Note  Burden of Proof Condition OR Promise ***LOOK AT INTENT ***

Precedent  PL IF INTENT NOT CLEAR USE ***GUILDLINES***

Subsequent  DF

“Paid when Paid Clause”

Condition if use “magic CONDITION (Dependent)
words” If NOT 
Promise to avoid forfeiture
[vs. time term]
EXPRESS

PRECEDENT “Triggers” IMPLIED “in fact” SUBSEQUENT “Terminates”

CONSTRUCTIVE “in law

“Satisfaction Clause” [POMISE] If NOT substantially perform
I. PERSONAL
- Taste or Judgment
- SUBJECTIVE satisfaction
- Can be unreasonable, BUT CONCURRENT (Bi-lateral K) (Ind. / Dep.) RES II 240  Divisible v. Entire
MUST us “GOOD FAITH” Divisible vs. Entire
II. COMMERCIAL (10 Houses) (1 House)
- (value or quality) – Industry
- OBJECTIVE satisfaction I. WHO GOES FIRST?  “TIMING”: Note  condition is silent.
- Reasonable Person Standard NOTE 
[conditions of exchange
III. 3RD PARTY SUBTANTIAL
- (Majority) SUBJECTIVE PERFORMANCE
(RES II) 234 : If SILENT  SIMULTANEOUS
- Must prove refusal was in Aka CONDITION
(1)
BAD FAITH OF
- Must prove refusal was (RES II) 234: LONGER PERFORMANCE  GOES FIRST PERFORMANCE
Unreasonable applies to PROMISE
- GOOD FAITH + AND CONDITIONS
REASONALBE
NOTE  courts usually favor
OBJECTIVE standard II. WAS IT GOOD ENOUGH? “SUBSTANTIAL PERFORMANCE”
(CARDOZA ) – tools for Df. Let him slide w/o this u need to finish – not fair
“time of essence clause” P D. E C + W (why should pay when he did no get what he bargained 4.
works like a condition. This is a
form of expressed condition. If = LESS THAN SUBSTANTIAL
condition is not performed by Constructive condtiiton that
specified time, the K is void. SUBSTANTIAL = MINOR VS. MATERIAL substantial performance duty has
**substantial performance NOT Not occurred.
apply** Expressly states time is of
the essence. You do NOT need to
go to guidelines ISSUE : IS THE BREACH MATERIAL? ISSUE : REACTION TO BREACH
[get damages even if sub. Perform} Non-breacher has a “CHOICE”

MINOR BREACH  Thus it was

Substantially Performed OR
BREACHER IS ENTITLED TO
DIMINUTION (K PRICE – DAMAGES) TOTAL  END K. PARTIAL  PERSEVE K
Injured party can “choose” to End K Aka. Continue K.

Note  K price will not limit recover because they are NON Breacher can recover quantim meriuit.
– Breacher. IF breacher QM recover can not exceed K price (most you can recover.) Restitution for
(merely controlled by value of services rendered). Innocent the benefit conserved. Reasonable value
parties can recover more than breachers can. for services render to build 7 houses

DEFENSES: to avoid conditions [IF WEEP]

Prevention
Forfeiture (only pick one restatement) “Was it Good Enough?
Waiver (multiple choice) [majority v. minority view] SUBSTANTIAL PERFORMANCE V. TARR RULES
Estoppel (multiple choice) [waiver + reliance]
Election (multiple choice) [waiver + time expired] **use TARR rules if dealing with goods instead of Substantial
Impossibility [look at restatement. Also may have to Performance when dealing with service**
talk about impossibility when talking about Forfeiture.

1
 You already have a Contract. You are now dealing with the performance of a contract. How the parties owe each other
performance under the contract and with how the existence of a breach of contract is determine. (First determine whether
you have a promise or condition)

Promise  a contractual undertaking to do or to refrain form doing something (interpretation of any written K is a
question of law for a judge)

Conditions  is an event/ fact, the occurrence or non-occurrence of which, determines when and if a party must perform
their contractual duties.

How do you know how determine whether condition or promise?

To determine if a clause is promise or condition depends on the intent of the drafter (by looking at the language they
use). Is this a condition? (it is for the judge to decide)
***USE THE GUILDLINES IF INTENT IS NOT CLEAR***

Forfeiture  the denial of compensation that results when a condition does not occur,
after the other party has relied substantially on the expectation of that exchange,
through preparation or performance
ELEMENTS:
The denial of compensation that results
When a condition does NOT occur
After the other party has RELIED SUBSTANTIALLY
On the expectation of THAT exchange
Through preparation or performance

Guidelines: (IF INTENT IS NOT CLEAR)

General legal policy opposes forfeiture (this guideline leads us towards a promise because we are trying to avoid
forfeiture).
Insurance policies are generally construed most strongly against the insurer (AGAINST THE DRAFTER because
drafter should have did a good job drafting – to teach him a lesson)
When in DOUBT whether words are promise or condition precedent, they will be construed as a creating PROMISE
(avoid forfeiture)
[Howard (farmers) v. Federal Crop Insurance Corp.]

***FOR CONSTRUCTIVE CONDITIONS, YOU HAVE A BILATERAL CONTRACT AND

THE COURT IS IMPOSING A CONSTRUCTIVE CONDITION ON IT TO MAKE IT FAIR.
CORDOZA IS SAYING THAT IT IS NOT FAIR FOR THE PERSON PROVIDING SERVICE
TO HAVE COMPLETE THE WORK TO GET SOME COMPENSATION AND IT IS NOT
FAIR FOR THE HOME OWNER TO PAY IN FULL WHEN HE HAS NOT RECEIVED WHAT
HE HAS BARGAINED FOR. THUS THE GUILDLINES TO DETERMINE HOW MUCH
WAS PERFORMED AND RESOLVE THE ISSUE OF WHO GETS WHAT IN A FAIR WAY***

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************************CONDITIONS************************

TERMS:
Condition (definition)  is an event, the occurrence or nonoccurrence of which determines when and if a party must
perform their contractual duties.

Promise (definition)  contractual undertaking to do or refrain from doing something.

Tender Manifestation of readiness, willingness, and present ability to perform

Implied K  No words are exchanged

Progress payments  intervals of payment. Just because there are progress payments in K, Does not mean it is
intended to be divisible. It is probably Entire. But if 3 specific jobs added up to get total job then it can be divisible.
Ex. Roof 10K, Wall 20K, Plumbing 30K.

Implied Condition  does not arise from any particular language rather it arises form conduct or relationship
(ex. Master / servant relationship). It is implied that you need to have loyalty with this relationship [Bright v. Ganas]

Expressed Condition  a condition is specifically stated in the K between the parties. (when they have agreed
either explicitly or implicitly. When parties have agreed to an expressed condition, strict compliance with the condition is
ordinarily required before the performance will be due). Must be satisfied with 100% literal performance. If YES duty
ACTIVATED; if NO  duty DISCHARGED. Words are usually in writing but does not have to be in writing
[Gary v. Gardner]

Note:
 Expressed condition can give rise to an implied duty
 Expressed promises can give rise to constructive conditions [IN REGARDS TO RES-II 240]

Constructive condition  legal fiction  Quasi K (avoid unjust enrichment)

Note  use for both Promise and Condition

Note  Promise [substantial performance] SAME THING

Note  Condition [condition of performance]

Condition Precedent:
 Event has occurred before the duty (no duty to pay until…)
 TRIGGERS THE DUTY
 A specified fact/ event must be met before performance is due
 Activates a duty (if) ?
 Burden of Proof on PL (must prove condition was met)
 The party to whom a duty is owed must prove the occurrence of the condition to activate the other party’s duty

3
Condition Subsequent:
 Obligation to perform but if event occurs your performance is excuses.
 TERMINATES THAT DUTY
 Performance is due but will cease to exist upon the occurrence of a specified event
 Discharges a duty (until, But if)
 Burden of Proof on DF
 The party who owes the duty has to prove that he has been released from his obligation by the occurrence of the
condition

Concurrent promise/condition  to happen simultaneously (promises due at same time

Condition of Satisfaction:[use objective standard unless (1) impractical to use objective standard (2)
language requires subjectivity (3) taste fancy, aesthetics, personal judgment (4) 3 rd party referee in construction
case]
 Personal
o Taste or judgment
o SUBJECTIVE satisfaction
 Can be unreasonable, but MUST us Good Faith
 Commercial (value or quality) – Industry
o OBJECTIVE satisfaction
 Reasonable person standard
 3td Party
o Majority: SUBJECTIVE
 Must prove refusal was in bad faith
 Must prove refusal was unreasonable
 Good faith + Reasonable
Note  courts usually favor OBJECTIVE standard

Note  time of essence clauses are treated like Expressed Conditions

Note  whoever has burden of proof will usually loose

Paid when Paid Clause Is a Condition: in a K, “under no circumstances shall general contractor be
obligated to make payments until after contract is paid”. [vs. time term – see below]
 Note  paid when paid clauses are USUALLY considered A PROMISE.
 Note  Gap Filler: when not specific times then use a reasonable time
 Note  if ways “WHEN” = condition. If says “PAID WHEN PAID” = promise [thus time term]

Time Term  Term fixing time: if a mere time term won’t work, there is a gap in the contract and the courts will
look to a reasonable time for payment. Merely a promise to pay at a particular time
 Courts will usually determine as a time term unless clear, express language is used.
 Example: “I’ll pay you when my Aunt arrives” – time term – court would give nephew a
reasonable time to pay the debt

Promissory condition  Clause that is both a promise or condition.

 He is liable for all damages resulting for breach of a promise. That I wont sue you for 6 months
 Also failure is expressed condition precedent which prevents him from suing them.

Time of the essence  Deadline does not make “time of the essence” unless contract uses the language ex.
“not on time this K will be void” EX : TIME OF ESSENCE CLUASE MAKES THE PERFORMANCE A
EXPRESSED CONDITION PRECEDENT

4
  Note  ONLY WAY THIS IS A EXPRESSED CONDITION IS IF IT SAYS “TIME OF ESSENCE”.
 Note  if dealing with GOODS, time is ALWAYS OF THE ESSENCE
 Note  Option K is always “TIME OF THE ESSENCE”

Forfeiture (another definition)  “one side has partly performed and not get the agreed exchange”
Dependent v. Independent
 Dependent  the performance of one depends on the prior performance of another and therefore
till this prior condition is performed, the other party is liable to an action on his covenant. (do not
have to do X until Y is done)
 Ex. Bi-lateral contract (dependent)
 Work before I could pay you

 Note  IN BILATERAL K  PROMISES ARE GOING TO BE TREATED AS DEPENDTENT

 Independent where either party may recover damages from the other, for the injury he may
have received by breach of the covenants in his favor, and where it is no excuse for the defendant,
to allege a breach of covenants on the part of the plaintiff (still have to do X even though breacher
did not do Y)
 Ex. Promise to pay, child support/visitation
 Alimony
 Apartment rents
 Commercial leases are independent promises
 Contract clearly states that it is an independent promise

 Note  estate Leases the promises are independent (rent v. promise to keep up the place)

 Note: 
 Promise (are either dependent or independent) if dependent constructive condition
 If independent  do not give rise to constructive conditions.
Substantial performance (5 guidelines)  to determine what is substantial performance: (HOW
MUCH TO PAY)
 (P) Purpose to be served (this pipe will serve purpose of green pipe)
 (D) Desire to be gratified (we do not know why he wants reading pipe)
 (E) Excuse for deviation (K offers excuse blames on sub contractor – not
because it was cheaper)
 (C) And cruelty of enforcement adherence (if we make them live up to contract
there would be cruelty because they would have to pay to rebuild the house to
replace pipes)
 (W) ** (most important factor) 5TH FACTOR – willfulness (badfaith v.
goodfaith (non-willful) bad faith will cause the breacher to be responsible

Material v. Minor Breach & Substantial v. Less than Substantial Performance

[Farnsworth &8.15 Four Terms to describe breaches]
 Magnitude of the Breach
 Material Breach: performance has been less than substantial, or

5
  Note  If Material Breach, choose either partial OR total. The breaching party does
NOT pay the contract price but rather quantum meruit (if there has been a benefit
conferred to the non-breaching party)  : damages (either the cost of performance or
the diminution of value).
 Note  Quantum Meruit: L “as much as he/she deserves” The reasonable value of
services; damages awarded in an amount considered reasonable to compensate a
person who has rendered services in a quasi K relationship. Breacher can NEVER
recover more than the contract price
 Minor Breach: performance has been substantial
 Note  If minor breach, partial only Breaching party pays contract price – damages
(either the cost of performance or the diminution of value).
 Injured Party’s response to the Breach
 Treat the breach as a Partial Breach OR Total Breach: K terminates
.

[To determine magnitude of breach:]

 RESTATEMENT II 241 Circumstances Significant in Determining Whether a Failure is
Material:
In determining whether a failure to render or to offer to performance is material, the
following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit he reasonable
expected;
(b) The extent to which the injured party can be adequately compensated for the part of the
benefit of which he will be deprived;
(c) The extent to which the party failing to perform or to offer to perform will suffer
forfeiture;
(d) The likelihiood that the party failing to perform or to offer to perform will cure his failure,
taking account of all the circumstances including any reasonable assurances;
(e) The extent to which the behavior of the party failing to perform or to offer to perform
comports with standards of food faith and fail dealing. (note that this is now not quite as
important as under Cardoza’s rule)

When can we treat K as divisible Res II. 240? [ONLY IF NO SUBST. PERFROM]

6
 (1) Can K be broken up into pieces (mathematically)? [apportioned]
 (2) Would it be proper to treat these as divisible? [proper to apportion]

[RESTATEMENT 240 PART PERFORMANCE AS]

AGREED EQUIVAENTS

If the performance to be exchanged under an exchange of promises can be apportioned into corresponding pairs of
part performances so that the parts of each pair are properly regarded as agreed equivalents, a party’s performance
of his part of such a pair has the same effect on the other’s duties to render performance of the agreed equivalent as
it would have if only that pair of performances had been promised. “Entire” is opposite of “divisible”

PERFECT TENDER RULE (TARR RULES)

******time is always of the essence when dealing with goods********
(Under substantial performance under constructive condition)
o Only applies to goods NOT services
o If services use common law (that performance needs to be substantial).
GOOD do not have to be perfect but they HAVE TO PERFECTLY CONFORM TO WHATEVER THE K REQUIRES
(ex. K says used goods)

Note  If HYPRID transaction (applies goods and services)

 Dominate factor test – rendition of services or goods (which is more
dominate)?
 Violation of perfect rule is in fact a total breach.

Term 
 Goods  anything that is tangible (touch it) and movable.
 Ex: Electricity is a good

**********IMPORTANT FIRST TALK ABOUT UCC V. CL*****************

DETERMINE BY USING THE PREDOMINATE FACTOR TEST TO SEE

WHETHER IT IS A SERVICE OR GOOD THEN IT LEADS YOU DOWN THE
ROAD MAP.

**********************************************************************

TARR RULES

7
 Res II (2-307) TENDER  “delivery in Single Lot or several Lots”
 Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single
delivery and payment is due only on such tender but where the circumstances give either party the
right to make or demand delivery in lots the price if it can be apportioned my be demanded for
each lot

 Res II (2-206) ACCEPTANCE  “what constitutes an acceptance of goods?

 (1) Acceptance of goods occurs when the buyer:
 (a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods
are conforming or that he will take or retain them in spite of their non-conformities, or
 (b) fails to make an effective rejection, but such acceptance does not occur until the buyer
has had a reasonable opportunity to inspect them, or
 (c) does any act inconsistent with the seller’s ownership; but if such act is wrongful as
against the seller it is an acceptance only if ratified by him.
 (2) Acceptance of a part of any commercial unit is acceptance of that entire unit
 Note  Reasonable opportunity to inspect the good. (acceptance does not mean driving car off
the lot) if accept you can not reject BUT you can REVOKE (2-608)
 Res II (2-608) REVOCATION  When can you REVOKE?  When the Defect is SUBSTANTIAL & IMPAIRS
THE VALUE OF THE GOOD.
 (1) The buyer may revoke his acceptance for a lot or commercial unit whose non-conformity
substantially impairs its value to him if he accepted it.
 (a) on the reasonable assumption that its non-conformity would be cured and it has not
been seasonably cured; or
 (b) without discovery of such non- conformity if his acceptance was reasonably induced
either by the difficulty before acceptance or by the seller’s assurance.
 (2) Revocation of acceptance must occur within reasonable time after the buyer discovers or
should have discovered the ground for it and before any substantial change in condition of goods
which is not caused by their own defects. It is not affective until the buyer notifies the seller of it.
 (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if
he had rejected them

 Res II (2-601 ) REJECTION  “Buyer’s rights on Improper Delivery”

 Subject to the provisions of this Article on breach in installment contracts (2-612) and unless
otherwise agreed under the sections on contractual limitations of remedy, IF THE GOODS OR
THE TENDER OF DELIVERY FAIL IN ANY RESPECT (quality or time) TO CONFORM TO
THE CONTRACT, THE BUYER MAY:
 (a) reject the whole (in good faith)
 (b) accept the whole (in good faith)
 (c) accept any commercial unit or units and reject the rest
 Note  even if very small defect
 Res II (2-508) REJECTION  “Cure by seller or Improper Tender or Delivery, Replacement.
 (1) Where any tender or delivery by the seller is rejected because non-conforming and the time for
performance has not yet expired, the seller may seasonably notify the buyer of his intention to
cure and may then within the K time make a conforming delivery
 (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to
believe would be acceptable with or without money allowance the seller may if he seasonably
notifies the buyer have a further reasonable time to substitute a conforming tender
 Note  if seller believed goods were perfect. He has a reasonable time beyond the K time.

TARR RULES

8
 TENDER OF GOODS (INSPECT GOODS)

REJECTION (BUYER) ACCEPTANCE (BUYER)

GOOD FOR ANY NON-CONFORMITY
(TARR RULES DO NOT APPLY)
‘PERFECT TENDER RULES”

PERFECT TENDER RULE LIMITATIONS:

1. REJECTION MUST BE IN GOOD
FAITH
2. SELLER HAS THE RIGHT TO
CURE
3. GOODS DON’T HAVE TO BE REVOCATION (SELLER)
PERFECT (MUST PERFECTLY (ONLY FOR SUBSTANTIAL IMPAIRMENT)
CONFORM TO CONTRACT)
4. ONLY APPLIES UP TO
ACCEPTANCE (ONCE YOU
ACCEPT, PTR NO LONGER
APPLIES). YOU WAIVE YOUR
RIGHT TO PERFECT TENDER
RULES

NOTE  LIMITATIONS OF THE

HARSHNESS OF THE TARR RULES

NOTE
ACCEPT OR REJECT FOR ANY FAILURE TO CONFORM TO THE K. IT IS EITHER OR NOT BOTH

IF ACCEPTANCE THEN YOU CAN LOOK AT 2-608 REVOCATION. [SUBSTANTIAL IMPAIRMENT 

DEFECT IMPAIR K AS A WHOLE]

THEN LOOK AT NEXT ISSUE WHICH IS THE LIMITATIONS

REJECT IN GOOD FAITH
EITHER ACCEPT OR REJECT
SELLERS’ RIGHT TO CURE IF TIME LEFT ON THE K

**************************EXCUSES*************************

9
 EXCUSING CONDITIONS  we are excusing the non – occurrence of the condition
(NOT APPLY TO CONSTRUCTIVE CONDITIONS)

1ST  CONSTRUE CONDITION AS PROMISE

2ND  Extreme Forfeiture [BK case] severe forfeiture.

EXCUSES 3RD  Waiver  [Moe v. John Deere]

4TH  Estoppel 

5TH  Election 

6TH  Impossibility 

7TH  Prevention 

8TH  Forfeiture 

NOTE [CONDITIONS]  STRICT COMPLIANCE

NOTE  [PROMISE]  DO NOT NEED STRICT COMPLAINCE

Prevention  [Sullivan case]

10
  In every contract there is generally “an implied promise not to prevent or hinder performance of
the condition. Such prevention, if the condition could otherwise have been performed, is,
therefore, and immediate breach of contract. Implied condition of good faith
 Implied duty of cooperation has been broken
 Apply to express and constructive conditions
 Constructive condition of substantial performance is excused (his failure) because she prevented
contractor from continuing to perform.
 You can not deliberately cause condition to fail. (gotcha!!!). only another party can cause.
 PREVENTION CAN APPLY TO CONSTRUCTIVE CONDITION AND EXPRESSED
CONDITIONS

Forfeiture / Extreme Forfeiture 

 the resulting denial of compensation where the nonoccurrence of a condition where the obligors duty
causes the obligee to lose his right to the agrees exchange after he has relied substantially on the
expectation of that exchange as by preparation or performance.
 Extreme forfeiture (res I 302)  to excuse condition where no other grounds exist it may be
excused (1) if enforcement made an extreme forfeiture and (2) not essential part of K
 (deadlines in this case are not essential part of the deadline)
 the main purpose was to get BK built not the deadlines.
 Forfeiture  1 party has performed her duties in reliance on the K and is denied the agreed
exchange based on the failure of a condition
 Extreme performance  party has performed a lot and is losing a lot
 Schedule which formed the condition was not essential part of the exchange therefore we can excuse
them
 Res II (2-229) “Excuse of a condition to Avoid Forfeiture”
 To the extent the non-occurrence of a condition would cause disproportionate forfeiture, a court
may excuse the non-occurrence of that condition unless its occurrence was a material part of the
agreed exchange
 As you might expect, the line between these two uses of the forfeiture concept blurs in the real
world as courts try to give effect to the parties’ agreement and traditional contract doctrine while
reaching a just result
o Comparison of Res I and II (forfeiture)
 Degree of forfeiture : says extreme (RES I) to Disproportionate (RES II)  forfeiture is
disproportion. Importance of Condition (Not essential – RES I) to (NOT ‘material – RES II)
**only memorize one of them** just remember adj. extreme or disproportionate. Essential or
material. PROF prefers the RES II.

Construe Condition as a Promise:

 Party will argue term/clause is not a condition but a promise and courts prefer promises. If
clearly a condition then see if can be excused

Waiver:
 (giving up your rights) Intentional relinquishment of known right
 the intentional relinquishment of a known right (Give up your right
 Seller waived his right to strictly enforce
 Can reinstate by sending notice of strict enforcement, but must do this after every
acceptance of late payment
 Non- waiver clause can be waived by not strictly enforcing the K
 Ex. Acceptance of late payment imposes a waiver.
 They want to cash the late check but don’t want to waive. Can you do that? Majority will
not enforce a non-waiver clause if the parties, by their conduct, waive it.
 NOTE  Talk about MINORITY VIEW [don’t need to give notice every month] & MAJORITY
VIEW [can waive – need to give notice]

Estoppel:

11
  Foreseeable, detrimental reliance ON THE CONDUCT OF THE CREDITOR
 A legally imposed bar resulting from one’s own conduct and precluding any denial or assertion
regarding a fact. (Ex. Keep sending late payment and they keep accepting it and you rely on them
continually accepting it so they can not reinstate the waiver clause
 Waiver + Reliance = Estoppel (No reinstatement allowed – unfair)
 Foreseeable detrimental reliance on a waiver

Election:
 Election  they had 2 paths they could have gone down. Once they have gone down that path
they have to keep going down that path. (it is like a waiver)
 Waiver + time expired = election  too late to reinstate
 Electing one course of action over another; where a party waives a condition after the time has
elapsed. Once you elect to waiver the condition, you cannot reinstate it later
 Note  [Acceleration clause] declare entire unpaid balance immediately due and
they can take it away [mortgage has acceleration clause]

Impossibility:
 Sec 272 and excuse condition if forfeiture and material part
 Restatement II sec. 271  “Impracticability (impossibility) excuses the non-occurrence of a
condition if occurrence of the condition is not a material part of the exchange and forfeiture
would otherwise result.
 Definition  the fact or condition of not being able to occur, exist, or be done. In contract law, a fact
excusing performance because:
 The subject or means of performance has deteriorated, has been destroyed, or is no longer available
OR
 The method of delivery or payment has failed OR
 A law now prevents performance OR
 Death or illness prevents performance
 2 Elements:
 (1) Condition is impossible and unforeseeable
 (2) did not form an essential term of the K
 Note  Generally results with death of person (illness) or damage or destruction of object of the
K. (cant perform K because the cow had died)
 Note  Impossibility can excuse duties and conditions.
 NOTE  MAY HAVE TO TALK ABOUT IMPOSSIBILITY WHEN TALKING ABOUT
FORFEITURE.

Employment: “ At Will” v. “Just Cause”

 At will  Most employees are at will employee and can be terminated at any time for any reason or
no reason at all (common law)  employee works at own will as well so this rule applies to both
parties.
 Just cause  only terminated by just cause (some justifiable reason)  have to have employer K
which guarantees job security. (ex. Teacher that have tenure or labor union member under
collective bargaining agreement)
 Even a life time K does not turn K into Just cause K. so permanent still means “at will”.
 Modern view  employee can not be fired for wrong reason. No reason or any reason is ok. But
smart employer will not give a reason.
 Employment is a contractual relationship.

12
*************ANTICIPATORY REPUDIATION******************
REPUDITATION IS EQUIVALENT TO A TOTAL BREACH

Anticipatory Repudiation (definition):

[Restatement II Sec. 250] When a Statement or an Act Is a Repudiation

A repudiation is:
(a) a STATEMENT by the OBLIGOR to the OBLIGEE (can NOT be 3rd party) indicating a
MATERIAL BREACH that would itself give the OBLIGEE a claim FOR DAMAGES FOR TOTAL
BREACH, OR

(b) a VOLUNTARY AFFIRMATIVE act which renders the OBLIGEE or apparently (1 st wife can die
& he may still marry you) unable to perform without such a MATERIAL BREACH .

 Note  you can either announce/statement REPUDIATION or by action/ conduct showing

REPUDIATION

 Note [NATURE OF STATEMENT]  In order to constitute a repudiation, a party’s LANGUAGE

MUST be sufficiently positive to be REASONABLY INTERPERATED to mean that the party will
NOT OR CANNOT PERFORM. Mere expression of DOUBT as to his willingness or ability to
perform is NOT ENOUGH to constitute repudiation, although such an expression may give an
OBLIGEE REASONABLE grounds to believe that the OBLIGOR will commit a serious BREACH
and may ultimately result in a REPUDIATION under RES II sec. 251

 Note [NATURE OF ACT]  In order to constitute a REPUDIATION, a party’s ACT MUST BE

BOTH VOLUNTARY and AFFIRMATIVE (sure), and MUST make it actually or apparently
IMPOSSIBLE for him to PERFORM. An ACT that FAILS short of these REQUIREMENTS
may, however, give REASONABLE GROUNDS to believe that the OBLIGOR will commit a
serious BREACH for the purposes of the rule stated in sex. 251/

[Restatment II sec. 251] When a Failure to Give Assurance May Be Treated as a Repudiation

(1) where REASONABLE GROUNDS arise to believe that the OBLIGOR will commit a BREACH by
NON-PERFORMANCE that would of itself give the OBLIGEE a claim for damages for total
breach…the OBLIGEE may DEMAND ADEQUATE ASSURANCES OF DUE
PERFORMANCE AND may, if reasonable, suspend ANY PERFORMANCE for which he has not
already received the agreed exchange UNTIL he RECEIVES ASSURANCE
(2) The OBLIGEE may treat as a REPUDIATION the OBLIGOR’S FAILURE to provide within a
REASONABLE TIME such ASSURANCES of due performance as is adequate in the
circumstances of the particular case.

NOTE  ANTICIPARTORY REPUDIATION:

A repudiating promisor may retract his repudiation, as long as notice of the retraction comes to the
non-repudiating promise before the latter materially changes his position in reliance on the
repudiation or indicates to the promisor that he considers the repudiation to be final.

Even if failure for adequate occurs you better notify repudiator that you are cancelling the contract

13
 ANTICIPATORY REPUDIATION DIAGRAM

1st YOU NEED A BILATERAIL CONTRACT [ IF THERE IS A DUTY LEFT TO

PERORM, YOU STILL HAVE A BI-LATERAL CONTRACT

[Note / Exception] anticipatory repudiation does not apply to unilateral K or

bilateral K that have become unilateral K]

then

[OBLIGOR INDICATS TO OBLIGEE THAT HE MAY BREACH} (2 WAYS TO INDICATE)

[STATEMENT] OR [CONDUCT]

Statement [elements]
 LANGUAGE must be sufficiently
positive to be REASONABLY
INTERPERATED TO MEAN that
party WILL NOT OR CANT
PERFORM
 Mere EXPRESSION OF DOUBT
TO WILLINGNESS OR ABILITY
TO PERFORM IS NOT
ENOUGH
 STATEMENTS THAT SHOW
INTENTION NOT TO
PERFORM = REPUDIATION
Conduct [elements]
 The act MUST be BOTH
o Voluntary &
o Affirmative
NOTE AFFIRMATIVE MEANS
PRESENT TENSE NOT IN THE
FUTURE
 MUST make it ACTUALLY or
APPARENTLY IMPOSSIBLE
 for him to PERFORM
 Note  voluntary affirmative act
REPUDIATION DOES NOT have to come
(IF INTENTION & directly from obligor
ALL ELEMENTS MET)
 NOTE  IF ALL ELEMENTS
ARE MEET = REPUDIATION

 NOTE  IF DOUBT  NOTE  IF ACT DOES NOT

[REASONABLE] CAN LEAD MEET THESE ELEMENTS,
YOU TO ASK FOR ASSURANCE YOU CAN ASK FOR
ASSURANCE

THEN YOU CAN ASK FOR

ADEQUATE ASSURANCES RES 251
IF YOU RECEIVE [IF IN DOUBT} IF NOT RECEIVE
ASSURANCES ASSURANCES IN
[REASONABLE TIME]

CONTINUE TO CAN REASONABLY SUSPEND PERFORMANCE

PERFORM

********NOTE********* NO YES
RES. 252
ANTICIPATORY REPUDIATION!!!
INSOLVENCY IS NOT
ANTICIPATORY
REPUDIATION
HOWEVER, FILING Note  Once in repudiation you don’t have to continue with your performance but you
BANKRUPTCY IS A have to show but for the repudiation you were ready and willing and able to tender
VOLUNTARY ACT THAT payment or do performance.
CAN BE ANTICIPATORY
REPUDIATION

14
What Kind of Damages can you get?

 Cover day  damages from the day you covered

 Repudiation day  if you decide to not cover and get $$ from date of repudiation

 Law day  Date when person is to perform. Does don’t have to what until law day before he can sue. Wait
until law day and sue for entire loss (but UCC says you should cover)
 Ex: if two parties enter into a K for performance starting on June 1, the non-breaching party
can sue before June 1 if the breaching party terminates the K before then.
 Answer  P does not have to wait till law day because he can find another job now and
mitigate his damages. The contract has been repudiated so P can sue at the time of
repudiation.
 The actual breach has not occurred until the time of performance arises. That’s why we need
an anticipatory repudiation because it’s in anticipation of the breach.

 Note  You can get money damages by not mitigating and waiting for law day but you should not do
that
 Note  If the contract is UNIQUE you can ask for specific performance rather then $$ Damages

 Note  Argument against repudiation = total breach is that there is not yet a breach technically. Until
law day comes.

 Note  REPUDIATION CAN NOT BE USED IF THERE IS A MINOR BREACH

[Hochster v. De La Tour]
 1st case where law suit can be based on words
 Note  Common law you could breach a promise to marry. (1/3 of states, this is still available).
 Note  if breach has already occurred then breaching party can NOT seek adequate assurance ONLY non
breaching party can.

Insolvency: [restatement II sec. 252]

 Definition  Insolvency is having more liabilities than assets. Or you fail to meet your debts as they become due. A
person is insolvent when she has ceased to pay their debts when they become due.

 Insolvency can be grounds for seeking assurances [CAN TRIGGER ASKING FOR ASSURANCES]
 Balance sheet approach: more liabilities than assets.
 Cash flow approach: fail to pay debts as they become due. You may have assets but they may not
be liquid to use it to pay bills

Can Repudiation be retracted?

A Repudiation can be retracted UNLESS:

1) Unless the other party has acted in reliance on your repudiation
2) If the party expressly cancels the K
3) Once the victim of the repudiation has filed suit

*******************ASSIGNMENT/ DELEGATION***************
15
Notes:

Rights are assigned [IS THE WORD ASSIGMENT BEING USED CORRECTLY?]
Assignement  can also be used to describe a total transfer or right and duties. (transfer
of K) ALWAYS SEE HOW THE WORD IS BEING USED= ENTIRE K OR JUST $$
NOT DUTY. A DIFFERENT WORD TO DESCRIBE ALL RIGHTS AND DUTIES IS
TRANSFER

Duties are delegated (DD)

Transfer: total transfer of rights AND duties

Assumption: promise to assume someone’s debt or duty. Transaction has to involve a DELEGATION and the Party
owned the DUTY 3rd Party Beneficiary once DELEGATEE (express) PROMISES TO ASSUME THE DUTY

Novation: once there is an ASSUMPTION of duty BOTH DELEGATOR and DELEGATEE are LIABLE to 3rd party
beneficiary UNLESS there was a NOVATION.

Assignment of rights ALONE can NOT become TPB

Transfer can create a TPB.

Note  If the third party was present at the creation of a K, then they are likely a TPB. If they come
after the K has been formed, they’re an assignee or delegatee.

Note  Duties can not be delegated if they are too personal or unique
Note  Anti-assignment clauses are unforeseeable. Anti-delegation clauses are enforceable. It’s a
difference between assignment of rights like assents (money) where duty is more personal. The
parties can bar delegation even if it’s a routine duty.

g.
WHAT CAN BE ASSIGNED / DELEGATED ?

In the absence of a provision in a K, RIGHTS and DUTIES under an executory bilateral K

[if K has not been fully performed]  you may assign and delegate EXCEPT the duties under K to provide PERSONAL SERVICE
many NEVER be delegated AND
Can NOT assign rights under K where the Choice of person was an ingredient of the bargain.

CAN DELEGATE UNLESS:

DUTIES ARE OF PERSONAL SERVICE & SERVICES THAT ARE UNIQUE

ASSIGNMENT WAS OF A RIGHT THAT PARTY ENTERED INTO AGREEMENT B/C OF SUCH SPECIFIC PERSON/
COMPANY [USUALLY BECAUSE OF REP] *REP may be unique

LIMITATIONS UNDER UCC

16
UNDER UCC SEC. 2-210 BUYER OR SELLER CAN ASSIGN FOR SERVICES [SEC. 317] EXCEPT:

The assignment would MATERIALLY CHANGE DUTY of the OTHER PARTY; OR

Increase MATERIALLY THE BURDEN or RISK imposed on him; OR

Impair MATERIALLY his CHANCE OF OBTAINING RETURN PROMISE

[Note  even though K may state, by its language, that it can NOT be assigned / delegated, such provisions are
not valid and it could be assigned / delegated]

CAN ASSIGN UNLESS:

FORBIDDEN BY STATUTE OR PUBLIC POLICY

WAGES (CANT BE ASSIGNED)

DEFENSES [ASSIGNMENT/ DELEGATTION]

ASSIGNEE’S RIGHTS ARE DERIVATIVE [ARISES OUT OF K]

ASSIGNEE HAS SAME RIGHTS AS ASSIGNOR AGAINST OBLIGOR

NOTE  until you get NOTICE you continue to pay party that you have been paying. After NOTICE, you have to send
the payment to the correct party [assignee] or you may end up paying twice.

NOTE  You’re always free to deduct damages on the first K from payments due on the second K. Instead of suing
for damages, you just deduct from the second K. If the difference is monetary damages that can be computed, there
is a right between the P and D to make the deductions rather than sue each other.

NOTE  There are two types of deductions to be fair to each party. If there’s a problem with the K, the assignee takes
damages for that breach. For other claims, there’s a cutoff date using the setoff. The court wants to encourage giving
notification so they use the date of notification as the cutoff date.

NOVATION - Restatement §280

A novation is a substituted K that includes as a party one who was neither the obligor nor the oblige of the original duty
1) SUBSTITUTION OF ANOTHER
2) DISCHARGE OF ONE PARTY
3) BY AGREEMENT OF ALL THREE PARTIES

Note:
 The substitution by mutual agreement of one debtor for another whereby the old debt is extinguished.
(substitution)

 A novation substitutes a new party and discharges one of the original parties to a contract by
agreement of all three parties (discharge by agreement of all three parties)

IMPLIED NOVATION

17
 IMPLIED NOVATION IS: DELEGATOR RENOUNCES HIS/HER LIABILITY [HE/SHE IS OUT OF
PICTURE] AND 3RD PARTY BENEFICIARTY WITHOUT PROTEST ACCEPTS PERFORMANCE OF
DELEGEE.

ELEMENT:
1. delegator renounces duty &
2. obligeE accepts performance by delegate &
3. (without) fails to protest

Note  Easy way out of this is I accept the performance but under protest. Thus not all elements are met.

DIFFERENCE BETWEEN ASSINGMENT AND TPB IS THAT: TPB

ARE CONTEMPLATED AT TIME OF K WHEREAS ASSIGNMENTS
ARE DONE AFTER FORMATION OF K.

1 step

18
 Is the 3rd party a beneficiary or a assignee/delegate?
3rd party  present at creation of K
Assignee/delegate  wonder in after K fully formed
Problem 181 ASSIGNMENT
Night flyer/ EE

notice
assignment

Wonder spa / OR right Armstrong/ obligor

to $$ to wonder spa
Note  if obligor gets notification and pays assignor (the wrong person) instead of assignee he may be forced to pay twice. (he may
have to pay Assignee & Assignor)

Problem182 DELEGATION
(New duty)
new owner (EE)

notice
delegation

Wonder spa / OR (ori. Duty)

Duty Armstrong/ obligor

To provide facility

EE CAN SUE OBLIGOR

The duty is now the new owner to give Armstrong a duty.
If new owner breach the agreement (ex. cut back on hrs)……Armstrong can sue wonder spa (can
NOT get out of duty by delegating it)

PIZZA CASE TRANSFER (rights)

19
PIZZA SHOP DF
MACKE  PL
VIRINIA
MACKE (TRANSFEREE) CAN SUE

DELEGATION NOTICE
ASSIGNMENT

RIGHTS

VIRINIA (TRANSFEROR) DUTIES PIZZA CO. (oblige or rights/ oblior of duty)

Note  The reason MACKIE sued Pizza is because PIZZA fired MACKIE based on some Material
change from what was in the K.

RULE #1 [REST. 160 (3)] IF THERE IS A MATERIAL CHANGE FROM THE ORIGINAL
CONTRACT (between Virginia & Pizza) DELEGATEE CAN SUE (Pizza)

CAN SUE

RES. 318
RULE  DUTIES CAN NOT BE DELEGATED IF THEY ARE TOO PERSONAL OR UNIQUE

RULE  [DELEGATION] CAN HAVE A NO DELEGATION CLAUSE

Summary: Virgina contacted with Pizza to provide and service machines then assigned and delegated to MACKE.

Pizza fired MACKE because Virginia use to pay in cash. (CHALLENGING THE TRANSFER)
So Macke sues PIZZA

COURT RULES FOR MACKE BECAUSE THEY ARE LIVING UP TO THE K. THERE WAS NOTHING IN THE
CONTRACT ABOUT PAYING CASH AND YOU CAN NOT ASK FOR MORE THAN WHAT IS IN THE CONTRACT

Hypo assume that Macke had refused to provide the drink machines and Pizza co. had sued
Virginia for the Breach. (can delegation by Virginia be a defense?) NO

20
ANSWER:

RULE [UCC 2-210 (1)]  can transfer your duties but CANNOT transfer liability ABSENCE OF
NOVATION
Macke (breaches)

Pizza CAN NOT sue Macke [no assumption at this point]

Virginia Pizza
Suing Virginia for Macke’s Breach.

RULE #2: OBLIGEE CAN SUE DELEGATOR BECAUSE DELEGATOR IS STILL

LIABLE
[Absent novation]

RULE #3: IF NOVATION, OBLIGEE (PIZZA) CAN NOT SUE DELEGATOR (VIRGINA)

RULE #4: OBLIGOR (PIZZA) CAN NOT SUE ASSIGNOR (VIRGINIA) UNLESS
THERE IS AN ASSUMPTION

(shifts) Macke  Macke (promisor) *****BECAME 3RD PARTY BENEFICIARY***

BECAUSE OF ASSUMPTION (DUTY & RIGHTS)
Assumption D R notification

Virginia D & R Pizza (becomes 3rd party)

(privity of K)
RULE #5: OBLIGEE/OBLIGOR (PIZZA) CAN SUE TRANSFORER (VIRGINIA), IF
AN ASSUMPTION (3RD PARTY BENEFICIARTY)

NOTE  there is Privity between Virginia and Pizza.

Note  Pizza company is not in privity with Macke so cant sue Mack UNLESS there was a ASSUMPTION (promise to
assume someone else’s contractual duties)

NOTE  If there was an assumption (“I Make promise you Virginia to fulfill your contractual duties to Pizza company”),
then Pizza company becomes 3rd party beneficiary.

NOTE  Virginia should demand an assumption so if Macke screw up Pizza would sue Macke instead of Virginia, even
though Macke ccould technically still sue Virginia in a 3rd party beneficiary UNLESS there is an NOVATION. [without the
3rd party beneficiary relationship, Pizza would Not be able to sue Macke (no privity of K) they would ONLY be able to sue
Virginia]

Assumption  promise to do or perform somebody else’s duties

IMPLIED ASSUMPTION  look below

NOVATION  Look above

21
[ASSIGNMENT OF ENTIRE CONTRACT:
Court says this is an “ASSIGNMENT” = transfer (rights & duties)

2 MEANINGS:
1. Assignment can mean JUST RIGHTS
2. Assignment can means assignment of rights and duties. TRANSFER

THINGS YOU CAN READ TO MEAN TRANSFER:

“OF THE CONTRACT” ; “OF ENTIRE”

**assignment all by itself PURE ASSIGNMENT**

assignee

assignee can ONLY sue obligee.

rights only
obligor can NOT sue Assignee or Assignor
assignor obligor

Note  courts like assignments and protect the assignee.

Note  obligor can ask for authentication of the assignment

**delegation all by itself PURE DELEGAION**

delegatee

Can oblige sue delegate? NO, because no privity of K.

duty only no privity of K
Obligee can ONLY sue delegator
delegator obligee

obligee can sue delegator because you can not get out of duty by delegating

Problem 185 [Gift Assignment]

RES 332

22
Travis (needs money) *assigns all money in bank account to Travis. But before bank gets notice, Len dies.
Len’s friend is witness to the assignment from Len to Travis

bank
Len Brown
(has extra money)

Gratuitous assignment which have no consideration.

[Rest. 332] Gratuitous assignment is revocable UNLESS you have a signed writing that is delivered
OR by delivery of a symbol. (ex. bank statement)
 Death terminates assignment
 If you get hand on the money you can keep it
 If novation you can not revoke gift assignment
 If promissory estoppel can not revoke a gift assignment

[Rest. 324]
Assignment does not have to be in writing and can be oral UNLESS statute of Frauds does not allow
it. (if real property no matter what, assignment has to be in written)

Problem 183
Texas auto (big company)

Assigns rights to Texas to buy all mufflers he needed [RES 317]

Requirement contract to sell Gerald ALL the Mufflers he need

Gerald check J. East River
(small company)

REQUIRMENT K  Look Below

NOTE  Texas auto is a lot bigger company than Gerald check company and J. East River may have a difficult time
supplying mufflers. [material change]

NOTE  CAN MATERIAL CHANGES CHANGE THE DUTY OF THE OBLIGOR? YES, the obligation of east river is
changed so he can ask for ASSURANCES.

***Talk about assurances if the Obligee is uncertain about the assignment***

OUTPUT, REQUIREMENT, AND EXCLUSIVE DEALINGS
Does UCC 2-306 provide any protection to J.East River? YES, provides protection.
(1) Needs to be in good faith and can not order unreasonably disproportionate amount. Texas auto can order to much
and has to act in good faith And if the party can uncertain J. East River ask for assurances.
(2)

Rules of General Assignment

Res. 328
Can NOT assign if materially changes the K.

23
[If would it material change burden, risk, ability take return performance]

Problem 186
[Partial assignment]
Res 326
Same as restatement 328 (general assumption).

ASSIGNING WAGES
RES 317 (2) (b)  You can assign wages (like security). But legislature has placed limitation so you can
assign ONLY a fraction of wages and in other states you may need to have your wife sign as well before you
can assign your wages.

Ex. purchase boat by assigning 3 years of wages. Your boss will not like this because workers that assign future
wages are worse workers. They are not getting paid any so why show up to work on the time

***IMPORTANT ANTI- ASSIGNMENT CLAUSES***

 UCC 2-210 (4) ANTI- DELEGATION CLUASES OK. (because duties are
more personable than rights)
 UCC 2-210 (2)  ANTI ASSIGNMENT CLUASES NOT OK. (because courts
want to encourage money transfers)
 Common law  ANTI ASSIGNMENT AND DELEGATION CLAUSES ARE
OK.

Generally rights of assignee are the same as Assinor. Know the List of Defenses

Setoff and Recoupment [type of defense]

Seattle Bank

notification
Assign right of money claim

Centralia Oregan Pacific

(Centralia owned money)

DEDUCTION Oregan Pacific wants to deduct from payment now owed to Seattle. Oregan not wanting to pay whole balance
becaue Centrilia had stiffed Oregan Pacific

Note  [we are going to DEDUCT from money we owe you (Seattle) the money that Centralia owes us]

IF NO ASSIGNMENT, OREGON COULD HAVE DEDUCTED FROM CENTRALIA. ALWAYS ABLE TO DEDUCT
AMOUNT OF DAMAGES FORM K1 FROM THE K2. (THEY WOULD BE ABLE TO OFFSET)

BUT DOES THE ASSIGMENT STOP OREGON FROM SETTING OFF? YES

PG. 837 ****MEMORIZE****

Defenses of the Obligor:
[Oregon Code]
The rights of an assignee are subject to:
(a) All the terms of the contract between the account debtor and assignor and any defense or claim arising
therefrom; and
(b) Any other defense or claim of the account debtor against the assignor which accrues before the account debtor
receives notification of the assignment.
RECOUPMENT  DEDUCTION FOR CONTRACT RELATED CLAIMS. CLAIM AROSE OUT OF K THAT WAS
ASSIGNED. [DAMAGES OR MONEY OWNED DURING THE CURRENT CONTRACT THEY ARE IN AT TIME OF
ASSIGNMENT

24
SETOFF  UNRELATED CLAIM BETWEEN THE SAME 2 PARTIES BUT ARISING OUT OF DIFFERENT AGREEMENT.
[IF DAMAGES OR MONEY OWED HAPPENED BEFORE ASSIGNMENT ].
 ARISES OUT OF BREACH OF CONTRACT NOT CONNECTED WITH THE INVOICE THAT IS ASSIGNED TO
THE BANK. YOU CAN ONLY CLAIM THE SETOFF IF IT ACCRUED BEFORE THE DF WAS NOTIFIED OF
ASSIGNMENT
 ACCRUES BEFORE …….(MEMORIZE) LIMITS
 THEY PUT LIMITS ON RIGHT TO SET OFF BECAUSE ASSIGNEE HAS PAID GOOD MONEY FOR A CLAIM
AND CAN BE WORTHLESS IF OBLIGOR CAN JUST PAY LESS THEN HE IS SUPPOSE TO. BUT ASSIGNMENT
CAN NOT BE BULLET PROOF BECAUSE IT WOULD NOT BE FAIR TO OBLIGOR BECAUSE THEY HAVE TO
HAVE SOME RIGHTS
 ******IF ASSINOR BREACH K THEN ASSINEE TAKES SUBJECT TO DAMAGES FOR THAT BREACH BUT AS
FAR AS OTHER CLAIMS THERE IS A CUT OFF DATE. THE CUT OFF DATE IS THE DATE OF NOTIFICATION
NOT THE DATE OF ASSIGNMENT******
 BASICALLY, IF ASSIGNOR OWES MONEY TO OBLIGOR ON K BEFORE THE ACTUAL ASSIGNMENT , ASSIGNEE
IS NOT RESPONSIBLE ONCE HE NOTIFIES OBLIOR OF THE ASSIGNMENT 2:04.21
 DEFENSE FOR ASSIGNEE TO GET WHAT HE PAID FOR. “I DON’T OWE YOU ON THAT OLD CONTRACT, THE
GUY YOU DEALT WITH BEFORE, OWES YOU” *REMEMBER ONCE NOTIFIED , HE CAN SAY THIS

Accrue: when all the elements necessary for a lawsuit have occurred.
Offer, acceptance, consideration, breach unless there’s an anticipatory repudiation which creates an earlier date
than the breach.

Set off / Recoupment Examples

Problem 191 EXAMPLES (of deductions)
1) Joe Armstrong dropped dumbbell on his foot. The doctor bill arises from the K with the spa and therefore the deduction
would be a recoupment because there’s an express or implied term that the spa will do Armstrong no harm. He would be
able to deduct.
2) Owner of spa drove over Armstrong’s dog will driving around town. The spa would be liable as a setoff because the car
and the dog are unrelated. If the dog was run over after he received the assignment then he can not deduct. Armstrong
would have to get an attorney and sue the spa instead of getting a deduction

Contract Modification (which the rights have been assigned)

After the assignment, may the 2 parties modify the K? based on UCC 9-405 MODIFICATION CAN BE MADE IF
IN GOOD FAITH. [With UCC you can modify even after VESTING has occurred  more broad than under the
restatement where you can not modify K after vesting]

Rest 333 Warranties of Assignor

(1a) assignor warrants to the assignee that he will do nothing to defeat or impair the value of the assignment. [I
promise I will not fuck you shit up]
(2) assignor is not guaranteeing that the obligor is solvent or will perform obligation.
[assignor not guaranteeing that the obligor will act right]

REST. 164
Note [Rest. section 164] if you have a bilateral agreement and you are assigning, you are assigning rights
and delegating duties.

25
 RULE  CAN YOU IMPLY AN ASSUMPTION [IMPLIED ASSUMPTION]? YES, EXCEPT IN
NEWYORK.

3 STEP WALTZ [REST II. 328]

(RIGHTS & DUTIES)
 GENERAL ASSIGNMENT IS PRESUMED TO INCLUDE A DELEGATION
 ACCEPTANCE OF ASSIGNMENT [ASSIGNMENT AND DELEGATON] IS PRESUMED TO CREATE
AN ASSUMPTION
 AND ASSIMPTION IS TO CREATE 3RD PARTY RIGHTS

(UCC 2-210 (5) MIRRORS REST. 328)

EX. ASKING FOR TIME CAN BE USED TO IMPLY AN ASSUMPTION

IMPLIED NOVATION

DELEGATE

B C

NOTE  B IS NOT ALLOWED TO SAY I HAVE NO DUTY BUT IF SHE DOES:

BASIC FACT PATTERN: [implied novation]

If A after delegated duties to B renounces any further obligation to C, If A unlawfully renounces her
duty and B accepts without protest, then an implied novation has occurred and A is off the hook.
 Elements for Implied Novation
1) The delegator (B) renounces her duty AND
2) The obligee (C) accepts performance by the delegatee (A) AND
3) Fails to protest

*********Assignment And Delegation For Dummies*********

Assignemnt
26
Assignee

Notice
CAN NOT SUE (BECAUSE NO PRIVITY)
Can sue
ASSIGNEE CAN ONLY SUE OBLIGOR
Assignor Obligor
CAN SUE IF ASSIGNOR FAILES TO PERFORM DUTY BUT NOT FOR RIGHTS

(BECAUSE ASSIGNOR GAVE UP ALL RIGHTS TO ASSIGNEE)

Delegation:
THIS IS VERY RARE; USUALLY A DELGATION COMES WITH RIGHTS (TO GET $$)

Delegatee

Notice
CAN NOT SUE (BECAUSE NO PRIVITY)

OBLIGEE CAN ONLY SUE DELEGATOR

Delegator Obligor
CAN SUE

Transfer: [ key: assignment= delegation= ]

Transferor

Rights duties

Notice is given CAN NOT SUE FOR ASSIGNT OR DELEGATION

Transferee Obligor of rights/ Obligee of Duties

CAN SUE FOR DELEGATION
CAN NOT SUE FOR ASSIGNMENT

Transfer with assumption:

27
[ key: assignment= delegation=
]
Transferor

Rights duties

assumption Notice is given CAN NOT SUE FOR ASSIGNT OR DELEGATION

Transferee Obligor of rights/ Obligee of Duties

CAN SUE FOR DELEGATION
CAN NOT SUE FOR ASSIGNMENT

Once you have ASSUMPTION  creation of 3rd PARTY

RIGHTS

******************3RD PARTY BENEFICIARIES*****************

Delegatee & assignee CAN shifts to become promisor (transfer)

ALWAYS DF
PROMISOR

ALWAYS PL
CT. PROTECT PL

PROMISEE 3RD PARTY

RES I  3 CATAGORIES OF RELATIONSHIP

Note A donee beneficiary isn’t as good
because you can’t sue the third party.
(1) CREDITIOR BENEFICIARY  ABSOLVE DEBT.
VESTING [relied]
(2) DONEES (GIFT)  HAS TO BE RELATIONSHIP
Ex. Wife, Fiancé, or Child. VESTING [automatic]
(3) INCIDENTAL  loose lawsuit

NOTE  CHECK WITH RES II  2 CATAGORIES OF RELATIONSHIP

BOTH RESTATMENTS (1) INTENTIONAL [CREDITOR AND DONEES]
VESTING [reliance; file lawsuit; or assent to K]
(2) INCIDENTAL  loose lawsuit

28
 K RIGHT  AT TIME OF K (3RD PARTY IS INTENDED
rd BENEFICIARY). IT CAN BE WRITTEN OR ORAL
Can have 3 party beneficiary [2 ways]
WHEN PROMISEE TRANSFERS RIGHTS TO PROMISOR
AFTER K HAS ALREADY BEEN MADE [ASSUMPTION]

ASSUMPTION  2 TYPES:
1. EXPRESSED ASSUMPTION (K STATES) EX. ASSUME MORTGAGE
2. GENERAL ASSUMPTION  TRANSFER (RIGHTS AND DUTIES)

DEFENSES:
X HAS SAME DEFENSES AGAINST 3RD PARTY AS HE HAS AGAINST
Y. (sued because of his own (X’s) conduct)

X MAY USE DEFENSES THAT Y HAS AGAINST 3RD PARTY IF:

MAJORITY VIEW: For a DEBT  CAN use Y’s defenses
Y CAN SUE X [DONEE] FOR For a Performance/ Duty  CANNOT use Y’s defenses.
SPECIFIC PERFORMANCE
(nominal damages) Note  if claim ARISES out of ORIGINAL K  X CAN USE Y’s defenses
Note  In the past Y could not Note  if claim ARISES out of a NEW contract between Y & 3rd party
sue X (2nd Contract).  then X can NOT use Y’s defenses.

[CREDITOR]
Y CAN SUE (recover) FROM X X 3rd CAN SUE X [CREDITOR REL]
B/C Y HAS PAID DEBT TO 3RD CAN SUE X [DONEE REL]
3RD PARTY SINCE X HAS
FAILED TO DO SO.

IF Y HAS NOT PAID 3RD

PARTY; HE CAN SUE X FOR
SUE SUE
SPECIF PERFORMANCE TO
MAKE HIM PAY.
3RD PARTY BENE
Y
NOTE: SUE [CAN SUE BOTH UNLESS NOVATION (then only sue X)]
TYPES OF RELATIONSHIP BETWEEN
Y  &  3RD PARTY:  intended 3rd party
 Debt 3RD PARTY CAN SUE Y [CREDITOR]
 Wife , fiancé, or child 3RD PARTY CAN NOT SUE Y [DONEE]  GIFT. HOWEVER, IF Y TELLS 3RD OF
K AND 3RD RELIES ON IT. 3RD CAN SUE Y UNDER [PROMISORY ESTOPPEL]
 Public contract cases
 Promise runs directly to the beneficiary NOVATION [ELEMENTS: **SAD**
even though not establish consideration 1. substitution
2. discharge
3. by agreement of all 3 people.

***3RD PARTY CAN ONLY ENFORCE K AND SUE IF ASSUMPTION HAS OCCURED***
.

USE VESTING RULES ONLY IF CONTEACT IS SILENT  Vesting rules are default rules. The vesting
rules applies if the K is silent on vesting but if the K itself deals with vesting, then the K controls. You
have to look at the K first before applying the vesting rules.

Example  most insurance policies provide that rights never vest until you die. Under the first restatement,
you could never change a beneficiary. The 2nd Restatement changed that because if a man married a woman
and then divorced her, he couldn’t get his second wife on his insurance policy because wife 1’s rights would be
vested.

29
  Note  the reason the 2nd restatement changed the categories is because some people were INTENDED
BENEFICARIES [donee and creditors] and did NOT fit into the creditor or donee categories but the 2 nd
restatement included everyone.
 Always do 1st restatement first (donee or creditor) and see if it works if NOT
 Look to 2nd restatement and see if it works

WAYS TO SEE IF THERE IS INTENDED BENEFICIARIES:

 Are they named in the K (intended to infer benefit) THEN intended beneficiary
 If performance is rendered directly to beneficiary THEN 3rd party is the intended beneficiary
 If beneficiary would be reasonable in relying upon the K, then she/ he is intended
beneficiary
Related Case [Seaver v Ransom]
 cases where there is a pecuniary obligation (debt) running from the promisee to the beneficiary, a legal right
founded upon some obligation of the promisee in the third party to adopt and claim the promise as made for his
benefit
 K is made for the benefit of the wife, affianced wife, or child of a party to a K
 Public contract cases where the municipality seeks to protect its inhabitants by covenants for their benefit
 The promise runs directly to the beneficiary although he does not furnish the consideration

First Restatement §133 –Creditor, Donees, Incidental (Know for exam)

 Creditor: if no purpose to make a gift appears from the terms of the promise in view of the accompanying
circumstances and performance of the promise will satisfy an actual or supposed or asserted duty of the promisee
to the beneficiary…
 Donees: intent to confer a gift or right of action
 Incidental: Lose case

Second Restatement §302 – Intended and Incidental Beneficiaries (Know for exam)
Intended: unless otherwise agreed
 Somebody the parties intended to benefit.
 If the performance is to be rendered to them
 If the beneficiary would reasonably rely upon the K

30
Defenses: [3rd party beneficiary]
]RIGHTS OF PARTIES]
 Are derivative of the K (rights come from the K so if there is a defect in K, her rights are no better than the
defect. Defect still exists.
 Rest. 309 (1) K 
o Defenses AT TIME K was formed (formation Defense)
 POSSIBLE DEFENSES:
 Lack of mutual consent
 Lack of consideration
 Misunderstanding
 Mistake
 Duress
 Undue influence
 Illegality
 Incapacity
 unconscionability
o subsection (2) Defenses AFTER K was formed (post formation defenses)
 POSSIBLE DEFENSES:
 impossibility
 frustration of purpose
 nonoccurrence of a condition precedent
 occurrence of a condition subsequent
 material breach
 Anticipatory repudiation
 Mutual recession (until vesting occurs  until they die) once rights have vest the parties
loose capacity to mutually resend an agreement
o So think was there problems at time k was made or after (LOOK AT HIS LIST)

APPLIGATION TO MORTGAGES: (application of 3rd party beneficiary law to mortgages.)

Purchaser often takes out new mortgage. But maybe purchaser may want to take over existing mortgage

 ASSUME MORTGAGE  Purchaser Promise to assume the mortgage  take over existing mortgage
BUT homeowner is still liable

NOTE  THIS AN EXAMPLE OF EXPRESSED ASSUMPTION – THIS IS ONE OF

THE 2 WAYS AN ASSIGNMENT / DELEGATION BECOMES A 3RD PARTY
BENEFICIARY. THE 2ND WAY IS IF YOU HAVE A GERNERAL ASSUMPTION
WHICH BOTH RIGHTS AND DUTIES ARE TRANSFERRED.

 Purchase “subject to” mortgage  A mortgage “subject to” means that the homeowner assumes the
debt and the purchaser DOES NOT ASSUME any DEBT OR LIABILITY.
o V realizes that property has mortgage on it but V does not want to promise (NO PROMISE TO
ASSUME). She is still going to make bank payment to the bank, and eventually she will own it
(motive to make payments)

31
********************STEPS FOR TEST***********************

FIRST STEP  IDENTIFY PARTIES

SECOND STEP  DETERMINE IF 3RD PARTY IS INTENDED

BENEFICIARY.
WAYS TO SEE IF THERE IS INTENDED BENEFICIARIES:
 Are they named in the K (intended to infer benefit) THEN intended beneficiary
 If performance is rendered directly to beneficiary THEN 3rd party is the intended beneficiary
 If beneficiary would be reasonable in relying upon the K, then she/ he is intended beneficiary

NOTE  CAN HAVE 3RD INTENDED 3RD PARTY BENEFICIARY

THIRD STEP  DETERMINE IF PROMISORS PROMISE IS

ENFORCEABLE
[IT IS ENFORCABLE IF:]
 Somebody the parties intended to benefit.
 If the performance is to be rendered to them
 If the beneficiary would reasonably rely upon the K
IF ENFORCABLE GO TO STEP 4.

FORTH STEP  DETERMINE IF 3RD PARTY BENEFICIARY IS

DONEE BENEFICARY OR CREDITOR BENEFICIARY
(1) CREDITIOR BENEFICIARY  ABSOLVE DEBT.
VESTING [relied]
(2) DONEES (GIFT)  HAS TO BE RELATIONSHIP
Ex. Wife, Fiancé, or Child. VESTING [automatic]

FIFTH STEP  DETERMINE WHEN RIGHTS OF 3RD PARTY VEST.

[ONLY APPLY THIS STEP IF PROMISOR AND PROMISEE ARE
TRYING TO CHANGE THE K].

32
3rd party beneficiary

Problem 166
Father(Promisor)

Son (Promisee) MGM Motors (3rd Party – Incidental)

MGM Motors is NOT Intended Beneficiary

ISSUE: WHAT IS THE PURPOSE IF THIS CONTRACT? [incidental or intended]

RULE  INCIDENTAL BENECIARIES CAN NOT SUE PROMISOR

PROBLEM 167

PROMISOR IS ALWAYS THE DF

MGM
PROMISE FATHER
CAN SUE PAY $$ DELIVER CAR

FATHER SON [3RD PARTY IS ALWAYS GOIING TO BE THE PLAINTIFF]

FATHER PAYS $20 K FOR A CAR TO, MGM PROMISES TO DELIVER CAR TO SON BUT FAILS TO DO

NOTE  : ALLOW SON TO SUE WOULD SERVE THE PURPOSE OF THE CONTRACT

NOTE  FATHER CAN SUE BECAUSE HE GACE MGM CONSIDERATIN (20k)

RULE: PROMISOR IS ALWAYS DF BEING SUED BY 3RD PARTY (PL)

RULE  INTENDED 3RD PARTY CAN SUE PROMISOR

RULE  PROMISEE CAN SUE PROMISOR

Lawrence v Fox
Holly loaned Fox $300 and Fox said he would pay a debt that Holly owed to Lawrence. (Third person is Lawrence)

Fox (D – Promisor)

PRIVITY SUES [PIVITY OF K IN NOT NEEDED]

OF K

Holly(Promisee) Lawrence (P – CREDITOR BENEFICIARY)

CREDITOR
RELATIONSHIP

FOX DOES NOT PAY. LAWERENCE SUES FOX FOR THE MONEY

CAN A PARTY ENFORCE A CONTRACT WHEN HE OR SHE IS NOT IN PRIVITY

RULE  DO NOT NEED PRIVITY BEWTEEN 3RD PARTY AND PROMISOR FOR 3RD PARTY TO BE ABLE TO
SUE PROMISOR

KNOW (ISSUES)
1. WHAT THE PROMISE IS
2. WHO PROMISE IS GOING TO BE PERFORMED FOR

33
 3. AND WHAT THE RELATIONSHIP BETWEEN PROMISEE AND 3RD PARTY
PROBLEM 168

RES II 280 [NOVATION]

ELEMENTS [SAD]
Substitute k
Agreement by all parties
Discharge of one of the parties in original K

F can sue if novaton

H L RULE  CREDITOR RELATIONSHIP: L CAN SUE F OR H (HAS A CHOICE)

CAN SUE BOTH OF THEM BUT CAN NOT COLLECT TWICE
RULE  L CAN ONLY SUE F IF THERE IS A NOVATION.
Note  if L sues H; H can sue F.

NOTE  really it is L who has to agree last. Because I am sure H and K will agree to the novation.
**there is no good REASON for L to agree with a NOVATION**

PROBLEM 169

GEORGE

MARTHA FINANCE CO

CREDITOR RELATIONSHIP FINANCE CO. CAN NOT FIND GEORGE

CAN FINANCE COMPANY SUE MARTHA? YES

NOVATION:
FINANCE CO IS NOT GOING TO GIVE NOVATION OUT OF GOODNESS OF THEIR HEART.
HOWEVER, IF MARTHA IMMEDIATELY AFTER DIVORCE AND MARTHA OFFERED SUM TO FINANCE
COMPANY, THEY MAY GIVE HER A NOVATION.

PROBLEM 170

PODIUM (MAKES PROMISE TO CHUCK) types of relationships under restatement 1.

RES 1 CREDITOR RELATIONSHIP
(DEBT OR DUTY)

DONEE RELATIONSHIP
(GIFT)
CHUCK LAW SCHOOL INCIDENTAL
(TO GIVE SPEACK
CREDITOR RELATION (PERFORM A SPEECH) DUTY TO PERFORM..

CAN LAW SCHOOL SUE CHUCK NO NOVATION?

ANSWER  CAN SUE PODIUM AND PODIUM

RULE  YOU CAN AGREE TO A SUBSTITUTION WITHOUT AGREEING WITH A NOVATION.

34
Seaver v Ransom
Wife’s health is failing and her husband, Judge Beman wrote her will stating her house goes to him instead of her niece.
Judge says that he will pay for the difference of the house.

JUDGE (HUSBAND)

PROMISE TO GIVE NIECE $$

LEAVE $$ SUE

WIFE GIFT NIECE

(NO CONSIDERATION) CAN NOT SUE WIFE UNLESS PROMISSORY ESTOPPEL (RELIED ON IT)

RELATIONSHIP DONNEE

RELATIONSHIP [THAT NY COURT RECOGNIZED TO BE A 3RD PARTY BENEFICARY]

1. DEBT
2. WIFE, FIANCE, OR CHILD  [NIECE IS NOT ONE OF THESE]
3. PUBLIC CONTRACT CASES
4. PROMISE RUNS DIRECTLY TO THE BENEFICIARY [IF NEICE IN ROOM AND HE TOLD NIECE I PROMISE TO LEAVE YOU
MONEY.

CAN THE NIECE SUE THE WIFE’S ESTATE?

NO

RULE:
DONEE YOU CAN ONLY SUE PROMISEE
CREDITEE CAN SUE PROMISOR AND PROMISEE

H.R. Moch v. Rensselaer

WATER COMPANY

CAN SUE CAN SUE IF 3RD PARTY

PRIVITY OF K

CITY H.R. MOCK (INCIDENTAL BENEFICIARY)

CAN NOT SUE THE GOV’T

RELATION (NONE)

NOTE  CITY HAS NO DUTY TO H.R. TO PROVIDE FIRE PROTECTION

FACTS: Rensselaer, a waterworks company made a contract with the city of Rensselaer to supply water throughout the
utility system, especially fire hydrants. There’s a fire and D doesn’t supply enough water to extinguish the fire and P’s
warehouse is burnt.

RULE  CAN NOT SUE THE GOVERNMENT EXCEPT YOU CAN SUE FOR BREACH OF K IF YOU ARE IN
THE CONTRACT.

ALSO H.R. CAN NOT SUE CITY BECAUSE THEY ARE INCIDENTAL BENEFICIARY

35
First Restatement §133 –Creditor, Donees, Incidental (Know for exam)
Creditor: if no purpose to make a gift appears from the terms of the promise in view of the accompanying circumstances
and performance of the promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary…
Donees: intent to confer a gift or right of action
Incidental: Lose case (NO DUTY, DEBT, OR GIFT)

LOOK AT THIS FIRST IF NOT WORK LOOK AT RES. 2. IF WORKS UNDER 1ST REST. THEN NOT BEAT A
HORSE

Second Restatement §302 – Intended and Incidental Beneficiaries (Know for exam)
Intended: unless otherwise agreed
 Somebody the parties intended to benefit.
 If the performance is to be rendered directly to them
 If the beneficiary would reasonable in relying upon the K

2ND RESTATEMENT 302

INTENDED (GUILDLINES TO DETERMINE IF INTENDED BENEFICIARY)
 Somebody the parties intended to benefit.
 If the performance is to be rendered directly to them
 If the beneficiary would reasonable in relying upon the K

INCIDENTAL BENEFICIARIES

To practice mapping out 3rd party beneficiary DO PROBLEM 173.

Note  share holder can sue corporation. The share holders are the 3rd party beneficiary
Note  beneficiary of estate plans can sue lawyers (majority).

MOCKE RULE  the benefit to the public is incidental and the government is immuned.

DEFENSE
“know list” LOOK PREVIOUS PAGES

Restatement 309
Rule  3rd party beneficiary rights are derivative out of which they flow. K between wife and judge designed to benefit
niece. Her rights derive from the K. Her right are no better than the K rights. For example the K can have a defect.
RULE 
THE 3RD PARTY HAS THE SAME RIGHTS AS THE PROMISEE

MUTUAL RECESSION DEFENSE on list

JUDGE AND WIFE STILL ALIVE THEY AVE A RIGHT TO MUTUALLY RECEND THE K.
(WIFE OFFERING RECISSION TO JUDFE AND THE JUDFE ACCEPTS. BOTH GAVE UP THEIR
TIGHTS WHICH IS CONSIDERATION, SO THE NIECE IS OUT OF LUCK) UNLESS THE NIECE’S
RIGHTS HAD ALREADY VESTED.

36
VESTING
YOU TALK ABOUT VESTING IF THERE IS MODIFICATION OF K OR RECESSION OF K.

 Vesting is NOT PREREQUISET TO FILE A LAW SUIT

 VESTING ONLY applies where promissee or promisor attempt to resend or change the K (ONLY HERE
TALK ABOUT IT). Aka FREEZING once vesting occurs the writes of 3rd party is frozen.
 UNTIL vesting occurs there can be a change or resend of K.

NOTE  ANY ATTEMPT TO CHANGE K TO DETRIMENT OF 3RD PARTY AFTER VESTING HAS OCCURRED IS
TREATED LIKE A MATERIAL BREACH.

NOTE  THE BENEFICIARIES RIGHTS ARE VESTING

Note  basically figuring out when someone actually becomes a 3rd party beneficiary. AFTER vesting there would
be a breach

REST 1
DONEE  AUTOMATIC
CREDITOR  REQUIRES RELIANCE

REST 2
INTENDED
1. RELIANCE, OR
2. BRING A LAW SUIT TO ENFORCE 3RD PARTY RIGHTS, OR
3. TO EXPRESSED ASSENT TO THE K “YOU GUYS MADE CONTRACT TO MY BENEFIT AND I
AGREE TO ACCEPT”
**FOLLOW THE ABOVE VESTING RULES IF THE CONTRACT IS SILENT ABOUT VESTING. IF
CONTRACT EXPRESSLY STATES VESTING THEN DO NOT USE THE ABOVE RULES**
EX. most insurance policies say rights never vest because you may want to change beneficiary from wife 1
to wife 2.

RULE  A 3RD PARTY BENEFICIARY CONTRACT MAY EXIST EVEN IF BENEFICIARY IS NOT NAMED, NOT
IDENTIFYABLE, OR NOT YET IN EXISTANCE, SO LONG AS THE BENEFICIARY IS IDENTIFYABLE OR IN
EXTENSE WHEN THE TIME FOR PERFORMANCE ARRIVES.

37
FOR TEST [assignment / 3rd party]
On the exam, talk about transfer because it’s going to be both assignment and delegation.

“I assign” or “I transfer” the K…triggers transfer

Assignment: only talking about rights

Delegation: only talking about duty

When prof talks about rights and duties, then discuss transfer. When you say assign the K, that means you are
talking about transfer, which means you have to break it down to both assignment and delegation
 Right of Payment never materially changes the assignment or the K
 If the assignment is okay but the delegation isn’t proper, then there’s no transfer

On the exam, first talk about services or goods

For services, use the Restatement which delegates assignment (317) delegation (318)
For goods, use UCC’s version of assignment and delegation

Write the first issue for assignment then do the second analysis for delegation then talk about transfer.

3rd party beneficiary right v assignment and delegation

3rd party beneficiary rights are created at the time of the K
Assignment and delegation rights are created the K is made
Use assignor/assignee language

Look for anti-assignment clauses. Under the CL, they are enforceable. Under the UCC, there are not enforceable

You can have partial assignments.

 Assigning 50% of something to person X.

Modification of assignment 9-405

Modification requires
1) made in good faith
2) with reasonable commercial standards

Delegation of duty: Restatement 318

Implied delegation:
(1)there must be a repudiation
(2) obligee must be silence as to the repudiation
(3) fails to protest the new party’s performance

Recoupment v Set-off
Ex: an undergrad went to chase bank and got loan #1 for undergrad loans. Loan #2 is from Fanny Mae for law
school loans. If Fanny Mae goes out of business, they assign the rights of payment to Chase Bank. In undergrad,
Chase charged a higher interest rate than stated. If you have a claim against Chase Bank and when Fanny Mae
assigned the rights of payment to Chase, your defense is that Chase charged too high an interest rate. This defense is
called Set-off. It is separate from the K that is being assigned. You are trying to off set an amount of money.

If both lenders are Fanny Mae. In your under grad, you take out a large loan. In law school you don’t need a lot of
money and you get a small loan but its on the same K. Fanny Mae now says we’re going to default on the second
loan and your defense would be Recoupment. If its related to the same K, the defense of recoupment can be set forth.

Set-off: In order to assert the defense of set-off, you must assert the defense before notification of suit against you.
- You have to use the defense before Chase sues you for not paying the loan

38
*****************PORAL EVIDENCE RULE********************
DEFINITION: Generally assumed to include evidence of ORAL OR WRITTEN agreements or Negotiations that are
PRIOR to OR CONTEMPORANEOUS (around same time as K signing) WITH a writing INTENDED to be the
COMPLETE OR PARTIAL INTEGRATION of the parties’ final judgment

Integration  means final agreement [DOES NOT MEAN COMPLETE]

**PORAL EVIDENCE CANNOT BE USED TO PROVE TERMS ADDITIONAL TO OR INCONSISTENT WITH AN

INTEGRATED CONTRACT**

NOTE  PORAL EVIDENCE RULE DOES NOT APPLY TO SUBSEQUENT MODIFICATION.

WHEN DO YOU TALK ABOUT PORAL EVIDENCE RULE:

The way to spot a parole evidence rule (PER) question is when you have prior oral negotiations and
then a written contract that does not contain all that the parties talked about. Another way of
spotting a PER issue is a contemporaneous agreement with the signing of the contract. Such as if
the parties are signing the contract and they are like lets add this in there but never right it down.
Look for prior agreements that are not contained in the contract.

How to use the Parol Evidence Rule

1. You want to introduce the evidence
2. The opposite side is going to try to exclude it under the parol evidence rule
3. Then you say yes, but there’s XYZ exception to the parol evidence rule

EXCEPTIONS TO PORAL EVIDENCE RULE [9 TYPES]

(1) TO PROVE AN AGREEMENT SUPPORTED BY SEPARATE

CONSIDERATION. [ICE HOUSE CASE]

Note  If the oral promise had separate consideration it would be a separate K to begin with. Thus, now
there is 2 separate Ks with their own consideration. Poral evidence DOES NOT APPLY. [Example: I will
give you $100 extra to remove ice house.]

(2) TO PROVE A COLLATERAL AGREEMENT [ICE HOUSE CASE] [LIST 3

ELEMENTS]

Definition [COLLATERAL]  distinct, separate, independent

3 ELEMENTS [EXCEPTIONS] WHERE ORAL AGREEMENT WOULD CHANGE WRITTEN K:

 (1) THE TWO KS ARE DIFFERENT the agreement must in form a collateral one. Be a
collateral (independent of collateral agreement). THE 2ND K IS A COLLATERAL
AGREEMENT. &

 (2) It must not contradict express or implied provision of the writing. CANNOT
CONTRADICT THE ORIGINAL AGREEMENT (inconsistent v. additional term). &

 (3) It must be one that parties would not ordinarily be expected to embody in the writing. IF
WE BELIEVE THIS PROMISE WAS MADE WOULD IT BE A PROMISE THAT THE
PARTIES WOULD AGREE TO IN THE ORIGINAL K OR NOT. (why is it not in here). If
you can explain why it is not in the original K then it would satisfy 3rd element)

Note  [you need all there elements for the exception]

39
(3) TO PROVE TERMS ADDITIONAL TO (BUT NOT INCONSISTANT WITH)
A PARTIAL INTEGRATION [LAURIA BROS CASE] [WILLISTON AND
CORBIN VIEWS]

Partial Integration Rule:

IF CONTRACT IS NOT COMPLETED (COMPETE INTEGRATION), YOU

CAN ADD EXTRINSIC EVIDENCE THAT IS OUTSIDE OF K BUT IT
NEEDS TO NOT CONDRIDICT THE EXISTING CONTRACT

CLUES TO LOOK FOR:

 IF MERGER CLAUSE CAN NOT INTEGRATE
 ABSENCE OF MERGER CLAUSE (SOPHISCATED PARTIES), CAN
NOT INTEGRATE
 IF CONTACT IS COMPLETE YOU CAN NOT INTEGRATE

EXTRINSIC EVIDENCE  EVEIDENCE OUTSIDE OF PARTIES AGREEMENT.

***NOTE  LOOK TO SEE IF JURISDICTION FOLLOW WILLISTON OR CORBIN***

Williston v. Corbin THEORIES

[These 2 views are ways judges evaluate whether the 2nd contracts should be admissible for the jury to hear.]

“To determine either partial or complete integration”

NOTE  2 meanings of the word “inconsistent [narrow & broad]

Williston [conservative view] “Narrow view”

Only Look at the Contract “4 Corners Test”

Note  Broad View: the absence of reasonable harmony in terms of the language and respective
obligations of the parties (reasonable harmony

Corbin [liberal view] “Broad view”

Look at INTENT at time of K &at time of negotiations
[look at surrounding circumstances]

Note  Narrow View: to be inconsistent the term must contradict or negate a term of the writing
(direct contact))
Note  lets more evidence

§216 Consistent Additional Terms

(1) evidence of a consistent additional term is admissible to supplement an integrated agreement
unless the court finds that the agreement was completely integrated
(2) an agreement is not completely integrated if the writing omits a consistent additional term which is
a. agreed to for separate consideration or
b. such a term as in the circumstances might naturally be omitted from the writing

40
 Merger Clause: integration clause
- Merger between the oral agreement and the written K
- If integration is determined by intent of the parties, a statement by the parties of their intent in the
writing should go a long way toward establishing that intent and avoiding arguments about alleged
collateral matters.

- Merges all of the negotiations that survived the process

If we have a Merger Clause, we DONT need Williston or Corbin b/c the K is a complete integration.
If you sign any pre-printed K and there isn’t a merger clause, that suggests that the parties do not intend the K
to be a complete integration.

The difference between the collateral agreement and partial integration is whether there is a merger clause. The
collateral agreement clause applies to a completely integrated writing so the presence of a merger clause would not
foreclose application of the collateral agreement.

(4) TO ADD UCC “CONSTRUCTION TERMS”

IF THERE ARE CONSTRUCTION TERMS MISSING COURTS MAY

ALLOW ADDING THE TERMS:
 The UCC requires the courts to look to the following matters as aids for
construction of the contract
 Usage of trade  custom within any given industry
 Course of Dealing  Parties conduct in past contracts with
one another
 Course of performance  what the parties do while
performing this one contract

Hierarchy of terms [more weight given to top of the list]

Express term
Course of Performance
Course of Dealing
Usage of Dealing

Note  more weight is given if specific terms are given rather than general terms

Note  Separate negotiated or added terms are given more weight than standard
(boiler plate) terms

Hierarchy of terms/ Order of Control:

Handwritten
Typed
Preprinted

41
(5) TO PROVE A SUBSEQUENT MODIFICATION

[Parol evidence is does NOT apply because you are free to modify]

Subsequent modification: parties are allows free to modify the K. If they have modified it, the parol
evidence rule is not implicated.

Parties often put into the K a NOM (No Oral Modification) clause. The parties agree not to modify the
agreement except in a signed writing. The parties are trying to block the subsequent modification by
saying there’s NOM allowed.
- The problem with NOM clauses is the courts won’t enforce them.
- If the parties are free to modify their K, they are free to expressly or impliedly modify the
NOM clause.
- The courts say if the parties enter into a subsequent oral modification, they impliedly
revoke the NOM clause
- NOM clauses are ineffective at common law.
- Poral evidence bars only evidence of transactions that occurred prior to or
contemporaneously with the wrighting

(6) TO PROVE A CONDITION PRECEDENT TO FORMATION [PYM V.

CAMBELL]

[Condition precedent must be the formation of the K itself]

Related case: [Pym v. Cambell]

 K was signed for convenience but no obligation UNTIL 2nd Engineer approved
the invention
 Parol evidence may be admitted to show that the parties to a written
agreement also orally agreed that no performance would be due UNTIL a
certain condition was satisfied
Note  if condition is just for a DUTY, you CANNOT use this exception.

42
 (7) TO PROVE GOUNDS FOR AVOIDANCE:
[How to avoid or resend the K]
Misunderstanding / mistake in formation vs. Conscious ignorance/ mistake in expression

Rest. §213 Effect of integrated agreement on prior agreements (Parol Evidence Rule)
(1) a binding (partially) integrated agreement discharges prior agreements to the extent
that it is inconsistent with them
(2) a binding completely integrated agreement discharges prior agreements to the extent
that they are within its scope

Note:
A mistake is an unintentional act or omission arising from ignorance, surprise, or misplaced
confidence. The mistake must be material, or in other words, so substantial and fundamental as to
defeat the object of the parties. A unilateral mistake is not normally grounds for relief for the
mistaken party, whereas a mutual mistake is a mutual mistake occurs when both parties, at the time
of contracting, share a misconception about a basic assumption or vital fact upon which they based
their bargain.

MISUNDERSTANDING:
No consensus ad idem: Meeting of the minds, no consensus about the thing
There is no consensus ad idem and therefore no binding K. D wins. [THE MINDS
OF BOTH PARTIES DO NOT MEET THUS NO CONTRACT]

Void: No K
Voidable: the parties have to go to court

Rest. §20 Effect of Misunderstanding

(1) there is no manifestation of mutual assent to an exchange if the parties attach
materially different meanings to their manifestations and
a. neither party knows or has reason to know the meaning attached by
the other

MISTAKEN INFORMATION:
When making K; belief is NOT in accordance with existing fact (belief that is
not correct based on facts. [cow case]

There never is a K because there is NO ASSENT

43
MUTUAL MISTAKE: [if mutual mistake  you can make recession (void) of contract]
[BOTH PARTIES THINK THEY ARE CORRECT IN THE SAME BELIEF
ABOUT SOMETHING]

ELEMENTS: (mutual mistake)

1. MISTAKE: (Rest. II  a belief not in accordance with existing facts)
NOT ignorance.
Mistake is a state of mind. I thought about it and this is what I believe.
A State of present fact
Fact  not a mistake of law
2. MUTUAL: (shared or common belief)
3. SUBSTANTIAL MISTAKE: (material goes to the substance of the K)
Mistake has to be “Basic” to the transaction:
“root of the matter”
 Not enough that the mistake is material, it must go to the substance of
the K
 Material mistake is not enough
 Identity OR quality of the subject matter (thing they are buying)

Note  value is not a fact; it is in the eye of the beholder (opinion)

Note  “Basic” difference between a cow and an Ox.

Note 
Mistake is a state of mind, in the present sense
Mutual mistake is a shared or common belief
To have relief in the law, your belief has to be mutual and not in
accordance with the law. You will lose a case if you enter into a K not
knowing the law.

UNILATERAL MISTAKE:
[AT TIME OF K]
No Relief for Unilateral Mistake; Except if X makes a mistake and Y knows of the
mistake and buys anyways.
Example  miscalculate the bid “mistaken bidder”

4 ELEMENTS:
1) The mistake is of such consequence that enforcement would be
unconscionable
2) The mistake must relate to the substance of the consideration [did mistake
cause him to rely on you]
3) The mistake must have occurred regardless of the exercise of reasonable
care
Example: Clerical mistakes are human error which can occur despite
reasonable care. This court lets Barber retract their bid because it was
based on clerical error.
4) It must be possible to place the other party in status quo

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 Note  Prompt notification must occur before the other party relied
on it or the other bids have expired.

CONSCIOUS IGNORANCE: [NO RELIEF]

The rule for conscious ignorance is the assumption of risk. Both parties assume the
risk that the compartment could be empty or full. If the estate was unwilling to run
that risk, they should have opened the secret compartment before they sold it.

“I DON’T KNOW! & I KNOW I DON’T KNOW”

“BUYER BEWARE” “SELLER BEWARE”

NOTE  PARTY WHO IS IGNORANT ASSUMES THE ERROR

Definition [ignorant]  absent belief.

NOTE  if BOTH PARTIES are IGNORANTE, then there is NO MISTAKE

NOTE  LOOK AT THE FACTS AT THE TIME OF SALE

MISTAKE IN EXPRESSION:

When there has been a mistake in expression, the parties have reached an agreement but
wrote it down wrong, so they are asking the Ct to reform the K - rewrite the K to conform the
writing to the parties actual agreement.

For example - buyer and seller agree to buy/sell 100 acres for $100,000. The K mistakenly
says $1,000. By chance neither party caught the mistake in the writing, so they are asking the
court to reform their mistake in expression.

45
 STATE OF MIND CHART  CONTRACT RESULT

Misunderstanding No K

Mistake in formation Rescission

Mutual mistake No Relief

Unilateral mistake

Generally No Relief

If other party (1) knew of or (2) caused the Rescission

mistake, or (3) facts fit “mistaken bidder”
profile

Mistake in Expression Reformation

Conscious Ignorance No Relief

RELIEF FOR TYPES OF MISTAKES: RECESSION V. REFORMATION

Note  Reformation: is used when rescission would be overkill.

46
(8) TO PROVE GROUNDS FOR REFORMATION

Reformation: if the parties reached an agreement and wrote it down wrong the court can
reform the K to conform the writing to the party’s actual agreement.
Ex: the parties agree on a quantity of 100 and the K says 10 and both parties sign the
K, the 100 is the parol evidence which contradicts the writing.

If you believe in the parol evidence rule, there’s no reformation. On the other hand, if you
believe in reformation, you have to make an exception to the parol evidence rule. The courts
prefer reformation.

Note  Reformation: is used when rescission would be overkill

BURDEN IS HIGHER THAN RECESSION: [court is protecting itself from fraud]

The burden of proving a reformation suit, which is on the party seeking reformation is
higher than that in an ordinary civil lawsuit. A written agreement is presumed to express the
intention of the parties and will not be reformed unless the evidence of mutual mistake or
other ground for reformation is strong, clear, and convincing.

Reformation is available but its availability is protected by a higher burden of proof.

BURDEN IS CLEAR AND CONVENCING EVIDENCE

(9) TO RESOLVE (OR CREATE) AN AMBIGUITY [WILLISTON AND

CORBIN]

 Extrinsic means outside of agreement

 Want to know if contract is ambiguous then can introduce poral evidence to identify.
 2 views :
 Williston  look at contract itself. And K would be complete and ambiguous
exception NOT apply.
 Corbin  provision admission approach let evidence in to determine if there is
ambiguity.

Note  Finding integration clause DOES NOT prevent ABIGUITY EXCEPTION

Note  Use Parol Evidence ONLY when writing is INCOMPLETE OR AMBIGUOUS

*add more from Sharon’s notes week 9

47
CONTINUED  (7) EXCEPTION TO PAROL EVIDENCE.
TO PROVE GOUNDS FOR AVOIDANCE:

What are the benefits to permit a bidder to reform?

The law doesn’t want to favor a mistaken bidder with any remedy besides rescission. It’s
unfair to the other bidders who didn’t make a mistake. To allow one mistaken bidder to
reform would allow others to change their bid. The rule is get your bid in on time and be
prepared to back it up. Rescission means take your bid and go home.

Fraud (4 types) aka deceit aka false pretences. Fraud is also is a tort. “get out of your K fraud”

(1) Intentional misrepresentation:

Elements of Misrepresentation of Fact

(1) A representation of fact
(2) Misrepresentation, not merely of opinion or prediction, or expectation, or puffery

If you go to an expert, their opinions are treated as fact.

A statement of a party having superior knowledge may be regarded as a statement of
fact although it would be considered as opinion if the parties were dealing on equal
terms

Example  [Vokes case] the dance instructor was considered to be an expert and
should have told the lady to stop taking dance lessons because there is no way she was
good enough. But he lied to her to get more money $$ from her.

(2) Innocent misrepresentation:

Cousineau v Walker
Gravel and highway frontage case. There wasn’t as much gravel as stated in the listing and
there wasn’t as much highway frontage. P wants rescission and restitution

48
DAMAGES FOR MISREPRESENTATION:
3 questions to determine whether PL is entitled to rescission and restitution of the amount paid
for the property on the basis of the misrepresentations.
1. Whether P relied on the statements
2. whether the statements were material to the transaction
3. if P relied on the statements and they were material, it must be determined whether his
reliance was justified

A material fact is one to which a reasonable person might be expected to attach importance in
making his choice of action.
- Material is something that matters
- Something that isn’t a deal breaker but something that a reasonable person would
attach importance to in deciding whether to buy or not

Elements of Fraud/misrepresentation
1) You need a misrepresentation of fact or concealment of fact
2) It must be either material or intentional
a. If it’s intentional lie then it doesn’t have to be material
b. If you aren’t lying but passing misinformation then it better be material
3) Was there reliance?
4) Was it justified?

Note  What is the duty of a buyer to check representations of a seller?

The buyer may rely on what the seller says. The buyer doesn’t have to double check unless
your reliance is irrational or preposterous.

Note  If its not in the K but its in the listing agreement, that’s parol evidence. The listing was
parol evidence because P can show that the gravel and highway frontage were supposed to be in the
K.

Note  You can always use parol evidence to show mutual mistake, fraud, avoidance,
reformation…

P won’t get all his money back because he damaged the property and got money for the gravel
that was on the land. If P wants to get rescission, he must give D back exactly what he got. Since
P stripped the land, he has to put D back in the same place as he was in, restitution.

49
Know how to calculate restitution and damages

Deductions on the K ($99,000 – value of gravel – repair of value – rental value)

1) missing gravel
a. restitution
2) damage to a building
a. either P has to fix the building or eat the cost of fixing the building
3) rental value
a. you have to pay rent to occupy land so if P gets to occupy the land free, he is being
unjustly enriched. The law measures the temporary value of property by its rental
value.

Market value measures the permanent taking

Rental value measures the temporary taking

(3) Concealment:
Concealment of fraud if done with intent to deceive
When is mere non-disclosure silent fraud?
RULE  One party has made assertion and later finds out it is false, you have
duty to go back and fix your mistake
Note  Concealment  can be fraud; affirmative concealment = misrepresentation of fact.
** Silence can count as a misrepresentation**
(4) Silent fraud: [RES 161]

Silent fraud failure to correct the statement which you believe was true when you made it but
found out it was wrong. You have a duty to correct the misstatement.
Ex: Elvis stamp: when the stamp came out, prof said it was 4 cents but it was actually 29
cents. Prof corrects his misstatement.

Nondisclosure is silent fraud when

1) nondisclosure is actionable if there’s a relationship in trust and confidence between
the parties
2) one party has made an assertion and later learns it is false
3) Party A knows that Party B is laboring under a misconception that party A has not
caused. (unilateral mistake + knowledge = relief)
4) disclosure is most called for when silence will allow a dangerous condition to go
undiscovered
- Bomb in the backyard. The home owner has a duty to reveal to a buyer that
there’s a bomb in the backyard.
- If the buyer wants all the toilets in the house to flush, the buyer can go around
the house and flush the toilets. You don’t have a duty to state that all the toilets
flush.
ex: When you are asked you have to tell the truth. Your answer is an
affirmative representation. If you answer the wrong answer, then that’s
fraud

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Duress
Duress exists where:
1) one party involuntarily accepted the terms of another
2) circumstances permitted no other alternative AND
3) such circumstances were the result of coercive acts of the other party
the assertion of duress must be proven by evidence that the duress resulted from D’s wrongful
and oppressive conduct and not by the P’s necessity

Note  Economic Duress uses a Reasonable Person standard to determine if Freewill was
overcome.

Elements of Duress:
1) Wrongful act or threat
- Wrongful means criminal, tortious, immoral
2) Leaving the other party no reasonable alternative
- Reasonable alternatives such as filing a lawsuit are not applicable in this case bc P
needs cash now
- Bankruptcy is not a reasonable alternative

Tender Back requirement

If you want to rescind the release, you have to return the quid pro quo as a pre-requisite.
Once you return the quid pro quo, you take your chances with winning the lawsuit.

Note  You can’t get into court on a wrongful discharge suit unless you can tender back the
consideration you received

Undue Influence

Confidential relationship:

Position of trust and confidence.

[Majority] confidential relationship did exist at time the house K was done.

Confidential means confidence, not secret. There must be trust and confidence.

Burden of Proof: The court says it shifts the burden of proof. There’s a presumption of
unfairness. Identification of either a fiduciary or confidential relationship carries with it a
presumption of undue influence. Dominate party has to come forward and show that there
was not undue relationship.

Example:
The French’s have to show that the relationship was fair. One appraisal of P’s home was for
90,000 and another said it was for 35,000 but no documents were ever proven in court. The D’s
paid 40,000 and they have to show that this was fair. P didn’t want to charge any interest and

51
 she read how the government was billing at 1% so she made the interest at 1% with no down
payment.
Constructive fraud aka undue influence  the breach of duty by one in a confidencial or
fiduciary relationship to another which induces justifiable reliance by the later to his
prejudice. The word constructive connotes (suggests) that a fiction is coming.

Special Relationships [do not need to memorize]

Account/client Attorney/client Bank/depositor

Broker/customer Corp director/shareholders Employer/employee
Executor/heirs Guardian/ward Insurer/insured
Parents/children Partners
Doctor/patient
Priest/parishioner Principal/agent Public officials
Realtors Siblings Spouses
Teacher/student Tenants in common Trustee/beneficiary

No confidential relationship

Elements of undue influence without a confidential relationship (pg 558)

1. the use of excessive pressure to persuade one vulnerable to such pressure, pressure
applied by the dominant subject to a subservient subject
2. Undue susceptibility may consist of total weakness of the mind which leaves a person
entirely without understanding or a lesser weakness which destroys the capacity of a
person to make a K even though he is not totally incapacitated.
3. excessive strength by the other party

Undue influence ELEMENTS

Pressure applied by Dominant party to the subservient party
Use Excessive pressure
Excessive strength
Unusual vulnerability

Note  You are most vulnerable at your own house.

Overpersauasion [ELEMENTS]:
1. Discussion of the transaction
2. Consummation of the transaction in an unusual place
3. Insistent demand that the business be finished at once
4. Extreme emphasis on untoward consequences of delay
5. The use of multiple persuaders by the dominant side against a singe servient party
6. Absence of third-party advisers to the servient party
7. Statements that there is no time to consult financial advisers or attorneys

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Illegality: [6 types]

What constitutes illegality

 if the consideration or object of the contract is illegal
 Some K’s are illegal because they are expressly prohibited by statute (i.e. gambling
contracts, etc)
 Other K’s violate public policy (contracts to defraud or injure third parties).
 Non-competition agreements
 Used in sale of business and employment K’s

(1) Violation of law:

If a proposed K is legal at the time an offer is made but becomes illegal before acceptance of
the offer, the intervening illegality terminates the offer, the intervening illegality terminates
the offer as a matter of law. If a K is made, and is legal when made, but becomes illegal
thereafter, the K is discharged.

Note 
If you have a contract that is illegal, you can not sue the person for the breach of that
contract. Example: Contract to kill your wife.
Law will not enforce this contract nor will it grant constitution.

(2) Cohabitation

CL Marriage: living together and holding yourself out as your husband/wife.

 Living together and introducing people as your husband or wife and changing your
name is considered CL marriage.

Putative Spouse Exception – one spouse is led to believe they were married I- In the
putative spouse situation a concealment of material facts by one spouse may constitute
actionable fraud and permit the defrauded spouse to recover a portion of the property
accumulated during the period of cohabitation

(3) Lack of a license [RES 181]

You need a license to do certain things in the U.S. (be a lawyer, doctor, drive a car). If you do
not have a license it is illegal:
1). LICENSE FOR PROTECTION OF PUBLIC - If the purpose of the licensing
requirement is to protect the public from unqualified person( i.e. to assure that license
holders have certain minimum qualifications), a K negotiated by an unlicensed person
relation to the business is usually held illegal, and the unlicensed person will be denied
recovery.
2). LICENSE FOR FISCAL REGULATION OR TAXATION- if a licensing requirement is
imposed primarily for purposes of fiscal regulation or taxation, rather than to protect the
public from unqualified persons, K’s entered into by the unlicensed person are usually held
enforceable notwithstanding the lack of a license.

53
 (4) Non-compete clauses

1.) Sale of Business – If the seller of an existing business sells the buyer the “goodwill” of
the business (its value over and above its tangible assets; i.e, it reputation with its
customers) the seller frequently also expressly contracts not to set up a competing
business in the immediate locale for a set period of time.
2). Employment contracts. When beginning a new job, the employee often must sign a K
containing a covenant not to compete with the employer on termination of the
employment.

ANCILLIARY TO SALE OF BUSINESS OR EMPLOYMENT?

 If sale of business? Can be blue penciled (edited) if unreasonable / too braod. Can
be blue penciled down so that they can be enforced
 If Employment?  courts can not blue pencil. (

BLUE PENCIL Judicial editing (reformation) so why call it BLUE PENCILING?

Because of newspaper editorial work. Editors use blue pencils because the shade of blue
does not reproduce in a photo machine

Note  lawyers can not be held to non-competition agreements

Clauses are not enforceable.

What is reasonable?
Time  A limitation within 2 or 5 years might be reasonable.
Geographical aspect  NEEDS TO BE REASONABLE IN TIME AND SPACE.

(5) Incapacity

Minors 

Benefit rule (minority view) [minor liable even if not for necessity]
The minor must pay for legal services furnished him in a guardianship matter, and
his liability was the reasonable value of such services that were of benefit to him and
not the amount he had agreed to pay or that had been charged
Majority View [should get money back]: Minor can disaffirm and if he’s damages it,
he doesn’t have to pay for the benefit received. All the minor has to say is I’m a minor
and I want a refund.

How long does minor have to disaffirm?

Reasonable time beyond 18 unless ratify the transaction (ex. continue to make
payment and terminating the power to disaffirm)

[minors that lie]

Majority  would get money back
54
 Minority  not get money back and pay balance
But here he lied, but it does not matter. Kids lye and merchant should have known
that.

RULE  Emancipated minor can not disaffirm (emancipated is minor that is

married; minor is on active duty; or if minor petitions in court to be emancipated

RULE  Even with necessaries; minor does not have to pay K price. ONLY HAS
TO PAY QM.

RULE  Minor’s can disaffirm and merchants can not. It is not both sided.

Mental infirmity

LAW: IF YOU ARE MENTALLY ILL DECLARED BY JUDICIAL PROCEEDING,

THE K IS ABSOLUTELY VOID. IF COURT HAS NOT DELCARED MENTALLY
ILL THEN K IS NOT MERELY VOIDABLE.

LAW:
 If Mentally ill person has Guardian has been appoint, then the K is
absolutely void
 If someone just wandering around & is mentally ill, then K is voidable which
means they have to go to court to get the K void
(6) Intoxication

Buyer was intoxicated.

Rule  Is the person so intoxicated as to be unable to comprehend the nature and
consequences of signing the K. Beyond just be tipsy. REALLY DRUNK.
How long would person have to disaffirm the contract based on K? (Can he wait a
couple of week?) No. He would have to do it fairly quickly once he is sober because
courts don’t like drunks as opposed to mentally incompetent. AS SOON AS YOU
SOBER UP YOU NEED TO TAKE STEP TO MAKE RECESSION.

What if you accidentally destroyed the painting:

When you rescind you have to be able to restore the painting in the way the painting
originally was before you destroyed it.

Unconscionability: [safety valve]

Unconscionability  Something that is shocking to the conscious of the judge. Keep in mind that
all judges are different and get shocked differently. That is why Unconscionability is the wild card.
If nothing else works then try this.

UCC 2-302 same as RES I sec 208

1) if the court as a matter of law finds the K or any clause of the K to have been unconscionable at
the time it was made the court may refuse to enforce K, or it may enforce the remainder of K

55
without unconscionable clause or it may so limit the application of any unconscionable clause as to
avoid unconscionable result.
2). What is claimed or appears to the court that the contract or any clause thereof may be
unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its
commercial setting, purpose and effect to aid the court in making the determination.
Note  (if using UCC was not fair the UCC allows safety valve to stop the unfairness by
allowing Unconscionability)

UCC2-302
RULE  this is an issue for the Judge. Will not get jury trial. Too much power if given to
jury. (UCC does not define Unconscionability). They do not want to define it because they
want it to be open ended.)
RULE  can choose to not enforce contract (if Unconscionability) or choose to enforce the
remainder of K without the Unconscionability. (Judge can reform K)
RULE  judge can not award damages. Can not sue someone for Unconscionability. If is
ONLY a defense.
RULE  Unconscionability has to exist at the time the K was made. Future events don’t
qualify.

2 TYPES:
 Procedural process by which k was formed; see if it is fair.
o [process]
o Ex. education level , bargaining level
 Substantive looks actual terms of the contract to determine whether terms of K are
fair.
o [substance]
o Ex. clauses
o Most of this category relates to excessive price, or limitation on remedies (like
no warranty or indemnification clause)

MAJORITY RULE  have to have some of Procedural and substantive.

Minority  don’t need both.

NOTE  Door to door salesmen: cooling off legislation to allow buyers to get out of sales that took
place in the home. 3 business days from when they give you written notice of your 3 day notice rights.
You do not have to send item back, they have to pick it up and if they don’t you can keep it. [COOLING
OFF PERIOD]
 Exceptions: real estate, life insurance, agricultural sales/equipment because they lobbyists.

Note  you can not get restitution when dealing with an Unconscionable K. You just
don’t have to pay anymore.

56
 Indemnification clause  keep from collect money based on liability. The assistant
that has not signed any clause will sue AMACO for negligence. So the AMACO has
to pay Assistant AMACO can get damages from Weaver.

Exculpatory clause  prevented DF (amco); EXCUSED from getting sued. I excuse

you in advance from any bad stuff you do.

[There is nothing illegal about exculpatory clauses. (if you check your coat
and see the sign). If located where person turning over coat would see it.
Turning over coat is K of Bailment. There is NO Unconscionability here]

Substantive Unconscionability: will be excess price of limited remedy. Weaver held

liable for anything oil company can be sued for and must indemnify them

Impossibility (impracticability): (2 scenarios)

Definition performance becomes impossible when the thing that is
essential to the K is destroyed or when person essential to K dies or
becomes unavailable because of unexpected/ unforeseen event (OCCURES
AFTER K IS MADE)

(1) Further performance excused

 General rule impossibility is usually not an excuse. [in a positive K to do something /
build something] [if you are doing a thing, it is not excused]
 ELEMENTS: (exception) “you none performance is excuses”
 IF NOT FORESEEABLE WHEN MAKING K
 NOT THE FAULT THE PARTY (without fault)

NOTE  if pre-existing impossibility is an excuse. Building is already existing & you are just painting it.

NOTE:
 a contract to rent something (not to do the thing) predicated upon the continued existence of the thing.
 (example) EXCUSED IF: CL unforeseen; death, serious injury, distruction of building. (can put
clauses in K that is not one of these if you want an event to allow an excuse)

Force majeure clause – Major force “the act of God” it is not limited to God- a clause which
identifies those conditions which the parties agree is an excusing event/
-Major Force – excuse performance by naming events that will justify (assign risks that are
beyond there control  Acts of God “The act of God” it is not limited to God – a clause
which identifies those condition which the parties agree is an excusing event.

3 source of Impossibility – This excuses the K

1). Death of a specific person
2). Destruction of Specific thing
3). Prevention by Gov’t Regulation (“supervening illegality”)

 RULE  event (occurs) Before  use mutual mistake. If event occurs after
K  impossibility

57
 RULE  FAILURE OF SOURCE OF SUPPLY IS NOT AN EXCUSING EVENT.
UNLESS YOU CONTRACT FOR A SPECIFIC SUPPLY SOURCE

RULE (farmer)  Farmers who contract to sell crops on their own land are excused if an
unforeseen event happens. Example: If the event was a rabbit and not an unforeseen
tornado the answer would be the opposite. Can not protect against tornado but can protect
against rabbits

(2) Remedy of partial performance

in this situation above, where the contractor part performs and a

calamity occurs, then the contractor can recover damages on a pro rata
basis, due to the fact that performance is measured the day before the
calamity (if the painter gets 50% done, then he recovers 50% of the K
price, recovery not in QM, but on a pro rata basis for the work
completed).

(Not sure if the recovery of damages on the pro rata basis

applies to a K to do a thing)

Impossibility  nothing wrong with K. can prorate

 Further performance is excused
 Remedy for partial performance

Impossibility applies further performance is excused but what do we do if one party has partly
performed before the excusing event occurs?

Problem 129(a) construction company’s K is not excusable even if the performance becomes more
burdensome

129(b) building was ¾ painted and the building burned. The K performance requires the continued
existence of the building and the performance is excused. Because the building was painted ¾ of the
way then we are going to measure the benefit prior to the event. Prior to the burning, the building
was painted ¾ of the way and the way to measure it is by pro-rating the K price. The builder get
¾ of the K price. Quantum meruit requires another builder to come in and finish the work and
then the builder gets damages. pro-rating the K price just says you get the amount that you
performed on the K.

Pro-rating the K price

In all the cases we looked at there was something inherently wrong with the K itself. There was always
something suspect with the K itself so we go to quantum meruit. For

Nothing wrong with K so we use K price for damages. Party’s own yardstick: Impossibility there is
nothing wrong with the K so we are going to use the K price to measure the damages.
- similar to divisibility

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Frustration of Purpose
 performance of the K may be excused under the doctrine of
frustration where the purpose or value of the K has been
destroyed by a supervening event that was not reasonably
foreseeable AT THE TIME K was entered into.
American rule  restitution. We want to restore them to the
status quo before they entered into the K
English rule  [frustrated K act] gives the judges authority to
judge the K.
Krell v Henry: D borrowed a unit to watch the king’s coronation but it never happened
If it’s not impossibility then its frustration of purpose

The whole purpose of the K was to view the procession and the procession had been cancelled. The
court treats it as an excusing event but its not really impossibility.

The result is going to be an excuse for the performance. Therefore the landlord can not get the balance
do bc cancellation of the procession has frustrated the K and the D is to be excused from payment.

Even though the K never mentioned the procession, we look at parol evidence based on grounds of
avoidance to show that the coronation. Frustration of purpose is grounds for avoidance which is a
parol evidence excuse.

SOURCES of Frustration of Purpose are the same as Impossibility

- The foundation of the K, the thing of the K is destroyed in impossibility and the purpose
had been frustrated in frustration of purpose.
1). Death of a specific person
2). Destruction of Specific thing
3). Prevention by Gov’t Regulation (“supervening illegality”)

ELEMENTS: Calamity is unforeseen and faultity (GUY is being consciously ignorant) of the
party.

NOTE  With impossibility when something is destroyed the K does not go on. BUT with
frustration of purpose the K can go forward except the purpose of renting the flate is frustrated
where they do not want to go forward but they technically can.

Frustration of purpose: the parties could go on but what’s the point??

(seller may get fucked if seller not get of hook with impossibility)
*Impossibility favors the seller. The seller wants to get out of the K. IMPOSSIBLE FOR SELLER
TO MAKE THE DRESS.
*Frustration of purpose favors the buyer. The buyer wants to get out of the K. THERE IS NO
PURPOSE FOR THE DRESS EVEN THOUGH SELLER COULD STILL MAKE THE DRESS
AND BUYER CAN STILL PAY FOR IT.

59
RULE  frustration of purpose you rarely win based on this. It is best to settle

Problem 134: The price wasn’t inflated because of an event. The price is the same as any other dress
the maker would make. It doesn’t seem fair that the seller would have to bear the loss. Henry should
pay for the dress. If Eliza dies before the dress fitting, the seller would have to bear the risk because he
didn’t make the dress.

Problem 135: seller is trying to get out of the K for long term oil prices. this is an impossibility case.
The oil is available and the planes will fly so should we let the seller off the hook for the inflated gas
prices? This was an unforeseen event not caused by either party. The purpose of a long term K is to
shift the risk to the seller. If the seller didn’t want to bear the risk they should have put in a price
escalator or a for meijer clause which would cover the situation.

Fixed price K = ASSUMPTION OF RISK

- Seller is liable (courts not sympathetic.
(IF KNOW KING MAY NOT SHOW UP FOR PARADE THAT IS ASSUMPTION OF PARTY
BECAUSE THEY ARE BEING CONCIOUSLY IGNORANT.)
Avoidance of the K Song
You’re just a kid, sid (Minor)
They misrepresented, brent
Under duress, jess, they influence me

Make like you’re nuts (Insanity)

They don’t discuss much
Unconscionability
And impossibility

REVIEW

Satisfaction Clause: express condition (Hutton case)

Objective (reasonable person) or subjective
Use an objective standard unless one of four exceptions apply
1. impractical to use objective standard
2. language requires subjectivity
3. taste, fancy, aesthetics, personal judgment
4. 3rd party referee

Tender
- Manifestation of readiness, willingness, and ability to perform
- Constructive conditions of exchange
If performances can be rendered simultaneously then its concurrent condition. If one
performance takes time, that duty goes first.
Time is of the essence Clause
- Construction K: time is not of the essence unless stated
- Time is of the essence in a sale of goods
- Express condition so there’s no room for substantial performance. You either perform on
the day due or the condition does not occur.

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 - Carter v Sherburne

Misunderstanding: (Raffles – Peerless case)

(no meeting of the minds therefore a K was never formed)

Mistake: (sherbourne case)Goes to the root of the matter, the essence of what was sold and was
grounds for avoidance

Misrepresentation
Misrepresentation of fact rather than opinion or puffery the exception is if the opinion is made by
someone with superior knowledge their opinion is treated as fact.

Mental illness: people knew or should have known that he was mentally incompetent even if a
guardian was not appointed.

Illegality
If parties enter in to a K to hire a hit man, the K is void. If I pay the hit man in advance or he kills the
wrong person, you can’t get your money back because of in parti delecto i.e. at fault so the court will
not aid either party.

The person who took the car to the repair shop and violate the law for failure to give an estimate the
man can get his money back or performance.

Intoxication: a person has to be so drunk to not understand the consequences of your action. If you
were so intoxicated when you entered the K to not know what you were doing then you can get out of
the K on two conditions (1) you try to rescind as soon as you sober up and (2) you have to be able to
return the status quo. Example is buying a painting when you are drunk and you kick a whole in it
while you are trying to return it means that you can not return the previous owner to the status quo.

Fraud/Misrepresentation: the element of justifiable reliance are two separate elements.

Failure to check would be IRRATIONAL or PREPOSTEROUS. Relying on the seller would not be
irrational or preposterous

Write on the exam about mistake:

Elements of mistake
1. Mistake: erroneous belief of fact
2. Mutual: shared or common
3. Basic to the transaction: Go to the root of the matter, not value or collateral
character
Mistake is ground for avoidance and avoidance is an exception to the parol evidence rule so mistake
can come in to show mistake or misrepresentation

Difference between unilateral mistake and misrepresentation: misrepresentation is a representation of

fact with an intent to deceive.

Silent fraud: when the owner of a property has a duty to speak up about something regarding the
property

Justified reliance requires a duty to check

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