Contracts

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ContractsCases, Text, and Problems

withSelected Provisions of the Texas Business and Commerce Code (UCC)

Sample Contracts andSample Exam Answers

Charles CallerosProffesor of Law

Sandra Day O’Connor College of LawArizona State University

Chapters 1–12 and Appendices

Stephen A. GerstProfessor Emeritus

Arizona Summit School of LawChapters 13 and 14

Carolina Academic PressDurham, North Carolina

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Copyright © 2016Charles CallerosAll Rights Reserved

eBook ISBN: 978-1-5310-0112-4Print ISBN: 978-1-61163-892-9

LCCN: 2016937680

Carolina Academic Press, LLC700 Kent Street

Durham, NC 27701Telephone (919) 489-7486

Fax (919) 493-5668www.cap-press.com

Printed in the United States of America

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To my dear mother, Emily, who can still beat me at Scrabble after turning 93.—Charles Calleros

To my “Dodi Li” for her love and support.—Stephen A. Gerst

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Contents

Table of Exercises xxvTable of Cases xxxvPreface xxxix1. Text xxxix2. Casebook xl3. Problem Method xl4. Statutory Analysis xl

Acknowledgments xli

Chapter 1 · Introduction and Overview 3I. Overview of Contracts and Sources of Contract Law 3

A. Agreements and Contracts in Our Society 31. Agreements That Are Not Legally Binding Contracts 42. Contract Terms That Vary from the Agreement 4

B. Sources of Contract Law 51. International, Federal, and State Law 52. Enacted Law, Common Law, and Case Law 5a. Executive Branch Initiatives 6b. The Uniform Commercial Code and Other State Legislation 6(1) The Nature of the UCC 6(2) Success in Achieving Uniformity in State Commercial Law 7(3) Proposed Revisions to the UCC 7

c. Common Law and the Restatements 7d. Case Law 9

C. The Study of Contract Law 111. Analyzing Statutes 112. Working with Case Law 113. Applying the Law to New Facts 12

II. Exchanges and Contracts 12A. Types of Exchanges 13B. Interests Potentially Protected by Contract Law 13

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1. Expectation Interest 142. Reliance Interest 143. Restitution Interest 14

C. Legal Remedies for Breach of Promise 141. Specific Enforcement 152. Award of Money Damages 15a. Nominal Damages 15b. Compensatory Damages 15c. Punitive Damages 16

III. Summary 17IV. Access to Justice and Alternative Dispute Resolution 17

Chapter 2 · Introduction to Mutual Assent: Basics of Offer and Acceptance 19I. Overview 19II. The Objective Theory of Assent 20

A. Mutual Assent and Authority 201. The Necessity of Mutual Assent 202. Actual and Apparent Authority 21European Import Co., Inc. v. Lone Star Co., Inc., 596 S.W.2d 287 (Tex. Civ. App. 1980) 21

Robertson v. Alling, 237 Ariz. 345, 351 P.3d. 352 (2015) 22B. The Standard for Determining Assent 24C. The Opinion in Lucy v. Zehmer 24

Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954) 25Kolodziej v. Mason, 774 F.3d 736 (11th Cir. 2014) 32

D. The Objective Standard and Unilateral Mistake 351. The Traditional Rule 352. The Modern Trend 36Donovan v. RRL Corp., 26 Cal. 4th 261, 27 P.3d 702 (2001) 36

III. The Offer 39A. Expression of Commitment, Creating Power in the Offeree 39B. Reading Party Communications in Context 41

Fairmount Glass Works v. Crunden-Martin Woodenware Co., 106 Ky. 659, 51 S.W. 196 (Ct. App. 1899) 41

C. An Exercise in Case Synthesis: Are Newspaper Ads Offers? 43Craft v. Elder & Johnston Co., 38 N.E.2d 416 (Ohio Ct. App. 1941) 44Lefkowitz v. Great Minneapolis Surplus Store, 251 Minn. 188, 86 N.W.2d 689 (1957), Minn. S. Ct. 45

IV. The Acceptance 47Conrad v. Hebert, No. 01-09-00331-CV, 2010 WL 2431461 (Tex. Civ. App. June 17, 2010) (unpublished) 48

A. Acceptance by Return Promise 49B. Return Promise through Expressive Conduct 50

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M+W Zander, U.S. Op. v. Scott Co. of Cal., 190 Or. App. 268, 276, 78 P.3d 118, 123 (2003) 51

C. Acceptance by Full Performance 541. Act and Notice of Acceptance 54Carlill v. Carbolic Smoke Ball Co., 1 Q.B. 256 (Ct. App. 1893) 55

V. Review of Basic Offer and Acceptance 60A. Dr. Seuss on Offers 60B. Modifications as Contracts 63

Douglas v. U.S. Dist. Court for Cent. Dist. of California, 495 F.3d 1062 (9th Cir. 2007) cert. denied sub nom. Talk America, Inc. v. Douglas, 552 U.S. 1242 (2008) 63

C. Internet Contracting 65Mohamed v. Uber Technologies, Inc., 109 F. Supp. 3d 1185 (N.D. Cal. 2015) (appeal filed June 23, 2015) 65

VI. Escape Hatch—Intent Not to Be Bound 71A. Expressed Intent Not to be Legally Bound 71B. Accord and Satisfaction 74C. Context Reflecting Lack of Intent to be Legally Bound 74

VII. Summary 77VIII. Perspectives 80

A. Historical Note on the Objective Theory of Contract Formation 80Nicholas C. Dranias, Consideration as Contract: A Secular Natural Law of Contracts 80

B. Learning the Law 81Robert M. Lloyd, Zen and the Art of Contract Formation 81

Chapter 3 · Consideration (Bargained-For Exchange) 83I. Overview 83

A. Consideration as a Bargained-For Exchange 831. The Requirement of an Exchange 842. Reciprocal Inducement—The Exchange Must Be Bargained For 85

B. Comparing Common Law and Civil Law 85C. Benefit and Detriment; Exchange with Reciprocal Inducement 861. Hamer v. Sidway 872. Note—Apparent Intention to Make a Legally Binding Promise 88

II. Elements of Exchange: Performances and Promises 89A. Forbearance as a Performance 891. Forbearance from Asserting a Legal Claim 89Kim v. Son, No. G039818 (Mar. 9, 2009) 892. Facts of Fiege v. Boehm, 210 Md. 352, 123 A.2d 316 (1956) 913. The Court’s Analysis in Fiege v. Boehm 92

B. Proposing to Exchange a Valid (Not Illusory) Promise 941. Illusory Promises 942. Curing Illusory Promises with Obligations Implied in Fact 96

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a. Implying an Obligation from all the Circumstances 97b. Implying an Obligation from Other Terms of the Agreement 98

Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917) 983. When the Promisor’s Options Are Not Bounded Even by Good Faith 101

Moran v. Erk, 11 N.Y.3d 452, 901 N.E.2d 187 (2008) 101III. Reciprocal Inducement: Is the Exchange Bargained-For? 103

A. Introduction 103B. Bargained-For Exchange or Conditional Gratuitous Promise? 1041. Spotting the Issue and Analyzing the Facts 105Kirksey v. Kirksey, 8 Ala. 131 (1845) 105

IV. Working with Consideration Concepts 108A. Relative Values of the Things Exchanged 1081. Equality in Exchange Not Required for Consideration 108Batsakis v. Demotsis, 226 S.W.2d 673 (Tex. Ct. Civ. App. 1949) 1092. Defining the Floor with Reciprocal Inducement 111Barfield v. Commerce Bank, N.A., 484 F.3d 1276 (10th Cir. 2007) 112

B. The Pre-Existing Duty Rule 1151. Promising to Perform the Same Duties Owed in an Existing Contract with the Other Party 115

Alaska Packers’ Ass’n v. Domenico, 117 F. 99 (9th Cir. 1902) 1152. State of the Pre-Existing Duty Rule 1203. Applicability of the UCC to Hybrid Contracts 121Gross Valentino Printing Co. v. Clarke, 120 Ill. App. 3d 907, 458 N.E.2d 1027 (1983) 121

V. Historical Perspective on Consideration under Common Law 123A. Early Forms of Action under Common Law 1241. Early Forms of Action: Debt and Covenant 1242. Assumpsit as a Form of Trespass on the Case 1243. Assumpsit—Active Harm vs. Failure to Perform 124

B. Consideration in Modern Contract Law 1251. Consideration Requires an Exchange 1252. Consideration as Bargained-For Exchange 126

VI. Consideration Reconsidered 127VII. Summary 127

Chapter 4 · Consideration II: Moral Obligation, Promissory Estoppel, and Obligations Implied in Law 131

I. Introduction 131II. Moral Obligation Arising out of Past Performance 132

A. The Traditional View: Moral Obligation Does Not Support Consideration 132Mills v. Wyman, 3 Pick. [20 Mass.] 207 (1825) 132

B. Departures from the Traditional View 134

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1. Consideration in Renewal of an Obligation Discharged by Law 1342. Webb v. McGowin: Directly Recognizing Moral Obligation 134

III. Promissory Estoppel—Reliance as an Alternative Basis for Relief 136A. Perceived Need to Supplement the Consideration Doctrine 1361. Adapting Equitable Estoppel to Protect Reliance on a Promise 136Ricketts v. Scothorn, 57 Neb. 51, 77 N.W. 365 (Neb. 1898) 1372. Advancing Promissory Estoppel through the Restatements 139Marco J. Jimenez, The Many Faces of Promissory Estoppel: An Empirical Analysis Under the Restatement (Second) of Contracts 140

B. Judicial Recognition of Promissory Estoppel as an Affirmative Cause of Action for Damages 145Newton Tractor Sales, Inc. v. Kubota Tractor Corp., 233 Ill. 2d 46, 906 N.E.2d 520 (2009) 146

C. Promises to Charitable Organizations 151D. Consideration and Promissory Estoppel: Can They Coexist? 1511. Does Promissory Estoppel Undermine Consideration? 1512. A Brief History of Equity Jurisdiction in the Common Law System 152

E. Perspective—Divergence in English and U.S. Approaches to Promissory Estoppel 1541. Promissory Estoppel Wielded as a Sword in the U.S. 1542. English Protection of Reliance on a Promise, Beyond Reliance on a Representation of Facts 155

3. Promissory Estoppel as a Shield, But Not a Sword, in England 155IV. Obligations Implied in Law 156

A. Quasi-Contract (Constructive Contract or One Implied in Law) 157Pyeatte v. Pyeatte, 135 Ariz. 346, 661 P.2d 196 (Ct. App. 1983) 157

B. The Elements of Quasi-Contract: Unjust Enrichment 1641. Enrichment 1642. Injustice 165a. Expecting Compensation or Donating Benefit? 165b. Reasonably Expecting Compensation 166

C. The Remedy for Quasi-Contract: Restitution 167V. Liability Arising from Failed Negotiations 167

A. Promissory Estoppel 168B. Quasi-Contract 168C. Preexisting Contract to Negotiate Main Contract; Letters of Intent 168

VI. Summary, Review, and Exam-Taking 170A. Summary 170B. General Guidance on Essay Exams 170

Chapter 5 · Mutual Assent II: Termination of Offers under Common Law 173I. Introduction 173II. Termination Through Death of Offeror or Offeree 173

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A. Death After Contract Formation 173B. Death Before Offer Is Accepted 174

III. Termination Through Lapse: Specified Time or Reasonable Time 175IV. Termination Through Revocation by the Offeror 176

A. Revocation through Verbal Expression 176Hoover Motor Exp. Co. v. Clements Paper Co., 193 Tenn. 6, 241 S.W.2d 851 (1951) 176

B. Revocation Through Conduct (and Communicated by a Third Party) 180C. Option Contracts—Enforceable Promises Not to Revoke 1821. Irrevocable Offers in a Common Law System 1822. Offer, Promise Not to Revoke, and Option Contract 183

D. Option Contracts Based on Implied Promises Not to Revoke 1851. Reliance on an Offer for a Unilateral Contract (or on an Implied Promise Not to Revoke) 186a. Restatement § 45 187b. Applying the Familiar Principle of Promissory Estoppel 187

2. Reliance on an Offer for a Bilateral Contract 189a. The Difficulty of Implying a Promise Not to Revoke 189

Drennan v. Star Paving Co., 51 Cal. 2d 409, 333 P.2d 757 (Cal. 1958) 189b. The Restatement (Second) and Drennan 193

E. Back to the Forest 194V. Termination Through Rejection by the Offeree 194

A. The Common Law Mirror-Image Rule 1951. Rejection v. Clarification or Suggestion 195Fairmount Glass Works v. Crunden-Martin Woodenware Co., 21 Ky. L. Rptr. 264, 106 Ky. 659, 51 S.W. 196 (1899) 196

Ardente v. Horan, 117 R.I. 254, 366 A.2d 162 (1976) 1962. Rejection and Termination through Variance 199Minneapolis & St. Louis Railway Co. v. Columbus Rolling-Mill Co., 119 U.S. 149, 7 S. Ct. 168 (1886) 200

VI. Timing Problems—The Mailbox Rule 202A. The Problem 202B. The General Rule 202C. Range of Application of the Mailbox Rule 203

VII. Summary 205

Chapter 6 · UCC Innovations in Mutual Assent 207I. Introduction 207

A. AZ’s Enactment of the UCC—Contract Formation 207B. The UCC’s Relationship to the Common Law 208

II. Option Contracts—“Firm Offers” under UCC § 2-205 209III. Buyer’s Offer for Prompt or Current Shipment 210

A. Basic Standards for Contract Formation: UCC §§2-204, 2-206(1)(a) 210

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European Import Co., Inc. v. Lone Star Co., Inc., 596 S.W.2d 287 (Tex. Civ. App. 1980) 211

B. Acceptance by Words or Conduct under UCC §2-206 212IV. UCC §2-207 and the Battle of the Forms 214

A. Review: the Common Law Mirror-Image Rule and the Last-Shot Doctrine, in the Battle of the Forms 2141. The Offer (Pre-UCC Battle of the Forms) 2142. Counter-Offer under the Common Law 2153. The “Last Shot” Rule under Common Law 2164. UCC Rejects the Common Law 216

B. Introduction to the Terms of Section 2-207 216C. Focus on Subsection 1 of UCC §2-207 217

CBS, Inc. v. Auburn Plastics, Inc., 67 A.D.2d 811, 413 N.Y.S.2d 50 (1979) 217

Office Supply Store.com v. Kansas City School Bd., 334 S.W.3d 574 (Mo. App. 2011) 218

Brown Machine, Div. of John Brown, Inc. v. Hercules, Inc., 770 S.W.2d 416 (Mo. Ct. App. 1989) 218

D. Focus on Subsection 2 of UCC §2-207 2211. Significance of Merchant Status of Both Parties 221Office Supply Store.com v. Kansas City School Bd., 334 S.W.3d 574 (Mo. App. 2011) 2212. Additional Terms That Would Materially Alter the Contract Formed under Subsection 1 222

3. Treatment of Different Terms under Subsection 2 224Oakley Fertilizer, Inc. v. Continental Ins. Co., 276 S.W.3d 342, 348 n.4 (Mo. App. 2009) 224

Northrop Corp. v. Litronic Industries, 29 F.3d 1173 (7th Cir. 1994) 224E. Focus on Subsection 3 of UCC §2-207 226F. Terms Disclosed After Delivery 227

Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991) 227

ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) 231DeFontes v. Dell, Inc., 984 A.2d 1061 (R.I. 2009) 235

G. Reform and Reflection 2361. Assessment of UCC §2-207 2362. UN Convention on Contracts for the Int’l Sale of Goods 2373. ALI Principles of the Law of Software Contracts 2374. Poetic Relief 238

V. Summary 240

Chapter 7 · Completeness and Formality in Contract Formation 241I. Overview 241II. Definiteness 242

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A. Indefiniteness at Either of Two Stages 242Pyeatte v. Pyeatte, 135 Ariz. 346, 661 P.2d 196 (Ct. App. 1983) 242

B. Curing Indefiniteness 2441. Specification or Other Clarifying Events 2452. Judicial Gap-Filling under Common Law 245a. Gap-Filling and Interpretation 245

Starland v. Fusarli, 2015 WL 1220218 (D.N.J. Mar. 17, 2015) 246b. Special Problems of Agreements to Agree 248

3. Curing Indefiniteness under the UCC 249a. General Standards under UCC § 2-204 249

Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991) 249b. UCC Gap-Fillers 250

III. Statutes of Frauds — The Requirement of a Written Agreement 251A. Overview 251B. Example of Coverage: Arizona’s Statute of Frauds 252C. Satisfying the Writing Requirement 2531. Arizona’s General Statute of Frauds 2532. Arizona’s UCC Statute of Frauds 254Koenen v. Royal Buick Co., 162 Ariz. 376, 783 P.2d 822 (1989) 2553. Electronic Signature Laws 256

D. Exceptions or Mitigating Doctrines 2561. Exceptions to a State’s General Statute of Frauds 256Munoz v. Kaiser Steel Corp., 156 Cal. App. 3d 965, 203 Cal. Rptr. 345 (1984) 2572. Exceptions to Arizona’s UCC Statute of Frauds 261

IV. Summary 262V. Review 263

Carimati di Carimate v. Ginsglobal Index Funds, No. CV 09-2373 AHM (RZx) 2009 U.S. Dist. Lexis 96641, 009 WL3233538 (C.D. Cal. Sept. 30, 2009) 263

Chapter 8 · Grounds for Avoidance 267I. Overview and Form of Relief 267II. Incapacity 268

A. Infancy 2681. Capacity Defined 2682. Avoidance and Restitution, or Ratification 269a. Avoiding the Contract 269b. Ratifying the Contract 269

B. Mental Illness or Defect 2701. Incapacity, and Avoidance or Ratification 2702. Trend to Expand Test for Mental Incapacity 270

III. Duress and Undue Influence 271

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A. Physical Duress 271B. Economic Duress 2711. Threat to Breach a Valid Contract 2722. The Preexisting Duty Rule Is an Imperfect Tool to Control Coerced Modifications 272

3. Economic Duress Not Lightly Found 2724. The Test for Economic Duress 273a. Improper Threat 273b. Overcoming Free Will 273

5. An Illustration: Austin v. Loral 273C. Undue Influence in Special Circumstances 276

IV. Misrepresentation 277A. Introduction: Distinguishing Tortious Fraud, Breach of Warranty, and Avoidance for Misrepresentation 2771. Tort: Fraud 2772. Breach of Warranty 2773. Avoidance for Misrepresentation 278

B. A Misrepresentation During Bargaining 2791. Three Kinds of Misrepresentation 279a. Affirmative Falsehood 279b. Half-Truth 279c. Active Concealment 280d. Nondisclosure Generally Not a Misrepresentation 280

2. Material Misrepresentation 2823. Misrepresentation of Fact, Not Opinion 2834. Justifiable Reliance 285a. Reliance 285b. Justifiable 286

C. Discretion in Applying the Equitable Remedy of Avoidance 286Isaacs v. Bishop, 249 S.W.3d 100 (Tex. App. 2008) 287Kannavos v. Annino, 356 Mass. 42, 247 N.E.2d 708 (1969) 288

V. Mutual Mistake of Fact 290A. “A Different Creature” 290

Sherwood v. Walker and others, 66 Mich. 568, 33 N.W. 919 (1887) 290B. Affecting Substance, Not Just Value or Quality 292

Renner v. Kehl, 150 Ariz. 94, 722 P.2d 262 (1986) (In Banc) 292C. Allocation of Risk: Bargaining with Awareness of Uncertainty about the Subject Matter 294Aluminum Co. of America v. Essex Group, Inc., 499 F. Supp. 53 (W.D. Penn. 1980) 294

Estate of Martha Nelson v. Rice, 198 Ariz. 563, 12 P.3d 238 (Ct. App. 2000) 296

D. Awarding Restitution When Contract Is Avoided 301

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Renner v. Kehl, 150 Ariz. 94, 722 P.2d 262 (1986) 301E. Related Doctrines 3031. Discharge of Obligations Due to Unexpected Post-Formation Events 303

2. Reformation for Fraud or Clerical Error 303VI. Summary 304

Chapter 9 · Non-Enforcement of Contract Obligations for Illegality, Violations of Public Policy, or Unconscionability 307

I. Overview 307II. Direct Illegality 308

A. Illegality in Contract Formation, Performance, or Enforcement 308B. Non-Enforcement of Illegal Contracts or Clauses 3091. Restitution or No Judicial Assistance? 309Landi v. Arkules, 172 Ariz. 126, 835 P.2d 458 (Ariz. App. 1992) 3092. Enforcement after Severance of Illegal Provision 312Booker v. Robert Half International, Inc., 413 F.3d 77 (D.C. Cir. 2005) 312

III. Violations of Public Policy 315A. Overview 315B. Agreement to Share Earnings in Unmarried Cohabitation 317

Walker v. Perkins, Administrator, 97 Eng. Rep. 985 (1764) 317Marvin v. Marvin, 18 Cal. 3d 660, 557 P.2d 106 (1976) 318

C. Surrogacy Contracts 3221. Background, and Questions to Ponder 3222. Selling One’s Baby 323In re Baby M, 109 N.J. 396, 537 A.2d 1227 (1993) 324Johnson v. Calvert, 5 Cal. 4th 84, 851 P.2d 776, cert. denied, 510 U.S. 874 (1993) 3253. Is Uniform Legislation Needed? 332

D. Non-Competition Agreements 3331. Balancing the Interests of Various Stakeholders 333a. Three Types of Agreements 333b. Public Policy Implications for Each Type of Agreement 333c. Rule of Reasonableness for Employee Non-Competition Agreements 335

d. Elevated Public Interest in Professions in Which Client Choice Is Critically Important 336

2. Revision of Unreasonable Non-Competition Agreements 337a. Three Competing Approaches 337

Ali J. Farhang and Ray K. Harris, Non-Compete Agreements with Step-Down Provisions—Will Arizona Courts Enforce Them? 338b. Step-Down Provisions and the Blue-Pencil Rule 340

Ali J. Farhang and Ray K. Harris, Non-Compete Agreements with Step-Down Provisions—Will Arizona Courts Enforce Them? 340

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Compass Bank v. Hartley, 430 F. Supp. 2d 973, 981 (D. Ariz. 2006) 3413. Legislative Intervention 342a. Texas—Restoring Traditional Common Law 342

Sheshunoff Mgt. Serv., L.P. v. Johnson, 209 S.W.3d 644 (Tex. S. Ct. 2006) 342b. California—Legislatively Abrogating the Balancing Test 343

Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 189 P.3d 285 (2008) 343IV. Unconscionability 347

A. Overview 3471. Origins and Scope 3472. Test for Unconscionability 348a. Cumulative Effect of Relevant Factors 348b. Procedural and Substantive Unconscionability 349

Maxwell v. Fidelity Financial Services, Inc., 184 Ariz. 82, 907 P.2d 51 (1995) 351

B. Mandatory Arbitration Clauses: A Frequent Setting for Judicial Analysis of Unconscionability Factors 3581. Judicial Reaction to Class Action Waivers in Arbitration Clauses 3582. Application of the Federal Arbitration Act 359Mohamed v. Uber Technologies, Inc., 109 F. Supp. 3d 1185 (N.D. Cal. 2015) (appeal filed June 23, 2015) 361

C. Overlap between Unconscionability and Other Doctrines 3681. Lack of Mutual Assent in Hidden Contract Terms 368a. Manifestation of Assent without Reading or Understanding 368b. Terms on Ticket Stubs or Other Surprising Places 370c. “Accord and Satisfaction” Clause on a Check 371

2. Public Policy—Releases from Liability (Exculpatory Clauses) 372V. Summary 374

Chapter 10 · Content of the Contract: Parol Evidence Rule and Interpretation 377I. Overview 377II. Parol Evidence Rule 378

A. Introduction 378B. Integrated Writings, and Levels of Integration 3791. Partial Integration and the Parol Evidence Rule 379a. Excluding Parol Evidence that Contradicts the Partial Integration 380

b. Admitting Parol Evidence of Consistent, Supplemental Terms 3802. Complete Integration and the Parol Evidence Rule 381a. Excluding Parol Evidence of Contradictory or Supplemental Terms 381

b. Admitting Evidence of Terms Relating to Other Transactions 381Masterson v. Sine, 68 Cal. 2d 222, 436 P.2d 561 (1968) 3833. Determining the Level of Integration 386

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a. Merger Clause Establishing Complete Integration 386b. Establishing the Level of Integration in the Absence of a Merger Clause 388

C. Purposes for Which the Parol Evidence Rule Does Not Bar Admission of Evidence 3901. Subsequent Agreements 3902. Parol Evidence of Conditions Precedent or Defects in Formation 3903. Parol Evidence as an Aid to Interpretation 392a. The Traditional Plain-Meaning Rule 392b. Modern Trend to Reject the Plain-Meaning Rule 393

Taylor v. State Farm Mutual Automobile Insurance Co., 175 Ariz. 148, 854 P.2d 1134 (1993) 396c. The UCC Parol Evidence Rule 401

4. The Reasonable Expectations Doctrine 402a. Traditional Rule 402b. Modern Trend 402c. The Reasonable Expectations Doctrine in Arizona 404

Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388 (1984) 404

III. Summary Judgment and Parol Evidence 411A. The Role of the Parol Evidence Rule in Summary Judgment 412B. Finding a Material Dispute of Fact Regarding Contract Interpretation 412Johnson v. Earnhardt’s Gilbert Dodge, Inc., 212 Ariz. 381, 132 P.3d 825 (2006) 413

IV. Implied Obligations 416A. Implied Obligations and the Parol Evidence Rule 4161. Obligations Implied in Fact 4162. Obligations Implied in Law 416

B. Implied Obligation of Good Faith 4161. Introduction 416Northwest, Inc. v. Ginsberg, 134 S. Ct. 1422 (2014) 4172. Opportunistic Behavior in the Context of a Contractual Relationship 420

Market Street Assoc. Ltd. v. Frey, 941 F.2d 588 (7th Cir. 1991) 4203. Refraining from Impeding the Other Party’s Realization of the Benefits of the Contract, even when Consistent with Express Contract Terms 424

County of La Paz v. Yakima Compost Co., Inc., 224 Ariz. 590, 233 P.3d 1169 (Ct. App. 2010) 425

C. Implied Warranties 4281. Warranties Implied as a Matter of Common Law 4282. Implied Warranties Imposed by Statute 428

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V. Contract Interpretation 434A. Overview of Interpretation and Construction 434B. Interpretation 4341. Intrinsic Evidence 434County of La Paz v. Yakima Compost Co., Inc., 224 Ariz. 590, 233 P.3d 1169 (Ct. App. 2010) 4352. Extrinsic Evidence 436a. Course of Performance 436b. Course of Dealing 436c. Trade Usage 437

C. Rules of Construction 437D. Interpretation, Construction, and the Parol Evidence Rule 438E. Frigaliment: A Case Study in Contract Interpretation 439

Frigaliment Importing Co., Ltd. v. B.N.S. Int’l Sales Corp., 190 F. Supp. 116 (S.D.N.Y. 1960) 439

F. Choosing Between Competing Meanings and Between Objective and Subjective Intent 446

G. Deference to One Party’s Interpretation 447Han v. United Continental Holdings, Inc., 762 F.3d 598 (7th Cir. 2014) 448

VI. Summary 452

Chapter 11 · Duties, Conditions, Performance, and Breach 455I. Overview 455II. Duties and Express Conditions 455

A. Basic Definitions 4551. Express Condition May Qualify All Duties in the Contract 4562. Condition May Limit Only Some of the Duties in a Contract 4563. Conditions of Satisfaction 457a. Condition of Subjective Satisfaction of a Party 458

Gibson v. Cranage, 39 Mich. 49 (1878) 458B. Avoiding Forfeiture from Non-Satisfaction of a Condition 4601. The Power of Conditions 4602. Strict Satisfaction of Conditions 4603. Substantial Performance of Duties 4614. Interpretation of Term as Express Condition Disfavored 462

III. Constructive Conditions 463A. Common Law Doctrines of Constructive Conditions, Substantial Performance, and Material Breach 4631. The Legal Basis for Constructive Conditions 4632. Satisfying Constructive Conditions 4643. Substantial Performance, Material Breach, and Minor Breach 4644. Cancellation and Cure 4655. Breach by Repudiation 4666. Distinguishing Between Minor and Material Breach 466

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Walker & Co. v. Harrison, 347 Mich. 630, 81 N.W.2d 352 (1957) 467Frazier v. Mellowitz, 804 N.E.2d 796 (Ind. App. 2004) 470

B. Sales of Goods: The UCC Perfect-Tender Rule 472C. Divisibility — Partial Recovery by a Materially Breaching Party under Common Law 4761. Entire or Divisible Contract? 4762. An Illustration of Divisibility 4773. Factors Supporting or Undermining Divisibility 478

IV. Excusing or Waiving Non-Satisfaction of Conditions 480A. Excusing Non-Satisfaction of Conditions 4801. Breach of a Duty of Cooperation and Non-Hindrance 480a. Hindering the Other Party’s Performance 481

Barron v. Cain, 216 N.C. 282, 4 S.E.2d 618 (1939) 481b. Failing to Facilitate the Other Party’s Performance 483

2. Preventing Satisfaction of an Express Condition 484B. Waiver and Estoppel 4841. Waiver of Material Breach and Non-Satisfaction of a Constructive Condition 484

2. Waiver of Non-Satisfaction of an Express Condition 485Haake v. Board of Educ. for Township High School Glenbard Dist. 87,399 Ill. App. 3d 121, 925 N.E.2d 297 (2010) 486

V. Anticipatory Breach and Demands of Assurance of Performance 488A. Anticipatory Breach 4881. Anticipatory Breach by Repudiation or Inability to Perform 4882. Canceling for Anticipatory Breach 4893. Interpreting a Statement as Repudiation 4894. Options in Responding to Repudiation 4895. Retraction of Repudiation 490Ratliff v. Hardison, 219 Ariz. 441, 199 P.3d 696 (2008) 491

B. Assurance of Performance 4941. Assurance of Performance in Sales of Goods 4952. Common-Law Extension to Non-Sales Disputes 496

VI. Discharge of Obligations in Light of Events Taking Place After Contract Formation 496A. Early Departures from Strict Liability 4971. Impossibility 497Ontario Deciduous Fruit Growers’ Assoc. v. Cutting Fruit Packing Co.,134 Cal. 21, 66 P. 28 (1901) 4982. Frustration of Purpose 498

B. Modern Doctrines of Excuse for Frustration of Purpose and Impracticability 4991. Frustration of Purpose 499

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Next Gen Capital, LLC v. Consumer Lending Assoc., LLC, 234 Ariz. 9, 316 P.3d 598 (Ct. App. 2013) 4992. Impracticability — The Successor to Strict Impossibility 503a. Evolution and Current Shape of the Doctrine 503

Waddy v. Riggleman, 216 W. Va. 250, 606 S.E.2d 222 (2004) 503b. Impracticability Under the UCC 505

Mishara Constr. Co. v. Transit-Mixed Concrete Co., 365 Mass. 122, 310 N.E.2d 363 (1974) 506

VII. Summary 509

Chapter 12 · Remedies 513I. Introduction — Vindicating the Expectation Interest 513II. Specific Performance 514

A. Specific Enforcement Defined 514B. Limitations on Specific Performance 5141. Specific Relief Is Extraordinary 514Houseman v. Dare, 405 N.J. Super. 538, 966 A.2d 24 (App. Div. 2009) 515Sokoloff v. Harriman Estates Development Corp., 96 N.Y.2d 409, 415, 754 N.E.2d 184, 188 (N.Y. 2001) 5172. Specific Relief is Discretionary 518Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954) 5193. Practical Limitations 520

III. Money Damages 520A. Overview 5201. Compensatory Damages to Vindicate Expectation Interest 5202. General Measure of Damages 5213. Illustrations 522

B. Other Employment: Loss Avoided or Expected Additional Earnings? 5251. Loss Avoided Through a True Substitute Contract 5252. Excess Capacity 5253. Deduction for Loss That Could Have Been Avoided 525Parker v. Twentieth Century-Fox Film Corp., 3 Cal. 3d 176, 474 P.2d 689 (1970) 526

C. Measuring Direct Loss in Value in Construction Contracts 5311. Cost to Complete or Diminution in Value? 5312. Diminution in Market Value or Personal Value? 531

D. Limitations on Compensatory Damages 5341. Certainty 534Rancho Pescado, Inc. v. Northwestern Mutual Life Ins. Co., 140 Ariz. 174, 680 P.2d 1235 (Ct. App. 1984) 5342. Foreseeable Losses 5363. Damages for Emotional Distress 537Farmers Insurance Exchange v. Henderson, 82 Ariz. 335, 313 P.2d 404 (1957) 538

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E. Preclusion of Punitive Damages and Penalty Clauses 5391. The Rules and Their Policy Justifications 539Charles R. Calleros, Punitive Damages, Liquidated Damages, and Clauses Pénales in Contract Actions: A Comparative Analysis of the American Common Law and the French Civil Code 5392. Policy Justifications 541Charles R. Calleros, Punitive Damages, Liquidated Damages, and Clauses Pénales in Contract Actions: A Comparative Analysis of the American Common Law and the French Civil Code 5413. Critiques of the Rule Against Freely Negotiated Penalty Clauses 543Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985) 544

F. UCC Remedies 5481. Recovery Limited to Compensation 5482. Buyer’s Compensatory Damages for Seller’s Breach 549a. Buyer’s Direct Loss in Value When Goods Are Accepted 549b. Buyer’s Direct Loss in Value for Non-Delivered Goods 550c. Buyer’s Incidental and Consequential Damages 552

3. Seller’s Remedy on Buyer’s Breach 553a. Action for the Price 553b. Seller’s Loss in Value from Buyer’s Wrongful Non-Acceptance 553c. Seller’s Incidental (but not Consequential) Damages 554d. Seller’s Recovery for Lost Volume in Sales 554e. No Advantage in Cover at Bargain Price 556

IV. Alternative Remedies for Breach — Reliance, Restitution, Disgorgement 556A. Measuring the Remedy for Breach by the Reliance or Restitution Interest 556

B. Disgorgement of the Breaching Party’s Profits 559Kansas v. Nebraska, 135 S. Ct. 1042 (2015) 559

V. Alternative Procedures for Securing Remedies 564A. International Commercial Arbitration 5641. A Brief History 5642. Laws, Rules, and Contract Provisions Relating to Arbitration 565a. National Arbitration Laws 565b. Rules of Arbitration Procedure 566c. The Arbitration Agreement 566

B. California’s Right to Repair Act 567McCaffrey Group, Inc. v. Superior Court, 224 Cal. App. 4th 1330, 169 Cal. Rptr. 3d 766 (Ct. App. 2014) 567

VI. Summary 576

Chapter 13 · Rights of Contract Beneficiaries 585I. Introduction 585II. Creation, Vesting, and Enforcement of Third Party Rights 586

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A. Distinguishing between Intended Beneficiaries and Incidental Beneficiaries 586Wolfgang v. Mid-America Motor Sports, 111 F.3d 1515 (10th Cir. 1997) 586

Norton v. First Federal Savings, 128 Ariz. 176, 624 P2d 854 (1981) 589Martinez v. Cenlar, FSB, No. CV-13-00589-TUC-CKJ (D. Ariz. Sept. 3, 2014) 591

B. Vesting of Rights in a Contract Beneficiary 597C. Defenses to Actions Brought by a Third Party Beneficiary 598

Naimo v. LaFianza, 146 N.J. Super. 362, 369 A2d 987 (Ch. Div. 1976) 598D. Enforcement Action by the Promisee against the Promisor 601

Smith v. Maescher, 21 Cal. App. 4th 100, 26 Cal. Rptr. 2d 133 (1993) 602III. Summary 604

Chapter 14 · Assignment and Delegation 607I. Introduction 607II. Characteristics of Assignments of Contract Rights 608III. Limitations on Assignment of Contract Rights 609

A. Assignment Violates Public Policy 609Damron v. Sledge, 105 Ariz.151 (1969) 609

B. Assignment Materially Changes the Other Party’s Position 611Sogeti v. Scariano, 606 F. Supp. 2d 1080 (D. Ariz. 2009) 612

C. Contractual Prohibition of Assignment 615Piasecki v. Liberty Life Assurance Co. of Boston, 312 Ill. App. 3d 872, 728 N.E.2d 71 (2000) 615

IV. Defenses to Actions Brought by the Assignee of Contract Rights 617V. Delegation of Duties 618

A. Overview: Delegation, Third Party Rights, and Novation 618B. Limitations on Delegation of Contract Duties 619

Arkansas Valley Smelting Co. v. Belden Mining Co., 127 U.S. 379 (1888) 619Seale v. Bates, 145 Colo. 430, 359 P.2d 356 (1961) 621

C. Limitations on Delegation of Contract Duties under the UCC 623VI. Summary 623

Appendix 1 · Texas Business and Commerce Code 627

Appendix 2 · Sample Contracts 673Amendment to WWE Employee Agreement 674Sample Requirements ContractsSample Requirements Contract 675Format for More Complex Agreement 676

ASU Sample Basic Contract 677ASU Participation Agreement (IP Contract for Non-Employees) 682Article on Fee Agreements 684Complaint and Promise in Kim v. Son 686

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Appendix 3 · Sample Answers to Practice Exam Questions 697Exercise 2.17 698Exercise 3.10 700Exercise 4.11.2 701Exercise 5.8 703Exercise 8.4.4 704Exercise 8.8 706Exercise 8.11 708Exercise 9.5 710Exercise 9.12 712Exercise 9.13 713Exercise 11.3.2 716Exercise 11.4.2 717Exercise 11.10 718Exercise 12.9 721

Index 737

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Table of Exercises

Exercise 1—Elementary Exchanges 161. Barter Transaction 162. Credit Transactions 16

a. Unilateral Contract 16b. Bilateral Contract 17

Exercise 2.1 — The Objective Theory and Manifest Jest 34

Exercise 2.2 — The Objective Theory and Unilateral Mistake 351. An Extra Zero 352. The Contractor’s Error 36

Exercise 2.3 — Truly A Gem of a Case 38

Exercise 2.4 — Offer or Preliminary Negotiations? 40

Exercise 2.5 — Notice of Acceptance by Return Promise 501. Need for a Bilateral Contract and Notice of Acceptance 502. Dispensing with Notice of Acceptance in Bilateral Contract Formation 50

Exercise 2.6 — Acceptance by Return Promise Conveyed by Beginning Performance 51

Exercise 2.7 — Notice of Acceptance in Bilateral Contract Formation 53

Exercise 2.8 — Offeror as Master of the Offer 53

Exercise 2.9 — Unequivocal, Unambiguous Acceptance 531. Commencing Work 532. Continuing Performance 54

Exercise 2.10 — Questions and Notes on Carbolic 581. Newspaper Ad as an Offer 582. Notice of Acceptance of Offer for a Unilateral Contract 583. Formation of a Contract to Guarantee Payment 59

Exercise 2.11 — Acceptance After Discovering the Offer 59

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Exercise 2.12 — Problems for Review 611. Notice of Acceptance 612. Newspaper Ad — Walk-in Bathtub 613. Item on Display at Store 614. Acceptance of Offer in Item Displayed at Store 625. Contract Terms in the Box 626. Communicating Acceptance by Signature and by Action 62

Exercise 2.13 — The “Somewhat Onerous” Task of Reading Terms on a Smartphone 71

Exercise 2.14 — Oral Contract or Just Preliminary Negotiations Leading to a Written Contract? 72

1. Let’s See It in Writing First 722. Let’s Get Some Written Copies 72

Exercise 2.15 — Disclaimers in Employee Manuals 72

Exercise 2.16 — Dates or Engagements as Contracts? 751. Jilted at the High School Prom 752. Denied the Red Carpet Treatment 763. Engagement as Marriage Contract 76

Exercise 2.17 — Previous Midterm Exam 78

Exercise 3.1 — Analogy and Distinction in Using Precedent 88

Exercise 3.2 — Taking It Out on Your Contracts Professor 90

Exercise 3.3 — Assessing and Applying the Holding of Fiege v. Boehm 93

Exercise 3.4 — Promises, Real and Illusory 951. Promises Subject to Qualifications 952. Forbearance to Assert a Claim until “I Need the Money” 95

Exercise 3.5 — Contracts Terminable at Will 1001. No Room for Implication? 1002. Statutory Term Avoiding Illusory Promise 1003. Lurking Consideration Problem? 101

Exercise 3.6 — Independent or Reciprocal Promises 1041. New Year’s Resolutions 1042. Conditional Resolutions 104

Exercise 3.7 — Questions on Kirksey and Reciprocal Inducement 1061. Unraveling Kirksey 1062. Advocating in Kirksey 1073. Appellate Standard of Review 1074. Assessing Kirksey 1075. Promise for a Past Performance 1076. IKEA’s Proposition to Celebrate Valentine’s Day 108

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Exercise 3.8 — Sham or Genuine Inducement? 1141. $2,000 Discount 1142. Nearly $2,000 Give-Away 1143. Fairness in Exchanges 114

Exercise 3.9 — Questions on the Pre-Existing Duty Rule 1171. Waiver or Rescission 1172. Change in Duties 1183. Change in Method of Pay 1194. Good-Faith Dispute about Pre-Existing Duties 1195. Unanticipated Circumstances 1196. Pre-existing Duty to Third Party? 1207. Noncontractual Source of Pre-Existing Duties? 120

Exercise 3.10 — Preliminary Analysis of Essay Question 128Consideration 128

Exercise 4.1 — The Problem of a Promise for Past Performance 132

Exercise 4.2 — Comparing Mills and Webb 136

Exercise 4.3 — Consideration and Estoppel 1391. Absence of Bargained-For Exchange in Ricketts 1392. Promised Pension Problem 139

Exercise 4.4 — Analysis of the Surveyed Cases 144

Exercise 4.5 — Equitable and Promissory Estoppel; Sword and Shield 1451. The Disputed Property Line 1452. The Late Fee 1453. Uninsured Furniture 145

Exercise 4.6 — Puzzles in Promissory Estoppel 1491. The Promise: Comparing Cases 149

Case #1: Disappointed Expectations 149Case #2: Reliance 150Case #3: The Estranged Sibling 150

2. The Promised Donation to a Medical Fund 150

Exercise 4.7 — Matter and Anti-Matter? 154

Exercise 4.8 — Enrichment: Benefit Transferred to the Defendant in Saving a Life . . . or Not 165

Exercise 4.9 — Quasi-Contract in Pyeatte, Mills, or Webb? 1661. Injustice: Reasonable Expectation of Compensation 1662. Moral Obligation Compared with Quasi-Contract 166

Exercise 4.10 — Measuring Restitution in Pyeatte 167

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Exercise 4.11 — Practice Exams 1711. Practice Exam on Quasi-Contract 1712. Practice Exam — Kirksey Revisited 171

Exercise 5.1 — Death and the Unilateral Contract 174

Exercise 5.2 — Vagueness or Ambiguity in Lapse Terms 1751. Interpreting a Specified Time 1752. Defining a “Reasonable” Time 175

Exercise 5.3 — Questions and Notes on Hoover 1801. Standard of Appellate Review on Factual Matters 1802. Expressions of Doubt or Indecision 180

Exercise 5.4 — Questions on Dickinson 1811. Conduct Inconsistent with a Continuing Offer 1812. Reliable Information of the Offeror’s Inconsistent Conduct 182

Exercise 5.5 — Option Contract Puzzles 1841. Where’s the Promise? 1842. Where’s the Consideration? 1843. What’s the Difference? 1844. What’s the Reason? 184

Exercise 5.6 — The Real Estate Broker 188

Exercise 5.7 — Dissenting Opinion 192

Exercise 5.8 — Past Exam [Suggested Time: 20 minutes] 193

Exercise 5.9 — Acceptance or Rejection? 1951. The Quick Change of Mind 1952. The Attempt to Negotiate 1953. The Grumbling Offeree 195

Exercise 5.10 — Avoiding the Mirror-Image Rule 1991. New Terms, or Implied in the Offer? 1992. Rejection or Acceptance and Solicitation? 199

Exercise 5.11 — Questions on Rolling-Mill 2011. Offer by Seller 2012. Drafting to Avoid Rejection 2023. Effect of Option Contract 202

Exercise 5.12 — Applying the Mailbox Rule 2041. The Basics 204

a. Acceptance or Revocation? 204b. Acceptance or Revocation (#2)? 204c. Acceptance or Rejection? 204

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d. Acceptance or Rejection (#2)? 204e. Acceptance or Rejection (#3)? 205

2. Mailbox Rule? 205

Exercise 6.1 — Dissecting Section 2-205 2091. Elements of a Firm Offer under Section 2-205 2092. Effect of Meeting the Elements of a Firm Offer 2093. Separate Signature 2094. Firm Offer, or Revocable? 2105. Promise to Hold Offer Open for More Than Three Months 210

Exercise 6.2 — Interpreting UCC § 2-206 213

Exercise 6.3 — Applying UCC § 2-206 2131. Reprise on Allied v. Ford 2132. Acceptance or Accommodation? 2133. Manifestation of Acceptance? 2144. Discharge of Contract Formed? 214

Exercise 6.4 — Purposes of the Three Major Subsections of Section 2-207 217

Exercise 6.5 — Identifying and Analyzing the Elements of Subsection 1 219

Exercise 6.6 — Section 2-207(1): Contract on the Forms? 2191. Acceptance in Face of Varying Terms? 2202. Expression of Acceptance? 2203. Conditional Acceptance 2204. Still Actively Negotiating 221

Exercise 6.7—Identifying and Analyzing the Elements of Subsection 2 222

Exercise 6.8 — Determining Whether Additional or Different Terms Are Added to the Contract That Was Formed under Subsection 1 2231. Terms of the Contract in Consumer Transaction 2232. Terms of the Contract between Merchants 223

Exercise 6.9 — Performance and Dispute 2261. Equivocation, Performance, and Dispute 2262. Condition, Performance, and Dispute 226

Exercise 6.10 — Knock-Out Doctrine as Applied to Conflicting Confirmations 227

Exercise 6.11 — Safeguards for ProCD Approach 236

Exercise 7.1 — The Cost of a Masters Degree 248

Exercise 7.2 — Agreement to Agree to What? 249

Exercise 7.3 — Exceptions and Mitigating Doctrines 262

Exercise 8.1 — Bright-Line Tests 270

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Exercise 8.2 — “High as a Georgia Pine” 270

Exercise 8.3 — Merits of the Volitional Test 271

Exercise 8.4 — Duress and the Preexisting Duty Rule 2741. Uncertain Outcomes and Essay Exams 2742. Preexisting Duty Rule Not a Factor 2753. Striking Seamen 2754. Practice Exam 275

Exercise 8.5 — Deathbed Contract 276

Exercise 8.6 — Lack of General Duty to Disclose 2821. Duty of Good Faith and Fair Dealing 2822. Policy and Personal Ethics 282

Exercise 8.7 — Disclosure of Material Facts 283

Exercise 8.8 — Practice Exam: Fiege v. Boehm Revisited 289Essay Question. Suggested Time Allocation: 40 minutes 289

Exercise 8.9 — Allocating and Assuming Risk 2991. Allocating Risk on the Basis of Agreement or Circumstances 2992. The Diamond in the Rough 2993. Refusing to Assume the Risk 3004. Mistaken Paternity? 3005. Mistake about Madoff and Marital Assets 300

Exercise 8.10 — Cost of Providing Benefits v. Value to Recipient 302

Exercise 8.11 — Past Exam Question 304Suggested Time Allocation: 35 minutes 304

Exercise 9.1 — Cohabitation with a Married Partner 322

Exercise 9.2 — Enforcement of Surrogacy Contracts 3231. Is Surrogacy the Same as Baby-Selling? 3232. Does a Surrogate Contract Violate Public Policy? 3243. Remedies in the Event of Violation of Law or Public Policy 324

Exercise 9.3 — Applying the Blue-Pencil Rule 339

Exercise 9.4 — Revisiting the Rule of Reasonableness 345

Exercise 9.5 — Practice Exam 345Suggested time: 1 hour 345

Exercise 9.6 — Questions on Maxwell 3571. Decision to Remand 3572. Factual Arguments 3573. Class and Unconscionability 358

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Exercise 9.7 — Class Action Waiver in an Arbitration Agreement 359

Exercise 9.8 — Questions on Uber 3661. The Test for Unconscionability 3662. Confidentiality and Repeat Players 3663. Explanation of the Consequences of Agreeing to Arbitrate 367

Exercise 9.9 — Modifying FAA Preemption 3671. Will Congress Intervene? 3672. Executive Action 367

Exercise 9.10 — Accord & Satisfaction 372

Exercise 9.11 — Exculpatory Clauses and Ethics 3741. Preschool Exculpatory Clause 3742. Professional Responsibility 374

Exercise 9.12 — Issue-Spotting Exercise 375

Exercise 9.13 — Exam Question 375Suggested Time Allocation: 50 minutes 375

Exercise 10.1 — Excluding Prior or Contemporaneous Agreements under the Parol Evidence Rule 3851. Complete Integration 3852. Partial Integration 385

Exercise 10.2 — Drafting a Merger Clause 388

Exercise 10.3 — Is the Parol Evidence Rule Worth Keeping? 389

Exercise 10.4 — False Disclaimers 3911. False Assurances 3912. Merger Clause Disclaiming Fraud 391

Exercise 10.5 — Interpretation or Contradiction? 401

Exercise 10.6 — Unconscionability Compared 404

Exercise 10.7 — Examining a Motion for Summary Judgment 415

Exercise 10.8 — Impeding the Other Party’s Realization of the Benefits of the Contract 4281. Termination of Employment at Will 4282. Termination of Life for Spite 428

Exercise 10.9 — Overview Questions on Implied Warranties, Disclaimers, and Limitations on Liability 4311. Merchantability as Contrasted with Fitness for a Particular Purpose 4312. Disclaimer of Warranties as Contrasted with Limitation on Remedies 431

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Exercise 10.10 — Which UCC Warranty Might Apply, and Does it? 4311. The Case of the Query and Response 4312. The Case of the Sample Sent 4313. The Case of the Buyer’s Selection 4324. The Case of the Seller’s Selection 4325. The Case of the Warped Screens 4326. The Case of the Stored Screens 432

Exercise 10.11 — Disclaimers and Limitations on Liability 4321. The Case of the Malfunctioning Machinery 4322. The Case of the True Lemon 4333. The Case of the Consequential Losses 4334. The Case of the Damaging Drill Bit 433

Exercise 10.12 — Fictitious Transcript for Frigaliment 444Witness: Strasser 444Witness: Niesielowski 445Witness: Dates 445Witness: Weininger 446

Exercise 10.13 — “What Is Chicken?” Reprised 4491. Battle of the Subjective Intentions 4492. Tipped Off about Other Party’s Meaning 4493. Hooter’s Contest Prize 4504. Agreement in Subjectively Held Meanings 450

Exercise 10.14 — Ambiguity in Proper Names 4501. “Peerless” had a Peer 4502. A “Capital” Idea 450

Exercise 10.15 — Drafting Contracts in Plain English 451

Exercise 11.1 — Good Faith and Opportunity to Cure 459

Exercise 11.2 — Duty or Condition 4621. Interpretation and Construction of Ambiguous Term 4622. Drafting 463

a. Mutual Obligations 463b. Mutual Obligations and Condition 463c. Condition and Mutual Obligations? 463

Exercise 11.3 — Conditions and Constructive Conditions 4711. The Risk of Guessing about Material Breach 4712. Past Exam Questions Inviting Drafting 471

a. Incentive Clause 471b. Lesson Learned 472

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Exercise 11.4 — Divisibility 4791. Incomplete Delivery of Logs 4792. Past Exam Question 479

Exercise 11.5 — The Case of the Fidgety Model 484

Exercise 11.6 488

Exercise 11.7 — The Case of the Actor’s Demands 489

Exercise 11.8 — Questions on Frustration of Purpose 5021. Distingushing Next Gen from Krells 5022. Judicially Allocating the Risk in the Absence of Contractual Allocation 5023. Legislative Change 502

Exercise 11.9 — Drafting to Allocate the Risk of Contingencies 5091. Drafting Against Foreseen Events 5092. Drafting Against Unforeseeable Events 509

Exercise 11.10 — Exam Question 510

Exercise 12.1 — Basic Damages Calculations 5231. The Case of the Moving Market Price 5232. Fired from the Fiesta Bowl 5243. The Case of the Stymied Structure 524

a. Owner Repudiated Prior to Reliance 524b. Owner Repudiated After Contractor’s Reliance 524c. Owner Repudiated and Contractor Continued Construction 524d. Contractor Repudiated After Beginning Construction 524

4. The Case of the Abandoned Project 5245. The Case of the Unfinished Factory 525

Exercise 12.2 — Deduction for Jobs Not Taken? 5301. Fired from Full-Time Employment 530

a. Offer to Teach Mathematics Full Time 530b. Offer to Teach History Full Time 530

2. Fired from Part-Time Employment 530

Exercise 12.3 — Measuring Direct Loss in Value 5321. Cost to Complete v. Diminution in Market Value 5322. Diminution in Personal or Market Value? 5323. Peevyhouse Revisited 532

Exercise 12.4 — Liquidated Damages or Penalty Clause? 540

Exercise 12.5 — Malicious Breach of Contract 543

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Exercise 12.6 — Application and Assessment of the Rule Against Penalties 5471. Questions on Lake River 5472. Damages for Failure to Pay 5483. Should Courts Enforce Penalty Clauses Even Though Punitive Damages

Are Unavailable? 548

Exercise 12.7 — Covering with Cow Hides 551

Exercise 12.8 — The Buyer Backs Out 555

Exercise 12.9 — Exam Questions 577Question 1: 50 minutes 577Question 2: 80 minutes 578Question 3, with Three Question Prompts: 90 minutes 579Question 4: 25 minutes 581Question 5: 60 minutes 582

Exercise 13.1 — Finding an Intention to Benefit a Third Party 5961. Payment to Contractor’s Creditor 5962. Construction Delay 5973. Safety Precautions 597

Exercise 13.2 — Determining if Contract Beneficiary Rights Have Vested 598

Exercise 13.3 — Determining Defenses Arising out of the Contract 6011. The Homeowner’s Payment 6012. The Insurance Beneficiary 601

Exercise 13.4 — Enforcement Actions by Promisee 6031. Revisiting Smith v. Maescher 6032. Revisiting the Life Insurance Contract 6043. Revisiting the Pool Construction Contract 604

Exercise 14.1 — Contractual Prohibition of Assignment 6171. Assignment of Right to Payment 6172. Assignment of Right to Construction Services 617

Exercise 14.2 — Deductions from Payment to Assignee 617

Exercise 14.3 — The Case of the Carefully Selected Contractor 622

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Table of Cases

(Includes only main cases presented for student analysis, not all cases cited,quoted, or summarized by the author.)

Alaska Packers’ Ass’n v. Domenico, 117 F. 99 (9th Cir. 1902) 115

Aluminum Co. of America v. Essex Group, Inc., 499 F. Supp. 53 (W.D. Penn. 1980) 294

Ardente v. Horan, 117 R.I. 254, 366 A.2d 162 (1976) 196

Arkansas Valley Smelting Co. v. Belden Mining Co., 127 U.S. 379 (1888) 619

Barfield v. Commerce Bank, N.A., 484 F.3d 1276 (10th Cir. 2007) 112

Barron v. Cain, 216 N.C. 282, 4 S.E.2d 618 (1939) 481

Batsakis v. Demotsis, 226 S.W.2d 673 (Tex. Ct. Civ. App. 1949) 109

Booker v. Robert Half International, Inc., 413 F.3d 77 (D.C. Cir. 2005) 312

Brown Machine, Div. of John Brown, Inc. v. Hercules, Inc., 770 S.W.2d 416 (Mo. Ct. App. 1989) 218

Carimati di Carimate v. Ginsglobal Index Funds, No. CV 09-2373 AHM (RZx) 2009 U.S. Dist. Lexis 96641, 2009 WL3233538 (C.D. Cal. Sept. 30, 2009) 263

Carlill v. Carbolic Smoke Ball Co., 1 Q.B. 256 (Ct. App. 1893) 55

CBS, Inc. v. Auburn Plastics, Inc., 67 A.D.2d 811, 413 N.Y.S.2d 50 (1979) 217

Compass Bank v. Hartley, 430 F. Supp. 2d 973, 981 (D. Ariz. 2006) 341

Conrad v. Hebert, No. 01-09-00331-CV, 2010 WL 2431461 (Tex. Civ. App. June 17, 2010) 48

County of La Paz v. Yakima Compost Co., Inc., 224 Ariz. 590, 233 P.3d 1169 (Ct. App. 2010) 425, 435

Craft v. Elder & Johnston Co., 38 N.E.2d 416 (Ohio Ct. App. 1941) 44

Damron v. Sledge, 105 Ariz.151 (1969) 609

Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388 (1984) 404

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DeFontes v. Dell, Inc., 984 A.2d 1061 (R.I. 2009) 235

Donovan v. RRL Corp., 26 Cal. 4th 261, 27 P.3d 702 (2001) 36

Douglas v. U.S. Dist. Court for Cent. Dist. of California, 495 F.3d 1062 (9th Cir. 2007) cert. denied sub nom. Talk America, Inc. v. Douglas, 552 U.S. 1242 (2008) 63

Drennan v. Star Paving Co., 51 Cal. 2d 409, 333 P.2d 757 (Cal. 1958) 189

Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 189 P.3d 285 (2008) 343

Estate of Martha Nelson v. Rice, 198 Ariz. 563, 12 P.3d 238 (Ct. App. 2000) 296

European Import Co., Inc. v. Lone Star Co., Inc., 596 S.W.2d 287 (Tex. Civ. App. 1980) 21, 211

Fairmount Glass Works v. Crunden-Martin Woodenware Co., 21 Ky. L. Rptr. 264, 106 Ky. 659, 51 S.W. 196 (1899) 41, 196

Farmers Insurance Exchange v. Henderson, 82 Ariz. 335, 313 P.2d 404 (1957) 538

Frazier v. Mellowitz, 804 N.E.2d 796 (Ind. App. 2004) 470

Frigaliment Importing Co., Ltd. v. B.N.S. Int’l Sales Corp., 190 F. Supp. 116 (S.D.N.Y. 1960) 439

Gibson v. Cranage, 39 Mich. 49 (1878) 458

Gross Valentino Printing Co. v. Clarke, 120 Ill. App. 3d 907, 458 N.E.2d 1027 (1983) 121

Haake v. Board of Educ. for Township High School Glenbard Dist. 87, 399 Ill. App. 3d 121, 925 N.E.2d 297 (2010) 486

Han v. United Continental Holdings, Inc., 762 F.3d 598 (7th Cir. 2014) 448

Hoover Motor Exp. Co. v. Clements Paper Co., 193 Tenn. 6, 241 S.W.2d 851 (1951) 176

Houseman v. Dare, 405 N.J. Super. 538, 966 A.2d 24 (App. Div. 2009) 515

In re Baby M, 109 N.J. 396, 537 A.2d 1227 (1993) 324

Isaacs v. Bishop, 249 S.W.3d 100 (Tex. App. 2008) 287

Johnson v. Calvert, 5 Cal. 4th 84, 851 P.2d 776, cert. denied, 510 U.S. 874 (1993) 325

Johnson v. Earnhardt’s Gilbert Dodge, Inc., 212 Ariz. 381, 132 P.3d 825 (2006) 413

Kannavos v. Annino, 356 Mass. 42, 247 N.E.2d 708 (1969) 288

Kansas v. Nebraska, 135 S. Ct. 1042 (2015) 559

Kim v. Son, No. G039818 (Mar. 9, 2009) 89

Kirksey v. Kirksey, 8 Ala. 131 (1845) 105

Koenen v. Royal Buick Co., 162 Ariz. 376, 783 P.2d 822 (1989) 255

Kolodziej v. Mason, 774 F.3d 736 (11th Cir. 2014) 32

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Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985) 544

Landi v. Arkules, 172 Ariz. 126, 835 P.2d 458 (Ariz. App. 1992) 309

Lefkowitz v. Great Minneapolis Surplus Store, 251 Minn. 188, 86 N.W.2d 689 (1957) 45

Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954) 25, 519

M+W Zander, U.S. Op. v. Scott Co. of Cal., 190 Or. App. 268, 276, 78 P.3d 118, 123 (2003) 51

Market Street Assoc. Ltd. v. Frey, 941 F.2d 588 (7th Cir. 1991) 420

Martinez v. Cenlar, FSB, No. CV-13-00589-TUC-CKJ (D. Ariz. Sept. 3, 2014) 591

Marvin v. Marvin, 18 Cal. 3d 660, 557 P.2d 106 (1976) 318

Masterson v. Sine, 68 Cal. 2d 222, 436 P.2d 561 (1968) 383

Maxwell v. Fidelity Financial Services, Inc., 184 Ariz. 82, 907 P.2d 51 (1995) 351

McCaffrey Group, Inc. v. Superior Court, 224 Cal. App. 4th 1330, 169 Cal. Rptr. 3d 766 (Ct. App. 2014) 567

Mills v. Wyman, 3 Pick. [20 Mass.] 207 (1825) 132

Minneapolis & St. Louis Railway Co. v. Columbus Rolling-Mill Co., 119 U.S. 149, 7 S. Ct. 168 (1886) 200

Mishara Constr. Co. v. Transit-Mixed Concrete Co., 365 Mass. 122, 310 N.E.2d 363 (1974) 506

Mohamed v. Uber Technologies, Inc., 109 F. Supp. 3d 1185 (N.D. Cal. 2015) 65, 361

Moran v. Erk, 11 N.Y.3d 452, 901 N.E.2d 187 (2008) 101

Munoz v. Kaiser Steel Corp., 156 Cal. App. 3d 965, 203 Cal. Rptr. 345 (1984) 257

Naimo v. LaFianza, 146 N.J. Super. 362, 369 A2d 987 (Ch. Div. 1976) 598

Newton Tractor Sales, Inc. v. Kubota Tractor Corp., 233 Ill. 2d 46, 906 N.E.2d 520 (2009) 146

Next Gen Capital, LLC v. Consumer Lending Assoc., LLC, 234 Ariz. 9, 316 P.3d 598 (Ct. App. 2013) 499

Northrop Corp. v. Litronic Industries, 29 F.3d 1173 (7th Cir. 1994) 224

Northwest, Inc. v. Ginsberg, 134 S. Ct. 1422 (2014) 417

Norton v. First Federal Savings, 128 Ariz. 176, 624 P2d 854 (1981) 589

Oakley Fertilizer, Inc. v. Continental Ins. Co., 276 S.W.3d 342, 348 n.4 (Mo. App. 2009) 224

Office Supply Store.com v. Kansas City School Bd., 334 S.W.3d 574 (Mo. App. 2011) 218, 221

Ontario Deciduous Fruit Growers’ Assoc. v. Cutting Fruit Packing Co., 134 Cal. 21, 66 P. 28 (1901) 498

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Parker v. Twentieth Century-Fox Film Corp., 3 Cal. 3d 176, 474 P.2d 689 (1970) 526

Piasecki v. Liberty Life Assurance Co. of Boston, 312 Ill. App. 3d 872, 728 N.E.2d 71 (2000) 615

ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) 231

Pyeatte v. Pyeatte, 135 Ariz. 346, 661 P.2d 196 (Ct. App. 1983) 157, 242

Rancho Pescado, Inc. v. Northwestern Mutual Life Ins. Co., 140 Ariz. 174, 680 P.2d 1235 (Ct. App. 1984) 534

Ratliff v. Hardison, 219 Ariz. 441, 199 P.3d 696 (2008) 491

Renner v. Kehl, 150 Ariz. 94, 722 P.2d 262 (1986) (In Banc) 292, 301

Ricketts v. Scothorn, 57 Neb. 51, 77 N.W. 365 (Neb. 1898) 137

Robertson v. Alling, 237 Ariz. 345, 351 P.3d. 352 (2015) 22

Seale v. Bates, 145 Colo. 430, 359 P.2d 356 (1961) 621

Sherwood v. Walker and others, 66 Mich. 568, 33 N.W. 919 (1887) 290

Sheshunoff Mgt. Serv., L.P. v. Johnson, 209 S.W.3d 644 (Tex. S. Ct. 2006) 342

Smith v. Maescher, 21 Cal. App. 4th 100, 26 Cal. Rptr. 2d 133 (1993) 602

Sogeti v. Scariano, 606 F. Supp. 2d 1080 (D. Ariz. 2009) 612

Sokoloff v. Harriman Estates Development Corp., 96 N.Y.2d 409, 415, 754 N.E.2d 184, 188 (N.Y. 2001) 517

Starland v. Fusarli, 2015 WL 1220218 (D.N.J. Mar. 17, 2015) 246

Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991) 227, 249

Taylor v. State Farm Mutual Automobile Insurance Co., 175 Ariz. 148, 854 P.2d 1134 (1993) 396

Waddy v. Riggleman, 216 W. Va. 250, 606 S.E.2d 222 (2004) 503

Walker v. Perkins, Administrator, 97 Eng. Rep. 985 (1764) 317

Walker & Co. v. Harrison, 347 Mich. 630, 81 N.W.2d 352 (1957) 467

Wolfgang v. Mid-America Motor Sports, 111 F.3d 1515 (10th Cir. 1997) 586

Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917) 98

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Preface

This book is designed for use in a course that employs both case analysis and the“problem method.” It combines the following features and approaches:

1. Text

In the practice of law, new attorneys are seldom experts in all the laws that mayapply to their clients’ problems. If they immediately waded into the latest judicial de-cision in the field, they might not completely understand the rulings in the decisionor fully appreciate the significance of that decision within the larger field of law. Tosecure a general familiarity with a relevant field of law, so that they can identify issuesand develop an effective research strategy, new attorneys typically turn first to a sec-ondary source, such as a treatise or law review article, which will provide basic back-ground information about a field of law and will refer to the most important statutesand judicial decisions. Armed with this general background knowledge, an attorneycan then more effectively research and understand the latest law on point in the rel-evant jurisdiction and can more easily identify issues raised by the facts of a client’scase.

To mirror this experience in the practice of law, and to save time for problem-solving, this book presents more text and somewhat fewer judicial opinions thanmost casebooks of its size. On most topics, statutes and judicial opinions are intro-duced with text that provides background information. At times, this backgroundtext consists of the author’s summary of one or more judicial opinions, so that studentscan spend somewhat less time briefing cases and can spend more time applying thelessons of the cases to new facts. In light of the hundreds of judicial opinions presentedin this book and in other courses, students will not suffer for lack of opportunity toengage in case analysis. Finally, on many topics, statutes and judicial opinions arefollowed by text, often excerpts from books or articles, providing some perspectiveon the topics. These readings may provide historical background, comparisons toapproaches in other legal systems, or ideas for reform or innovation within our ownlegal system.

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2. Casebook

Like traditional casebooks, this one presents many judicial opinions, most of themdeveloping common law and a few interpreting and applying statutory law. These pro-vide each student with repeated opportunities to (a) learn to read and interpret cases,(b) gain a deep understanding of how judges decide cases and develop the law, and(c) derive legal rules and standards from individual cases and from the student’s syn-thesis of series of cases. A few of the opinions are not binding on any court becausethey are issued by a trial court, are unpublished, or both; even these opinions, however,tell helpful stories about contracts, conflict, and judicial resolution of conflict.

3. Problem Method

Students will fully comprehend the material only if they actively work with thelegal principles by applying them to new facts. The exercises and practice exams inthe book provide ample opportunity to engage in this analytic process before, during,and after class.

4. Statutory Analysis

This book presents important provisions of Articles 1 and 2 of the Uniform Com-mercial Code, primarily as enacted by Arizona, California, and Texas, as well as briefreferences to other statutes. Although several judicial interpretations of the UCC arepresented, statutory analysis is explored primarily through the problem method, sothat students can experience the intellectual challenge of engaging in original inter-pretation in light of the text and purpose of the statutes.

xl PREFACE

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Acknowledgments

I am very grateful to Vera Hamer-Sonn, Suzanne Lynn, and Sunny Larson for tech-nical assistance, our College librarians for library assistance, and the following lawstudents for research assistance or other substantial contributions to various draftsof this book, which has been used in class since Fall 2008: Alison Atwater (Class of2010), Erin Maupin (Class of 2011), Natalya Ter-Grigoryan (Class of 2011), JillianTse (Class of 2011), Nedda Reghabi (Class of 2012), Rebecca Janssen (Class of 2013),Chinedu Orjih (Class of 2013), Edith Cseke (Class of 2013), Kevin Blood (Class of2013), Kyle Sol Johnson (Class of 2015), Nathan Andrews (Class of 2016), JenniferHancock (Class of 2017), and Kevin Hanlon (Class of 2017).

I also thank Professor Stephen Gerst, Phoenix School of Law, for preparing chapterson third party rights and on assignment and delegation, added to this book in 2013.

Professor Charles CallerosSandra Day O’Connor College of Law at Arizona State UniversityJanuary 2016

I wish to express my gratitude and appreciation to Professor Charles Calleros andhis research assistant, Tim Forsman (Class of 2014), for their assistance and collab-oration. I also wish to acknowledge the contributions made by my research assistant,Amanda Jaksich, and by Professor Warren Miller.

Professor and Judge Stephen A. Gerst, retiredArizona Summit Law SchoolJanuary 2016

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