1.

A roadmap for contract law

A. Goal of contract law: put in same position as if performance had occurred.
B. Defesnse to contract liability
i. Force majeure
ii. Mistake
iii. Unconsciousability
iv. Frustaration – can void contract for any cause beyond its reasonable control,
including but not limited to order or acts of civil authority which wholly or partly
preven….
v. Lucy V. Zehmer
1. Facts: P allegeldly enter in contract with D for the sale of farm. P says
they were serious, D says they were joking/ bluffing. P wants specific
performance
2. Issue: was there a contract, is it enforceable? Is a contract enforceable
despite one of the parties (Subjective, internal) intent that it not be?
3. Holding: the contract was in good faith and specific performance was
awarded. The private intentiosn of D are irrelevant, only the manifested
acts matter.
a. Drunk?
b. §12 – intoxicated consent?
c. §16 if sort of contract, with terms you’d have if sober,
enforceable.
vi. NIPCO (North Indiana Public Service Co.) v. Carbon County Coal
1. Facts: NIPSCO had contract bo buy caol every year at set price for 20
years, escalating provision (allows price to go up). Regulating
commission order them to make a good faith effort to buy electricity at
lower prices than its own cost of generation.
2. Issues: whether NIPSCO’s obligations under contract were excused or
suspended by virtue of either the force majeure clause or Doctrines of
frustaration or impractablity
a. IS carbon County entitled to specific performance.
3. Holding: obligations not excused but no specific performance
C. Why People Make Contracts
2. The bargain theory of contract
A. General trend: Jj says consideration is disappearing, won’t be important in the future
B. Vocab:
i. Unilateral contract – apromise given in exchange for a future act. (not just the
promise of an act)
C. Consideration
i. Restatement § 71:
1. To constitue consideration, a performance or a terutn promise must be
bargained for.
 2. A performance or return promise is bargained for if it is sought by the
promisor in exchange for his promise and is given by the promise in
exchange for the promise
3. The performance may consit of (a) an act other than a promise, or (b) a
forbearance, or (c) the creation, modification or destruction of a legal
relation.
4. Comment b. It is not enoguht that promise induces the conduct of the
promise or that the coduct of the promise induces the making of the
promise; both elementsmust be present or there is no bargain.
ii. Policy: promise is presumptively serious, and so wrothy of legal enforcement, if
and oly if it is consciously given in return for something that is sought: in short,
an exchange.
iii. Restatment §79: if consideration is met, no additional requirement of (a) a gain
advantage, or benefit to the promisor or a loss, disadvantage, or detriment to
the promise; or (b) equivalence in the values exchanged; or (c) ‘mutulaity of
obligation”
D. Forbearance and Consideration
i. Hamer v. Sidway
1. Facts: Uncle tells Nephew that if he refrains from certain vices until hi is
21, he will give him $5000. P is executor of Uncle’s estate; D is assignee
of Nephew
2. Held: Nephew’s forbearance counts as consideration. Court “will not ask
whether the thing which forms the consideration does in fact benefit
the promise or a third party.”
ii. Lake Land Employment Group of Akron v. Columber – non-compete clause
1. Facts: D was employed by P from 1988 -2001. Signed noncompete
agreement. D then went on to engage in business similar to that of Lake
land
2. Issue – Is subsequent employment alone sufficient consideration to
support a covenant-not-to-compete agreement with an at-will
employee entered into after employement has already begun?
3. Holding: consideration exists to support a noncompetition agreement
when, in exchange for the assent of an at-will employee to a proffered
noncompeititon agreement, the employer continues an at-will
employment relationship that could legally be terminated without
cause.
a. Caveats: 1) a covenant not to compete which imposes
unreasonable restrictions upon an employee will be enforced to
the extent necessary to protect an employer’s legitimate
interest
b. 2) a covenant restraining an employee from competing with his
former employer upon termination of employement is
 reasonable if the restraint is no greater than is required for the
protection of the employer, does not impose undue hardship on
the employee, and is not injurious to the public.
E. Illusory Promises v. Conditional PRomises
i. §77 Illusory and Alternative Promises: a promise or apparent promise is not
consideration if by its terms the promisor or purported promisor reserves a
choice of alternative performances unless
1. (a) each of the laternative performances would have been consideration
if it alone had been bargained for; or
2. (b) one of the alternative performances would have been consideration
an dthere is or appears to the parties to be a substatinal possibility that
before the promisor exercises his choice events may eliminate the
alternatives which would hnot have been consideration.
a. Cmt a Illusory Promises“words of promise which by their terms
make performance entirely optional with the ‘promisor’ do not
constitute a promise”
b. Cmt b Alternative Promises: A promise in the alternative may be
made because each of the alternative performances is the
object of desire to the promise. Or the promise may desire one
performance only, but the prmoisor may reserve tan alternative
which he may deem advantageous. …Each is consideration if it
cannot be kept without some action or forbearance which
would be consideration if it alone were bargained for. But if
promisor has unfettered choice of alternatives, and one
alternative would not have been consideration if separately
bargained for, the promise in the alternative is not
consideration.
c. Illustartion 8. A promises to sell his output or buy his
requirements of a specified type of goods from B on specified
terms. A’s promise is consdieartion for a return promise by B. A
must operate his plant or conduct his business in good faith and
according o commercial standards of fair dealing in the trade so
that his output or requirements will approximate a reasonably
foreseeable figure. See comment 2 of UCC §2-306
ii. Conditional Promise §76
1. (1) A conditional promise is not consideration if the promisor knows at
the time o fmakign the promoise that the condition cannot occur
2. (2) a promise conditional on a performance by the promisor is a promise
of alternative performances within §77 unless occurrence of the
condition is also promised.
a. Cmt d. Condtions within the promisors control
 i. Words of promise do not constitute a promise fif they
make performance entirely optional with the
purporeted promisor. … Ilussory promise, do not
constitute consideration for a return promise (see §77)
A promise may be conditional on an event wthin the
control of the promisor. Such a promise may be
consideration if he has also promised that the condition
will occur. Similarly, even though he does not promise
occurrence of the condition, there may be
consideration if forbearance from casuing the condition
to occur would itself have been consideration if it alone
had been bargain for.
iii. Petroleum Refractionating v. Kendrick Oil
1. Facts: D sends order to buy 1.5M gallons of oil from P. Terms on form
say delivery due unless P stops producing oil. D backs out.
2. Issue: D contends that P’s decision to sell or not to sell was conditioned
only on the will or wish of P. Thus no consideration.
3. Holding: the discontinueance by Petroleum Corporation to manufacture
the grade of oild specified in the contract would constitute a detriment
to it, the promise to do so would be a sufficient consideration for ht
epromise of the D to purahcase.
4. Key reasoning: a benefit ot the promisor or az detriment to the
promisee is a sufficient consideration for a contract… The detriment
need not be real; it need not involve actual loss to the promise. Giving
up by the promise of a legal right; refraining from doing what he has the
legal right to do, or the doing of what he has the legal right not to do…
and where there is a detriment to the promise, there need be no
benefit to the promisor.
iv. Output and Requirements Contracts
1. §2-306(1): …such output or requirements as may occur in good faith,
except that no quanityt unreasonably disporportiante to any stated
estimate, or in the absence of a stated estimate to any normal or
otherwise comparable prior output or requirements may be tendered
or demanded.

F. Past Consideration: two circumstances which a promise, although not bargained for,
might seem worthy of enforcement
i. Moral consideration – if the promisor acts from a strong sense of duty towards
the promise
ii. Past Consideration – if the promisor is seeking to recompense the promise for a
benefit previously conferred
 iii. Moral and past cosnidration can sometimes = consideration if promisor receives
a PERSONAL MATERIAL BENEFIT (Webb. V. McGowaen) §86. “binding to extent
necessary to prevent injustice”, may be limited if value is disproportionate to
the benefit.
iv. Exeptions to the rule that moral consideration is not enough without material
benefit.
1. Promises renewing obligations that would have been enforceable
except for legal technicalities (such as a promise to pay a debt that is
barred by statute of limitations; or a person renewing a promise they
made as a minor)
2. Promises made to charitable organizations
3. Promises made with property settlements prior to marriage.

v. Harrington v. Taylor
1. Facts: D assaulted wife who went to P’s house, next day D shows Up
fight wife, wife about to decapitate him when P saves him, suffers blow
to her own hand. D promise to pay for injuries but doesn’t
2. Holding: no consideration for promises to pay after an action is done;
moral consideration is not enough.
3. Note: legal realist case, parties black in the south, Webb v. McGowan
said that moral consideration because the promisor received a material
benefit (i.e. life
G. Option Contract
i. §25
ii. §87 Option contract:
1. (1) an offer is binding as an option contract if it
a. (a) is in wiring and signed by the offeror, recites a purported
consideration for making the of the offer, and proposes an
exchange on fair terms wihin a reasonable time
b. (b) is made irrevocable by statue
2. (2) an offer which the offeror should reasonably expect to induce action
or forbearance of a substantial character on the part of the offeree
before acceptance and which does induce such action or forbearance is
binding as an option contract to the extent necessary to avoid injustice
i. Cmnt c. False recital of nominal consideration:
ii. Traditional rule is consideration must actually be
tendered( as in Board of control of EMU) but
Restatement says the purported consideration is
enough, why bother with the ceremony of the
exchange.
 iii. Board of Control of Eastern Michigan U v. Burgess
1. Facts: D signed a document which said that P had the option to buy her
home fo 60 days, and that it acknowledged consideration and a dollar
payment (but was never actually received). P wanted to buy the place
and on the closing day, D rejected the tender of the purchasing price
2. Holding: Acknoledgement of receipt of consideration is not
consideration unless the consideration has in fact passed.
H. At-Will Employment
i. Fisher v. Jackson
1. Facts: P quit job to work at a positon that he was hired for as a
permanent newsman. HE thought that meant for life and he gave up job
for it = consideration. Newspaper thought it meant not temporary
2. Holding:; Giving up a job is not adequate consideration, but an incident
necessary to accept the offer.
3. Rule: detriment needs to be bargained for to be consideration (he could
quit any time)
4. JJ: perhaps lawyer could have made omore of the fact that he was giving
up some slaray, that could be consideration.
I. Reliance
i. Definitions:
1. Equitable Estoppel: (A procedural device) an estoppels which arises out
of a person’s statemten of fact, or out of his silence, acts, or omissions,
rather than from a deed or record or written contract. Equitable
estoppels is avialbe when one party knowingly misrepresents material
facts that are then predictably relied upon by the other. The
misrepresenting party is “stopped” from asserting factsthat contradict
its misrepresentations.
a. Moral bais: a man may not be permitted to deny the
truthfulness of an assurance which he has given to another for
the purpose of having it acted upon by the latter, and which the
latter has acted upon.
2. Promissory Estoppel – an equitable doctrine declairing that “a promise
which the promisor should reasonably expect to induce action or
forbearance on the part of the promise or a third person and which
does induce such action or forbearance is binding if injustice can be
avoid only be enforcement of the promise. See §90
3. Holmes on ReliancE: “it would cut up the doctrine of consideration by
the roots, if a promise could make agratuitous promise binding by
subsequently acting in reliance on it.
4. There is no contract in promissory estoppels: section 90 is a different
cause of action than breach of contract. It’s an alternate way to
enforece a promise
 ii. Rickets v. Scothorn
1. Facts: D is executor, Testator promised to pay P 2000 on demand so she
wouldn’t have to work (but did not request that she quit)
2. Issue: There was no consideration, but P relied on the money and quit
her job, is the promise enforceable
3. Result: because it would be grossly inequitable to permit D to resit
payment, P should receive the payment
4. JJ: court tries to fit this case to Equitable EStoppel, they actually created
Promissory Estoppel because D had not misrepresented any facts.
iii. Cohen v. Cowles Mdia Company
1. Facts: P gave facts pertinent to a story to D when assured that D would
not share P’s identity. D then printed P’s name in the paer, P was fired
form his job
2. Held: Although no contract, promissory estoppels barred D from using
P’s name, so damages are due.
J. Reliance in Francehise Negotiations
i. A party to unsuccessful negotiations may recover for losses reasonably and
foreseably sustained by him as a result of the other party’s negligence or lack of
good faith during the bargaining process
ii. Alternate: recovery may be based on the duty to bargainin good faith
iii. Typical context is an unsuccessful contract negotiation involving franchises or
government contracts. Both have a great inequailtiy in bargaining power.
iv. Midwest Energy v. Orion Food Systems
1. Facts: P was building a gas station/convenience store with hopes to
provide D’s product. D required certain modifications done to the
design before they could provide their product. P redesigned and
constructed as D required. D then never agreed to the deal.
2. Result: while contract not enforceable, there was a promise,
foreseeable reliance, reliance in fact, and injustice absent enforcement.
v. Hoffman v. Red Owl

K. The restitution Interest

i. Dfinitiaon: restitioun interest – the interst in getting back to the point the
parties would have been hhad there been no contract created. IF a person A
gave $5 to another B in creation of the contract, the restitution interst is the $5
that would have to be returned from B to A.
ii. Bailey v. West
1. Facts: D purchased a horse, discovered it was lame. D took horse to P’s
farm. P fed and housed the horse and sent D a bill which was not paid. P
is suign for restitution.
2. Issue: was there a contract and what is the damage for breach?
 3. Held: no contract and since there was no request for payment prior to
caring for the horse, no restiutiton can be paid. (P volunteered for the
job.)
3. The Negotiation and Formation of the Contract
A. Introduction: The Role of the Courts
i. Sun Printing & Publishing Association v Remington Paper & Power Co
1. Facts: P agreed to buy and D to sell 1000 tons of paper per month at a
certain set for the first4 months and a price to be determined for the
5th. D said contract was imperfect and under no obligation to deliver in
the future, P said price was estalibshed standard
2. Holding: D not bound uner the contract where the agreement as to
price and time terms is not reached, Agreemnts to agree not enforced.
(Cardozo)
3. Dissent – they kenw that they were making the contract so the price
should be what the maximum standard price
ii. Now UCC 2-305 Open Price Term
1. Can conclude a contract for sale even though price is not settled, in such
a case the price si a reasonable price.
2. JJ: Cardozo thought: let the writers of bad contracts suffer, form of
regulation, inducing action to produce better contracts.
B. Offer and Acceptance
i. Advertisements and Offers
1. Offers
a. Offers has to be explicit, have a certain form and practice
b. §24 an offer is “the manifestation of willingness to enter into a
bargain, so made as to justify another person in understanding
that his assent to that bargain is invited and will conclude it.
2. Advertisements and Quotations
a. Advertisements are not an offer, just an invitation to sell/
negotiate.
b. Quoatitons not offers (§26)
c. Can be an offer if they are clear, explicit, definite, and leave
nothing open for negotiation
3. Ford Motor Credit Co. V Russel
a. Facts: P sold D a car with a higher APR than was advertised. D
defaulted on the payments and sued for breach when P gamve
them the higher APR
b. Holding: An advertisement is not an offer, it is an ivitation to
bargain and because there is not an unlimited number of cars to
sell, and not everyone qualifies for financing it is unreasonable
for D to elieve it was an offer.
ii. Termination of an offer
 1. §36 Methods of Termiantion of the Power of Acceptance
a. Offer is terminate dwhen:
i. 1) If the offeree rejcts the offer or makes a counter
offer(these are treated as equivealent see §38-39)
ii. 2) At the time of the specified contract, or failing that at
the end of a reasonable time after the offer is made
(see §41)
iii. 3) if the offeror revokes the offer (see §42)
iv. 4) if either the offeror or oferee dies or become
sincapacitated (§48) and
v. 5) if the terms of the offer include a condition for
acceptance and the condition fails to occur.
2. Davis v Satrom: offer ->coutner offer. Mobile Home Park
a. Facts – P sends D a ‘letter of intent’ to purchase the mobile
home. D changes conditions and returns it to P. P submits
unsigned “commercial purchase agreement and deposit
receipt” to D. D changes conditions (including that agreement is
subject to the approval of his attorney) and returns it. D decides
not to sell
b. Holding – changing of terms = counter-offer so the offer was
rescinded before acceptance
c. Not a UCC case: real estate.
3. When an offer terminates
iii. Misunderstanding/Mistake
1. Misunderstanding – when there is a misunderstanding between two
parties, no contract because no meeting of th eminds
a. Merced county Sheriff’s Employees Ass’n v. County of Merced
i. Facts: County forms 2 contracts with terms to increase
pay of sheriffs based on formula, and a second contract
to increase pay of firefighters as a function of sheriffs
new pay. County misreads terms of contract with
sheriffs (thinking it wouldn’t increase as fast as it would)
as a result, adds language to firefighters contract that
rends it jibberish
ii. Holding: shieriffs contract enforced along interpretation
placed by shriffs, as county had reason to know their
interpretation. Firefighters not enforceable, no meeting
of the minds.
b. Peerless
c. Restatment 2d §20 Effet of Misunderstanding
 i. 1) there is no manifestation of mutual assent to an
exchange if the parties attach materially different
meanings to their manifestations and
1. A) neither party knows or has reason to know
the meaning attached by the other; or
2. B) each party knows or each party has reason to
know the meaning attached by the other
ii. 2) the manifestations of the parties are operative in
accordance with the meaning attached to them by one
of the parites if
1. A) that party does not know of any different
meaning attached by the other, and the other
knows the meaning attached by the first party;
or
2. That party has no reason to know of any
different meaning attached by the other, and
the other has reason to know the meaning
attached by the first party
2. Mistake: mutual mistake of fact – both sides believe the same thing,
which is wrong (still a contract)
a. Like sale of a ‘barren cow’ for 80, turns out to be a fertile cow
worth $800.
iv. Mirror Image Rule
1. Ardente v. Horan
a. Facts: P bid on D’s house for sale. After D stated offer was
acceptable, P prepared a slae agreement and sent it ot D along
with a check. P’s letter said “my clients are concerned that”
certain items be included. D then refused to sell, returning the
check. P wants specific performance.
b. Issue: was the letter a counteroffer, or an acceptance?
c. Held P’s leter of acceptance was conditional and therefore a
counteroffer rejcting D’s offer. No contractual obligation was
created.
i. If letter had just inquired if furnishings included,
probably not a rejction/ counteroffer.
ii. Lawyer probably wanted this letter to be ambiguous,
pressure seller to include it.
v. Offeror is Master of the offer.
1. Restatement §30(1)
a. An offer may invite or require acceptance to be made by an
affirmative answer in words, or by performing or refraining from
 performaing a specified act, or may empower the offeree to
make a selection of terms in his acceptance.
2. §30(2) and UCC 2-206(1): unless otherwise unabmibiously indicated by
the language or cirumsatnsecs (a) an offer to make a contract shall be
construed as inving acceptance in any manner and by any medium
reasonable in the circumstances.
vi. Mailbox Rule
1. §63: unless the offer provides otherwise (a) an acceptance made in a
manner and by a medium invited by an offer is oprerative and
completes the manifestation of mutual assent as soon as put out of the
offeree’s possession, without regard to whether it ever reaches the
offeror; Dispatch of a valid acceptance creates a contract immediately.
a. Two exceptions:
i. §63(b): acceptance under option contract effective only
upon receipt
ii. CISG art 18(2) internal sale of goods between
merachants, acceptance effective upon receipt.
2. Overtaking rejciton (acceptance effective)
3. Overtaking Acceptance (effective, matters if received rejection before
acceptance)
4. Overtaking Revocation (not effective unless reliance ->escape)
vii. Silence
1. Generally offers cannot be accepted by silence (an acceptance is “a
manifestation of assent” §50.
2. Offeror cannot frame the offer so as to make a contract binding unless
the offeree expressly rejects the offer.
3. Exception: previous dealings create a reasonable expectation that the
offeree will give notice of any intention not to accept.§69.
a. Offeree takes the benefit of offered service with reasonable
opportunity to reject them and reason to know that they were
offered with the expectation of compensation
b. Where the offeror has stated or given the offeree reason to
understand that assent may be manifested by silence or
inaction, and the offeree in remaining silent and inactive intends
to accept the offer
c. Where because of previous dealings or otherwise, it is
reasonable that the offereeshould notify the offeror if he does
not intend to accept.
4. Mid-South Packers, Inc v. Shoney’
a. Facts: P buyer negotiates to purchase meat products form D. P
sends proposal to D with prices and terms. Proposal provided
that D would be notified 45 days prior to any price increase. D
 neither assents nor rejects price. D begins purchasing good from
P and later P ntoifes D of price increase. D neither agreed nor
refused the new price. The new price proposal was never
reduced to writing. D continues to order at the new price. On
their last order, D offsets the amount of the purchase order by
$26,208, amount allegedly overcharged on prior orders as a
result of the price increase. P brings suit to recover for the
offset amount.
b. Issue: what was the legal effect of the letter Proposal?
c. Holding: letter proposal and surrounding negotatiations were at
best a firm offer (only required to stay open for 3 months). Each
purchase order was its own contract. Price increase occurred
after 3 months of proposal, after firm offer expired under 2-205.
d. There was no requirements contract formed, because the buyer
(d) had not promised to purchase exclusively from the seller, or
to purchase at least a certain amount. Shoney having right to
change supplies = no consideration.
5. The Revocability of Offers
a. §41: offer is terminated at the time specified in the offer, or if
no time specified, at the end of a reasonably time.
i. But offeror can withdraw in the mean time; §42.
b. No firm offer in Commn Law: offeror’s promise to keep the offer
open if not supported by consideration, may be revoked at will
6. Options
a. §25
b. Offer bidning as an option contract if:
i. 1) in wiring and signed by the offeror
ii. Recites a purported consideration for the making of the
offer
1. Most courts hold there must be consideration,
and that consideration must be paid (see Bd of
control of E. Mich.
iii. Proposes an exchange on fair terms within a reasonable
time
c. Most courts have held that an option contract is not
automatically terminated by rejection or by a coutner offer,
unless the offeror then justifiably relies.
7. Firm offers

a. “Firm Offer” UCC 2-205 :an offer by a merchant to buy or sell

goods in a signed writing which by its terms gives assurance that
it will be held open is not revocable, for lack of consideration,
during the time stated, or if no time is stated for a reasonable
 time, but in no event may such period of irrevocability exceed
three months; any such term of assurance on a form must be
separately signed by offer”
b. Requirements
i. Offer
ii. By merchant
iii. To buy/sell goods
iv. Signed writing
v. Which gives assurance of irrevocability
c. Duration
i. Unclear: from date sent or received
ii. “reasonable time”
iii. Never more than 3 months
d. If this fails -> R2K 87(2) (reliance) or 1-103 (good faith)
8. Unilatreal Contracts:
a. As long as the offer remains open and until it is accepted, the
offeror is bound to it, but the offeree is not obligated. §30
b. Acceptance by Part Performacne §45
i. When an offer clearly envisages a unilateral contract,
“an option contract is created when the offeree tenders
or begins the invited performance or tenders a
beginning of it.” The option lies with the offeree, who
can choose whether or not to complete the
performance, but the promise in the offer is not
enforceable until the offerree has finished perofmance.
ii. Only actual performance triggers §45, not just reliance
in preparation.
9. Offers Ambigious as to Manner of Acceptance.
a. 2-206(1): unless otherwise unabmioguolsy indicated by
language or circumstance, contract invites acceptance in any
manner reasonable
b. Offer to buy goods, if ambigious can be acctped either by
aprompt promise to ship or by the promp shipment of
conoforming or non-conforming goods
c. An offer that invites acceptance by performance only, the
offeree who starts performance has the option to continue
d. But when the offer is ambiguous as to manner of acceptance,
the offeree who starts performance becomes legally obliged to
complete it.
i. If they want the performance as acceptance, then only
the completed performance IS ACCEPTANCE -> contract
only enforceable against oferee once performance
complete.
 ii. IF ambigious, then the start of performance is
acceptance – contract formed one performance begins.
viii. Construction and Offer/Acceptance
1. Arango Construction co. V. Success Roofing inc.
a. F: P, general contract, uses D (Subcontract)’s bid in a prime bid
for construction. D made error in calculation, revokes offer
b. Issue: was there an enforceable contract formed when the
General relied on the subs (D’s) bid.
c. Holding – yes, following gpromissory estoppels, contracto relied
on bid, follows Drennan v. Star Paving (Judge Traynor
d. Different rules from Midsouth
e. UCC doesn’t apply, not just goods, labor tool.
i. Statute of frauds doesn’t apply
ii. But 2-204 still persuasive
1. 2-204: a contract for sale of goods may be made
in any manner sufficient to show agreement,
can leave details out.
f. Business context of construction contracts makes these oral
bids enforceable as contracts

g. Promissory estoppel: J. Traynor: general contractor had an

opportunity to accept after being awarded the prime contract.
i. When success makes offer there is an implicit promise
not to withdraw, a promise to give an option
ii. Arango relies on promise, making it binding
h. §87(2): an offer which the offeror should reasonably expect to
induce action or forbearance of a substantial character on the
part of the oferee before acceptance and which does induce
such action or forbearance is binding as an option contract to
the extent necessary to avoid injustice.
i. This is hard to reconcile with §45, rarely used outsie of
construction cses.
i. Master of the offer: I can ideintify forms of acceptance (within
reasonable range)
j. This decision strengthens position of general, weakens position
of sub: sub bound, general not.
i. What can the sub do?
ii. Legislature could make use of bid by sub bound by law,
so general can't ditch sub.
iii. Sub could accompany bid with contract, but general
might avoid to keep his options open. 
iv. White: doesn't seem to be solutions to this problem yet.
2. Hypo: a state where general uses my bid in the contract, he is bound:
would this change behavior? JJ's not convinced
 
 
a. Reputation of general (if they're bid chopping/ shopping) might
effect bid
 
b. Which model is more efficient Traynor or Hypo? We don't seem
to know enough to figure it out
 
c. Point: Contracting is a dynamic situation (reputations matter), if
guy is bid chopping we'll change our behavior: not bid, bid
higher. General may change his behavior.
 
d. Economics: really complicated to figure out which model is
more efficient (hypo vs. Traynor)

3. Alternatives: Arrango and Success could have agree that Arango’s use of
Success’s bid would constitute acceptance, so that if Arango received
the contract, it would be obliged to use Success as the subcontractor.
C. Negotiation and Closure
i. SMS v Malouf
1. Facts: P and D had longstanding business agreements for D to purchase
services from P. P’s business became less profitable and P agreed with D
that D should purchase P’s compeitior that was for sale. In order for D
to make the purchase, they requested a longer term for the reneweal of
P and D’s longstanding contract. P assured D of the commitment and D
bought the competitor. P then added terms to the renewal contract that
had not een present inprevious dealings. When D did not abide by the
new terms, P sued for breach
2. Held: P and D’s minds had met because of the longstanding contract.
The contract was enforceable when P offered assurances (without the
new terms). The contract was formed upon the oral assurances.
3. Length of relationship, promises, contract through negotiation.
4. Not a statute of frauds case because it was just a modification of an
existing contract (extending). There was offer and acceptance of the
modifications.
5. Damages: injured party put in the psoiton they would have been had
the contract been performed
6. Section 90 v Contract case?
a. Contract v Reliance
b. Damages for reliance = “as justice requires”
c. Contract damagaes put you in positon you’d have had contract
been performed.
ii. Arnold Palmer Golf v Fuqua Industries.
1. Contract existed despite conditions
 2. Judge McCree (liberal)
3. Facts: P solicited D to merge. P and D negotiated and drafted a
memorandum (Memorandum of intent) stating in part that counsel of P
and D will proceed to make a definitive agreement containing details,
and cond conditions obligation on completing such a definitive
agreement. Memo had condition deal would proceed on approval of
definitive agreemtn by Board of directors for D. Also announced to
press they would be merging. D then declined to go forward with the
deal. P complains of breach.
4. Issue: is it a breach when there is simply an “agreement to agree”?
5. Result: agreement to agree is upheld, obligating the two parties to make
the detailed agreement. (Remanded for trial to see if the intentions
were to be bound.)
6. Parol Evidence Rule
a. Doesn’t apply here
b. No integraton,

7. R2K 27 intent to make written memorial does not preclude K where

manifestations of assent that are themselves sufficient to conclude a K
a. Cmt a: “possible to make a K the terms of which include an
obligation to execute a final writing”
b. Cmt b: if either party knows or has reason to know other party
regards as incomplete, no K
c. Cmt c: relevant circumstances to determine whether or not there
is a K
i. Extent to which agreement on terms reached
ii. Whether K is of type usually put in writing
iii. Whether it has few or many details
iv. Whether amount involved is large or small
v. Whether standard form of K widely used in similar
transactions
vi. Whether parties take any action in preparation for
performance
iii. EMpro Manufacturing Co. V Ball-Co Manufacturing
1. Facts: P sends D 3 page letter of intent. P’s purchase shall be subjected to
the satisfaction of certain conditions precedent to closing including, but
not limited to definitive asset purchase agreemtn and the approval of
shareholders and board of directors of P, bu D baulked because of
security agreements.
2. Holding: one need to use an objective standard when looking if a letter of
intent is a contract and so parol evidence rule is in effect.
3. No Contract, one sided condtions (Ball-Co needed clairifactions)
4. Contrast judicial philosophy of Easterbrook and MCCree
a. Easterbrook v McCree
i. Easterbrook: allow parties to approach agreemtn in
stages, without fear that by reaching a preliminary
 understanding they have bargained way their privilege
to disagree on the specifics.
b. Would the decisions be switched if the judges were switched?
c. JJ seems to think so.
iv. Problem 3-5.
1. Damages for breaching “no negtitation” not the same as damages for
breach to purchase
v. City of Kenai v Ferguson
1. Facts – D had a lease with P for 55 years, with a provision to agree to
terms every 5 years. D built a service station on one of the lots and the
city increased his rent 6000 dollars, which he refused to pay.
2. Holding – the provision for future agreements is enforceable, judge can
intervene if they cannot agree to terms.
3. Contract enforacable rennegatiate every 5
4. Contracts with terms left open – did the parties intend to be bound?
a. Yes: UCC 2-204(3): Even though one or more terms are left
open, a contract for sale of goods does not fail for indefiniteness
if the parties have intended to make a contract and there is a
reasonably certain basis for giving an appropriate remedy
b. No: 2-305(4) where, however, the parties intend not to be bound
unless the price be fixed or agreed and it is not fixed or agreed
there is no contract.
5. Questions from JJ
a. What should the court do with cases like this (provide for open
ended negotiations)?
Agreements to negotiate are valid
But what is default if you don't reach agreement? -
Agreement to agree? - if you don't agree then contract
is unenforceable
b. What should you do as a lawyer giving advice?
1. Warn a client about things the client isn't thinking
about, the bad things
1. Don't sign a contract like this
1. Need a favorable mechanism to set price if no
agreement
1. Inevitable during a 55 year contract will see value
fluctuations
c. What should you do as a lawyer drafting?
1. Cap on increases
1. Formula - would take a fancy formula for 55 years
1. Increase based on CPI
1. Agreement to Agree?
4. Lessons from this case:
Don’t leave a term for open negotiation
If agreements to agree ileagla in that state, need to work harder.
Length of Contract tells us about the inetions of the parties
vi. Problem 3-6
 1. UCC 2-204(3) does not foil for indfiniteiness if intended to make
contract and there is a reasonably certain basis for giving an appropriate
remedy
a. Is there a certain basis for giving an appropriate remedy?
 
 
 
D. Good Faith in Contract Formation
i. Good faith is a toatal absence of any intention to seek an unfair advantage or to
defraud another party; an honest and sincere intention to fulfill one’s
obligations
ii. Good faith in the case of a merchant means honesty in fact and the observance
of reasonable commercial standards of fair dealing in the trade (UCC-2-103(b))
iii. Civil Code vs. Common Law/ UCC
1. Civil law: legally imposed duty of care, good faith in contract
negotiation.
iv. UCC-1-203 and Restatement 205
1. obligation of good faith in performance of contract, similar to
restatement 205
a. No obligation of good faith in negotiation.
i. Presever contract/no contract dichotomy.
v. Restatment §205
vi. Racine & Laramie v Department of Parks and Recreation.
1. Facts: P had a contract with D for 50 year, wanted to make a
modification to open a restaurant with alcohol. Negotiations broke
down and P sued for breach of the covenant of good faith and fair
dealing.
a. Contract had a paragraph saying “not withstanding any of the
provisions of this contract, the parties may hereafter, by mutual
consent, agree to modifications thereof or additions thereto in
writing which are not forbiddinen by law.” Racine argues this
term means bargaining had to be done in good faith.
2. Holding: D was under no obligation to negotiate a modification or a new
contract so it it did not act in bad faith
3. There can be no breach of the covenant of good faith bya a refusal to
enter into a new contract.
4. Distinguish from City of Kenai
a. Both are long-term contracts that evinsage future modification
b. In Racine, modification paragraph falls far short of the
imposition of any obligation on either party to even participate
in activity leading to a modification of the conession.
 5. No culpa in contrahendo but when an explicit representation is made,
then there is laiblity
vii. New England Insulation co. V. Genearl Dynamics Corp
1. GD takes plans from bid and gives to another sub.
2. Facts: P was invited by D to bid on a contract. P designed a solution to fit
the needs that included confidential engineering ideas. D then made P’s
bid available to a 3rd company that D got kickbacks from
3. Results: remanded for trial reversing the dismissal. The court held that
the implied contrat to perfrom in good faith meant that D did not have
the right to give the contents of the bid to third parties, and that they
had the obligation to judge the bids fairly
4. Promissory Estoppel?
5. Misrepresenation
a. Would be a tort.
6. Why is this case here?
a. This and orion both show liability can arise without formal
conclusion of a contract. True in Palmer as well
b. There are cases where, before the contract is signed you could
have obligations that lead to liability, can arise out of public
statutes, practices to be followed based on assurances.
7. Implied contract: in public contracting domain, an invitation to bid upon
certain conditions followed by the submission of a bid on those
conditions creates an implied contract obligating the bid solicitor to
those conditions.
a. If contracting authorities knew from the beginning they were
going to give a certain company the contract and the the
advertisement for bids was a sham, they practiced fraud on the
plaintiff and on all other innocent bidders – induced them to
spend money to prepare bid. Implied contract broken, plaintiff
may maintain an action for damages for its breach (usually the
cost of preparing the bid).
viii. Argument against Culpa in Contrahendo
ix. Problem 3-7
1. Trade Usage
E. Problems with Standard Form Contracts

i. Arguments aren't over whether there is a contract, but rather what terms are in
the contract.
ii. Important terms on the back
1. Warranty
2. Disclaimer (disclaim liability)/Limitation (don't get it if you've done
this____)
1. Forum clause (what jurisdiction, or arbitration)
 1. Choice of law provision
iii. Problem 3-8
 
1. W/o oral agreement, Buzz sends purchase order, its fulfilled with no
additional paperwork, Buzz's po terms are the contract, yes contract
2. Sally respons with different quantity, so that's a counteroffer (2-
207(1) no definte expression of acceptance of original offer)
3. No performance yet, "expressly conditional" (JJ White says no
contract, some judges disagree (step-saver), maybe a contract.
1. JJ if dickered terms match, probably a contract even if back of terms
don't match.
iv. UCC 2-207 vs Mirror image rule (Ardente v Horan)
v. §2-207
1. A definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different from
those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms
2. The additional terms are to be construed as proposals for addition to
the contract. Between merchants such terms become part of the
contract unless:
a. The offer expressly limits acceptance to the terms of the offer
b. They materially alter it; or
c. Notification of objection to them has already been given or is
given within a reasonable time after notice of them is received
3. Conduct by both parties which recognizes the existence of a contract is
sufficient to establish a contract for sale although the writings of s of the
parties do not otherwise establish a contract. In such case the terms of
the particular contract consist of those terms on which the writings of
the parties agree, together with any supplementary terms incorporated
under any other pvosion of the acts.
vi. Gardner Zemke co. v. Dunham Bush
1. Battle of forms
2. Facts: P ordered chillers form D with a 1 year warranty in their offer to
buy.. D responded with another standard form, with extensive warranty
disclaimer and saying silence = acceptane; and acceptance expressly
conditional on assent to the additional or different . D’s chillers were
not to spec, D didn’t want to fix them (warranty disclaimer). P sues for
damages but D claims that their version fo the K is controlling.
3. Issue: in using two different forms, was D’s acknowledgement of the K
acounteroffer or an acceptance?
4. Result: Remanded to address questions that
a. P could reasonably believe that a K had been formed.
 b. When the offeree’s acceptance lists a term in conflict with the
offer, neither is part of the contract, and general rules of
fairness prevail.
c. Remanded to determine if the Acknowledgement was a
counteroffer or an acceptance.
i. Question for jury: whether the offeror (P) could
reasonably believe that in the context of the
commercial setting which the parties were acting, a
contract had been formed.
ii. Inquiry focuses on whether the offerree clearly and
unqeuieivcally communicated to the offeror that its
willingness to enter into a bargain was conditioned on
the offerors “assent” to additional or different terms.
1. Silence is rarely deemed acceptance, unless
commercial context, course of
dealing/performance make it so.
5. Warranties
6. Roto-Lith
7. 3 approaches to different terms
8. Knock-out rule
9. What if oral contract with subsequent written confirmations?
10. Conflict between 3 types of clauses: issues with 2-207
vii. Seven Scenarios for UCC §2-207
1. The acceptance is expressly made conditional on the offeror’s assent to
the terms addiotnal or different
a. Any expression of acceptance or written confirmation acts as an
acceptance (General rule)
b. The acceptance does not form a contract if it is “expressly made
conditional on assent to the additional or different terms.”
c. Courts will genrally only accept the exception it if is shown that
the Acceptor is unwilling to proceed absent the changes
2. Acceptance discusses an issue on which the offer is silent (additional
term)
a. Additonal term does not preven the offeree’s response from
giving rise to a contract
b. If both parties are mechants, the change automatically becomes
part of the K unless the offeror rjects in a reaonble time
c. IF one party is not a merchant, the offeror has to explicitly asent
to the change for the term to be part of the K.
3. Offer discusses an issue on which the acceptance is silent
4. Acceptance and offer deal with aparticular issue in conflicting (different)
ways
 a. Majority view: KNOCKOUT RULE: conlfitcitng clauses knock each
other out. Neither gets into the K. A UCC Gap-filler is used in its
place if available. Criticism: knockout theory strips the offeror of
wirting the terms to which he will do business.
b. Minority view – second form’s term fails to have any effect.
5. Acceptance recites terms that diverge so much from those contained in
the offer
a. No contract is formed
b. In the usual purchase order – acknowledgement context the
forms do not fail to give rise to a contract if they do not divere
as to price, quality, quantity or delivery terms, but only as to the
usually unbargained terms on the reverse side concerning
remedies, arbitration and such
6. Oral agreement, then one or both send a confirmation which adds to or
conflicts with the oral agreement
a. Additional terms in confirmation are treated just the same as if
the offer was written
b. Different terms – the court will almost certainly say that the
idfferen term in the confirmation does not enter the contract.
The knockout rule will not be applied.
7. The parties odn’t use forms, but exchange custom-drafted documents
that differ
a. No contract is formed.
viii. Step-Saver Data Systems v Wyse Technology
1. Oral Contract, warranty despite boxtop terms
2. Facts: P entered a K with D by calling D on the phone to order goods. D
would then ship them goods with a warrantee disclaimer applied on the
packaging, containing anfintegrationcaluse. When D’s product failed, P
sued for breach
3. Issue: do the additional terms on the received goods override the terms
of the oral agreeemtn on the phone? Do they materially alter th parties
contract?
4. Result: Because K was sufficiently dfinite without the D added terms,
and P never assented to the terms, and there was no conditional
acceptance because the terms did not specify D’s unwillingness to
proceed without them, K without the added terms is controlling.
Warranty terms materially altered the contract, so were not controlling.
a. Contract was formed over the phone, boxtop was “proposals for
additions” under 2-207(2).
b. Opening th box is not acceptance of additional terms, despite
D’s claims, because you can’t infer agreement form that, normal
person wouldn’t think that would be acceptance.
 c. Firewall for agreement, won’t proetect seller from any previous
oral agreement
5. Contract/No Contract
ix. Carnival Cruise Lines
1. Not discussed in class
2. Forum Selection Provision
3. Facts: D bought a ticket on P’s crusie line. When the ticket arrived, it
contained many terms and conditions on the reverse side, including the
forum clause. D was ijured on board, and is trying to sue in the court
near their residence. P wants to enforce its forum selection clause to get
the case to be tried in P’s home district
4. Issue: is the forum clause controlling?
5. Result: Because D had notice of the clasue, and because P had no bad
faith motive for including the clasue, and because the court felt the
clause did not lit D in any way (JJW disagrees) the clause is controlling.
a. But D clearly had not bargained for the term. JJ thinks this is a
bad decision.
x. Hill v. Gatewayj
1. Box top warranties
2. Judge Easterbrook
3. Facts: P orders and pur hases a computer from D by phone. Upon its
arrival, the computer has a list of terms limiting liability that the
customer must assent to or return the computer. When the computer
doesn’t work, P complains of breach of warranty, and D notes the
arbitration clause (P does not want to arbitrate)
4. Issue: Since the terms were not read prior to purchase, are the terms
controlling?
5. Result: By keeping the computer for more than 30 days, P accepted the
additional terms, and must go thorugh arbitration.
6. Mistkaes: Polciy ruling and very flawed. Uses ProCD (also EAsterbrok)
and will not distinguish it from the facts. Claims 2-207 irrelevant
because only one form, but 2-207 meant to apply to written
confirmations of oral agreements as well
7. ProCD
8. IS UCC2-207 Relevant?
a. Only one form?
9. Policy (market help)? – don’t want cashiers, or customer service people
reading all the terms over the phone, need to allow wiring.
10. Rolling contract – a customer orders and pays for the goods before
seeing most of the terms, which are contained on or in the packaging of
goods
 11. JJ’s rewrites: use reasoning from Brower v. Gateway 2000: say
arbitration clause was not material alteration of an oral agreement, but
simply one provisoin of the sole contract that existed between the
parties. Formed and acceptance manifested not when order was placed
byut only when customer retained merchandise beyond the 30 days
specified in agreement. Thus – 2-207 would not apply.
xi. C & J Fertizlezer v Allied Mutual Insurance Co
1. Burglary, contract defines burglary different than oral agreement.
2. Facts: P’s business was burglarized and P tries to recover their loss from
D, their insurer. P and D intended to exclude liability for inside jobs. In
small type, burglary was defined such that this loss was not covered,
said there had to be markings outside indiciating breaking and entering.
3. Holding: P had reasonable expectation to believe this was covered when
he purchased the policy. Also, it was unconscionable that the fine print
would overrule the reasonable meaning of the dickered terms
4. Dissent: P didn’t read the contract, and thus, D shouldn’t be laible for P’
5. Reasonable expectations doctrine: §211 (3)
a. Wher the other party has reaon to belive tha the party
manifesting such assent would not do so if he knew tha the
writing contained a paritucalr term, the term is not part of the
agreement.
i. In this case, if he had read the terms, couldn't claim
would be against reasonable expectations
ii. 211(3) mostly used in Arizona, most other courts would
look to unconciousability in similar situations.
6. JJ disagrees with this decision (IOWA?!?!?): aren’t we all bound by the
terms of credit card agreements and this we clearly don’t read!

F. The Statue of Frauds

i. Restatement §110: contracts that must be in writing to be enforceable:
1. Contracts to answer to a creditor for the debt of another
2. Contracts made in consideration of marriage
3. Contracts for the sale of land or affecting any interest in land (Eexcept
short term leases)
4. Contracts not to be performed within 1 year from their making
ii. UCC -2-201
1. Contracts for sale of goods over $500 is not enforceable unless in
writing and signed by the party against whom the enforcement is
sought
2. 2-201((1) adds that wa writing is not insufficient because it omits or
incorrectly states a term agreed upon but the quantiy of goods
 transferred cannot be enforced byond what is actually written int eh
contract.
3. 2-201(2) adds that between merchants, a confirmation in writing
received in a reaonble amount of time when the party receiving it has
reason to know its contents will satisfy the statute unless notice of
objection is remitted within 10 days.
a. Illustration: two parties, S and B , agree over the telephone to
the purachse of goods. S send B a memo confirming the order.
That memo is good against S for breach. That memo is also good
against B if he is a merchant. The reason is that it would be
unfair to S that he be bound to his word, but not B. B would be
able to play the market otherwise with impunity
4. 2-201(3) adds exceptions where the contract is enforceable even if it
violates 2-201(1)
a. If the goodsa re specially manufactured for the buyer that aren’t
suitable for another buyer
b. If the party against whom enforcement is sought admits that a
contract for sale was made (limited to the actual quanitity in the
writing)
c. If the payment has been made and accepted or received and
accepted. (2-606)
iii. CISG has no statue of frauds. Article 11: A contract of sale need not be
concluded in or evidenced by writing and is not subject to any other
requirement as to form. It may be proved by an means, including witnesses.
iv. C.R. Klewin v Flagship Properties
1. Oral contract, no time specified not within statute, theoretically could
be done within 1 year
2. Facts: P subcontracted fo D to build at a site. The agreement was over
dinner and unwritten. The agreement was publiciezed and videotaped.
Also P and D ceremoniously signed a standard form without filling in any
blanks. Construction began a year later. D become dissatisfied with P’s
work and replaced P, breaking the contract.
3. Held: that “an oral contract that does not say, in express terms that
performance is to have a specific duration beyond one year is, as a
matter of law, the functional equivalent of a contract of indefinite
duration for the purposes of the statue of frauds.
4. Used this mostly to talk about history of statut of frauds.
5. UCC v CISG vs Common Law
6. Signed writing (online)
a. UETA and e-Sign: electronic symbols as signatures.
7. Policy: one year provision of statute of frauds outdates; wastes courts
time, prejudiced against it.
 v. Migerobe v Certina
1. Piecing together written contract.
a. A writing must be sufficient to indicate that a contract for sale
has been made between the parties
b. Must be signed by the party against whom enforcement is
sought
c. Must specify a quantity
d. Writing must “state with reasonable certainty the essential
terms of the unperformed promises in the contract.§131
i. Narrowed under UCC 2-201 cmmt 1: required wriing
need not contain all the material terms of the contrac,
and such material terms as are stated need not be
precisely stated. All that is required is that the writing
afford a basis for believing tha the offered oral evidence
rests ona real transaction
1. But contract not enfocrable byond quanity of
goods shown in such writing.
e. Memorandum may consists of several writings fi one of the
writings is signed and the writings in the circumstances clearly
indicate that they relate to the same transaction. §132.
2. Facts: P contracted to buy watches from D for an after-Thanksgiving
sale. D later backed out, and P sued for breach of the oral contract and
won. On appeal, D argues tha the Statute of frauds was violated.
3. Result: Court found that the integration of three documents, including
two signed by D were adequate to prove a contract had been formed
and the statue was not violated.
4. The writing requirement
5. Failure to pleasd the statute
6. Completeness
vi. Conagra v Nierenber
1. Statute of frauds defense fails
2. Facts: D agreed by pone to sell P grain at a certain price to be delivered
at a certain time. P drafted a K to which D promised to sign, but D never
signed the contract. Oral K’s make up the vast majority of P’s K’s. When
D sold the grain to another buyer (at a higher price) P had to cover and
sued for damages.
3. Result: P’s confirmation was received in a reaonble time, nad D did not
object, the statue defense is not available.
4. UCC 2-201(3): 3 different ways a contract can be enforceable despite
the absence of a record under subsection (1)-(2)
a. Who is a merchant?
5. A confirmation 2-201(2)
 6. If a party admits tha an oral contract for sale was made by way of his
pleasdings, testimony, or otherwise in court, then he can no logner
assert a statute of frauds defense.
vii. Lige Dickson v Union oil of Californion
1. Facts: P had a longstanding relationship with D to provide oil based
products. D encouraged and assited P’s entering the asphalt business
and P prucahsed al its asphalt form D. When prices for asphalt went up
during the oil crises, D promised they would only raise prices on new K’s
with P. D then raised prices anyway for existing K’s
2. Result: Since the promise was not in writing, the court will not allow
promissory estoppels to trum th statute, the court ruled for D.
3. Promissory Estaoppel and Statute of frauds
a. 2nd resattment 139 vs 2-201
i. UCC: Prom. Estop doesn’t overcome statute of fraud
1. This is contested:
ii. Common Law: Prom Estop does overcome Statute of
Frauds
b. UCC 1-103
4. The Contents of the Contract
A. The Parol Evidence Rule
i. Parol evidence Rule renders any evidence of a prior or contemporaneous
understanding of the parties inadmissible if offered to contradict or modify the
terms of a written agreement. It is best understood as a rule of substantive law
concerning the legal effect of the expression of an agreement in a final, fully
integrated contract; it declares that when the terms of a contract have been
emobidied ina writing (called the integration fo their agreement) to which the
parties have assented as the final expression of their agreement, parol evidence
of contemporaneous or prior oral agreeemtn is not admissible for the purpose
of varying or contradicting the written contract
ii. Refomation is an equitable remedy consisting of a rewriting of a contract or
other document inccases where the written terms of the contract do not
express what was actually agreed upon
iii. Integration is the process by which the parties to an agreement adopt a writing
or writings as the full and final expression of their agreement. Also called
merger.
B. UCC 2-202
i. Final written expression: Parol or Extrinsic Evidence
1. Terms with respect to which the confirmatory memoranda of the
parties agree or which are otherwise set forth in a writing intended by
the parties as a final expression of their agreement with respect to such
ters as are included therein may not be contradicted by evidence of any
 prior agreement or of a contemporaneous oral agreement but may be
explained or supplement
a. By course of dealing or usage of trade or by course of
performance (see 2-208) and
b. By evidence of consistent additional terms unless the court
finds the writing to have been intended also as a complete and
exclusive statement of the terms of the agreement
2. Don’t be fooled! Parold evidence Rule does not keep out terms that are
added after the agreement is written
C. Integration
i. §210:
1. A completely integrated agreement is adopted by the parties as
acomplete and exclusive statement of the terms of the agreement
2. A partially integreated agreement is an integrated agreeemtn other
than a completely integrated agreement
3. Whether an agreement is completely or partially integrated is to be
determined by the court as a question preliminary to determianto of
question of interpretation or to application of parol evidence rule.
D. Cases
i. Baker V Baily
1. Well case, can’t introduce oral evidence
2. Facts: Baileys moved into mobile home on daughter’s land, she sold all
but the acre to Bakers. P (Baileys) was worried about who else would be
on the land if D sold it, so gave exclsuvie rights to D, but D thoguth that
if a reasonable person were to move onto the property P would let
ethem use the water as well since they got right of first refusal. P
refused to share water because there were some problems with it, it
reduced the value of the land by 40,00. So bakers bougth the land (had
right of first refusal)
3. Holding: where the language fo the contract is clear and unabmigious
there is no reason to consier external information. The Bailey’s had no
right to sell the land with water rights.
4. Note: first determined if integrated – then if prior oral agreement.
ii. Masterson v Sine
1. Traynor
2. Ranch case “stay in family”
3. Facts: P assings his estate to a relative (Sine) reatiang the option to re-
purchase the land by a certain date. After P goes bankrupt, his trustee
sues for possession of the land. D, relative, deeks to include extrinsic
evidence tha tth epurpose of the contract was to keep the land within
the family.
 4. Holding: the extrinsic evidence is allowed because it helps to explain the
option clause and it is silent about assignability.
5.
6. Can’t determine completeness from writing alone, need to allow parol
evidence in to determine completeness.
7. The fact that an essential term is omitted may indicate that the
agreement is not integrated or that here is partial rather than complete
integration. §204
8. Where the parties to a written agreement agree orally that performance
of the agreement is subject to the occurrence of a state condtion, the
agreement is not integrated with respect to the oral condition §217
9. The term must not be contradictory to a term in the written document.
A test in the 2-202 comment 3 is “if the additional terms are such that, if
agreed upon, they would dcertainly have been included in the
document in the view of the court, then the evidence of their alleged
making must be kept from the trier of fact.”
iii. Forks:
1. Contract vs additional terms
2. Completely integrated v Partially integrated.
3. Merge clauses – strong evidence but not always dispositive.
a. Restatemtent 2d § 209 cmt b “such a declaration may not be
conclusive.
4. Arguments ot make to include parol evidence:
a. Not an integrated documents
b. Use it to define words in the document
c. Traynor
5. Determining if a contract is integrated
a. Merger clause
b. Form
c. Amount of details.
6. Subsequent agreements always allowed (not barred by Parol Evidence.
iv. UCC’s parol Evidence Rule §2-202
1. “certainly…included.
E. Reformation
i. Can change the contract if both sides agree
ii. 3 elements of reformation
1. Instrument represent an anteceden agreement which should be
reformed
2. Mutual mistake or mistake by one party and inequitable conduct on the
part of the other which results in an instrument that does not reflect
what either party intended
 a. One party’s mistake is not sufficient to warrant reformation
without inequitable conduct
3. Proof of these elements by clear and conving evidence
iii. Thompson v. Estate of Coffield
1. Reformation proceeds from coal leases, “recorded leases”
2. Facts: D sold his land to P retaining royalties for coal found under
current “valid, recorded leases” However, none of the current leases
had been recorded. D urges that reformation of the deed is required
because the deed did not conform to the negoatiaons, intent and
knowledge fo the parties.
3. Holding: trail court needs to determine whether the (parol) evidence
indicating what the intent of the parties was in conjucniton with the
clasue.
4. Reformation is an equitable remedy, cout can withhold it, evenif it
would otherwise be appropriate.
a. One such ground is that a 3rd party has in good faith relied to its
detriment on the erroneous writing.
5. Parol Evidence Admissible.
a. Can beused to prove a case for reformation.
6. Restatemnt on Reformaiton
a. Reformation where a writing that evidences or emobides an
agreement in whole or in part fails to express the agreeemtn of
a mistke of BOTH PARTIES as to the contents or effect of the
writing §155
b. ONLY ONE PARTY has subscribed to the erroneous document,
reformation papossible if can be shown other party induced
assent by misrepresenting the writing §166
7. 2d §155
8. 2d §166
F. Interpreting the Terms of the Contract
i. Principles of construction see §201 (Whose meaning prevails), §202(Rules in Aid
of Interpretation) §203 (Standards of pPreference in Interpreation)
1. Entire document should be read as a whole, and every part is a piece of
the whole. Every word has a role. Different phrases throughout the
transaction hints at different meaning of each
2. The contract itself must be read in light of the circumstances under
which it was made
3. Where a public interest is affected, an interpretation that favors the
public is preferred
4. Specific provisions ordinarily will be regarded as qualifiying the meaning
of broad general words in relation to a particular subject
 5. Unless contrary to the plain meaning of the contract, an interpretation
given by the parties themselves wil be favored. In Nankuli, plaintiff
contends that there was an understanding between parties for price-
protection, as demonstrated through course of performance.
6. Seperately negotiated terms given greater weight
7. Different prhases hint at different meaning of each
8. An interpretation which gives a reasonable, lawful, and effective
meaning to all terms preferred to an interpretation which leaves part
unreasonable, unlawful or of no effect.
ii. Random House, inc v. Rosetta Books
1. “selling in digital format 8 specific works , authors previously granted
Random house right to “print, publich and sell the works in book form”
what is book form? E-books?
2. Facfts: D had entered into contracts with several authors to publish e-
books of classic works. Random House, P, had contracts with some of
these authors to have “Exclusive right to print, publish and sell the
works in book form”
3. Issue: are e-books a “book form” and fall under terms of the contract.
4. Holding: Trade suage says “book form” distinct from books.
a. Points to usage of “book club edition” in other parts of
contracts, showing that “book club editions” aren’t included in
“book form”
b. Expression of one thing is the exclusion of others. Disclsoes
specific / limited meaing of book form.
c. Policy: New Use case law: encourage new technologies while
encouraging the creation of new works. – that is why we have
5. 2 steps for preliminary injunctions
a. Irreparable harm
b. Either
i. A likelihood of success on the merits or
ii. Sufficiently serious question about the merits to make
them a fair ground for lititgation and a balance of
hardships tipping decidedly toward the party requesting
relief.
6. 2 elements of copyright infiringment
a. Ownerhsip of valid copyright
b. Copying of constitutent elements of the work that are original.
7. Contract language ambiguous if: (p275)
a. Ambiguous if it is acablpalble of more than one meaning when
viewed objectively by a reaosnbly intelligent person who has
examined the context oft the entire integrated agreement,
 cognizant fo the customs, practices, usages and terminology as
generally understood in the partiucalr trade or business.
i. IF languge is ambigious, intepretaiton of contract
becomes a question of fact for the finder of fact, and
extrinsic evidence is admissible.
b. No ambiguity exists when contract language has a “definite and
precise meaning, unattended by danger of misconception in the
purport of the contract itself, an dconcerning which there is no
reasonable basis for a difference of opion.

8. Broadest rights v specific rights (277)

a. Authors struck out phrases , indicting intent not to gratn the
publisher broadest rights, but just specific rights.
9. Coast-to-Coast interpretations
10. Problems proportionate to length of the contract.
a. Unknown unknowns: short-term contracts, small unknowns;
long-term contracts, big unknowns.
iii. WWW Associates v Giancontieri
1. Seller exrices reciprorcal cnacellation, buyer insister it was suppose to
just be for it, regardless sof term.
2. Facts: during contract negotiations, the P leaned that a lis pendens had
been filed against the real property involved and therefore asked that a
clause be added stating that if the litigation was unresolved as of June 1,
1987, either party could cancel the contract. When the date arrived
with the litigation still pending, however, the P indicated that it was
prepared to close, but the D canceled the contract, invoking the
cancellation clasue
3. Issue: how to interpret what appear to be a reciprocal cancellation
provison, if extrinsic evidence may point it was intended only fo rth
ebuyer.
4. Holding – since the terms of the contract were clear and unambious
(“either party” is not ambigious), no external evidence can be admitted
and they cancelled the contract
a. Policy supporting 4 corners rule: stability to commercial
transactions by safeguarding against fraudulent claims, perjury,
death of witnesses, infirmity of memory and fear tha tth ejury
will improperly evaluate the extrinsic evidence.”
5. Lis pendens – document filed for real eastate so when looking at a title
shows that there is a trial pending – it warns buyers.
6. Merger clauses, other paragraphs give purchaser cancellation rights, but
sellers ultimately cancel
 7. If it was material that the term was intended to benefit buyer, buyer
defeats summary judgement.
8. Parol Evidence Rule
a. Sophisticated Busniess men
b. Judge says “Extrinsic evidence not material.
9. New York rule vs. Reastatment and UCC (2-202 comment 1 c
a. New York: before looking for evidence of whats in the parties
mind, give due weight to the words in contract, need to find
ambiguity before looking to extrinsic evidence
b. Restatment/UCC: don’t need ambuiguity before looking at
extrinsic evidence.
10. Restament 214: can bring in evidence to interpret the meaning of the
contract whether integrated or not
a. Allows a lot of things otherwise overruled by parol evidence
rule, as long as you say you’re submitting the evidence not to
add/change a term but to help interpet. Usually need to show
some level of ambiguity, but doesn't necessarily need to be
amgmgigousl.
iv. 2d §202(5)
v. 5 Principles of Construction
vi. Four Corners
vii. Commas.
viii. Pacifc Gas v GW Thomas Drayage & Rigging – Traynor
1. Facts: Parties enter into contract for D to replace metal cover of P’s
turbine. D agrees to perform work at its own risk and to free P from
indemnity for loss, damage, expense and liability resulting from damage
to property. During the installation, P’s property was damaged. P brings
action to recoer costs. D alleges that the historical intention of the
insurance agreement was for D to take liability for injury to 3 rd parties’
property, not to injury to P’s property.
2. Holding: court allows the evidence to prove (a) that the language of the
contract was “reasonably susceptible” to D’s interpretation and (b) that
D’s interpretation was in fact correct.
3. When value of writing is limited: creates larer role for jury.
4. Policy: person who wrote contract usually the more powerful, trying to
get something they don’t deserve from the little guy.
5. Indemnity clauses against damage to property
6. Course of dealing and performance showed property meant just 3 rd
person property.
7. Extrinsic evidence admissible if can prove a meaning the language is
reasonably susceptible to.
a. How wide is “reasonably suspcitble?
 ix. Is meaning ever plain?
1. Almost never plain unless understood in its context.
x. 2d 212 cmt b.
xi. Traynor’s view? Yes allows extrinsic evidence even when no ambiguity
1. of language, but still gives preference to written word.
xii. Jury has larger role when value of writing is limited
xiii. Resonably susceptible
xiv. ZRL Corp v Great CentralInsurance
1. Wrongful eviction insurance, racial discrimination.
2. Facts: P operates a club that is insured by D. A racial discrimination suit
is brought against P by a 3rd party for “wrongful eviction” and P seeks to
force D to pay for suit
3. Holding: where language in an insurance policy is subject to different
interpretations, such ambiguity is to be cconstrued to favor the insured,
not the insurance company, which drafted the policy.
xv. Language interpreted against the drafter.
xvi. Herirarchy of practices
1. Express terms of the agreement (most important
2. Course of performance – how this contract was performed
3. Course of delaing – how a party has performed on similar contracts
4. Trade practice – local customs can imply terms of the contract
5. Risks of waiving your performance on express terms of the contract are
great. IF you do it systematically, it comes your course of dealing,
becomes part of contract.
xvii. Nanakuli Paving v Shell Oil *Important Case*
1. Facts: P had a longstanding K with D for the sale of asphalt supplies. D
twice raised prices, but gave P a warning and held the price constant for
a few month. Then they changed management and raised prices
without notice or price protection
2. Holding: there was overwhelming evidence that it was customary to
practice price protection in the asphalt industry in Hawaii (Trade
{Practices}. In past dealings, D had price protected and given warning
when the price was to go up. (Course of Performacne) Rule for P. UCC
§2-202.
a. Reason for price protection: gov’t contracts common, with no
escatlation clauses for price increases.
3. Asphalt trade – asphalt + aggregate. Trade usage and common practice
4. 1-303: Course of Performance, Course of Dealing and Usage of Trade
(prior 1-205 and 2-208)
a. D: course of performance, course of dealing, usage of trade may
give particular meaning to specific terms of agreement and may
supplement or qualify terms of the agreement.
 b. E: Except as otherwise provided in subsection (f), the express
terms of an agreement and any applicable course of
performance, course of dealing, or usage of trade must be
construed whenever reasonable as consistent with each other.
IF such a construction is unreasonable:
i. (1) express terms prevail over course of performance,
course of dealing and usage of trade
ii. Course of performance prevails over course of dealing
and usage of trade
iii. Course of dealing rprevails over usage of trade.
5. 1-201(20)
6. 1-205 (2)Trade Usage
a. Any practice or method of dealing haviexpress termsng such
regularity of observance in a place, vocation or trade as to
justify an expectation that it will be observed with respect to
the transaction in question”
7. 2-208 – course of performance
8. 2-305 Open Price Term
a. (2): when seller can fix price, has obligation to fix price in good
faith
i. In Nanakuli, good faith in price fixing meant to follow
trade passage of giving advanced notice of such an
increase in prices.
1. D argues 2-305 cmt 3: in normal case a psoted
price satisfies the good faith requirement
a. But that's normal case, not every case.
If advanced notice is a commercial
standard.
9. 2-202(A) (course of dealing, etc can explain or supplement written
agreemtn) can be effects profound transformation of traditional
contract law
a. This undermines statements in contract
b. Undermines contract/ no contract dichotomy.
10. Scope of trade usage:
a. Which trade usages
b. Occurances of price proetection just waivers of contract
c. Express term consistent with trade usage and course of
performance
d. Good faith obliged advance notice?
11. On occurance not course of performance
12. Course of dealings more imporntat that trade usage
 13. If not consistent/reconcilable w/ express terms, trade usage /
commercial context doesn’t apply.
xviii. Problem of Consistency
1. How regular must a practice be before it qualifies as “trade usage”?
xix. MCC- Marble Ceramic Center v Ceramica Nuova D’agostino
1. Whether a court must consider parol ence in a contract dispute
governed by the CISG
2. Facts: P entered oral negotiations and agreed with D on price, quality,
quantity, delivery and payement in 10/90. K memorialzed by D’s
standard form. When D did not satisfy orders in 4/, 5/, 9/91, P sued for
breach. D responded it was under no obligation to satisfy the order
because P hadn’t paid for some previous shipments. P resonded tha tth
ehsipments they had received were of lower quality than requested,
and the CISG allows them to pay less for them. D responds that terms
for dealing with lower quality receipts are on the back fo the form, in
Italian. P responds that they had never intended those terms, just the
oral terms
3. Result: CISG Article 8(1): courts must interpet the “Statemtns and other
conduct of a party … according to his intent” as long as the other party
“knew or could not have been unaware” of that intent. Thus CISG Cases
can include paol evidence.
4.
5. Parol Evidnece and CISG
6. Policy against PArol Evidence
7. Cisg art 11 v UCC 2-201
8. Restatmenet 2d 201(2)
G. Implied Terms and the Implied Covenant of Good Faith
i. Implied covenant of Good faith §1-203; revised §1-304, restament §205.
ii. 2-306(1); exclusiviety contracts, such as output and requirements contracts:
exclusivity defined in terms of good faith.
iii. Good faith: a total absence of any intention to seek an unfair advantage or to
defraud another party; an honeset and sincere intention to fulfill one’s
obligations
1. In the case of a merchant, good faith refers to honesty in fact and the
observance of reasonable commercial standards of fair dealing in the
trade (§2-103(1)(b))
2. More generally the term means “honesty in fact in the conduct or
transaction concerned” UCC More generally the term means “honesty
in fact in the conduct or transaction concerned” UCC 1-201
iv. Summers: No unified theory of good faith, obligation of good faith performance
is better understood simply as excluding behavior inconsistent with common
 standards of decency, fairness and reasoanbleness, and with the parties’ aree-
upon common purposes and justified expectations
1. Good faith is the absence of bad faith
v. Burton’s Unified theory of good faith: Bad faith is the exercise of discretion for
the purpose of recapturing opporutniteis forgone or gbargained away at the
time of contracting, with the indentification f such forgone opportunities
depending on objective analysis of the parties expectations as they may be
inferred from the express contract terms in light of the ordinary course of
business.
vi. JJ prefers summers test, but Burton’s asimed at cases where there is a bargain.
vii. CISG has no implied faith, but most Eupoean codes have clauses similar to
restatement §205.
viii. Missing Terms:
1. When a termi is missing, a reasonable term may be insterted by the
court, i.e. reasonable time is implied when a temporal term is missing
2. It is generally agreed that where a duration mayb be fairly and reaonlby
supplied by implication, a contract is not terminable at will. §230 same
with 2-309(2)
3. A contract is not voided by conditions that arise outside the
contemplation of the parties after execution
4. Missing Price Term UCC 2-305
a. Parties can write a contract without the price term settled
b. (1)At the time of delivery the price is a reaonble price if
i. Nothing is said of price
ii. The price is left to be determined but the parties fail to
agree
iii. The price term is to be fixed by some 3rd party price
index or market standard
c. (2) a price to be fixed by the seller or by the buyer means a price
to be set in good faith
d. (3) when price left to be fixed otherwise than by agreement of
the parities fails to be fixed through fault of one party the other
may at his option treat the contract as canceled or himself fix a
reasonable price.
e. (4)If the parties agree not to be bound without a price, there is
no contract. Buyer must return all goods received or pay the
reasonable value if unreasonable to return them. Seller must
return prepaid money.
5. Missing Time provisions 2-309
a. (1) the time for shipment or delivey or any other action under a
contract if not provided in this article or agreed upon shall be a
reasonable time
 b. (2) where contract provides for successive performances but is
indefinite in duration it is valid for a reaonble time but unless
otherwise agreed may be terminated at any time by either
party.
i. But if contract says “as ong as Barney’s is selling
clothes” contract is not indefinite, 2-309(2) doesn’t
apply.
c. Termination by one party on happening of agreed event
requires that reasonable notification be received by the other
party and an agreement dispensing with notification is invalid if
its operation would be unconscionable.
ix. Haines v. City of New York – Sewage system, no obligations to expand plant
1. Facts: P was a developer that wanted to add a swerer system outside of
NY town that had contracted with NYC in 1923 that “all costs of
construction and subsequent operation, maintance and repair” shall be
at the expense of NYC. The K also stated that it required NYC to extend
the sewer lines when necessitated by future growth and building up of
the communities. The sewer system is now at capacity, further additions
would be impossible without building a new plant.
2. Issue: Court must clarify 2 terms, Duraiton fo contract, and scope of
NYC’s Duty” K did not say for how long the K would be in effect, or what
to do when it becomes impossible to add sewer lines. NYC argues it can
terminate K at will because no express duration in contract. Further,
argues if not terminable at will, can be terminated now, as state law
enviormental standards now address the reasons NYC had for installing
the system (the purity of the water NYC drinks).
3. Held: Contracts missing time term added to be as long as NYC needs or
desires the water.
a. May not avoid obligation for reasons not contemplated by the
parties when agreement was executed, and not within the
purview of their intent, expressed or implied.
x. Centronics Corp v. Genicom Corp
1. Facts: P agreed to sell biz assets to D. The purchase price was pegged at
a value that arbitration was to determine. An escrow account held
money from D pending the results of the arbitratuion
2. Issue: P charged D with breaching implied covenant of good faith when
D would not allow any morney to be removed from the escrow before
arbitration ended even though that money was going to be P’s after
arbitration and that D was belaboring the arbitration.
3. Held: P had not asked for any clause in the K to allow them to pull any
money out in the event of a long arbitration. D had good faith reasons
 to want to tkeep the money in escreow until the end of arbitration. D
was not granted discretion to withhold payment from escreow account.
4. 4 question test – for violation of implied covenant of good faith
a. Does the agreement ostensibly allow to or confer upon D a
degree of discretion in performance tantamount to a power to
deprive the plaintiff of a substantial proportion of the
agreement’s value?
b. IF the ostensible discretion is of that requisite scope , does
competent evidence indicate that the parties intended by their
agreeemnet to make a legally enforceable contract?
c. Assuming an intent to be bound, has D’s exercise of discretion
exceeded the limits of reasonableness?
d. Is the cause of the damage complained of D’s abuse of discriton,
or does it result from events beyond the control of either party,
against which D has no obligation to protect P.?
xi. Shell Oil Co. v. HRN, Inc – Open-prece-term UCC-2-305(b)
1. Facts: shell priced its oil so that many of the franchiser could not
compete with jobbers and shell owned stations, selling oil higher
price( although based on provision of contract) than jobbers and own
cstations.
2. Issue: was price fixed in good faith as required by 2-305(2) when it
seems like Shell was trying to put franchisers out of business.
3. Holding- price fixing by the refiner that forces a company out of
business under an open price term contract with the dealers is still good
faith.
a. Cmt 3: in normal case, “posted price”, “price in effect” satisfies
the good faith
i. Resoning for it to prevent discriminiatory pricing
(charging 2 buyers with same price provision different
prices) and keep out judicial intervention.
4. Distinguish from Nankuli: not the normal case (as in cmt 3) because of
particular trade customs. The price wasn’t abnormal, how it was put
into effect was.
5. Distinguish from Allapttah: not normal case, refiner double charged to
revocer its costs of credit while representing to buyers its preice was net
of credit costs. Dispute wasn’t about price, but rather, the manner in
which the wholesale price was calculated without considering the
doubled charge for credit card processing”
a. A price, commercially reasonable on its face, may nevertheless
be applied in a dishonest fashin (lesson from Nanakul and
Allapattah.
H. Employment and Good faith
 i. An at-will employee can still be terminated at any time without a good faith
dduty for the employer to give a reason
ii. Most jurisdictions recognize a narrow “public policy” exception that must
involve a public duty.
iii. Donahue v. Federal Express corp
1. Facts: P , a permanent employee, was a “whistleblower” at company D
which then terminated him. P appealed his term,ination with the
Guaranteed Fair treatment Procedure provided for in his K, which
upheld the termination
2. Issue: P argues that D did not act in good faith in P’s termination and
that P supplied sufficient additional consideration to be classified
differently than an at-will employee
3. Held: as a matter of law, an employee cannot maintain action fro breach
of implied duty of good faith and fair dealing insofar as underlying claim
is for termination of an at-will employment. Superior performance is not
good enough to be classified differently than an at-will employee
because that is wahts expected.
iv. Problem 4-5 , Market street, loan or buy back; check illustaritons for Restatment
161.
1. Can apply 161 by analogy (161 is for forming contracts, but maybe
persuasive in establishing good faith standards for performance of
contract).
2. Restament 161: a person’s non-disclosure of a fact known to him is
equivalent to an assertion that hthe fact does not exist in the following
cases only:
a. Where he knows that disclosure of fact necessary to prevent
some previous assetion from being misrepresnation or form
being fraudulent or material
b. Knows disclosure of fact would correct a mistake of the other
party as to a basic assumption on which that party is making th
eocntract and if non-disclousre of the fact amounts to a filure to
act in good faith and in accordance with reasonable standards
of air dealing
c. Where he knows that disclosure of fact would correct a mistake
the other paty as to the contents or effect of a wriitn evidencing
or embodying an agreement in whole or in part
d. Where other person is entitled to know the fact because of
arealtion of trust and confidence between thm.
e. Cmt e” known mistake as to a writing:
3. Party could agrue “just read contrafcT”
4. Example 10: know of minerals in ground from government survey
unkown by seller, not bad faith if don’t tell
 5. Example 11: know of minerals but respassed
6. Restament 205 example 7: insurance capolicy, loss fo property, claim
form has defects, insurer does not paoint out defects, merely say to
correct/ perfect. Defects do not bar recovery on the policy.
I. Output, rquierments and exlcusive dealings UCC 2-305
i. A term that measures the quantity by the output of the sller or the
requirements of the buyer is still bound by a quantity of good faith, no quantity
unreasonably disproportiatne to any stated estimate or comparable prior
output may be tendered or demanded
ii. A lawful agreement for exclusive dealings imposes an obligation on the seller to
use best efforts to supply and on the buyer to use best efforts to promote the
sale (Lady Duff)
iii. A shutdown by a requirements buyer for lack of orders might be permissible
where a shutdown merely to curtail losess would not (Comment 2)
iv. Empire Gas corp. V. American Bakerieis – requirements K
1. Facts: D entered K with P to convert 3000 trucks from gas powered to
propane “as required by D” and then buy all he propone from P for 8
years. D, giving no reason decided not to convert its fleet. P sues D for
lost profits on remaining conversion
2. Issue: what is unnecessarily disporopotionate under 2-305(1)
3. Held: with proper jury instruction, no reasonable jury would have found
for D. IF no reason at all need to be given to reduce a bueyr’s
requirements to zero, then arequirements contract is reduced to an
option contract. There must be a good reaon to change the
requirmenets to zero and D did not supply one.
J. Express Warranties
i. Definitions
1. Warranty – an assurance by one party to a contract of the existence of a
fact upon which the other party may rely, intended precisely to relive
the promise of any duty to ascertain the fact for himself, and which
amounts to a promise to indemnify the promise for any loss if the fact
warranted proves untrue.
ii. §2-313 on Creation of Express Warranties
1. Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain
creates an express warranty that the goods shall conform to the
affirmation or promise
2. Any desciription of the goods which is made part of the basis of the
bargain creas an expresss warranty that h egodo shall conform to the
description
 3. Any samle or model, which is made part of the basis of the bargain
creates an express warranty that the whole of the goods shall conform
to the sample or modle
4. Not necessary seller use formal words such as “warrant” or guarantee”
ot to have intetniton to make warranty
a. But affirmation of value of goods, or statement purporting to be
merely seller ‘s opion does not create a warranty – Puffery.
5. JJ: not sure what “basis of baragin means” no one is, JJ removed it from
article 2.
6. Can sue on warranty even if if didn’t rely on it, no about it
7. Warranties are made “during bargain” may not apply to affirmations
after contract formed unless there is reliance (at least in most states
iii. When do warranties speak? When do they apply
1. Usually right on delivery
2. 2-503: time of tender
a. This is when warranty speaks
b. Need to prove that when goods delivered they were defective
i. Can argue there’s nothing plaintiff did that could have
caused the defect, must have existed before
3. Statute of limitions in contracts 2-275: 5 years of breach, breach is on
delivery
4. Tort liability runs from time of discovery, so may be able to sue under
torts (2 years)
iv. Carpenter v. Chrysler Corp
1. Facts: P purchased two cars from D dealer. P requests a “reliable car”
and dealer tells P that the LeBaron is what he wants. The car then has a
series of failures and defects. P stops making payments o nthe car when
D cannot repair rthe car’s defects. D then repossessed car.
2. Held: Under 2-313, a warranty was created because the dealer gave a
(mis)representation of fact. When the car did not live up to the
representations, the warranty was breached
3. Note: look out for statute of frauds or parol evidence problems. This
case had no SoF problems because it was a written contract with an oral
supplement. No parold evidence problem because written instrument
was not a full integration
4. Dealer could have protected himself from salesmen’s slips by putting an
integration clause into the contract.
a. Previosu dealings between dealear and customer rendered
customer “disarmed and made credulous”
K. Implied warranties
i. 2-314: Implied Warranty: Merchantability; Usage of Trade
 1. Unless excluded or modified, a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a
merchant with respect to goods of that kind. Under this section the
servicing for value of food or dirnk to be consumed either on the
premises or selsewhere is a slae.
2. Goods to be merchantable msut be at least such as
a. Pass without objection in the trade under the contract
description; and
b. In the case of fungibvle goods (mutual substitiuon), are of fair
average quality within the description and
c. Are fit for the ordinary purposes for which such goods are used;
and
d. Run, within the variations permitted by the agreement, of even
kind, quality and quantity within each unit and among ass units
involved; and
e. Are adequately contained, packaged, and labeled as the
agreement may require; an
f. Conform to the promise or affirmations of fact made on the
container or label if any.
3. Unless excluded or modified other implied warranties may arise from
course of dealing or usage of trade.
a. Example: obligation to provide pedigree papers to evidence
conformity of the animal to contract in the case of a pedigreed
dog blooded
ii. 2-315 Implied Warranty: Fitness for Particular pupose
1. Where the seller at the time of contracting has reason to know any
particular purpose for which the goods are required and that the buyer
is relying ont eh seller’s skill or judgment to select or furnish suitable
goods, there is unless excluded or modified under 2-316 an implied
warranty that the goods hall be fit for such purpose.
a. JJ: why do people fail to prove this?
i. Between businesses, buyers usually know what they
want / will test them. Buyers will have lots of
experience. Rare for good business man to rely on the
seller’s skill or judgment to select suitable good, they’ll
select it tehsmelves
ii. Also, seller may not know buyer is relying on them.
iii. Magnuson-Moss Act: if you have an express warranty, you cannot disclaim the
implied warranty of merchantability
iv. Vlases v. Montgomery Ward
1. Facts: P purchased 2000 chicks from D. The chicsks were then found to
carry a disease that left them unsuitable for use
 2. Held: UCC 2-314 and 2-315 hold. Doesn’t matter that D could not have
known the chicks were sick nor that D took care in ensuring that the
goods were quality. All that is important is that the goods were not fit
for ordinary use. D is in breach.
L. UCC 2-316: Exclusion or Modification of Warranties
i. 1) words or conduct relevant to the creation of an express warranty and words
or conduct tending to negate or limit warranty shall be construed wherever
reasonable as sconsisten with each other.
ii. 2) to exlude or modify the implied warranty of merchantability or fitness must
mention mechrantibalbity or fitness and be consipcious.
iii. 3) exceptions
1. Expressions like “as is” “with all faults” or similar can exclude all implied
warranties
2. When buyer, before entering contract ahs examined goods fully , or
refused to examine good s there is no implied warranty with regard to
defects an examination ought int eh circumstances to reveal to him
3. An implied warranty can be exluded or modified by course of dealing, or
course of perofomance, or usage fo trade
4. Remedies for breach limited in accordance with provison on liquidation
or limitation of damages an on contractual modification of remedy (2-
718, 2-719.)
iv. Massey-Ferguson v. Utley: what should the rights of a 3 rd party enforcing a
contract be?
1. Facts: P’s dealer sold D a combine. D put 675 down and financed the
rest for 534.52 a year for the next 3 years. D defaulted on the first
payment and P brings suit to recover the deferred payments. D defens
on breach of implied warrantiesof fitness in UCC 2-316.
2. Result: affirmed the ruling for D because the language that lmited the
implied warranties was not conspicuous enough
a. Waiver on back of contract, exclusion in same size type font.
3. Note: why is manufacturer/financier lsoign? Court states that its
conduct put it in the status of a seller and that its status as a seller
outweighed its status as an assignee and therefore did not entitle them
to the protection of an assignee against defenses that derived from its
actions as a seller.
a. Policy: covenant against assertion of desfenses for assignees
mean to protect finacnail insutitons to give people credit
i. Not meant to protect manufacturers that finance their
own sales.
M. Modifications:
i. Generally
 1. Usually modifications fo contracts are contracts themselves requiring
consideration
a. Preexisting duty rule: an agreement modifying a contract is not
supported by consideration if one of the parties to the
agreement does or promises to do something that he is legally
obligated to do. Restament §73
b. Courts are hesitant to apply this rule when unatniticapted
difficulties arise and the other party, not influenced by coercion
or duress, voluntarily agrees to the amendments
2. UCC 2-209 Modification, Recision and Waiver
a. An agreeemtn modifying a contract within this Article needs no
consideration to be binding
b. A signed agreement which exludes modificationor recision
except by a signed writing cannot be otherwise modified or
rescinded, but except as between merchants such a requiement
on a form supplied by the merchant must be separately signed
by the other party.
i. Meant to protect against false allegatations of oral
modifactions
ii. Permits parties in effect to make their own statute of
frauds as regards to any future modification of the
contract.
c. Requirements of the statue of frauds must be satisfied if the
contract as modified is within its provisions
d. Although an attempt at modification or rescission does not
satisfy the requirements of subsection (2) or (3) it can operate
as a waiver.
i. Intended, despite provisions of (2) and (3) to prevent
contractual provisions exclusding modification except
by a signed writing from limiting in other respects the
legal effect of the parties’ actual later conduct.
e. A party who has made a waiver affecting an executor protion of
the contract may retract the waiver by reasonable notififaciton
received by the other party that strict performance will be
required of any term waived, unless the retraction would be
unjust in view of a material change of position in reliance of the
waiver.
ii. Angel v. Murray
1. Facts: D entered a K with the city to collect garbage for a fee. D later
asked the city to increase the fee paid to him to cover an unexpected
increase in garbage to be collected. The city obliged. P, a citizen of the
 city, sues D, a garbage collector company for repayment of fees paid to
the latter by the city claiming a lack of consideration
2. Issue: is consideration necessary for modification?
3. HoldingThe volume of garbage had risen unexpectedly and
substantially. The modification to the contract was made during a time
when the contract had not been fully perform. Therefore the decision to
pay the additional fees was fair and equitable.
a. Court relies on 2-209 for this rule, applying it by analogy even
thiough this isn’t an article 2 case
iii. Threats / Duress
1. Restament 175: When duress by threat makes a contract voidable
a. If party’s manifestation of assent is induced by an improper
threat by the other party that leaves the victim no reasonable
alternative, the contract is voidable by the victim
b. IF party’s manifestation of assent is induced by one who is not a
party to the transaction, the contract is voidable by the ictim
unless the other party to the transaction in good faith and
without reason to know fo the duress either gives value or relies
materially on the transaction
2. 176: When a threat is improper
a. What is threatened is a crime or a tort, or the threat itself woulb
e a crime or a tort if it resulted in obtaining property
b. What is threatened is a criminal prosecution
c. What is threatened is the use of civil process and the threat is
made in bad faith
d. The threat is a breach of the duty of good faith and fair dealing
under a contract with the recpipient.
iv. Restament 89: Modifiaction of Executory Contract
1. A promise modifying a duty under a contract not fully perfomed on
either side is binding
a. If the modification is fair and equitable in view of circumstances
not anticipated by the parties when the contract was made; or
b. To the exten provided by statute
c. Or to the extent that justice requires enforcement in view of
material change of positon in reliance on the promise.
2. Contrast this to imporper threats above? Is this line clear?
N. Oral Modificaitons
i. Oral modifications of contracts within the Statue of Frauds are not enforceable.
ii. Oral modifications that do not materially alter the underlying obligations may
not be barred. Where on party relies on the other to reduce an oral agreement
to writing, failure to do so will not prevent the relying party from taking the
modification out of the statue of frauds
 iii. Oral modicfiaction may be valid on estoppels or staturoy grounds
iv. Brookside Farms v. Mama Rizzo’s Inc
1. Facts: P entered K wit hD to sell basil as D required. D agreed to buy a
minimum over a year. P and D agreed to a series of modifications over
the monts as D’s needs and financial situation changed. D then bounced
a payment check. P brings suit because D did not purchase the
minimum amount over the year. D counters that P raised the prices in
violation of the K’s express language that no modifaicitons would be
made unless in written form.
2.
a. Held: While th eK’s no waiver clause prevents oral modification,
other legal theories allow fot eh modifications. D breached so P
is awarded damages.
b. What price reigns on undelived basil vs what price for the
delivered and unpaid basil
i. Unpaid but delivered basil is at modified price
ii. Undelivered basil goes to the original price written in
contract.
c. For damages of undelivered basil, just get profit, not full price.
O. Employment Modifications
i. ASmus v. Pacific Bell
1. Facts: PacBell promises employee security via the Management
Employment Security Policy. They later give notice of cancellation of
MESP. Plaintiffs file for breach of contract.
2. Holding – court says that the contract (either unilateral or bilateral)
acceptance by coming to work and can be ended or modified after a
reasonable time, on reasonable notice, and without interfering with the
employees’ vested benefit.
a. Employees got something new, retirement benefits; this is
consideration
3. Related question: whether companies unilaterally adopted policy has
become part of the contract and if employer can unilaterally change it?
a. Such as ’86 intiion of MESP in employee manual
i. Could be a unilateral contract
1. Employer can retract
2. Not retract (may become a bilateral contract)
3. Retract under certain conditions
ii. Could be a bilateral contract
1. Then we’ve got a promise to keep employees
on till business conditions make that impossible
2. Can’t be modified unilaterally
3. This is what the employees argued in this case
 iii. Court decided it was a unilateral contract
1. Can fire employees without liability if
a. Reaonble time
b. Reaoable notice
c. Doesn’t interfere with vested benefits
(what you get if you quit, retirmenet
benefits, stock options)
iv. If contract is for a reaonble time, and they need
reaonble notice
1. Seems to act like a bilateral contract for a
period of “reaonble time”
P. Accord and Satisfaction
i. Substituted PErformacne Restament 278(1)
1. “if an oblige accepts in satisfaction of the obligor’s duty a performance
offered by the obligor that differs from what is due, the duty is
discharged.
ii. Accord and satisfcation – 281
1. An accord is a contract under which an oblige promises to accept a
stated performance in satisfaction of the obligor’s existing duty.
Performance of the accord discharges the orginal duty
2. Until performance of the accord, the original duty is suspended unless
there is such a breach of the accord by the obligor as discharges the
new duty of the oblige to accept the performance in satisfaction. If
there is such a breach, the oblige may enforce either the original duty or
any duty under the accord
3. Breach of the accord by the oblige does not discharge the original duty,
but the obligor may maintain a suit for specific performance of the
accord, in addition to any claim for damages for partial breach.
iii. P – artist and D contract for Mechanic drawings, agree initially to $500 lump
sum. Artist sends bill with hourly rate, totally $5,400. D sends check labeled “full
payment” for $1,000. P erases “full payment” and then cashes
iv. Holding: D raised issue of accord and satisfaction.
1. Class notes: if unliquadated damages / no dispute – can cash check, and
still recover remaining balance
2. IF there is a dispute, don’t cash it.
5. Legal Regulation of Contracts
A. Misrepresentation and Mistake of Fact
i. Generally
1. A mistake is abelief that is not in accord with the facts. REstamenet
§151
a. Facts include law
 2. Mutual Mistake – where a mistake of both parties at the time a contract
was made as to a basic assumption on which the contract was made has
a material effect on the agreed exchange of performances, the contract
is voidable by the adversely affected party unless he ears the risk fo the
mistake under the frule stated in §154. §152
a. (2) in determining whether the mistake has a material effect on
the agreed exchange of performances, account is taken of any
relief by way of reformation, restitution or otherwise.
b. Look out for limited information! If the parties recognize their
limited information and proceed anyway, K will be enforced
3. Unilateral Mistake – when mistake of one party makes a contract
voidable §153
a. Where a mistake of one party at the time a contract was made
as to a basic assumpition on which he made the contract has a
material effect on the agreed exchange of performances that is
adverse to him, the contract is voidable by him if he does not
bear the risk of the mistake under the rule stated in §154 and
i. (a) the effect of the mistake is such that enforcement of
the contract would be unconscionable or
ii. (b) the other party had reason to know of the mistake
or his fault caused the mistake.
4. When a Party Bears the Risk of a Mistake §154
a. A party bears the risk of a mistake when
i. The risk is allocated to him by agreement of the parties
or
ii. He is aware, at the time the contract is made, that he
has only lmited knowledge with respect to the facts to
which the mistake relates but treats his limited
knowledge as sufficient, or
iii. The risk is allocated to him by the court on the gorund
that iti is reaosnble in the circumstances to do so.
1. Courts will consider the purposes of the parties
and will have recourse to its own genral
knowledge of human behavior in bargain
transaction. Comment d.
ii. Wentraub v. Krobatsch – cockroach; Fraudulent non-disclosure
1. Facts: P was to sell Home to D. D deposited money in escrow account
pending closing of sale. D, buyer, had inspected hosue during day
before, but after deposit in escrow, prior to closing, purchaser entered
house, turned on lights and saw massive cockroach infestation. No way
P didn’t know about cockroaches. D wants out of deal, P sues for money
in escrow account.
 2. Issue: is silence misrepresnation: waws there fraudulent concealement
or nondisclosure?
3. Holding: If seller didn’t know about roaches, no misrepresentation
a. Restatmeent 161; when Non-Disclousre is Equivevlent to an
assertion
i. (b) where party knows that disclosure of the fact would
correct a mistake of the other party as to a basic
assumption on which the party is amking the contract
and if non-disclosure of the facts amounts to a failure to
act in good faith and in accordance with reasonable
stadndards of fair dealing
ii. Was lack of cockroaches a basic assumption?
iii. Lenawee Count Board of Health v. Messerly – “as-is” clause
1. Facts: D sold land to P on which a 3 unit apartment stood. After the sale,
the county condemened the property as it had a defective sewer
system. D sued to rescind the sale on the basis of mutual msiatke. Both
parties were blameless as neither new of the sewer defect. The sales K
contained an “as is” provision allocating risk to the buyer.
2. Held: the parties made a mutual mistake of fact, but this does not
warrant recission. REcesison not available to relieve a party who has
assumed the risk of loss in connection with the mistake (via the “as-is”
clause in this case)
3. Barren Cow case, Sherwood v. Walker, the parties agreed to the sale
and purchase of acow which was thought to be barren, but which was
actually with calf, showing it to have a much greater value. The court
permitted the recission as the satte of the cow awas the substance of
the agreement. “The thing sold and bougth had in fact no existence”
Sherwood is distinguished from Messerly because the very thing being
sold was different inSherwood as opposed to the value of the thing
being sold being different in Messerly.
a. Read some fucking Kripke, asshole.
4. JJ: jj: look for trade practice for assumption of risk
iv. LAnci v. Metropolitan Ins. Co.
1. Facts : P agreed to settle an accident claim with D, his insurer, for $15k.
After which, he finds that his plicy allowed him $250k. P argued that he
had settled under a msitken belief that $15k was all he was entitled.
2. Held: this was a unilateral mistake under §153. The performance was
adverse to him, the mistake was usch that enforcement would be
unconscionable, and D had reason to know of the mistake.
a. Related to basis of bargain
b. Materially affected parties perforamcne
c. No one injured party bears risk of.
 i. P did not have a copy of policy, and insurance company
knew that, correspondence indicatesd to D that P
understood his limit to be $15k.
ii. Metro kenw, or should have known, of mistaken belief,
P entitled to void the contract.
B. Public Policy and Illegality
i. A promise or other term of an agreement is unenforceable on grounds of public
policy if legislation provides that it is unenforceable or the itnerst in its
enforcement is clearly outweighted in the circumstances by a public policy
against the enforcement of such terms.” REstatment 178(1)
ii. (2) in weighing the interest in the enforcement of a term, account is taken of
1. The parties justified expectations
2. Any forfeiture that would result if enforcement were denied and
3. Any special public interest in the enforcement of the particular term
iii. (3) in weighing a public policy against enfocement of a term, account is taken of
1. The strength of that policy as manifested by legislation or judicial
decisions
2. The likelihood that a refusal to enforce the term will further that policy
3. The seriousness of any misconduct involved and the extent to which it
was deliberate, and
4. The directness of the connection between that misconduct and the
term.
iv. Casebook: contracts in restraint of free trade long treated with suspeicion,
special protection to family, marriage, sexuality generally.
v. Neither law nor equity can be invoked to redress a wrong that has resulted form
the injured party’s own wrongful and illegal conduct
vi. Clouse v. Meyers
1. Facts: P and D entered an agreement to jointly runa tavern. P paid
money to D as an investment in the venture, with more to pay at a later
date. They never put P on the liquor license, authorities shut down
tavern. P then sued D for return of the payment.
2. Holding: Because P and D were violating the law when they entered the
K the action is denied, P (Clouse) does not get his money back.
3. Restitution when contracts are unenforceable on public policy grounds.
a. §197: Restitution Generally unavialble: Except as stated in §198
and §199, a party has no claim in restitution for performance
that he has rendered under or in return for a promise that is
unenforceable on grounds of public policy unless denial of
restitution would cause disproportionate forfeiture.
b. §198: Restitution in Favor of Party who is Excusably Ignorant Or
is Not Equally in the Wrong: A party has a claim in restitution for
 performance that he has rendered under or in return for a
promise that is unenforceable on grounds of public policy if
i. (a) he was excusably ignorant of the facts or of
legislation of a minor character, in theabsence of which
the promise would be enforceable, or
ii. He was not equally in the wrong with the promisor.§
c. §199Resitution where Party Withdraws or Situation is Contrary
to Public Interest: A party has a claim in restitution for
performance that he has rendered under or in return for a
promise that is unenforceable on grounds of public policy if he
did not engage in serious misconduct and
i. (a) he withdraws from the transaction before the
improper purpose has been achieved, or
C. Enforceability of non-competition clauses
i. Non-competition covenants are acceptable if it is necessary to protect the
legitimate interest of the business; its terms of duration and geographical
limitation are reasonable; the terms do not deprive the community of a unique
skill or create undue hardship on the employee.
ii. §188 Ancilliary Restraints on competition
1. A promise to refrain from compeititon that imposes a restraint that is
ancillary to an otherwise valid transaction or relationship is
unreasonably in restraint of trade if:
a. The restraint is greater than is needed to protect the promisee’s
legitimate interest, or
b. The promisee’s need is outweighed by the hardship to the
promisor and the likely injury to the public
2. Promises imposing restraints that are ancillary to a valid transaction or
relationship include the following:
a. A promise by the seller of a business not to compete with the
buyer in such as way as to injure the value of the business sold;
b. A promise by an employee or other agent nto to compete with
his employer or other principal;
c. A promise by a partner not to compete with the partnership
d.
iii. Notes
a. In determining whether a restraint extends for a longer period
of time than necessary to protect the employer, the court msut
determine how much time is needed for the risk of injury to be
reasonably moderated. When the restraint is for the purpose of
protecting customer relationships, its duration is reaosnble only
if it is no longer than necessary for the employer to put a new
individual on the job and for the enw employees to have have a
 reasonablae opportunity to demonstrate his effectiveness ot
the customers. IF a srestraint on this ground is justifiable at all,
it seems a period of several months would usually be
reasonable. Blacke, 73 Harvard Law Review at 677
b. 3 ways courts have dealt with non-competition agreements:
i. Declared the entire agreement unenforceable if any
element of it was objectionable;
ii. They have tried to “blue pencil” out the offending
words and then enforce the remaining words;
iii. They have limited the scope of the agreement. (this is
what court does in Hopper)
iv. Hopper v. All Pet animal Clinic
1. Facts: Hopper signs covenant not to compete as part of her
employment contract. No compeititon term = upon termination, not
practicing small animal medicine for 3 years within 5 miles of the clinic.
Part of the terms also reads that “Hopper agrees that the duration and
geographic scope of that limitaitn is reasonable” Hopper’s employment
was terminated and Hopper violated the promise by opening up a clinic
within the readius and within a few days of termination
2. Holding: Restriction of her activities was reasonable. Preventing her
from copetiting was not injruuous to he public: The public still had
access to services from other sources. Duration is unreasonable
restraint of trade, no evidence why 3 years is necessary. Court narrows
term to 1-year. Damages calculated by D are too speculative, none
awarded.
D. Familail relationship and Public Policy
i. AZ v. BZ
1. Facts: Husband (BZ) and Wife (AZ) go to IVF clinic and each time both
sign consent form regarding disposition of embryos should a separation
occur. The embryos were to “be returned to the wife for implant” Wife
tries to get pregnant rhough using the frozen embryos without telling
her husband. Husband requests temporary restraining order against
wife’s use of the remaining pre-embryos after he files divorce papers
2. Issue: Can an individual be compelled to procreate? Does a consent
form constitute a contract between the couple?
3. Held: Father’s consent is not enforceable because the status of their
relationship had changed since the last form was signed. The form was
blank when he signed it. Primarily an agreement between the unit of
parents and the clinc, not meant to be an agreement between husband
and wife. The language “should sepeartion occur” did not refer to the
legal term of sepration. (JJ doesn’t buy these)
 4. Public policy concern: Statute and judicial precedent have expressed tha
tth law shall not hold agreements regarding family relationships
enforceable. Prior agreements should not be enforced when one party
changes their mind regarding a family relationship. Freedom of personal
choice, liberty and privarcy in intimate relationships.
E. Unconscionability
i. Defintion
1. Something is unconscionable if it is so unreasonably detrimental to the
interest of a contracting party as to render the contract unenforceable.
2. Procedural Unconscionability is concerned with “unfair surprise” fine
print clauses, mistakes, or ignorance of important facts or other things
that mean bargaining did not proceed as it should.
3. Substantive Unconscionability is an unjust or “one-sided” contract
4. An Adhesion Contract is one so heavily restrictive of one party, while so
non-restrictive of another, that doubts arise as to its representation as a
voluntary and uncoerced agreement. Often a standard form printed
contract prepared by one party and submitted to the other on a “take it
or leave it” basis.
ii. Restatment 208
iii. UCC 2-302: Unconscionable Contract or Clause
1. IF the court as a matter of law finds the contract or any clause of the
contract to have been unconscionable at the time it was made the court
may refuse to enforce the contract, or it may enforce the remainder of
the contract without the unconscionable clause, or it may so limit the
application of any uncosnscionable clause as to avoid any
unconscionable result
2. When it is claimed or appears to the court that the contract or any
clause thereof may be uncoscinoable the parties shall be afforded
reasonable opportunity to present evidence to its commercial setting,
purpose and effect to aid the court in making the determination.
a. Cmnt 1: The basic test is whether, in the light of the general
commercial background and commercial needs of the particular
trade or case, the causes involved are so one-sided as to be
unconscionable under the circumstances existing at the time of
making the contract.
b. The pricnciple is one of prevention of oppression and unfair
surpirsie, and not of disturbance of allocation of risks because of
superior bargaining power.
iv. Usually need both substantive and procedural unconsiablity (maybe just 1 in
California)
v. Williams v. Walker-Thomas Furniture co.
 1. Facts: P entered a contract with D stating tha tpyametns on rent ot own
merchandise are to be applied equally to the outstanding balance of
alldebts owed pro rata. P defaulted on apyament and D used this clasue
to repossess all the belongings with any outstanding debt, some having
owed less than a dollar remaining
2. This is unconscionable. Little bargaining power (procedural
Unconscionablity) + commercially reaonble contract (substantive
unconscionabliity) + Little or no knowledge of the terms =consider if the
contract is so unfair that enforcement should be withheld.
vi. Cooper v. MRM Investment: enforcabiability of arbitration agreement
1. Facts: P was employee at D’s Kentucky Fried chicken. Had signed
contract with Arbitration agreement. P quit, and filed sexual
harrsasmment complaint with EEOC. District court denied MRM’s
motion to compel arbitration.
2. Issue: validity and enforceability of an arbitration provision in an
employment contract.
3. Held: Arbitration agreement not unconsioabnble, not an adhesive
contract, just because on a take it or leave it bassis (must cause some
detriment other than not being able to buy from the particular
merchants.), for it to have been adhesihve, P had to shouw she’d be
unable to find suitable employment if she didn’t sign arbitration clause.
No procedural unconsionablity. Arbitration clauses are not substantively
unconscionable (FAA strongly favors them). Contract was also bilateral,
both parties ahd to arbitrade. No evidence MRM rushed or deceived P.
4. Held: Remanded for trial to determine if costs of arbition are
prohibitive, that would make it substantively unconscionable).
vii. Discover Bank v. Boehr
1. Facts: in 1999 Discover adds arbitration clause to agreement, precluded
both sides from calss action. Discover, it was discovered, had an
undisclosed cut-off time for payments to be on time on the stated due
date.
2. Issue: validity of arbitration agreement forbidding classwide arbitraton;
3. Holding: In some cases in California, class action waivers in consumer
contracts of adhesion are unenforceable. FAA does not prohibit
California court from enforcing class action waiver. Remanded on
question of what law (California or Delaware) controls.
a. Class action waiver acted like an exculpatory clause here, class
action often only effective way to halt and redress exploitation.
b. No mutual prohibition, credit card companies wouldn’t have
class action suit against customers.
4. Policy for class actions: when cindividal actions defrauded consumers
impracticable because the amount of individual recovery would be
 insuffient tin brining seprate action; class actions relieve the burden of
multiple litigation involving idneticle claims.
5. Test for enforcing choice of law: Restatment 187 subsection 2
a. Court must first tdetrime
b. Whether the chosen state has a substantial relationship tot eh
parties or their transaction
c. Whether there is any other reaonble basis for the parties choice
of law
6. If neither test is met, do not enforce choice of alw.
7. IF either is met, must determine whether the chosen stat’es law is
contrary to a fundamental policy of California.
8. If California had materially greater interest than chosen state, choice of
alw shall not be enforced.
viii. Dissent: Class action waiver not an exculptation: such claims may be pursued on
an individual basis:
1. One on one arbitration (cardholder will be given cost of forum in
advance)
2. Samll claims court
3. Attorney General
4. Delaware State bAnking commisoner.
ix. JJ NOTE: rules on unconsionability are highly variable and idiosyncratic, less
likely to win an unconsionabl ecase in New York than California.
1. In California procedural unconsioanblity is always met in consumer
contracts
2. How do we get precdureal uncoinability: bill stuffer; contract of
adhesion, uneven bargaining power, take it or leave it.
3. But not all contracts of adhesion are unconscionable
x. Batfilm Production v. Warner Brothers
1. Facts: In addition to fixed compensation, Ps were entitled to 13% of net
profits. Ps alleged that the contract was unconscionable primarily
because Warner Brothers knew the moview would not make any net
profits under the calculation in the contract.
2. Holding: the contract is between knowledgeable business people. The
film industry calculates net prforits via cash accounting versus accrual
accounting standards. Plaintiffs could have bargained away this
calcucaliton if hey wanted.
6. Remedies
A. Purpose – put injured party in as good of a positon as he would have been had the
contract been performed.
B. General measure = loss in value + other loss – cost avoided – loss avoided
i. Loss in value – difference in value between what the injured party would have
received under the contract and what the party has received
 ii. Other loss – injured party’s costs arising form the breach (reliance on contract
or costs associated with arranging substitute performance)
iii. Costs avoided = injured party does not have to pay out as a result of the breach
iv. Loss avoided – any savings the injured party may make after the breach
v. Specific performance or injunction will not be ordered if damages would be
adequate to protect the expected interest of the injured party (§359)
C. Reliance damages – return to plaintiff his outlay in performing the contract. These are
rare, usually when plaintiff cannot show what his expectation damages would be
D. Restitution damges – recover part of plaintiff’s outlay that actually benefitted the
defendant.
i. Reliance and resutiton do not include palitnff’s profits, plaintiff usually seeks
expectation damages.
E. Consequential damages – a subcategorey of expectation damages
F. Direct damages
G. Duty to mitigate
H. UCC provisions:
i. Important things
1. No consequential damages for Sellers
ii. 2-703: Seller’s Remedies in General
1. Where the buyer wrongfully rejects or revokes acceptance of goods or
fails to make payment due on or before delivery or repudiates with
respect to a party or the whole, then with respect to any goods directly
affected and, if the breach is of the whole contract, then alsow with
respect to the whole undelivered balance, the aggrieved seller may
a. Withhold delivery of such goods
b. Stop delivery by any bailee as hereafter provided (2-705)
c. Proceed under the next section respecting goods still
unidentified to the contract
i. 2-704: Seller’s right to idenityf goods to the contract
notwithstanding breach or to salvage unfiinsihsed goods
1. An aggrieved seller under the preceding section
may
a. Identify to the contract conforming
goods not already identified if at the
time he learned of breach they are in
his possession or control;
b. Treat as the subject of resale goods
which have demonstrably been
intended for the particular contract
even though those goods are unfinished
2. Where the goods are unfiinsehd an aggrieved
seller may in the exercise of reason ble
 commercial judgmenet fo the purpose of
avoiding loss and of effective realization either
complte the manufacture and hwolly idenfity
the goods to the contract or cease manufacture
and resell for scrap or salvage value or proceed
in any other eaosnable manner.
d. Resell and recover damages as hereafter provided (2-706)
e. Recover damages for non-acceptance (2-708) or in a proper
case the price (2-709)
f. Cancel.
iii. 2-706 Seller’s resale including contract for resale ( Seller’s version of Buyer’s
cover of 2-712)
1. Seller may resell goods concerned or undelivered balance thereof. Seller
may recover the difference between the resale price and the contract
price together with any incidental damages allowed under the provision
of this article (2-710) but less expenses saved in consequence of buyers
breach
a. damages = (k-price-resale price) + incidentals – expenses saved
2. (3) where resale is at private, seller msut give buyer reasonable
notification of intention to resell.
3. (6) seller is not accountable to buyer for any profit made on any resale.
A person in the position of a seller (2-707) or a buyer who has rightfully
rejected or justifiably revoked acceptance must account for any excess
over the amount of his security interest as herein defined (2-711(3))
a. A buyer, acting under this section as a seller, does so only for
limited purpose of obtaining cash for his “security interest” in
the goods. Any excess in the resale price belongs to the seller.
b. 2-707 Person in the position of a seller
i. Includes as against a pricniapl an agent who has paid or
become resposnbile for the price of goods on behalf of
his pricniapal or anyone who aotherwise holda security
itnerst or other right in goods similar to that of a seller
ii. A person in the psoiton of aselelr may as provided in
this article withhold or stop delivery (2-705) and resell
(2-706) and recover incidental damages (2-710).
iv. 2-708: Seller’s Damages for non-accepatance or repudiation
1. Subject to subsection (2) and to provisions of this Article with respect to
proof of market price (2-723), the measure of damages for non-
accepatance or repudiation by the buyer is the difference between the
market price at the time and place for tender and the unpaid contract
price together with any incidental damages provided in this Article (2-
710) but less expenses saved in consequence of buyers breach
 a. Damages = k price + incidentals – market price – any expenses
saved
2. If damages in (1) inadequate to put the seller in as good a positon as
performance would have, damges is the profit which seller would have
mad from full performance by the buyer, together with any incidental
damages provided (2-710) due allowance for costs reasonably incurred
and due credit for payments or proceeds of resale.
a. Lost volume seller
b. Due profit which seller would have made from full perfomacne
by buyer
v. 2-709: Action for the Price
1. When buyer fails to pay the price as it becomes due seller may recover,
together with any incidental damges, the price
a. Of godos accepted or of conforming goods lost or damgged
within a commercially reaonble time after risk of their loss has
passed to the buyer and
b. Of goods ideinftifed to the contract if the seller is unable after
reasonable effort ot resell them at a reaonble price or the
circumstances reaonbly indicate that such effort will be
unavailing.
2. Seller suing for price must hold for the buyer any good which have been
identified to the contract and still under his control, except if resale
becomes possibly may resell them prior to the collection of judgment.
Net proceeds of such resale credited to the buyer and payment of the
judgment entitles him to any goods not resold
a. JJ: will drive seller back to 2-708; have seller dispose of goods,
he’s in business of selling,
vi. 2-711: Buyer’s remedies in General: Buyer’s secutiy interest in rejected goods
1. Where seller fails to make delivery or repudiates or the buyer rightfully
rejcts or justifiably rvokes acceptance then with respect to any goods
involved and with respect to the whole if the breach goes to the whole
contract, the buyer may cancel and whether or not he has done so may
in addition to recovering so much of the price as has been paid
a. “cover” nad have damages under 712 as to all goods affected
whether or not they have been idifntified to the contract
b. Recover damages for non-delivery as provided in 2-713
2. Where the seller fails to deliver or repudiates the buyer may also
a. If the goods have been identified recoer them as provided in
ithis article (2-502); ro
b. In a proper case obtain specific performance or replevy (ask for
them back) the goods as provided in 2-716
 3. On rightful rejction or justifiable revocation of acceptance a buyer has a
security interest in goods in his possession or control for any payments
made on their price and any expenses reaonbaly incurred in their
inspection, receipt, transportation, care and custody and may hold such
goods and resell them in like maner as an aggrieved seller. 2-706
a. Cmt 2. May hold and resell if has paid a part of the price or
incurred expenses of the type specifid. Buyer may not keep any
profit resulting form the resale and is limited to retaining only
the amount of the price paid and the costs involved in the
isepction and handling of the goods.
vii. 2-712: “Cover” Buery’s procurement of substitute goods
1. After a breach within the preceding section the buyer may cover by
making in good faith and without unreaonble delay any reasonable
purchase of or contract to purchase goods in substitution for those due
from the seller.
2. The buyer may recover from the seller as damages the difference
between the cost of cover and the contract price together with any
incidental or consequential damages as hereinafter define (2-715), but
less expenses saved in consequence of the seller’s breach
a.
b. Damages = Cost of cover + incidental + condequential –K price -
expenses
viii. 2-713: Buyer’s Damages for Non-Delivery or repudiation
1. S…measure of damages for non-delivery or repudiation by the seller is
the difference between the market price at the time when buyer
learned of the breach and the contract price together with any
incidental and consequential damages, but less expenses saved in
consequence of breach.
a. Damages = Mkt price +incidental + consequential – Kprice-
expenses saved.
2. Marekt price is to be determined as of the place for tender or, in cases
of rejection after arrival or revocation of acceptance as of the place of
arrival.
a. Use market in which the buyer would have obtained cover had
he sought relief (cmt 1)
b. Cmt 2: price for goods of same kind in same branch of trade
c. Cmt 3
d. : where no market price is available, evidence of spot sale prices
is proper
e. Cmt 5 applies onlny when and to the extent the buyer has not
covered.
ix. 2-714: Buyer’s Damages for Breach in Regard to Accepted Goods
 1. Where the buyer has accepted goods and given notification he may the
loss resulting in the ordinary course of events form the seller’s breach as
determined in any manner which is reasonable.
2. The measure of damages for breach of warranty is the difference at the
time and place of acceptance between the value of the goods accepted
and the value they would have had if they had been as warranted,
unless special circumstances show proximate damages of a different
amount
3. In a proper case any incidental and consequential damages under the
next section may also be recovered.
a. “cmt 2: non-conofmirty not only breaches of warranties but also
failure of seller to perfrom according to obligations under the
contract.
x. 2-715: Buyer’s Incidental and Consequential Damages
1. Incidental damages resulting from the seller’s breach include expenses
reaosnbly incurred in inspection, receipt, transportaiotn and care and
custody of goods rightfully rejected, any commercially reaosnble
charges, expenses or commissions in connection with effecting cover
and any other easonble expense incident to the delay or other breach
2. Consequential damages resulting form the seller’s breach include
a. Any loss resulting form general or particular requirements and
needs of which the seller at the time of contracting had reason
to know and which could not reasonably be prevented by cover
or otherwise; and
b. Injury to person or poreprty proximately resulting from any
breach of warranty.
I. Expectation Damages
i. §352: Damages are not recoverable for loss beyond an amount that the
evidence permits to be established with reasonable certainty
ii. The damages are to recover the psoiton of P where he would be if the K were
performed
1. Value lost by reason of the other party’s default
2. Expenditures made in carrying out his own obligations under the K
iii. Freund v. Washington Square Press.
1. Facts: P is author, enters contract to have manuscript published,
receives 2,000 advance. D had right to terminate within 60 days of
delivery of contract. Contract had provision that if D failed to publish
w/in 19 months, right reverted back to author. D merged with another
publisher and ceased publishing in hardbound. D did not exercise 60 day
right but notifiying, just refused to publish manuscript.
 2. Holding: P only receives nominal damages, cannot recover cost to print
book (could have recovered damages for loss royalties, but amount for
royalties too speculative)
3. Reasoning: awarding cost to publication would confer greater
advantage than performance of the contract, would enrich P ad D’s
expnse
4. Cost of publishing not appropriate, would only have been granted under
K a percentage of sales receipts, not the books themselves.
J. Efficient Breach
i. IF the seller can find a better buyer, he should breach and present the original
buyer with damages
ii. Cost of performance is the proper measure of damages ‘if this is possible and
does not involve unreasonable economic waste’ – restaemnt §346
iii. §348 Alternative to loss in value of performance
1. (2) if a breach results in defective or unfinished construction and the
loss in value to the injured party is not proved with sufficient certainty,
he may recover damages based on
a. The diminution in the market price of the property casued by
the breach
b. The reasonable cost of completing performance or of
remedying the defects if that cost is not clearly disproportionate
to the probably loss in value to him.
iv. Peeveyhosue v. Garland Coal Mining Co.
1. Facts: P owns farm, leased property to D for coal ming. Lease contained
provison for ground to be repaired at conclusion of lease. Repairing land
would cost 29k, increase market value of poperty only 300. D refuses to
repair.
2. Issue: should damges be cost of performance or just the loss of market
value as a result of non-performance, whent eh cost of performance
greatly exceeds loss of value. Loss of value vs. Cost of perfromacne.
3. Holding: Where the contract provison breached was merely incidental
to the main purpose and the economic benefit to lessor by full
perfromacne is grossly disproptiane to the cost of performance the
damges which lessor may recover are limited to the diminutionationin
value resulting to he premises because of non-performacne.
a. Can use diminution in value when cost of performance is an
unreasonable economic waste.
b. No person can recover a greater amount in damages for breach
than he would have gained by full performance.
4. Dissent: breach was willful and not in good faith, plaintiffs would not
have agreed to mining lease unless provison included. When contract
 breach is willful breaching party not entitled to any benefit of the
equitable doctrine of substitute perfromacne.
5. Value Rule vs. Cost of performance
a. Usually cost of performance, but can use increase in value rule
when difference between increased value and cost of
performance is huge. Don’t want to create economic waste. But
when a dickered for term, should go with cost of performance
so people can feel free to bargain for their own idiosyncratic
values.
K. Lost Volume Seller 2-708(2)
i. Test:
1. Does manfucaturer have capacity to have excess
2. Would there be profit on the additional sale
3. Will the sale occur anyway (more specialized a product is, the less
chance there will be a replacement sale)
ii. Lost Volume Seller: Absent the buyer’s breach, a lost volume seller would have
earned profits from two sales rather than just one. The non-breaching party is
entitlted to the benefit of its bargain
1. Therefore, they do not have to mitigate their damages because they
would have made another sale. Entitled to profits loss, not difference
between cover/market and k price
iii. Krafsur v. UOP (In re El Paso Refinery)
1. FActs: Refinery went bankrupt and RHC took over their processes and
assets. UOP claims oto be owed 4 million from old owner, P (Krafsur is
trustee). PD claims P owed above sum in unpaid royalties, and as a
remedy for breach of licensing contract. Since shutdown of factory, new
owner, RHC bought license for refinery from D.
2. Issue: Did the sale of licenses to RHC mitigate UOP’s damages owed by
P?
a. If UOP is a lost volume seller, then the sale to RHC does not
mitigate
b. IF they are not a lost volume seller, court must determine to
what extent UOP has recouped the loss (how much the RHC
sales recoup)
3. HELD: UOP is not a lost volume seller, absent R’s breach, UOP would not
have been able to sell to RHC which used the same refinery. Thus R’s
damages were mitigated.
L. Cost Plus
i. KGM Harvesting Co. v. Fresh Network
1. Facts: P contracted to sell lettuce to D which would pas the lettuce to
another buyer at cost plus. During a period of skyrocketing lettuce
 prices, P refuses to supply D with lettuce, forcing D to find another,
more expsnive supplies
2. Issue:P, seller, suing D for balance of payments due. Why should B
recover damages when they suffer no consequences of the breach?
3. Held D should get the benefit of the bargain in all situations
4. Doran: there is a risk that a seller with the prospect of zero damages will
breach when someone else will have to bear the cost. It’s not that we
don’t want parties breaching, but we want breaching parties to do so
efficiently. An inefficient breach would be that society as a whole would
have to pay more than required while society would gain less than it
could.
M. Incidental Damages
i. Fertico Belgium v. Phosphate Cehmicals Export Ass’n
1. Facts: B Contracts with S to deliver fertilizer to beligum which will then
go to Iraq in two shipments paid by letter of credit. The first shipment
will arrive late, so the second shipment is canceled. The first shipment is
covered for 700k more. B then sells the first shipment when it arrives
for $450K profit
2. Result: Buyer does not have to subtract profits from subsequent sale.
However, Buyer (Fertico) cannot recover consequential damages when
third paty buyer maprovides increased compensation to offset
additional costs arising as a consequence of the breach.
a. Court rules that sale for profit was not dependent upon
Phoschem’s breach, Fertico, a trader who buys and sells, would
have pursued such commercial transactions had there been no
breach by Phoschem.
3. Dissent/ Issue: Majoirty assume that if contract had been performed,
plaintiff still would have made the reasel to the other buyer, dissent
sugge\st that is only speculation;
a. Also, it seems to me that as the prices seem to be going up,
even if the second sale would have happened, the amount of
profit was casued by the breach.
4. 2-612: Installment Contract, Breach
a. An installment contract is one which requires or authorizes the
delivery of goods in seprate lots to be separately accepted, even
thought he contract contains a clause “each deliveyr is a serapte
contract” or its equivalent.
b. The buyer may rejct any installment which is non-conforming if
the con-conformity substantially impairs the value of that
installment and cannot be cured or fi the non-conformity is a
defect in the required documents; but if the non-conofomity
 does no fall within subsection (3) and the seller gives adequate
assurance of its cure the buyer must accept that installment.
c. Whenever non-conformity or default with respect to one or
more isnallments substantially impairs the value of the whole
contract there is a breach of the whole. But the aggrieved party
reinstates the contract if he accepts a non-conforming
installment without seasonably notifying of cancellation or if he
brings an action with respect only to past installment or
demands performance as to future installments.
N. Consequential Damages
i. REstatment §351: Unforeseeability and Related Limitations on Damages
1. Damages are not recoverable for loss that the party in breach did not
have reason to foresee as aporbable result of the breach when the
contract was made.
2. Loss may be foreseeable as a probable result of abreach because t
follows from the breach
a. In the ordinary course of events, or
b. As a result of special circumstances , beyond the ordinary
course of events, that the party in breach had reason to know
3. A court may limit damages for foreseeable loss by excluding recovery
for loss of profits, by allowing recovery only for loss incurred in reliance,
or otherwise if it concludes that in the circumstances justice so requires
in order to avoid disproportionate compensation.
ii. UCC 2-715 – buyers rememdies
1. (2) a buyer may recover consequential damages
a. Any loss resulting from genral or patiuclar requirements and
needs of which the seller at the time of contracting had reason
to know and which could not reasonably be prevented by cover
or otherwise;
b. Injury to person or property proximtly rsulting form any breach
of warranty.
iii. Hadley v. Baxendale (Foreseeable consequential damages)
1. Facts: P owned a factory, an axle broke, needed to send it to engineer to
be used as model for a new one. The factory had to shut down till new
shaft arrived. P enters contract with D to have axle delivered to shaft-
builder in 2 days. P asks there be a note to rush the delivery. P tells D
factory is shut down (does not say it will remain shut down till new shaft
arrives. D waits 7 days to ship. Party delayed 5 extra days, shutdown 5
more days than deliverd.
2. Issue: Can P recover for loss profits during extra shutdown time
resulting from late delivery by D. when the P asked D to note shaft must
 be rushed but D did not know, or have reason to know the factory
would remain shut down till the part returned
3. Holding: Where two parties have made a contract which one of them
has broken the damages which the other party can receive are such as
may reasonably considered naturally arising from such breach, or as was
reasonably foreseeable by the breach party at the tiem contract was
made.
a. Policy: forces party with knowledge of situation to share it with
other party. Helps businesses limit liability. Protect from
excessive damage.
4. JJ: this requirement is disappearing, courts just glide over it now (“yeah,
this was forseeable”.
iv. Simeone v. First Bank National
1. Facts: D enter into K with P to sell him repossessed automobile and
parts fo $400,000. After P pays a down payment, D sells to another
buyer because of the threat from that buyer to bring suit against the
bank for repossession. Actual purchaser resells the goods for 1.114
million.
2. Issue:is relevant market collector automobile market, or market for
reposed goods in bank foreclosure sales; where consequential damages
foreseeable by seller? Did first bank have reason o know someone
intended to trade or resell the automible? Should consequential
damages be limited to what the automibles were ultimately sold for, or
fot the market price? Were the consequential damages too speculative?
3. Held: P is able to recover compensatory (using the vintage autombiel
market) and consequential damages (it was foreseeable that he would
re-sell the cars)
4. Note Simeone is able to recover compensatory damages based on
market price at time of decision – k price, instead of market price at
time of breach.
5. Damages here are wrong:
a. Courts awarded him interest rate on damages, but also awarded
him consequential damages in the form the increased value of
cars a few years in the future. This is wrong. If the value had
gone down, they wouldn’t have awarded. Without a contract to
sell in the future, I don’t think he should get those. The interest
rate he’s awarded is supposed to estimate the lost increased in
value. IF he had covered at time of breach, he would have just
gotten cost of cover (like he did with marketprice-kprice
damages) and not the added appreciaition.
O. Mitigation
 i. Mitigation of Damages is a requirement that one injured by reason of another’s
breach of an agreement exercise reasonable diligence and ordinary care to
avoid aggravating the injury or increasing the damages
ii. When applicable
1. In general, the party that did not breach has the duty to mitigate in
lessening the damages incurred by thte other party, and not increasing
their damages
2. §350(1) damages are not recoverable for loss that the injured party
could have avoidedwithout undue risk, burden or humiliation
a. (2)injured party is not precluded from recovery by the rule
stated in (1) to the extent he has made reasonable but
unsuccessful efforts to avoid loss
3. In general, no duty to mitigate where damages will be measured by
formulas in 2-708(1) or 2-713(1) because those forumals assume
mitigation
a. 2-715 – only place that expressly mentions mitigation
4. 2-704(2) where the goods are unfinished an aggrieved seller may in the
exercise of reasonable commercial judgment for the purpose of
avoiding loss and of effective realization either complete the
manufacture and wholly idenfity the goods to the cotntract or cease
manufacture and resell for scrap or salvage value or proceed in any
reaonble manner
a. JJ: need to complete manufacturing when increased value is less
than vairalbe cost
5. Employement: - don’t have to take any job to mitigate – other
employment must be comparable and not of a different or inferior kind
(Maclaine in Parker v. Twentieith CEnturey Fox
6. 2-709(1) Action for the PRcice – when the buyer fails to pay, the seller
may recover the price of goods accepted or of conforming goods lost or
damaged within a reasonable time after risk of loss has passed to the
buyer or goods identified to the contract if the seller can’t reaosnbly
resell them
7. A seller only has the duty to mitigate when loss could be avoided with
reasonable effort and without undue risk, expense, or humiliation
iii. Madsen v. Murrey and Sons
1. Facts: Seller (d) made custom pool tables, buyer (P) never finished
design, P says he won’t be able to take delivery (breach) even though
seller has finished manufacturing. Tables had a value of 21,250, but
seller dismantled talbe for salvage and firewood. Buyer had made
advance payments for 42,500. Buyer is suing for resittition of the 42,
500 paid. TC said buyer could recover the 42,500 minus the 21,250
damages suffered by seller, for net recovery of 21,250
 2. Issue: Did seller fail to mitigate when they sold product for scrap instead
of at discounted price? Did trial court err in failing to consider loss of
expected profit when calculating damges? Seller’s damages under 2-
708(1) or 2-708(2)
3. Holding: Seller failed to mitigate; But court should have considered loss
of expected profit when calculating damages.
a. Damages: court determines 708(1) appropriate because court
determined there was an accessible market)
i. JJ thinks 708(2) would be appropriate, just awarding
loss of profits from contract.
ii. Uner 708(1) selelr’s damages are difference between
market price (21,250) and kprice of 55,000 so seller’s
damages are 33,750.
b. Restitution damages
i. Buyer awarded restition of payments (42,500) – seller’s
damages (33,750) recovers 8,750.
4. 2-718: Liquidation or Limitaiton of Damages: Deposits
a. (2) Where seller justifiably withholds delivery of goods because
of the buyer’s breach, the buyer is entitled to restitituion of any
amount by which the sum of his payments exceeds
i. The amount to which the seller is entitled by virtue of
terms liquidating the sller’s damages in accordance with
subsection (1) or
ii. In the absence of such terms, twenty percent of the
value of the total performance for which the buyer is
obligated under the contract or $500, whichever is
smaller
b. (3) The buyer’s right to restitution under (2) is subject to offset o
the extent that the seller establishes
i. A right to recover damages under the provision of this
article other than (1) and
ii. The amount or value of any benefits received by the
buyer directly or indirectly by reason of the contract.
iv. Problem 6-9 :once goods accepted, transaction over, no obligation to mitigate
1. Colemans wanted seimen to mitiagate by accepteding return of unpaid
goods. Seimen just sues for price under 2-709
a. Most common defennant under 2-709 is buyer who has
accepted goods.
b. Effective (if wrongful) rejection iunder 2-602 would have kept
accedptance from occurring, then coleman would just woe
damages, not “price).
2. 2-606: what constitutes Accpetance of Good’
 a. Acceptance of goods occurs when the buyer
i. After a reaonble opportunity to inspect the goods
signifies to the seller that the goods are conforming or
tha the will take or retain them in spite of their non-
conformity
ii. Fails to make an effective rejection (2-602) but such
acceptance does not occur until he buyer has had a
reasonable opportunity to inspect them; or
iii. Does any act inconsistent with the seller’s ownership;
but if shuch act is wrongful as against the seller it isan
acceptance only if ratified by him
b. Acceptance of a part of any commercial unit is acceptance of
that entire unit
3. 2-602 Manner and Effect of Rigthful Rejection
a. Rejection of goods must be within a reasonable time after their
delivery or tender, it is ineffective unless the buyer seasonably
notifies the seller
b. Subject to the provisons of following section (603, 604) on
rejection of goods
i. After rejection any exercise of ownership by the buyer
with respect to any commercial unit is wrongful against
the sller, and
ii. If the buyer has before rejection taken physical
possession of goods in which he does not have a
security interest under this article he is under a duty
after rejection to hold them with reasonable care at the
seller’s disposition for a time sufficient to permit the
seller to remove them,b ut
iii. The buyer has no further obligations with regard to
goods rightfully rejected
v. Manouchehri v. Heim – no need too mitigate if seller says “I’ll come fix it”
1. Facts: D agrees to sell P a 100 x100 X-ray machine. Bedcomes clear
machine is 100-60 machine (D concedes), P attempts to have D repair it,
but he doesn’t.
2. Holding: P reaoanbly relied on seller’s promise to remedy the situtiaotn
and therefore did not ahave to cover by purchasing a new machine.
Defendant-seller could foresee that plaintiff would lose business due to
wrong machine (overcoming Hadley foreseeability rquierment) P got
incidental and consequential damageaes (for loss of business)
P. Reliance Damages
i. Expectation damges give profit that would have been expected under contract,
reliance damages sek to put the platinffs to where they would have been had
the contract not been signed
1. Not just used when a losing contract, §349 allows breaching party to
subtract expectation losses from reliance damages. Caps reliance
damages at plaintiff’s expectation.
ii. Definitions
1. Incidental damges includes losses reasonably incidental to a claim for
actually damages. These would include things like “expenses incurred in
inspection, receipt, transportation, and care and custody of goods
rightfully rejected( UCC 2-715- buyers) or “any commercially reasonable
charges, expenses or commissions incurred in stopping delivery, int eh
transportation, care and custody of goods after the ubyer’s breach in
connection with return or resale of the goods” (UCC 2-710 – sellers)
2. Consequential damges are those which are caused by an injury but
cwhich are not a necessary result of the injury. Because they do not
necessarily flow from the injry, they must be specially pleaded and
proven.
3. §349: Damages based on Reliance interest
a. As an alternative to the measure of damages stated in §347, the
injured party has a right to damages based on his reliance
interest, including expenditures made in preparation ofor
performance or in performance, less any loss that the party in
breach can prove with reasonable certainty the injured party
would have suffered ahd the contract been performed.
iii. UCC
1. 2-715 – buyer’s Incidental and ConsequentialDamges
a. Incidental damages reulsting form seller’s breach include
expenses reaoabnly incurred in inspection, receipt,
transportation and care and custody of goods rightfully rejected
b. Consequential damges resulting form the sller’s breach include
i. Any loss resulting form general or particular
requirements and needs that the seller was told or
would have reason to know
ii. Injury to person or proepraty proximately resulting form
any breach of warranty
c. 2-710 – Seller’s incidental damges
i. Incidental damages to an aggrieved seller amy include
any commercially reasonable charges, expenses or
commissions incurred in stopping delivery, in the
transportation, care and custody of goods after the
 buyer’s breach, in connection with the return or reale of
goods otherwise resulting form the breach.
Q. Restitution Damages
i. Restituion is both a cause of action and a type of damages
ii. Would want these instead of expectation damages in cases where the
expectation is zero, neagative or hard to determine
iii. Both reliance and resittiuon – spent money
iv. RResattment Restitituon – Value to P, spend money and built house
1. 371:Meaure of REstitituon interst
a. If a sum of money is awarded to protect a party’s restititon
interest, it may as justice requires be measured by either
i. The reasonable value to the other party of what he
receieved in termso f what it would have cost him to
obtain it from a person in the claimant’s psoiton, or
ii. The exten to which the other party’s property has been
increased in value or his other interests advanced.
iii. Note: i. above is usually greater than ii. A party party
seeking restitution for part performance commonly
allowed more genrerous measure, unless measure is
unduly difficult to apply.
iv. Illsutiatnoin 1: A, a carpenter, contracts to repair B’s
roof for 3,000. A does part of the work at a cost of 2,000
, increasing the market price of B’s house by 1,200. The
market price to have a similar carpenter do the work
done by A is 1,800. A’s restitution interest is equal to
the benefit conferred on B. That benefit may be
measured either by addition to B’s wealth from A’s
services in termso fthe 1,200 icnrease int eh market
price of B’s hosue or the raosnable value ot B of A’s
services in termso ft he $1,800 that it would have cost B
to engage a similar carpeneter to do the same work. If
work not completed because of breach by A and
restititon is based on the rule stated In §374, 1,200 is
appropriate. If work was not completed because of a
breach by B and restition is based on the rule stated in
§373, 1800 is appropriate.
2. §373: REstituion when other party is in breach
a. Subject ot the rule stated in (2) on a breach by non-
performance that gives rise to a claim for damages for total
breach or on a repudiation, the injured party is entitled to
restiituion for any benefit that he has conferred on the other
party by way of part performance or reliance
 i. Restitution capped at k price.
b. The injured party has no right to restitiojn if he has performed
all of his duties under the contract and no performance by the
other party remains due other than payment for a definit sum
of money for that performance.
i. Comment D. losign contracts: rules stated in this section
give party right to recover more in restitution than
would have recovered in damages
1. 2 limitations: party in breach liabile only to
extent he has benefited from injured party’s
performance.
2. ILLUSTATION 10. A, a plubming subcontractor,
contract with B, a general contractor, to install
the plumbing in a factory being built by B for C.
B promises to Pay A 100,000. After A has spent
40,000, B repudiates the contract and has the
plumbing finished by another sub at a cost of
80,000. Market price to have a similar plubming
sub do the work done by A is 40,000. A can
recover 40,000 from B in restititon.
3. 11. A contracts to build a house for B for
$100,000. After A has spent 40,000, B discovers
that he does not have good title to the land on
which the house is to be built. B repudiates the
contract and abandons the project. A’s work
results in no actual benefit to B. A cannot
recover in restition from B, but under rule §349
(Reliance) he can recover as damages the
§40,000 that he ahs spent unless B proves with
reaoanble certainty that A would have
sustained a net loss if the contract had been
performed.
3. §374 Restitution in Favor of Party in Breach
a. Subject ot rule in (2) if a party justifiably refuses to perform on
the grond that his remaining duties of performance have been
discharged by the other party’s breach, the party in breach is
entitlted to restitution for any benefit that he has conferred by
way of part performance or reliance in xcess of the loss that he
has caused by his own breach.
b. To the exten that, under the manifested assent of the parties, a
party’s performance is to be retained in the case of breach, that
party is not entitled to restititnon if the value of the
 performance as liquidated damages is reasonable in the light of
the anticipated or actual loss caused by the breach and the
difficulties of proof of loss.
c. Comments
i. A: no case will party in breach be allowed to recover
more than a ratable portion of the toal contract price
where such a protion can be determined…
1. Also, recovery will not exceed less generous of
the two measures in §371, other party’s
increase in wealth.
2. If no value can be put on this (increase of
wealth) cannot recover!!
v. Us for the use of Palmer Construction v. Cal State Electric
1. Facts: CSE contracts to construct Power plant at Airfroce base.
Subcotnracts with Palmer to do work for 235,137. Palmer completes a
portion, supplying goods and services valued by district court at
204,845. Palemr had already been paid 114,758. Palmer breached, CSE
spends 126,674 completing work. CSE spent a total of 241,432 to
complete work contract with palemr to do for 35, 137. DC found
damages for CSE of 6, 296.
a. But district court aso awarded Palmer 82,321 restitution to
reimburse for value of work done, minus damages done to CSE.
b. This required it to pay 300k for a contract originally for 240k
2. Issue: when noon-breaching general contractor pays a total more than
contract price to complete work begun by breaching party, do they still
owe restitution damages to breahing party for the value of the work
they performed.
3. Hodling: where innocent party has paid more than the contract price for
the goods and services ordered from the breaching party, innocent
party may recover the overage from the breaching party. Breaching
party may not obtain a quasi contractual recovery from the innocent
party.
vi. Problem 6-13:
1. Construciton K for School at 10 M. Builder has spent 8m but realizes
that it will cost 12M to finish. Value of construction so far is 7M, with
1M in materials purchased but not used, all of which can be diverted or
reused. Only paid 5M so far. School board repudiates
a. Bulder victim asks for expectiation damges, gets zero because
money owed is equal to the projected loss. This assumes the
figures are clear.
b. Rstitution damages, should these be limited to the expectation
damages? Is school board enriched by building, can they get
 some other use out of it? These are open questions. If builder
had breached, could have been liable form the beginning for
any loss. Here it seems fair to make the school board pay the
2M owed by giving the benefit of the doubt to the non-
breaching party, the builder.
c. 373(a) asays should get ncrease in value, even thous it was a
lsong contract. Non-breaching parties restition damges aren’t
reduced by loss, only breaching party.
d. 374(b) if you’re in breach, limite by ratable portion of contract
price. Here, he’s done 7/12 of work X10 million for contract so
is due 5.83 million – 5million already paid. Should be able to
collect .83 million in restitution.
R. Specific Performance
i. Equitable remedy available to an aggrieved party when the party’s remedy at
law is inadequate forcing the party in breach to undertake to perorm or
complete performance as prescribed by the contract
ii. Avaialblity
1. Specific performance is only available when other remedies are
inadequate or where damages are impractical. In civil law, it is uusually
available
2. Contract has to describe a performance so specific that other remedies
would be inadequate. Having indifinte terms , however does not bar a
court’s use of specific performance
3. Common law usually decrees specific performance for alnd contracts
because each plot of land is considered unique unless the difficulties of
supervision outweight the importance of specific performance to the P.
PEsepcially true for construction on D controlled land because P cannot
employ another contractor at D’s expense
iii. Restamtent
1. §359 (1) specific performance or an inujunciton will not be ordered if
damages would be adequate to protect the expectation interest of the
injured party
2. §360: Factors affecting Adequacy of Damages
a. In determining whether the remedy in dmamages would be
adequate, the following circumstances are significant:
i. The difficulty of proving damages with reasonable
ertainty
ii. The difficulty of procuring a suitable substitute
perfromacne by means of money awarded as damages
and
iii. The likelihood tha an awrd of damges could not be
collected.
 3. 367: NO SPECIFIC PERFORMANCE OR INJUCNTION FOR SERVICES
a. DON’T WANT TO ENFORCE SOME BEHAVIOR.
iv. Ucc 2-716: Buyer’s right to specific performance or Replevin
1. Specific performance may be decreed where the goods are unique or in
other proper circumstances
2. The decree for specific performance may include such terms and
conditions as to payment of the price, damages or other relief as the
court may deem just.
3. The buyer ahs a right of replevin for goods identified ot the contract if
after reasonable effort he is unable to effect cover for such goods or the
circumstances reasonably indicate that such effort will be unavailing or
fi the goods have been shipped under reservation and satisafaction of
the security interst n them has been made or tendered.
v. Benefits of injucniton
1. Shifts burden of determing the cost of D’s conduct to the parties form
the court
2. Market is better at setting the price than the court (negotiate to lift
injunction)
vi. Disadvantages of an injunction
1. Court has to supervise
2. Costs on 3rd parties
3. Bargaining process can break down
4. Bilateral monopoly (only 2 parties can negotiate) JJ not persuade
because it is the same for all lawsuits when settled)
vii. Walgreen v. Sara creek Property
1. Facts: P leased spot in amll from D which had an exclusivity clause there
be no other pharmacy in the mall. D breacks because wants to put Phar-
Mor in other anchor spot.
2. Holdng – specific performance better because of inability to predict
damages.
S. Liquidated Damages and Agreed Remedies
i. An amount stipulated in a contract which the parties agree to as a reaonble
estimation of damages owing to one in the event of breach by the other
ii. Prupose of liquidated damages is to simplify litigation. Decide what the damages
will be beforehand so as to avoid a judge/jury determination
iii. In order for such a provision to be enforceable, liquidated damages must be
reaonble in light of
1. A forecast of the damages likely to actually result from the breach
2. Difficulties in proof of loss
3. Inconvenience or infeasibility of otherwise obtaining an adequate
remedy
iv. UCC 2-718, §356
 1. Damages for breach by either party may be liquidated in the agreement
but only at an amount which is reasonable in light of the anticipated or
actual harm, the difficulties in proof of loss, and the invonvenience or
nonfeasiblity of otherwise obtaining an adequate remedy. Unreasoanlby
large liquidated damges are void as apnealty
v. ePlus Group v. Panoramic Communications
1. Facts: ePlus (lessor) moves for summary judgement on a breach of
contract claim after D (lessee) defaults on a computer equipment lease
agreement, and seeks enforcement of the liquidated damages provison
in the contract. P seeks damges of 1.2 M (total plaintiff would have
received if performance is 361,ooo)
2. Holding: Plaintiffs have failed to show that the liquidated damge clause
is reasonable. D riase issues of fact: penalty nature of clause the prevent
granting of summary judgment. Casualty value a percentage of the
original cost of the equipment is set a t 3 times the amount of lease
payments lost thorugh default.
T. Limitaiton of remedies
i. UCC: 2-719
1. Subject to the provison in subsection (2) and (3) of this section oand of
the preceding section on liquidation and limition of damges
a. The agreement may provide for remedies in addition to or in
substation for those provided in this Article and may limit or
alter the measure of damges recoverable under this article, as
by limiting the buyer’s remedies to retun of the goods and
repayment of the price or to reapir and repalcment of non-
confroming goods or parts and
b. Resort to a remedy as provided is optional unless the remedy is
expressly agreed to be exclusive, in which case it is the sole
remedy.
2. Where circumstances cause an exclusive or limited remedy to fail of its
essential purpose, remedy may be had as provided in this Act.
3. Consequential damages may be limited or excluded unless the limitation
or exclusion is unconsioanble. Limitation of consequential damages for
injury to the person in the case of conumser goods iprima facie
unconscionable but limition of damages where the loss is commercial is
not.
a. Would have to be unconscionable at time of contract, before
anything occurs
4. Offical comment:
a. Under subsection (@) where an aparrenly fair and reaonble
clause because of circumstance fails in its purpose or operates
 to deprive either party of the substainail value of the bargain,
gives way to remedy provisionof this Article
ii. 2-218: cmt 1 – limiting of remedies applies to buyer and any beneficiaiareis; so
sller can have control of own liabilities, orginial seller shouldn’t be able to
enlarge laibilty by reselling.
iii. UCC 2A-504 – liquidation of Damages (leases)See 2003 outline
1. Damages payable by either party for default, or any other act or
omission, including indmemnity for loss or diminution of anticipated tax
benefits or loss or damage to lessor’s residual interest, may be
liuquidated in the lease agreement but only at an amount or by a
formula that is reasonable in light of the then anticipated harm caused
by the default or other act or omission
2.
U. Alternative Performacnes
i. Contracts can prescribe “alteranive performances” that allow a contract party to
discharge obligation in a number of ways. Neither alternative needs to pass
through 2-718. However, liquiadated damages or penalty clause, not open to a
party to discharge itself by paying th epenalty instead of performing.
ii. Problem 6-16
1. Buyer agrees to purchase a thoroughbred horse for 150k, if seller
delivers, price will be 154k
a. Alterantive
2. Construction Co. Understakes to construct a library, it agrees that for
every day after September 1 2005 work no t compelted 1,000 will be
deducted from contract price
a. Liquidated damages
3. Constuciton company receives a bondus of 1,000 per day of every day
between date of completion and October 1, 2005, if it compeltes before
that date
a. Alterantie performance
b. Not that this in effect is the same as above.
4. A buyer of natural gas is obliged either to take all of the ouput of seller’s
well and pay 4 per million BTU or, alternatively, pay 4 on the seller’s
estimated potential output each year and have the right to tae the gas
in alter years of the 5 year contract. You should assume that, because of
physical limitions the amount of the gas that can be brought out wof the
well in any year, it would be hightly unlikely for the buyer to get more
than two years of gas out of the well in a single year. IF the buyer
refuses to take the gas or to pay, is the contract payment equivalent ot
liquidated damages? If not, what should damages be: full amount of
payment due, or market differential in the gas to be sold?
 a. Not liquidated damges. The full payment would put the sller in
too god a psoiton because would still have the gas to sell,
except that he doesn’t have it until he extracts it, so this may be
the best option. Market differential is possible, but he would
need to try to cover to mitigate
b. Erik: I copied the above, and can’t make sense of it!
7. Conditions and Self-Help Remedies During Performance
A. Conditions Generally
i. §224: a condition is an event, not certain to occur, which must occur, unless its
non-occurrence is excused, before performance under a contract becomes due.
1. An entire contract can be made depend on a condition
2. Some problems arise with from conditions during the ocurse of
performance
ii. Whether a buyer of goods has a right to rejct or to revoke acceptance on seller’s
failure to deliver conforming goods
1. See section 2-601 through 2-608
iii. Express vs. implied
1. Express conditions
a. Probably uses words “condition” “only if”
b. Need to be careful: if its not celar, could be viewed as a promise
c. If express and not filled, P recovers 0
2. Implied Condition
a. If material breach, then don’t need to perform
b. If not material, still need to perform, can sue for damages.
B. Express Conditions
i. A condition is something attached to an agreement, the occurance of which will
trigger the performance of a legal obligation. A condition is not a promise.
Failure to meet a condition is not a breach
ii. A condition precedent is a fact which must exist or occur before a duty of
immediate performance of a promise arises. The party to whom a duty is owed
must prove the occurrence in order to compel the other party to perform.
iii. A condition subsequent is a fact which will extingghish a duty to make
compensation for a breach of a contract after the breach has occurred.
iv. Merrit Hill Vineyards v. Windy Heights
1. Facts: P entered K with D to purchase vineyard. Tendered a 14k deposit.
Contract provided if sale contemplated hereby does not close D shal
reatain deposit as lqiuiaded damages unless D failed to satisfy
conditions specified in section 3” Section 3 had condition that D obtain a
title insurance policy. P discovers that D doesn’t obtain title. P refuses to
close, demands return of deposit and consequential damages.
2. Rule:f failure to fulfill the condition entitles plaintiff to a return of its
deposit, but not to consequential damges
 a. Failure of condition excuses performance but is not breach
b. Result would be difference if D had promised to condition
would be fulfilled.
v. Howard v. Federal Crop Insurance Corp
1. Facts: Due to heavy rains, P’s tobacco crop was damaged and
unusuable. P plowed and siked the land so he could plant a cover corp.
When P tried to get an insurance claim, D denied calim because they
had not inspected the damage. The K said in one paragraph “it shall be a
condition precedent to the payment of any loss (the the insured provide
infor regarding the loss) and then several paragraphs (section down)
“the crops shall not be destroyed until the corporation makes an
dinspect”
2. Issue: Is the latter paragraph a promise or a condition? If it is aconditon
its violation results in P’s forfeitrue of coverage. IF it is a promise, D may
recover damages from P for the elimination of the crop but does not
cause a forfeitrue of the policy.
3. Held: If the policy was intended for the latter paragraph to be a
condition it would have been labeled as such like the other paragraphs
were. Therefore, this paragraphis a promise, and P has not forfeited the
policy
4. JJ: 2 takeaways
a. Failure to comply with a condition does not create liability, it
relieves the other party of performance but no claim for
damages
b. If you think your client will want to sue if the other side doesn’t
perform, read contract to make sure promise terms come to the
fore; turn conditions into promises: use promise language.
vi. Restaemnt 1st §261: Promise and Codntions: Where iti s doubtful whether
words create a promise or an express condition, they are itnepreted as creating
a promise; but the same words may sometimes mean that one party promises a
performance and that the other party’s promise is conditional on that
performance.
1. Illustariton: an insurance company A issue B a policy containin gth
elcause “in the event of disagreement as to the amount of loss ist shall
be ascertained by two appraisers and an umpire. The loss shall not be
payable until 60 days after the award of the appraisers when such
appraisal is required.” This provison is a promise to arbitrae and makes
the award conditioned on A’s duty to pay upon disagreement.
vii. Restatement 2nd 227: standards of Preference with regard to Conditons
1. In resolving doubts as to whether an event is made a condition of an
obligor’s duty and as to the nature of such an ievent, an interpretation is
preferred that will reduce the obligee’s risk of forfeiture, unless the
 event is within the obligee’s control or the circumetances indicate that
he has assumed the risk
2. Unless the contract is of a type under which only one party generally
undertakes duties, when it is doubtful whther
a. A duty is imposed on an oblige that an even occur, or
b. The event is made a condition of the obligor’s duty or
c. The event is made a condition of the obligor’s duty and a duty
imposed on the oblige that the even occur
The first interpretation is preferred if the event is within the obligee’s
control
3. In case of dobut, an interpretation under which anevent is a condtion of
an obligor’s duty is preferred over an interpreatation under which the
non-occurance of the event is a ground for dischagrege of that duty
after has ecome a duty to perform
4. JJ: This is anti-insurance company.
viii. Waiver:
1. Waiver is the intentional relingquishment of a known right. It is
necessary that the person against whom the waiver is claimed have
intended to relinquish the right, advantage, or benefit and his action
must be inconsistent with any other intent than to waive it. Further, to
constitute a waiver, other than by express agreement, there must be
unequivocal acts or conduct evincing an intent to waive. Intent cannot
be inferred from doubtful or ambiguous factors. Estoppel requires (1) an
admission, statement or act inconsistent with the claim afterwards
asserted, (2) action by the other party on the faith of such admission,
statement or act, and (3) injury to such other party resulting from
allowing the first party to contradict or repudiate such admission,
statement or act. Waiver does not have to be in writing, even when the
contract itself wis within the statute of frauds
2. Restatemtn §84(1)
a. Permits waiver to work “unless (a) the occurrence of the
condition was a material part of the agreed exchange for the
performance eof the duty and the promise was under no duty
that it occur; or (b) uncertainty of the occurance of the condtion
was an element of the risk assumed by ththe promisor”
b. Casebook: waiver does not inherently require consideration to
be valid.
c. 84(2) : a condition that has been waived can be reinstated
provided that reasonable notice is given to the other party and
that party has not in the meantime materially changed psotion
in reliance.
ix. Morin Building v. Baystone Construction – Posner
 1. Facts: P is a sub-contractor who is hired to erect and finish aluminum
walls of GM’s plant. D is the general contractor. Contract contains an
express condition that all work must be approved by an agent of GM.
Gm does not approve and they hire someone else to redo the wall
2. Holding: the performance must be assessed by a reaonble satisfaction
clause because it is unlikely that the P intended to enter into a contract
that made performance subject to personal fancy
3. §228: Reasonable person standard: Satisfaction of the Obligor as a
Conditon.
a. An interpretation is preferred under which the condition that
the obligor is satisfied with obligee’s performance occurs if such
areasosnable person in the position of the obligor would be
satisfied
b. (b) subjective satisfaction: rejection of performance under a
subjective satisfaction clauses is limited by good faith.s
x. Need strict compliance of express conditions (unless a forfeiture would result)
C. Implied or Constructive Conditions
i. Substantial compliance is the rule for implied conditions.
ii. Definitions
1. An Implied condition is one that can be implied from the parties’
conduct
a. Example: each party’s performance is impliedly condtional on at
least the tender of the other party’s performance
2. A constructive condition is one that is not agreed on by th e parties, but
which is supplied by the court for fairness
iii. Restatement
1. 234 Order of Perfromacnes
a. (1) where all or part of the perfromacnes to be exchanged
under an exchange of promises can be rendered
simultaneously, they are to that extent due simultaneously,
unless the language or the circumstances indicate the contrary
b. (2) Except to the extent stated in subsection(1), where the
performance of only one party under such an exchange requires
a period of time, his performance is due at an earlier time than
that of the other pary, unless the language or the circumstances
indicate the contrary.
2. 233: PErforamnce at One Time or in Installments
a. (1) where performances are to be exchanged under an
exchange of promises and the whole of one party’s
performance can be rendered at oen time, it is due at one time,
unless the language or the circumstances indicate the contrary
i. Mirrored by UCC 2-307
 b. (2) where only a part of one party’s performance is due at oen
time under (1), if the other party’s performance can be so
apportioned that there is a comparable part that can also be
rendered at that time, it is due at that time, unless the language
or the circumstances indicate otherwise.
i. Mirrored by UCC 2-307
ii. Cmt B)if contrary to (1), only a part of one party’s
performance is due at one time, if other party’s
perfromacne can be so apportioned that there is a
comparable part that can also be given at that time,
part performance by both parties is due at that time.
iv. UCC
1. 2-507 Effect of Seller’s tender; Delivery on Codniton
a. (1) Tender of delivery is a condition to the buyer’s duty to
accept the goods and, unless otherwise agreed, to his duty to
pay for them. Tender entitles the seller to acceptance of the
goods and to payment according to the contract.
b. (2) where payment is due and demanded on the delivery to the
buyer of goods or documents of tile, his right as against the
seller to retain or dispose of them is conditional upon his
making the payments due
2. 2-511: Tender of payment by Buyer: Payment by check
a. (1) unless otherwise agreed tender of payment is a condition
to the seller’s duty to tender and complete any delivery
b. (2) tender of payment is sufficient when made by any means or
in any manner current in the ordinary course of business unless
the seller demans payment in legal tender and gives any
extension of time reaonlby necessary to procure it
c. (3) subject ot the provison of this Act on the effect of an
instrument on an obligtaiton, payment by check is conditional
and is defeated as between the parties by dishonor of the check
on due presentment.
v. Material Breach
1. If the breach is small, the other party must perfrom and cannot suspend
perfromacne.
2. If breach is larger (Material) you have the right to stop payment or your
performance
3. If material breach goes on too long, can become a total breach and give
you the right to cancel the contract and sue for breach.
4. When is a breach material: §241 In determining whether a failure to
render or to offer perfromacne is material, the following circumstances
are significant
 a. The extent to which the injured party will be deprived of the
benefit which he reasonably 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 likelihood that the party failing to perform or to offer to
perfrom will cure his failure, taking account of all the
circumstances including any reasonable assurance;
e. The extent to which the behavior of the party failing to perfrom
or to offer to perfrom comports with standards of good faith
and fair dealing.
5. §242: Circumstances significant in determining when remaining duties
are discharged: In determining the time after which a party’s uncured
material failure to render or to offer perfromacne discahres the othe
rparty’s remaing duties to render performance under the rules stated in
§237 and §238, the following circumstances are significant
a. Those stated in §241
b. The exten to which it reasonably appears to the injured party
that delay may prevent or hinder him in making reasonable
substitute arrangmenents;
c. The extent to which the agreement provides for perfromacne
without delay, but a material failure to perfrom or to offer to
perform on a stated day does not of itself discharge the other
party’s remaining duties unless the circumstances, including the
language of the agreement, indicate that perfromacne or an
offer to perfrom by that day is important.
6. Suspending Perfromance Vs. Discharging the Contract: a period of time
must elapse during which a party can cure its failure
a. Unless time is of the essence, th.
7. Restatement 253(2): Where performaces are to be exchanged under an
exchange of promises, one party’s repudiation of a duty to render
perfromacne discharges the other party’s remaining duties to render
performance
8. If breach cured in timely manner – can get damages but still have to
perfrom.
vi. K & G Construction v. Harris
1. Facts: Aug 9th sub knocks down wall (damage of 3400). Aug 10 th –
general does not make payment to sub (For July Work). Sub works till
Sept 12th, without receiving monthly payments, withheld by general b/c
of uncured breach.
 2. Issue: Did the contractor have the right to refuse progress payments
when a condition of the contract was not met? Did the subcontractor
have a right to refuse to perfrom when the contractor stopped paying
them?
3. Held: Mutually dependent promises. Contractor’s refusal to pay did not
relieve Sub’s duty because it was the sub that breached in the first
place.
4. Generally: when parties have structured a contract to require periodic
payments or alternating performances, ap arty’s duty to perfroma
portion of the contract is constructively conditioned upon the other
party’s having substantially performed any corresponding duties. Look
at who is first to fail to substantially perfrom.
vii. §236 Claims for Damages for Total and for Partial Breach
1. A claim for damages for total breach is one for damages based on all of
the injured party’s remaining rights to performance
2. A claim for damages for partial breach is one for damages based on only
part of the injured party’s remaining rights to performance.
viii. §237 Effect on Other Party’s Duties of aFailure to Render Performance
1. Except as stated in §240, it is a condition of each party’s remaining
duties to render perfromacnes to be exchanged under an exchange of
promises that there be no uncured material failure by the other party
to render any such performance due at an earlier time.
a. Comment
i. A. material failure of performance, including defectinve
performance, operates as the non-occurrence of a
condition.
1. Under 225 non-occurrence of a condition has
two possible effects
a. Preventing performance of athe duty
from becoming due, at least
tmeporarliy (§225(1))
b. Discharging the duty when the
condition can longer occur (§225(2))
ix. UCC §2-508 Cure by Seller of Improper Tender o r Delivery ; Replacement
1. Where any tender or delivery by the seller is rejcted because non-
conforming and the time for performance ahs not yet expired, the seller
may seaosonbly notify the buyer of his intention to cure and may then
within the contract time make a conforming delivery
2. Where the buyer rejects a non-confroming 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.
D. Anticipatory Repudiation and Adequate Assurances
i. §250: When a statement or an aCt is a repudiation
1. A repudiation is
a. A satemtn by the obligor to the oblige indicating that the obligor
will commit a breach that owould of itself give the oblige a claim
for damages for todal breach under §243. Or
b. A voluntary affirmative act which renders the obligor unable or
apparently unable to perfrom without such a breach.
ii. §252 When a Failiure to Give Assurance May be Treated as a Repudiation
1. Where reasonable grounds arise to believe tah the obligor will commit
a breach by non-perfromacne that would of itself give the oblige a claim
for damages for total breach under §243, the oblige may demand
adequate assurance of due performance and may, if reaonble, suspend
any performance for which he has not already received the agreed
exchange unitl he receives such assurance.
2. The oblige may treat as a repudiation the obligor’s failure to provide
within a reasonable time such assurance of due performance as is
adequate in the circumstances of the particular case.
iii. UCC 2-609/ REstatemnt 251 Right to Adequate Assurance of PErformacne
1. A contract for sale imposes an obligation on each party that the other’s
expectation of receiving due performance will not be impaired. When
reasonable grounds for insecurity arise with respect to the performance
of either party the other may in writing demand adequate assurance of
due performance and until he receieves such assurance may if
commercially reasonable suspend any performance for which he has
not already received the agreed return.
2. Between merchants the reasonableness of grounds for insecurity and
the adequacy of any assurance offered shall be determined according to
commercial standards
3. Acceptance of any improper delivery or payment does not prejudice the
aggrieved party’s right to deman adequate assurance of future
performance.
4. After receipt of a justified demand failure to provide within a reaonble
time not exceeding thirty days such assurance of due perfromacne as is
adequate under the circumstances of the particular case is a repudiation
of the contract.
5. JJ Notes: if you have smart people, 2-609 doesn’t give you much, will
always give assurance they’ll perfrom. IF you ask for something beyond
what you want, they’ll say “That’s beyond adequate assurance”. But
certainly this gives you something above and beyond the contract,
iv. 2-610: Anticipatory Repudiation
 1. When either party repudiates the contract with respect to a
performance not yet due the loss of which will substaintially impair thef
value of the contract to the other, the aggrieved party may
a. For a commercially reaonble time await perfromacne by the
repudiating party; or
b. Resort to any remedy for breach (2-703 or 2-711) even though
he has notified the repudiating party that he would await the
altter’s perfromacne and has urged retraction and
c. In either case, suspend his own perfromacne or proceed in
accordance with the provison of this article on the seller’s right
to identify goods to the contract notwithstanding breach or to
salvage unfinished goods (2-704).
v. Taylor v. Jonson
1. Facts: P had contract so his two mares to be bred with D’s horse.
a. D ships horse to Kentucky
i. This is probably total breach
b. P sinsits on perfromacne, sends his horse to Kentucky
i. This waives right to sue for breach
c. P fails to book mating time after a few attempts
d. P pulls out of contract in june, although contract extends
thorugh july or august.
2. Issue: Who commited total breach, P or D?
3. Holding: P could have still bred his horses with D during the contracted
term but for his own actions. The condition constructed by the actions
of D at most amounted to a partial breach, insufficiently material to
terminate the contracts.
vi. §256 Nullifaction of Repudiation or Basis for repudiation
1. The effect of a statement as constituting a repudiation under §250 or
the basis for a repudiation under §251 is nullified by a retraction of the
statement if ntoifaction fo the retraction comes to the attention of the
injured party before he materially changes his positon in reliance on the
repudiation or indicates to the other paty that he considers ht
erepudiation to be final
2. The effect of events other htan a statement as constituting a
repudiation under §250 or the basis for a repudiation under §250 or the
basis for a repudiation under §251 is nullified if, to the knowledge of the
injured party, those events have ceased to exist before he materially
changes his position in reliance on the repudiation or indicates to the
other party that he considers the repudiation to be final.
vii. Koch Materials v. Shore Slurry Seal
1. Facts: P and D have a long term requirements contract. D informs P that
they plan to turn over one of the contracts to their successor and retain
 the second contract. P requests assurances from D regarding
successor’s ability to satisfy the obligations of the contract. After D does
not supply assurance, P seeks the right to treat silence as repudiation of
the contract
2. Holding: successor is a enw construction business and conern over their
ability to meet obligations was reaonble. D’s response indicated they
did not intentd to provide assurance
E. Unsubstantial Loss
i. Excuse of a condition to avoid forfeiture §229
1. To the extent that the non-occurrence of a condition would cause
disporporitonate forfeiture, a court may excsuse the non-occurrence of
that condition unless its occurrence was a material part of the agreed
exchange.
F. Self-Help Remedies
i. Buyer: Rejection and revocation
ii. 2-601: If goods or delivery fails in any way (perfect tender) may
1. Reject the whole
2. Accept the whole
3. Accept any commercial unit or untis and reject the rest
iii. 2-602: rightful rejction
1. Rejection within a reasonable time (based on commercial context,
difficulty of discovery
2. After a reaonble time, lose right to reject
iv. 2-606 What constitutes acceptance of goods
v. (b) fails to make an effective rejection, but such acceptance does not occur until
the buyer has had a reaonble opportunity to inpsect them
vi. 2-607: effect of acceptance; Notice of breach; burden of establishing breach
after acceptance,; notice of claim or litigation to person answerable over
1. Bueyer msut pay tat he contract rate for any goods accepted
2. Acceptance of goods by the buyer precludes rejection of the goods
accepted and if made with knowledge of a non-conformity cannot be
rvoked because of it unless the acceptance was on the eraonable
assumption that the non-conformity would be seaonbly cured but
acceptance does not of itself impair any other remedy provided by this
article for non conformity
3. Where a tender has been accepted
a. The buyer must within a reaonble time after he discovers or
should have discovered any beach notify the seller of breach or
be barred from any rmeedy, and
b. If the claim is one for infringement or the like and the buyer is
sued as a result of such a breach he must so notify the seller
wihihn a reaonble time after he receives notice of the ligitagtion
 or be barred from any remedy over for laibilty established by th
elititagation
4. The burden is on buyer to establish any breach with respect ot the
goods accepted
5. Where the buyer is sued for breach of a warranty or toher obligation for
which the seller is answerable over
a. He may give his seller written notice of the litigation. If the
notice states that the seller may come in and defend an dthat if
the seller does not do so he willb e bound in any action against
him by his buyer by any determination of fact common to the
two lititations, then unless the seller after seasonable receipt of
the notice does come in and defend he is so bound
b. If the claimi s one for infringement or the like the original seller
may demand in wirting that his buyer turn over to him control
of the litigation including settlement or sels be barred from any
remedy over and if he also agrees to bear all expense and to
satisfy any adverse judgement, then unless the ubyer after
seasonable receipt of the demand does turn over control the
buyer is so barred.
vii. 2-608: revocation of acceptance in whole or in part (this acceptance is of goods,
not acceptance like in contractformation.
1. Only can revoke if substantial impairment, can’t revoke acceptance
because of lack of perfrect tender
2. May revoke accetpacne if
a. It was reaonalby assumed non-confomrity would be cured, but
it has not been seasonably cured
b. If acceptance was reasonably induced weitehr by the difficulty
of discovery or by sellers
3. Buyer who revokes has same rights and duties with regards to the goods
as if he had erejcted them.
4. Not effective til buyer notifies selelr
viii. Different levels of proof for rejection and revocation
1. For rejection: need to show defective
2. For revocation of acceptance:
a. Defective and need to show you assumed would be cured, but
not cured
b. Acceptance was induced by difficulty of discovery or seller’s
assurances.
ix. 2-714: Buery’s Damages for breach in Regard to Accepted goods
1. Wehre the buyer has accepted goods and given notification he may
recover as damages for any non-conformity of tenderthe loss resulting
 in the ordinary course of events from the seller’s breach as determined
in any manner which is reasonable
a. Non-conformity means not only breaches of warranties but also
failure of the seller to perfrom according to his obligations.
2. The measure of damages for breach of warranty is the diference at the
time and place of acceptance between the value of the goods accepted
and the value they would have ahd if they had been as warranted,
unless special circumstances who proximate damages of a different
amount
a. Time of Acceptance may be when buyer decided not to revoke
acceptance
b. If money still owed to seller, may deduct damages from that,
but only if you’ve given notice to selelr
3. In proper case any incidental and consequential damages under the
next section may also be recovered.
x. 2-715: Buyer’s incidental and Consequential damages
1. Incidental damges resulting form the seller’s breach include expenses
reaosnbly incurred in inspection, receipt, transportation and care and
custody of goods rightufully rejected, any commercially reaonble
charges, expenses or commissions in connection with effecting covner
and nay other reaonble expense incident to the delay or toehr breach
2. Consequetnail dmages resulting form seller’s breach include
a. Any loss resulting from general or particular requirement and
needs of which the seller at the time of contracting had reaon
tto know and which could no reaonbly be prevented by cover or
other wise; and
b. Injury to person or poreprety proximately resulting form any
breach of warranty.
G. Impossibility, Impracticability and Frustration
i. REstatemetn 261: Discharge by Supervening Impracticability
a. Where, after a contract is made, aparty’s performance is made
impracticable without his fault by the occurrence of an event
the non-occurrence of which was a basic assumptionon which
the contract was made, his duty to render that performance is
discharged, .unless the language or the circumstances indicate
the contrary.
i. Comments:
1. B. Mere market shifts or financial ianbilty do not
usually effect discharge
2. D. events that come within the rule stated are
generally due either to acts of god or to acts of
theird parties.
 3. D “Perfromacne may be impracticable because
extrme and unreasonable difficulty, expense,
injury or loss to one of the parties will be
involved. A sever shortage of raw material or of
supplies due to war, embargo, local ccrop
failure, unforeseen shutdown of major sources
of supply, or the like, which either causes a
marked increase in cost or prevents
performance altogether may bring the case
withing the rule… Also impracticable because it
will involve a risk of injury to person or to
pereoperty oof one of the parties or fo others,
that is disproportionate to the ends to be
attained by perfomcance.
a. However, impracticablilty means more
thn impracticality. A mere change in the
degree of difficulty or expense due to
such causes as increased wages, prices
of raw materials or costs of
construction, unless well beyond the
normal range, does not amount to
impracticability since it is this sort of
risk that a fixed-price contract is
intended to cover.
b. A party is expected to use reaonble
efforts to surmount obstacles to
perfromnce, and a performance is
impracticable only if it is so in spite of
such efforts.
ii. §262: Death or Incapacity of Person Necessary for Perforamcne
1. IF the existence of a particular person is necessary for the performance
of a duty, his death or such incapacity as makes performance
impracticable is an event the non-occurrence of which was a basic
assumpotion on which the contract was made.
iii. §263: ddestruction, Deteriotation or Failure to Come into existence of thing
necessary for perfromacne
1. If the existence of a specific thing is necessary for the perfromacne of a
duty, its failure to come into existence, destruction or such
deteriotariton as makes performance impracticable is an event the non-
occurrence of which was a basic assumption on which the contract was
made.
iv. §264: Prevention by Governemntal REgualtion or Order
 1. If the performance of a duty is made impracticable by having to comply
with a domestic or foreign governmental regulation or order, that
regulation or order is an event the non-occurrence of which was a basic
assumpoition on which the contract was made.
v. §265 discharge by supervening Frsutation
1. Where, after a contract is made, aparty’s principal purpose is
substainally frustrated without his fault by the coccurence of an event
the non-occurrence of which was a basic assumption on which the
contract was made, his remaining duties to render performance are
discharged, unless the language or the circumstances indicate the
contrary.
vi. §266: Existing Impracticabliyt or Frustartion: if impracticable cause happens at
time of formation, but unknow, no djuty to perfrom.
vii. §272 Relief Including REstitituion
1. In any case governed by rules in this chapter, either party may have a
claim for relief including restitiution under rules in §240 and §377
viii. UCC 2-614: Substituted PErformacne
1. Where without fault of either party the agreed berthing, loading, or
unloading facilities fail or an agreed type of carrier becomes unavailable
or the agreed manner of delivery otherwise becomes commercially
impracticable but commercially reasonable substitute is available, such
substitute perfromacne msut be tendered and accepted
2. If the agreed means or manner of payment fails because of domestic or
foreign governmental regulation, the seller may withhold or stop
delivery unless the buyer provies a means or manner of payment which
is commercially a substantial equivalent. If delivery has already been
taken, payment by the means or in the ammner provided by the
regulation discharges the buyer’s obligation unless the regulation is
discriminatory, oppressive or predatory.
3. Personal note: buyer of services will say fixed fees inherently allocation
of risks and as scuh, buyer should not have to pay more for the services
substituted for the servies
ix. UCC 2-615: Excuse by Failure of Presuppose dconditons
1. Except so far as a seller may have assumed a greater obligation and
subject to the preceding section on substituted performance:
a. Delay ind elviery or non-delivery in whole or in part by a seller
who complies with paragraph (Ba) and © is not a breach of his
duty under a contract for sale if perfromacne as agreed has
been made impracticable by the occurrence of a contingency
the non-occurrence of which was a asc assumption on which
the contract was made or by compliance in good faith with any
 applicable foreign or domestic governmental regulation or
order whether or not it later proves to be invalid.
b. Where the causes mentioned in paragraph (a) affect only a part
of the seller’s capacity to perfrom, he msut allocate production
and deliveries among his customers but may at his option
include regular customers not then under contrac as well as his
onw reuiqrmenet sfor further manufacture. May also allocate in
any manner which is fair and reasonable.
c. The seller must notify the buyer seasonably that there will be
dealy or non-deliveyr and, when allocation is required under (b)
of the estimated quota thus made avialbel for the buyer.
x. Karl Wendt Farm Equipment v. International Harvester
1. Facts: IH sells farm equipment business to Case and in places where
there is a dealership of each, Case got ride of the IH dealer. Karl Wendt
was such a dealer. There was an economic downturn ->forcing IH to sell
t. They said impracticability and frustartaion of rupose (purpose being
mutual profitiablity)
2. Holding – economic downturn not enough o make something
impracticable because it wasn’t a basic assumption on which the K was
made.
xi. Alabama Football v. Wright
xii. Facts: Wright got a singing bonus, Alabama said that it was for services to be
pefromed and sicne they went under before he played it was impossible for him
to perform
xiii. Holding: bonus had consideration because they could use his name, but the
other parts of the contract (yearly salary) were impossible.
8. Third-Party Rights and Responsibilities

A. Beneficiaires
a. UCC 2-318
b. §302 Intended and Incidental Beneficiaireis
i. Unless otherwise agreed between promisor and promise, a beneficiary of a
promise is an intended beneficiary if recognition of a right to performance
in the beneficiary is appropriate to effectuat the inetnion of the parties and
either
1. (a) the performance of the promise will satisfy an obligation of the
promise to pay money to the beneficiary; or
a. Erik: Creditor beneficiary)
2. The circumstances indicate that the promise intends to give the
beneficiary the benfit of the promised performance
a. Donee beneficiary
ii. (2) AN INCIDENTAL BENEFICIARY IS A BENEFICIARY WHO IS NOT AN
INTENDED BENEFICIARY.
iii. Intended can enforce contract
 iv. Incedental cannot.
1. No rights under the contract
B. Assigning and delegation
a. 2-210
i. Good summary of law within and without the Code
b. Assigngment
i. Law is receptive to payees who wish to assign their rights to payment,
debtor has no reason to efuse the claim of an assignee of a right to payment
(except to be sure that his payment to the assignee discharges the origingal
liablity)
ii. "unless otherwise agreed all rights of either seller o buyer can be assigned
except where the assignment would materially change the duty of the other
party, or increase materially the burden or risk imposed on him by his
contract, or impair materially his chance of obtaing return performacne. A
right to damages for breach of the whole contract or a right arising out of
the assignor's due performacne of his entire obligation can be assigned
depsite agreement otherwise." 2-210(2)
1. (3) unless the circumstances indicate the contrary a prohibition of
assignment of "the contract" is to be construed as barring only the
delegation to the asignee of the assignor's performance.
2. (4) an assignment of "the contract" or of "all my rights under the
contract" or an assignment in similar general terms is an assignment
of rights and unless the language or the cirucmastances (As in an
assignment for security) indicate the contrary, it is a delgation of
perfromacne of the duties of the assingor and its acceptance by the
assignee constitutes a promise by him to perfrom those duties. The
promsie is enforceable by either th eassignor or the other party to
the orginal contract.
c. Delegation of a duty to perform.
i. Most routine duties can be delegated
ii. Maybe not for specialized tasks by experts (like brain surgeons delegating to
less skilled doctors)
iii. "a party may perform his duty through a delegate unless otherwise agreed
or unless the other party has a substantial interest in having his original
promisor perfrom or control the acts requried by contract. No dlegation of
perfromance releives the party delegating of any duty to perform or any
liability fo rbreach. 2-210 (1)
1. (5) the other party may treat any assignment which delegates
perfromance as creating reasonable grounds for insecurity and may
without precudice to his rights against the assignor deamand
assurances from the assignee (Section 2-609)
I. Other issues
a. Whose defesnes may you assert: your own, or others too?
i. UCC 3-305
ii. "
I. Guarantors
 
 
A. Third-Party beneficiaries
a. Privity of contract
i. Even if you benefit from the contract, if your not a party to it, cannot sue on it
even if parties
ii. knew of interest when they made the contract, unless they specifically intended
the contract to benefit you.
b. Incidental beneficiary: boundary is often somewhat arbitrary.
B. by virtue of the promise no right against the promisor or the promisee
i. Restatment 302(2), 315
ii. This
C. Creditor beneficiary (can sue promiseee)
a. Perforamnce of D's promise will satisfy an obligation of the promiseee to pay money to
the beneficiary 302(1)(A)
D. Donee benficiary - 302(1)(b) (can't sue promisee)
E. Can make the right of third -party beneficiary irrevocable - 311(1)
a. When they do, they retain power to discharge or modify the duty subsequent
agreement
b. This power ends when the beneficiary, befor ebeing notified of the discharge or
modification, justificably rleies on the promise, brings suit on it, or upon requwat of
rpromisor or pormisee agrees to accept the benefit
i. 311(2)-(3)
ii. Comment G: reliance is presumed to be justified absent contrary indictation.
F. Defenses.
a. A promsie creates no duty to a beneficiary unless
i. a contract is formed between the promisor and the promiseeand if a contract is
voidable or unenforable at the time of its formation the right of any beneficiary is
subject to the infirmity
ii. 309(1)
b. Can defend if main contract becomes unenforceable because of (309(2))
i. Impracticability
ii. Public policy
iii. Non-occurrence of a conditon
iv. Present or prospective failure of performance
c. "one who promises to make a payment to the promisee's creditor can assert against the
crediro any defense that the promisor could assert against the promisee." Rouse v. United
states
G. Lawrence v. Fox
a. Facts: Holley loans Fox $300, with Fox agreeing to pay it back the next day to Lawrence,
whom Holley owed a debt to. D fails to pay lawrence
b. Holding: Lawrence can bring this case against Fox after he is not repaid.
H. Martinez v. Socoma
a. Facts: D's contracted with government to build and provide jobs for P's. D's failed to do
so, P's sued
b. Holding: P was only an incidental beneficiary, not a party to the K
i. Courts sasys the contract was intended to benefit: the neighborhood, and the
whole US, the people in the neighborhood were just incidental
ii. Also cites liquadated damages provision as indicating that 3rd parties were not
intended to have rights to collect damages.
 c. " a promisor bound to the US or a statue to render a service to some or all members of
the public, is subject to no duty under the contract to such memebers to give compensation
for the injrious consequences of performing or attempting to perform it, or of failing to do
so, unleess:
i. An inetniton is manifested in the contract, as interpreted in the light of the
circumstances surrounding tis formaiton, tha the promisor shall compensate members
fo the pbulic for such injurious consequences." 1st restatment 145
d. Contract had liquidated damages provison; allowing plaintiffs claim would nullify limited
laiability for which the defendants bargained
e. Restatement 313
I. Problem 8-3
a. UCC 2-318
i. Notes: A and B: “injured in person” means personal injury, no recovery for
economic loss
ii. Alternaitve C “injury to the person” means any sort of injjry
iii. A is less generoisus, B is more generaous and C is most generous.

i. Alternative A : A seller's warranty whether express or implied extends to any

natural person who is in the familiy or household of his buyer or who is
aguest in his home if it reasonable to expect that such person may use,
consume or be affcted by the goods and who is injured in person by breach
of the warranty A seller may not exclude or limit the operation of this
section
ii. Alternative B: a seller's warranty whether express or implied extends to any
natural person who may reaonbaly be expected to sue, consume or be
affected by the goods and who is injured in person by breach of the
warranty. A seller may not exclude or limit eh operation of this section
iii. Alternative C: A seller's warranty whether express or implied extends to any
person who may reaonbly be expected to use, consume or be affected by
the goods and who is injured by breach of the warranty. A selelr may not
exclude or limit the operation of this sectin with respect o injury to the
person of an individual to whom the warranty extends.
 
J. Assignment of Rights and Delegation of Responsibilities
a. Contmepory Mision v. Famous Music Corp
b. Assignment of rights vs. Delegation of duties
i. Assignment of a bilateral contract includes both an assignment of rights and a
delegation of duties.
ii. When rights are assigned, assignor's interst in the rights comes to and end, but
when duties are delegated, delegants obligation does not ends.
c. Parties to a contract can limit both the assignement of rights and the delegation of
duties under the contract, 317(2)©, 318(1), 322
d. 322(1)
i. Unless the circumsantaces indicate the contrary, a contract term prohibiting
assignemnt of 'the contract' bars only the dlegation to an assignee of the performance
by the assignor of a duty or condition
ii. 2-210(4)
 iii. 322 cmt a : assignmetn has become a common practice, the policy which limits
the validty of restarints on alientaiton has been applied to the construciton of
contractual terms open to two or more possible construction.
e. 318(3)
i. Unless the obligee agrees otherwise, neither delgation of performance nor a
contract to assume the duty made with the obligor by the person dlegated discharges
any duty or liability of the delegating obligor."
ii. 2-210(6) the other party may treat any assignemnt which delegates
perforamnce as creating reasonable grounds for insecuirty and may without prejudice
to his rights against the assignor demand assruances from the assignee (seciton 2-609)
K. Sally beauty co. v. Nexxus Products
a. Contract could not be assigned to the wholly-owned subsidiary of a direct competitior
b. Substantial interest in having original party perform
 
 
 
 
 
 
Problem 8-5
 
1. Axl assigns payment rights to bank, ford paying bank directly. Axles delivered
defective, Ford deducts 300,000 from last payment to bank. Axle declares bankruptcy.
 
Ford has a legitimate defense against Axle
 
Issue: can ford assert that defense against the bank.
 
Yes, they Ford can assert that defense.
What can the bank do to protect themselves?
 
2. Ford refuses to pay bank, keeps paying Axle directly, After last 150,000 to Axle, axle declares
bankruptcy, What can bank do?
9-406 (a) an account debtor (ford) on an accoun…. After notification of assignation must
bpay assignee, obligation not disharged by paying the assignor.
 
Bank can go after Ford for payment.
 
3. Ford pays Axle 120,000 accidentaly, had already given notes for 720,000 to Axle, Axle signs
those to the bank.
 
Bank is Holder in Due Course
1. Holding instrument
2. Negotitable instrument
3. Taken for value
4. Without notice of possible defense
Bank gave value to Axle (loan)
 
 Can bank cash notes from Ford?
Yes, as a holder in due course, Ford can't assert most defenses against holders in due
course.
 
3-305: the rights of a holder in due course to enforce an obligation; subject to defense
in a(1)(infancy)
But not subject to a(2) defenses: same defenses of simple contract claims.
 
 
 
4. Yeah, ford can sue Axle, just like Famous.
 
5. Ford could have put 'no-assignment' clause
 
 
 
 
Novation - replacing parties in a contract with a different party or replace obligation to perform
with a different obligation.