
3. course of dealing
4. trade useage.
e. Nanakuli Paving and Rock v Shell
i. P is buying asphalt from D. P and D had a K. Even when price went up, D helped out P.
Later did not do so.
1. Can use trade useage, course of dealing to show that the K was in Ps favor.
2. Also think about the relevant trade:
a. If it is asphalt, then no protection.
b. If it is the supply of asphalt for paving, then there could be price protection.
f.

Chapter 11
1) Relationship of Conditions to Offer and Acceptance
a. A bi-K arises when offeree makes a promise requested by the offeror.
b. Then questions relating to the performance of the K arise and conditions may occur.
c. This doesnt occur in an offer to a unilateral K
d. If you walk across a bridge, Ill give you $1000. Walking the bridge creates the uni-K and is both
an acceptance and an express condition precedent to As duty to pay.
2) Definition of a Condition
a. A condition is defined as an act or event other than a lapse of time, which unless it is excused,
affects a duty to render a promised performance.
b. 2nd RSTMT an event, not certain to occur, which must occur, unless its non-occurrence is
excused, before performance under a K becomes due.
c. Perillo an act or even, other than a lapse of time, which unless the condition is excused, must
occur before a duty to perform a contractual promise arises or which discharges a duty of
performance tht has already risen.
3) Classification of Conditions
a. Two ways to classify
i. One classification is based on the time when the condition event is to happen in relation to
the promisors duty to perform a promise.
ii. Another is based on the manner in which the condition arises, that is, whether it is imposed
by the parties or created by law.
4) The Time Classification
5) Conditions Precedent
a. A condition precedent is an act or event other than a lapse of time, which must exist or occur before
a duty to perform a promise arises.
b. If the condition does nto occur and is not excused, the promised performance need not be rendered.
i. EX:
1. A has promised to pay $100 to B if a speciiced ship arrives in port before a certain
day. As duty to pay does not arise unless and until the ship arrives. If it doesnt
arrive, A doesnt pay.
c. This condition precedent can occur in two ways.
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i. Condition precedent after the formation of the K
ii. Condition precedent prior to the formation of a K.
d.
6) Concurrent Conditions
a. These exist where the parties are to exchange performances at the same time.
i. EX:
1. S agrees to sell and B agrees to buy a certain book at a fixed time and place. In the
absence of an agreement to the contrary, payment and delivery are concurrent
conditions. As a result, if B fails to tender the price and S must make conditional
tender of the book, or show that tender is excused, to put B in default.
b. So the parties must perform before they have a claim.
7) Conditions Subsequent
a. Is any event the existence of which by agreement of the parties discharges a duty of performance
that has arisen.
i. EX:
1. An insurance company promises to pay up to 1M to the insured if a fire occurs and if
the insured files proof of loss within 60 days of fire.
2. The occurrence of the fire and the filing of the proof of loss are the conditions
precedent to the insurance companys performance.
3. Now, suppose that if the insurers obligation to pay is discharged if the insured fails
to sue within one year of the filing of the proofs of loss and the insured didnt sue
within that time.
4. Therefore, that is a condition subsequent and that discharges a duty which has arisen.
b. The burden of proof changes.
c. The party who wishes to sue on a promise has to burden of proving that the condition precedent
attached to that promise arose, otherwise there would be no breach of that promise.
d. Therefore in the insurance example, the insured would have to prove that fire occurred and proof of
loss was given within 60 days.
e. Sometimes the condition precedent is shifted to a condition subsequent b/c one side has more facts
than the other.
8) The Other Classification of Conditions
a. Expressed conditions are created by agreement of the parties
b. Constructive conditions are imposed by law to do justice.
c. Conditions implied in fact are treated as an expressed condition. They are gathered from the terms
of the K as a matter of interpretation.
9) Express Conditions and Promises Compared
a. While a failure to perform a promise, unless excused, is a breach, failure to comply with condition
is not a breach.
i. EX:
1. if A says to B Walk across the bridge, and Ill give you $100, B walking across the
bridge is an express condition precedent to As obligation to pay. If B doesnt fully
perform, A will not be obliged to pay.
ii. One can not be liable for a breach of K, unless one breached a promise.
1. if A says to B Promise to walk across that bridge and Ill give you $100 and B
promised, non performance results in a breach and A can sue for damages.
b. Court perform the interpretation that a particular language is promise rather than condition b/c
otherwise it might be a forfeiture.
10) Conditions Compared to Time References
a. A general contractor agrees to pay a subcontractor as money is received from the owner.
b. The subcontractor completes his work but the owner fails to pay.
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c. The question is whether this is an expressed condition or merely sets the time of payment.
d. This is a question of interpretation and different courts have ruled differently on this matter.
e. Modern view is that this is only sets out a reasonable time.
f. Same thing with Ill pay you when able. It only sets out a RT before payment is required.
g. if, on the condition that, subject to, provided creates conditions.
11) Language of Condition may Imply a Promise
a. If A and B sign a deal, that A would sell a house to B if he can find suitable mortgage, B is promises
to use good faith to try to secure a loan. Also there is a condition, that unless B secures the loan,
there either is no K, or A doesnt have a duty to perform.
12) A Promise may create an Implied or Constructive Condition
a. Modern View A promise may be an implied or constructive condition.
13) Constructive Conditions and Implied in Fact Conditions
a. Courts prefer to find constructive conditions rather than implied in fact.
b. Now, implied in fact conditions are limited to those situations involving cooperation.
i. EX:
1. A can not perform, unless B performs first. Therefore Bs performance is an implied
in fact condition to As duty to perform.
14) Constructive Promises Omitted Terms
a. When parties fail to cover a term, the court, in the interests of justice, may supply a term
b. A wrote a book and sold the right to use the book to B as the basis of a play. Then movies were
invented. The court constructed a promise that A would not grant movie rights, as that would
destroy the value of the license to B.
15) Distinguishing between Express and Constructive Conditions
a. Express Condition must be strictly performed
b. Constructive Condition must be substantially performed.
c. It is very hard to determine sometimes if it is constructive, or expressed or ect.
i. EX
1. A is the owner in possession of a vessel in England. In a bilateral K, A agrees to
charter the boat to B in the US. The vessel to sail on or before the 4th. The boat
sailed on the 5th.
2. If this is an expressed condition, then B doesnt have to accept the vessel. The
expressed condition must be strictly complied with. Also A is liable for breach of K.
3. if this is a promise, then the question is whether this breach was material or
immaterial. If it is material, B would be free to not proceed but also could sue for
total breach. Or B can elect to proceed and sue later for partial breach.
a. If the breach is immaterial, then B has to continue and later sue for partial
breach.
4. This also can be both an expressed condition and a promise, and then that would
have the same results as the expressed condition.
5. Assuming constructive condition
a. if A were to sue B, the question is whether A had substantially performed.
b. If B were to sue A, the question is whether As breach was material or
immaterial.

Conditions Cases and Notes:


1) Expressed Conditions are written or said in the K and have to be strictly literally with. Also, implied in fact
conditions are also considered express conditions.
2) Constructive Conditions are formed from promises and these have to be substantially complied with.
3) At any time, the condition can:
a. Occur
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b. Not occur, but can occur.
c. Didnt occur and can no longer occur
4) Cases:
a. Audette v LUnion St. Joseph
i. Where D had a CP requiring that P produce a notice of sickness.
1. P was unable to get a statement of sickness from doctor b/c the doctor didnt want to
give it.
2. Therefore this is excused.
b. Inman v Clyde Hall Drilling
i. P worked for Ds company. Gets fired and P wants to sue. Has to give notice within 30 days.
P sues in 30 days, but doesnt give notice.
1. Held that P didnt literally comply with the condition. Expressed Conditions require
Literal Compliance.
c. A and B make a K where A is to pay B $10000 a year for the next ten years. But no installments
whether or not overdue shall be payable in case of As death A dies, and B can not collect. As
living is a CP to the payment of the $.
d. K between owner of vessel and charter. Vessel to leave on Feb 4.
i. If the vessel leaves 1 day late, there are several possibilies.
1. if it is an expressed condition
a. the charter can cancel the K. No breach on either party.
2. if it is a promise
a. the question is if this is a material breach. If not, then must continute with the
contract.
3. it is both an expressed condition and a promise
a. then you get to sue and cancel the K.
ii. So there is a preferred interpretation for a condition precedent if possible b/c of the harsh
consequences of the expressed condition.
e. NY Bronze Co v Benjamin
i. A note had to be surrended before a performance is done.
1. Either it could be a expressed condition or a promise.
f. Dyer v Bishop Enginerring and JJ Shane
i. General Contractor hires sub contractor. Owner says Ill pay you when I get paid from
owner. Owner never pays.
1. if it is EXPRESSLY made a condition, then contractor doesnt get paid.
2. otherwise, if it is flakey, then subcontractor gets paid b/c we hate forfeiture.
g. Hicks v Bush
i. Where two parties had a K, but there was an oral agreement that it was not to be enforced
unless a specific CP occurred.
1. this is a CP before the formation of a K.
h.

16) Intro (Constructive Conditions)


a. Constructive Conditions are created by the courts in order to do justice.
b. They are constructed in bilateral K.
c. When promises are exchanged, the failure of one party to perform may have an effect on the
obligation of the other party to perform.
d.
17) Order of Performance in a Bilateral K
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a. When parties fail to state the order in which their promises are to be performed, constructive
conditions fill these gaps.
b. First rule unless otherwise agreed, a party is to perform work over an extended period of time
must substantially performed before become entitled to payment.
c. If period payments are agreed on, a series of alternating constructive conditions precedents exist.
i. EX:
1. Suppose P and D had a K were P was to build houses. After P built a house, D
refused to pay. Can P?
a. Stop working?
b. Cancel the K?
2. P can stop working yes.
3. but P can only cancel the K if this is a material breach of the K. This is normally a
question of fact.
d. Second Rule Where the promised acts are capable of simultaneous performance, unless
otherwise agreed, each duty of performance is constructively conditioned on the conditional tender
of the other.
i. EX:
1. sale of property.
18) Material Breach and Substantial Performance
a. Material Breach
i. Where a party fails to perform a promise, it is important to determine if the breach is
material.
1. if material there is no cure forthcoming, and P can cancel the K and sue for total
breach
a. P needs to show that would have been ready willing and able to perform, but
for the breach.
b. P also has an option of continuing with the K and later sue for partial breach.
2. if not material, P can not cancel the K but later can sue for partial breach of K.
ii. 2nd RSTMT says material breach one that justifies the cancellation of the K.
iii. Look at:
1. to what extent if any the K has been performed,
2. willful breach is likely to be regarded as material
3. a quantitively serious breach is more likely to be considered material.
4. this is normally a question of fact.
iv. For Delay, unless parties state time is of the essence, normally delay is not a material
breach, however a very long delay could be a material breach.
v.
b. Substantial Performance
i. Substantial performance is the antithesis of material breach.
ii. This is question of fact as well.
iii. Substantial performance is needed to satisfy a constructive condition, while strict
performance is required for an expressed condition.
19) Successive Lawsuits Risk of Splitting a Claim
a. Suppose A agrees to build 5 cottages for B. B agrees to pay at the end of the K. First cottage is built
3 months late. B sues for partial breach and recovers. Later A quits the job. B wants to sue for total
breach.
b. Most jurisdictions allow B to come ing and sue again
c. But some jurisdictions allow B to only sue once. Only one lawsuit on one K.
20) Sale of Goods The Perfect Tender Rule
i. The doctrine of substantial performance is not applied the UCC.
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ii. Instead the perfect tender rule apples.
iii. The Buyer is free to reject the goods, unless the tender conforms in every respect to the K,
not only in quantity and quality, but also the details of the shipment.
iv. UCC 2-601 states this.
v. Buyer can only reject in good faith and there are exceptions f this as well.
1) Cure
1. the general notion is that B can reject goods if they are non conforming in any
respect.
i. When the Time for Performance has not expired
1. IF B rejects a Ss defective order before the time for performance has expired, S has
an unconditional right to cure by making a conforming delivery within the K time.
ii. When the time for performance has expired
1. When B rejects a non conforming tender, S has a right to cure after the time for
performance has passed, if two conditions are met:
a. S has reasonable grounds to believe that the tender would be accepted with or
without money allowance
b. S seasonably notifies the B of the intention to cure and cures the non-
conforming tender within a RT.
2) Rejection and Acceptance of Goods
i. Ordinarily, when non conforming goods are tendered, B has a choice of acceptance or
rejecting the goods.
ii. Once B accepts, B can no longer reject.
iii. B also needs to reject within a RT (UCC 2-602) or notify S of the rejection.
iv. When B rejects, S has a right to cure
1. B must state all the defects discoverable by reasonable inspection.
2. if B doesnt do this, later B can not justify rejection on any unstated nonconformity
that S could have cured had S been given seasonable notice.
v. If B and S are both MERCHANTS
1. when S requests in writing a full and final statement of all defencts on which B relies
on as grounds for rejection, B can not rely on any unstated defects (regardless of
their cureability).
2. if rejection is wrongful, B is liable for the wrongful rejection.
vi. 3 ways in which B can accept goods:
1. failing to make an effective rejection
2. express acceptance
3. any act inconsistent with the Ss ownership but if such act is wrongful as against S it
is n acceptance only if ratified by him. (2-606)
vii. If something has been rejected, B must hold them at Ss disposition and to exercise
reasonable care. A merchant B has to sell perishable goods for Ss account if S has no agent
there to get it back.
viii. However, even if B accepts the goods, but later finds they are non conforming, B has a COA
against S for the breach. B must send S a notice of the non conformity of the goods.
3) Revocation of Acceptance
i. Requirements for revocation of acceptance
1. revocation of an acceptance of a lot is that the non-conformity substantially impairs
its value to B. (question of fact) 2-608
a. this seems to suggest a subjective test.
ii. 2-608 says that B must be able to show that
1. the acceptance was on the reasonable assumption that its non-conformity would be
cured and it has not been seasonably cured; or
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2. even if the buyer did not discover such non-conformity at the time of acceptance, if
his acceptance was reasonable induced either by the difficulty of discovery before
acceptance or by the Ss assurance.
iii. B must revoke acceptance within a RT after B discovers or should have discovered the
goods.
iv. Revocation is not effective until B notifies S of the revocation.
4) Installment Contracts
i. Perfect tender rule doesnt apply to installement contracgts.
ii. An installment contract is one in which separate lots are to be delivered and separatedly paid
for and accepted.
iii. Unless the nonconformity is so sever it is a material breach, then B still has to continute with
the K.
1. EX:
a. B wants to buy 20 car loads of plywood from S. 9% of first car load is
considered non conforming. B canceled K. S sued.
b. B is liable for breach b/c the nonconformity did not substantially impair the
value of the entire contract.
iv.
5) The Perfect Tender Rule and the Buyer
i. If B makes a non conforming tender, the perfect tender rule doesnt apply, and then the issue
is whether or not if this is a material breach
1. EX:
a. B is to pay for the goods, but pays for it in a nonconforming tender.
b. The issue is not the perfect tender rule, but material breach
ii. The UCC says that late payment on non installment contracts as material breach. 2-703
iii. Also breach by not accepting the goods or by not furnishing facilities responable suits to the
receipt of goods.
21) Failure of Consideration
a. Failure of consideration means lack to perform.
b. So if A and B had a K, and one of them decided to not perform, tehn there is failure of consideration
on that side.
c. This is a misnomer and is not actually have to do anything with consideration.
22) Quasi-Contractual and Statutory Relief
a. A defendant who has materially breached may recover through quasi-K relief.
b. If D had substantially performed, then he can recover through the K. but here, he has not, but he still
wants some recovery.
i. EX:
1. P was hired to do work for D for one year for $120. P worked for 6 months then quit.
2. under the K, he can not recover, but he may recover under quasi-K relief.
3. Old law says that P can not recover b/c P bargained for 1 years employment.
4. New law says that P can recover b/c otherwise there is inequity.
c. Under the UCC 2-718, the UCC permits a defaulting B to obtain restitution of payments minus one
of two figures, $500, or 20% if it is less than $500.
d. Also still minus the damage B has done to S and also any liquidated damages clause, ect. . .
i. EX:
1. B wants to purchase from S for $2100 paying $700 of the purchase price. B
repudiates and S sues. B obtains 700 minus the lesser of 500 or 20% of 700 ($420).
So 700-420 = 280.
2. B gets back 280 minus any damages made for breach of K.
23) Recovery by a Party in default: Divisibility
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a. Some K are entire, while others are divisible.
b. A K is divisible if performance by each party is divided into two or more parts and performance of
each is decided into two or more parts, the number of parts due from each party being the agreed
exchange for a corresponding part by the other party
c. This is usually a question of interpretation of the K.
i. EX:
1. A and B agree that A will work as Bs secetary for one year at a salary of $1000 a
week. Once A worked for one week, A is entitled to $1000. if A repudiated the K
after 1 week, A is entitled to $1000 minus any damages of the K.
2. however, if A just worked 4 days out of that week, the question is then whether 4
days is substantial performance or if the breach is material.
d. Two other examples:
i. EX:
1. P and D had a K where P was to bring in logs for Ds mill. D would pay $1 per 1000
feet. Later, Ps logs were blown away. P wanted the $1 per 1000 feet but the court
would only count the logs that were taken by D. Because the essence of the K is that
D has to receive the logs.
2. P and D had a construction K where D was to pay a certain amount each time P
complete a part of the house. This is not divisiable K.
e. He test ultimately appears to be whether had the parties though about it as fair and reasonable
people, they would be willing to exchange the performances in question irrespective of what
transpired subsequently.
24) Divisibility: Other Uses of the Concept
a. It is used to sever parts of the K that is tainted with illegality.
25) Independent Promises
a. An indepentint promise is one that is unqualitified or if nothing but the lapse of time is necessary to
make the promise presently enforceable.
i. EX:
1. A promises to build a house for B and B promises to pay when complete. B doesnt
have to pay until A performs. Therefore Bs promise to dependent on As independent
promise
b. Usually promises are not interpreted to be independent, unless there is clear intent to do so.
i. EX:
1. insurance company doesnt have to pay until there is a fire. But it may not be
conditioned on the payment of a premium. So even if some one didnt pay the
premium, insurance company may still have to pay out.
c.
26) Dependency of Separate Contracts
a. Where the parites have entered into two written K at substantially the same time, the question arises
whether they are part of the same exchange. If they are not, a breach of one will have no effect on
the other.
b. If they are part of the same exchange, the question will be the overall materiality of the breach.

Constructive Conditions:
1) Constructive Conditions operate as gap fillers to set the order of performance in a bilateral K.
2) Usually, it is that performance is at the same time.
3) But if one performance is rendered over a period of time, then you dont pay, until the work is done,
a. This can be changed either via statute or via parties bargaining power.
65
4) Different types of breaches
a. When you have no right to suspend or cancel.
i. 1st RSMT immaterial
ii. 2nd RSTMT immaterial
b. When you have a right to suspend and after a while, it becomes a total breach.
i. 1st RSMT immaterial
ii. 2nd RSTMT Material
c. When you have a right to suspend and cancel.
i. 1st RSMT material
ii. 2nd RSTMT material
5) Cases:
a. Monroe Street Properties:
i. Where P and D were both to deposit money and stock in an account. D didnt do it, but
neither did P. So there was a failure of condition on both ends, and therefore there is no
breach of K.
1. you have to say, I was ready willing and able to perform, to put the other party in
breach.
2. EX:
a. Peerless case, b/c B said he meant Oct ship. But B never came and showed up
to pick it up. S can only put B in breach, if S had ability to tender his
performance.
b. Jacob and Young v Kent
i. Where D build a house for P and that P sued b/c the pipe used was not the one specificed.
1. P sues for the all the costs to rip out walls and put in new pipe.
a. Remember about substantial performance, that D built the entire house
already.
b. Show that substantially, everything was performed. If P were to sue, then the
only difference is the quality of the pipe from one to the other and its
nominal.
2. Dissent says this breach was willful.
a. Willful could mean =
i. Intentional,
ii. Neg.
iii. Innocent,
iv. gross neg.
b. Cardozo believes that a bad faith willful breacher can never show substantial
performance.
c. Walker v Harrison
i. D gets P to build a sign for D. P was to clean the sign. D complained that P didnt clean it
enough. D cancels the K.
1. Held that D breached the K. P not cleaning was not a material breach. So when D
canceled the K, that was a breach of the entire K.
2. Remember that b/c P had performed most of his dutues, D probably cant even
suspend performance
3. Also under the UCC, D may be able to pay someone to come clean it and bill P later.
(problems 18+19)
4. Note: acceleration clause of all damages to be paid.
d. KG Const. v Harris

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i. D was working for P. P told D to get insurance and to perform in a workmanlike manner. D
knocked over Ps wall. Costs $3400. P elects to continue, but later D wants to get paid. Then
D cancels the K.
1. because of the damages to the wall, the general contractor can deduct that from the
next progress payment.
6) UCC rules:
a. 2-301
i. General obligation of the parties, that is S is to deliver and B to accept.
b. 2-513
i. That B can inspect the goods.
c. 2-601
i. That if the goods fail to respect or conform to the K, that B can accept or reject them.
d. 2-606
i. Tells you the 3 ways B can accept the goods
1. says they are good.
2. fails to make an effective rejection after time to inspect
3. does any act inconsistent with S
e. 2-608
i. After B has accepted, B can revoke the acceptance.
1. uses the substantial impairment test.
f. 1-201 (3) (11)
i. That the K is bigger than the agreement. Includes COD, COP, TU
g. 1-203
i. Always an obligation of good faith on both sides.
h. 2-508
i. S has a right to cure if the time for performance hasnt expired yet. S has to notify B of the
attempt to cure and to do so within the time of performance.
1. gives S an unqualified right to cure, as long as the cure is made in the K time for
performance
2. allows a further reasonable time, for a substitute tender even after time for
performance expires, as long as it is within a RT
i. 2-601
i. Perfiect tender rule.
1. apples to specially manufactured goods as well.
j. Cases:
i. Bartus v Riccardi
1. Where P goes in and orders a model A 660. Store gives him model 665. P tries it out,
says its no good. Store then wants to give P an old model.
a. Yes. The store can try to cure the breach
b. Here, B refused to cure, therefore it is a breach by repudiation.
ii. AB Parker v Ford
1. Where P buys a ford and theres problems. He sues.
a. Held, that P needs to notifiy ford of the problem first before suing. 2-607.
b.
7) Quasi-K relief:
a. Were not talking about here is a party who has a right to cancel the K and does cancel the K.
i. EX:
1. O did not pay in advance. Work comes before payment and owner justifiably cancels
the contract. Can contractor get some money out of it even after materially breaching
it?
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ii. Cases:
1. Lancellotti v Thomas
a. P and D had a K were P was to pay down $25000 or so to start a new
business. Later, P decided to not to, and then decided to quit.
i. Sue in quasi K for restitution.
1. 3 views:
a. Yes allow restitution, but deduct the money suffered by
D.
b. No. Breaching party gets to recovery
c. Yes, if the breach isnt willful. UCC view.
ii. Corbin likes the recovery, b/c it penalizes the party who has
performed more.
8) Divisibility
a. Grab from the problems
9) Independent promises
a. If a Ds promise is independent, then P doesnt have to comply with any promises or condition to
enforce it.
b. EX:
i. Promise to build a house for owner. Owner pays at the end. If builder doesnt build, owner
can sue.
1. builders promise to build is independent
ii. Employment non competition contract
1. if its independent, employee must still follow it.
iii.

27) Intro
a. Sometimes a party must perform even though the condition did not occur. This is b/c the condition
is excused.
b.
28) Prevention, Hindrance, or Failure to Cooperate
a. What is wrongful conduct?
i. EX:
1. Grandfather asked nephew to take care of him and when grandfather dies, P would
get the house. Grandfather forced P out of the house with a gun. Later grandfather
dies and P sues.
2. P recovers b/c P was prevented from performing his services. Therefore the
constructive condition of Ps performance is excused.
a. But suppose grandpa was just abusive and drunk. And perhapse this risk was
assumed under the K. then there may be no recovery.
3. 2nd RSTMT has a but for test, to determine the causation.
ii. EX:
1. H and W enter into a pre nup agreement where W pays H $20,000 if H out survives
her. H kills W. Can H recover?
2. 1st RSTMT asks would H outlive W anyways?
3. 2nd RSTMT asks that H has to prove his actions didnt substantially contrinute to
the nonoccurance of the condition.
iii. EX:

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1. Suppose Ps right to a brokerage commission from vendor was on the closing of
title. Vendee defaulted, but vendor took no action. Can P sue vendor?
2. no. vendor duty to cooperate doesnt not extend to a law suit.
3. however if vendor told the buyer to leave and sign a mutual retraction, then P has a
COA against vendor.
iv. EX:
1. P and D agreed to buy/sell a house. D didnt have title to the house, but said to P he
would buy it at an acution. At the action, P outbid D and bought the house
2. this is considered wrongful.
3. D now is excused from conveying the title, and also has a COA against P for dmages
of the breach of K.
v. EX:
1. P entered into a K with D for steel. D failed to deliver and says that P bought out all
the supply of steel. P contracted with two other parties for steel that D was to buy. D
wants to excuse of condition, however, the court didnt give it to D.
b. Cases:
i. Cntrell Waind v Guillaume Motorsports
1. D agreed to lease to B with option to buy. If broker closes before August 1, owner
pays the fee. After August 1, the owner doesnt pay. Owner tries to leave the country,
ect. .to get out of paying.
a. This is considered a breach of good faith and calls it wrongful prevention.
This excuses the closing of the title on August 1.
29) Waiver, Estoppel and Election.
a. Introduction
i.
b. Estoppel Defined
i. In its traditional form, equitable estoppel applies when a party
1. misrepresents or conceals a fact
2. on which the other party justifiably relies
3. injuriously
ii. Also must show that the party knew of the falsehood and wanted to represent it.
iii. A promise is said to be something that can form the basis of equitable estoppel.
1. EX:
a. If promissor says Ill accept a late payment, and then promissee pays later,
promissor can not hold promissee that he paid late.
b. The promise is enforced, even though there is no consideration for it.
c. Waiver and Election
i. A waiver is generally defined as a voluntary and intentional relinquishment of a known
right. This is not very true.
ii. There are waivers contemporaneous with the formation of the K, wavier after formation of
the K, but before failure of condition and waiver after failure of condition (election).
iii.
30) Waiver at the Formation of the K
a. This could either be a waiver or it could be a parol evidence problem.
i. EX:
1. insurance company says that the policy is void if the same property is covered by
other insurance and an authorized agent waives this condition by a statement
contemporaneous with the issuane of the policy, the issue is one of the admissibility
of evidence of this promise under the parol evidence rule.
ii. EX:
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1. Franchiee was presentd by franchisor with a 30 day termination agreement. At first,
Franchiee didnt want to sign it, but later the other party gave oral assurances that
Franchiee would receive fair treatment.
2. Court allowed this evidence on a theory of waiver. Under parol evidence, that
evidence may be disregarded.
31) Waiver after formation of the K
a. 3 important rules about this:
i. A waiver of a material part of the agreed exchange is ineffective. Only an immaterial part
can be wavied
1. EX:
a. A to sell to B a car for $1000. A can not waive the payment of $1000.
ii. The waiver may be withdrawn or modified if the withdrawl or modification does not operate
unfairly.
1. EX:
a. A is to complete a structure for B at a certain date. Time is of the essence. B
waives this certain date, and but later reinstates it. This is ok, as long as A
didnt change positions.
b. And even if there was reliance by A, a new reasonable limitation can be set
by B.
c. Also, even if B didnt set a new time limit, performance within a reasonable
time is still required.
iii. The waived condition must be solely for the benefit of the party waiving it.
b. A waiver differs from a modification b/c modification requires mutual assent and consideration. A
waiver is usually unilateral in character. Also a party can withdrawal a waiver, while a modification
can not be unilateral withdrawn.
c.
32) Waiver after failure of Condition: Election
a. If a party excuses a condition after failure, that is called an election.
i. EX:
1. A promises to charter a vessel to B in the US. B gets an expressed condition
precedent that the ship would leave at a certain date. A didnt get the ship off and
therefore the condition has failed. Since this has not been performed, B can terminate
the K and sue for damages. OR B can waive it and continue onwards with the K.
2. or if a contractor is late on the building of a building, the owner can excuse the
lateness and continue onwards with the building of the house.
b. Once a party elects to continue after a failure of condition, the election can not be retracted.
c. Election can be made by a promise or conduct. Conduct is that the nonbreaching party either
continues to perform or allows the other to perform.
d. Majority View Election can not be withdrawn even if the other party has not relied on it.
e. Minority View Election can be withdrawn.
f. Can the non breaching party elect to perform? That is promise to pay $$$ for an uncompleted
house?
i. Suppose contractor is to build a house for owner. It was not substantially performed. Owner
moves into the house.
1. here, there is still an action for total breach as the moving into the house is not
considered a right to refused to pay
ii. If owner promises to pay the contractor, then owner must pay it all but then have a COA for
partial breach.
g. FIGHURE THIS OUT.

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h. In a case of repeated elections, that is accepting late payments, it has been held that repeated late
payments will not prevent the owner from insisting on fulfillment of the condition precedent to the
net progress payment.
i. Also the no waivier clause doesnt have too much effect, as its boilerplate.
j.
33) Effect of Election on Damages
a. In the case of a material breach, aggrieved party may elect to continue and sue for partial breach.
i. EX:
1. If a building contract contains a promise to finish by Jan 1, then failure to do so is a
material breach. Owner can elect to continue, and builder can finish within a RT.
Then owner can sue for the delay.
b. UCC request that a buyer give notice of the breach or be barred from any remedy. Notice is required
even if the S is aware of the breach.
Also it permits a renunciation of damages without any consideration provided that the renunciation is
signed and delivered by the aggrieved party.
34) Giving Incomplete Reasons for Non-Performance
a. Ordinarily, a party is not required to give reasons for rejecting or objecting to the other parties
performance.
b. But is someone gives one reason and the other party thinks they are exclusive, then the party who
gives that reason can not bring up any more reason
c. So if an owner lists all the defects in construction and a contractor cures these defects, the owner
can not claim the contractor did not substantially perform.
35) Excuse of Conditions involving forfeiture
i. Sometimes a court will excuse the failure of condition to prevent forfeiture. This can happen
when it is an express condition.
ii. 1st RSTMT:
1. A condition may be excused without other reason if its requirement
a. Will involve extreme forfeiture or penalty
b. Its existence or occurrence forms no essential party of the exchange for the
promisors performance.
iii. 2nd RSTMT adopts same rule, but uses disproportionate forfeiture.
iv. Courts will try to balance the equities, taking into account the ethical position of the party
and the injury suffered by the other party.
1. EX:
a. P entered into a K with D to buy real property for $$$. Option could be
exercised at any time but not later than April 1.P was to pay $10,000 every
month for a while to keep the option open. The money was late by one day
one time.
b. Court held that this condition was excused, otherwise there would be
forfeiture.
2. This example contained a late payment, rather than a late exercise of option. Those
cases are usually not given relief from forfeiture.
36) Other Bases for excusing Conditions
a. Can be excused if it is contrary to public policy, unconscionable, or if there is no duty to read the
particular provision
b. Also impossibility.
37) The Satisfaction Cases
a. Introduction
i. These relate to the relief from forfeiture.
ii. But they also add that a K calls for personal satisfaction or only reasonable satisfaction.
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b. Satisfaction of a Party to the K
i. If an artist were to paint a portrait of the person, then this is a satisfaction of a personal
nature.
ii. But usually, if there is any ambiguity, then the interpretation calls for a objectively
satisfactory interpretation.
1. When there is satisfaction to a party, the courts group the cases into two categories:
a. Those which involve taste, fancy or personal judgment
i. EX:
1. paint a portrait.
ii. Here, the person can reject the work in good faith and this is absolute.
b. Those which involve utility, fitness or value, which can be measured against
a more or less objective standard.
i. Here, the performance must be Reasonably satisfactory and if the
promisor refuses the performance, then the rejection is subject to
review.
2. However, courts have refused to give personal satisfaction of work that usually
doesnt require personal satisfaction. (like painting of a barn)
iii. Involve a balance between free to contract and the results which would involve forfeiture or
unjust enrichment.
iv. Also, good faith must always be exercised, and that the dissatisfaction must be actual and
not merely simulated.
v.
c. Satisfaction of a third party
i. In construction contracts, it is quite common to have a provision in the K expressly
conditioning the owners promise to make progress payments on the personal approval of an
architect or engineer.
ii. Generally, there is an expressed condition precedent on their approval. Strict compliance is
the rule.
iii. However, if it can be shown that the expert acted in bad faith, then maybe that condition can
be excused.
iv. P has to show that D was honestly satisfied and still didnt want to pay.
v. EX:
1. CASE: Nolan v Whitney (NY law)
a. Shows that if the expert acted in bad faith, you can still excuse that condition.
2. Western Hlls v Pfau
a. Where D was going to buy and develop land from P. D knew that the city
wasnt going to put in sewer lines, so D exploited that in the final satisfaction.
i. Court said that D can not use this knowledge for exploitation and
profit. D didnt use good faith, therefore can not recover.
b. Van Iderstin co V Leather
i. Where the sell of eel skins. Had to be approved by a third party. Third
party acted in bad faith
1. held that third party can act in bad faith. Partly b/c this is a
sale of goods and they can resell these items later.

Waiver
1) Bad definition waiver is a voluntary and intentional relinquishment of a known right.
2) 2nd RSTMT waiver is a promise to perform despite a non occurrence of a condition. This promise can
be made before the condition is to occur, or after the condition is to occur.

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3) Remember that you can only waive non essential parts of the contract, which is for the benefit of the person
who waives it.
a. However, there are times when you can waive a material part.
i. EX:
1. Owner asks builder to build a 3 story house. Builder only does 2 stories. Owner says
Ill take it anyways.
2. Owner can waive the last story, but owner can still sue for partial breach.
3. or owner can withhold entire payment sues for material breach.
4) Waivers are manifested by:
a. Words,
b. Conduct
c. Allowing others to proceed with performance
d. Acceptance of defective performance.
5) Under UCC 2-607(3)(a), B must give notice of the breach to the S before he can sue for damages:
a. EX:
i. A contracts for the sale of apples Apples arrived at Bs place rotten. B throws them away. B
doesnt talk to A, b/c hes so pissed. Later sues.
1. B accepted the goods by failing to object within a RT. Also B didnt give notice to S.
Therefore when B sues S, thats thrown out, and S sues B for the price of the apples,
B has to pay.
ii. Under common law, no need to give notice. But under UCC, there is a need.
6) EX:
a. Insurance company requires a written notice of claim within 30 days. Person submits it 32 days.
Insurance company can waive it. (this is called an election)
i. If insurance company tells the person before the 30 days, that theyll accept it after the 30
days, thats called waiver before failure of condition.
b. Franchisor and EE sign an agreement where it says this can be terminated by OR anytime within
30 days. Given oral assurance that it is not going to be upheld.
i. This could be a question of parol evidence. But it also can be a question of waiver
contemporaneous with the formation of the contract.
ii. You can even ask for estopple, where EE relies on the promise.
c. Shipsview v Beeche
i. This was the bridge cleaning contract.
1. Idea is that in a real estate contract, time is not of the essence, unless it is stated. this
can also be withdrawn.

Relief from Forfeiture


1) even if the condition is not prevented from occurring and if there is no waiver of the condition, the
condition can be excused, if it is unfair and causes hardship.
2) Note: that the party having the condition excused, will still pay for all the expenses paid by the other side.
3) We also look to the person making the forfeiture.
a. Was it intentional?
b. Was it inadverance?
c. For speculation?
d. And see if the other side has relied or changed positions.
4) 1st RSMT
a. A condition may be excused without other reason if its requirement
i. Will involve extreme forfeiture or penalty
ii. And its extreme or occurrence forms no essential part of the exchange for the promisors
performance.
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b. 2nd RSTMT says
i. D
5) Case:
a. Sharp v Holthusen
i. P and D wanted to get a loan where one party puts down a down payment. Later tries to get
out of it, and sues for relief from forfeiture.
1. court says that this is extreme
b. Burger King v Family Dining
i. Where P and D had a K were D was to open up restaurant every year for 12 years and P was
to grant exclusive area for D to open up.
1. D didnt do it, but that was held extreme and relief from forfeiture.
c. CJ Fertilizer v Allied Mutual Ins
i. Where P sustained a burglary but D refused to pay. Said there needed to be marks to show
that this was a true burgraly.
1. Court says that condition can be excused:
a. Reasonable expectations
i. The reasonable person would expect coverage.
b. Implied warrantee of fitness
c. Unconscionability.
ii. A link between unconscionablitly and forfeiture, is unconscionability is judged when it was
made. Forfeiture is judged when it fails.
d. EX:
i. S to sell real property to B. S is willing to take $1000 to make offer irrevocable. For 60 days.
1. B sends a letter wanted to buy on Day 61. This is not relief from forfeiture. The B
got what he paid for, 60 days of having the offer open.
ii. Tenant was at the LL and needed to give notice to continute living 6 months before the
expiration of the lease.
1. T was making physical improvements on the land and then forgot to give notice. LL
wanted to kick him out. T can cite relief from forfeiture.
iii. Now, suppose the LL hasnt rented to anyone else, but T didnt make any improvements.
The only things T loses is the good will and advertisement of location.
1. the question is how extreme the forfeiture is.

Conditions of Satisfaction
1) you have to see subject to the approval of or subject to the satisfaction of
2) These are expressed conditions.
3) Then ask
a. Personal satisfaction?
b. Or satisfaction of a reasonable person?

38) Good Faith


a. Intro
i. Was introduced, but never really took off
ii. Most good faith cases resolve around the fact that a party didnt use good faith in an implied
in fact or a constructive promise.
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b. The meaning of good faith
i. UCC 1-203 says that every K under this ac imposes an obligation of good faith in its
performance or enforcement.
ii. 1-201(19) says that good faith is honesty in fact in the conduct or transaction concerned.
iii. For merchants, good faith is honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade.
iv. 2nd RSTMT says that every contract imposes upon each party a duty of good faith and fair
dealing in its performance and enforcement.
1. Subterfuge and evasions violate the obligation of good faith in performance even
though the actor believes his conduct to be justified.
2. bad faith may be overt or may consist of inaction and fair dealing may require more
than honesty.
3. However, 2nd RSTMT says this doesnt apply to the formation of the K.
v. EX:
1. employer terminated the K of employee so employee cant collect on bonuses. This is
a violation of good faith.
2. Also held where rejection of goods b/c the market price was falling was also
considered violation of good faith.
c. Cases:
i. Swartz v War Memorial Commission of Rochester
1. Where P was selling snacks and D wanted P to sell beer. K said that P has to apply
for a license and sell alcohol. P refuses.
a. Held that P has a good faith duty to cooperate and breached it by not
cooperating. K didnt have expressly written to sell alcohol, but it was
implied.
ii. Stop and Shop v Ganem
1. where P rented land from D and there were to pay rent and a certain % of the profits
from the store. Later on, they wanted to close the store, and just pay the rent.
a. If it were just % then one must use reasonable efforts (like Lucy v Wood)
b. Here, $22,000 a month is a lot of money, so you dont imply that there has to
be a business running.
c. If one could show that the rent was below the market value, that may
indiceate an implied promise to pay.
iii. Market Street Associated v Frey
1. Where JC Penny sets up a trust that they would sell the land to someone, then buy it
back. There was a provision that if a deal couldnt be worked out, the person could
buy the land back at the price. D tried to be unreasonable and not warn P of the
provision.
a. Held, that in a K, you are not to take advantage of your opposing parties
misunderstanding in contracts.
b. Says that when parties are negoationing a K, there is no need to be so upfront.
c. But once you have the K, people dont have to be wary and you cant trick the
other person.
d. The tie between prevention and good faith is that wrongful prevention and non cooperation
means a breach of good faith. And sometimes, cases will talk about one or the other, but in the
ends, its the same concept.

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39) Abuse of Rights
a. Malicious Motive
b. Exercise of a right is unreasonable and without any legitimate Interest
c. The right is Exercised for an Illegitimate Purpose.

Chapter 12: Anticipatory Breach and Prospective Non performance.


1) Intro
a. Discuses both anticipatory breach and prospective failure of condition
b. Prospective failure of condition includes
1. prospective inability to perform
2. prospective unwillingness to perform.
ii. EX:
1. Suppose if actress is hired and the play is to happen on April 1. She get injured on
March 15, and it looks like she cant perform. Owner hires a substitute and then later
the actress makes a recovery and can perform
a. This is called prospective inability and it gives the employer an option to
cancel the K and hire a replacement.
b. If later, actress makes a recovery, owner would claim that the prospective
inability to perform acted as a failure of constructive condition, justifying in
the cancellation of the K
2. Suppose in stead of an accident, she auditioned and got a part for a move that was to
begin on April 1.
a. This is called prospective unwillingness to perform and the owner may not
change positions on this.
3. But later, if she accepted the part for the movie and said that she was not going to
perform, that is considered an anticipatory breach and a repudiation and therefore the
owner can certain options available to him.
2) Prospective Inability and Unwillingness
a. 1st RSTMT
i. 1st RSTMT is concerned with inability or unwillingness that arises before the party who is
unable or unwilling to perform is obligated to perform.
ii. The permissible reaction depends on the how serious the prospective inability of
performance is.
iii. If substantial performance is still possible, the most that the other party can do is suspend
performance.
1. EX:
a. Suppose that S and B have a K to buy/sell a specific used car, delivery to
made and title to pass on June 1 and B agrees to pay the purchase price on
May 1.
i. if the Car is destroyed by fire, there is no enforcement of the K b/c of
impossibility defense
b. But suppose that S sells the car to someone else. And B buys a substitute car
in response to S selling the car.
i. Because of ss prospective non performance, B is justified in changing
position by buying a different car and therefore was not obliged to
buy. Bs obligations are discharged from the K. Also B can sue S for
total breach. This is considered a repudiation

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c. Suppose that B didnt buy another car, and told S that the K was cancelled.
And also assume that S rebought the car back.
i. Some authorities say there is still a K.
ii. However, UCC would say that when B told S the K was cancelled, it
was cancelled.
d. Suppose instead of selling the car, S told B that he will not deliver the car. B
buys a new car.
i. Bs duty to the K is discharged, but B also has a COA on the K.
2. EX:
a. D agreed to employ P for the lead in an opera. Later P got sick and didnt
know of the time of return. D hired a new lead. Later P is ok, and sues D.
Jury says this is ok.
i. The prospective inability to perform was justified. This is usually
justified on how serious the prospective inability was.
b. Things like this also apply to sale of land where the title has defects.
iv. Also insolvency might be considered prospective inability to perform.
1. LOOK MORE ON THIS 491-492 in hornbook
b. UCC and 2nd RSTMT
i. UCC 2-609 introduced that where a party to a K manifests a serious prospective inability or
unwillingness to perform, the other party may make a demand for adequate assurances of
due performance.
ii. This section provides 3 remedies,
1. the aggrieved party is permitted to suspend performance and
2. is entitled to receive adequate assurances
3. failure to supply adequate assurance may create an anticipatory repudiation and give
rise to all of the remedies available for such repudiation.
iii. 2nd RSTMT adopts a similar rule, but doesnt require the demand for assurance to be in
writing.
iv. So the aggrieved party must first demand for an assurance, unless the prospective
unwillingness can be characterized as repudiation.
1. LOOK MORE ON THIS 494-495 in hornbook

3) Anticipatory Repudiation History and Analysis


a. Where a party repudiates the K before the time for performance arises, the issue of anticipatory
repudiation is presented
b. The courts had difficulty finding a breach b/c no express promise has as yet been breached.
c. Case: Hochster v De La Tour
i. P and D entered into a K where P was to work for a fixed period startin June 1. on May 11,
D repudiated. On May 22, P brought a COA against D. D said that the action was premature
b/c there is no breach.
ii. Court reasoned erroneously that unless P was free to sue immediately he would have to wait
for an actual breach before suing or changing his position.
iii. The problem is that they overlooked the prospective unwillingness to perform which would
allow P to move.
iv. Therefore, from this case, the doctrine of anticipatory repudiation has been followed in
England and in the US. Although some have criticized it, there is also some logic in having
people sue earlier.
v.
4) What Constitutes a Repudiation
a. A position statement,
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i. The traditional rule is that the statement must be so unequivocal that the intent not to be
bound by the terms of the K must be beyond question.
1. EX:
a. I doubt that I will perform not a repudiation.
b. I will not perform unless you provide me financing not a repudiation b/c
theres a condition.
ii. 2nd RSTMT rule the statement must be sufficiently positive to be reasonable interpreted
that a party will not or can not substantially perform. Also language that under a fair reading
amounts to an intention not to perform except on conditions which go beyond the contract
constitutes a repudiation.
iii. UCC 2-610 says basically the same.
iv. Under a modern interpretation, insistence on an incorrect interpretation of an agreement and
refusing to perform except on that interpretation is a repudiation
v. However, in ability to perform is not a repudiation.
b. Transferring Specific Property
i. The sale to the third party is considered an anticipatory repudiation creating an immediate
cause of action.
ii.
c. Other Voluntary Acts.
i. 1st RSTMT A voluntary affirmative act by a party which renders substantial performance
of his contractual duties impossible or apparently impossible amounts to a repudiation.
1. EX:
a. If A wants B to give a tour of somewhere on June 1 and A leaves before hand,
this is a repudiation.
d. The other party then can:
i. Cancel the K
ii. Change positions
iii. Sue for breach
iv. Suspend performance
v. Urge retraction
vi. Ignore the repudiation and coninute, (however, there is no longer mitigation of damages)
5) Repudiation and Good Faith
a. Minority Jurisdiction say that refusal to perform good faith is not a repudiation.
b. Majority view say the opposite.
6) Bankruptcy as the Equivalent of Repudiation
a. Insolvency generally doesnt amount to a repudiation.
b.
7) Retractions: Anticipatory and Present Repudiations Distinguished
a. 2-611 says Until the repudiating partys next performance is due, he can retract his repudiation
unless the aggrieved party has since cancelled, or changed his position or otherwise considers the
repudiation final.
b. This is also in accord with the 1st RSTMT and 2nd RSTMT.
c. The retraction of the repudiation must come to the attention of the other party.
d. But even if there is a retraction, there still might be a suit for breach.
8) Reponses to an Anticipatory Repudiation
a. 3 responses:
i. The injured party may bring an immediate action for a total breach.
1. party must show that they would have been willing and able to perform but for the
repudiation.

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ii. Second response is to urge or insist that the other party perform, urging the retraction of the
repudiation.
1. here, even if the injured party urged retraction, the injured party can still change
position later or cancel the contract later.
iii. Can the injured party still elect to continue?
1. earlier cases say yes.
2. modern cases say no, as there is a duty to mitigate damages
a. EX:
i. A wants B to build a bridge. A repudiates. B still builds the bridge.
3. The UCC says that one can wait a RT for someone to retract the repudiation but
afterwards, there is a duty to mitigate damages.
b. The other party then can:
i. Cancel the K
ii. Change positions
iii. Sue for breach
iv. Suspend performance
v. Urge retraction
1. once you change position, the other party can not retract.
2. 1st RSTMT says this.
3. 2nd RSMT also says if you cancel the K, the other party can not retract.
vi. Ignore the repudiation and coninute, (however, there is no longer mitigation of damages)
vii.
viii. Cases:
1. Drake v Wickwire:
a. Where S and B were buying property. And one party says I am resisting
pressure to close and the other party treats this as a repudiation.
i. Held: this is not a repudiation. They jumped the gun.
2. Cohen v Kantz
a. Where S and B were buying land and B found out some defects in title which
were curable. Didnt tell S and just canceled the K.
i. S sued and said B repudiated. B says that the title had defents.
1. held for S, b/c B shoulda told S to cure it. If S cant cure, then
cancel the K.
9) An exception: Unilateral Obligations
a. No action will lie for the present or anticipatory repudiation of a unilateral obligation to pay money
at a future time or future installments
i. EX:
1. if B says to A, if you walk across the bridge, Ill pay you $100 one year from now.
A walks and B repudiates his obligation. A can not bring an immediate action for the
$100.
2. the same would be true if the agreement were bilateral and A had performed.
ii. EX:
1. A lends B $12,000 and B promises to pay $1000 per month starting one month from
the making of the loan. Before B has to pay the first $1000, B repudiates.
a. Majority of the courts only allow A to sue for $1000 after the $1000 is due. A
can not sue for the total $12000.
i. Here, 2 factor must be in play
1. P has completely performed
2. P is entitled to a fixed payment of money
b. Now, debtors put in accelerations clauses
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i. UCC authorizes these provisions if the creditor deems himself insecure, and permits
acceleration by a creditor at will.
10) Another Exception: Independent Promises.
a. A and B enter into an employment K for 5 years. A the employee, promises not to compete for 3
years after termination of the employment. This is considered independent. Even if B repudiates the
K, A still has to perform that independent promise.
b. However, many courts use other ways to get around this, by public policy, artful interpretation, ect. .
.

Perspective Non performance (not repudiation)


1) perspective inability to perform
a. the Drake case, where they say were resisting pressure to close
b. thats PITP
2) Responses:
a. 1st RSTMT
i. Does permit an insecure party to change positions in response to a serious perspective non
performance
ii. The change of position cuts off the partys manifesting the serious perspective non
performance to retract
b. 2nd RSMT
i. Says that you should ask for assurances.
ii. The insecure party should ask for an assurance. If no assurance is given, then that equals a
repuditation.
c. UCC adopts the 2nd RSTMT rule.2-609
d. Difference:
i. UCC gives a RT, or not more than 30 days.
ii. UCC requires a written demand for assurance

Impracticability and Frustration:


1) Impracticability of Performance: Intro
2) The UCC and the 2nd RSTMT
3) Destruction or Unavailability of the Subject Matter or Tangible Means of performance
4) Failure of the Contemplated Mode of Performance
5) Superveing Prohibition or Prevention by Law
6) Failure of the Intangible Means of Performance
7) Death or Disability
8) Apprehension of Impractability or Danger
9) Impracticability
a. Current Doctorine
b. Foreign and Internatial Trends and Future Develeoepemnts
10) Impracticability as an Excuse of Condition.
11) Existing Impracticability
12) Frustration of the Venture
13) Temporary Impracticability or Frustration
14) Partial Impracticability
15) Subjective Impracticability Contributory Fault
16) Assumption of the Risk
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17) Technological Impracticability Unforseen Possibilities
a. Technological Impracticability
b. Unforeseen possisbilities
18) Foreseeability
19) Force Majeue Clauses
20) Underlying Rationale
21) Effect of Impracticability on a prior repudiation
22) Impracticability and Frustration under the UCC
23) Adjusting the rights of the parties
24) Risk of Casualty losses.

Impossibility/Impracticability of Perforamnce
1) Case:
a. Taylor v Caldwell
i. Music hall burned down. The Destruction was without fault of either party.
1. Court analogies this to a personal services contract. Recognizing the idea here, is that
there is an implied condition that the music hall will not burn down.
2. the later cases, says that the parties didnt plan for this, and therefore it is impossible
to perform. The parties never though about this situation.
3. if the music hall set the fire, there is no defense.
4. if the performance set the fire, itll be called wrongful prevention
b. Supervening illegality
i. Eastern Airlines v McDonnell Douglas Co
1. P was to buy airplanes from D. The Gov. was at war and then took the planes. If D
were coerced, then there is the defense available.
2. remember that if you assumed the risk, you dont get recovery when it doesnt.
happen.
a. Here, there were things that were excluded ejusdem generic but there is the
cause of including but not limited to
c. Supervening illegality
i. For the UCC, there are 4 points that have to be proven:
1. there has to be a contingency, or a supervening event which makes performance as
agreed impractable.
a. The word impractable is not a creation of the UCC, it is common law.
2. the non occurance of the event is a basic assumption on which the K was made
3. this resulted without the fault of the parties seeking to be excused
4. the parties seeking to be excused did not assume a greater obligation.
a. That is assumption of the risk.
i. See the American Trading Production Corp.
1. The court here didnt even get past the first question as listed
above.
2. treated this as an alternate route.
3. 100% incrase is not impractability.
2) UCC
a. 2-613
i. This is like like the music hall case, but the gods are destroyed.
1. EX:
a. If I sell a car and it gets destroyed before it gets to buyer.
b. 2-614
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i. This is like the American trading case.
ii. When the manner of performance is n longer availibale.
c. 2-615
i. General doctorine is here.
ii. No breach if it is impossible. Only recovery is under doctrine of divisibility. And if not
divisibility, then goto restitution.
3) Impractability
a. Something is impractable if it is harmful to ones health.
b. Has to be many many times the actual cost.
4) Putting repudiation and impossibility together:
a. EX:
i. De la tour repudiates on May 11, and P brings suit. P then suffers accient and loses both legs.
P can not show that he would be willing and able to perform but for the repudiation.
1. Therefore no recovery.
ii. Suppose D gets really sick on June 20. They were to leave June 1.
1. Only recover for the 20 days.
iii.
5) Frustration
a. The 4 elements are the same except for the first.
i. It is a supervening event defeats or substantial frustrates a prties principle purpose in
entering the K.
1. EX:
a. Krell v Henry
i. P contracted with D so P can watch the king get crowned.
1. no K b/c it has been frustrated.
ii. There is even more reluctance to find frustration than impossibility.
iii. EX:
1. 407 east 61st ST. v Savory
a. Where P was to park the cars for D. and D was to get 10% of the profits. And
D is to shut down b/c losing money.
i. Says frustration that no point in operating a losing business.

Damages:
1) 3 main interests,
a. Expectation
i. This is the usual damage. Puts P in the position as if the K as fulfilled.
b. Reliance
i. P is restored to the position P was in before the creation of the K.
c. Restitution
i. P gains whatever D has gained via this contract.
2) Hawkings v McGee
a. You have, the damaged hand, the original hand, and the 100% good hand.
i. Expectation
1. difference between damaged hand and 100% good hand and all pain and suffering
above the normal pain and suffering
ii. Reliance

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1. difference between damaged hand and original hand and all the pain and suffering
incurred and doctors fees
iii. Restitution
1. just the doctors fees.
3) Note: under the UCC, if B accepts goods which are non conforming, he still has a COA for damages.
4) For a breach of K, there would be either
a. Compensatory damages
i. Expectation,
ii. Reliance
b. Nominal damages
c. Punitive damages
5) For EXPECTATION DAMAGES
a. E = loss in value to him + (other losses) (cost avoided)
b. EX:
i. S and B were to build a house for $100000. B was to spend $90000 in building the house. S
repudiates. B can sue for $10000 for expectation damages. 100000-90000
ii. If B already spent $30000 in building the house, and none of it was salvageable, then B gets.
100000 60000 = 40000
c. The loss in value is supposed to be the loss in value of the party suffering damages. Sometimes, the
loss in value is hard to prove:
i. EX:
1. Suppose owner and contractor have a deal where contractor breaches. How are we to
determine the damages to owner?
a. The value of the house to him is hard to prove: ex, happiness and ect. . .
b. Alternative is to show how much someone else would have to pay to
complete the house.
c. If that is too high, then we goto the market value.
i. That is the difference between the house promised and deliverd,
(Jacob and young = nominal difference)
ii. EX:
1. Emery case:
a. Where P and D had a K were D was to remove soil and
replace it. Didnt do it. P sues for putting the soil back.
i. Court here didnt look at if the alternative to do
it was too high. Court didnt look too much into
this.
d. UCC expectation damages:
i. S has 2-703
ii. B has 2-711
iii. It is important to know whether or not the goods have been accepted by B or not.
iv. In the category where the goods were sent and accepted, S can sue for the price.
v. If the goods havnt been accepted, then S sues for the market difference
1. EX:
a. S sells a car for 20000. B repudiates. S says market value is 3000. S gets that
money, whether or not S actually sells the car.
2. Same HYPO, but now S repudiates, and the cost of the car has gone up to 23000. B
gets 3000 in damages.
e. Remember, that you still dont get attorneys fees, so youre never back in the same situation as you
are after the K.
i. Exceptioin
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1. statutory
2. K could provide for reasonable attorneys fees
3. S - B B2
a. S fails to deliver to B. therefore B fails to deliver to B2. B2 sues B and wins.
B can sue S and include the cost of litigation with B2. but Bs cost of
litigation with S can never be recovered.
6) Mitigation of damages
a. There is
i. Avoidable consequence negative
ii. Avoidable consequence affirmative
1. problem 8
iii. Avoided consequence negative
1. thats as if I went out and got a job to mitigate damages.
b. EX:
i. Ballard case:
1. Where company breaches the K and P sues. It is up to the company to prove that P
could have taken other jobs in the mean time and therefore could mitigate damages.
a. In this case, P proves the K, and what he is to be paid.
b. The company proves that P coulda got another job and therefore try to reduce
the damages.
c. However, an independent contract never has to mitigate damages, as one contractor can build more
than 1 building at a time.
d. Hadley v Baxendale
i. P had a mill. The crank broke. Gave it to D to get it repaired. There were delays. P sues for
lost profits due to delay.
ii. There are two rules of K damages:
1. one that arrises naturally and is according of the breach itself
2. or that is reasonable to suppose to have to be in the complemplation of both parties at
the time when they made the K.
iii. It is very important to know that this is at the time when the K is made
e. Types of damages:
i. General
1. the damages you are deemed to have suffered even if you dont suffer it.
a. EX:
i. Selling the car for $20000 and get damages, and later dont sell the
car.
ii. In this case, the natural damages would be the difference in price of 1
day shipping and 4 day shipping.
ii. Special or consequential damages
1. UCC says 2-715 for B, and 2-710 for S.
2. Could also be characterized as affirmative avoidable consequential damages.
3. they have to be proved, and you have to show that they have to be anticipated at the
formation of the K.
4. when you see this ask:
a. are these foreseeable?
b. Could they be covered by assumption of risk?
c. Are they proximately resulting from the breach?
5. EX:
a. Actor who suffers publicity loss
7) Reliance Damages:
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a. EX;
i. Case: Gruber v SM News Co.
1. P made greeting cards and there was a K with D where D was to sell Ps cards. D
didnt want to sell them and breached.
a. P has to prove the K and what P would have made with reasonable
certainty provided that D used reasonable diligence.
i. This was impossible to measure. P can not show how successful or
unsuccessful these cards would be. First time making cards. No past
performance to base it on.
ii. This means that P can not recover on expectation damages.
b. Here, P has no idea if these cards are going to be successful or not. So P can
not prove damages. So P asks for reliance
c. Suppose that it cost P 20000 to make the cards, and that if D were to sell
them, D would only sell 15000. This is a losing contract. When P sues for
reliance, P wants the 20000. D then has the opportunity to show that this is a
losing contract, and that P should only get 15000.
i. But D can not do it here, b/c the damages are hard to find as to
reasonable certainty
d. So P gets 20000 minus mitigation of damages (Firesale of the cards) (2000).
2. But note that this puts P right before the agreement. So if P had the plates creates
before the agreement, the cost of those plates can not be included in the reliance.
b. REmemebr still about the 3 types of damages
i. General
ii. Consequential
1. Hadley (mill crank shaft)
iii. Incidental

Restitition
1) Not available for all breaches
2) Only when there is a material breach and the other party wants to cancel, then maybe theres restitution.
3) Case:
a. EX:
i. Oliver v Campbell
1. Where a lawyer was to perform for a guy for 850 dollars. Actual retail worth is about
50000. Guy fires the lawyer right before the end of performance. Lawyer sues for
restitution for the reasonable value.
2. Held: no restitution b/c the lawyer substantially performed and the only obligation in
the K was payment by the man.
ii. HYPO:
1. Suppose a guy was to build a wall. Owner fires the guy after 2/5th completion..
Suppose the serives cost 5000. Contract was for 850.
a. Exceptation: loss in value is 850. the cost avoided is 3000. so ZERO recovery
b. Restitution: P spent 2000 so far. So P would prove 2000. D then proves this is
a losing K. And that P woulda lost 4150 if he did the K. Therefore ZERO.
(2000 4150)
c. Restitution: there are 3 views:
i. We should pro rate the 850. 2/5 of 850 is the recovery.
ii. 850 is the high point. Any recovery up to 850. You can prove higher
than 850 if you want.
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iii. 850 is looked at just evidnce., you can prove RV and let the court/jury
award what you want.
iv. (2-3 are majority views)
2. going back to the case:
a. you want the client to fire at any time, so therefore maybe 2 is the best view
for lawyer/client relationship
4) There is a right of restitution in the case of non performance, however, if if there is an election or if there is
a partial breach, there is no restitution.
a. 373 of RSTMT (look this up more)
5) Anther ex:
a. Suppose S and B had a K where S was to sell some land for 100000. B repudiated. The land value
went up to 150000.
b. S wants the broker fees back and sues for 6000 in reliance.
c. B argues that since the land went up, that S is already better than before the K was made.
d. Some jurisdictions say that S can recover, others not.
6) UCC case:
a. Where S is to sell goods for 10000. B breaches. Market value is 7000. S manages to sell for 8000.
b. S sues for 3000. B says that S managed to sell for 8000.
c. Authorities are split on this as well.

Punitive Damages

1) Idea is that theyre generally only available if someone suffered bodily injury or if it is a tort
2) Patton v Mid Continental Systems
a. Where P was to give D an exclusive area and D was to use Ps credit cards.
i. Posner says that if you give punitive damages, itll screw up the efficient breach.
3) EX:
a. A has K to sell machine to B for 10000. B values it at 12000. C values it at 18000.
i. Posner says let A sell it to C, and pay B 2000 in damages.
ii. Critique: Why let A profit? B can profit too.
iii. England:
1. Allows restitution on this type of claim
iv. US
1. Doesnt allow, b/c B didnt benefit A of the 8000 dollars.

Liquidated damages:
1) case:
a. Wassenaar v Panos
i. There is a stipulated damages clause. Employer terminated the K 21 months before the
conclusion of K.
2) Rule
a. Did the parties intend to provide for damages as a penalty
b. Is the injury caused by the breach one that is difficult or incapable of accurate estimation.
c. Are the stipudated damages a reasonable forecast of the harm.
3) Types of damages recoverable:
a. Consequential damages
b. Permanent injury to professional reputation
c. Loss of career development opportunities
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d. Emotion stress.
4) Traditional test:
a. It looks at the situation at the time of contracting, looking forward to the prospect of breach and if it
is reasonable from the time of contracting.
5) Modern test:
a. UCC 2-718
i. This has to be reasonable in light of the actual harm or anticipated harm.
ii. EX:
1. Suppose P didnt lose even one day of pay and managed to get a better job b/c of Ds
breach.
a. If the damages were reasonable at the time of contracting, they are still
enforceable, under both modern and traditional view.
b. 2nd RSTMT says that if it is clear no harm sufferd, then no recovery
6) Shotgun Clause, or BlunderBuss Clause
a. This is a liquidated damages clause that gives the same amount of money for breaches both big and
little.
b. If it were one amount, under traditional view not valid
c. Under modern view could be valid.
7) Distingh between limited liability and liquidated damages provision
a. Limited liability the only remedy is an exchange of products. Or exclusion of consequential
damages
b. These are all valid unless they are unconscionable.
8) Also, just b/c there is a liquidated damages provision, you can still go for specific performance.
9) Make sure it is not a penalty. If it is a penality, that clause will be thrown out.

Specific Performance:
1) Case:
a. Laclede Gas Co v Amaco
i. Amoco breached and P sued for specific performance. Denied. Appeals court reversed b/c P
cant find another supplier which is as attractive as this one.
b. NIPSCO v Carbon Coal
i. Posner case, talks about if specific performance not efficient. Ect. ..
2) Granted when:
a. Hard to find alternative option
b. When the item is unique (like a piece of land)
3) Think about
a. Size of project
i. If a court orders that a construction is to continue, the court will be the foreman to make sure
everything is going well.
b. If the K is definite enough to be granted nice and tasteful railway station
4) Defenses:
a. Impossiblilty or impossiblilty in fact
b. Unconscionability
c. Unclean hands
d. Laches
i. Defense when there is an unreasonable delay casusing harm to D.

Statute of Frauds

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1) Anytime you see a writing requirement, youll see something called a statute of frauds:
a. Terminology
i. If a K is voered by the SOF, that means its withint he SOF and subject to the rules.
ii. Otherwise the K is outside of the SOF.
b. Sufficient Memorandum
i. The K itself doesnt have to be in writing, but there needs to be some written evidence of the
K.
c. If you dont satisfy the statteu, you have to take the case out of the statute:
i. Promissor estopple,
ii. Exceptions to the writing requirement
d. If the K is within the SOF and there is no sufficient memo and there is no docrotine to take it out of
the SOF, then the K is in the SOF and therefore. . .
i. It is either void
ii. Or unenforceable majority view.
2) Termination provisions:
a. EX: 2 year contract where both parties have a right to terminate with 30 days notice:
i. The majority view the termination provision doesnt affect the SOF. still is in the SOF
ii. Minority view says that this takes it out of SOF (like alternative performances)
3) Alternative prerformacne
a. EX: I am to work for you either for 2 years at 2 hours a day, or for 6 months at 8 hours a day.
i. Majority view within the SOF
ii. Minority view not within the SOF
iii. NY view NY follows the minority view, unless the D is stuck in a long term K. Then the
K is back in the SOF defense.
1. EX:
a. Employee quits. Boss sues. Employee would be stuck in a long term K, gets
the defense.
b. (get a real example)
4) If one promise is within the SOF, then both promises are:
a. A promises to pay $40000 to B upfront if B works for 2 years.
i. This entire K is under the SOF.
5) Memorandum
a. In general, the function rquire a signed writing requirement as evidence of a K.
b. 3 basic functions
i. Channeling
1. separates what is enforceable and what is not
ii. Evidentiary
1. it does help to provide evidence of K
iii. Cautionary
1. encourages parties to be more careful in drafting.
c. Questions occur when this is a signed offer by one party.
i. If could be if the party that is being charged signs the writing.
d. Also the signature doesnt necessary have to be at the bottom.
6) Case:
a. Crabtree v Elizabeth Arden Sales
i. Whether more than one doctument can be used to combine into an SOF
1. answer is yes. between memo and paystub, that is enough to determine the fact the K
has a writing element and satisifies the SOF.
2. if there are internal referesess between the two writings, they cn be liked to one.
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ii. NOTE:
1. D can try to attack the memo. D can say that the K was actually for 1.5 years instead
of 2. Then D is trying to say that the writing is not an embodiment of the K.
2. the parol evidence rule can be used to stop D from attack the memo. But remember,
only if the memo is a full integration can the parol evidence rule be used.
7) Doctrines which take the case out of the SOF
a. Full performance on one side
i. If there is full performance on both sides, there is no SOF issue
1. full performance on one side:
a. majority view out of SOF
b. minority view NY rule: still in the SOF.
ii. Part performance doesnt take it out of the SOF
iii. Promissory estopple can take it out of the SOF.
1. 3 possibilities. (from easy to hard)
a. A party agreed to sign the memo
i. Reliance on the party to sign the memo.
b. Reliance on a modification of the K where there is no signed writing
i. Problems 15-17
c. Reliance on the initial unenforceable K within the SOf.
i. McIntoh case
1. where employee was to move to Hawaii.
a. Lets say the K was formed at the telephone call. This K
is in the SOF.
b. here, restitution doenst work, b/c no benefit conferred.
c. The reliance is a better recovery.
8) Case:
a. Klewin
i. P is a construction manager. D wants to build real estate. D does a 120 million dollar project
of which P gets a %. After phase 1, D doesnt like P and wants to fire him.
1. if this K is within the SOF, then P loses.
2. but even if it is out of the SOF, P still has to prove the K and the breach and damages
and ect.
ii. we look at this K and see that although the construction would take 2-10 years, we ask, is it
possible for this to be complete within a year.
1. the answer is yes.
a. but if you had an employment K where it was to run for 2 years, theres no
way that can run actually in 1 year.
b. Erhlich v Diggs
i. There is a right to terminate at any time. Where P and D had the record contract where P
was to get a certain %.
ii. Since D had a long term K to pay P the monies, this puts it back in the SOF. NY is looking at
the fact that the records might sell and the performer has no way to cut off that obligation
and therefore the performer is stuck with a long term K.
iii. Therefore under majority view, under SOF. Minority view says its not in the SOF.

Third Party Beneficiary


1) Two questions in every case:
a. Is P entitled to sue?
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b. Will that person win? Think about defenses.
2) Examples:
a. Disney Example
i. Y

X Disney
1. X has a K to sell land to Disney. This sale makes Ys property less valuable.
2. X is the promisee. Disney is the promissor.
3. Here, Y is not in privity n the K. Y has no right to sue.
b. Dutton v Poole
i. Daughter

Father Son
ii. Father wanted to sell some land to give the $ to the daughter. Son says, dont sell the land,
and I will give the daughter $. Father dies and son doesnt sell the land.
iii. Court says that this is a family relationship, and we will enforce this for moral reasons.
iv. 1st RSTMT calls this a donee beneficiary case.
c. Lawrence v Fox
i. Lawrence

ii. Holly Fox


iii. Where Fox promises holly to pay the next day. Holly says instead of paying me, go pay L
who I owe 300 bucks.
iv. This is called a creditor case.
v. Arguemnt that L didnt supply any consideration, but that isnt required since there was a K
between H and F.
d. Farley v Cleaveland
i. Farley

Moon Cleaveland
ii. Moon sells hay to Cleaveland, Moon owes money to Farley. And Cleaveland promises both
parties that he will pay Farley.
iii. The difference between this and Dutton case is that there is a promise by Cleaveland to both
parties
e. Vrooman v Turner
i. Bank

C D
ii. Bank lends money to A. A gives back a bond and mortgage on real property. The bond is the
promise to pay and the mortgage means that the bank can foreclose on the real property.
iii. B can sue A for any loss from the property.
iv. A sells the land to C but C doesnt assume the mortgage. C then sells the land to D, and D
assumes the mortgage.
v. When B sues D, D says that C never assumed the mortgage and therefore there is no privity
and B can not sue D.
vi. Since there is no promise, bank can not sue.
vii. Both RSTMT disagree with this. This is the law in about half the jurisdictions.
f. Seaver v Ransom
i. Niece

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ii. Wife Judge
iii. Where Wife wanted to give some $ to her neice and the judge says Ill do it. Later he dies
without giving the $.
iv. Says this is ok to sue b/c this is like the Dutton v Poole case.
g. Lucas v Hamm
i. The persons receiving the $ from a will

ii. Person dying lawyer


iii. Lawyer screwed up and the person receiving the $ from the will got less than what they
deserved.
iv. The P could sue the lawyer, however, the rule against perpetualties is confusing and
therefore no breach.
h. Moch v Rensselaer
i. P

ii. City water company


iii. Ps house burned down. Sued the water company saying P is a TPB of the contract between
the city and the water company.
iv. Court says P can not sue, otherwise there will be too many lawsuits. crushing burden
i. Case:
i. Injured Employee

ii. Employers owner


iii. Employers were taking up a collection to give to the employee. The owner said. .stop and
Ill give him some $.
iv. Later the owner didnt do this.
v. Doesnt fall under the creditor category b/c there is no debt.
vi. Doesnt fall under the donee category b/c this is not a family.
vii. So no lawsuit. Only way for lawsuit is reliance by the injured employee on the promise by
owner to sue.
3) 1st RSTMT categories them either in a donee or creditor.
4) Question of intent to benefit: this is the 2nd RSMT idea
a. Ask if the parties intended to benefit a certain plaintiff, either by donee or creditor.
b. 1st RSMT asked about donee or creditor/debtor fact pattern.
5) 2nd RSMT tries to limit the creditor type in 2 ways
a. To fall within this category, there needs to be an actual obligation
i. Under 1st RSMT, a supposed obligation was enough to fit within this category.
b. The obligation has to be one to pay money (not to render services)
c. EX:
i. Owner

ii. General contractor Sub contractor


d. If the owner is a TPB, 1st RSMT could call O a TPB under creditor.
e. But 2nd RSMT wouldnt see it. Have to fit it under the donee type.
6) You dont need to know who the TPB is at the time of contracting.
a. EX: funeral home is fine.
7) P can also be a TPB of both parties
a. EX:
i. P
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ii. A B
iii. A promises B and B promises A to both give $100 to P.
iv. Therefore there are two lawsuits under TPB
8) Defenses:
a. For TPB against Promissor
i. Under TPB (like Lawrence) the promissor can assert any defense that the promissor would
have against the promissee.
ii. Unless the parties agree to not use such a defense.
iii. The parties can always agree that someone is allowed or not allowed to sue also.
b. May the promissor assert a defense by promisee?
i. That depends on the interpretation of the agreement.
1. when Fox promises to pay 300, is it a promise to pay whether ot not the promisee is
liable for it?
2. or is it to pay for the extent that the promisee is liable.
ii. Only if 2 occurs, can Fox assert such a defense.
c. For TPB against promisee
i. Back to the father/son/daughter case
ii. There is no obligation for the father to pay the daughter, so there is no lawsuit
iii. SUPPOSE
1. there is a second agreement where son pays the father 2000 so that the father is to
pay the daughter.
2. under 1st RSMT, the daughters rights already vested so she can sue the son.
3. but she can also sue the father, under a restitution claim.
d. For Promisee against Promissor
i. In a donee case, the promisee can only get nominal damages
ii. But in a creditor/beneficiary case, there can be more damages.
9) Vesting:
a. Suppose in Lawrecnce, Holly and Fox retracted their agreement.
b. That extingishes the rights ot Lawrence, the plaintiff, UNLESS there is vesting.
c. When does Vesting occur?
i. 1st RSMT
1. in donee the rights of the party vest immediately upon formation of the initial
contract.
2. on creditor, there is vesting upon reliance of plaintiff.
ii. 2nd RSMT
1. there is no difference between the two and vesting occurs when one of 3 thing
happen
a. P relies on the original agreement before learning of the subsequent
agreement
b. P brings a suit to enforce the original agreement
c. P manifests assent to the original agreement at the requiest of promissor or
promissee.
iii. Think about to the employor/employee/owner case:
1. the employers relied, but the injured employee didnt rely.
iv. Identity must be known for vesting.
1. EX funeral home cant argue vesting.
d. Also the parties can provide the rules for vesting.
i. Ex
1. life insurance, where you name a beneficiary. They can never vest.
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e.

a.
b.

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