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UCC

Applies to all sale of goods cases, or where the sale of goods predominates the agreement (hybrid contract)
UCC promulgated by NCCUSL + ALI
Rest. 2nd generally in accord with UCC
Article 1 General Provisions
o Goods (1-205) = all things which are movable at the time of identification to the contract for sale (other than
$ in which the price is to be paid, investment securities, and things in action), restaurant meals are considered
goods
o 1-102 provisions of the UCC should be liberally construed and take into account commercial practices
o Agreement 1-203 the bargain of the parties in fact as found in their language or by implication from other
circumstances
o Contract 1-201 the total legal obligation which results from the parties agreement as affected by the Act
and any other applicable rule of law
Article 2 Sale of Goods + K for the Sale of Goods
Predominant Factor Test in a hybrid contract, if the PF is goods K is governed by UCC, if PF is services K
governed by CL MAJORITY VIEW. See BMC Ind v Barth Ind: BMC and Barth entered into K for design, manufacture,
and installation of equipment to automate BMCs production line for unfinished eyeglass lenses
o MINORITY VIEW divides K into goods and services and applies UCC to goods portion only
o Predominant factor is a Q of fact
o Calling buyer and seller tends to be for goods
SOL for UCC sale of goods = 4 years

Formation Stage
The Agreement Process Intent to Contract
Note: Intent to make a contract is not a general requirement in order to prove a contract you need to show mutual
manifestation of assent and consideration. (Intent to make a K comes up when there is some indication that they do
not so intend --- indefiniteness of expression, many terms left open, intent to memorialize, etc.)

Subjective v. Objective Theory of Ks See Lucy v. Zehmer (sale of farm on scratch paper)
Subjective considers individual autonomy + intent (no Objective parties intent judges by outward manifestations of
mental assent is a defense b/c it means there is no intent standard of interpretation: what a reasonable person in
meeting of the minds the position of the other party would understand the agreement
to mean (Lucy v. Zehmer) --- special knowledge/secret,
unexpressed intention is not considered DOMINANT TEST

Intend No Legal Consequences See Balfour v. Balfour (Husbands promise to send $ not legally
binding)
Rule: An agreement is not a K if the parties intend no Presumption of No Legal Consequences:
legal consequences Social Engagements ex: promise to take a walk
Family Arrangements/Agreements w/in a marriage

Do the Parties Only Intend to be Bound When a Final Agreement is Signed? See Texaco v. Pennzoil
(Rule: If one party does not intend to be bound until the final agreement is signed and the other party has reason to know this
then there is no contract); Winston v. Media Fare Factors:
1. Did the parties expressly reserve the right to be bound only when a final written agreement is signed?
2. Partial performance?
3. Were all essential terms of the alleged contract agreed on?
4. Was the complexity/magnitude of the transaction so great that a formal writing would be expected?

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The Offer

Offer v. Preliminary Negotiations


Offer: Preliminary Negotiation: Rest. 2nd A manifestation of a
Is there a manifestation of present contractual willingness to enter into a bargain is not an offer if the person
intent? to whom it is addressed knows/has reason to know that the
An offer is a question of intent = an expression of person making it does not intend to conclude the bargain
commitment until he has made a further manifestation of assent

Promise v. Non-Committal Expression


Expression of Generally:
Opinion or Opinions/Words of Confidence are NOT promises
Prediction Standard to Determine if Opinion = Promise:
Whether a reasonable person in the position of P would conclude that D made a promise or merely
stated an opinion
Doctor/Patient:
Need a certain level of assuring language to make this a promise
Cases where promises by doctors tend to be enforceable are elective procedures
See Hawkins v. McGee: a doctors use of strong language of an express promise constitutes an offer
[doctor promised patient a 100% hand = promise; promise to patient that hed be in hospital 3 or
4 days = opinion]
Options to Deal With Doctor Promises:
1) No liability ever; 2) Require P to produce written promise by doctor; 3) Give cautionary jury
instructions (clear and convincing evidence standard)
See Sullivan v OConnor: plastic surgeon promising certain outcome can be held liable for BOK if
there is clear and convincing evidence of an express promise to perform in a specific way
Advertisements Generally:
Advertisements/order forms are notices and solicitations for offers UNLESS they have language of
promise
See Leonard v. Pepsico: Pepsi ad not an offer b/c it does not have language of promise (Pepsi
points, harrier jet commercial) a reasonable viewer of the commercial would not think that
Pepsi would expose itself to a limitless number of acceptances exceeding its supply
People writing in to accept an offer is actually the offer otherwise shopkeepers inventory
may be exceeded
When an Advertisement = Offer
When there is language of promise = language that is clear, definite, and explicit that leaves
nothing open for negotiation
See Lefkowitz: First come, first serve limits the number of people that can accept the offer
and in the order they come in
Note:
A promise in an ad can be incorporated into a later contract by implication
Newspaper typographical errors that are unintentional + obvious are NOT enforceable
Price Generally:
Quotations Similar to advertisement the language used will determine whether a price quote can constitute
a contract
Form Letter = shows letter is going out to many people not an offer
Decide quickly = non-committal language, no evidence to sell
Real Property Court is less likely to find a contract
See Lonergan v. Scolnick: D responds by form letter to inquiry by P regarding ad to sell RP did not
constitute an offer b/c there was no unequivocal intent to create a binding agreement in the
writing
Goods (now determined by UCC)

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See Fairmount Glass Works v. Crunden-Martin: S responds to Bs request for lowest price for jars,
saying we quote you with prices, detailed terms, and for immediate acceptance and court held
this was an offer. A court is more likely to find an offer when there is an ongoing communication
between the parties, language of commitment, detailed terms, cases for goods rather than RP,
there was selectivity of communication (comm. to B only)
Note: Court found quantity by implication using trade usage of carloads
Catchall Generally To Determine Whether an Offer or Preliminary Negotiation:
1. Is the communication an answer to inquiry?
2. Are words committal or non-committal?
3. Are terms detailed including quantity and quality terms?
4. Selectivity of communication (how many people is this going to?) look at the whole
communication
5. Is this RP or goods? (RP less likely to be promise)
6. Relationship of the parties
7. Surrounding circumstances
8. Usage of trade + prior practices of the parties
Other Things Presumed to be Non-Committals:
Statements of wishes, hopes, or desires ex. I am going to sell my car for $100
Estimates (UNLESS made with the intent to deceive)
Order forms, catalogs, circular letters
Statements between attorney and client (no promise unless expressly made)
Invitation to make an offer
Presumed to be Promises:
Architect and owner
Bids (unless non-commitment is clear)

Indefiniteness

Indefiniteness can show intent not to contract --- void for indefiniteness
1. The more terms omitted, the more likely it is that parties dont intend to contract (its a matter of degree)
2. Indefiniteness issue comes into play after you have an agreement an agreement does NOT form K if its void

Contract v. Void For Indefiniteness


Common Law Does Not Fail For Indefiniteness If:
1. Do the parties intend to be bound?
2. Are material terms reasonably certain?
UCC 2-204 Does Not Fail For Indefiniteness Even If 1+ Terms Are Left Open If:
(and Rest. 2nd) 1. The parties intend to make a contract (Q of FACT); and
2. There is a reasonably certain basis for providing an appropriate remedy (Q of Law)
Using gap-fillers
Severability Rule: If the parties would still intend to be bound even if indefinite issues in the contract were severed, then
the court can find a contract for the agreed term and drop the indefinite provision
The question of severability is normally a question of both parties intent (fact) BUT where
severing only affects one party it is a question of intent for that party only
o See Eckles v. Sharman: Sharman had contract w/ LA Stars to coach ABA w/ option for
pension plan of undefined nature, option to purchase 5% stake at price to be agreed on,
and severability clause to cut off one provision if void for indefiniteness but here
there were 2 things void court held that case needed to be retried to see the coachs
intent

Types of Indefiniteness Common Law

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Purport to Agree Terms can be vague (have 2+ meanings) or ambiguous
Examples:
Carloads can discover meaning through trade usage
Sumptuous living cannot interpret so void
I will pay you a fair share of the profits cannot interpret so void
This is an issue of interpretation
Courts look at extrinsic evidence (trade usage)
Question of fact for the jury
Silence No Term At All
Courts will imply the term if term can be discovered from the intent of the parties
Courts will fill it in with an objective standard:
o Implied from external sources
o Standard terms
o Trade usage, course of dealing, course of performance
Can never fill in quantity or quality or specification terms no objective standard
Silence As To Duration
See Haines v. City of New York: Where the parties have not clearly expressed the duration of
a K, the courts will imply that they intended performance to continue for a reasonable time
(NYC assumed obligation of constructing sewage system and extending sewer lines
necessitated by future growth of respective communities Haines is a 3rd party beneficiary
who wants to extend lines, court says NYC does not have to extend)
A court is unlikely to find a perpetual duration (usually a reasonable time)
Employment at will eee is presumed (indefinite duration and any party can terminate at any
time for bad reason, good reason, or no reason); exceptions:
1. Firing is against public policy Tort of Wrongful Discharge
a. See Wagenseller v Scottsdale Memorial Hosp: firing an eee for not participating in
unlawful activity is not allowed
2. Implied-in-fact promise personal policy manual can become part of K
a. See Wagenseller v Scottsdale Memorial Hosp: if an eer chooses to issue a policy
statement, in a manual or otherwise, and by its language or by the eers actions, it
encourages reliance, the implied-in-fact promise may be binding on eer
3. Breach of Implied Covenant of GF and Fair Dealing
Agree to Agree ALWAYS void for indefiniteness a court will not imply a term because it shows the parties clear
intent not to be bound
What Should The Parties Do Instead?
Add an objective standard ex: MV found by 2 appraisers, price found is CPI, etc.

See Joseph Martin, Jr. Delicatessen v. Schumacher: an agreement to agree to a material term in real
estate Ks is unenforceable [lease K had renewal clause for addtl 5 yrs at annual rents to be agreed
on]
MINORITY View: allows agreement to agree as to renewal in a lease and rental price is the
reasonable rental (b/c you presumably were paying for the right to renew during first 5 yrs)
One Party Has Right Courts are divided on this issue
to Name
Elements/Particulars
of Performance

Indefiniteness UCC (Rest. 2nd in accord)


General Rule: Even if 1+ terms are left open, K does not fail for indefiniteness IF:
Provisions 2-204 1. Parties intended to make a K (Q of fact), and
2. There is a reasonably certain basis for providing an appropriate remedy
a. Courts can supply a gap-filler if none is available then K fails for indefiniteness
Specific Payment payment due on receipt of goods See SW Engineering v. Martin Tractor (found that

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Provisions parties intended to K so court supplied payment term)
Price reasonable price at the time for delivery
Delivery all goods must be tendered in a single delivery + payment is due upon such tender
o Where circumstances allow delivery in lots, the price if capable of being apportioned
may be demanded for each lot
Place of Delivery sellers residence/business
Time for Performance reasonable time
An agreement is not invalid if particulars of performance are left to be specified by one of the
parties specifications must be in good faith and in limits set by commercial reasonableness
o Unless otherwise agreed:
Shipping specifications sellers option
Assortment of goods specifications buyers option
NO GAP-FILLER FOR QUANTITY + QUALITY

Agreement to Agree v. Agreement to Negotiate


Agreement to Agree Common Law
Always void for indefiniteness
o MINORITY View: Agreement to agree has an implied promise to negotiate in GF
See Joseph Martin, Jr. Delicatessen v. Schumacher: an agreement to agree to a material term
in real estate Ks is unenforceable [lease K had renewal clause for addtl 5 yrs at annual
rents to be agreed on]
o MINORITY View: allows agreement to agree as to renewal in a lease and rental
price is the reasonable rental (b/c you presumably were paying for the right to
renew during first 5 yrs)

UCC/Rest. 2nd (NY does not follow this)


Courts can supply gap-fillers when the parties show intent to be bound and cannot agree
to term
Remedy
o Specific Performance/Injunction gap-fillers guide who does what
Do not have to prove which party breached
See Oglebay Norton v. Armco: SP/Injunction (through a gap-filler) can be
granted when the terms of K are sufficiently certain to provide basis for
this appropriate order [K required Oglebay to have adequate shipping
capacity + required Armco to utilize shipping capacity if wished to
transport iron on Great Lakes; price mechanisms failed]
What parties should have done: (1) termination agreement, (2)
agreement of how to compensate for transaction and specific
investments, (3) agreement to have outside decision-makers
o Damages breaching party is the party that failed to use GF to reach agreement
Must prove existence of a contract and its breach to get damages get
expectation damages
Agreement to Rule: If parties have an agreement to negotiate in GF and they do but fail to agree they are under no
Negotiate further obligation

Common Law
VIEW 1: An agreement to negotiate in GF is unenforceable b/c its too vague
VIEW 2: The party who breached the agreement to negotiate in GF is liable for reliance
damages
VIEW 3: Basis for promissory estoppel claim (also get reliance damages)
See Copeland v. Baskin-Robbins: BR backed out of agreement to negotiate co-packing
agreement --- liable for reliance damages (not expectation damages b/c there is no way to
know what ultimate terms of the agreement would have been)

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UCC/Rest. 2nd
Remedy is also reliance damages

The Acceptance

Unilateral K only one party makes a promise to perform and therefore only one is subject to legal obligation
Acceptance by Performance (offeror does not ask for her promise in advance of performance)
Bilateral K exchange of promises creates K
Acceptance by Promise

Reverse Unilateral Contract The offer is the performance and the acceptance is the promise
Ex: I deposit $ in your account asking you for a return promise
Ex: I apply to your school and send a fee w/ my application this is the offer, when school deposits the fee this is a
promise to review my application

Manner of Acceptance
Common Law Rule: Single-minded offeror invites single manner of acceptance
When offer is ambiguous Presumption: offer must be accepted by promise
UCC/Rest. 2nd Rule: Ordinarily the offeror is indifferent as to the manner of acceptance and would allow any reasonable
manner
Reasonable manner timing of the requested act is important in determining reasonableness of mode of
acceptance
See Horton v. Daimler Chrysler Financial Services: unless otherwise indicated an offer may be
accepted in any manner reasonable under the circumstances, including an implied promise
(beginning performance) --- D sends offer to P offering to remove derogatory credit info if P made
pmts w/in a certain time period; P paid first check on time, but 2 nd check was late beginning of
performance creates a bi-K

Reasonable Manner Could Be:


1. Promise
2. Performance
3. Beginning of Performance (2-206(2)) results in bi-K where both parties are bound
a. Requires notice within a reasonable time
i. Reasonable diligence to give notice is a condition precedent (not part of
performance)
b. If notice is NOT received w/in a reasonable time; the offeror may:
i. Treat it as if the offer has lapsed before acceptance, or
ii. Waive the condition precedent
c. NOTE: offeree must use reasonable diligence in sending notice (does not need actual
receipt of notice)

What is reasonable?
If promptness is required promise or prompt performance will suffice
If offer asks for performance far into the future shows offeror probably wants acceptance by
promise

Reverse Unilateral Contract Trick


Common Law Seller sends buyer non-conforming goods
Performance does not match the offer so the seller is making a c/o and B can accept or reject the c/o
o If B accepts K is formed on Ss terms

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o If B rejects no K
o Seller never held to be in breach
UCC/Modern When seller ships the goods he is accepting the offer and a contract is formed so the shipment is both
View (2- an acceptance and a breach of the contract
206(2)) If the buyer accepts the goods liable for price BUT can sue for breach
If the buyer rejects the goods he is NOT liable for payment and can sue for breach
EXCEPTION: if S gives seasonable notice to B that non-conforming goods are going to be sent as an
accommodation = NO breach and the shipment becomes a counter-offer
o Normally the accommodation letter should arrive before the goods arrive
See Corinthian v. Lederle: A non-conforming shipment can come as an accommodation and be a c/o instead of
a BOK if it seasonably notifies the B that goods are sent as an accommodation to the B [D sends partial
shipment with an accommodation letter that comes at the same time]

Acceptance By Promise Only (Bilateral Contract)


Knowledge of Objective Theory of Contracts
the Offer See MCC Marble v. Ceraminca Nuova: A person who signs a contract will be bound by it even if he
did not read or understand it [P claimed not to be bound by K b/c he did not understand Italian,
BUT he signed it] this is because a reasonable person in the offerees position would rely on the
promise
Notice Rule: A promise must be communicated unless the offeror explicitly dispenses with the notice requirement
Ex: Seller uses salesman but reserves the right not to be bound until signed by the seller --- when
buyer signs this is an offer to the seller that invites acceptance by promise (sellers signature on the
agreement), but if the agreement dispenses with notice requirement then the contract is formed on
the sellers signing

Ways to Accept an Offer to a Bilateral Contract:


1. Express promise
2. Implied in fact promise
a. Beginning performance offeree expresses commitment through conduct to do entire work
i. In presence of the offeror (and has to indicate commitment)
ii. Depends on scope of the work If you promise to fix my engine I will pay $100
looking at the engine does not constitute an implied promise
3. Rest. 1st Exception If offeree fully performs in the time open for acceptance by promise and the
offeree gives notice in a reasonable time then there is a binding contract

Acceptance By Performance Only (Unilateral Contract)


Performance If an involuntary act:
must be a May be a condition precedent to offerors duty to perform
voluntary act o See Carlill v. CSB: using the ball was the voluntary act but getting the flu was a CP
Once performance is complete:
NO revocation, even if CP has not occurred yet [when no time stated for CP reasonable time]
See Carlill v. CSB: Full performance of conditions set out in an offer to a uni-K is acceptance of the
offer, which creates a binding K
Requirements 1. Knowledge of the Offer
a. Rest. 1st performance must begin with knowledge
b. Rest. 2nd performance ending with knowledge is sufficient
c. See Broadnax v. Ledbetter: A P who performs the service called for but does not know of
the offer does not accept the offer and his performance essentially becomes a gift [P
captured and returned prisoner and claimed reward although he did not know of offer for
reward at the time of capture] interpreting the word return is necessary look at
interpretation of the performance requested

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2. Intent to Accept the Offer
a. When performance is ambiguous with respect to intent:
i. Rest. 1st subjective intent of the performer must be introduced for intent
ii. Rest. 2nd analyze under objective test; presumption of intent but this is
rebuttable if facts against this are strong enough to rebut (Q of fact)
b. NOTE: If intent to accept offer arises midway through performance then follow the rules
for knowledge of the offer (intent to accept the reward does NOT have to be the sole reason
for performance)
Notice Traditional View: No notice required
Rest. 1st & 2nd: There are exceptional circumstances where notice is required
o Rest. 2nd if the offeree has reason to know that the offeror will not learn of performance
with reasonable promptness and certitude then notice is required
o When notice is required, the duty of the offeror is discharged unless:
Offeree exercises reasonable diligence to notify the offeror, OR
Reasonable diligence = timeliness, properly stamped + addressed
envelope
Offeror finds out about acceptance from offeree or someone else within a
reasonable time, OR
Offeror expressly or by implication indicates that notice is not necessary
NOTE: If notice is required, offeror can revoke the offer between the period of
performance and notice within a reasonable time BUT during this window of time,
both parties are bound ( 45)
When Offeror Requests Notice:
This creates 2 performances your performance is acceptance and giving notice is a condition
precedent
Beginning of Traditional View/NY View:
Performance Offer is revocable any time before full performance
to a Uni-K
See Petterson v. Pattberg: an offer to enter into a uni-K may be withdrawn before the act requested to be
done has been performed [mortgagee offers mortgagor $780 off balance if he pays by a certain date,
mortgagor goes to mortgagees house to pay and says I have come to pay off mortgage, then mortgagee
gives revocation]
Majority (NY View): Says mortgagees offer was revoked before acceptance b/c what is required is
tender of the payment before revocation (that would be full performance) did not occur b/c door
was closed
Judge Kellogg (Dicta): tender of payment would not be enough, the word pay means completed act
of payment
Dissent: technical tender is not needed you need offer to perform with present ability and
willingness to pay

Majority View (Rest. 1st & 2nd - 45)


Beginning of performance makes offer irrevocable
o Creates an option contract for offeree (offeree may or may not complete performance) ---
offeree may exercise an option contract
o Mere preparation is NOT enough to constitute beginning performance (ex. Completing bank
loan is mere preparation)
Offeror Breach when an offeror repudiates an option contract it is a breach, Recovery is
expectation recovery if offeree can show:
o (1) Offerors repudiation caused offerees non-performance
o (2) Offeree would have been ready, willing, and able to finish performance but for offerors
repudiation
o Recovery = unpaid portion of the price cost avoided by not finishing expectation
recovery

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See Brackenbury v. Hodgkin: Beginning of performance makes an offer irrevocable --- mother offered
daughter her farm upon her death if daughter moved there and cared for her for the rest of her life, daughter
moved there and began caring
This was an offer to a uni-K with 2 performances: (1) moving there done, and (2) care for my life
(they started caring) performance would actually only be complete once she dies so offer was
not accepted but the daughter begins to perform and that created an option-K
Offer to a This is different from a single contract with a series of performance (Q of interpretation)
Series of A single K with a series of performances is not revocable as to the future, an offer to a series of uni-
Unilateral Ks Ks is revocable as to the future
Ex: If you help Harry borrow money from time to time over the next year up to the total of $100,000 I will be
responsible for the debt
Each time you lend money you are accepting a unilateral contract
This offer is revocable after each uni-K as to the future uni-Ks
If notice is required notice of the first performance is all that would be required + GENERALLY
the offeror has a duty to inquire
o EXCEPTION: where this duty is unusually difficult then offeree has a duty to exercise
reasonable diligence to give notice
Ex: Hiring at will

Acceptance By Silence
General Rule: No promise by silence; exceptions:
1. Offeror NOTE: This does not mean that offeree is held to have accepted this (Protects subjective intent of
authorizes offeree)
acceptance by So
silence 1. If offer authorizes acceptance by silence AND
2. Offeree is silent intending to accept, then there is a contract
2. Parties agree to NOTE: Offerees intent to accept is not relevant if he remains silent
acceptance by
silence in advance Offeree explicitly makes his silence an acceptance If you dont hear from me by Tuesday, I
accept --- can create binding K
3. Silence is implied Three Requirements (when all 3 are met then Ds silence = promise to pay) - See Day v. Caton
promise to pay 1. D knows there is an expectation of compensation on part of P
reasonable value of a. Objective Test whether a reasonable person in the same situation would think
services compensation was expected
2. D takes (benefit) of Ps services
3. D has a reasonable opportunity to object

Remedy:
Results in a promise to pay reasonable value (quantum meruit = what services are worth)
This is similar to quasi-K (it would be unjust to allow D to keep benefits w/o paying the
reasonable value) and implied promise
In Day v. Caton a benefit was accepted so it was more like quasi-K
o But implied promise does NOT require a benefit
o Ex: Consultant rendered services for company, company had reason to know the
consultant expected compensation and the company had a reasonable opportunity to
object BUT company later said we received no benefits from these services court
says: you dont need to show a benefit if you knew the consultant expected payment
and you had a reasonable opportunity to object to the services = implied promise
o Is a person entitled to compensation for preliminary services? depends on trade
usage

Exception: See Wilhoite v. Beck & Miller


Generally: The presumption is that people render services with the expectation of

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compensation, BUT: this is reversed in the familial relationship (there is a presumption of
gratuity)
o Presumption of gratuity may be rebutted if express or implied intent can be shown
based on a finding of fact
o Familial relationship = blood, affinity (marriage), or by living together as a family
can be shown as a matter of degree
4. Catchall/Prior Rule: When there is a course of dealings it is reasonable for S to conclude that Bs silence is an
Dealings acceptance
See Hobbs v. Massasoit: where S sent B skins many times that were accepted with silence,
cannot be silent and reject; there were 2 ways to look at this case:
o B has made a standing offer for the skins previously (a series of offers) and then the
seller sending them is acceptance
o BUT if B has not made a standing offer when S sends them that is the offer + by B
holding on to them and being silent this is an acceptance due to prior dealings

Acceptance By Conduct
Seller Sends Unsolicited Merchandise to Buyer
Exercise of dominion over another persons property is viewed as acceptance OR you can view it as the tort of conversion
What is Exercise of Dominion:
exercise of A sends B a book with offer and B gives book to his wife as a gift
dominion? No Exercise of Dominion:
A sends B a book with an offer and B looks at book and then leaves it on the shelf for As messenger
Someone builds a house on your land and you use it
Common Law If buyer exercises dominion and control, see chart below
39 US Code General Rule:
Merchandise mailed in violation of the code can be treated as a gift by the recipient
Does not apply to everything (only unordered merchandise does not apply to checks)

Buyer Exercises Dominion Over Merchandise

Seller Can Treat Conduct As Acceptance and sue for Seller Can Sue For Tort of Conversion or Quasi Contract
contract price and the recovery will be the reasonable value of the
This is not a true acceptance but the law allows it to merchandise
be treated this way because the price is usually Viewing it as a rejection requires you to argue the
equivalent to the reasonable value reasonable value of the book
Rest. 2nd if price is manifestly unreasonable, then
exercise of dominion is treated as a rejection and the
seller is limited to the tort or quasi-K recovery of the
reasonable value of the item

Prescribed Medium of Acceptance and the Mail Box Rule; Mistake in Transmission

What is the Acceptable Medium of Acceptance?


Prescribed Step 1: Is a medium prescribed and designated as the exclusive medium?; Corbins 3 Ways:

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Medium 1. Requires ex: You can accept only be signing your name on the line provided below
2. Specifies (but not made exclusive) ex: Please reply by fax at once
3. Nothing specified

Courts are reluctant to interpret language as calling for a prescribed medium of acceptance (even if a
medium of acceptance is stated in the offer, the tendency is to hold that the offeror has merely
suggested, rather than prescribed)
If the offeree uses a different medium of acceptance it is considered a c/o

See Fujimoto v. Rio Grande Pickle: if the overt act is one that clearly expresses an intention to accept and it is
known by the offeror then there is an acceptance [D says prescribed medium said the contract had to be signed
and returned, Ps did not return the contract but they signed it and continued to work in the presence of the eer
court held this was an implied promise]
Not Common Law/Rest. 1st Authorized Medium
Prescribed If not authorized, the means of acceptance should be the same as or similar to the means of the offer
Medium Rest. 2nd Reasonable Medium
Any medium reasonable under the circumstances
Acceptance by mail is ordinarily reasonable when negotiating at a distance
Must be reasonable in reference to time

See Cantu v. Central Education Agency: acceptance by mail is impliedly authorized if reasonable under the
circumstances [P hand delivers a letter of resignation and D accepts by mail; P tries to deliver a revocation but
the acceptance had already been put in the mail]

When is Acceptance of a Revocable Offer Effective?


Parties are in Rule: Effective upon hearing
the presence of Exception: If offeror is at fault for not hearing AND offeree does not have reason to believe that
each other the offeror did not hear
*Also applies to telephone conversations
Parties at a Rule: Acceptance is effective, and therefore contract is formed, when sent (See Adams v. Linsell)
distance Protects against revocation
*Applies to email

NOTE: Irrevocable offers, revocation, and rejection are effective upon receipt

The Mailbox Rule


Generally Rule: Acceptance is effective when put out of possession of the offeree (ex. Into a public mailbox)
What is putting out of possession?
o Giving acceptance to a private messenger service is putting out of possession AS LONG AS
messenger service is reliable (ex. FedEx)
o An eer giving acceptance to an eee to deliver does NOT constitute putting out of possession
--- thus, acceptance will only be effective when received
NOTE: An offeror has the power to change the MB Rule ex: Your acceptance will be effective upon
receipt
Requirements 1. Parties are at a distance
2. Medium used is reliable
3. Medium must be authorized (common law) OR reasonable (Rest. 2nd) OR prescribed
4. Must use reasonable diligence (properly addressed and stamped)
Exceptions 1. Offer is irrevocable effective upon receipt
2. Offeree has reason to believe that offeror has not or will not hear of the acceptance ex:
offeree watches the MB blow up
3. Offer prescribes the exclusive place, time, or medium of acceptance no K is formed unless the
terms of K are followed

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Reasonable Rest. 1st Lack of reasonable diligence will lead to loss of the MB rule and acceptance will be effective
Diligence or when received
Proper
Medium NOT Rest. 2nd If acceptance was sent and received in a timely fashion then MBR will still apply (ex. School
Used forgets to put a stamp on the acceptance but the post office delivers it in a timely way anyways)

Waffling Offeree Offeree Sends BOTH Acceptance and Rejection


Rejection Sent MBR Does NOT Apply
THEN Acceptance Acceptance is effective when received
Sent Rejection received, acceptance received = NO K and acceptance is a c/o
Acceptance received, rejection received = K
Acceptance Sent MBR Applies
THEN Rejection Acceptance received, rejection received = K
Sent Rejection received, acceptance received = SPLIT
o Some Courts No K
o Rest. 2nd K
Otherwise the offeree could speculate at the offerors expense by seeing how
the market went
If the offeror is bound by the communication, so should the offeree
BUT if offeror relies on the rejection before receiving acceptance offeree
will be estopped from enforcing the agreement

Mistake In Transmission By An Intermediary


To The Detriment Majority View There is a K unless the offeree knew or had reason to know of the mistake
of the Offeror NOTE: This is not consistent with the basic principles of contract law. Ex: Sleepwalker in their
sleep makes an offer but he did not make an offer b/c he was not intentional or negligent.
Minority View No K, b/c the offeror is not at fault (was not even negligent)
The intermediary is an independent contractor and thus his fault should not be attributed to
the seller

Termination of a Revocable Offer

Termination Of The Power Of Acceptance


Rule: An offer creates the power of acceptance, but not forever (things can happen to terminate it)
Lapse of Time OR On the Rule: The power of acceptance lasts for the time stated OR if no time stated, for a reasonable
Occurrence of an Event time
If duration is explicitly stated this is the expiration time start measuring time on
the day after offer is received
If duration is NOT explicitly stated it is open for a reasonable time (Q for the jury)
o If offer is made during a conversation, the reasonable time to accept is
during the conversation (this is subject to a countervailing indication it
may be clear that negotiation is continuing i.e. I will let you know)
o Look at the purpose of the offeror in making the promise, whether the
transaction is speculative, etc.
Termination can also occur from the happening of an event
o Ex: Subject to prior sale power of acceptance is automatically
terminated on prior sale and this does NOT have to be communicated
Effect of a Late Acceptance:
1. Classical View late acceptance is a new offer that can be accepted only by a
communicated acceptance
2. Offeror may treat late acceptance as an acceptance by waiving the lateness (Rest.

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2nd reject this and says its untenable)
a. (1) and (2) can be used when a time is stated and you are late
3. If acceptance is late but sent in what could plausibly be argued to be a reasonable
time, original offeror has burden to reply within a reasonable time
a. No reply = K
4. Rest. 2nd ONLY if no time is stated:
a. Failure of original offeror to object to an acceptance and his subsequent
preparation for performance may be evidence at trial that the acceptance as
made within a reasonable time (used to determine the Q of reasonable
time)
Supervening Death OR Lack OF OFFEROR
of Capacity of Offeror or
Offeree Death
Majority view death of the offeror terminates the power of acceptance
automatically
o This rule is based on the subjective theory of Ks and that two minds must
meet to form a contract (so if one mind has died, the 2 minds cant meet ---
this rule is not in the offerors power to change) - Swift
Minority/Corbin view power of acceptance is terminated only if the offeree
knew or should have known of the death
Unilateral K terminates the offer UNLESS offer has become irrevocable

Incapacity
Majority view
o Adjudication of Incapacity (total incapacity) automatically terminates
the power of acceptance
o No Adjudication (mere incapacity ex. Totally drunk) terminates the
offer only when offeree knows or has reason to know of the incapacity
Minority view
o With or without adjudication lack of capacity terminates the power of
acceptance only if the offeree knows or has reason to know of the
incapacity
Follows the objective theory of Ks and protects the reasonable
expectations of the parties
Reasoning: it is easier for the guardian to have notified the offeree
rather than forcing him to investigate
See Swift & Co. v. Smigel Smigel has continuing guarantee for
credit to pay for goods but is adjudicated incompetent; Swift
continues to deliver goods in a series of unilateral contracts

OF OFFEREE
ONLY an offeree can accept an offer so his death/incapacity will terminate it
Supervening Terminated under the impossibility of contract doctrine impossibility of performance
Death/Destruction of before or after acceptance
Person/Thing Essential to Supervening if: at the time the offer was made it was legal and then it became illegal
Performance and Illegality
Revocation Generally:
A manifestation by the offeror of intent not to enter into proposed K
Effective upon receipt, must be communicated
Eliminating expression of commitment is enough for revocation
Equal Publicity Doctrine:
Must use same means for revocation as was used when offer was presented
Must use the best method reasonably available under the circumstances, to give the
best notice available under the circumstances

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If identity of some offerees is known, the rule does not apply you must personally
inform them
Indirect Revocation:
Buyer cannot accept when he learns of acceptance by another as long as the
information is true and comes from a reliable source
Rest. 1st limited to sales of RP
Rest. 2nd includes all sales
Rejection / C/O Rule: Rejection by offeree terminates the power of acceptance UNLESS there is a
countervailing indication
Effective Upon Receipt

Similar to C/Os But Are NOT Rejections:


1. Counter inquiry
2. Comment on terms
3. Request for modification of an offer
4. Request for modification of the K
5. Grumbling Assent
6. Acceptance + separate offer
7. Future acceptance

Counter-Offers and UCC 2-207

Rejection / Counter-Offers Common Law


Mirror Image Rule: A purported acceptance that adds qualifications or conditions operates as a c/o and therefore is
Rule NOT an acceptance (I accept if)
See Ardente v. Horan: To be effective, an acceptance must be definite and unequivocal, and it
may not impose additional conditions on the offer, nor may it add limitations [P sent deposit and
signed purchase + sale agreement for RP with a letter adding additional items I accept if you
include...]

Last Shot Principle the last set of terms placed on the table prior to purchasers acceptance (by
exercise of dominion over goods) governs the terms of the K

Acceptance Varying From Offer UCC 2-207


Generally only Applies to sale of goods cases with additional or different terms in the acceptance than in the offer
applies when UCC is trying to be more in tune with commercial practices / reasonable expectations
acceptance is Changes the Mirror Image Rule and Last Shot Principle
written (offer
could be oral or In General This is a 2-Step Test:
not) 1. Is there a definite and seasonable expression of acceptance?
a. If NO no K
b. If YES go to Q #2
2. Is the acceptance expressly made conditional on assent to additional or different terms?
a. If YES offeree proposes c/o, which offeror may accept (no K unless offeror accepts c/o)
i. BUT, may have conduct on both sides recognizing K (2-207(3))
b. If NO there is a K with acceptance under 2-207(1)
i. Then go to 2-207(2) to see if additional/different terms become part of K
Subsection 1 1. Does the alleged acceptance amount to a definite and seasonable expression of acceptance?
Does Definite does NOT diverge significantly from dickered terms (description of the goods, price,
Communication quantity, and delivery terms) ex: I will buy for $5,000. I accept and price is $10,000

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of Parties o Three Views:
Warrant a K? (1) Wooden Test as long as it says I accept then its okay
(2) A significant divergence as to a dickered term = no definite expression
of acceptance
(3) Reasonable commercial understanding test looks at what a reasonable
commercial offeror would conclude
Seasonable acceptance in a timely fashion
IF YES go to Q #2
IF NO No subsection (1) K, but maybe a K under subsection (3)
2. Is acceptance expressly made conditional on assent to the additional or different terms?
Clear language is needed to show it is expressly made conditional i.e. This acceptance is
expressly made conditional on assent to the new terms created herein; BUT NOT We accept if
you agree to
IF NO K exists, go to subsection (2)
IF YES c/o, maybe a K under subsection (3)
See Dorton v. Collins: where a contract says subject to but does not expressly state that the
offeror must assent then the contract is NOT expressly made conditional on assent
Subsection 2 1. Additional Terms
What Are the Non-Merchants construe additional term as proposals for addition to K
Terms of the K o Needs active acceptance
Formed? o Silence does NOT normally act as acceptance
Merchants additional terms become part of the contract UNLESS:
o (a) The offeror expressly limits acceptance to the terms of the offer; OR
o (b) The additional terms materially alter contract (Note: arbitration clause Maj View:
material alteration, Modern View: disputed it is a question of fact); OR
o (c) Notification of objection to them has already been given OR is given within a
reasonable time after notice of them is received
How a Buyer/Offeror can ensure no new terms:
o The terms of this K cannot be modified, unless signed by us
o We hereby object to any additional or different terms
2. Different Terms
One that contradicts a term of the offer (ex. Litigation in NY Court v. Arbitration)
Three Views:
o (1) Proposals to modify K different terms can never become part of K
o (2) Apply subsection (2) treat different terms as additional terms and look at material
alterations (benefit: do not have to decide whether your terms is additional or different)
o (3) Majority/Knock-Out Rule different terms cancel each other out. The cancelled
term is replaced by a gap-filler that is available under the UCC.
Ex: Litigate vs. Arbitrate would cancel each other out and be filled in w/
litigation
Subsection 3 Although communications of the parties did NOT warrant a K, conduct might
Do Parties IF NO No K
Conduct Form a IF YES K exists.
K? What are the TERMS of K?
The terms that are a mirror-image of one another. Conflicting + additional terms are knocked out
and replaced by UCC gap-fillers.
o Consequential damages, implied warranty, litigation, etc.
See Diamond Fruit Growers v. Krack: specific and unequivocal expression of assent is required on the part
of the offeror when the offeree conditions its acceptance on assent to additional or different terms [Metal-
Matics acceptance of Kracks orders for cooling units were made conditional to Kracks acceptance of
additional terms] so a K existed but according to 2-207(3) because parties performed, even though Krack
never assented to additional terms K was limited to any agreed upon terms + any gap-fillers
Confirmations An agreement is reached either orally or by informal correspondence and memoranda is sent
where additional terms are introduced

15
IF there are additional/different terms in the confirmation refer to 2-207(2) to determine if the
terms will apply to the contract

CISG Article 19: Dealing with whether a purported acceptance is an acceptance (NOT dealing with confirmations)
Convention on the International Sale of Goods have rules that govern the sale of goods between businesses (ex.
American company buying tiles from Italian tile-maker)
Used by 78 Countries
Governs international law in NY but you can opt out of it (sometimes NY opts out and uses UCC)

Subsection (1) Mirror Image Rule


Subsection (2) Exception to Mirror Image Rule an immaterial alteration in a purported acceptance w/o rejection becomes
part of K with term becoming part of it, but if there is an immaterial term w/ a rejection there is no acceptance of the entire K
at all
This is different from the UCC b/c denying the term does not mean no acceptance at all in UCC, just the term drops out
Subsection (3) Also includes: extent of one partys liability to another, settlement of dispute --- CISG says these are
material/dickered terms where UCC might NOT consider them dickered terms

Terms In The Box Two Views


Rolling Contract S is the offeror (opposite of normal)
Analysis Requires acceptance by use
Easterbrook If B does NOT return the items w/in specified time, there is a K from Ss terms in the box Rule: A
Buyer accepts goods when, after an opportunity to inspect, he fails to make effective rejection (2-
206)

Rolling Contract Theory transactions in which the excange of money precedes the communication of
detailed terms are common (ex. Insurance, airline tix) and thus, having a person sign a promise before
paying for them would be burdensome and raise prices

See ProCD v. Zeidenberg: A computer software purchaser must obey the terms of a shrinkwrap license, if
they choose not to return the item (unless their terms are objectionable on grounds applicable to
contracts in general) --- Zeidenberg buys consumer product at store, sells at a profit on the web to
commercial users for less than the manufacturer; disregards terms in the box and on software not to do so

See also Hill v. Gateway 2000: B orders computer from S on phone and pays with CC, box arrives w/ the
product and comes with terms that says they will govern unless B returns product w/in 30 days, B keeps
computer for longer than 30 days and then tried to bring suit in federal court says terms in the box
apply
Apply 2-207 B is the offeror
Look to 2-207(2) to decide whether additional terms will become part of contract

See Klocek v. Gateway: (Same facts as Hill except B has 5 days to return product)
Phone order for computer = offer
Seller taking order + shipping product = acceptance (2-206)
Additional terms (terms in the box) are proposals for the contract + not part of contract because
not agreed to (because this is an agreement with a non-merchant under 2-207)
If B sends c/o (rejection of terms) but keeps the product:
o Exercise of dominion S could sue for tort or BOK [no 2-207(3) b/c S does nothing to
imply that he accepts Bs terms]

E-Commerce
Rule: Reasonably conspicuous notice of existence of contract terms and unambiguous manifestation of assent to those
terms by consumers are essential to create a binding contract
o Ask: Whether consumers should have reasonably known that terms existed

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See Specht v. Netscape Communications: P downloaded SmartDownload, in order to see the terms of the license you
had to scroll down the page, P was not prompted to click I accept anywhere, P is not bound by the terms of the
license
o Not technically a clickwrap case (=agree by clicking), it is closer to a browsewrap case
The UCITA was a statute adopted to deal with software Ks (because they are not covered by the UCC), but only 2
states enacted it so look at the choice of law in these contracts (MD and VA)

Option Contracts

Option Contracts = Irrevocable Offer


Acceptance is operative upon receipt (MB Rule does not apply)
You can buy a Right of First Refusal if the landlord wants to sell and has found a willing buyer that will agree to the
terms then the landlord will give the tenant the terms of the proposed sale and if the person with the right of first
refusal decides to match these terms then the willing buyer is out of luck
Acceptance After Period of Irrevocability: Offer can still be accepted until the offer expires or has been revoked by
the offeror
o See Beall v. Beall: option contract to buy property, but option extended for additional years w/o additional
consideration offer exists here, but is not irrevocable because there is no consideration for it

Ways to Make an Offer Irrevocable (Ways to Make an Option Contract)


Consideration Rule: The payment of consideration makes offer irrevocable on stated terms because it is a bargained for
and GIVEN exchange
Statute UCC 2-205 Firm Offer (Sale of Goods ONLY)
Offer is irrevocable without consideration IF:
o The offer is made by a merchant to buy or sell goods
o In a signed writing
o Terms give assurance that the offer will be held open clear language that irrevocability is
intended
o Offer is irrevocable for the time stated and if there is none then for a reasonable time (not to
exceed 3 months --- if it does exceed 3 months it becomes a revocable offer after those 3
months)
NOTE: If there is consideration the time limit does not matter because it is not
governed by the statute
o IF offeree adds provisions there is a separate signing requirement for the offeror

NYGOL (NY General Obligations Law)


Applies when NY Law governs
Offer states it is irrevocable (some cases dont require it to say its irrevocable)
Applies in all cases except when there is an offer by a merchant to buy or sell goods
Requires: signed writing that states that the offer will be held open (does not need to explicitly say
firm offer or irrevocable)
No separate signing requirement like in the UCC
Offer to a Rule: Beginning of performance creates an irrevocable offer ( 45)
Unilateral
Contract
Rest. 2nd Purported Consideration can validate an option IF:
Signed writing,
Recites a purported consideration, and
Proposes a fair exchange w/in a reasonable time
Promissory Comes into play if there is reliance on the offer
Estoppel (See Below)

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Termination of Irrevocable Offers
Power of Acceptance IS Lapse of Time
Terminated By Death or destruction of a person or thing essential for performance of the
offered contract theory of impossibility of performance
o Paying money is a delegable performance, so on death of the offeror the
estate could pay
Supervening illegality theory of impossibility of performance
Power of Acceptance IS NOT Revocation
Terminated By Death or supervening incapacity of the offeror (unless it makes impossibility of
performance)
Rejection split in authorities
o Earlier view rejection terminated irrevocable offer
o Modern view not terminated because (usually) the offeree has paid a
consideration for irrevocability and contract rights are not generally
lost by the rejection of a tendered performance
o Counteroffer does NOT normally operate as a rejection where the
offer is irrevocable BUT a purported acceptance that varies the terms
of the offer is NOT a valid acceptance

Consideration Unilateral Contracts


Ask: Is there consideration for the offerors promise?

Requirements of Valid Consideration


Promisee Suffers Definition:
Legal Detriment Promisee has to do or promise to do something they are not legally obligated to do or refreain
from doing something they are legally privileged to do
Needs either detriment to promisee OR benefit to promisor
NOTE:
The detriment may be given by a person other than the promisee and may run to a person other
than the promisor it does not matter from whom or to whom the consideration moves so long
as it is bargained for and given in exchange for the promise

See Hamer v. Sidway: Consideration means not so much that one party is profiting as that the other
abandons some legal right in the present, or limits his legal freedom of action in the future, as an
induvement for the promise of the first [Uncle promised to pay $5,000 to nephew, if he refrained from
drinking, gambling smoking, and swearing until age 21]
Promisor Rule: Promisor must have made the promise because he wishes to exchange it, at least in part, for the
Bargains For detriment to be incurred by the promisee
Detriment Ask: Does the offeror have an offering state of mind or a gift-making state of mind?
Offeree Gives Rule: Offeree must know of the offered promise and manifest an intent to accept
Detriment in
Exchange For
Promise

Promises that are NOT Bargained For


Gratuitous Rule: Donative promises lack consideration and are NOT legally binding under contract law
Promises BUT a gratuitous promisor is NOT entitled to restitution after performing

See Kim v. Son: A mere promise to give a gift is not consideration; you need a bargained-for exchange
(and motive for donative promise is not consideration)

See also Kirskey v. Kirksey: a promise to give a gift is not a bargained-for exchange and thus is not

18
consideration [promise made to give widow a place to stay and raise her family if she moved there]
Rule: A conditional promise to make a gift is unenforceable
Past Consideration Rule: Past consideration is NOT consideration because the promisor cannot seek to induce an action
that has already occurred
EXCEPTION: NY Statute past consideration is consideration if in a signed writing and the
writing expresses the past consideration

Unilateral Contracts and Consideration


Adequacy of the Legal detriment does NOT need to be a certain size to constitute detriment
Detriment Impacts bargained for analysis BUT size (if very small) can help determine
whether something was actually bargained for
Only one consideration has to be valid

See Gottlieb v. Tropicana: market equivalence between the consideration and the promise is not
required [P wins $1 million after a free spin on the Million Dollar Wheel; she received free spin
for joining Diamond Club at casino]
Mixture of Gift and Rule: Not all consideration has to be valid --- detriment to be suffered by the promisee needs not
Bargain to be the sole or even the predominant inducement, but it must be enough of an inducement so
that it is in fact bargained for
Rest. 2nd if promisee does not have reason to know that promisor is introducing
detriment into transaction as a pretense, then promise should be enforced under the
objective theory; BUT if it is clear that the consideration is merely pretense, the promise
will not be enforced
Ex: Father promises to give daughter RP, he promises to pay off the mortgage, brother
gives daughter $1 and she gives it to the father court holds this is a pretense and
everyone knows this so this is not consideration
o Father will NOT be bound you cannot bind yourself to make a gift in the future
by a pretensive consideration because consideration must be a bargain
Purported Consideration Sham Recitals of Consideration when the purported consideration is not actually given over,
but is said to be given over, VIEWS:
Majority View It may be shown that the consideration has not been paid and there is
no other consideration given so there is no contract
Minority View Limited to options + guarantees - Parties are estopped from
contradicting the writing or the recital of consideration gives rise to an implied
promise to pay (treat pretend exchange as real)
Rest. 2nd Allowed in the case of option contracts and credit guarantees
o Says these are enforceable transactions even without an exchange if you have
(1) a signed writing, (2) with a recital of consideration, and (3) proposes an
exchange in fair terms within a reasonable time

Nominal Consideration When parties learn a promise is unenforceable and attempt to make
it enforceable with a form of a bargain (i.e. Token payment)
Maj/Rest. 2nd agreement is not enforced because it is a formality and not a genuine
bargained-for exchange
Min/Rest. 1st recital of token payment objectively manifests a bargained-for
exchange

Ex: Is a guarantor bound by a guarantee promise where the only possible consideration is $1?
If $1 is paid is it bargained for? If yes consideration
Is the $1 just a pretense?
o Majority View:
If $1 was paid but not bargained for = nominal consideration
If $1 was not paid = sham consideration

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o Minority View (limited to options + guarantees)
If $1 was paid = would assume it was bargained for
If $1 was not paid = would bring inference that it was meant to be paid
o Rest. 2nd options and guarantees dont require consideration when you have a
recital of consideration + a signed writing for a reasonable exchange w/in a
reasonable time (but it would still not approve of past consideration)
Invalid Claims Rule: A surrender of a valid claim is detrimental if bargained-for and is consideration
Views on Invalid Claims:
Early View surrender of an invalid claim is not detriment because a person has no
right to assert an unfounded claim
Modern View/Rest. 1st surrender of an invalid claim is consideration if the claimant
has asserted it in GF and a reasonable person could believe that the claim is well-
founded
Rest. 2nd claim is sufficient for legal detriment if either good faith or objective
uncertainty as to the validity of the claim

See Fiege v. Boehm: Rest 1st forbearance of an invalid claim may be legal detriment if the claim
is reasonable and asserted in good faith [man agreed to pay $ to support her child if she
forbeared from instituting bastardy proceedings; he stops paying when he finds out it is
impossible that he could be the father; woman brings suit for BOK]
Promise to Alternative Rule: If a party to a bilateral agreement makes a promise of alternative performances, each
Performances performance must be detrimental

Pre-Existing Duty Rule

Pre-Existing Duty Rule Where a person performs or promises to perform a legal obligation, or promises to refrain from
doing what that person is not legally privileged to do, the person has not incurred legal detriment and there is no
consideration
Ex: Reward offer for person who captures robber police officer catches robber in police offers jurisdiction while on
duty he cannot collect reward because there is no legal detriment b/c this was a pre-exiting duty
Forbearing from breaching a K is not a legal detriment because you have a legal duty not to breach
Policy: preventing coerced modifications / one-sidedness

Modification of Contracts and Pre-Existing Duty Rule


Modification of K Applies to Bilateral Contracts
Modification is generally unenforceable from lack of consideration
Ex: Eee doing same duties for higher pay
Views of Majority/NY View:
Modification o Rule: Modifications require all the elements of an initial contract, including
consideration
o Over-inclusive defeats reasonable expectations of parties; a promise to pay more $ is
void
o Under-inclusive if B is coerced into paying more $ and also pays it, he cannot get it
back b/c it is a completed gift that cannot be forced back through restitution
o Minority Rule W/in Majority Rule: Suspend pre-existing duty rule for K modifications
hwen the modification is made due to unforeseen difficulties
Minority View:
Some states have found a way around this rule
Rest. 2nd:
Rule: A promise to modify under a contract (1) not fully performed on either side is binding if
(2) the parties voluntarily agree, (3) the modification is fair and equitable in view of (4) the
circumstances not anticipated when the contract was made

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o Fair + equitable depends on many factors
See Angel v. Murray: Maher, a garbage collector, asked for an increase in payments from town for years 4
+ 5 of contract b/c there was an unanticipated increase in residents by 400, payments were agreed to
and paid over
This expands the minority rule w/in majority rule b/c unanticipated circumstances is easier to
meet than unforeseen difficulties
Rescission Rule: To achieve a modification in a contract you should rescind the first contract and enter into a new
contract (rescission is a contract in itself)

Rule: Rescission has to be expressed through words or conduct (it cannot be implied by the
modification)

Three Step Process


1. Initial K
2. Rescission of K
3. New K
Note: Some courts allows the K of recessions and the new contract to occur at the same time but the
general rule is that there has to be time in between
See Schwartzreich v. Bauman-Basch, Inc: Held that the rescission and creation of a new contract
could occur at the same time because it was the expressed and acted upon intention of the
parties (parties first agree to pay eee $90/wk and then increase to $100/wk, parties tore up old
K and signed new one)

Pre-Existing Duty and Third Parties


A and B have a bilateral contract, C comes in and make an offer to A in return for performance of the same duty A already
owes B
Common Law/ Rule: An agreement to perform a pre-existing duty to a third party is void (so A loses the case to
Traditional/ Classic C)
View So: Because the offeree was under a pre-existing duty to the third party, her act was not
legal detriment
Rest. 2nd (Rest. 1st in Rule: The pre-existing duty rule does not apply unless you owe a duty to the promisor or you
accord) Modern Rule have a public duty (in this case A did not have a pre-existing duty to C and did not have a public
duty so this would be okay)

Discharge of Obligation Liquidated Claims


Rule: Part payment by a debtor of an amount here and now undisputedly due is not consideration to support a promise by the
creditor to discharge the entire amount due (pre-existing duty rule)
Views Majority View:
Cannot discharge obligation to pay interest even if bargained for upon payment applies to liquidated
claims only (rule of Foakes v. Beer)
o Liquidated claims = claims that are undisputed as to their existence and amount
Release must also have consideration
Minority View:
Part payment of a debt, accepted in full payment, discharges liability for the balance (See Frye v. Hubbell)
Rest. 2nd:
If unforeseen hardships make full payment more burdensome than anticipated, acceptance of part payment
will discharge the balance (ex. Economic hardship)
UCC 2-209:
An agreement modifying a contract within this Article does not need consideration to be binding, but
requires writing when:
o (1) The writing is within the Statute of Frauds
o (2) When the original contract excludes modification or rescission by mutual consent except by a
signed writing or other record

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Ways to Create Consideration:
Part payment prior to due date
Part payment made at a place other than in the agreement
Part payment paid by a 3rd party
Debtor gives security in addition to part payment
Refrains from bankruptcy or insolvency proceedings which should would otherwise employ
Arranges a composition agreement, in which several creditors agree to take less than the full amount due to
them

Examples:
B promises to pay $10,000 for As work
o If B pays $500 extra completed gift
o BUT, if A agrees to take $9,000 and B promises to pay $9,000:
There is no consideration to take $9,000 instead of $10,000
A has not given $1,000 as a gift because there is no delivery and nothing tangible
SO this is an executory promise to discharge the $1,000 obligation of B without
consideration so A can sue B for the $1,000
Rule: You need consideration for a release under CL (release falls under the category of
discharge of the obligation)
Eee agrees with other key personnel to take less $ from eer during financial difficulties
o Although there is no technical consideration for eees promise to take less, here the other workers
are also making the sacrifice so consideration is supplied by all the other eees

Accord and Satisfaction


Generally This is a defense
Accord = agreement to take less in satisfaction of the whole
Rule: An offer of accord must make it clear that the offeror is seeking complete discharge;
the burden is on the party alleging an a + s to show that there was indeed a meeting of the
minds (See Kiber v. Frank L. Garrett & Sons, Inc. D send P $444 for his work, which P
deposited, check included payment in full in tiny letters that were illegible)
The language on the check must be conspicuous a form check does not work, illegible
writing does not work
Satisfaction = performance on both sides
Liquidated = here + now undisputedly due
Unliquidated = if there is any dispute as to liability or the amount due / method of payment (this
holds true even if the partys assertion is incorrect as long as it is made in GF and is reasonably
asserted)
Fact Patterns Asks 3 Questions:
1. Have the parties gone through a process of offer + acceptance (accord)?
a. A + s cannot be used for a liquidated claim
2. Has the accord been carried out (satisfaction)?
3. Is the offer and acceptance supported by consideration? If yes there is a binding a + s
1. Liquidated D owes C $100
Undisputed Debt D sends C $50 check marked pmt in full (offer of accord + performance of D)
C cashes check (acceptance of offer of accord + performance of C)
C sues for $50 balance
There is NO accord + satisfaction here because there is no consideration to discharge the
balance SO defense of a + s will fail
2. Good Faith Dispute C claims D owes him $100
(Unliquidated Claim) D claims he owes C $50
D pays more than D sends $75 check marked payment in full
he thinks he owes C cashes check
C sues for $25 balance

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Here, the defense of accord + satisfaction works because there is consideration D gives up
GF claim that he owes less
3. Good Faith Dispute Same facts as (2), except D sends $50 check marked payment in full
(Unliquidated Claim) C cashes check
D pays what he C sues D for $50 balance; D asserts a + s defense
thinks he owes Do you have consideration? no, not actually
o Majority View consideration is good, there is a strong policy favoring an easy way
to settle disputes (informal settlement procedure)
o Argument to the Contrary payment of what is admittedly due is not discharge
4. Executory Accord C and D agree to settle dispute by executory agreement for $75 (executory accord)
D sends $75
C cashes check
Accord takes place before sending check
Here, sending check and cashing are performance only (satisfaction)
5. Agent Collects $ Lawyer collects $
For Principal Lawyer sends $ minus 10% to client marked payment in full
Client cashes check
Client sues lawyer for 10%
Majority View No valid a + s because this is the clients money, not the lawyers money
(remember dominion cases if property is owned by someone else you dont have rights
over it)
6. Separating Good Tenant and landlord have agreement that tenant can terminate lease early for $380,000
Faith Dispute Out of Tenant sends check for $380,000 marked payment in full
K Landlord cashes check
Landlord says tenant owes money to restore premises GF dispute over this
Landlord is not precluded from going after tenant to restore the premises
Retention of Check Rule: Retention of a check for an unreasonable amount of time is acceptance
Protesting Where the creditor cashes the check under protest
Common Law
Protesting makes no difference
UCC 1-207
Protesting makes no difference in a + s
NY 1-207 --- only in NY is this okay
Cashing a check under protest allows creditor to reserve their rights to sue (because not
cashing is commercial torture)
Requires explicit language of reservation
Needs a nexus between transaction and UCC 1-207 --- Art. 3 covers check so there probably
is enough of a nexus but probably not enough of one for a real estate transaction

Statutory Changes Is Consideration Needed?


Penn Only Written Obligations Act if you make a promise in a signed writing and express intent to be bound this is binding
Under CL all of the following below need consideration
UCC 2-209 NYGOL
Modifications Of No but GF is required Enforceable signed writing w/o true consideration (5-
Contracts 1103)
Discharge --------- Enforceable signed writing w/o true consideration (5-
1103)
Release No but has to be in signed writing Enforceable signed writing w/o true consideration (15-
303)
Firm Offer No but has to be in signed writing Enforceable signed writing w/o true consideration (5-
1109)
Past Consideration --------- Enforceable signed writing w/o true consideration (5-

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1105)
Reward --------- Enforceable signed writing w/o true consideration (5-
1113)

No Oral Modification Clauses


Common Law Rule: A no oral modification clause is unenforceable a written contract can be modified orally

Rest. 2nd A clause providing that no modification can be made will not be enforced
UCC 2-209 Rule: A no oral modification clause is enforceable
This rule also refers to modification by conduct
If the contract is between a merchant and a non-merchant, a term on the merchants form
requiring a modification or rescission to be in a signed record must be separately signed by the
non-merchant, or else the clause is ineffective
An ineffective modification can operate as a waiver; a waiver can be retracted if it was not relied
on
o A waiver is retractable as to the future if notice is given within a reasonable time unless it
would be unjust to retract (unjust = a party relied on it)

Consideration in Bilateral Contracts


Mutuality of Concept: In a bilateral contract, promises are consideration for each other
Consideration Affirmative Proposition (Majority View): A promise is consideration for a return promise if the
promised performance would be consideration
Ex: A promises to pay B $100 if B promises to walk across Brooklyn Bridge. Bs promise to walk is
consideration for As promise promise does not cause legal detriment but it is held to be
consideration as a societal custom (Corbin)
Negative Proposition: A promise is NOT consideration for a return promise if the promised performance
would not be consideration

Issue in Bilateral Contracts: Mutuality of consideration (do not need mutuality of obligation but
sometimes referred to as the same thing)
Rest. 2nd abandons the idea that to have a valid bilateral contract both sides must provide
consideration; a non-binding promise is consideration if its performance would be detrimental

Unilateral Contract Mutuality of consideration is not required because there is only one promise
Illusory Defn: An expression cloaked in promissory terms that shows that the promisor is not committed to any
Promises act or forbearance (ex. Creditor promises to forbear until he wants his money; I will pay if I want to)
A promise must be real:
I will pay if I want to illusory promise, cannot be enforced because it does not provide
consideration for a return promise
Pre-existing duty does not provide consideration but this can be enforced!
I will pay There is consideration, this is enforceable

See Ridge Runner Forestry v. Veneman: A valid contract cannot be based on the illusory promise of one
party, much less illusory promises of both parties [Forestry says I will hire you if I want to and Fire Co.
says I will provide services if I want to]

See Texas Gas Utilities Co. v. Barrett: As long as there is some obligation that is not a mirage, then the
promise is not illusory [company had obligation to furnish natural gas but did not have to deliver under
certain circumstances] they are still bound to supply available natural gas, obligation does not need to
be the same.
Implied Implied promise when the conduct of the parties reasonably indicates that a promise has been made
Promise Constructive promise arises by construction of law only when justice requires it

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Exclusive Dealings Contract
Court will find an implied promise to use reasonable efforts to bring in profits and thus the
contract will not be void for lack of consideration
See Wood v Lucy: A promise to pay profits and revenues resulting from an exclusive agency is a
promise to use reasonable efforts to bring profits and revenues into existence [Lucy gives Wood
exclusive right to market her designs, and Wood promises to pay profits from $ he collects]
o Implied promise to use reasonable efforts keeps promise from being illusory
Codified under UCC 2-306(2): A lawful agreement by either the S or B for exclusive dealing in the
kind of goods concerned imposes (unless otherwise agreed) an obligation by the S to use best
efforts to supply the goods and by the B to use best efforts to promote their sale
o Default rule (only applies if parties have not agreed to the contrary)
o Exclusive dealings in goods
o Best efforts unless otherwise agreed (rule in Wood v Lucy was reasonable efforts but
case law sees no difference)
o Best efforts can be disclaimed BUT you always have obligation of good faith
Obtaining Financing
Where sale is contingent on obtaining financing, court found an implied promise to use
reasonable efforts to obtain it, and discretion must be exercised in a reasonable manner based on
good faith and fair play
See Massanotte v. Freeland a conditional promise is not illusory if it accompanied by an implied
promise of GF and reasonable effort (the implied promise is sufficient consideration)
Note: If condition is outside the control of the promisor it is NOT illusory
Conditioned on See Massanotte v. Freeland: discretion must be exercised in a reasonable manner based upon GF and fair
Satisfaction play
Termination Common Law
Provisions Rule: A contract is not binding if it can be terminated at the will of one of the parties to it at any
time (see Miami Coke v. Orange Crush MC had right to terminate K w/ OC at any time)
But if there was a notice provision this would not be illusory

UCC
2-309(2): Where a contract provides for successive performances is indefinite in duration it is
valid for a reasonable time but unless otherwise agreed may be terminated at any time by
either party
2-309(3): Termination of a contract by one party except on the happening of an agreed event
required reasonable notification
If notice is not mentioned in the contact gap-filler of reasonable notice is supplied
What is reasonable notice?
o Could be reasonable time to seek substitute arrangement
o Reliance amount of time to recoup investment
o Notice period cannot be unconscionable if it is, notice would be stricken and
reasonable notice inserted
Damages would be just for the period of notice
Requirements Common Law: Saw requirements and output contracts as valid, they were not too indefinite. There is
and Output Ks consideration because S/B promises not to buy/sell to/from anyone else, thus it is not illusory.

Requirements Contract: B expressly agrees to buy all of Bs requirements of a stated good from S who
agrees to sell that amount to B (flexibility on Bs side)
Buyer promises to buy what they need
Buyer must buy from seller when they need the product
NO promise to need any or to use reasonable efforts to need it
Over-demanding Buyer (HIGH demands), How much can B demand?
UCC 2-306(1) Maximum could be explicit, but if no max is set, seller is only bound to comply w/
a request that is:
o Made in good faith B must actually need the product - subjective (if the buyer is a

25
merchant this includes the reasonable commercial standards of fair dealing so
subjective and objective)
o Not unreasonably disproportionate to:
Stated Estimate OR
Prior requirements (sudden unexpected increases are NOT okay)
Under-demanding Buyer (LOW demands), Can B reduce their demand?
The only requirement for reducing quantity is good faith
See Wiseco v. Johnson Controls: in a requirements K the B is under the GF requirement when
deciding to stop purchasing goods

Output Contract: S agrees to sell all of its output of a certain item to B and B agrees to buy that output
from S (flexibility on Ss side)

Note: A requirements contract under 2-306(1) only requires good faith when they need 0. BUT in an
exclusive dealings contract, 2-306(2) requires best efforts as a default. Both parties have a best efforts
obligation. BUT NOT EVERY REQUIREMENTS CONTRACT IS AN EXCLUSIVE DEALINGS CONTRACT.
If requirements contract is also an exclusive dealings contract buyer is entitled to reduce
quantity to zero, but only if he can shoe he used best efforts to promote the product. Under 2-
306(1) the seller is obligated to fill buyers demands (not use best efforts to do so).
Forging a Good Many of the above result in a VOID BI-K Courts may do the following to preserve the K
Uni-K Out of a If A promises to do X if C promises to do Y
Bad Bi-K But there is no consideration for the promise (so it is a bad bi-K)
After one side fully performs can consider it an enforceable unilateral K where the
performance was consideration for the other partys promise
Turn Single Bi-K Into a Series of Unilateral Ks
Ex: At-Will Ement the agreement, since terminable at any moment, is illusory
o BUT if you work for a week, you are entitled to the pay for the week Uni-K w/
performance
o See Summits 7 v. Kelly: Continued ement alone is sufficient consideration to support a
covenant not to compete entered into during an at-will ement relationship [eee
promises not to compete at the end of her ement] court held that legitimate
consideration exists as long as the eer does not act in BF by terminating the eee shortly
after eee signs the covenant
Note: non-compete agreements must be reasonable in duration, scope, and
geographic location
Note: You cannot forge a good uni-K out of a bad uni-K (ex. B promises to pay a fair share of the profits if A
works for a year this is void for indefiniteness so we cannot forge a good uni-K)

Promissory Estoppel
Generally Came from equitable estoppel (requires a representation of fact which is false in which the
other person relies on)
Usually under an offer to a bilateral contract, it would be unusual for the offer to become
irrevocable under promissory estoppel because an offeree must accept the offer before
relying on it. Exception: subcontractor cases.
Under 45 of the Restatements part performance makes an offer for a unilateral contract
irrevocable but mere preparation does not. Mere preparation may make the offer
irrevocable under promissory estoppel.
NY has never officially said they accept promissory estoppel.
Promissory estoppel requires that breach of the promise caused the partys injury
Promissory Estoppel can be used to make an offer irrevocable
Requirements Rest. 1. Need a promise Q of fact
1st 90 2. Promise must be one which the promisor should reasonably expect will lead the promisee to
act/forbear (foreseeability) Q of fact

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3. Promisee must be reasonable in relying on the promise Q of fact
4. Reliance of the promisee must be of a definite and substantial character Q of fact
5. Promise will be enforced if injustice can be avoided only by enforcing the promise Q of law

Remedy = expectation recovery (Williston promissory estoppel is a complete substitute for


consideration so you should give expectation damages)

See Feinberg v. Pfeiffer: A promise which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promisee and which does
induce such action or forbearance is binding if injustice can be avoided only by enforcement of the
promise [board of directors passes resolution saying P can retire at any time, but promising to pay
her $200/month for life when she does; P works for a year and half and then retires] the promise
here lacks consideration, but promissory estoppel applies there is a promise, retirement was
induced by promise

See Drennan v. Star Paving: As between the sub-K who made the bid and the gen-K who reasonably
relied on it, the loss resulting from the mistake should fall on the party who caused it [gen-K uses
sub-Ks bid for paving work; gen-K awarded job, but sub-K says there was a mistake and revoked
bid]
Would be unjust to allow sub-K to revoke offer
Reliance would not be justifies if gen-K had reason to know of mistake
How would a general contractor lose the irrevocability under promissory estoppel?
o Waiting too long to dive notice, opening up new negotiations after receiving prime
contract, asking for new bids, making counter-offer
Rest. 2nd 90 1. Got rid of words of a definite and substantial character
Changes 2. Allows flexibility of remedy
3. Allows for the contingency of reliance by a 3rd party on the promise
a. Ex: Bank gives a sham note to do with their solvency and to improve their balance
sheet. Liquidators can enforce this note even though the bank cannot.
4. Provides that a charitable subscription or a marriage settlement is binding without proof
that the promise induced action/forbearance

Remedy = expectation or reliance damages (recovery may be limited as justice requires)

See Salsbury v. Northwestern Bell Telephone: Charitable subscriptions and marriage settlements are
binding without proof that the promise induced action/forbearance (for promissory estoppel) and
without proof of consideration (for contract) Northwestern Bell promise to donate $ to school

Parol Evidence Rule (PER)


Generally PER = if the parties assent to a writing as the final and complete expression of the terms of their
agreement, evidence of prior or contemporaneous agreements may not be admitted to contradict,
vary, or add to the terms of the writing
o So: all agreements reached during negotiations but not included in the final and complete
writing are superseded
Defines the scope of the contract
Comes into play when parties reduce agreement to writing
Blocks evidence (oral or written) to prove another term of the contract that is NOT in writing (parol
= any extrinsic evidence)
PER does not exclude evidence to prove there was fraud, does not apply to show that contract is a
sham agreement
PER is treated as a question of law for the judge
CL Rule: A confirmation sent by one party, not objected to by the other party creates a total
integration

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See Mitchill v. Lath: Before an oral agreement can vary the written K, at least 3 conditions must exist: (1) the
agreement must in form be a collateral one; (2) it must not contradict express or implied provisions of the
written K, and (3) it must be one that the parties would not ordinarily be expected to embody in the writing
[S promises orally to remove ice house next spring at same time that S agrees to sell and B agrees to buy
house] the property agreement was in writing, but ice house agreement was not
Must look at whether the parties intended to supersede all prior agreements in the written contract
o If they intended to supersede then the other terms are not part of contract
There was no consideration for the side agreement so the court SHOULD HAVE applied Willistons
natural to omit test
The Test 1. Is there an integration? Was the writing a final expression?
a. IF YES Go to Q #2
Question for b. IF NO PER does NOT apply
the judge 2. Is the writing a total or partial integration? Is the final writing intended to contain all terms?
a. IF PARTIAL Go to Q #3
b. IF TOTAL Cannot be supplemented by parol evidence!
3. If the offered term consistent with the writing?
a. TERM IS CONSISTENT Parol evidence IS admissible
b. TERM IS INCONSISTENT Parol evidence IS NOT admissible
Question #1 Is the writing intended by the parties to be a final embodiment of their agreement?
Integration
Question #2 1. Four Corners Rule judge determines whether a writing is complete on its face solely by looking at
Total v. the document itself
Partial a. If the instrument is complete on its face, the instrument is presumed to be a total integration
i. When would there be a partial integration? Ex: when the writing itself refers to a
Often Courts separate agreement or indicates that other agreements exist (ex. Refers to a
Use a telephone conversation)
Combination b. No one applies this rule anymore
of These 2. Collateral Contract Rule
Views!!! a. Ask: Do you have a separate collateral agreement that stands on its own as an independent
contract with consideration? The separate contract can be proved and the only barrier
Willistons that stands in the way is if the oral agreement contradicts the writing
Rule is the i. If there is a merger clause There may be a contradiction BUT courts usually
Majority Rule interpret the merger clause as applying only to the agreement in the writing
ii. If there is an inconsistency the question is: which is the main agreement and which
NY is a is the collateral agreement? If the oral agreement is the main agreement then the
Williston type PER cannot block the evidence
approach BUT iii. When the side agreement does not have its own consideration some courts may still
in Seagram allow the side agreement BUT WE SHOULD TURN TO WILLISTONS RULE WHEN
they applied THERE IS NO CONSIDERATION Would it be natural to omit this term from the
the Williston written contract? (In Mitchell v. Lath there was no consideration for the ice house so
Rule in a the court should apply Willistons test)
Corbin-esque 3. Willistons Rule (Rest. 1st/Majority Rule) Asks: Would reasonable parties have included this
manner term in their contract? Or would it have been natural to exclude it?
a. Even if a written contract is deemed complete on its face, a consistent addtl term may be
proved if the term is one that parties similarly situated would naturally make and not
include in the writing
b. Merger Clause Presumption of total integration (except where document is obviously
incomplete or merger clause was included as result of a mistake)
c. Natural to Omit Partial integration
d. Natural to Include Total integration
e. Note: deeds, notes, collateral contracts, or collateral promises are partial integrations
because it is natural to omit additional terms from the writing
f. Note: uses objective evidence of intent (because it is what parties similarly situated might
normally do)

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4. Corbins Rule Question of intent depends on the actual intent of the parties
a. ALL relevant evidence should be considered to determine intent, including evidence of prior
negotiations
b. Doesnt assume anything a writing is ordinarily only a partial integration
i. Corbin makes clear that the rule of law, reasonable time, is not integrated and that
therefore a contemporaneous oral agreement stating a completion date is operative
c. Merger clause is evidence of total integration but NOT conclusive
5. UCC 2-202 presumption that a writing is only a partial integration (overcome if the parties actually
intend the writing to be a total integration merger clause - OR if it is certain that parties similarly
situated would have included the term in the writing)
a. A course of dealing or trade usage may be used to supply a consistent additional term even if
the writing appears to be a total integration (UCC 2-202 combines PER and interpretation
into one section)
b. See George v. Davoli: B and S have a sale on approval, which gives the right to return
seasonably (which means w/in time stated and if no time stated w/in a reasonable time). B
returns w/in a week and S says youre too late because the oral agreement said to return by
Monday and it is now Wednesday. Under UCC the presumption is a partial integration and
the term is consistent because it does not contradict anything.
6. Rest. 2nd uses Corbins rule that the actual intent of the parties should be sought; even if this leads
to a determination of a total integration, consistent additional terms are still admissible IF:
a. The alleged agreement is made for a separate consideration OR
b. The offered agreement is not within the scope of the integrated writing, OR
c. The offered terms might naturally be omitted from the writing
d. Note: Under the Rest. 2nd it is almost impossible to have more than a partial integration
e. Willistons naturalness test is solely a rule of admission, not a rule of exclusion

See Lee v. Jos. E. Seagram & Sons: Lee agrees to sell distributorship to Seagrams in writing but orally
conditioned the offer on Seagrams agreement to relocate Lee + his sons to a new city, Seagrams orally
promises (through VP, Yogman) to set Harold and his sons up in another city
Held: the oral agreement was a collateral agreement because the writing was only a partial
integration and since it is not contradictory of any of the terms in the sales agreement, the oral
promise is a consistent additional term and can be admitted into evidence
Court uses a combination of Corbin and Williston approaches
o Corbin: Parties invited to testify regarding intent; court looks at relationship of parties
o Williston: Seagrams officials dont testify so court looks at whether similarly situated
parties would think this was natural to omit
Question #3 Views:
Consistent One view: it is inconsistent if there is an absence of total harmony between the writing and the oral
v. agreement (finds inconsistency a lot)
Inconsistent Other view: to be inconsistent it must be a complete negation of the terms of the writing (rarely
finds inconsistency)
Timing If promise is made after writing, then it is a modification issue
Not a parol evidence issue
Parol evidence rule applies both to prior writing and prior oral agreement
Parol evidence rule applies when oral agreement is made at the same time

Interpretation
Generally Determining what the words of the contract mean
It is easier to get evidence in as an interpretation rather than a PER question! (See Trident Center)
Two Main Questions:
1. Whose meaning is to be given to the communication?
2. What evidence may be taken into account in applying the standard of interpretation selected?
Types of Background of negotiations
Extrinsic What parties said to each other about the meaning (Williston would object to this)

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Evidence Subjective intent (Raises dispute between subjectivist Corbin and objectivist)
(written / oral) Trade usage, course of dealing, and course of performance
Whos A. Non-Integration/Objective Tests
Meaning Do a. Reasonable Understanding Test reasonable meaning that promisee would attach to
We Apply? term
b. Reasonable Expectation Test (Williston) what would promisor expect promisee to
7 Possible Tests understand
i. Test based primarily on the objective theory of contracts all extrinsic evidence is
admissible except evidence of subjective intention
c. Reasonable understanding provided that promisor would reasonably expect that
understanding combination of (a) and (b)
B. Integration
a. Plain Meaning Rule (NY) judges meaning; does not resort to extrinsic evidence of any
kind unless the judge finds a term to be ambiguous
b. Reasonably Intelligent Reader (Williston) meaning attached by a reasonably
intelligent reader knowing all of the circumstances of the contract; takes into account
background, trade usage, etc.
i. But would ONLY allow subjective intent and what the parties said to each other if
all else fails
C. Subjective Intent (Corbin would always allow; Williston would allow if there was an ambiguity in
the case of a non-integration)
a. Mutual Standard having introduced subjective intent, both parties understand one
meaning
b. Individual Standard there may be a basis for finding a contract based on one parties
subjective meaning
Fault *Issue where there is more than one reasonable understanding must use subjective intent where the
parties have a Good Faith Misunderstanding about the meaning of a term
Peerless Ship Burden of proof is on the party suing for breach
Case (Raffles v. Note: Williston only uses subjective intent as a last resort
Wichelhaus) 1. Both parties meant the same thing (proven through subjective intent) = K based on that meaning
2. If both parties are innocent (neither had reason to know of the other reasonable understanding) =
No K
3. One party is innocent and the other party is guilty = K based on the meaning of the party not at fault
4. If both parties are at fault
a. Williston No Contract, does not weigh fault
b. Corbin Contract under the meaning of the party less at fault (using individual standard)
Cases (CA) Pacific Gas v. GW Thomas: The judge should give preliminary consideration to all credible evidence and in
light of that evidence the language has to be reasonably susceptible to the meaning intended (by the parties)
and then it can go to the trier of fact [contract included indemnification clause and parties disagree over the
scope of the promise to indemnify]
Trial judge uses plain meaning rule
o Says the document was not ambiguous so no extrinsic evidence can be admitted
Intermediate court applied rule that you construe ambiguity against the drafter of the contract
reversed trial judge
Supreme Court of CA (Traynor) basically says that language has no meaning and should be
considered in context so must give preliminary consideration to all credible evidence offered to
prove intention of parties
Trident Center v. Conn Genl Life Insurance: Trident Center wants to refinance loan at lower interest rate
even though agreement clearly says they cannot
Court reluctantly follows Traynors precedent from Pacific Gas which said that language is never
clear so he allows extrinsic evidence in to let this go to trial
BUT he was wrong here because the language was not reasonably susceptible to the language
Trident wants to construe
Course of Course of Dealing how the parties have interacted before

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Dealing, Can be established by the testimony of the parties or third persons
Course of Course of Performance how the parties have acted after the agreement in question in regards to this
Performance, agreement
and Trade Can be established by the testimony of the parties or third persons
Usage Trade Usage how the trade interprets the language (ex. Academic hour = 50 minutes)
Can be established by expert witnesses
How They Can Be Used:
Common Law
o Trade usage and course of dealing can raise problems under PER (course of performance
does not because it happens after the integration --- may raise issue of
modification/waiver)
o CL said a trade usage or a course of dealing may NOT be shown to contradict plain meaning
of the language but can be used to supplement (add terms) even in the case of a merger
clause
UCC
o Evidence of course of performance (2-208), trade usage, and course of dealing (2-202) are
ALWAYS admissible UNLESS carefully (specifically) negated
o Can use these to explain or supplement
Order of Consideration the question when adding implied-in-fact terms is the question of
consistency
1. Express terms
2. Course of performance
3. Course of dealing
4. Trade usage

See Nankuli Paving v. Shell Oil: UCC 1-205 extends to usage of trade of which the parties are or should be
aware [trade usage and course of performance show Shells obligation to price protect]
In cases of doubt (ambiguity) course of performance is defined as a waiver but no doubt in this
case
Other Rules of 1. Specific terms are given greater weight than general terms
Interpretation 2. Separately negotiated terms are given greater weight than standardized terms
3. If there is an inconsistency b/w typed and handwritten terms and printed terms, a typed or
handwritten term prevails
4. In choosing among reasonable meanings the instrument should be construed against the party who
drafted it because they are responsible for lack of clarity
5. It is the policy of the law to uphold contracts and courts prefer to construe them so that they are
lawful

Duress
Old and New Old Duress
Duress Duress would only apply if there a threat to life or limb (in the case of threat to life or limb you could
agree and avoid later); economic duress did not constitute duress because the alternative was go to
court (this worked because the preexisting duty rule would say this modification is not binding on
grounds of consideration)
New Duress
Now applicable to economic duress (with the decline of the preexisting duty rule it became
important for the duress doctrine to expand)

UCC 2-209: Extortion (coerced modification) without legitimate commercial reason is a violation of good
faith- you need good faith for a modification of a contract
Requirements Requirements (Rest. 2nd):
for Doctrine 1. Bad Faith Threat a threat not to perform an existing contract (See Austin v. Loral)
of Economic 2. No Reasonable Alternative but to agree
Duress a. Unduly burdensome/risky constitutes no reasonable alternative

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K signed under economic duress voidable at the election of the coerced party
Can obtain restitution of money paid under duress
The contract is voidable but it has to be avoided promptly otherwise the contract will be viewed as
ratified

See Austin v. Loral: A K is voidable on the ground of duress when it is established that the party making the
claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will and that
he could not obtain the goods from another source of supply [Austin threatens to stop delivery under K #1
unless Loral promises to pay more for K #1 parts and Loral gives K to Austin for all 40 parts under K #2]
Can Be Used 1. An affirmative defense for BOK
As: 2. Basis for restitution

Misrepresentation
Generally Rule: If a misrepresentation constitutes an actionable tort, avoidance is allowed, but all of the
elements of tortious misrepresentation are not required for avoidance
The contract is voidable but has to be avoided promptly, otherwise the contract will be
viewed as ratified
Remedy: Avoidance (not damages!)

In a case of misrepresentation you may have a choice between contract and tort:
Contract remedy = avoidance/rescission (less stringent to prove) misrepresentation must be
EITHER fraudulent or material
Tort remedy = damages misrepresentation must be fraudulent AND material
Misrepresentation (fraud) in inducement = results in voidable contract
A voidable contract can be ratified and a GF purchaser can obtain title
The contract is voidable but has to be avoided promptly otherwise the contract will be viewed
as ratified
Misrepresentation (fraud) in execution/in the factum = results in void contract (rare)
A void contract cannot be ratified and a GF purchaser cannot obtain title
What is Misrepresentations of Fact Render K Voidable:
Misrepresentation? Misrepresentation of a state of mind making a promise knowing you are not going to do it
(state of mind of a person is a fact)
Active Concealment ex: selling your house and painting over a crack in the ceiling
Preventing another party from making an investigation
Half truths amount to a misrepresentation
No misrepresentation for non-disclosure (but there may be circumstances when you have to
disclose)
Rule of caveat emptor changes by jurisdiction
o NY is a buyer beware jurisdiction but others want to reduce this and many say that
sellers have a duty to disclose latent defects to buyers
Erroneous Statements of Opinion Do Not Render K Voidable; Exceptions:
Where there is a relationship of trust and confidence between the parties
Where the representor is or claims to be an expert
Where the representor has superior access to knowledge of the facts
Where the opinion is stated by a 3rd person posing as a disinterested person
Where the opinion intentionally varies so far from reality that no reasonable person in the
representors position could have such a position
Requirements for 1. Misrepresentation (an assertion not in accord with the facts past or present facts)
Avoidance 2. That is EITHER fraudulent or material
a. If material grounds for cancelling contract
i. Material = would the misrepresentation be likely to affect the conduct of a
reasonable person
b. If intentionally made does not matter whether it is material or immaterial, may be

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grounds for cancelling contract
3. That causes reliance
a. Misrepresentation does not have to be the sole reason you entered into the contract it
just has to be substantial
4. Reliance is justified/reasonable matters of law/opinions you are NOT justified to rely on
(with exceptions)
a. See Cousineau v. Walker: a buyer of land, relying on an innocent misrepresentation is
barred from recovery only if the Bs acts in failing to discover defects were wholly
irrational, preposterous, or in bad faith
Clauses That People often add these clauses to protect against rogue agents + false representations of fraud:
Contradict Oral - Some courts hold that each clause must be separately signed
Representations 1. Written representation that contradicts oral representation
2. No reliance clause we are not relying on any representations
3. No representations clause no representations other than in this writing
4. Release I release all claims of fraud

See Borat everyone was tricked into being in the film they were told it would be a documentary that
would be broadcasted in Eastern Europe and they were all paid small amounts consistent with being in
a small film, at the last second all actors were handed a one page consent form to sign and no one read
it Judge Preska says the consent/release form was bulletproof.
Recipients of 1. Cost of Reading - confirmation bias
Representations 2. Trust - you convey that you dont trust the person
Have Costs! 3. Endowment Factor people are loss averse once a person has been explained everything +
has the part + shows up then they read something and say they dont want to do it they now
lose something but if they received the written thing before they would not have lost anything

Mistake
Generally Mistake can be a ground for avoiding a transaction
If assent was founded, or the contract was made, upon the mistake of a material fact the contract
can be avoided Does the mistake go to the substance of the thing bargained for?
o Risks of mistakes in judgments are not grounds for avoidance
Mutual mistake A transaction can be avoided if a substantially different exchange of values
occurs because of the mistake
o Must exist at the time the contract was entered into and be substantial
Mistake as to Ask: Does the mistake go to the substance of the thing bargained for?
Substance o See Sherwood v. Walker: A barren cow is substantially a different creature than a breeding
cow (mistake of subject matter)
o But see Simkin v. Blank: H argues there was a mutual mistake because the Madoff account
didnt exist and W says it was just a mistake in value which is not a mutual mistake. W wins.
Uncertainty Where the parties are uncertain or consciously ignorant of a vital fact there is no right of avoidance
o A woman brought a gem to a jeweler and they were unsure of its value and the jeweler gave
her $1. She found out later it was worth $700. Avoidance was not permitted because the
parties were uncertain rather than mistaken.

Unconscionability
Generally Unconscionability is a defense it does NOT create a cause of action
Arose as an equitable defense to specific performance, but it is now no longer limited to actions
in specific performance
The time to determine unconscionability is the time or creation of the contract
Unconscionability has generally been recognized to include an absence of meaningful choice
(should be determined by consideration of all the circumstances surrounding the transaction)
Aspects of Procedural (Nonsubstantive) Unconscionability (Unfair Surprise)
Unconscionabilit Relates to how the agreement was obtained

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y Burdensome clause that does not come to the attention of a party adhering to a K
Will be struck down if:
o A reasonable person would not expect tot find it in the contract and the reason it was
not notices was its burial in small print, OR
o The inability of the adhering party to comprehend the language
Substantive Unconscionability (Oppression)
Provisions of the contract that are assented to but are grossly one-sided
What result? Either voided or modified by the court
NOTE: Where unconscionability is found there is typically BOTH procedural and substantive (but it is
possible to find it with just one --- its like a sliding scale)
UCC 2-302 Unconscionability is a question of law for the court
A lot of flexibility in granting remedies to an aggrieved party --- the court can refuse to enforce
the contract, excise an unconscionable clause, or limit the application of such a clause
o BUT it does NOT create an action for damages (it is a defense!!!)
It is applied not only in sale of goods cases
Cases Williams v. Walker-Thomas Furniture: company has right to repossess everything in case of default on
installment cases --- Where the element of unconscionability is present at the time a contract is
made, the contract should not be enforced
This contract had both procedural (impossible to understand) and substantive (the stuff she has
already paid for should be hers) unconscionability
Brower v. Gateway: (terms in the box case arbitration clause which designated the ICC as the
arbitration body which imposes excessive costs)
Substantive unconscionability alone may be sufficient to render the terms of the provision at
issue unenforceable (there was substantive because the excessive fees made the cost of
arbitration not worth it because it was more than the computer itself and serves to deter the
consumer) Prof thinks theres procedural unconscionability too but Easterbrook says there
was none

Performance Stage
When P wants to enforce K (sue for breach), P must prove existence of contract & prove D is in breach

Conditions
Definitions A promise may be conditional or unconditional

Condition Precedent
An act or event, other than lapse of time, that must exist or occur before a duty to perform a
promise becomes due --- if it does not occur, can no longer occur and is not excused, the
promisors duty is discharged
P has the BOP to show that the condition and the promise were complied with
Condition Subsequent
An act or event, other than lapse of time, that discharges a duty of performance that has already
arisen
D has BOP to prove that a duty that has already arisen has been discharged
Condition Concurrent
Where the parties agree to exchange performances at the same time
To put the other party in default you must make a conditional tender or show that tender is
excused
Tender a readiness and willingness to perform
Occur primarily in contracts for the sale of goods and contracts for the conveyance of land

NOTE: Sometimes it is hard to determine whether a CP or CS determine it by what it is by definition


this is what the court should follow but sometimes they will follow the language

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Express (True) Condition
Imposed by the parties (also includes implied in fact conditions when a condition is not spelled
out in the words but rather is gathered from the terms of the contract as a matter of
interpretation)
Must be literally complied with
If a lender sends a borrower a letter that says pay now or x if there is no date this is not
enforceable because express conditions require literal compliance
Constructive Condition
Created by law (implied in law), must be substantially complied with
Express Typical Condition Language
Condition or On the condition that
Promise? Provided that
If
Subject to
Typical Promise Language
I will
I promise
I warrant
If Unclear
Use the normal process of interpretation to determine the intention of the parties
The infinitive needs to be interpreted
In borderline case --- courts prefer the interpretation that the language creates a promise
o This presumption is particularly strong when a finding that there is a condition and not
a promise would lead to a forfeiture on the part of the party who has done the work
o Rest 2nd In determining whether a particular agreement makes an event a condition, a
promise, or both, interpret doubtful language as embodying a promise or constructive
condition rather than an express condition. This interpretive preference is especially
strong when a finding of express condition would increase the risk of forfeiture by the
obligee.
See NY Bronze Powder v. Benjamin Acquisition [S sues B on promissory note
that requires noteholder to surrender note to receive payment; S as noteholder
did not surrender note] B is arguing that provision is express CP and S argues
that provision was a promise and breach is immaterial --- Court says this is a
promise based on other parts of the writing, note has a lot of
covenants/promises in it, purpose of the provision, the fact that its a non-
negotiable note, etc.

Interpretation of an ambiguous term is crucial because contract liability is based on breaches of


promises, a failure of a condition discharges the party from performing

*Express language of condition may also be the basis for finding an implied promise and express
language of promise may be construed to create an implied-in-fact or constructive condition*
Failure of Some K terms are ambiguous as to their intended legal effect and the normal processes of interpretation
Condition and must be used to determine the intent of the parties; ex:
Breach of
Promise Agreement states the vessel to sail on Feb 4th Sails Feb. 5th 3 POSSIBLE INTERPRETATIONS:

1. Express Condition Only


a. General Description
i. Party created OR implied in fact
ii. Must be literally complied with must perform the exact words (very
draconian)
b. What Result?

35
i. Promisor is discharged because condition has not been and cannot be complied
with
ii. Entitles promisor to not pay/perform
iii. Does NOT give promisor action for BOK
iv. Non-occurrence of express condition:
1. Duty may be triggered if condition can still occur in the future
2. If condition can no longer occur then the performance is never due so
the duty is discharged
v. See Audette: association says no one gets benefits unless they bring sworn to
doctors certificate --- wasnt strictly complied with so you cant get benefits
1. Associations duty to pay is not triggered
vi. See also Inman: condition requires written notice to be sent to eer w/in 30
days after claim against them arises --- express condition requires literal
compliance
1. Contract says shall be condition precedent to any recovery
2. When condition fails, defendants duty is discharged/extinguished
2. Promise Only As promise gives rise to a constructive condition which fails only if the breach is
material --- 2 ways to view this
a. A sues B for refusing to accept the ship
i. Doctrine of Constructive Conditions --- the issue is: Whether A has
substantially performed the constructive condition
b. B sues A because ship is late
i. Materiality of the Breach
1. If breach is material B is free to cancel because of failure of
constructive condition and can sue for a total breach
2. If breach is immaterial B must perform and can only sue for partial
breach
Probably would not fail because this is not material
3. Express Condition + Implied Promise (ex. In sale of RP the clause of performance is
contingent upon B obtaining a loan --- this is an express CP which carries with it the implied
promise of the vendee to use reasonable efforts to obtain the described loan)
a. B gets the benefit of both remedies (and can choose depending on the market)
i. B can cancel the whole contract, regardless of whether the delay was material
and sue for total breach, OR
ii. B can continue with the contract and sue for partial breach
Time or Owner general contractor sub-contractor
Condition?
Pay when Paid Clauses
Gen K says it is an express condition and duty to pay does not exist until it occurs
Sub K says it merely sets the time for payment and if the owner doesnt pay gen-K it implies a
reasonable time

General Rule: Each party takes the risk that the other party will not be able to perform, so in order to
transfer the risk from the general contractor to the sub-contractor the contract b/w the general
contractor and the subcontractor should contain an express condition clearly showing that to be the
intention of the parties (See Thos. J. Dyer v. Bishop Intl Engineering)
So clauses in sub-contract are usually interpreted as pay when paid if owner does not pay,
general contractor still must pay sub-contractor in a reasonable time
BUT there may be instances where express CP is made very clear (see J.J. Shane v. Aetna) and
then you interpret it as pay if paid and this shifts the risk
BUT public policy still may not allow this (like in NY)

Distinguished *Usually you need to have a contract before you start talking about conditions b/c they are conditions to
from CP to performance

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Formation of K
In rare case where you have a CP to formation of K If CP is NOT satisfied --- there is no contract

See Thompson v. Lithia Chrysler [Ps accept K to purchase truck only if they can obtain financing at 3.9%]
court finds that this is a condition to formation and this is very rare

In another case, court says co-op board approval is a condition of performance, not formation

Constructive Conditions
Generally Created by the court to do justice
o They are constructed in bilateral contracts where the parties exchange promises with
the understanding that there will also be an exchange of performances
Requires only substantial performance
Come from a promise and result in a CP to recovery
Constructive conditions are a default rule only come about if parties have not agreed to express
conditions covering performance
Usually applied in building contracts
Order of Performance over an extended period of time
Performance in a Rule: Unless otherwise agreed, a party who is to perform work over an extended period of time
Bilateral must substantially perform before becoming entitled to payment; performance of the work is a
Contract constructive CP to the duty to pay
o Periodic payments are NOT implied --- but if they have been agreed on, a series of
alternating constructive CPs exists (the first periodic payment is a CCP to the next
stage of work)
o See Stewart v. Newbury: Where a contract is made to perform work and no agreement is
made as to payment, the whole work must be substantially performed before worker is
entitled to any payment progress payments are not implied [contractor promises to do
work and owner promises to pay]
Simultaneous Performance
Rule: Unless otherwise agreed, where the promised acts are capable of simultaneous
performance in whole or in part (and also capable of this by the terms of the contract), each duty
of performance is constructively conditioned on conditional tender of the other
o To put the other party in default you must make conditional tender of performance or
show that tender is excused
o See Monroe Street Properties v. Carpenter: Where concurrent conditions apply, neither
party can place the other in breach for failure to perform without a tender of its own
performance [one party promises to pay stock and the other promises to pay with
mortgages
Material Breach If one party fails to perform, must determine if breach was material
If material
o Rest. 2nd a material breach is a breach that justifies the suspension of performance,
party must wait a reasonable time before cancelling the contract
Material breach = may suspend performance
Total breach (after reasonable time) = may cancel contract
Exception when time is of the essence the reasonable time time lag would
not apply
If immaterial
o Party CANNOT cancel the contract but may sue for partial breach
Is delay in performance a material breach?
A party does not need to perform on the precise day stated in contract UNLESS time is of the
essence
If time is of the essence is NOT in K reasonable delay is NOT a total breach but unreasonable
delay is a total breach

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When is time of the essence?
o Implied by the type of contract (flowers for a wedding)
o Exact date specified with time is of the essence clause
o Time is of the essence letter after the date for closing passes either party can send a
time is of the essence letter which sets a date that allows the party to cancel the contract
Letter must state a reasonable time (in NY its 30 days) and state the
consequences of not complying
If the date is reasonable, it can be imposed unilaterally
Note: It has become common practice to send a time is of the essence letter and
now some courts will require it

See Walker v. Harrison: A party may only cancel a contract if the other partys breach was material. If a
party cancels a contract for an immaterial breach then the repudiator will be guilty of material breach
himself [Walker agrees to make sign and perform maintenance for Harrison, Harrison discontinues
payment b/c maintenance condition was not performed]
o Court says Harrison was not justified in cancelling K --- no material/total breach
o Harrison also would not have been entitled to suspend performance --- this damage was easily
curable and very insignificant. The cases where you have a right to suspend are construction
cases
o Harrison is the material breacher for repudiating K --- big mistake to overreact to an immaterial
breach by cancelling the contract
Substantial If a party has substantially performed, any breach by this party can only be immaterial and if a
Performance party has committed a material breach the partys performance cannot be substantial
o BUT just because a party has not performed at all does not mean there has been a
material breach
Substantial performance does NOT mean the majority of performance
Once you prove substantial performance you are entitled to the entire contract price (but liable
for breach)
o The breaching party has to prove damages (Majority View)
Structural defects can NEVER be substantial performance
o Rule of thumb in construction is if it only costs up to 10% of the contract price to fix
non-conformities then you cannot find substantial performance

See Jacob & Youngs v. Kent: If we conclude that the builder did not substantially perform he gets nothing.
If we say he did substantially perform then we allow him to recover the contract price minus any offset
for damages [J & Y suing Kent for balance due on price for house. One of the promises in the contract is
that J & Y will install Reading brand pipe but their sub-contractor installs a different brand that is just as
good as Reading so this is a breach. This breach was discovered after most of the work was done and
Kent is refusing to pay J & Y the final payment. Cardozo found for J & Y because they substantially
performed]
o The specification of Reading pipe is a promise, not an express condition --- breach was
immaterial
o The remedy for insignificant breach is damages whereas failure of a condition entitles
you to withhold your own performancce
o Damages USUALLY the damages are the cost to repair or complete (to make it conform to the
contract) but Cardozo says not here --- the damages should be the difference in value between
what was promised and what was delivered
o Why? Because the remedy should be consistent with the substantive liability
o How did Cardozo determine substantial performance?
o Viewpoint of Aggrieved Party (owner - Kent):
To what extent has Kent gotten what he bargained for?
How important was the defect? (there was no difference in quality and the
defect was not very important)
Can Kent be easily compensated with a partial damages remedy? (Cardozo

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says where the defect is insignificant the party can pay damages and this would
be adequate compensation)
o Viewpoint of Breaching Party (builder J & Y):
Hardship to the breaching party harm/forfeiture/harshness/oppression
Ethical position
Was this an inadvertent breach? Little fault
Was this an intentional breach? Doesnt tell you the breach
because you could still intentionally breach in GF OR you could have a
willful breach where you breach the duty of GF
Willful breach
o Cardozo says willful breacher always means no substantial
performance, but the modern view is that this is only one
factor to be considered
Deduction of Can aggrieved party withhold payment for the amount of damages?
Damages = Self o In UCC 2-717 B on notifying S of his intention to do so may deduct all or any part of the
Help damages resulting from any BOK from any part of the price still due under the same K
o Some cases YES (see K&G Const v Harris)
o Other Cases NO this amounts to material breach
o Safest way to go about this deduct from the last payment

K & G Construction v. Harris: In the case of a material breach, a general contractor an cancel the contract
and sue for total breach or can allow the sub-contractor to proceed with the work on the project and
treat it as a partial breach. The general contractor is allowed to deduct partial breach damages from
payments due to the subcontractor [subcontractor causes damages to building project by failing to
perform in a workmanlike manner accg to specifications of contract subcontractor refused to pay,
general contractor deducted from his progress payment]
o Normally when party elects to continue and sue for partial breach, both parties are required to
continue (so general contractor would be required to pay) but the court here allowed him to
offset the cost from the progress payment

Constructive Conditions Under the UCC


The Perfect UCC 2-601 (The Perfect Tender Rule): B is free to reject the goods unless the tender conforms in
Tender Rule every respect to the contract --- not only in quantity and quality, but also in the details of the shipment
UCC 2-601 Everything must be in perfect conformity with the contract (in order to tell if it is perfect
conformity often requires interpretation --- using trade usage, course of dealing, course of
performance)
The doctrine of substantial performance does NOT apply to the sale of goods

Usually we say constructive conditions require substantial performance but under the UCC we say literal
performance is required; 2 exceptions:
1. Installment Contracts
2. If the parties otherwise agree (express or by implication from the circumstances)

There are many exceptions to the perfect tender rule because of these exceptions, courts applying
the UCC frequently apply the doctrine of substantial performance to sales contracts

DO NOT LOSE SIGHT OF THE TEST OF GF IN THE UCC --- Rule: Rejection of goods that fail to conform
to the PTR is a breach where the motive for rejection was to take advantage of falling market prices
What Can the Unless otherwise agreed, if the goods or the tender of the delivery fails in any respect to confirm to the
Buyer Do if contract, the buyer may:
There is NOT a. Reject the whole; OR
perfect tender? b. Accept the whole; OR
c. Accept any commercial unit or units and reject the rest
Exceptions to 1. Unless Otherwise Agreed

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UCC 2-601 a. Express terms of the K - parties can agree substantial performance will apply
b. Implication from the circumstances can show substantial performance will apply
2. Sellers Right to Cure UCC 2-508
a. The sellers right to cure is triggered by rejection of the goods (some courts allow it for
revocation also like Bartus)
b. 2-508(1) BEFORE time for performance has expired If B rejects S defective
tender before the time for performance has expired, S has an unconditional right to
cure by making a conforming delivery within the contract time
c. 2-508(2) AFTER time for performance has expired S has a right to cure after the
time for performance has passed if 2 conditions are met:
1. S had reasonable grounds to believe that the tender would be accepted with or
without money allowance; AND
1. S doesnt have to know the goods are non-conforming
2. S seasonably notifies B of the intention to cure and cures the non-conforming
tender within a further reasonable time
3. See Bartus v. Riccardi: [B orders A-660 hearing aid from S, but new model A-
665 arrives instead; S attempts to cure but B cancels K --- Court says B was in
breach and he must pay for hearing aid, S had a right to cure b/c he had
reasonable grounds to believe B would accept new model and S acted w/in a
reasonable time to notify B of his tender of a conforming model] --- can analyze
this case 2 ways:
1. B accepted goods then revocation of acceptance
2. B rejected goods (had a reasonable time to inspect) and thus can avoid
price
b. NOTES:
1. Most Ks dont include a deadline so time for performance is a reasonable time
and if S meets subsec 2 we dont have to decide whether performance was early
or not
2. Offering a discount is NOT a cure
3. Offering to repair is technically not a cure but some courts allow it
4. Lateness cannot be cured
3. Rejection and Acceptance 2-602, 2-606, 2-607
a. Bs power of rejection of non-conforming goods does NOT last forever
b. UCC 2-602 Right to Rejection is Lost When:
i. Once the buyer accepts the goods,
ii. If rejection is not made within a reasonable time after their delivery or tender;
OR
iii. If B fails to seasonably notify S of their rejection
c. What is reasonable time? --- Depends on the time it reasonably takes to inspect
d. Ways B accepts the Goods:
i. Failure to make an effective rejection (acceptance by silence)
ii. Express acceptance --- UCC 2-606 B, after a reasonable opportunity to
inspect the goods, signifies to S that the goods are conforming or that he will
take/retain them in spite of their non-conformity
iii. Doing any act inconsistent with Ss ownership --- If act is inconsistent with Ss
ownership it is an acceptance only if S treats it as that
e. UCC 2-607 Effect of Acceptance --- Notice of breach applies to accepted goods only!
i. Once there is an acceptance, B has a duty to pay the contract price; B is entitled
to recover damages for the breach if B gives proper notice of the non-
conformity (and this must be sent even if S knows about non-conformity);
damages equal to the difference between what you got and what you contracted
for
ii. Note: If you reject you can get damages equal to the cost of getting the good
from someone else
iii. See A.B. Parker v. Bell Ford [after repair of truck, B still had problems but B

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never tried to give it back to S to fix again and then brings lawsuit 6 months
later court says that notice is a CP to recovery]
1. 2-607 In order to preserve the right to damages when goods have
been accepted the B must give notice of breach to S in a reasonable
time or he is barred from recovery --- why? Although S has no right to
cure when goods are accepted this gives him the opportunity to try to
offer a cure or settlement [but right to cure offers to rejection and in
half the authorities to revocation of acceptance]
4. Revocation of Acceptance UCC 2-608 even if goods have been accepted, B may, in a
proper case, revoke the acceptance; Requirements:
a. The non-conformity substantially impairs its value to the buyer
i. If S has substantially performed or if breach is immaterial then B cannot revoke
ii. Subjective test / Q of fact
b. There must be an explanation for failure to reject If S has materially breached, B
may revoke by either:
i. Showing that the acceptance was on the reasonable assumption that its non-
conformity would be cured and it has not been seasonably cured; OR
ii. Showing that even if B did not discover such non-conformity at the time of
acceptance, if his acceptance was reasonably induced either by the difficulty of
discovery before acceptance or by Ss assurances
c. Revocation within a reasonable time --- depends on time it takes to make a
reasonable inspection
d. Condition for revocation must be based on how the product came --- before any
substantial change in condition of the goods which is not caused by their own defect
e. What is the effect of valid revocation of acceptance? B has the same rights and duties
with regard to the goods as in the case of rejection [but most courts say S has no right to
cure]
5. Installment Contracts UCC 2-612 --- difference between substantial of the whole contract
or just of that installment
a. Installment Ks = one in which separate lots are to be delivered and separately paid for
and accepted
b. The perfect tender rule DOES NOT APPLY to installment contracts
c. This is a default rule --- parties can include a no substitutions/no right to cure clause
d. When rejection of a delivery and cancellation of whole contract is justified - non-
conformity with respect to 1+ installments substantially impairs the value of the
whole contract
i. Material breach
e. When rejection is NOT justified non-conformity impairs the value only of that
installment
i. B can reject if S does NOT give adequate assurance of its cure (S is entitled to
attempt to cure)

Recovery for the Material Breacher


Rule: A party who does not substantially perform is not entitled to a recovery, unless performance is excused or the case
comes under one of the following exceptions:
Contractual Divisibility: (Divisible = severable) --- ask (1) Who is the material breacher? (2) Would this K be
Recovery divisible?
Allows contractual recovery for a divisible portion that is substantially performed despite a
material breach of the overall contract --- Doctrine of divisibility was created to avoid
forfeiture, if K is viewed as divisible you treat the parts performed as separate Ks and the P can
recover for those minus damages
Divisibility of a contract is a question of intent for the parties but it is rare that the parties
express an intention on divisibility; Rest. 2nd says divisibility has 2 requirements:
1. Apportioned price for corresponding sets of performances

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2. Agreed equivalents (ex. The value of one CD-Rom is the equivalent of the price paid for
it)
Construction contracts are generally considered to be entire
Exception: One construction contract was held to be divisible --- K to build 35
houses, each with its own separate price --- contractor built 20 houses only so
the contractor was a material breacher. The court said that this contract was
divisible by house so the owner would have to pay the total price of the 20
houses damages
Owners damages: (1) cost to repair anything wrong with the 20 built
houses and (2) additional cost over the contract price that owner
would have to pay another contractor to build the 15 un-built houses
Employment contracts are generally held to be divisible
You have to find that it is appropriate to make the non-breaching party pay that part of
the contract price
See Scavenger, Inc. v. GT Interactive Software, Inc.: [P contracts to sell 4 CD-ROM games with
separate price for each one there was not substantial performance overall b/c P only delivers 2
out of the 4 games and P is the material breacher BUT performances are divided and price for
each CD-ROM is only attributed to each individual game --- divisibility is a question of intent,
parties must intend for there to be agreed equivalents]
What if you do not have an apportioned price but the contract has an obvious division?
Ex: P will work for D for 12 weeks and will be paid at the end $12,000
(1) Not actually apportioned But court may apportion it itself (there is an
obvious division where you can come up with a unit price)
(2) Should paid at the end no longer be enforced? Court may say yes to
avoid forfeiture

Separate Contracts:
Issue is whether there is one contract or two separate contracts --- question of intent
If there is two Material breach on one contract does not affect the right to recover under a
separate contract
DO NOT confuse this with a divisible contract where there is only one contract

Independent Promises:
It is possible for parties to provide that a certain obligation is an independent promise (but there
is a strong presumption that promises are not intended to be independent)
The promisee may enforce an independent promise w/o rendering substantial performance of
the promisees part of the bargain --- the promisee does not have to prove that they didnt breach
A covenant not to compete in an ement contract was held to be an independent promise where
the contract said the covenant not to compete was independent of the eers duties --- eer who is
a material breacher can sue eee for breach of covenant not to compete if it is an independent
promise

Restitution Quasi Contract: (unjust enrichment at material breachers expense)


Recovery Is a Material Breacher Entitled to Restitution? 3 Views (there is no majority view, pretty much
these views are equally split):
Note: Restitution 1. Orthodox View no restitution for the material breacher --- enrichment for D is not viewed as
is a material unjust
breachers last a. This is the classic view and the view in NY
resort - theyd 2. Rest. 1st Allows restitution recovery if breach is not willful
rather receive 3. Rest. 2nd Allows restitution (UCC in accord) --- view of Britton v. Turner
contractual *These rules are only for a material breacher, they do not apply to a person who got sick and can no
recovery!!!!! longer perform due to impossibility of performance
*Even though Restitution is allowed in the Restatements there will still be a deduction for damages
caused by the breach

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Statutory Relief:
UCC 2-718 absent a liquidated damages clause in the contract, S can keep ether $500 or 20%
of the full price, whichever is smaller (if S can prove actual damages this is okay)

Excuse of Condition & Breach of Duty of GF + FD


Excuse of If a performance is subject to a condition, it does not fall due unless that condition is satisfied
Condition BUT there are limited and defined situations in which the condition may be excused to prevent
Generally injustice

If condition is excused Duty is enforced despite the condition not occurring


Condition may be excused by wrongful prevention, hindrance, or non-cooperation
Wrongful Wrongful Prevention
Prevention, Rest. 1st Causation required --- You have to prove you would have been ready, willing, and
Hindrance, and able to perform but for the wrongful prevention
Non-Cooperation Rest. 2nd Condition will be excused if the wrongful conduct substantially contributed to the
non-occurrence of the condition
o Puts the burden on the defendant to show that it was not a substantial factor
A condition is Old Man/Grand Uncle Example:
excused by Grand uncle promises to pay nephew on his death if the nephew promises to care for his uncle
wrongful for the rest of his life
prevention, Grand uncle chases the nephew off his property with a gun for no reason
substantial Nephew says substantial performance is excused because grand uncle wrongfully prevented him
hindrance or the from completing performance
failure to Rest. 1st says you have to show causation --- nephew must show he would have been ready,
cooperate. willing, and able to care for life but for the old mans prevention
Moreover, in every Rest. 2nd says you have to show that wrongful conduct substantially contributed to the non-
K there is a occurrence of the condition --- and grand uncle has burden to prove nephew would not have
constructive been able to perform
condition that one But what if the uncle was really drunk all the time?
will not wrongfully Then this would be hindrance and we have to ask if it is wrongful
prevent or
Whether hindrance is wrongful depends on the risk assumed by the other party under the K ---
substantially if the risk was NOT assumed then it is wrongful
hinder the other What if this example was a unilateral contract? --- Everything would remain the same assuming the offer
partys had become irrevocable (which it would have under both Restatements)
performance.
Brokerage Cases (Failure to Cooperate): General listing; Owner Broker
Owner says I will pay 6% commission if you find a buyer ready, willing, and able to buy on my
terms and you will be entitled to commission on closing of title
o On closing of title = express condition precedent
But various things can go wrong, what happens?
1. Owner changes mind and decides not to sell
The owner repudiates --- this is wrongful prevention; if the broker sues owner
for commission the condition (closing of title) is excused and broker wins
2. Buyer breaches so title does not close
Owner has 2 choices (1) Keep down pmt and say whatever OR (2) Sue B for SP
Does the owner of the property have a duty of cooperation to the broker to sue
the buyer for SP? --- No, condition is not excused, owner wins
3. Buyer and owner reach an agreement to rescind the contract (no breach by buyer)
If broker sues owner for commission, broker wins --- by mutually rescinding
with buyer this was wrongful prevention of the brokers commission

See Swartz v War Memorial Commission: [concessionaire has exclusive right to sell food +

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refreshments at War Memorial. Concessionaire pays WMC % of gross sales; commission wants
concessionaire to start selling alcoholic beverages but concessionaire refuses to apply for a license to do
so]
Court says this is like Wood v Lucy and this situation includes an implied reasonable efforts
obligation because that generates more gross revenue
GENERALLY Courts applying reasonable efforts obligations do so to prevent illusory
promise failures --- so if concessionaire had a fixed payment to the stadium this case may have
been different

See Stop & Shop v. Ganem: [parties enter into long term lease that includes fixed minimum rental paid
annually plus % of gross sales and excess taxes --- P wants to close its market at this location but will still
pay minimum rental pmt and taxes]
Question is: Can P close the store? (D says GF requires P to stay open) --- Nothing in the lease
says the store must stay open, promise is not illusory b/c P still has to pay the fixed rental and D
had barely gotten any money from % of gross sales
Court says we could find an implied promise to keep store open if a reasonable person on
the other side would conclude that there is one (following Williston) but there is none here
NOTE: Most cases will not imply a reasonable efforts obligation where you have a fixed rent that
is not purely nominal

Breach of Duty of Excuse of condition could be thought of as invoking duty of GF and FD


GF + FD So nephew could cancel the contract with grand uncle and sue for breach of GF of uncle
UCC + Rest. 2nd --- There exists an implied covenant of GF + FD in every contract
UCC defines GF as honesty in fact in the conduct or transaction concerned

See Cantrell-Waind v. Guillaume Motorsports: [lessor promises to pay broker $15,200 if tenant
exercises option to purchase and closing takes place before August 1st --- tenant exercises option to buy
and arranged financing on July 19th which means they are ready to close. Owner tries to make them wait
to close until after August 1st so he does not have to pay broker. Remanded for more information BUT if
owner unreasonably delayed to not pay broker this would be wrongful prevention and broker
can enforce commission without proving substantial performance]
Follows the Rest. 2nd --- the non-occurrence of a condition of a duty is excused when the
condition does not need to occur in order for performance of the duty to become due it may be
excused by prevention or hindrance of its occurrence through a breach of the duty of GF + FD

GF in Formation vs. Performance


During the performance and enforcement, but not during negotiations
o Parties are expected to be more wary during formation so there is a lesser duty of GF
o During performance, parties are engaged in a cooperative venture so there is a greater
duty of GF

See Market St Assoc v Frey: You cannot trick a person into not reading a K b/c this could be a
violation of the duty of GF [P requests financing from Trust pursuant to para. 34 of lease, but does not
tell Trust that they are requesting under that provision; Trust refuses to give financing and P attempts to
buy back at rate set in para. 34]
You cannot deliberately try and trick Trust into not reading the K this K was made 20 years
before and these parties are already in a contract together (so there is a greater duty of GF)

Estoppel Equitable Estoppel applies when a party:


1. Misrepresents or conceals a fact,
2. The other party justifiably relies on the deception; AND
3. The other party is injured by the reliance

Waiver Waiver = an indication of a willingness to perform despite the non-occurrence of a condition

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Occurs AFTER a contract is formed
o A waiver at the formation of a K is not a true waiver --- the issue is one of the
admissibility of evidence of this promise under the PER
Contractual rights are not waivable, conditions are
A party waiving must know or have reason to know the facts giving rise to the failure of a
condition
A waiver can be made by express promise or by conduct

Requirements:
1. The condition must be solely for the benefit of the waiving party
a. Waiver is always done unilaterally
i. Whereas a condition that benefits both parties can only be eliminated by
modification (which requires consideration)
b. This often requires interpretation of the contract
2. The waiver must be of an immaterial part of the agreed exchange
a. Ex: Insurance company promises to pay in case of a fire --- cannot waive the fire
b. An immaterial part of the agreed exchange is the usual subject of a waiver (ex. A
condition that fixes the time or manner of performance)
c. A time is of the essence clause is waivable because it is not a material part of the agreed
exchange (even though it is material)
d. Rest. 2nd Exception a condition that is a material part of the agreed exchange can be
waived if the other party has promised that the condition will occur --- the condition is
waived but the cause of action for breach is preserved

Retraction of a Waiver Before Failure of Condition:


Waiver BEFORE the failure of a condition may be withdrawn or modified if the withdrawal or
modification does not operate unfairly
o Even if there has been reliance, a new limitation may be set provided that a reasonable
time is allowed

Waiver vs. Modification:


A modification is a K in itself a mutual agreement under which one party agrees to relinquish
rights in return for consideration given by the other WHEREAS a waiver is one-sided
(unilateral) - one of the parties unilaterally gives up a contractual right w/o asking for or
receiving anything in exchange
If the right relinquished is material its abandonment must be exchanged for consideration
If the right relinquished is nonmaterial consideration requirement is dispensed with
A no oral modification clause could prevent a modification but will NOT prevent a waiver
If there is doubt whether it is a modification or waiver a waiver is preferred
A modification is NOT retractable and waiver before failure of a condition is

Repeated Waivers:
If a party repeatedly waives a condition, the other party can reasonably expect that future
waivers will be made unless the first party reinstates the condition by reasonable notice

Election Election party chooses to excuse the failure of condition


Waiver After
Failure of Retraction of a Waiver After Failure of Condition:
Condition Majority View an election cannot be withdrawn even if the other party has not relied on it

How to Waive:
1. By Express Promise
a. Clark v West: A waiver of an express condition occurs when a party who owes a
conditional duty may indicate that he will not insist on the occurrence of the condition

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before performing [P entered into K w/ D to write law books. K says P will be paid at
$2/page and if he complies w/ the condition of total abstention he will receive $4 extra
per page]
i. Drinking is immaterial b/c it is not what West bargained for --- he was
bargaining for the books to be written, he does not care about the sobriety
ii. D had full knowledge that P wasnt complying w/ the condition but still told P
he was entitled to and would receive the $4 extra/page
2. By Conduct, 3 Ways:
a. Innocent party continues to perform after failure of condition
b. Innocent party has right to cancel the K, but allows the other party to continue to
perform after a material breach
i. Schenectady Steel: When you have a right to cancel the contract because of
failure of a condition of time is of the essence clause, you elect to continue and
the time for performance becomes a reasonable time [General contractor
allows subcontractor to keep working even though time is of the essence date
was not met]
1. Letters do not reinstate time is of the essence to reinstate the letters
would have to give a specified date in the future (asking for a schedule
does NOT do this) ---- NOTE: you do NOT have to send letters to impose
reas time
c. Acceptance of a defective performance (minus damages for partial breach)
i. BUT this is not so when the defective performance is attached to your own
property and cannot be removed w/o material injury (this is different if the
owner manifests an intent to pay the K price despite known defects --- then hes
limited to an action for partial breach) --- the builders only hope is quasi-K
ii. NOTE: If there were material defects of which the owner was justifiably not
aware, the owner may refuse to pay and claim damages despite an earlier
election to pay

Effect of Election Immaterial Breach


on Damages Only allows an action for partial breach
Material Breach
Can cancel the K and sue for total breach
Can elect to continue K and sue for partial breach
o NOTE: You should always say Im reserving my right to damages b/c the
language/conduct of the aggrieved party may indicate a renunciation of right to
damages

Excuse of A Court Can Excuse a Condition If:


Conditions 1. Its requirement will involve extreme forfeiture or penalty (Rest. 1st) or disproportionate
Involving forfeiture (Rest. 2nd); AND
Forfeiture 2. Its existence or occurrence is an immaterial condition
Before Condition Is Excused, Courts Will Balance The Equities To Decide:
Equity abhors a The ethical position of the party who seeks to have the condition excused
forfeiture The injury suffered by the other party

Ex: B pays $30,000 for 30 day option and seeks to exercise option on day 31 Court will not allow this
b/c B got exactly what he bargained for so there is no forfeiture or penalty

Ex: T has an option to renew his restaurant lease for 24 years by giving notice 6 months prior to the
expiration of the lease. T made physical improvements but tried to exercise option 4 months late. What is
the forfeiture on T? Physical improvements on the property and goodwill (they have a customer base
at this location that they will lose)
Courts will balance the equities --- (1) Is T attempting to speculate at the expense of the LL? (2)

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Has LL changed position / will he suffer prejudice (wanting higher rents is not injury)?

R&R of CT, Inc. v. Stiegler: A lessees failure to timely renew a lease will be excused where (1) the failure
was not due to willful or gross negligence, (2) the delay was slight, (3) the delay did not cause significant
loss to the lessor, and (4) strict enforcement of the renewal provision would result in significant hardship
to the lessee [P operates grocery store on property leased from D. Lease included option for renewal to
be exercised by written notice at least 1yr prior to Dec. 31, 1984. P did not comply with lease renewal
and on Jan. 26th D notified P that lease would terminate on its expiration date and it would be selling
property. P said his attny died and thats why they didnt renew the lease, P had invested a large amount
of money in the store, there was no suitable relocation spot for P injunction granted on the grounds
that equity should prevent forfeiture of the lease]

C & J Fertilizer v. Allied Mutual: [insurance co denies coverage b/c precise defn of burglary in policy was
not met] --- this court does not apply excuse of condition for relief from forfeiture
Revolution in formation of contractual relationships
Reasonable expectations = K law should protect the reasonable expectations of parties
o This doctrine tends to be limited to insurance situations
Implied warranty of fitness for a particular purpose (UCC)
o Wants to extend this UCC provision for sale of goods to sale of insurance b/c people buy
insurance like they buy goods
Unconscionability
o The doctrine of unconscionability is addressed at the time of the K formation whereas
the doctrine of unfair forfeiture comes into play at a later time
o Here --- burglary defn was in small print, people do not read insurance policies, policing
standard form Ks

Other Bases for Tortured interpretation


Excusing Contrary to public policy
Conditions Unconscionable
No duty to read the particular provision
Theory of impossibility

Conditions of Satisfaction
NOTE: Only when expressly conditioned a condition of satisfaction is NOT implied!!!
Satisfaction of a We must ask: Does the provision of the contract call for personal (actual) satisfaction or only the
Party to the K satisfaction of a reasonable person?
Rest. 2nd Personal satisfaction is required if the agreement leaves no doubt that it is only
honest satisfaction that is meant, or if it is the type of case in which it is impracticable to apply
an objective test
Where there is doubt or ambiguity The preferred interpretation is that the contract calls for
an objectively satisfactory performance
o But if it is clear enough we should respect the parties agreement

2 categories:
1. Involve taste, fancy, or personal judgment (ex. Paint a portrait)
a. Rejection must be in GF actually dissatisfied
b. This is a subjective standard of honesty of satisfaction --- it cannot be based on things
known at the time of contracting though
2. Involve utility, fitness or value
a. Basically an objective standard would a reasonable person be satisfied?

Once it is decided that personal satisfaction is called for, the issue is the GF of the party to be
satisfied
Dissatisfaction must be actual not merely simulated

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BOP is on the party asserting BF (this is a CP)
o Maj view: P could present evidence that a reasonable person would be satisfied and this
creates a prima facie case (it aids in the BOP but does not make you prevail)
See Western Hills v. Pfau: It is inherent in the requirement that dissatisfaction be bona fide and
in GF that the promisor cannot be allowed to base a claim of dissatisfaction on circumstances
which were known or anticipated by the parties at the time of contracting [involves Bs condition
of satisfaction as to a development plan]
o This case was based on category 1 even though personal satisfaction was not technically
said in the K due to the multiplicity of factors (Mattei) there were too many factors in
deciding whether development plan would be reasonably satisfactory

Satisfaction of a Where personal satisfaction of a third party is involved (ex. Architect certificate --- architect MUST be
Third Party acting independently if not, the condition of the certificate would be excused) :
Maj View: Strict compliance with the condition is the rule, the court will not substitute the
approval or satisfaction of judge or jury for that of the chosen expert
o Follows a GF standard
Min View: where the builder has substantially performed, the architect cannot withhold a
certificate
o This is a reasonableness standard to protect actual forfeiture of the builder (so it would
not be applied in a sale of goods case where S can keep the goods + resell there is no
forfeiture)

Repudiation/Prospective Non-Performance
Generally Repudiation
A promisors unjustified positive statement that he will perform a total breach
To establish a o Must be unjustified so if the other party has materially breached, there would not be a
COA, P must (1) repudiation
prove the K, (2) o Statement or act must be serious enough to qualify as a material and total breach an
the breach by intent to deviate in some minor way from the promised performance cannot be grounds
repudiation, and for the extreme action of termination
(3) that he or she
would have been Three Important Questions:
rw+a to perform 1. Is there a repudiation? If yes, go to (2)
2. Anticipatory or present repudiation? If anticipatory, go to (3)
3. If anticipatory, has P fully performed at the time of repudiation? If yes, P must wait until law
date to sue
Repudiation
1. Is there a repudiation? 3 Actions Constitute a Repudiation:
1. A positive statement to the obligee indicating that the promisor will commit a total
breach (a statement that he will not or cannot perform)
i. Traditional View The statement must be so unequivocal that the intent not to
be bound by the terms of the contract must be beyond question
1. So There is no repudiation if the promisor says I doubt I will
perform or if the promisor says performance will be withheld unless a
specific condition is met, even if the condition is unlikely to occur
ii. Modern View (Rest. 2nd) The statement must be sufficiently positive to be
reasonably interpreted that a party will not or cannot substantially perform
1. This softens the requirement --- repudiation includes language that a
reasonable person would interpret to mean that the other party will not
or cannot make a performance still due under the K
2. So Any language that amounts to an intention not to perform except
on conditions which go beyond the K constitutes a repudiation
iii. The question of whether words or action indicate a clear and unequivocal intent
to breach is one of interpretation --- this is an objective test and the GF of the

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repudiator is immaterial (if you are wrong in your action, you repudiated)
1. EXCEPTION: An offer to perform under a misinterpretation of the K will
generally not constitute an unequivocal repudiation
2. Transferring or contracting to transfer to a third person an interest in specific
land, goods or in any other thing essential for substantial performance
3. Any other voluntary act that renders substantial performance of the promisors
duties impossible or apparently impossible
2. Anticipatory or Present Repudiation?
1. Anticipatory where a party repudiates the K before the time for performance arises;
there is no breach by non-performance yet
i. Hoechster v De La Tour anticipatory repudiation is a BOK - when one of the
parties clearly repudiates a material promise in advance, the other may treat
this as a breach immediately and may seek relief for breach w/o delay
1. Resistance to Hoechster Doctrine:
a. Outright rejection but all eventually accepted in some way
b. Reluctance to find that a partys positive statement was in fact
a repudiation High bar on what constitutes repudiation
(Drake)
i. Drake v. Wickwire: an ambiguous statement is not a
repudiation (S requests earlier closing date, B says
they dont have money to close but it is not clear
whether they were rejecting earlier closing date or K
date)
c. Limiting the doctrine to its facts + reasoning (Williston)
ii. Rights P can sue immediately for total breach (before the law date)
1. EXCEPTION: Where P has already fully performed, there is no cause of
action for breach by repudiation - he must wait until the law date to sue
(Williston, Rest. 1 and 2, Prevailing view)
2. Present a repudiation that occurs simultaneously with or subsequent to a breach by
nonperformance --- actual non-performance (breach) + repudiation
i. Rights Breach is treated like any other breach can sue immediately for total
or partial breach --- P must show that he was ready, willing, and able to
perform on the date, but for the repudiation (does not actually have to tender
performance it is excused by the other partys repudiation)
3. If anticipatory, has P fully performed already?
1. Williston (Prevailing View) If P has fully performed at the time D repudiates there is no
cause of action for breach by repudiation
2. But when a party makes a repudiation you take that into consideration for material
breach. So this allows you to sue on the law date (you do not have to wait a reasonable
time after law date to sue)

Possible Responses to Repudiation comes with duty to mitigate damages


1. Suspend performance
2. Cancel contract
3. Change position
a. This does not have to be communicated to the other party
4. Sue immediately
a. The injured party may bring an action for total breach must show that he would have
been rw+a to perform but for the repudiation (does not require P to tender
performance)
i. Rest. 2nd One partys repudiation of a duty to render performance discharges
the other partys remaining duties to render performance
b. He does not have to sue immediately, but failure to do creates the risk of the repudiation
being retracted
5. Ignore repudiation BUT you have a duty to mitigate damages so you shouldnt do this

49
a. Under election theory Promisee may elect to perform and can ignore repudiation
b. Modern cases Duty to mitigate damages overrides the concept of election; promisee
may NOT continue to perform if the effect would be to enhance damages
i. How soon must the non-repudiating party act to mitigate damages?
1. UCC aggrieved party may, for a commercially reasonable time, await
performance by the repudiating party (if he waits beyond this time, he
cannot recover resulting damages that he could have avoided)
2. CL Rule aggrieved party must act promptly after learning of
repudiation
6. Urge retraction
a. This may create a mitigation of damages problem
b. UCC the aggrieved party may urge the repudiator to retract without prejudice to the
aggrieved partys rights (can still cancel contract or change position)

Retraction of Repudiation If an anticipatory breach is withdrawn in time there is no breach;


withdrawal of the repudiation effectively reinstates the duties of the contract.
Rest. 1st Ability to retract repudiation is stopped by:
o A change of position; or
o Suing immediately
Rest. 2nd (& UCC) Ability to retract repudiation is stopped by:
o A change of position; or
o Suing immediately; or
o Cancelling the contract (no other act of reliance is necessary where the aggrieved party
indicated that the repudiation will be considered final)
Merely suspending performance does not bar retraction

Prospective Prospective inability or unwillingness to perform (sliding scale --- slight to serious)
Nonperformanc No matter how serious prospective non-performance is, it is NOT a breach --- so you cannot bring
e Short of lawsuit until the law date
Repudiation The course taken depends on whether there is a reasonable probability that a party will not or
cannot substantially perform
Example, serious prospective inability to perform: contract for sale of RP and S did not have title
to the property at the time K was entered into

Effect of Impossibility on a Prior Repudiation


Subsequent impossibility (after a repudiation) will discharge an anticipatory breach and partial
impossibility will limit damages for the breach --- recovery will be limited to the period before
impossibility

Remedy of P --- this is a question of degree and probability


Rest.1st
o Slight Prospective Non-Performance Basically, there is nothing you can do
Cohen v. Kranz: A vendor with incurable title defects is automatically in default,
whereas a vendor with curable title defects must be placed in default by a
tender and demand (B finds curable clouds on title of RP. Instead of revealing
clouds, B tells S that title is unmarketable and demands return of down pmt.
Cancellation was an overreaction and amounts to repudiation by B curing
clouds is excused by Bs repudiation, S has to show that he would have been
rw+a to cure but for repudiation)
o Serious Prospective Non-Performance Rest. 1st says if you have reason to believe the
other party will commit a total breach this is serious prospective nonperformance and
you can change position and sue for total breach on the law date
Schnectady: Since there was no positive statement this was not a repudiation,
but it was so serious that the genK-or could change position and this cuts off the

50
ability of the other party to retract non-performance. GenK-or could bring action
on law date.
Insolvency:
UCC where S discovers that B is insolvent, he may refuse to deliver
goods (except for cash) unless B offers to pay in cash
Rest. 2nd allows insolvent to give security other than pay cash and
thus become entitled to the other partys performance
Maj view failure of the insolvent party to make the necessary tender
w/in a reasonable time discharges the duty of the solvent party
completely
Rest. 2nd + UCC
o Demand for Assurances - If a party has reasonable grounds to believe that the other
party will commit a breach of non-performance that party may demand adequate
assurance of performance --- gives right to suspend performance until assurance is
received. Failure to give adequate assurance within a reasonable time operates as a
repudiation.
Need serious prospective nonperformance to trigger this (can come from
other Ks either to you or to third parties)
UCC - Demand for assurances must be in writing (although some cases have
ignored this) --- Rest. 2nd does not require this
Failure to provide assurances w/in a reasonable time will be treated as a
repudiation Converts to anticipatory repudiation and you can sue
immediately
UCC Reasonable time = not over 30 days
Rest. 2nd The right to demand assurances displaces all other rights (you cant
cancel K or change position before demanding assurances so if you dont
demand assurances and just change position, and the other party shows up on
the date of performance rw+a to perform, you will be liabile for BOK) --- UCC
says right to demand assurances is permissible, but not required
This can be used to:
Convert PIUP into a repudiation; or
Convert a partial breach into a repudiation (Schenectady the 2 letters)
What is Adequate Assurance? --- This varies standards of commercial
reasonableness are involved, so it depends on the nature of the insecurity and
the reputation of the parties (inadequate response = breach)
o CL does not recognize the right to demand assurances

Impossibility/Impracticability of Performance & Frustration of the Venture


This is a defense (it creates an excuse for nonperformance when nonperformance is no longer a breach)
Impracticability is a complete defense relieves the party of the duty of performance and liability for damages
Impossibility / Traditional Rule Impossibility All promises must be kept unless it becomes impossible by:
Impracticability Death/unavoidable illness
A supervening change in the law that made performance unlawfully (legally impossible)

Modern Rule Impracticability (Rest. 2nd & UCC) When a performance becomes impracticable b/c of
an event that the parties assumed would not occur when making the K, the duty is discharged, unless the
language or situation points to a contrary result
Gap Theory failure to provide for this event is a gap in the contract see Taylor v Caldwell D
promised to license to P the use of a Music Hall on certain dates. Prior to these dates the music
hall was burnt down w/o Ds fault. The impossibility of performance excuses D from
performance. Gap theory: the continued existence of the music hall was a basic assumption on
which the K was made (it was the foundation of the K) and it creates an implied CP.

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Three Part Test:
1. Was there, contrary to the basic assumption of both parties, an unexpected contingency?
a. This unexpected event changes the very basis of the exchange (the foundation of the K)
b. The unexpected event must be unforeseen = the parties did not contemplate it as a real
likelihood (even if it could be imagined, the parties contracted on the assumption that it
would not) ---- if you can foresee the event you should provide for it in the K
i. Eastern Air Lines v. McDonnell Douglas when the promisor has anticipated
a particular event by specifically providing for it in a K (force majure/excusable
delay clause), he should be relieved of liability for the occurrence of such event
regardless of whether it was foreseeable [D delayed delivery of jets due to
government jawboning not an official act of govt]
c. Traditional Categories Where Basic Assumptions Have Been Found to be Violated:
i. Destruction of subject matter or means of performance
ii. Failure of the contemplated mode of delivery or payment
iii. Supervening illegality or prevention by law
iv. Death or illness of person essential for performance
d. If this was a basic assumption no defense of impracticability
2. Did the promisor show that this event made performance impossible/impracticable?
a. Impracticable = unduly burdensome A performance is rendered impracticable if,
without the fault of either party, it can be accomplished only with extreme or
unreasonable difficulty
3. Who should incur the risk of the unexpected contingency? This is the predominant
consideration
a. If the risk was assumed nonperformance cannot be excused; no defense of
impracticability
b. UCC and Rest. 2nd A promisor may not benefit from the doctrine of impracticability if
the promisor is guilty of contributory fault or if there is a contractual term allocating the
risk to this party (and you can assume greater risk than the doctrine)
i. EXCEPTION: Personal services contracts are discharged by impossibility
even if you contributed fault - It is too hard to figure out who is killing
themselves and who is not. See CNA Intl Reinsurance Co v Phoenix River
Phoenix got the excuse of impossibility even though he overdosed on drugs and
died

Remedy
Where there has been partial performance, and then impossibility/impracticability (ex. Repairer
starts repairs on bridge for owner and then bridge burns down) restitution for unjust
enrichment is available --- what if repairer also had unused logs with him that got burnt down as
well, this gives no benefit to the owner, can he recover? --- Case says no, but:
o Minority View (Perillo view) Restitution should also cover unjust impoverishment
If any performance has been rendered by either party under the K prior to the finding of
impracticability, the benefit or its value must be returned
o Ex O gave RR right of way over his land in exchange for free passes. Now it has become
illegal to give free passes so RR has defense of impossibility. In a suit for restitution O
has to give back the value of the passes received & RR has to give back the value of the
right of way

Partial impossibility
Gives only a partial excuse unless it makes the balance of performance impracticable
(substantially more burdensome) then in that case it would give a total excuse

Repairer vs. Builder


Repairer discharged by impracticability if there is a fire (or other event)
Builder NOT discharged if there has been a fire (or other event) in the middle of the project

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UCC 2-614 Impossibility as to Manner of Performance:
If manner of performance is impossible/impracticable, S must use a commercially reasonable
substitute (and B is obligated to accept)
o Commercially reasonable substitute is the opposite of impracticable so even if it is more
expensive it still may be a commercially reasonable substitute
If one is not available then apply general excuse of impracticability --- you get a temporary
impossibility defense and the additional time taken to perform is not a breach (UCC 2-615)
Same concept as UCC but not covered ---- Transatlantic Financing v US: An alternative is not
necessarily impracticable when it only can be done at an excessive and unreasonable cost [Suez
Canal closed so voyage charter costs much more to go around Cape of Good Hope]
o This outcome would not have been different even if it said via Suez Canal b/c there is
still a question of whether there is a commercially reasonable alternative
o Performance becomes impracticable when the unexpected contingency alters the
essential nature of the performance (not just an increased cost)
Courts are not quick to find impracticability in these cases
o Mineral Park cost of performance was 1000% more than K price deemed
impracticable
o But 300% increase was not

Impracticability Due to Reasonable Apprehension of Danger to Person or Property


Considers fault ex. Going to work in Kentucky and finding out about a disease there vs. joining
Peace Corps and going to Malaysia and finding out about a disease
It does not matter if it doesnt actually occur as long as it was reasonable

Impossibility as Excuse of Condition


P contracted to excavate for D. D promised to pay P when registered surveyor certified. P fully
performed and then building burns down and surveyors records are destroyed by fire so he is
not willing to certify but will testify. Express condition is excused by impossibility.
Closely connected to rules for forfeiture

Existing Impracticability
If performance is impracticable at the time the contract is made and the party against whom
enforcement is sought was unaware of the impracticability and did not otherwise assume the
risk, the agreement is void.

Note: In sale of goods cases S will always claim impossibility and B will claim frustration of purpose
Why? There is no excuse for financial inability to perform (B only pays for goods)

Frustration After K is made, principle purpose is substantially frustrated which is not his fault
o Purpose = the basis on which both parties contract
Extension of the impossibility doctrine Designed to provide relief when an event so destroyed
the value of the transaction for him that the contracts underlying purpose was frustrated

Defense of Frustration Requires:


1. An event that frustrates the purpose of one of the parties and the occurrence of this event
must be the basis on which both parties entered into the contract;
a. Court in Krell v Henry says PER does not exclude the purpose for which both parties
entered the K
2. The frustration must be total or nearly totally frustrated;
3. The party who asserts the defense must not, expressly or impliedly, have assumed the
risk of this occurrence or be guilty of contributory fault.

Krell v. Henry: If the substance of the K calls for a particular state of things this will limit the general

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words of the K and if the K becomes impossible by reason of the nonexistence of the state of things
assumed by both parties as the foundation of the K, there will be no BOK King got sick and coronation
was postponed. D had no reason to use the flat and refused to pay the balance. P sues for balance court
says he has excuse of frustration]

Western Properties v. Southern Utah Aviation: [lessee promises to build maintenance building at
airport and pay rent, but cannot get approval for project]
Failure of the city to approve the project calls for application of the impossibility doctrine
o Modern View we care about what the parties actually did foresee, not what could
have been foreseen
o Traditionally If risk is foreseeable and you fail to provide for it in the K then you do not
get excuse of performance (should say if city fails to approve, lease will terminate)
Claim for stopping rent pmt is frustration of venture b/c there was no other way of
productively using the land
o Difference from impossibility doctrine Performance is pointless instead of
impossible/impracticable (because it is always possible to pay)

Uranium Case: Gap theory of frustration Contract language does not apply because parties never
contemplated this situation, court should fill gaps by discharging contract [parties never contemplated
denial of uranium plant combined with collapse of market so Swiss has no further obligations the point
is that the K was not intended to cover this situation]

Remedies
Remedies
Generally Purpose of Remedies (344) remedies serve to protect one of the following interests of a promisee:
Expectation Interest
Reliance Interest
Restitution
Ex: Contr makes $10,000 profit if full performance. Contr enters K w/ owner to build house for
$100,000. Owner repudiates. Contr stops working with $60,000 cost avoided. But work done cost him
$30,000
Expectation dmgs = 100,000 (LIV) 60,000 (CA) = $40,000
Reliance dmgs = 30,000
Restitution recovery = 40,000 (if this is the benefit conferred on the owner)
Ex: Losing Ks Contr loses 30,000 if full performance. Contr enters into K w/ owner to build house for
100,000 Cost for contr to perform is 130,000. Owner repudiates. Contr has performed 70,000 worth
of work. So cost avoided is 60,000.
Expectation dmgs = 100,000 (LIV) 60,000 (CA) = 40,000
o Contr ends up losing 30,000 [40,000 recovery 70,000 spent] --- this is the same he
would lose if he fully performed\
Judicial Remedies Available (345)
Price of K or damages
Specific Performance or enjoining its nonperformance
Restoration of a specific thing to prevent unjust enrichment (specific restitution)
Sum of $ to prevent unjust enrichment (quasi-K)
Declaring rights of the parties
Enforcing arbitration award
Availability of Damages (346)
Injured party has a right to damages for any breach by a party you have an enforceable K
with, unless claim for damages has been suspended/discharged

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If breach creates no loss nominal damages are available

Types of Remedies:
1. Expectation The interest in having the benefit of ones bargain - Put P in the position he would have been
had the contract been performed
NOTE: The measure of damages is subject to the agreement of the parties the parties may
provide for liquidated damages or they may exclude liability for consequential damages
You are limited to the actual loss caused by the breach --- if, after the breach, an event occurs
that would have discharged the party in breach on grounds of impracticability of performance
or frustration of purpose, damages are limited to the loss sustained before that event
o Cannot get more than your expectancy. Why? K laws goal is to compensate the
injured party, not to punish the breaching party

General Measure of Damages = Loss in value + any other loss cost / other loss avoided
This is a value rule
Loss in value (LIV) this requires a determination of the values of the performances to the
injured party himself and not the value of a reasonable person or the value on the market
Other Loss (OL) The injured party is entitled to recover for all loss actually suffered
o Incidental losses Costs incurred in a reasonable effort to avoid loss (ex. Party pays
broker fees to arrange a substitute transaction) does not matter if they were
successful or not in finding a substitute
Incidental dmgs are a form of consequential dmgs except they dont have to
be foreseeable
o Consequential losses Injury to person or property resulting from defective
performance
Recoverable if foreseeable at the time of contracting (we want to
encourage parties to disclose potential losses)
o Emotional Disturbance Generally NOT recoverable unless:
(1) Emotional harm accompanies a bodily injury (Hawkins v McGee)
(2) Contract/breach is of such a kind that serious emotional disturbance was
a particularly likely result (ex: Ks for the carriage of dead bodies)
Costs/Other Loss Avoided (CA) Using resources that are no longer needed to perform K;
salvageable materials --- CA is subtracted only if saving results from injured party not having
to perform rather than some related event (ex: You promise to furnish a machine for my biz,
you breach and dont deliver, later my building burns down this is NOT a CA)
o Ex: Const K to build hotel not finished in time Deduct expenses for operating hotel

Expectation Damages, 3 Types:


1. LIV to P
a. This may be unavailable if P cannot show LIV to him w/ sufficient certainty
2. Cost to complete or repair
a. Often LIV cannot be determined
3. Diminution in MV of property caused by breach
a. Difference b/w the market price the property would have had w/o the defects and
the market price of the property w/ the defects
b. This is used when the cost to remedy would be excessive
c. Rest 1st you dont give cost to complete when it would be clearly disproportionate
b/c there would be economic waste
d. Rest 2nd Concern of windfall to P (we dont want to overcompensate him)
i. See J+Y v Kent

Peevyhouse v. Garland Coal: [Ds promised to restore Ps land after strip-mining but refused to do so
after completing the work. Cost of restoration would be $29,000 and would only increase value of land
by $300]

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Cost of performance is the proper measure of damages, unless the cost of completion is grossly
and unfairly out of proportion to the good to be attained. Then, the measure is the difference in
value
o Problem was that this court did not consider the actual loss to this person the
personal aspect of the land should have been considered
o Court said the K provision breached was merely incidental to the main purpose of the
K
Groves v John Wunder Co came out differently b/c the majority said the breach was deliberate
and willful and the cost of performance rule was followed (but note: motive of breacher should
not matter b/c the purpose of K law is to make the injured party whole)

Lost Volume Seller


Applies only when an injured party can take on as many jobs as people request and, therefore,
when any new jobs are not substitute jobs
A lost volume seller cannot mitigate damages through resale. Resale does not reduce a lost
volume sellers damages b/c the breach has still resulted in its losing one sale and a
corresponding profit
This is a question of fact

2. Reliance Injured party may choose to recover as dmgs his expenditures in reliance
Where the injured party cannot prove lost profit with reasonable certainty, he may recover
expenses for preparation and part performance as well as other foreseeable expenses incurred
in reliance on the K
Injured party may choose to do this in the case of a losing K BUT if the party in breach can
prove loss with reasonable certainty, he may subtract loss from injured partys dmgs
o So Reliance recovery is limited by expectation recovery BUT the advantage is that it
puts the BOP on the D to prove the loss

Gruber v. S-M News [P promises to make 90,000 sets of x-mas cards. D promises to use reasonable
diligence to sell and will pay 84 cents for each set sold. D breaches promise]
Rule #1: Certainty P can only recover dmgs that can be established w/ reasonable
certainty
o Here, P would have to prove how many cards would have been sold and D has no
experience selling xmas cards, this is a new business.
New Business Rule You cannot prove lost profits in the case of a new
business (note: this rule is in decline and a court may relax the certainty
requirement and welcome other types of statistical evidence)
Even if you cannot prove expectation damages, you can recover expenditures for labor
and material minus the expenses saved if D fully performed (Reliance damages)
o Reliance recovery is still subject to the avoidable consequences rule
o Certainty is a limitation in reliance recovery
o Foreseeability is a limitation in reliance recovery (essential v nonessential reliance)

Essential vs. Nonessential Reliance:


Essential Reliance Partys reliance directly contemplated by the K
o Ex: A and B are negotiating complex merger transaction and contract. Later A
repudiates, Bs lawyers fees incurred in preparing docs to execute the transaction are
recoverable
Non-essential Reliance Partys reliance incurred in preparation for collateral transactions
o Ex: A contracts to sell his retail store to B. After B spends $100 for inventory, A
repudiates. B resells inventory for $60,000. If B cant prove with reasonable certainty
the profit he would have made had the K been performed, he can recover $40,000 loss
he sustained on the sale of the inventory.

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Precontractual Reliance:
American Rule Precontractual reliance is not recoverable in reliance dmgs
o See Gruber v S-M P was unable to recover for cost of plates bought before the K was
entered into to make the xmas cards
English Rule Precontractual reliance is recoverable if foreseeable at the time of contracting

3. Restitution Restitution is NOT damages and it is not always recoverable as an alternative to damages
Note: In cases where there has been an anticipatory repudiation and you have already
performed the court should still be able to give restitution recovery

ONLY Available When Benefit Has Been Conferred


Court will grant relief to prevent unjust enrichment
Measure of Recovery
Reasonable value to the other party of goods/services/property rendered MINUS
Reasonable value of any counter-performance received
Limitations on Restitution:
(1) Restitution requires a total breach of contract by non-performance or repudiation
o If breach gives rise to damages for partial breach restitution is not available
o This rule also applies to divisible Ks if one party has fully performed one part of a K
and all that remains on the other side to pay the price, recovery is limited to that sum
o For the part of the K that is substantially performed, you get the K price and can
recover in quantum meruit for the part that is not
(2) The remedy of restitution is not available to one that has fully performed his part of the K
when all that is left of the breaching party is to pay a sum certain (price) --- in these cases, the
injured partys recovery is the contract price, not restitution
o See Oliver v. Campbell [Campbell hires Oliver as his attorney in a divorce case for
$850. After nearly completing the trial, Campbell fires him. Oliver sues for the
reasonable value of his services which he says is $10,000]
Effect of the K Price on Valuing Services:
Rest. 2nd (Maj View) Injured party can recover restitution based on the reasonable value of
his services. K price is mere evidence of the reasonable value of the services.
View 2 K price is the ceiling on the recovery
View 3 K price is conclusive on valuing the services (so you would have to prorate the K price
for the work done Ex: You are to build a wall for B for $850. After you have completed 2/5
of the work, B repudiates. You are entitled to recover 2/5 * $850 = $170)
Restitution For Party in Breach:
Maj View Cannot get restitution
Rest. 1st Can get restitution as long as breach is not willful (and you deduct damages)
Rest. 2nd Party in breach is entitled to restitution for any benefit he has conferred in excess of
any loss he has caused by his own breach

Specific This is a form of equitable relief and granting it is within judicial discretion
Performance Generally will only be given if damages would be inadequate to protect the expectation
interest of the injury party
o Ex: RP, Unique objects
SP came from England --- Kings Court and Chancellors Court (split for law + equity)
SP will be denied when P has unclean hands, laches P waits to long to start a lawsuit, when
hardship to D or to the public will be in great excess to any benefit to P

Laclede Gas Co v Amoco Oil [P brings BOK suit seeking SP against D for a long-term requirements K
for propanse]
Elements to Consider To Determine Whether to Decree SP:
1. Validity of the K and Value Material terms must be reasonably certain in the K

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(no indefiniteness problems)
2. Certainty The parties performances should be described in the K w/ greater
precision than in a case for dmgs.
The court must be able to determine with reasonable certainty what is
the duty of each party and the conditions under which performance is
due
3. Cannot prove dmgs w/ reasonable certainty when damages would be an
adequate remedy, we wont generally give SP
Requirements K would be difficult to prove dmgs when breach results in a cut
off of a vital supply of raw materials
4. Impossibility A court will not order SP when a party is no longer capable of
performing

Contracts for Personal Services


Ement Ks are not specifically enforced against the employee
At times, an employee may be enjoined against working for another
o Will not be granted if it leaves the eee w/o other reasonable means of making a living
Enforcement against employer is usually denied b/c of difficulty of supervision
NOTE: A personal service is non-delegable but not every non-delegable performance is a
service (ex. Signing a diploma Court will give SP)

Damages in UCC UCC Provisions


cases Normal Measure of Recovery - Expectation recovery
Consequential Damages only B may recover
o If foreseeable at the time of King; if they could not have been reasonably
prevented by cover or otherwise; and can be recovered for injury to
person/property resulting from any breach of warranty
o If you believe S should get consequential dmgs Use CL supplementation
Incidental Damages both B + S can recover
o Ss incidental dmgs commercially reasonable expenses incurred in stopping
delivery, in the transportation, care and custody of goods after Bs breach, in
connection w/ return or resale of the goods or otherwise resulting from the breach
o Incidental dmgs affirmative recovery for an effort to mitigate dmgs (limited to out of
pocket expenses)
When B wrongfully rejects goods or fails to make pmt before delivery w/r/t
undelivered goods, S can:
o Withhold delivery
o Stop delivery
o Resell + recover damages
o Recover dmgs for non-acceptance + sometimes price
o Cancel K
S does not deliver B may cancel K and recover:
o Mkt price K price expenses saved in consequence of Ss breach; OR
o Cover price (price reasonably paid even if in excess of mkt) K price expenses saved
in consequence of Ss breach
Cover = Actual substitute transaction
Cover is not a mandatory remedy for B; if he decides to cover he must act in a
commercially reasonable way (but recovery of consequential dmgs is limited
to those that could not have been removed by cover)
o SOMETIMES B may obtain SP or replevin When goods are unique or other proper
circumstances
o B may also recover consequential + incidental damages
B can recover consequential dmgs (lost profits) when direct damages (cover-
K price; mkt-K price) arent available, B can prove foreseeability, B can prove

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that loss was unable to be prevented
S breach of warranty Difference in value b/w goods if they had been warranted and their
actual value (applied by analogy in Hawkins v McGee)
B does not accept goods
o S measure of damages K price market price any expenses saved
Note: You dont actually have to sell the goods, you can still recover difference
o If S resells goods (and resale is made in GF + in a commercially reasonable manner)
S recovers = K price resale price + incidental dmgs expenses saved from Bs
breach
S is NOT accountable to B for any profit made on any resale
If S incurs greater loss than the mkt price, he can still recover actual resale
price
o If S is a lost volume seller S can recover profit he would have made from full
performance by B (do not mitigate damages)
B accepts goods
o When B fails to pay S has action for price; may recover incidental damages
o But if goods are non-conforming buyer can sue for damages if prompt notice of
breach is given (2-607)
Bs dmgs = difference in value of goods accepted and what he should have
received
B may also recover incidental + consequential dmgs
B may deduct damages from the price still due under the K (if he notifies S of
his intention to do so)
Limitation of Remedy Clauses (2-719) Parties may agree to limit the damages
recoverable:
o Resorting to the remedy is optional unless the remedy is expressly agreed to be
exclusive (then it is the sole remedy)
o If exclusive remedy fails its essential purpose, other remedy can be had (if an
exclusive remedy for B is repair and the goods cannot be repaired, B can obtain
restitution of purchase price and can recover general + consequential dmgs for breach
of warranty)
o Consequential damages may be limited/excluded unless its unconscionable
Limitation of CD to person in the case of consumer goods is prima facie
unconscionable
Limitation of CD where loss is commercial is not

Limitations on Damages:
1. Certainty Damages must be proved with reasonable certainty
This is applied with special stringency to lost profits as consequential dmgs
See Gruber v S-M News

2. Foreseeability Foreseeability
K damages cannot be recovered unless they are foreseeable to the parties at the time of
contracting (or if the UCC applies --- Seller is also held responsible for buyers damages if they
were foreseeable at the time of contracting OR breach)
Test of foreseeability is objective based on what he had reason to foresee
o We have rejected the tacit agreement test where you had to find that D tacitly agreed
to be liable --- NOW loss may be foreseeable as a probable result of breach
If the inability of the injured party to make substitute arrangements in the case of breach was
foreseeable by D at the time of contracting Resulting loss was foreseeable
In order to foresee probable loss you also have to foresee that loss could not be avoided

Hadley v. Baxendale [mill owner contracts with transportation company to deliver his broken crank
shaft to get repaired. Transportation company delayed in delivery and mill owner could not operate

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mill and incurred lost profits]
Rule: Foreseeability Damages are not recoverable for loss that the party in breach did
not have reason to foresee as a probable result of the breach at the time of contracting

As Justice So Requires (Rest. 2nd 351(3))


It is not always in the interest of justice to require to party in breach to pay dmgs for all of the
foreseeable loss that he has caused; examples:
o Extreme disproportion b/w loss + price charged
o Informality of dealing absence of a detailed written K shows that parties did not
think carefully about allocation of risks
Limitations:
o Denial of recovery for lost profits
o Restriction of dmgs to loss incurred in reliance on K

3. Mitigation Avoidable Consequences


(Avoidable Damages are not recoverable for loss that the injured party could have avoided w/o undue
Consequences) risk, burden or humiliation
Injured party is not precluded by recovery to the extent that he has made reasonable by
unsuccessful efforts to avoid loss
Reasonable incidental damages (expenses incurred in an attempt to mitigate damages by
securing other ement) are recoverable

Parker v. 20th Century Fox Film Corp. [D hired P to act in Bloomer Girl and gave her director +
screenplay rights. D decided not to make movie and offered P a part in Big Country, Big Man.]
Substitute job must be comparable or similar to original job --- The eees rejection of or failure
to seek other ement of a different or inferior kind may not be resorted to in order to mitigate
dmgs
The burden is on the eer to affirmatively prove the amt the eee has earned or with reasonable
effort might have earned from other ement
If the eee takes ement that is not similar --- damages must be deducted

Non-Recovery of British Rule: Legal fees are recoverable


Attorneys Fees American Rule: Legal fees are NOT recoverable unless provided for by the contract or if there is a
contrary statutory provision see Mader v. Stephenson

Exception: A contracts to deliver X to B, knowing that B is going to sell it to C. A breaches. C sues B


because B fails to deliver to C (b/c A never delivered to B). Because A had reason to foresee such
expenditures at the time he contracted with B, B is able to cover litigation expenses from B v C from A.
This is an example of consequential damages
In B v C If B settled, B can recover the reasonable amt of the settlement AND the costs of
settlement from A

Penalties, Liquidated Damages, and Specific Performance


Punitive Damages Punitive Damages
Maj View - NOT available unless the conduct constituting K breach is also an independent tort
This is because the point of K damages is compensatory
Min. View - SOME jurisdictions grant punitive damages without proof of an independent tort
where breach was malicious, fraudulent, oppressive, or even grossly negligent
Indiana Law Follows minority view but have to prove breach was malicious, fraudulent,
oppressive or even grossly negligent by clear and convincing evidence
o See Patton v. Mid-Continent Systems [P and D had a franchise agreement where D

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gave P an exclusive right in a designated territory to use its credit card. D breaches by
franchising w/ Truck-O-Mart. Trial Ct gives punitive dmgs based on rule but 7th Cir
(decision by Posner) vacates punitive dmgs award based on efficient breach theory]

Efficient Breach Efficient Breach Theory


Theory This theory holds that if a party breaches, and is still better off paying dmgs to compensate the
victim of the breach than going ahead with performance, this breach is not blameworthy
Posner explains this theory in Patton v Mid-Continent
o Suppose compensatory dmgs = $75,000 but Mid-Continent gets $150,000 by the
breach he should be able to pay compensatory dmgs and not be liable for breach.
This is because there is a net social gain one party is better off and the other party
is no worse off
o Posner says we want to allow these but if the party is also liable for punitive dmgs this
will deter efficient breaches b/c then there is no gain
o Posner still says opportunistic breaches are bad have to prove this by clear +
convincing evidence
Efficient Breach Theory treats performance and damages as alternatives A promise either to
perform or to pay expectation dmgs (derived from Holmes)

Critiques of Efficient Breach Theory


Fails to account for transaction costs (costs of litigation/settlement negotiations)
Fails to account for dmgs that are real but not compensable (b/c they arent foreseeable or
certain)
There is a tort of interference with a contract

NOTE: Efficient breach is not a defense to BOK

Liquidated Liquidated Damages v. Penalties


Damages Clauses Liquidated damages clauses are valid. Penalty clauses are unenforceable as a matter of public
policy.

Wassenaar v Panos [P and D had liquidated dmgs clause in ement K providing for full salary for the
remainder of K term in the case of wrongful discharge. D wrongfully discharged P. Court upheld clause]
Rule #1: The validity of a liquidated damages clause is a question of law for the court.
The traditional 3-part reasonable test is used to determine whether clause is
enforceable or unenforceable b/c it would result in a penalty. [The BOP is on D to show
the clause is unreasonable; but this is still a question for the court]
1. Intention of Parties Did the parties intent to provide damages or a penalty?
The Rest. 2nd does not mention this test and it is no longer important b/c
the question is objective
2. Difficulty to Ascertain/Prove the Harm with Reasonable Certainty
This is a sliding scale the more difficult it is to prove harm, the more likely
the clause will be found to be reasonable
3. Whether Clause is Reasonable in Relation to Anticipated Harm Is this a
reasonable forecast of the compensatory dmgs?
This is also a sliding scale
Rule #2: Once a liquidated damages clause is found to be reasonable, the liquidated
damages should not be reduced by an amount that the eee did earn or could have
earned
Avoidable Consequences are NOT considered if you find clause is reasonable

Factor 3, Views:
Trad. View Reasonable in relation to anticipated harm (reasonable at the time of agreement)
UCC + Rest 2nd Reasonable in relation to anticipated OR actual harm

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o So if it is reasonable in relation to at least one then it is valid

When P Suffers NO Harm:


One View We dont care as long as its reasonable in relation to anticipated harm
Rest 2nd If its clear that P suffered no harm then liquidated dmgs clause will be view as a
penalty
o In this case freedom of K should yield to avoiding windfall to P
o D still has to prove what actual harm was
Minority View (seems to be taken in Wassenaar) Liquidated dmgs clause has to be
reasonable in relation to BOTH anticipated and actual harm It would be a penalty where he
clause is disproportionate to actual harm or it is clear that there is no harm
o D still has to prove what actual harm was

Two Clauses Typically Viewed as Penalty Clauses:


1. Shot Gun Clause A clause providing that $50,000 will be paid for BOK)
a. Probably will be deemed a penalty b/c it does not proportion the damages to any
particular kind of breach
2. The smaller the breach the larger the penalty and vice versa; Clause should be reasonable
in the face of anticipated harm

Acceleration Clause as Penalty:


Acceleration clause If theres a default in installment K, P can call all pmts due (ex. Bank loan)
This is not problematic when P has fully performed BUT in a case where P also has duties over
time and has only performed some of them, this is problematic and acceleration clause may be
viewed as a penalty

Specific Performance + Liquidated Dmgs:


The presence of a liquidated dmgs clause does not preclude a decree for SP BUT if it says its
the exclusive remedy you probably cannot get both

Can P Ignore Liquidated Dmgs Clause and Sue for Actual Dmgs?
This is a question of whether liquidated dmgs clause is unconscionable (then it can be ignored)
o When D says too high prove penalty
o When P says too low show its unconscionable

Exclusion of Consequential Dmgs Provision:


One View If viewed as independent from limitations of remedies clause You can get all
other remedies except for this
Other View When limitation of remedies clause fails, this clause fails too

Statute of Frauds
Generally A writing does not make an otherwise unenforceable agreement enforceable (ex. A writing
does not make an agreement enforceable if it lacks consideration)
SOF is a rule of form = it requires certain categories of contracts to be evidenced in writing
England enacted the SOF to combat fraud by people who might falsely claim they had an oral
contract; since then England has mostly abolished it, but most states retain it b/c it helps
satisfy cautionary, evidentiary, and channeling functions (you understand the seriousness
of what youre doing when you put your K to sell your car in writing; and writing serves as a
memorial of the agreement made)
o Judicial decisions have gradually reduced the impact of the SOF by interpreting the
categories of Ks that require a writing narrowly
Analysis:
1. Is the contract within the Statute of Frauds? (aka = Must it be evidence by a writing?)

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a. Ks that cannot be performed within one year from the time of K formation; UCC 2-
201; etc
2. Is there a sufficient memorandum to satisfy the SOF?
a. If (1) and (2) are both satisfied, then there is no SOF defense.
b. If (2) is no, then
3. Does an exception to the writing requirement apply? If yes Case is taken out of the SOF
4. If no exception applies, K contravenes SOF (K is within Statute and not satisfied by a writing
and no exception applies), what are the consequence

1. Is K within the Kinds of Contracts Singled Out for the Writing Requirement: (Analysis Part #1)
SOF? 1. A promise by an executor/administrator to answer in damages out of his/her own estate
2. A promise to answer for the debt, default or miscarriage of another person
3. A K made in consideration for marriage
4. A K for the sale of land or interests in land
5. A K not to be performed within the space of one year from the making thereof
6. A K for the sale of goods

One Year Provision One-Year Provision


You do not count the day of formation b/c the law disregards factions of a day. So One
year ement contract to start tomorrow is not within the SOF but if it will start in 2 days it is
within SOF
o If, when ement begins, the parties restate their bargain, they can be said to remake
the K, the year begins to run from that time the new agreement that is enforceable
substitutes for the unenforceable one
Only applies to a promise that by its terms cant be performed within one year from
formation
o On Apr 10, 2009 A promises to make 5 min. TV appearance on Feb. 11, 2011 this is
within the Statute because by its terms it cannot be performed within a year of
formation
o Contract will be complete within 5 yrs from date of K not within the Statute b/c it
could be completed in one year
See C.R. Klewin v. Flagship Properties An oral K that does not say, in express terms, that
performance is to have a specific duration beyond 1 yr. is enforceable it is outside the
proscriptive force of the SOF regardless of how long completion of performance will actually
take
For the below analyses ask: what is the purpose of the K?

Contract For Lifetime Ement vs. Contract Phrased in Terms of Number of Yrs:
A K for lifetime ement is not within the SOF, b/c the K may be fully performed within one
year if the eee happens to die within the year
A K for a number of years (ex. A K to employ someone for 2 years) is within the statute and
death operates as a defeasance of the K
NY Lifetime Provision A promise made for someones lifetime is within the SOF

Promise Not to Do Something For More Than One Year


Ex: 5 year no competition clause
View 1 (Rest. 2nd) The promise of forbearance should not be within the Statute because
death could make the essential purpose of the K attained
View 2 It is an obligation for that many years so it is within the Statute

Termination Provisions
Ex. Oral 2 year contract with right to terminate with 30 days notice
Maj View termination = defeasance (not performance); K is within the Statute

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Min View termination = alternative promise; K is not within Statute
NY Rule Both parties have the right to terminate: termination = alternative promise (and NY
follows the minority view that K is not within SOF). BUT, If the right to terminate is in P alone,
look at who is the D
o If D is the employer Option to terminate is viewed as alternative performances; D
does not have the SOF defense
o If D is the employee Due to concern about employee being stuck in a long term
employment contract with no right to terminate; D gets the SOF defense

Alternative Performances
If one promise on either side is not within the SOF, the entire K is not within the SOF
o Ex: A leases to B a car for a 5yr. term with an option to purchase it in the first year.
Since this option to purchase can be performed within one year from the making of
the K, the promises are not within the one-year section of the SOF
This is different from the situation where any of the promises on either side of a bilateral K
(except for alternative promises) cannot be fully performed within one year from the
formation of the K. Then all of the promises are within the Statute. (ex. A prom to render
services for 2 years. B promises to pay $70,000 immediately for service whole K within
Statute)

Full Performance Exception


Maj View Full performance by one party takes the case out of the SOF
Min View Full performance does not take case out of SOF
o CA + NY follow minority view but in example below, in CA they would say relationship
ended so there is no SOF defense.
Ex: Movie star promises to pay agent on all deals that are generated through the agents
representation. Agent makes deals. At some point agent is fired but movie star is still getting
royalties. Agent sues movie start for BOK.
o Maj View Movie star has no SOF defense b/c agent fully performed
o Min View Full performance by agent does not take this out of SOF
Ex: A orally promises to render services periodically over 2 years. B promises pay $5,000 at
the end. Now it is the end of 2 years, A has fully performed and B refuses to pay. K is within
Statute and thus unenforceable. But?
o Maj View Under full performance doctrine, A gets price of $5,000 (full performance
takes K out of SOF and A can recover K price)
o Min View Normally A could have gotten restitution for the work BUT she has fully
performed and the only thing left for D to do is pay (a sum certain). BUT this sum
certain cant be recovered b/c K is unenforceable. So?
Court will either not apply this restitution rule OR court will use promissory
estoppel to estop D from asserting SOF

Part Performance
Part performance does not make the K enforceable (except possibly under doctrines of
divisibility or estoppel) and quasi-contractual recovery is available

Unilateral Ks
Unilateral Ks are enforceable without reference to the SOF
o Why? Because a uni-K does not arise until the offeree has fully performed

Option Ks
One View If an option cannot be exercised until after one year then K is within the SOF
Other View Not within SOF
Where beginning of performance creates an option K SOF will not be applied

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Effect of a Modification on Ks
View 1: When a K is within the statute and is in a sufficient record it may not be modified by an
oral agreement
Better View: The modified agreement is within the SOF only if the contract as modified is
within the Statute
If the modified agreement is within the Statute but NOT in a sufficient memorandum then the
former K remains enforceable (unless doctrines of waiver + estoppel come into play) if there
is reliance on the oral modification, court may estop party from relying on SOF as a defense to
performing the modified oral K

Sale of Goods for UCC 2-201 A contract for the sale of goods for the price of $500 or more is within the SOF
$500 or More If you have a lot of items that add up to $500, you are within the Statute

(UCC 2-201) Do you also have to satisfy the one-year provision on sale of goods cases if K is for more than 1 yr?
Traditional View Yes, you have to satisfy all provisions that apply
Modern (Majority) View No, you only have to satisfy the UCC SOF

Effect of a Modification on UCC Ks


Maj View: The UCC requirements for a sufficient memorandum evidencing a K as modified must be
met for:
o (1) Any modification that brings a K within the statute of frauds; or
o (2) Any modification to a K within the statute of frauds where the modified K remains
within the statute of frauds
Min View: The original memorandum that satisfied the SOF, can be carried through when a K is
modified unless:
o (1) The modification of a K within the SOF changes the quantity term;
o (2) The modification of a K outside the SOF brings the K within the statute of frauds.
Modifications which take the K out of the SOF: no writing required oral rescission is fine.
NOTE: An unenforceable modification could be a waiver and if relied on not retractable

2. Is there a Sufficiency of the Memorandum:


sufficient SOF does not require a formal written K, a note or memorandum will suffice.
memorandum to The Record Must:
satisfy the SOF? 1. Evidence a K has been made OR signer has made an offer
The offer is the earliest moment to create signed memorandum
2. Include with reasonable certainty the essential terms:
Identity of parties
Subject matter
All essential terms, and by whom + to whom promises are made; A party can
introduce extrinsic evidence to clarify the meaning of essential, but unclear
terms, in order to satisfy SOF
3. Be signed by the party to be charged any symbol/mark executed or adopted with
present intention to adopt the writing
Some statutes say subscribed = signed at the bottom; but this is not
conclusive
If it doesnt have to be signed at the bottom it is possible that the letterhead
will suffice
Writing does not have to be: made at the time the K was entered into, delivered, or in
existence at the time as suit as long as you can prove it existed at one time
Several writings as a group may satisfy SOF requirements, as long as one of them is
signed need evidence of connection b/w docs + evidence of assent to the unsigned doc
o If unsigned document is physically attached to signed document at the time it is
signed --- Statute is satisfied
o If signed document by its terms expressly refers to unsigned document --- Statute is

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satisfied
o Even if (1) or (2) if the documents by internal evidence refer to the same subject
matter or transaction (extrinsic evidence is admissible to show connection) Statute
is satisfied
See Crabtree v. Elizabeth Arden Sales Corp. The 2 payroll cards, unquestionably constitute a
memorandum even though they were not prepared or signed w/ the intention of evidencing a
K or that they came into existence after agreement. To meet SOF demands, it is enough that
they were signed w/ intent to authenticate the info in them and that the info evidences the
terms of the K.
Parol Evidence & The Record For One-Year Provision:
o Parol Evidence Offered by P P cannot introduce evidence of essential terms not
in the memorandum, b/c that evidence is barred by the SOF since the memorandum
must include all essential terms (whether or not there is an integration).
BUT if the PER allows, consistent, non-essential oral terms may be shown
o Parol Evidence Offered by D D may attack the memorandum and say it does not
reflect the true agreement. If he is successful, he regains SOF defense. BUT?
IF PER excludes evidence record will be enforced as written
If record is a total integration CANNOT be contradicted/supplemented in
order to defeat the claim
If record is a partial integration writing CANNOT be contradicted, but it
may be supplemented, and if the supplemented terms is an essential term
claim will be defeated b/c the record must contain all essential terms
The Memorandum Under the UCC:
The Record Must:
1. Evidence a K for the sale of goods
Maj View Offer cannot satisfy SOF
Min View Offer can satisfy
2. Be signed by the party to be charged (the defendant)
3. Specify a quantity
Maj View Need quantity term; cant enforce beyond that stated
Min View Dont need a quantity term; but if you have one it sets the max
Record can OMIT or INCORRECTLY STATE any other essential terms; but not
quantity --- extrinsic evidence is admissible to correct error
Do you have a quantity term?
If writing says requirements K yes, this is a Q term
If writing says exclusive dealings K yes, Q term is set by best efforts
obligation (most courts would agree)
So? Courts tend to be liberal about quantity term + try to find one
See Cohn v. Fisher A check signed by the buyer, made out to the seller for $2,000, saying the
name of the boat (quantity = one boat) constituted a sufficient memorandum

If (1) and (2) are met No SOF defense. If they are not met, then
3. Does an Even if SOF applies to an oral transaction, an exception may take the case out of the statute
exception to the
writing agreement UCC Memoranda Exceptions: (If any are met, no SOF defense)
apply? 1. Part performance
a. A K that does not satisfy SOF is enforceable w/r/t goods for which pmt has been made
If yes case is and accepted or which have been received and accepted
taken out of the i. K is enforceable only to the extent of part performance
SOF ii. Part pmt for one object allows you to enforce the K for that whole item
2. Contracts between merchants
Note: If an a. Merchants deal in the kind of goods the K concerns or represent to the public that
exception eliminates they have knowledge or skill peculiar to the practice or goods involved in the
the defense of SOF, transaction

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the party alleging i. A person buying a computer for an office or opening mail for office purposes
the K still has the would be a practices merchant (so almost every person in the business
burden of proving world is a merchant for purposes of this) but a person buying goods for
that an oral K was personal use is not a merchant (ex. Buying a computer for my home)
entered into and b. When 2 merchants make an oral K and one of them sends a written confirmation
was breached that is sufficient to satisfy SOF against the sender, and the recipient gets it w/in a
reasonable time and has reason to know of its contents, the writing is good
against the recipient, even though she didnt sign it
i. If recipient notifies the sender in writing w/in 10 days of receiving the
confirmation that she objects to its contents, then the SOF still applies
1. Ds possible objections:
a. Deny existence of a K (will retain SOF defense)
b. Deny one of the terms (may not let D retain SOF defense b/c
you are not denying the K, just objecting to a term)
c. Some sort of comment on confirmation (will not retain SOF
defense b/c this is not a real objection)
2. Reasonable diligence to give notice
3. Reason to know = the confirmation does not look like junk mail
4. Reasonable time depends on the nature, purpose, and
circumstances of each case
c. Note: It is probably okay if the sender is not a merchant as long as the recipient is
d. See Azevedo v. Minister exception was created to get rid of the unfairness that the
confirmation was binding as a memorandum on the sender, but not the sender, b/c he
had not signed it. The abuse was that the recipient, not being bound, could perform or
not, whereas the seller had to perform.
i. All that is required is that the writing afford a basis for believing that the
offered oral evidence rests on a real transaction
3. Specifically manufactured goods
a. A writing is not required when goods are to be specifically manufactured so that
they are suitable only for the buyer, and the seller has started producing the goods or
has committed to obtain them in circumstances that reasonably indicate that the
goods are for the buyer
4. Admissions in court that a K was made
a. This reverses the CL rule that allowed a party to admit in a pleading/court
doc/testimony in court that the parties made a K, but still hide behind the SOF
b. Once a D admits an unwritten K during the course of litigation he is prevented from
relying on the SOF
c. This exception applies only w/r/t the quantity of goods admitted

Other Exceptions: (If they are met, no SOF defense)


1. Restitution In cases where D has received the benefit of Ps performance but relies on the
SOF to avoid paying the agreed-upon price there is a case of unjust enrichment. In these cases,
the doctrine of estoppel to assert the SOF may be applied in the interests of fairness
2. Promissory Estoppel A promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or a third person and which does induce the
action or forbearance is enforceable notwithstanding the SOF if injustice can be avoided only
by enforcement of the promise
o Do not use PE if restitution is available (i.e. Unjust impoverishment would not be fully
redressable by restitution) see McIntosh v. Murpy [P sues D for breach of ement K.
As a result of Ps decision to accept ement K he moved from CA to Hawaii, sold
possessions, leased an apt then he was discharged after 2.5 months of working]
o Can Promissory Estoppel Be Used in UCC SOF cases? - Yes
Some courts say no b/c 2-201 says except as otherwise provided in this
section but this is WRONG UCC 1-103 principles of law and equity,
including estoppel, shall supplement provisions of this Act

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o If it does not occur at the formation of the K it is called Equitable Estoppel Promise
to sign a sufficient memorandum, promise not to assert a SOF defense

If No Exception Applies:
4. If K contravenes Maj View Unenforceable (NY follows this view)
SOF, what are the Oral K is a contract but it cannot be sued upon (but it is still relevant for analysis); but if
consequences? one party signs it then it can be enforced against that party (Why? You dont need
mutuality of consideration)
The SOF must be pleaded as an affirmative defense (if it is not raised as a defense, court will
take the suit)
Min View Void

Ex: A orally promises to work for B for 2 years and B promises to pay when work is complete. After 6
months A demands more money, B cannot sue for breach. A sues for restitution for the 6 months
worked. Can she get restitution?
Under majority view K is unenforceable. A is breaching an unenforceable K and although B
cannot sue for breach, the K is still relevant. 3 views:
o Maj View A cannot get restitution
o Rest. 1st A can get restitution as long as breach is not willful
o Rest. 2nd A can get restitution
Under minority view K is void. A is fully entitled to restitution from B.
Ex: Same fact pattern but this time A stops working after 6 months b/c she gets sick and cant work
Under majority view A is discharged for impossibility, assuming K is not divisible, A is
unable to get restitution. If the K is divisible, A will be entitled to restitution as to the portion of
the K he has performed prior to the circumstances of impossibility
Under minority view Since K is void it does not matter the reason A stopped working, she
automatically gets restitution.
Ex: Same fact pattern but this time A asks B to sign memorandum after 6 months and B refuses. A
discontinues services. Is A a material breacher?
A is entitled to discontinue services, she is not a material breacher. A can recover in
restitution. (Note: there is a Rest. 2nd rule that is similar to adequate assurances on this)

2-201(2) Merchant Exception to SOF 2-207(2) Terms of the K B/w


signed writing requirement Merchants
Timing Received within a reasonable time Sent within a reasonable time
Notice of Objection Within 10 days of receipt Within a reasonable time of receipt
Formality Must be written No formality/writing requirement
Give Notice Exercise reasonable diligence Exercise reasonable diligence
Effect of Not Loses SOF defense Additional term can become part of K
Objecting

Executory Accord and Substituted Contract


Executory Accord Executory Bilateral Accord A bilateral executory accord is an agreement that an existing claim shall
be discharged IN THE FUTURE by the rendition of a substitute performance
Prior to performance, the existing claim is suspended = C cannot sue D for the original debt
Upon performance, there is an accord and satisfaction that discharges the original claim

Are Executory Accords Enforceable?


CL Executory accords were a nullity, no one can sue anyone and C is not prevented from
suing D on the original claim anyways. BUT once you have accord + satisfaction, the original
debt is discharged

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Modern View Executory accord is an enforceable, binding contract (developed through CL
of the states)
o If the debtor materially breaches The prior obligation revives and C has the
option of enforcing the original claim OR the executory accord
If immaterial breach C cannot cancel + any suit for partial breach would
be under the executory accord
o If the creditor materially breaches the debtor may sue for SP of the executory
accord or seek damages for total or partial breach
If Court orders SP Original claim is discharged
If D gets damages Original claim survives --- D gets damages, but still has
to make good on the original claim (example below D keeps horse and C
keeps claim for $1,000. D gets damages for $700 and has to pay C $1,000. D is
whole; If the horse were worth $2,000 and Cs claim was $1,000 D would
receive no damages but still have to pay C $1,000 for original claim)
o If C repudiates before the time for the executory accord and then sues Debtor on
the original claim D can assert the defense of executory accord
New York Statute Executory accords are enforceable only when the agreement is in writing
and signed by the party to be charged

Ex: D owes C $1,000 liquidated and undisputed --- D promises to deliver horse that is worth $300 by
Monday, C promises to discharge debt on performance
Accord = agreement b/w the parties
Satisfaction = D tendering horse on Monday
Consideration = Yes, both parties are bargaining for + doing something they are not obligated
to do
Accord + Satisfaction supported by consideration = Original debt is discharged
Note: This would not be enforceable in NY unless written and signed by party to be charged

Unilateral Accord An offer by a creditor to accept a performance in satisfaction of a credit or claim


C writes to D If you deliver your horse by Jan. 5th, I promise to discharge your debt
o Before Ds tender of the horse, C can revoke.
o When D tenders horse + C accepts A+C is formed
o When D tenders horse + C refuses it
Early CL offeror could refuse the tender of performance b/c an executory
accord was considered a nullity
Modern Law If tender is refused, D may sue for damages for breach of
accord OR SP

Substituted Substituted Contract A substituted K resembles an executory bilateral accord, but in this transaction
Contract C agrees that the claim is IMMEDIATELY discharged in exchange for the promise of future
performance
What is the effect of immediately discharging an existing claim?
o In the event of a breach In the event of a breach, any action would have to be
brought on the substituted contract and there is no right to enforce the prior claim.
EXCEPTION: If the substituted K is void, voidable (and has been avoided), or
unenforceable (maybe due to SOF), then C can sue on the original claim

Ex: D owes C $1,000 liquidated and undisputed --- D promises to deliver horse within 30 days and C
promises to discharge original debt immediately.

Distinguishing B/w This question is one of the intention of the parties


Executory Accord Less formality more likely to be an executory accord
and Substituted K Cases involving a liquidated + undisputed obligation more likely to be an executory

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accord (Think about it Why would C discharge a promise for a new promise?)

See Goldbard v. Empire State Mutual Life (NY):


1. Is it an executory accord or substitute contract?
a. Court says words settlement or compromise are used interchangeably to describe
either a EA or SC so the question is a matter of intention of the parties, as objectively
manifested
b. There are many facts and it is not clear, there is a basis for making inferences:
i. When settlement has resulted in formalized papers with unequivocal
language fully describing the obligations of the parties presumption of
substituted K
ii. When settlement results in nothing more than an agreement to accept a
future performance presumption of executory accord
2. It is not clear that parties intended to be bound at all, but if they did it would surely be an
executory accord. Would the executory accord be enforceable?
a. NY Statute An executory accord is a complete nullity unless it is in written and
signed by the party to be charged

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