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Contracts Bender Spring 2013

Intent to Contract
- A contract is a binding promise of future action
o Requires an agreement bargained-for exchange
o Requires offer and acceptance
o Entering into a contract is voluntary gives parties autonomy to create
their own law
- Lucy v. Zehmer, VA SC, 1954
o Drunk guy sells land on a bar napkin, thought he was joking
o Delivery of a contract may be evidence of assent
Here he handed the napkin to buyer
Communicates the promise to the other party
Contract was formed upon delivery
o Lack of reliance on the contract before it was said to be a joke is
immaterial
o Intent to contract is determined by an objective standard
Would a reasonable person in the position of the other party
have thought there was an intent to be bound
Subjectively considers what each party knew or should have
known
- Matters of law vs. fact
o Facts are not overturned on appeal unless reasonable minds could not
differ aka trier of fact was irrational
What a reasonable person would conclude if in position of the
party is a fact question
Very hard to get a reversal on this on appeal
o Matters of law are reviewed for error on appeal
Language of a K is interpreted as a matter of law
If a term is vague or if K is void for indefiniteness
- Remedies
o Damages are always available
Judgment which makes P an unsecured creditor of D
Expectation damages
The money you could expect had contract been performed
fully minus the situation as of today
o ie if non performance made things worse, you will
be compensated for the loss from your starting
point plus contract value
Not compensated for the money you would have spent
performing contract, since this is making situation as if
contract had been performed by all parties
Reliance damages

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Recuperation of losses due to reliance on the K
Makes party whole to pre-K position
Restitution recovery
Not called damages
Based in quasi-K law to prevent unjust enrichment
Focus is on benefit gained by D, not investment by P
o P may only recover benefit he conferred on D
Sometimes available when damages are not
o Specific performance sometimes available
Court order to perform the contract
- Agreement without a contract
o No legal consequences of the agreement gentlemens agreement
If parties expressly or impliedly show they do not intend the
agreement to be legally binding, courts usually enforce that
o Balfour v. Balfour, Court of Appeals, 1919
Married couple agreed on a living stipend while together
Not enforced as a contract because no intent to be bound
Couple was living together and married
Intent was implied by circumstances
Contract law here would interfere with domestic relations
o Texaco v. Penzoil, Texas Appellate Court, 1987
Getty had a low share price, therefore was a takeover target
Penzoil puts in offer contingent on restructuring within
a year, otherwise assets liquidated and Penzoil will get
3/7 of assets
Board of Directors never signed Memorandum of
Agreement, and agreed with Texaco before a final
agreement was produced
Penzoil suing Texaco for tortious K interference
Is Memo of Agreement a contract or preliminary agreement
If one party has reason to know the other does not intend
to be bound, there is no contract
o Factors to consider in determining if agreement is binding
Expressly reserving the right to be bound only by a final
agreement
Partial performance
Essential terms agreed upon
Complexity/magnitude of transaction
NY factors are from Winston v. Media Fare
2nd Restatement lists 8 factors
Most states have 5-6
- Agreement to negotiate in good faith
o Between a preliminary and final agreement
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o Usually gives reliance recovery not expectation recovery
This is why no one in Texaco advocated this

The Offer
- Dependent on there being a promise
o Must have an expression of intent
More than just a statement
o Analyzed by a reasonable understanding standard
Factors to consider
Language
Conduct
Circumstances
o If the language of the contract is clear, this analysis is not required
o Hawkins v. McGee, NH SC, 1929 + Sullivan v. OConnor, MA SC, 1973
Two promises made by doctors regarding patient recovery
Statements are usually not promises since doctors dont have full
control over the outcomes
Express promises will probably be only to
o Cure
o Achieve a specific result
o Use a certain procedure
Look at if patient would understand statement as a promise
Doctor will say statements have therapeutic value
Many states require doctor promises to be written
Sullivan v. OConnor required clear and convincing
evidence higher than preponderance of evidence
o Fault makes no difference in determining breach
- Creates a power of acceptance in another party
o That party need only accept to create K
o Must be the final round of assent, not when another is expected
Ex. when parties dont intend to be bound until final agreement
No clear rule for Letters of Intent
- Advertisements
o Leonard v. Pepsico, SDNY, 1999
7 million Pepsi points for a Harrier jet
Advertisement was not a promise
Requires language of promise
o First come, first serve
o Some limit on quantity
No liability beyond that quantity
From Lefkowitz
This aligns with customer expectations customers
understand there is not an unlimited supply
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o Placing an order is the offer
This is the first commitment to quantity or price
Seller then accepts or rejects this offer to buy
o If advertisement has a typo, courts are less likely to find it binding
Even if the ad itself is not sufficient for an offer, promises within
it may be enforced at a later time
- A solicitation for bids is a call for offers
o No duty to accept the lowest one, since offers create the power of
acceptance in the offeree
o An estimate is not an offer
An estimate is treated as if there is no price, therefore a
reasonable price will be required
At common law and today
If the letter says estimate but is very specific and offering party
is able to calculate price precisely it may not really be an
estimate and would be considered a price term by court
Unless you can show offer was made in bad faith
- Lonergan v. Scolnick, California App Ct, 1954
o Vague newspaper to sell property, series of letters giving details
o Form letter
If something is marked as a form letter, less likely to be
considered an offer
Also stated a rock bottom price not indicative of offer
o Letter said if you are interested decide quickly
This should tell buyer there are other potential buyers
Clarifies no offer has been made
o Courts like real property sales to be more explicit
- A question cannot be an offer
o If the answer is yes, that is the offer
o The circumstances and pattern of communication could override this

Indefiniteness
- When a term is vague
o It may seem like parties agree but term is actually unspecified
No discernible meaning for a given term
o Vagueness tends to suggest parties do not intend to be bound
Even if there is intent, promise is not enforceable
No K will form if term is sufficiently vague
o As opposed to ambiguous two or more finite meanings
- When doing an indefiniteness analysis
o First determine there was an intent to be legally bound
If no intent to be bound, terms may not be supplied
Real property sale requires clearer intents

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Intent may be found by conduct it parties perform K for years
- Fairmont Glassworks v. Crunden-Martin, Kentucky App Ct, 1899
o Letters to buy a bunch of various-sized mason jars
Letter does not state quantity but it was said in prior letter
For immediate acceptance
Detailed terms, responding to prior price quote
o This is an offer
o Willistons rule
If a seller sends a detailed price quote to buyer its an offer
This is overbroad not true if it is the first communication
- Common law, NY law, 1st Restatement
o A K is void if a material term is vague
o Courts may only enforce Ks, not create them
- Categories of indefiniteness
o Purport to agree
Seems like parties agree but actually vague
This determination may require additional evidence
ie industry usage
This then becomes a question of fact
Ex. Selling at a reasonable price
Vague unless specified how reasonable is determined
o Silent
Term is just not discussed
At common law, objective term may be supplied
Courts want to effectuate intent of parties
There must be a way to determine an objective term
Courts generally willing to do this
o Agree to agree
Parties intend to agree on term in the future
Void at common law
Strong evidence no intent to be bound
Martin Deli v. Schumacher, NY CoA, 1981
Future rent to be agreed upon
Court found it void for indefiniteness
Minority view would have implied a reasonable rent, since
tenant had been paying for that option to renew prior to
renewal
o Not enforcing this renewal right would unjustly
enrich landlord
o Party may name the term in the future
Common law courts were divide
Allowed in Fairmount
- Material terms
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o Always material
Subject matter
Quantity
Quality
Price
Delivery
o These are all performance terms
No void for indefiniteness for enforcement terms
Ex. dispute resolution, choice of forum
- Usually no expectation damages for indefiniteness
o Too difficult to determine expectations when the terms of
K/performance are unknown
o When performance is not highly dependent it being done by that
particular party (ex. building a deck, neat train station) courts are
likely to order specific performance
- Hybrid Contracts
o Good plus something else
o Predominant Factor Test
To determine if a contract is a goods contract and under UCC
Factors to consider
Language
o Words like buyer/seller
o Purchase Order
How is transaction billed
Are good movable when delivered?
o Assembling raw materials is a service not goods
o UCC says restaurant meals are goods
- UCC on indefiniteness
o Bargain of the parties (not court) including trade usage
Trade usage, course of dealings or performance may imply
indefinite terms
o SW Engineering v. Martin
K with silent payment terms parties hadnt thought of it
Court found parties intended to be bound though
UCC 2-209
A contract may exist even if court cant determine when it
came into being
If parties intended to be bound, indefinite terms will not
void the contract
There must be a reasonably certain basis for granting the
remedy though
o Common law required reasonably certain terms, UCC requires a
reasonably certain basis for determining a remedy
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o Reasonable term will fill in for
Purport to agree
This would technically use the gap filler but Bender thinks
they would first try to set the term where the parties
intended it
Agree to agree
Need intent to be bound
And reasonably certain basis for remedy
Will usually be reliance recovery, because it is hard to
have a reasonably certain basis for recovery without 2
Silence
o Default terms
Single delivery of all goods
Delivered to SELLERS place of business
Reasonable price
Payment due when goods are delivered
o UCC 2-305 Open Price Term
Reasonable price at time of delivery
Determined objectively by circumstances, trade usage
Same as a silent term implied under common law
If parties agree, gap fillers need not be used
o Full thought process under the UCC
2-204(3) Did parties intend to be bound?
Is there a reasonably certain basis for determining a remedy?
Then move to gap fillers to determine damages
o If a material term is indefinite but there is no gap filler or objective
standard, contract is void
- *Note on delivery term delivery to a carrier may be sufficient
o Payment only due upon receipt though
- Negotiate in Good Faith
o Common law concept
UCC is silent on this
o It is not breach if parties fail to agree but negotiated in good faith
o Copeland v. Baskin-Robbins
Indefinite quantity term
Contract found to be valid parties intended to be bound
Reliance damages were given
Without the quantity term there was no way to have an
expectation to recover against
Some courts may have recognized this as an Agreement to
Negotiate in Good Faith through promissory estoppel
It was a promise foreseeably/reasonably relied upon
Limited to reliance damages
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o Some courts will treat an agreement to negotiate in good faith as an
agree to agree
The UCC can supply a gap filler
Expectation recovery is then possible
o Oglebay v. Armco
2nd Restatement wants the UCC rules to apply to non-sale of
goods cases
Contract has a two rate mechanism
Really a purport to agree contract
Very long term
o Court is more forgiving of indefiniteness because It
provides flexibility
o Prices change over time
o Performance requires capital investments
o Termination provisions are important, setting
compensation/dispute resolution schemes
Both rate mechanisms failed over time
Reasonable price term filled in (per UCC and 2R)
This is a service contract, so UCC rule was broadened to apply
Seeking specific performance
No jury
Contract will continue with term set by Court
No need to prove breach
o Breach is only required for damages
o Bender thinks this will probably require showing
bad faith in order to establish this breach
- Severability
o Severability is a question of intent
If the void provision is for the benefit of only one party, only that
partys intent matters
Would party have entered this contract without void
provision
o Eckles v. Sherman
Basketball coach contract dispute
Agree to agree on option to purchase stake in team
Silent pension term
Severability clause
Question will be whether coach would have entered contract
without those provision requires a trial
- Indefinite Durations
o Time for performance when performance must be completed by
o Duration Magnitude of performance
o Hanes v. NYC
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No duration of NYC water system contract
Court supplied a reasonable duration term
At will termination or perpetual duration were no good
Court unlikely to find a perpetual duration when contract
requires an affirmative performance
At time of suit, contract is still within reasonable duration
Also a question if they must extend further sewage lines if it
requires building a new plant
Court said this was outside the scope
o Indefinite Duration in Employment
Old rule was that an employment contract duration was
presumed to be 1 year
Not presumption in at will employment states is that
employment is terminable at will by either party
Presumed unless provided otherwise
NY adopted at will employment in Martin v. NY Life
Wagonseller v. Scottsdale Hospital
Employers may usually fire for good, bad, or no reason
There are three exceptions where wrongful termination
suits may occur
o Firing is against public policy
o Employee manual becomes part of employment
contract and has implied/express promises
If the manual is reasonably perceived by
employees as making promises
May imply firing only for good cause
Fact question
o Violation of good faith and fair dealings
Implied in every contract/performance
May not override express terms of K
This case finds a public policy exception
o Refusing to do an act that is against the law is a bad
cause for firing and against public policy
- Breach
o Suing for specific performance does not require proving breach
All parties are ordered to perform the contract
o Damages require a showing of breach
When parties had agreed to agree, one party will not be made to
pay damages correlating to a term they never agreed to
Bender thinks you might only get damages if one party failed to
negotiate in good faith
This will give expectation recovery based on gap filler

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Therefore failure to negotiate in good faith is one way to
prove breach

Acceptance
- Types of contracts
o Unilaterial only one promise
Performance by offeree forms contract
o Bilateral two or more promises
Exchange of promises forms contract
Forms earlier than bi-K
- Offeror is master of the offer and may define the manner of acceptance
o Traditional view
Offer is single-minded, only invites acceptance by one means
Bilateral
Invites acceptance by promise
Unilateral
Invites acceptance by performance
A promise to perform does not create the contract
Offeror may specify a preferred means of acceptance
If requested means of acceptance is ambiguous, default is
by promise
This is because law prefers bilateral contracts
o Contract exists earlier
o Both parties have rights against the other
o Carhill v. Carbolic Smoke Ball, Court of Appeal, 1893
Puffery exaggerated claims
Usually not viewed as promises
Must consider if reasonable person would view comment
as a serious promise
There is a presumption that ads for goods are not offers
This is not for a sale of goods, so no presumption
The offer is similar to insurance Carbolic Smoke will pay
to any user when a condition precedent is met
Acceptance here is using the product as instructed
This creates a uni-K
Actually getting the flu is a condition precedent to the
companys obligation to perform
Getting the flu is not acceptance because acceptance must
be a voluntary act
Offer may not be revoked by another ad because it has already
been accepted
Duration of the K is silent, so you must get flu within a
reasonable time to get a payment
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o Leonard v. PepsiCo, Part 2, SDNY, 1999
Reasoning based on Carbolic Smoke reward offer logic
But here promise was not reasonably specific
- Acceptance requires actual knowledge of the offer
o And must be intending to accept
Based in consideration doctrine
1st Restatement would consider subjective intent
2nd Restatement looks to objective intent
If there was actual knowledge there is a presumption of
intent to accept
o Offer need only partially induce performance
o Broadmax v. Ledbetter, Texas SC, 1907
Returned an escaped prisoner without knowing of a reward
offer
Not an acceptance
Liability is created when a promise induces a party to perform
o If performance takes place over time
Classical rule knowledge required from the beginning of
performance
2nd Restatement knowledge required by completion of
performance
It is important how each side will define perf.
Ex. In Carbolic Smoke, the ad was to induce purchase, so
you could argue perf. Was purchase and use, or just use
- MCC Marble v. Ceramica Nouva DAgostino, 11th Circuit, 1908
o Signed Italian contract without understanding it
o Still an acceptance
Signature was an acceptance by promise, it was no the actual
performance
o When acceptance is by promise we do worry about actual knowledge
of the offer, because signing is a sufficient manifestation of assent that
another party would reasonably understand it as an intent to accept
Creates reasonable expectations
- Notice of performance
o Unless requested, there is no duty to give notice you intend to perform
o Traditional rule is that no notice of completion of perf. Is required
Notice of performance is required if offeree has reason to know
offeror will not learn of performance with reasonable
promptness and certainty
Only requires reasonable diligence to notify
Within a reasonable time
Offeror does not have to perform if reasonable notice is required
and not given within a reasonable time
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K is formed upon performance and has a reasonable
duration (unless otherwise stated) so it will be
enforceable until a reasonable time has passed without
notice
Offer is revocable until notice of performance is given
Some courts consider acceptance to be both performance
and acceptance
This is problematic though, because offer can be revoked
after full performance but before notice
o Modern view that acceptance by promise must be communicated
Offeror may explicitly forego this notice if offer is clear what is
required
Saying Contract will become binding on [date] does not
dispense with notice requirement
We dont know if offer was in fact accepted by that date
Courts are reluctant to find a communication requirement has
been dispensed with
If contract says commencing performance will bind contract,
then starting performance need not be communicated
- Series of Unilateral Contracts
o Each time there is performance, a new unilateral contract is formed
o Thus a standing offer is revocable as to future performance
o Notice generally required only upon first performance, not every
Some courts hold offerors to have a duty to inquire about the
first performance
This duty to inquire would be instead of offeree duty to inform
o Today Carbolic Smoke would require notice
Company wouldnt reasonably learn of the condition precedent
Notice of produce use would not be required because it is
meaningless
Carbolic Smoke may want to send doctors
o Determining if single or series of unilateral contracts
Must consider what reasonable person in offerors position
would conclude
May be explicity in contract
Primary factor is how burdensome performance is
The more burdensome performance, the more likely to be
an irrevocable single offer
o Performance in front of offeror will likely be notice
May also be an implied promise if scope of work is defined
But starting work does not require offeree to finish it, so a
promise may need to be communicated to offeror
- 1 Restatement view
st

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o Exception to offeror as master of the offer
o If an offer to a bilateral contract is performed in the time a promise
could be made to accept there is a contract
Notice is required
This rule is in 1st Restatement only, 2nd is more flexible
- Accepting a reverse unilateral contract
o Offer is made when offeror performs
o Offeree accepts by making a promise
o Such as applying to college
Offer is made by performance when submitting an application
School is promising to review the application when cashing your
check
- A written acceptance is deemed effective when sent

Acceptance by Silence and Conduct


- Silence
o Law generally does not allow acceptance by silence
Exception
If offer authorizes acceptance by silence AND offeree
remains silent intending to accept
o Subjective evidence considered
If parties mutually agree silence will constitute acceptance
o Subjective evidence no longer considered
By prior dealings or silence is reasonably expected to be
an acceptance
o Hobbs v. Massasoit Whip Co
Question of whether there is a standing offer
for eel skins, so sending goods is offer and
buyer must accept
Or each shipment is a single unilateral
contract and buyer must pay
Prior dealings allowed silence to constitute
an offer and buyer had to pay
Day v. Catan rule Requires all three
o Offeree has reason to know offeror expects
compensation for his undertaking
o Offeree takes the benefits of the offer
o Offeror must have opportunity to object
All of these apply to reverse unilateral contracts
Offeror has made an offer by performing
These are sometimes treated as implied in fact K
o Does not require benefit went to offeree, third
party benefit may warrant damages as well
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o Services just need to have been taken
Or a quasi-K
o Maintaining the benefit would be unjust
o Offeree must have been benefited, because this
theory is based in unjust enrichment
o How do you know compensation is expected?
Wilhoite v. Beck
Question is whether deceased thought services (taking
care of her, etc) were rendered charitably
o Presumption that compensation is expected
o EXCEPT presumption of charity if services are
rendered by a family member
Family relationship defined as blood,
marriage, or living in the same home
o Presumption may be stronger or weaker depending
on relationship/facts
How independently were they living
Presumption is rebuttable
- Conduct
o Sometimes an exercise of dominion over a produce may constitute
acceptance
Conversion = the tort of exercising dominion over anothers
property
When conversion has been committed, you can sue under tort or
quasi-contract law
Recovery would be the reasonable value of converted goods
o Counter offers are viewed as rejections of the offer and a new offer
When a counter offers price is manifestly unreasonable we
always treat as a rejection of the offer
o So if good are shipper and retained
If the conduct is sufficient for an acceptance you can sue for the
contract price under contract law
If the conduct is not an acceptance, you can sue for conversion
and recover the reasonable price
o *** UCC on unordered good
o Credit Cards
Credit cards have built a system where silence is acceptance
Card itself belongs to the bank so continued use is acceptance
- Accepting an indifferent offer Modern View
o Traditional approach
Unilateral is accepted by full performance
Bilateral is accepted by promise
Presumption is that ambiguous language is bilateral

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o UCC 2-206
Unless the contract is explicit in requiring a certain manner of
acceptance, any reasonable means of acceptance is ok
For sale of goods, acceptance is either promise to ship or
shipment of conforming or non-conforming goods
Non-conforming goods are not an acceptance if the
shipper notifies the buyer they are offered as an
accommodation
If beginning performance is a reasonable mode of acceptance,
offeror must be notified within a reasonable time, otherwise
offer may be treated as if it had expired
Here an offeree will be bound to complete performance if
beginning it unambiguously expresses an intent to be
bound to a contract
Offeror must be given notice in a reasonable time,
otherwise he is not bound to perform
From the time performance is begun to the end of the
window when reasonable notice may be given, the offer is
revocable
o For buying goods you can accepted by promise or performance
o The offer may be explicit in requiring a means of acceptance and that
will be enforceable
o 2nd Restatement holds these same views
Adds that notice will ordinarily be required of the beginning of
performance
If there is no notice offeror is not bound, although he may waive
notice and still enforce the contract
o Horton v. Daimler-Chrysler
Chrysler willing to settle 25K debt for 1K
Check says it is tendered in full payment but does not
repeat other terms of the offer
Traditional approach would say that checks were offered
late so they are counter offers, which do not include the
additional terms
2nd Restatement would say that offer may be accepted
either way and checks are beginning of performance and
Chrysler knew
o Thus offer was accepted but Horton breached by
sending checks later
o Modern approach will taking wording less literally
o Performance scheduled in the future is more likely
to be interpreted as requesting acceptance by
promise
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o Modern view summarized
If offer is indifferent it may be accepted by promise or full
performance
Starting to perform in the presence of the other party is
interpreted as an implied promise (from Horton) so you then
have a bilateral contract
- Shipping non-conforming goods
o Traditional approach
Sellers non-conforming shipment is a counter offer
Buyer may accept or reject and sent back goods
Called Reverse Unilateral Contract Trick
Seller is hoping buyer will just accept goods and pay
o UCC 2-206(1)(b)
If you do not notify the buyer that non-conforming goods are
being sent as an accommodation, the shipment is both an
acceptance and a breach of the original offer
Buyer may accept he must pay but also has a claim for
damages for breach
Buyer may reject no duty to pay but still may sue for
breach
If you do notify the buyer beforehand, the shipment is treated as
a counter offer and requires acceptance
This is essentially a reversion to the common law rule
Accommodation letter should arrive early enough before
goods that buyer has time to obtain the correct goods
elsewhere
Corinthian v. Lederle
D issued price list, Corinthian made offer by placing an
order for vaccines
o D sent a partial shipment at lower price, and then
rest at higher price, which was price at the time
goods were shipped
Under UCC, gap filler is a single shipment
o Thus this would not be in compliance
Court said the letter explaining the price jump sent with
first shipment is an accommodation letter
o Thus the shipment is a counter-offer and requires
acceptance
- Prescribed medium of acceptance
o An offer to a bilateral contract is revocable until acceptance
Acceptance is effective when communicated
Rejection or revocation is effective when received
o Acceptances effective when communicated
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When acceptance leaves possession of offeree it is deemed
effective
Ex. Mailbox rule putting it into a mailbox
o From case Adams v. Lindsell
Acceptance is still effective if communication is delayed or lost in
transit so long as it was sent in a proper manner
o Offeror may still mandate a certain form of acceptance though
Courts are reluctant to enforce such requirements
Tendency is to hold that the offer is stating a preference
o First Restatement rule
That in the absence of contrary evidence, the offer authorized
the means of acceptance used as the means to make the offer
Or any means customary at the time and place received
If offeree used an improper means of acceptance, acceptance is
effective when received instead of when sent
o UCC and 2nd Restatement
Shift from what is authorized to what is reasonable
Offer may be accepted in any reasonable means
Usually promise, beginning, or full performance
If beginning of performance mandates full performance,
resulting contract is bilateral
Beginning performance must still demonstrate an intent
to be bound by that bilateral contract
Offer may still mandate a certain means of acceptance
If sent by an improper means or misaddressed, acceptance is
still effective when sent provided the means in which it was
dispatched will arrive in the same time as a reasonable medium
would have
Offeror may stipulate in the contract that receipt of acceptance is
a precondition to contract, but must be iron-clad

Beginning Performance and Irrevocability


- Beginning performance as acceptance
o UCC and 2nd Restatement both allow this
o UCC 2-206(2)
If beginning performance is a reasonable mode of acceptance, if
offeror is not notified of beginning of performance, he may treat
offer as having lapsed
There is an implicit reasonable diligence requirement
Offeror may waive this notice requirement, because notice is a
condition precedent to offerors benefit
Notice is not part of acceptance however
UCC comment says this and it is WRONG
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o An email confirming receipt of an order is not beginning performance,
and thus not an acceptance
o Summary of beginning performance
Unilateral contract
Creates an option contract
No notice requirement
Bilateral contract
May be sufficient as an implied promise
Must express a commitment to be bound
Notice requirement beginning of performance must be
communicated to offeror
- Summary of irrevocability
o Traditional rule
Unilateral contracts may be revoked until full performance
Offeree is never found to complete performance
Logical b/c no contract is formed until full performance
o Very seldom used second rule
Unilateral contract is non revocable once performance begins
o Prevailing view 1st and 2nd Restatements
Beginning performance makes offer irrevocable
Irrevocable offer = option contract
Offeree is not contractually bound to complete performance but
is not entitled to recovery unless he does
Offeree must prove he was ready, willing, and able to
perform but for the revocation
Duty for offeree to mitigate damages
Preparing to perform is not sufficient for starting performance
If performance requires cooperation by offeror, tender to
perform is sufficient for beginning performance requirement
- Section 45 of 1st and 2nd Restatements Majority view
o Beginning performance makes offer irrevocable by creating an option
contract
Allows completion of performance
It may seem more logical that offer becomes irrevocable when
there is acceptance (completion of performance) but that is not
what we have
Rooted in consideration doctrine, because beginning
performance was presumably bargained for
o This only applies when offeree may not accept by promise
o Option contract
An irrevocable offer to a unilateral contract, accepted by full
performance

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Offeree is not bound to complete performance, but if they do,
offeror is bound to perform his promise
o Remedy for breach of an option contract
If revoked, offeree must cease performing
This is required to minimize damages
Offeree must have been ready, willing, and able to complete
performance but for offerors repudiation
Expectation recovery
o Brackenbury v. Hodgkin
Promise to give niece property if she cares for dying uncle
Beginning performance creates an option contract
Option must still be exercised by completing performance
o Preparing to perform is not the sufficient for beginning performance
- Classical view
o Offer is revocable until full performance
NY purports to follow this rule
Bender is skeptical
- Tendering performance
o Petterson v. Pattberg
Mortgagor shows up at mortgagees door to pay off debt
Court finds the offer irrevocable until full performance
Question is what constitutes full performance
Tender of payment constitutes full performance here
Tender is doing all you possibly can to perform without the
cooperation of the other party
No tender because door was closed
o Needed to show the money
This is not a case about beginning of performance because
performance doesnt take place over time
If offeror reserved the right to refuse payment, there is no offer
because there is no promise

Effectiveness and Medium of Acceptance


- When an acceptance/rejection becomes effective
o Mailbox rule
Acceptance is effective when sent, if responding by promise to
an offer to bilateral or ambiguous contract
Becomes effective when it is put out of your possession
o ie. Delivery service
o Must be a reliance means of delivery though
May only be used when offer is revocable
Only applicable when parties are at a distance
Careful not to over-apply
19
From Adams v. Lanzel
Protects offeree because minimizes time offer is revocable
Mailbox rule may not be applied when
A rejection is sent before the acceptance
o Acceptance must therefore arrive first
If the other party reasonably relies on a rejection before
the acceptance arrives
o Offeree will likely be estopped from enforcing
contract even if mailbox rule would have applied
If medium of acceptance is improper
o 1st Restatement requires the authorized medium
o 2nd Restatement and UCC allow any reasonable
medium
2nd Restatement also says if improper
medium does not cause a delay, Mailbox Rule
is maintained
Lack of proper diligence
o Would include an incorrect address
o This exception is in 1st and 2nd Restatements
o 2nd Restatement though says if the mistake does not
cause a delay, Mailbox Rule is maintained
A contract may explicitly not allow Mailbox Rule
o Irrevocable offers Acceptance is effective upon receipt
No need to give offeree extra protections against revocation
because offer already may not be revoked
o Prescribed medium
Fujimoto v. Rio Grande Pickle
Employees are offered profit-sharing, employer arguing
signing and returning a form was prescribed medium
Corbin suggests three possibilities
o Offer prescribed an exclusive medium
Shall be accepted Could be exclusive
Courts are reluctant to find an exclusive
medium unless very clear in contract
o Offer suggests a non-exclusive medium
Shall be accepted Could be suggested
o Offer makes no medium suggestion
Rule If an overt act clearly expresses an intention to
accept and is known by the offeror, there is acceptance
o Proper medium
You must first determine if offer prescribed a medium
Exclusive medium in contract will be enforced
Cantu v. Central Education Agency
20
Teacher resigns in person, school mails acceptance,
teacher revokes in person before mail arrives
Teacher arguing mail was improper medium
Acceptance by mail is impliedly authorized if it is
reasonable under the circumstances
o Language from 1st and 2nd Restatement
o 2nd Restatement says mail is presumed reasonable
if offer was mailed or if parties are in different or
the same city
o Rejection or revocation is effective upon receipt
o When both acceptance and rejection is sent
An acceptance sent after a rejection is only effective if received
before the rejection and at the point of receipt
Acceptance is viewed as counter offer
If you send an acceptance then a rejection, but then the rejection
is received first, a contract is formed
Otherwise market speculation is possible
Qualified though, that if offeror relies on rejection before
acceptance is received, offeree is estopped from enforcing
o When parties are face to face
When acceptance is heard it is operative
If not heard by offeror but thats his fault, it is still
effective
If offeree knew or had reason to know offeror had not
heard, there would be no contract
Same rules apply to telephone conversations
If there is a break in the connection or acceptance is not
heard and parties are equally blameless of equally at fault
there is no contract
o Unless offeree had reason to know of the break and
that offeror did not hear the acceptance
Otherwise the understanding of the less blameworthy
party will be enforced
State where words of acceptance were spoken is the state
law that will govern this dispute
Unclear if Mailbox Rule applies to email
Probably the stronger case it does, but Courts differ
- Mistake in Transmission
o If offeror makes a mistake and states the wrong price in the offer, once
accepted the offer is still binding
The same if offerors agent makes such a mistake
Same was held if an agent of transmission made this mistake

21
o Majority rule is that communicated offer operative unless offeree knew
or had reason to know of the mistake
Similarly if offeree declined contract, but telegraph company
transmitted an acceptance, there would be a contract
Offeror selected that means of transmission and therefore may
be held responsible for its failure.
o Minority rule No contract if the mistake is the fault of an independent
contractor
General rule that you are not at fault for an independent
contractors negligence
This works because in order for the objective theory of contracts
to apply, the acceptance must be done either intentionally or
negligently
Here the contractor was negligent, not the offeree
Therefore a subjective theory of contracts applies
o Whichever party is held liable for breach of contract will have a cause
of action against the telegraph company for negligence
Telegraph companies tend to limit liability though so this will be
hard

Terminating a Revocable Offer


PUT IN ALEXS 2/7 NOTES
- Lapse of time
o Williston says ambiguity regarding expiration should be interpreted
for the benefit of the offeror
o Corbin suggests the offeror created the ambiguity, therefore it should
be interpreted against him
o If an offer is to expire or only be open within a certain number of days,
you do not count the day of which offer is made
If offeree knows or has reason to know there was a delay,
expiration should be calculated from the date of receipt
o If no expiration is stated, offer is open for reasonable time
o Offer may stipulate power of acceptance will terminate on an event
happening
Offeree having knowledge of event occurring is not required
Language subject to prior sale is in this category
o When offer is made face to face or on the phone, power of acceptance
terminates when the conversation does
- Late acceptances
o Two views regarding validity of an acceptance that becomes effective
after the offer has expired
Acceptance becomes an offer which may be accepted
Offeror may waive the lateness and treat it as an acceptance

22
- Third view if offer is late but still within a reasonable time, offeror must
reply if he is rejecting the acceptance, otherwise contract forms
2nd restatement accepts the view that the late acceptance is now
an doffer
o If acceptance is sent after reasonable time has elapsed, but
subsequently offeror sends a letter saying offer is still open, the letters
are used to glean offeror intent, and acceptance is valid
- Death of either party
o Offeror
Offer expires if offeror dies, even if offeree does not know
Minority view that if offeree does not know of the death there is
no ground on which to terminate
If there is acceptance before the death, a contract is formed
For a unilateral contract, offerors death terminates unless it has
become irrevocable, in which case not
o Offeror insanity
Professionally declared insanity terminates the offer whether
offeree knows or not
Not adjudicated insanity, the offer is only revoked if offeree
knew or had reason to know
o Death or incapacity of offeree terminates power of acceptance
- Revocation
o Manifested intent not to enter into a binding contract
Generally effective when received, minority view that it is
effective when sent
o When offer is made to many people ex. Newspaper ads
Power of acceptance may be terminated by giving equal
publicity to the revocation as the original offer
Use same publication for same time
If not available requires best means possible
Revocation will become effective the moment offeree becomes
aware of it
o If you learn from a reliable source that offer has been revoked, that is
sufficient for revocation
First Restatement limited this to sale of land and chattels
Second Restatement applies it to all contracts
Information must be true and have com from reliable source
Non-reliable source may be ignored
- Courter offers and rejections
o Rejection terminates power of acceptance
o Counter offer is an implicit rejection so it does too
- Offer is terminated by the death of destruction of any persons or items
required for performance

23
o If party who is obligated to pay dies, this does not terminated
The estate will assume the responsibility for paying, so the
person himself isnt really essential to performance
- Mental incompetency
o Swift v. Wigel
Offeror deemed incompetent between offer and acceptance
Court held an adjudication of incapacitation did not
automatically terminate the offer
Guardian bears the responsibility of terminating outstanding
offers of the incompetent
Explains the logic of death terminating a revocable offer
Contract is supposed to be a meeting of the minds, so if
one party is dead that cannot be the case
If option contract has already been forced before death,
there has been a meeting of the minds, and no rationale
for terminating offer

Counteroffers and 2-207


- Common Law
o An acceptance that added terms was a counter offer and thereby a
rejection of the original offer
Even if the addition or change is trivial
Called Ribbon Matching or Mirror Image rule
o Acceptance must be unconditional and not change the terms
Even if a purported acceptance but to different terms
Any condition put on acceptance is a counter-offer
Based in theory of contract as a meeting of the minds
o Last shot principle
Buyer made an offer and sellers reply was counter offer.
Purchasers acceptance of the shipment was deemed an
acceptance
Seller almost always defined the terms
But buyer might reasonably expect the contract was on
their terms, so this disrupts settled expectations
Last set of terms on the table governed the contract
o Ardente v. Horan
Sale of property case, acceptance included a request to include
furniture in the purchase price
A request for additional terms is a counter-offer, not a
conditioned acceptance in this case
o Other notes on qualified acceptance
Stating a term in the acceptance that is implied by law but not
express in the offer is not modifying the terms
24
Ex. Requiring good title be conveyed already implied by
law
Stating certain terms may be changed at a later date does not
count as qualifying acceptance
Requiring notice that acceptance was received may be
considered qualifying the offer
New terms need not be material under common law
- Under UCC 2-207
o Typical scenario
Buyer will send order form
Establishes dickered terms
Many terms benefitting buyer
Seller sends acknowledgement form
Restates dickered terms
Lists its own beneficial terms
These two forms will always differ, so the second was always a
counter offer
Seller should thus never perform because there was never
a contract
o 2-207 applies to two scenarios
1. To determine if a purported acceptance with new/additional
terms is an acceptance
2. After a contract is formed and confirmation includes
additional terms, to determine which terms govern
Dorton v. Collins & Aikman
Phone conversation about terms, seller sent an
acknowledgment form with new/different terms
If there was agreement on the phone this is situation 2
above where we are assessing if terms in
acknowledgment are included in contract
If no agreement on the phone, this is situation 1, where we
must determine if the acknowledgement is in fact an
acceptance
- Additional terms under the UCC
o Overview of thought process
Step 1 - Is expression of acceptance actually an acceptance?
Three tests
Definite and seasonable
If YES, go to Step 2
If NO, go to Step 3
Step 2 - is it expressly conditioned on assent to new terms?
If NO, move to subsection 2 to determine if new terms are
included in contract
25
o Non-merchants they are counter offers
o Merchants 3 exceptions, otherwise included
o OR analyze three views on different terms
If YES, terms are not included without express assent
Step 3 can you find a contract by conduct of both parties?
Only neutral, mutually-agreed on terms are included
No new terms
o 2-207 requires offer and acceptance terms to match UNLESS
acceptance is expressly made conditional on other partys assent to the
new terms
o Issue 1 - First you must have an acceptance
This requires
An expression of acceptance
Must be definite and seasonable (timely/reasonable)
o Repeating dickered terms usually makes the
acceptance definite
Three tests for definite expression of acceptance
Saying you accept is sufficient
o This isnt used so much
A significant divergence in dickered terms demonstrates
no definite expression of acceptance
Reasonable commercial understanding
o What would a reasonable commercial partys
understanding be?
o If price is very different, acceptance may be
expected to be a counter offer
o Issue 2 - If acceptance is expressly conditioned on assent to new terms
Must be assent to the new terms specifically
Usually requires language expressing condition
If you accept additional terms subject to provided
that only if if you agree to
Not sufficient to say that acceptance is conditioned on the terms,
it must be on offerees assent to those terms
Seems like this must be pretty explicit
Basing contract on offerees implied assent to the terms is
not sufficient
Accepting goods is not an assent to the new terms
o Thus far, you must have an acceptance for issue 1, and it not be
expressly conditioned on other partys assent to the new terms for
issue 2
o Then what do you do with additional terms 2-207(2)
Between merchants, terms are included unless
Offer expressly limits acceptance to terms of the offer
26
o N.O.M. clause limits modification of offers terms to
be done only in writing
They materially alter the contract
o Materially alter is the standard and key phrase
o Materially altering is if one party would experience
surprise or hardship by the change
o Trade usage may be used to show new terms do not
materially alter contract
o Majority view is that arbitration clauses materially
alter contract as a matter of law
Recent trend is that this is question of fact
Notification of objection given within reasonable time
o Rejection may be given in advance as well
o If both parties objet to the others terms, neither
become part of contract under 2-207(2)(c)
If either party is a non-merchant
Non-merchant would need to expressly accept new terms
o If there was no sufficient acceptance under Issue 1
Purported acceptance is a counter offer
However if there has been performance, 2-207(3) examines the
conduct of both parties
If the conduct of both parties recognizes a contract, the
law will enforce it
Recognized terms will be those agreed by both parties
No additional terms will be included in contract
Diamond Fruit v. Crack Corp.
Acknowledgement form sent by seller was expressly
conditioned on buyers assent to the new terms
o Falls under 2-207(1) exception
o So this is a counter offer not an acceptance
But there was conduct sufficient to find the formation of a
contract under UCC 2-207(3)
o Delivery and acceptance is enough
o Do not talk about offer and acceptance in this case,
because there is none, we just have conduct
The term in dispute here is about liability
o Not mutually, agreed-upon term
o Not supplied by UCC
o Thus it does not become part of the contract
Sellers dont like neutral terms so they are going to argue
their counter offer was accepted through conduct
- Different terms under the UCC

27
o We do not consider implied terms when determining if a term is new
or different contradicting an implied term would just be a new term
Example. In every contract there is an implied right to sue, so an
arbitration clause contradicts this, but we just consider it a new
term
o Three approaches to different terms
UCC has no view on which to use
Different term is an offer to modify the contract but will not
become part of the contract
Offeror will essentially always win
This would explain why UCC doesnt discuss different
terms, because they would never become part of the K
Read 2-207(2) to apply to new AND different terms
Advantage that you dont have to decide if term is new or
different
Usually hinges on materially altering the contract
Knock out rule different terms cancel each other out
Majority view
Neither party gets the term
Treats the parties the same, as opposed to the other views
that favor the offeror
- Dickered terms
o What we called material terms for indefiniteness
o When a dickered term differs, there must still be mutual assent to the
same deal
Thus 2-207 could not apply to price
If primary performance obligations differ you must re-examine
- Discrepancy within one form
o Ex. If front and back of acceptance state different terms
View 1
Term from the offer will be used
View 2
No acceptance because there is a significant discrepancy
in a dickered term
View 3
It is not usually commercially reasonable to read the back
of the form, so front term will govern
If a dickered term is not on the front, it may create an
expectation to read the back
No expectation to read fine print
o Usually views 2 and 3 come to the same result
*Apply all three tests in analysis

28
o Is a discrepancy in a dickered term on one form a new or different
term?
If new, it would materially alter contract and be excluded
If different, go through three tests above
Under the knock out test, all terms are set aside and you
would end up with the reasonable term
- New/different terms during negotiations
o Terms being negotiated must be brought to other partys attention
If party objects to only one of multiple terms brought to their
attention, they have impliedly consented to the others
So long as those terms are not further negotiated
These terms become part of contract
o This is different that if terms were just on the back of a piece of paper
Difference is bringing them to other partys attention when they
have a chance to object (and in fact did)
- Confirmations
o 2-207(1) says it applies to confirmations sent within reasonable time
Must determine if a contract was agreed to
Then must determine if confirmation sent in reasonable time
o There will never been a need to turn to 2-207(3) because we already
have a contract 2-207(3) is just to find a contract by conduct
o You will go through 2-207(2) analysis comparing confirmation to
original agreement
o What if price is not agreed on, and invoice sent with goods states a high
price
Price is an additional term not agreed on before
Buyer could object to price within reasonable time 2-
207(2)(c)
Under 2-207(2)(b) this would be a materially alternation
Would not become part of K, UCC would supply gap filler
of reasonable price
o A confirmation may not unilaterally eliminate an agreed-upon term by
not including it in the confirmation
Remains part of contract
- CISG Convention of International Sale of Goods
o UN treaty similar to the UCC
Covers sale of goods between businesses only
Does not govern contracts between governments
o Both UCC and CISG are law in NY, but early on applies sometimes
Saying NY law applies includes CISG
o A contract may expressly opt out of CISG, then in NY the UCC applies
o CISG Article 19
Comparable to UCC 2-207
29
Uses Mirror Image Rule acceptance with additional terms is a
counter-offer
If additional or different terms do not materially alter the offer,
they become part of the contract
Parties may object within reasonable time
Does not just eliminate the one term though, nullifies the
entire acceptance and it becomes counter offer
Material alterations under CISG
Price, payment quality, quantity Dickered terms
Place/time of delivery May be dickered
Liability, dispute resolution Materially alter the contract
but not dickered term
CISG does not cover confirmations

Terms in the Box and E-Commerce


- Traditional approach to purchasing goods in a store
o Placing good on the shelf is the offer, picking it up is acceptance
o This was necessary to resolve cases of exploding soda bottles when
picked up off the shelf
- ProCD v. Seidenberg
o Shrinkwrap case Traditional approach
o Question about which terms are included in software purchase K
Only some terms included on box, rest inside
o Easterbrook wrote the majority opinion
o Called a Rolling Contract (or Layered Contract)
Terms disclosed after purchase are part of the contract and you
may return if you dont like those terms
Very pro-business approach
o Hinges on seller making the offer and thus able to define manner of
acceptance
2-207 wouldnt apply because it requires to forms
This is WRONG
Only requires that purported acceptance is written
- Hill v. Gateway
o Shrinkwrap case 2-207 approach
o Phone order for computer, terms inside box when it arrives
o Order is the offer
Shipping is acceptance
Terms in the box are the confirmation
Terms are not part of contract because buyer is non-merchant
o OR you could look at it like
Terms arriving are the acceptance
Acceptance not conditioned on assent to the new terms

30
Since buyer is non-merchant, still not part of contract
- Specht v. Netscape
o Clickwrap case clicking yes to online Terms and Conditions
o Browsewrap case Terms were available upon browsing, thus
proceeding with program was assent
That is what Specht is about
Terms were at the bottom of a website
o A user must have reason to know he is agreeing to binding contractual
terms in this case he did not
- Choice of law
o Easterbrook in ProCD used UCC because software was bought in a box
Harder argument for online downloads
o UCC has an article 2B for software rejected by ALI
Has been turned into UCITA
Only adopted in MD and VA
o UCITA is very favorable to companies, so likely terms and conditions
will have a choice of law clause specifying MD or VA law

Option Contracts
- Option contract is both an offer and a contract
- Ways to create an option contract
o Consideration is required to create irrevocability
Bargained for exchange for irrevocability
Offer becomes irrevocable once consideration is paid
Must be bargained for AND given
o By statute
UCC 2-205
Must be in signed writing
Must by terms of writing give assurance of irrevocability
Only applies to merchant offerors
Buying/sale of goods only
May be hold open for 3 months maximum
o If no time is stated, offer held open for reasonable
time
o If stated time is greater than 3 months, it is reduced
to 3 months and all other terms remain the same
Irrevocability must be separately signed by offeror
o Offer is usually made by buyer, so if seller wants to
add irrevocability term, they must sign separately
usually just in the margin
Offer remains open after the option expires
May still be accepted so long as it is not revoked
Offer may explicitly put an end date on power to accept
31
o Beal v. Beal
Death of a single offeror is sufficient to
terminate power of acceptance
Each instance of irrevocability requires a
separate consideration
2-205 applies only to unqualified assurances of irrevocability
A condition precedent to irrevocability is considered to be
bargained for by offeror and thus offer will be governed
by principles of consideration not UCC 2-205
o No time limit on time offer is open
o New York General Obligation Law
Applies to everything the UCC doesnt
Requirements
Offer must be in signed writing
Must promise irrevocability not necessarily express
For time stated or for reasonable time, no maximum
No separate signing requirement
Meant to give the full protect consideration would otherwise
Thus not terminable upon rejection
o Section 45 of 2nd Restatement
An option contract is created when offeree begins performing an
offer to a unilateral contract
Offeree may, but has no obligation to, exercise the option
o CISG will enforce irrevocability if expressly or impliedly stated in offer
- Terminating events for revocable offers
o Lapse
o Death/incapacitation of offeror or offeree
Death of only one offeror of several is sufficient
o Doctrine of impossibility impracticality, frustration of purpose,
Death/destruction of a person/thing required for performance,
Intervening legality
o Revocation
o Rejection (including counter-offers)
- Terminating events of revocable offers (just 1 and 3 above)
o Lapse
o Doctrine of impossibility impracticality, frustration of purpose,
Death/destruction of a person/thing required for performance,
Intervening legality
o NOT terminable by rejection, revocation, or death/incapacity of the
offeror or offeree
Authorities are actually divided on the question of rejection

32
Modern trend is that rejection does not terminated
irrevocability, because offeree paid for that privilege, and
rejection of tender of performance should not eliminate that
If offeror relies on the rejection, offeree may be estopped from
enforcing the irrevocability
- Mailbox rule will not apply
o Acceptance is effective upon receipt by offeror
o Offer is already very secure
o Not necessary to further protect the offeree
- Right of first refusal
o We treat this like an option contract
Applies once terms are agreed upon with another buyer
o Mailbox rule does not apply here
o Requires consideration
A least will generally satisfy this, because the option is
presumably being paid for in the monthly rent

Consideration
- Consideration basics
o Consideration binds parties to the promise
o Donative promises are not enforceable
No detriment or enrichment if promise is not enforced
The values at play when gifting are not things court wants to get
involved with
Sometimes a gratuitous promise will be enforced
Restitution for benefit in the past
Promise to fulfill a moral obligation
Not enforced if informal and not relied on
Gratuitous promise is not necessarily donative
May be part of a commercial transaction to maintain the
relationship
- Common law
o Required consideration for promise to be binding
- Elements of consideration
o Promisee must suffer legal detriment
Promise to do something not legally required
Does not mean economic loss
May also mean legal benefit to the offeror
Detriment may come from someone other than promise or go to
someone other than promisor
Kim v. Son
Promissory note written in his own blood
No consideration even though he intended to perform
33
Hamer v. Sidway
Uncles promise to pay nephew for not drinking/cursing
Detriment is value in the eyes of the law
o Makes no difference performance is good for you
Detriment is doing something not required by law
Part of deciding if a promise is bargained for or a gift, is if
performance will benefit offeror here it will
o Detriment must induce the promise
Made the promise because he wishes to exchange for the
detriment in question
At least in part
Gratuitous promises fail on this count because they are not made
in induce detriment
o Promise must induce the detriment
Promisee must know of the offered promise and intend to accept
Must actually or apparently be induced to act by the promise
o Consideration legal detriment that was bargained for by the promisor
and exchanged by promise in return for the promise
o Consideration is a bargained for exchange
Considered from objective view
Doesnt matter if parties havent read terms
o Kirksey v. Kirksey
Man promises sister-in-law his house if she moves her family
and comes to live in the house
Question is if his is bargained for
He does want her to move but he also wants to help her
Court finds this was a gift, with a condition to the donative
promise
Did he really want to pay the price of his home for her to
have a place to live?
No he was just trying to help her
o Gottleib v. Tropicana
Spins a casino wheel and wins $1M
There was consideration albeit small
She gave personal info
Beneficial to casino and bargained for
Small consideration relative to promise does often suggest
duress but that is not at issue here
- Motive and past events
o Motive may be relevant to determining if there is consideration
o Past consideration = NOT a thing
Parties cant bargain to exchange something that has already
been exchanged
34
Idea of exchange is central
- Distinguishing a gift
o An unconditioned promise is likely a gift
Because condition will usually be the consideration
There could be a condition to a gift too, but that would not be
what offeror is bargaining for
o Adequacy of consideration may be evidence of a gift-making frame of
mind
Offeror usually obtains some beneficial return
o Commercial promises usually promise promisor some concrete benefit,
altruism is the benefit of gift
o Once a gift has been given it may not be restituted, even if there was no
consideration for the gift
- Mixture of gift and bargain
o Detriment to be suffered by the promisee need not be the only
inducement
Only must be sufficient that it was bargained for
o Question of whether consideration was bargained for is a question of
fact
o Unless both parties know consideration is a sham, it doesnt matter if
promisors desire for consideration is incidental to other objectives
o 2nd Restatement says if promisee does not have reason to know
detriment is a sham, detriment should be enforced
If it is clear consideration is only a pretense, not enforceable
- If you undertake an act that is suggested by promisor but not bargained for by
promisor, it is not consideration
o Bard v Kent
Tenant hired architect to check improvements at landlords
suggestion
- Adequacy of consideration
o Courts do not generally review the adequacy of consideration
Would be too much interference with adult parties ability to
contract freely
Courts will review lawyer/client retainers
Economic inadequacy though may be evidence of fraud, duress
o Nominal consideration
Offers may include a very small monetary consideration, sham
Majority of courts will not enforce this if consideration
had not been paid and there is no other consideration
Minority view that parties are estopped from
contradicting the written promise
2nd Restatement comes to the conclusion of the Majority
rule but only for option contracts and credit guarantees

35
Seems chapter 2 of the 2nd R suggests contracts without
consideration are enforceable , because that is the chapter title
But this seems to fulfill intent of the parties
They know consideration is needed to make promise
enforceable, so they add consideration
Views on sham consideration
Nominal consideration view exchange is a formality and
not truly bargained for, so contract should not be enforced
o 2nd R takes this view
Token consideration is a manifestation of party intent,
and contract should be enforced
o 1st R took that view
o Sham vs. Nominal consideration
Sham = just a pretense
Nominal = consideration in name but not in fact
Probably not bargained for
- Surrender of an invalid claim
o Surrender of a valid claim is detriment
o Earlier view is that surrendering an invalid claim is not detriment
Had no right to assert the claim I the first place
This isnt really workable
No settlement offers would be valid without litigation then
o Majority view 1st Restatement
Surrender of an invalid claim is consideration if claimant
believed in good faith, and a reasonable person could believe,
the claim was well founded
Reasonable and good faith assertion
o Recent Trend - 2nd R view
Either good faith or objective uncertainty about the validity of
the claim is sufficient for enforceability
o Some courts only require good faith
Some courts also say though that the invalidity of the claim not
be obvious
o Fiege v. Boehm
Explores these different approaches
Father promises to pay child support if not sued for bastardry
- Multiple considerations/promises
o Must all consideration be valid
If a party to a bilateral agreement promise alternative
performances each must be valid
If any performance is not detriment, it is not enforceable

36
2nd Restatement says that with multiple performances, if it
appears the non-detrimental performances will likely be
eliminated, the detrimental options remaining will be sufficient
o One consideration will support many promises
May also support promises of more than one promisor
- Knowledge of offer
o Consideration requires knowledge of the offer and intent to accept
Knowledge is actual, subjective knowledge
Intent to accept
1st Restatement is a subjective standard
2nd Restatement is an objective standard
- Consideration for options/guarantees
o Consideration is required to make an offer irrevocable
Majority view is to do a full consideration analysis
Consideration must actually be bargained for
Minority view is that any purported consideration is enough
2nd Restatement sort of takes this view
o It does not find $1 to be consideration, it just finds
an option/guarantee binding when there is any
recitation of consideration
o Must be in a signed writing

Pre-Existing Duty Rule


- When promise is to perform a legal obligation, there is no detriment
o Thus it cannot be consideration
o No legal privilege is surrendered
Alaska Packers Association employees demanded more
money once they began an employment contract
They had no additional job duties, thus there was no legal
detriment or consideration to support the raise
PEDR tends to prevent one-sided modifications
So if a landlord says he will not evict if the tenant pays past rent,
even if tenant pays rent he may be evicted
Forbearance from breaching the contract is not legal detriment
You have no right to breach
o Performing a duty owed to the public is not consideration
For example a police hunting down a criminal
No legal detriment if you are already required to perform the act
There will usually be public policy considerations
o Applies to creation and modification of contractions
o No ability for restitution once payment has been made
o Requiring consideration for modification
Majority rule requires it
37
Minority rule never requires it
- Under majority view
o If promisee does not incur legal detriment for the new/additional
promise, it is not enforceable
o Even a slight additional duty bargained for is sufficient
o If you rescind original contract and then enter into modified contract,
that is enforceable
No pre-existing duty because rescinding the prior agreement did
away with all legal duties
- Minority rule
o Pre-existing duty rule does not apply when
Parties mutually agree to simultaneously rescind prior
agreement and enter into new one
But courts have resisted finding an implied rescission in
any modified contract
- Other PEDR situations
o Pre-existing duty rule is violated even when parties intend new
contract to be contingent on rescission and rescission to be contingent
on modified contract
Schwarzreich v. Bauman-Basch
Employment contract, partway through employee wanted
to leave and was offered more money
Modification requires additional consideration, and no
additional work duties here
Parties have right to rescind old contract though
Determining factor is there must be consent to rescind
o Must be expressed and acted upon
o Does not matter if rescission is before new contract
or at the same time
o First time rescission was allowed to happen at
same time as new contract formation
o Rescission may be oral or though conduct
Once rescinded, there are no pre-existing duties left
Basically court trying to get around the PEDR
The law out o this is that there must be an Expression of
rescission
o This is still the standard in NY
o Any slight modification is sufficient for consideration
Even an addendum clarifying contract
o Some courts will uphold modifications after unforeseen difficulties
arising relating to performance
Majority of courts still require consideration

38
Some courts will enforce a modification due to unforeseen
business circumstances without consideration
If performance is impossible, duty to perform is relieved and pre
existing duty rule would not apply
- 2R and UCC on unforeseen modification
o 2-209
Modifications are binding if contract is not fully performed if
modification s fair and equitable in view of circumstances not
anticipated when contract was made
Sales contracts may be modified after delivery
o 2 Restatement rule
nd

Modification without consideration is allowed if


Parties agree
It is voluntary
Before either party fully performs
AND fair and equitable in light of unanticipated
circumstances
This differs from Majority rule when difficulties are unforeseen
Angel v. Murray
Trash collector has contract from the city to remove trash
from all homes then 400 new homes built
This is a pre-existing duty, but city had agreed to modify
contract and pay him more
Applies 2R rule
2nd Restatement uses term unanticipated circumstances
Easier standard to meet than unforeseen difficulties
Schwartzreich would have met this standard but not
unforeseen difficulties
This is a very large PEDR exception in the 2nd Restatement
o These modifications are common in construction contracts
Similar to cardinal change doctrine when major changes are
made to required work and contractor demands pay
- PEDR is criticized because it limits ability to enter into voluntary contracts
o Trend is to allow modification without consideration
- Three-party cases
o If a third party seeks to add an additional promise to a contract
McDebbitt v. Stokes seminal case
Owner promises jockey money if he wins race
Before race, another party makes similar offer
But he had no legal duty to win, contract was only
operative once he did win
Thus no PED problem, and he could recover from both

39
o Promisee is already performing the act, so is that sufficient
consideration?
Classical view says no, he is promising something he is already
under contract to do thus no consideration
Modern authority holds it is enforceable
1st and 2nd Restatements
Much more common today
For PEDR, the only duties that are considered are those
owed to promisor or the public
o Less likely to be duress/inducement in three-party cases
o You may receive multiple awards for the same action
- Discharge of obligations
o Usually an agreement to accept less payment
Original contract is for $10K, but employee agrees to take $9K
instead of the full amount
o Consideration rules are for the same as for modifications
Majority requires consideratoion
Minority does not
o There would be no consideration for employer performing less than his
pre-existing duty
Employee could sue for the balance
Unless there is accord and satisfaction See A+S section
- Releases
o Surrender of a legal claim
o You need consideration for a release
If there is no consideration, release is not binding
- Court will look at the entirety of the circumstances to determine if there is
consideration
o Even if contract states what constitutes consideration
o If consideration contact states is invalid, court will look elsewhere
- Consideration need not come from promisor
o For example, if all employees take a pay cut
Employer is doing less than their pre-exiting duty
No consideration from employer
But other employees accepting the pay cut is consideration
o May apply when there are contracts between multiple parties
This will often apply to agreements between creditors
If D is about to go bankrupt, you can argue that D forbearing
from filing bankruptcy protection is consideration
D has a legal right to file for bankruptcy
- Receipts
o If you are given a receipt after paying less than amount due
It will be considered a gift

40
Because there is tangible delivery, so gift is possible
o Without a receipt, there is no tangible delivery allowing the discount to
be treated as a gift

Accord and Satisfaction

- Accord
o An offer to settle a full debt with only partial payment
Ex. writing a check for half of debt amount paid in full
This is both an offer of accord and performance
Cashing the check is both acceptance of the accord in satisfact
and performance
o Requires performance by both parties
o Often has consideration problems see below
- Part payment does not satisfy a debt
o When amount is undisputed
Part payment is not consideration
Without consideration creditor may sue for balance
This is an application of PEDR
Only doing what debtor is legally obligated to do
From Foakes v Beer
o If parties bargain for the payment, it does not discharge the obligation
to pay interest of the debt, which accrues as a matter of law
Any additional consideration though horse, hawk, or robe
would discharge the balance
Must still consider if it was bargained for
o Minority view has rejected this rule
o Other courts have allowed part payment to satisfy the debt if
unforeseen hardships make full payment onerous
2nd Restatement takes this view
- Time when part performance does discharge the balance
o When there is a good faith dispute about debts amount
If debtor sends more money than he thinks he owed, but less
than creditor thinks he owes
There is consideration on both sides, thus balance discharged
If debtor sends exactly what he thinks he owes, courts are split
Corbin says there is no consideration here, PED
Majority view is that the accord in satisfaction is good
o Strong policy reasons favoring private settlement of
debts
They are just finding consideration here, but really there
isnt any

41
o When creditor accepts part performance in exchange for the discharge
of a retiring partner
o When promisee is entitled to money paid in installments
Acceptance of a lesser sum saying paid in full will discharge the
balance of that payment but not future installations due
o Through estoppel injuries reliance on promise to accept part
performance
- Consideration for an accord and satisfaction
o Foakes v Beer applies only to liquidated claims
Those where the debts existence and amount is undisputed
Unliquidated claims are when a dispute exists
OK if a party is wrong so long as their assertion is made in
good faith and reasonable
o Analysis of an accord and satisfaction
Has there been offer and acceptance (accord)?
Offer of accord must be clear offeror seeks discharge
Acceptance may be verbal or by conduct
o Includes cashing a paid in full check
Has accord been carried out (satisfaction)?
Is offer and acceptance supported by consideration?
o Paid in full
Offer of accord must be clear it seeks complete discharge
Usually paid in full is sufficient
Some courts consider language as only one factor
Language may be in letter, not necessarily on check
o When there is a good faith dispute
If debtor pays a compromise point, there is legal detriment to
both parties and it is consideration
If debtor send a check just for the amount he thinks he owes,
once creditor cashes it, there is consideration
Minority view is that this is PEDR
o Re-negotiation after performance
A will do work for B, B is dissatisfied with the quality and the
parties agree to a lower price
There is an accord and satisfaction here once check for lower
amount is sent and cashed
Sending and cashing check is performance of the
agreement, not offer and acceptance
o When the parties are principal and agent, instead of creditor and
debtor, the rules are different
Debtor may attach conditions because he is accounting for his
own money

42
Agent would be putting conditions on money belonging to the
principal
This would also allow an abuse of the fiduciary position
o Payment of one liability is not consideration for an accord and
satisfaction of another, separate liability
o When two separate liabilities are owed, accord in satisfaction of one
does not affect the other
- Intent of the receiver
o Creditor is in a weird position
Must either accept less money and forego balance, or refuse a
check for the amount debtor thinks he owes
o When a check is cashed, it is interpreted to be the creditor agreeing to
the terms on it including payment in full
Creditor is estopped from suing if he cashes the check
UCC 3-311
In NY however, after cashing the check the creditor still reserves
the right to protest
o If check is inadvertently cashed
UCC gives detailed rules about how to avoid being held
responsible for part payment as full
Preemptive notice
Tendering the return of the funds
These do not apply if the person cashing the check knew it was
tendered in full payment of a larger claim
- NY statutory changes
o NY 15-301 says a release signed by a creditor is effective without
consideration
o NY 5-1103 says a discharge is effective without consideration if it is
expressed in a writing signed by the creditor
o Cashing a paid in full check is not sufficient for creditor endorsement
and does not liquidate the debt
Apparent rationale is not a conscious/deliberate as a writing
- Kibler v. Frank Garrett and Sons
o Plaintiff, worker, is the creditor. Did work, price not agreed-upon
There will always be consideration because debtor can always
claim they owe less or are owed more
o An offer to accord in satisfaction must convey to creditor that by
accepting the money he gives up his right to the balance
Print on form checks or small font may be insufficient to convey
this clearly
o In this case debtor says the bill was too high, not that he would not pay
more than $xx amount
I will pay no more than needs to be clear

43
- Accord in satisfaction is a defense to be asserted when sued for the balance
o This pays our account through z/zz/zz is sufficient
o For recurring transactions, there will be a debate about whether other
installments are consideration for the A+S of this one
- Acceptance
o Usually cashing check is an acceptance
o Some courts feel retention of the check is acceptance
Second view is that retention is not acceptance
If check is uninvited, no duty to speak
o If check is a cashiers check or insurance draft it has the effect of cash
and exercising dominion over it forms a contract
o If there is no dispute the words paid in full does not create one, but if
there is a basis for dispute the words are sufficient to indicate one,
even if other party doesnt know its basis
Other courts require both parties to understand the grounds of
the dispute
o Cashing a check under protest
Under common law it makes no difference protest is
meaningless
UCC 1-207
Seems to suggest that a claim is still allowable if check is
cashed in protest
Revised to explicitly not apply to A+S
No right to sue for the balance under UCC
NY 1-207
Only has the first paragraph of UCC so the rule does apply
to accords in satisfaction
Cashing in protest allows suit for the balance
Comment is explicit that this is the case
By cashing check, creditor isnt really accepting terms
Requires an explicit statement reserving your rights
Writing under protest on check is sufficient
This should apply to all NY transactions paid with checks, not
just sale of goods cases

Statutory Changes to Consideration Doctrine Signed Writings

- At common law you could enter into a contract without consideration if it was
a sealed instrument
o Most jurisdictions have abolished the legal effect of the seal
o Legislators have responded by passing statutes giving effect to some
written instruments

44
o Some feeling that not giving effect to written instruments does not
respect the parties expectations
- Model Written Obligation Act
o Only enacted in PA (UT passed then repealed it)
o A written promise is enforceable if it contains an express statement
that the promisor intends to be legally bound
- Modifications
o Under PEDR a modification requires consideration
Some states have mitigated this when unforeseen difficulties
arise in performance
NY permits modification so long as it is written and signed
o UCC
Does not require consideration for a modification
Only requires written evidence when
Contract as modified is within UCC Statute of Frauds
provision
If the original contract requires modification in writing
Modifications may not be retracted but waivers may
Waiver is an assertion by words or conduct that a specific
condition need not be complied with
Asserts no new duties
Modification may be implied by conduct
Conduct may provide sufficient evidentiary basis for
enforcement of the modification
- Oral modifications
o Some jurisdictions require clear and convincing evidence for oral
modifications
Courts preference is to find waiver over modification
o Majority rule is that even when there is a provision disallowing oral
modifications, parties may alter agreement by parol evidence
UCC usually gives effect to these clauses prohibiting oral
modifications, in recognition that parties are intending to
protect themselves from fraud
o Under UCC if contract is between merchant and non-merchant, term
requiring signed modifications must be separately brought to the
attention of and signed by the non-merchant to be enforced
o Waivers
UCC 2-209
Attempted modification can operate as a waiver
Effective but retractable with reasonable notification
Unless retraction would be unjust due to reliance
o UCC SoF

45
Written modification required when modified contract is within
SoF
Requires sufficient record that it is plausible contract was made
Majority of courts require all essential terms of the modification
to be in writing
- Oral agreement are un-retractable when
o Highly probative of the oral modifying agreement AND
o Good grounds for estopping a party from shielding itself from liability
- Modifications under compulsion
o Policy reason for PEDR not allowing one party to take advantage
Method of preventing coerced modifications
o Under UCC modifications without new consideration must be justified
2-103 good faith standard
Applicable to merchant request for modification
o If unforeseen difficulties arise that are sufficient to excuse non-
performance, there is detriment (because party is giving up right to not
perform) so a modification has consideration
UCC would enforce modification after less severe difficulties as
well
o Common law duress doctrine
Narrow in scope
Threat to break a contract does not constitute duress
Recently courts find business compulsion is duress
o Under UCC modification made under protest is not enforceable
Protest is sufficient to show duress
- Release and Accord and Satisfaction
o UCC 1-207
Any claim or right arising from a breach can be discharged by
written instrument
NY law also holds this is valid without consideration or seal
UCC applies only to claims or rights arising from an alleged
breach, but NY law covers all claims/rights
o Must contain an expression of present intention to renounce a claim to
be effective
o Indorsing a check is usually not considered sufficiently deliberate to be
a signed writing as required by the statutes
- An offer may be made irrevocable without consideration if statutory
requirements are met
- When a third party contract is created, it doesnt modify the original contract
- Contract may require modifications/rescission only in signed writing
o Called n.o.m. clause no oral modifications
o Disallows modification by either spoken words or conduct, so broader
than just prohibiting oral modification

46
o Under common law this was unenforceable because of PEDR
o But since UCC does away with PEDR, it gives effect to n.o.m. clause

UCC NY GOL
To modify a contract 2-209 No No consideration if in a
consideration, signed writing
Must be in good faith
To discharge No specific provision In signed writing
Release Must be written Must be written
Firm offers Option contract, w/o Option contract w/o
consideration must be consideration must be
written written. Past
consideration ok
- Past consideration in NY
o Must explicitly state the past consideration in the writing
o No future consideration necessary
- Relevant UCC provisions
o 1-201(19) Good faith = honesty in fact and conduct
o 1-302 UCC provisions may be varied by agreement
Good faith, reasonableness, diligence, and care may not be
disclaimed
Parties may determine the standards why which these duties
will be measured so long as they are not manifestly
unreasonable
o 1-304 Every contract or duty has an obligation of good fiath
o 1-102(3) Provisions of the act may be varied by agreement unless
otherwise provided
Except good faith, diligence, reasonableness, and care
As long as not manifestly unreasonable, parties may determine
the standards by which performance will be measured
o 1-102(4) Because some provisions of the Act say unless otherwise
agreed does not imply that other provisions may not be modified by
agreement
o 1-203 In every duty and contract there is an obligation of good faith
o 2-103(1)(b) Good faith for a merchant = honesty in fact and
observance of reasonable commercial standards and fair dealings in
the trade
o 2-209 A modification requires no consideration
Provisions requiring modification by signed writing will be
enforced
If provision is on a form provided from merchant to
merchant, it must be separately signed by promisee
SoF must be satisfied if agreement is within it
47
If a modification does not follow the past two bullets, it may
operate as a waiver
Waiver may be retracted with reasonable notification
Unless it would be unjust due to reliance
Official comment 2 to 2-209
Although there is no consideration, there is still a duty of
good faith which should protect against fraud
Modification without good commercial reason = bad faith
Good faith for merchants requires commercial standards
of fair dealings in the trade
o May require an objective reason for modification
- Relevant New York Statutes
o 5-1103
A modification does not require consideration so long as it is in
writing and signed by the person it is enforceable against
o 15-301
Provisions to disallow non-written modifications will be
enforced
Must be written and signed by party to be enforced against
Same for a discharge agreement, even if parties mutually agree
Agreement = promise and undertaking
o 15-303
A release from any duty, debt, claim requires consideration
o 5-1105
If a written agreement asserts that consideration is some
payment or action made in the past, that will be enforceable,
past consideration is allowable here
o 5-1109
If it is in writing that an agreement is irrevocable for some
period of time, that does not require consideration
If no time period is stated, it is irrevocable for a reasonable time
o 5-1113
A reward for returning mislaid/stolen property does not require
consideration if promise is made in writing or promisor caused
it to be published

Consideration in Bilateral Contracts

- Consideration in bilateral contracts


o Majority view
Sometimes said bilateral promises are consideration for each
other
Uttering the promise isnt consideration itself
48
Promise is consideration if performing the promised act would
be consideration
I will pay you if you promise to walk
The promises themselves werent bargained for
But society expects this contract to be formed and binding
so we found a workaround to find consid. Here
o Traditional view
In the past there was a problem with the horse derby case
If A and C entered bilateral contract, where A promises to win
and C promises to pay, there would be no consideration for Cs
promise to pay thus not allowed
But a unilateral contract to pay if C wins would be ok
This is why we started treating the promise as consideration if
its performance would be detriment
o Mutuality of obligation
Without consideration for both promises, agreement is void
It is mutuality of consideration though, not obligation
Not really that if one party is bound the other is
2 Restatement has abandoned the idea of requiring mutual
nd

consideration
A non-binding promise is consideration if its performance
would be detrimental
Courts do not weigh adequacy of consideration
If a non-binding promise is bargained for, it is
consideration
No mutuality of obligation in unilateral contracts
If performing the act is detrimental, and exchange is
bargained for, there is consideration
An unenforceable promise is still consideration
Still mutuality of consideration even if both promises cant
be enforced
Consideration does not require the certainty of detriment, just
the possibility of detriment
This protects parties expectations
- Illusory promises
o An illusory promise is just an expression but cloaked in terms or
promise I promise to pay if I want to
o Illusory promises are not consideration
o Illusory promises are incapable of being enforced
Courts now examine the actual content of an illusory promise,
and will use implied requirements of good faith, reasonableness,
etc to find detriment in some illusory promises
Wood v. Lucy Lady Duff-Gordon
49
Lucy gives Wood a 1 year exclusive contract to sell her
clothing Lucy will get half of sales
Wood does nothing to sell the clothing
Lucy says contract is void because promise is illusory
because there dont have to be any sales
Cardozo says there is an implied duty to use reasonable
efforts to make sales
Both parties clearly intended a contract
First in a line of cases finding reasonable efforts duties
Good faith and reasonableness read into every promise
When drafting be careful if both parties or only one must use
reasonable efforts be strategic here
o Contract is void if any promise is illusory
o UCC 2-306(2) in an exclusive agreement, unless otherwise agreed,
seller must use best efforts to supply the goods, and buyers must use
best efforts to promote their sale
Otherwise owner may not get any return from the exclusive
agreement that wouldnt make sense
This is basically the rule from Lucy
This is a default rule and may be contracted over
o Ridge-Runner
Government will hire forestry service if they want to and service
will accept contract if they want to
There is no actual promise here both illusory
Contract is void if any promise is illusory
o Texas Gas
Seller agrees to sell available gas, which is not illusory
There is some obligation because it will restrict his behavior in
at least some way, even if slight
If condition is outside partys control, promise isnt illusory
o Mezzanite
Financing contingency in real estate contract, requiring
financing is satisfactory to buyer
Court reads in an implied promise to use reasonable efforts to
secure satisfactory financing
Otherwise buyer could do nothing and promise is illusory
Protects parties expectations
Buyer must use good faith when assessing financing
This requires honesty
Both levels of implied promise are necessary for promise t not
be illusory
To use reasonable efforts to secure financing
And to use good faith when assessing it
50
o Court may always imply discretion be exercised reasonably in a term
- Implied vs Constructive promises
o Constructive = when justice requires finding of a promise, so the law
does so
o Implied = when conduct of parties reasonably indicates a promise has
been made
o Courts want to enforce contracts when parties intended one
o 2nd Restatement a contract is binding as an option contract if
it is in writing and signed
recites a purported consideration for the offer
Proposes an exchange on fair terms within reasonable time
o If an illusory promises performance is tendered, the other partys
promise may be construed and enforced as an offer to a unilateral
contract
- Requirement and Output contracts
o Requirement contract
Buyer agrees to buy all of its needs of a certain product from
seller, who agrees to sell that amount to buyer
o Output contract
Seller agrees to sell all its production to a certain buyer, who
agrees to buy that quantity
o Quantity term is measured by need/production
o Same rules govern both of these
Under common law
Consideration to support these promises was found in
buyer/seller giving up the right to contract with someone
else
UCC 2-306
Outlines requirement/output contracts
Quantity may not unreasonably differ from estimates
If no estimates, quantity may not differ unreasonably from
prior output/needs
Stated ma/min is enforced as limit on elasticity
Good faith requirement eliminates questions of
unreasonableness
o Buyer may only demand good faith requirement,
requesting additional goods is bad faith
Amount requested must be reasonably foreseeable at the
time of the contract
o Establishing the boundaries of demands
Buyer must use good faith when demanding quantities
For merchant parties this includes reasonable commercial
standards of fair dealings
51
Request may not be unreasonably disproportionate from
either stated estimate or prior/comparable requirements
Applies to both output and requirement contracts
Allows for gradual but not sudden changes
Ceilings in floors limit elasticity of quantity
And estimates help limit variation
First good faith must be considered, then proportionality
2UCC 2-306(1) sounds like unreasonably disproportionate test
applies to both lower and higher demands, BUT it only applies to
higher
Under common law there was no obligation to demand
anything this carries over to UCC
Lower demands need meet only good faith test
o Reconciling 2-306(1) and (2)
We protect seller from higher but not lower requirements
Seller is afforded no flexibility here
We require good faith for sellers setting outputs
Buyers tend to buy from a small group of sellers so we do
require good faith to give extra protection with this
limited exclusivity
o What governs exclusive requirement contract? Exclusivity or
requirement rules?
Requirement if buyer only buys from one seller
If seller only sells to one buyer, exclusivity rules govern
Exclusivity contracts require best efforts, whereas
requirement contracts only require good faith
Here we want to ensure buyer makes the sale
Basically you want both parties to meet the highest burden that
applies to the facts
These standards may be contracted around
o Going out of business
Party may go out of business or change methods so long as it is
done in good faith
Buyer may need to show valid reason for the change
Dissatisfaction with the contract is not a valid business reason
o If the buyer purchases good for resale
Treated as an exclusive dealing contract, 2-306(2) applies
Imposes an obligation on buyer to use best efforts to promote
the sale of goods in question
This will only apply to exclusive agents who have an exclusive
territory of sale
o Requirement or output is sufficiently specific to constitute a
quantity term
52
No indefiniteness issues
In long term contracts a quantity term may not be essential
However it may be required for determine a reasonable
basis for granting a remedy
- Alternative performances
o When a promise allows performance in multiple ways, each
performance must be detrimental
o Otherwise no consideration
- Right of termination Termination provisions
o Reserving the right to terminate at any time without notice
Usually considered illusory and contract is void
There is no duty to actually perform, may cancel day 1
o Requiring notice
This is detriment, even if notice may be given at any time
o If contract says it is terminable at any time, but does not specify
whether notice is required
First the fact question of if notice is required is decided
That determines if there was consideration
But if parties intended to be bound, that should not be frustrated
by legal intricacies
o Successive performances
UCC 2-309
Subsection 2
A contract for successive performances without a definite
end date is valid for reasonable time but terminable at any
time unless otherwise specified
Subsection 3
Reasonable notice is required by either party, unless it
happens at an agreed-upon event
o This gives us four propositions
An agreement silent on duration is valid but terminable at any
time upon reasonable notice
An agreement terminable at any time still requires reasonable
notice
If an agreement is terminable at any time without notice it is
unconscionable. Term is stricken and a reasonable time is
required
If a specific time for given notice is given, there is no
consideration problem
The power to terminate though is still subject to good
faith, so this must be reasonable time still
o Coke v. Orange Crush
Contract was terminable at any time, so illusory and void
53
Termination always requires notice
UCC 2-309 states reasonable notice is the time to obtain a
reasonably suitable alternative
Termination without notice only results in damages for the
termination period often very short
Other complications
Could be argued this was option contract but the option
wasnt bargained for
Also not clear this was actually sale of goods case to be
governed by the UCC
o Must apply predominant factor test
o If notice period is too short
It will be stricken if unconscionable
Reasonable time gap filler would be supplied
If not so short as to be unconscionable, you may have a
consideration problem still
This is possible because unconscionable is a higher
standard than unreasonable so it can be unreasonable but
still not unconscionable
o Franchise agreements
This historically were very unfair in not requiring notice
Now many are terminable only for good cause
Usually require reasonable notice for owners to recoup their
investment
o Aleotory promises
When promise is conditioned on a fortuitous event
ie insurance
If condition is outside promisors control, promise is not illusory
An aleatory promise may be consideration since tis happening is
not within promisors control
o Promising against a future possibility is consideration too
We will split whatever we both earn next year
Both parties are bargaining against their potential to earn less
and thus benefit from the agreement
So this is consideration
o Termination upon incompletion provisions
If buyer is unable to make the settlement
This implies an objective inability
Therefore buyer would need to make a good faith effort to
perform to be assessed objectively
o When no duration is listed
Usually contract is at will

54
2-309(2) if a contract provides for successive performances
but no duration listed, it is operational for a reasonable time but
terminable with notice at any time
This is essentially just at will
2-309(3) is the section requiring reasonable notice
- Void contracts - Forging
o Majority view
If there is no consideration on one side, bilateral agreement is
void
Produces no legal obligation
May later be enforced if there is performance
If the party whose promise was not supported by consideration
performs, the other party may be estopped from non-
performance
o Alternative view
If there is performance under a void bilateral agreement, it can
be treated as an offer to a unilateral contract
Called forging
Requires
Offer and acceptance have been fulfilled
o Otherwise there is no bilateral agreement
Act performed by the party seeking to enforce must have
been detrimental
o Otherwise no consideration to support the forging
of a unilateral contract
Forging wont necessarily occur if both are met
Most void bilateral agreements may be forged
At-will employment
Void for indefiniteness
Failing to agree on quantity of goods
A series of good unilateral-contracts may also be forged from a
single void bilateral contract
A contract that cannot be successfully forged may be enforceable
as an option contract
Example two neighbors, D allows P to use his dock for
10 years if P pays half of costs, terminable without notice.
After 5 years of payments, D terminates w/o notice.
Not enforceable as a forged unilateral contract because
neither party has fully performed
But you may be able to enforce as an option contract,
because 5 years of payments are consideration
o A perplexing situations

55
Employee signs an agreement without consideration after
working for a while
Keeping the employee on the job for a while does not
constitute consideration
Some courts say keeping employee on for reasonable time
is consideration
o This is explained by forging
Summits 7 v. Kelly
Employee asked to sign a non-compete after many years
at company and fired soon after
Non-competes must be reasonable about length of time,
geography, and type of work
Only question here is if there was consideration
o Court finds her continued employment was that
This is Majority view
Mostly for policy reasons
o Dissent says there was no consideration and she
was under duress so this is void
This is basically Minority View no
consideration at time of contracting
o 2 Restatement view
nd

As promise is consideration for Bs, but Bs promise is


conditional on As forbearance, thus only enforceable once the
condition is met
Essentially the same result as forging a good unilateral K
- Consideration Doctrine (final thoughts)
o Trend away from using this doctrine although never repealed
o Served three fundamental purposes
Serves as evidence a contract was made
Serves as a check against inconsiderate action
Notifies the public/lawyers how to give force to transactions
o There is an argument that a good faith requirement read into every
element of a contract is the consideration itself
Counterargument that this is not bargained for
- Corbin on Bilateral Contracts
o A promise being consideration for a return promise is 4 centuries old
But the words themselves arent bargained for, so it really isnt
Also said it commits you to a legal duty which is detrimental
This is circular, because only consideration makes that
enforceable, but the enforceability is why it is
consideration
o So courts now just consider promises consideration if the performance
would be consideration
56
Promises do not have to be enforceable to be consideration
though, because promisee may just trust promisor
This is done for policy reasons
Protects expectations of contracting parties
Detriment may speak to determining consideration, but
not absolutely required anymore

Promissory Estoppel

- Provides relief when there has been detrimental reliance


o Adopted by 90 of Restatement
Promisor should reasonably expect promise to induce action
Of a definitive and substantial character
Is binding if injustice can only be avoided by enforcing the
promise
o Provides a remedy when other tests of enforceability fail
Usually applied when there is no consideration
The detriment in a result of making the promise but not
bargained for to induce the promise
- Requirements
o A promise
Estimate is not sufficient
An implied promise may be sufficient
Content of the promise must be clear
o Promise should be of the nature that promisor will reasonably expect
promisee to act
Takes into account promisors expectations
Promisee must be reasonable to rely on the promise
This ensures both reasonableness and foreseeability
o Reliance must be definite and substantial
Conduct done in reliance must be foreseeable
o Promise will be enforced only if it is the only way to avoid injustice
Logically this would require injury, because without injury there
would be no injustice
Some courts have only required detriment in the consideration
sense
- As opposed to equitable estoppel
o Requires a false representation of fact on which other party relies
o Since a promise is future-oriented, it is never reasonable to rely on it
o This is why Williston conceived of promissory estoppel
- Recovery is full contractual recovery
o Not limited to reliance recovery
- Changes by the 2nd restatement

57
o Reliance no longer has to be definitive and substantial
o Added flexibility of remedy
o Allows reliance to be by a third party
o Charitable subscriptions and marriage settlements are binding without
proof the promise induced action
o Breach of contract must have caused plaintiffs injury
- History of promissory estoppel
o Expansion of the traditional equitable estoppel
o No right to a trial by jury due to its equitable origins
o Gifts of land
If promise is oral there is both no consideration and a SoF
violation, enforceable by estopped
Grantee must rely on promise, usually by taking possession or
making improvements
Courts usually say this is good consideration in equity
o Gratuitous promises
Used to be a distinction between misfeasance and nonfeasance
Restatement has mostly eliminated this
2nd Restatement cautions treating the promisor as an
insurer because that is a large liability
o Charitable subscriptions and marriage settlements
Policy reasons both want to be enforceable
Charity donations are usually not supported by
consideration
Courts have chosen to enforce these by estoppel
No proof required that promise induced any action
Charitable subscriptions therefore enforceable without
consideration or injurious reliance
Same logic for marriage settlements
Restatement 2nd has classified these things together
No proof required that promise induced action
- Modern approach
o Promissory estopped may be used in any cases where elements are
satisfied
Not just for lack of consideration cases
Applied to any transaction contemplating a bargain
Used to rescue failing contracts
o Reliance on offers
Applies when subcontractors submit bids
Contractor has relied on that bid in making his own bid
It may therefore by enforced by PE
2nd Restatement adopts this approach

58
Estimate is not sufficient and subcontractors bid must be
reasonable enough that reliance is reasonable
Usually you will not enforce a bilateral contract through PE
Usually it would not be reasonably to rely on offer before
accepted
Much more common for unilateral contracts
May give protection before performance but once
preparations for performance has begun
o Section 45 doesnt cover this
o Used to salvage indefinite contracts
o May sustain an action through PE even with no intent to be bound
Because it is more than a consideration substitute
Separate type of cause of action
o May be used to enforce an obligation to act/negotiate in good faith
Damages limited to reliance costs
o Promissory estoppel may also be used to enforce
Void bilateral agreements
Modifications without consideration
Promises of sureties inducing injurious reliance
o Even if a promise is not binding when made, it may become binding by
reliance
Terms of original contract may be reinstated by reasonable
notification
Unless this would be unjust due to a change in position
- Cases
o Feinberg v. Pfeiffer
Employee given pension plan for years of service no consid
Past consideration is now allowable
Except in NY in a signed writing
Future work not allowable as consideration
This promise was binding under promissory estoppel
Met the three requirements
Section 90 of both 1st and 2nd Restatements
o Salsbury v. Northwestern Bell Telephone
Regarding promises to make charitable donations
Had been supported on fictitious consideration grounds
NY enforces as offers to unilateral contracts, which charity
accepts by continuing their work
This is the common traditional view
Courts want to enforce gifts and looking for a way to
2nd Restatement 90 enforces charitable subscriptions without
proof of consideration or reliance
2R is responding to all the case law enforcing these
59
Marriage settlements are treated the same way
o 1st and 2nd Restatement rules Promissory estoppel
Section 90 in both Restatements
Requires a promise
Otherwise there was nothing to rely on
Promise must be such that promissor would expect to
create action/forbearance in reliance on his promise
o Reliance must be substantial/definitive
o This ensures both reasonableness and
foreseeability
o May happen with donative gifts
Promise is binding only if injustice may be avoided only
be enforcing the promise
Changes made by the 2nd Restatement
Reliance need not be definite and substantial
Remedy for breach may be limited as justice requires
o Williston saw promissory estoppel as a complete substitute for
consideration parties get expectation damages
2nd Restatement allows either expectation or reliance recovery
Usually expectation is given
Potential for reliance damages allows promissory
estoppel to be used more often because it isnt an all or
nothing recovery scheme
o Tip if a promise purports to be a gift, look to promissory estoppel as a
tool for enforcement
o Drennan v. Star-Paving
Case that extended promissory estoppel from only the gift
context into the bargained-for-exchange context
Contractor relied on a bid by a subcontractor, when making his
own bid for a contract
Question is if reliance makes offer irrevocable
o There is no consideration
The reliance wasnt bargained for
Offer was not to a unilateral-contract to beginning
performance cant create irrevocability (45)
Not in signed writing so cant enforce by 2R
Generally when an offer is accepted by promise, it is not
reasonable to rely on that offer before accepting
Contractors making bids is different
Court then does a promissory estoppel analysis
Reliance is using the bid in contractors own bid
o Doesnt need to be bargained for
o Reasonable and foreseeable
60
Promissory estoppel would only make offer irrevocable
for a reasonable time for accept
If contractor had reason to know bid was a mistake,
reliance was not reasonable
Re-opening negotiations with another party for this work
would end irrevocability of the offer
o May not make counter offers
o Usually offers made irrevocable by statute or
consideration remain irrevocable after a counter-
offer but not this one
This is an example of conditional performance
Contract is formed but performance obligations will only
materialize if condition is met (contractors bid being
accepted here)
Contractor being awarded the contract is basically a
condition precedent to performance by either party
o Example real property contract contingent on
buyer getting financing
This is an enforceable contract prior though
This is different than contractor getting the contract being
a condition precedent to formation of contract
o Then he must communicate his acceptance will be
effective upon getting the contract
o Promissory estoppel may be used:
At-will employment
Void for indefiniteness
Before parties intend to be fully bound but specific promises are
binding
- Remedy
o First Restatement allowed normal contract da mages
Some courts have drawn back on this
Usually expectation damages are given
o Second Restatement emphasizes remedies should be flexible
Fact-based determination
Mental distress damages are not available because this is an
extension of contract law
2nd R liberalized the doctrine substantially
- Any equitable doctrine will increase the laws uncertainty

Parol Evidence Rule

- Parol Evidence Rule (PER) basics


o Mitchell v. Lath
61
Seller promises to remove ice house after sale
Buyer promises to pay and buy
If you view these promises together, no consideration problem
But only buying/seller was in writing
Removing the ice house was orally agreed-to at the time
If there was no PER, jury would just decide agreement scope
o PER limits what evidence goes to the jury
Filters out much extrinsic evidence
Judge makes PER decisions, so it gives court a lot of power in
defining the scope of the agreement
- Judge has three issues to decide regarding PER
o Step 1 - Do parties intend the writing to be a final expression of
agreement?
This is called an Integration
Integration doesnt need to be complete, but completion is
evidence the writing is a final expression of agreement
Drafts are not integrations
Judge considers all evidence and decides if its an integration
o Step 2 - Is the integration total or partial?
Is writing intended to be complete?
There are many views on how to determine this
Two consistent rules
An integration may not be contradicted
A total integration may not be supplemented at all
o Partial may not be supplemented with an
inconsistent term
This is based on parties intent not a rule of evidence
Four Corners Rule
Most traditional rule, rarely used today
Presumption is that integration is total
Partial only if incomplete on its face
The writing itself is the only evidence considered
Collateral Agreement Rule
Most people agree with this rule
Oral agreement stands on its own as a contract so there
must be consideration for just the oral terms
If there is consideration, collateral agreement may be
proved and stand on its own as a contract
o Barrier is only if term is inconsistent with writing
o The writing is a partial integration only when oral
terms do stand on their own
Merger Clause
Says the writing is a total integration
62
o Also called an Integration Clause
Raises a problem of inconsistency if you seek to enforce a
separate oral agreement
o Interpreted narrowly that agreement is complete
only as to the terms it discusses
o If two agreement have the same clause, court has
some leeway to determine which is the main one
o PER cannot bar evidence of the main agreement
Even if not in writing
o Making a main agreement argument is last resort
Williston/Majority view
Integration is partial if it would be natural to omit those
terms from the writing
o From perspective of similarly situated parties
o Natural to agree to terms and omit it from the
writing
o Objective actual intent doesnt matter
In Mitchell it seems reasonably term wouldnt be in
writing even though its part of the agreement
Presumed total unless
o Incomplete on its face
o Only an expression by one party
o Then fall back to the natural to omit test
Corbin approach
All relevant evidence should be considered
Did these parties intend this to be a total or partial?
Includes subjective intent of parties
o Step 3 - Is alleged additional term consistent or contradictory?
Views on if a term is consistent
Inconsistent if there is an absence of reasonable harmony
o Finds inconsistency frequently
Inconsistent if it is a complete negation of contract term
o Finds inconsistency infrequently
This is a question for the judge
o Mitchell v. Lath as a case study
Seller attempting to use PER to exclude evidence of oral
agreement to remove the ice house
We cant use a collateral agreement argument because there is
no consideration just to remove the ice house
o Other notes on PER
We want to protect parties who reduce agreements to writing
This is socially-beneficial behavior we want to encourage
PER applies to prior promises
63
Writing supersedes prior promises if oral or written
Because writing supersedes negotiations
PER does not apply to subsequent agreements
Supersedes idea is no longer applicable here
Must have consideration for modification
This may be time for a n.o.m. clause
o Side note NY law eliminates consid. Only for
Firm offer
Offer to modify
To discharge an obligation
Contemporaneous promises
At the same time as the integration
Policy goal of PER to prevent fraudulent promises
So PER does apply to contemporaneous oral promises
o Nothing is being superseded, but still preventing
false claims
Written promises considered part of the integration
o PER wouldnt apply to written then
o Lee v. Seagram
Uses Corbins view
Believes PER is about intent really, so all relevant
evidence of intent should be admitted
Facts
Lee selling distributorship to Seagrams
o Two Lee brothers, each owns half
o One brother wants to sell, other wants to stay in
business
o Both agree to sell assets to Seagrams
o Seagrams promises a new distributorship to the
brother who wants to stay in business
This poses indefiniteness inssues
Suit is for breach because there was no new distributor
Writing is an integration
o Promise of distributorship was oral and prior
o Parties were asked to testify if they thought writing
was a total integration
No merger clause
Today this is strong evidence it was not a
total integration
o This is the Corbin approach
Parties refused to testify so court turns to Williston rule
o Decides if reasonable parties would have decided
two part separately
64
o Court considers relationship between parties
Longstanding relationship makes omission
more natural
Promise was just to one brother
So writing is only partial
Not clear there was consideration for oral promise
Was term consistent?
o Yes, writing was promises only to distributor
o Nothing about terms just ot the one brother
- UCC Approach
o UCC 2-202
Cover additional terms (PER) and interpretation
Integration may not be contradicted by
Prior agreements
Contemporaneous oral agreements
o May be supplemented by consistent terms unless it is full integration
UCC presumes integration is partial
Common law presumed total once you have an integration
Court must find integration total
Maybe by a Merger Clause
Or by the Certain to Include test
o This is in UCC comments
o If parties intended term to be in contract, they
would have been certain to include it and it cannot
be proved
o Developed from Willistons Natural to Omit test
o Higher threshold to show total because certain is
harder than natural
o George v. Davoli
UCC allows seasonable returns for sales on approval
Seasonable = time stated or reasonable time
Buys jewelry and returns within a week
Oral agreement was to return by Monday
Question is if Monday return day is part of contract
Is the sale a total or partial integration
Presumption is partial, nothing to suggest otherwise
Term is not inconsistent because return date not on writing
UCC gap filler would only be used if term were not agreed
on
o Examples
Parties X and Y agree to terms A, B, and C
If a confirmation is sent with only terms A and B

65
Confirmation is not an integration because it only
expresses the views of one party
o That is UCC rule
o Under common law a confirmation because a total
integration when there is performance if not
responded to
o At most under UCC confirmation would be partial
and term C would be consistent
Confirmation says A, B, and not C
If this is an integration (which is probably isnt) C is an
inconsistent term and may not be proven
Both parties sent confirmations with only A and B
Integration on terms A and B
Presumed partial under the UCC, term C is consistent and
may e proven
- Parol evidence rule doesnt apply to extrinsic evidence showing there is no K
o Such as fraud or an oral condition precedent that didnt occur
o Promissory fraud
Making a promise with no intent to perform to induce promise
o This will only allow you to void a contract though
o If you want to enforce a contract, parol evidence rule will govern

Interpretation

- Thought process
o What standard of review will be used?
o What evidence is therefore admissible?
Similar to PER analysis PER was what evidence of agreement
may be brought in, this is what evidence of meaning
- Seven approaches to how we give meaning to ambiguous terms
o 1-3 relate to non-integrations, all objective
1. Reasonable understanding test Majority view
2. Reasonable expectations test Willistons view
3. Reasonable understanding provided the promissor would
reasonably expect that understanding Corbins view
o 4-5 apply only to writings
4. Plain meaning rule
What words mean to the judge
5. Reasonably intelligent reader
Takes into account trade usage but not subjective intent
o 6-7 are subjective tests use subjective intent
6. Mutual both parties agree on one meaning

66
7. Individual can find a contract based on one partys
subjective understanding
- Plain Meaning Rule and Ambiguity
o If a writing is unambiguous on its face, its plain meaning must be used
Usually no extrinsic evidence
Extrinsic evidence is allowed to define unambiguous
terms of art that are not necessarily understood by the
court
Recently courts have started to allow some evidence of
surroundings, trade usage, etc
o Courts are split if extrinsic evidence is allowed to show ambiguity
Those that dont allow it, do allow a proffer attorney can
explain nature of ambiguity and the evidence to resolve it,
essentially exposing court to the extrinsic evidence
Some courts may only allow objective evidence for this
Court must feel there is ambiguity, it does not matter that parties
feel there is or disagree about if there is
o Majority of courts use this
UCC and 2nd Restatement are against this approach
Dictionary often use to corroborate interpretations
- Willistons Rule
o Integrations
The meaning of ambiguities as would be understood by a person
reasonably informed of usages and circumstances
Does not consider what parties said to each other or subjective
understandings
Goal is to understand the meaning of the words at the time and
place they were written
So court may come to an interpretation different from all
parties understandings
All non-subjective extrinsic evidence allowed
o Non-integration writings
If non-ambiguous
The understanding the party making the manifestation
would reasonably give it
Standard of reasonable expectation
(Remember back to a party being held to how a
reasonable person in the other partys shoes would have
understood things)
Accounts for what parties knew or should have known
All extrinsic evidence allowed
If parties understand the same meaning, that is how
contract will be interpreted
67
If parties have different understandings, meaning of party
justifiably unaware of the ambiguity is used
If parties differ on a material term
o Both innocent- No contract
Ex. Raffles v. Wichelhaus
o Both guilty No contract
- Corbins Approach UCC 2nd Restatement
o All extrinsic evidence is admissible
Even evidence of subjective intent
If there is no evidence of subjective intent at the time of
contracting, they may introduce evidence of subjective intent
now
Thus PER has no effect here
o May interpret any term, not just ambiguous terms
o When parties understand different meanings
Court should weigh relative fault, and adopt the interpretation of
the less guilty party
o Combines reasonable expectation and reasonable understanding
Reasonable understanding of the promisee so long as promisor
could reasonably expect that understanding
o Text must be reasonably susceptible to asserted understanding
Trial judge determines this
If not, that interpretation may not be adopted
Jury will not hear of that interpretation
o For insurance contracts
Reasonable understanding of insured, or what insurer would
reasonably expect insure to understand will override detailed
provisions of the contract
- Canons of interpretation
o Writing is to be interpreted as a whole, no part ignored
All writings of the same transaction should be harmonized
o Priorities when interpreting
Contractual terms
Course of performance
Course of dealings
Trade usage
UCC 1-205(4)
o Expressio unius
o Lawful, reasonable interpretations are preferred over unlawful,
unreasonable ones
o Preference for interpretations rendering agreements enforceable
o Hand written terms preferred over pre-written ones

68
o Fairest meanings and those fulfilling good faith and fair dealings are
preferred
- Filling in omitted terms
o Extrinsic evidence always allowed to understand parties intentions
o Community standards of fairness are considered
Business efficiency also considered
o Terms usually reasonable time, good faith, reasonable price
- Questions of Law vs. Fact
o Interpreting a writing is treated as a question of law
Increases judicial/appellate review
o If parol evidence is admitted, question of meaning left to jury
- Course of performance, course of dealings, trade usage
o Court of performance
How parties have interacted while performing the contract in
question
Course of performance evidence can only be barred with an
n.o.m. clause AND a statute
Without a statute any contract may be modified by
conduct
PER never bars course of performance evidence, becuase PER
looks at time of contracting and course of performance is always
subsequent to contract formation
o Course of dealings
How parties have interacted prior to contract formation or
regarding other contracts
o Trade usage
A practice of method regularly observed in a place, vocation, or
trade such that there is an expectation it will be used in the
transaction in question
UCC definition
Usually established by expert testimony
See the requirements in UCC to qualify as trade usage
2-201
Is trade usage binding?
Merchants of the trade are bound
Non-merchants of the trade who are or should be aware
of trade usage are usually found to be bound by it
Trade usage may either define or add a term to a contract
So long as it is consistent with express terms
Used by all views except plain meaning rule
Unless use of trade usage is clearly negated in contract
o Trade usage, course of dealings, and course of performance
Parol Evidence Rule
69
May be used to add terms even with Merger Clause
Except four corners rule which isnt used anymore
Because it is natural to omit these things from contract
Interpretations
May be used to completely change the meaning of words
in the contract
UCC 2-202 lumps these together
UCC 2-305 lists hierarchy of extrinsic evidence
Express terms
Course of performance
Course of dealings
Trade usage
- Cases
o Pacific Gas v. GW Thomas Drayage
Facts
Contract between repairman and utility, where property
was damaged during the repair
Repairman wasnt negligent so only relief will be through
contracts indemnification clause
Language is ambiguous if indeminification clause covers
damage to Ps property or only third partys property
Under plain meaning rule the incident would be covered
Appellate court found this was an adhesion contract prepared by
utility company
Since the utility company could have fixed the ambiguity it
should be resolved against them
So when reading language, it is read to only cover third
party property, disfavoring the drafter
California Supreme Court focused on appellate court excluding
extrinsic evidence
Language must be interpreted in context
Judge must at least consider extrinsic evidence
preliminarily, even if it doesnt go to the jury
Meaning must be reasonably susceptible to the meaning
asserted by the extrinsic evidence
o Trident Center v. Connecticut General Life Insurance
Two law firms and insurance company take out a loan to build a
new office building - $56.5M, 15 years
No right to pre-pay for 12 years
Parties want to re-finance because interest rates go down
Contract clause that if borrower defaults, lender may
collect whole amount plus 10%

70
Borrower arguing they may pre-pay with 10% fee
The contract is very clear no ambiguity so no right to introduce
extrinsic evidence
But court feels bound by Pacific Gas that they must allow
extrinsic evidence
Requires only preliminary consideration
And language must be reasonably susceptible to proposed
meaning
Plaintiff here is really trying to add a term by extrinsic evidence
Term is that if rates go down they may pre-pay
This contradicts contract language and would never be
allowed
o Raffles v. Wichellhaus
Two ships transporting cotton to leave on uncertain dates
Seller delivers cotton to buyer on the second ship, who
rejects because he wanted it from first ship
Really cotton prices had gone down and price was high
Objectively there was no way to determine which ship the
contract meant
Subjective evidence allowable as last resort
Buyer didnt show up when first ship arrived
If you can show parties had the same subjective intent, contract
will be read to mean that
But if there is a true misunderstanding
If both parties are equally innocent or at equal fault
there is no contract
o No reason to choose one view over the other
o Same if they both know the other partys
understanding or had reason to
Only way to choose a meaning is if one party is at fault and
the other is innocent
If both are at fault but one is more so
o Corbin Use meaning of party less at fault
o Williston No contract, doesnt weigh fault
o Plaintiff must always prove both that there was a contract and that it
should have sellers intended meaning
o Nanakuli Paving v. Shell Oil
Long term contract selling asphalt, price at time of delivery
Large price increase
P attempting to use trade usage to show they need price
protection for asphalt already committed to projects
But just asphalt trade usage shows price protection, but
asphalt/aggregate mix trade usage shows opposite
71
Question of how to define relevant trade usage
Court says aggregate mix is the relevant trade usage
But there is also course of performance evidence
Under contract, Shell has raised prices twice already and
price protected both times
UCC 2-208 requires more than one instance with course of
performance to be relevant here we have 2
Shell argues this is a waiver
o Done in the past but retractable at any time
o Waiver is usually preferred to a binding course of
performance finding
Here court chooses not to find waiver
Must finally consider if this reading is consistent with course of
performance evidence asserted
Court uses a total negation test
Course of performance evidence is not a total negation of
the contracts express terms
o Trade usage etc. evidence must be relevant to what the language itself
means, may not be used to contradict express terms
- UCC
o 2-202 same section as PER
Integrations may be explained by extrinsic evidence
This is a rejection of plain meaning rule
2nd Restatement does too
Most courts purport to apply plain meaning rule but are not
blind to extrinsic evidence
o 2-208 course of performance
UCC defines course of performance as:
Repeated performances (more than one)
Knowledge and chance to object by both parties
Acquiescence is relevant evidence
Hierarchy
Express terms > CoP > CoD > trade usage\
This hierarchy combines 2-205(4) and 2-208(1)
o Course of performance may be used to show modification even if not to
interpret agreement
UCC 2-209
UCC doesnt require consideration for modifications
N.o.m. clause may pose a problem
May be able to show waiver if not modification

Avoidance for Misconduct and Mistake

72
- Policing the bargaining process
o Contract law is based on voluntary decision-making
- Duress
o Traditional rule
Only duress for threat to life or limb
Only for irreparable harm
Would not apply when there is just no reasonable alternative
PEDR helped here often there is no consideration for
one-sided modifications
Thus this rule has declined
o UCC
Modification under 2-209 requires good faith
Because modification is a type of performance
Extortion without a legitimate commercial reason violates
good faith
o Economic duress doctrine has developed because of the recent decline
in the PEDR
Requires both bad faith AND a threat
Threat not to perform existing contract
If you have a right not to perform, this threat requirement
cannot be satisfied
AND party has no reasonable alternative
This considers economic implications
Austin v. Loral
Austin threatens to stop delivering under first contract
unless Loral awards the all of second K
o And to pay more under both contracts
o Loral cannot find another supplier to deliver parts
in time, so he agrees
o No reasonable alternative
No consideration for new contract or modification
Can contract be voided for duress?
o Would resolve dispute in favor of coerced party
o Bad faith threat yes
o No reasonable alternative yes
Grounds for restitution
o May get back payments already made under the
contract
UCC isnt used because it was newly enacted at this time
o Bender thinks
If you already paid under contract you probably need to show
duress, but to resist enforcement of the modification you may be
able to just show lack of good faith under the UCC
73
o Undue Influence
Extreme pressure, but different from coercion
Dont worry about this
- Misrepresentation
o May have a choice of avoiding the contract or suing for damages under
the tort of fraud
Contract law will not give you damages
Thus its requirements are less strict than tort of fraud
o When a contract is avoided you get restitution
Avoidance is sometimes called rescission
o Misrepresentation basics
Under contract law, misrepresentation must be either fraudulent
or material
Tort of fraud requires both
Misrepresentation may be in inducement or execution
o Inducement leaves an avoidable contract
o Execution gives a void contract
Called in the factum
What is misrepresentation
An assertion not in accord with the facts
o Usually a false assertion of fact
o May be past or present
o May be a statement, conduct, concealment, or
affirmative non-disclosure
Avoidance requires
Misrepresentation that is either
o Fraudulent
o OR material
Must have been relied on
Reliance must be reasonable and justifiable
Fault does not matter in determining if there was
misrepresentation
Cousineau v. Walker
Misrepresentation regarding road frontage and gravel
Half-truths are still misrepresentations
Usually statements about the future are not misreps.
o But a statement about the future may be grounded
in the present, in which case it could be
Types of misrepresentation
Where promissory fraud comes in
o If you have an intent not to perform at the time of
making promise
Active concealment
74
o Ex painting over leaks when you sell house
o May be a misrepresentation
o Or preventing another party from making their own
reasonable investigation
Making it difficult is usually sufficient
Non-disclosure
o Buyer has no duty to disclose publicly-available
data
But info must be available to both parties
Or maybe if you spend money investigating
you dont have to share te results
o Farmsworth says trespassing to investigate is in
bad faith and muse be disclosed
o Sellers disclosure duties
NY is a caveat emptor tending state
Requires sellers to fill out a form about
condition of property
Must reduce price by $500 if they dont
Trend is against caveat emptor
Burden tends to be on sellers to disclose
things not to be discovered by buyer upon
reasonable investigation
Especially for material considerations
o This is how contract was avoided in Stambovsky
What is material?
Usually avoidance is given for
o Innocent material misrepresentation
o Or fraudulent immaterial misrepresentation
Your reliance is entering the contract
Misrepresentation must be a substantial reason you
entered into the contract
Not reasonable to rely on statement if
o It is clearly false
o Misstatements of the law are not
Borat - Fraudulent waivers case
Parties were verbally told movie was a documentary for
Belorussian TV
o All paid small amounts
o They say its a release so no fraud in the execution
No one read releases
Always given at last moment
Preska opinion
o Term documentary-style is not ambiguous
75
o Determined as a matter of law
Clauses usually found in these types of forms
o Written representation may contradict oral
o No reliance clause
The signee is not relying on any
representation so you cannot prove fraud
o No representations
Other than what is said in release
o Release clause
Signee releases all claims about waiver
There is a law review article suggesting each of these
clauses should have a separate signing requirement
Oral description contradicted contract
o Fox wanted to protect itself
o Company not liable for oral promises
Costs to signees
o Reading without a lawyer
o Confirmation bias
Oral representation defines how you
interpret vague written release
o Trust
Insisting on reading conveys non-trust
o Endowment factor
People are adverse to loss
People would lose the opportunity to
participate in a movie
If release were given initially, they have less
to lose because opportunity is not theirs yet,
so may read more carefully
o Remedies
Avoidance for duress or fraud must be done promptly
Otherwise contract will be found to have been ratified
Fraud in the factum results in a void contract
Therefore no ratification concerns
Remedy for misrepresentation is avoidance
Tort of fraud allows damages
To get damages in contract law you need a warranty
o Damages are given when warranty is breached
Fraud (tort) requires a showing of intent to deceive
- Mistake
o Sherwood v. Walker
Simkin in the Madoff divorce case relies on this case
Facts
76
Seller thought cow was barren, sets low price
o Price for the meat only
But cow is fertile and worth much more
Buyer brings a replevin suit
What types of mistakes result in avoidance?
Substance of the thing bargained for
Versus a mere difference in quality
A barren cow is a whole different animal
Jury should be instructed that if both parties thought she was
barren, defendant may rescind contract
If only one party thought she was barren, this is not
grounds for rescission
o 2 Restatement rule
nd

Contract is avoidable if -
Mutual mistake at time of contracting about basic
assumption on which contract was made
AND mistake is material
UNLESS party making the mistake bears the burden of
that mistake
If party knew he was unsure a fact and assumed the risk
Conscious ignorance is not grounds for avoidance
o Simkin v. Blank
Madoff divorce case
Husband kept the Madoff account and paid wife half of
what is was worth at time of divorce
He sues her for that money back when Madoff falls
Argues the account never existed
She argues it is only mistake about value
This would not be grounds for avoidance
If account had increased in value, she couldnt get more
This argument eventually wins
o Peerless (case about two ships brining cotton to speculators)
Not really a mistake case, about lack of assent
Each was thinking about different ships
Had they been thinking of the same ship, there may have been
grounds for avoidance for mistake

Unconscionability and Duty to Read

- Unconscionability is a defense only


o May resist enforcement, not get damages
o Equitable defense to specific performance
If bargain is too unfair to enforce
77
o Adopted in UCC 2-302
Applied generally, not just in specific performance actions now
Decided by judge, not jury
Even though it is no longer a remedy in equity
Unconscionability determined at time contract is formed
Gives three options for enforcement
May not enforce any of contract
May enforce all but unconscionable provisions
May limit applicability of unconscionable provision to
avoid any unconscionable results
Provides for a mandatory hearing when unconscionability is
claimed
- Two types of unconscionability
o Procedural
How agreement is obtained
May include a discrepancy in bargaining power
o Substantive
Unfairness in the terms themselves
Williams v. Walker-Thomas Furniture
Debt is maintained on all furniture purchases and if you
default on any, they may seize all prior purchases
o Impossible to understand language
o Defendant only had one balance outstanding
Both procedural and substantive unconscionability
o Procedural = language hard to understand
The strongest cases are when you have both types
o But just one may be sufficient
o Unconscionability infrequently used today
Dissent
o Worried about position of defendant
o If court undermines this contract, stores may refuse
to sell on credit
Brower v. Gateway
Regarding terms sent with computer when shipped
Adopts Easterbrook analysis as a matter of law
o Whereas actually there is a split of authority
UCC 2-207 didnt apply
o Keeping the computer was acceptance
o This logic from Hill v. Gateway
Arbitration clause prevents class actions
o But bringing action alone is never worth it
Arbitration clause found unconscionable
o Substantively
78
Arbitration is very expensive
This type uses obscure rules
o Doesnt find procedural unconscionability because
he uses Easterbooks analysis
Bender thinks this is unconscionable
Substantive unconscionability is sufficient here
Judge allows arbitration, just in a different form
o Bender thinks arbitration is a matter of the contract
and parties never agreed to this new type of
arbitration

Express Conditions

- We are now into scope of discussing performance


- For a breach action plaintiff must prove
o Contract existed
o Defendant breached it
Cant prove breach until performance is due
This prevents bringing suit prematurely
- What is a condition
o Dates are not considered a condition
o For plaintiff to prove breach he must prove all conditions precedent
were satisfied
o Condition = an event not certain to occur
Which must occur, unless excused, before defendants duty to
perform becomes due
Condition precedent = condition before duty to perform is due
Conditions subsequent will be discussed later
o Audette v. LUnion St Joseph
Promise ot pay health benefit if plaintiff has doctors note
Doctors note is condition precedent
Express condition must be literally complied with
No sworn-note = non-compliance
What is the effect of non-compliance
Depends if condition can still occur
Defendants performance is not due for non-compliance
but there may still be time for condition to occur
Case is dismissed with prejudice
Doctors note may still be produced to mandate
performance
If condition can no longer occur (ex. if deadline has
passed) performance will never become due, so we say
duty has been discharged
79
o Inman v. Clyde Hall Drilling
Employment contract for Inman, 30 day written notice of claim
Could be a promise or an express condition
Inman both promised to give notice and expressly
conditioned claim on notice
Inman brings suit within 30 days, employer served within 30
days
Employer says no breach because 30 day period wasnt up
yet
After 30 days they answer that there was no notice
Condition fails because notice cannot be given now, outside 30
days period
Inman argues service was notice
This isnt literal compliance though, because contract also
said suit may not be brought for 6 months after giving
notice
- Conditions subsequent
o Plaintiff must prove compliance with all conditions precedent
If a condition is not provable in court, it isnt satisfied
You could interpret un-provable conditions to only require
reasonable efforts not literal compliance
o Conditions subsequent are to be proved by defendant
Events occurring after performance is already due
Operates to extinguish the duty to perform
Comes up with Inman, provision that shorts SoL plaintiff must
sue between six months and 1 year after claim
Failure to sue in that period will extinguish employers
duty to perform forever
o Determining if something is a condition precedent or subsequent will
determine who has the burden of proof
This may involve reformulating the conditions wording
- Determining what is an express condition
o True conditions
Express
Implied in fact very uncommon
Part of parties agreement
Require literal performance
o Versus a promise
May give rise to a constructive condition
Supplied by the court, not the parties
Requires only substantial performance
o When you see conditional language it is either
Express condition
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No duty for either party to perform
Non-breaching party may prefer this remedy, in order to
be discharged form the contract
OR promise
Gives rise to a constructive condition
If breach is immaterial, contract may not be cancelled
o Because only substantial performance required
If breach is material and substantial performance has not
be complied with, you may get breach damages
Constructive conditions
o All promises have a constructive condition of
performance by the other party, otherwise you
could sue for breach when neither party performed
o Performance is a constructive condition precedent
to any duty to pay
Performance over time must happen before instantaneous
performance of payment is due
o This is default rule
Constructive conditions are instruments for justice
o Promises are not independent, because they do
depend on this constructive condition to perform
OR both a condition and promise
May discharge contract and sue for damages
Condition allows cancelling contract
o Called total breach action
o Damages are the amount to find serve elsewhere
o Damages put non-breaching party in position had
contract been performed
Partial breach action when you elect to continue with
contract and only sue for partial damages
Inman explicitly said it was both
o For non-performance to be a breach, it must be a promise
Either express or implied
If condition, there is no duty to perform
You need a promise to breach that promise
Breach action gives you damages
May be minimal if breach is immaterial
o Stuart v. Newberry
Builder must substantially build project before he is owed pay
Default provision is that payment is due only after
substantial performance of the whole job
Based on constructive condition to perform
This is why builders usually get interim payments
81
Building comes before payment is due, and must be substantially
performed
Constructive condition will fail with unsubstantial
performance and thus no duty to pay
o Literal compliance
Must meet every technicality of condition
Punishment may be very harsh
Breach of promise damages will be only partial, thus they
are more likely to be proportional
Partial breach gives only partial damages
o NY Bronze v, Benjamin
NY Bronze is selling assets to Benjamin
Part of purchase price was deferred
There is a Note of this obligation to pay
Contract says seller must physically return Note
Buyer doesnt want to pay deferred purchase amount
because seller hasnt returned Note yet
Is returning the Note a condition or promise?
Buyer says condition precedent
Seller says promise
o Which he breached
o But damages would be minimal because breach is
immaterial
Court says language is unclear
o Conditions are listed in a different part of K
o Promises are also in a different section
o Court also looks at the purpose of the provision
So a third party couldnt also seek payment
on the Note
This wont actually happen here
Doubtful which interpretation is correct
Uses 2nd Restatement rule - 227 (comment d)
Applies only when language is unclear if term is a promise
or an express condition
When a party can be a promise, condition, or both
o Promise is preferred if condition is within obligees
control
o Unless contract is of the type where only one party
usually undertakes duties
A Note usually only requires one party to
make a promise

82
Court gets around this by saying Note is only
one small part of contract, where bot parties
made promises
o Then presumption is express condition
o May only sue for breach if theres a promise
So to consider breach, you must first assess the terms and find
the promise
In a land sale contract, attaining financing is an express
condition precedent
Also an implied promise to use reasonable efforts to attain
that financing
This is how language can be both promise/condition
When you have both condition and promise there are 3 options
Both express
Express condition and implied promise
Express promise and implied condition
o May happen if precondition is necessary to actually
perform
o Creates an implied in fact condition
o This is very rare
o Time vs. Express conditions
Thos J. Dyer v. Bishop International Engineering
Contractor saying he doesnt have to pay subcontractor
because owner never paid him
We have to decide where to allocate the risk
o Dont want it to sit with subcontractor
o Each party bears the risk only of those parties he is
in contracts with
Thus payment by owner is not a condition to payment
subcontractor
o It is just a discussion of timing
Must therefore pay within a reasonable time
JJ Shane v. Aetna
Same facts as Dyer, except contract is clear that
subcontractor assumes the risk of owners financial
position
o Called a pay if paid clause
Very unusual to interpret this as an express condition
o Test must be very clear
Still may not be upheld if court feels its against public
policy
o Builder put a lien on the property until paid by the
owner Mechanics Lien
83
o This is a lot of protection for contractor
o NY law feels pay if paid clauses are against public
policy and will not enforce them
- Conditions to contract formation
o Technically this includes offer/acceptance/consideration
We dont usually call these conditions though
o Thompson v. Lithia
Contract has an arbitration clause
If contract is formed, dispute must be arbitrated
If condition prevented formation of contract, dispute may
be decided in court
o If no contract, no agreement to arbitrate
In this case condition preceded formation of contract
Must then answer if condition was satisfied
If it was, contract exists and must be arbitrated
Case remanded not enough information
Condition must occur within reasonable time
o The vast majority of conditions precedent are to performance not
formation of the contract

Constructive Conditions

- Concurrent conditions
o Created by courts to do justice
o Concurrent conditions are the courts preference
o In bilateral contracts where promises of performance are exchanged
May only be concurrent condition if performances are capable of
being rendered at the same time
Both practically and by contracts terms
Parties often do not state the order duties will be performed
Constructive conditions cover this gap
When one performance takes place over time, he must
substantially perform to be entitled to payment
o When performances may be done concurrently, each is constructively
conditioned on tender of performance by the other
Ready, willing, and able to perform
Performances will be considered concurrent if
Same time is given for both
Time given for one and no time for the other
No time given for either performance
OR same period within which performance must occur is
given for both
o Obligation to perform is dependent on other partys obligation to
84
If condition is not express, courts impliedly construct it
Monroe v. Carpenter
Exchange of stock for mortgages
o May be exchanged at the same time
o Both parties are protected by the condition
precedent of other partys tender
Monroe tendered the wrong mortgages, so they have not
complied with their condition
o Thus other party need not perform
If non-breacher wants to sue for breach, he must
conditionally tender her own performance
However if one party doesnt show up, present party isnt
required to tender performance to an empty room
o If conditions cannot be concurrent, they are precedent
o Periodic payments
Never implied
Performance at each stage is a constructive condition to that
periodic payment
Each periodic payment is a constructive condition to performing
the subsequent stage of work
o Inquiry raises two questions
Was P justified in ceasing performance?
Is D entitled to cancel the contract?
- Material Breach and substantial performance
o If breach is material and no remedy is forthcoming, breach is total
Aggrieved party may cancel contract and sue for total breach
Requires P show he was ready, willing, and able to perform but
for the breach
Or aggrieved party may continue with K and sue for partial
breach
When an entitled party cancels the contract, no further
performance should occur
Duty to minimize damages
2 Restatement says a total breach allows cancellation
nd

Material breach allows suspension of performance but


not cancellation
o If breach is immaterial, aggrieved party has no right to cancel
May sue for partial damages
Authorities differ whether partial damages may be withheld
from the amount due
UCC allows this
o No formula to determine if breach is material
Factors to consider
85
Extent contract has been performed
Willfulness of breach
Quantitatively, how serious is breach
Ration of performance to part to be performed
Degree of hardship of breaching party
Adequacy of damages as compensation
If time is not of the essence, reasonable delay does not constitute
a total breach
Unreasonable delay is a total breach
If time is of the essence, any delay is total breach
Should state time is of the essence in contract
Otherwise trier of fact determines intent of the parties
o Substantial performance
When parties perform but not in accordance with the contract,
but not so substantial to constitute material breach
Party may give notice of reasonable time for performance
and say time is of the essence
o Non-compliance would be material breach
If time given is not reasonable, notice is ineffective
o Canceling contract would be a repudiation
Constructive conditions only require substantial performance
For substantial performance to apply, portion of contract
unperformed must not destroy the contracts value
If there are multiple promises, each one need not be
substantially performed
o In the past substantial performance did not apply to willful breach
Today it is only one factor to be considered
Trivial deficits, even if willful, are to be ignored
Even for express promises
Analysis should be based on good faith and fair dealings
o Substantial performance is still breach
Breaching party will still be liable for damages
Damages are limited though to the cost of completion/repair
Majority view is that the burden of proving how much
completion/repair will cost is on breaching party
o Jacob & Young v. Kent
Building contracting many specs, including piping to use
Pipe promise was not complied with
Court would never interpret each spec as a condition
because builders would never get paid
There was an express condition precedent that builder would
not get paid until architect certified, which he wouldnt do
because wrong pipe was used
86
In NY, architect certification may not be reasonably
withheld, so if builder substantially performed, building
must be certified
Substantial performance looked at from the perspective of full
contract, substantial performance of each promise not required
Entitles builder to the balance due
This case established substantial performance law
Building of the home is a constructive condition to
payment which is why sub. performance is required
This solution is meant to be just
Protects owner but forgiving of builders small mistakes
Usually a question of fat
o How is substantial performance determined?
From the aggrieved partys perspective
(here the owner)
To what extent has he received substantially what was
bargained for?
OR how important was the defect
Here owner had little interest in which brand of pipe was used
Very insignificant breach
Damages here would be adequate compensation
o Cost owed offset by cost of breach
From the perspective of breaching party
We examine -
What harm would forfeiture cause
Harshness
How intentional was breach?
o Inadvertent little fault
o Intentional knowing, but no intent to harm
o Willful breach of good faith
Cardozo says a willful breach may not be substantial
performance
o This was the old rule
o Now it is just one factor we look at
o Concurrent constructive conditions allows aggrieved party to withhold
performance due to breach
Breach always allows suit for damages too
Jacob and Young was an immaterial breach
Thus substantial performance may be found
- Damages
o Majority view
If you can show substantial performance defendant must pay
contract price due
87
Damages may be offset by costs of breach
Defendant must prove the damages and offset
o Minority view
Plaintiff must prove damages
o Cost Rule
Usually damages will be the cost to repair
Puts aggrieved party in position as if contract had been fully
performed
o Value Rule
If cost of repair would be grossly out of proportion to the value
of what full performance would give you
Expectation interest is measured by the different in value
between what was promised and delivered
So minimal in this case
But still an expectation recovery
o Substantial performance is required for liability
If builder did not substantially perform, he would not be entitled
to payment
Substantial performance is not just a majority of performance
o Some states allow restitution suit
Restitution for material breacher
Eliminates the all-or-nothing payment scheme of material
breach less harsh results
NY does not allow restitution for breaching party
Substantial performance doctrine may be applied more
favorably to breacher in NY because there is no other
doctrine to give builder payment for work done
- Cancelling the contract
o Transaction will likely break apart after substantial performance
If owner fails to make progress payment
Builder will have a breach suit for damages
But can they cancel contract and stop performing?
o If breach is material, contract may be cancelled
o 1st Restatement rule
Material breach justifies cancellation
o 2 Restatement rule
nd

Material breach justifies suspending performance


When material breach is not cured for a reasonable time, it
becomes total breach and entitles cancellation of contract
Remedying material breach within a reasonable time cures
materiality of breach
Retain damages action for partial breach
Non-payment is a non-occurrence of a constructive condition

88
After a reasonable time it becomes a failure of that
constructive condition and entitles cancellation
Calls a breach justifying cancellation total breach
o Walker v. Harrison
Harrison must maintain sign if Walker thinks it needs repair
Harrison renting sign and after 3 years gains title
Harrison only makes one payment
Harrison then cancels the contract
Types of cancellation of contract
Repudiation unjustifiably cancelling
Cancellation justifiably cancelling
Rescission mutual agreement to cancel contract
Avoidance when non-performance is for a legally-
allowable reason
Termination when contract explicitly allows a party to
terminate without preceding breach
Was Harrison entitled to cancel?
Must examine from view of both parties
From aggrieved partys view
o To what extend will injured party get what they
bargained for?
o Are damages adequate compensation
From breachers view
o What harm would forfeiture cause, Harshness
o How intentional was breach?
Inadvertent little fault
Intentional knowing, but no intent to harm
Willful breach of good faith
Walkers breach did not justify Harrisons repudiation
Did the breach justify suspension of the contract?
No breach is too insignificant
When an owner fails to make a progress payment, builder
may suspend
o Material breach because builder relies on the
money to continue work
o Owner has reasonable time to remedy breach
before cancellation is allowed
When there is a good faith dispute about amount of
payment due and some of price has already been paid, no
right to suspend
Could Harrison deduct partial damages from monthly rent?
Cost of having sign cleaned/repaired
Risk is that deducing from rent will be a breach
89
o Best to deduct from last payment
o K+G v. Harris
Contract between contractor and sub
Sub damages house in breach of contract
Contractor wants to deduct partial breach damages from
progress payments
Court allows this
Damage was a material breach allowing cancellation
Instead contractor elects to continue under contract
Basically agreeing to treat breach as partial
This allows deduction of payment to make repairs
Courts do not consistently allow this deduction though, so best
to wait until final payment
o UCC 2-717
Allows deduction of partial breach damages from any payment
still due under the contract
But must notify seller in advance of intent to deduct
- Failure of consideration means failure to perform
o Has nothing to do with consideration
- Terminology
o 1st Restatement
Uses material only for right to cancel
Immaterial covers both right to suspend and duty to proceed
o 2 Restatement
nd

Immaterial contract must continue


Material aggrieved party may suspend
Once entitled to suspend, breacher has reasonable time to cure
Then party may cancel
o 2 Restatement improved semantic confusion in the 1st
nd

Bender thinks courts use material as both right to suspend and


to cancel
o More on Walker v. Harrison
Relied on 1st Restatement 275 factors to determine if breach is
material
Extent to which injured party will obtain substantial
benefit which he reasonably anticipated
Extent to which injured party may be adequately
compensated by damages
Extent to which party failing to perform had already party
performed or made preparations for performance
Greater or less hardship on party failing to perform in
terminating the contract

90
Material breach may be before substantial performance because
breaching party is claiming their substantial performance is
enough for performance
Material breach analysis is to determine if aggrieved party
got substantially what they bargained for
Breaches look more important when they are early in
performance
o More likely to appear material
It is relevant how likely parties are to continue
performing
- Late performance
o If performance is one day after closing, buyer may not refuse
o Must wait reasonable time before cancelling contract
But he will have a cause of action for breach for later perf.
If performances are concurrent, buyers is suspended
o NY rule (from case law, not statute)
Reasonable time for delaying a real estate closing is 30 days
You may sue for damages, but not cancel before 30 days
o Time is of the Essence (TIOTE) clause can override this
Some courts wont enforce these
NY does
Boiler plate language usually, so courts may want more detail
about late performance
o Either party may send a TIOTE letter
Sets a date for performance, and if not met party may cancel
If date is reasonable it may be imposed unilaterally
Theoretically you can cancel after reasonable time
anyway but these letters are very common so courts have
come to expect them
If time in letter is less than reasonable but other party doesnt
object, it may be enforce as acquiescence
Reasonable time is measured form date in the original contract,
but the longer you wait to send TIOTE letter, the less likely it will
be found to give reasonable notice
TIOTE letter may only be sent after closing date
Technically after reasonable time you can cancel anyway
so notice shouldnt be necessary
But some courts may require it
Especially in real estate closings
Terms of contract may make clear time is of the essence even
without a specific provision
Ex. catering contract for an event on a specific date

91
Constructive Conditions Under the UCC

- Perfect tender rule basics


o For sale of goods only
o Instead of substantial performance rule
o Buyer may reject goods unless they comply with every provision of K
o UCC 2-601
If goods differ from contract in any way, buyer may
Accept
Reject
Accept part, reject part
o May only reject in commercial units, ex, by the box
This is perfect tender rule
Usually constructive conditions only require substantial
performance, but UCC requires literal compliance
Evidence such as trade usage may still be used to interpret
contract
Goods, tender, and delivery must all conform
o Parties may contract that the perfect tender rule doesnt apply
But may be implied by circumstances, trade usage, CoD, or CoP
o Rejection may not be used to take advantage of falling market price
This would be a breach of good faith
Good faith for merchants requires both honestly and compliance
with reasonable commercial standards of fair dealings
o Bartus v. Riccardi
D buys a hearing aid from P, a new/improved model is delivered
which D does not like
D returns the hearing aid and is offered the model he
originally ordered (P tendered)
2-601
Gives D the right to reject non-conforming good
2-602
Buyer must reject within a reasonable time
Rejection requires notice
o Acceptance may be done by silence
2-608
Allows an acceptance to be revoked if
o Non-conformity substantially impairs the value to
the buyer basically substantial performance
This is a higher bar than rejection
This makes sense because seller has
probably already relied on the acceptance
o AND if you are revoking because either
92
You didnt discover the problem
Or you relied on assurances by seller
Goods must be returned in substantially the same
condition
2-711
Allows recovery of down payment and consequential
damages
2-508
Allows seller to cure the defect within contract period of
he notifies buyer of his intent to do so
Right to cure is triggered when plaintiff rejects
2-508(2) further allows seller to cure non-conformity by
notifying buyer, if he has reason to believe tender would
be accepted, even after contract period
Plaintiff reasonably complied with 2-508(2) and should
be allowed to deliver the conforming good for payment
2-508(2) gives extra protections to seller to avoid a
surprise rejection by buyer
Limits buyers ability to reject/revoke though
In this case plaintiff returning hearing aid could be a rejection
OR wearing it could be an acceptance so that returning it is a
revocation of that acceptance
When you inspect goods you may accept or reject
Acceptance requires paying
Rejection avoids that obligation
In both cases you can get damages, but with acceptance
you have to pay the purchase price
o Damages would be to make accepted item conform
It can be hard to tell a rejection from a revocation
Especially since you have a right to inspect, but that may
look like treating the good as your own and thus an
acceptance
Court in Bartus doesnt decide this because seller has the
right to cure either way
o Right to cure is from 2-508
o Only discusses rejection, nothing on revocation
o Courts are split it 2-508 applies to revocations too
o 2-508(1) allows seller to cure within contract
period
With no deadline in this contract, reasonable
time is implied and courts tend to look at 2-
508(2)

93
o 2-508(2) seller must seasonably notify buyer and
seller must have reasonable grounds to believe cure
will be accepted
Delivering new model will satisfy this
o Revised UCC Article 2 (never enacted) resolved this
by saying right to cure does apply to revocations of
acceptances but not for consumer goods
- UCC gives a number of exceptions
o Cure
Seller may cure the within reasonable time
If rejection is before contract period has expired, seller
has unconditional right to cure the defect within the
contract period
o Some courts do not allow repair for defects that
substantially impair value
Seller may cure once time for performance expires if
o Seller has reasonable grounds to believe tender
would be accepted AND
o Seller seasonably notifies buyer of his intent to cure
and tenders conforming goods within a reasonable
time
o What is cure?
To offer conforming delivery/goods
Seller gets reasonable time to do this
Offering a discount is not cure
Some courts find repairing the good is cure
If rejection is because delivery is late, it cannot be cured
o Rejection then acceptance
Buyer loses the right to reject if he
Accepts
Does not do so within a reasonable time
OR fails to seasonably notify seller of rejection
When rejecting buyer must state all non-conformities
discoverable upon reasonable inspection
If this isnt done, buyer cannot reject any repaired goods
for a reason not stated on the sheet, if seller could have
cured it if given notice
When both parties are merchants
o Buyer cannot rely on unstated grounds for
rejection, regardless of their curability by seller
Ways buyer can accept
Express acceptance
By failing to make an effective rejection
94
Doing any act inconsistent with sellers ownership
o Only if seller treats it as an acceptance
o Use after rejection satisfies this
After there has been a rejection, buyer has a duty to hold onto
the goods and use reasonable care
Merchant buyers also have a duty to sell perishable goods
on sellers behalf if seller has no agent on site
Acceptance both precludes rejection and obligates buyer to pay
the contract price
Burden shifts to buyer to prove breach
If buyer notifies seller of breach, he may recover damages
- Acceptance may be revoked
o Non-conformity must substantially impair goods value
This is basically describing material breach
If seller has substantially performed, buyer cant revoke
o UCC 2-608
Buyer may revoke when seller materially breaches if
Acceptance was based on assumption non-conformity
would be cured and it hasnt been
OR if acceptance was based on difficulty in discovering
non-conformity or sellers assurance
o Buyer must revoke within a reasonable time of when he discovers or
should have discovered the defect
May not be a substantial change to the goods
o Revocation is effective when buyer notifies seller of it
o Continued possession or reasonable use of good after revocation does
not necessarily waive revocation
- Installment contracts
o Perfect tender rule doesnt apply
UCC gap filler is for all goods to come in a single delivery so
installment contract must be explicitly agreed on
o Buyer may not reject tender because one installment is non-
conforming
Whole contract may only be rejected when non-conformity
substantially impairs the whole contracts value
Otherwise buyer may reject a single installment unless seller
gives adequate assurance it will be cured
o If buyer does not make conforming payments, it is NOT material breach
This rule is specific to installment contracts
Under UCC late payment of a non-installment contract is
material
UCC allows payment by any method reasonable according to
business standards
95
o UCC 2-612
2-612(2) Right to reject a single installment if not sub
performed
2-612(3) Right to cancel whole K if not substantially
performed
Defect must substantially impair value of the whole
contract
o These are default rules os parties may contract otherwise
- When goods are accepted
o Buyer only suing for damages
Biggest thing notice is a condition precedent
From 2-607
Notice must be given within reasonable time
Otherwise party is barred form a remedy
Doesnt matter if seller knew goods were damaged
Accepted goods always require notice of breach
Seller has no right to cure when goods are accepted, but
notice gives seller a chance for seller to try to avoid
litigation
UCC SoL is 4 years, usually contract law is 6 years
o AR Parker v. Bell Ford
Parker bought a Ford truck, but wheels were wearing quickly
Ford fixed them twice but it kept happening
Parker filed suit
UCC 2-607 obligates when buyer discovers a defect he must
notify the seller within a reasonable time or be barred from
recovery
This notification is a condition precedent to recovery
Notice serves two functions
o Gives an opportunity for settlement
o Avoids prejudice against the seller because he has a
chance to remedy the defect
In this case no notice to either Ford or the repair shop
Ford did not hear from Parker after repairs were made
until suit was filed six months later

Recovery for the Material Breacher

- Material breacher may have some ability to recover under quasi-K law
o Restitution
o Even though no ability to recover under contract law
o Majority view

96
If you breach a contract, you should not be able to sustain an
action for payment of services rendered when you breached
If you hadnt breached, that action would not be available
Most jurisdictions hold breahcer has no right to recovery
This is mostly putative
Perverse incentives because it encourages greater
performance in order for breach not to be material
o Thus detriment will also be greater
Party seeking equity must do equity
This is the law in NY
o UCC and 2nd Restatement rule
Allows restitution for material breacher for services rendered
Willfulness doesnt matter
This is most expansive view
Allowing restitution more generally can perversely
discourage performance though, because party can
recover for work done even if contract is not substantially
performed
UCC recovery rules 2-718(2)(b)
Defaulting buyer is entitled to down payment minus any
liquidated damages clause
If no liquidated damages clause, UCC allows damages of
$500 or 20% of value of full performance, whichever is
less
Aggrieved partys actual damages are also subtracted
o 1st Restatement
Restitution only if breach is not willful
This is intermediately expansive view
o Jacob & Young is an example of this
Feels odd because breaching party is actually suing for payment
o May also come up with employment contracts
If employee substantially performed, he will get paid for the
entire term of employment contract
If not, he is the material breacher, and would seek a quasi-
contractual restitution recovery
Employer unjustly enriched because employee worked some of
term
Restitution is a legal remedy, but based on equitable principles
Application of one of the views above requires a material breach
Thus non-performance cannot be excused
For example Employee is sick and cant work, non-
performance is excused due to impossibility
- Divisibility
97
o Answering a divisibility question on the exam
Who is the material breacher?
Is contract divisible?
What segments were substantially performed?
What will be the recoveyr?
o Contracts may be entire or divisible
Divisible is when each partys performance may be split into two
or more parts such that corresponding parts are agreed
exchanges for each other
Example employment contract with a weekly salary
o Material breacher will likely try to show contract is divisible and that
he substantially performed curtained segments and is thus entitled to
full payment for those sections
o Divisibility is an intent question
Rarely an express provision
If contract is found severable, this intent question must be
affirmed on appeal unless finding was irrational
2 requirements
Apportioned price
o Corresponding sets of performance and payment
Corresponding sets must be agreed-upon equivalents
o Employment contracts satisfy this with weekly pay
o Construction contracts dont
Each installment payment doesnt
correspond to the work done to that point as
an equal exchange
o Segments probably cant be interdependent
Example construction contract to build 35 houses
Found divisible because building each house is
independent
Contractor only built half the houses material breach
Was able to collect price for completed homes
o Owners damages were deducted
o Costs to repair/complete mistakes on built homes
o Additional costs over contract price to build the
remaining un-built homes
Modern thinking is that it doesnt matter when payment is due
Payment clauses are for when things go as planned
When they dont, payment clauses dont govern
This is very modern way of thinking
What if payment due only at end and not apportioned?
This is ok so long as there is an obvious ability to divide
the terms and get a clean unit price
98
Purpose of doctrine is to avoid forfeiture, so we would
prefer to sever than cause severe forfeiture
o Contracts are only divisible on certain lines
If divisible by weight, not also divisible by time
o Other uses of divisible
If partially illegal contract may be severed and partly enforced
Allocation of risk if performance becomes impossible
Whether aggrieved party has one or multiple causes of action
o Scavenger v. GT Interactive Software
Computer game developer sued distributer for payment
Contract included payment schedule for four separate games
Divisible, so payment could be granted for individual games
- Independent promises
o Unqualified, nothing but lapse of time required to enforce promise
Must be performed even if other party has not
o If a promise is independent and non-performance is a material breach
Other party may sue for total breach even though he hasnt
performed, so long as he was ready/willing/able
o Promises that were independent may become conditional with time
o Strong presumption against independent promises
Unless one performance is before the other
Very few promises are independent
Language in contract likely must be explicit to be enforced
- Dependency of separate contracts
o If parties enter into multiple contract around the same time
Question of intention
Execution of separate agreements is strong evidence against
intention to be considered one agreement
o If separate agreements breach of one has no effect on the other
o If one agreement materiality of breach determined in comparison to
whole agreement not each individual contract
o If one contract is dependent on another, they will likely be seen as only
one

Excuse of Condition

- A condition may be excused


o Party must perform even though condition did not occur
o Conditions will be excused when it would be unjust to insist on their
fulfillment
Prevention, Hindrance, or Non-Cooperation
Must be wrongful
Applies to express and constructive conditions

99
This is essentially talking about a breach of GF/FD
o If defendants wrongful conduct is what prevented fulfilling the
condition, performance will be required
First Restatement
Would condition have occurred except for the wrongful
prevention or hindrance
Second Restatement
Condition will be excused if the wrongful conduct
substantially contributed to the non-occurrence
Burden of proof is on the defendant
Plaintiff must have been ready, willing, and able to perform but
for the prevention
Baron v. Cane
Contract for nephew to care for uncle, but forced out of
the house at gunpoint. Promise to pay upon uncles death
o Nephew sues uncle for payment
Nephew hasnt performed but his performance is excused
because his uncle prevented that performance
Nephew can recover full performance minus what he
could recover elsewhere
What if uncle were verbally abuse but no gun?
o This would be hindrance
o This would only be wrongful it was not an assumed
risk of the contract
You must show causation
Nephew would have been ready, willing, and able to
perform but for the prevention
o Burden of proof rests with plaintiff
2 Restatement view plaintiff must only show wrongful
nd

conduct was a substantial factor in the non-occurrence of


the condition
o Defendant may then show contract would not have
been satisfied even without the wrongful conduct
o This substantially lowers the burden of proving
causation previously very high for aggrieved
party
This analysis is the same for unilateral and bilateral
contracts if offer is irrevocable due to beginning perf.
o Otherwise running nephew off with a gun could be
a revocation
Uncle could also be viewed as a material breacher
o Preventing performance is a violation of GF/FD

100
o This can be analyzed as either an excuse of
condition or a breach of GF/FD
o What is wrongful prevention, hindrance, or failure to cooperate?
Affirmative conduct preventing the condition from occurring
Involves a balancing between commercial settings, ethical
positions, and many other factors
o Foreseeable commercial risks are not wrongful conduct
Iron Trade Products v. Wilkoff
Some risks parties assume in commercial transactions
o Time is of the essence clauses
Non compliance with a TIOTE clause will be forgiven in breach
was due to delay or non-compliance by the plaintiff
Damages may flow from such a breach though
o Implied duties (such as good faith) only require reasonable efforts
o Broker cases
Cantrell-Waind . Guillaime
Broker is promised a commission if buyer closes sale
within two years
o Buyer gets the best price if he exercises his option
within two years he exercises in time
o Owner wants to wait to close so he doesnt have to
pay brokers commission
Deliberately postponing closing to avoid paying broker is
wrongful prevention
o Broker could enforce contract without proving
fulfillment of condition
o Excused by the wrongful prevention
Listing with a broker is an offer to a unilateral contract
I will pay if you find a willing buyer
When broker finds an buyer acceptable to owner he has
accepted and performed
Buyer is usually entitled to payment at closing
Closing is an express condition precedent
An owner then refusing to sell is wrongful prevention
Condition is excused and commission is due
If buyer breaches and there is no closing
Owner keeps down payment or sues for specific perf
Broker can sue owner saying that owner had a duty to sue
buyer so sale would close
o Court will not allow this
o Owner has no duty to sue on brokers behalf
If buyer and owner agree to rescind and there is no breach
Broker may sue owner for commission and will win
101
Rescission is wrongful prevention
o Swartz v. War Memorial Commission
Exclusive concessions vender vs. owner of sports stadium
Alcohol is prohibited but discussed in contract
Contract said exclusive rights extend to alcohol
Owners compensation is a percent of sales
This is basically Wood v. Lucy Lady Duff Gordon
Stadium is at Swartzs mercy so clause has an implied
reasonable efforts clause
If he is allowed to sell alcohol, he must use reasonable
efforts to do so
But what if Swartz paid a fixed rent plus a percent of sales?
There would be no illusory promise issues
Implied reasonable efforts promise is usually only to solve
illusory promise issues
o Stop and Shop v. Gamen
Stop and Shop has an exclusive right to property by a lease
Pays rent plus a percent of sales
S+S will continue to pay rent but wants to stop operating
property as a grocery store
Lease contains no requirement they remain open
This is a lawyer-drafting fail
They now must argue there is an implied reasonable
efforts obligation
Most courts do not imply reasonable efforts obligations if there
is a fixed payment because there is no illusory promise problem
But courts may imply it if a reasonable person in
landlords position would understand contract to include
this implied obligation
At time parties entered into contract would they have
expected the store to remain open?
If the rent is far below fair market value, it is evidence the
landlord thought there was an obligation to stay open
Court found no reasonable efforts obligation and store may close
without it being a breach
If store re-opened next door to spite landlord that would
be a breach of GF/FD
- Good Faith
o Modern trend is in support of implied duty to good faith, fair dealings
Based on reasonable standards in the formation, performance,
and discharge of contracts
UCC and 2nd Restatement were influential in this development
o In every contract there is an implied covenant of GF/FD
102
UCC 1-203
A violation of this covenant is treated as a breach of the contract
May also be treated as a tort allowing punitive damages
Parties may explicitly limit the applicability of GF/FD
o Market Street v. Frey
Opinion by Posner (law and economics approach)
You may not trick other parties in a contract
o That is a violation of good faith
In this case they had a duty to notify the other party of a
contract provision they wanted to take advantage of
o Purposefully trying to trick party not allows
This is as far as any court will go in finding bad faith
o What is good faith
1-201(19) defines good faith
honesty in fact in the conduct or transaction
Subjective test, negligence is irrelevant
But a higher standard is applied to merchants
honesty in fact and the observance of reasonable
commercial standards of fair dealing
The revised Article 2, adopted in many states, applies this
definition to all parties, not just merchants
2 Restatement
nd

Good faith varies with circumstances


Applies only to the performance/enforcement of contracts
not negotiations because that is about formation of the
contract
Lists bad faith actions both subjective and objective
Good faith is usually a question of fact
o Relevant parol evidence is allowed
Covenant meant to protect reasonable expectations
Thus we want all evidence of those expectations
o Good faith in insurance contracts
Insurer has a duty to give at least as much weight to the interests
of the insured as his own
This is approaching a fiduciary relationship
Outside of insurance, party vested with a right, does not been to
exercise that right to his own detriment for the other partys
benefit
- Abuse of Rights
o Overlaps with doctrine of good faith but is both broader and narrower
o Doctrine condemns three types of actions
Predominant motive for the act is to cause harm

103
Old rule is that exercise a right is allowed even if motives
are bad no cause of action accrues
Today a right may not be exercised for a malicious reason
without liability example a malicious firing
Exercise of the right is totally unreasonable given the lack of any
legitimate interest in the exercise of the right and its exercise
harms another
Ex. denying a lessee the ability to sublease unless for
commercially legitimate reasons
o This is the new approach, minority of courts
Old rule is that lessors have the right to deny a sublease
and this may be done for nay reason
Right is exercised for a purpose other than why it exists
Exercise of a right that attempts to deprive the other
contracting party of the fruits of the contract he bargained
for
Use of a right to achieve an improper purpose is an abuse
of that right struck down by SCOTUS
o Sole discretion clauses
Saying the exercise of a right is by the sole discretion of a party
Tyshave v. Covell
Scalia says sole discretion does not mean for any reason
whatsoever, no matter how arbitrary or unreasonable
A permissive act committed in bad faith is a breach
because bad faith is not allowed
An exercise of a right without legitimate or serious interests is
an abuse of right even though there is no intent to harm

Waiver, Estoppel, and Election

- Waiver, estoppel, and election as they relate to excuse of condition


o Only comes into play after contract comes into effect
- Equitable estoppel
o Requires
Misrepresentation or concealment of a fact
Justifiable reliance on the deception
Injury
o Includes non-disclosure when there is a duty to speak
o Majority requires speaker know misrepresentation was false
And that it would induce injurious reliance
o Recently courts have enforced promises regarding performance
through equitable estoppel

104
This is really just promissory estoppel but relating to
performance instead of formation
- What is waiver
o A manifestation of willingness to perform despite non-occurrence of a
condition
This is 2nd Restatement definition
Common law definition was inaccurate
Voluntary and intentional relinquishment of a known
right
Ordinarily a fact question
Rights may not be waived, only conditions
Only conditions for your own benefit may be waived
o Example a financing condition is for buyers
benefit so it may be waived by buyer paying cash
A condition benefitting both parties may not be waived by
one
o Courts preference is for the condition to be found
beneficial bilaterally
Only immaterial conditions may be waived
Waiving a material condition will not be enforced
Immaterial conditions
o Time, manner of performance, notice
Material
o Part of agreed exchange, central to performance or
allocation of the risk
o Waivers undermine consideration doctrine
Waiving immaterial condition is a binding promise without
consid
Not allowing waiver of material conditions limits consid
problem
o A waiver may be before or at same time as formation of contract
There is an evidence problem under parol evidence rule
Many courts do not allow parol evidence rule to bar
evidence of waiver
No consideration problem consideration for the other
promises will support this one to
o Waiver after contracting
May be made by express promise or conduct
When made after contracting but before condition occurs
May be retracted, otherwise no breach if party performs
in accordance with the waiver
UCC 2-209(4) and (5)

105
o Waiver may be retracted with reasonable notice
that strict performance is required
o Unless unjust due to changed positions
Must first look to if there is reasonable notice
o Then look at reliance, changed position
o Waiver contemporaneous
Not really waiver
Made at time contract is formed
Example Carvel waives contract provision requiring 30 days
notice of termination
Modification is oral that notice requirement will be
waived
You have a parol evidence rule problem
o This is integration and evidence contradicts it
Court doesnt apply PER and evidence of waiver is
admitted
This use of promissory estoppel is an exception to PER
Because the oral modification was relied on
This is not frequently used to avoid PER
o Conditions for all waivers
Condition must be solely for the benefit of waiving party
Usually conditions benefit both parties and may not be
waived unilaterally
When a contract will be void or either party may cancel
upon non-occurrence of a condition plain meaning
courts will uphold the condition
o Other courts may allow parol evidence to
determine why condition was agreed upon
o Condition benefiting both parties may be
eliminated by a modification only
Waiver need not be supported by consideration
Waiver may be withdrawn before failure of the condition, so
long as withdrawal does not operate unfairly
Waiver of a material part of the contract is ineffective
Waiver of aleatory conditions ineffective too
Exception material condition may be waived if other
party has promised condition will occur
o For example, waiving the performance
requirements for a progress payment
Clark v. West
West contracts with Clark to write a casebook and will be
paid more if he stays sober while writing

106
o Clark both promises not to drink and it is an
express condition precedent to getting the higher
pay
Clark is alleging West waived the condition
o Question is sobriety is material
It is to West
But West is not paying for sobriety, they bargained for a
quality textbook
o West may still counterclaim for damages sustained
due to the breach
Because this was a promise there is breach
Waiver only excuses a condition doesnt
give damages
Example a house is built wrong, no substantial performance
Buyer entitled to not buy house
If buyer moves in, he has accepted the defective
performance
o This is really a waiver of substantial performance
An election to continue
o Buyer must pay price but can get damages
2 Restatement rule
nd

o Where there is a promise the condition will occur, a


material condition may be waived because there is
a cause of action for this breach of promise
o This applies when defective performance is
accepted but not clear how broadly is applies
beyond that
But if builder builds defective house on owners own land
and materially breaches, owner moving in is not a waiver
o He isnt accepting defective performance
o If house was not on his property it would be
election
o If owner represents they accept the house, that is
an election
This may renounce right to damages
o Waiving condition and renouncing damages are
two separate things though one doesnt imply the
other
If owner moves into house on his own land that was not
substantially performed he doesnt have to pay
o Owner is unjustly enriched
Under the classical view that is allowed
3 views get them
107
o If owner already paid he can get damages
Latent defect
If you accept performance unaware of a latent defect,
verbally saying you accept isnt enough to be a waiver
o Repeated waivers
May be of such a nature to justify a change of position in reliance
demanding future compliance would be unjust
Estoppel will prevent insisting condition be met, unless
reasonable notice is given
Question of whether repeated waivers are effective as to future
performance will depend on whether other party believes
subsequent performances will be affected
Courts are split about enforcing a no waiver clause after
repeated waivers have been given
Repeated may become modifications usually there will be no
consideration
UCC does not require consideration
o Waiver may be given before the condition fails
Once a condition is waived, party may reinstate it if there has
been no change in position
o Ways to waive
Expressly
By conduct
Will be found relatively easily
Conduct will usually take one of three forms
o Innocent party continues to perform
o Innocent party allows the other to continue to
perform
o Innocent party accepts defective performance
If party manifests an intent to pay
o Party will be required to lay and limited to an
action for partial breach
o If party was justifiably not aware of material
defects, he may retract the prior election to pay
o Modification versus waiver

Modification Waiver
Requires agreement Unilateral
Needs consideration (not under UCC, NY) No consideration required
Likely must be in signed writing (n.o.m. n.o.m. clause has no effect
clause)
Not retractable Differing views on retraction (above)
Disfavored by UCC Preferred by UCC
108
- Election waiver after the condition fails
o Party choosing to excuse the failed condition
o Majority view elections may not be withdrawn
Minority view election may be withdrawn if doing so is fair
o Once a party elects to continue with the contract (and sue for partial
breach) after a condition fails, that election may not be retracted
o Schenectady Steel v. Bruno Trimpoli
Defendant providing the steel structure for a bridge
TIOTE clause
Contractor allows defendant to continue performing after the
time is of the essence date passes
This is an election to continue under the contract
Contractor could have cancelled
Failing to cancel is an election
Once TIOTE was waived, time for performance is reasonable
time
Steel contractor is still in breach though
o Waiving condition does not waive this cause of
action for partial breach
o After electing to continue, breach can only be
partial
o Damages only for the delay
Not clear when reasonable time is calculated from
o Form waiver, from beginning of contract?
3 ways you may waive
Continuing your own performance
Allowing other party to continue performance
Accepting a defective performance
Judge decided to apply the UCC, 2-609
Bender notes the usefulness of 2-609
Today it is clear UCC wouldnt apply, not clear then
Common law analysis
o Defendant allowed plaintiff to continue working
o This is an election
o This is waiver of the TIOTE clause
o Now we are left with reasonable time supplied
o Plaintiff has an action for partial breach though
Plaintiff then sends a letter demanding a timetable
o Defendant says they cant do that
o On March 5, plaintiff cancels
o Appeals judge read the letters to reinstate TIOTE

109
o TIOTE may be imposed by a letter whether in the
original contract or not
o Must give a reasonable time for TITOE specific
date
o Requesting a timetable shouldnt be interpreted as
reinstating TIOTE though
It counts under 2-609 though
Not under common law
No time given in the letters
So this result is only possible under UCC, not common law
NY CoAs interpretation of the events
TIOTE was waived and not reinstated by the letters
because they didnt give a date for performance
Cancellation is allowed because a reasonable time had
expired
o Not clear when reasonable time was measured
from
Waiver after failure of condition is not retractable
TIOTE may be reinstated with notice though

Relief from Forfeiture

- Excuse of conditions involving forfeiture


o Comes in equity
Usually regarding real property contracts
Example if a buyer misses a payment and would forfeit land
Court is reluctant to find forfeiture
o Courts want to prevent unjust enrichment
Rule that express conditions must be strictly performed leads to
unjust enrichment
Sometimes courts will excuse a condition to prevent this
o First Restatement
Condition may be excused with no other reason if requiring it:
Involves extreme forfeiture/penalty AND
It is not an essential part of the promisors performance
Court will balance equities before excusing condition
o Second Restatement
Adopts the same rule but asks whether there would be
disproportionate forfeiture
Look at both parties to determine disproportionality
o Forfeiture in option cases
May not be extended beyond the time of the contracts option
There isnt any forfeiture here
110
Buyer got exactly what he bargained for
Second Restatement agrees
Otherwise buyer would get more option than agreed to
For options in a lease, courts are more liberal
Rent payments are part payments for the option
Generally greater reliance on the option
Court will also consider assets leassee would lose by
losing the option to renew like goodwill of the business
o Or physical improvements
Court will look at
o Moral position of tenant
Real estate speculation is discouraged
o Has landlord changed position?
We dont want to prejudice landlord
Advertising to look for a new tenant is
usually not considered changed position, ut
court may require tenant to pay those
expenses
o *The part of rent attributable to the option is not
considered for forfeiture
If buyer has committed to buy and pays later, buyer is seen as
already having an interest in the property
Delay may be forgiven to avoid forfeiture
This may even meet 1st Restatements extreme forfeiture
o It may not though
o C+J Fertilizer v. Allied Mutual Insurance
Plaintiff bought burglary insurance
Plaintiff tries to collect after there is a burglary, but
policys definition is obscure and he is excluded
Definition hidden deep within the policy
Policy requires marks on the building for payment
The court does not excuse this condition precedent on grounds
of forfeiture
Even though the condition is immaterial
Court applies 4 other analysis
Note this was an adhesion contract which is usually
viewed more critically
Reasonable expectations
Contract wants to protect the reasonable expectations
from a promise
Plaintiff thought policy would cover outside job
Expectations came from a phone call with the agent

111
Reasonable expectations doctrine tends to be applied only
in insurance cases
o Otherwise we have PER/duty to read problems
Implied warranty
Implied promised product will be suitable for a certain
purpose this is usually only applied for sale of goods
Here it is extended to apply to insurance policy
Unconscionability
Grossly unfair people dont read policy carefully
Enforcing fairness at the time of contracting
o Forfeiture is about fairness during performance
- UCC 2-309(3)
o Termination requires other party be notified
Unless termination would be unconscionable
Unclear at what time contract must be unconscionable
o This creates flexibility within the otherwise harsh law of express
condition enforcement
- Conditions may be excused for being
o Contrary to public policy
o Unconscionable
o No duty to read that provision
o Impossible

Conditions of Satisfaction

- Satisfaction of a party to the contract


o Satisfaction clause leave one party at the others mercy
From Mattie v. Hopper we get two rules
Determinations involving taste, fancy or personal
judgment right to object, if done in good faith, is
absolute and non-reviewable
o This is basically subjective satisfaction test
o Requires honesty by discerning party
Determinations that involve utility, fitness, or value that
can be measured against an objective standard
performance need only be reasonably satisfactory
o This is an objective satisfaction test
o Decision to reject, and adequacy of its grounds, may
be reviewed
o Satisfaction can be objectively or subjectively determined
Courts default is objective if contract is ambiguous
2nd Restatement agrees subjective determination only if
Contract is unambiguous
112
OR objective test would be impractical
o Explicit provisions in contract will be honored
Unless if is a utility/mechanical fitness issue and the contract
calls for personal satisfaction courts wont enforce that
o Good faith test
Plaintiff must show that the defendant is actually satisfied with
performance and has other motives for rejecting
Some courts allow evidence of unreasonableness as a non-
conclusive inference of bad faith
o Western Hills v. Pfaff
Sale of land, closing is conditioned on buyer agreeing with city
on a satisfactory development plan
Buyer abandons his attempts city may have approved
Implied promise to use reasonable efforts to get approval
Parol evidence admitted to help show what risks the parties
assumed Not to add a term
Best not to broaden the term the more specific to what
you want to accomplish, the better
Applied the first, subjective test
To many factors to consider to assess objectively
Reasonable person standard is unworkable
o Dissatisfaction cannot be based on something known at time of
contracting that is an assumed risk
o Court wants to avoid forfeiture
Parties intent at time of contracting may be ignored to avoid
forfeiture
- Burden of proof
o Majority Rule
Plaintiff may show evidence that a reasonable person would be
satisfied
This sort of shifts burden to defendant to demonstrate why he
was not satisfied
o Minority Rule
Satisfaction is usually a condition precedent so seller would have
to show buyers dissatisfaction
This may require evidence of other factors to help show that
subjective satisfaction
o Are these rules law or presumption?
Corbin and 2nd Restatement say presumption
Majority of courts treat it as law
o Satisfaction will never be implied
As an express provision it requires strict compliance
Otherwise contract only requires substantial performance
113
- Satisfaction of a third party
o Courts uphold this as an express condition strict compliance
Court will not substitute jurys satisfaction for that of a chosen
expert
o Usually requires satisfaction of an architect/engineer
Third party must be independent
o The standard for 3rd party satisfaction is good faith
If expert acted in bad faith, condition will be excused
Gross mistake is treated as bad faith
Unreasonableness is usually not enough
Minority view used in NY
If there is substantial performance and dissatisfaction is
unreasonable (but not in bad faith) P may recover
Party may not unreasonably withhold approval
From Nolan v. Whitney
Man concern is avoiding forfeiture
NY sale of goods cases
Buyer entitled to reject the goods
There is no forfeiture because buyer keeps goods and may
resell them

Prospective Non-Performance and Repudiation

- Prospective inability and unwillingness


o Both prospective failure of a condition precedent to performance
o Traditional approaches
First Restatement
Backed up by lots of case law
Party is unable/unwilling to perform before performance
is due, so no promise has been broken
If substantial performance is still likely, aggrieved party
may at most suspend
If performance is an express condition, the question is if
there is a reasonable probability condition will be
satisfied
o Impossibility of performance
One partys ability to perform is always a constructive condition
to the others performance
Impossibility will be a defense
o Death or illness of a person essential to performance may give rise to a
prospective inability to perform
o Change in position
Depends on seriousness of prospective inability
114
Finding of fact for jury
Requires finding there was a reasonable probability plaintiff
would/could not substantially perform
When seller doesnt have title
Vendee may invoke prospective inability and change
position UNLESS vendor has the right or justifiable
expectation of acquiring title before performance
OR if vendee knew there was no good title
When title is encumbered and unmarketable
First Restatement follow same rule as no title
Majority view
o Vendor has the ability to remedy the defect within a
reasonable time after land is conveyed
o Vendee has no right to change position or cancel
o Insolvency
Involuntary usually so a question of inability not unwillingness
UCC 1-201(23) gives three situations that constitute insolvency
Ceasing to pay debts in ordinary course of business
Inability to pay debts as they mature
Filing under Federal Bankruptcy Act
2 Restatement takes this view
nd

A reasonable person must conclude a party is insolvent


UCC 2-702 gives four courses seller may follow
Subsection 1 is relevant for us
Seller may refuse delivery unless paid in cash for all goods
delivered to date under the contract
2nd Restatement allows the insolvent to give a security instead of
paying cash
Majority holds that insolvent not tendering, discharges the other
party completely
o UCC and 2nd Restatement views
UCC Rule
When a party manifests a serious prospective
inability/unwillingness to perform, other party may
demand assurance of performance
2-609
Demand must be in writing
If commercially reasonable, party may suspend
performance for work not already paid for
Between merchants reasonableness of partys insecurity
and adequacy of assurance are judged my commercial
standards

115
Accepting an improper performance does not prevent
party from demanding adequate performance in future
Assurance must be given in reasonable time
o Not to exceed 30 days
Demand is also a repudiation of the contract
Adequate assurance defined by commercial standards
o Inadequate assurance is a breach
So UCC imposes an obligation to give assurances when party has
reasonable grounds for insecurity
Exists when ability to perform materially declines
UCC provides three remedies
Suspend performance
Receive adequate assurance
Constructive anticipatory repudiation making available
all repudiation remedies
Unclear if UCC overrides prior common law allowing
party to change position or is in addition to that rule
2 Restatement, 251 follows roughly the same view
nd

Does not require demand be in writing


Assurance must be given in reasonable time, no 30 day
maximum
Insecure party may not change position must demand
assurance, unless unwillingness is a repudiation
Failure to give adequate assurance is not a repudiation
under 2nd Restatement (it is under UCC)
- What constitutes a repudiation?
o Always the first thing to look for
o Usually three types of repudiation
1. Statement to oblige that promisor will commit a total breach
Tradition rule state must express unambiguous intent
not to be bound by the contract
o NOT a repudiation if statement is given that
performance will be withheld unless a condition
outside contract terms is met
Modern/2nd Restatement rule statement must be
substantially positive that a reasonable interpreting party
will not or can not perform
o Language that under a fair reading is an intent not
to be bound unless an additional condition beyond
contract is met IS a repudiation
o UCC is in accord with 2nd Restatement

116
If language is not sufficiently strong, it may
still be a repudiation if accompanied by a
breach
2. Transferring or contracting to transfer an interest in a thing
essential for substantial performance to a third party
3. Any other voluntary act that renders substantial performance
impossible or apparently impossible
Inability to perform is not a repudiation
Act must be voluntary
o Good faith
Majority view
Test should be objective, good faith of repudiator is
immaterial
Wouldnt matter if party genuinely thought repudiation
was allowed by law
Offer to perform under misunderstanding of contract is a
repudiation, but insisting on the misunderstanding is
o Bankruptcy
Filing a petition for bankruptcy is an anticipatory repudiation
Un-matured claims will be claims in the proceedings
If petition is filed but party adjudicated as non-bankrupt, it acts
as a legal retraction of the repudiation
- Anticipatory Repudiation
o When a party repudiates contract before performance is due
Hard to find a breach because no promise was broken yet
Hochster v. De La Tour is seminal case
Hochster to accompany DCT to Europe
o DLT renounces before performance is to begin
o Repudiation requires a statement of non-
performance or inability to substantially perform
Hochster sued before performance was due to begin
o Question if repudiation is a breach or if case is
immature because no breach yet
o Dday performance is to begin = Law Day
o On that day, Hochster would have a total breach
action
o When you have repudiation and non-performance
on Law Day it is so unlikely there will be
performance that total breach suit is allowed
But Hochster wants another job before Law Day
o If he gets one, he may be accepting the offer to
rescind by conduct and could no longer sue
o He wouldnt be ready/willing/able to perform
117
Hochster arguing he would have tendered but for the
repudiation
o Court wants Hochster to have total breach action
o If repudiation is a breach, Hochster can get the
tender of performance condition excused
This case gives Hochster three things
o Excuse of condition of tendering performance
o Cause of action for total breach
o Defeasance of obligation to perform
If he takes another hob he isnt breaching
Case criticized as poorly reasoned
Three responses to the Hochster doctrine
Some fully reject it
o Rare now almost everyone accept it somehow
Resist having to deal with it
o Created a high bar for finding repudiation by
express statement
o If you dont find repudiation you dont ever get to
the Hochster question
o This approach is in decline
Williston limited anticipatory repudiation doctrine
o He limited it to its faces because faulty reasoning
o Hochster needed to be relieved of his duty to
perform to get another job
o Had Hochster fully performed, Williston would not
allow the suit
No need to excuse condition at that point
o This is Majority Rule
Embrace by 1st and 2nd Restatements
Functions like the law implying a duty not to repudiate
We want these repudiations to be litigated before performance
is due because the repudiation has measurable financial costs
o When condition is excused you dont have to show substantial
performance, just tender
o Williston exception
253 of 2nd Restatement
For anticipatory repudiation and before plaintiff has fully
performed, repudiation alone gives rise to total breach claim
Illustration four discusses this:
A and B make a contract
B immediately pays $50K
A promises to convey land in May
On March 1 A sells land to a third party
118
o Anticipatory repudiation
Since plaintiff has fully performed, no cause accrues until
Law Day
o Basically A given until May 1 to get back land
o Repudiation by positive statement
Drake v. Wickwire
Contract sets closing for 10 days after clear title, TIOTE
o Title cleared April 3, closing either 12th or 13th
o How to count is unclear
o This would be the TIOTE date
Seller wants to close the 11th and tries to schedule closing
Buyer says he needs until May 1 to get the money
o This is a repudiation
Buyer then says they have the money
o Retraction of the repudiation
Attorney wrongly interprets as a repudiated offer
An ambiguous statement may not be a repudiation
o This statement was ambiguous
o Buyer has no duty to close April 11, so they have a
right to resist that date
o Parties have no duty to go beyond contract terms to
help other parties perform
Usually a conditioned statement is not a repudiation
Positive statement of repudiation must be absolute
2nd Restatement language must be sufficiently positive
to be reasonably interpreted as an inability/unwilling to
perform to be a repudiation
o Saying you can only perform if other terms are met
is a repudiation
Presenting conditions can be viewed as an offer to modify
o Must be accepted, consideration, etc
o But unilaterally imposing a condition to perform is
a repudiation under 2nd Restatement
If performance is impossible, stating the impossibility is
not a repudiation
o Impossibility Doctrine will kick in
Good faith doesnt matter
o A repudiation is a repudiation whether or not party
thought it was justified
o Repudiation by transfer of property necessary for specific performance
Not having the title at time of contracting is not a repudiation
Because repudiation must be after contract is formed
This is just short selling done all the time
119
Cohen v. Kranz
Sellers title is encumbered not a repudiation
o Not having title isnt a repudiation, so having
encumbered title definitely isnt
Buyer tries to cancel by demanding return of down
payment but wasnt entitled to
o Seller hasnt repudiated
o Title defects are very minor curable
o Only slight prospective inability/unwillingness to
perform (PIUP)
Buyer only had the right to suspend
o Cancellation was thus a repudiation
o Seller may sue buyer without fixing defects
- Present repudiations
o Those that occur simultaneous or subsequent to breach
Has both a breach and a repudiation
Walker
o Total breach if it substantially impairs the value of the contract to the
other party
o Relief for present repudiations precedes that for anticipatory
repudiations
o 2nd Restatement 243 exception to present repudiations
If plaintiff has fully performed AND defendants only remaining
obligation is to pay money
When this is met you may only sue for partial breach
NO total breach action
Example loans. Bank has performed fully by lending money to
defendant. If borrower defaults, bank may only sue for partial
breach damages
This is why we have acceleration clauses
Making everything due upon default allows full amount to
be sued in one action
Plaintiff must sue for each installment as it becomes due
Or may wait until the end and sue for all installments
o Thus both present and anticipatory repudiations have an exception if
plaintiff has fully performed
- Things that are not repudiations
o Expressing doubt but short of repudiating obligations
No matter how severe the potential non-performance is, this is
not a breach or a repudiation
o On law day there will be a breach for non-performance
If on Law Day there is the possibility of very serious non-
performance you ay have an action for total breach
120
Prospective non-performance should be considered
Under 1st Restatement
Serious prospective non-performance could justify
cancellation on law day
Under 2nd Restatement
Defendant would have to show they were ready, willing,
and able to perform but for the repudiation
With serious prospective non-performance they wont be
able to show this
Schenectady Steel could have used this
- Retractions
o UCC view
2-611(1)
Party may retract a repudiation until that partys next
performance is due
UNLESS aggrieved party has cancelled or materially
changed his position OR indicated repudiation is final
Retraction reinstates all rights under the contract
o Delays due to repudiation are forgiven
Retraction only allowed until repudiating partys next
performance is due
o At this point it is not anticipatory, just a breach
o Indicating repudiation is final is sufficient no more action necessary
o Approaches to retraction
At common law
A repudiation could be retracted at any time
Present repudiation
If retracted you still have a breach for non-performance
Anticipatory repudiation
No damages in theory
o But in reality there may be delays
Willistons rule applies only to anticipatory repudiations
- Responses
o Six possible responses to repudiation
Bring immediate action for a total breach
Must show plaintiff was ready, willing, and able to
perform but for the repudiation
This is true even if suit is after performance was due
Repudiation eliminates the tender requirement though
Cuts off ability to retract under 1st and 2nd Restatements
Suspend performance
Cancel contract
Requires communication of cancellation
121
Cuts off ability to retract only under 2nd Restatement
Change position
Cuts off ability to retract under 1st and 2nd Restatements
Ignore repudiation and continue performance
Parties have a duty to mitigate damages
Aggrieved party may not recover damages that reasonably
could have been avoided
This is just a breach
o Party may elect to continue if this minimizes
damages
o When you add a repudiation to this breach you may
not collect damages if you elect to continue under K
Urge retraction or insist on performance
This could enhance damages
2nd Restatement and UCC allow you to urge retraction for
a reasonable time
o 1st Restatement didnt allow this at all
If you urge retraction, you do not have to wait a
reasonable party to repudiating party to retract
o Urging is in no way binding
o Not seen as an election
o Aggrieved party may resort to any remedy for breach, even if it assured
repudiating party it would await their performance
UCC and both Restatements take that view
o May aggrieved party ignore repudiation and proceed with contract?
Weight of authority says no
Duty to mitigate damages overrides concept of election
Party may not continue performance if it increases
damages
UCC 2-610(a)
Aggrieved party may await performance for a
commercially reasonable time
He may not recover damages for time beyond reasonable
time he waits
- Prospective inability/unwillingness to perform (PIUP)
o Can convert a partial breach to a repudiation
o We are concerned with serious prospective non-performance
Schenectady Stell is an example
But you have no statement of repudiation
o 1st Restatement/traditional approach
Party may cancel contract without a repudiation if prospective
non-performance is serious

122
Right to cancel versus right to suspend is based on the
reasonable possibility that party will be able to
substantially perform
Changing position by securing services elsewhere will freeze
parties positions and will prevent a retraction of PIUP
May bring suit on Law Day for breach
Does not recognize the right to demand assurances
Little support for this position
o UCC 2-609
Parties reasonable expectations that contract will be performed
When there are reasonable grounds for insecurity
Questioning party may demand assurances
o If grounds for requesting assurance is
unreasonable, other party may ignore it
While waiting for a response, he may suspend
performance for all services he hasnt been paid for yet
Demand must be in writing
o Some courts ignore this if demand is clear
A material decline in the likelihood of performance is
grounds for reasonable insecurity
o This could be if other party stops performing
Failure to provide adequate assurances in a reasonable time is a
repudiation
Reasonable time under UCC is 30 days
Essentially turns a non-breach into breach
o 2 Restatement approach
nd

Follows the UCC approach


Differences
Demand does not have to be in writing
No 30 day limit to reasonable time under 2nd R
New York uses this approach
Have applied it to power contracts
o Even thought electricity tends to be treated as a
good and fall under UCC
Not clear NY would use this for a real estate contract
o When you have a repudiation, no need to use PIOP laws
You dont need to demand assurance because you already have
the right to cancel

Impossibility/Impracticability

- Impracticability
o Requires three things
123
Failure of a basic assumption for the contract
No fault of either party
No assumption of the risk
o Traditional approach
Promises kept though the Heavens fall
Breaching party always liable for damages
Only two exceptions
Personal services made impossible by death or unavoidable illness
Supervening change in the law making performance unlawful
These exceptions were expanded starting with Taylor v. Caldwell
Articulated in terms of implied/constructive conditions
Continued existence of the contemplated state of facts at time of
contracting is a condition precedent to duties under the contract
Relaxed standard from impossibility to impracticability
- Modern approach
o Under impracticability doctrine the contingency must be unexpected
o Two burdens to prove to use this defense
Show impossibility or impracticability
Show the risk was not assumed
o Three types of events are almost automatic excuses for non-performance
Death or a person who must personally perform
Supervening illegality of performance
Destruction of the subject matter
o Beyond this, relief is most justified if event inflicts
A loss on one party and a windfall to the other
OR if defense would protect one party from loss while leaving the other part no
worse off
o UCC and 2nd Restatement
Use the term impracticability instead of impossibility
o UCC 2-615
Includes the impracticability standard
Prevents use of the doctrine if risk was assumed
Two things must be considered to use the defense
Was non-occurrence of event a basic assumption of both parties at time
of contracting?
Performance is rendered impracticable if it will require extreme and
unreasonable difficulty
If risk was assumed this defense is not available
o 2nd Restatement
Makes explicit what UCC leaves implicit promise may not benefit from the
defense if he was contributory at fault
o 1st Restatement
Accepts extreme impracticability as the same as impossibility

124
But deals with this under unanticipated difficulty which does not provide an
excuse for non-performance
- Tendency to classify these situations into five categories
- Destruction, deterioration, or unavailability of subject matter or the tangible means of
performance
o Taylor v. Caldwell music theater burned down
Music hall destroyed after Taylor contracted to use it
Landmark impossibility case
Existence of the venue is a basic assumption of the contract
The continued existence of the music hall is a constructive condition of
the contract
This is different to an implied in fact condition which is an
assumption underlying parties agreement that they did agree to
o Example agreeing to train buyer on how to use machinery
before payment is due
o Must be literally complied with
Constructive condition need be substantially performed
Today we would view this situation as a gap
o Parties never anticipated this situation so contract language was
never meant to apply to it
o Court will construct conditions in this case
Provides an excuse for non-performance
o The non-performance isnt viewed as a breach
Allocation of the risk is an important consideration here
Most courts today would grant reliance damages
Farmer would be excused from delivering a crop if it were destroyed by bugs
But if contract didnt specify where they had to be grown, most courts
would not allow the defense
If parties assumed as a matter of course they would come from region
with destroyed crop, most courts would
Some courts allow parol evidence to prove assumptions/presuppositions
If a builder follows plans supplied by the owner, owner is certifying those
plans will produce the desired result
This didnt used to be the case
Parties may contract over this presumption
Parties are always free to allocate risk in a contract
Federal government includes a changed conditions clause in contracts,
allowing adjustments for unanticipated events
UCC 2-613, 614, 615
o Failure of the contemplated mode of delivery or payment
This involves a part of performance that is incidental
Includes mode of payment or mode of delivery
If it goes to the essence of the contract no general right to substitute the
performance
125
The impracticability standard is very high
For manner of performance to be impracticable it must alter the
essential nature of performance
Usually price increases will not be enough
o Assumed risk when contracting
o 100% increase not enough
o In one case 1,000% was enough for impracticability
Hinges on if a commercially reasonable substitute exists
If it does, defense of impracticability doesnt exist
UCC 2-614
If mode of delivery fails, a reasonable substitute must bee tendered and
accepted if available
o This is an exception to the Perfect Tender Rule
If mode of payment fails because of government (domestic or foreign)
actions, seller may stop delivery until a commercially-equal substitute if
provided
o For if delivery has not been made
o Basically contract is discharged unless buyer can pay in a
substitute manner
Otherwise payment must be made by means provided by regulation
unless it is discriminatory, oppressive, predatory
o If delivery has already been made
If there is no commercially-reasonable substitute
o Temporary impossibility defense is available
o UCC 2-615
Transatlantic v. US
Suez Canal case (there were many)
o Owner suing for increased costs to go a different rout
o 13% increase in costs
This is not sufficient for impracticability
This parallels 2-614 because it regards manner of performance
o Not a sale of goods case though
Would have been a different result if the contract had an express
condition detailing the route to be followed
Court is less likely to find a situation renders manner of performance
impracticable when many contracts would be affected
Like the Suez cases
o Supervening prohibition or prevention by law
If agreement is illegal when made issue is illegality
If made illegal afterwards issue is intervening illegality
Defense is not available if
Law makes performance illegal because of contributory fault (ie
someone gets an injunction because you do something)

126
Impracticability is only subjective
Government action/regulation applying to the public generally is usually
sufficient for the excuse
UCC is in accord
Applies equally to foreign and domestic law
Traditionally this only applied to domestic laws
Eastern Airlines . McDonnell Douglas
Viewing case without the excusable delay clause
Defendant is to deliver 100 plains to plaintiff during Vietnam War
o Government required war contracts get priority
o Defendant is unable to fulfill order to plaintiff on time
o If government act is official it may provide an excuse
Government jawboning is considered supervening illegality
o Fundamentally coercion by government
But war was foreseeable when contract was made
o Therefore defendant will be at fault if the contract didnt provide
for this occurrence since it was foreseeable
Contract has a force majeure clause (more on this below)
o Usually has three components
General language
Transition phrase
Specific examples
o Trial court got this wrong we know jawboning is intervening
illegality
o Court wrongly applies ejusden generis
But clause said including but not limited to
o Court said UCC 2-615 shouldnt apply because this clause was
limiting excuses for non-performance
This is a misreading, the clause was really expanding it
o Clause was meant to protect against foreseeable risks but court
only applied the language to UNforeseeable events
Reads the listed examples as express conditions
General language should be read just like impossibility
doctrine, then use examples to define the scope
o Failure of the intangible means of performance
2nd Restatement does not distinguish between tangible and intangible means of
performance
1st Restatement said the same basic rules should apply
Example strikes
Traditionally strikes had not been an excuse
2nd Restatement and UCC dont mention strikes
o 2nd Restatement comment says that contracts usually provide for
this, and if they dont, facts are too important to set a baseline
rule
127
o Death or illness
Death occurring after contract formation does not discharge it
If contract calls for personal performance, then death of a person who must
render performance does discharge obligations
Same for serious illness
Unless performance is delegable
Foreseeability test is not relevant here because death/illness are foreseeable
risks
CNA v. Pheonix
Pheonix kills himself before they film two movies
o Personal service so performance is non-delegable
Usually impossibility is not available if you created the non-occurrence
of the condition
o But in this situation court refuses to make that kind of judgment
o Thus court uses a bright line rule that death is always an excuse
Parties may contract around this
o Apprehension of Impracticality
Doctrine of reasonable apprehension of impracticability
Defense may still be available even if impracticability never pans out
Example going to the hospital with risks of serious illness but it ends
up only being minor
2nd Restatement treats this the same as other impracticability
No requirement to use reasonable efforts to overcome obstacles
- The Doctrine
o Traditionally
Performance had to be literally impossible
o Current view
Impracticability is sufficient
This is because first Restatement equated extreme impracticability with
impossibility
UCC and 2nd Restatement follow this approach
o See UCC 2-614, 615, and 616 below
Williston coined the term impracticability
o Definitions of impracticability
Defined in 2nd Restatement as extreme of unreasonable difficulty, expense,
injury, or loss
More than just impracticability
Both Restatements agree parties assume the risk of increased cost but maybe
not of extreme/unreasonable difficulty
UCC is more forgiving
Has to alter the essential nature of the performance for cost to be
impracticability
Includes severe shortage of materials due to war, embargo, local crop
failure, unforeseen shutdown of major suppliers
128
o International trends
Increased willingness to allow discharge for extreme changes in conditions
UNIDROIT
Talks about hardship, not impossibility
50% change in cost of benefit of contract justifies invocation of this
doctrine
Trend internationally is that hardship is grounds for relief
- Impracticability as an excuse of condition
o Everything prior was for excuse of a promise
o As we already learned, express condition may be excused if
Condition would result in extreme forfeiture
Condition is not a material part of the agreed-on exchange
Impossible for condition to be complied with
o Same rules apply for excusing a condition on impracticability except forfeiture need
not be extreme
o May not be used to excuse a constructive condition that is a material part of the
exchange
o A UCC gap filler may be used if contractual provision is excused
This can be used to help determine the remedy
o Each party bears the risk of their own financial ability to perform
- Existing impracticability
o Same rules apply with two differences
Party seeking the defense must show the absence of reason to know the facts
making performance impossible
Existing impracticability results in a void contract instead of discharging a
contract that already exists
o Knowledge of existing impracticability creates an assumption of the risk
- Quantum meroit
o Type of quasi-contractual restitution
o Repairman is fixing a bridge but it burns down
Services were rendered to owner and builder may be paid for the reasonable
value of repairs
But can he also recover for materials burned in the fire?
Contested question
Some cases allow this as a sort of reliance recovery
Builder has an impossibility defense for the rest of the repairs since bridge no
longer exists
Existence was a constructive condition of the agreement
o But if a building burns down halfway through construction they do not get this
defense
Existence of the building throughout construction was not a constructive
condition of the agreement
- Frustration

129
o Where a seller who cannot perform will use impracticability, buyer who cannot pay
will use frustration
If goods cannot be delivered because of impracticability, buyers promise to
pay is still certainly possible
Therefore doctrine of frustration must be used
o Originates in Krell v. Henry
Renting apartment for Kings coronation, which as cancelled
Defendant responded to an ad in buildings window
Only for hours of coronation
Agreement letters dont explicitly mention coronation
PER doesnt bar evidence of assumptions of contracting
Payment could have been made but performance was impossible
Performance by paying is pointless because purpose for which parties
contracted cannot be achieved
Principle purpose is substantially frustrated
No fault, no assumption fo the risk
Happening of the coronation is a basic assumption of contract
Frustration must be total or nearly total
Party who must pay usually resorts to frustration because payment is always
possible albeit pointless
o Sub-Zero Freezer v. Canard Line
Cruise set for October 2, 2001, just after 9/11 travel warnings
No government law prohibiting cruises
Many sights to be seen on cruise were closed in response
Question about whether this response was covered by force majure clause
The primary purpose of cruise would not be fully frustrated
Could still see many sights
Passengers should have argued that reasonable apprehension of danger to
oneself would allow cancellation
Having less customers on the cruise was an assumed risk by company
o 2nd Restatement
Four requirements
Object of one party in entering into the contract must be frustrated by a
supervening event
Other party must also have contracted on the basis of attaining this
objective basic assumption common to both parties
Frustration is total or nearly total primary purpose of party must be
totally or substantially frustrated
Party has not assumed a greater obligation than law imposes
Proving a primary purpose was substantially frustrated can be very difficult
If frustration is not total or nearly total, defense isnt available
Courts are more likely to support impracticability than frustration
No good reason for this
130
UCC has no specific frustration rules
Common law thus applies
Western Properties v. Southern Utah
Lease for vacant land near the airport
o Plaintiff subleases to defendant
o Defendant had two obligations
Build a maintenance building
Pay rent
o But city wont approve the build
o This is impossibility without fault
Purpose of lease was to develop the property, therefore the promise to
pay rent is excused by frustration
Modern approach towards foreseeability is used
o It was foreseeable city wouldnt approve the building
This doesnt matter
o We only care about if the parties actually did foresee it
Modern approach (2R) is subjective
If the chance of an event happening is very remote, you
dont have to contract for it
Traditional approach would have said
o If something is foreseeable, not contracting for it is an
assumption of that risk
o Therefore sub-tenant assumed the risk of building not being
approved
Uranium arbitration case study
NY natural resource company sells to a Swiss buyer
o 10 year contract to buy Uranium
o Extended to 12 years
o Escalation clause, which increases price over time
Midway through contract a uranium cartel is busted and price plummets
o Buyer is also denied a permit by Swiss government
This was not an express condition
o Contract explicitly says buyer will not be excused
Stands to lose 100M
Uses Gap theory of impossibility/frustration
o Contract is discharged because both inability to get the permit
and price drop because cartel is busted results in frustration
o But what about the disclaimer clause?
o Gap theory says contract language was never meant to cover this
situation because no one ever conceived of it
o Contract language therefore only covers foreseeable situations
- Temporary impracticability or frustration
o Temporary impracticability, whether grounds for excuse or not, will normally be
grounds for the other party to suspend performance
131
o If prospective inability is so serious there is a reasonable possibility substantial
performance is not possible, other party may cancel the contract
May also cancel is delay will make performance much more burdensome
- Other types of impracticability
o Partial impracticability
2nd Restatement
If only part of performance is impracticable they are excused, but if
reasonable substitutes are available they must be rendered
If substantial performance is still practicable, performance of the
remainder of the contract is still required
Even if substantial performance is no longer practicable continuation under the
contract is still required if party promises performance in reasonable time
Basically election provision
The other party may cancel if the unperformed part prevents the possibility of
substantial performance
Basically cancellation provision
If impracticable part does not defeat substantial performance, both parties must
perform
Party with defense is excused from performing just those duties
Restitution is possible
Example contract for purchase of logs from a specific tract of land
All trees burn in forest fire
Only trees at the top of a mountain are left
300% increase in contract price, only a little wood left
Thus it is partially impossible, so seller would be excused for the
amount of wood that no longer exists
If getting the wood from mountain is impracticable, seller gets full
excuse of performance
o Performance is impracticable if it is substantially more
burdensome
o 300% price increase probably isnt enough
Seller will probably only get partial excuse
o Damages will be the cost to get the wood elsewhere
o Court wouldnt require specific performance
If wood was due before the fire, seller is fully at fault
o In this case seller wouldnt get the excuse
o Subjective impracticability
1st Restatement was explicit that impracticability could not be subjective to use
the defense
2nd Restatement recognizes subjective impracticability involves assumption of
the risk or contributory fault
Someone in these situations is denied the defense
Insolvent party will be deemed to have assumed the risk of insolvency

132
Buren of proof of the party asserting impracticability
Must show the task actually couldnt be accomplished
o Assumption of the risk
Risk can be allocated in the contract
Court may find a party assumed risk even if not explicit in contract
Issue of equitable allocation
Custom and trade usage are important to this
Parol evidence may be restrictive here
o Technological impracticability
A contract not being possible given the existing state of technology is not
impracticability
It exists at time of contracting
You knew or should know technical limits, so party assumed this risk
When government provides technical plans to a contractor, government
has assumed the risks that plans will not yield the desired results
- Foreseeability
o If the complication is reasonably foreseeable, defense is not available
Party should have provided a contingency
Not applied to death or illness although both are foreseeable
o Unforeseeable = an event so unlikely to occur that reasonable parties see no need
explicitly to allocate the risk of its occurrence, although the impact it might have
would be of such magnitude that the parties would have negotiated over it, has the
event been more likely
o Court is more willing to find excuse with even will effect a few contracts instead of
many example wars, embargoes, etc are hard to find excuse for
2nd Restatement says foreseeability is only one factor to consider
One view is that promisor should be free to introduce evidence why it was not
provided for in contract
Another view is that foreseeability doesnt matter if it is clear parties did not
intend risk to be assumed by the promissor
- Force Majeure Clauses
o Clause protecting against foreseeable risks
May be oral
o May not be phrased too generally
Phrased too generally, courts interpret it to cover only unforeseen events
You want to say including but not limited to and list some examples
Ejusdem generis
o UCC
Provisions of this sort should be read in light of mercantile sense and reason
o Rationales
Contract liability stems from consent
If situation was not conceived of by parties, did they consent to it?
Unconscionable to take advantage of mistake about the future

133
We dont want to enforce contracts that are radically different from what the
parties intended
- Effect on a prior breach
o Impracticability may prevent a party from being able to show that they were ready,
willing, and able to perform
o Once a party repudiates, if then repudiators own performance is impossible
Two views
Impracticability should have no effect because rights of the parties became
fixed by the repudiation OR
Impracticability discharges and anticipatory breach
Limits damages to the time between repudiation and impossibility
- UCC
o Four relevant sections
2-614 governs failure of contemplated means of delivery/payment
2-615 governs impracticability, impossibility, and frustration
If seller meets 615(a) he has not assumed a greater obligation, and is
excused from delay/non-delivery if he complies with b and c
615(b) only matters when impracticability affects only partial ability to
perform may allocate available supply among customers in any
manner which is fair and reasonable
615(c) requires seller notify buyer in writing of quota to be made
available to him
o This is required whether contract deals with allocation or not
2-616 deals with installment contracts
Designed to protect the buyer not the seller
- Adjusting rights of the parties
o Total impracticability discharges excused partys remaining duties
At same time other party is discharged
o If excused party has partially performed already
Recovery for part performance may be available
2nd Restatement allows courts to sever a contract in the interest of justice, even
if severability requirements arent met
o Courts have trouble applying restitution when there is impracticability
o Rule is normally parties should be put in position before frustrating event
Usually involves restitution
o 2nd Restatement says courts should grant relief based on reliance interests as justice so
requires
o What happens if property of contract is lost
Majority rule
Buyer assumes the risk as soon as contract is made
Minority rule
Seller is legal owner until closing and assumes the risk
Third view
Buyer maintains the risk only if in possession of the legal title
134
2-614. Substituted Performance.

(1) Where without fault of either party the agreed berthing, loading, or unloading
facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of
delivery otherwise becomes commercially impracticable but a commercially reasonable
substitute is available, such substitute performance must be tendered and accepted.
(2) If the agreed means or manner of payment fails because of domestic or foreign
governmental regulation, the seller may withhold or stop delivery unless the buyer
provides a means or manner of payment which is commercially a substantial equivalent.
If delivery has already been taken, payment by the means or in the manner provided by
the regulation discharges the buyer's obligation unless the regulation is discriminatory,
oppressive or predatory.

2-615. Excuse by Failure of Presupposed Conditions.

Except so far as a seller may have assumed a greater obligation and subject to the
preceding section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with
paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance
as agreed has been made impracticable by the occurrence of a contingency the non-
occurrence of which was a basic assumption on which the contract was made or by
compliance in good faith with any applicable foreign or domestic governmental
regulation or order whether or not it later proves to be invalid.
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity
to perform, he must allocate production and deliveries among his customers but may at
his option include regular customers not then under contract as well as his own
requirements for further manufacture. He may so allocate in any manner which is fair and
reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery
and, when allocation is required under paragraph (b), of the estimated quota thus made
available for the buyer.

2-616. Procedure on Notice Claiming Excuse.

(1) Where the buyer receives notification of a material or indefinite delay or an allocation
justified under the preceding section he may by written notification to the seller as to any
delivery concerned, and where the prospective deficiency substantially impairs the value
of the whole contract under the provisions of this Article relating to breach of installment
contracts (Section 2-612), then also as to the whole,
(a) terminate and thereby discharge any unexecuted portion of the contract; or
(b) modify the contract by agreeing to take his available quota in substitution.

135
(2) If after receipt of such notification from the seller the buyer fails so to modify the
contract within a reasonable time not exceeding thirty days the contract lapses with
respect to any deliveries affected.
(3) The provisions of this section may not be negated by agreement except in so far as the
seller has assumed a greater obligation under the preceding section.

Remedies

- 2nd Restatement 344


o Illustration
Repudiation before there is any performance
100K contract between home owner and builder
Builder breaches
Expectation recovery = contract price minus cost to build
Puts builder in position of full performance
When there is no performance yet, expectation recovery is the same
as contract price usually
When there has been performance, expectation recovery is amount
already spent plus anticipated profits
If contractor expected a loss under the contract
Expectation recovery = contract price minus cost avoided
o Cost avoided = cost of full performance minus cost of
performance so far
- Expectation recovery is usually the highest and almost always available
o If you cant prove the expectation with reasonable certainty, reliance damages
are available
o As a last resort, restitution may sometimes be available
Focus on enrichment of defendant
Damages on the other hand focus on loss of plaintiff
o 2nd Restatement 343 lists available judicial remedies
a sum due under the contract, damages
b specific performance, equitable remedies, injunctions
c specific restitution
d restitution
e declaratory judgment
f arbitration award enforcement
o 346 (2) allows nominal damages
o 347 expectation damages formula
Loss of value due to other partys non-performance
May be unpaid contract pride
PLUS incidental/consequential losses
MINUS any costs avoided by not having to perform
- Loss in value may be hard to determine if performance is defective

136
o Duty to mitigate losses, so may not be able to collect full loss
o Must seek alternative performance elsewhere
- Expectation damages
o E = loss in value + other losses cost avoided
o If loss in value cant be calculated, cost to complete/repair may be used
But if that is clearly disproportionate to the loss in value to plaintiff,
plaintiff will collect under the Value Rule
Value Rule = diminution in market value
Cardozo first articulated this in Jacob & Young
This is in 2nd Restatement 348
o Peevyhouse v. Garland Coal
D mining coal from plaintiffs property
In contract D promises to restore the land
P accepts less mney to ensure this promise
D admits liability in not restoring, suit is only for damages
Cost to repair is way more than value of the land
Decrease in value is about $300
This is what plaintiff gets
Cost to restore was clearly disproportionate
But value to plaintiff was never considered, only market value
Bender thinks this was wrongly decided
Breach was willful so court should be more willing to allow the
disproportionate recovery
o Usually fault is not considered when examining breach
But there is a question if it should be examined when setting damages
Law doesnt like economic waste
Why we have the Value Rule
2nd Restatement is more concerned with giving either party a
windfall than about economic waste
- UCC
o 1-106 Expectation recovery is the norm
Consequential damages are not available
o 2-703 Sellers remedies
With regard to the undelivered balance
Withhold delivery
Stop delivery
Resell goods and recover damages
Recover damages for breach
Cancel
o 2-711 Buyers remedies
When seller fails to deliver, repudiates, or buyer rightfully rejects or
revokes acceptance
Buyer may cancel and/or recover
137
o Cover
o Damages for non-delivery
May hold onto goods and resell them as an aggrieved seller
When seller fails to deliver and repudiates, buyer may
Recover goods if they have been identified
Specific performance
- Therefore when assessing consequential damages you must consider
o Avoidability
o Foreseeability
o Certainty
- Accepted Goods under the UCC
o Buyer is keeping the goods
o Buyer must pay price
There is no cost avoided in this situation
Buyer may sue for damages though
Must always give notice of the breach in reasonable time
o 2-714
Damages will be the value of promised goods minus the value of delivered
goods
o 2-717
Buyer may deduct partial breach damages from price
o Damages could also be measured by the price to fix
- Un-accepted Goods under the UCC
o Duty to mitigate is already built into the damages formula
o Sellers damages
Contract price market value
If seller actually resells the goods, the resale value is used instead off
market value
o Buyers damages
Same as buyer
If buyer gets goods elsewhere on the market, we call that Cover
o Lost Volume Seller
Example care dealership. Car is sold to a new buyer after the first one
defaults on that same car. Seller could have sold both cars though,
because they likely stock surplus
Therefore seller lost the profits of 1 sale
UCC 2-708(2)
Seller can receive just their profits under the contract
- Limiting doctrines
o Reasons you wont get a full expectation recovery
Non-recovery of litigation costs
Mader v. Stephenson
This is the American rule
138
Parties may contract that litigation costs are paid
o Avoidable consequences rule
2nd Restatement 350
Party may not recover damages that could have been avoided without
undue risk, burden, or humiliation
Parker v. 20th Century Fox
Musical movie is cancelled and Western offered instead
D doesnt have to actually make the move to have a duty to pay
Ps duty to mitigate damages stems from a breach
o She declines the offer to another movie
P gets full unpaid contract price expectation recovery
o Salary possible in comparable employment will be deducted
o Burden is on defendant to show comparable employment
was available (in this case offered)
o Employees duty to mitigate damages requires reasonable
diligence to secure other work
o In this case, P had no duty to take the other role
Duty to mitigate attaches when performance is non-delegable
Employees are able to take another job when their original contract
is breached but jobs are mutually exclusive
A company who is able to work multiple contracts has no duty to
mitigate damages when one is breached
New contract must substitute the breached one for duty to mitigate
o Foreseeability limitation
Hadley v. Boxendale
D transporting Ps mill shaft but it is delivered late
P sues for lost profits due to delayed delivery
Two types of damages could be allowable
o General (direct) damages
Those arising naturally form the breach itself
May include interest for time of delay, cost of
alternative/expediated shipping, etc
o Special (consequential) damages
Those contemplated by both parties at the time of
contracting as probably results of a breach
Loss in profits would have to fall here, but D did not
know the mill would be losing profits due to the delay
Usually require some sort of communication at/before
contracting
Hadley Test Consequential Damages
2nd Restatement 351
o Foreseeability is required for all damages
General damage are just always foreseeable though
139
o Otherwise Hadley rule is adopted
Tacit Agreement Test
o Old test
o Must find defendant tacitly agreed to consequential damages
for them to be allowable
o Used infrequently and now generally rejected
Today we look to what D had reason to foresee at the time of
contracting
351(3) allow discretion for foreseeable damages as justice
requires
UCC 2-715 includes the Hadley rule
o Lists consequential damages
o Only buyers can get consequential damages
Seller must have had reason to know at the time of
contracting
AND they could not be reasonably avoided
o Because seller will recoup their profits as damages
Incidental damages are allowed under the UCC
2-715 for buyers
2-710 for sellers
May also be able to get replacement goods
Incidental damages are for our of pocket expenses to mitigate
damages
Lawyers will try to argue consequ damages are incidental
o Contracts will usually exclude consequential damages
o And UCC prevents sellers from getting them
Parties may disallow incidental damages by contracting ]
Mental distress damages
Not usually allowed
2nd Restatement 353
o Available if the breach causes bodily harm
o Or if emotional distress is especially likely
o Certainty limitation
2nd Restatement 352
Damages only up to what the evidence demonstrates with
reasonable certainty may be collected
Some cases have required less certainty for proving damages than
breach
o Especially if breach is willful
Gruber v. S-M News
Plaintiff promises to make and sell 90K sets of Christmas cards
o P will be paid 84 cents for every set sold
o Full sale would be $75K, Plaintiff asking for $100K
140
D doesnt use reasonable efforts to sell the cards
For expectation recovery we need to know how many sets of cards
reasonable efforts would sell
o This is not sufficiently certain
o Seller cards was a new business for defendant
Used to be a firm rule that damages cannot be proved
for a new business
This is in decline
Some extrinsic evidence may be allowed
o Here you cannot show expectation recovery with reasonable
certainty
Fallback is a reliance recovery
o P would recover the expenses in making the cards
o This is subject to Avoidable Consequences Rule still
o Cards may have been able to be resold earlier to mitigate
Foreseeability limits reliance recovery
o Essential reliance is by definition foreseeable
This is reliance directly based on contract and
necessary to fulfillment of contractual obligations
Like costs of performance or preparation for perf
These are costs necessary to fulfilling the contract
o Non-essential reliance must be foreseeable at the time of
contracting to meet Hadley
This not directly required for performance of
contractual obligation
More likely to happen before contracting
This could include collateral transaction costs
These things are not necessarily contemplated as part
of the contract
Traditionally, reliance recovery did not cover reliance before
contracting
o This is still Majority (American) view
o Minority (English) rule is that reliance before contracting is
recoverable if party had reason to foresee those efforts would
be wasted
Example P spent $20K making cards, which would sell for $15K
Under expectation recovery P will get $15K
Under reliance recovery P will get $20K
o Restatement allows defendant the chance to prove P would
have experience a loss under contract
o That loss would be subtracted from reliance recovery
Therefore if loss is provable, reliance recovery will be limited to
expectation recovery
141
o But burden of proof is on defendant
- *Reliance recovery can never exceed the full contract price
o If cost avoided is greater than contract price, damages are 0
o Therefore plaintiff will likely seek restitution
- Restitution
o Oliver v. Campbell
Lawyer suing client for unpaid bills
Contract price of $250, fired near end of trial
Suit under quasi-contract for what services were worth
Jury found the services were worth $5K
Restitution is a remedy to prevent unjust enrichment
o Restitution is available for void contracts and avoidable contracts
If contract has been totally discharged or never exists
Not allowed if contract still exists
o Exceptions to restitution
NOT available when plaintiff has substantially performed and defendants
only remaining obligation is to pay
Here you are essentially given expectation damages because there
is substantial performance
This applies to sections of a divisible contract
o Therefore available recovery may be different for different
parts of the contract
Lawyers can only get the contract price for unpaid bills
o Damage when plaintiff has rendered services to defendant
May have a problem putting a value on the services
Majority view - Restatement
Contract price is only evidence of the value of services
Other evidence may show the real reasonable value
Therefore restitution can exceed contract price
Minority view
Contract price is a ceiling on allowable damages
Third view
Contract price is conclusive when valuing services
Contract price is the reasonable price
May require contract be pro rated
- Restitution is always available
o Even with a damages clause
o Or when a party is in breach - 373
o If you fall under the Williston limitation (in 2R where you cant sue until the law
day) restitution may be given earlier
- Punitive damages
o Prohibited in 2nd Restatement 355
Unless breach is also a tort that would allow punitive damages
142
Contract remedies are compensatory in nature, not punitive
o Efficient Breach Theory
Patton v. Mid-Continent
This case adopts the minority view
Punitive damages are allowed if breach is mingled with a tort
o Fraud, malice, gross negligence
Plaintiff was given exclusive rights to accept Ds credit card
o Plaintiff will get compensatory damages
o Also gets punitive damages minority view
Without the punitive damages, defendant was better off having
breached
o Efficient Breach
o After compensatory damages, defendant is better off having
breached and plaintiff is no worse off
o Law encourages this type of efficiency
Treats performance and expectation damages as alternative performances
View is from Holmes
Punitive damages are generally not allowed because they deter efficient
breach
But opportunistic breaches shouldnt be allowed either
Hard to distinguish efficient from opportunistic breaches
Posner in Patton says law discourages opportunistic breaches by
the rule that efficient breaches mingled with malice warrant
punitive damages
Fraud, malice, gross neg must be proved with clear/convincing evidence
Patton wasnt able to do that
Efficient breach is not a defense
Must still pay full damages
Based on false assumption
Damages dont make aggrieved party whole
o Attorney fees
o Mental distress
o Unforeseeable costs
- Liquidated damages
o A liquidated damages clause sets damages should a party breach
Determined at time of contracting
Will not be enforced if seen as a penalty
o Wassenar v. Parios
Plaintiff wrongfully terminated, liquidated damages clause set damages at
salary to be paid under the remaining time of contract
D argued clause was a penalty when P sued to enforce it
Penalty clauses are void
Contract law is about compensation
143
Parties cant agree to damages the court wouldnt allow to be
awarded itself
Burden is on defendant to prove this is a penalty
Decided as a matter of law because it is based in public policy
Pros and cons of enforcing a liquidated damages clause
Parties may account for all types of harm damages wont cover
Efficiency, saves courts money
Remedies should be determined by the court
Law discourages penalties
o Three part test to determine if liquidated damages clause will be enforced
1. Intent of the parties
Did they intend a remedy or a penalty?
No longer required by 2nd Restatement
Just dont label the clause a penalty
2. Difficulty to prove the loss/harm with reasonable certainty
The more difficult to prove, the more likely the clause will be upheld
3. Is clause reasonable in relation to anticipated harm
Anticipated at time of contracting
May include harms that are not usually recoverable
Best to list potential harms when drafting the contract
Modern view UCC and 2nd Restatement
o Clause must be reasonable in relation to either anticipated or
actual harm
2 Restatement views 2 and 3 as on a sliding scale
nd

The harder to prove the harm the more likely amount will be found
reasonable in light of anticipated harm
o If plaintiff actually suffered no harm several views
Doesnt matter, because damages must be reasonable compared to
anticipated harm
2nd Restatement if it is clear plaintiff suffered no damages, liquidated
damages clause is a penalty
Otherwise it would be a windfall to the plaintiff
Wassaner cases approach
Liquidated damages must be reasonable compared to both
anticipated and actual harm
This is uncommon
Clause is a penalty if it is clear plaintiff suffered no harm (2nd Restatement
rule) OR it is disproportionate to the actual harm suffered
o Shotgun Clauses (aka Blunderbuss)
If damages are the same no matter now severe the breach
Courts are less likely to find this reasonable in relation to anticipated harm
Likely to be found a penalty
If it happens to be reasonable to actual harm
144
UCC and 2nd Restatement would enforce it
o Trend towards enforcing liquidated damages clauses
o When the plaintiff is suing under a liquidated damages clause but could have
mitigated those damages
When comparing to anticipated harm it wont matter
When comparing to actual harm, there is no duty to mitigate
Therefore clause must only be reasonable compared to the
unmitigated damages
o Plaintiff may only sue for actual damages instead of liquidated damages under
the contract if clause is so low as to be unconscionable
o Acceleration clauses
When plaintiff has partly performed when defendant breached,
acceleration clause may be a penalty
Usually plaintiff could get contract price minus cost avoided
If acceleration clause were enforced he would get full contract price
o Limitations of Remedy Clause
May limit rejection, revocation of acceptance, or damages
Under UCC hen the contractual remedies fail (aka are not possible)
remedies may be had per UCC 2-719
Provision usually excludes consequential damages
But if one part of the provision fails, courts are split if the rest of the
provision is enforceable
Half say if limited remedies fail, the consequential damages
provision also fails. Half say it does not.

Specific Performance

- First question is if remedies at law are adequate


o An adequate remedy is one which is certain, prompt, complete, and efficient to
attain justice
o If so, SP is very hard to get
o A liquidated damages clause does not preclude SP
Unless liquidated damages clause is the exclusive remedy
o If damages and SP are equally adequate, SP will not be given
o SP requires more certainty in contracts terms than damages
- Second question is if there is another reason not to award SP
o Many reasons not to award SP even without an adequate remedy at law
Difficulty of administration
Unfairness, hardship
Public interest
Impossibility in fact
Unclean hands, Laches
o Lacldede Gas v. Amoco

145
Long-term requirements contract for gas seeking inunction
Remedies at law were found to be inadequate
- Goods
o Traditional approach
Goods had to be unique, one-of-a-kind for SP
Otherwise damages are adequate
Uniqueness is an idea from real property
o UCC approach
Expanded availability of specific performance
Still available for one-of-a-kind goods
Also under other proper circumstances
When it would be hard to calculate damages or there is no
substitute for long term performance

Statute of Frauds

- Originated in England, now repealed


o Looked favorably upon in US
o Requires certain contracts be evidenced by a writing
o Terminology
Within SoF covered by the statute and must be in writing
Then look if there is a sufficient memorandum to satisfy SoF
Must be evidence by a writing signed by the part to be charged
If this is satisfied, defendant cannot assert a SoF defense
If there is no memo, look for an exception to the writing requirement
Promissory estoppel, full performance on one side
These exceptions take a case out of the SoF
A contract which violates SoF, contravenes it
Violating contract is
Majority view unenforceable
o But it is still a contract so it can be breached
o Cant sue for damages because contract is unenforceable
o But breacher can sue for restitution
Majority view material breacher cant get restitution
1st Restatement restitution only if breach isnt willful
2nd Restatement restitution is allowed regardless
Minority view void
o Void contract cannot be breached so plaintiff gets restitution
NY uses term void but means unenforceable
o If either party refuses to sign the memorandum, other party may cancel
Same as a demand for assurances
- One year provision
o Bring a contract within the SoF
146
o Applies to contracts which cannot be fully performed within one year of their
creation
If it can be performed in one year, outside of SoF
Measured from date of contract formation to date of full perf
Do not count the day of formation law disregards fractions of a day
Therefore a 1-year employment contract to begin the day after
formation is NOT within the SoF
CR Klwein v. Flagship Properties
Klewin is contracted to manage Flagships construction project
o Many phases, will take years
o Only terms for phase 1 are in writing, but plaintiff claims
there is an oral agreement he could complete all phases
Completion will certainly take more than a year
By the terms of the contract it could be performed within a year
o Anticipated and actual performance times arent considered
A deadline more than a year does not bring contract within SoF
Performance could be completed early and within one year
o SoF tends to be interpreted narrowly to cover as few contracts as possible
If there is a 1-year employment contract with a condition precedent, as
long as condition could be met the same day as contract-formation, it does
not fall within the SoF
If parties modify agreement when there is less than 1 year of performance
left, plaintiff is going to argue that was a new agreement and thus falls
outside the SoF (no defense for defendant)
o If contract is not explicitly longer than one year courts may still hold it within the
statute of frauds
Example until you complete law school
By definition three years
Or until you fail out
May see this as defeasance and thus still within SoF
- Full performance vs. Defeasance
o If performance is based on a lifetime of a person, contract is outside the SoF
Person can die within a year and performance is complete
o Minority view (including NY)
Lifetime Provision
Lifetime promises are treated as being for more than a year
Brings contracts within the SoF
Hinges on whether death is full performance of defeasance
Usually we see it as defeasance
Defeasance is not full performance, thus defeasance within a year
keeps the contract within the SoF
o Duncan v. Clark
Defendant orally promises to support a child for 17 years
147
At some point he stopped and asserted a SoF defense at trial
There was no writing to support the agreement
Essential purpose of this contract could have been achieved upon childs
death, which could have been within a year
Therefore contract is outside the SoF
Important to always look at if the primary purpose of the contract would
be fulfilled, should party die within one year
2nd Restatement adopts this essential purpose approach
Cases are split
Would also apply to a contract to forebear
- Alternate performances
o When a contract promises one of several potential performances
o For the one year provision
If any performance is outside the SoF, the whole contract is outside it
Aka, each performance must be within SoF for contract to be
o This comports with courts wanting to require SoF compliance as infrequently as
possible
- Termination provisions
o If basic term is more than 1 year and either party may terminate with notice
Majority View
Termination provision had no effect on contract being within SoF
Termination is defeasance, not full performance
Minority View
Termination provision is akin to alternative performance
You will perform until notice is given
This would keep all contracts with a termination provision outside
the SoF, because they can be terminated within one year
Material breach and death are not considered termination
o If only one party can terminate (employer can, employee cannot)
Same Majority and Minority views would apply
Majority within SoF, both parties get the defense
Minority outside SoF, neither party gets the defense
NY view
Whether you have a SoF defense depends on who is defendant
If defendant is the one who may terminate, minority view used
o No defense, because termination is an alternate performance
and brings contract outside SoF
If defendant is party who may not terminate, defendant is stuck in a
long-term contract
o Majority view is used
o This falls within SoF, because termination is defeasance
To summarize NY is a minority view state, but majority view is
used if plaintiff alone has the right to terminate
148
- Doctrines that take a contract outside the SoF
o Full performance
Majority view
Full performance on one side takes the case outside the SoF
If plaintiff fully performs, defendant has no SoF defense
Minority view (also NY view)
Full performance on one side does not take case out of SoF
Defendant may still assert an SoF defense, even though plaintiff has
fully performed
Unilateral contracts
Formed by full performance
Under Majority view, a unilateral contract will never be within SoF
Under Minority view it could be within SoF
This comes up when a celebrity hires an agent at will
At some point agent is fired but celebrity continues to make money
from contracts agent secured him
Under Majority view, agent has fully performed and celebrity
cannot assert a SoF defense must keep paying agent
Under Minority view, celebrity has a SoF defense and does not need
to continue paying agent
o BUT in NY, the celebrity (defendant) is stuck in a long-term
contract bec ause he cant stop the money from coming in
o There are two things at issue
o Agent has fully performed, which in NY does not take the case
out of the SoF celebrity still has the defense
o AND celebrity is stuck in a long term contract so under the
right to terminate rules, NY would follow Majority view.
Under Majority view, either side has the SoF defense
o So celebrity would not need to pay
Even if you remain within the SoF after a full performance analysis,
you must do a one-year provision analysis
Comes up frequently with commission contracts
If P has fully performed and Ds only obligation is to pay Damages within
the Minority Rule (K still within SoF)
Usually price recovered, restitution not allowed
But if contract is unenforceable, contract price cannot be given as
damages
Court can either
o Allow restitution despite the normal rule
o Estop defendant from asserting SoF P would get K price
o Multiple promises
Bilateral contract
As promise is for 2 years within SoF
149
Bs promise is to pay immediately outside SoF
If any promise within a bilateral contract is within the SoF, the whole
contract is
Note one promise may have alternate performances, in which case
each performance must be within the SoF for the promise to be
A promise to create a memo to satisfy the SoF is considered within the SoF
o Equitable estoppel
Without a writing the following are unenforceable
1. A promise to execute a sufficient memorandum
o Presumptively held to be within the SoF
2. A promise not to assert a SoF defense
3. Promise to modify
These promises are unenforceable unless in a signed writing
Equitable estoppel in this case to prevent a SoF defense
Promissory estoppel only relates to the formation of the contract
Even though there is a promise here, it doesnt relate to formation
Equitable estoppel will be used to prevent a SoF defense against enforcing
any of the 3 promises above
OR if plaintiff relied on the original written contract, itself within
the SoF
Reliance on a purely oral contract
Within the SoF but does not satisfy the writing requirement
McIntosh v. Murphy
o P hired for 1 year to work in Hawaii
He moves to Hawaii
No sufficient memorandum
o Not within SoF if performance is to begin the day after
contract is formed
Trial found work did begin the next business day after
formation and didnt allow a SoF defense
This was wrong
Weekends vs business days doesnt matter
o Even without memo, contract may be enforced by equitable
estoppel and disallow a SoF defense
o Without a writing, reliance must corroborate alleged K terms
Restitution is insufficient because D unjustly enriched
Estoppel case will protect against this reliance
Remember, full performance by one side under Majority view takes
contract outside the SoF
o If reliance is to the extent of full performance
o Rescission
Effective immediately, so doesnt need to be in a signed writing
You can contract around this
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When there is reliance on the rescission it is enforceable
Therefore terms of the original contract cant be enforced
o Modifications
Must look to agreement as modified to determine if it is within SoF
If modified contract cannot be performed within one year, it must
be in writing or modification is unenforceable
If one party relies on the modification, court could equitably estop
defendant from asserting SoF defense and modification enforced
o Option contracts
Authority is split if SoF applies to option contracts that bind party for
more than a year
Contrary authority says option may never be exercised
For contracts made irrevocable under 45
Likely fall outside SoF, because 45 is mostly about reliance
- SoF Writing Requirements
o Once a contract is within the SoF, you need a memo to satisfy it
Requires a sufficient memorandum signed by the party to be charged
If SoF is satisfied, defendant may assert the SoF defense
o Memorandum must be signed by party to be charged
Not necessarily by both parties
Usually this means defendant must have signed it
This can create situations with a valid bilateral contract and mutual
consideration, but no mutual obligation
Because only one partys promise may be enforced
o What must be in the memo?
Must evidence a contract
Contain all essential terms
Extrinsic evidence may be used only to interpret/clarify terms
o Acceptable mediums
E-records are considered writings
Faxes
In Klewin parties shook hands on video
Courts are split if video/audio satisfies writing
Leonard v. Pepsico
The commercial was not a writing in satisfaction of the SoF
o What is a signature?
Any mark made with the intent to authenticate
Many statutes require documents be sub-scribed instead of signed
NY has this law as it applies to the SoF
Signature must be at the bottom
Some courts choose not to enforce this
If signature need not be at the bottom, letterhead will court
Used to authenticate writings
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Electronic signatures count
Video/audio raises signature concerns 0 usually not good enough
Company logo can be a signature
Like the Pepsi logo in the Leonard commercial
o Existence of memo in time
Need not exist at the time of trial
Parol evidence will be allowed to show it did exist
Must just be provable at trial
Need not be delivered to the other party See e.g., Crabtree
This may raise discovery issues
Memorandum has nothing to do with expressions of assent
o Combining multiple documents to satisfy the requirements
Crabtree v. Elizabeth Arden
Suing for breach of 2-year employment contract
o Plaintiff in need of sufficient memo no single doc works
2 years to make good was sufficient for the duration term
o But that document wasnt signed, so not a sufficient memo
Traditional view
Documents could only be combined if the signed document
specifically refereed to the unsigned one internally
OR if the documents were physically attached (stapled, etc)
Court in Crabtree expands what is sufficient
If writings have internal indications they related to the same
transaction, they may be combined
Once you establish this connection, extrinsic evidence is allowed to
show they are in fact related AND that defendant assent to the
unsigned document
o How much may parties attack the memo to show it is insufficient
Contradictory for plaintiffs to assert there is a contract the memo
represents in order to maintain a SoF defends AND attack the
completeness/accuracy of the memo to alter a term
Attacking the memo too deeply, plaintiffs may strengthen SoF defense
If the memo is the signed contract itself
Plaintiff can stop defendant from attacking the memo by PER
o No evidence is allowed to contradict an integration
o Or supplement a total integration
- Functions of the SoF
o Channeling
SoF is meant to create an easy separation between
enforceable/unenforceable contracts
o Cautionary
People should think before they contract
Writing requires deliberateness
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This fails though, because memorandum doesnt have to be the contract
May be after the oral contract is made
Crabtree it was a payroll slip after the fact
A letter of repudiation could be the sufficient memorandum
Parties knowing of the SoF may encourage written agreements though
Remember SoF does NOT require the contract be in signed writing
o Evidentiary
The memo serves as evidence a contract was made
May also be before contract exists offer may be the memo
Will give essential terms

Statute of Frauds UCC

- UCC 2-201
o Much less rigorous than the 1 year provision
o Any contract for greater than or equal to $500 is within the SoF
You may aggregate the full contract price
o 2-201(1) a sale of goods contract for greater than or equal to $500 is not
enforceable without a signed writing sufficient to indicate contract for sale has
been made
Signed by party it is to be enforced against
o Writing may omit/mistake a term
EXCEPT quantity
Anything else may be omitted, so at minimum you only need quantity term
o Writing may be created any time before trial
Majority Rule
Under UCC, offer may not satisfy the memo requirement
Because 2-201 says after contract is made
Minority Rule
Under UCC, offer may satisfy memo requirement
Allowable because UCC meant to be broader than 1-year provision
Offer is an indicator that a contract was made UCC has low
standard, memo is only evidence there was a contract
- Writing requirements
o Quantity term
Majority view there must be a quantity term
You cannot enforce a quantity greater than that stated
Minority view
You dont need a quantity term but having one sets a ceiling
CoP or CoD could imply a quantity term not in writing
This is why minority view is better
Formality of requiring a quantity term could undermine the UCCs
liberal application of the SoF
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Very liberal about what qualifies as a quantity term
Exclusive dealings contract is ok
Quantity set by a best efforts obligation is ok
Cohn v. Fisher
Selling a boat, sufficient memo is the buyers check
o Signed by buyer, says Deposit and name of boat
This is sufficient to satisfy the SoF
o We have a quantity term of one boat
o And it is sufficient to indicate a contract was made
o Exceptions to UCCs writing requirement
Goods not fit for resale
Admissions in court that contract was made
Tis solves the contradiction outside UCC where under 1-year
provision defendant may admit contract but change terms
Admitting contract loses the SoF defense
Goods paid for and accepted or rescinded and accepted
No SoF defense only as to those goods
Confirmation between merchants
Acevedo v. Minister
o Seller (P) sues over 15 tons of hay
o Buyer put money in escrow and seller sent an accounting
Accounting was written confirmation sufficient to be
asserted as a memo against sender
Thus sender would have no SoF defense
Recipient would still have SoF defense
If recipient had reason to know the letters contents
(doesnt look like junk mail) AND did not reject, both
parties have a SoF defense
o Are the accountings sufficient memoranda?
The language indicates a contract was made
Have a quantity term
Signed by seller so efficient against seller
Sent is reasonable time
No change in position
Buyer must have a reason to know the contents of
accounting he does
No written notice of rejection within 10 days
Memorandum must be sent within a reasonable time after agreeing
Who is a merchant?
o UCC 2-104(1)
o Person who deals in goods of the kind OR has
knowledge/skill particular to the practice
o Practices merchant someone who knows the practices
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Ex. individual buying something for your office
NOT a professional buying goods for personal use
o As opposed to a deal in goods merchant
Provisions specific to merchants
o 2-201, 205, 207, 209, 103
For 2-207 and SoF confirmation exception
o It is clear recipient needs to be a merchant
o Less clear if sender must also be
Merchants tend to send confirmations though
o Because we want the recipient to have a staff that can be
responsible for opening the mail
A merchant can object to the sufficient writing
o Must give written notice of objection within 10 days
o If given, recipient doesnt lose SoF defense
o Notice must use reasonable diligence to notify sender
o Will likely include three types of objections
Denying the existence of a contract
Denying a term
Commenting operating as an objection
o If you successfully object, the merchant exception doesnt
apply therefore contract could still fall within SoF and
defendant wouldnt lose the defense due to exception
The merchant exception to the writing requirement and 2-207
Between merchants additional terms become part of contract
o Confirmation must be sent in reasonable time
2-201 memorandum must also be sent in reasonable time
For notice of objection
o 2-207 objection keeps terms out of contract
o 2-201 prevents loss of the SoF defense
When must objection be given
o 2-207 within reasonable time of receipt
o 2-201 within 10 days of receipt
This is stricter
Form of objection
o 2-207 need not be written
o 2-201 must be written
Effect of not objecting
o 2-207 terms are allowed into contract
o 2-201 recipient loses SoF defense
We have only seen confirmations three places
2-207
PER
2-201
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- Which SoF parts you must satisfy
o Traditional rule
SoF is cumulative so you must satisfy every provision that applies to your
transaction
o Majority view
You must only satisfy UCC, even if performance is longer than one year
- Promissory estoppel under the UCC
o View 1
Other than the four listed exceptions above, you need a signed writing
Courts dont want to add exceptions
Thus UCC is not an exception
o View 2
Based on UCC 1-103
Unless displaced by UCC, common law applies
Specifically mentions estoppel
Courts that are less willing to apply promissory estoppel to the 1-year
provision are less likely to apply it to UCC cases
- Modifications
o 2-209 section on modifications
Doesnt require consideration
o Majority view
The modification must satisfy the SoF if the contract, as modified, falls
within its requirements
Modification will require its own signed memorandum
o Minority view
All UCC requires is that modified contract satisfy SoF, not that the
modification itself be evidence by a memo
The original memo carries through
Only an increase in quantity requires a memo
Because at a minimum, memo sets an upper limit on quantity
- N.o.m. clauses
o Allowed under NY GOL
o UCC would require you require modifications in writing
Because UCC allows modification by conduct
Memo requirements for SoF under the UCC are minimal so this is likely a
stricter requirement than SoF would be

Executory Accords and Substituted Contracts

- Executory accords (EA) vs. Substituted contracts (SC)


o Example
Contract 1 D owes C $10K
Contract 2 D promises to deliver a horse, C promises to discharge debt

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o Timing of the discharge
SC discharges the debt at formation of the contract
The SC replaces the debt
EA discharges the debt only upon debtors performance
Likely much after contract has been formed
The EA suspends the debt until EA has been performed
o Executory accords
At common law
Had no legal effect
No one could sue for breaching an EA
Creditor could sue on original debt while EA was valid
Once there was accord and satisfaction debt was discharged
Creditor was required to accept performance in relief of the original
debt once performance was tendered
Modern view
EAs are valid
EA and SC are different because they form on different dates
In NY this was done by legislation
EA is valid only if in writing signed by the party to be charged
Otherwise NY follows the common law
Goldbard v. Empire State Mutual
o NY case EA only valid if in writing signed by charged party
o Barber suing insurance for unpaid disability payments
Lower court had found parties had settled for less
o In NY any settlement agreement is usually seen as an EA
Must be in signed writing
More likely to be seen as an EA if agreement is less
formal
If claim is clear/liquidated, settlement is more likely to
be an EA, because creditor will not reduce a firm debt
for a new, lesser promise
- Breaching EA or SC
o If debtor materially breaches SC
Majority view
Creditor may not sue on the original debt, only on the SC
Minority view
Creditor may sue on original debt or SC
o Except if SC is avoidable, void, or unenforceable
o Parties would not intend to discharge original debt in
exchange for an unenforceable contract
o If debtor materially breaches EA
Creditor may sue on EA or cancel EA and sue on original debt
Because EA only suspends the original debt
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If debtor only commits immaterial breach, creditor cannot cancel but can
sue for partial damages under the EA
- Must creditor accept tender
o Under an EA
Original debt is only discharged by performance by both parties
Modern view
Creditor may not decline tender
This would be a repudiation of the EA and debtor may sue
Original debt has not been discharged though, so that would be
subtracted from debtors damages
Traditional view
Creditor is allowed to refuse tender and sue on original debt
If debtor sues for specific performance
Tender must be accepted
Original debt is discharged
o This is not at issue in a SC since the debt was discharged at formation
Creditor refusing tender would be a repudiation
Creditor would have no claim for original debt in damages action

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