Contracts in A Nutshell - Schaber

GORDON D.
SCHABER
CLAUDE D. ROHWER
WEST NUTSHELL SERIES
Administrative Law and Process Injunctions—Dobbyn
—Gellhorn Jurisdiction, State and Federal-—
Antitrust Law and Economics— Ehrenzweig & Louisell
Gellhorn Juvenile Courts—Fox
Commercial Paper—Weber Law Study and Law Examina-
Conflicts—Ehrenzweig tions, Introduction to—Kinyon
Constitutional Power, Federal and Legal Interviewing and Counsel:
State—Engdahl ing—Shaffer “|
Consumer Protection—Epstein Legal Research—Cohen |
Contracts—Schaber & Rohwer Legislative Law and Process— —
Corrections and Prisoners’ Davies |
Rights, The Law of—Krantz Local Government Law—Mc-
Criminal Law—Loewy Carthy
Criminal Procedure, Constitu- Mass Communication Law—Zuck
tional Limitations—Israel & man & Gaynes
LaFave Medical Malpractice, The Law
Debtor-Creditor Relations— of—King
Epstein Procedure Before Trial—Karlen
Employment Discrimination, Products Liability—Noel &
Federal Law of—Player Phillips
Evidence—Rothstein Real Property—Bernhardt
Federal Estate and Gift Taxa- Remedies—O’ Connell
tion—MecNulty Res Judicata—Casad
Federal Income Taxation— Secured Transactions—Bailey
McNulty Titles, Calculus of Interests—
Federal Jurisdiction—Currie Phipps
Historical Introduction to Anglo- Uniform Commercial Code—
American Law—Kempin Stone
WEST PUBLISHING CO.

P.O.Box 3526
St. Paul, Minn. 55165
March, 1977
poke vee tiv iV
CONTRACTS
IN A NUTSHELL
By
GORDON D. SCHABER
Dean and Professor of Law, McGeorge
School of Law
University of the Pacific
and
CLAUDE D. ROHWER
Professor of Law, McGeorge School of Law
University of the Pacific
ST. PAUL, MINN.

WEST PUBLISHING CO.
1975
COPYRIGHT © 1975
By
WEST PUBLISHING CO.
All rights reserved
Library of Congress Catalog Card Number: 7T5-14727
Schaber & Rohwer Contracts

2nd Reprint—1977
To the success
of
first year law students.
PREFACE
This book is a potentially serious hazard to the

contracts student who uses it, by intent or other-
wise, as a substitute for an honestly thorough
study and analysis of the materials assigned by
the contracts professor. In the opinion of your
authors, the depth and potential of contract law
will be realized only by careful and critical analy-
sis of cases, statutes and thought-provoking ma-
terials followed by a hard-hitting dialogue with
your professor, your fellow students and other
persons who can and will engage in verbal combat
with you.
It is our purpose to give you a good overview

and an accurate general analysis of the more fre-
quently encountered problems of contract law.
This book is not a primary learning device. We
only hope that it will provide a framework upon
which you can build.
The diligent student will likely find misleading
generalities in this book, as much as your authors
have attempted to avoid them. When your re-
search demonstrates that you are more accurate
than we were, you are on your way to success as
an attorney in our eyes.
The basic structure and approach used in this
material is in part the result of many lectures to
VII
PREFACE
law school graduates who took the bar in Cali-

fornia which were given by the late Richard
Wicks, Esq., founder of the California Bar Review
Course, and your author, Gordon Schaber. Their
combined lectures hopefully reside in the minds
of about fifteen thousand members of the Cali-
fornia Bar who listened. Our colleague, Profes-
sor Anthony Skrocki has been a helpful and con-
structive critic.
At the University of the Pacific, McGeorge
School of Law, one or the other of your authors
has taught the subject of Contracts for the past
twenty years. They have attempted to place em-
phasis upon and utilize examples in those areas
which have been the most frequent source of
student problems and misunderstandings.
To the judges who wrote the opinions upon

which much of our law is based, their clerks and
the attorneys who prepared the briefs and pre-
sented the arguments; to the scholars who wrote
and contributed to the Restatement, to treatises,
articles and uniform and non-uniform codes and
statutes; to our colleagues who critiqued and ad-
vised us, and to those who typed and proofed and
wondered when we would get home, we offer our
thanks.
GORDON D. SCHABER
CLAUDE D. ROHWER
Sacramento, Calif.
April, 1975
Vill
OUTLINE
PREFACE
I. THEORIES OF FORMATION
Section
dee ae Six theorieses 2. 2 es Shoes. ae
2. Consensual versus non-consensual con-
CY OCLSis a Foe ee oe rg ee 5 5 3 oh
38. Sales of goods and the Uniform Com-
TCV CTA CONC ae ee ke ie
Analysis ividermes. £2 55-6 to, eee ne
II. THE OFFER
A. Characterizing the Communication _____
fe PR OTLOUA ie aie eS pa
5. Cervainty of terms .o--s= + wee ek
6. .Gertainty under the U.C.C. ._...._- =...
Wea enteny.oL the parties ~-. 9)...-.0
8. Guidelines for characterization _______-
Je TROY ericeMments 2) e227. eke
LO VACHOnG eee ete ee. eee
11. Terms established by external standards
12. Requirement and output contracts _____-
B. Mistake or Ambiguity _________________
13. Mistake as to terms by the offeror ____
14. Mistake as to terms by an intermediary
15-2 oMistake. as 10: person: |. ssc cee
GO MEPATINOIOUIDY ) Saer ete cee a eS
Schaber & Rohwer Contracts Ix
OUTLINE
Page
C. Receipt of the Offer by the Intended

Offerees = 63. a eee ee 133
Section
f= Geneballye so eee ee. ee eee ae 19
18. Communication in intended manner ____ 19
19.> Assionmentol offers. -=—— = 21
D. Duration of Offer ____________________- 21

90. + Generallyic sa 25 ot ee ole Soe 21
‘21. Termination of the offer by lapse of time
as stated therein 32 = re ee aL
22. Lapse of time due to delay in communi-
CabiOnee ot eee ee 22
23. Termination by lapse of a reasonable
time when none is stated ___________ ped
24. Termination by death or destruction of
a person or thing essential for per-
formance ow sae Seadee. eee eee ao
25. Termination by death or insanity of the
offeror or-0Lleree 352 eae 24
26. Termination by supervening illegality __ 24
27. Termination by the express rejection of
the offeree 26 5 Set 24
28. Termination by counter-offer __________ 25
29. Revival of the offer by the offeror ____ 26
KE. Revocability of the Offer _.___- =. eS

S0.. .Direct: révocations==ss20et. = eee 26
ol, Indirecterevocation = 2. = ese eee. | Dat
32. Communication of the revocation ______ 28
33. Irrevocability of offers supported by con-
Sideralion =<s2s. 2 Ue e ee s 29
OUTLINE
Section Page
34. Irrevocability of offers supported by
promissory estoppel in lieu of consider-
ROO) bs Sams Ser, ois elite ioe adipic hee 30
35. Irrevocability of offers by statute _____ 32
36. Irrevocability of offers for unilateral
CONILACTS. oh a Woe Sea ee eee 33
PAA YSIS STIGOle, cape tue. an a, nee ens 34
Il. THE ACCEPTANCE
A. Characterization of the Proposed Con-

tract as Unilateral or Bilateral ______ 35
Shc: GONCEAUNG 225 a Nceg oe rae Meee Se eine es 35
38. Significance of unilateral or bilateral de-
TELTHINAUON v.42 odes eae ae 37
39. Modern trends re interpreting offers as
unilateral-or Dilateral’-. <= — =... -
40. Unilateral vs. bilateral, a final test ____
41. Reverse unilateral contracts _________-
B. Bilateral Contracts, Generally _________-

Ao. “Parties entitied to accept) .25-...2
2 i.
Aora ANTENUION tO ACCepin ee a es. ee te
44. Proper notice of acceptance ___________
45. Unequivocal acceptance required _______
46. The “grumbling acceptance” _________-
47. The acceptance requesting change _____
48. The promise to agree later ___________-
49. Transactions in goods and the U.C.C. _- 43
50. Application of U.C.C. Sec. 2-207 ____-_- 46
XI
OUTLINE
Section Page
51. Further thoughts on U.C.C. Sec. 2-207 49
52. Performance as bilateral acceptance ---- 51
53. Silence as acceptance. - 2.2.2.2 =25.2-242- 52
54. Reference to a written contract in the
offerzorjsaceep tance) 2 ae see 54
C. Mode and Timeliness of Acceptance in

Bilateral Contracts _______________-__- 55
55: Generally coke. 2. eee a ae ee 55
56. Acceptance by an authorized mode ___- 56
57. Acceptance by an impliedly authorized
mModesee cc = a eee eae 56
58. Acceptance by different mode when none
1S. SPCCHIICO) sae ries ons Sa ee 57
59. Misdirected acceptances _______________ 57
60. Mode of acceptance under the U.C.C. _- 57
61. Acceptance provisions in the offer _____ 57
62. Acceptance following dispatch of rejec-
CLOT: eee eo eres er
D. Acceptance of Unilateral Contracts ____

63. Parties entitled to accept ______________
64;> Mode-otracceptance 2. oe
65. Notice of performance of the requested
BCG OSS See eee Se eee
66. Power to terminate the unilateral offer
67. Power to terminate unilateral offers for
Sind(:CVG)hk,ROO eet meem Deer 0
68. Beginning of performance _____________
69. Unilateral offers for a series of acts ____
Analysis Divider
OUTLINE
IV. CONSIDERATION
Page
A. Classic Bargained Exchange ___________ 65
Section
Oe NGONCOLA NY oe ee aie ce eye ea ee Bec e 65
al eeueral Ue IMeNt 227 a. es eee 66
72. Legal detriment in the unilateral con-
BENG Beces llc a AL ee ee eS A Be, ee 66
73. Legal detriment in the bilateral contract 67
74. Sufficiency and adequacy of considera-
5) |ae ee EES ene Ot: Bacarra ee Om 68
75. Legal detriment and pre-existing duty __ 69
76. Where a pre-existing duty is imposed by
ether thanscontract: law. 2-2 aoe | 69
77. Where a pre-existing legal duty is owed
EO abe PROMISOR PS Hp Gand kya |! 8 70
78. Where a pre-existing duty is owed to a
CINMEC SAE, ot Ak 2eee atl alec, eee 70
79. Application of pre-existing duty rule to
part-payment of debts and landlord-
Leial baste atiOnSnece ox oc {i
80. Current application and non-application
of the pre-existing duty rule _______- Ge
81. Detriment incurred by one other than
Te MLOMISOC et eo ee 74
82. Forebearance as a detriment _________- 75
83. Recitation of consideration ________-__- 75
84. Promises subject to a condition _______ 76
85. Promisors who reserve the right to ter-
TIN ACs erie es 8 ee ee 79
SGra Bargainedsexchange:s.2.- 2-22-22 -=.- 80
XIII
OUTLINE
wed Page
B. Promissory Estoppel ______------------ 83
Section
SY. ‘The doctrine 22s > ware oes eee 83
88. Application of the doctrine -_---------- 84
89. Measure.of recovery ..2_...-.2----+-=- 85
Analysis -DIViGGY 5:20 meses eee are 85
C. Subsequent Promise to Perform Unen-

forceable Contracts ____________-_---- 86
90. When the statute of limitations has run
on the original promise ___________- 86
91. When an obligor has received a discharge
in“bankrupley Wess tea Ne ree ee 86
92. When the original contract was unen-
forceable due to the Statute of Frauds 87
93. When the obligation was not originally
enforceable due to the promisor’s lack
Of CADACITVee tne ot at Ota OE 87
94. When there was a material benefit pre-
viously conferred, for which no con-
tractual liability existed ___________- 88
V. OTHER TYPES OF CONTRACTS
A. Implied-in-Fact Contracts ______________ 89

95. Generall Vier ee. ee PR oe ee ee. 89
96. Measure of payment __2..-_....2__..__. 90
Analysis DOLviger@: (20.9 k Sena sewers 90
OUTLINE
Page
B. Contracts Implied-in-Law ______________ 90
Section
97. Nature of the contract 2-220... 90
98. Elements of the contract ______________ 91
99. Illustrations of the contract __________- 92
100. Measure of recovery _________________- 93
Analysis Divider _____-__- eee eee ee 93
VI. DEFENSES TO FORMATION OR

ee ENFORCEMENT
A. Statute-of Frauds... >. 95
Dee et ALU es ee ee 95
LOTT EOUUCL ION B22 J0 res eee 95
RO? GEG StALNUe sap ote ee Se 95
103... Methodsof analysis =... -..- 3... | 97
2. Contracts within the Statute _______- 97
104. <A contract to answer for the debt, de-
fault or miscarriage of another ____ 97
105. A contract for the sale of an interest in
realty, including a lease for longer
than-one year.) 6 ee ge 99
106. <A contract for the sale of goods priced
at $500 or more, or for the sale of
choses in action in an amount or value
of more than-s5000ss =: oo 2 eee 99
107. A contract relative to an agent’s au-
thority to bind a principal __-_-_------ 100
108. A contract which, by its terms, cannot
be performed within one year __-_-__- 100
109. An oral one-year lease -___----------- 101
XV
OUTLINE
Section Page
110. A contract in consideration of mar-
TIAGO Se rt os eee a ee 102
111. A contract which cannot, according to
its terms, be performed during the
lifetime of the promisor 2-2 --22- 102
112. A contract for the assumption of a
mortgage or trust deed ____-------- 103
3. Exceptions to contracts prima facie
within -theyStatutes 12 sts Se 103
113. Promises to pay the debt of another __ 103
114.-.; Land saleicontractS 222425226 104
115. Contracts for the sale of goods _____- 104
116. Agent’s authority agreements _______ 105
117. Contracts not capable of being perform-
ede withinsones year. 5. eee 105
118. Estoppel to plead the statute ________ 105
119. Effect of the statute upon the validity
Of thescontunct. semester 107
4, Satisfaction of the Statute __.______- 107

120. . “The memorandunies 25 ee eee ee 107
121.. Using severalswritingsse os 108
B; ‘Competency... ee ee ee 109
122. Mental capacity, generally ___________ 109
123. Effect of lack of capacity ____________ 109
124. Lack of capacity due to minority _____ 110
125. Limitations on the power of a minor to
GiSSttirM wecccca ci, eee eee 110
26. \Prisoners-andconvictsi2— 2.) se ot
XVI
OUTLINE
Page
Con lllesalitys es ee at
Section
D2Ga LNEOGUCTION gens cece Se te eee 111
128. Relationship of the illegality to the con-
LYACi Stee s ee a 112
129. The nature of the “illegality” ________ 112
180. The position of the parties ___________ 113
i3l; ~Remedies available 22.2. 22stu02 2435 114
132. When contract will be found “illegal” _. 114
133. Violation of licensing statutes and ordi-
NANCE Serie. he oe ee et oe ene 115
Vive Anomaloussresulte 2. 116
Dis Mistake™ SoA eee a ee 117
OD EIS Caer re et ne ee ep ee a 117
E. Duress or Undue Influence _____________ 119
pee Duress or undue influence ___________- 119
F. Fraud and Misrepresentation _________- 121
137. Fraud and misrepresentation _______- 121
138. Adhesion contracts, unconscionability
ang DUC PONCY 22222 oe. cues ee 122
AnolySIS“DIVIGeY ~ 2. =. Seek St ee 124
VII. PARTIES
x A. Third Party Beneficiaries ____________-_- 126
189. Nature of the agreement ____________- 126
140. wWature of the third party 2... -25.- 126
141. Identification of the beneficiary --_--_- 128
142. Rights of third party beneficiaries ____ 129
TAS. = ViEStin CUO YIP NS some aoe ae 130
144. Rights of the promisee against the
DLOMMICOI) Unie ee er a see 131
145. Assumption of secured indebtedness __ 132
ANAlVSts Divider 20-2 eens.) Seems eeee = =e. 134
Schaber & Rohwer Contracts—2 XVII
OUTLINE
Page
B. Assignment of Rights ____-_-------- es ee LO:
Section
146. Introduction and definitions ___-_------ 135
147. Limitations on assignability ______---- 136
148. Assignment of tort rights ______------ 137
149. Contract limitations on assignments __ 137
150. Partial assignments =... 3 138
151)-- Assignment. of wages —-122525525. 139
1525 -Tetfeetivenessssasee S22. ae eee eee 139
155... R@VOCabInty se. oe ee eee 141
154. Proper manner of revocation ________- 141
155. Multiple assignments of the same right
foRTconsideration= 22 = ee 141
156. Protection of the obligor _____________ 144
157. Defenses other than payment _______-_ 146
158. Assignee versus creditors and trustees
in- bankrtiptcy ¢.24 =o eee 147
159. Rights of the non-prevailing assignee 148
160: Sub-assignces 22 2er a 2 oe 148
C. Delegation of Duties __________________ 149

161. Introductions: se aee = ae see 149
L62,_. Detinition-or, parties.-- =. > se, 150
168. Mode of delegation by the obligor _.__ 150
164. Failure of the delegatee to assent ____ 150
165. Effect of assent by the delegatee ____ 151
166. Delegability of duties __.______.______ 152
167. Rights of the parties to a valid delega-
GION ies re Fe ie a 1538
OUTLINE
ar INTERPRETATION AND THE PAROL

EVIDENCE RULE
Section Page
Foe: -sintroduction:.:. 25> 1 eeeee ee 156
169. “Parol:evidence rule: 23-22 kee | 157
170. Separate agreements ________________ 159
171. The question of determining integra-
CIOR So bewarsaak. to ee ee 160
Pie. Merger clauses *2. = oe ee. 164
ia. Partial inteorations: anc. 28 eres: 164
G4. Sinterpretaioi ms 22. sa ee ae Se 165
175... VAMMDI QUA Viegas 167
176. Evidence of extrinsic agreements in in-
LeRpretatiom —steee se es 168
Analysis” Dividers =. 22st a ee.een 170
v7, IX. PERFORMANCE

A. General Problems ____________________- 174
The, Pa LOU CUIOU coe ae eee 174
178. Promises and conditions _____________- 174
79. ‘Coneurrent@conditions: 2221) 2. ssi 178
180. Express and implied or constructive
CONGEMIONGE se 130 sae. >= Ae Leese - 179
181. Identifying express conditions ________ 181
182. Imposing constructive conditions _____ 183
183. Effect of contract subject matter upon
ft Ralose mee. see eeeeee 185
B. Excuse of Conditions ________________-_- 187
LOA eet KOQUCHION pose ae a cues ee 187
185. Excuse by a proper tender __________- 187
186. Excuse by substantial performance ___ 188
XIX
OUTLINE
Section Page
187. Excuse by the failure of a prior condi-
CiO:> 2 so See eee ee eee ee 194
188.
Excuse by an anticipatory repudiation
of a promise: 275s = ase en re 194
189. Excuse by a voluntary disablement or
prospective inability to perform ____ 195
190. -Bxeuse by severability.- 2 e225. 197
191... -Bxcuse=by-waiver-- ee 198
192. Excuse-by-estoppel- =: aesees2 =ee3 198
he Exctige by impossipiity sseee =eee =e 200
€;- Breach of Contract -=. = =. ee 201
194>—-Presentepreach 2 "5, Vane ee 201
POS... Anticipatory. sOLeach 2... ame aa ene 201
196. Demonstration of ability to perform __ 204
197, -ttectot-breactia=...eee ee. ee 204
198. Major and minor breaches __________- 205
199... Construction contracts <_< 22-12.-3 206
200.. -Approval-by-a-third party... 208
ee Approval by a party to the contract __ 210
D. Contracts for the Sale of Goods ________ 211

202. «Buyer ernicht:tosreject oes seer 5 211
203. Rejection of goods in installment con-
ve tracts cub bees gee ea eee PAs
SA 3 Discharge sso bs pee ee eeeee 215

204 Introduction. se sae. 2 eee ee 215
YF, Impossibility of Performance ___________ 215

200; Lhe-dectrine =.=) =o Linc a EA 215
206. Objective impossibility defined _______ 215
207. Supervening illegality _______________ 216
XX
OUTLINE
Section Page
208. Destruction of the subject matter of the
COHELAUU een ee wae eet Fees 216
209. Supervening death or illness _________-_ ragWe
210. Foreseeability of the supervening event 218
211. Nature-of the. discharge . =... ==. 218
212. Effect of a discharge upon the other
party to the agreement ___________- 219
2138. Factors changing the nature of per-
TOVINONCC) tS ee 220
ae Frustration of Purpose _______________- 222
214. Distinguished from impossibility _____ 222
215,, *Hrustration detineds0s2 222s ee = 222
H. Other Methods of Discharge __________ 225
zo -Performance. «2a nase a 225
2nd. .Accord and-satistaction..._2-22..<25.2=. 225
DE? TLeOSCISSION, oc. eee tee 226
AO Ge NOVALION 22. ee ee eS 229
220. Occurrence of a condition subsequent 230
Balm ACCOUNT StateG 26. . eee 281
222. Previously discussed concepts which
serve as methods of discharge ----- Zoe
PO ATMEL INCUROUS 626 St ek es 234
X. DAMAGES
Dose - Introductory rationale, 2.7% .22.65 22. 236
225. Types of damages in contract actions 237
“A. Standardized Damages ______________-- 238

ODGrae LDU POCUCllON ay Ms 2 ee ee See ee 238
227. Buyer’s damages in sales contracts ___ 238
XXI
OUTLINE
Section Page
228. Seller’s damages in sales contracts ___ 239

229. Standardized damages in employment
CONEY ACISam aks artes See ae eee 242
230. Standardized damages in a construc-
tion contract when the owner ma-
terially “breaches” S82 =.= sean se 243
231. Standardized damages in a construction
contract when the builder materially
breaches: 2 ieee ee eet ee 245
232. Standardized damages in a construction
contract where the breach of the
builder is minor, i. e. he has substan-
Liglivyaperlormede: 2542. Taner eee 246
Consequential Damages _______________- 248

233. Generally, <<even eee ee Ge soe eee 248
234, Derectivercoods: 820-2 wa 8 ee 249
The Duty to Mitigate __________________ 249

235. General yi.6 25. Sate te ee aes eas 249
236. Employment contractss=+--osee. eee... 249
237. pales ComUracts <2 o 0c eee oe ome 250
238. Construction contracts) = ase. ess 250
239. Leases. pee ies Ho ieee ec 251
J. Liquidated Damages __________________ 251

240. POU ULC ee = 2 ee earner
ee ee 251
241. Inability to estimate damages ________ 252
242. Reasonableness of the forecast ________ 252
243. Effect of a liquidated damages clause 253
XX
OUTLINE
Page
E. Damages in the Absence of a Bargained
Bixehang erick ee ee| ee 254
Section
244. Rationale for the variance from stand-
argizen Gamiages:<o --s 3.6. 254
245. Measure of damages when detrimental
reliance is involved _______________- 254
246. Damages in nonconsesual contracts __ 254
COntracie QuestiOns 2... 2 eee 255
aNGCSah == ele ee ee ee 293
XXIII
CONTRACTS
IN A NUTSHELL
I. THEORIES OF FORMATION
Perhaps the most elementary aspect of the

study of contracts law is that of formation.
There are but few rules, and they are easily mas-
tered by the novice. This simplicity, however, is
a pitfall into which many students stumble.
What is difficult in this area is not the mastery
of the rules at hand, but the application of them
to the particular situation with which one is deal-
ing.
§ 1. The six theories. Contractual liability

may be developed from six theoretical categories:
(1) Express contracts, whether written or oral,
consisting of an offer-acceptance-consideration
trilogy;
(2) Implied-in-fact contracts which are distin-
guishable from express contracts only in that the
Schaber & Rohwer Contracts [1]
$a THEORIES OF FORMATION
offer and/or acceptance are found from conduct

rather than express words;
(3) Promissory estoppel, sometimes referred to
as “detrimental reliance’, which is accepted by a
majority of the courts as a complete substitute
for an offer-acceptance-consideration require-
ment, and not merely as a substitute for consider-
ation, as some older cases indicated;
(4) Subsequent promises to perform pre-exist-
ing obligations which were or became unenforcea-
ble either because (a) the statute of limitations
ran, or (b) the obligation was discharged in
bankruptcy, or (c) the promises to perform were
originally unenforceable because the Statute of
Frauds was not satisfied, or (d) because the
promisor originally lacked the capacity to con-
tract;
(5) The minority theory of imposing liability
based upon a subsequent promise to pay for ma-
terial benefits previously conferred, for which no
contractual liability existed;
(6) Implied-in-law or quasi-contracts which
are actually non-consensual obligations.
§ 2. Consensual versus non-consensual con-

tracts. As can be seen from the six theories enu-
merated in § 1, the first five are consensual in
nature, in that a promise by one or both of the
parties, or the voluntary acceptance by one of
[2]
THEORIES OF FORMATION § 2
benefits from the other, resulted in the creation

of a contractual obligation. By contrast, im-
plied-in-law contracts or quasi-contracts are not
consensual contracts at all, but are a method of
giving a remedy in the nature of contract relief
in order to prevent unjust enrichment.
Thus, where one renders services or delivers
goods to another and confers a material benefit,
an obligation to pay the reasonable value of the
services or goods arises so long as the conduct is
not that of an “officious intermeddler” or volun-
teer. Examples include reasonably necessary
medical treatment rendered to a person who is
unconscious or provision of reasonably necessary
goods or services to a person who lacks the ca-
pacity to contract because of insanity, gross in-
toxication or similar cause. The law implies a
promise to pay reasonable value of such goods or
services. This promise is enforceable even
though the recipient may subsequently indicate
that he did not wish them; e. g., a member of a
religious sect which opposes treatment by a phy-
sician who receives emergency medical treatment
while unconscious.
Non-consensual, implied-in-law obligations,
may also be imposed by the minimum standards
of the community where a person should have
agreed to pay the reasonable value of goods re-
ceived or services rendered. Examples include
the husband, legally responsible for the necessi-
[3]
§ 2 THEORIES OF FORMATION
ties of his wife, who may be held liable for the le-
gal services rendered by a lawyer to obtain a ju-
dicial declaration that the wife is no longer legal-
ly incompetent; the father who “wrongfully”
refused to provide for emergency medical treat-
ment for his seriously injured child.
Quasi-contracts are often used to fill the legal
void where no consensual contract liability exists
and no tort has been committed. Recovery may
be defeated where the claimant can properly be
categorized as an “‘officious intermeddler” or vol-
unteer who has inserted himself into a situation
without rational need or connection.
§ 3. Sales of goods and the Uniform Commer-

cial Code. The Uniform Commercial Code (re-
ferred to herein simply as U.C.C.) has been
adopted by all states except Louisiana. Some
states have omitted or modified certain sections
and caution should be used in applying the refer-
enced code materials in any particular jurisdic-
tion for that reason.
The U.C.C. contains a number of provisions
which modify the common law of contracts.
Where appropriate, these modifications will be
noted. Nearly all of them will pertain to Article
2 of the U.C.C. which applies to all transactions
in goods other than security transactions (U.C.C.
Sec. 2-102). To the extent that the U.C.C. has
not changed the law relative to sales of goods and
[4]
THEORIES OF FORMATION § 3
other transactions in goods, principles of common

law and equity are applicable (U.C.C. Sec. 1-
103). In making references to the U.C.C. the es-
sence of certain sections will be summarized or
paraphrased for the purpose of explaining their
significance in the context of the material. Such
summaries obviously should not be treated as
substitutions for a careful reading of the original.
The U.C.C. applies to all persons and entities.

A few limited sections and portions of sections
are applicable only to merchants. The term mer-
chant is not defined in its ordinary sense (U.C.C.
Sec. 2-104).
U.C.C. Sec. 1-203 provides: “every contract or

duty within this Act imposes an obligation of
good faith in its performance or enforcement.”
This simple sentence can have tremendous impact
in many contract situations. It should not be ig-
nored as a simple mouthing of honorable inten-
tions. U.C.C. Sec. 1-201(19) provides: “ ‘good
faith’ means honesty in fact in the conduct or
transactions concerned’. This approach to good
faith is applicable to all persons except mer-
chants, who are held to higher standards. U.C.C.
Sec. 2-103(1) (b) provides: ‘“ ‘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.”
[5]
§ 3 THEORIES OF FORMATION
ANALYSIS DIVIDER
Whenever contractual liability is to be predi-

cated upon the consensual theory of express oral
or written contract, it is necessary to analyse the
communications between the parties to locate:
(1) a valid offer; (2) a timely, unequivocal and
appropriate bilateral or unilateral acceptance; and
(3) consideration. A detailed examination of the
many aspects involved follows.
[6]
Il. THE OFFER
A. CHARACTERIZING THE
COMMUNICATION
§ 4. Generally. Whether words are words of

offer or merely of preliminary negotiation turns
upon the question of fact as to whether they
arouse an expectation in the mind of the average
reasonable man in the position of the offeree
that, if he purports to do what is requested, noth-
ing further need be done by the one making the
proposal in order to form a contract. Hence,
. words which arouse such an expectation create a
power of acceptance in the offeree. On the other
hand, words which arouse a lesser expectation
merely invite further discussion or an offer from
the other party.
§ 5. Certainty of terms. In addition, in order

to be classified as an offer, a communication
must be sufficiently definite or certain to set
forth the terms of the contract. There must be
sufficient certainty to make any resulting agree-
ment enforceable and damages calculable. It is
sometimes stated that to constitute an offer a
communication must be certain as to parties, sub-
ject matter, price, and time of performance. The
[7]
§ 5 THE OFFER
identity of the intended parties to the contract is
usually quite evident and this requirement is or-
dinarily not a source of problem. In the absence
of a designated time for performance, a court will
ordinarily find that the parties implied that per-
formance was to occur within a reasonable time
considering the nature of the subject matter and
for this reason, lack of certainty as to time will
_ usually not be fatal.
The certainty as to price would ordinarily be a
matter of prime importance in a contract. It is
possible to visualize situations, e. g., dealership
arrangements, in which price might not be an
item of critical importance, but ordinarily it goes
to the heart of the proposed contract and lack of
certainty as to price would therefore prevent a
communication from being treated as an offer.
Lack of certainty as to subject matter of the con-
tract or its quantity would likewise ordinarily
prevent a communication from being treated as
an offer.
§ 6. Certainty under the U.C.C. Prior to the

adoption of the U.C.C., less certainty was re-
quired to find an offer for a proposed contract for
the sale of goods as defined by the act than would
have been required in the other types of con-
tracts. The U.C.C. expands upon this divergence.
U.C.C. Sec. 2-305 permits the formation of a con-
tract even though the price is not settled. The
[3]
CHARACTERIZING §7
section provides that the price is to be a reason-
able price under most circumstances but it also
permits a contract to exist in which the price is
to be subsequently fixed by either the buyer or
the seller where such is the apparent intention of
the parties. In this event, the price must be
fixed in good faith (U.C.C. Sec. 2-305 (2) ).
U.C.C. Sec. 2-204(3) provides for the enforcea-
bility of contracts even though one or more terms
are left open, if the parties have manifested an
intention to make a contract and there is a rea-
sonably certain basis for giving an appropriate
remedy. U.C.C. Sec. 2-207(3) also recognizes the
existence of a contract even though one or more
terms are still unsettled.
§ 7. Intent of the parties. Controlling all

rules of construction of communications is the
objective theory of contracts. The subjective in-
tent of the party whose conduct is being exam-
ined is normally of no importance; what is con-
trolling is the manner in which the average rea-
sonable man would interpret the party’s external
manifestations of his intent. Hence, a party’s se-
cret intent plays no part in the proper characteri-
zation of his communications. For example, a
statement made in jest or anger is still sufficient
to constitute a valid offer, providing a reasonable
offeree would not understand the communications
to be the product of a joke or anger.
Schaber & Rohwer Contracts—3 [9]
§ 7 THE OFFER
The critical question with respect to intent is
whether, by words and conduct, the party mani-
fested an intent to be presently bound. If the
objective manifestation of such intention is not
found, then a communication cannot be treated as
an offer nor as the basis for an acceptance by an
offeree. Where one details the bargain which he
would like to make but conveys the idea that he
is not certain that he can do it, or is not yet cer-
tain that he wants to do it, he has not indicated
that he wishes to be presently bound. For this
reason his communication will fall into the cate-
gory of negotiation rather than being treated as
an offer.
Contract negotiations are most frequently con-

ducted by lay people and they will be found to
use terms such as “offer”, ‘“‘quote’’, ‘‘acceptance”’
and similar language without intending the tech-
nical legal meaning. For example, a circular ad-
dressed to ‘‘Householder’’ which announces that
the merchant sending the message is “currently
offering widgets for the low, low price of $10.00
each’”’ will most likely be found not to constitute
an offer. The court will not consider the use of
the word “offer” to be controlling. One must
look to the intention which is communicated by
the entire message and not dwell excessively on
the use of a particular word.
[10]
CHARACTERIZING § 9
§ 8. Guidelines for characterization. In char-

acterizing communications between parties, the
following are helpful guidelines, but no one is
conclusive:
(1) Communications are to be construed as a

whole, in light of all correspondence and prior
transactions, and if inconsistencies exist, later
words control over former words;
(2) A communication which is sent in response
to a buyer’s request for a firm offer or a seller’s
request for an order is more likely to be found to
manifest an intention to be presently bound and
thus constitute an offer;
(3) The more individuals to whom the propos-

al is addressed, the less likely it is to be an offer
as such conduct negates an intention to be pres-
ently bound;
(4) The more definite a proposal, the more
likely it is to be an offer;
(5) Language is to be interpreted in light of
custom and usage in the trade or community.
§ 9. Advertisements. Advertisements in mass

media are generally mere invitations to make of-
fers. The elements which are generally lacking
in an advertisement are quantity and the intend-
ed acceptor. If these two elements can be satis-
fied without further promise from the advertiser,
[11]
§ 9 THE OFFER
a valid offer may be found. Reward offers are
an example of advertisements which are common-
ly found to be valid offers.
§ 10. Auctions. Auctions are, in part, an

anomaly in the law of contracts. The announce-
ment of an auction in a newspaper is not an of-
fer. However, if nothing to the contrary is said,
when the bidding starts, the auction generally
‘embodies the terms contained in the advertise-
ment.
If nothingis stated, an auction is “with re-
serve’, i. e. the auctioneer may withdraw the
goods even though bidding has begun. On the
other hand, in an auction stated to be “without re-
serve” or one in which the goods are to be ‘“‘sold
to the highest bidder,” the auctioneer may not
withdraw.
In auctions, it is the auctioneer who invites of-
fers; the fall of the hammer constitutes his ac-
ceptance of an offer in an auction with reserve,
or his recognition of the highest bid in the auc-
tion without reserve. In either case, since a bid
is merely an offer, it may be withdrawn at any
time prior to the fall of the hammer (generally
U.C.C. Sec. 2-328[3]).
§ 11. Terms established by external stand-

ards. Given the usual problems regarding the
question of certainty of terms (§§ 5 and 6, su-
[12]
CHARACTERIZING § 12
pra), additional questions may arise where the

parties refer to external standards to establish
terms of a contract. An agreement may not set
forth the price to be paid but may provide that
the price charged for the item in question on
some established market on a certain day will be
the price. An agreement may recite that the
price stated will be adjusted to reflect increases ©
or decreases in cost of production or some other
factor. Such terms will not prevent a communi-
cation from being treated as an offer and will not
prevent enforcement of a resulting contract so
long as the external method for establishing the
price is itself sufficiently definite and specific so
that a court can determine what the price is to
be. If the subject matter of the contract is
goods, U.C.C. Sec. 2-305(1) (c) permits the court
to substitute a reasonable price where the exter-
nal method for establishing the price fails.
Quantity is another contract term which is not
infrequently left open to be established by exter-
nal events. The more common provision in this
area is to have quantity established by the re-
quirements of the purchaser or the output of the
seller.
§ 12. Requirement and output contracts, An

agreement between parties may provide that the
quantity is to be measured by the requirements
of one of the parties during some stated period in
[13]
§ 12 THE OFFER
which case it is termed a ‘“‘requirements” con-

tract. Quantity may also be fixed in terms of the
output of one of the parties during a stated peri-
od and the resulting agreement is termed an “‘out-
put” contract. One of the obvious problems cre-
ated by such an agreement is that one party can
control the quantity term of the contract by his
decision to stay in business, to expand or contract
his business or to operate his business in a cer-
tain fashion.
Early common law cases demonstrated reluc-
tance to enforce requirement or output contracts
because of the lack of mutuality of obligation
arising from the ability of one party to control
the quantity. As the law developed, such agree-
ments were enforced where the party had an ex-
isting output or need or specific and immediate
plans to engage in a business which would gener-
ate such output or need, and where the party did
not reserve the right to dispose of his output or
fill his requirements from any other source.
Thus, if a paper products wholesaler contracts to
buy all of his requirements of ‘‘X” type paper
from supplier, the agreement may be enforceable.
However, if the wholesaler has facilities to manu-
facture “‘X” type paper and simply contracts to
buy from supplier all of the “X” paper which
wholesaler does not choose to manufacture him-
self, the agreement is probably not enforceable
because wholesaler has retained free discretion-
[14]
MISTAKE OR AMBIGUITY § 138
ary control over whether he will in fact have re-

quirements of this type of paper (§ 84, infra).
Where an enforceable requirements or output
contract is found to exist, a question may arise as
to the right to terminate the business which gen-
erates the requirements or output. Generally,
cases have allowed a party to retire, sell the busi-
ness, terminate a phase of the business for good
cause, or take similar action which results in ter-
minating the requirements or output, so long as
such action is taken in good faith. In the ab-
sence of special facts, there is no implied promise
in a requirements or output contract to continue
to have requirements or output.
Most requirements and output contracts involve
goods. U.C.C. Sec. 2-306 now establishes stand-
ards for the interpretation of such contracts, pro-
viding that no party may demand or tender a
quantity unreasonably disproportionate to any
stated estimate or in the absence of a stated esti-
mate to any normal or otherwise comparable
prior output or requirements.
B. MISTAKE OR AMBIGUITY
§ 18. Mistake as to terms by the offeror.
Generally, a mistake as to terms should be treat-
ed only as a defense to an action at law, and not
something which vitiates the offer, destroying the
power of acceptance (§ 135, infra). However a
[15]
§ 13 THE OFFER
slip of the tongue by the offeror will vitiate the

offer if the offeree knows or has reason to know
that the offeror did not intend what his words ex-
pressed. For example, assume that A and B have
been negotiating for a period of time concerning
the proposed sale of A’s prize bull, Primo. The
discussion has centered upon price with B stating
that Primo is worth $1,000 and A indicating that
_he’d like to have $1,200. A writes B and states
that he will sell Primo to B for $110. B may not
treat this as an offer because a reasonable man in
B’s position knows, or should know, in light of all
of the surrounding facts and circumstances that
A does not intend to be bound to sell Primo for
$110. This is not a special rule. It is simply an
application of the theory of objective manifesta-
tion of intent (§ 7, supra) B knows that A does
not intend to sell Primo for $110 and no purpose
is served by a rule of law that would permit B to
attempt to enforce such a bargain.
§ 14. Mistake as to terms by an intermediary.

Consider the following situation: S delivers an
offer to the 7 Telegraph Company to transmit to
B which states: ‘Will sell 800,000 laths delivered
at your address, two ten net cash.” Through
fault of the 7 Company, the message is transmit-
ted as an offer to sell for “two net cash”. B ac-
cepts without knowing and without having reason
to know of the mistake.
[16]
MISTAKE OR AMBIGUITY § 16
By the better view, although there is a split of

authority in the cases, B has an enforceable con-
tract at “two net cash”. These cases hold that the
offeror assumes the risk of a mistake, having
chosen his means of transmission. (S may have
a cause of action for damages against the 7 Com-
pany depending upon the contracts between those
parties and applicable regulatory enactments.)
§ 15. Mistake as to person. If an offeror mis-

directs his offer to the wrong person, the latter
cannot accept the offer if he knows or has reason
to know that he was not the intended offeree.
Under the objective theory of contracts, however,
if he neither knows nor has reason to know of
the misdirection, the unintended offeree may ac-
cept, creating an enforceable contract.
§ 16. Ambiguity. On the rationale that where

only one is careless, he should suffer, but where
both parties are careless, neither should be bound
unless both parties intended the same meaning,
the following rules have developed:
(1) If both parties neither knew nor should
have known of an ambiguity in an offer, there is
a binding contract only if the offeree gives the
same meaning to the words that the offeror did.
For example, S offers to sell cotton to B to arrive
on the Peerless. There are two ships Peerless,
one to sail in October, the other to sail in Decem-
[17]
§ 16 THE OFFER
ber. According to Raffles v. Wichelhaus, 1 Hurl

& Co. 906 (Eng.1864), if neither party knows of
the ambiguity in the offer and both intend differ-
ent ships, no contract results. It should be noted
that in these ambiguity cases we are concerned
with the subjective intention of the parties. This
is an exception to the objective theory of con-
tracts;
(2) If both parties knew or should have known
‘of the ambiguity in the offer, there is no contract
unless both give the same meaning to the ambig-
uous word or term. Assume the Raffles situa-
tion, supra, and that B and S both know that
there are two ships Peerless. If S intended the
December ship and B the October ship, no con-
tract results. If, on the other hand, both intend
the same ship, a contract results;
(3) If the offeror knew or should have known
of the ambiguity in his offer and the offeree
should not have and did not, there is a contract
according to the offeree’s understanding; con-
versely, if the offeror did not know and should
not have known of the ambiguity in his offer, but
the offeree knew or should have known, there is a
contract according to the offeror’s understanding.
Assume the Raffles situation, swpra, and that S
knows there are two ships and B does not. There
is a contract for what B had in mind when he ac-
cepted, even if S subjectively intended the other.
This apparent inequity is resolved under the ra-
[18]
RECEIPT OF THE OFFER § 18
tionale that 8S, by being aware of both ships,

could have prevented the ambiguity by being
more specific, whereas B could not, since he was
not aware that one existed. Thus, the rationale
that where one is careless he should suffer.
C. RECEIPT OF THE OFFER BY THE

INTENDED OFFEREE
§ 17. Generally. Since the purpose of enforc-

ing contracts is to prevent disappointment of ex-
pectations caused by another’s promise, an offer
must be received before it can be accepted. Hence,
if R writes a definite offer to sell a certain car to H
for $1,000, and at the same time, # writes an of-
fer to R to buy the same car for $1,000, no con-
tract results. Thus, identical cross-offers will not
produce mutual assent, since neither party’s ‘‘ac-
ceptance”’ has been prompted by the expectation
of a contract.
§ 18. Communication in intended manner, An

offeree does not have the power to accept an of-
fer until it has been communicated to him in a
manner intended by the offeror. Learning of an-
other’s intention to make an offer to you does not
give you the power to accept. Thus, if the Direc-
tors of A Corp. instruct the President to make an
offer to B, and B learns of this action before the
President communicates the offer, B has not re-
[19]
§ 18 THE OFFER
ceived an offer and has no power to form a con-

tract by giving his acceptance.
However, if an offeror volitionally communi-

cates an offer although not intending to do so,
the offer is effective when received by the offeree
so long as the offeree does not know or have rea-
son to know of the mistake. Thus, suppose the A
Corp. President dictated and signed a letter
- which contained the proposed offer to B but then
decides not to mail it. If the letter is accidental-
ly mailed to B, it will be an effective offer when
B receives it. This assumes that B had no way
to know that the mailing of the letter was acci-
dental.
These rules are designed to protect the reason-

able expectancies of a person in the position of
the offeree. He has the right to treat a letter
from the A Corp. President as meaning or intend-
ing what it reasonably communicates.
If the letter which the President of A Corp.

signed but did not intend to mail were stolen by a
thief who subsequently mailed it, the general rule
is that no offer is communicated to the offeree.
In this case the offeree’s reasonable expectancies
are not protected. Query whether the “offeree”’
could maintain an action for negligence if the
President of A Corp. did not exercise reasonable
care in protecting the letter from theft or notify-
ing the “offeree” of the fact that it was stolen.
[20]
DURATION OF OFFER § 21
§ 19. Assignment of offers. Since an offer

is intended only for the person to whom the offer-
or communicates, an offer is non-assignable to
another. An exception to this rule is the paid-for
offer, otherwise known as the option. If an of-
feree has given consideration for an offer, he has
a property right therein which is ordinarily as-
signable. The assignee may then accept provided
the performance of the offeror is of an assignable
nature and there are no other limitations upon
the power to assign (§§ 146-167, infra).
D. DURATION OF OFFER
§ 20. Generally. An offer does not remain
capable of being accepted forever. Rather, the
allowable period of acceptance terminates within
a certain amount of time, depending upon the
facts and circumstances of the particular case.
Moreover, an offer is terminated by the death or
insanity of the offeror or offeree, by the destruc-
tion of the subject matter of the offer, or by super-
vening illegality of the proposed contract.
§ 21. Termination of the offer by lapse of

time as stated therein. An offer terminates upon
the lapse of the time stated in the offer, and an
acceptance effectively dispatched after that time
is merely a counter-offer.
Under the majority rule, the time for accept-
ance of an offer begins when it is received unless
[21]
§ 21 THE OFFER
the offeror states to the contrary in his offer.

For example, consider B sending S an offer to
buy Blackacre, giving S ten days to accept, the
offer having been sent on July 1. Without delay
in transit, the offer arrives on July 3. Under this
majority rule, S has until midnight of the 13th to
accept where B has said nothing to the contrary.
_ § 22. Lapse of time due to delay in communi-

cation. In this instance, the Restatement provides
that the offer begins to run when it would have
been received but for the delay if the offeree
knew or should have known of the delay; if the
offeree does not and should not know of the de-
lay, then the offer begins to run from the time of
the delayed receipt.
Assuming the same hypothetical facts as set
forth in § 21, supra, consider the offer having ar-
rived ten days after mailing. Under the above
rule, if S has reason to Know of the delay, he
would have only until the 13th to accept, whereas
if he did not, nor had reason to know, he would
have until the 21st. He is charged, however,
with knowledge of the postmark. All that need
be shown, then, is that he knew or should have
known of the time required in the normal course
of transit.
§ 23. Termination by lapse of a reasonable

time when none is stated. If no time is stated
in the offer, it will lapse after a reasonable time.
[22]
What is a reasonable time is a question of fact,

dependent upon the nature of the contract, busi-
ness usages, and other circumstances which the
offeree either knows or should know. The nature
of the subject matter, e. g. a fluctuating commod-
ity, and the mode of communication, e. g. tele-
graph, are of importance in that they indicate the
degree of urgency connected with the transaction.
In some cases, even twenty four hours may be an
unreasonable time.
§ 24. Termination by death or destruction of

a person or thing essential for performance. If
death or destruction of a person or thing essential
for performance occurs subsequent to the making
of the offer and before acceptance, it terminates
the offer. Consider S offering to sell a particular
cow to B. Destruction or death of the cow termi-
nates the offer if it occurs prior to acceptance.
Note that if the cow were dead when the offer
was made, the problem becomes one of ‘‘mistake”’
(§ 135, infra). And if the cow died after accept-
ance, then the problem would be an impossibility
or “risk of loss’ problem (§ 208, infra).
Consider also S offering to sell B certain goods
as only X will designate. Death of X prior to ac-
ceptance generally terminates the offer. Had B
accepted before the death of X, however, the
problem becomes one of excuse of conditions (§§
193 and 200, infra).
[23]
§ 25 THE OFFER
§ 25. Termination by death or insanity of the

offeror or offeree. Death or insanity of the of-
feror terminates the offeree’s power of accept-
ance, and despite the objective theory of con-
tracts, no notice to the offeree of these operative
facts is necessary. The death or insanity of an
offeree also terminates contractual possibilities,
not because the offer is terminated but because
only the intended offeree can accept unless con-
sideration had been given for the offer and the
same were capable of assignment.
§ 26. Termination by supervening illegality.

If, after an offer is made, but prior to acceptance,
the proposed contract becomes illegal, the offer is
terminated. Hence, if R offers to lend H $1,000
for one year at 12% interest, and thereafter, but
prior to acceptance, a usury law is enacted pro-
hibiting interest at more than 10% on future
loans, the offer is terminated. Note that if the
proposed contract were illegal when the offer was
made, the problem would be one of illegality as a
defense (§§ 127-134, infra), whereas if it became
illegal after acceptance but prior to timely per-
formance, the problem would be one of impossibil-
ity (§ 207, infra).
§ 2%. Termination by the express rejection of

the offeree. A direct, unqualified rejection ter-
minates an offer, and it cannot thereafter be re-
vived by the offeree’s attempt to accept it. An
[24]
offer is rejected when the offeror is justified in

inferring from the words or conduct of the offeree
that the offeree does not intend to accept the
offer nor take it under advisement. Under the
majority view, a rejection is not effective until it
is received by the offeror. Thus, the offeree’s
power to create a contract by accepting is not
terminated merely by sending a rejection. Send-
ing of a rejection may, however, change the time
when an acceptance is effective (§ 62, infra).
§ 28. Termination by counter-offer. A coun-

ter-offer is an implicit rejection of the offer. To
illustrate, consider the following:
(1) S offers to sell Blackacre for $5,000 to B.
B replies: “I will pay you $4,000 cash and a 60-
day note for the balance.”’ Since the offer im-.
plicitly contains the term of cash, this is a coun-
ter-offer and rejects the original offer on receipt
by S.
(2) On the other hand, S makes the same offer
as above. B replies: “Am keeping your offer un-
der advisement. Will you take $4,000 cash and a
note for the balance?” This communication,
which expressly reserves the offer has been called
an “inquiry into terms” and does not constitute a
counter-offer.
Clearly making inquiries with regard to possi-
ble modifications, while expressly reserving con-
Schaber & Rohwer Contracts—4 [25 ]
§ 28 THE OFFER
sideration of the offer, should not constitute a

counter-offer. Hence, a later, unqualified and
timely acceptance would be effectual.
§ 29. Revival of the offer by the offeror. Nor-

mally, if an offeree makes a counter-offer which
rejects the offer, a later-attempted acceptance
will constitute a second counter-offer incorporat-
ing by reference the terms of the original offer.
However, a contract could still result in such a
situation if the offeror, after receiving the coun-
ter-offer, either expressly or implicitly revived
the offer and the offeree then communicated his
acceptance. To illustrate, suppose R offers to
sell Blackacre to E for $5,000 stating that the offer
will remain open until July 15. On July 5, E re-
plies: “T’ll pay you $4,500.” R replies: “Not in-
terested in those terms.” A court has held that
such words show an intention implicitly to revive
the original offer. Hence, if H sent a timely and
unequivocal acceptance by the 15th, a contract
would result.
E. REVOCABILITY OF THE OFFER
§ 30. Direct revocation. The common law of

contracts contains the premise that all offers are
revocable prior to the time of acceptance. Ex-
ceptions exist to this general rule where there is
an option contract (§ 33, infra), where there is
[26]
REVOCABILITY OF THE OFFER §8 381
detrimental reliance by the offeree upon a prom-

ise not to revoke the offer (§ 34, infra), where
the offer is made irrevocable by statute (§ 35, in-
fra), or, in the case of an offer for a unilateral
contract, where the offeree has begun to perform
the requested act (§ 36, infra). But, in the ab-
sence of such exceptions, an offeror may revoke
prior to acceptance even where he has promised
to keep the offer open for a stated period of time.
Normally offers are revoked by words commu-
nicated to the offeree which indicate that the of-
feror no longer wishes to be bound by the terms
of his offer. The offeror need not say “I re-
voke’’. It is sufficient if he states “You have
missed a wonderful opportunity” or ‘I am recon-
sidering the question about selling Blackacre.”
The question is whether the reasonable man in
the position of the offeree would understand that
the offeror no longer intends to be presently
bound by the terms of his offer.
§ 31. Indirect revocation. Where an offeree

receives information from a reasonably reliable
source which indicates that the offeror no longer
intends to be bound by the terms of his offer, this
is ordinarily effective as a revocation of the offer.
Where the offer was to sell a parcel of land or a
unique chattel or was an offer to give services for
a stated period, learning from a reliable source
that the offeror has sold the land or chattel to
[27]
§ 31 THE OFFER
another or that he has contracted to work for an-

other during the contemplated period is enough
to manifest to a reasonable man that the offeror no
longer intends to be bound by the terms of his of-
fer. A more difficult question is presented where
the offeree learns from a reliable source that the
offeror is having second thoughts about his offer.
This may not be enough to indicate to a reason-
. able man that the offeror no longer intends to be
bound.
§ 32. Communication of the revocation. As

should be readily apparent, the common law is
concerned with protecting the reasonable expecta-
tions of the parties, and for that reason, the of-
feree is not charged with knowledge of any at-
tempted revocation which has not yet been re-
ceived by him. The common law rule requires
that a revocation be received before it is effec-
tive. Thus, an acceptance which is effective
prior to the receipt by the offeree of a revocation
will create a contract.
Under the very old common law principles, an
offer was revoked when an offeror changed his
mind. This was the product of an emphasis upon
the concept of a subjective ‘‘meeting of the
minds” which failed to consider the realities of
the offeree’s position. As early as 1818 (Ad-
ams v. Lindsell, 1 B. & A. 681), this concept was
discarded.
[28]
REVOCABILITY OF THE OFFER § 33
A few states (including California, South Da-

kota, North Dakota and Montana) have statutes
which provide that revocations are to be treated
in like manner as acceptances. The implication
of these sections is that a revocation is effective
when sent if sent by an authorized means (§ 56,
infra). At least one of these states (South Dako-
ta) has so interpreted this statutory language.
§ 33. Irrevocability of offers supported by con-

sideration. If legally sufficient consideration is
given for an offer to keep it open during a stated
period of time, an option contract is created
thereby. In this situation, a separate option con-
tract exists. The offeror has promised not to re-
voke his offer in exchange for an agreed upon
consideration “‘paid’”’ by the offeree. The offer is
irrevocable for the stated period, and like other
contracts, the option contract is not terminated
by the subsequent death or insanity of the offer-
or or offeree.
Although there are no significant cases on the
point, consider the situation of the option con-
tract in which the offeror has agreed not to re-
voke his offer, but the offer is expressly rejected
by the offeree. Since the offeree has already
paid his consideration, the option is a separate
contract executed on one side, and the offeror is
under a legal duty to keep it open. Hence, logic
dictates that this duty is not discharged by mere
[29]
§ 33 THE OFFER
rejection in the absence of consideration to sup-

port the release or a justifiable subsequent change
of position by the offeror.
As to the amount of consideration required to
support the option contract and render the offer
irrevocable, a small amount, e. g. $1, will ordinar-
ily suffice. However, where the consideration
was not paid and the facts indicate that there
_ was no intention to pay it, most courts will find
the option agreement to be a sham and permit
the offeror to revoke his offer.
§ 34. Irrevocability of offers supported by

promissory estoppel in lieu of consideration. One
of the greatest policy problems in the area of of-
fer and acceptance poses the question of whether
so-called ‘promissory estoppel” can be used to
make an offer irrevocable. This problem poses
itself most often in the form of controversies be-
tween general contractors and sub-contractors.
While there is a division of authority, the trend
seems to be in favor of making the offers irrevo-
cable where the offeror promises not to revoke
and the offeree reasonably relies upon that prom-
ise to his detriment.
Representing one view is James Baird Co. v.
Gimbel Bros., 64 F.2d 344 (2d Cir., 1933). Gen-
eral contractor, after receiving a supplier’s bid
on linoleum, used the latter’s figures in mak-
ing its bid on a job with a state government.
[30]
REVOCABILITY OF THE OFFER _ § 34
The supplier bargained for the general contrac-

tor’s promise to pay for the materials, but gave a
gratuitous promise not to revoke its offer. Prior
to acceptance, but after plaintiff had changed its
position by posting a forfeitable bond with the
government and by being in a position where it
would lose the government job if it was forced to
withdraw, the supplier revoked his offer. The
general contractor did not withdraw its bid, and
the government awarded it the contract. The
general contractor then tried to accept. supplier’s
bid, contending that the use of the bid was an act
which created an option and that its change of
position in reliance on the bid made the bid irrev-
ocable. The court rejected this argument holding
that the use of the bid did not create an option
because the supplier’s offer was one for a bar-
gained exchange. Hence the doctrine of promis-
sory estoppel or detrimental reliance did not ap-
ply. The decisions in line with Baird in effect
mean that it is not justifiable for an offeree to
change his position in reliance upon a gratuitous
_promise not to revoke. Supporting this view is
the rationale that the general contractor can pro-
tect himself either by getting an option or by en-
tering into a contract with the supplier which
will be effective if the general contractor gets the
construction contract.
The more recent line of cases is illustrated by
the California case of Drennan v. Star Paving
[31]
§ 34 THE OFFER
Co., 51 Cal.2d 409, 333 P.2d 757 (1958), which in-

volved substantially similar facts as Baird. It
was held that although the sub-contractor did not
expressly promise not to revoke his bid, such a
promise was reasonably implied. The general
contractor’s change of position in reliance on the
bid being irrevocable was justifiable, and this de-
trimental reliance made the sub-contractor’s offer
- irrevocable.
The Drennan opinion clearly stated that if the
general failed to accept the sub-contractor’s bid
promptly after the general was awarded the con-
tract, the sub-contractor was no longer bound.
Also, any further negotiation or counter-offer by
the general would permit the sub-contractor to
revoke.
§ 35. Irrevocability of offers by statute. Var-

ious states have adopted statutes which make cer-
tain types of offers irrevocable. Where a mer-
chant making an offer involving a transaction in
goods states in writing that the offer will not be
revoked, the offer is irrevocable for the stated pe-
riod of time or for a reasonable time if no time is
stated, but in either event, not to exceed three
months, (U.C.C, Sec. 2-205). Numerous jurisdic-
tions provide that bids (offers) made to public
agencies are irrevocable for stated periods.
There are a few state statutes making other types
of offers irrevocable where the offeror has prom-
[32]
REVOCABILITY OF THE OFFER § 36
ised not to revoke, and local law must be consult-

ed in each case.
§ 36. Irrevocability of offers for unilateral con-

tracts. There are various theories justifying the
result, but almost all jurisdictions conclude that
in an offer for a unilateral contract, once the of-
feree has begun to perform, the offeror may not
revoke but must give the offeree reasonable time
and opportunity to complete the act or forebear-
ance requested. Once the offeree has commenced
to do acts which are clearly referable to the con-
tract, acts which constitute performance rather
than mere preparation to perform, the offeror is
bound to permit the offeree to finish the request-
ed act even though the offeree is not obligated to
finish.
With some exceptions, cases draw a clear dis-
tinction between preparation, no matter how in-
volved or expensive, which does not destroy the
offeror’s right to revoke, and commencing per-
formance which, however small or minor, pro-
tects the offeree from revocation. One must
carefully analyze precisely what acts the offeror
requested to determine whether the offeree is
preparing to perform or has commenced to per-
form the requested acts. A minority position
protects the offeree where he has undertaken sig-
nificant preparation for performance.
[33]
§ 36 THE OFFER
ANALYSIS DIVIDER
Once there has been a valid offer communicated

(containing language of offer and the requisites
for definiteness and certainty) we must see if
there has been a timely, unequivocal and appro-
priately unilateral or bilateral acceptance proper-
ly given.
[34]
Ill. THE ACCEPTANCE
A. CHARACTERIZATION OF THE PRO-

POSED CONTRACT AS UNILATERAL
OR BILATERAL
§ 37. Generally. Offers are either offers for

the formation of unilateral or bilateral contracts.
It is usually necessary to properly characterize
the nature of the proposed contract in order to
determine whether the purported acceptance is
sufficient to create a contract.
An offer in which the offeror promises to do or

not to do something in exchange for a promise by
the offeree to act or refrain from acting in a cer-
tain manner is an offer for a bilateral contract.
The proposed contract is bilateral, or “two-sided”,
because if the offeree accepts by making the re-
quested promise, both sides will be contractually
bound at once. This is the more common type of
contract.
An offer in which the offeror makes a promise

in exchange solely for an act or forbearance by
the offeree is an offer for a unilateral contract.
This type of contract is “‘one-sided” because only
the offeror, who makes the promise, will be legal-
ly bound. The offeree may act or refrain from
acting as requested, but he cannot be sued for
[35]
§ 37 THE ACCEPTANCE
failing to perform or even abandoning perform-

ance once commenced because he is not making
any promises.
A word of caution is justified. Virtually all of-

ferors make their offers because they wish to in-
duce the offeree to act or refrain from acting ina
certain way. The critical question is not whether
the offeror was ultimately seeking an act or for-
‘bearance; the critical question is whether he
wanted the offeree to promise to act or forbear
(and subsequently to fulfill his promise), or
whether he simply wanted an act or forbearance
with no promise by the offeree.
By way of example: (1) The offer states: “If

you will meet me at the airport and drive me
home when I return next Thursday at 11:00 P.M.,
I will pay you $10.” Certainly the offeror is re-
questing an act, but it would be reasonable to
conclude that he wants a promise to act from the
offeree. It may be properly construed as an offer
for a bilateral contract. (2) The offer states: “I
will sell you my book if you will promise to pay
me $5 at the end of the semester. You may ac-
cept by waving your hat at me in class.” The
waving of the offeree’s hat is an act, but it is
being used as a method of communicating a
promise to pay $5. The contract, if made, will be
a bilateral contract, a promise to deliver a book
in exchange for a promise to pay $5. (3) The
[36]
UNILATERAL OR BILATERAL § 38
offer states: “I will pay you $50 if you will swim

across the Hudson River at Albany, N.Y. at noon
on July 4.”” Very possibly this is an offer for an
act—an offer for a unilateral contract—but there
is still room to analyze the circumstances to de-
termine whether the offeror reasonably contem-
plated a promise to perform. With the possible
exception of such things as reward offers, one
might say that there are some offers which clear-
ly seek bilateral responses, but there are very few
offers which are so clearly for unilateral con-
tracts that the matter is not open to discussion.
§ 38. Significance of unilateral or bilateral

determination. It is important to understand that
at common law whether an offer is one for a uni-
lateral contract or a bilateral contract is theo-
retically determined from the offer itself, inter-
preted in light of surrounding facts and circum-
stances. Literally applied, this means that the
offeree may act at his peril when he attempts to
determine the nature of the offer.
The first Restatement takes the position (§ 31)

that in cases of doubt, an offer should be treated
as one for a bilateral contract. The rationale is
that this best protects both parties because in a
bilateral contract both parties are bound from the
outset. Obviously, this does not help the offeree
who has begun to perform the requested act but
not “accepted” by promising to perform.
[37]
§ 39. Modern trends re interpreting offers as

unilateral or bilateral. There appears to be no
case law or statutes which deny to the offeror the
right to make an offer which clearly calls for a
bilateral or unilateral contract. However, where
it is not clear which type of contract is sought,
the offeree may have the right to elect how to
treat the offer.
The earliest changes in this area were not ex-

pressly noted in the cases. Judges and juries
simply exhibited a tendency to interpret the offer
as the offeree in fact interpreted it. A few cases
and the proposed second Restatement (§§ 29 and
31) take the position that where the offeror’s in-
tention is not clear, the offeree has the election to
treat it as an offer for a unilateral or bilateral
contract. The U.C.C. provides that offers for the
purchase of goods which do not clearly indicate
how acceptance is to be made may be accepted ei-
ther by prompt shipment or a prompt promise to
ship (U.C.C. Sec. 2-206[1][b]). We may be wit-
nessing a trend which will give all offerees the
election to treat offers as being for unilateral or
bilateral contracts where the offeror’s intention is
not clear.
§ 40. Unilateral vs. bilateral, a final test. In

a unilateral contract, only one side is bound to
perform. If you find that the offeror manifested
[38]
BILATERAL CONTRACTS § 42
an intent that the offeree should, at some point,

be bound to do something, then his offer was for
a bilateral contract.
§ 41. Reverse unilateral contracts. The re-

verse unilateral contract is generally defined as
an act in exchange for a promise. For example,
if A gives his book to B, stating, ‘“‘This book is
yours so long as you promise to pay me $5 for it
a week from today’, a reverse unilateral contract
is created upon B’s promise to pay, since title
would be transferred at that time as well as pos-
session. The reverse unilateral analysis may be
verified by determining that subsequent to forma-
tion, the offeror has only a right to payment, and
the offeree has only the duty to pay.
B. BILATERAL CONTRACTS, GENERALLY

§ 42. Parties entitled to accept. An offer
made to the general public, 1. e. a general offer,
may be accepted by anyone. On the other hand,
an offer made to a particular individual may be
accepted only by that individual. The exception
to this rule is the case of the paid-for offer, or
option, which is properly assignable (§ 19, supra,
and §§ 141-167, infra). In addition, because
contracts are enforced only to protect expectations
reasonably created by promises, the offeree must
know of the existence of the offer in order to ac-
cept it.
[39]
§ 43. Intention to accept. In offers for bi-

lateral contracts, the offeree’s intention to accept
is not relevant unless:
(1) the acceptance was sent non-volitionally;

(2) the acceptance was to be given by an act,
done to manifest a promise, which might have
more than one reasonable interpretation, e. g.,
the hat waving example in § 37, supra;
(3) in certain cases where silence may consti-

tute acceptance (§ 53, infra).
Therefore, if an offeree signs an acceptance but

decides not to mail it, his intention not to accept
is immaterial if the letter is in fact mailed acci-
dently, and a contract results. The same logic
applies as in the case of the inadvertently-mailed
offer (§ 18, supra).
§ 44. Proper notice of acceptance. As a gen-

eral rule, notification that a bargained-for prom-
ise is being given must be dispatched in bilateral
contract cases. There are two notable excep-
tions.
First, if the terms of the offer expressly or im-

pliedly dispense with the necessity that the prom-
ise be ‘‘communicated”’ no dispatch of the accept-
ance is necessary. For example, consider A writ-
ing to B stating: “I promise to buy one Model 26
water softener from you. This proposal becomes
[40]
a contract when approved by an executive officer

of your company at your office in Chicago.”
If a proper officer writes ‘approved”’ and ini-
tials the acceptance, there is a contract. Hence,
there is no need to dispatch notice to form the
contract. However, under the better view, A’s
duty to perform does not arise unless within a
reasonable time B sends notice to A of the fact of
acceptance.
At least by the view of the Restatement of
Contracts, the second exception occurs when the
offer expressly or impliedly provides that the of-
feree’s silence will constitute acceptance, since no
notice of intent to remain silent in order to ac-
cept the offer is necessary to form the mutual as-
sent (§ 53, infra).
§ 45. Unequivocal acceptance required. An

acceptance of an offer must be unequivocal and
must conform to the terms of the offer. An ac-
ceptance is equivocal if the offeree insists on
something to which he is not entitled; but it is
unequivocal if he insists on something implicitly
contained in the offer or to which he would be
entitled as a matter of law. For purposes of il-
lustration, consider the following three examples:
(1) A makes an offer to B. B replies, “I ac-
cept. Prompt acknowledgement must be made of
receipt of this acceptance.” Insisting on ac-
knowledgement is something to which B is not en-
titled, hence this is not unequivocal and would

most likely be found to be a counter-offer at com-
mon law. If B had said “would appreciate
prompt acknowledgement of receipt of this ac-
ceptance”, the acceptance would be unequivocal.
(2) A offers to sell Blackacre to B for $5,000.

B writes: “I accept. Send signed contract at
once.” <A contract results. But if B had written
- that he would accept on condition that he receive
a signed contract in the return mail, the result
would be otherwise.
(3) A offers to sell Blackacre to B for $5,000.

B replies: “I accept, provided that the land is
free of mortgages.” A contract results since B
had the legal right to insist upon a conveyance
free of encumbrances. The same result would
follow if B had insisted upon a “good title’. But
most cases hold otherwise if the buyer insists
upon “perfect title’, since title need not be per-
fect to be marketable.
§ 46. The “grumbling acceptance”. An ac-

ceptance is nonetheless unequivocal if the offeree
merely “grumbles” at the price, e. g., A offers to
sell Blackacre to B for $5,000. B replies: ‘Your
price is outrageous, and if I didn’t need the land
so badly I would never accept. Enclosed is my
check for $5,000 and a deed for you to sign.” A
contract results. His complaint about the price
[42]
makes this a so-called “grumbling acceptance”.

He had the legal right to insist upon a deed being
signed.
§ 47. The acceptance requesting change. An

acceptance which requests a change or addition
to the terms but does not insist upon them is
nonetheless unequivocal, e. g., A offers to sell
Blackacre to B for $5,000. B replies: ‘I accept.
I hope that if you do not need all cash you would
accept half of the price a year from now.” A
contract results because B did not insist on the
modification nor did he condition his acceptance
with it.
§ 48. The promise to agree later. An accept-

ance which implies the terms are still to be
agreed upon is. equivocal, e. g., A offers to sell
Blackacre to B. B replies: “I have decided I will
accept and have spoken to my agent, X, who will
arrange terms with you.” No contract results,
since the acceptance implies that terms—possibly
varying the requirement of cash—are to be ar-
ranged.
§ 49. Transactions in goods and the U.C.C.

The common law rules pertaining to acceptance
discussed in §§ 45, 47 and 48, supra, may reason-
ably serve the needs of the public in land con-
tracts and probably in service contracts. How-
ever, the requirement that the acceptance be a
[43]
“mirror image” of the offer does not conform

with modern practices of the business community
in transactions in goods.
A writes B offering to purchase a certain gen-
erator for $2,000 for delivery by October 1, f. o.
b. A’s place of business. B responds that he is
“filling the order, but . . .” What follows
may be a statement that the model ordered is no
‘ longer made and B is substituting a slightly dif-
ferent model; or, that B will deliver on October
2; or, that delivery will be f. o. b. B’s place of
business with a commensurate reduction in the
price; or, that the price has increased to $2,150.
Following common law rules, all of B’s respons-

es are counter-offers and there is no contract.
Under the U.C.C., a contract may exist. In com-
mon practice, A may not reply unless the change
is unacceptable to him, and if B does not hear
from A, B might ship the generator assuming all
is agreeable. Since there is still no contract at
common law, neither party would have the pro-
tection which a contract would give. Various
provisions of the U.C.C. are designed to cure
problems of this nature and provide legal rights
and remedies consistent with what the parties
should reasonably expect.
Before attempting to analyze the U.C.C., one

should note that A and B have not expressly
agreed to the same terms. If a dispute develops
[44]
concerning the term which B attempted to add or

modify, you cannot find a contract without hold-
ing one of the parties to a term to which he did
not expressly assent.
U.C.C. provisions which avoid the requirement
of a definite offer and an unequivocal acceptance
include the following sections which should be
read and studied:
U.C.C. Sec. 2-204(1) and (2) permit a court to
find a contract even though one cannot identify
the time when, or manner in which it was
formed. Thus, one can take a series of communi-
cations, none of which contain a definite offer or
an acceptance of that offer, and yet find that a
contract exists where the parties conducted them-
selves as though they had a contract.
U.C.C. Sec. 2—207(3) permits a court to find a
contract to exist where the parties have engaged
in conduct which recognizes the existence of a
contract even though their writings do not es-
tablish a contract. This subsection directs the
court to apply other provisions of the U.C.C. to
supply the terms as to which there was disagree-
ment.
U.C.C. Sec. 2-207 (1) provides in part:

“(1) A... +. + +expression of acceptance
: operates as an acceptance even though
it states terms additional to or different from
those offered . . .” The stated exception to
[45]
this is where the offeree expressly makes his ac-

ceptance “conditional on assent to the additional
or different terms.’’ (Where the offeree does ex-
pressly require that the offeror agree to the of-
feree’s additional or different terms, his commu-
nication acts as a counter-offer.) Note that
there is no language in the code limiting the ap-
plication of this rule to non-material changes.
There is nothing which limits the application of
this rule to merchants.
U.C.C, Sec. 2-207(2) provides that the addition-
al terms which the offeree proposes are to be treat-
ed as an offer to modify the contract which has
already been formed. Where one or both parties
are not merchants, this offer to modify is pre-
sumably to be treated like any other offer to
modify a contract at common law (U.C.C. Sec.
1-103). If both parties are merchants and the
additional terms are nonmaterial and the offeror
did not state in his offer that he would not accept
modifications, then silence by the offeror will be
treated as acceptance of the offeree’s proposed
modifications. (Note that U.C.C. Sec, 2—207(2)
refers only to “additional” terms, not “different”’
terms.)
§ 50. Application of U.C.C. Sec. 2-207. Con-

sider an oversimplification of the facts of Roto-
Lith, Ltd. v. F. P. Bartlett & Co., 297 F.2d 497
(1st Cir. 1962). Buyer made an offer to pur-
[46]
chase a barrel of glue. B made no mention of

warranties, and therefore, under U.C.C. Sec. 2—
314, Seller could be liable for substantial damages
if he delivered glue which was not of merchanta-
ble quality and if this defect caused B harm.
S delivered a barrel of glue after sending an ac-

knowledgement stating that he was selling the
glue without any warranties as to quality but
would give B another barrel of glue if the first
one was defective. (The U.C.C. permits such a
denial of warranties. U.C.C. Sec. 2-316.) B ac-
cepted the glue, paid for it and used it. It did
not stick and B suffered extensive damages.
At common law, a court would presumably find

that B made an offer to purchase glue with an
implied warranty of merchantability. By ship-
ping the glue with documents indicating that the
remedy for breach of warranty was limited to re-
placing the glue, S was not accepting B’s offer
but was making a counter-offer. When B accept-
ed and paid for the glue, he was accepting S’s of-
fer, and there would be a contract on the terms S
proposed.
Under a literal application of U.C.C. Sec. 2-

207(1), one would find that B had made an offer
to purchase with implied warranties. S’s response
is presumably a ‘definite and seasonable expres-
sion of acceptance” which is not in fact “express-
ly made conditional on assent to the additional or
[47]
different terms’. It thus operates as an accept-

ance even though it contains additional or differ-
ent terms. A contract can thus be found when
the glue is shipped (U.C.C. Sec. 2-206 (1) (b)).
If S’s attempt to limit his liability for breach of
warranty is treated as an additional term, it
should be construed as a proposal to modify the
contract (U.C.C. Sec. 2-207(2)). Since it is pre-
’ sumably a material modification, B will not be
found to have assented to it by his silence even if
B is found to be a merchant. The net result is a
contract on B’s original terms with S having full
liability for breach of warranty.
If S’s attempt to limit his liability for breach of
warranty is treated as a different term, it would
appear that one must turn to U.C.C. Sec. 2-
207(3) to resolve the question. That subsection
directs that the court enforce the terms on which
the writings of the parties agree “together with
any supplementary terms incorporated under any
other provisions of this Act.” Since the writings
of the parties did not agree on the scope of liabil-
ity for breach of warranty, and that is the issue
in the Roto-Lith case, the central question re-
mains unanswered. One could turn to U.C.C.
Secs. 2-314 and 2-715(2) (b) to support B’s con-
tentions that warranty liability exists, but one
could also turn to U.C.C. Secs, 2-316, 2-718 and
2-719 to support S’s contention that his warranty
liability is limited to replacing the glue.
[48]
In the Roto-Lith opinion, the court stated: ‘To

give the statute a practical construction we must
hold that a response which states a condition ma-
terially altering the obligation solely to the disad-
vantage of the offeror is an ‘acceptance
expressly . . . conditional on assent to the
additional . . . terms’” (deletions in origi-
nal) (297 F.2d 497, 500).
The court thus gave S’s response the legal af-
fect of being a counter-offer which B accepted
when he accepted and paid for the glue. A like
result could have been reached by concluding that
S’s actions and writings did not constitute an “‘ex-
pression of acceptance’’,
§ 51. Further thoughts on U.C.C. Sec. 2-207.

Until this section is rewritten or subjected to ex-
tensive interpretation, it is going to be the source
of confusion. Consider the application of U.C.C.
Sec, 2-207(1) and (2) to the responses B made to
the generator offer in Sec. 49, supra. When B re-
sponds that he will fill the order with a new mod-
el as the old one is no longer manufactured, can
B be said to be accepting A’s offer for the old
model? When B replies that he will deliver on
October 2, is he agreeing to deliver on October 1
and proposing a modification giving himself one
more day? When B proposed the change in place
of delivery with a compensating adjustment in
price, we may be close to the problems which the
[49]
draftsmen of U.C.C. Sec. 2-207 wanted to resolve.

But has B agreed to deliver f. 0. b. A’s place of
business? U.C.C. Sec. 2-207(1) says yes. When
B agrees to ship, but for $2,150 instead of $2,000,
will a court find that he has entered into a con-
tract at the $2,000 price? Do you think A will
agree to B’s proposed modification which would
simply raise the price $150? If the price change
_is a “different” term, is there a contract under
U.C.C. Sec. 2-207(3) with the missing element of
price to be fixed by the court as a “reasonable
price’ under U.C.C. Sec. 2—305(1)? Did either
party agree to this? There is very little, if any,
applied law in the area but the authors suspect
that the answer must be no.
One key to the proper application of U.C.C.

Sec. 2-207 may lie in analyzing the meaning of
“a definite . . . expression of acceptance’’.
It has been suggested that a communication by
an offeree such as those set forth in § 49, supra,
is not an “expression of acceptance” but an ‘“‘ex-
pression of counter-offer”’. This neatly avoids
having to face the problems involved in applying
U.C.C. Sec. 2-207. But this interpretation ap-
pears to negate the whole impact of sub-section
(1) and return us to the common law rules.
Careful analysis of the comments to U.C.C. Sec.

2-207 adds to the confusion. In stating the pur-
poses of the changes made by the section, the au-
[50]
thors talk about responses which add “further

minor suggestions or proposals”. This is a far
cry from the language of sub-section (1): “terms
additional to or different from those offered.”
Even the common law courts found contracts for
the sale of goods when the offeree accepted and
merely made “further minor suggestions’.
§ 52. Performance as bilateral acceptance.

An offeree of a bilateral contract can accept by
doing the act for which purpose the promise was
sought, on the rationale that such act gives the
offeror the full benefit of his bargain. However,
to avoid possible hardship to the offeror, the of-
feree must (1) complete the act within the time
given for making the promise, and (2) the offer-
or must learn or be notified within that time that
the act has been done. Consider the following
example:
A writes B: “TI will pay you $100 for plowing
Blackacre if you will promise me by next Monday
at 6:00 P.M. to finish the work before the follow-
ing Saturday.” B immediately goes out and
starts to plow the field. He completes it Monday
noon and notifies A before 6:00 P.M. A contract
results, The result could be otherwise if A had
said that B could only accept by giving a return
promise. Moreover, if A had not been notified
until after the acceptance deadline, B could not
collect the contract price although an implied in
[51]
law recovery would be available to him. More-

over, B could not collect if he did not finish the
_ plowing until after the deadline for acceptance
since full performance within the time period for
acceptance is necessary to constitute acceptance.
A different situation would exist if B com-

menced plowing the field in A’s presence and A
failed to object. Here a reasonable construction
of the parties’ conduct should lead to the conclu-
sion that by commencing the work in A’s pres-
ence, B was impliedly accepting A’s offer and
agreeing to be bound by its terms. A has ac-
quiesced in this form of acceptance, and a bilater-
al contract should result.
§ 53. Silence as acceptance. Generally, silence

is not an acceptance for the reason that an offeree
cannot have the duty to reply forced upon him.
But there are some instances where silence may
operate as an acceptance.
(1) A offers to sell B his horse for $250, say-

ing “I am so sure you will accept, you need not
write me. Your silence will operate as accept-
ance.” If B remains silent, subjectively intending
to accept, Restatement Sec. 72(1)(b) indicates
that there is a contract, although this may be a
minority view. If B remains silent, subjectively
intending not to accept, there is no contract.
Hence, this is an exception to the objective theo-
[52]
ry of contracts, and the parties are bound or not

bound, depending upon B’s subjective intent.
(2) Where, due to previous dealings, the offeree

has led the offeror to understand that silence
is intended as a manifestation of assent, silence
constitutes acceptance if the offeror so under-
stands the offeree’s silence. For example, A
through salesmen, has frequently solicited orders
for goods from B, such orders being subject to
A’s approval. In every case A has approved
without notifying B and shipped the goods within
a week. A’s salesman solicits another order from
B. A receives the order but remains silent. B
relies on the order being accepted and forebears
from buying elsewhere for a week. A is bound to
fill the order or respond in damages.
(3) Where an offeree, who has an opportunity

to reject services, takes benefit of them under cir-
cumstances which would indicate to a reasonable
man that they were offered with expectation of
pay, silence constitutes acceptance. For example,
A gives several lessons on the violin to B’s child,
intending to give the child a twenty lesson course
and to charge B for his services. B, who did not
request the instruction, silently allows the lessons
to continue to their end, having good reason to
know of A’s intention. B is bound to pay the
price of the course. This is actually an example
of an implied-in-fact contract (§ 95, infra).
[53]
(4) Where an offeree exercises dominion over

things offered to him, in the absence of other cir-
cumstances showing a contrary intent, there is an
acceptance. For example, A sends B a certain
book with a letter saying, “If you wish to buy
this book, send me $10 within one week after re-
ceipt of this letter. Otherwise, notify me and I
will forward postage for its return.” 8 fails to
‘reply. B makes a gift of the book to X. B is
now under a duty to pay A the $10. The result
would be different if B simply laid the book on a
shelf.and did not read it. Note, however, that
this fourth exception to the “silence is inadequate
acceptance” rule has come under increasing at-
tack recently by consumer protection advocates.
Hence, some jurisdictions have by statute pro-
vided that any merchandise received in this man-
ner which was unsolicited is conclusively pre-
sumed to be an absolute gift (e. g., West’s Ann.
Calif.Civ.Code §§ 1584.6 and 1585.6). Note, how-
ever, that even under this modification, if the
merchandise is received through misdelivery,
such statutes might not apply.
§ 54. Reference to a written contract in the

offer or acceptance. As seen previously, an ac-
ceptance which insists on a written contract is
most likely a counter-offer (§ 45, supra). How-
ever, if the offer or acceptance makes reference
to a written contract, it must be resolved whether
[54]
MODE AND TIMELINESS § 55
the parties intended the written contract as a

mere memorial of their agreement, or as a final
consummation of their negotiations, to determine
if acceptance of the offer constitutes a binding
mutual assent. If both parties intend to be bound
by their communications, an understanding con-
tained in the offer that their agreement is to be
reduced to a formal writing does not preclude a
finding that a binding contract already exists. If
it is their intention not to be bound until the for-
mal writing has been executed, the preliminary
negotiations do not form an enforceable contract.
In determining the intention of the parties one
should consider the words used in the offer;
whether the contract is one of a class which is re-
quired to be in writing to satisfy the Statute of
Frauds (§§ 101-119, infra); whether the con-
tract is of the type customarily put in written
form, and whether the subject matter or nature
of the contract is such that a formal expression is
needed because of complexity, a large number of
details, or the amount of money involved.
C. MODE AND TIMELINESS OF ACCEPT-

ANCE IN BILATERAL CONTRACTS
§ 55. Generally. An acceptance is timely if
it is effective within the duration of the offer
(§§ 20-32, supra). Problems arise, however, as
to when the acceptance is effective when the par-
ties are not dealing in a face-to-face situation.
[55]
§ 56. Acceptance by an authorized mode. If

the offeror expressly authorizes the means to be
used by the offeree, an acceptance is effective
upon dispatch, under the majority rule, even
though the acceptance is lost or obliterated en-
route.
~ However, the majority rule does not apply un-
less the acceptance is properly addressed and pre-
‘paid. An acceptance is properly dispatched ac-
cording to a majority of courts when the letter is
dropped into the mailbox or the telegram is hand-
ed to the telegraph company and paid for.
A majority hold that the ‘“‘acceptance-upon-dis-
patch” rule still applies although the message can
be withdrawn from the post office or telegraph
company. A few cases hold that the rule arose
only because the acceptance was out of the offer-
ee’s control, and refuse to follow the rule today
since there are now ways to withdraw messages
once deposited.
§ 57. Acceptance by an impliedly authorized

mode. If the means used by the offeree is im-
pliedly authorized by the offeror, i. e. the offeree
uses the same means employed by the offeror
who failed to state a means of communication, an
acceptance is effective upon dispatch providing it
is properly addressed and prepaid. As with ex-
pressly authorized modes, it is not necessary that
the acceptance ever reach the offeror to form the
contract.
[56]
MODE AND TIMELINESS § 61
§ 58. Acceptance by different mode when none

is specified. In some jurisdictions the use of any
mode not expressly or impliedly authorized by
the offeror, albeit faster, results in a contract
only upon receipt of the acceptance. However, in
most jurisdictions, if the acceptance mode is in-
herently faster, it is found to be an impliedly au-
thorized means and acceptance is effective when
sent.
§ 59. Misdirected acceptances, If the accept-

ance is sent by an expressly or impliedly autho-
rized mode to the wrong address, it is effective
only upon receipt. ‘Wrong address’’ in this sense
means any other address than that impliedly au-
thorized, even if the offeror was in a position to
receive the acceptance at the substituted address.
For example, if an offer is received on business
stationery, and the offeree mails an acceptance to
the home address of the offeror, no contract is
formed until the acceptance is received.
§ 60. Mode of acceptance under the U.C.C.

U.C.C. Sec. 2-206 provides that an offeree may
accept in any commercially reasonable manner.
§ 61. Acceptance provisions in the offer. An

offeror who specifically states that no contract
will be formed until the acceptance is received is
entitled to insist upon the condition of receipt or
upon any other provision regarding manner and

time of acceptance which he specifies.
§ 62. Acceptance following dispatch of rejec-

tion. As noted in § 27, swpra, rejections are ordi-
narily held to be effective when received by the
offeror. In a situation where an acceptance
would be effective when sent, a problem can arise
when the offeree mails a rejection and thereafter,
while the rejection is still in the course of trans-
mission, mails an acceptance. Application of the
above stated rules would lead to the result that a
contract is formed when the acceptance is sent
even though the offeror will likely receive the
rejection first and assume that no contract has
been consummated. There are two approaches
used to protect the offeror in such a situation:
(1) A contract is formed when the offeree
sends his acceptance by an authorized means, but
if the offeror receives the rejection first and
changes his position to his detriment in reliance
upon his offer having been rejected, the offeree
will be estopped from enforcing the contract.
(2) The sending of a rejection, while not yet
effective as a termination of the offer, destroys
the offeree’s right or power to have his accept-
ance effective when sent. The net effect of this
approach is to provide that the first communica-
tion to reach the offeror will be effective.
[58]
UNILATERAL CONTRACTS § 64
D. ACCEPTANCE OF UNILATERAL
CONTRACTS
§ 63. Parties entitled to accept. The basic
rules for the acceptance with respect to parties in
unilateral situations are the same as those in bi-
lateral situations (§ 42, supra). Acceptance ina
unilateral situation is accomplished by the per-
formance of the act or forbearance bargained for.
However, the mere performance of the act is not
sufficient. The offeree must know of the offer
and must intend that the performance of the act
constitute acceptance.
An exception to this rule is sometimes made in
reward cases, since there is a strong public policy
in favor of capturing criminals. Some cases al-
low recovery where the party performing the re-
quested act learned of the reward cue after he
had partly performed.
Reward offers by government agencies are of-
ten treated as statutory bounties. In this case,
contract principles do not apply and the actor
need not know of the reward when he acts.
§ 64. Mode of acceptance. In the unilateral

situation, the mere promise to perform the act is
insufficient, since the offeror is bargaining solely
for the act itself. This is unlike the bilateral ex-
ception described in § 52, supra.
[59]
§ 65. Notice of performance of the requested

act. It is the general rule that an offer for a uni-
lateral contract is accepted by performance of the
act requested; no notice of any kind is necessary.
But there are instances when some type of notice
must be sent:
(1) If the offeror requires the offeree to notify
-him that the act is completed, notice must be dis-
patched before an acceptance is complete. The
mere “sending” of notice might suffice, but of
course the offeror in his wording can insist on “re-
ceipt” of the notice as well.
(2) If the offer is one for an “act’’, the per-
formance of which is peculiarly within the offer-
ee’s knowledge, a contract is formed upon per-
formance of the act without notice, but most
writers and courts hold that notice that the act
has been performed is a condition to the offeror’s
duty to perform. Hence, if notice is not given
within a reasonable time, his duty will be dis-
charged. Most cases hold that the notice need
only be sent, not received.
For example: A writes to B stating: “If you
will perform the act of loaning $1,000 to X, I will
guarantee the loan.” Assuming that this is an
offer for a unilateral contract, B can accept A’s
offer and form a contract simply by performing
the requested act. However, if A has no conve-
nient means of ascertaining that the act has been
performed, B may be held to the requirement of
[60]
using reasonable efforts to notify A that he has

performed the act. Failure to make such effort
will prevent B from enforcing the contract.
§ 66. Power to terminate the unilateral offer.

The general rules for termination of offers §§
20-36, supra, are applicable to all forms of offers,
whether unilateral or bilateral. However, in the
unilateral situation, additional factors must be
considered to determine whether or not the offer-
or still has the power to revoke. What must be
determined is the nature of the act to be per-
formed, and whether performance has begun
prior to the attempt to revoke.
§ 67. Power to terminate unilateral offers for

single acts. Where an offer bargains for an act
which is capable of instantaneous performance,
there can be no contract if a revocation is receiv-
ed prior to performance of that act. On the oth-
er hand, if an offer bargains for an act which
takes a period of time to perform and a revocation
is communicated after part-performance of the
act, there is a division of authority. Under the
older view, the revocation is effective because an
offer can always be revoked before acceptance
and there is no acceptance until the entire act is
completed. However, jurisdictions which follow
this old rule apparently permit the offeree to re-
cover in quasi-contract for the part performed
($§ 97-100, infra).
[61]
But under the majority rule, the offeror may

not revoke his offer once the offeree has begun to
perform and the contract will be formed if the of-
feree finishes the act of acceptance. Some courts
say that once the offeree has begun performance,
the offeror is estopped from revoking until the
time specified or a reasonable time has elapsed.
Another view is that advocated by Restatement
‘Sec. 45, which indicates that once performance is
commenced, the offeror is bound by a contract,
the duty of immediate performance of which is
conditional upon full consideration being given or
tendered within the time required. Other cases
imply a collateral promise not to revoke, as con-
sideration for the beginning of the performance
by the offeree. Hence the beginning of perform-
ance creates a binding option. Whatever theory
is used, most courts now reach the conclusion
that once an offeree has begun to perform, the
offeror may not revoke but must give him rea-
sonable time and opportunity to finish. The the-
oretical justifications for this result are really not
critical anymore. Note that the offeree is not
bound in such cases to complete the partially ten-
dered performance.
§ 68. Beginning of performance. Whether an

offeree has begun performance is a question of
fact which must always be decided in determining
whether a revocation is effective. An analysis
[62]
must be made as to whether the offeree has ac-

tually begun performance, or whether the acts he
has done are merely preparatory. If he has be-
gun to perform, the offeror cannot revoke. But
if he has merely prepared, the offeror may re-
voke, although some cases find the power to re-
voke terminated where the preparation was
uniquely related to the act bargained for. Con-
sider the following two examples to distinguish
the situation.
(1) A offers to pay B, a professional barn
painter, $500 if B will paint A’s barn. B pur-
chases the paint and drives to A’s house to paint
the barn. A revokes. A’s revocationis probably
effective, since B has merely prepared to per-
form. Further, since the paint purchased was
not unique to A’s job, this preparation cannot be
construed as beginning performance.
(2) A offered to pay B $1,000 if B would paint
his house chartreuse. B purchased specially-
mixed paint and drove to A’s house to do the job,
whereupon A revoked. In this case, the purchase
of the paint was preparatory, but it was unique
to the act bargained for, and therefore might be
found to constitute a beginning of performance
sufficient to render the offer irrevocable.
§ 69. Unilateral offers for a series of acts. If

an offer requests a series of acts and a revocation
is communicated after an act or several acts have
[63]
been performed but prior to completion of the se-

ries of acts, the revocation cuts off liability as to
the acts on which performance has not begun.
There is a contract as to the acts already per-
formed. For example, consider A having offered
to guarantee B up to $1,000 for a series of ten
$100 loans made to D. B makes five such loans,
_and gives A appropriate notice (§ 65, swpra). A
then revokes. A is liable for $500, but not for
any loans made after the revocation has been
communicated.
It should be borne in mind that you may have
a question of fact whether the acts required are a
series, hence subject to the above rule, or are in
reality one continuous act, in which case they fall
under the rule of § 67, supra. This may turn
upon whether the proposed contract is severable
(§ 190, infra).
ANALYSIS DIVIDER
In order to have contractual liability predicated

upon the consensual theories of express contract
or implied in fact contract (See § 1, supra), one
must find offer, acceptance and consideration.
Consideration can be defined as a legal detriment
incurred by the pomisee as a bargained exchange
for the promisor’s promise.
[64]
IV. CONSIDERATION
A. CLASSIC BARGAINED EXCHANGE
§ 70. Generally. It is often stated that con-

sideration may be either a legal detriment to the
promisee or a legal benefit to the promisor.
However, it is difficult to find cases in which a
promise is held to be enforceable on the legal ben-
efit theory in the absence of detriment. Consider
the situation in which A has entered a bilateral
contract with X whereby A has agreed to ride
Nag, a racehorse, in the Derby. B has placed
substantial bets on Nag and has great confidence
in A’s riding ability. B offers to pay A $500 if A
will promise to ride Nag in the Derby. A ac-
cepts. In what is apparently a minority view, B’s
promise has been held to be enforceable. The
stated theory is that B obtained a legal benefit by
obtaining the right to enforce A’s promise or hold
A liable for damages if he breached (§ 78, in-
fra). Thus, theoretically the benefit to B was le-
gally sufficient consideration.
It might be noted that if B’s right to hold A

liable for damages for breach is a legal benefit to
B, then it could be argued with equal logic that A
has incurred a legal detriment by entering the
contract with B as:A now will expose himself to
[65]
§ 70 CONSIDERATION
damages to both X and B if A does in fact breach

his promise to ride Nag.
The general rule remains that A’s pre-existing
duty to ride Nag which was owing to a third per-
son, X, precludes his new promise made to B
from serving as legally sufficient consideration to
support an A-B contract.
§ 71. Legal detriment. ‘Legal detriment” is

doing or promising to do an act which one was
not already legally obligated to perform or re-
fraining from doing or promising to refrain from
doing an act which one had the legal right to do
or perform. ‘Legal detriment” is not synony-
mous with real detriment or loss. One who has the
legal right to smoke has been held to incur a le-
gal detriment if he promises not to do so. There
may be no detriment in fact, but he has promised
to refrain from doing that which he had the legal
right to do. A debtor who has successfully avoid-
ed paying money which is due and owing to a
creditor may suffer a real detriment if he per-
forms the act of making payment. It is not a le-
gal detriment, however, because he has _ per-
formed an act which he was already legally obli-
gated to perform.
§ 72. Legal detriment in the unilateral con-

tract. In the case of a unilateral contract, there
is but one party or side making a promise. In
[66]
CLASSIC BARGAINED EXCHANGE §& 173
determining whether that promise is supported

by consideration, the question of the presence or
absence of legal detriment is determined simply
by looking to the promisee to determine what he
did or refrained from doing and determining
whether this was an act which he was already le-
gally bound to perform or legally bound to re-
frain from performing, as the case may be.
§ 73. Legal detriment in the bilateral con-

tract. In the case of a bilateral contract there
are promises on both sides and both parties are
promisors. In determining the presence or ab-
sence of consideration, the easiest approach is to
begin by determining who is attempting to en-
force which promise. As to the promise which is
the subject of dispute, one side made it and that
identifies the promisor and the other side is the
promisee. The question then is what legal detri-
ment the promisee or another person incurred as
a bargained exchange for that promise. Since it
is a bilateral contract, the legal detriment will be
in the form of a different promise by the prom-
isee (or another) to do something or refrain from
doing something which the person was not al-
ready legally obligated to do or not to do.
It is often stated that there must be mutuality
of obligation in an enforceable bilateral contract.
This incorporates an idea of reciprocity. A can-
not enforce B’s promise unless A’s promise in-
[67]
§ 73 CONSIDERATION
volves a legal detriment and B, likewise, can en-

force A’s promise only if B’s promise involves a
legal detriment.
Note that if X, a minor, enters a bilateral con-
tract with Y which is not enforceable against X
due to his age, Y cannot assert lack of mutuality
or absence of consideration as a defense. This
applies to any situation where the law gives a
certain party a privilege to avoid a contract be-
cause of his status.
§ 74. Sufficiency and adequacy of considera-

tion. As discussed above, a promise contained
in an express contract or an implied-in-fact con-
tract is not enforceable unless it is supported by
consideration. If there is that bargained for le-
gal detriment which the law requires, the consid-
eration is “legally sufficient’.
The common law courts refused to inquire into
the fairness or adequacy of a bargain. Thus, we
are not concerned whether A ‘“‘paid” a fair price
for B’s promise. We are concerned only with the
question whether some price was paid. If there
is “‘some’’, that is “legally sufficient” considera-
tion.
The fairness or adequacy of consideration is

significant in other areas. Equitable relief may
be denied where one seeks to enforce a promise
for which he gave inadequate consideration.
[68]
CLASSIC BARGAINED EXCHANGE - § 76
(But note that if there is some consideration, this

is sufficient to enforce the contract in an action
at law.)
If one is seeking to prove mistake (§ 135, in-
fra), misrepresentation, fraud, or duress (§§
136-138, infra) or assert a similar defense, the
inadequacy of the price paid for the promise may
be important evidence of such mistake, but the
law does not require adequacy of consideration to
find an enforceable contract.
§ 75. Legal detriment and pre-existing duty.

Legal detriment involves doing something which
one is not already legally bound to do or refrain-
ing from doing that which one has the legal right
to do (§ 71, supra). Thus, if one has a pre-exist-
ing duty, a legal duty to act or refrain from act-
ing which existed prior to the agreement in ques-
tion, simply carrying out that duty cannot be a
legal detriment.
§ 76. Where a pre-existing duty is imposed by

other than contract law. Under the majority
rule, performance of a duty imposed by law is
not a legal detriment and so is insufficient con-
sideration to support a promise. For exam-
ple, suppose A offers a reward of $1,000 for the
return of a criminal. B, a police officer while on
duty, captures and returns the criminal. B suf-
fers no legal detriment, hence he cannot collect
[69]
§ 76 CONSIDERATION
the reward. The result would be otherwise, how-

ever, if the policeman acted while off duty or act-
ed beyond his duty, for in such a case he would
be suffering a legal detriment.
§ 77. Where a pre-existing legal duty is owed

to the promisor. Performance of an already ex-
isting legal duty to another party under a binding
‘contract in exchange for the latter’s promise to
pay more is not sufficient consideration because
there is no legal detriment to the promisee. To
illustrate: A has entered into a binding contract
to build an apartment building for B for $50,000.
A runs into difficulty and decides to quit. B
promises to pay A $5,000 more if A will finish
the job, and A subsequently finishes. Inasmuch
as A was already under a legal duty to perform,
he suffers no legal detriment by finishing. Note,
however, that if A is requested to vary his per-
formance, however slightly, e. g., to add tile to
the top of a counter, the promise becomes en-
forceable, since A then suffers a legal detriment.
§ 78. Where a pre-existing duty is owed to a

third party. Where a person performs a duty
which he was already under a pre-existing duty to
a third person to perform, the weight of authori-
ty holds that his act is insufficient because he is
merely doing that which he was bound to do, and
he suffers no legal detriment by such action. For
[70]
example, suppose B is under a binding contrac-

tual duty to build a high rise apartment for O for
$500,000. He runs into difficulties and decides to
quit. 7, who owns an adjoining lot, will be bene-
fited by an increase in value to his lot if O’s
building is completed. 7 promises B $10,000 if
he will finish the job. B finishes the job. Under
this majority rule, B suffers no legal detriment.
A substantial minority would here permit the

actor to recover. If the purpose of the pre-exist-
ing duty rule is to avoid blackmail or coercion, B
could not very successfully blackmail or coerce an
adjoining owner into paying money, and this
seems to be the more sound result if there is in
fact no such coercion or blackmail of the third
party.
If 7 had bargained and promised to pay B

$10,000 if O and B refrained from rescinding
their agreement, there would be a legal detriment
since two parties to a contract always have the
legal right to rescind. A court could reach the
same result if 7 offered to pay B if B would re-
frain from negotiating for a rescission inasmuch
as one party has the legal right to attempt to ob-
tain a rescission. The proper inquiry at this
point should be whether a rescission might ac-
tually be available to B. The real question is
whether this promise not to rescind is what T is
actually bargaining for (§ 86, infra). Of course,
[71]
§ 78 CONSIDERATION
if B were merely the offeree of a unilateral con-

tract offer, he would not be legally bound to O
and would have no pre-existing duty.
§ 79. Application of pre-existing duty rule to

part-payment of debts and landlord-tenant situa-
tions, If a debtor owes a creditor a liquidated,
mature debt, payment by the debtor of a portion
' of the sum due is insufficient consideration for
the creditor’s promise to release the entire debt.
The money which the debtor paid was already
owing. The act of paying that portion was not a
legal detriment, and there is no consideration for
the creditor’s promise to release the obligation to
pay the balance. These were the basic facts of
Foakes v. Beer, (5 Coke’s Rep. 117a [Vol. 3, Part
V |, 77 Eng.Rep. 237 [Common Pleas]).
If a tenant is obligated to pay $100 per month
rent for the twelve months remaining on a lease,
the landlord’s promise to accept $75 is not sup-
ported by consideration and the tenant is still lia-
ble for the full amount (§ 80, infra).
§ 80. Current application and non-application

of the pre-existing duty rule. Other than the re-
spect acquired by age and the neat symmetry
which it lends to our concepts of consideration in
general, the pre-existing duty rule has but one
apparent attribute to justify its existence: It may
preclude the enforcement of promises obtained by
[72]
CLASSIC BARGAINED EXCHANGE § 80
“blackmail”. (We are using “blackmail” in the

sense of one obtaining something to which he is
not entitled by threatening not to fulfill his exist-
ing legal duties (§ 136, infra).) In truth, how-
ever, it is more often a trap for the unwary and
may serve to deny enforcement to freely made
contract modifications.
Case law and statutes have cut deeply into the

concept of pre-existing duty.
(a) At least one state supreme court has sim-

ply announced, albeit by way of dicta, that
Foakes v. Beer will not be followed. (Rye v. Phil-
lips, 203 Minn. 567, 282 N.W. 459 [1938].)
(b) U.C.C. Sec. 2-209(1) permits the modifica-

tion of any contract involving a transaction in
goods to be binding without consideration. That
would appear to end the pre-existing duty prob-
lems in such contracts.
(c) All jurisdictions recognize that an exist-

ing contract can be mutually rescinded by the
parties and a new contract substituted in its
place. The fact that the new contract is identical
with the old one but for one party assuming an
added burden or being relieved of a burden does
not raise a pre-existing duty issue. Some states
are using this rescission and new contract reason-
ing in situations where the facts do not support
it. A few simply pretend, while others admit
§ 80 CONSIDERATION
that they are using a legal fiction to accomplish

what they consider to be a just result.
(d) All jurisdictions recognize that while a
gratuitous promise may be unenforceable, a com-
pleted gift is irrevocable. This opens a door to
finding that one party gratuitously released the
other from his pre-existing duty and that the gift
‘is complete. In this fashion, one might find that
at least as to past months, the landlord’s accept-
ance of $75 rent was a completed gift of $25 per
month to the tenant (§ 79, supra). The possibili-
ties in this area are almost limitless.
(e) Various states have statutes on particular
subjects which abolish the pre-existing duty rule.
For example, some provide that payment of a
smaller sum can support a release of a greater
sum presently owing; or, a written release needs
no consideration.
§ 81. Detriment incurred by one other than

the promisee. In §§ 139-145, infra, we will ex-
plore third party beneficiary contracts. When
one understands that material, it will be apparent
that modern case law does not require considera-
tion to “move from the promisee to the promis-
or’. Thus, if A pays B $5 in exchange for B’s
promise to cut C’s lawn, C can ordinarily enforce
B’s promise. The consideration for that promise
is A’s legal detriment, and courts are no longer
troubled by the fact that C “paid” nothing.
[74]
§ 82. Forbearance as a detriment. One suf-

fers a legal detriment if he refrains from doing
that which he has a legal right to do. It is ev-
erywhere agreed the forbearance from suing on
a valid claim is sufficient consideration to sup-
port a promise to pay money since one always
has the legal right to litigate a valid claim. Un-
der the majority rule, forbearance from bringing
suit on an invalid claim is also sufficient consid-
eration if the claimant had a good faith belief in
the worth of his claim and the fact that the claim
was unfounded in law was not obvious to one who
has an elementary knowledge of legal principles.
It is sometimes stated that the claimant’s belief
must be reasonable, but in fact the requirement is
only that it be a good faith belief.
Here, the doctrine of consideration establishes
as a matter of policy that one has the legal right
to litigate claims held in good faith even though
they be invalid. A minority of our courts require
that the claim must be legally valid.
§ 83. Recitation of consideration. A _ state-

ment that consideration has been bargained for
and paid does not conclusively prove that fact.
Hence, a recital in a written agreement that a
stated consideration has been given is not conclu-
sive. In some jurisdictions the proof of the non-
payment of the recited consideration, (@. g., “one
dollar in hand paid-in consideration of A’s prom-
[75]
§ 83 CONSIDERATION
ise to . . .”) renders the promise unenforce-

able. A minority, however, imply from the recit-
al of payment a promise to pay, thus creating a
binding mutuality of obligation. Also, proof of
the furnishing of consideration other than that re-
cited, e. g., a bargained forbearance, would suf-
fice even though the recited consideration had
_ not been paid.
§ 84. Promises subject to a condition. The

mere fact that one or both promised perform-
ances in a contract may not arise unless a condi-
tion occurs or may be defeated by the occurrence
of a condition does not prevent the contract from
being enforceable. A party is still “legally
bound” to cut a lawn even though the contract
states that he is excused if it rains. The possibil-
ity of legal detriment exists.
The problems in this area arise where the

event which will determine whether a party’s du-
ties will or will not arise is within the control of
that party. Assume A contracts to sell all of his
output of tomatoes to B for $40 per ton. It is
within A’s control whether he will raise any to-
matoes at all, and if he does raise a crop, he can
limit his output by failing to irrigate or spray his
field. Thus, the question whether A will ever
have a duty to perform depends on events within
A’s control.
[76]
While there are a number of particular rules

which have developed in different areas, there is
an underlying approach to these problems. If the
event or events over which a party to the con-
tract has control have independent significance to
him; that is, importance independent of this con-
tract which transcend the fact that their occur-
rence might excuse him from a duty under the
contract, then he is sufficiently bound. If the
events have no independent significance to the
party who controls them, or if their independent
significance is small in comparison to what is at
issue in the contract in question, then that party
has an escape mechanism. He is not sufficiently
bound, and the promise which he made is not suf-
ficient to serve as consideration to support the
other party’s promise.
If an old contracts professor who has never
grown tomatoes, and has no immediate plans to
do so, promised to sell all of his output of that
fruit in a given year to the canner, there is no
binding contract. Having never been a tomato
farmer, it is of no great significance to our pro-
fessor whether he stays out of the business one
more year. He has essentially unfettered discre-
tion to determine whether he will grow any to-
matoes this year, and thus, he has an easy escape
mechanism from his apparent obligation.
A very different. case is presented when a to-
mato farmer enters the same agreement. He
[77]
§ 84 CONSIDERATION
could retire or grow corn, but that is a step

which has significance to him independent of this
contract and the significance is substantial. He
could fail to irrigate his crop so as to cut his pro-
duction, but we know that he would not do so in-
tentionally. He will not spray the crop with a
herbicide which will kill it. He has no easy es-
cape mechanism. His undertaking is real. The
contract will not fail for lack of consideration.
If Ford agrees to buy its local needs for paper
hand towels from A if Ford decides to locate an
assembly plant in A’s town, Ford does have con-
trol over the event which will determine its con-
tract obligations, but the independent significance
of Ford’s decision is such that the obligation is
binding. If a third year law student agrees to
practice with a certain firm if he passes the bar,
he has control over the event which wil! deter-
mine his obligations, but he will not intentionally
fail the bar, and the agreement does not fail for
want of consideration. If the student agrees to
cut your lawn if he decides not to watch the
Game of the Week on TV, he controls the event
and might decide on the football game. There is
no contract. The promise of the student, while
appearing to be absolute, is known as illusory be-
cause it contains an alternative which involves
no legal detriment to him.
The freedom of parties involved in output and
requirement contracts is now subject to the pro-
[78]
visions of U.C.C. Sec. 2-306. That section impos-

es the obligation of acting in good faith and
places a maximum range upon the quantity
which may be tendered or demanded.
§ 85. Promisors who reserve the right to ter-

minate. It seems self-evident that if one prom-
ises to cut his neighbor’s lawn “if he feels like
it”, he has not promised anything at all. Agree-
ments are made, however, which give to one par-
ty the right to cancel at any time without cause
or advance notice. Some cases have found these
agreements to be valid contracts. While such
agreements may provide the basis for contractual
obligations prior to the time when one of the par-
ties seeks to terminate, they should not be held to
constitute contracts enforceable as to future per-
formances as there is no mutuality of obligation.
That is, consideration is legally insufficient as a
party has reserved the right to cancel at his
pleasure.
Some opinions have been based upon the notion

that the act of giving notice of cancellation is a
legal detriment and therefore the party who has
the right to cancel is bound to do “something”’.
The defect in this analysis is that the giving of
notice of cancellation is hardly the act for which
the other party was bargaining (§ 86, infra).
[79]
§ 86 CONSIDERATION
§ 86. Bargained exchange. Consideration is a

legal detriment . . . incurred as a BAR-
GAINED EXCHANGE for the promise. A prom-
isee can incur all sorts of legal detriment and
even a lot of real detriment for good measure, but
it will not suffice to serve as consideration unless
it is the bargained exchange for the offeror’s
promise.
In simple terms, some things which a promisee

does or forbears from doing are the bargained
exchange, the price paid, for the promisor’s
promise. They need not be the sole motive or
even the primary motive for the promisor mak-
ing the promise, but they are something which
the promisor requested in return for being bound
to do what he agreed to do.
Other things which a promisee may or may not
do might simply be conditions to a gift; things
which the promisee must do to accept the gift
which the promisor has offered. Once the prom-
isee’s activities have been branded as condition to
a gift, his arguments regarding the presence of
consideration are over.
Some traditional examples are still helpful:
(1) A promises B $1,000 if B will stop smoking
for one year. B refrains from smoking.
(2) Uncle A promises nephew B that A will
reimburse B for the expenses of a trip to Europe
which A thinks B should take. B takes the trip.
[80]
(3) A promises B, a tramp, that if B will walk

over to the nearest clothing store, A will buy B a
new coat. B walks with A to the designated
clothing store.
In each of these cases, the technical legal detri-

ment to the promisee is self-evident. Each did an
act which he was not legally obligated to per-
form. The question is whether this legal detri-
ment was a bargained exchange for the promise.
Was the act the “price” which B was paying to
obtain the right to enforce A’s promise?
If you can extricate yourself from the complex-

ities of what is and what is not a legal detriment,
you will have no trouble noting that in each of
these fact situations, a charitable or gratuitous
motive is apparent. When this is the indication,
you must analyze whether the acts which the
promisees performed were the price paid for the
promise or a condition to the gift. Consider two
factors: (1) Was the act which the promisee was
requested to perform something which was neces-
sary or logically required to put him in a position
to receive a gift. (2) Did the promisor obtain a
real benefit from the performance of the prom-
isee’s act. (This is not related to the legal detri-
ment, legal benefit problems, but it is a valid clue
in determining whether the promise should have
been understood to be gratuitous.)
[81]
§ 86. CONSIDERATION
The man who quit smoking should recover. If

A wanted to make a gift of $1,000 to B, there
was no reason to require B to quit smoking. B
paid a price for A’s promise which A, for what-
ever reasons, apparently wanted B to perform.
The tramp should not recover. Going to the
clothing store was an act which was reasonably
. necessary to place the tramp in a position to re-
ceive a free coat that fit. There was no benefit
to the promisor. The act appears to be nothing
more than a condition to a gift. The promise
being gratuitous, the promise is not enforceable
unless there is promissory estoppel (§ 87, infra).
It may take more facts to decide whether there
was consideration for the promise to pay for the
nephew’s trip to Europe. The act which the
nephew performed was necessary for him to be
able to receive the gift. You cannot get a free
trip to Europe without going there. The harder
question is whether the uncle benefited from the
act. If there is nothing more in the facts, he ap-
parently did not and one should find that there is
no consideration. If the uncle had a project in
Europe which the nephew was to handle for him,
then it can be found that the act of going to Eu-
rope was the bargained exchange for the promise.
Promisees who incur substantial detriment in
reliance upon gratuitous promises have another
theory of recovery (§§ 87-89, infra), but that the-
ory may bring a smaller recovery. Where a bar-
[82]
PROMISSORY ESTOPPEL § 87
gained detriment cannot be found, the gratuitous

promise can be enforced only if the doctrine of
promissory estoppel can be applied. Otherwise,
there is no legal obligation to perform a promised
gratuity.
B. PROMISSORY ESTOPPEL
§ 8%. The doctrine. If a party changes his
position substantially either by acting or for-
bearing from acting in reliance upon a gratuitous
promise, he can often enforce the promise al-
though there is no offer, no acceptance, and no
bargained-for consideration. This is another the-
oretical category of consensual contractual liabili-
ty. This has become the clear majority rule.
The necessary elements usually required for the
application of Restatement Sec. 90, are:
(1) A promisor makes a gratuitous promise
which he should reasonably have expected to in-
duce action or forbearance of a definite and sub-
stantial character on the part of the promisee;
(2) The promisee justifiably relies on the
promise;
(3) The promisee is caused a substantial detri-
ment, i. e., economic loss, by his action or for-
bearance of a definite and substantial character;
and,
(4) Injustice can be avoided only by enforcing
the promise. .
[83]
§ 88 CONSIDERATION
§ 88. Application of the doctrine. A majority

of courts apply the doctrine to any situation in
which all the elements of Restatement Sec. 90 are
present. A few examples may serve to illustrate
the definite limits of the applicability of the doc-
trine.
(1) R promises to pay # an annuity during E’s
‘life. H thereupon resigns a profitable employ-
ment, as R expected he might. E receives the
annuity for some years. In the meantime, H be-
comes disqualified from again obtaining employ-
ment. R’s promise is binding. However, had H
still been able to regain his employment, elements
(3) and (4) of Restatement Sec. 90 would not
have been satisfied, and the promise of R proba-
bly would not be found binding as to future annu-
ities.
(2) Without knowing H’s plans, R promises to

give EH $3,000. In reliance on R’s promise E con-
tracts to buy a car. R’s promise to give the mon-
ey is not binding, since R could not reasonably
have expected that his gratuitous promise would
induce H# to commit himself to spend the money
prior to its actual receipt.
(3) R promises EH $5,000, knowing that Z#

wants that sum to purchase Blackacre. # there-
after, in reliance on the promise, pays X $5 for
an option to purchase Blackacre. R’s promise is
not binding, since H has not suffered a substan-
[84]
PROMISSORY ESTOPPEL § 89
tial economic detriment. The result might be dif-

ferent, however, had # entered into a specifically
enforceable contract with X to purchase Blacka-
cre.
A minority of jurisdictions, however, still limit
the applicability of the doctrine to one or more
specific situations, which were those from which
the doctrine emanated—gratuitous bailments,
gift promises to convey real property, and charita-
ble subscription agreements.
§ 89. Measure of recovery. It would be in-

correct to award the plaintiff the “benefit of his
bargain” as in the case of express contract, since
there is no bargain. However, an apparent ma-
jority of cases “avoid injustice” by awarding the
plaintiff an amount consistent with the value of
the promise. Other cases “avoid injustice” by
awarding the plaintiff only an amount necessary
to compensate for the economic detriment actual-
ly suffered.
ANALYSIS DIVIDER
Other consensual theories of contractual lia-

bility, as mentioned in § 1 include:
[85]
§ 90 CONSIDERATION
C. SUBSEQUENT PROMISE TO PERFORM

UNENFORCEABLE CONTRACTS
§ 90. When the statute of limitations has run
on the original promise. An express or implied
promise to pay a debt barred by the statute of
limitations is enforceable. Many jurisdictions re-
quire the new promise to be in writing. A new
promise may be implied from a part payment or
a mere acknowledgement so long as these acts
are not qualified so as to negate the implication
of a promise to pay.
The new promise or acknowledgement must be
communicated to the creditor. A mere notation
by the debtor in his records that he owes the
amount is insufficient, as would be a barroom
statement to a stranger that the creditor is owed
the money.
§ 91. When an obligor has received a dis-

charge in bankruptcy. If a debtor, after having
either started bankruptcy proceedings or after
having received a discharge in bankruptcy, makes
a subsequent promise to perform an obligation
listed in the bankruptcy proceedings, an action
may be maintained on the new promise although
there is no mutual assent and no “new” consider-
ation to support it. This principle applies, how-
ever only to filed bankruptcies and not to compo-
sition agreements. In most jurisdictions the
[86]
SUBSEQUENT PROMISE § 93
promise to perform need not be in writing. Most

courts are unwilling to imply a promise to pay a
debt barred by a discharge in bankruptcy but re-
quire an express specific promise. A mere ac-
knowledgement or promise to pay “someday” is
not enough, nor is a part-payment enough to re-
vive the entire debt.
§ 92. When the original contract was unen-

forceable due to the Statute of Frauds. Under
the majority rule, if an obligation was originally
unenforceable because the Statute of Frauds was
not satisfied, and the obligor thereafter signs a
memorandum sufficient to satisfy the statutory
requirement, the new promise is enforceable al-
though there is no mutual assent and no consider-
ation to support it.
§ 93. When the obligation was not originally

enforceable due to the promisor’s lack of capacity.
If an original obligation was unenforceable be-
cause the promisor did not have capacity, a new
promise made after he has attained capacity will
be enforced although there is no mutual assent or
consideration to support it. This same rule ap-
plies to other cases where a promisor had a de-
fense, such as fraud, mistake or duress. If after
those factors have been removed, the promisor
promises to perform, he will be held to his gratu-
itous promise although there is no offer, accept-
ance or consideration.
[87]
§ 94 CONSIDERATION
§ 94. When there was a material benefit pre-

viously conferred, for which no contractual liabil-
ity existed. In what is still a small minority view,
if a person subsequently promises to pay for ma-
terial benefits previously conferred for which no
liability existed, he is liable for his gratuitous
promise. Here, the few courts which have found
_ liability indicate that the moral obligation to per-
form the promise supplies the consideration. The
majority of jurisdictions do not apply this rule,
and in the few instances where it has been ap-
plied, the facts were such that there was an ex-
tremely compelling moral obligation upon the
promisor.
[88]
V. OTHER TYPES OF CONTRACTS
A. IMPLIED-IN-FACT CONTRACTS
§ 95. Generally. Implied-in-fact contracts, like

express contracts, are true contracts in the sense
that they are based upon a mutual assent and for
that reason they need not be treated as a sepa-
rate category. However, although consensual,
they arise not from an express offer and accept-
ance, but from conduct of the parties which dem-
onstrates that the parties were consensually will-
ing to contract for goods or services. There are
two elements necessary to show such a contract:
(a) that the plaintiff expected to be paid when he
either delivered the goods or rendered the serv-
ices, and (b) that the defendant either knew the
plaintiff expected to be paid or should have
known from all of the facts he expected to be
paid when the defendant voluntarily accepted
those goods or services.
To illustrate, suppose P, a professional garden-

er with a truck advertising his services, drives in
his truck to D’s front yard while D is sitting on
the front porch. P mows the lawn while D is
watching. P expected to be paid. D should have
known of the expectation. An implied-in-fact
contract arises from the transaction.
Schaber & Rohwer Contracts—8 [89|
§ 96 OTHER TYPES OF CONTRACTS
§ 96. Measure of payment. If there is an im-

plied-in-fact contract, the defendant is generally
liable for the reasonable value of the goods deliv-
ered or services rendered. However, he is liable
for the actual price, if a price has been set. To
illustrate, suppose A ships a refrigerator to B. B,
who did not order it, sells it to C. He sold it toC
for $400, and the fair market value was $500.
But suppose further that when the refrigerator
was shipped by A, it had a price tag of $600 on
it. In that case, B would be liable for $600, since
a reasonable person in the position of B would
have realized that A expected to receive $600.
ANALYSIS DIVIDER
The sixth and final theoretical category of

contractual liability (§ 2) is:
B. CONTRACTS IMPLIED-IN-LAW
§ 9%. Nature of the contract. This theory of

contractual liability is the only theory which is
non-consensual in nature. Hence, any defense
predicated upon consensual theories will not oper-
ate as a bar to a contract implied-in-law. These
contracts, sometimes referred to as ‘quasi-con-
tracts”, arise when a court, to prevent unjust en-
[90]
CONTRACTS IMPLIED-IN-LAW § 98
richment, imposes contractual liability irrespec-

tive of the fact that no express or implied-in-fact
assent can be shown.
§ 98. Elements of the contract. Where the ac-

tion is predicated upon an intentional conferral of
benefits, plaintiff must show the following three
factors in order to establish an implied-in-law con-
tract:
(1) That he expected payment when he deliv-

ered goods or performed services;
(2) That he has conferred a benefit on the de-
fendant or a third person to whom defendant
owed a legal duty which was fulfilled by the per-
formance, and
(3) That he was not a volunteer or an “offi-

cious intermeddler”’. This can be approached by
asking whether a reasonable man in the defend-
ant’s circumstances would have promised to pay,
if able to do so (this applies where the defendant
was not present or was physically or legally disa-
bled when the goods or services were delivered or
rendered), or whether a reasonable man in the
defendant’s circumstances should have promised
to pay, judging this question by the minimum
standards of conduct of the community. Recovery
may also be predicated upon a situation in which
a benefit was obtained at the expense of another.
[91]
§ 99. Illustrations of the contract. The fol-

lowing illustrations will serve as examples of the
limits of contracts implied-in-law:
(1) Mistakenly believing he owns Blackacre, A
pays taxes and makes certain improvements on
the land, without the knowledge or assent of B,
the owner. B is under a quasi-contractual duty
_ to reimburse A for the taxes, since B was under a
duty to pay them. As to the improvements, B
may have to pay for them but if so, he would pay
only for the value of those improvements which
constituted a benefit to the use for which he held
Blackacre.
(2) B steals A’s car. A may sue B in tort for
conversion. He may also “waive the tort and sue
in assumpsit”, in a quasi-contractual action.
Here the law imposes a quasi-contractual duty on
B to pay for the car despite the fact that B did
not intend to purchase the car and A did not in-
tend to deliver it to B.
(3) H’s wife, W, separates from H for justifia-
ble reasons. In order to secure necessary cloth-
ing for herself and their son, W buys them from
X, charging them to H. dH is quasi-contractually
bound to pay for them, even though the benefit
was conferred on a third person, since he had the
duty to clothe such third persons.
(4) A, a medical doctor, is called by a bystand-
er and gives medical treatment to B, who is un-
[92]
CONTRACTS IMPLIED-IN-LAW § 100
conscious. B is liable for the reasonable value of

the services. This is true even if B does not per-
sonally believe in medical care.
§ 100. Measure of recovery. The defendant is

liable to pay the reasonable value of his unjust
enrichment. At common law, this was measured
by the benefit to the defendant. But according
to most authorities it is today measured by the
detriment to the plaintiff, i. e. the reasonable val-
ue of his goods or services or the cost to him,
rather than the actual enrichment to the defend-
ant. Inasmuch as the enrichment may be less
than the cost to the plaintiff, it may make a con-
siderable difference which test is used.
ANALYSIS DIVIDER
The discussion which has preceded has been

primarily related to the determination of the ele-
ments needed for formation of contractual liability
based upon the consensual theory of express or
implied-in-fact contracts, whether oral or written.
Once the essential elements have been determined,
you must ascertain whether the consensual con-
tract is free from vitiating defenses:
1. Did the contract fail to take the proper

form? Was the Statute of Frauds applicable and
not satisfied?
[93]
2. What is the reality of the apparent consent

of the contracting parties? Are the following vi-
tiating considerations present which may consti-
tute a defense to enforcement of a promise?
(a) Does a party lack capacity to contract?
(b) Does the contract deal with an illegal
subject matter?
(c) Are there any factors present which vi-
tiate “apparent consent” such as:
(1) Has there been a mistake?
(2) Has there been duress or undue in-
fluence?
(3) Has there been fraud?
(d) Are there factors of public policy or un-
conscionability present which modernly con-
stitute a defense to enforcement of a prom-
ise?
[94]
VI. DEFENSES TO FORMATION
OR ENFORCEMENT
A. STATUTE OF FRAUDS
1. THE STATUTE
§ 101. Introduction. The Statute of Frauds,

enacted in every state, is based upon the English
statute on the same subject. The Statute has un-
dergone minor modifications in every jurisdic-
tion. However, a profitable discussion may be
undertaken as to the essential sections of the typ-
ical statute, which must then be considered in
light of the particular jurisdiction of the reader.
Typical of the many statutes is that of California,
West’s Ann.Cal.Civil Code Sec. 1624. Hence, the
following discussion will relate to an interpreta-
tion and application of that statute.
§ 102. Thestatute. West’s Ann.Calif.Civ.Code

§ 1624 reads basically as follows: The following
contracts are invalid, unless the same, or some
note or memorandum thereof, is in writing and
subscribed by the party to be charged or by his
agent:
(1) An agreement that by its terms cannot be
performed within a year from the making there-
of;
[95]
§ 102 DEFENSES
(2) A promise to answer for the debt, default

or miscarriage of another;
(3) An agreement made upon consideration of
marriage, other than a mutual promise to marry;
(4) An agreement for the leasing for a longer

period than one year, or for the sale of real prop-
erty, or of an interest therein; and such agree-
’ ment, if made by an agent of the party sought to
be charged, is invalid, unless the authority of the
agent is in writing, subscribed by the party
sought to be charged;
(5) An agreement authorizing or employing an

agent or broker to purchase or sell! real estate for
compensation or a commission;
(6) An agreement which by its terms is not to
be performed during the lifetime of the promisor,
or an agreement to devise or bequeath any prop-
erty, or to make any provision for any person by
will;
(7) An agreement by a purchaser of real prop-

erty to pay an indebtedness secured by a mort-
gage or deed of trust upon the property pur-
chased, unless assumption of said indebtedness by
the purchaser is specifically provided for in the
conveyance of such property.
In addition, a contract for the sale of goods

priced at $500 or more, or of choses in action in
an amount or value of more than $5,000 must
[96]
STATUTE OF FRAUDS § 104
also satisfy the Statute of Frauds to be enforce-

able (U.C.C. Secs. 2-201 and 1-206).
Nearly all jurisdictions have writing require-
ments for contracts coming within the areas cov-
ered by West’s Ann.Calif.Civ.Code § 1624(1)-
(4), inclusive,.and the U.C.C. provisions, supra.
Provisions such as those contained in § 1624(5), \
{
(6), and (7) are found in some states. Local law
must be consulted.
§ 103. Method of analysis. To determine in

each contract involving the problem whether the
Statute of Frauds applies, requires a_ three-
step analysis. First, does the subject matter of
the contract place it within the Statute? Second,
is there a sufficient memorandum signed by the
party to be charged? Finally, if there is no such
memorandum, does the contract fall within one of
the exceptions to the general rule relating to con-
tracts of this nature, thereby placing it outside
the operation of the Statute?
2. CONTRACTS WITHIN THE

STATUTE
§ 104. A contract to answer for the debt, de-
fault or miscarriage of another. If there is a
promise by a surety or guarantor made to a cred-
itor or obligee to pay the debt or perform any ob-
ligation of the principal debtor or obligor, the
promise must be in writing to be enforceable.
[97]
§ 104 DEFENSES
Similarly, in some jurisdictions, a personal repre-

sentative’s personal promise to perform the obli-
gations of his decedent’s estate must be in writ-
ing to be enforceable. However, these rules do
not apply unless there is a principal debtor who is
under a primary liability. To illustrate, suppose
R says to H, the owner of a store: ‘Sell X a pair
of shoes and I will pay you.” The promise of &
-is primary itself and need not be in writing. If &
said to E, “Sell X a pair of shoes and if he does
not pay you, I will”, the promise of RF is collateral
to the primary liability of the principal debtor, X.
Another important aspect of this concept is
that the promise must be made to the creditor,
not the debtor. If the promisee is the debtor, it
is a primary promise, hence not required to be in
writing.
There is a split of authority as to whether an
indemnity agreement is a guaranty promise. A
minority of jurisdictions, as well as the Restate-
ment, hold that an indemnity agreement is the
type of collateral promise which constitutes a
promise to pay the debt of another, and is there-
fore subject to the Statute. An example of such
a promise is that of C in the following illustra-
tion: D must post a bond and he seeks S’s con-
sent to serve as surety. S is concerned about D’s
financial stability. C orally promises S, in con-
sideration for S becoming a surety on the bond
for D, that C will indemnify S against loss. The
[98]
collateral promise by C is held by the minority to

fall within the Statute, hence subject to the re-
quirement of a writing signed by the party to be
charged. The majority of the courts hold other-
wise.
§ 105. A contract for the sale of an interest

in realty, including a lease for longer than one
year. The critical element of this section is the
analysis of what does and does not constitute an
“interest in real property”. Promises to sell legal
or equitable interests in real property are within
the Statute. However, the following are not
within the Statute: (1) An agreement to share
profits from the sale of real property; (2) A
partnership agreement to deal in real property;
(3) Promises settling boundary disputes; (4) A
promise to sell cultivated crops annually; (5) A
license, even though irrevocable because of im-
provements. One must determine whether an in-
terest is a profit, a license or an easement, for all
but the license fall within the Statute.
§ 106. A contract for the sale of goods priced

~ at $500 or more, or for the sale of choses in ac-
tion in an amount or value of more than $5,000.
With respect to contracts which may fall within
this provision, the essential element to be ana-
lyzed is whether the subject matter is the sale of
goods or services. For example, if B promises A
[99]
§ 106 DEFENSES
that he will build a building worth several thou-

sand dollars, and the promise is oral, it is en-
forceable despite this section, since the promise is
essentially one for services, even though to per-
form the service promised, performance will ne-
cessitate the use of goods.
§ 10%. A contract relative to an agent’s au-

thority to bind a principal. If the contract for
which the agent is bargaining is required to be in
writing, the agent’s authority to act must also be
in writing in order to have effective express au-
thority. This is referred to as the “equal digni-
ties’ rule.
§ 108. A contract which, by its terms, cannot

be performed within one year. The “one year”
element of this section begins to run from the
time of the making of the agreement, not from
the date performance is scheduled to begin.
If A enters an oral contract to work for X for
one year commencing July 1, the contract is
unenforceable. If performance were to begin im-
mediately, the contract would be enforceable.
In determining the nature of the agreement, it
is also necessary to determine whether the con-
tract by its terms can possibly be performed
within one year, for this is the true test. The
Empire State Building and Grand Coulee Dam
could both be built with enforceable oral con-
[100]
tracts. Most decisions ask simply whether the

terms of the contract preclude performance with-
in one year. For other examples, suppose X Co.
orally agrees to insure A’s house against loss by
fire for three years. The contract is not incapa-
ble of performance within one year since the
house may burn down tomorrow. Likewise, an
agreement to pay an annuity for life is capable of
performance within one year since the promisee
may die at any time. However, if the contract is
one to support a sixteen year old minor until the
attainment of age twenty one, the contract is
within the Statute of Frauds since full perform-
ance cannot be had unless the minor lives five
more years. An early death by the minor would
merely constitute a discharge of performance (§§
204-206, infra). Tantalizing questions arise
where the promise is to support the sixteen year
old for life or until age twenty one, whichever is
shorter.
§ 109. An oral one-year lease. L and T enter

an oral contract for a one-year lease to commence
on the first day of the next month. This con-
tract does not involve an interest in real property
of more than one year’s duration, but it is a con-
tract which is not capable of being performed
within one year of the day of making. Some ju-
risdictions, probably the majority, hold that the
dominant nature of the agreement is an interest
[101]
t
§ 109 DEFENSES
in land, and since it does not come within the

statute of frauds as an interest lasting beyond
one year, there is no writing requirement. Other
jurisdictions, e. g. California, hold that since the
contract cannot be performed within one year, it
comes within a section of the Statute and a writ-
ing is required.
§ 110. A contract in consideration of mar-

riage. Contractual promises made in considera-
tion of marriage, other than mutual promises to
marry, must be in writing. Hence, A’s oral
promise to marry B need not be in writing,
whereas D’s promise to convey Blackacre to A if
he marries B is within the Statute.
§ 111. A contract which cannot, according to

its terms, be performed during the lifetime of the
promisor. This is a term in the Statute of Frauds
in a minority of jurisdictions, e. g. California.
For example, if R orally promises to pay E $5,000
if EF will take care of R during R’s lifetime, the
contract may be unenforceable, since R’s duty to
perform presumably would not arise until his
death. Note that in these jurisdictions, a con-
tract to devise realty receives double coverage
under the Statute, since it is both a contract to
transfer an interest in realty as well as a contract
which, by its terms, cannot be performed during
the lifetime of the promisor.
[102]
§ 112. A contract for the assumption of a

mortgage or trust deed. Also a minority provision,
é. g. California, this section requires that such a
contract be in writing. The writing may be
found in the conveyance by the mortgagor to his
assuming grantee, in which case the grantee need
not sign the deed, or it may be in a separate writ-
ten instrument, which must be signed by the as-
suming grantee.
3. EXCEPTIONS TO CONTRACTS PRIMA

FACIE WITHIN THE STATUTE
§ 113. Promises to pay the debt of another.
Even though an oral contract is a collateral or
guaranty promise, it is enforceable if the promi-
sor’s “main purpose” in entering into the agree-
ment was to secure some advantage for himself.
This is the so-called ‘“‘main purpose doctrine’. It
requires that the promisor intended primarily to
secure an advantage for himself. The Restate-
ment requires that the advantage sought must be
a pecuniary or business advantage. Examples of
such purposes are the promise of one creditor to
guarantee the debtor’s debt to another creditor for
the purpose of forestalling litigation, thereby al-
lowing the debtor to remain in business long
enough to generate enough profits to pay both
creditors. Also, it is sufficient if the guarantor
only thinks that his promise is for his own bene-
fit, when it may in fact not be.
[103]
§ 114 DEFENSES
§ 114. Land sale contracts. An oral land sale

contract may still be enforced if it is accompanied
by the taking of possession coupled with part or
full payment, or the making of improvements on
the realty. On the other hand, neither the taking
of possession nor part or full payment alone are
sufficient. Different states have varying rules
concerning the magnitude or nature of improve-
-ments which will suffice.
§ 115. Contracts for the sale of goods. Under

U.C.C. Sec. 2-201, contracts for the sale of goods
priced at $500 or more are not required to be in
writing:
(1) With respect to goods for which payment
has been made and accepted or which have been
received and accepted. (Note that the pre-U.C.C.
rule in most states permitted enforcement of the
entire contract if there had been part-payment or
a partial delivery. Now the contract is enforce-
able only to the extent of the goods which have
been delivered or for which payment has been
made.)
(2) With respect to goods specially manufac-
tured for the buyer which are not suitable for
sale to others in the ordinary course of the sell-
er’s business. The oral contract may be enforced
once the seller has made a substantial beginning
of their manufacture or commitments for their
procurement.
[104]
(3) If the party against whom enforcement is

sought admits in pleadings, testimony or other-
wise in court that the contract was made. This
provision of the U.C.C. is a significant departure
from the usual view of the writing requirement.
§ 116. Agent’s authority agreements. Even

though an agent’s authority to represent his prin-
cipal in certain circumstances may be required to
be in writing, the agent can bind his principal un-
der an oral authorization if the agent acts in the
immediate presence of the principal and at his
express or implied direction. Also, the Statute
does not apply if the agent is an executive officer
of the principal corporation or if the principal
cures the defect by a subsequent written ratifica-
tion.
§ 117. Contracts not capable of being per-

formed within one year. Many jurisdictions hold
that where one party has fully performed, the
other’s oral promise is now enforceable even
though by its terms it cannot be performed with-
in one year.
§ 118. Estoppel to plead the statute. There

is a wide variety of situations in which different
courts have denied the defense of the Statute of
Frauds on the grounds of estoppel. Within a giv-
en jurisdiction, the cases may not be totally con-
sistent. Where a party to an oral contract repre-
§ 118 DEFENSES
sents that he will not assert the Statute or that

he will supply a signed writing, or that the Stat-
ute is not applicable to the transaction, and the
other party changes his position in reasonable re-
liance, the first party may be estopped from as-
serting the Statute as a defense. Cases vary on
the question of how express the promise not to
assert the Statute must be, some even holding
that the making of any oral promise is sufficient
to express an intention not to rely upon the re-
quirement of a writing. Cases also vary on the
nature and degree of the reliance which will give
rise to an estoppel. It is sometimes held that
simply passing up another transaction for the
same subject matter is not enough, but collateral
action or change of position such as quitting a
job or re-selling goods purchased on an oral con-
tract are often found to be sufficient.
Estoppel may also be found where there is no
express or reasonably implied promise not to as-
sert the Statute, but the promisor permitted the
promisee to incur substantial detriment in reli-
ance which would unjustly enrich the promisor if
his promise were not enforced. Some jurisdic-
tions limit recovery to the value of the enrich-
ment which was unjustly conferred except where
that value is so unique as to be not reasonably
compensable in dollar damages. In the latter
case, the promise may be enforced.
[106]
§ 119. Effect of the statute upon the validity

of the contract. While many Statutes of Frauds
describe oral contracts concerning subject matter
within their scope as being void, case law does
not support this position. The defense provided
by the Statute can be raised only by a party to
the contract in most jurisdictions. As to third
parties, the oral contract is valid. Thus one with
an oral contract to buy a house has an insurable
interest and may enforce a fire insurance policy.
Tortious interference with contract relations can
exist where the contract in question is oral and
within the Statute.
4, SATISFACTION OF THE STATUTE
§ 120. The memorandum. A written memo-

randum which contains the essential terms of the
contract, whether made when the agreement was
executed or at a later time, is sufficient when
signed or initialled by the party to be charged.
The memo may be informal, so long as it contains
the following elements: (1) the names of the par-
ties; (2) a reasonably certain description of the
subject matter; (3) the terms and conditions of
the promises; and (4) the signature or initials of
the party to be charged. The signature or ini-
tials need not be at the end of the document; any
place is sufficient if it is intended as a signature.
Also, a typewritten name, rubber stamp or even
[107]
§ 120 DEFENSES
the name of another person is sufficient to charge

the party making use of such means if he intend-
ed such as his signature. The memo need not be
sent to the other party, and need not be in exis-
tence at the time of trial. All that need be
shown is that the memo in fact existed.
In contracts for the sale of goods subject to the
U.C.C., the rules relating to the memo are re-
-laxed. All that need be present is a signed writ-
ing sufficient to indicate that a contract for the
sale of goods has been made between the parties
and the quantity thereof. Given the quantity,
the court can determine omitted terms such as
price, terms, and place and time of payment and
performance.
Between merchants, a writing which confirms
an oral contract for the sale of goods and which
is sufficient to permit enforcement of the con-
tract against the sender will be binding upon the
recipient who has reason to know its contents and
fails to object within ten days. This avoids the
result which would otherwise be reached that the
party who carefully confirms the oral contract
becomes bound whereas the other party is not.
Note its limited applications to merchants.
§ 121. Using several writings. According to

Restatement Sec. 208, the Statute can be satisfied
by integrating several writings if (a) the signed
writing is physically annexed to other writings by
[108]
COMPETENCY § 123
the party to be charged, or (b) the signed writ-
ing refers to the unsigned writing, or (c) it ap-
pears from an examination of all the writings
that the signed writing was signed with reference
to the unsigned writings.
B. COMPETENCY
§ 122. Mental capacity, generally. A person

lacks capacity to enter into a contract if he fails
to have the capacity to deal with the subject mat-
ter before him with a full understanding of his
rights and if he fails to have the capacity to un-
derstand the nature, purpose, and effect of the
contract. A temporary lack of capacity, due to
such phenomena as intoxication or shock, is also
sufficient.
§ 123. Effect of a lack of capacity. A con-

tract or conveyance made by a person lacking
mental capacity, but who has not been adjudicat-
ed insane and who is not entirely without under-
standing, is only voidable at the instance of the
person lacking capacity. Such person may de-
fend on lack of capacity, or seek rescission of the
contract. But the other party to the contract
may not raise the issue of lack of mental capacity
should he be required to perform his promise by
the legal representative of the other party. If a
person has either been adjudicated insane, or is
[109]
§ 123 DEFENSES
so insane as to be totally without understanding,

his contracts are void, rather than voidable.
§ 124. Lack of capacity due to minority. With

some exceptions, contracts made by a minor are
voidable at his option. A minor’s contract which
is voidable can be disaffirmed either by the minor
himself or by his guardian before he attains his
majority, or by the minor himself within a rea-
sonable time after reaching majority. This disaf-
firmance may be made by any act or declaration
disclosing an unequivocal intent to repudiate, but
notice need not be communicated to the promisee.
§ 125. Limitations on the power of a minor to

disaffirm. A minor is not estopped from disaf-
firming a contract because he has misrepresented
his age. Moreover, the minor is not liable in the
majority of jurisdictions for the tort of deceit for
such misrepresentation on the rationale that the
tort judgment might indirectly compel the minor
to perform his contract.
Rules vary regarding disaffirmance by the mi-
nor. Many jurisdictions deny the minor the right
to disaffirm contracts for necessities. Some ju-
risdictions impose upon the minor the obligation
to restore the consideration which he has receiv-
ed or pay its reasonable value. Many states are
reviewing the age for adult status, and it might
be anticipated that the age of majority for con-
[110]
ILLEGALITY § 127
tracting purposes will be lowered to eighteen in

most jurisdictions. Current local law must be
consulted.
§ 126. Prisoners and convicts. For policy rea-

sons, a person deprived of his civil rights, which
are suspended upon a sentence of imprisonment
in a state prison for any term less than life and
are taken away completely when a person is sen-
tenced to death or life imprisonment, may not en-
ter into a valid contract, except to make and ac-
knowledge a sale or conveyance of real property.
Parole, however, restores a limited series of civil
rights, including the right to contract. There is
a good deal of proposed legislation in many juris-
dictions which generally would liberalize the con-
tract rights of prisoners and convicts.
C. ILLEGALITY
§ 127. Introduction. The effect of illegality

upon an offer has been discussed (§ 26, supra).
We now turn to what in fact constitutes illegality
or violation of public policy, and the remedies, if
any, available to either party. The cases in this
area do not lend themselves to a neat statement
of legal principles. The issues are best under-
stood by focusing upon the different types of
problems which can be involved.
[111]
§ 128 DEFENSES
§ 128. Relationship of the illegality to the con-
tract. A contract may require the performance
of an illegal act; e. g., B promises to pay C $500
to drive the getaway car for a bank robbery. A
contract may be capable of legal performance but
one party may perform it in a manner which is
illegal; e. g., X contracts to deliver ten color tele-
vision sets to Y and X performs by stealing ten
- sets and delivering them to Y. A contract may
be obtained by illegal means; e. g., D gives mon-
ey to A, the agent of P, as a bribe to induce A to
enter a contract on P’s behalf with D. A con-
tract, although legal in itself, may be for an ille-
gal purpose; e. g., M may contract to buy a pistol
from N for the purpose of shooting M’s professor.
Obviously, in this latter category, the proximity
of the contract performance to the intended ille-
gal purpose and the knowledge of the parties as to
the contemplated purpose will have a direct bear-
ing upon the enforceability of the contract.
§ 129. The nature of the “illegality”. The

“illegal” act in question may be the commission
of a crime which is malum in se; the commission
of a crime which is malum prohibitum; or, the
performance of an act which is not actually a
crime but which violates basic public policy.
Malum prohibitum crimes can be roughly divided
between statutes which are to protect the public
health and morals and those which are designed
merely for revenue or regulatory purposes. This
[112]
ILLEGALITY § 180
categorization is not precise, but most cases
clearly distinguish between such malum prohibi-
tum crimes as building a barn without a building
permit and selling contaminated meat for human
consumption. The third category, violation of
public policy, is the most difficult of all to delim-
it. Courts have denied enforcement to contracts
such as agreements to lobby Congress for a bill
on a contingency fee basis even though there was
no violation of any criminal law involved. Ob-
viously the courts have a wide latitude to deter-
mine what does and does not violate public policy.
§ 130. The position of the parties. The parties

to the contract may be in pari delicto or equally
aware, involved and responsible for the criminal
aspect of the contract performance. One party
may be unaware or uninvolved or otherwise less
culpable. One party may be a member of the
class of persons which the criminal law was de-
signed to protect, e. g., R hires S to work for less
than the legal minimum wage in a job which is
covered by the federal wage and hour laws. S
may be equally guilty in the sense that he is
aware of the law and of the fact that the employ-
ment contract violates it, but the illegality cannot
be used to deny the employee the right to enforce
the contract and to collect the additional wages to
which he is entitled because the employee is a
member of the class which the law was designed
to protect.
[113]
§ 131 DEFENSES
§ 131. Remedies available. The classic ap-

proach of the courts to illegal contracts is to deny
any enforcement or relief whatever. We “leave
the parties where we find them’”’. This will ordi-
narily produce a windfall profit to one of the par-
ties who is equally guilty as the one who is de-
nied the fruits of his bargain. While this avoids
forcing the courts to deal with some seamy situa-
‘tions, it is not too clear how it promotes justice.
An alternative which is sometimes applied is to
require the restoration of consideration to restore
the parties to the position of status quo ante.
This is often applied where the party seeking the
restoration of consideration attempted to with-
draw from the contract before the illegal act was
committed.
Where possible and appropriate, a court may
sever the illegal portion of a contract and enforce
the balance.
§ 132. When contract will be found “illegal’’.

Some situations are clear: Enforcement will be
denied where the performance of a contract in-
volves a malum in se crime and the parties are in
pari delicto; enforcement will be denied where
the performance of the contract involves the vio-
lation of a statute which expressly provides that
contracts made in violation of its terms are unen-
forceable. Beyond these situations, the basic ap-
proach is to balance the seriousness of the crime
[114]
ILLEGALITY § 133
or violation of public policy; the relationship of

the contract performance to the forbidden act;
the position and activities of the party seeking to
enforce the contract or obtain the restoration of
consideration paid, and the magnitude or nature
of the unjust enrichment which may result if en-
forcement is denied. A contract for the purchase
and sale of milk in violation of a law requiring
the licensing of wholesalers might not be en-
forced prospectively, but the seller might be per-
mitted to recover the purchase price of milk al-
ready delivered if the law in question is not in-
tended primarily for the purpose of protecting
the public from bad milk. A contract for the sale
of liquor to a buyer who apparently intends to
transport it to another state in violation of the
laws of that state might not be enforced if the
seller is involved in assisting in the violation of
the law, but such a contract was enforced where
the seller’s role was simply the passive act of dis-
tributing the goods.
§ 133. Violation of licensing statutes and ordi-

nances. A recurring problem in this area is one
involving the delivery of goods or performances
of services by one who does not possess a license
required by law. Some licensing laws expressly
provide that persons contracting without the li-
cense may not enforce those contracts, but the li-
censing laws are often silent on this matter. In
[115]
§ 133 DEFENSES
the latter instance, courts attempt to distinguish

between licensing requirements which are pri-
marily designed to raise revenue for the govern-
mental agency, the violation of which generally
does not effect the enforceability of the contracts
made, and those licensing requirements which are
designed to protect the public from unethical or
incompetent persons. To practice law in a given
city, a person may be required to obtain a state
license which involves passing a test and paying
periodic fees and a city license which simply in-
volves the act of paying a fee. Contracts for le-
gal services made by one who does not possess
the city license could be enforceable since that li-
censing requirement is designed for the sole pur-
pose of producing revenue for the city.
§ 134. Anomalous results. The application of

the principles of illegality in the contract field
can produce some unique results. One state had
a law which made bookmaking a crime but which
did not make the act of placing a bet with the
bookmaker a crime. A rather successful bettor
who had won substantially more than he had lost
over the years sued his neighborhood bookie for
rescission and the return of his bet in all of the
contracts relating to his losses. Since the book-
maker was engaging in criminal activity and the
bettor was not, the court permitted rescission and
restoration of consideration in the losing gam-
[116]
MISTAKE § 185
bling contracts and denied to the bookmaker the

right to offset winnings from the other bets.
Where the state licensing law expressly made
construction contracts of unlicensed persons
unenforceable, an unlicensed subcontractor was
denied payment for work which he performed
satisfactorily for a general contractor who en-
tered the contract knowing that the subcontrac-
tor was unlicensed.
D. MISTAKE
§ 135. Mistake. If a party does not make a
“slip of the tongue” type of mistake which may
vitiate assent, §§ 13-15, swpra, but instead, labor-
ing under an antecedent mistake communicates
what he intends to communicate, the mutual
manifestation of assent by the parties creates a
valid contract which is enforceable, subject to
certain defenses relative to the mistake. If the
other party either knew or should have known of
the mistake or induced the mistake, the one mak-
ing the mistake can either plead mistake as a de-
fense to an action to enforce the contract or seek
rescission and restitution or reformation before a
court of equity. To illustrate, suppose A invites
bids for the building of his office building. B
submits a bid for $250,000, but due to an over-
sight on the part of employees working overtime
in preparing the bid, B omitted an item of
[117]
§ 135 DEFENSES
$50,000. If all other bids were much higher than

B’s bid, B might successfully assert the defense of
unilateral mistake, contending that by the nature
of the other bids, A should have known that the
bid of B was the product of some kind of error.
However, when there are no facts from which the
court can find that A knew or should have known
of B’s mistake or induced B’s mistake, B may be
denied relief for his unilateral mistake. Some ju-
risdictions will still give B the right to rescind
where: (1) the mistake is material; (2) enforce-
ment of the contract as made would be very un-
fair or unconscionable; (3) the mistake was not
the product of culpable negligence; (4) the non-
mistaken party will suffer no more than the loss
of his bargain if the contract is rescinded; (5)
prompt notice of the mistake is given, and (6) the
mistake was of a clerical rather than judgmental
nature.
Where parties to a contract agree on the as-
sumption that a subject matter is of a particular
kind or quality, but it turns out to be of a differ-
ent nature, their mutual mistake constitutes a de-
fense to enforcement of the contract. However,
the rule is to the contrary if the mistake is due to
ignorance rather than an intelligent evaluation.
Also, the effect of subsequent market changes is
irrelevant. To illustrate, suppose that A and B
assumed that A’s cow Rose was barren, and sold
her by the pound for the market value of a bar-
[118]
DURESS OR UNDUE INFLUENCE § 136
ren cow, approximately $80. When the cow

turned out to be fertile, thereby worth $800, their
mutual mistake was found to vitiate the contract.
The critical question is whether the parties con-
tracted for Rose, a cow, in which case there was
no mistake as to subject matter, or for Rose, a
barren cow, in which case there was a mutual
mistake as to the nature of the subject matter.
If A and B were unaware of the distinction be-
tween barren and fertile cows, and A just sold the
cow as a cow for $80, the subsequent value of her
fertility would not vitiate the contract. Obvious-
ly, as well, if the market price for barren cows,
or for cows generally, increased between the
making of the contract and the time for perform-
ance, the contract would still be enforceable.
This is one of the purposes for which contracts
are made.
Mutual mistake as to the existence of the sub-
ject matter of the contract at the time the con-
tract is made will also serve as grounds to deny
enforcement.
E. DURESS OR UNDUE INFLUENCE

§ 136. Duress or undue influence. Duress ex-
ists as a defense to the enforcement of a contract
when one party is the victim of a threat which
deprived him of his freedom of will to enter or
not enter into the contract. Threats of physical
[119]
§ 136 DEFENSES
harm can obviously destroy freedom of will. Du-

ress may also be found where there was a threat
of other (non-physical) unlawful action.
For example: A has a contractual duty to de-
liver parts to B which B desperately needs from
A. A threatens to withhold delivery unless B
agrees to sell his house to A for a certain price.
A more difficult problem arises where the
threat involves lawful conduct. It has been gen-
erally stated that duress cannot exist unless the
threat was a threat to do an unlawful act. Ex-
ceptions exist in such areas as a threat to dis-
charge an employee who can be dismissed with-
out cause and a threat by a sole supplier or sole
buyer to stop supplying or buying. Many cases
require that the victim show that he acted rea-
sonably in submitting to the coercion.
Undue influence, like duress, involves the ques-

tion of the reality of the apparent assent to con-
tract in that it may have been induced by factors
which prevented the exercise of free choice. The
usual basis of a claim of undue influence involves
either a fiduciary relationship between the par-
ties or a party taking unfair advantage of the
other party’s weakened mind. These factors may
appear in combination.
A fiduciary relationship exists where one party

occupies a position of trust and confidence vis a
vis the other. These are commonly found in fam-
[120]
FRAUD AND MISREPRESENTATION _ § 187
ily relationships and professional-client relation-

ships, but a fiduciary relationship may exist even
between a corporate employer and its employee.
A weakened mind may form the basis of a
claim of undue influence where the party in ques-
tion has the cognitive capacity to understand the
nature of the transaction and thus does not lack
legal capacity (§ 122, supra), but has a tempo-
rary or indefinite physical or mental condition
which seriously impairs his judgment. Examples
may include bereaved widows and widowers and
manic depressives. Knowledge, with respect to
the nature or subject matter of the contract as
such, may not be impaired, but the motive for en-
tering into the contract may be the product of se-
riously impaired judgment.
Undue influence involves a party taking advan-
tage of the fiduciary relationship or mental infir-
mity. It is usually not found to be a defense un-
less the contract is demonstrably one-sided or un-
fair.
F. FRAUD AND MISREPRESENTATION
§ 137. Fraud and misrepresentation. These

terms are often used loosely to describe different
types of conduct: Intentional misrepresentation,
negligent misrepresentation, concealment, inno-
cent misrepresentation, or nondisclosure. A
fraud or misrepresentation which is sufficient to
§ 137 DEFENSES
constitute a defense to formation must be of the

type which was perpetrated with the intent of in-
ducing the other party to enter into the contract
and which in fact results in such a contract.
Hence, an innocent misrepresentation, in the con-
tract sense, is analyzed as a mistake rather than
as a fraud.
The victim of a fraud must make a timely
avoidance of the contract or it will be binding; i.
e., he must avoid it when he learns or should have
learned of the fraud. If the contract is to be
avoided, the avoiding party must also tender back
any consideration received. Also, contracts
avoided for fraud must be avoided in their entire-
ty, unless the fraud only affected one portion of a
severable contract § 190, infra.
Note that intentional misrepresentation may
constitute the intentional tort of fraud. The vic-
tim’s remedies may be expanded to include the
possibility of punitive damages if this tort is es-
tablished.
§ 138. Adhesion contracts, unconscionability

and public policy. While there is no uniformity
of opinion on the subject, an adhesion contract
may be defined as a contract written exclusively
by one party (the “dominant party’) and
presented to the other (the “adhering party’’)
with no opportunity to negotiate. The “take it
or leave it” position may result from the unwill-
[122]
ingness of the dominant party to negotiate or

from the lack of authority of the agent who is
presenting the document to change its terms.
Our society utilizes many adhesion contracts.
There is nothing unenforceable or even wrong
about adhesion contracts, per se. For example,
most businesses would never conclude their vol-
ume of transactions if it were necessary to nego-
tiate all the terms of every consumer credit con-
tract made.
Problems of interpretation or enforcement
arise when a contract contains provisions which
are shocking in the abstract or in their applica-
tion to a particular case. Decisions focus upon
many different issues: (1) Was the provision
physically hidden by small print, by its location
on the “back side” or buried in the middle of
“paragraph 33”? (2) Was the provision semanti-
cally hidden by obscure language or by such de-
vices as a glowing description of the meager war-
ranty rights which a seller is giving while dis-
claiming all other warranties which the law
would provide? (3) Does the provision raise se-
rious questions of contravention of public policy,
such as a waiver of liability for active negli-
gence? (4) Is the provision grossly unfair or un-
conscionable as applied to the objecting party?
(5) Was the contract an adhesion contract? (6)
Does the dominant party occupy a particular po-
sition of public responsibility, such as a public
[123]
—
§ 138 DEFENSES
utility? (7) Was the document executed under

circumstances in which the adhering party did
not have a real opportunity to read and digest it,
such as the contract presented by the moving
men to be signed while they are on hourly rate?
(8) Is the provision in question one that a rea-
sonable person would not expect to be found (and
‘therefore would not look for) in a document of
the type in question, such as a waiver of liability
in an admission ticket or a bank’s “signature
card”?
In many cases where relief from onerous terms
is granted, it is difficult, if not impossible, to de-
termine the precise factors which influenced the
court. The law in this area is in a developmental
stage, and the best description of many decisions
is that the court considered all “relevant factors”
and “‘on balance”’ concluded as it did. Each situ-
ation thus must be analyzed with all of the “fac-
tors” in mind and recent local decisions analyzed
to predict results in this area.
ANALYSIS DIVIDER
If you have determined that a valid contract has

been created under one of the six theories of con-
tractual liability, giving due consideration to all
defenses to formation or enforcement, you must
then turn to the rights and liabilities of parties
[124]
under a contract as formed. As we shall see in

subsequent material, these problems are often
lumped and referred to as “performance” prob-
lems.
Material relating to third party beneficiaries
and/or assignees of rights and delegatees of duties
may be treated as a “performance” problem in that
the classification of parties in the contract setting
will answer the question as to whether a party to
a contract has to perform to a designated person.
But, in a larger sense, classification of third par-
ties as beneficiaries is a “formation” issue be-
cause when a contract is validly formed the first
subsequent question to raise is whether any third
person or persons have had rights conferred upon
them:
A. As third party beneficiaries at the time of
formation, or
B. As assignees of a right or delegatees of a

duty after formation, but
C. In all cases before performance is claimed

by them or rendered to them.
To some extent, then, it makes sense to use the

problem area of third party beneficiaries and as-
signees of rights and/or delegatees of duty as the
transitional one from formation to performance
problems.
[125]
VII. PARTIES
A. THIRD PARTY BENEFICIARIES

§ 139. Nature of the agreement. An ordinary
contract involves but two principal parties, the
‘offeror and the offeree. By the terms of such a
contract, one or both are bound to render per-
formance to the other in consideration of receiv-
ing or having received the other’s performance.
However, in some instances, contracts are ar-
ranged in a manner in which one party to the
contract receives no counter-performance, or only
a portion of the counter-performance, but instead,
the counter-performance or some portion thereof
is rendered to a third party. This, then, is the
essence of the third party beneficiary contract,
which is governed by separate contractual princi-
ples.
§ 140. Nature of the third party. Many con-

tracts, although not necessarily intended to do so,
confer benefits indirectly upon third parties.
However, since the third party has no enforceable
rights thereunder, such a beneficiary is but an
“incidental beneficiary” to the contract.
The question whether a third party who will
benefit from the performance of a contract is an
incidental beneficiary, thus without enforceable
[126]
THIRD PARTY BENEFICIARIES § 140
rights, or a direct beneficiary is critical. Differ-

ent jurisdictions use varying terminology to de-
fine or describe the difference. Some require
that the third party be a “direct” beneficiary,
some require that the third party be the “pri-
mary” beneficiary and others inquire whether the
contract was made for the “express benefit” of
the third party, but despite the varying terminol-
ogy, the test is basically uniform. Courts state
that they are looking for the intention of the par-
ties to benefit a third person. Actually, the opin-
ions disclose that they are looking for the inten-
tion of the person who is the promisee as to the
promise in which the third party is interested, to
determine whether the intention in soliciting such
promise was to create a benefit in the third party
which the third party could enforce.
Historically, courts have identified third party
beneficiaries with enforceable rights as donee or
creditor beneficiaries. The distinction is predi-
cated upon whether the promisee of the promise
in question was attempting to confer a gift upon
the third party or attempting to discharge an ob-
ligation, real or assumed, which was owing to the
third party. This classification is significant be-
cause the treatment of donee and creditor benefi-
ciaries is significantly different in some jurisdic-
tions, and the process of classifying a third party
as a donee or creditor beneficiary is helpful in de-
termining whether he is in fact a third party ben-
[127]
§ 140 PARTIES
eficiary or a mere incidental beneficiary. The

classification is not clear, however, as there are
situations in which both a charitable motive and
an attempt to discharge a real or assumed obliga-
tion are evident on the part of the promisee.
The performance of a contract between A and
-B in which A will paint B’s weatherbeaten house
will benefit C, B’s neighbor. C is, however, noth-
ing more than an incidental beneficiary since
there is nothing to indicate that B’s motive was
to confer a benefit upon C, gratuitous or other-
wise. The performance of a contract between A
and B in which A will paint C’s house is a direct
benefit to C. C is an express beneficiary and the
primary purpose of B in entering such a contract
appears to be to confer a benefit upon C. C will
be found to be a third party beneficiary, donee or
creditor depending upon the motivating force be-
hind B’s conduct, and C may acquire enforceable
rights under the contract. If B’s motives are
partly charitable and partly satisfaction of an
obligation, C will ordinarily be classified as a do-
nee beneficiary as the rights of a donee are supe-
rior to those of a creditor where the courts dis-
tinguish between the two.
§ 141. Identification of the beneficiary. <A

third party beneficiary need not be specifically
named in the contract to possess enforceable
rights. Rather, he need only be identifiable from
[128]
the terms of the contract and subsequent events.

An example of such a situation would be a class
gift to a class which had no members at the mak-
ing of the contract, e. g., “all my children born
after this date’, but which, through the birth of
children, was filled with members subsequently.
§ 142. Rights of third party beneficiaries.

While early common law courts had difficulties
with the theoretical aspects of permitting a per-
son who had no privity with the promisor and
from whom no consideration flowed to enforce a
contract, almost all jurisdictions now allow en-
forcement by third party beneficiaries without
question. Thus, a person who qualified as a third
party beneficiary may bring an action directly
against the promisor to enforce the promise made
for his benefit.
The rights of the third party beneficiary are at
all times subject to the same defenses which the
promisor could have asserted against the prom-
isee in an ordinary contract. However, once the
rights of the third party beneficiary have vested,
a subsequent attempt by the principal parties to
modify the contract to the detriment of the third
party or to rescind the contract, whether express-
ly or tacitly, cannot affect the rights of the third
party beneficiary and thus is not available to the
promisor as a defense. For purposes of deter-
mining whether a modification or rescission is ef-
[129]
§ 142 PARTIES
fective, the question when the rights of the third
party beneficiary vest is therefore important.
§ 143. Vesting of rights. There are three

events the occurrence of which can be used as the
time at which the rights of the third party bene-
_ ficiary vest: The making of the contract (imme-
diate vesting); when the third party learns of
the contract and agrees to accept the benefits
thereof (an acceptance which is ordinarily pre-
sumed in the absence of an express rejection);
when the third party changes position in reliance
upon the contract (which ordinarily need involve
only a slight change of position; e. g., filing suit
against the promisor).
Different states follow various combinations of

these possibilities. Some states follow a single
rule for vesting without regard to the nature of
the beneficiary. Most apply different rules to do-
nees and to creditor beneficiaries with the credi-
tor beneficiary’s rights vesting later, usually after
some reliance, on the theory that he will ordinar-
ily have a remaining right of action against his
principal debtor, the promisee. Frequently, the
rights of the donee are said to vest at once.
Some states vest the rights of third parties more
quickly if they are minors. Whatever rational
logic may exist for this policy is not disclosed by
the statement in many opinions that as to minors
[130]
knowledge and acceptance are presumed, thus ob-

taining the result of immediate vesting.
Where immediate vesting is applied, it is possi-
ble to have some unusual fact situations. A and
B enter a contract in which B agrees to perform
a promise for the benefit of C who is not present
or involved and is totally unaware of what is
transpiring. Very shortly thereafter, A and B re-
scind their agreement, possibly to enter a slightly
different agreement in which B’s promise will be
performed for A himself. In a jurisdiction which
applied immediate vesting, C acquired an enforce-
able right against B when the A-B contract was
made and the subsequent A-B rescission is not
available to B as a defense.
§ 144. Rights of the promisee against the

promisor. Where the promisor fails to perform
and the third party does not choose to enforce his
rights against the promisor, the question may
arise whether the promisee can compel perform-
ance or sue for damages. In the case of a donee
beneficiary, the promisee is not actually damaged
by the promisor’s failure to perform, but for this
very reason, his legal remedy may be found to be
inadequate and he may be able to specifically en-
force the promise. In the case of a creditor bene-
ficiary, the issue will normally arise where the
creditor has chosen to proceed against the prom-
isee on the underlying debt. In this case, the
[131]
§ 144 PARTIES
promisee has suffered compensable damages as a

result of the promisor’s failure to perform and he
may sue the promisor.
§ 145. Assumption of secured indebtedness.

Obligations which are secured by a lien upon real
property may be a personal obligation of the
debtor or the debtor may have no personal liabili-
ty thereon. This is properly a problem falling
outside the area of contracts, and it is complicat-
ed in most jurisdictions by anti-deficiency legisla-
tion which restricts or precludes the right of a se-
cured creditor to hold his debtor personally liable
for portions of the debt not repaid by foreclosure.
Where a debtor is personally liable for a se-
cured loan on property which he is selling, he will
ordinarily wish to have the buyer of the property
assume the loan. ‘‘Assume’”’ means promise to
pay. If the buyer merely takes the property
“subject to” the loan, the buyer will likely lose
the property if the debt is not paid, but he has no
personal liability for any deficiency if the proper-
ty does not sell for enough to repay the entire
debt. If the grantee (buyer) assumes the loan
and the debt is not paid, the creditor may fore-
close on the property, and, subject to applicable
anti-deficiency statutes, he may hold his original
debtor liable for the balance. Since the original
debtor has the right to compel the assuming
grantee to pay the balance, the creditor may also
[132]
sue that assuming grantee on the theory of sub-

rogation. (A creditor, under certain circum-
stances, having the right to bring a direct action
against persons who owe money to his debtor.
Also termed a creditor being subrogated to his
debtor’s rights against others.)
Contract law becomes involved where the fol-
lowing transaction occurs: A, the owner of
Blackacre, borrows money from L and gives La
lien upon Blackacre as well as a personal promise
to pay. A sells Blackacre to B who takes the
property subject to the lien (and thus assumes no
personal obligation to pay the loan). B later re-
sells the property to C who assumes the loan
(and thus personally promises to pay it). A has
vanished. The loan is in default. ZL forecloses
and sells the property but there is still $50,000
unpaid as the property had declined in value.
Assuming no anti-deficiency statute problems, A
is, of course, liable to L for the $50,000. Assum-
ing that A is gone or insolvent, may L hold C
personally liable?
L cannot reach C on a theory of subrogation.
B was not personally liable for the loan, so A has
no right against B. This breaks the chain and
prevents L or A from reaching C on a subroga-
tion theory. L’s alternative theory is that he is a
third party beneficiary of the B-C contract. In
the B-C contract, C’ promised to pay the out-
standing loan to L. B was not indebted to L, so
[133]
§ 145 PARTIES
at first glance, L does not appear to be a creditor
beneficiary. Creditor beneficiaries are found,
however, where the purpose of the promisee was
to satisfy a creditor, actual or supposed and it
might be argued that B supposed or feared he
might be personally obligated to L. (Let us not
explore the question whether this could raise the
defense of mistake.) LZ can assert the status of
donee beneficiary, but it is not an easy task to
convince a court that B’s purpose was to confer a
gift upon the mortgage holder.
Many states, particularly those which are more

heavily populated with farmers and homeowners
than with insurance companies and major lending
institutions, have simply concluded that there is
no third party beneficiary contract present and -
have denied LZ recovery against C. A few have
reached the opposite conclusion.
ANALYSIS DIVIDER
As mentioned in the last Analysis Divider,

classification of all parties in the contract setting
is needed to answer the question of whether a
party to a contract must perform to a designated
person. We have seen this may be the case where
a party has been identified as a third party bene-
ficiary entitled to performance at the time of for-
[134]
ASSIGNMENT OF RIGHTS § 146
mation. It may also be so at a time when after

formation enforceable rights or duties are attempt-
ed to be assigned or delegated. Thus a discussion
of assignment of right and/or the delegation of
duties.
B. ASSIGNMENT OF RIGHTS
§ 146. Introduction and definitions. It is not
uncommon to hear or read of the “assignment of
a contract” and these words ordinarily connote
the transfer of the rights and delegation of the
duties under a contract from one person to anoth-
er. Understanding the intricacies of this area for
the beginner, however, requires that a sharp dis-
tinction be maintained between the assignment of
rights and the delegation of duties.
An assignment of rights is a transfer of rights.

Once effectively accomplished, the right is extin-
guished in the assignor and is fully vested in the
assignee. Such assignments involve numerous
potential problems which are discussed hereafter.
A delegation of duties does not transfer the ob-

ligation to perform the duties. It may create re-
sponsibility in the delegatee and thus make a sec-
ond person responsible for the performance of the
duty in question, and it may give the delegatee
[785]
§ 146 PARTIES
the right to require acceptance of his perform-
ance, but the delegator does not relieve himself of
the responsibility to see that the duty is per-
formed. He remains liable. If you owe $500 to
the bank, you may not relieve yourself of this ob-
ligation by delegating the duty to pay to a handy
friend. Delegations of duties also involve partic-
ular problems and there is an established body of
law to govern them which is also discussed here-
after.
Three persons are affected by an assignment:

The debtor or obligor or promisor who owes the
duty of performance; the creditor or obligee or
promisee to whom the duty is owing and who will
become the assignor when the assignment is
made; the assignee who acquires the right to en-
force the duty by virtue of the assignment.
§ 14%. Limitations on assignability. General-

ly speaking, all contract rights are assignable.
‘The right assigned need not yet be due and ow-
ing, but to have an effective present assignment,
the contract under which the right will arise
must be in existence when the assignment is
made. Purported assignments of rights under fu-
ture contracts may be specifically enforced by a
court of equity as a promise to assign, but the
rights of a person who has a promise to assign
may be inferior to the rights of other persons (§§
155-158, infra).
[136]
If the assignment of a contract right would in-
crease the burden upon the promisor by virtue of
having to render performance to a different per-
son, this could make the contract right unassign-
able. True examples of this situation are rare.
Where the promisor must perform to the satisfac-
tion of the promisee or under the supervision of
the promisee, the promisee ordinarily would not
be permitted to assign the right involved. Pay-
ing money, delivering goods or a deed or other
such acts are not made more difficult by virtue of
having to render them to an assignee.
§ 148. Assignment of tort rights. Assignment

of rights resulting from torts has been prohibited
as a violation of public policy. The logic in the
case of personal injuries is evident and such
rights are unassignable. There is no apparent
reason why one cannot assign rights arising from
tortious injury to property, and many jurisdic-
tions now permit such assignments,
§ 149. Contract limitations on assignments.

Contract provisions which attempt to restrict or
preclude assignments are strictly construed. A
general prohibition against assignments or as-
signments without appreval of the other party is
usually interpreted as merely a promise not to as-
sign. The party may still make an effective as-
signment. The promisor must deal with the as-
§ 149 PARTIES
signee and his only remedy is a suit against the
assignor for breach of promise which is ordinari-
ly of little consequence as there are no compensa-
ble damages.
A provision that any attempted assignment will
be void will ordinarily be effective to prevent an
assignee from acquiring rights. Some courts
have held, however, that even this language does
’ not preclude assignment by operation of law.
A provision that an attempted assignment will
void the contract itself is effective but has been
modernly held not to be self-executing. The
promisor must still. take the affirmative step of
avoiding the contract.
In contracts which involve a transaction in
goods, U.C.C. Sec. 2-210(2) and (3) affect the
interpretation of prohibitions against assignments.
In the absence of circumstances which indicate a
contrary intention, prohibition of assignment of
“the contract” is construed as barring only the
delegation of duties. Further, even a prohibition
against assigning rights does not preclude assign-
ing the right to damages for breach of the whole
contract, nor does it preclude assigning rights un-
der a contract after the assignor has fully per-
formed.
§ 150. Partial assignments. At early common

law, partial assignments were forbidden because
they could easily increase the burden upon the
[138]
promisor, particularly if he had a defense which

he wished to litigate. Partial assignments are
now permitted. The protection which is given to
the promisor is that he may force all persons
holding a partial assignment of the contract
right, including the assignor if he still has a por-
tion of the right, to join in one action to enforce
the right. This permits the promisor to make
one defense if he wishes to contest the obligation,
and it places some potentially difficult burdens
upon the assignees if they are not all in one juris-
diction and one or more do not agree to join in
the suit.
§ 151. Assignment of wages. Assuming an

employment contract is in existence, there is no
theoretical reason why the right to future wages
cannot be assigned and this was permitted at
common law. State statutes now commonly place
severe restrictions upon such assignments, and lo-
cal law must be consulted.
§ 152. Effectiveness. In transferring a right

to an assignee, the obligee-assignor must manifest
his present intention to extinguish the rights in
himself and establish them in the assignee. He
must indicate an intent to vest a present right to
the thing transferred in the assignee, e. g. “I
hereby transfer all my rights in my contract with
R to A”. Hence, the statement: “I promise to
pay A the $250 owed. to me by F”’, is insufficient,
[139]
§ 152 PARTIES
because it is a mere promise to pay money, and
does not vest in A the right to sue F on the origi-
nal contract.
The right being assigned must be adequately
described. In addition, if there is a token, a tan-
gible “thing” which represents the right, it must
be delivered to the assignee. For example, the
right to attend a football game is ordinarily rep-
’ resented by a token, a ticket, and the right can-
not be assigned without delivering the ticket to
the assignee. Do not confuse things which are
merely evidence of a right; e, g., a written con-
tract. These things need nct be delivered to the
assignee.
If these elements are met, then the assignment
is “effective”, which means that the assignor’s
right is extinguished and the assignee acquires
the right to the obligor’s performance.
In order to be effective, an assignment need
not be supported by consideration, but the pres-
ence or absence of consideration may be relevant
on the issue of revocability (§ 153, infra).
In the absence of a statute, it is the majority
rule that an assignment is effective although oral.
Where the Statute of Frauds requires assign-
ments to be in writing, and the suit is between
the oral assignee and subsequent creditors, as-
signees, or trustees in bankruptcy, the latter may
not set up the Statute as a defense, since they are
not parties to the assignment (§ 119, supra).
[140]
§ 153. Revocability. An assignment is said to

become irrevocable (a) if it is an assignment for
a legally sufficient consideration, (b) if the right
assigned is represented by a token which has
been delivered to the assignee, or (c) if it is a
gratuitous assignment but the assignee justifiably
and substantially changes his position in reliance
on the assignment, or (d) in some jurisdictions, if
it is a gratuitous assignment made in writing.
When an assignment is irrevocable, the right but
not the power to make another assignment or to
revoke or otherwise terminate the agreement has
been lost. If an assignment is irrevocable and the
assignor either revokes, makes another assign-
ment, or otherwise terminates the assignment,
the assignee may sue the assignor for breach of
the implied warranty that he would do nothing to
defeat or impair the assigned right.
§ 154. Proper manner of revocation. If the

assignment is revocable, it may be revoked by
any subsequent assignment, whether for consider-
ation or gratuitous, written or oral. Other meth-
ods of revocation are by‘notice to either the as-
signee or obligor, or by the death or bankruptcy
of the assignor.
§ 155. Multiple assignments of the same right

for consideration. In the classic situation of mul-
tiple or successive assignments, the assignor as-
[141]
§ 155 PARTIES
signs the right in question to A for as much con-

sideration as he can get. The assignor then as-
signs the same right to B for consideration, and
depending upon how fast he thinks he can disap-
pear, he may reassign to C, D and H. The first
assignment was presumably irrevocable (§ 153,
supra), and if a subsequent assignee took with
notice of the earlier assignment, he acquires no
- legal rights. Assuming that each assignee is in-
nocent, as is usually the case, the law must pro-
vide a method for determining who may enforce
the right.
The basic common law rule which enjoyed ma-
jority application reasoned that the original as-
signee, A, acquired the right, and that subsequent
assignees could acquire nothing. It was like buy-
ing a horse from one who did not own it in the
opinion of one illustrious justice. Most jurisdic-
tions which applied this rule recognized an excep-
tion to it: Where the failure of A to notify the
debtor or promisor within a reasonable period of
time contributed to the subsequent assignee, B,
being deceived, A was estopped from asserting
the priority of his assignment. This would occur
where B inquired of the debtor-promisor whether
there had been prior assignments and was ad-
vised that there were apparently none. Assuming
that A had had adequate time to notify the debtor-
promisor, and had he done so, the promisor would
have advised B of the prior assignment.
[142]
The minority common law rule provided simply

that the first assignee to notify the debtor-promi-
sor of the fact of his assignment prevailed. This
approach has little theoretical justification, but
has the practical virtue of encouraging prompt
notice which avoids creation of other problems.
The U.C.C. has special application in this area.
Unlike most references to the U.C.C. in this work,
this reference is to Article [IX which is not limit-
ed to transactions in goods but applies to all secu-
rity interests in personal property which includes
such things as contract rights, whatever the sub-
ject matter of the contract. The basic premise of
the draftsmen of the U.C.C. apparently was that
most assignments are for security for a loan or
other obligation and should therefore be perfected
in the same manner as other liens on personal
property. Thus the question of priority between
A and B would be resolved by determining which
party first complied with the filing requirements
of Article IX if the assignment came within its
purview.
Article IX starts with the inclusion of all of
those things which we have referred to herein as
contract rights which Article IX labels “accounts”
(U.C.C. Sec, 9-102(1)(b)). It then excludes
from its coverage all assignments of “accounts”
which were made as part of the sale of the busi-
ness out of which they arose, or which were
made only for collection, or which were made to
[143]
§ 155 PARTIES
a person who also assumed a delegation of the

duties under the contract (U.C.C. Sec. 9-104(f)).
It then excludes from the filing requirements “an
assignment of . . . accounts which does not
transfer a significant part of the out-
standing . . . accounts of the assignor”
(U.C.C. See. 9-302(1) (e)). To avoid the appar-
ently endless litigation which could arise over
- what is or is not a significant part of the assign-
or’s outstanding “accounts” (and also because
that exception could have strange applications in
practice), some states such as California did not
adopt this subsection leaving the provisions of U.
C.C. Sec. 9-104(f) as the only exemption from
filing requirements. Local law should be consult-
ed for details.
The net result is that analysis of the respective
rights of successive assignees for consideration
must first involve the question whether the as-
signment came within the filing requirements of
Article IX. If so, the first assignee to comply
with those filing requirements will prevail. If
the assignment is not within the filing require-
ments, then the common law rules will presuma-
bly still apply.
§ 156. Protection of the obligor. In the suc-

cessive assignment problems the promisor-debt-
or-cbligor must be considered separately. He did
not create the problem but he must be careful de-
[144]
ciding to whom he should render performance or

he may have to perform again.
Consider the fact that assignment of contract
rights and collection by the assignee is not some-
thing which the obligor would ordinarily antici-
pate. The obligor deals with the party with
whom he contracted, and until someone notifies
him of the fact of an assignment, he has no rea-
son to assume that it has occurred. Prior to no-
tice of assignment, he is free to render perform-
ance to the party with whom he contracted, and
he may assert such performance as a defense in
any action by an assignee. This is true even if
he paid money to the party with whom he con-
tracted before it was due.
When notified of an apparently valid assign-
ment by an assignee, he may make payments to
that assignee. If an assignee with superior rights
later sues, he will ordinarily be able to use pay-
ments to the only assignee of whom he had notice
as a defense. This situation could occur where
the assignee to whom the payments were made
had a revocable assignment which was _ subse-
quently revoked. It could occur under the major-
ity common law rule where the second assignee
was the first to give notice and collected. The
obligor has no general dutyto canvass the com-
munity to determine whether some other assignee
with superior rights might exist. He acquires no
defenses if he pays an imposter who had no as-
[145]
§ 156 PARTIES
signment. The basic rule is that the obligor may

not assert as defenses against the assignee pay-
ments made to the assignor after notice of the as-
signment. A generally recognized exception to
“this rule is that the obligor may make payments
to the assignor which are necessary to permit the
assignor to complete the contract and may assert
these payments as a defense against the assignee.
§ 157. Defenses other than payment. It is

generally stated that the debtor may assert
against the assignee all defenses which he would
have had against the assignor. The theory is
that the assignee cannot receive greater rights
than his assignor had. Unfortunately, it is not
that simple.
Defenses arising under the contract which cre-
ated the assigned right may be asserted against
the assignee. However, once the debtor has re-
ceived notice of the fact that the assignment has
occurred, he loses the right to enter an agree-
ment with the assignor to rescind the contract or
to modify it in such a way as would diminish the
rights of the assignee. Therefore, such post-no-
tice modifications or recisions cannot be raised as
a defense against the assignee. The U.C.C. modi-
fied this rule permitting modifications which are
made in good faith and in accordance with rea-
sonable commercial standards without the ap-
proval of the assignee despite the fact that the
[146]
assignee has given notice to the debtor of the as-

signment (U.C.C, Sec. 9-318(2)).
Defenses in the nature of setoff are another
matter. If the obligation which the obligor wish-
es to use to diminish the amount of his liability
had accrued at the time of notification of the as-
signment, the obligor may assert it as a defense
against the assignee. However, if the obligation
accrues after notification of the assignment, even
though under a contract entered before that noti-
fication, most courts will not allow the obligor to
raise it as a defense.
By way of example: O agrees to pay X $10,000
to build a structure. O advances X $1,000. X neg-
ligently causes $500 worth of damage to O’s car.
O sells X a car for $2,000 which is due next week.
A notifies O of the assignment from X to A of
the right to the $10,000. The $1,000 may be used
as a defense or deduction. So may the $500. So
may damages resulting from shortcomings in the
building of the structure. O may not, however,
use the $2,000 as a setoff or defense against A
unless it was due and owing from X to O before
O was notified of the assignment.
§ 158. Assignee versus creditors and trustees

in bankruptcy. As between the assignee, who has
advanced consideration for the right involved, but
failed to give notice, vis-a-vis a garnishing credi-
tor, it is the majority rule that the assignee
[147]
§ 158 PARTIES
would prevail since he has advanced consideration
counting on a chose in action, whereas a garnish-
ing creditor has merely relied on the debtor’s gen-
eral credit. Some of these jurisdictions allow the
garnishing creditor to keep the funds if he has al-
ready actually collected. However, as between an
assignee who had advanced consideration in spe-
cific reliance on the right involved but failed to
' give notice, vis-a-vis a trustee in bankruptcy rep-
resenting general creditors, the U.S. Supreme
Court has held that the trustee should prevail un-
der federal bankruptcy principles. To counter
the effect of this case, various states have enact-
ed statutes of different types. Since most of
these situations should involve assignments with-
in the filing requirements of U.C.C. Article IX,
the assignee who has complied with those re-
quirements should now be protected.
§ 159. Rights of the non-prevailing assignee.

If both assignments are for consideration, the as-
signee who did not prevail can sue the assignor
for breach of implied warranty against impair-
ment of the right, if he was the first assignee; or
breach of the implied warranty that the assigned
right actually existed in the assignor at the time
of assignment, if the loser is the second assignee.
§ 160. Sub-assignees. An assignee has the

power and right to make a valid sub-assignment
[148]
DELEGATION OF DUTIES § 161
of all or part of the assigned right. On the other

hand, it is the weight of authority that if an as-
signee has acquired implied warranties, these do
not inure to the benefit of a sub-assignee, even if
he is a sub-assignee for consideration. A defense
which the obligor holds against an assignee which
is personal to the assignee, cannot be asserted
against a sub-assignee if the latter is a bona fide
purchaser,
C. DELEGATION OF DUTIES
§ 161. Introduction. Although the delegation

of duties under a contract is sometimes permissi-
ble, a delegation is more restricted than is an as-
signment, and for good reason. When an assign-
ment is made, both parties to the original con-
tract are receiving performance, or the benefit of
performance, from the original party with whom
they contracted. However, in the case of a dele-
gation, the party to the contract who is not a
party to the delegation is being forced without
his consent to receive performance from someone
wholly outside his contemplation at the making
of the contract. Hence, a delegation is subject to
a higher degree of scrutiny than is an assignment
in order to assure that the other party to the con-
tract will receive the full benefit of his original
bargain. This concept underlies all rules relating
to delegability.
[149]
§ 162 PARTIES
§ 162. Definition of parties. Subsequent to a
delegation, there are three parties in interest.
First is the obligee, who is the recipient of the
benefit conferred upon him by another’s perform-
ance. Second is the obligor-delegator, who had
the original duty to perform to the obligee.
Third is the delegatee, who, through the delega-
tion, may have assumed the duty to perform to
the obligee.
§ 163. Mode of delegation by the obligor. An

effective delegation of a duty is made by an obli-
gor manifesting an intention to delegate the duty,
coupled with an assent, either express or implied,
by the delegatee to assume the duty of perform-
ance. An obligor, as in the case of an assignor of
a right, must manifest a present intention to dele-
gate the duty. Quite often, an obligor-obligee in
the bilateral situation, i.e. one who has both
rights and duties, will say that he hereby ‘“as-
signs all my rights and duties’’, and such wording
is sufficient to delegate his duties, although he
uses the word “assign” rather than ‘delegate’.
Also, as in the case of an assignor of rights,
the obligor must specifically identify either the
duty he is delegating or the contract he is trans-
ferring, where he is assigning rights and delegat-
ing duties.
§ 164. Failure of the delegatee to assent. If

there has been a valid delegation of a delegable
[150]
duty but the delegatee has not expressly promised

to perform the duty, his proper tender of per-
formance is still the equivalent of a proper tender
by the obligor, hence the obligee then may be-
come liable for breach of contract. However, the
obligee may not sue a non-assuming delegatee for
failure to perform the delegated duty.
As to a situation in which the party being both
the delegatee of a duty and the assignee of a
right, accepts the assignment of the right but
does not expressly assume the duty, a strong mi-
nority, led by the Restatement binds a delegatee
to the performance of the duty on the theory that
he should acquire the burdens with the benefits
of his bargain. Where a contract is subject to the
U.C.C., an assignment “of the contract” or of “all
my rights under the contract” is generally to be
construed as including a delegation of the duties
of the assignor and acceptance of the assignment
by the assignee constitutes a promise to perform
the delegated duties (U.C.C. Sec. 2-210(4)).
§ 165. Effect of assent by the delegatee. As

in non-assumption cases, the assuming delegatee
has the power to perform so that a proper tender
from him is the equivalent of a proper tender
from the obligor. However, if an assuming dele-
gatee fails to perform, the obligee can sue him
for breach of contract. As an assuming delega-
tee, the delegatee in making his promise to per-
[151] ”
§ 165 PARTIES
form has become a promisor, the obligor has be-

come a promisee, and the obligee can enforce the
contract as a third party creditor beneficiary.
§ 166. Delegability of duties. The foregoing

principles of §§ 163-165, supra, are all predicated
upon the assumption that a duty is in fact delega-
ble. In the absence of contractual prohibitions,
an obligor of an impersonal duty, e. g. the duty to
pay money, may validly delegate such a duty.
But if there is a contractual provision barring the
delegation of an impersonal duty, even if in the
form of “no assignment shall be made of this con-
tract”, the duty to perform the services becomes
personal by agreement and it may not be validly
delegated.
Universally, an obligor may not validly dele-
gate a personal duty. Courts usually say that an
attempted delegation of a personal duty is an abso-
lute nullity. Further, if an obligor accompanies
an invalid delegation of a non-delegable duty with
a statement to the obligee that he will not in the
future perform to the obligee because he has dele-
gated the duty, his language constitutes an antici-
patory repudiation of contract, possibly giving
the obligee an immediate cause of action for
breach (§§ 188 and 195, infra). Examples of du-
ties too personal to delegate are duties to paint a
portrait, drive a bus, teach, or render professional
services. The basic question is whether perform-
~ [152]
ance by the delegatee will be equivalent to per-

formance by the delegator.
§ 167. Rights of the parties to a valid delega-

tion. If there has been a valid delegation of a
delegable duty, the mere delegation does not ex-
tinguish the obligor’s duty whether the delegatee
expressly assumes the duty or not. Hence, if the
delegatee fails to perform, the obligee may hold
the obligor for non-performance of the contract.
On the other hand, an obligor’s duty of perform-
ance will be discharged by full performance by
the delegatee, or by any of the other conventional
methods of discharge (§ 222, infra).
To illustrate the inter-relationship of the rights
and remedies of the parties, consider the follow-
ing situation: A and B enter into a binding bilat-
eral contract, in which B is to build a yacht for
A, and A is to pay B $100,000. A subsequently
decides he does not want the yacht, but because
the contract is advantageous, assigns all his
rights thereunder and delegates the duty of pay-
ment to his friend X, for which X pays A $500.
X notifies B. B builds the yacht, and delivers it
to X, whereupon X does not pay and absconds to
the South Seas. B may collect from A, since A’s
duty of performance was not discharged by the
delegation. Under the majority rule, A cannot
recover from X under an express contract theory,
since X did not expressly assume the duty of pay-
Schaber & Rohwer Contracts—12 [1 53]
§ 167 PARTIES
ment. However, under the minority and Restate-
ment view and the U.C.C., since X is presumed
to have taken both the burdens and benefits of
the contract, A can recover from X.
Likewise, and under the same theories, B, un-
der the majority view, cannot recover from X,
since X made no express assumption, but under
the minority and Restatement, B may recover
from X, since X is presumed to have taken both
burdens and benefits. Obviously, B may recover
from either A or X, but not both.
Finally, since X has taken the yacht, he would
presumably be liable in quasi-contract to either A
or B for the reasonable value of the yacht (§§ 97-
100, supra).
ANALYSIS DIVIDER
The following materials involve the determina-

tion of what terms are and what terms are not
included in the contractual agreement between the
parties and how these terms are to be interpreted.
There is no single or totally logical place to
consider these issues in an outline of the subject
of contracts.
In determining questions of formation, it may
be necessary to include an analysis of admissibili-
ty of parol evidence or an issue of interpretation
[154]
of a clause or phrase to determine, for instance,

whether there is legally sufficient consideration
to support a promise. However, the primary use
of this material will be in connection with ascer-
taining the nature and extent of the terms of the
performance due under the contract and frequent-
ly what those terms mean must be resolved be-
fore one can determine whether a duty of perform-
ance has indeed been breached as hereafter dis-
cussed.
[155]
VIII. INTERPRETATION AND THE
PAROL EVIDENCE RULE
§ 168. Introduction. There are different the-

ories used to explain the underlying rationale of
the parol evidence rule and there are varying ap-
proaches used to apply it to given fact situations.
As to some matters there is general agreement.
The ultimate goal of all rules relating to contract
interpretation is to determine the reasonable ex-
pectancy of the parties based upon the intentions
which they objectively manifested to each other.
In determining what intentions were manifested,
a later expression of intent should prevail over a
different earlier expression on the same subject.
Thus, in a simple oral contract, if a seller offers
his dog for sale for delivery Saturday and there-
after, before concluding the contract, states that
he would rather deliver it Sunday, the subse-
quently formed contract is for a dog to be deliv-
ered on Sunday. So also, if the parties enter into
a written contract calling for delivery of the dog
on Sunday, there can be little doubt that the
written term “Sunday” supercedes the earlier
oral offer to deliver on Saturday. Even if the in-
itial offer to deliver on Saturday were in writing,
the subsequently signed contract, providing for
Sunday, would supercede the earlier writing.
[156]
PAROL EVIDENCE RULE § 169
If, after the signing of the contract, the parties
agreed to a Monday delivery, this later expression
of intent would logically prevail and be found to
modify the contract.
§ 169. Parol evidence rule. Where a con-

tract has been reduced to a writing which the
parties intended to be a complete statement of
their agreement, written or oral agreements or
understandings made prior to or contemporane-
ously with the signing of the writing may not be
used for the purpose of adding to or contradicting
the writing.
Taking this statement point by point, one can

see: (1) There can be no application of the parol
evidence rule unless there is a written contract.
Problems relating to prior oral statements which
preceded oral contracts may involve problems of
ascertaining intent, but these are factual prob-
lems for the trier of fact. The parol evidence
rule does not apply. (2) The parol evidence rule
is applicable where the parties intended to inte-
grate all of the terms of their agreement into the
writing. How such intent is to be ascertained is
a major problem (§ 171, infra). (3) Despite the
misnomer “parol”, the rule excludes both written
and oral prior agreements. These agreements
are often referred to as ‘extrinsic’? agreements.
(4) The rule excludes both prior and contempora-
[157]
§ 169 INTERPRETATION
neous agreements. It does not apply to subse-

quent agreements. Agreements made after the
writing is concluded may raise consideration is-
sues (§§ 75-80, supra) or statute of frauds issues
in those jurisdictions which require a signed writ-
ing to modify a written contract, but they are not
affected by the parol evidence rule. Some writ-
ers do not discuss ‘‘contemporaneous”’ agreements
’ taking the position that all extrinsic agreements
are either prior or subsequent. The Restatement
treats contemporaneous oral agreements as with-
in the parol evidence rule and thus subject to ex-
clusion. Contemporaneous written agreements
may, however, be found to be part of an integrat-
ed writing. (5) The rule precludes the use of
prior or contemporaneous agreements for the
purpose of adding to or modifying, some cases
say “varying or contradicting’, the writing.
Thus, the rule does not preclude the use of such
evidence when the purpose is to show fraud, mis-
representation, duress, mistake, custom, prior
course of dealing, or the like. The rule also does
not exclude evidence of a prior agreement that
the writing was not intended to be a contract at
all or that the entire agreement was subject to a
condition precedent. If the writing or any por-
tion of it is ambiguous, extrinsic evidence may be
used to show the intended meaning of the ambig-
uous portions (§§ 175-176, infra). In the case of
ambiguity, the evidence is not being used to add
{158]
to or modify the writing but simply to explain

what the writing means.
The parol evidence rule is a rule of substantive
law rather than of evidence. This is so because
it relates to the question of what terms are in-
cluded in the contract, not how those terms. may
be proved. The practical effect of this is that or-
dinary rules regarding waiver by failure to make
timely objections to evidence do not apply.
The “rule” is not well named. It relates to
written as well as “parol’’ communications, it is
not really a rule of evidence, and as will be seen
in the following sections, there may be serious
question as to whether it is a “rule” at all.
§ 170. Separate agreements. Nothing pre-

cludes two people from entering into more than
one contract. The parties may sign a written
contract for the purchase and sale of a house and
a separate oral or written contract for the pur-
chase and sale of a rug in the house. Evidence
offered to prove the rug contract does not create
parol evidence problems because it is not adding
to or contradicting the house contract. The “sep-
arate’”’ contract must, however, be able to stand
on its own as a contract. For instance, there
must be consideration for the promise to deliver
the rug. If the “consideration” is the buyer’s
promise to pay for the house, then the evidence
of the promise to deliver the rug is being offered
[159]
to add a term to the house contract, and a parol

evidence rule issue is presented. There are a few
cases which take a contrary position, but they
are theoretically unsound.
§ 171. The question of determining integra-

tion. When a parol evidence rule issue arises; the
judge (and not the jury) must decide the ques-
- tion as to whether the writing of the parties was
intended to be the complete statement of the con-
tract. In other words, is it integrated? Cases
and writers have taken sharply different positions
concerning the approach to be used in resolving
this question.
Suppose the court has before it an ordinary
written contract for the purchase and sale of a
house. It looks like all the ordinary real proper-
ty sales contracts the judge has seen before. The
buyer is attempting to prove two agreements
were made before the contract was signed: (1)
The seller agreed to replace the defective garage
door. (2) The seller agreed to reduce the inter-
est rate on the second mortgage by 1% if the
prime rate fell at least 1% before the transaction
was completed.
The question is whether the parties intend the
writing to be a final and complete statement of
their agreement. According to the vast majority
of cases and commentators on this subject, we are
not concerned with the question of whether buyer
[160]
is telling the truth. That question would be re-

solved as other factual questions are resolved if
the evidence is admitted. Seller might admit the
promises. The promises might have been made
at a public meeting in the presence of disinterest-
ed witnesses, The pertinent question is: Should
buyer be permitted to add to and/or modify the
written contract with these prior agreements?
It has been argued that the presence of two
promises of seller which were omitted from the
writing establishes that the writing was not in-
tended to express the entire agreement. Since
the parties’ intent is what should control, the evi-
dence should be admitted. The problem with this
approach is that it will result in admitting all ex-
trinsic evidence which adds to, as distinguished
from contradicting, the terms of the writing.
The parol evidence rule is emasculated by this ap-
proach.
Another approach involves looking to the writ-
ing itself as the basis for determining the parties’
intent regarding integration. The writing was a
standard purchase and sale contract containing
all of the terms one would expect to find in such
an agreement, and therefore it evidences an in-
tention that it is a final and complete agreement.
From the face of the document itself one can con-
clude that it is complete and buyer’s evidence
should not be considered for the purpose of add-
ing to or modifying’its terms. This has been
[161]
called the “face of the document” test. Some-

where in this process the “intention of the par-
ties” gets lost, but this approach has been used in
many cases. It is being rejected with increasing
frequency today.
Most courts are now applying a more sophisti-
cated approach somewhere between the above ex-
tremes. In the majority of jurisdictions, the
judge must allow the buyer to explain the nature
and content of his extrinsic evidence. Then, con-
sidering the terms contained in the writing and
the extrinsic evidence which buyer would offer,
the judge must decide whether these agreements
or either of them is such as might naturally be
omitted from the written contract even though
the parties meant them to be a part of the final
agreement, in which case they would be admissa-
ble. Another version of this test which appears
to be slightly more liberal is to ask whether these
terms are such that, if agreed upon, they would
certainly have been included in the writing. A
“no” answer makes the extrinsic evidence admis-
sible. Others ask whether it is inherently proba-
ble that similarly situated parties entering into a
written contract of this nature, would have left
these provisions out of the writing if they had
meant them to be part of their agreement. If so,
they are admissable.
Application of any of these tests to the hypo-
thetical question will require consideration of ad-
[162]
ditional facts. If the house sale contract was
concluded by filling in the blanks on a standard
form, it might be natural for the parties not to
include “extra” items. If it was hand tailored, it
would be more likely that they would include all
terms. If the writing did include a promise by
the seller to fix the front door on the house
which was also in disrepair, it would appear that
a promise to fix the garage door would naturally
also be included in the writing had the parties
meant it to be a part of their final agreement,
and buyer’s evidence should therefore not be ad-
mitted or considered. It is very possible that a
court might conclude that one of buyer’s items
should be admitted but that the other should be
excluded.
If either of the items is found to contradict, as
distinguished from adding to the writing, it should
be excluded. One cannot argue that the parties
might naturally have omitted a contradictory term
and still intended it to be part of their agreement.
One recent California decision states: ‘“Evi-
dence . ..._ should be excluded only when
the fact finder is likely to be misled. The rule
must therefore be based on the credibility of the
evidence.” This would appear to be a major de-
parture from the widely accepted view that the
rule is based not upon credibility but upon the
idea that terms not included in the writing were
presumably rejected by the parties.
[163]
§ 172. Merger clauses. A writing may con-

tain language to the effect that the writing is in-
tended to be the complete expression of the
agreement between the parties or that there are
no understandings or agreements between the
parties other than those contained in this writing.
Thus all prior communications are ‘‘merged”’ into
the written agreement. Many cases and writers
- take the position that such a clause is conclusive
as to the issue of integration and must be accept-
ed in the absence of a showing of fraud, mistake
or the like which would establish that the clause
did not express the parties’ intent.
Some cases distinguish between merger clauses
contained in writings negotiated by the parties
which are ordinarily given full effect and merger
clauses contained in standard form or adhesion
contracts where the clause might not be given lit-
eral meaning (§ 138, swpra). This is a signifi-
cant problem because parol evidence problems
arise with some frequency where the parties used
standard form contracts. These contracts usually
do not lend themselves to convenient modification
to include special terms to which the parties
agreed.
§ 173. Partial integrations. Numerous cases

have found a writing to constitute a partial inte-
gration meaning that it is a complete statement
as to some aspects of the agreement, but not as
[164]
to others. Thus, evidence of consistent additional

terms may be admitted, but evidence of contra-
dictory terms or of terms which come within and
would add to the integrated portion of the agree-
ment are excluded.
The concept of partial integration has great
significance in a “face of the document” jurisdic-
tion. In those jurisdictions which look for “in-
herent probabilities” or which ask what the par-
ties might naturally have done, etc. (§ 171, su-
pra) discussion of “partial integration” does not
appear to have any relevance and does more to
confuse the issue than assist in its resolution.
§ 174. Interpretation. There are many prin-

ciples and rules which are utilized by courts to
determine the meaning to be applied to contract
language. There have been commendable efforts
made to develop a formal structured approach to
problems in this area (see, for example, Restate-
ment, secs. 230, 233, 235 and 236), but an analy-
sis of numerous court decisions leads to the con-
clusion that the law in this area is not that pre-
cise.
There is a basic philosophical difference be-
tween certain approaches to interpretation. One
school of thought is that the true intention of the
parties is the ultimate test of proper interpreta-
tion. Another view is that the objective mean-
ing, the plain meaning, of contract language
[165]
should be controlling virtually without regard to

whether this meaning comports with the actual
intention of either party. As with problems in
the parol evidence rule area, court decisions tend
to fall somewhere in between with a given juris-
diction taking first one approach and then anoth-
er in different situations.
Probably the most widely accepted and certain-
’ ly the most widely espoused position in case law
is that the plain meaning of the contract will be
followed where the words used, whether written
or oral, have a clear and unambiguous meaning.
Words are given their ordinary meaning with
technical terms being given their technical mean-
ing and with local, cultural or trade usage of
terms being recognized as applicable. The cir-
cumstances surrounding the making of the con-
tract are also admissable to aid in interpretation.
The U.C.C. distinguishes “trade usage” and
“course of dealing’ (U.C.C. Sec. 1-205) and
“course of performance” (U.C.C. Sec. 2-208).
Trade usage is a practice or method of dealing
having such regularity of observance in a place,
vocation or trade as to justify an expectation that
it will be observed with respect to the transaction
in question. This is a less stringent standard
than early common law decisions regarding “cus-
tom” which generally required universal observ-
ance from time immemorial. Course of dealing
relates to dealings between the parties in similar
[166]
transactions prior to the making of the contract

in question. Course of performance involves the
actual performance which has been rendered
without objection in the particular contract in
question. However, where these different consid-
erations are in conflict, the U.C.C. takes the posi-
tion that the express terms of the contract are
controlling, that course of performance controls
both course of dealing and usage of trade, and
that course of dealing controls usage of trade (U.
C.C. Secs. 1-205(4) and 2-208(2)). Common
law decisions did not ordinarily set forth such a
neat pattern, but the U.C.C. provisions probably
are in substantial conformity with what most
courts were already prone to do. Comment 2 to
U.C.C. Sec. 2-202 appears to expressly reject the
controlling nature of the plain meaning of the
contract language. This comment has some sup-
port in U.C.C. Sec. 2—202(a), but it appears to be
in conflict with the specific provisions of U.C.C.
Secs. 1—205(4) and 2—208(2).
§ 175. Ambiguity. Ambiguity does not mean

simply that the language of the contract is rea-
sonably susceptible to more than one interpreta-
tion. It means that after using the rules or tools
of interpretation, the court cannot, with certain-
ty, attach a meaning to the language used.
When such a situation exists, extrinsic evidence
of prior or contemporaneous agreements as to the
[167]
meaning of the language is admissible. In the

absence of such an agreement, evidence of the
subjective intention or understanding of the par-
ties may be admissible.
In appropriate cases, courts will interpret an

ambiguous term or provision against the interests
of the party who prepared the contract. This is
common in the case of adhesion contracts and is
particularly common in insurance contract inter-
pretation.
Where there is no clear direction for the reso-

lution of an ambiguity, the court may turn to the
question of responsibility or fault for the ambigu-
ous language. If one party knew or should have
known of the ambiguity and the other did not,
the latter party’s subjective understanding of the
meaning will be followed. If both parties knew
or should have known or if neither knew or
should have known of the ambiguity, then the
court looks to the subjective understanding of
both. If both intended the same meaning, that
meaning is followed. If the parties did not both
attach the same meaning to the language used and
the term in question is material, then there is no
contract formed.
§ 176. Evidence of extrinsic agreements in

interpretation. As noted in the preceding section,
when the application of all available rules of in-
[168]
terpretation does not result in a reasonably cer-

tain meaning of the contract language, evidence
of prior agreements of the parties as to the
meaning of the language used is admissible. This
has been viewed by some writers as a large loop-
hole in the parol evidence rule because all one
need do is shout “ambiguity” and extrinsic agree-
ments become admissible. That has not been the
usual result, however, because courts will exhaust
available means of interpretation to avoid finding
an ambiguity with the result that the prior un-
derstanding of the parties is usually not admitted
for this purpose.
One recent case made a major departure in this
area. The court held that evidence of prior
agreements as to the intended meaning of con-
tract terms could be admitted anytime the lan-
guage was susceptible to more than one interpre-
tation and the meaning which the party was at-
tempting to prove was one to which the language
was reasonably susceptible. The court clearly in-
dicated that it was not simply expanding the defi-
nition of “ambiguity”, but was defining a new
area in which extrinsic agreements would be ad-
missable. The clear direction of the decision was
away from the use of tools or techniques of inter-
pretation to attach meaning to uncertain terms
and toward allowing evidence to show any actual
understanding which the parties had reached as
to the meaning of the terms used.
Schaber & Rohwer Contracts—13 [ 169]
§ 176 PERFORMANCE
Modern developments in the parol evidence rule

have expanded the right to introduce extrinsic
evidence to prove additional consistent terms but
have generally not relaxed the rule with respect
to terms which would contradict the language
used in the writing (§ 171, supra). If evidence of
extrinsic agreements is permitted to show any
agreed upon meaning of contract language so
long as it is a meaning to which the language is
reasonably susceptible, what would previously
have been viewed as an attempt to contradict the
language of the contract will now be permitted as
a basis for interpreting that language.
ANALYSIS DIVIDER
The material to this point involved the requi-

sites for determining whether a contract was form-
ed and whether third persons became entitled to
performance or were obligated to perform a con-
tract duty either at the time of formation or
thereafter.
From here the material is used to determine the
nature and extent of the performances which are
due under the contract. As we shall see, this is
first done by classifying the language of the con-
tract as:
1. A Promise—an undertaking, however
expressed, that something will or will not
happen in the future.
[170]
GENERAL PROBLEMS § 176
2. A Condition—a fact, upon the happen-

ing or non-happening of which a legal duty is
created or terminated.
Once the duties of the parties have been deter-
mined, you will find that the inter-related dis-
cussion of promises, conditions, excuse, breach,
discharge and damages, as set out hereafter, serves
to answer this question:
Has the party to the contract failed to per-
form? If so, what are the consequences?
The contention that a contracting party has
failed to perform has validity if:
1. There is an originally absolute promise
which is neither performed or otherwise dis-
charged:
A gives B $500 in return for the promise of B
to pay that sum to A on August 1. On Au-
gust 1 there is a failure to pay.
2. There is an originally conditional prom-
ise which became absolute because a condi-
tion occurred or was excused and the promise
was not discharged or performed:
A promises to pay B $5 if B will mow A’s
lawn Saturady at 9 AM and B agrees to do so
if it doesn’t rain Friday evening. There is no
rain and on Saturday B does not appear to
perform his now absolute promise.
A’s contention that a contracting party has
failed to perform takes place by a suit for
[171]
§ 176 PERFORMANCE
breach of an absolute promise. Assuming A

sues B, the suit is one in which A is attack-
ing the promise of B. Thus:
(a) A sues B. B alleges that his promise
is shielded by a condition and cannot be
attacked. (B did not promise to mow
the lawn unless there was no rain the
night before.)
(b) A says the condition occurred (no
rain) and thus B’s promise is absolute OR
A might allege that the condition shield-
ing B’s promise was excused by one of
the excuses of condition outlined in Sec-
tion 184.
(c) Now, B’s promise is ready to be at-
tacked as its shield of a condition is gone.
It is absolute but B could now contend:
(1) I have performed—mowed the
lawn—and the promise is discharged!
OR, B can contend that the absolute
promise has been discharged by one
of the methods outlined in §§ 204
through 223.
(d) If the promise of B is absolute be-
cause the condition shielding it has oc-
curred or been excused AND the promise
has not been performed or discharged in
some other way, it is then a fact that:
(1) Every failure to perform an ab-
solute promise is a breach—which is
(£72)
thereafter determined to be major or

minor by the factors of Restatement
275.
(2) For every breach there will be
damages; nominal, compensatory or
liquidated as described hereafter.
[173]
IX. PERFORMANCE
A. GENERAL PROBLEMS
§ 177. Introduction. As noted, the task here
is to determine what performances are due under
a contract, when they will be due, and what re-
sults will follow if the performances are not ren-
dered at the proper time or in the proper manner.
This area of the law is intricate. It is easy to get
to the point where knowledge of the large assort-
ment of legal principles involved becomes an im-
pediment to clear thinking. When this happens
or is threatened, one must recall that the basic
purpose of the law and function of the courts in
this area is to place a logical, common sense con-
struction on the intention of the parties respect-
ing performance of a contract and to fashion a
reasonable and just remedy for the breach of a
duty to perform. When your analysis leads you
to a result which does not make good sense, start
over and see where you went wrong.
§ 178. Promises and conditions. A promise is

a commitment or undertaking by a party that a
certain event will occur or will not occur in the
future.
A promise is unconditional or independent or
absolute where the duty to perform is not de-
[174]
pendent upon any external event or events. Per-
formance may not be due until some future date
(e. g., “next Tuesday’) but this does not prevent
it from being an unconditional promise because
the mere passage of time is not viewed as a con-
tingency. When the time for performance of an
unconditional promise arrives, there is a duty of
immediate performance.
Many contract promises do not create a present
duty to perform unless and until some event oc-
curs. Such promises are termed dependent prom-
ises or conditional promises because their effec-
tiveness to create an immediate duty to perform
is dependent upon the occurrence of the event in
question. If A promises to cut B’s lawn and B
promises to pay A $5 when A finishes, A’s prom-
ise is an absolute or independent or unconditional
promise because nothing need occur in order to
give rise to a duty in A to get the lawn cut. B’s
promise is a dependent or conditional promise.
B’s duty to pay $5 will never arise unless and un-
til A cuts the lawn. The cutting of the lawn is a
promised performance, but in this fact situation it
is also a condition. It is an event which must oc-
cur before B’s duty to perform will arise and
therefore it is a condition precedent to B’s duty.
Conditions can be in the affirmative, such as
something which must occur to give rise to a
duty, as is the case of the cutting of the lawn in
relation to B’s promise. Conditions can also
[175]
§ 178 PERFORMANCE
be in the negative. The A-B contract could have
had an additional provision stating that A would
cut the lawn on Saturday provided it is not rain-
ing at 9:00 on Saturday morning. The absence of
rain on Saturday morning, the non-occurrence of
the event of rain, will give rise to a duty of im-
mediate performance in A. The absence of rain
is a condition precedent to A’s duty to perform.
It is possible to fashion a condition so that it
extinguishes a duty rather than creating one.
Such a condition, by definition, occurs after the
duty has already arisen, and is therefore called a
condition subsequent. For example, Father (Ff)
contracts with his adult college student son (S)
in which S promises to use his best efforts to stay
in college until graduation and F’ promises to pay
S the sum of $150 per month for four years pro-
vided that if S drops out of school, the payments
will cease. F’s duty to make the monthly pay-
ments is a duty of immediate performance. It is,
however, subject to being terminated by the oc-
currence of the event of S leaving college. S8’s
leaving college can therefore be classified as a
condition subsequent, the occurrence of which
will terminate F’s duty.
Before one gets too confused by the precedent
and subsequent classifications, it might be helpful
to know that in contract law there is really no
difference between the two. For purposes of con-
tract analysis, one can simply refer to the cutting
[176]
of the lawn, the absence of rain on Saturday, or

the staying in college as a condition without des-
ignating whether it is precedent or subsequent.
The result will not be affected by the failure of
specific designation.
However, in the area of pleading and procedure
some significance may be placed upon the differ-
ence between a condition precedent and subse-
quent in terms of who has the burden of pleading
and proof. Even in such cases the distinction
tends to be artificial and unsound. In substance,
S’s remaining in college is a condition precedent
to F’s duty to make further payments. The only
reason it appears to be a condition subsequent is
that the parties phrased their contract in terms
of an absolute duty of F being terminated by the
event of S dropping out of school. You will en-
counter true conditions subsequent in the area of
real property, but from this point in our discus-
sion we will refer to all types of conditions simply
as “conditions”.
From the foregoing we can fashion a definition

of a condition. A condition is an event, the oc-
currence or non-occurrence of which gives rise to
or terminates a duty of performance.
It should be evident that an event can be a

promised performance and not be a condition; e.
g., the payment by B of $5 for cutting the lawn;
it can be a condition without being a promised
[177]
§ 178 PERFORMANCE
performance; e. g., the non-occurrence of rain on
Saturday, or it can be both a promised perform-
ance and a condition; e. g., A’s cutting the lawn
and S’s staying in college. Confusion sometimes
develops when one attempts to analyze the results
of the failure of an event where that event is
both a promised performance and a condition.
A’s failure to cut the lawn has two legal ef-
fects. It is a breach of promise which creates a
right of action in B, and it is a failure of a condi-
tion to B’s duty of performance which thus pre-
vents B’s duty to pay from ever arising. Over-
looking this dual impact of the non-occurrence of
such an event can lead to difficulty. When one
states that “the condition was breached”, it is ev-
ident that he is suffering from this confusion.
Promises are breached. Conditions may fail to
occur, but the only effect of such failure is its im-
pact upon duties of performance.
§ 179. Concurrent conditions. There are nu-

merous agreements in which each party is to
perform a simple act which is capable of be-
ing performed instantaneously. An example is
a contract for the purchase and sale of land in
which the seller is obligated to deliver a deed and
the buyer to pay money. In the absence of an
express provision in the contract, there is no logi-
cal basis for determining which of the two parties
has the obligation to perform first, and the law
[178]
takes the position that both should perform at

the same time.
Since neither party has a duty to perform until
the other has performed or tendered perform-
ance, both could theoretically wait for the other
forever and neither would ever have a duty to
perform and there would never be a breach. As
a practical matter, the party who wishes to con-
clude the transaction must take the step of per-
forming or tendering his performance so as to
give rise to a duty of performance in the other
party.
In these situations, the duty of each party to
perform is conditional. It will not arise as an ab-
solute duty until the other party has performed
or tendered. The short hand language for de-
scribing this situation is to say that the perform-
ances are concurrently conditioned upon each
other. “Concurrent conditions” are then not a
different type of condition. This term simply de-
scribes the situation where neither party has an
independent duty to perform because the duty of
each is dependent upon the other acting first.
§ 180. Express and implied or constructive

conditions. The classical approach was to divide
conditions into three categories: Express condi-
tions, being those events which the parties specifi-
cally mentioned in the contract as giving rise to or
terminating duties; implied-in-fact conditions, be-
[179]
§ 180 PERFORMANCE
ing those conditions which the parties should have

reasonably understood to be part of the contract
because of their presence by implication, and im-
plied-in-law conditions, being those conditions
which the parties apparently did not consider but
which the court would nonetheless impose to ac-
complish justice in the enforcement of the con-
tract. This last category was often referred to
' as constructive conditions because they were in-
terposed in the contract by judicial construction.
The dividing line between implied-in-fact and
implied-in-law or constructive conditions is ten-
uous at best. Both are treated in exactly the
same manner, and for this reason, attempting to
distinguish between them is unnecessary and, in
the opinion of some, misleading. Some courts
simply refer to both types as “implied” condi-
tions. The growing tendency appears to be to re-
fer to them both as constructive conditions in
recognition of the fact that both are in fact found
to be a part of the contract by a process of judi-
cial construction.
Express conditions are treated differently in
that the law ordinarily will tolerate less deviation
in the occurrence of the event in question to find
that an express condition has occurred. For this
reason, it may be important to determine wheth-
er a condition is express as distinguished from
constructive.
[180]
§ 181. Identifying express conditions. An ex-

press condition is one which is embodied in the
terms of the contract. Some words are normally
interpreted as words of condition, e. g., “provided
that’, “upon the condition that”, and “as soon
as”. But there is no absolute rule for determin-
ing what is and what is not an express condition.
Hence, even the words “upon condition that” do
not necessarily constitute a condition if the inten-
tion of the parties as shown by other parts of the
contract is otherwise.
However, whether such a statement is in fact
an express condition, or simply a statement of
promise, turns on the language used, the relative
situation of the parties, and the subject matter of
the contract.
To illustrate, suppose B promised to build a
house for O by January 1, and O promises to pay
B $10,000 “if a certificate is signed by the archi-
tect certifying completion according to the
plans’. O’s promise to pay, in addition to being
conditioned upon B’s construction of the house, is
also expressly conditioned upon the architect’s
certificate. Hence, if the certificate is not issued,
the express condition would not have been satis-
fied. O, therefore, might be able to avoid paying
the contract price (§§ 199-200, infra).
The second element of an express condition
analysis is the situation of the parties. In close
cases, the courts are sometimes guided by the
[181]
§ 181 PERFORMANCE
rule that if the words are those of a person who

is to do the act, they are generally words of con-
dition. To illustrate, suppose an insurance com-
pany placed a provision in its fire insurance poli-
cy that its obligation to pay for losses is ‘“‘subject
to the condition that there shall be no gasoline
stored on the insured premises’. The insured’s
house burns down due to an electrical short cir-
cuit which was in no way connected with the fact
that the insured kept gasoline on his premises.
If the quoted words are words of promise, the in-
sured may collect, minus any damages for the
breach of his promise. If they are words of con-
dition, then he may not recover. Since the terms
were inserted by the insurance company, which
was not to perform the act, they may be con-
strued as words of promise, despite the use of
condition language, and if so, the insured’s failure
to perform the promise does not prevent the com-
pany’s duty to pay from arising.
Another element to be considered in an express
condition analysis is the subject matter of the
contract. Suppose X contracted to purchase from
Broker 100 shares of Zeno Corp., a volatile, spec-
ulative stock, for $20 per share. X agreed to pay
the $2,000 purchase price by 10 AM Monday
morning. Because of the nature of the subject
matter of the transaction, X’s payment of $2,000
by 10 AM would likely be found to be an express
condition to Broker’s duty to deliver the stock.
[182]
Since even a partial failure of an express condi-

tion will ordinarily prevent the duty which was
subject to that condition from arising, the effect
of finding an express condition can be harsh.
Occasionally, courts will not follow the forego-
ing rules if construing a provision as an express
condition will lead to hardship or forfeiture. If
such would be the case, the courts may construe
a provision as a promise, thereby calling for per-
formance of the contract and leaving the other
party to his remedy in damages for breach of the
promise. This may be especially so when the
provision is not considered to be a material part
of the bargain. However, this situation is ex-
treme, for it defeats the basic contract in that
one party is forced to accept a performance
which is different from that for which he bar-
gained.
§ 182. Imposing constructive conditions. Ina

bilateral contract, a promise is exchanged for a
promise. Theoretically, each party should and
could perform his promise irrespective of the oth-
er’s performance or non-performance. However,
in many situations, it would be totally inequitable
to require one party to perform without requiring
the other party to perform first or at the same
time. Hence, the courts developed the theory of
constructive conditions. The following are some
basic situations in which conditions will be im-
[183]
§ 182 PERFORMANCE
plied or construed by the law in a bilateral con-

tract:
If one performance is to be rendered at an ear-
lier time than the other, the completion of the
earlier performance is a constructive condition to
the duty of the other party to perform his duty.
If one promise can be performed in an instant
- of time, and the other will take a period of time
to perform, the performance of the one which
will take a period of time is a constructive condi-
tion to the other party’s duty to render his per-
formance. For example, if B promises to build a
house for O and O promises to pay B $20,000,
courts will imply that B’s performance is a con-
structive condition which must be fulfilled before
O’s duty to pay arises.
If the same time is fixed for performance of

promises, or if no time is set, and both are capa-
ble of simultaneous performance, the perform-
ances are both constructive conditions to the duty
to perform on the other side, and the promises
are said to be concurrently conditioned upon each
other (§ 179, supra). To illustrate, if S promises
to sell B a specific automobile and B promises to
pay $1,000, each performance is a constructive
condition to the duty to perform on the part of
the other party.
The express terms of the contract or usage of
the trade or course of dealing can alter the imposi-
[184]
tion of constructive conditions. For example, by

custom one pays for an airplane ticket before the
airline’s duty to provide transportation arises.
As can be seen, constructive conditions are
based upon common sense. Constructive condi-
tions serve to carry out that which is fair, just
and equitable and otherwise to “protect the ex-
change relationship”’.
§ 183. Effect of contract subject matter upon

rules. There are substantial differences in the
reasonable expectancies and problems of the par-
ties in different types of contracts. In a contract
for the sale of goods, the parties ordinarily have
a minimal amount of preparation, they are ordi-
narily in somewhat of a hurry, and the penalties
or damages which will be incurred if, for in-
stance, a truck is rejected by a buyer because it
arrived late, are ordinarily not great. For this
reason, aS well as the historical development of
the law involving the sale of goods, we apply a
substantially different set of rules or standards to
contracts for the sale of goods than to other
types of contracts.
In contracts for the sale of land, by contrast,
the parties have usually moved slowly and cau-
tiously, and it is fairly understood that details
such as financing, removal of a tenant, clearing
up a cloud on a title or similar problems may
take some time. For these reasons, and because
§ 183 PERFORMANCE
of the historical impact of courts of equity in real
property transactions, different legal principles
are applied. A delay in producing clear title to
Blackacre will ordinarily be far less significant to
the parties than an equal time delay in delivering
a truck, and the law will treat them differently.
Contracts for services vary significantly ac-
‘cording to the nature of the service involved.
Service contracts which do not involve an exten-
sive and unrecoverable investment on the part of
the party performing the service are treated un-
der orthodox contract rules. This might include
such things as a contract to repair a television set
or a contract to sing for a week in a night club.
On the other hand, service contracts may involve
a substantial investment by the party performing
the service which will be lost or forfeited if the
person who is to pay for the service is relieved of
his duties under the contract. The most common
or obvious type of contract which falls in this lat-
ter area is the construction contract. Once the
builder has built the house on the owner’s lot, he
cannot recover for his time and investment unless
the owner is compelled to pay. If the house is
finished a few days late, it is not like the truck
which was delivered late. The seller of the truck
can take it back and sell it to someone else, but
the house is not retrievable. For this reason, the
law must again fashion different principles to
handle the situation.
[186]
EXCUSE OF CONDITIONS § 185
We will first explore the basic principles and

then treat special rules applicable to matters such
as construction contracts and the sale of goods.
B. EXCUSE OF CONDITIONS
§ 184. Introduction. Even if a condition has
not occurred, the duty of the other party to per-
form may still arise if the condition were legally
excused. Actual failure of conditions may be le-
gally excused in any of nine ways: (1) by the
making of a proper tender; (2) by the failure of
a prior condition; (3) by an anticipatory repu-
diation of a promise by the other party; (4) by
voluntary disablement or prospective inability of
the other party to perform; (5) by severability;
(6) by waiver; (7) by estoppel; (8) by substan-
tial performance of the condition; and (9) by im-
possibility of performance of the condition.
§ 185. Excuse by a proper tender. If a con-

dition exists which consists of a promised act
which can be performed in an instant of time, a
rejected tender of performance is a legal excuse
for non-occurrence of the condition precedent,
and the other party’s duty of performance be-
comes absolute. A tender of money must be in
cash or its equivalent. If a personal check is ten-
dered or if a tender is defective for any similar
technical reason and the other party does not ob-
ject on that ground, he waives the objection. To
[187]
§ 185 ‘PERFORMANCE
illustrate, if A agrees to sell B a specific automo-
bile and B agrees to pay A $1,000 therefor, A’s
refusal to accept B’s tender of the money excuses
the condition concurrent of B’s having to pay,
and A’s duty to transfer the automobile becomes
absolute. Therefore, B could immediately file
suit for breach of contract and prevail.
§ 186. Excuse by substantial performance. If

a constructive or implied condition has been ‘“‘sub-
stantially performed”, the full and literal per-
formance of the condition will be excused. If the
thing involved was also a promised performance,
there can be damages for its partial breach, but
full performance of the condition is excused.
Constructive conditions are implied or construed
by the law to do justice. Justice does not de-
mand full, literal fulfillment of such a condition
but only substantial fulfillment. The overwhelm-
ing majority of courts state that this doctrine has
no application to the excuse of express conditions,
for to do so would be to rewrite the express con-
tract of the parties to the detriment of the prom-
isee (Cf. §§ 199-200, supra).
In determining whether a condition has been
substantially performed, a minority of courts
tend to apply a strictly mechanical test, i. e. if
ten percent of the contract remains unperformed,
the condition has been substantially performed.
However, the majority of courts utilize the test of
[188]
Restatement Sec. 275. Under this test, the fol-

lowing six factors are considered:
(1) The extent to which the injured party will
obtain the substantial benefit which he could
have reasonably anticipated.
(2) The extent to which the injured party may
be adequately compensated in damages for the
lack of complete performance.
(3) The extent to which the party failing to
perform has already performed or made prepara-
tions for performance.
(4) The greater or less hardship on the party
failing to perform in terminating the contract.
(5) The wilful, negligent, or innocent behavior
of the party failing to perform.
(6) The greater or less uncertainty that the
party failing to perform will perform the remain-
der of the contract.
It should be noted that although the Restate-
ment makes the behavior of the breaching party
but one of six factors, it is the majority rule that
if the plaintiff’s departure is wilful, there can be
no substantial performance. Wilfulness does not
mean maliciousness, it merely means a knowing
or bad faith departure. Note also the close corre-
lation between the concept of substantial per-
formance of a condition and minor breach of prom-
ise (§ 198, infra). Hence, if a condition has
been determined to have been substantially per-
[189]
§ 186 PERFORMANCE
formed, the breach of the promise which occurs

because of a failure to completely perform is, by
definition, a minor breach. Conversely, if the
breach is found to be major, there can be no sub-
stantial performance. Hence, the test for examin-
ing a breach to determine whether it is major or
minor also involves the application of the factors
contained in Restatement Sec. 275 (§§ 197- 199,
. infra).
Suppose that A, an accomplished trial attorney,
has just obtained a large verdict in a personal in-
jury case. The corporate defendant is appealing
on the grounds, inter alia, that its negligent em-
ployee was not acting in the scope of his employ-
ment. A contracts with B, an appellate practice
specialist. B agrees to write all necessary briefs
for the appeal and A promises to pay B the sum
of $5,000 ‘when the brief is in final form and
ready to file with the court’”’.
B acquaints himself with the transcripts and
does the necessary research. B prepares drafts
of the brief. B has a “final draft’, but both B
and A agree that there is one further point which
should be researched which may affect one rather
minor paragraph of the brief. B is appointed to
the position of Attorney General of the U.S., and
he advises A that he cannot finish the brief. A
refuses to pay B and B sues on the contract.
The first issue which must be resolved is
whether A’s duty to pay is dependent upon the
[190]
_occurrence of an express condition, the comple- |

tion of the brief. It might be argued that the
language used, the situation of the parties and
the subject matter of the contract indicate an in-
tention that completion of the brief was made an
express condition to A’s promise to pay. How-
ever, such an interpretation would lead to the re-
sult that B cannot sue on the contract unless he
has fully and completely performed (§§ 180 and
181, supra). Because of the express condition,
it is also possible that B cannot even recover in
quasi-contract or other restitutionary remedy,
but in any event, B could not sue for breach of
contract. Because of the harshness of this re-
sult, the courts would not be disposed to find
an express condition, but the completion of B’s
performance would be found to be a construc-
tive condition to A’s duty to pay (§ 181, supra).
The issue that must now be analyzed is wheth-

er B has substantially performed or, stated anoth-
er way, whether the condition to A’s duty has
substantially occurred. Whichever way the ques-
tion is stated or framed, the answer will be deter-
mined by application of the same factors. Thus,
applying the factors set forth in Restatement Sec.
275 (supra), a court might conclude: 1) A did
receive the substantial benefit of his bargain.
The necessary organization and analysis has been
accomplished. The missing work can presumably
[191]
§ 186 PERFORMANCE
be performed by A or another attorney. 2) Since

A has a cause of action against B for breach (B
has breached at least part of his promise regard-
less whether he has “substantially performed’),
A can set off his damages against the contract
price. A’s damages are presumably measurable
and ascertainable (Sec. 224, infra). 3) B has
. rendered significant performance pursuant to the
contract. This is important because it reflects
the magnitude of forfeiture which B will incur if
he is not permitted to sue on the contract. 4)
While there is some hardship upon A as a result
of B’s breach, it would appear that it would be a
great hardship upon B to terminate the contract.
©.) B’s breach was wilful in the sense that he
could have rejected the position of Attorney Gen-
eral and stayed home to finish the brief. He has
knowingly departed from his duty, however, he is
not acting in bad faith. Because of the nature
and importance of the position which B accepted,
his breach will not be found to have been wilful.
6) The sixth factor has no application in this sit-
uation as the A-B contract did not provide for ad-
ditional performances by B.
As analyzed, all applicable factors lead to the

conclusion that the breach by B was not material
and that the condition to A’s duty to pay did sub-
stantially occur. Therefore, B should be able to
sue for the contract price minus damages caused
to A by B’s breach.
[192]
It should be noted that in many cases the anal-

ysis of Restatement Sec. 275 factors will result in
some points in favor of finding substantial per-
formance and some against. The result is not
predicated upon the numerical total of factors fa-
voring and factors opposing finding substantial
performance. The courts will base their decisions
upon the factors which are most critical in the
case before it.
CAVEAT: The discussion in this section utilizes

the terminology of substantial performance and of
major and minor breach in analyzing the question
whether a condition should be excused. This is
the vocabulary commonly used in cases and in the
Restatement. It would be more accurate and
might lead to less misunderstanding if the discus-
sion focused upon excuse of a condition by “sub-
stantial occurrence” of the condition. The effect
of a partial failure of a promised performance is
that there is a cause of action for breach. In de-
termining whether the other party’s duty of per-
formance becomes absolute, the proper question is
whether the condition to that duty is excused be-
because it substantially occurred (§ 178, supra).
However, because the condition in question is
usually also a promised performance, the language
“excuse of condition by substantial performance
of the promise”’ is commonplace.
[193]
§ 187 PERFORMANCE
§ 187. Excuse by the failure of a prior condi-
tion. Even though a condition has not actually
occurred, its non-occurrence may be legally ex-
cused if there has been an actual, unexcused fail-
ure of a condition precedent to it. To illustrate,
suppose B contracts to build six $20,000 homes on |
O’s land, with O to designate the sites. The con-
tract is entered into in October. O fails to desig-
-nate the sites for the houses before winter comes.
The land freezes, making construction during
winter months impossible. Normally, B could not
recover from O without proving that he had per-
formed the act of building the houses, thus fulfill-
ing the condition precedent to O’s duty to pay.
But O’s selection of the sites is, if not express, an
implied condition precedent to B’s duty to build.
- Failure of the condition precedent of designating
the sites is legal excuse for the non-occurrence of
B’s condition. B may sue O, inasmuch as O’s
promise to pay has become absolute because of
the excuse of B’s condition precedent. B may re-
cover the profits he would have made on the job.
§ 188. Excuse by an anticipatory repudiation

of a promise. An anticipatory repudiation of a
contract occurs when, prior to the time perform-
ance is due, a party to the contract denies any in-
tention to perform the contract. The mere state-
ment that the party is encountering difficulties in
preparing to perform, is not pleased with the
[194]
bargain, or is otherwise uncertain whether per-

formance will be rendered when due is not suffi-
cient to constitute a repudiation. The words
must actually manifest an intent not to substan-
tially perform.
In bilateral contracts, an anticipatory repudia-
tion has the legal effect of excusing the non-oc-
currence of conditions precedent or concurrent to
' the repudiating party’s duty to perform. In oth-
er words, the practical effect is that the nonrepu-
diating party may properly suspend his own per-
formance or preparations.
The nonrepudiating party has a defense to
going forward with the contract performance.
An anticipatory repudiation may also give rise
to an immediate cause of action for breach (3
195, infra).
§ 189. Excuse by a voluntary disablement or

prospective inability to perform. If a party toa
bilateral contract engages in conduct which de-
stroys or seriously impairs his ability to perform,
there is a voluntary disablement. To illustrate,
suppose S contracts to sell and B to buy Blacka-
cre for $10,000 on July 1. On June 1, S conveys
Blackacre outright to C. S has, by his conduct,
placed his ability to perform beyond his own per-
sonal control. If S did not own Blackacre when
the contract of sale was made, there is, of course,
no voluntary disablement nor is there a prospec-
[195]
§ 189 PERFORMANCE
tive inability to perform. S may acquire title

prior to July 1, and presumably intends to do so.
If it becomes evident that the owner of Blackacre
will not sell under any circumstances, there is
now a prospective inability on the part of S to
perform although it is not the result of a volun-
tary disablement.
Courts are split on the legal effect of voluntary
’ disablement and prospective inability, but all
courts hold that they constitute a legal excuse for
the non-occurrence of conditions precedent or
concurrent to the performance which is apparent-
ly not going to be performed. The division of au-
thority occurs as to whether or not the innocent
party has an immediate cause of action for
breach (§ 195, infra).
“Under the better view, adopted by the Restate-
ment, if the party succeeds in overcoming his ina-
bility to perform prior to the time for perform-
ance, and attempts to reinstate the contract, the
contract is reinstated if the other party has not
detrimentally relied in the interim. Therefore, in
the land sale contract illustrations, supra, if S ac-
quired or reacquired title prior to the time for
performance, and if B had not in the meantime
- purchased another parcel of realty to suit his in-
tended purposes or otherwise changed his position
in reliance, S could enforce the contract. Where
appropriate, B would be given a reasonable exten-
sion of time within which to perform.
[196]
§ 190. Excuse by severability. Entire per-

formance of a contract might be the condition to
the other party’s duty to perform. However, if
the contract is legally severable, the performance
of a severable portion can fulfill the condition
precedent to the other party’s corresponding sev-
erable performance.
This doctrine is particularly valuable to one

who is guilty of a willful breach of contract. It
is the majority rule that one cannot recover even
the reasonable value for part-performance if a
contract has been willfully breached (§ 186, su-
pra). But under the doctrine of severability, if
one of the severable portions has been willfully
breached such breach does not bar a contract rate
recovery for other severable portions which have
been completed.
A contract is severable if (a) performance by

each party is divided into two or more parts
which are not inter-dependent upon each other
for their value; (b) the number of parts due
from each party is the same; and (c) perform-
ance of each part by one party is the agreed ex-
change for a corresponding part by the other par-
ty. Hence, the question of whether each part is
the agreed exchange for the other part is a key
to the doctrine of severability.
If a contract is found to be severable, the

breaching party will be liable in an action for
[197]
§ 190 PERFORMANCE
damages on the part which he breached. As to

other parts of the contract, the failure of the
breaching party to perform a severable portion
will not bar his action on the remainder of the
contract, or his right to perform thereunder.
§ 191. Excuse by waiver. A true waiver oc-

curs only where there is a voluntary relinquish-
-ment of a known right. If a condition is not a
material part of the bargain and its occurrence
does not materially affect the value received by
the promisor, its non-occurrence will be excused
by a voluntary waiver. To waive a material part
of the contract, the consent to forego that part
must be in the form of a contract modification
and must be supported by consideration except in
the case of transactions in goods (U.C.C. Sec. 2-
209(1)). This is then not a waiver at all, but
merely the acceptance by the promisee of some-
thing other than that originally bargained for.
Hence, the doctrine of waiver has a limited scope
of application. Waivers may be withdrawn and
the condition reinstated so long as this can be
done and is done in a manner which is not unfair
or unreasonable to the other party.
§ 192. Excuse by estoppel. Where a condition

has not actually occurred but the other party has
waived by indicating that he would accept less,
either by express statement or by conduct, the
[198]
EXCUSE OF CONDITIONS Se ig2
non-occurrence of the condition will be excused

under the doctrine of estoppel where the plaintiff
has substantially and justifiably changed his posi-
tion in reliance on the other party’s statement or
conduct. In other words, waivers become irrevo-
cable where the other party relies to his detri-
ment. To illustrate, suppose S promises to con-
vey Blackacre to B in exchange for B’s promise
to pay $10,000 on July 1. Time is made of the
essence. B tells S, on June 1, that he is having
difficulty raising the money. S says that he will
not insist on performance by July 1. B relies to
his detriment on S’s statement by ceasing diligent
efforts to raise the money by July 1. If B does
not have the money by July 1, he can still per-
form by tendering the money within a reasonable
time. S will be estopped from asserting that B
has not fulfilled the condition on time. This
would be true even if on June 30, S attempted to
demand performance on July 1.
It should be noted that, unlike all of the other

methods which excuse the non-occurrence of con-
ditions, the doctrines of waiver and estoppel have
additional legal significance. One who waives a
condition, or is estopped from asserting it, not
only causes that condition to be excused, but is
prevented from asserting the failure of the event
as a basis for establishing a breach of contract by
the other party. ;
[199]
§ 192 PERFORMANCE
Finally, under the weight of authority, a per-
son who has either made a statement or indicated
by conduct that a condition will not be insisted
upon can withdraw his action if he does so before
the other party changes his position in reliance
upon such a statement.
§ 193. Excuse by impossibility. Impossibility

. of performance is, in the majority of situations, a
method of discharge from a contractual duty.
(§§ 205-213, infra). However, if it becomes
objectively impossible to perform a condition
which is not a material part of the agreed ex-
change, impossibility will excuse the non-occur-
rence of the condition. This follows from the
fact that if that which fails is a condition only in-
cidental to the major thing bargained for, it could
work a serious forfeiture to permit the other par-
ty to retain that which has been done without
paying for it. To illustrate, suppose B promises
O to build a house. O promises to pay $25,000,
provided B obtains an architect’s certificate. B
builds the house according to specifications, but
the architect dies before a certificate can be ob-
tained. The certificate, which is an express con-
dition precedent, is only incidental to the major
thing bargained for, hence this condition will be
excused by impossibility.
[200]
BREACH OF CONTRACT § 195
C. BREACH OF CONTRACT
§ 194. Present breach. A contract is breach-
ed when a party who has a duty of immediate
performance fails to perform. By definition, the
duty is independent and has not been discharged
or excused because if that were the case, there
would be no duty of immediate performance.
§ 195. Anticipatory breach. Whether there

is or need be a separate category of breach which
is described as “anticipatory” is doubtful. How-
ever, the term is useful to describe breaches
which may be found to exist before performance
was due under the contract based upon an antici-
patory repudiation, a voluntary disablement or
prospective inability to perform. These three
events have one thing in common: They create in
the other party’s mind a reasonable and serious
doubt whether he will ever get the performance
for which he bargained. They give the innocent
party the right to cease preparation for perform-
ance and in fact may obligate him to cease prepa-
ration if that will minimize damages (§§ 235-239,
infra). This is accomplished by excusing the
condition of the innocent party’s performance or
tender of performance (§§ 188 and 189, supra).
The more difficult question is when will an an-
ticipatory repudiation, voluntary disablement or
prospective inability to perform give rise to or be
§ 195 PERFORMANCE
treated as an anticipatory breach with the right

to an immediate cause of action for damages.
There are at least two distinct policy questions to
be resolved in determining whether the innocent
party should be given an immediate right to sue
in addition to the right to suspend his own per-
formance or preparation to perform under the
contract.
- The first issue involves the question whether
the guilty party has knowingly and willfully dis-
regarded his contract obligations. An express re-
pudiation ordinarily constitutes such a knowing
and willful disregard, but this may not be the
case where the guilty party has asserted his good
faith belief that he is not bound to the contract
or that the contract does not require him to ren-
der the performance in question. While volun-
tary disablement and prospective inability to per-
form are often treated as similar in effect, the
former ordinarily involves intentional and willful
disregard of contract duties whereas the latter
ordinarily does not. Many jurisdictions will not
find an anticipatory breach with a right to an im-
mediate cause of action for damages in the ab-
sence of intentional and willful misconduct.
The second issue involves the status of the con-
tract and the position of the innocent party. If
the innocent party owes no further performance
under the contract, there is no pressing reason to
find an immediate breach, and most jurisdictions
[202]
will not find such a breach unless the perform-

ance for which he is waiting is one for which he
will have to contract from another source. The
reason is that the innocent party has already per-
formed and is not damaged by being forced to
wait until the time when performance was due
under the contract. This gives rise to an often
stated general rule that there will be no immedi-
ate cause of action for damages for an anticipato-
ry repudiation in a unilateral contract or a bilat-
eral contract which has been fully performed on
one side.
Where the innocent party is obliged to Chane

his position as a result of the anticipatory repu-
diation, voluntary disablement or prospective ina-
bility to perform, there is still no compelling rea-
son to find an anticipatory breach until the inno-
cent party has actually relied to the point that
the contract can no longer be fairly reinstated.
Then, when it is too late to reinstate the contract,
the contract should be treated as breached.
Most courts, however, in fact treat a repudia-

tion as an immediate breach when the innocent
party will reasonably have to change position in
reliance. An early English case so holding which
is frequently cited is Hochster v. De La Tour,
1853. Even in such jurisdictions, however, if the
ability or willingness to perform is restored be-
fore the innocent party sues or otherwise changes
[203]
§ 195 PERFORMANCE
his position in reliance, it is most likely that no
breach will be found.
In transactions in goods, reasonable grounds

for insecurity gives rise to the right to demand
assurances of performance and the failure to give
such assurances is a repudiation (U.C.C. Sec. 2-
609). Repudiation may be treated as an immedi-
ate breach (U.C.C. Sec. 2-610).
§ 196. Demonstration of ability to perform.

Where a party is excused from tendering and ac-
quires a right of action because of an anticipato-
ry breach, he is still ordinarily required to show
that he could have performed but for the actions
of the guilty party. Thus, if B anticipatorily re-
pudiates his promise to buy S’s horse for $1,000
and S thereafter sues for breach of contract, the
fact that the horse died before B repudiated
would prevent S from recovering. S would not
have been able to perform anyway. The fact
that S sold the horse to X after B repudiated is
not a bar to S’s action because this occurred as a
result of the repudiation.
§ 19%. Effect of breach. The effect of a

breach is that it gives the other party a cause of
action for damages or other remedy. Depending
upon whether the promised performance was or
was not also a condition to the other party’s duty
[204]
to perform, the same shortcoming which consti-

tuted the breach may also be a failure of condi-
tion which will prevent that other party’s duty
from arising. But the only effect of the breach
as a breach is to give a right of action to the ag-
grieved party.
§ 198. Major and minor breaches. As dis-

cussed in the preceding section, the only true ef-
fect of the breach of a duty of immediate per-
formance is to give the other party a cause of ac-
tion. However, where the promised performance
was also a condition to the other party’s duty to
perform, the effect of non-performance is not
only a breach of promise but a failure of that
condition. Thus, if A promises to repair B’s ga-
rage door on Saturday, and B promises to pay A
$100 for this service, the repair of the door is
both a promised performance and a condition to
B’s duty to pay $100. A’s partial or total failure
to repair the door is a breach for which B will
have a right of action for damages. It may also
be a failure of condition thus preventing B’s duty
from arising. Since it does not appear to be an
express condition, it need not be fully and com-
pletely fulfilled (§ 186, swpra). The critical ques-
tion then is whether it was substantially per-
formed (assuming that it was not otherwise ex-
cused), and for this question the courts analyze
various factors (§ 186, supra).
[205 ]
§ 198 PERFORMANCE
In many cases, the courts do not discuss this
matter in terms of substantial performance of the
condition, but rather in terms of whether there
was a major or minor breach or sometimes
whether there was a material breach or a non-
material breach. The inquiry is the same. If a
court finds that the breach was a major breach,
it is concluding that the breach was material and
that the condition to B’s duty to pay was not sub-
stantially fulfilled. Sometimes the question will
be analyzed in terms of whether A substantially
performed, but the inquiry is still the same. The
major vs. minor breach language appears to
have been employed most frequently in contracts
for the sale of goods (where it does not appear to
be applicable today as discussed in §§ 202 and
203, infra). The substantial performance lan-
guage is probably used most frequently in con-
struction contracts.
§ 199. Construction contracts. Construction

contracts need not be considered a category unto
themselves, but the presence of the prospect of
forfeiture to the contractor in the event the own-
er is found not to be obligated to pay does create
some special problems. Obviously, similar prob-
lems could exist in other types of contracts, and
where they do there is no reason not to apply the
same rules.
Assume that C contracts to build a house for O
for $65,000 and that the contract expressly pro-
[206]
vides that O’s duty to pay is subject to the condi-

tion that C build in full and complete conform-
ance to plans and specifications. The house is
completed when it is discovered that the living
room is a foot too narrow, or that the house is
five feet too far back on the lot, or that the pipe
in the walls is not the brand specified, or some
combination of problems of this nature. Assume
that the defects are not the product of a willful
breach.
There has been a partial failure of what ap-
pears to be an express condition to O’s duty to
pay. Following the ordinary rules, the contrac-
tor must rebuild the house or not get paid (§§
180, 181 and 186, supra). Some courts will ago-
nize at length over the fact that express condi-
tions must be completely fulfilled. Others will
blithely ignore the fact that there is an express
condition involved and treat the case in the same
manner as one involving constructive condition
(§ 186, supra). But in the end, in most in-
stances, there will be an emphasis of the fact that
the law abhors a forfeiture, and the contractor
will recover the contract price less provable dol-
lar value of the discrepancies which may be noth-
ing. (§ 232, infra.)
If the defects in the house are of a nature that
they can be corrected without undue economic
waste, the proper result would be to require the
contractor to make the corrections before the
[207]
$2199 PERFORMANCE
owner’s duty to pay will arise, but even this is

not done in all cases. Briefly, most courts state
that where the alternative is for one of the par-
ties to suffer a forfeiture, the doctrine of substan-
tial performance will apply even to excuse what
appears to be an express condition.
If the defect is very serious, such as one which
involves the structural soundness of the building,
‘or involves a willful departure by the contractor
from plans and specifications, recovery will most
likely be denied, but this is consistent with the
substantial performance tests anyway (§ 186, su-
pra).
§ 200. Approval by a third party. A contract

may provide that the duty of a party to accept
and pay for the performance which he is to re-
ceive is subject to the condition that it be ap-
proved by a third party. Where there is no ele-
ment of forfeiture involved, such as in the ordi-
nary contract for the sale of goods, this express
condition is literally enforced and will usually not
be excused even by the death or incapacity of the
third party. Fraud and collusion with the third
party to obtain his disapproval will excuse the
condition, of course, but the fact that the third
party acted arbitrarily, capriciously or in some
other heinous manner in refusing to approve the
performance does not constitute grounds for ex-
cusing the condition.
[208 ]
When the element of forfeiture is introduced,
the standard of conduct required of the third par-
ty changes. Consider these factors: (1) What is
the magnitude of the forfeiture involved? (2)
What is the nature of the approval being sought?
Is the thing being approved something of utili-
tarian value with a measurable performance such
as an air conditioning system, or is it a matter of
esthetics and taste such as the quality of a night-
club singer? In the latter instance, the third par-
ty will be permitted to exercise a greater degree
of latitude and discretion. (3) How unreasonable
is the third party’s conduct? Has he refused to
inspect at all or to inspect thoroughly? Does he
give any reasons for his disapproval or only rea-
sons which are totally irrational or arbitrary and
capricious? (4) Who is the third party and how
was he selected? A renowned expert may be
given wider latitude than a run-of-the-mill engi-
neer or other professional.
Some courts reject such classifications as “un-
reasonable’, ‘grossly unreasonable’, ‘“‘arbitrary”
and “capricious”. It would appear, however, that
some such differentiations exist and may proper-
ly be applied. It is worth considering that if the
third party is to be held to the standard of acting
“reasonably”, then the court is substituting the
general standards of the community for the judg-
ment of the man the parties selected. If other
architects in town say that a paint job is accepta-
[209]
§ 200 PERFORMANCE
ble, the architect who says it is not is presumably
to be found to have acted unreasonably, but the
parties did not contract for the judgment of other
architects in town.
There is really no concluding generality which
will suffice in this area. Application of the fac-
tors mentioned with a modicum of common sense
‘will lead to the “correct’’ result in most instances.
§ 201. Approval by a party to the contract.

Where the duty of a party to perform is subject
to his approval or satisfaction, some restrictions
must be placed upon his discretion if one is to
find a contract at all. If he is totally free to dis-
approve for any reason, his promise is illusory,
and there is no mutuality (§ 84, supra). The fac-
tors mentioned in the preceding section may be
considered here. Where the approval involves a
matter of esthetics and taste, some courts say
that honest dissatisfaction is enough to cause the
condition to fail and permit him to reject the per-
formance. Where the performance is one involv-
ing utilitarian standards of an objectively mea-
surable nature, the courts usually imply a duty to
act reasonably in exercising the discretion to re-
ject.
[210]
CONTRACTS FOR THE SALE OF GOODS § 202
D. CONTRACTS FOR THE SALE

OF GOODS
§ 202. Buyer’s right to reject. Prior to the
adoption of the U.C.C., the duty of the buyer to
accept a defective tender of goods was basically
governed by the same or similar principles as ap-
plied in other contract performance questions.
The issue was usually framed in the language of
the character of the breach as major or minor (§
198, supra), but the same factors which are ana-
lyzed to determine the question of substantial
performance or substantial occurrence of the con-
dition to the buyer’s duty to accept and pay were
considered. Because of the nature of most con-
tracts for the sale of goods, it was easier to find a
major breach than would be the case in most oth-
er types of contracts, but the basic nature of the
inquiry was the same.
The draftsmen of the U.C.C. rejected the ma-
jor-minor breach test as the basis for determining
whether the buyer must accept tendered goods.
Except for contracts which require or authorize
delivery in installments, the buyer is given the
right to reject “if the goods or the tender of de-
livery fail in any respect to conform to the con-
tract” (U.C.C. Sec. 2-601). On the surface this
seems to be a harshly pro-buyer provision. It is
worth noting, however, that the buyer is obligat-
ed to act in good faith which, in the case of a
[211]
§ 202 PERFORMANCE
merchant, includes the observance of reasonable
commercial standards of fair dealing in the trade
(§ 3, supra). The language of Sec. 2-601 was
presumably designed to relieve the buyer of the
necessity of determining at his peril whether the
defect in tender constituted a major breach. The
buyer’s worries are not ended, however, because
_ he must still make certain that his conduct will
be found to be an exercise of good faith. We
may find that the question whether a rejection
was made with “observance of reasonable com-
mercial standards of fair dealing in the trade”
may require an analysis of the same old factors
which were used to determine whether a breach
was major or minor. Would it be reasonable to
reject goods for a minor, non-material breach?
Future cases should give the answer.
§ 203. Rejection of goods in installment con-

tracts. The buyer’s right to reject goods when
the contract requires or authorizes delivery in
separate lots is set forth in U.C.C. Sec. 2-612. In
working with this section, it should first be noted
that the definition of “installment contracts’’ is
broad. As indicated in the U.C.C. comments, it
includes contracts where installment deliveries
are tacitly authorized by the circumstances or by
the option of either party (U.C.C. Sec. 2-307).
This would appear to make a contract an install-
ment contract if delivery in separate lots were
[212]
CONTRACTS FOR THE-SALE OF GOODS§ 208
impliedly authorized even though the actual de-

livery was in one lot. There need be no provision
for separate payments for units or lots nor even a
price per unit breakdown so long as separate ac-
ceptance of separate deliveries was reasonably
contemplated.
Language to the effect that each delivery is to

be treated as a separate contract will be ignored
where the deliveries are the product of a single
negotiation and are set forth in a single document
(U.C.C. Sec. 2-612(1)).
The buyer who receives a defective or non-con-

forming shipment may look first to sub-section
(3) to determine whether the default “substan-
tially impairs the value of the whole contract”.
If so, he may reject the delivery and treat the en-
tire contract as having been breached.
Assuming the default does not substantially im-

pair the value of the whole contract, the buyer
next turns to sub-section (2). He may not reject
the installment unless the non-conformity sub-
stantially impairs the value of that installment.
Further, if the non-conformity can be cured and
the seller gives adequate assurance that it will be
cured, the buyer may not reject. While the liter-
al wording of the section is not very clear as to
whether an assurance from the seller is required
to prohibit rejection, this is apparently the in-
tended meaning (Comment 5 to U.C.C. Sec. 2-
[213]
§ 203 PERFORMANCE
612). So long as the terms are fair and reason-

able and there is an actual need for such a provi-
sion, the parties may provide in the contract a re-
quirement of full conformity in quality or other-
wise define what is a substantial impairment of
value (Comment 4 to U.C.C. Sec. 2-612).
It is obvious that the tests for determining
when a buyer may reject non-conforming goods
“are quite different depending upon whether the
contract falls within the definition of an install-
ment contract. While Sec. 2-601 modifies the
pre-code law to justify rejection where the tender
fails “in any respect”, U.C.C. Sec. 2-612 intro-
duces the standard of “substantial impairment of
value’’, and except in the case where the value of
the entire contract is substantially impaired,
gives the seller liberal opportunity to cure de-
fects.
Even in a single delivery contract, however, the
seller has the right to cure defects in a non-con-
forming tender if: (1) The time for performance
has not expired and he can correct within the
time allowed by the contract, or (2) The seller
had grounds to believe the buyer would. accept
the non-conforming goods, in which case he has a
reasonable period of time beyond that allowed in
the contract to correct defects (U.C.C. Sec. 2-
208).
[214]
IMPOSSIBILITY OF PERFORMANCE § 206
E. DISCHARGE
§ 204. Introduction. The duties of a party to
a contract may be discharged in many ways.
Some of those enumerated herein have already
been discussed in preceding sections although not
in the context of discharge. What will be dis-
cussed in this section will be the primary meth-
ods of discharge, followed by an enumeration of
the remaining methods, which are too numerous
to discuss in detail, and are generally self-explan-
atory.
F. IMPOSSIBILITY OF PERFORMANCE
§ 205. The doctrine. If, after a contract has
been formed, but prior to full performance, some
unforeseeable event occurs which makes perform-
ance objectively impossible, the promisor’s duty to
perform will be discharged as to the remainder.
Under the majority rule, if performance has al-
ready begun when future performance becomes
objectively impossible, the promisor may recover
in quasi-contract for the performance which was
in fact rendered.
§ 206. Objective impossibility defined. If the

circumstance which arises makes performance
impossible only for the particular promisor, it is
merely a subjective impossibility which is insuffi-
[215]
§ 206 PERFORMANCE
cient to discharge his duty. An example of
subjective impossibility is inadequate financing.
The impossibility must be such that no person
could legally or physically perform under the con-
tract. The three principal types of occurrences
which are categorized as objective impossibilities
are (a) supervening illegality; (b) supervening
destruction of the subject matter of the contract;
’ or (c) supervening death or illness under a per-
sonal service contract. It should also be noted
that “impossibility”? does not mean more difficult
than expected (cf. § 213, infra).
§ 207. Supervening illegality. When, by a su-

pervening act of the government, performance is
prohibited, made illegal, or made physically im-
possible by domestic law, performance is dis-
charged. However, if, by using due diligence, the
promisor could still perform without violating the
law, a supervening illegality only makes perform-
ance more difficult, and does not discharge the
duty to perform.
§ 208. Destruction of the subject matter of the

contract. Under the general rule, destruction of
the subject matter of the contract which is not
caused by the fault of the promisor makes per-
formance objectively impossible and discharges
the duty of performance. Notable exceptions to
this rule are contracts involving the sale of land
and those contracts for sale of goods covered by
[216]
the U.C.C. In the case of land, either the Uni-

form Vendor Purchaser Risk Act or general prin-
ciples of equitable conversion apply, which are
outside the scope of this work.
In contracts which involve transactions in goods,
a distinction should be drawn between specific as-
certained goods as distinguished from unidentified
or fungible goods. Destruction of ascertained
goods may discharge the duty to deliver whereas
destruction of fungible goods ordinarily does not.
If the risk of loss has passed to the buyer, de-
struction would not excuse performance. (U.C.C.
Secs. 2-615, 2-509 and 2-510).
§ 209. Supervening death or illness. If a con-

tract involves the duty to render personal serv-
ices, the death or incapacity of a person whose
personal services are required by the terms of the
contract makes performance objectively impossi-
ble. If this type of impossibility is present, the
person who has performed part of the personal
services, or his estate, is not liable for breach of
contract inasmuch as the duty to perform has
been discharged. Further, such person or his es-
tate may, under the majority rule, recover in
quasi-contract for the part performed. If a con-
tract duty is too personal to delegate (§ 166, su-
pra), then the incapacity of the promisor will dis-
charge the duty to perform.

§ 210 PERFORMANCE.
§ 210. Foreseeability of the supervening event.

If the occurrence of the event which made per-
formance impossible was foreseeable and reasona-
bly within the contemplation of the parties at the
time the contract was made, then the failure of
the parties to provide what should result if the
event did occur raises a question whether one
party assumed the risk that it would. If it is
found that the promisor assumed the risk of an
event which makes his performance impossible,
then his obligation is not discharged and he will
be liable for breach for hjs non-performance.
For example, where risk of war and the attend-
ant closure of canals or shipping routes were read-
ily apparent at the time a contract to transport
goods was made, the party who promised without
qualification to deliver goods to a specific point
may be found to have assumed the foreseeable
risk of such closures. For transactions involving
goods, see U.C.C. Sec. 2-615.
§ 211. Nature of the discharge. If the super-

vening event makes performance only partially
impossible in the objective sense, the remaining
duty ordinarily must be performed if it is objec-
tively possible even though such performance in-
volves a great increase in cost. This assumes the
performable portion is a commercially severable
unit. Second, even if a duty is entirely impossi-
ble to perform, from an objective point, it may be
[218]
only temporarily excused. Whether a contractual

duty is permanently discharged or only temporar-
ily excused turns on the question whether, once
the factor making performance objectively impos-
sible is removed, performance at the later time
would impose a burden upon the promisor sub-
stantially greater than would have been imposed
upon him had there been no impossibility. To il-
lustrate, suppose that A, a motion picture actor,
contracted to make motion pictures twice a year
for five years from 1940 to 1945. The actor was
drafted into the service in the beginning of 1943.
It was held, upon his return in 1946, that his duty
to perform was permanently discharged because it
would have imposed a substantially greater bur-
den to work for the same money when income
taxes and the cost of living had risen so drastical-
ly.
§ 212. Effect of a discharge upon the other

party to the agreement, It is incorrect to say
that both parties to a contract are discharged be-
cause of an objective impossibility. Rather, what
in fact occurs is that one party’s pre-existing
duty is discharged because of the impossibility.
This duty, however, is generally a condition
precedent to the other party’s duty to perform. Be-
cause it has not been performed, there is a failure
of the condition to the other party’s duty, and
hence it never arises. Where the other party has
[219]
§ 212 PERFORMANCE
rendered partial or full performance, however,

the party whose performance is excused by virtue
of impossibility should be required to make resti-
tution to prevent unjust enrichment.
§ 213. Factors changing the nature of per-

formance. Assume that D contracts to take from
a creek bed on P’s land all of the gravel necessary
_ in constructing a certain road. D took the gravel
until he encountered water. Removing gravel
from under water involved different processes
and was much more expensive—say ten times
more expensive—than taking dry gravel. D
ceased operations on P’s property and P sued for
the contract price for the amount of gravel which
D used from other locations.
One court held that D was excused from the
obligation to take his requirements of gravel
from P’s land. The court’s rationale was that an
unforeseen circumstance prevented D from per-
forming the contract in the contemplated manner
and that where such circumstances left a party
with no method of performance other than one
which was so prohibitively expensive as to be
economically wasteful, performance would be ex-
cused.
There are several legitimate questions or criti-
cisms which can be raised concerning this case.
On its facts, it would appear that there was no
change of circumstances which created any diffi-
[220]
IMPOSSIBILITY OF PERFORMANCE §& 213
culty or impossibility and that the court might

better have analyzed the problem in terms of mis-
take (§ 135, supra). It would also appear that
the risk of water in a creek bed was foreseeable
and that inquiry should have been made into the
question whether D assumed this foreseeable risk
or was culpable or negligent in making the mis-
take. It would further appear that D’s promised
performance under the contract, paying P a sum
of money for the right to remove a quantity of
gravel, was in no way prevented or made more
difficult and that the claim of discharge by D
might have been more appropriately handled as a
question of frustration of purpose (§§ 214-215, in-
fra), rather than impossibility.
This case represents the minority and Restate-
ment position that a change of circumstances
which prevents performance in the contemplated
manner leaving only an impractical alternative is
sufficient to discharge duties under a contract.
It is referred to by some as a case which dis-
charges duties on the grounds of subjective im-
possibility. Whatever it is, it is not a case of
subjective impossibility. There was _ nothing
subjective about D’s problems with the wet grav-
el. The difficulties he faced would have been the
same with any party who was attempting to ex-
tract this gravel from under water and were
therefore objective. The real problem is whether
the economic impracticability which was presented
[221]
§ 213 PERFORMANCE
by the facts should be defined as “impossibility.”

For tranactions in goods see Comment 3, U.C.C.
Sec, 315.
G. FRUSTRATION OF PURPOSE
§ 214. Distinguished from impossibility. Al-
though some courts tend to confuse the two con-
- cepts, frustration of the purpose of a contract is
not a type of objective impossibility. When the
purpose of a contract has been frustrated, the
promisor can still perform his contractual duties.
But if the bargained for return performance has
become totally or nearly totally valueless, and the
purpose for making the contract was known or
should have been known by the promisee, the
promisor’s duty to perform may be discharged.
§ 215. Frustration defined. There is a frus-

tration of the purpose of a contract if the follow-
ing four elements are satisfied: (1) The event
which leads to the frustration was not reasonably
foreseeable; (2) There is a total or nearly total
destruction of the value of the contract to one
party; (3) The event leading to the frustration
was a supervening event, i. e. it occurred after
formation but prior to the time performance was
due; and (4) The main purpose of the contract,
or the avowed or desired object of the contract
for the party claiming frustration, was within the
contemplation of both parties.
[222]
FRUSTRATION OF PURPOSE § 215
In order for the doctrine to apply, the event

must have been almost totally unforeseeable even
from a point of hindsight, or courts will deny re-
lief. Also, it is extremely critical that both par-
ties be cognizant of the main purpose for the
making of the contract. The doctrine of frustra-
tion is infrequently applied by the courts and
most often erroneously applied by students of
contracts. Three cases will illustrate the point.
In Krell v. Henry, a 1903 English case, D hired a
flat bordering on Pall Mall, in London, from P, so
that D could use the flat during the daytime to
watch coronation processions over a two-day pe-
riod. P had advertised the availability of the flat
for this specific purpose. The coronation was
called off due to the illness of the King. P sued
D for the unpaid rental. Both parties could still
objectively perform, i. e., P could let D use the flat
and D could still pay. However, the court held
that the purpose of the contract had been de-
stroyed, thus discharging D’s duty to pay, be-
cause all four elements of the doctrine were
present.
In a 1944 California case, D leased a building

from P for the purpose of selling automobiles.
The lease was entered into in August, 1941, prior
to America’s involvement in World War II. Un-
der the lease, D could use the premises for the
purpose of selling new cars, gasoline, and for any
other purpose which P would permit. Shortly
[223]
§ 215 PERFORMANCE
thereafter, upon the outbreak of war, the govern-

ment stopped civilian production of cars except
for priority sales. P gave D consent to sell used
cars, and even offered to reduce the rent. Evi-
dence showed that D was making money selling
new and used cars in other locations and that
both parties should have reasonably foreseen gov-
ernmental restrictions. The court held that the
‘purpose of the contract was not frustrated, since
the restrictions were foreseeable (and thus D had
assumed the risk) and the value of the contract
was not totally destroyed.
In the final illustration, P leased a building to
D, a Japanese, for the purpose of conducting a
hotel and renting office space. The lease extend-
ed from 1940 to 1944. It was a lease of a build-
ing located in the Japanese area of Los Angeles.
In May of 1942, all Japanese were evacuated from
the area. Most of D’s tenants had been Japanese,
and he had contemplated using the building to
rent to other Japanese. The court, however, re-
fused to apply the doctrine of frustration of pur-
pose on the rationale that the main purpose
of the contract was not in the contemplation of P
as well as D.
[224]
OTHER METHODS OF DISCHARGE § 217
H. OTHER METHODS OF DISCHARGE
§ 216. Performance. The most obvious meth-

od for the discharge of a contractual duty is full,
complete and literal performance. Most contracts
are discharged by this method.
§ 217. Accord and satisfaction. When a party

who has the right to receive a contract perform-
ance enters into an agreement with his debtor in
which the debtor agrees to perform a different
promise in lieu of that which is owing, such an
agreement is called an accord. For example, A
owes B $500. A offers to give B six tons of hay
in lieu of the $500, and B accepts this offer. The
parties have entered into an accord agreement.
The making of this accord does not discharge the
duty to pay the $500 unless the parties manifest-
ed that intention, and such an intent will not or-
dinarily be assumed.
When A delivers the hay to B, thus performing
the accord, this is termed the satisfaction. The
satisfaction operates as a discharge of the origi-
nal obligation as well as the obligation to deliver
the hay which was undertaken in the accord
agreement.
Problems in this area usually arise when the

debtor fails to perform the accord agreement.
When B does not get the hay, he has the election
[225]
§ 217 PERFORMANCE
to sue for the value of the hay on the accord
agreement or to sue for the $500 which was orig-
inally owing, since that obligation is not yet dis-
charged. If B attempted to sue A for the $500
debt before A defaulted on his obligation to de-
liver the hay, most courts hold that B will pre-
vail. However, A will be allowed to set off the
damages which he sustained by reason of B’s re- °
.fusal to accept the hay or A will be permitted to
bring an independent action against B for violat-
ing the accord agreement. An alternative proce-
dure for A is to seek a remedy in equity to re-
quire B to wait for the time fixed for delivery.
There are no particular consideration problems
inherent in the accord and satisfaction area un-
less the debtor is attempting by the accord agree-
ment to pay a lesser sum than that which is then
due and owing (§§ 75-80, supra).
§ 218. Rescission. At the outset, it should be

borne in mind that rescission as a method of dis-
charge is not available in a third party benefi-
ciary situation when the third party’s rights have
vested (§§ 142-143, supra), nor where a party
has made an irrevocable assignment of rights un-
der the contract to a third person (§ 157, su-
pra). However, in other situations where third
party’s rights are not affected, two parties to a
contract may discharge their respective duties by
mutually agreeing to rescind their contract. The
[226]
relinquishment of their rights is supported by

consideration in the bilateral situation, since each
is giving up his right to receive performance in
exchange for avoiding his duty of performance.
Under the general rule, a rescission need be in
writing only if the agreement to rescind would
work a transfer of title to land or goods within
the terms of the Statute of Frauds. Some states
such as California, however, have held that an
oral rescission is valid even if the Statute of
Frauds requires the contract to be in writing.
Moreover, state statutes which provide that a
contract in writing can be altered only by anoth-
er contract in writing, or by an executed oral
agreement, have in at least some cases been held
to apply only to ‘‘alteration” and not to rescis-
sion. Thus, an oral rescission of a written con-
tract is permissible. Finally, by the weight of
authority, a contract can also be orally rescinded
even though it expressly states it can be modified
or rescinded only by a written document. With
respect to mutual rescissions of leases, real prop-
erty law must be consulted to determine what is
sufficient to constitute the surrender of a lease-
hold.
In a unilateral situation, a mutual agreement,
without more, to release a person whose duty to
perform has become absolute is ineffective for
lack of consideration. Mutual promises are insuf-
ficient inasmuch as the party who is yet to per-
[227]
§ 218 PERFORMANCE
form will not suffer a legal detriment. There-

fore, in order to “rescind” a unilateral obligation,
a promise to rescind must be supported either by
some new consideration by the party who has not
yet performed, e. g. restitution of benefits pre-
viously conferred, or by a detrimental change of
position by such party.
Many laymen and more than a few attorneys
use the word “‘rescission” to indicate that they do
not intend to make further performances under a
contract. This could turn out to be an expensive
mistake. If A has materially breached a contract
with B, B has the right to rescind and thereby
discharge all duties under the contract. B also
has the right to declare a total breach, thereby
relieving himself from the obligation to perform
or to accept further performances from A but
preserving his right to damages for breach of the
entire contract. If this is what B wants, “rescis-
sion” is not the proper term.
Numerous cases have found in specific circum-
stances that the use of the term “rescission” was
not meant to communicate an actual rescission
and discharge of duties. The U.C.C. has avoided
this result in transactions in goods by providing
that when either party puts an end to a contract
for breach by the other, he retains his remedies
for breach of the entire contract (Sec. 2-
106(4)). The problem still exists, however, in
non-goods transactions.
[228]
Mutual rescission can also contain a hidden

trap. X agrees to harvest 1,000 acres of wheat
for Y for a stated price per acre. After X has
harvested 50 acres, the contract is “rescinded” by
mutual agreement. Under the prevailing com-
mon law view, there is no presumption or infer-
ence that X has preserved his right to collect for
the work performed in the absence of affirmative
evidence of such intention. Here, the U.C.C. has
apparently affected a change. The ‘‘termination”
of a contract for the sale of goods discharges all
obligations which are still executory on both
sides, but rights based upon prior breaches or
performances survive (Secs. 2-106(3) and 2-
720)).
§ 219. Novation. This method of discharge

is closely interrelated with the principles of as-
signment of rights and delegation of duties (§§
146-167, supra). A transaction may be either a
novation or an assignment and delegation, but
not both. A novation is a three-party transaction
involving the two original parties and a newcom-
er. It involves one of the original parties being
removed from the transaction and the newcomer
being substituted in his place. This may not oc-
cur without the mutual assent of all three.
There are four elements of a valid novation:
(1) There must be a previous, valid obligation;
(2) There must be a mutual agreement of all the
[229]
§ 219 PERFORMANCE
parties to the old and new contracts; (3) There
must be apparent an intention to immediately ex-
tinguish the duties of the parties under the old
contract; and (4) The new contract must be val-
id and enforceable.
To illustrate, suppose B, a builder, is under a
contractual obligation to build a house for A, for
_which A has agreed to pay $20,000 upon comple-
tion. If B goes to C, another builder, and offers
the job to him, and C accepts the job of building
the house as well as the right to the $20,000 upon
completion, there has not been a novation. All
that has occurred is an assignment of the right to
payment from A and the delegation to C of the
duty to build. B remains liable on the contract
and A could still assert such arguments as that
the duty to build was too personal to delegate (§§
166-167, supra). To constitute a novation, A
would have to agree to release B from his duty to
build in exchange for receiving a promise from C
to build, and A would have to promise to pay the
$20,000 to C upon completion. |
§ 220. Occurrence of a condition subsequent.

As previously discussed (§ 178, swpra), the condi-
tion subsequent is a method of terminating a
duty and not a prerequisite to the arising of the
duty to perform. Hence, if a true condition sub-
sequent occurs, it discharges a pre-existing duty
to perform. Because of their potentially harsh
[230]
effect, conditions subsequent which are expressed

in a contract are closely scrutinized and narrowly
construed. For example, if the condition subse-
quent is in the nature of a private statute of lim-
itations, it will be examined to determine if the
limitation is reasonable, i. e. did it provide a rea-
sonable time for the aggrieved party to take ac-
tion.
§ 221. Account stated. If a debtor has pur-

chased items from a creditor and the creditor
sends the debtor a statement of account, the act
of keeping the statement for a period of time
without objection by the debtor manifests his as-
sents to be bound by its terms. The creditor can
sue upon this “account stated”. Such an account
stated operates as a discharge of the underlying
obligation for the items purchased even though
the account stated has not yet been paid. The
new account stated, although executory, is viewed
as a satisfaction of the old claim. Items in the
underlying account need not have been disputed
inasmuch as the essential requisite of an account
stated is the fixing of the stated sum by way of
computation rather than by way of compromise.
Since there is a merger of the old sums into the
new account stated, no cause of action remains as
to those items.
It is essential that the parties have had at least
one previous transaction, 7. €. a statement cannot
[231]
§ 221 PERFORMANCE
create liability where none previously existed.
An account stated cannot supersede a promissory
note since such a note is viewed as higher evi-
dence of the debt than the account stated.
The agreement to substitute the account stated
for the open account need not be express and in
fact almost never is. It will be implied when the
debtor fails to object to the statement within a
reasonable period of time. If an objection is
made to a statement of an account, implied assent
is lacking, and there is no account stated. De-
spite the presence of an account stated, either
party may produce evidence to show that the
statement is an erroneous computation. However
the burden of proving the error is upon the per-
son challenging the accuracy of the account.
§ 222. Previously discussed concepts which

serve as methods of discharge. Duties-under a
voidable contract may be discharged by an exer-
cise of the power of avoidance (§§ 122-126 and
135-138, supra). If a contract deals with an ille-
gal subject matter, the defendant can discharge
his liability by asserting illegality as a defense
(§§ 127-134, supra). The mere making of a con-
tract for the benefit of a third party creditor ben-
eficiary does not discharge the pre-existing duty
owed to the creditor, but such a duty is dis-
charged when the promisor renders performance
to the creditor beneficiary (§§ 139-145, supra).
[232]
OTHER METHODS OF DISCHARGE §& 222
Performance to an assignee discharges the pre-

existing duty to the assignor (§§ 146-160, supra).
The mere delegation of a delegable duty does not
extinguish the obligor’s pre-existing duty, but
performance by the delegatee will discharge the
obligation (§§ 161-167, supra). If an obligor
goes into bankruptcy and the trustee does not
elect to continue performance, all contractual du-
ties over and above what is paid in the proceed-
ings are discharged (§ 91, supra). Under the mi-
nority rule, the running of the time set for the
bringing of an action for a breach of contract ef-
fectively discharges contractual duties although it
is the majority rule that the running of the stat-
ute bars only the remedy and does not discharge
the debt (§ 90, supra).
In certain situations, a discharge may be had
by the making of a proper tender (§ 185, supra).
If the tender is accepted there is, of course, liter-
al performance. We are here concerned with the
effect of a valid, unconditional, and rejected ten-
der.
A proper tender of services discharges, at least
temporarily, the tenderor’s duty to perform fur-
ther. But if time is not of the essence, such a
tender is only a temporary suspension of the duty
of performance, and performance may be de-
manded within a reasonable time. The rule is
likewise with respect to the effect of time upon
the tender of money’for a consideration not yet
§ 222 PERFORMANCE
received. To illustrate, suppose S contracts to

sell a car to B for $1,000. Time for performance
is not specified.. A tender by B on July 1 only
temporarily suspends his duty. B will still have
to perform if S, within a reasonable time, tenders
performance and gives B time in which to per-
form. But B’s duty to perform would be perma-
nently discharged if performance were due on
- July 1 and time had been of the essence.
If an obligor owes a duty to pay money for a

consideration already received, a rejected tender
does not discharge the debt, but it does stop the
running of interest. Suppose R owes # $100. On
July 1, R tenders # $100 in cash, which E rejects.
Although the debt is not discharged, H# is not en-
titled to interest after July 1.
§ 223. Other methods. (1) The release of a

principal likewise releases the surety inasmuch as
a release of the principal tends to militate against
the interests of the surety. An actual release is
not necessary; anything which “tends to militate
against the interest of the surety” discharges his
secondary duties. To illustrate, suppose R owes
E $100. & delegates the duty to pay E to D, and
D assumes the debt. D thereby becomes primari-
ly liable and R becomes a surety. If EH were to
release D for a consideration, R would by that act
be discharged.
[234]
(2) If a judgment is obtained against one un-

der a contractual duty, the duty to perform under
the contract is “merged” into the judgment and
thus is discharged. A second action on the con-
tractual duty will not lie, and enforcement must
proceed on the judgment.
[235]
X. DAMAGES
§ 224. Introductory rationale. When a party

enters into a contract involving a bargained ex-
change he does so for the purpose of securing
the desired performance. If he does not obtain
these things because of a breach of contract,
he ought to be compensated for the loss of his
expectancy. Except in certain instances, the
law does not compel the breaching party to
specifically perform as promised, but instead
awards dollar damages to the extent of the prova-
ble loss which the innocent party has sustained
by not receiving the promised performance.
This, then, is the underlying rationale for deter-
mining what an innocent party’s damages should
be when a contract has been breached, i. e. the
innocent party should be placed in the position
in which he would have been if the contract had
been fully performed. Most of the rules which fol-
low are consistent with this rationale that a party
is entitled to damages for his loss of expectancies.
However, the essence of the general rules of dam-
ages is the existence of a bargain. If a contract
does not involve a bargain, but the plaintiff seeks
to recover on another theory such as detrimental
reliance, a different set of principles applies.
[236]
DAMAGES § 225
The cases in which the law compels specific
performance of contracts for the sale of goods are
treated in §§ 227 and 228, infra. Other areas of
specific performance are left to the courses in
property, equity or remedies.
The amount of damages sustained from a
breach of contract must be proven with a reason-
able degree of certainty. In contrast to cases in
tort, the plaintiff must establish reasonably pre-
cise figures and cannot rely upon speculation.
§ 225. Types of damages in contract actions.

The three broad types of damages are compensa-
tory, which make a party whole; punitive, which
make an example out of the wrongdoer and are a
windfall to the plaintiff; and nominal, which rec-
ognize a technical injury. In the field of con-
tracts, punitive damages are not awarded al-
though one should be alert to the possibility of
finding the intentional tort of fraud. Nominal
damages are awarded to the offended party in a
breach when no actual damages can be shown.
Neither of these types, therefore, present any
particular problem. It is compensatory damages
which are the primary damages sought in a con-
tract action. Of the types of compensatory dam-
ages, the most common are standardized dam-
ages, consequential damages, and liquidated dam-
ages.
[237]
§ 226 DAMAGES
A. STANDARDIZED DAMAGES
§ 226. Introduction. Legal evolution has re-
sulted in a different standard or measure of re-
covery for breach of sales contracts, employment
contracts, and construction contracts. Hence, it
is first necessary to properly characterize the na-
ture of the contract before one can apply the
proper measure of damages.
§ 227. Buyer’s damages in sales contracts. If

a contract for the sale of goods under the U.C.C.
is breached by the seller, the buyer may “cover”
by making any reasonable purchase of substitute
goods in good faith and without unreasonable de-
lay. The buyer may recover the difference be-
tween the cost of cover and the contract price to-
gether with incidental or consequential damages
less expenses saved (U.C.C. Secs. 2~712(1) and (2)
and 2-715). If the cover is made in good faith, it
does not matter that the price was not in fact the
lowest available. Where justified by the circum-
stances the goods purchased in substitution need
not be identical to those provided for in the con-
tract. If the buyer does not cover, then the mea-
sure of damages is the difference between the
market price at the time when the buyer learned
of the breach and the contract price together
with incidental and consequential damages less
expenses saved (U.C.C. Secs, 2-713(1) and 2-715).
[238]
STANDARIZED DAMAGES § 228
It should be noted that at common law, market

price was usually computed as of the time of per-
formance. Case law to this effect has been modi-
fied by Sec. 2-713 (1).
In certain circumstances the buyer may obtain

the goods themselves. If the goods are unique,
the buyer may obtain a court order compelling
the seller to perform (U.C.C. Sec. 2-716(1)).
The buyer may also recover the goods themselves
where they have been identified to the contract
and he is unable to make a cover purchase (U.C.
C. Sec. 2-716(3)) or, under certain circum-
stances, where the buyer has made part payment
and the seller becomes insolvent (U.C.C. Secs. 2-
502 and 2-711(2) (a)). Incidental and consequen-
tial damages might also be available (U.C.C. Sec.
2-716 (2) ).
The buyer may recover damages for the value

of the defects in goods which he has accept-
ed (U.C.C. Sec. 2-714(1)), and this can, of
course, include damages for breach of warranty
(U.C.C. Secs. 2-714(2), 2-313, 2-314, and 2-315)
as well as incidental and consequential damages
(U.C.C. Sec. 2-714(3)).
§ 228. Seller’s damages in sales contracts.

Under a U.C.C. contract, if there is a breach by
the buyer, seller may resell and if the resale is
made in good faith in a commercially reasonable
[239]
§ 228 DAMAGES
manner and in compliance with code require-

ments, the seller may recover the difference be-
tween the resale price and the contract price plus
incidental expenses less expenses saved (U.C.C.
Secs. 2-706 and 2-710). If there is no resale or
if the seller elects not to use resale price as his
measure of damages, he recovers the difference
between the contract price and the market price
at the time and place of tender plus incidental
costs (U.C.C. Secs. 2-708 and 2-710). Note that
the seller may elect whether to use his resale
price as the measure of damages. There is a
plausable argument that the buyer should like-
wise have the right to elect whether he wishes a
purchase of substitute goods to constitute a ‘“‘cov-
er purchase” or sue for damages based upon
the market price at the time he learned of the
breach.
Where the buyer has accepted the goods or
where they were destroyed after the risk of loss
had passed to the buyer, the seller may maintain
an action for the price (U.C.C. Sec. 2~-709(1) (a)
and (2)). The seller can also maintain an action
for the contract price where the goods are identi-
fied to the contract and he is unable to resell
them at a reasonable price (U.C.C. Sec. 2-
709(1) (b)).
The above mentioned remedies, while numer-
ous, still give no adequate relief for a buyer’s
breach to the seller who is in a situation where
[240]
his profits are partly dependent upon the volume

of his sales. Consider the Ford dealer who con-
tracts to sell a new car for $3,700. Assume that
this price is the fair market value of this car and
is $350 more than the dealer’s cost of buying the
car and preparing it for delivery. Before taking
delivery, the buyer repudiates the contract.
The dealer cannot maintain an action for the
price as the car was not accepted nor is the seller
unable to resell it for a reasonable price. The
dealer can resell the car and sue for the differ-
ence, but assuming he sells it for the market val-
ue of $3,700, he will have nothing but the inci-
dental damages allowed by U.C.C. Sec. 2-710. He
can sue for the difference between contract and
market, but this too is zero. Yet the dealer has
sustained damages in the amount of $350. At the
end of the year he will have sold one less car be-
cause of this breach because the person who fi-
nally purchases this car for its market value of
$3,700 would presumably have purchased another
car for that price. One sale was lost, and the
dealer’s profits for the period in question will be
$350 less as a result.
The dealer may recover damages in the amount
of $350 from the buyer under U.C.C. Sec. 2-
708(2). This section applies where the other
remedies are inadequate and permits the recovery
of the profits, including reasonable overhead,
which the seller would have made from full per-
[241]
§ 228 DAMAGES
formance by the buyer. It will often be applica-

ble to retailers, wholesalers and manufacturers
who are operating at less than full capacity and
any other seller whose profits are predicated in sig-
nificant part upon the volume of his sales.
§ 229. Standardized damages in employment

contracts. If an employee fully performs, but the
‘employer fails to pay, the employee can recover
the contract amount plus interest and such other
penalties as may be provided by state law. If an
- employee only partly performs before he is unjus-
tifiably fired, he can recover the contract amount
for the full term, less an amount the employ-
er can show that the employee obtained or could
have obtained by taking an available similar
job (§ 236, infra). If an employee does not
substantially complete his performance before he
quits without cause, he theoretically cannot re-
cover for the part performed, and the employer
can hold him for any actual net damages caused
by having to hire another employee at a higher
wage. In practice, many cases permit recovery
by the employee for the portion of the contract
actually performed.
Note that in most instances a contract for

“permanent employment” is defined by law as
terminable at will, without cause, by either party.
In the absence of a collective bargaining agree-
ment or other contract which gives job security
[242]
for a definite or indefinite period, no right of ac-

tion accrues from a firing or quitting without
cause,
Where an employee incurs substantial expense
such as moving costs to put himself in a position
to accept a “permanent” job and is fired shortly
thereafter without cause, the result can be most
unjust. Some jurisdictions have concluded that
in such circumstances there is an implied prom-
ise on the part of the employer to continue the
employment at least long enough to permit the
employee to recoup the cost of relocating. The
measure of damages for a firing without cause
shortly after arrival was held to be the cost of
moving the employee and his family in one case
and the lost wages or earnings which the em-
ployee sacrificed in another.
§ 230. Standardized damages in a construc-

tion contract when the owner materially breaches,
If an owner breaches a construction contract be-
fore the builder has rendered any performance,
the builder can recover his anticipated profits
measured by the contract price minus costs. If
the builder has begun performance, and is operat-
ing under a “cost plus percentage” contract, he is
entitled to all costs to date, plus a percentage on
the total costs, past and prospective, since this
represents his guaranteed profit. However, when
a contract is for a fixed amount the result varies
[243]
§ 230 DAMAGES
depending upon whether the contract is a profita-

ble contract or a losing contract.
If an owner breaches a construction contract
after the builder has partly performed, and if the
construction contract would have been a profita-
ble one to the builder, the builder will recover the
contract price minus what he saved by not having
to complete. To illustrate, suppose B contracts to
build a house for O for $40,000. B completes
part of the house at a cost of $20,000. O then
breaches the contract. It would have cost B
$15,000 to finish the job. Under the cost of com-
pletion test, B is entitled to the contract price of
$40,000 minus the cost of completion of $15,000,
or $25,000. Another formula which produces the
same result in the case where the builder had a
profitable contract is called the profits plus eax-
penditures test. Using this method, B is entitled
to the profits, 1. e. the contract price of $40,000
minus the total cost of $35,000, or $5,000, plus his
actual expenditures to date of $20,000, for a total
of $25,000.
If the above-mentioned tests were applied to a
losing contract, however, a different result. would
be obtained in each case. To illustrate, suppose,
in the above example, that at the time of the
breach it would have cost B $25,000 instead of
$15,000 to finish. Under the cost of completion
test, B will get the contract price of $40,000 mi-
nus the cost of completion of $25,000, or $15,000.
[244]
Under the profits plus expenditures test, B will

get nothing for profits as there were none, but
will receive his actual expenditures of $20,000.
Hence, it should be fairly obvious from the
foregoing example that if a builder’s contract is
unprofitable, his only favorable recovery will be
rendered under the profits plus expenditures test,
and there is no guarantee that a court will pick
the rule most favorable to him. However, under
the majority rule, a non-defaulting builder may
elect to recover his actual expenditures by suing
in quasi-contract. Hence, the builder who brings
action on a partially performed contract which
would have been unprofitable is on a far more
solid foundation by suing under this theory and
ignoring the contract, since it maximizes his re-
covery at least to the point of the profits plus ex-
penditures test in every instance.
§ 231. Standardized damages in a construction

contract when the builder materially breaches.
If a builder breaches his contract before he has
rendered any performance, the owner can recover
the difference between the contract price and
what it costs to get another builder to build. Ifa
builder breaches his contract after part perform-
ance, the owner is, under the majority rule, enti-
tled to the cost of completion less what is due un-
der the contract. To illustrate, suppose B con-
tracts to build a house for O for $50,000. B is in
[245]
§ 231 DAMAGES
the process of building the house and has receiv-

ed progress payments of $20,000 when he breach-
es. O is entitled to whatever it would cost O to
finish the job less the $30,000 remaining due on
the contract. If it would cost $32,000 to finish, O
is entitled to that amount less the $30,000 still
due on the contract, or $2,000. O can get this
_ amount even though he never finishes the house.
Under the minority rule, the owner is entitled
to the diminution in value of his property by the
breach of the builder. This is computed as the
difference between what the property would have
been worth had the building been completed less
what it is worth with the partly finished building,
and less the amount which the owner saved by
not having to pay the full contract price to the
builder.
§ 232. Standardized damages in a construction

contract where the breach of the builder is minor,
i. €. he has substantially performed. If a builder
has substantially but not fully performed, he can
recover the contract price less the amount needed
by the owner to remedy the defect. However,
this test is applied only if remedying the defect
will not involve economic waste. Economic
waste, in this sense, refers to the cost-benefit dif-
ferential. If the cost of completing literal per-
formance is significantly higher than the increase
in value which will result from completing the fi-
[246]
nal act of performance, this is termed a situation

of potential economic waste. If such is the case,
the owner is allowed a deduction or setoff only of
the amount by which the value of the building is
reduced by virtue of the defect. To illustrate,
suppose B innocently installs the wrong pipe be-
tween plastered walls, but that the pipe is just as
good as that required by the contract. The court
will not allow a setoff for the amount required to
replace the pipe, since the replacement of the
pipe would involve economic waste.
Therefore, in such a situation, where there has
been substantial performance, the owner is only
allowed to set off the diminution in value of the
building as it now stands from what it would
have been. The result may be very unfair to the
owner. A defect involving the wrong dimensions
in the living room of a custom built home may
not affect its value and thus the owner would be
entitled to no setoff or reduction in price despite
the fact that he has not obtained what he wanted.
This problem is one factor to be considered when
analysing the question whether the builder has
substantially performed and is therefore entitled
to payment (§§ 186 and 199 supra).
[247]
§ 233 DAMAGES
B. CONSEQUENTIAL DAMAGES
§ 288. Generally. If a plaintiff suffers actual

damages in excess of the standardized damages
allowable under the particular situation, he may
obtain them if and only if these so-called ‘‘conse-
quential damages” were within the reasonable
-contemplation of the parties at the time of forma-
tion of the contract and it is fairly inferred that by
the making of the contract, the breaching party as-
sumed the risk of liability for them. This is the
rule of the English case of Hadley v. Baxendale
which involved the breach of a service contract.
The test is objective, i. e. would reasonable men in
the position of the contracting parties have fore-
seen, under similar circumstances, such conse-
quences at the time the contract was formed?
Some courts also inquire whether it was contem-
plated that the defendant would be liable for those
damages in the event of breach. The defendant
must have had notice at the time of contracting of
the facts which produced these damages before he
is charged with liability for consequential damages
resulting from his breach. For example, in Had-
ley, supra, P, a mill owner, delivered a shaft to D,
a carrier, to deliver to the factory for repair. D
delayed an unreasonable time in making the de-
livery. P had no other shaft and hence lost prof-
its as a result of not being able to operate his
mill. P was limited to standard damages because
[248]
THE DUTY TO MITIGIATE § 236
it was held not reasonably foreseeable that the

entire mill would be shut down.
§ 234. Defective goods. In actions for breach

of warranty in the sale of goods, the test of fore-
seeability of damages is different from that ap-
plied in the Hadley case. If a seller sold a shaft
which was not as warranted and the defect
caused damage to the mill which resulted in loss
of its use, Hadley could recover for this loss (U.
C.C. Secs. 2-714(3), 2-715(2)).
C. THE DUTY TO MITIGATE

§ 235. Generally. In most situations, an in-
nocent party is held to a duty to mitigate or re-
duce the damages he suffers, and the court will
reduce his award by the amount which could
have been saved by appropriate action to mini-
mize the loss. Whether the duty is owed depends
upon the nature of the contract.
§ 236. Employment contracts. Under the pre-

vailing rule, an employee owes the duty to miti-
gate his damages suffered by his employer’s
breach. Hence, his measure of damages is the
contract rate, less the rate he would have receiv-
ed in a similar job which he could have obtained.
The employer. has the burden of proving the exis-
tence of such a job and prove that the employee
could have been hired. Further, although an em-
§ 236 DAMAGES
ployee is under no duty to take a job which is not

of the same type and rank, if he takes a lesser
job, the employer may use as a setoff any money
which the employee actually earned at the new
job.
§ 23%. Sales contracts. The duty to mitigate

damages is usually applied to sales contracts, al-
though the presence of a ready market for com-
modities generally renders the problem moot.
The standards of the U.C.C. regarding resales,
cover purchases, and good faith have the effect of
imposing a duty to mitigate damages.
§ 238. Construction contracts. If an owner

repudiates a building contract, the builder owes a
duty to avoid the incurring of additional damages
by building an unwanted structure but, under the
majority rule, he owes no duty to avoid the con-
sequences further by obtaining other construction
work. Hence, the offending owner may not use
as a setoff any profits made by the contractor on
other work which he performed in the interim
between the breach and the scheduled time of
completion. This is a variation from the rule in
employment contract situations (§ 236, supra).
This rule has been adopted on the rationale that
the breach is not the proximate cause of new
profits made by the builder. Rather, such new
profits are the result of independent work and
[250]
LIQUIDATED DAMAGES § 240
“risk taking” by the builder. There is also the

fact that the contractor probably could have done
both jobs.
§ 239. Leases. While most properly a sub-

ject of the law of real property, it is worth noting
that at common law, a tenant who abandons a
leasehold has no right to demand that the land-
lord take steps to mitigate his damages. This
rule has been changed in some states by statute
and/or court decisions.
D. LIQUIDATED DAMAGES
§ 240. The rule. If a contract contains a liq-
uidated damage clause, the specified amount of
liquidated damages will ordinarily be upheld and
the plaintiff’s damages fixed at that amount if
two requirements are met. First, the subject
matter of the contract must be such that it ap-
pear at the time the contract is formed that dam-
ages for the breach thereof would not be readily
ascertainable. Second, the amount agreed upon
must be the product of a reasonable effort to
forecast the damages which might be caused by
the breach. If the liquidated damage provision
appears to be a penalty or forfeiture clause be-
cause it does not meet these tests, it will usually
not be enforced.
[251]
§ 241 DAMAGES
§ 241. Inability to estimate damages. In de-

termining whether damages in the event of
breach appeared to be impractical or extremely
difficult to determine at the time the contract
was formed, courts will, under the majority rule,
consider possible consequential damages. For ex-
ample, the standard measure of damages for de-
lay in building a factory might be relatively easy
to foresee. But if there are other factors present
which would lead to consequential damages, @. g.
the necessity of entering into a new long-term
lease with one’s current landlord because of the
delay in completion, a court will find this element
satisfied.
§ 242. Reasonableness of the forecast. If the

amount agreed upon is not a reasonable forecast
of actual damages contemplated, a liquidated
damage provision is unenforceable. By the very
fact that the first element of uncertainty (§ 240,
supra) must be met, there is a reasonable degree
of latitude, but a provision for a set sum which is
unrelated to possible damages is generally void.
For example, if B promised to pay $10,000 liqui-
dated damages if he did not complete O’s house
on time, the provision would be void since it did
not attempt to make adjustments dependent upon
whether the delay was one or one hundred days.
The reasonableness of the forecast is not tested

in light of actual damages after they have oc-
[252]
LIQUIDATED DAMAGES § 243
curred. Rather, a comparison is made between

the liquidated figure and what damages were pro-
spectively foreseeable by the parties at the time
they formed the contract. But under the minori-
ty view, a party may introduce into evidence his
actual damages to show what the estimated dam-
ages should have been at the time the contract
was formed.
§ 243. Effect of a liquidated damage clause.

Where the contract contains a valid liquidated
damage clause, the amount fixed is the only re-
covery which may be had for breach. If a liqui-
dated damage clause is held unenforceable, the
parties are left to their ordinary remedies. If a
contract stipulates that an innocent party may
elect to recover actual damages or damages under
a liquidated damages clause, the liquidated dam-
ages clause is unenforceable on the rationale that
the giving of an alternative shows that there was
no bona fide intent on the part of the parties to
actually fix damages. Finally, if both elements
of a valid liquidated damage clause are satisfied,
the innocent party will recover that amount, even
though no actual damages were suffered, under
the majority rule. Obviously, the duty to mitigate
damages has no place in the contractual situation |
involving a valid liquidated damages clause.
[253]
§ 244 DAMAGES
E. DAMAGES IN THE ABSENCE OF A

BARGAINED EXCHANGE
§ 244. Rationale for the variance from stand-
ardized damages. If a plaintiff seeks to recover
under a theory such as detrimental reliance, it is
arguably inappropriate to award him the benefit
of his bargain since he has made no bargain.
Hence, the recovery may be predicted upon the
nature and extent of the reliance.
§ 245. Measure of damages when detrimental

reliance is involved. Courts are divided upon the
question of the measure of damages in detrimen-
tal reliance cases. A majority award the offend-
ed party an amount commensurate with the value
of the promise of the breaching party. This is
done to be consistent with the general guidelines
of standardized damages. An apparently growing
minority, however, award only the amount of the
actual economic detriment suffered by the offend-
ed party, on the rationale that this is a sufficient
award to avoid injustice.
§ 246. Damages in nonconsensual contracts.

Where the law imposes upon a person the obliga-
tion to pay for goods or services for which he
made no promise (§§ 97-100, supra), the measure
of damages can only be the reasonable value of
those goods or services. What the person provid-
ing them normally charges might be evidence of
value but is not controlling.
[254]
CONTRACTS QUESTIONS
Note: The following materials are portions of

questions and a few complete questions
taken from bar examinations adminis-
tered in the United States. The primary
function of this material is to permit is-
sue identification. The commentary an-
Sswers are neither models nor suggested
as required modes of response. Keeping
these admonitions in mind, they can be
valuable in making a determination of
your proficiency in the subject matter.
No. 1.
P and D, who were acquainted with each other,

resided in communities separated by 100 miles.
On February 1, 1970, P wrote to D as follows:
“Feb. 1, 1970. Dear D. I have decided to give
up my farm, Blackacre, and move to town. I
thought you might consider buying it from me. I
will sell it to you for $10,000. I’ll let you have
ten days to think about it and talk it over with
your wife. In other words, I’ll keep the offer
open and will not withdraw it during this time. I
know both of you will be very happy here.
(signed) P.’”’ Does this communication constitute
a valid offer, and if so, is it irrevocable as stated?
[255]
CONTRACTS QUESTIONS
Language of offer and certainty of terms are

required (§§ 4, 5 and 7). Firm offers by mer-
chants to sell goods can be irrevocable and some
jurisdictions have statutes applying to other sub-
ject matter (§ 35), but in the absence of such a
statute, the promise not to revoke is not enforce-
able because there is no option supported by con-
sideration (§ 33). Other bases for irrevocability
are not applicable in this fact situation (§§ 34
and 36).
No. 2.
S wrote P: “I have under mothballs six milling
machines which I have not been able to use since
1966. They are in good condition. They may be
inspected in my shop anytime this month. But I
do plan to get rid of them one way or another
during that time. Please let me know right away
if you are interested at my price of $8,000 for the
six.” Has S made an offer to P?
While contracts for the sale of goods need not
be definite as to all terms (§ 6), there must still
be a manifestation of intent to be bound to find
an offer (§ 7), and such intent does not appear to
be present. In such a case this communication is
frequently referred to as preliminary negotiation,
or a Solicitation of an offer.
Now 3:
Peabody, an architect, was born and educated
in England. While employed in New Zealand he
[256]
CONTRACTS QUESTIONS
noticed an announcement in a trade journal that

the Amsterdam Company of San Francisco had
an opening for a full time architect desiring a
“permanent job’. He immediately flew to Cali-
fornia for a personal interview with the president
of the company. As a result of the interview a
written contract was entered into with the com-
pany providing that: (1) The position was for
“permanent employment”. (2) His work was to
start one month later, i. e., July 1. (3) His sala-
ry was to be $450 per week. Peabody returned
to New Zealand to move his family and posses-
sions to San Francisco. After one month on the
job, he was terminated by Amsterdam without
cause. Does P have any remedy?
Since “permanent”? employment is ordinarily
interpreted to mean terminable by either party
without notice or cause, there appears to be no
breach. However, some courts have found an im-
plied promise to continue the employment for a
sufficient period to allow “amortization” of such
items as travel expenses, and P might be able to
recover such costs (§ 229).
Remember that language such as “a written
contract”? does not guarantee its enforceability.
It must meet all requisites for enforceability.
No. 4.
A, a publicist, entered into an agreement with
B, an artist, on January 2, whereby B agreed to
[257]
CONTRACTS QUESTIONS
paint A’s portrait. The price was to be mutually

arranged by A and B on January 9, 1975. On
January 7, A repudiated. Is there a contract?
If the U.C.C. applied to this transaction, there

would be sufficient certainty to enforce a con-
tract (§ 6). However, since this appears to be a
contract for services rather than goods, the U.C.
- C, would not apply (§ 3), and the absence of an
agreed price would prevent finding a contract (§
Sy.
No. 5.
B, during 1973, bought from S, in considerable
quantity, an industrial grease known as R-Lube,
for 25¢ per pound. S, during 1973, developed a
new lighter weight grease suitable for some, but
not all of the purposes for which R-Lube is suit-
able, taking great pains to keep the development
work secret. By the end of the year, the new
product was ready to market and was designated
on S’s records as “R-Lube Special”. On Janu-
ary 2, 1975, S mailed to one thousand of his
customers a card reading:
“S is now offering for immediate order

in any quantity not exceeding 2000
pounds, R-Lube Special at 20¢ per
pound. This is an economy product of
good quality. Detailed technical specifi-
cations will be provided on request.”
[258]
CONTRACTS QUESTIONS
S knew the new product was not heavy enough

for B’s operations and did not intend that a card
go to B. One of the cards was, however, sent to
B by result of a clerical error in S’s office. B at
once wrote S: “Am pleased to note the special
price on R-Lube. Send me 2000 pounds.”’
When S received this letter he called B, ex-

plained the mistake. B nevertheless insisted that
he had a contract for 2000 pounds of R-Lube at 20¢
per pound. S consults you. What are his legal
relations with B?
The U.C.C. applies to this transaction (§ 3).

The January 2 communication is probably suffi-
cient to constitute an offer (§§ 6 and 7). The re-
quirement of a writing which specifies quantity
should be found to be satisfied (§ 120) even
though the quantity is not determined until there
is an acceptance. Despite the clerical error, the
communication to B is sufficient since it does not
appear that B had reason to know of the error (§
13).
If it can be found that the offer is ambiguous
and that S should have known of this ambiguity
and B did not have reason to know, then B might
be able to enforce a contract on the terms which
B understood; that is, a contract for ‘“R-Lube”
(§ 16). In the absence of a finding of ambiguity,
B’s response would be a counter-offer and rejec-
tion at common law (§ 45). Under the U.C.C., it
[259]
CONTRACTS QUESTIONS
might be found that B has accepted S’s offer

forming a contract on S’s terms for ‘‘R-Lube Spe-
cial” (§§ 49, 50 and 51). Whether knowledge
of B’s intended use could lead to liability for
breach of warranty of fitness for a particular
purpose when “R-Lube Special” failed to meet B’s
needs is a subject beyond the scope of this work.
No. 6.
On January 3, B wrote A that he would paint
A’s picture for $3,000. On the same day A with-
out knowledge of B’s letter, wrote B that he
would pay $3,000 for this task. Is this a con-
tract?
Identical offers which cross in transmission do

not create contracts as neither party is exercising
his power to accept (§ 17).
No. 7.
B signed and delivered to C, on July 15, the fol-

lowing: “Receipt of $100 is hereby acknowledged,
and in consideration the undersigned agrees to
convey Blackacre to C upon payment of $15,000
on or before September 15. (Signed) B.” What
are C’s rights against B?
Assuming that this can be interpreted as an of-

fer (e. g. that “Blackacre” can be identified), this
appears to be an irrevocable offer because there
[260]
CONTRACTS QUESTIONS
has been consideration given for it creating what

is commonly called an option contract (§ 33, but
see § 83).
No. 8.
S sent an offer to B: ‘Will sell pig iron up to
10,000 tons at $18 a ton for delivery during Janu-
ary.” B wrote S: “Would $15 be agreeable on
5,000 tons?” Two days later B changed his
mind and wrote: “Send 5,000 tons at your
price.’”’ Both messages arrived in regular course
of mail. Does B have enforceable rights against
S?
B’s attempted acceptance will create a contract
upon dispatch (§§ 56 and 57) unless the offer was
previously rejected (§ 28) or had expired by
lapse of time (§ 23). If the purported rejection
had not been received when the acceptance was
dispatched by an authorized means, a contract
could result (§ 62).
No. 9.
The Law Co. sent a letter to A, a young attor-
ney: “We are sending you herewith a set of state
reports. If you will compile a digest for us of all
the workmen’s compensation decisions therein,
you may keep the books free of charge. A began
work. Later, after working six months, he re-
ceived a letter from the Law Co. stating: “We
have changed our minds about the digest, and so
[261]
CONTRACTS QUESTIONS
must withdraw our offer. Please return the re-

ports to us at once, or start paying for them”. A
refused to return the books and finished the job
two months later. The company refused the di-
gest, however, and instituted suit to recover the
books. What decision?
Since there was no communication of an ac-
-ceptance by A, he will have rights to the books
only if there was an offer for a unilateral con-
tract (§§ 37-40, 44, 52, 53, and 66-68). It would
appear that A was not obligated to give notice be-
fore he completed (§ 65), and that he would be
entitled to a reasonable period in which to com-
plete the work.
No. 10.
C was under an enforceable bilateral contrac-
tual obligation to build a road for O. After part-
ly performing, C stopped. N, a neighbor of O’s
who would be benefitted by completion of the
road, said to C: “If you will finish the job I’ll pay
you $1,000.” C agreed and later finished the job.
What are C’s rights against N?
N probably has no liability unless one assumes
additional facts (§§ 78 and 80).
No. 11.
P mailed D an offer on the 1st. The normal
period of transit was one day, but the letter ar-
rived on the 3rd. On the 10th, P mailed a revo-
[262]
CONTRACTS QUESTIONS
cation, which was received at 2:00 on the 12th.

D mailed an acceptance at 1:30 on the 12th. The
letter of acceptance was never received. Was a
contract formed?
This involves application of the principles dis-
cussed in Sections 22, 23, 32, 56 and 57. The re-
sult will depend upon what assumptions one
makes concerning the reasonable duration of the
offer and the time of effectiveness of a revoca-
tion. If a contract is formed upon dispatch of an
acceptance its loss does not ordinarily effect the
status of the parties.
No. 12.
A sent B an offer by letter, indicating that B

was to “write your acceptance at once”. B wired
acceptance. Is a contract formed?
There is a dispute among authorities. The ac-
ceptance may be effective upon dispatch as a
faster method was used (§§ 56 and 58).
No. 18.
A, who believed in good faith that he had a

claim to certain oil property owned by B. In fact
A did not have a valid claim. A sent a letter to B:
“Will sell you my interest (in the property) for
$1,000. You need not answer. Your silence will
act as acceptance.” Is a contract formed when B
does not respond?
[263]
CONTRACTS QUESTIONS
The release of an invalid claim can be consider-

ation (§ 82), but A probably does not acquire
enforceable rights against B under the stated
facts because in the absence of unusual circum-
stances, silence will not constitute acceptance.
Most jurisdictions would find a contract if B
subjectively intended to accept (§ 53).
- No. 14.
A made an offer in writing to B to sell his
store for $13,000. B wrote A: “Accept your of-
fer._This contract should be reduced to writing
and signed by us.” Is there an enforceable con-
tract?
This turns on the intent manifested by B.
“Should be reduced ..._ .” may indicate an
intention to be presently bound (§§ 48 and 54).
No. 15.
A, a wealthy lawyer friend of B’s, promised B
that if B would study a minimum of fifty hours a
week throughout his law school career A would
pay B $1,000. B did study at least fifty hours a
week throughout his law school career. Does B
have rights against A?
B appears to have the basic elements of a uni-
lateral contract with his study constituting a le-
gal detriment (§§ 71 and 72). The distinction
between a possible gift upon a condition and a
true bargaining situation is difficult to delineate.
[264]
CONTRACTS QUESTIONS
The real issue is whether the act of studying was

a bargained exchange for A’s promise to pay (§
86).
No. 16.
On June 1, 1969, O and C entered.into a writ-
ten contract by the terms of which C promised to
build a road for O according to certain specifica-
tions, and O promised to pay C $10,000 upon
completion of the job. The contract provided
that in the event C failed to complete the job he
should receive the value of the work done prior
to default “less $2,000 to be deducted as liquidat-
ed damages”. The written contract included a
promise by C to complete the road by January 1,
1970. C commenced work immediately, but soon
discovered that the roadbed was fifty percent
rockier than he had expected, which fact, togeth-
er with the fact of an unusual amount of rainfall,
threatened C with considerable additional ex-
pense. In August, 1969, C called upon O and told
O of these circumstances and informed O that he
(C) would abandon performance unless a satis-
factory adjustment of these difficulties could be
made. After some discussion O and C drew up
another written agreement, the terms of the new
agreement being the same as those of the old ex-
cept that O promised to pay $12,000.
N, who lived nearby and was interested in con-
struction of the road, told C on September 1,
CONTRACTS QUESTIONS
1969, that if he (C) would promise to build the

road according to the specifications of his con-
tract with O, that he (N) would promise to pay
him an additional $1,000 upon completion. C
made the requested promise. On December 28,
. 1969, C completed the job according to specifica-
tions. O has informed C that he will pay only
$10,000. N refuses to pay anything. What are
-C’s rights against 0? Against N?
The beginning point for analysis is the pre-ex-
isting duty of C to build the road pursuant to the
original C-O contract (§ 75). The fact that
the contract contained provisions for determina-
tion of damages in the event of C’s failure to per-
form raises the question whether C had the duty
to complete the road. If this is simply a liquidat-
ed damages clause (§ 240, et seq.), then it is sim-
ply a provision to determine the remedy in the
event of breach and does not affect the question
whether C had a duty to build the road. In any
event, since the new agreement between C and O
contained the same terms as the original agree-
ment, C was not giving up any alleged “right”
which he had to cease performance and cause the
remedy provision to be applied. Therefore, C
was incurring no new detriment and O was ob-
taining no new benefit in exchange for O’s prom-
ise to pay the additional $2,000. However, the
facts indicate that C encountered more rocks and
bad weather than anticipated. If C had a good
[266]
CONTRACTS QUESTIONS
faith belief founded upon some facts that he had

the right to terminate his performance under the
contract (§ 205, et seq.), then his agreement to
forbear from asserting this right could serve as
consideration for O’s promise to pay the addition-
al $2,000 (§ 82) assuming that that was what the
parties were actually bargaining for (§ 86). In
the absence of such a bargain, this becomes sim-
ply a promise to pay an additional sum for a per-
formance which is already owing, and there is no
consideration (§ 77). This is the more likely re-
sult. However, some jurisdictions might still en-
force O’s promise (§ 80).
Regarding C’s rights against N, the same basic
pre-existing duty problem exists. While the duty
is owing to a third party, the application of the
general rule will produce the same result. C has
the possibility of prevailing if N’s promise was
made as a bargained exchange for C’s promise
not to join with O in a mutual rescission (§§ 78
and 86). Here again there is the possible addi-
tional argument that the C-O contract gave to C
the right to cease performance and accept a lower
payment pursuant to the express language of that
agreement. If this is the case, then C arguably
had the election to build for one price or cease
and receive a lesser price. It could therefore be
argued that C gave up his right to elect not to
finish as a bargained exchange for N’s promise to
pay $1,000. :
[267]
CONTRACTS QUESTIONS
No. 17.
D promises to pay P $5,000 in exchange for P’s
promise to dismiss P’s suit against D. P’s suit
predicated upon his alleged status as a third party
beneficiary in a contract in which the benefit to
P was clearly incidental. May P enforce D’s prom-
ise?
Forbearance from prosecuting a claim can be
a legal detriment and can thus be given as a bar-
gained exchange for a return promise (§ 82).
The basic question is whether P had a good faith
belief in his right to sue and, in some jurisdic-
tions, whether this belief was reasonable.
No. 18.
T owned and operated a drugstore on premises
owned by L. The lease was due to expire in six
months. T signed an agreement in which T
agreed to sell the business and the inventory to B
for $50,000. B agreed to buy and pay the stated
price “upon the condition that B can work out a
satisfactory new lease with L”. T promptly re-
pudiates his promise to sell, and B sues.
T’s promise to sell is not enforceable unless
there is consideration to support it. B’s promise
to pay $50,000 is obviously sufficient legal detri-
ment if B’s promise is not illusory. The problem
is whether B’s power to prevent the occurrence of
the condition to his duty to pay is so unfettered
that B’s promise is illusory (§ 84). Since agree-
[268]
CONTRACTS QUESTIONS
ment by B to the terms of a lease with L does not

appear to have any significance to B independent
of his purchase of the drugstore, the better result
would probably be to find that B has made an il-
lusory promise and thus given no consideration
for T’s promise to sell.
No. 19.
The Rex Co. was under a binding contract to
pay a monthly rent of $1,000 for a drugstore, for
three years, beginning January 1, 1969. The Rex
Co. paid $1,000 on January 1, and February 1,
1969. During the month of February, 1969, at its
own expense, but with permission of Jones, the
lessor, the Co. greatly improved the rented prem-
ises, On February 27, 1969, Jones told the Rex
Co.: “I am happy about these improvements.
They have appreciated the value of the building
and to show my gratitude I am going to reduce
your rent to $900 per month.” That same day an
agreement was signed by both Jones and the Rex
Co. reducing the rent to $900. Relying on the
new agreement, the Rex Co. granted a pay in-
crease of $5 per month to each of its twenty em-
ployees. The raise went into effect on March 1,
1969. Could Jones later insist on collecting the
original $1,000 per month?
Consideration involves legal detriment incurred
as a bargained exchange for a return promise (§§
79, 80 and 86). Thus what one did yesterday
[269]
CONTRACTS QUESTIONS
cannot serve as consideration for a promise made

today. ‘Past consideration is no consideration.”
(But see § 94.)
The detrimental reliance potential raised by the

fact that Rex increased its employees’ compensa-
tion is interesting (§§ 87-88), but there appears
to be no reason for Jones to anticipate such reli-
ance, and it is unlikely that the reliance is rea-
sonable.
No. 20.
A owed B $150; a debt due on a valid contract.

After B’s right to enforce payment thereof was
barred by the Statute of Limitations, A voluntari-
ly delivered to B the following instrument: “Jan-
uary 10, 1973. Dear B: I enclose herewith $50
to apply to our contract. I acknowledge that I
still owe you $100 thereon, which I promise to
pay on or before September 1, 1973. (signed)
A.” When A fails to pay the additional $100, B
sues.
B should prevail (§ 90).
NO22 1:
Awas lawfully indebted to B for $100. On Au-
gust 1, 1973, C and A entered into an oral agree-
ment whereby C promised to perform A’s obliga-
tion to B in return for a lawful consideration
from A. BsuesC and A.
[270]
CONTRACTS QUESTIONS
B should be able to obtain judgment against C

(§ 139, et seq.), and B can obtain judgment
against A (§ 167). B may collect only once, of
course, and if B collects from A, A has a cause of
action against C (§ 144).
WO--22.
A and B were associated in the shoe manufac-
turing business together. A learned that B owed
a large sum to X, a distributor of quality shoes.
A feared that general knowledge of the financial
condition of B would have a serious effect on his
business. To prevent disclosure thereof as well
as to secure an order for his factories from a dis-
tributor of quality shoes, he orally agrees, for a
binding consideration, to guarantee payment of
his associate’s debt to X. May X enforce A’s oral
promise?
While nominally within the Statute of Frauds
(§ 104), this oral promise should be enforceable
(§ 113).
No. 23.
On February 26, A paid B $375 in considera-
tion of B’s oral promise that on the first day of
each month for the next succeeding thirteen
months, B would clean and oil certain machinery
at S’s mine. Is B’s promise enforceable?
While B’s promise is not capable of perform-
ance within one year (§ 108), it would be en-
forceable in many jurisdictions (§ 117).
[272]
CONTRACTS QUESTIONS
No. 24.
A owned a large tract of timberland in the
northern part of the state. B desired to purchase
some of the timber, so a portion of the property
was marked off by stakes and it was orally
agreed that A would sell and B would buy all the
trees standing on the plot for $3,000, with cutting
and removal to be completed within two weeks at
B’s expense. Pursuant to this agreement, B en-
tered upon the property the following day, cut
down and removed ten of the trees to his sawmill.
Is the contract enforceable?
This is a transaction for the sale of goods (§ 3

and U.C.C. Sec. 2-107) under the 1972 amend-
ments to the U.C.C. Since the contract is for a
price of $500 or more, it is within the writing re-
quirements of U.C.C. Sec. 2-201. Enforcement
can be had for the ten logs which were received
and accepted, but this partial performance does
not make the entire contract enforceable (§ 115).
INO. 25.
A, a famous painter of biblical characters, in-

vited offers for the sale of a life-sized picture of
Elijah he intended to paint. B’s offer of $750
was the highest, hence A agreed orally with B
that he would paint the picture and sell it to B
for that price. Is the contract enforceable?
[272]
CONTRACTS QUESTIONS
If this were a service contract, there would be

no writing requirement but it could be argued
that the contract was one for the sale of goods (§
115).
No. 26.
A, eighteen years of age, entered into an oral

agreement by which he bought 1,000 bushels of
tomatoes for $1 per bushel from B. A took one
bushel with him for home consumption. Is any
part of this contract enforceable?
Before the adoption of the U.C.C., part-per-

formance took a contract for the sale of goods
out of the Statute of Frauds. The U.C.C. only
“takes out of the Statute of Frauds” the part
which has been performed (§ 115). With respect
to the right of an eighteen year old to disaffirm,
consult local statutes regarding the age of majori-
ty and see §§ 124 and 125. The one bushel for
home consumption might be a necessary.
No. 27.
X orally contracts to buy a car from Y for
$1,500. X pays Y $25 as a deposit. Is the con-
tract enforceable?
U.C.C. Sec. 2-201 only provides for enforce-

ment “with respect to goods for which payment
has been made’. At least some jurisdictions
[273]
CONTRACTS QUESTIONS
have held that a part-payment in a contract for

an indivisable unit of goods makes the entire con-
tract enforceable (§ 115).
No. 28.
X, who had been judicially declared insane,
orally promised to pay B $50,000 in consideration
‘of B’s caring for X during the term of X’s natu-
ral life. Relying on this promise, B moved into
X’s home and cared for X devotedly and contin-
ually until her death intestate in 1973. In 1974 B
brought suit against the administrator of X’s es-
tate for $50,000. What result, assuming that B
at no time had any knowledge of X’s insanity.
The contract is probably void (§ 123), but B

should have recovery for the value of the services
rendered (§§ 97-100).
No. 29.
M agreed with O, “This contract shall not be
assigned by M.” M made a partial assignment to
G. May G assert a valid right against O?
This partial assignment will be found to be ef-

fective in most jurisdictions (§§ 149 and 150).
No. 30.
Late in 1969 M and P signed the following
writing: “M will sell and P will buy M’s 1970
[274]
CONTRACTS QUESTIONS
crop of U.S. No. 1 grade Russet potatoes. Deliv-

ery will be made on October 15th at M’s farm
near Jonesville, in clean new sacks. P will pay
$2.75 per hundred pounds.” M was not then ei-
ther the owner or tenant of any farm land. He
subsequently bought a farm near Jonesville, on
which he planted and harvested during 1970 a
crop of potatoes of the indicated kind and grade.
Is there an enforceable contract?
Most jurisdictions would look to additional
facts concerning M’s prior activities and immedi-
ate plans as of the time the agreement was exe-
cuted (§ 84, and U.C.C. Sec. 2-306).
No. 31.
B agreed in a binding contract to lend C
$3,000, C to execute a negotiable note for that
amount with 6% interest, and C to provide for
his obligation a surety acceptable to B. C
brought D as surety and B refused to accept him,
saying that he was not acceptable. Actually B
refused D as a surety because he (B) was short
of money and did not want to make the loan. Is
B liable for breach?
B is liable as his refusal is unreasonable (§§
201 and 84).
NOs Se.
A agreed in a binding contract to build on B’s
land, B agreeing to pay $30,000, with completion
[275]
CONTRACTS QUESTIONS
due to May 1, 1975. On December 1, 1974, B sold

and conveyed his lot to C, and assigned his con-
struction contract with A to C. May A refuse to
perform and/or sue for breach?
There does not appear to be any reason why B
cannot assign his right to receive performance
from A (§ 147). However, since A is presumably
- obligated to build before he gets paid (§ 182), a
delegation of the duty to pay and a transfer of
the land upon which the building is to be built
may raise questions in A’s mind as to whether he
will now get paid (§ 166). Since B remains lia-
ble on the contract (§ 167), this should not pre-
clude delegation by B of the duty to pay A.
No. 38.
C contracted to paint O’s home for $3,500. C

advised O that C’s employee had made a mistake
in estimating the cost of paint. O agreed to pay
an additional $500. The house was painted and O
paid only $3,500. Is C entitled to the additional
$500?
If C was obligated to paint the house for
$3,500, this pre-existing
duty would ordinarily
preclude enforcement of O’s second promise (§§
75 and 755, but cf. § 80). However, C’s mistake
might be grounds for rescission or reformation (§
135). Assuming C had a good faith belief in his
[276]
CONTRACTS QUESTIONS
right to seek legal relief from his contract, it

might be concluded that giving up his right to
seek relief was a legal detriment where the par-
ties bargained for this result (§ 82).
No. 34.
Rich, a wealthy man, went to the Custom Shirt

Company on September ist to order a dozen
shirts. He let Custom measure him for size, se-
lected the silk to be used in the shirts, and signed
a memorandum stating that he would pay $30 for
each shirt that Custom would make for him up to
twelve shirts in all.
Custom ordered enough silk for twelve shirts

at at total price of $90. Upon receipt of the silk,
Custom cut it into twelve portions to make the
cutting of the patterns easier. Custom then
started making the first shirt and completed it on
September 12th. It tendered the shirt to Rich on
that day, but Rich refused it and stated he had
decided to cancel the entire order. At this time
Custom had not started making the second shirt.
Custom realized that it could not dispose of the
silk which had been cut for the other eleven
shirts, because there is no market for cut silk.
Custom also knew that if it went ahead and made
the shirts and Rich refused to take them that the
shirts could be sold to the trade for a price of
only $6 per shirt. In addition, it would cost $5,
[277]
CONTRACTS QUESTIONS
over and above the cost of the silk, to make each

shirt.
Custom decided to go ahead and make the elev-
en shirts after it received Rich’s cancellation.
When the shirts were completed, they were ten-
dered to Rich, and he refused to accept them.
Custom then sold the shirts to the trade. Due to
an unexpected recession in the trade, the resale
‘price of the shirts had suddenly dropped to $3 a
shirt.
Custom now sues Rich. Is Custom entitled to
collect from Rich? If so, how much? Discuss.
This is a transaction in goods (§ 3). If this is
an offer for a unilateral contract (§§ 37-40), the
offeror’s offer becomes irrevocable once perform-
ance is begun (§ 36). Performance had clearly
begun prior to revocation. However, if the offer
is one for severable performances (§ 190), the of-
fer could be revoked as to severable portions if
performance had not begun on each. Cutting the
silk, in light of the other facts given regarding
the lack of market therefor, is probably an act
referable to the contract and thus performance
has begun with respect to all twelve shirts (§ 36).
The offer was therefore irrevocable and Rich is
liable for breach of the entire contract on Sep-
tember 12th assuming that Custom gave notice of
the fact of acceptance within a reasonable time.
(§ 194 et seq. and U.C.C. Sec. 2-206(2) and 2-
610).
[278]
CONTRACTS QUESTIONS
Since Custom’s decision to complete the manu-

facture of the shirts appears to have been an ex-
ercise of reasonable commercial judgment, Cus-
tom should be able to elect to sue for the differ-
ence between contract price and market price at
the time and place of tender OR contract price
and resale price plus incidental damages incurred
(§ 228 and U.C.C. Secs. 2-704(2), 2-706, 2-708,
and 2-710). If resale at a reasonable price after
reasonable effort is not possible, Custom could
sue for the contract price (§ 228 and U.C.C. 2-
709).
No. 35.
Anson, while a young man, commenced raising
sugar beets and working upon a machine which
would harvest the beets in a more efficient man-
ner than any machine upon the market. By
1967, the new machine was perfected and patent-
ed, and Anson owned over 3,000 acres of land
upon which he raised beets. In 1969 he con-
structed a large factory to build machines to sell
to others.
In 1974 Anson decided he no longer wished to
take charge of digging and marketing beets he
would grow on his 3,000 acres. Accordingly, in
the Spring of 1974 (before any beets were plant-
ed on the 3,000 acres) Anson agreed in writing
with Bluster to “sell.Bluster fifteen of my patent-
ed beet harvesting machines, at $30,000 per ma-
[279]
CONTRACTS QUESTIONS
chine, payable when beet digging starts this Fall;

and to sell to Bluster 60,000 tons of beets to be
grown on my 3,000 acres this year for the price
of $30 per ton.” Bluster promised to buy the ma-
chines and to dig and pay for the beets.
In July, 1974, Anson delivered, and Bluster re-
ceived, the fifteen machines. Anson’s employees
properly planted and tended the 3,000 acres of
beets. On July 16, 1974, Anson met the youngest
of his three sons, Sam, who was 22 years old,
and, after discussing Sam’s precarious financial
condition, Anson orally stated (in the presence of
six employees), “I’ll help you out by giving to
you now 5% of the money which I have coming
from Bluster on the beet and machine contract.”
During the first week of August, 1974, blight
struck the beets on Anson’s 3,000 acres and on
the entire area around Anson’s lands. Yields
were cut to 10% of normal. Anson died on Au-
gust 24, 1974. On September 1, 1974 the beets
yet remaining were ready to dig. Bluster refused
to dig, take possession of or pay for any beets
from the 3,000 acres. Bluster also tendered back
all of the machines and refused to pay for them
arguing that they were of no use to him because
he and Anson both understood that Bluster was
going to use the machines to do custom beet har-
vesting for other beet growers in the area, and
that the demand for custom beet harvesters was
non-existent in view of the small crop that year.
[280]
CONTRACTS QUESTIONS
Elex, Anson’s executor, harvested the beets on

the 3,000 acres and sold the entire crop to others
—6,000 tons at $32 per ton.
Discuss fully the rights of Sam and Elex

against Bluster, and Bluster’s rights against Elex.
Anson’s statement to Sam appears to be an ef-

fective assignment (§§ 146, 147, 150 and 152).
However, it was gratuitous, and Sam received
neither a token nor a writing, so in the absence
of detrimental reliance by Sam, it was probably
revoked by Anson’s death (§§ 153 and 154).
Since Anson contracted to sell specific goods,

that is beets to be grown in a certain field, the
destruction of 90% of the crop excuses the sell-
er’s failure to tender that portion (§ 208). Blus-
ter’s refusal to take the available beets would ap-
pear to be a breach (§ 211) unless the cost of
harvesting the small crop was grossly dispropor-
tionate to its value (§ 213). Bluster would there-
fore be liable for any damages sustained. As-
suming that the cost of harvesting exceeded $2
per ton, Elex would recover (§ 228). (If the cost
of harvesting were $5 per ton, the damages would
be $18,000.)
With regard to the machines, Bluster may

claim frustration of purpose, however, it is only a
partial frustration. - It is presumably temporary
(1974 only), and it occurred after Bluster took
Schaber & Rohwer Contracts—20 [287 |
CONTRACTS QUESTIONS
possession of the goods (§§ 214 and 215). Elex

should be able to enforce that contract.
No. 36.
Manor, the owner of a certain house and lot,
engaged Broker to sell such property under the
terms of a written agreement which provided, in
_ part:
“T, Manor, agree to pay Broker a com-
mission of 5% of the gross sale price of
any sale of said property which is ar-
ranged by Broker for a consideration of
not less than $25,000, such commission
to be payable upon consummation of the
sale.”
Shortly thereafter, Broker procured a buyer,
Valley, who agreed to purchase the property for
$26,000. On March 1, 1975, Valley paid Manor
$1,000 down and signed a contract of sale which
stated, inter alia, that Valley:
“agrees to pay an additional $4,000 in
cash with a note for the balance of
$21,000 plus 8% interest payable at the
rate of $250 per month, to be secured by
a first mortgage on the property, upon
delivery by Manor of a deed conveying
good and clear title.”
On March 15th, Valley learned that Manor had
that week obtained a bank loan in the amount of
[282]
CONTRACTS QUESTIONS
$18,000 payable in five years and that he gave

the bank as security for the loan a mortgage on
the same property which he had contracted to
sell Valley. On April 15th, Valley entered into a
contract to buy the house of another, Smith, and
demanded that Manor return his $1,000 deposit.
A few days later, Manor paid off the mortgage
loan and on May 1, 1975, tendered a sufficient
deed to Valley, which Valley refused.
What are the rights of Valley and Manor
against one another, and of Broker against Man-
or? Discuss.
A seller who subjects the property to be sold to

a substantial encumbrance which he apparently
cannot or will not remove by the time perform-
ance is due has voluntarily created a prospective
inability to perform. Since Manor gave a mort-
gage to secure a five year loan, Valley was justi-
fied in assuming Manor would not perform.
Since Valley has changed his position, Manor can-
not now demand performance and Valley has a
cause of action for breach (§§ 195 and 189).
The ‘consummation of the sale’ may have

been a condition to Broker’s right to receive a
commission or it may have been simply a conve-
nient method of fixing time for payment. As-
suming it was a condition precedent to Manor’s
duty to pay, it is nonetheless excused by Manor’s
conduct (§ 187).
[283]
CONTRACTS QUESTIONS
No. 37.
Jones, a homeowner, wrote to the ABC Aircon-
ditioning Co. asking the price, installed, of ABC’s
standard unit, the X-12. A salesman at ABC
telephoned Jones in reply to his letter and said
that a special off-season price would be quoted,
including installation. Later that day, September
.4, the sales manager of ABC sent a telegram to
Jones which, when received, read as follows: “‘We
would furnish X-12 delivered to your home for
$498. Letter follows.”
The letter which followed stated:
“You have been advised of the special

price on X-12, as per our telegram, for
your immediate acceptance. Enclosed is
a catalog giving full particulars as to
our established policies and warranties
on our products.”
The catalog contained a list price of $1,298 for

the X-12 unit and a statement that “all prices
quoted are exclusive of installation’’.
Jones signed and returned the letter by mail
the same day with this endorsement: “Accepted.
Sept. 6. J.B. Jones. P.S. Shipment must be im-
mediate.”
The next day, before the letter was actually re-
ceived by ABC, the telegraph company advised
ABC that, through the telegraph company’s mis-
[284]
CONTRACTS QUESTIONS
take, the wire quoted $498 instead of $898. ABC

immediately telephoned Jones and told him that
the price quote should have been $898; that is,
$400 off the regular list price of $1,298 quoted in
the catalog.
Discuss the rights of Jones with respect to

ABC.
This is a transaction in goods (§ 3) and the

communications from ABC appear to manifest
the necessary intent and are sufficiently definite
to constitute an offer (§§ 6 and 7). Acceptance
by return promise seems appropriate (§ 37 et
seq.).
Jones’ reply demands immediate shipment

which might make it a counter-offer at common
law (§ 45), but under the U.C.C. it would appar-
ently operate as an acceptance (§ 49 et seq.). In
most jurisdictions, it would be effective on dis-
patch assuming ABC has impliedly authorized re-
ply by letter (§ 57).
While ABC is usually bound by the communi-

cation as delivered despite the error of the tele-
graph company (§ 14), it is difficult for Jones to
avoid the conclusion that he should have known
that $498 was too little even for an off-season
special (§ 13).
Jones would have.little difficulty admitting his

original letter and the salesman’s statements re-
[285]
CONTRACTS QUESTIONS
garding installation into evidence (§ 168 et seq.).

In cases of inconsistencies, later terms ordinarily
control over earlier terms (§ 8), but it is doubt-
ful that a general statement in a catalog would
supercede an express statement by the ABC sales-
man.
. No. 38.
Morel is a large-scale distributor of fresh milk.
For some years he maintained a dairy herd to
supply part of his milk requirements. Early in
1973, Morel decided to sell the herd and devote
his attention entirely to milk distribution. He
found a buyer, Toron, an experienced dairyman
who then owned no other dairy stock. Morel and
Toron signed a writing by which Morel promised
to sell the herd to Toron and Toron promised to
buy it at a price of $75,000 payable on delivery.
The contract document provided in part: ‘Seller
reserves a right to purchase all milk produced by
Buyer during the next five years, at the current
market price at time of delivery, payment to be
made at weekly intervals.” Morel thereafter
transferred the herd to Toron, who paid the price
as agreed. At the time the sale was closed Morel
handed Toron a letter reading, “This is to inform
you that until further notice I will take all of
your milk production.”
In early 1975 Toron suffered severe injuries in
a highway accident and as a result of his injuries
[286]
CONTRACTS QUESTIONS
is obliged to retire from active pursuits. For this

reason Toron sold the herd to Zeke who refuses
to deliver any milk to Morel.
Is Toron liable to Morel? Discuss.
While output and requirement contracts are
not ordinarily formed to involve an implied prom-
ise to continue in business, such a promise can be
found where one party gave valuable considera-
tion for his right to purchase another’s output or
his own requirements (§ 12). This would appear
to be particularly true where one party has given
value for an option to purchase the other’s out-
put.
Assuming Toron was obligated to continue his
business, his injuries should not excuse perform-
ance as no personal service appears to be involved
(§ 209). If Toron’s duties were found to be too
personal to delegate (§ 166), his injury would
make performance impossible.
No. 39.
M, the publisher of a newspaper, contracted
with T, the operator of a supermarket. M agreed
to publish for T in M’s newspaper an advertise-
ment each day for four weeks. T agreed to pay a
certain sum, in four equal weekly installments.
The contract document further recited: “A com-
plete layout of each ad will be delivered to M not
later than 10 AM on the day prior to the day on
which the ad is to be published.”
[287]
CONTRACTS QUESTIONS
The first week of performance under the con-

tract has passed; T promptly paid the installment
then accruing. Each day during the week T had
been from one to four hours late in submitting
his layout to M. M complained to T each day
about the delay. T submitted the layout for T’s
eighth advertisement to M two hours late.
Assume that M consulted you immediately
upon receiving this layout, and stated that T’s ad-
vertising was more of a nuisance than it was
worth unless layouts reached M promptly. Indi-
cate, with reasons, your advice to M concerning
his legal liability to T if: (1) he refuses to run
the eighth advertisement; (2) he informs T that
he will render no further performance under the
contract.
In the question above a contract is stipulated

as existing between two parties. Simple observa-
tion tells us that there is no formation problem
and no real question of the requisites for definite-
ness and certainty. Thus, the problem falls into
what we call performance and generally into an
inter-related discussion of conditions, breach,
damage and discharge. We look at the contract
language to determine what promises and condi-
tions would be involved.
M has promised to run T’s ads each day for

four weeks. Failure to perform that promise
would be a breach of contract unless the promise
[288]
CONTRACTS QUESTIONS
were shielded by a condition which neither oc-

curred or was excused (§§ 184 and 194).
A condition shielding the obligation to print
would be the duty to pay but this act of payment
occurred. A question would arise as to the effect
of the language requiring a complete layout of
each ad to be delivered to M not later than 10
AM on the day prior to the day on which there is
to be publication. Surely this is not sufficient
language and demonstration of intent for there to
be an express condition (§ 180). It is most prob-
able that it is a promise on the part of T to per-
form. If this is the case, in a bilateral contract
where one performance (bringing the ad) is to
occur at an earlier time than another act (print-
ing) then there is an implied condition which
shields the promise to print—a constructive con-
dition precedent to the duty to render counter-
performance (§ 182).
T was late with the eighth layout and the con-
dition did not occur precisely as demanded. It
did occur, however, and the nature of the delay is
to be determined by the factors recited in Re-
statement 276 requiring one to decide if a two-
hour delay was material (§ 186).
However, there is also the necessity of deter-

mining whether if the condition did not properly
occur, it is excused, Having received the eighth
installment there may be the application of waiv-
er (§ 191). Or more accurately, where one has
[289]
CONTRACTS QUESTIONS
received a series of defective performances per-

haps the appropriate excuse is an estoppel (§
192). On balance, it might be sound advice to
tell M to print ad number eight.
Of course, also as to T’s promise to timely de-
liver, we have a series of breaches and whether
they are material would be determined by the
factors of Restatement 275. It could well be that
the numerous defaults could add up to a consider-
able impact upon M and be justification for a to-
tal refusal to perform on the part of M whether
as to the eighth printing or the remainder of the
contract (§ 186). It may well be, however, that
the doctrine of waiver might apply here and that
it might be poor advice to tell M to simply termi-
nate his performance. He should tell T that he
will accept no further late performances and that
he will not perform on his side so long as this is
the case. Considering all of the background, an-
other late tender might be sufficient to terminate
all obligation on the part of M.
No. 40.
On Monday, February 1, B wrote S: “I will
pay you $200 for the wedding dress you are cur-
rently displaying in your shop window if you will
promise me by Thursday, February 4, to deliver
the dress to my daughter, D, in time for her wed-
ding on Sunday, February 7. My daughter lives
with me and you should deliver the dress to my
home.”
[290]
CONTRACTS QUESTIONS
S delivered the dress to D on Wednesday, Feb-

ruary 3. B learned of the delivery a few hours
after it was made.
On Friday, February 5, S wrote B: ‘Pursuant
to your letter, I hereby promise to deliver the
dress to D prior to Sunday, February 7. Asa
matter of fact, I have already made delivery.” B
received this letter on the morning of Saturday,
February 6.
On Saturday night, February 6, D’s fiance was
accidentally killed.
On Monday, February 8, B offered to return
the dress to S. _B explained to S that no wedding
had taken place. S refused to take the dress and
promptly sent a bill to B in the amount of $200.
Is B legally obliged to pay this bill?
In a question such as the foregoing, we always

look to see whether one of the theories of forma-
tion of an express consensual contract would ap-
ply (§ 1). Here it is obvious that the communi-
cation arouses the expectation in a reasonable
man that if he were to do what was requested,
nothing remained to be done to form a contract
and thus it may have been an offer to enter into a
bilateral contract (§§ 4, 6, 7, and 37) which was
not formed because the letter of acceptance was
sent too late (§ 21).
However, S delivered the dress on Wednesday
and the question arises whether one can accept
[291]
CONTRACTS QUESTIONS
an offer for a bilateral contract by performing

the very act for which the promise was sought.
This unusual exception does indeed exist so long
as the act is done within the time given for the
acceptance. While there may be need for notifi-
cation, the party here learned of the delivery and
thus there was an acceptance of a bargain for an
agreed exchange (§ 52).
The question remains whether or not the duty
to pay was discharged because of the unusual cir-
cumstances. The immediate thought might be
that impossibility would apply, but this is incor-
rect as the duty to pay is not impossible and the
performance of delivery of the dress has been
completed (§ 206).
However, when performance is literally possi-
ble, but of no value, the question of the applica-
tion of frustration of purpose arises (§ 214). As
the main purpose of the contract was in the con-
templation of both parties—the marriage of the
particular individuals—and that set of facts has
ceased to exist wholly without fault of any party,
then it would appear that frustration of purpose
would apply. The occurrence causing such frustra-
tion must be a supervening event, that is, take
place after formation and prior to the completion
of performance (§ 215). Such was not the case,
and the duty to pay is not discharged and buyer
is obliged to pay.
[292]
INDEX
References are to Sections
ABILITY TO PERFORM, 189, 193, 196
ACCEPTANCE OF OFFER
By words,
If variance in terms, a counter offer, 45-48
Liberalization of exact conformity rule by the U.C.C.,
49-51
Must be an unequivocal promise, 45-48
Communication of,
In bilateral contracts, 37, 44, 55-62
In unilateral contracts, 65
Loss in mails, 56-59
Offer by mail, telegraph, 56-62
Offer may dispense with communication, 44, 53
Conditional acceptance,
Acceptance on condition, new terms, 45-51, 54
Future acceptance distinguished from, 48, 54
Not a rejection if condition is implied in offer, 45
Ordinarily a rejection, 45
Requests or suggestions as, 46, 47
Effect of mistake, 13-15
Mistake as to existence of subject matter, 24
Mistake in telegram, 14
Where offer is ambiguous, 16
Equivoecal acceptance, 45-51
Essential elements,
Giving the requested return, 37, 44
Intention to accept, 48, 63
Knowledge of offer, 42,.63
Part performance before knowledge, 63
Schaber & Rohwer Contracts [293]
INDEX
ACCEPTANCE OF OFFER—Continued
Express words of acceptance may not be enough, 64
Implied from conduct,
Accepting or retaining benefits, 53
By performance of act requested, 52
By shipping goods, 60
Receipt and retention of goods, 53
Knowledge of offer, 42, 68, 17
Late acceptance, 55, 56, 62
- Mode or manner required by offer, 37-41, 56-58, 60-62, 64
Must be outwardly manifested, 44
Notice of acceptance, 44
Communication of, 44, 53, 55-62, 65
Letter, mailing or receipt, 56-59, 62
Where acceptance is manifested by performance, 65
Of bilateral offers,
By performance, 52
Of unilateral offers, 37, 65
Silence as acceptance, 53
Who may accept, 19, 42, 63
ACCORD AND SATISFACTION, 217
ACCOUNT STATED, 221
ADEQUACY
See Consideration
ADHESION CONTRACTS, 138
AMBIGUITY
Admissibility of extrinsic evidence, 175, 176
Effect on formation, 16
ANTICIPATORY REPUDIATION, 188, 195, 196
ASSIGNMENT
See also Delegation
Assignment and delegation, distinguished, 146
Defenses of obligor, 156, 157, 218
Elements of, 152
Implied warranties of assignor, 159
[294]
INDEX
ASSIGNMENT—Continued
Nonassignable rights, 147-149, 151
Partial assignments, 150
Priorities among successive assignees, 155
Priorities vis-a-vis attaching creditors and bankruptcy
trustees, 158
Revocation, 153, 154
Sub-assignments, 160
Successive assignees of same right, 155
Tokens, delivery of, 152, 153
AUCTION, 10
BANKRUPTCY
Discharge, 222
New promise to pay debt discharged by, 91
BENEFICIARIES
See Third Party Beneficiaries
BILATERAL CONTRACT, 37-40, 44, 55-62
BREACH OF CONTRACT, 186, 188-190, 194, 195, 197-199

See also Performance
CAPACITY
Generally, 122
Effect, 123
Infants, 124, 125
Prisoners and convicts, 126
CERTAINTY
Damages, 224
Offer, definiteness, necessity, 5, 6, 11-14
CONDITIONS, 178-182, 186, 187, 189, 197, 199-201

CONSEQUENTIAL DAMAGES
See Damages
[295]
INDEX
CONSIDERATION
Act as, 72
Adequacy,74
Bargained exchange, 86
Bilateral contracts, 73
Condition of gift distinguished, 86
Contingent and conditional promises, 84, 85
Definition, 71, 86
Detriment, 71, 75
Unilateral, 72
Bilateral, 73
Elements, 71, 86
Forbearance, 82, 86
Motive, element, 86
Mutual promises,
Illusory promises,84, 85, 201
Requirements and output contracts, 84
Reserved option to terminate, 85
Mutuality of obligation, 73
Nominal consideration, 74
Parol evidence rule, 83
Past consideration, 94
Pre-existing duty rule, 75
Imposed by law, 76
Minority view, 70, 78, 80
Part payment by debtor,
Rent cases, 79
Unliquidated and liquidated claims, 82
Performances of legal duty as consideration,
Promise of,
Party to contract, 77
Third party, 70, 78
Possibility of detriment, 84, 85
Recitals, 838
Relationship to duress, 78, 80
Sham consideration, 83
Statutory exceptions, 80
Sufficiency, 74
[296]
INDEX
CONSIDERATION—Continued
Pre-existing duty rule—Continued
Surrender of claim, 82
Unenforceable obligations, promises to pay,
Bankruptcy discharge, 91
Lack of capacity, 93
Moral obligation, 94
Statute of frauds, 92
Statute of limitations, 90
Unilateral contract, 72
Who must furnish, 81
CONSTRUCTIVE CONDITIONS, 180, 182, 186

CONTRACTS
Adhesion, 138
Bilateral, 37-40
Consensual and nonconsensual, 2
Divisible, 190, 2038
Entire, 190
Express and implied, 1
Formation, theories, 1, 2
Founded upon promissory estoppel, 87-90
Illusory, 84, 85
Implied-in-fact, 95
Implied-in-law, see Implied-in-Law
Installment deliveries, 203
Quasi-contracts, see Implied-in-Law
Reverse unilateral, 41
Unconscionable, 138
U.C.C., 3, 6
Unilateral, definition, 37-40
DAMAGES
Accrual after anticipatory breach, 195
Avoidable consequences, 235-239
Certainty, 224
Compensatory, 225
Consequential damages, 225, 227, 233
INDEX
DAMAGES—Continued
Construction contract,
Recovery by contractor, 230, 238
Recovery by owner, 231, 232
Contemplation of parties, 233
Cost of correction rule compared to diminished value rule,
232
Cover by buyer of goods, 227
Employment contracts, 229, 236
Foreseeability, 233
General principles, 224
Liquidated damages, 225, 240-243
Market value, 227, 228
Mitigation, 235-239
Nominal damages, 225
Nonconsensual contracts, 244-246
Profits, recovery, 228, 230
Punitive, 225
Purpose, 224
Reliance interest, 244, 245
Rescission, effect of, 218
Sale of goods,
Action for price, 228
Breach by seller, 227
Breach of warranty, 227, 234
Consequential and incidental damages, 227, 228
Contract to manufacture special goods, 227
Sellers’ damages, 228
Specifie performance, 224, 227
DELEGATION
See also Assignment
Assignment and delegaton distinguished, 146
Delegability of duties, 161, 166
Discharge upon performance by delegatee, 222
Elements, 163-165
Obligee as third party beneficiary, 165
Rights and status of parties, 162, 164, 167, 222
[298]
INDEX
DISCHARGE OF CONTRACTS
Accord and satisfaction, 217
Account stated, 221
Avoidance by exercise of defenses, 135-138, 222
Avoidance by infants and incompetents, 122-126, 222
Bankruptcy, 222
Frustration of purpose, see Frustration of Purpose
Gift, 80
Impossibility, see Impossibility
Merger, 223
Modification by agreement, 218
Mutual rescission, 218
Novation, 219
Occurrence of condition subsequent, 178, 220
Performance, 216
Performance by delegatee, 139-145, 161-167, 222
Release, 218, 223
Rescission, 218
Tender, rejection, 185, 222
DIVISIBLE CONTRACTS, 190, 203
DURESS, 136
ENTIRE CONTRACTS, 190
ESTOPPEL
See Performance; Promissory Estoppel; Statute of Frauds
EXCUSE FOR NON-PERFORMANCE, 187-193, 195

See Discharge of Contracts
EXCUSE OF CONDITION, 184-193, 195, 197-201
EXPRESS CONDITIONS, 180, 181, 199-201

See Performance
FIRM OFFER, 33-36, 66-69
FRAUD, 137
[299]
INDEX
FRUSTRATION OF PURPOSE
Case examples, 215
Defined, 215
Impossibility compared, 214
GOOD FAITH, 3
ILLEGALITY
Denial of enforcement, 132, 134
Legal acts violating public policy, 129
Licensing statutes, 133
Natures of, 129
Nexus to contract, 128
Pari delicto, 130, 134
Persons law designed to protect, 130
Remedies, 131
IMPLIED CONDITION, 180, 182, 186

See Performance
IMPLIED-IN-FACT CONTRACTS, 95
IMPLIED-IN-LAW CONTRACTS
Benefit conferred, 2, 98
Defaulting party as claimant, 190
Distinguished from consensual contracts, 2, 97
Elements of, 2, 98
Examples, 2, 99
Impossibility and frustration, 205
Mistake, 99
Nature of, 1, 2, 97
Recovery, 100
IMPOSSIBILITY OF PERFORMING CONDITION, 198, 212
IMPOSSIBILITY OF PERFORMING PROMISE

Absolute undertakings, 210
Assumption of the risk, 210
Condition, excuse, 212
Death or illness, 206, 209
Destruction of subject matter, 206, 208
Economic impracticability, 213
[300]
INDEX
IMPOSSIBILITY OF PERFORMING PROMISE—Con-
tinued
Foreseeability, 210
General rule, 205
Goods, 210
Illegality, supervening, 206, 207
Increase in cost, 213
Objective impossibility, 206
Restitution, 205, 212
Severable units, 211
Subjective, 206
Temporary, 211
INFANTS
See Capacity
INSANE PERSONS
See Capacity
INSOLVENCY, 193
INSTALLMENT CONTRACTS, 190, 203
INTEGRATION
See Interpretation; Parol Evidence Rule
INTERPRETATION
Generally, 168
Ambiguity, 175
Course of dealing, 174
Course of performance, 174
Parol evidence rule, see Parol Evidence Rule
Plain meaning, 172, 174
Rules of, 174
Trade usage, 174
U.C.C., 174
INTOXICATION, 122
IRREVOCABLE OFFERS, 33-36, 66-69
JUDGMENT, 235
LIQUIDATED DAMAGES, 225, 240-243
[301]
INDEX
MATERIAL BREACH, 186, 198, 203
See Performance
MINORS
See Capacity
MISREPRESENTATION, 137
MISTAKE, 13-16, 135
MITIGATION OF DAMAGES, 235-239
See Damages
MODIFICATION
See Acceptance of Offer; Consideration; Offer; Statute of
Frauds ~
MORAL OBLIGATION, 94
See Consideration
MORTGAGE ASSUMPTION AGREEMENT, 112, 145
MUTUAL ASSENT
See Acceptance of Offer; Offer
MUTUALITY OF OBLIGATION
See Consideration
NOVATION, 219
OFFER
Advertisements as, 9
Ambiguity, 16
Auctions, 10
Bilateral and unilateral, 37-41, 60
Creates a power of acceptance, 4
Definiteness of, 5, 6, 11-14
Degree of definiteness required, 5, 6
Duration of, 20
Delay in communication, 22
When no time limit specified, 23
When time limit is specified, 21
Effect of, 4
[302]
INDEX
OF FER—Continued
Intent to be bound, 7, 8
Mistake, 13-15
Must be communicated, 17, 18, 42
Objective intent, 7, 18, 15, 16
Performance of service in ignorance of offer, 42, 63
Preliminary negotiations not, 4, 7
Price quotation not, 7
Public generally, offer to, 8, 9
Revocation of, 30
After part performance, 36, 66-69
Communication of revocation, 31, 32
Contract to keep offer open, 33, 34
When made irrevocable by statute, 35
Rewards, 37, 63
Termination of offer, 20-36
By counter offer, 28
By death or insanity, 25
By lapse of time, 21-23
By rejection, 27
By revocation, 30
By supervening impossibility or illegality, 24, 26
Limitations on revocation of offers, 30, 33-36, 66-69
Option contracts, 33, 34
OPTION CONTRACTS, 33-36
PAROL EVIDENCE RULE

Additional consistent terms, 171, 173, 176
Ambiguity, 176
Defenses not precluded, 169
Defined, 169
Integration, 171, 173
Interpretation, see Interpretation
Merger clauses, 172
No contract intended, 169
Separate agreements, 170°
Subsequent agreements, 169, 170
[303]
INDEX
PART PERFORMANCE, 114, 115, 186
PARTIAL BREACH, 186, 198, 202, 203
PERFORMANCE
Ability to perform, 189, 193, 196
Acceptance of goods, 202, 203
Anticipatory repudiation and retraction thereof, 188, 195, 196
Assurances, demand for, 195
Breach, 186, 188-190, 194, 195, 197-199
Conditions, 178-182, 186, 187, 189, 197, 199-201
Constructive conditions, 180, 182, 186
Dependent promises, 178
Divisible contracts, 190, 203
Entire contracts, 190
Estoppel, 192
Excuse of conditions, 184-193, 195, 197-201
Excuse of nonperformance, 187-193, 195
Express conditions, 180, 181, 199-201
Failure of condition, 178, 197, 199, 202, 203
Frustration, see Frustration of Purpose
Implied conditions, 180, 182, 186
Impossibility, see Impossibility
Insolvency, 193
Installment contracts, 190, 203
Material breach, 186, 198, 203
Part performance, 186
Partial breach, 186, 198, 202, 203
Performance, 186, 197
Prevention, 187
Promise, 178
Prospective inability to perform, 189, 195, 196
Repudiation, 188, 195, 196
Severability, 190, 203
Substantial performance, 186, 198, 199, 203
Tender, 185, 196, 202, 203
Third party and contracting party approval, 200, 201
Waiver and retraction thereof, 191, 192
[804]
INDEX
PRE-EXISTING DUTY
See Consideration
PREVENTION, 187
See Performance
PROMISE, 178
See Offer; Performance
PROMISSORY ESTOPPEL
Application, 88
Consideration, substitute for, 87
Elements, 87
Remedy, 89
PROSPECTIVE FAILURE OF PERFORMANCE, 188, 189,

195, 196
PUBLIC POLICY, 1388, 139
QUASI-CONTRACT
See Implied-in-Law Contracts
REJECTION OF OFFER, 27, 28
REMEDIES FOR BREACH OF CONTRACT

See Damages
REPUDIATION, 188, 195, 196
REQUIREMENTS AND OUTPUT CONTRACTS, 84
RESCISSION, 218
REVOCATION OF OFFER, 30-36, 66-69
REWARD OFFER, 37, 63
SEVERABILITY, 190, 203

[305]
INDEX
STATUTE OF FRAUDS
Admission of oral contracts, 115
Agent’s authority, 107, 116
Choses in action, 106, 152
Contracts for sale of goods, 106, 115
Contracts for sale of interest in land, 105, 109, 114
Contracts in consideration of marriage, 110
Contracts not to be performed during lifetime, 111
Contracts not to be performed within one year, 108, 109, 117
- Contracts to assume mortgages, 112
Contracts to pay debts of another, 104, 113
Effect, 119
Estoppel, 118
History and text, 101, 102
Memorandum, 120, 121
Who may assert defense, 119, 152
STATUTE OF LIMITATIONS
New promise to pay debt, 90
SUBSTANTIAL PERFORMANCE, 186, 198, 199, 203
SUBSTITUTES FOR CONSIDERATION

See Consideration; Promissory Estoppel
TENDER, 185, 196, 202, 203
THIRD PARTY BENEFICIARIES

Generally, 81, 139
Benefit of minor, 143
Creditor beneficiary, 140
Defenses available against beneficiary, 142
Donee beneficiary, 140
Enforcement by beneficiary, 142
Enforcement by promisee, 144 es
Incidental beneficiaries, 140
Intended beneficiaries, 140, 141
Intent to benefit, tests, 140
Mortgage assumption agreements, 145
[306]
INDEX
THIRD PARTY BENEFICIARIES—Continued
Rescission, 142, 148, 218
Vesting of rights, 142, 148
UNCONSCIONABLE CONTRACTS, 138
UNDUE INFLUENCE, 136
UNILATERAL CONTRACTS, 37-41, 65-69, 195
WAIVER, 191, 192
o \WesT PUBLISHING CO
[307]
"
4
Series
\
‘
||mia Ht
BRL-348*

Contracts in A Nutshell - Schaber

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Contracts in A Nutshell - Schaber

Uploaded by

Copyright:

Available Formats

GORDON D.

WEST PUBLISHING CO.

ST. PAUL, MINN.

Library of Congress Catalog Card Number: 7T5-14727

Schaber & Rohwer Contracts

This book is a potentially serious hazard to the

It is our purpose to give you a good overview

law school graduates who took the bar in Cali-

To the judges who wrote the opinions upon

C. Receipt of the Offer by the Intended

D. Duration of Offer ____________________- 21

KE. Revocability of the Offer _.___- =. eS

Il. THE ACCEPTANCE

A. Characterization of the Proposed Con-

B. Bilateral Contracts, Generally _________-

C. Mode and Timeliness of Acceptance in

D. Acceptance of Unilateral Contracts ____

C. Subsequent Promise to Perform Unen-

V. OTHER TYPES OF CONTRACTS

A. Implied-in-Fact Contracts ______________ 89

VI. DEFENSES TO FORMATION OR

4, Satisfaction of the Statute __.______- 107

C. Delegation of Duties __________________ 149

ar INTERPRETATION AND THE PAROL

v7, IX. PERFORMANCE

D. Contracts for the Sale of Goods ________ 211

SA 3 Discharge sso bs pee ee eeeee 215

YF, Impossibility of Performance ___________ 215

“A. Standardized Damages ______________-- 238

228. Seller’s damages in sales contracts ___ 239

Consequential Damages _______________- 248

The Duty to Mitigate __________________ 249

J. Liquidated Damages __________________ 251

aNGCSah == ele ee ee ee 293

Perhaps the most elementary aspect of the

§ 1. The six theories. Contractual liability

offer and/or acceptance are found from conduct

§ 2. Consensual versus non-consensual con-

benefits from the other, resulted in the creation

§ 3. Sales of goods and the Uniform Commer-

other transactions in goods, principles of common

The U.C.C. applies to all persons and entities.

U.C.C. Sec. 1-203 provides: “every contract or

Whenever contractual liability is to be predi-

§ 4. Generally. Whether words are words of

§ 5. Certainty of terms. In addition, in order

§ 6. Certainty under the U.C.C. Prior to the

§ 7. Intent of the parties. Controlling all

Contract negotiations are most frequently con-

§ 8. Guidelines for characterization. In char-

(1) Communications are to be construed as a

(3) The more individuals to whom the propos-

§ 9. Advertisements. Advertisements in mass

§ 10. Auctions. Auctions are, in part, an

§ 11. Terms established by external stand-

pra), additional questions may arise where the

§ 12. Requirement and output contracts, An

which case it is termed a ‘“‘requirements” con-

ary control over whether he will in fact have re-

slip of the tongue by the offeror will vitiate the

§ 14. Mistake as to terms by an intermediary.

By the better view, although there is a split of

§ 15. Mistake as to person. If an offeror mis-

4, Satisfaction of the Statute .____- 107