PAROLEEVIDENCERULE1. ISSUE

Agreementinwriting?

Onepartyclaimspriororal/writtenagreement?

Prioragreementwasnotinthewritingbutwasintendedtobe

partofK?

WHETHERTHISPRIORAGREEMENTCOMESINDEPENDSON

P.E.R.

2. RULE

R209+215

• Partieshaveintendedawritingasthe

finalexpressionofallorpartoftheir

agreement=evidenceofanyotherprior

termisnotadmissibletocontradictthe

writing

Traynor

• PartiestoawrittenKhaveagreedtoan

integration(completeandfinalembodimentoftheterms

ofanagreement)=evidencecannotbeusedtoaddor

changetheterms

• Whenthereisapartialintegration=ruleappliesto

integratedpartbutPERcouldbeusedtoproveelements

oftheagreementnotreducedbythewriting

3. WHY

Juriesfavorunderdog

Peoplemakeupagreementthatneverhappened

CertaintyinKinterpretation

4. INTEGRATION

COMPLETE

• ‐

• PartiesintendedthewrittenKtobeafinalandcomplete

statementoftheagreement

PARTIAL

• Partiesintendedthewritingtobefinalexpressionof

partoftheagreement

1. FORMALINTENT:(traditionalview)writingcould

betreatedasanintegrationiftakenasawhole

andonitsfacethewritingappearstobean

instrumentthatcompletelyexpressestheparties

agreement(writingisevidenceofintent)[Gianni

v.Russel]1

1

2. ACTUALINTENT:(modernview)writingisan

integrationonlyifthepartiesactuallyintended

forthewritingtobeintegrated.(courtscan

considerrelevantevidencetodeterminethe

intent)[Mastersonv.Sine]2

UCC2.202(cmt3):3

• Onlyifthetermwouldhavecertainlybeincludedinthe

writing,ifagreedupon,thenitmustbekeptfromthe

trieroffact.

§216

• Naturallytest,itisatermthatwouldhavenaturallynot

beenomittedthenacompleteintegration

5. MERGERCLAUSES

AprovisioninaKthatprovidesthat“theKisthecompleteand

finalstatementofallthetermsthepartieshaveagreedupon”

‐

�Gianniv.Russel:IfthetermisatermthatwouldhavenaturallybeenincludedintheKandembracesthefieldftheallegedoralKthenthecourtwillnotemploytheP.E.R.(gaveuprightstoselltobaccoinexchangeforexclusiverightstosellsoda;whenanothercompanybegansellingbeverages)2 �Mastersonv.Sine:IftheKappearstobecompletethecourtmuststillconsiderthepartiesintent.(rejectsGianni)(AranchwasconveyedbyadeedbutreservedtherighttorepurchasetheranchatacertainrateonlytoPinordertokeepitinthefamily)3

(traditionalapproach‐majorityrule)clausesaredeterminative

onthequestionofwhetherthewritingisanintegration

(modernapproach‐minorityrule)willsometimessayitisone

factorindeterminingwhetherthereisanintegration

6. DEFENSES:

claimitisunconscionable

fraud

duress

mistake[Bollingerv.CentralPennsylvania]4

illegality

7. EXCEPTIONS

Separateconsideration

• EvenifthewritingisintegratedthePERcouldapplyif

thewrittenagreementandtheparolagreementare

supportedbyseparateconsideration

Collateralagreement

• Iftheparolagreementisrelatedtothesubjectmatter

butnotpartofthewriting(collateral)thenPERis

admissible

4 �Bollinger:AcourtcanreformaKforamutualmistakewhereatermthatwouldhavenaturallybeenincludedisleftout.(burywasteonlandsolongastheycoveredandfilledtheholeleavingthingslevel)

Naturallyomittedterms‐R216

• (modernrule)‐PEisadmissibleifitconcernsatermthat

wouldhavenaturallybeenomitted.

1. Naturallyifterm

a. Doesn’tconflictwithwrittenintegration

b. ‐

c. Concernsasubjectthatsimilarparties

wouldnotordinarilybeexpectedto

includeinthewriting.

i. Reasonablepersonwouldhave

omittedit

ii. Actualpartiesmayhaveomittedit

[Mastersonv.Sine]5

8. Analysis

Didthepartiesintendforthewritingtobeafinal

statement(integration)

Isitapartialoracompleteintegration?

• Gianni(writing)

• Masterson(partiesintent)

Lookforamergerclausemaybeunconscionable

5 �Mastersonv.Sine:Courtshouldconsiderthepartiesintentwhendiscerningwhattermscomeinandothersdon’t.

Lookfor§216naturallytestomission

LookforUCC2.202certainlytestincluded

Lookforevidencethatthewritingwasthefinalstatement

• Ifitisacompletestatement§214interpretingevidence

canalwaysbeadmitted

‐INTERPRETINGKLANGUAGE

1. RULE

Wheretheinterpretationofaexpression(wordsorconductof

oneparty)isinissuetheexpressionshouldreceiveanobjective

interpretation(reasonablepersonstandard)

Vague

• Whenapplicabilityinmarginalsituationisuncertainthe

courtwillfindaKunderareasonable

interpretation[Frigalimentv.BNS]6

Ambiguous

• Twocompletelydifferentideasofthemeaning[Oswald

v.Allen]7

2. EXCEPTIONS

Whenatermcouldeasilybeasmeaningtwodifferentthings

[Rafflesv.Wichelhaus]8

Whenbothpartiesinterpretationisdifferentfromtheobjective

meaning.(disputeunlikely)

Whenonepartyknowsoftheothersinterpretationthenthe

knowninterpretationrules.AknowsB’sinterpretationsoB’s

wins

Whenthereisacommontradeusage[Hurstv.Lake]9

6 �Frigalimentv.BNS:Wherethetermisvaguethecourtwillapplythemoreobjectivedefinitionoftheterm.(oldchickencase)7 �Oswaldv.Allen:wherethetermofaKisambiguousthecourtwillfindnoKunlessonepartyknewoftheothersunderstanding(Swedishcoincollection).8 �Rafflesv.Wichelhaus:WheretherearetworeasonableinterpretationsthecourtwillfindnoK.(twoshipscalledPeerless)9 �Hurstv.Lake:Wherethereisacommontradeusagethecourtwillemploythatstandardtointerpretambiguity(meatscrapscasewherethemeatshippedwasnothighenoughprotein)

3. INTERPRETINGTOOLS

Plainmeaningrule:whatpartiesreasonablyunderstoodtermto

mean

PublicInterest:(thinkPeevyhouse‐courtlookedtosupport

publicpolicynotthe∏)

Expressiounius:toexpressoneistoexcludeothers

‐

Nascituasociss:knownfromitsassociates

ContraProferentum:againsttheauthorofK

4. EVIDENCENEEDED

EvidenceinternaltotheK

Dictionary

Foreignlanguage

Statutesorregulations

Tradeusage,courseofdealing,custom

Mostlikelyintentionofparties

‐GAPFILLING

1. RULE

GoodfaithobligationsmeansthatPartyAwillnotdoanything

toreducethereasonableexpectationofpartyBandjeopardize

theexpectationoftheK.

2. UCC

R205&UCC1.203

• InallK,thereisanimpliedobligationofgoodfaithon

bothparties.(Easternv.Gulf)10

10

1.201(19)

• Definitionofgoodfaith

2.103

• Saleofgoods

• Merchantshaveahigherstandardofgoodfaith;haveto

operatebothsubjectivelyandobjectivelyongoodfaith.

2.208

• Courseofperformance‐partiesconductthroughoutthe

K[Easternv.Gulf]

3. WHY

Fairness

4. LIMITATIONS

Therewasagoodfaithobligationinthecontractbutthegoodfaithobligationdoesnotmeanbestefforts.[Zilg]11

‐

Theimpliedobligationcan’tcontradicttheexpressedtermsof

theK.[Daltonv.ETS]12

�Easternv.Gulf:WherethereisaKforthesaleofgoodstheUCCgoverns(2.103);Easternviolatedimpliedtermofgoodfaith;fuelfreightingisatradecustom(1.205);courseofperformanceappliesunder2.208.11 �Zilgv.PrenticeHall:Wherethereisanissueofapartiesobligationstoanotherparty,thecourtwillonlyfindanimplieddutyofgoodfaithnotbestefforts.(publishingcompaniesobligationstotheauthor)2.30612 �Daltonv.ETS:WherethereisaKthereisanimpliedobligationofgoodfaithandfairdealingssolongasitisnotinconsistentwiththetermsoftheK.(studentwasaccusedofcheatingonatestandtheboardrefusedtofullfilltheirgoodfaithobligation)

Theimpliedobligationdoesnotallowthatpartiescanadda

term/dutyespeciallyifitwouldcontradicttheexpressedterms.

[BKv.Weaver]13

5. WoodsRule

Courtshavepresumedemploymenttobeatwillandthatan

employeecanbedismissedatanytimeforanyreason

• Oldercourtsplacesomepublicpolicylimitationson

woodsrule(addingtermstoKforemploymentatwill)

1. Somethinginconvo,oremploymentmanualthat

mightimplyfiringonlyforcause.

2. PublicPolicyexception:atwillemployeesmay

notbeterminatedforengaginginconductin

whichthepublichasanimportantinterestlike1)

refusingtocommitperjury2)filingaworkers

compensationclaim3)engaginginunionactivity

or4)callingtheemployersattentiontopossible

criminalviolations.[Sheetsv.Teddy’s]14

13 �BKv.Weaver:Whereatermisnotincludedinthewritingthecourtwillnotusetheimpliedobligationofgoodfaithtoaddterms.(BKfranchisenexttoanalreadyexistingfranchise)14 �Sheetsv.Teddy’s:Anemployercannotviolatepublicpolicybyaskingemployeetobeatriskforcriminalsanctions.(wasgoingtoreporttheshadyfoodpackagingpracticesandwasfired)

3. Employmentcontracts,amimpliedobligationof

goodfaithandfairdealing…hastobesome

reasonforfiringanemployee.

• Moderncourtshavecutbacktheabove3

1. Statutesprovidingnogoodfaithobligation

2. Disclaimersinemploymentmanuals

3. Publicpolicynarrowedconsiderable

4. ‐

5. Doesnotapplytoinhousecounselbecause

violatesclienttrust(2courtsdisagreebecause

attorney’sdeserveprotectionforreporting

unethicalpracticesoftheiremployers)[Ballav.

Gambro]15

6. ANAYLSIS

WhenandwhywillacourtreadanimpliedtermintoaK?

WhatmeaningwillthecourtgivetoanimpliedtermintheK?

Dotheexceptionsapply?

Doestradeusagegovern?

15 �Ballav.Gambro:anattorneywasfiredinretaliationforreportingunethicalpracticesofhisemployerandthecourtprovidedhimnoprotection.

‐CONDITIONS

1. RULE

Kmayprovideacondition“apartydoesnothaveadutyunless

aconditionisfulfilled

Apartiesfailuretoperformmaybeexcusedbythefailureto

meetacondition

2. DEFINITION

Aneventorstateoftheworldmustoccurorfailtooccurbefore

apartyhasadutytoperformundertheK

OR

Aneventorstateoftheworld(occurrenceornonoccurrence,

whichwillreleaseapartyfromitsdutytoperformundertheK

3. Restatements

R2d244

• Aconditionisanevent,notcertaintooccur,whichmust

occur,unlessitsnonoccurrenceisexcused,before

performanceunderaKbecomesdue

R2d217

• Conditions‐areasonablewell‐acceptedexceptiontothe

parolevidencerule.Oneispermittedtouseparol

evidencetoshowthepartiesagreetoacondition

precedenttotheeffectivenessofaK.

1. Theconditioncannotcontradictthewritingin

orderfortheconditiontoapply

4. ISSUES

Havethepartiesmadeaparticulareventornonevena

conditionofoneparty’sperformanceorbothparties

performance?

Hasthecondition,ifitisone,beensatisfied?

‐

Ifithasn’tbeensatisfied,whatthelegaleffectoftheno‐

occurrenceofacondition?

• BOATEXAMPLE

1. SarahpromisestocarryCarl’sgoodsinhership

fromLondontoGibraltar.Carlpromisetopay

herforthatservice500l.Inadditiontheparties

agreethatinsomefashionSarahwillgetthe

goodstherein25days.Twowaystoword25day

condition

a. Sarahcouldpromisetogetthegoods

therein25days.Ifshe’slater,thenshe

hasbreachedherpromiseandwillbe

liablefordamages

b. Partieswillwordthetermasacondition.

“ItshallbeaconditionofCarl’sobligation

topaythatSarahgetthegoodthere

within25days”Ifsheislate,shehasn’t

breached,shejustdoesn’tgetpaid.This

excusesCarl’sperformance.

c. Itisalmostalwaysmoreequitableto

construelanguageasapromisethanasa

condition.

5. EXCEPTIONS

Ifareasonableattempttomeettheconditionismadebutfails

thepartyisrelievedfromperformance[Luttingerv.Rosen]16

Timingprovisions:Whenadateissetforapayment,payment

willhappenonthatdayitisnotconditionalbecausethatisthe

daythatcontractorsusuallygetpaid;tradeusage[Peacockv.

ModernAir]17

Conditiontoactingoodfaith[Gibsonv.Cranage]18

• ‐

• Subjective:ifindividualtasteisinvolved,exercise

judgmentingoodfaith

• Objective:ifeconomicutility,fitness,marketabilityor

performancetosatisfyareasonableperson

6. MITIGATINGDOCTRINES

Prevention:

16 �Luttingerv.Rosen:Whenapartymakesareasonableefforttomeettheconditiontheniftheycannotcompletetheconditiontheywillbeexcusedfromperformance.(tryingtogetapprovedforaloanataparticularrateandcouldnotachieveit)17 �Peacockv.ModernAir:Wherethereisatimingprovisionforpaymentthecourtwillnotfindthatthereisaconditionprecedentbutratherthatpaymentshouldoccuronacertaindateregardless.(subcontractorandGCsaidwouldpay30daysafterownerpaidbuttheGCshouldbeartheriskofnonpaymentnottheSC)18 �Gibbonsv.Cranage:Wherethereisaconditiontoactingoodfaiththecourtmayapplyasubjectivestandardwhenanindividual’stasteisinvolvedandthecourtwilluseanobjectivetestwherethereisaneconomicimplication.(portraitofdeaddaughter)

• ApartytoaKcannotrelyonthefailureofanotherto

performaconditionprecedentwherehehasprevented

thatpartyfrombeingabletoperform

Waiver,EstoppelandElection

• Waiver‐R2d84

1. Intentionalrelinquishmentofaknownright

2. Waiverisnotexplicit

• Estoppel‐R2d84(2)‐UCC2.209(5)

1. Apartythat,withoutconsideration,haswaiveda

conditionthatiswithintheotherparty’scontrol

beforethetimeofoccurrenceofthatcondition

canretractthewaiverandreinstatethe

requirementthattheconditionoccurunlessthe

otherpartyhasreliedtosuchanextentthatthe

retractionwouldbeunjust

• Election:

1. Apartythatchoosestodisregardthe

nonoccurrenceofaconditionisboundbyan

electiontotreatthisdutyasunconditional

Impossibility

• ‐

• Impossibilityorimpracticalityexcusesthefulfillmentofa

conditionoffulfillmentoftheconditionisnotamaterial

partoftheagreedexchangeandforfeiturewould

otherwiseresult

‐CONSTRUCTIVECONDITIONS

1. CONSTRUCTIVECONDITIONSOFPERFORMANCE

Thedutyofeachpartytorenderperformanceisthattheother

partyhasrendereditsperformanceormadetenderofits

performance.

Ifthe∏breachedtheduty,providedthattheperformancewas

aconstructiveconditionoftheothersduty,thenthe∏isinthe

wrong.

Withoutgoodsecuritythereisnotdutytoperform[Kingstonv.

Preston]19

Workmustbecompletedpriortoperformanceofpayment

[Stewartv.Newbury]20

2. MITIGATING

19 �Kingstonv.Preston:Wheresufficientsecurityisarequirementthecourtwillfinditaconditionprecedent(apprenticewantedtobuythebusinessbutneededtopayasecurityandneverdid)20 �Stewartv.Newbury:Wherethepartiesdonotprovideotherwisepaymentwilloccuruponcompletion(contractorcompletedpartoftheworkandwantedpaid;courtheldthattheownercouldpayuponcompletion)

Issue

• Whatsortofconductbyonepartygivesrisetoacause

ofactionforbreachbyanotherparty,orgivesto

anotherpartytherighttowithholditsown

performance.

Doctrineofsubstantialperformanceorsubstantial

completion[Jacob&Young]21

• Whenthe∏breachesbutstillcompletesperformance

theotherpartyisstillunderadutytoperform

DoctrineofDivisibility

• Whentheperformancehasbeenorcanbebrokeninto

differentpartsandassignedavaluethenthebreaching

partycanonlyrecoverfortheworktheycompleted.[Gill

v.JohnstownLumber]22

‐

DoctrineofRestitution

• WhereaKisunenforceableforsome

reason(impracticality,frustrationetc)butasubstantial

21 �Jacob&Youngv.Kent:Whereapartyhassubstantiallycompletedtheworktheymayrequestpaymentfortheportioncompletedorifthereisnomaterialbreachfullpayment.(readingpipecase)22 �Gillsv.JohstownLumber:WhereaKprovidesforpartialpaymentforpartialcompletionthenthecourtmayawardrecoveryfortheportioncompleted.(lumbertransport)

benefitwasconferredupononeofthepartiesthenthe

aggrievedpartymaywantrestitutioninsteadof

expectation

• Resistancetothisdoctrinebecauseseemsunfairtoleta

breachpartyrecoveranything.[Brittonv.Turner]23

23 �Brittonv.Turner:whenaportionoftheKisperformedthebreachingpartymaybeabletorecoverfortheworkcompletedtoavoidunjustenrichment(beganaprojectandwalkedoff)

‐BREACHINTHECOURSEOFPERFORMANCE

1. RULE

Nonmaterialbreach‐“yesIbreachedbutyourlaterbreachwas

moreserious”[Walkerv.Harrison]24

Materialbreach(factuallysensitive)‐“yourbreachexcusesme

fromperformance”[K&Gv.Harris]25

Breachatthetimeofperformancegivesrisetoanimmediate

COA

• Acontractorcontracttobuildamillingdollarbuilding

andputsonsomeofthewrongdoorknobs,the

Contractorwillbeliablefordamagesbuttheowner

won’tbeexcusedfrompaying(performance)

Factors

• Theextenttowhichthebreachingpartyhasalready

performed

• Wasthebreachwillful,negligentorwasitcompletely

innocent

24 �Walkerv.Harrison:Wherethethereisatrivialbreachthecourtwillnotfindamaterialbreach.(tomatoonthesign)25 �K&Gv.Harris:Whereperformanceisaconstructiveconditiontopaymentthecourtwillfindthatuponabreachtheaggrievedpartywillnotbeheldtoperformance.(workmanlikeconduct)

• Theextentofuncertainlythatthebreachingpartywill

performtheremainderoftheK

• Extenttowhichthenonbreachingpartywillobtainthe

substantialbenefithehasbargainedfor

• Theextenttowhichthenonbreachingpartycanbe

compensated

• Hardshiponbreachingpartyifthebreachismaterial

Repudiation

• Majorbreach

• UCC2.609

1. ‐

2. avictimofaminorbreachshouldrequest

assurancesofadequateperformanceinthe

futureandiftheothersidedoesnotrespond

thenyoucansaytheyrepudiated

Responsestothisdefense

• Isubstantiallyperformed

• Kisdivisibleandyouhavetopaymeattherateforthe

portionIdidcomplete

• IamentitledtorestitutionfotheKfortheamountof

thebenefitIhaveconferredonyou

• Bybreachwasnotmaterialanditdoesnotexcuseyour

failuretoact.

LIMITATION

• SeparateKdoctrine:apartycannotbreachinone

contractjustbecausetherehasbeenabreachfrom

anothercontract[NWLumberv.Continental]

3. Application

Isthereanuncuredbreach?

Isitabreachofdutytoperformthatwastobeexchanged

undertheexchangeofpromise?

Whattheperformancetobeperformedbeforetheaggrieved

party’sperformance?(materialbreach)

• Ifnotamaterialbreachthenpartiesmustperformand

canrecoverpartialdamagesbutnotcanceltheK.

• Ifamaterialbreach2options1)treatatcompletebreach

or2)treatasapartialbreach

IfamaterialbreachthenCOAfordamagesandnoperformance

fromaggrievedparty

IfthebreachisnotmaterialthenCOAfordamagesbutother

sidemustperform

‐ANTICIPATORYREPUDIATION

1. RULE

IfeitherpartytoaK,beforetimeofperformance,repudiates,

therepudiationexcusesperformanceofotherparty

TheinnocentpartymaytreatARasamaterialbreach

ActsareasufficientAR[Stewartv.Newbury]

InsistenceontermsnotcontainedintheKconstitutesanAR

Renunciationmaybetreatedasamaterialbreach.[Hochsterv.

DeLaTour]26

2. EXCEPTIONS

InstallmentK

• Cannotfilebreachearlyinsteadmustwaituntildeadline

forcompletion.

Accelerationclause

• StateadefaultonanyonepaymentonthisKshallcause

allremainingpaymentsundertheKtobedue.

Declaratoryjudgment

• Declarationbycourtthatbuyerbreachedandpayment

willbeduewhenKsays26 �Hochsterv.DeLaTour:canyousuebeforethereistechnicallyabreach?Yes,youcansueearlysothattheaggrievedpartycanbefreefromhisobligation.

3. ANALYSIS

Iftherecipientofarepudiationfreetomakeother

arrangements?

Cantherecipientofarepudiationtocourtimmediately?

Cantherecipientofarepudiationignoretherepudiationand

waitforperformance?

Whataretheconsequencesiftherecipientofrepudiationurges

retraction?

Canapartywithdrawrepudiation?

‐DEFENSES

MUTUALMISTAKE1. RULE

AmistakebybothpartiestoaKconcerningabasicassumption

offactonwhichtheKisbased

(traditional)ifthe∆wasmistakenconcerningthesubstanceor

identityoftheKsubjectmatterthenKwasvoidable

• IfitwasonlyanaccidentoracollateralattributeKwas

notvoidable(barrencow)

(modern)ifthemistakeisconcerningabasicassumptionofthe

factthentheKisvoidablebytheadverselyaffectedpartyIthe

mistakehasamaterialeffectontheexchangetheadversely

affectedpartydidnotbeartheriskofthatassumption.

• Aracehorseispurchasedbutthehorsediesbeforeit

wassoldbutneitherpartyknew.ThentheKisvoidable

b/cbothpartiesweremistaken(jewelerscase)

2. DEFENSES

Mistakewasnotbasicenough[R2d152]/questionofvalue

Partiesconsideredthepossibilityofamajorgainorloss/assume

riskbyvirtueoftrade

Notamutualmistakebecause“Ihadaninkling”

• PerfectknowledgeDutytotellperson;Kundone

• Noknowledgemutualmistake;Kundone

• Middlegroundnodutytotellforjustahunchbutnot

exactlymutualmistake

3. RESTATEMENTS

151

• Mistakeisabeliefthatisnotinaccordwiththefacts

‐

152

• ForamistakeofbothpartiesatthetimetheKwasmade

1. Basicassumptionhasamaterialeffectonthe

aggrievedexchange

2. Kisvoidableunlessvoidingpartyassumedthe

riskofmistake

154

• Partybearstheriskwherethepartyisawareatthetime

ofKthatshehasonlylimitedknowledgewithrespectto

thefacts,buttreatsherlimitedknowledgea

sufficient(consciousignorance)[Nelsonv.Rice]27[Stees

v.Leonard]28

1. Idon’tthinkthepaintingsareveryvaluable,

althoughIknowtheymightbe,soIwillsellthem

fornotverymuch.IknowIshouldhavethem

authenticatedbutthattimelyandcostly.Court

allocatestherisktoonepartyonthegroundis

reasonabletodoso

158

27 �EstateofNelsonv.Rice:Whenapartyhappensonawindfallattheexpenseoftheseller;thesellerassumestherisk(154)($60paintingthatwereworth$1million)28 �Steesv.Leonard:(olderandharsherlaw)whenapartyentersaKthatpartyisboundbytheKtocompletetheK(buildingthatkeptcollapsing)designdefectivebecausetheysignedKtheyagreedwithdesign;prioragreement(PER)nopebecausecontradictsK

• Eitherpartycanhaveaclaimforrestitutionfollowinga

rescissiononthegroundsofmistake(forward

looking)[Rennerv.Kehl]29

153

• Unilateralmistakes[Elsinor]

‐IMPRACTICABILITY

1. RULE‐R2d261

Performanceisexcusediftheithasbeenmadeimpracticable.

Occurrenceofaneventthatwassurenottooccuratthetime

theKwasmade

Adverselyaffectedpartymustnothaveassumedtheriskofthe

eventoccurring

2. SELLERSDEFENSE

WhenanelementoftheKbecomesunavailablebecauseofan

eventtowhichneitherpartyisatfaultthentheKisvoidable.

[Taylorv.Caldwell]3029 �Rennerv.Kehl:Wherethereisamutualmistakethecourtwillmakebothpartieswholeagain(jojobaplants)

Theoccurrenceofaneventthatsimplymakesperformance

moredifficultdoesnotrendertheKlegallyimpossibleor

impracticable.[Transatlanticv.US]31

• Test

1. Acontingency(somethingunexpected)must

haveoccurred

2. Unexpectedoccurrencemustnothavebeen

allocatedfor

3. Occurrenceofthecontingencymusthave

renderedperformancecommercially

impracticable.

UCC2.615

• Doctrineofcommercialimpracticability:theunforeseen

costincreasethatwouldexcuseperformancemustbe

morethanonerousorexpensive,itmustbeunjustto

holdthepartiesbound.[Easternv.Gulf]

3. VARIATIONS

Superveningprohibitionbylaw

30 �Taylorv.Caldwell:Whenperformanceisimpracticablethenbothpartiesareexcusedfromperformance(performancehall)31 �Transatlanticv.US:Whereperformanceisalittlemoreexpensivedoesnotmeanperformancewasimpracticable(hadtotakeadetourandcostthemmoremoney)

DeathofonepartyinapersonalservicesK

‐

Destructionofthesubjectmatter[Taylorv.Caldwell]

4. HYPO

FarmermakesKtosellwheattoG,GsellswheattoWheaties.

Droughtoccursandnowheat.Isthefarmerliableforbreach

b/ctheGhadtopurchaseatahigherprice?

• Defense:impossibilityofperformanceorcommercial

impracticability

• Issue:WastheKforaparticularquantityofwheator

specificallyforallthefarmerswheat?

• Ifit’sforthefarm’swheatthenperformanceis

impossibleanddefenseworks.Ifitisforaspecific

quantity,performanceisnotimpossibleandthenfareris

liableforbreach.

‐FRUSTRATIONOFPURPOSE

1. RULE‐R2d265

Performancemaybeexcusedunderthedoctrineoffrustration

wherethepurposeorvalueoftheKhasbeendestroyedbya

superveningeventthatwasnotreasonablyforeseeableatthe

timetheKwasenteredinto?

2. BUYERSDEFENSE

Alwayspossibleforthebuyertofulfillhispromisetopay,even

ifhegainsnothing

WheretheobjectofoneofthepartiesisthebasisfortheK,

performanceisaconstructiveconditionontheattainmentof

thatcondition.[Krellv.Henry]32

32 �Krellv.Henry:AchangeinvalueofthesubstanceoftheKdoesnotrendertheKvoidable(coronation)

‐UCC

ArticleI1. 1.102:meanttobeliberallyconstruedtopromoteunderlyingpolicies

Simplify,clarifyandmodernizelaw

Permitthecontinuedexpansionofcommercialpracticesby

validatingtradecustomandusageaswellaspartiesexpressed

agreements

Tomakethelawuniformamongthevariousjurix

2. PRINCIPLESOFARTII:

Goodfaith

Commercialreasonableness

Facilitationofactualcommercialpracticesthroughthe

incorporationofcourseofperformance,courseofdealingand

usageoftrade

• 2.208‐courseofperformance‐howweperformtheK

• 1.205‐courseofdealing‐howweperformedunderpriorK

• 1.205‐usageoftrade‐howtheindustryunderstandsK

practices

3. GOODFAITH‐

2.201(19)‐Honestyinfact:

• Subjectivetest

• Solongasthepersonreallybelievedtheircontention

thatisgoodfaith

1.203

• Obligationofgoodfaithoneverypartyofatransaction

governedbyanypartoftheUCC

2.103

• ‐

• Supplementsgoodfaithdef.underArtIIgoodfaithfor

merchantsincludesnotonlyhonestyinfactbutalsothe

observanceofreasonablecommercialstandardsoffair

dealinginthetradeGOODFAITH+FAIRDEALINGS=

MERCHANTOBLIG.

1. 2.104‐merchant

• Dealsingoodsofthatkind

OR

• Byhisoccupationheholdshimselfoutas

havingknowledgeorskillpeculiartothe

practicesinvolvedinthetransaction

2. SUPERMERCHANT‐lookforthebroadest

definitionofgoods[wigletcase]

3. Can’tdisclaimgoodfaithorcommercial

reasonablenesssomakesuretheconditionsare

notinherentlyunreasonable

‐SCOPEOFARTII

1. 2.102

Appliestotransactionsofgoods

• Notjusttransactionsbymerchants

• ONLYsupermerchantsmakemerchantabilitywarranties

• WhereaKisahybrid(serviceandgoods)thecourtwill

looktoseeiftheKwasmoreserviceormoregoodsorif

thegoodswereindependentfromtheservicepartofK.

[AnthonyPoolsv.Sheehan]33

2. 2.105

Goods=allthingsmovableatthetimeofidentificationtotheK

otherthanmoney,investmentsecurities,andthingsinaction

3. TESTS[AnthonyPoolsv.Sheehan]

Predominantpurposetest

33 �AnthonyPoolsVSheehan:wherethereisahybridK(serviceandgoods)thecourtwillapplythepredominantpurposetest

• Whetherthepredominantfactorisatransactionforthe

saleofgoodswithlaborincidentallybeinginvolved.

Gravamentest

• Whetherthereasonforthebreachisdirectlyrelatedto

thefaultoftheserviceorthefaultofthegood

Policy

• Ifthetestresultsintransactionforservicesthenitisnot

UCCbased

‐KFORMATIONUNDERUCC

1. 2.204

Kforthesaleofgoodscanbemadeinanymannersufficientto

showanagreement

Stillrequiresameetingoftheminds

2. 2.206(1)(a)

Apartymayacceptinanmannerandbyanymedium

reasonableinthecircumstancesunlesstheofferunambiguously

statesotherwise.

UnilateralKcanbeacceptedbyapromisetoperform

OptionKisenforceablewithoutseparateconsideration(2.205)

3. 2.207EliminatesMirrorImageRule

4routes

• RouteA:adefiniteandseasonableexpressionof

acceptanceorawrittenconfirmationwhichissent

withinareasonableamountoftimeoperatesasan

acceptanceeventhoughitstatestermsadditionaltoor

differentfromthoseofferedoragreedupon(couldbe

calledthefirstshotdoctrine)

1. Isthereacontract?Yes

2. Whataretheterms?Termsprovidedbythe

acceptor.

3. Arethenewtermsaccepted?Theyare

proposalstotheexistingcontract;iftheyare

merchantsthenthetermsbecomeanautomatic

partofthecontract,withtheexceptionsthatthe

newtermsdonotmateriallyalterthe

characteristicsoftheoriginalbargain,orifthe

offerlimitstheacceptance,ornotificationof

objectiontothemhasbeengivenorisgiven

withinareasonabletime.

• ‐

• RouteB:Unlessacceptanceisexpresslymade

conditionalonassenttotheadditionalordifferent

terms.

1. Isthereacontract?Aconditionalacceptanceis

usuallyacounterofferandnotacceptance.Have

tofindthattheoffererhasassentedtotheterms

ofthecounteroffer.(lastshotdoctrine)

2. Whataretheterms?Thecounterofferercontrols

theterms

3. Arethetermsaccepted?Notnecessarily

acceptedtermsbutarethetermsagreeduponor

aretheyimpliedbytheUCC

• RouteC:conductbybothpartieswhichrecognizesthe

existenceofacontractissufficienttoestablisha

contractforsalealthoughthewritingsofthepartiesdo

nootherwiseestablishacontract.

1. Isthereacontract?Ifthereisconduct

2. Whatareterms?Noonepartycontrolsthem;

whateverwasdickeredforandgapfillerterms

3. Arethetermsaccepted?Ifthereisconduct?

• RouteD:anoralagreementandbothpartiessend

confirmations(onewithanewterm)

1. Isthereacontract?Anoralcontract

2. Whataretheterms?Becauseofthenewterm;

wetreatanewterminaconfirmationthesame

waywetreatanacceptanceofrouteA.

Apartymustexpressedunequivocalassenttotheterms

[Diamondv.Krack]34

‐STATUTEOFFRAUDS

1. 2.201‐sof

Kforthesaleofgoodsmorethan$500isnotenforceableby

wayofactionofdefenseunlessthereissomewritingsufficient

toindicatethataKforsalehasbeenmadebtn.PartiesAND

SIGNEDBYTHEPARTYAGAINSTWHOMENFORCEMENTIS

SOUGHT.

Dispenseswritingrequirementin4situations

• Btwnmerchants,ifconfirmationisreceivedin

reasonabletimeandissufficientagainstsender,unless

objectswithin10days

34 �Diamondv.Krack:Whereassentisnotunequivocalthenthetermisnotaccepted.(tubingmanufacturing)

• Whenasellerhasmadeasubstantialbeginninginthe

manufacturingofaspeciallymanufacturedgoodorhas

committeditselftobuygoodsforma3rdpartyitmay

enforceanoralKforthemifitcannotreselltheminan

ordinarycourseofbusiness.(Distribu‐Dorv.Karadanis)35

• IfapartyjudiciallyadmitstheexistenceoftheallegedK

(2.201(3)(b)

• Totheextentthatthesellerhasreceivedandaccepted

paymentofthebuyerhasreceivedandacceptedthe

goods,theStatuteisnobar(2.201(3)(c)

2. Elements

EvidenceofK

Mustbesigned(2.201(39)

Writingmustspecifyaquantity

3. Defenses

IneverenteredintoaK

EveniftherewasaK,therewasnoobjectivemeetingofthe

minds(nosignedK)

‐35 �Distribudorv.Karadanis:whenaportionofthegoodsarespeciallymanufacturedthecourtwillapplythemtotheSOFunlessonetermisnotspeciallymanufacturedthenSOFdoesnotapply.(mirrorandtubenclosures)

PAROLEEVIDENCERULE1. 2.202

Awritingintendedbythepartiestobeafinalandcomplete

statementofthetermsoftheagreementandcannotbe

contradictedbyanyprioragreementterm

Thefinalwritingcanbeexplainedorsupplementedusingthe

PER

• Bycourseofdealings,usageoftrade,orperformance

• Wherethereisapartialintegration,byevidenceof

consistentterms

2. TEST

Isthewritingintegrated?

Istheintegrationpartialorcomplete?

Ifnothentheruledoesnotapply!

Ifitiscompletelyintegratedthen(a)saysitcanstillbe

explainedorsupplementedbycourseofdealingorusageof

tradeorcourseofperformance)(214evidencecouldcomein

also)

Ifitisapartialintegrationthenconsistentadditionaltermscan

beintroduced(b).

3. 2.209(1)

Modificationdoesnotneedconsiderationtobebinding

Doesneedtobemadeingoodfaith

• DURESSAGAINSTIT

1. Oralmodificationsareokayunlessitfallsunder

theSOForisbadinbadfaith

2. Amodification(iffailsabove)canoperateasa

waiverofaoralmodificationclause.

4. 2.210

‐

(1)apartybayDELEGATEitsdutyunlesstheotherparyhasa

substantialinterestinperformancebythatparty(singer)

(2)apartymayassignarightunlessdoingsowouldmaterially

changethedutyoftheotherparty,orincreasemateriallythe

burdenofriskimposed.

‐GENERALOBLIGATIONS

1. GAPFILLER

Commonomissions(price,duration,payment,deliverydate)

2.204

• EventhoughoneormoreitemsareleftopenaKforthe

saledoesnotfailforindefinitenessifthepartieshave

intendedtomakeaKandthereisareasonablycertain

basisforgivenanappropriateremedy

2.305

• Price:

1. HowdoweknowthereisKwithoutaprice

2. Partiesintent

3. Orwhenthepriceisnotdeterminedbecauseof

onepartytheotherpartycancanceltheKor

assignaprice

2.306(1)

• Quantity

1. Noquantityunreasonablydisproportionateto

anystatedestimateorintheabsenceofastated

estimatetoanynormalorotherwisecomparable

prioroutputorrequirementsmaybetenderedor

demanded

2. OUTPUTSELLER:maynottenderan

unreasonablequantity[Feldv.Henry]36

a. Sellerhasagoodfaithobligation

b. Buyerdidnotgiveuprighttobuy

somewhereelse

c. ‐

d. Thislanguageseekstoprotectthebuyer.

Sellermustproduceandthebuyermust

pay

36 �Feldv.Henry:2.306anoutputsellerhasagoodfaithobligationtocontinuetohaveoutputandnothingmore(breadcrumbcase)

3. REQUIREMENTSBUYER:maynotdemandan

unreasonable[Easternv.Gulf]

a. Sellerdidnotgiveuprighttosell

elsewhere

b. Buyermustpurchaseingoodfaith

2.306(2)

• EXCLUSIVITY:Besteffortsforaexclusivity

requirement[Woodv.LucyLadyDuff]

1. Sellergivesuprightstosellelsewhere

2. Buyermustusebestefforts

3. LikearequirementsK,languageseekstoprotect

theseller

4. Buyermustoperateingoodfaith

2.311

• Unlessotherwiseagreedthebuyerhastherightspecify

theassortmentofgoods

2.308(a)

• Delivery

1. Sellersplaceofbusinessunlessotherwiseagreed

2. Ifnoplaceofbusiness,hisresidence

2.309

• Termination

1. Notification

2.307‐2.310

• Partiesmustcomplywithordinary,reasonable

commercialpractices

1. 310(A)buyerpayswherebuyerreceives

shipment(thebuyerhaspossessionofthegoods)

‐

DEFENSES

• Tradeusage

• Courseofdealings

• Courseofperformance

‐CODEWARRANTIES

1. 2.312‐2.318

Commercial‐lossiseconomic

Consumer‐personalinjuryfromadefectiveproduct

2. Buyer

Establishthatthesellerwarrantedthegoodsunder

• 2.313expressedwarranties

1. Affirmationorpromise

a. Ifthebuyercouldhavereasonably

consideredthestatementsfromtheseller

tobehisopiniononlythenthereisno

expressedwarrantybasedonaffirmation.

b. Relianceonstatementsarerequiredin

somestates.

2. Description[Keithv.Buchanan]37

3. Sample(actuallydrawnfromgoods)ormodel(not

drawnfrombulkofgoods)[Bartonv.Tra‐Mo]38

• DEFENSES

1. Puffing

a. Comparinggoodstoothergoods

b. Specificityoftherepresentations

c. Relatingtogoodsquality

d. Goodsexperimental

e. ‐

f. Buyersactualknowledgeofgoods

condition

g. Statementwrittenororal

2. Reliance

3. Privity(2.318)

37 �Keithv.Buchanan:whereasellerpresentsabrochure(affirmationsoffact)andwherethoserepresentationsarebasisforthebargainthereisanexpressedwarrantybutifthebuyerdoesnotrelyontheskillandjudgmentoftheSthenthereisnoimpliedwarranty.(boat)38 �Bartonv.Tra‐Mo:Whereasellerpresentsasampleormodelforthebuyertoconsiderinthebasisfortheirbargainthecourtwillfindanexpressedwarranty.(fueltanksmadeofanalternativematerial)

4. Expressedwarrantiescan’tbedisclaimed(2.316(1)

a. Disclaimerisdroppedifinconsistentwith

expressedwarranty

5. Mergerclause

• 2.314impliedmerchantability[Blockheadv.

Plastic]39[ValleyIronv.Thorin]40[Delanov.SCWineCo.]41

1. Appliedtoeverysaleofgoodsbyamerchant

withrespecttogoodsofthatkind

• 2.315impliedfitnessforaparticular

purpose[Blockheadv.Plastic]42[ValleyIronv.Thorin]43

1. Whenthesellerhadreasontoknowofthebuyers

needAND

39 �Blockheadv.Plastic:Whereawarrantyofmerchantabilityiseffectivelydisclaimedthecourtwillnotfindabreach(wigletcase)40 �ValleyIronv.Thorin:Wherethemerchantdealsingoodsofthatkindthecourtwillprovideabroadapplicationofgoodsmaterials(makeironcollarsTimReamcase)41 �Delano:breachofmerchantabilitybecause8000casesofwinewereunmerchantible.42 �Blockhead:Wherethebuyerspecifiesorhasmoreknowledgeaboutthegoodsinquestionthenthecourtwillfindnoimpliedwarrantyoffitnessforaparticularpurposebecausethebuyerisnotrelyingontheseller(wigletcase)43 �ValleyIron:whenabuyermakestheirintendedpurposeknownthenanimpliedwarrantyoffitnessapplies.(mighthitarock)

2. Thebuyerisrelyingonthesellersskillor

judgmenttoselectthegoods[Keithv.Buchanan‐

noimpliedwarrant]

3. Thesearelikelytohavebeenincludedhadthe

partiesconsideredsuchterms.

Provethatgoodsdelivereddidnotconformtothewarranty

andthatasaresultthebuyersuffereddamage.

3. Seller

‐

2.316authorizingcertainwarrantydisclaimers[Blockheadv.

Plastic]

2.719permittingcertainremedylimitations

2.318requiringameasureofhorizontalprivity

2.607(3)requirethatthebuyergivereasonablenoticeofthe

breach[Delanov.WineGrowers]44

2.735SOL

4. Issues

Isthesellerasupermerchant?Doeshedealingoodsofthat

kind?2.104

Arethegoodsmerchantableunder2.134(2)?

44 �Delanov.WineGrowers:mustgivenoticeofbreachofwarrantywithinareasonabletime

Didsellerbreachwarrantyofmerchantability?

Istheitembeingusedforitsordinarypurposesfoorfora

particularpurpose?Istheitmespeciallymanufactured?

Warrantyoffitness2.315

Didsellerbreachwarrantyoffitness?

Whatdefenses?

• Warrantydisclaimers2.316…wasitconspicuous?

• Remedylimitation2.719?Willwarrantyfailofits

essentialpurposeifthisisenforced

• Tradeusage(2.208)?Canbuyercomebackwithcourse

ofdealingresponse(Delano)?

• 2.607(3):didbuyergiveeffectivenoticeofthealleged

breachinrequiredreasonabletime?

Damages

• LV–CA

‐SELLERDEFENSESTOWARRANTYLIABILITY

1. Warrantydisclaimer2.316

(1)asellermaynotdisclaimanexpresswarranty

(2)adisclaimerofthemerchantabilitymustmention

merchantabilityandbeconspicuous(ifinwriting),adisclaimof

thefitnesswarrantymustbeconspicuousandinwriting[Catev.

Dover]45

• ThemannerinwhichtheKwasentered

• Whetherthepartieshasareasonableopportunityto

understandtermsoftheK

• Whetherimportanttermswerehiddeninfineprint[Cox

v.Lewiston]46

2. Remedylimitation2.719[Moscatiellov.Pittsburg]47

(2)invalidatesanyremedylimitationthatcausesawarrantyto

failofitsessentialpurpose

(3)providesthatalimitationofPJdamagesinasaleof

consumergoodsisprimafacieunconscionable[Coxv.Lewiston

Grain]

***beawarethatifthegoodshaveneededrepeatedrepair

thenthelimitedwarrantythentheproperremedywouldbeto

replacetheentiregood45 �Catev.Dover:Adisclaimermustbeconspicuoustoareasonableperson2.316;actualknowledgeofthedisclaimer(liftsthatneverworked)46 �Coxv.Lewiston:Awarrantydisclaimerisunenforceablewhentheyarenotnegotiatedbetweenthebuyerandseller***BergRule:applieswhenthesalehasspecialrequirements.Appliesatestforunconscionable(seedsfailedtogerminate)47 �Moscatiellov.Pittsburg:Adisclaimeragainstmustbeconspicuousandcanbeoffadifferentfontorcolorandtheremedylimitationwasunconscionablebecauseitwasswayingononedirection(pavingmachine

3. Noticerequirement2.607(3)

Requiresabuyertonotifyasellerwithinareasonabletimeof

anyclaimedwarrantybreachorbebarredfromremedyBuyer

bearstheburdenofproof(4)

‐NOTICE

1. 2.607(3)Requiresthatthebuyernotifythesellerofanyalleged

warranty“withinareasonabletime”

Cmt4:allowsaretailconsumersomewhatmoretimetonotify,

butforamerchantareasonabletimebaybeveryshort(10days

forperishablegoods)

Noticegivenimmediatelyupondiscoveryofbreachordinarily

satisfiestherequirements

Mannerandcontentcanbeimportant;oralnoticeisordinarily

sufficientmayhavetospecifybreach

Occasionally,directnoticeformbuyertosellerisnotrequiredat

all;whenthesellerhasactualknowledgeofthedefectofthe

product,orisdeemedtohavebeenreasonablynotifiedbythe

filingofthebuyerscomplaint

2. Variations

Sellerhasactualknowledgeoftheproblem

Ifitisaconsumersalethathasresultedinpersonalinjury

3. Issues

Prejudicetest:wouldthesellerbeenabletofixtheproblemif

theyhadfoundoutearlier,hasthecarbeendriventoomuchto

recognizetheproblem

Effectivepolicyargument:evenifwehadgivennoticetwo

weeksearlier,itwouldn’thavemattered

Iftheconsumerisactuallyamerchant,thatpersonshouldbe

heldtoahigherstandard

‐TITLE

1. Whendoestitlepass?

Onlypartiesinterestedinthisareinsurancecompaniesandtax

authorities

2.401(2)unlessotherwiseexplicitlyagreed,titlepassesatthe

timeofdeliverytotheseller

2.308GAPFILLER:unlessotherwiseagreed,deliveryisathe

seller’splaceofbusiness

2. Whendoesgoodtitlepasstothebuyer

2.403Voidabletitle(sub1)Entrusting(sub2)

• Voidabletitleiscreatedbybadcheckscanbe

transferredtoagoodfaithpurchaser

3. Differencebtwnagoodfaithpurchaserforvalue(voidabletitle

analysis)andanordinarycourseofbusiness(entrustinganalysis)

Goodfaithpurchaserforvaluecanbuyfromanyone

• Ingoodfaith

• Givevalue(1.201(44)

• ∏mustshow

1. ∆deliveredundertransactionofpurpose

2. ∆paidwithabadcheck

3. ∏wasagoodfaithpurchaserforvalue

Ifyouareandentrustinganalysis,youhavetobuyfroma

merchantwhodealsingoodsofthiskind.Abuyerinordinary

courseofbusinessisonlybuyingfroma

supermerchant[Heinrichv.Titus]48

• Entrusting2.403

• Intermediaryneedstobeamerchantwhodealsingoods

ofthiskind

• ‐

48 �Heinrichv.Titus:givesusthevoidablev.entrusting

• Buyerneedstoeabuyerintheordinarycourseof

business

GOODTITLECANNOTEVERBETAKENFROMATHEIF

UCCallowsgoodfaithpurchaserstoobtaintitlemorethanthe

commonlawdid

• Sellerorentrusterisinabetterpositiontojudgethe

meritoftheintermediarythanthepurchaser

• Streamofcommercewedon’twantbuyersfrom

supermerchantsworryingallthetimeaboutwhether

theyaregoingtogetagoodtitle.

‐RISKOFLOSS

1. RULES

CLandUSActROLrestedonthepartyholdingtitletothe

goods

UCCROLaremoreflexibleandmorefunctional

• PlacestheROLonthepartymostlikelytotake

precautionsagainstloss(onewithcontrolofthegoods

ortheonemostlikelytoinsure)

2.509Riskoflossabsentabreach

2.510effectofbreachonriskofloss

4. Insurableinterestunderthecode

2.501‐buyerobtainsinsurableinterestingoodsupontheir

identificationtothecontract.Atthispointthebuyermay

insurethegoods.

5. Typesofdelivery

2.309

2.320

FOB(PLACEOFSHIPMENT)[Windowsv.JordanPanel

Systems]49[Cookv.Schrlock]50

• BuyerpaysshipmentcostsandtheROLpassestobuyer

whengoodstocarrier

FOB(PLACEOFDESTIANTION)

• SellerpaysshipmentcostsandROLpassestobuyer

whenthegoodsaretenderedatthedestinationasto

enablethebuyertotakedelivery

CIFandC&FTerms

• ‐

• CIFpricesincludesinalumpsumthecostofgoods

andtheinsuranceandfreighttothenameddestination

• C&FPriceinc.costsandfreighttonameddestination

6. Billoflading

Receipt(documentoftitle‐warehousereceiptisalsoa

documentoftitle)indicatingwhatthegoodsare;wherethey

aresupposetobedelivered.

7. 509

49 �Windowsv.Jordan:WherethereisaKforspeciallymadegoodsforshipmentbuttheKisambiguousthenROLpassestothebuyer(shipmentofwindowsallbroken)50 �Cookv.Shrolock:2.509goodstransportedbyacarriersoROLtransferredtobuyeruponenteringcarrierhandsbutina2.504thesellermaintainscertainresponsibilities(insurance)butthesellerdoesnothavetoverifyinsurance(brakesfelloutoftruckintransit)

1)(a)[Cookv.Schrlock]

• ROLonthebuyeroncethegoodsareinthecarriers

hands

2)(b)[Jasonv.Peter]51

• ROLonthebuyerbecausethegoodswereinthehands

ofthebaileeandbecauseacknowledgementhadnot

beengiventothebuyer.

3)[Shockv.Ronderos]52[Wilkev.Cummins]53

• ROLonthebuyerbecausethesellerisnotamerchant

• ROLpassestothebuyeruponTENDERof

delivery(paymentfororacceptanceof)

1. Sellercannotbeabailee

8. 510effectofbreachonROL

ROLgoestothebreachingparty;whobutforthebreachwould

nothavehadtheloss

51 �Jasonv.Peter:WhengoodsleftinthehandsofabaileeROLremainswiththeselleruntilacknowledgmenthasbeenreceivedbythebuyeralertingthemtotheirpossession(ribs)52 �Shockv.Ronderos:WheretenderofdeliveryhasoccurredthenROLpassestothebuyer(mobilehomecase)53 �Wilkev.Cummins:wheretherequirementsoftheKarenotfulfilledupondeliveryofthegoodstheROLremainswiththeseller(gov.generator)

(1)iftenderordeliveryofgoodssofailstoconformtotheKas

togivearightofrejection,theriskoftheirlossremainsonthe

selleruntilcureoracceptance.[multiplasticsv.Arch]54[

• ‐

• Wildcardofnegligencehere…evenifonepartybears

therisk…iftheotherpartycanshowthattheother

partiesnegligencecausedthedamagethenthenegCOA

trumpstheother.

54 �Multiplasticsv.Arch:2.510providesthatROLpassestothebreachingbuyerforareasonabletimeandsellerisentitledtorecoverKprice.(makingpellets)

‐PERFORMANCEANDBREACHUPON

DELIVERY1. 2.507Deliveryisaconditiontothebuyersdutytoacceptthegoods

andunlessotherwiseagreedtohisdutytopayforthem.

2. 2.511tenderofpaymentis,unlessotherwiseagreed,aconditionto

thesellersdutytotenderandcompleteanydelivery

Cmt2explicitlyconcurrentconditions

Practicaleffectneitherpartycansueforbreachw/out

properlytenderinghisownperformance

3. Buyerrighttoprioracceptance

Inspectionandrejection

• BcaninspecttoensureconformwithK(2.513(1))

• Bcancontractawaythatright(2.513(3))

Nonconformity

• Rejectthegoods2.601

• Refusepaymentandinvokeremedies(2.711)

• Uponacceptinggoods;waivesrejectionright,paythe

price,assumesburdenofprovingbreach(2.607)

Revocation

• Bcanrevokeafteracceptancebutmuch

stricter(2.608)[Bowenv.Foust]55

• Paymentbeforerevocationisnotacceptance(2.512(2))

Rejection

• IfgoodsortenderfailtoconformtheBcanreject(2.601)

• ‐

• Goodfaithtopeform(2.103)

• Sellerhasrighttocure(2.508)

1. Doessellerhaverighttocure?

2. Whatconstitutesaneffectivecure?

• Bcan’trejectinstallmentKunlesssubstantialimpairsits

value(2.612)

55 �Bowenv.Foust:Whenabuyerrevokesacceptanceunder2.608thebuyermustactquicklyupondiscoveryofthenonconformity(heatingandcoolingunitsthatdidnotwork)

• Bcanrejectifmateriallossensues;justb/cSdidnot

ensuredoesnotproviderighttoreject(2.504)

• LIMITATIONS

1. Goodfaithobligation

2. 2.612,Bmaynotrejectshipmentfornon

conformityunlesssubstantiallyimpairsitsvalue

3. Bcan’trejectifalreadyaccepted(2.607)andseller

hasarighttocure(2.508)

4. Bmustmakeaneffectiverejection

(2.606(2))[InternationalCommv.NorthPacific

Lumber]56

‐

56 �Intern’lv.NorthPac.Lumber:Thebuyermustrejectthegoodsorrevokeacceptancewithinareasonabletimeandnotactcontrarytothesellerspossessoryrights(moldybeans)

ACCEPTANCEANDREVOCATIONOFACCEPTANCE

1. BAcceptance(2.606(1))

Afterreasonabletimetoinspect

Bfailstomakeaneffectiverejection

BactsinconsistentwithSrights

2. Brevocation(2.608)[Kesnerv.Lancaster]57

Uponacceptancebuyerloosesrighttoreject(2.607)

Requirementsofrevocation

• Thenonconformity“substantiallyimpairs”thevalueof

thegoodsandthat

• Bacceptedthegoodseitherwithoutdiscoveringthe

defectsbecausediscoverywasdifficultorassumedthe

sellerwouldcurethedefectandhedoesn’t

Revocationmustbewithinareasonabletime

3. 2.605‐specifywhatthedefectis

4. Anticipatoryrepudiation(2.610)

57 �Kesnerv.Lancaster:Whenanonconformityisnoteasilydiscoveredandthebuyeracceptsbasedontheassurancesofthesellerthenrevocationisacceptablesolongasdoneinareasonabletime(tractor)

Reasonableinsecurityaboutperformance;demandinwritinga

reasonableassuranceofperformance.Iftheotherpartyfailsto

respondyoucanassertananticipatoryrepudiation

‐REMEDIES

1. Codewantstoputtheaggrievedpartyinthepositionasif

performancehadoccurred(1.106)

2. Codewantsanaggrievedsellertotrytoresale(2.706)andabuyerto

mitigatethroughcover(712)

SrecoverRESALE+INCIDENTALCOSTS‐K–COSTAVOIDED

(2.706(1))

Sdoesn’tneedtospecifymarketpriceforgoods

Cmt2:failuretoactproperlydeprivesSofthemeasureof

damageshere

IfScannotrecovertheentireKpriceunder2.709or2.706theS

mightrecoverK‐MPathetimeandplacefortenderplus

incidental

3. 2.703catalogsellersremedies

4. 2.711catalogbuyersremedies

Issues

i. Whenandwheretomeasurethemarketprice

ii. Whattimestoincludeindamagemeasure

iii. Whendowehavealostvolumeseller

‐SELLERREMEDIES

1. 3REMEDIES

2.709fullKprice

• SellermayrecoverfullKpriceif

1. Buyeraccepted(2.606)andretainedthegoods

a. Bwhoprocedurallyrejectsno

acceptance

b. Bwhowrongfullyrejectsacceptsthe

goods(2.606)

c. Brevokingacceptance(2.608)no

acceptance

2. Conforminggoodshavebeenlostordamages

afterROLpassed(2.509)

3. Striedandfailedtoresellgoodsorcircumstances

shownotlikely

2.706resaledifferencebtwnKandresaleprice

• Mostsellersinvoke2.706

1. Ifnonbreachingpartyresellsingoodfaith,then

theaggrievedsellermayrecoverthedifference

btwnKpriceandlowerresaleprice+incidental‐

expensessaved.

2. Ifsellermakesaprofitdoesnothavetoshare

3. Adviseclienttoactlikeitistheirown

money(commerciallyreasonablecare)

4. Resaleprivately,mustgivenoticeofintentto

resaleprivately

5. Resalepublically,mustgivenoticeoftimeand

place

6. Ifresoldunreasonably(waybelowmarketprice)

can’tgetremediesunder2.706butmaybeunder

2.708

2.708Kmarketpenalty

• ‐

• Lostvolumeseller:ifthedamagesof2.708isinadequate

thenproceedunder(2)torecoverprofit(including

overhead)thatwouldhaveensuedfromsellersfull

performance+incidental‐proceedsfromresale

2. 2.704permitsareasonablecompletionof½finishedgoods

Risk:canloseevenmoremoneyifyouareunabletoresale

goodsafteryouhavefinishedYouwanttonotifythebuyerof

yourplanstoresale

‐BUYERREMEDIES

1. 2.716Specificperformanceandreplevin(like709sellers)

Specificperformancewheregoodsareunique

Cmt1wantsamoreliberalapplicationofspecper

Cmt2output/req.Kinvolvingspecialmarketsorsourcesare

nowthetypicalcommercialspecperfcases.***seethese

wherethesellercan’trecover***[EasternGulf]

2.716(3)replevin

• Whencoverisunavailable

• Whentheyhaveshippedunderreservationthebuyer

hastenderedfullpayment

2. 2.712cover(like706)

Withoutunreasonabledelayandingoodfaithareasonable

purchaseofgoodsinsubforthoseduefromtheseller

(2)K–coverandanyincidentalcosts‐expensesavoided

Cmt2

• TEST

1. Didthebuyeractingoodfaith

2. Withinareasonabletime

3. Irrelevantwhetheritwasthemostinexpensive

4. Butmustbereasonable[Farmersv.Lyle]58

Noncoveringbuyercangetotherremediesbutcannotrecover

consequentialdamagesthatcoverwouldhaveprevented

3. ‐

4. 2.713marketprice(708sellers)

RecoverybetweenmarketpriceandtheKpricewhenthe

aggrievedpartydoesnotseekspec.perorcover

Havetodeterminetheproperdateandtimeforfixingthe

damages

58 �Farmersv.Lyle:equitableestoppelmaypreventapartyfrominvokingtheSOF(corncase)

• Determinethedatebyeitherthelastdayfor

performance,dateforknowledgeofbreach(usuallyuse

thelaterdate)[Cargillv.Stafford]59

• Determineplacebyplacefortenderorifafter

revocationplaceofarrival

5. 2.714breachforacceptedgoods

Bacceptsdefectivegoodsanddoesnotrevokeacceptanceby

nonethelesssueforbreach

(1)Bmayrecoverdamages“reasonablemanner”

(2)breachofwarrantyregardingthegoodsthemeasureof

damageswillnormallybethedifferenceatthetimeandplace

ofacceptancebetweenvalueofthegoodsandtheshouldhave

beenvalueofthegoods

59 �Cargillv.Stafford:Ifasubstituteisavailableandthebuyerfailstocoverwithinareasonabletimethenthepricemeasurementfordamagesshouldbewhenperformancewasdueunlesstherewasavalidreasonfornotcovering.

CONTRACTS A FALL 2000

PROFESSOR BJERRE

FALL CONTRACTS OUTLINE Contract is an exchange for goods, services, and behavior. Enforceable promises insure stabili ty and predictabili ty (used primarily in business deals). Two remedies to enforce a contract or for breach of a contract is either specific performance or damages. Theories of Obligation

1. Contract – if it meets consideration 2. Quasi-Contract – if unjust enrichment can be avoided 3. Promissory Estoppel - if person is reliant

I. Traditional Contract Elements A. Bargained for…Quid Pro Quo

1. inducement (a) “please” test - will you give me the address please and I’ ll do this… vs. give me the address and I’ ll do this…. (b) Kirksey v. Kirksey - bro-in-law: if you come and see me I’ ll let you have a place to live) - no consideration, no inducement to get her to move (c) past consideration - no “bargain” for (Feinberg v.s Pfeffer Co. - promise of pension is not inducement for past work)

B. Consideration

1. Detriment to promisee -- forbearance -- promisee must do something he does not have to do, or refrain from doing something that he has a right to do. (Hamer v. Sidway – nephew forbore on his legal right to drink); or 2. Benefit to promisor 3. Consideration Examples

(a) performance – unilateral -- 1 promisee, 1 promisor (b) promise - bilateral

(i) both are promisees and promisors (ii) both want assurances about the future

(c) Contracts implied in fact based on interpreting the parties’ intentions (i) Wood v. Lucy - designer hires sales agent to use “reasonable efforts” –

no explicit promise by sales agent but ct. found implied contract (ii) damages = what was intended

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(d) Moral Obligations – Since there is a moral obligation to follow through on every promise, every promise would be binding. Contract law focuses more on business deals, not personal matters/promises. Contracts need to be reliable (legally enforceable) and morality varies individually – not stable enough for business purposes. Court refuses morality to play a role in legally enforceable contracts. Autonomy vs. Paternalism: Law is meant to protect fair-minded people from “ Good Samaritans” that fair-minded people may feel casually obligated to compensate people that they didn’ t even bargain or request them to do something. Casually in the sense that you may have second thoughts…Cautionary Function – make people think twice before making their promise. Ultimately, this protects fair-minded people in making sincere promises with consideration that would be legally binding. Autonomy is limited by this cautionary function (paternalism).

(i) Mills v. Wyman (∆’s son) became ill . Mill s took care of him and consequently incurred expenses. Wyman’s dad promised in writing to pay Mill s for these expenses, but he did not follow through. Court says promise was without legal consideration – no bargaining of the “contract” . Services of the sick son were not bestowed at his request. Π was a good Samaritan and gave ∆’s son comfort until he died. (ii) EXCEPTION!!! Only avail in certain jurisdictions Webb v. McGowin - victim promises to pay $15 every 2 weeks to man who threw himself off a roof w/ a 75lb block to save his life – enforceable against estate because victim received material benefit of life.

4. What is NOT consideration?

(a) peppercorns (i) Restmt 1 - peppercorn enough (ii) Restmt 2 - peppercorn not enough (iii ) except - enough for option contracts

(b) Illusory Promises (Strong v. Sheffield – uncle said he’d promise to forbear as long as he felt like it - back door) - 2 tests:

(i) subjective - good faith (a) Mattei v. Hopper - Π agrees to buy land from ∆ subject to gaining “satisfactory” leases. Passed good faith test by trying to get good leases. (b) contracts w/ unrestricted termination clauses are usually ill usory - alleged in Eastern Airlines v. Gulf Oil –but Eastern acted in good faith even though mv reporter stopped reporting true mv of oil - didn’ t go crazy buying up a lot of it.

(ii) objective - reasonable person (c) Past Performance - no inducement (d) Gratuitous Promises (e) Promisor Defenses to a Contract …Unenforceable w/o Reaffirmation:

(i) Infancy (ii) Bankruptcy (iii ) Statute of Limitations expired

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II . Quasi-Contract - Contracts implied in law or fact. Court does not care about individual intentions, but what a reasonable person would want. No consideration requirement. I t’ s express purpose is to prevent unjust enrichment. A. Requirements:

a) Conferred benefit b) Unjust Enrichment -- Officious and Gratuitousness – To recover on the quasi-contract theory, the Π must prove that defendant was enriched, received a benefit, and that retention of the benefit without paying for it would be unjust. If the plaintiff is acting gratuitousnessly and officiously than the contract is not enforceable. Cotnam v. Wisdom – Doctor/Streetcar Case. (1) whether compensation under a legal contract is entitled since recipient of services was unconscious…Yes.

(1) Benefactor cannot act officious --“T he Meddler” -- Person voluntarily renders services without being asked or being bargained. (2) Benefactor cannot act gratuitous -- Presumption of gratuity if good Samaritan voluntarily aids helpless – recovery/compensation is denied. Exceptions (1) samaritan’s services are excessively expensive or burdensome and (2) samaritan renders services in a business or professional capacity.

B. Amount of Recovery a. “Implied in Fact” contract – based on the intentions of the parties; the agreement

is intended by both parties. Compensation determined by the going rate. b. “Implied in Law” contract – intentions of the parties have little or no

determination of proper measure of damages. Restitution is not limited to the value of the acquired benefit.

C. Quasi-Contract cannot be used to get around traditional contract obligation theory. Callano v. Oakwood Park Homes Corp. Shrubbery Case. Π could have sued the estate of the buyer. Quasi-contractual liabili ty “ implied in law” means the intention of the parties is entirely disregarded on the grounds that they are dictated by reason and justice. While with “ implied in fact,” the intention is the essence of the transaction. Successful application of quasi-contract liabilit y… (1) Π expected remuneration from ∆ at the time the benefit was conferred; and (2) involve either some direct relationship between the parties or a mistake on part of the person conferr ing the benefit. Paschalls, Inc. v. Dozier contends that Π must exhaust legal remedy against direct contracted party before rightfully pursuing the other party. Therefore, if case against original direct contract fails, Π still has an alternative party remedy under Paschalls not Callano. Justice comes from “process” in Callanos and “outcome” in Pashcalls. The Problem of Unsolicited Action

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A. Reliance and the Requirement of Bargain Kirksey v. Kirksey – Widow moves for an adequate place for her to raise her family and subsequently evicted. Court rules ∆’s promise was merely gratuitous because it was not bargained. Central Adjustment Bureau, Inc. v. Ingram – Bill Collector/Non-compete Case. Whether a covenant not to compete meets consideration based on a sufficient length of future employment…Yes, if the employee remains for an appreciable length of time after he signs the covenant and the employee ends his employment voluntarily. Thus, a binding unilateral contract is forged out of a former, invalid bilateral contract. B. Reliance as an Alternative Basis for Enforcement -- Ricketts v. Scothorn -- Π alleges x amount was in return of surrendering her employment. “You don’t have to work.” No consideration, but Π meets the elements of estoppel in pais – affirmative defense – to make contract binding. Estoppel in pais is defined as a right arising from acts, admissions, or conduct which have induced a change of position in accordance with the real or apparent intention of the party. Promisor doesn’t have to try to induce promisee, but does induce the promisee. Objective Test – what should the promisor reasonably expect to induce promisee -- but most importantly, promisee is induced. III . Promissory Estoppel - Restatement §90 – Promises which foreseeably induce reliance on the promisee’s part. Contracts are an exact rule, while Promissory Estoppel and Quasi-Liabilit y meets an inherently, vague indeterminate standard. Rules are better for planning purposes because of their specificity—more business oriented. Note: Restatement Second 90 – a promise which the promisor should reasonably expect to induce action or forbearance on the promisee is binding if injustice can be avoided only by enforcement of the promise. I t also suggests in some situations that relief may be measured by the extent of the promisee’s reliance rather than by the terms of the promise. Note: Promissory Estoppel is distinguishable from Equitable Estoppel because (1) the issue is the promise, not the facts; and (2) it can be the basis for a suit instead of just used as a defense against payment. A. Elements

a) promise b) induces actual detrimental reliance c) reliance is reasonably foreseeable. See Alden v. Presley - no reasonable reliance b/c mother-in-law knew she wasn’t getting the money b/f she brought divorce suit. d) unjust

B. Four categories: 1. Family Promises – promise made by one member of a family to another. 2. Promises to Convey Land – promises to convey land on which the promisee had relied by

moving onto the land and making improvements.

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3. Promises Coupled With Gratuitous Bailments – a bailor seeks to enforce a promise made by the bailee in connection with a gratuitous bailment.

4. Charitable Subscriptions – enforce the promise by finding that the charity has done or promised to do something in exchange for the subscriber’s promise. Enforceabili ty is particularly desirable as a means of allowing decisions about the distribution of wealth to be made at an individual level. Charities are reliant on funding sources, thus promised contributions are enforceable. Allegheny College v. National Chautauqua County Bank of Jamestown (NY 1927) is the most influential case in this category.

(1) Feinberg v. Pfeiffer – Little Old Lady’s Retirement Case -- At the time the payments were discontinued, Π was 63 years old and it was virtually impossible for a woman of that age to find satisfactory employment.

C. Damages

a) c/b reliance interest vs. expectancy (full amt. of promise) b) depends on the court - but bias toward reliance

Promise for a Promise Restatement Second 71 states that consideration for a promise can be found in a return promise. With some exceptions, a promise which is bargained for is consideration, if, but if only if, the promised performance would be consideration. A. Unilateral and Bilateral Contracts. Unilateral contracts entail one party making a promise—not binding unless one party acts on the basis of the promise. Bilateral contracts entail both parties making promises. Determination of which type of contract is identified through the terms of right and duty. Right and duty are correlatives – there can never be a right without a duty, nor a duty without a right. The offeree has the power to change the relationship. B. Conditional Promises. Even though a promise is enforceable, it may still be conditional in that its performance will become due only if a particular event/condition occurs. The event must occur before the promisor must perform. Either party can protect their promise by making it conditional on performance by the other party, so that it is under no duty to perform until the other party has performed. Under Restatement 71, consideration can be a return promise – promise for a promise. Promisor and promisee induce the making of the bilateral promise rather than the performance. Output Contracts – satisfaction with performance Strong v. Sheffield -- Bilateral Contract Example -- Not Promissory Estoppel. Π promises to actually wait for an indefinite amount of time until he wants/needs his money (ill usory promise). Whether promises can be consideration for one another (Bilateral Contract), if one of the promises is ill usory…No, Π made an ill usory promise. Π is not restricted at all. He

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can do whatever he wants without impacting the arrangement. Thus, his promise does not meet consideration. Note: CAB v. Ingram – court says binding contract can be forged out of a former, invalid bilateral contract. Thus, this case (Strong) would be decided differently under those perimeters. Mattei v. Hopper – Satisfaction Standards and Illusory Promise -- ∆ allegedly breached contract by faili ng to convey her real property in accordance with the terms of a deposit receipt. Π had the power and privilege to terminate the contract if he did not obtain the required leases. For the contract to be enforceable, both parties must have assumed some legal obligation. If one of the promises leaves a party free to perform or withdraw from the agreement at his own unrestricted pleasure, the promise is deemed ill usory. Court believes this case is most similar to the subjective, good faith standard in determining the satisfactory clause. Because both parties inserted a satisfactory clause on Π’ s performance, the contract was not ill usory, nor lacking mutuality. Satisfactory Clauses meet consideration requirement, not illusory. 1. Objective, reasonable person standard a. Utilit y b. Operative Fitness c. Commercial value 2. Subjective, good faith honesty standard by particular person. Burden is on the party that made the satisfactory condition as part of the contract to evaluate it. a. Fancy b. Taste c. Judgment Eastern Air Lines, Inc. v. Gulf Oil Corp -- Similar fact pattern to Strong v. Sheffield and Mattei v. Hopper. Judge applies UCC. ∆ alleges the contact is (1) not binding because it lacks mutuality – ill usory promise since no required supply amount…could be nothing and still compliant with contract – Π has no constraints; and (2) commercial impractical with current economic conditions. Court says ∆ is not excused for impracticality. ∆ is unhappy with its own promise…too bad. Contracts for output is not too indefinite since it is held to mean good faith output. It must be reasonably proportional. Wood v. Lucy, Lady Duff-Gordon – Designer Case. Court says even if a promise may be lacking, the writing may be animated with an obligation. Court says this promise has value -- Π’s implied promise to share results from his reasonable efforts to bring in a profit. C. Unrestricted Termination Clause -- A promise with an unrestricted termination clause does not have consideration. Promisor has the explicit freedom to never follow through on their part of the promise. For example, I promise to do Y, but I can terminate this promise at any time for any reason. Therefore, the contract is not binding. Conversely, a restricted termination clause

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does have consideration. For example, I promise to do Y, but I can terminate Y – no mention of any time or any reason excuses.

THE BARGAINING PROCESS A. The Nature of Assent (mutual agreement) – offer + acceptance = agreement

1. Objective Theory– reasonable person standard – This is the primary theory that the courts use now. Historically, this theory treated all contract arrangements the same and excluded consideration of the actual intentions of the parties. 2. Subjective Theory – “actual intent” or “meeting of the minds” or “will theory” -- Objectivists believed this theory placed too much stress on unique individual motivations that would destroy legal certainty and stabili ty. Lucy v. Zehmer –Sold Farm in Jest -- Subjective intent is not enforceable; rather it’s the party’s outward manifestation of intent – CITE on TEST -- If words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind. Keller v. Holderman – “Frolic and Banter Rule” -- a mere peppercorn intent lacks consideration based on objective standard. Restatement § 75. Π not expecting to sell, nor ∆ intending to buy.

*Gentleman’s Agreements. The legal term is a “Letter of Intent.” These agreements arise in Securities and Bonus/Death Plan Benefits, where parties do not intend promises to be legally enforceable.

*Formal Contract Contemplated – Objective Intent to be Bound -- parties agree on what they consider to be the essential terms of a contract and leave details to be worked out in preparation of a formal document that they expect to sign.

(a) Common law principles (1) that absent an expressed intent that no contract shall exist, mutual assent of the parties, even though oral or informal, to exchange acts or promises is sufficient to create a binding contract, and (2) that to avoid the obligation of a binding contract, at least one of the parties must express an intention not be bound until a writing is executed.

(b) Factors to determine whether the parties intended to be bound in the absence of a document executed by both sides (Winston v. Mediafare Entertainment…REMEMBER

(1) whether there has been an express reservation of the right not to be bound in the absence of a writing.

(2) whether there has been partial performance of the contract (3) whether all the terms of the contract have been agreed upon

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(4) whether the agreement at issue is the type of contract that is usually committed to writing.

Of Oil and Honor – Texaco-Penzoil Wars Broad outline of agreement secured with a handshake deal between Penzoil and Getty Oil Company. Meanwhile, Getty and Texaco have a contract exchanging money for stock to buy out Getty. Penzoil finds out and says they have an enforceable contract due to the handshake. Getty says no one signed anything. Penzoil then sues Texaco for an intentional tort claim – tortuous interference with a contract. Jury agrees with plaintiff and awards the highest damages in the nation’s history over $10 billi on. ** Important to mention Tort Interference claim, if contract is found unenforceable.

B. The Offer -- An offer is an act whereby one person confers upon another the power to create contractual relations between them. Restatement Second § 24 defines offer as a manifestation of willi ngness to enter into a bargain. Invitations and preliminary negotiations are not offers – no intent to be bound. The power of acceptance is determined through an expression of will or intention – an act that leads the offeree to reasonably believe that a power to create a contract is conferred upon him. Mere price quotes are not legally binding. Offer must have Reasonable Expectation, defined by… 1. Promise or undertaking to enter into a contract.

(a) Manifestation of Intent – Owen and Harvey -- outwardly expressed intent factors… --words used, written or oral --surrounding circumstances --to whom the offer was made (targeted audience?) --level of details (b) objective standard (Lucy v. Zehmer)

2. Certainty in the essential terms 3. Communication Owen v. Tunison – Price Quote -- ∆’s letter in response to an offer of $6K for his property may have been written with the intent to open negotiations that might lead to a sale. “It would not be possible for me to sell unless I received $16K.” Invitation for offer, not an offer itself. Harvey v. Facey – Price Quote -- Bumper Hall Pen. The mere statement of “ lowest price” at which the vendor would sell contains no implied contract to sell at that price. Fairmount Glass Works v. Crunden-Martin Woodenware Co. – Remember – Language Mason Jar Case. A quotation of prices is not an offer to sell . The transaction is not completed until the order so made is accepted. Appellant’s answer to it was not a quotation of prices, but a definite offer (“ for immediate acceptance to close the contract” ) to sell on the terms indicated, and could not be withdrawn after the terms had been accepted.

1. Addressee of Offer -- an offer can be accepted only by one whom it invites to furnish the consideration. A vague ad or price quote protects a seller from unrealistic

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expectations of the buyer – rather, specific quantity of goods and clear intentions of the seller create a legally binding contract. The statement “first come, first served” is an explicit offer. However, few cases exemplify this principle because most offers are addressed to a wide audience.

Boulton v. Jones – When a contract is made, in which the personality of the contracting party is or may be of importance, no other person can interpose and adopt the contract. Craft v. Elder & Johnston Co. -- ∆ advertises in newspaper for $26 on sewing machines (typo on price). In the absence of special circumstances an ordinary newspaper advertisement is not an offer, but an offer to negotiate. No contract is formed to take a specified quantity of the goods at that price. An advertisement is merely an invitation. *Vague ad protects seller from unrealistic expectations of the buyer – specific quantity of goods and clear intentions of the seller create a more legally binding contract. Lefkowitz v. Great Minneapolis Surplus Store – Scarf for “Women” Only. When an offer is clear and there is nothing left to negotiate, it is a contract upon acceptance. Offeror does not have the right to modify the offer after it is accepted. * Despite newspaper ad rule, “ First come, first served” is an explicit, definite offer. 2. Knowledge of Mistake. If the offeree knows of the offeror’s material mistake until the time of acceptance, then the offeror is not bound. Difficulty arises when the magnitude of the mistake was such that it should have been apparent from the face of the offer. Heifetz Metal Crafts, Inc. v. Peter Kiewit Sons’ Co. -- After Kiewit accepted Heifetz’s offer, ∆ discovered that he had overlooked some subsidiary kitchen installations required by the plans. Since its quotation was 1/3 less, ∆ should have known there was a mistake. Court finds the contract enforceable because in a general-subcontractor relationship, the subcontractor’s intent is unknown to the general contractor. Sometimes a subcontractor has a special reason for desiring to obtain a particular job (i.e. the subcontractor wanting to establish a favorable working relationship for future work) and would submit a figure controlled by that consideration.

C. Acceptance: a voluntary act of the offeree whereby he exercises the power conferred upon him by the offer, and thereby creates a set of legal relations called a contract. In the beginning, the offeror has full control in creating power for an offeree. After acceptance, the offeror is no longer free to change his mind and nor able to withdraw from the relationship without incurring liabili ty. Generally, acceptance needs to be communicated within a reasonable time frame before work commences, unless the offer (1) includes notification within the offer, or (2) offeror invites acceptance by means of performance (method of acceptance) and not a promise --unilateral contract. *Note – an executory contract is when neither offeror nor offeree has performed any element of the contract, but the contract is still binding.

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International Filter Co. v. Conroe Gin, Ice & Light Co.-- Π manufactures machinery to purify water in connection with the manufacture of ice. ∆ manufactures ice. Contract states that it is binding upon prompt acceptance. Subject to change without notice for any delayed acceptance. ∆ accepted on the same day. A few weeks later ∆ tried to countermand the order. Court reasons that Π did accept the offer, but communication is not required by Π when the offer includes notification within it – “contract upon prompt acceptance.” White v. Corlies & Tift -- Π was a builder and estimated the cost of fitting up a suite of offices. On the same day, ∆ changed the specifications and asked Π to update his estimate. ∆ sent note that “upon an agreement, you can begin at once.” The next day ∆ countermanded their offer. Before receipt of the countermand, Π began renovation. Issue – whether Π has duty to give acceptance of a contract before commencing work. Yes. Ever-Tite Roofing Corp. v. Green -- Greens wanted a re-roof on their home. The agreement shall become binding upon written acceptance of Π. Several days later, Π returned to the Greens only to find someone else re-roofing. Higher court finds in favor of Π. The contract did not specify the time within which it was to be accepted. A reasonable time is contemplated where no time is expressed. Restatement § 54.

1. Notice in Unilateral Contracts -- when an offer proposes a unilateral contract and invites acceptance by means of performance and not a promise. Carlill v. Carbolic Smoke Ball Co. – IMPORTANT CASE -- ∆ offered reward to any person who contracts influenza after using the ball a few times. The fact that Π did not notify her acceptance was not fatal to her claim. Where a person makes an offer expressly or impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding. Thus, buying and using the product equates with acceptance. It is only necessary for the offeree to follow the indicated method of acceptance (terms of the product’s contract). If one performs the condition, notification is dispensed with.

2. Guaranty Case Bishop v. Eaton -- ∆ wrote to Π that if Π would help his brother (Eaton) to get money, then ∆ will see that it is paid. Π helped ∆’s brother. ∆ did not repay the loan. ∆ is bound when he sees that action has been taken on the faith of his offer.

3. Indemnity – An indemnity agreement is one whereby a party undertakes contingent liabili ty for a loss threatening another. These are regularly enforced, even when the loss envisaged is one attributable to fault on the part of the promisee (indemnitee).

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Allied Steel and Conveyors, Inc. v. Ford Motor Co. -- Ford ordered machinery from Alli ed. A standard provision required that Alli ed assumed full responsibili ty not only for the negligence of its own employees, but also for the negligence of Ford’s employees in connection with Alli ed’s work. On this specific order, that provision was marked “VOID”. Ford proposed to purchase additional machinery under the same purchase order. The supplemental form did not mark “VOID” on the provision as the last one. An employee was subsequently injured as a result of negligence of Ford’s employees. Ford impleaded Alli ed in the lawsuit on the basis of this provision, not marked “VOID”. Rule: (1) If the offeror prescribes an exclusive manner of acceptance, an attempt on the part of the offeree to accept the offer in a different manner does not bind the offeror in the absence of a meeting of the minds on the altered type of acceptance. If the offeror merely suggests a method of acceptance, other methods are not precluded. (2) If the offer requests a return promise and the offeree without making the promise actually does what he was requested to promise to do, there is a contract if such performance is completed within the time allowable for accepting by making a promise.

4. Shipment of Goods as Acceptance. Under the code, the buyer’s revocation comes too late if the seller has promptly shipped. However, the seller has bound him/herself to deliver goods that conform to the buyer’s order. If the seller incurred some expenses related to preparing for the shipment, a buyer can still revocate the order since the seller has not sent an acceptance (shipment) of the order. 5. Silence Not Necessarily Acceptance. Silence is not acceptance, unless there is a history of filli ng orders as a regular practice. Hobbs v. Massasoit – briefly touched on this case -- ∆ received goods 4-5 times in the past and paid for the shipment. Court says ∆’s silence on the most recent shipment coupled with ∆’s retention of the goods for an unreasonable time amounts to an acceptance.

D. Termination of the Power of Acceptance

1. Lapse of the Offer – If no period is specified in the offer, it lapses after a reasonable time. If the industry undergoes fluctuates in price, the time frame will shorten. The primary factor in determining reasonableness is based on the circumstances surrounding when the offer was made -- how the offer was communicated and the state of the world.

2. Revocation – an offeror can terminate an ordinary offer at any time before it has been accepted. Option Contract. An irrevocable offer is the defining characteristic of an option contract. An option contract is a promise made by an offeror that effectively limits the offeror’s power to revoke. Usually this type of contract directly or indirectly expresses a

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fixed period within which the offeree must “pick up” the option. The expiration date of any option contract is a principal element in determining its value.

Toys, Inc. v. F.M. Burlington Co. – Remember -- Π’s notice of intent to renew was premised on a substantially different understanding of the prevaili ng rate. Court finds it diff icult to reconcile Π’s theory with their actions. The basic facts of this case are clear, but the inferences to be drawn from the facts and Π’ s intentions are not. The question must be left to the fact-finder. One act/promise can meet consideration for two different promises/acts. In this case, the offeror’s promises of a 5-yr lease + not revoke the option is consideration for offeree’s single promise for payment. Bottomline -- plan ahead.

Dickinson v. Dodds – Remember. Objective, Reasonable Theory of Intent.

∆ appeared to make an offer to sell his property to Π. Offer was good until x time. ∆’s agent told Π that ∆ was offering to sell the property to someone else. Π responded in time, but property was sold to someone else. Court determined that ∆’s agent communication to Π is the equivalent to withdrawing the offer (indirect revocation). Court concludes that ∆’s promise was not binding and at any moment before a complete acceptance, ∆ can seek other interested parties. Reliable news of another party’s interest equals an indirect revocation. The time limit has no consideration. If offeree provided a deposit to bind the promise + time limit, then the offer has consideration.

3. Rejection -- a rejection puts an end to an ordinary offer. Offeree loses power of acceptance after rejecting the original offer. Presumes offeror’s reliance on the rejection and the flexibili ty to proceed to other interested parties.

Mailbox Rule: Acceptance Dispatched -- Adams v. Linsdell l aid down the mailbox rule. It states that once the offeree has dispatched an acceptance, is it too late for the offeree to reject the offer. The offeree bears the burden to make sure their acceptance is received. Disadvantages to the Mailbox Rule – burden on the offeror to rely on revocation and sells the goods to another buyer before receiving acceptance. Revocation Upon Receipt -- Under Restatement Second § 42, a revocation is generally effective only on receipt, not on dispatch. Common law’s tendency is that the risks of transmission of revocation are on the offeror. It makes the offeror’s duty of performance conditional upon receipt of the acceptance. See Restatement Second § 63. Disadvantages to the Receipt Rule -- While the letter is in transit, offeree is free to watch the market and speculate while offeror is unable to revoke. Restatement Second § 64 states that § 63 does not apply when there’s a substantially instantaneous two-way communication – email does not meet instantaneous standard. Telephone probably would apply.

Precontractual Liabili ty -- A court has some discretion in determining circumstances of whether there has been an acceptance in borderline cases to protect the reliant party. A

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party whose reliance has conferr ed a benefit on the other may have a claim to restitution to prevent unjust enrichment even though no contract has resulted.

A. Cronin v. National Shawmut Bank holds that the benefit from a broker’s work does not lead to liabili ty where there has been no employment. Contrastingly, in Hill v. Waxberg, the parties achieved the prerequisite conditions for the agreement, but they could not finalize the agreement between them. Π sued to recover reasonable value of services expended during the prerequisite stage. Evidence and enrichment from Π’s efforts were submitted as evidence. Court holds that an implied contract, which entails services being rendered to achieve the full contract, is enforceable.

B. Restatement § 45 – REMEMBER #

(1) An option contract is created when the offeree begins the offeror’s invited performance. Promise not to revoke needs to have consideration for the contract to be enforceable. (2) Offeror’s duty of performance is conditional on the completion of the offeree’s invited performance.

Brooklyn Bridge Hypothetical Offeror offers $100, if you walk across the Brooklyn Bridge. No acceptance of the offer until you cross. Unilateral, option contract. Half-way across, the offeror revokes. Offeror has no obligation. Beginning to walk across meets consideration for the offeror’s imposed promise to not to revoke (Quasi-contract).

C. Brackenbury v. Hodgkin – Moving to Maine Case – Court held that a promise in exchange for an act is a unilateral contract. Π moved to Maine to take care of old lady based on her promise of a place to live when she passes away.

Reliance on an Offer that Seeks a Promise – An offer for an exchange is not meant to become a promise until consideration has been received.

Drennan v. Star Paving Co. – Spent a couple classes on this case. -- Π is general contractor and requested bids for paving. Π used ∆’s bid as part of an overall project budget. The next morning ∆ rescinded. Court determines that there is no evidence that ∆ offered to make its bid irrevocable in exchange for Π’s use of its figures in computing his bid. Thus, no consideration nor bilateral contract binding on the parties. Issue: whether Π’s reliance makes ∆’s offer irrevocable…Yes. Rule from Restatement § 90 (Promissory Estoppel): A promise which the promisor should reasonably expect to induce action or forbearance and which does induce such action is binding if justice can be avoided only by enforcing the promise.” This is not a promissory estoppel case, rather it’s creating an option contract. Court says Restatement § 90 applies to an implied promise that forms an option contract. Offeror cannot revoke an option contract. Acting in justifiable reliance may in some cases serve as sufficient reason for making a promise binding. The absence of consideration is not fatal to enforcing this promise.

Class Notes:

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Restatement §45 enforces implied promise contracts. Unilateral allows partial performance of a promise to be enforced, while bilateral contracts do not.

Restatement § 90 has several components – promise, reliance, foreseeable, and detriment. Court uses 90 because the issue of revocation is not protected by 90 and the offeror did not make a promise, but an actual offer. The court combines Restatement § 45 and 90. 45 requires consideration which Drennan does not achieve, but 90 replaces the consideration requirement and validates the promise as an option contract.

Restatement § 87(2) – applies the Drennan decision in its principle. Think about the relationship between this section and Restatement § 45. Is there overlap or intertwining? What’s the relationship between consideration and reliance?

Implied in Fact – court supports what the parties want at the time of the deal – autonomy Implied in Law – court does not abide by what the parties want

Channel Home Centers v. Grossman -- ∆ was in the process of acquiring ownership of a mall. ∆ requested that Π execute a letter of intent to be shown to banks at the end of December. After execution, ∆ says Π orally agreed to submit a draft lease within 30 days. Rule: (1) whether both parties manifested an intention to be bound; (2) whether the terms of the agreement are sufficiently definite; and (3) whether there was consideration. The letter of intent meets all three requirements. The letter has consideration because it benefited ∆’s financial security in exchange for negotiating in good faith. Court found that Π’s intent was clear in them wanting the place, but the letter does not equate with a lease. It only assures continued negotiations, not successful negotiations.

The Requirement of Definiteness is implicit in the principle that the promisee’s expectation interest is to be protected. To determine a contract’s definiteness, a court must first interpret it (trade usage and course/history of dealing) and look for implied terms supplied by law – good faith and reasonable efforts. It is also enforceable if the agreement provides the means for making its terms sufficiently definite by the time that performance is called for. See Toys, Inc v. F.M. Burlington Company (1990). The court rarely finds indefiniteness the sole reason to not enforce a contract.

THE STATUTE OF FRAUDS Although in general oral contracts are enforceable, some contracts need to be written down to

be enforceable and signed by the party to be charged. Contracts Required to be Written

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1. A special promise of an executor to answer damages out of his own estate. 2. A special promise to answer for the debt, default, or miscarriage of another person. 3. An agreement made upon consideration of marriage. 4. A contract for sale of real estate, or any interest in or concerning the same (see Lucy v. Zehmer). The agreement or some memorandum of note thereof must be related to the contract. It doesn’t have to be the actual contract -- scrawling on a napkin counts. 5. An agreement that is not to be performed within one year from the making thereof. Some general features of the law generated by the Statute. 1. The fact that the parties have expressed an agreement in a signed writing is no assurance that they had contracted about the matter. 2. Sometimes the Statute is a one-way street. Party 1 can enforce the agreement against Party 2, but Party 2 cannot enforce it. The courts have shown some disfavor towards the Statute by narrowing the classes of contract that must satisfy its formal requirements. An oral contract is enforceable, by the prevaili ng rule, if there is some possibili ty that it can be performed within a year. The content of writing and the signing requirement is minimal in sale-of-goods contracts, while more is required to satisfy other clauses of the Statute. The omission of a material term (such as the price) may disqualify the writing. The effect of the Statute is minimized, in varying degrees, by court-made doctrines – partial performance doctrine and action in reliance (Restatement Second § 139).

POLICING THE BARGAIN I. Capacity The person executing the contract must be in a mental condition that allows he/she to be able to comprehend the nature or consequences of the instrument he executed.

A. Minor’s Contracts -- An infant, anyone under 18 years of age, cannot enter into an enforceable contract – Bright Line Rule. No exceptions.

B. Mental infirmity is a cognitive, volitional rule.

II . Overreaching -- Conventional Controls

A. Pressure in Bargaining Watkins & Son v. Carrig – Cellar/9xRocks case. Halfway through Π and ∆ orally agreed to remove the rock for 9x increase. Contract states Π is responsible for removing all material. If Π was unwise in taking changes, his burden cannot be relieved on account of his mistake. ∆ relies on the principle that his promise to pay more lacked consideration since Π already began the work. Court finds that consideration is not disregarded in spite of the net result of a promise to pay more for less, without additional

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obligation of the promisee. The fact of recission rather than the effect of recission determines its legal quality. ∆ is held to the new arrangement.

Austin Instrument, Inc. v. Loral Corporation – Economic Duress/Subcontractor. The existence of economic duress is demonstrated by proof that immediate possession of goods is threatened. A mere threat does not constitute economic duress, but an act does (stopped deliveries).

To make a claim for duress… (1) Improper threat. (2) No reasonable alternative, except to comply with the threat. B. Concealment and Misrepresentation

1. Nondisclosure – No duty to tell because before you agree to a contract, you should get a third-party to review the condition of the property. Nondisclosure serves as an incentive for buyers to become knowledgeable.

2. Misrepresentation entails: (1) A false statement (2) of a material fact (3) that the other party is reliant upon. Π has the burden to establish that ∆ made the misrepresentation knowing it to be false or at least with reckless disregard for its truth.

Kannavos v. Annino -- Half-truth disclosures require duty for full disclosure. ∆ converted property into a multi-family apartment building fully knowing that she violated the zoning ordinance. She advertised the property as such. Π bought the property – unaware of the zoning violation. Court states that if a party does speak with reference to information, voluntarily or at the other person’s request, the party is bound to speak honestly and to divulge all the material facts within his knowledge. ∆ intentionally deceived Π. Because ∆ did as much as she did, she was bound to do more.

IV. Unconscionabili ty and Problems of Adhesion Contracts Williams v. Walker-Thomas Furniture Co. – Spent two classes on this case. This case echoes misrepresentation (ambiguous apportionate clause), economic duress, and capacity that culminate into shocking the conscious. Paternalistic? Π purchased household items through monthly installments. Unconscionability includes an absence of meaningful choice (procedural) and unreasonable terms (substance), which is negated by a gross inequality of bargaining power. A. Standard Form Contracts – R. 2d § 211(3) – this restatement is inconsistently applied.

Reasonable Expectations 1. Most importantly, this type of contract excludes or controls the irrational factor in litigation. 2. The largest disadvantage is that it may be a means by which one party imposes its will upon another unwilli ng or even unwitting party…Contracts of Adhesion.

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(a) Bargaining over terms may not be between equals. (b) There may be no opportunity to bargain over terms at all. (c) One party may be completely/relatively unfamiliar with the terms.

B. Tickets, Passes, and Stubs – If a business wishes to limit its liabili ty for negligence, it must give adequate notice of the contract and receive the assent thereto. In the mind of the bailor, this stub does not rise to the dignity of a contract. C. Duty to Read and the Right to Understand – The failure of a signer to read a written contract is not such a mistake as will ordinarily excuse compliance with it. Yet, the requirements of a relievable mistake have been loosened over time. D. Insurance Marketing – The Doctrine of Reasonable Expectations – When insurance is sold in circumstances that discourage questions, the reasonable expectations of the buyer should be honored even though the policy terms do not support them. Example -- policy purchased through a vending machine. *Note – Ways to regulate paternalism – Federal Trade Commission, Truth-in-Lending, and cooling off periods. Unconscionabili ty is not typically used in business-to-business relationships. Rather, the disparity in the bargaining power…little guy vs. monopoly…is more likely for its application.

Carnival Cruise Lines, Inc. v. Shute -- On cruise tickets, all li tigation was to be filed in Florida (forum selection clause). Rule: The forum clause should control absent a strong showing that it should be set aside; and, even if the clause establishes a remote forum for resolution of conflicts, the petitioner should bear a heavy burden of proof. Court contends that enforceabili ty is not always linked with bargaining. Passengers benefit from a forum clause through reduced fares. Court finds that ∆ does not meet their heavy burden because Florida is not a remote alien forum and ∆ can still li tigate the issue. V. Illegality/Public Policy – Public policy condones the threat of conventional criminal sanctions of fine and imprisonment to be more effective than the threat of unenforceabili ty of a private agreement. CAB, Inc. v. Ingram -- Two approaches to modify restrictive covenants. (1) “Blue Pencil” Rule – an unreasonable restriction against competition may be modified and enforced to the extent that a grammatically meaningful reasonable restriction remains after the words making the restriction unreasonable are stricken. Advantage – simple and prevents the court from rewriting private agreements. Disadvantage – the contract still fails if the offending provision cannot be stricken. (2) Reasonableness Rule – unless bad faith on employer’s part, a court will enforce to the extent that they are reasonably necessary. If a contract is deliberately oppressive, then the covenant is invalid.

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REMEDIES FOR BREACH I. Measuring Expectation – The goal of contract remedies is to award the sum of damages that will (through monetary extent) put the injured party in the position in which it would have been had the promise been performed. A. A breach of contract may affect the injured party in four ways.

1. Loss in value – The value to the injured party of the performance that should have been received and the value to that party of what actually was received. 2. Other Loss – expenses (other than loss in value) incurred in an attempt to salvage the transaction after breach (physical harm or property). 3. Cost Avoided – a beneficial effect through saving the injured party further expense had the performance continued. 4. Loss Avoided – a beneficial effect through allowing the injured party to avoid some loss by salvaging and reallocating some or all of the resources that otherwise would have been devoted to the contract’s performance.

B. Expectancy – value of the expected performance deserves to be compensated. Remedy = net profit + Π’s cost already invested in performing the contract.

Vitex Manufacturing Corp. v. Caribtex Corp. -- Chemically shower-proof cloth case. Whether overhead should be considered in determining the amount of profits lost…no. Compensation for the specific performance, not general operating costs.

C. More on Lost Life – It allows recovery for the actual or intrinsic value to the plaintiffs, but denies recovery for any unusual sentimental value or fanciful price. D. The Economics of Remedies – Very briefly reviewed in class -- Under the economist’s rule of Pareto superior, a reallocation of resources in a society is considered to be efficient if that reallocation will make some economic unit better off without making some other unit worse off. E. Losing Contracts U.S. (Coastal Subcontractor) v. Algernon Blair, Inc. (1973) – restitution instead of expectancy damages through quantum meruit. -- Blair agreed to construct a naval hospital and breached the contract. The lower court found that since the subcontractor would have lost $37K if it completed performance and the amount due to the subcontractor was $37K, then the subcontractor’s damages were none. (Π entered into really bad contract.) Issue/Holding: whether a subcontract recover in quantum meruit the value of labor and equipment already furnished pursuant to the contract irrespective of whether he would have been entitled to recover in a suit on the contract…Yes. While this is a correct application of the normal rule, the appellate court believes the subcontractor is entitled to recover in quantum meruit. Coastal, at its own expense, provided Blair with labor and the use of equipment. Blair retained benefits without fully

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paying for them. Thus, Coastal is entitled to restitution. Court’s formulation…restitution – payments already made under the contract = Coastal’s damages.

II . Limitations on Damages

A. Avoidabili ty –The injured party is simply precluded from recovering for loss that it could reasonably have avoided. Duty to mitigate based on Hand’s Formula B<P +L. Restatement Second § 350.

Rockingham County v. Luten Bridge Co. – County signed a contract to construct a bridge. After public opposition to the bridge, the county notified Luten to not proceed any further. Luten disregarded the notice. Although the county has no right to rescind the contract, it is Luten’s duty to do nothing to increase the damages flowing therefrom.

B. The Rejection of Constructive Service Doctrine – an injured party cannot recover for loss that could have been avoided by taking affirmative steps to arrange a substitute transaction.

Parker v. Twentieth Century Fox Film Corp. – Shirley MacLaine Case -- Studio offered actress a different lead with the same terms of an earlier agreement. Rule: The employer must show that the other employment was comparable. Court rules that the studio did not meet its affirmative defense burden since it did not offer any evidence of similar employment.

Voorhees v. Guyan Machinery Co. – An offer of reemployment will not diminish the employ ee’s recovery if further association between the parties would be offensive or degrading to the employee.

Davis Chemical Corp. v. Diasonics – Medical Diagnostic Equipment Deal. Davis says Diasonics should mitigate the damages by selli ng their product to another party (alternative transaction). Whether Diasonics would have been able to fulfill both Davis and another party’s contract and it would have been profitable for it to have produced and sold both...yes, however, the alternative transaction does not substitute for the original, breached contract and does not mitigate the damages.

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Contracts Outline, Fall 1999

DeAnna M. HorneJim Mooney, Professor

I. What are Contracts?A. Legally enforceable agreements

1. Ask yourself:a. Is there a promise?b. What are the consequences of that promise?

2. Assumpsita. Arose out of torts—money exchanged but it really ought

to be refunded (If I bought jeans from JC Penney that fellapart in the washer, I really should get my money back).

b. Either an expressed or an implied promisec. Broader and more enforceable concept of contracts than

was used prior to 16th century.B. Equitable concept of contract law

1. Embodied in Portia—emphasizes mercy2. Existed through 18th century3. Features fairness4. Courts would not enforce unfair contracts (i.e. a loan of money

in exchange for the “pound of flesh nearest your heart.”)5. “Sound price doctrine”

a. Sound price warrants a sound commodity (agreement topay full price for hay implies the hay will be good and notmoldy).

b. This reflects the ethical standards of the day—thecommunity’s values were offended by price gouging andlike practices.

C. “Will theory” or “Classical theory” of contract law1. Embodied in Shylock—literal interpretation of contract2. 1815-ish modern markets and the commercial class developed

a. Old equitable conception didn’t really work3. Features predictability4. Parties must have the will to bargain5. Court will not enforce contract without some type of

consideration—adequacy of consideration becomes lessimportant under this concept than previously

6. “Caveat Emptor” becomes the rule and the court becomes muchmore hardened and impersonal

a. Courts are much less concerned with the fairness of thecontract

D. By the mid 20th century, Equitable concept began returningII. Basis for Enforcing Promises

A. What is Consideration?1. Either a benefit to one party or a detriment to the other (Note:

consideration does not have to be shown on both sides)a. This is a very broad definition of a detriment—it doesn’t

have to be something bad for the party, just at forbearanceof a right or the like.

b. An example: I will give you a dollar if you don’t pick yournose all day. Consideration is the promissee’s forbearanceof a legal (but disgusting) right. This agreement doesnothing for the promisor (except, perhaps, spare him thesight).

2. There must also be a bargained for exchange for considerationto exist.

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a. Past action by a party generally doesn’t count asconsideration because it wasn’t bargained for.

B. Consideration as a Basis for Enforcement1. Consideration demands some quid pro quo for the promise—a

promise that is not “paid for” in some way is not enforceable.2. Required to form a valid contract (with a few exceptions)

a. 2 reasons for requirementi. Cautionary policy—you are less likely to do

something ill advised if you take the time to makesure you are getting something in return.

ii. Evidentiary policy—provides proof that a promisewas made and intended

iii. See Feinberg v. Pfeiffer3. Hamer v. Sidway

a. “Money for nothing” caseb. Refraining from an act to which one has a legal right, at

the request of the promisor, is sufficient consideration toenforce a contract.

c. Consideration was the nephew’s detriment in giving up alegal right to do all kinds of “immoral” things. Inexchange, his uncle was to give him $5000.

d. There was a detriment to the nephew in exchange for themoney—detriment to promisee and a bargain.Consideration existed, therefore a valid contract.

C. Adequacy of Consideration1. Restatement of Contracts § 71

a. If the consideration given is a “peppercorn,” theconsideration is inadequate and the contract is invalid.

b. For instance, Dad agrees to buy a 1963 LincolnContinental worth $2,000 for $1. Consideration is invalid

D. Gratuitous Promises1. Unenforceable—no consideration2. See Hamer v. Sidway—the court found consideration, they did

not find that the uncle owed the money simply because he hadpromised it.

3. Consideration must be bargained for4. Goes to adequacy of consideration—a “peppercorn” is not

adequate consideration, makes the promise gratuitous.E. Fiege v. Boehm

1. The “Oh, sorry, wrong guy” case2. Agreement to forbear a legal claim, made in good faith, is

sufficient consideration for a contract, even if the claim turnsout to be unfounded.

a. This is a departure from classical consideration doctrine3. For an invalid claim to be valid consideration 2 requirements

must be met:a. Must be a good faith belief in the claim

i. “I really believe you are the father”b. Claim must be reasonable

i. “Well, we did have sex.”4. Restatement of Contracts § 76 covers this

a. “Forbearance to assert an invalid claim…by one who hasnot an honest and reasonable belief in its possible validity[is not consideration].”

F. The Problem of Action in the Past1. “Past” Consideration

a. Past acts can not establish sufficient consideration toenforce a contract even if the action creates substantialmoral obligation

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i. This is “classical consideration” doctrineii. The court may actually create some imaginary

previous promise if a past action gives substantialmaterial value to the other party—see Webb v.McGowin, below.

b. Feinberg v. Pfeiffer Co. (take one)i. The “little old lady and her pension” caseii. Plaintiff’s past actions did not constitute

consideration for defendant’s promise to pay herpension. Neither was the plaintiff’s continuedservice to the company valid consideration.

1 The plaintiff’s arguments did not addressthe bargain issue. The pension was offeredgratuitously with out strings attached.

2. “Moral Obligation”a. Mills v. Wyman

i. Ungrateful father caseii. Only when the party making the promise gains

something, the person to whom it is made losessomething, is the promise enforceable.

iii. Even though this court used strong language todescribe the defendant, it stated that the moralobligation owed to the plaintiff should not be usedto enforce the contract.

iv. Court drew a line between “legal” and “moral.”b. Webb v. McGowin

i. Nefarious Executor caseii. Plaintiff’s service to Defendant was sufficient

consideration for the purposes of a contract.Where the promisor is under substantial moralobligation because he has received substantialmaterial benefit, then past consideration doescount.

iii. The court tap-danced around the issue by imposingmaterial benefit on something that had great moralobligation.

G. Restitution as an Alternative Basis for Recovery1. Relatively new theory of recovery for past actions

a. Though bargained for consideration or a promise may notexist on the facts, a party may have a cause of action on aquasi-contract if otherwise unjust enrichment may result.

2. Theory not based on promise but on preventing unjustenrichment

a. I.e. I pay $100 for a CZ but when I get it home, I discoverit is a 2 ct. diamond. Should I be allowed to keep it whenthe jeweler discovers the mistake? Restitution says no. Iwould be unjustly enriched.

3. If someone has received material benefit and been unjustlyenriched, courts may enforce payment by the enriched party.

4. Plaintiff must provide some service.a. Plaintiff must expect to be paid and the defendant knew

(or should have known) that payment was expected.b. Defendant had a chance to reject the services—or if he

was unconscious, a reasonable person should infer hewould have accepted the service.

c. Amount of restitution calculated—2 rules:i. Market value of the benefit receivedii. Actual monetary benefit received

5. Cotnam v. Wisdom

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a. Streetcar doctor caseb. Harrison, the deceased, fell off a streetcar and was

injured. Dr. Cotnam ran to his aid. Harrison diedanyway. Cotnam billed the estate for services rendered.

c. Court held there is an implied contract when a reasonableperson could infer that the defendant would haveaccepted the services had he been conscious.

d. Even though such services given in an emergency areassumed to be gratuitous, if the person is acting in aprofessional capacity (like an ambulance that happensupon an injured person in the road), that assumption maybe overturned.

6. Callano v. Oakwood Park Homes, Corp.a. “We want a…SHUBBERY (Ni!)” caseb. Court calls restitution “quasi-contract” here.c. Contract entered into with deceased—the defendant sold

the property and was enriched by services provided byplaintiff who was never paid.

d. Court said, “too bad.” Unjust enrichment was not proven.Court further says that the wrong party is beingsued—compensation should be sought from deceased’sestate.

H. The Problem of Unsolicited Action1. Reliance and the Requirement of Bargain

a. Classical contract law says consideration must bebargained for.

b. What is a bargain? The law says what it is not.c. Kirksey v. Kirksey

i. Widow and Orphans caseii. Court said there was no bargain—“if you will come

and see me, I will give you a place to live” not abargain.

iii. The “if…then” statement merely gives the widowKirksey a way to receive the gift—notconsideration for a contract.

d. Central Adjustment Bureau vs. Ingrami. Evil bill collectors caseii. Terminable at will employment contract that

contained a covenant not to competeiii. When the defendants left the employ of plaintiff,

they opened their own collection agency inviolation of the covenant

iv. A covenant not to compete requires considerationv. Normally, future employment doesn’t count as

consideration.1 Court said the length of employment and

the value of the training was adequateconsideration for the covenant not tocompete.

vi. Covenant not to compete in the employmentcontract was too broad here, though and the courtmodified.

2. Reliance as an Alternative Basis for Enforcementa. Though bargained for consideration or a promise may not

exist on the facts,b. “Promissory Estoppel”—a substitute for consideration.

Reliance as a basis for the enforcement of promises.i. A promisee’s foreseeable, reasonable, detrimental

reliance may serve as a substitute for consideration

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if failure to enforce the contract may result ininjustice.

c. For Promissory Estoppel to exist, there must be:i. A promise that a reasonable person would think was

serious and would have relied uponii. Reliance upon the promiseiii. Detriment due to reliance

d. Ricketts vs. Scothorni. Rich Granddad caseii. Grandfather promised $2000 and yearly interest to

granddaughter so she quit her job.iii. Estate stops payment after grandfather’s death and

granddaughter sues.iv. Court finds there was not bargained for condition

that she quit her job. Plaintiff did, however, relyon the promise of money when she quit her job.

v. Detrimental reliance, even though not bargainedfor, is sufficient to enforce a contract.

e. Expectation—Remedy under Promissory Estoppeli. Puts the non-breaching party in the position

expected if the contract had not been breached.f. Reliance interest—Remedy under Promissory Estoppel

i. See Restatement § 901 “Promise Reasonably Inducing Action or

Forbearance”2 Puts the party back where they were

before reliance on the promise. NOT wherethey expected to be based on

g. D & G Stout, Inc. v. Bacardi Importsi. Liquored-Up contractii. Plaintiff passed on an offer to sell his business based

on a promise from defendant1 The court found Bacardi liable for

damages. But which kind?1. Expectation damages—lost income

from sales of Bacardi’s product2. Reliance damages—difference

between the 1st offer and the finalprice from the sale of defendant’sbusiness

2 Court says “Reliance it is!” Why?1. Lost future earnings (expectation)

are not recoverable under P. E.3 Stout rejected 1st purchase offer—relying

upon Bacardi’s product to hold out for awhile as an independent until a better offercame along.

h. General Rule: Reliance can not exceed expectationi. Feinberg v. Pfeiffer Co. take 2

i. Little old lady case revisitedii. Under Promissory Estoppel, there is a happy ending

to this case.iii. Ms. Feinberg relied to her detriment upon the

promise of the company to pay her a pension. Sheis no longer able to work. She wins on reliancedamages.

I. Promise for Promise

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1. When a promise is given in exchange for a promise, bothparties must accept some legal obligation in order for theagreement to be an enforceable contract.

2. 2 types of contracts made when promises are givena. Unilateral contract

i. Only one side makes a promise—“If you mow mylawn, I will pay you $10”

b. Bilateral contracti. Both sides make a promise—“I promise to give you

$10 if you promise to mow my lawn.”1 Promises constitute consideration when

given in exchange for promises.3. Strong v. Sheffield

a. Shiftless husband and nefarious uncle caseb. Defendant claims not enough of a promise was made in

exchange for her promise.c. Court says, “you are right!”

i. Endorsement of debtor’s note as security for a past-due debt is without consideration when thecreditor merely agrees to extend payment until hefeels like collecting.

d. Court cannot change an implied promise to an expresspromise. The promise in this case was illusory.

4. Mattei v. Hoppera. Satisfactory leases caseb. In the agreement to sell, defendant backed out stating the

provision making plaintiff’s “satisfaction” necessary toclose the deal made the promise “illusory.”

c. Court disagreed here—the plaintiff’s duty to perform andexercise his judgment in good faith was adequateconsideration to support the contract

d. This case sets out a “reasonable person” standard forsatisfaction.

i. The buyer should be satisfied if a reasonable personwould be

ii. Satisfaction is not dependent upon the individual“taste or fancy” of the buyer. If it had been, therewould have been no consideration.

e. Further argument by defendant: this was merely an offerto sell and not an agreement to sell. Because thedefendant removed her offer from the table before theplaintiff had accepted by obtaining satisfactory leases, thisis a “concealed offer.” Court didn’t think this one wouldfly either.

f. Though a contract containing a satisfaction clause mayseem to impose no real obligation, courts will typicallyenforce the contract by imposing a duty of good faith onthe promising party (Mattei in this case).

5. Eastern Airlines v. Gulf Oila. Aviation fuel caseb. Requirements contract—seller agrees to meet the

requirements of the buyer at a specific price and the buyeragrees to buy exclusively from the seller

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c. These contracts did not used to be enforceable—notenough predictability

i. Both the UCC and Florida law has codified them.d. Defendant argues this contract is “void for want of

mutuality.”i. Want of mutuality—Gulf argues that Eastern gets all

of the benefit from this contract. Court said “NO.”Gulf’s benefit is that Eastern does not buy from thecompetition.

e. Once again, the test is “good faith”—if Eastern had notbeen acting in good faith in ordering aviation fuel, thecontract would have lacked mutuality and it would havebeen void.

f. The court in this case finds that the contract is enforceablein both the Florida statute and in common law.

6. Opposite of a requirements contract is an “outputs contract” inwhich the buyer agrees to purchase all of the seller’s output of acertain product.

a. Aviation fuel case is requirements contract; Glue case onpp. 132 is Output contract.

7. Wood v. Lucy, Lady Duff Gordona. Titanic designer caseb. Exclusive dealing contract. Representative gets a

commission regardless of who does the selling.i. In this case, Wood didn’t care that Lady Duff Gordon

was selling, he just cared that she didn’t turn over_ of the profit to him.

c. Lady Duff-Gordon’s argument is that Wood is not boundto do any work; he did not bind himself to doing anythingspecific other than to account for moneys received by him.

d. Cardozo says this argument is ridiculous—if Wooddoesn’t act, he gets no money at all. His promise to workis implied in his promise to turn over _ of the profits.

8. Termination Clausesa. If the contract is terminable at will by one party only, the

promise may be considered illusoryIII. The Bargaining Process

A. The Nature of Assent1. Lucy V. Zehmer

a. The Farm in Jest caseb. Defendant agreed to sell Plaintiff his land—Defendant

says he was just kidding and he had no intent to sell thefarm. The court said, “Too bad.” By your actions youshowed intent to proceed with the sale despite yourdrunken condition.

c. The objective words and acts of the parties becameimportant here. What the parties believed subjectively isnot really important.

d. Mental assent of the parties is not required to form acontract so long as the words and actions of the partiesshow a serious intent to enter into the contract. A true“meeting of the minds” is not required.

e. If, however, one party understands the other party isjoking, no contract –see Keller v. Holderman (pp. 143,note)

f. The law says, “You intend what you say and act.” In otherwords, if the acts and the words of a party warrant areasonable belief that the intent is serious, there is nobacking out because you were “joking.”

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g. The acts of the parties must lead a reasonable person tobelieve that the contract was agreed upon. The priceagreed upon may be a large part of this objective test

i. Agreement to buy a farm for $50,000—prettyreasonable

ii. Agreement to buy a watch valued at $15 for$300—probably not a serious transaction.

2. Laserage Technology Corp. v. Laserage Laboratories, Inc.a. In the break up of 2 companies founded by the same man,

who was to be forced out, the disagreement over whetherthe deal that was agreed upon allowed Byrum (founder)to maintain his shareholder voting rights.

b. Court found that the actions of the parties showed thatthere was no intent to deprive Byrum of his voting rightsas a course of the agreement.

c. This case is very similar to Lucy v. Zehmer—the courtfocus on the outward manifestations of the parties actionsto come to the heart of the intent matter.

3. Gentlemen’s Agreementsa. Problematic area of contract law.b. If the parties go through all of the motions of contract but,

subjectively, neither intends to be legally bound, is there acontract?

i. If both parties expressly state (i.e. in writing) thatthere is no intent to be legally bound, noenforcement by the court

ii. In such a case, parties act on the understanding thatso long as circumstances continue as expected,everyone will perform.

c. So…if 2 guys walk up to each other in the street, make anagreement and shake hands—Is there an enforceablecontract at that time?

4. Formal Contract Contemplateda. What if in the same hypothetical as above, one of the 2

guys says, “my lawyers will be in touch.” Is there acontract? If so, when is it effective?

B. The Offer1. An offer is an expression of will or intention—it is an act that

allows the offeree the belief he has the power to enter into acontract.

a. Hmm—kind of lofty.2. Restatement Second §24 says Offer is the “Manifestation of

willingness to enter into a bargain, so made as to justify anotherperson in understanding that his assent to that bargain isinvited and will conclude

a. Traditionally, the courts will want to see an offer followedby acceptance as evidence of a contract. There are somecases where the actions of the parties lead the court tobelieve that objectively they have entered in to anagreement.

3. Things to keep in mind about the next 4 cases:a. These cases are really pretty consistent in the courts’

insistence that contractual intent must be objectivelymanifested.

b. The objective standard in evaluating intent to contract isused in all 4 courts.

c. In cases dealing with land, the courts have been extremelyreluctant to force people to part with their land if there isany question of intent to do so.

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d. There is no offer when the “offer” comes in the form ofadvertising circular. The courts are loath to call this anoffer—the seller may be overwhelmed with acceptances!

i. Note: for an ad to show that is isn’t an offer, it mustnot be too specific. I.e. saying there is one fur coatavailable for $1 to the first customer of the day.

e. Be careful in drafting communications! If the agreementcan be redrafted to say the opposite thing in language thatseem synonymous with the first communication, the courtwill usually be persuaded.

f. There must be a mirror image between offer andacceptance; if the acceptance adds or takes away from theoffer, the contract is invalid. Fairmount Glass made thisargument—court did not find it applicable here but it maybe elsewhere.

g. The offer must be definite. This argument was made inFairmount Glass as well. The defendant said an offer tosell an indefinite quantity was not an offer. The courtsaid, “nice try” and found sufficient definiteness in thisinstance. It may work elsewhere.

4. Owen v. Tunisona. Plaintiff asked defendant if he could buy some of his land

for $6000. Defendant responded that he could notpossibly sell for “less than $16,000. Plaintiff agreed to theprice of $16,000. Defendant did not wish to sell his landand refused to accept the $16,000. Plaintiff sued

b. The plaintiff offered to buy the property, but thedefendant’s wish to sell was never discussed. The courtheld that there is no contract.

i. The court talks about “meeting of the minds” here,but there are bits of objective evidence that thedefendant really didn’t expect the plaintiff tocough up the 16k.

5. Harvey v. Faceya. Plaintiff initiated transaction by writing to defendant

asking if he would be willing to sell a piece of propertyand at what price

b. Defendant answered only the price question and the notthe willingness to sell question. Court says no offer to sellwas communicated.

c. The confusion here arose over language. Even though theparties were communicating in writing doesn’t mean theyunderstood what the other was saying.

d. The courts are loathe to make people part with their landwithout perfect understanding—the type of item beingsold seems to matter in this type of cases.

6. Fairmount Glass v. Grunden-Martina. Appellant (Grunden) invited Fairmount to quote prices on

glass jars. Fairmount responded in specific languageindulging prices, discount for cash payment, and the term“for immediate acceptance.”

b. When Grunden accepted the quote and placed a specificorder, Fairmount was unable to fill the order.

c. The court held that the quote constituted an offer andGrunden accepted that offer.

d. Once again the language was very important. Because thequote contained the words “for immediate acceptance,”the document was held to be an offer. The offeror wasempowered to enter into a contract.

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i. If Fairmount had enclosed the words, “all orderssubject to stock on hand” instead of “forimmediate acceptance,” the communication wouldhave been a quote instead of an offer.

7. Moulton v. Kershawa. Salt circularb. Kershaw sent Moulton a trade circular with a special on

salt. When Moulton ordered, Kershaw had no salt left.c. Court says a trade circular is not an offer it was an

invitation for offers.C. Mistaken Bids

1. In the bidding process for contracts (usually for buildings andthe like) the contractors submit bids for jobs, these bids areconsidered offers. The buyer of the services chooses the bid andaccepts one.

2. What if the contractor submits a bid with a mistake in it?3. Elsinore Union School v. Kastorff

a. The defendant submitted a bid to the Elsinore schooldistrict. The defendant had the winning bid. The nextday, the defendant discovered he had made a clericalerror in computing his bid and the plaintiff was informedright away. Should the defendant be held to a contractthat resulted from a mistaken bid?

b. Court held the defendant could withdraw the offer if themistake was:

i. Innocentii. Clerical

1 An error in calculating the materialsrequired is not allowable

iii. Materialiv. If it is unconscionable to hold the defendant to the

offerv. If the notice of the error and intent to rescind is

promptvi. If the offeree can be put back in status quo (the

position it was in before the offer was accepted).1 The offeree must have the ability to still

accept the next lowest bidc. Here, all of these conditions were met. The contractor’s

rescission of the bid is like it was never submitted at all.d. Note that reformation of the contract is not allowed. If the

contractor wants to do the work, he has to do it at theprice bid.

4. Bid Shopping can contribute to these types of errors. Thecontractor invites sub-contractors to bid on the job. In order toprevent the contractor from going to other sub-contractorsasking them to beat a bid, the subs submit their bids at the lastpossible moment. This contributes to a high-pressure situationfor the contractor to get his bid to the bidding on time.

5. If the offeree knows of the offeror’s error at the time of thecontract, the offeror will not be bound to perform—the offereeknows they are taking advantage.

6. Most courts are truly unwilling to grant relief to the contractoron these types of cases. There is a real feeling that thecontractor should be held to the deal.

7. Heifetz Metal v. Peter Kiewit Sons’ Co,a. The Subcontractor was not released from his bid to the

contractor when it was discovered they had mis-bid onthe work for a commercial kitchen.

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b. The mistake was based on the amount of work theythought needed to be done—there was more than theyhad originally anticipated.

c. The contractor had submitted his bid based on the sub’serroneous bid. The contractor could not be placed instatus quo.

8. How are these 2 cases different?a. Most of the cases when bidder is let out of a contract is

with a general contractor and not the sub—the contractorhas relied on the sub’s bid in preparing his.

b. The work had already been started in Heifetz. Themistake was perhaps one of judgment and not a clericalerror.

D. The Acceptance1. Acceptance is a voluntary act of the offeree creating a contract

through their acceptance.a. Acceptance may occur by performance or through a

promisei. Hamer v. Sidway—offer was by the uncle, nephew

accepted the offer by performanceii. Promise—I promise to buy the goods you are

promising to sell.2. Notice of Acceptance in Unilateral Contracts.

a. Carlill v. Carbolic Smokei. Guarantee of £100 to anyone using the Carbolic

Smoke Ball who comes down with the flu.ii. Defendant argued that it wasn’t a real offer and, if it

were, the plaintiff had not notified of acceptance.iii. Court said that the language of the advertisement

was so definite as to be an offer and in thisinstance no notice of acceptance was required,performance was enough.

iv. From the character and nature of the transaction,notice of acceptance of an offer may beunnecessary.

b. Bishop v. Eatoni. This is an oddball case where action itself does not

constitute acceptance of the offer.ii. Ordinarily, acceptance is perfectly fine but in some

cases, notice needs to be given of the acceptanceand the performance.

c. Allied Steel v. Ford Motor Co.i. The offeror may prescribe a method of

acceptance—an acceptance in the mannerprescribed will bind the offeror.

1 Acceptance in a manner that is notprescribed in this instance will not bind theofferor.

ii. A method of acceptance may also be suggested bythe offeror. If the method is merely suggested,other methods of acceptance are recognized.

1 Partial performance is one of thesemethods and it is the one that got Allied introuble here.

iii. The court also says here that if here is no fraud ordeceit, the parties are bound by a contract thatthey signed and had the opportunity to read.

iv. Allied whined that they did not read theamendment to the purchase order—the court

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found this to be bunkum. Allied supplied theequipment ordered, they must have read it.

3. Shipment of Goods as Acceptancea. A contract can, sometimes, be accepted by shipping goods.

i. I.e. the buyer sends an order and in response, theseller ships the items.

b. If the seller ships items not ordered, is this acceptance?i. There is no mirror image between offer and

acceptance in this instance—could be breach ofcontract.

4. Silence Not Ordinarily Acceptancea. Restatement §69 says that generally, silence alone is not

acceptance.b. Sometimes, if there is a past relationship, however, the

offeree can be held if there is only silence.i. Hobbs v. Massasoit Whip

1 Plaintiff sent a load of eel skins todefendant and heard nothing in return.

2 The eel skins were not returned and thedefendant did not pay for them.

3 Because of a past relationship of doingbusiness in exactly this manner, thedefendant was held to be in breach ofcontract.

4 Also: the defendant could have been seento be unjustly enriched by the plaintiff’smerchandise.

5. Termination of the Power of Acceptancea. Power of acceptance may be terminated by:

i. Lapse of the offerii. Revocation of the offeriii. Rejection of the offeriv. Offeror’s death or incapacity

b. Lapse of the Offeri. If no specific time is indicated in the offer (i.e. you

must accept by Friday), the offer expires after a“reasonable time.”

ii. Of course, “reasonable” is open to interpretation.iii. Akers v. J. B. Sedberry

1 An offer made by one to another in thecourse of a conversation only remains openuntil the end of the conversation.

iv. Loring v. City of Boston1 3 years and 8 months from the date of the

advertisement of an offer was not areasonable time.

c. Revocation of the offeri. The offeror may revoke the offer at any time prior to

acceptance.ii. Exception to this rule is an option contract

1 Option contract: for consideration, theofferor promises to hold the offer open fora specific period of time with no right ofrevocation. —There must be consideration.

d. Rejection of the Offeri. This is the offeree’s right.ii. The offeree cannot accept the offer after he has

rejected it.iii. A counter offer is a rejection of the first offer.

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e. Offeror’s death or incapacityi. Pretty self-explanatory—all bets are off.

f. Hoover v. Clements Paperi. When is a communication a revocation?ii. Hoover’s statement that “we have not decided, we

might not want to go through with it…” was arevocation of the offer, Clements could not lateraccept the offer.

6. Options Contractsa. A promise, made by the offeror, which effectively limits

the offeror’s power to revoke.b. Toys v. F.M. Burlington

i. Plaintiff entered into 5-year lease with option torenew.

ii. Plaintiff said they would exercise the option but didnot like the price the defendant quoted for rent.After some hemming and hawing, the defendantlisted the space for rent and plaintiff sued (aftermoving out.)

iii. Court said the renewal option is more than anagreement to agree—it was definite and containedsufficient bargained for consideration to beenforceable

iv. Court remanded the case for trial because therewere questions of fact as to whether the plaintiffhad exercised their option or had let the timeperiod lapse

1 Jury at trial found Toys to have exercisedtheir option but waived its right to renewwhen it failed to agree before the deadline.

c. Dickinson v. Dodds (pp. 207)i. Agreement to hold offer to sell property open for

specific amount of time did not workii. Court found no consideration for the agreement and

so a third party’s communication to plaintiff wasnotice of revocation of the offer.

iii. A promise to leave an offer open must containsufficient bargained for consideration.

d. Restatement §43 allows for indirect communication of therevocation of an offer.

i. Offeree must receive reliable information of theofferor’s behavior.

e. Thus:i. Offeror may revoke at anytime prior to acceptanceii. Offeror may do so even if the offer is “irrevocable”

for a specific period of time—UNLESS bargainedfor consideration is received for the promise(Restatement §87)

iii. Revocation must be communicated in some reliableway. Selling to someone else isn’t good enough.

iv. Communication of revocation may be indirect.f. Ragosta v. Wilder

i. Fork Shop caseii. Plaintiffs agreed to buy shop from defendant but

needed to obtain financing.iii. Offer gave plaintiffs a deadline to appear with the

money at a bank. Plaintiffs appeared at the bankbefore the deadline with the information onfinancing.

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iv. Defendant sold to someone else. Court said “That’sOK.”

v. There was no consideration for the promise to keepthe offer open—plaintiffs’ argument that themoney they had spent in obtaining financing wasconsideration.

7. Mailbox Rulea. Restatement §63

i. Time when acceptance takes effect1 Acceptance is effective when it leaves the

offeree’s possession2 In an options contract, acceptance is

effective when it reaches the offeror.b. Restatement §40

i. Rejection or Counter-offer’s effectiveness1 Rejection or counter-offer must be

received by the offeror to be effective.2 If an acceptance is also sent, the

acceptance must be received before therejection or counter-offer.

c. How these work:i. Revocation must be received before an acceptance is

mailed to be effective.ii. Acceptance is good upon dispatch; revocation is

good upon receipt.iii. Acceptance of an offer eliminates the right to reject.

If the offeree attempts to reject after an acceptanceis mailed—too bad.

iv. If the rejection arrives before the acceptance, thebuyer may choose to enforce the contract unless

1 Seller has relied on the rejection and soldto someone else.

2 If the seller has relied on the rejection andsold to someone else at a loss, the sellerprobably can recover from the 1st buyer forthe loss.

v. Acceptance dispatched after a rejection is effectiveupon receipt if at all.

E. Precontractual Liability1. General rules and info:

a. General rule: Neither party is bound until a contract isentered into.

b. Courts may decide to enforce a promise in which oneparty acts in reliance upon a future contract when abenefit has been conferred upon the other party

c. Tension between the classical contract rules and thehuman need to reach just results

2. Restitution cases:a. Sometimes restitution is allowed, recovery not based on a

promise but on avoiding un-just enrichment.b. Cronin v. National Shawmut Bank

i. Insurance agent revised proposal several times tomeet the wishes of a bank officer

ii. When another company received the insurancecontract, plaintiff sued.

iii. The bank never availed itself of Cronin’s proposalsand an invitation to submit proposals does not(normally) lead to liability.

c. Hill v. Waxberg

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i. Goes the opposite way from Croninii. Contractor, Hill, made preparations to build on

defendant’s lot on the defendant’s promise that ifthe financing could be obtained, Hill would get thecontract.

iii. Negotiations for the contract fell through and thecontract went to someone else.

iv. Court awarded restitution damages1 Hill conferred a benefit on Waxberg and

needed to be compensated for it—theexpected profit from a contract was whatHill undertook the expense for.

3. Wormser’s Hypothetical for Unilateral contractsa. A promises B $100 to walk across the Brooklyn Bridge and

instead of saying, “I accept,” B simply starts to walk.Once B gets _ way across the bridge, A yells, “I revoke!”What is the result if B sues A?

i. Wormser initially said that the acceptance of A’soffer is signified by the completion of the task andnot by the commencement.

1 He reasoned that B had not given A whathe had asked for—the completed walkacross the bridge and the acceptance of A’soffer was the completed walk.

ii. Restatement Second §45 disagreed withhim—acceptance is signified by thecommencement of performance, not itscompletion.

1 An option contract is created by partialperformance or tender

2 In this case, consideration for the optionscontract is part performance

3 This works only in a unilateral contract:the performer may opt out of the contractby ceasing to perform but the offeror maynot revoke part-way through completion

b. Brackenbury v. Hodgkini. Ms. Hodgkin promised the family farm to her

daughter if she would move from Missouri toMaine to care for her until her death.

ii. Problems erupted and Hodgkin threw theBrackenburys out and they sued.

iii. The court held that since this was a unilateralcontract, a promise exchanged for action, Hodgkinwas bound by the Brackenburys acceptancethrough performance

c. Davis v. Jacobyi. This is a similar case to Brackenbury, but the letter

asked for the plaintiff to respond.ii. The court held this to be a bilateral contract, a

promise for a promise—the performance, asacceptance doesn't work here.

4. Reliance on an offer that seeks a promisea. Drennan v. Star Paving

i. Sub-contractor revoked offer to contractor after thecontractor’s bid had been accepted by the client.Contractor sued.

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ii. Star Paving argued that they had made a revocableoffer and revoked it before plaintiff hadcommunicated his acceptance.

iii. Drennan argued that he had relied upon thedefendant’s offer to his detriment.

iv. Court called this an Implied Subsidiary Promise.1 Defendant was aware that plaintiff would

be submitting his bid based on the lowestbid received and understood thisprocedure.

2 The defendant stood to substantially gainfrom plaintiff’s winning the bid and as aresult, the offer had an implied promise toremain open for a reasonable period oftime.

v. What is the consideration for the implied subsidiarypromise?

1 Detrimental reliance acts in place ofconsideration in this situation

vi. Note: unlike the Elsinore School District caseabove, the contractor plaintiff here could not beplaced in status quo. He had submitted his bidrelying on the bid from the paving contractor.

b. Restatement §90i. Promise reasonably inducing action or foreberance

1 This is the promissory estoppelrestatement—see above.

2 It works here because it allows reliance toact in place of consideration.

c. Restatement §87(2)i. Combines §45 and §90ii. Options Contracts are binding if

1 In writing and signed and states someconsideration

2 Made irrevocable by statuteiii. An offer, which the offeror expects to cause the

offeree to do something (or stop doing something)which would give substantial benefit to the offerorAND when the offeree relies on it, a bindingoptions contract is created.

1 Mooney can’t think of anywhere this isused where it is not in the realm ofcontracting.

5. Liability for failed Negotiationsa. If one party has conferred a benefit on the other during

the course of negotiations, the recipient of the benefit maybe required to make restitution.

b. Be careful, though, courts usually have accorded partiesthe freedom to negotiate without the risk ofprecontractual liability.

c. Goodman v. Dickeri. Plaintiff was lead to believe his application for an

Emerson radio dealer franchise was accepted. Hespent money in preparation, hired employees andlined up customers.

ii. When the franchise fell through, plaintiff sued.iii. Court held an award of damages that the plaintiff

had spent in reliance upon the defendant’sstatements but denied damages for lost profits

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iv. Reliance damages were awarded but expectationwas denied.

d. Prince v. Miller High-Lifei. Plaintiff entered into a contract for the distribution

of Miller beer. He spent $20,000 to build thebusiness and then Miller terminated the contractand gave a profitable distribution area to another.

ii. Appellate court upheld directed verdict for thedefendant.

iii. The court stated the “Missouri Rule,” which givesthe franchisee an opportunity to recover costs sunkinto building a business IF the franchise has notbeen in place a reasonable amount of time whenthe franchiser takes it away.

iv. Court further said that the Missouri rule doesn’tapply here—there was a contract that stated“terminable at will” in the cases the plaintiff wasrelying on, there were no contracts at all.

e. Grouse v. Group Healthi. This is much like Goodman v. Dicker, aboveii. Plaintiff relied to his detriment on the promise of a

job from the defendant.iii. Court said that plaintiff could recover reliance

damages—he had not been given a good faithopportunity to perform his duties to thesatisfaction of defendant.

f. Ragosta v. Wilderi. See aboveii. Part 1 (above) court said no consideration for the

promise to keep the offer openiii. Part 2 (here): court remands the case for trial on

promissory estoppel.iv. In order to win here, plaintiff must show:

1 They relied upon the promise to theirdetriment.

2 Defendant could reasonably haveinferred that the plaintiffs would incursuch a high cost of reliance

g. Hoffman v. Red Owl Storesi. Plaintiff acted in reliance on defendant’s promise of

a franchise—sold his bakery, bought and sold asmaller grocery store and obtained $18,000 fromhis father-in-law. Defendant refused franchise

ii. Even though the parties had not finalized theirnegotiations so that even an offer could beinferred, the court awarded damages based onpromissory estoppel.

1 Should the promisor have reasonablyexpected the promisee to act or forebearbased on the promise?

2 Did the promisee act or forebear?3 Can injustice be avoided only by

enforcement of the promise?iii. Court awarded reliance damages on the value of

the small grocery store.h. Channel Home Centers v. Grossman

i. Mall rental caseii. Letter of intent was a contract to negotiate in good

faith

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1 Court held that Grossman breached thatcontract.

iii. Contract was supported byconsideration—Grossman used it to get financing.

1 This issue is really a red herring, doesn’tmatter if it is present or not.

2 Court found that both parties were boundby their obvious intent to be bound

i. Heyer v. United Statesi. Court held that a cause of action exists against a

party who negotiates without serious intent tocontract.

F. Requirement of Definiteness1. Two issues involved here:

a. Contractual intenti. Whether a reasonable offeree would conclude that

the offeror intended to be boundii. Language of the offer is part of this element—vague

language is bad!iii. If the offer is too vague for the court to conclude

that there is content, the definiteness is then a fatalflaw.

b. Contract sufficiently definite to ascertain breach andfashion a remedy.

2. Restatement Second § 33a. Certainty

i. The terms of the offer and the contract must bereasonably certain.

ii. Terms are certain when they provide a basis fordetermining breach and giving an appropriateremedy

iii. Lack of certainty may show a lack of intent tocontract.

3. Toys, Inc. v. Burlingtona. Take 2, see facts aboveb. Defendant said the terms were too indefinite (an

agreement to agree).c. Court says it is plenty definite—definite, ascertainable

method of determining price term for lease extentiond. Defendant still wins, see above

4. Lee v. Seagram & Sons, Inc.a. Seagram argued that its promise to provide a

distributorship in another city with “a price roughly equalto the capital obtained for the sale of their interest inCapital City” was too indefinite to enforce.

b. Court held that the plaintiff had submitted enoughevidence at trial to show that the capital was indeeddefinite.

IV. The Requirement of a Writing For Enforceability: The Statute of FraudsA. Reasons to have the Statute of Frauds:

1. Evidentiarya. We want to make sure these contracts exist before we

enforce them.2. Cautionary

a. We really want people to think about these before theyenter into them.

3. Habita. We want business people (an others) to get in the habit of

writing things down.

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B. Statute of Frauds Requires writing for enforcement of promises for:1. Surety Clauses: To answer for the debt for another

a. How surety works:i. C loans to A upon the promise of B to pay if A

doesn’t—looks like a co-signer!ii. There are look-alikes not covered by the statute of

frauds:1 A is not actually bound to pay

(“if you lend A money, I’ll pay it back,” saysB) but B pays anyway.

2 A&B both get benefit from C—B is a co-principal

3 B acting to further his own economicinterests (say B is a loan-shark and coversA’s loan in return for lots of interest).

4 New Contract (Novation)—B enters into anew contract with C in place of A. Like thetaking over of a lease.

5 B promises A and not C—B says, “if youbuy from C, I’ll pay if you become unableto.”

b. Party taking on the debt gets nothing so the writing is ofimportant evidentiary value—before this type of contractis enforced, we want to be sure it exists.

2. Contracts that cannot be performed in a yeara. An unwritten contract may be enforceable if there is any

chance that it may be performed in a yeari. “I promise to work for you for the rest of my

life”—could be less than a year, no statute offrauds issue

ii. “I promise to work for you for 5 years if you livethat long”—possible to perform in a year

b. Contract must be impossible to perform in a year notsimply highly unlikely or not expected.

c. Part performance in one year does not equal completeperformance—still under statute of frauds.

d. Year runs from the time the contract is made, not the timetaken to perform

i. Promise to appear 18 months from now on a 1 hourTV program—statute of frauds issue

ii. Promise to appear 6 months from now on a 1 hourTV program—no statute of frauds issue

e. If the contract is terminated in less than a year (by breachor whatever) does not necessarily take the Statute ofFrauds out of the picture.

3. Convey interest in real propertya. Leasesb. Sale of Landc. Granting of Easements

4. Sale of goods worth more than $500a. Goods are not services

5. Agreement made upon consideration to marrya. Not a mutual promise to marry—“Will you marry me?”

“Yes, I will marry you.” Not a statute of frauds situation.b. An agreement to marry if a certain number of stocks are

transferred, statute of frauds issue.i. Pre-nuptial agreements fall here

6. There are others added in some statesa. Wills must be in writing in some states.

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C. Three questions to ask when considering Statute of Frauds:1. Does the statute apply here?2. Assuming the statute applies, has it been met here?

a. Can we find enough of a signed writing?i. May be several sets of writings hiding out.ii. Courts have accepted notes, etc. to satisfy the

Statute.3. If it has not been met, what are the consequences?

a. Defendant wins!b. If the court decides the defendant does not have a Statute

of Frauds defense, the case will proceed on themerits—perhaps an oral contract existed.

D. Dispensing with the requirement of a writing1. Monarco v. Lo Greco

a. Plaintiff relied upon verbal promise that the family farmwould be his if he stayed and worked it—he worked for15 years.

b. Plaintiff gave up any opportunity to work and buyproperty of his own. The court held that the Statute ofFrauds should not be applied because:

i. Unconscionable injury to promisee would resultii. Unjust enrichment to promisoriii. Detrimental reliance on a verbal promise was

sufficient to defeat the requirement of writing.c. So: promissory estoppel prevented denial of the

enforcement of this verbal promise even though the typeof contract should have fallen under the Statute of Fraudsbecause of the promissee’s detrimental reliance and thepromisor’s unjust enrichment.

d. Court argued by analogy—why is investing years of workany different than investing years of money?

e. Expectation (fair market value of the land) was seen asinadequate damages. Specific performance (the title tothe land) was awarded.

V. Policing the BargainA. Capacity—A party to a contract must be the member of a group whose

promises we think should be generally enforceable.1. Drunkenness

a. In order to get out of a contract through intoxication, theintoxicated person must be so drunk as to be unable tocomprehend the nature or consequences of the contract.

2. Minors (infants)a. Until a person reaches the age of majority (usually 18),

any contract entered into is voidable at his optionb. Contracts entered into by them are, however, enforceable

against the other party.c. Statutes may prevent minors from voiding contracts

entered into for things like food, clothing, andshelter—hopefully this encourages business owners todeal with minors for these things.

d. Banking transactions, insurance and educational loans areall exempt from this provision—minor cannot get out ofthese.

e. Ratification is frequently an issue here.i. If the child reaches majority and ratifies the debt,

says, “I know I owe this money and I agree to pay,”she is bound

ii. If the child ratifies by implication—waits a coupleof months and makes a coupe of payments, she

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cannot then revoke the contract on the basis ofcapacity.

f. In order to revoke the contract, the child must return themerchandise (or whatever)—can’t just say, “I disaffirm!”and then keep the car.

g. Suit is more likely to succeed on the basis of incapacity ifthe minor is the defendant.

B. Unfairness—the substance of the exchange may be so unfair that itshouldn’t be enforced at all.

1. McKinnon v. Benedicta. Trees issueb. Oppressive contracts will not be enforced in equity.c. Plaintiff loaned defendants money ($5,000) to purchase a

resort upon the agreement that they would not cut downthe trees that bordered his land for a time of 25 years.

d. Defendants found they needed that land some 4 yearslater to make the business profitable.

e. Court found the burden placed on the defendants wasvery large, they were denied use of their land, while theburden on the plaintiff was very small—a secured loanwhich was paid back early.

i. The court called it a “great hardship”f. This agreement was found to be substantively one-sided

and the contract unenforceable.2. Tuckwiller v. Tuckwiller

a. Parkinson’s disease caseb. In determining the fairness of the contract we must view

it prospectively (at the time it was made).i. While Ms. Morrison did not know how long she

would live, neither did Tuckwiller—she enteredinto the contract to care for Morrison to the end ofher life willingly in exchange for the title to thefarm upon death.

c. Although Morrison only lived a month, never changed herwill, and Tuckwiller only cared for her for 2 weeks; thecourt held the contract was enforceable.

d. Promise was relied upon when she quit her job.e. Specific performance was ordered: Tuckwiller got the

farm.i. Defendants argued that she was only entitled to

restitution for the 2 weeks she cared for Morrison.3. Black Industries v. Bush

a. Bush was a “middle-man” who contracted with plaintiff amanufacturer to purchase items at a certain price. Bushthen turned around and sold them at a large profit to agovernment contractor.

b. Plaintiff argued that the contract was against public policybecause Bush was so inflating the prices that the taxpayerswere footing a huge bill.

c. The court held that simply getting a massive profit on thesale of goods does not create inequality of exchange.

d. Substantive unfairness issue was not createdhere—plaintiff entered contract with “eyes wide open”and tried to back out of deal when it realized it could havebeen charging more for its product.

e. Very difficult to prove Substantive Unfairness when theparty crying it is a business.

4. Void as against Public Policya. Brought up by Black v. Bush

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b. Only allowable under 4 situationsi. Contract for penalty in guise of liquidated damagesii. Contract to induce public official to actiii. Contract for an illegal activ. Contract for collusive bidding on public contracts

C. Overreaching: Conventional Controls1. Traditionally this includes:

a. Fraudb. Mistakec. Duressd. Innocent misrepresentation

2. Remedies for these:a. Recisionb. Avoidance at the instance of the victim

3. Pressure in Bargaininga. Pre-existing duty rule

i. Agreeing to do what one is bound to do anyway isnot consideration

1 Very important in classical contractthinking.

b. Duressi. Not very popular with the classical contract thinkersii. It is not duress to do what one has the legal right to

do anyway was the classical thought1 It is not duress to threaten to fire an at-

will employeeiii. Clear legal rules are very important here,

subjectiveness in this context is not very popular.iv. A party must act like a person of ordinary firmness

in order to later claim successfully that it should befreed of its obligations due to duress

1 This is ALWAYS an issue in a duress casev. Duress is often associated with unlawful conduct.vi. Duress has been expanded significantly in the last

30 years.c. Relationship between Pre-Existing Duty Rule and Duress

i. Duress is a far better litmus test for deciding whichmodifications to a contract should be enforced

ii. Pre-existing duty rule is not very helpful in makingthese types of decisions.

d. Alaska Packers v. Domenicoi. Defendants were hired to perform work on a

canning ship—when the plaintiff transported themto Alaska, the defendants refused to work unlessthe agreed upon salary was increased.

ii. The foreman agreed to increase the pay but whenthe work season was over, paid at the rate of thefirst contract.

iii. Under the pre-existing duty rule, the court ruledthat the only money the defendants were entitledto was the money under the first contract.

iv. Under duress, the plaintiff argued that it was sodifficult to get workers in Alaska that it had nochoice but to agree to the worker’sdemands—therefore, the 2nd contract was enteredinto under duress.

1 Still sounds like a labor dispute to mewith workers exercising their right tostrike.

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v. The court accepted the duress argument and the 2nd

contract was not enforced1 Mooney says this is a hard and fast case

on duress.e. Schwartzreich v. Bauman-Basch, Inc.

i. Torn signatures caseii. When a 2nd contract was negotiated, the signatures

were torn off 1st contract, signifying the rescissionof the first contract.

iii. The court held the 1st contract to be void BECAUSEof the tearing of the signatures—ridiculous. Theimportant act was the free bargaining between theparties that led to the new contract and therescission of the old one.

f. Arzani v. Peoplei. Subcontractor brought suit for balance due on a

contract that included money promised him by thecontractor.

ii. Court held that because the first contract had notbeen rescinded, the second contract was notenforceable and the money owed was limited tothe unpaid portion of the first contract.

iii. Pre-existing duty rule applied hereiv. Even though the sub acted in good faith and did not

attempt to extract extra money for himself—thesuit did not work.

g. Restatement Second §89i. Modification of Executory Contractii. Fixes the apparent injustice in Arzaniiii. Makes the promise to modify a contract that is not

fully performed on either side binding if:1 The modification is fair in view of

circumstances not anticipated by theparties when the contract was entered

2 To the extent that justice requiresenforcement in view of reliance on thatpromise (sounds like estoppel!).

h. Corbin urges the courts to attempt to “separate the sheepfrom the goats,” by enforcing contracts by honestcontractors and by not enforcing contracts by dishonestcontractors. Matthew 25: 31-46

i. To fix contracts that may fall under the pre-existing dutyrule:

i. Rescind the old contract and make a new duty forthe new contract:

1 I promise to be at work _ hour beforeevery one else.

2 Extend the length of the contract by amonth

j. To fix claims of duress:i. Write in a clause that says something like:

1 This contract has been entered into freelyand without duress.

2 In consideration of changes in marketprices…

4. Scope of the Pre-Existing Duty Rulea. One party owes a pre-existing duty to a third party

i. De Cico v. Schweizer

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1 Promise by bride’s father to make anannual payment to the couple in return fortheir agreement not to join in breaking theengagement.

2 An agreement by bride’s father to paygroom annually to not break theengagement is not enforceable

3 This agreement, however, is to induce thecouple to not join together in rescinding theengagement contract.

4 Cardozo said the parents were bound topay.

b. Accord and Satisfactioni. Accord (party agrees to accept less on a debt owed)

is not enforceable without consideration.ii. Satisfaction (actual payment of the lesser amount)iii. Look for duress on these cases as welliv. Foakes v. Beer

1 Agreement to pay judgment ininstallments while foregoing interest iswithout consideration

2 If Foakes had said, “I will pay you theentire amount right now if you agree toforgive the interest” there would have beenconsideration.

v. Kibbler v. Garret & Sons1 “Payment in full” checks2 Defendant made partial payment of debt

with a note on the check—acceptance andendorsement of this check representsacceptance of payment in full.

3 Court said that the defendant did notshow that there was no communicationwith the plaintiff of his intent to pay lessthan billed.

4 Accord and Satisfaction requiresmanifestation of assent to debtor’s offer.

5. Economic Duressa. Austin Instrument, Inc. v. Loral Corporation

i. Plaintiff entered into contract with the Navy tosupply radar sets and entered into contract withdefendant for the manufacture of parts for thosesets.

ii. After things had been rolling along for a while,defendant sent communication to plaintiff statingthat they would stop shipment of the partsimmediately unless the plaintiff agreed tosubstantial increases in prices

iii. Plaintiff was up against the wall and had to agreeso they would not breach their contract with theNavy.

iv. Court sets out elements of an economic duressclaim:

1 Party making the claim was forced toagree by a wrongful threat

2 Immediate possession of needful goods isthreatened, or that one party hasthreatened to withhold goods

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3 Threatened party could not obtain thegoods from another source

v. Pre-existing duty rule does not apply here:1 Pre-existing duty is a defense alone2 In order to regain money already paid,

you must claim duress.6. Victims Options

a. When thinking duress, ask:i. Was the victim opportunistic in yielding to the

threat?ii. Might the victim have resisted and found

satisfactory remedy for resulting injuries?b. A threat to sue for a money judgment is easily countered

with a defense unless:i. Mortgage foreclosureii. Body seizure

D. Concealment and Misrepresentation1. Most courts will not insist upon the degree of disclosure that a

person of exceptional scruples might make.2. In allowing bargaining advantages to be secured by persons of

little scruple, the law may attach a disadvantage toconscientious conduct and fair dealing!

3. Swinton v. Whitinsville Savings Banka. Termite ridden house caseb. Plaintiff bought a home the defendant knew to be termite

ridden. The fact was not disclosed to the plaintiff. Whenthe plaintiff discovered the fact and that the value of thehouse was actually much smaller than the defendantrepresented, plaintiff sued.

c. The court says the whole thing was OK. Because all thedefendant did was conceal a fact from the plaintiff, thecourt says “Caveat Emptor” and lets it go at that.

d. The court actually says: “if this defendant is liable on thisdeclaration, every seller is liable who fails to disclose anynon apparent defect known to him in the subject of thesale which materially reduces its value and which thebuyer fails to discover.” Isn’t this only fair and what wewant sellers to do?

e. Therefore: So long as there is no false statement, meresilence or “bare nondisclosure” of defective merchandiseis OK.

4. Kannavos v. Anninoa. Defendant offered a house divided into apartments for

sale as an “income property.” Plaintiff purchased thehouse with the stated intent to rent the apartments out.

b. Defendant was knowingly in violation of the zoningordinances when she divided the home. Soon afterplaintiff bought the house, the city started abatementproceedings

c. Court held that the defendant was bound to disclose thatmulti-family dwellings were in violation of the zoningordinances.

5. Distinguishing Swinton and Kannavosa. In Kannavos there is outright duplicity—brokers

misrepresented the purposes for which the homes weresuitable. Swinton is an example of “bare non-disclosure.”

b. The buyer in Swinton could not have easily discovered thetermites infecting the house but the buyer in Kannavoscould have easily run a title check and discovered the

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zoning problem—this doesn’t work because the seller inKannavos openly and deliberately misrepresented theproduct.

c. The law distinguishes between bare non-disclosure andmisrepresentation—the difference between keeping quietand openly lying.

6. Misrepresentationa. Even innocent misrepresentation is actionable and

grounds for rescission of contract.b. Limits:

i. Must be a material misrepresentationii. Misrepresentation of opinion or law is not

actionableiii. Fiduciaries have a special duty not to misrepresent

opinionsiv. Attorneys have a special duty to not misrepresent

the law.E. Unconscionability and the Problems of Adhesion Contracts

1. Strict Constructiona. Before unconscionability became a reasonably well-

accepted defense in contract actions, the courts wouldconstrue the language of horrible contracts in convolutedand weird ways to make the case come out on the side ofright.

b. 3 problems with this approach:i. Legitimizes the efforts of fancy wall-street lawyers to

draw the language in contracts so tightly that thecourts cannot construe away the advantage thestronger party has.

ii. Fouls up future cases—lawyers will look to thedecisions and attempt to follow precedent

iii. The real issues in the cases are not addressed; thecourts look to the language and not the principlesinvolved.

c. UCC §2-302 was written to try to work aroundthis—gives courts the power to throw out contracts withelements that are unconscionable.

2. O’Callaghan v. Waller & Beckwitha. Plaintiff fell on the defective pavement of the courtyard of

a large apartment building and sued defendant.b. Plaintiff had signed a lease that contained an exculpatory

clause holding the defendant harmless.c. Court said that the exculpatory clause was against public

policy but should be taken up by the legislature.d. The contract term barring plaintiff from suing her

landlord was upheld.e. Was the exculpatory clause really open to bargaining or

did the landlord during a housing shortage have morepower to dictate terms than did the plaintiff?

3. Mooney says that legislatures should address public policy andjudges should not:

a. Judges are not legitimized by elections the way legislatorsare

b. Judicial actions are more limited and less systematic thanlegislative action

c. Courts are less well equipped to inquire into the widereaching merits of a contract clause.

i. Although, judges may be better equipped than wethink—they may not be able to look broadly but

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they can look more deeply into one particularsituation without the self-interested hangers onmucking things up.

4. Tickets, Passes and Stubsa. Klar v. H. & M. Parcel Room, Inc.

i. Close case—the printing on the ticket for parcelstorage limited the parcel storage’s liability for lossor damage of items

ii. Found not enforceable here because the defendantwas negligent and the “contract” did notindemnify the defendant for negligence.

b. The enforcement of tickets with contracts on themdepends on:

i. How clearly the clause appears on the ticketii. How understandable the language isiii. Whether a reasonable person would have

understood the terms on the ticket.c. Restatement Second §211

i. Standardized agreementsii. Doesn’t matter if the party has read the ticket

d. Henningsen v. Bloomfield Motors, Inc.i. Steering mechanism on brand new car failed and

plaintiff was injured shortly after purchasing carand sued on breach of the warranty ofmerchanibility

ii. Defendant claimed the Henningsens had waived thewarranty by signing a contract in which thesmallest, tiniest print waived the warranty.

iii. Court said this is no good—absolutelyunconscionable and against public policy

1 Defendant had a significant poweradvantage and the plaintiff could not havebargained for or against the clause.

e. Williams v. Walker-Thomas Furniturei. Defendant ran a rent-to-own furniture business;

plaintiff was a customer.ii. Court said the terms of the contract here were so

unconscionable at the time the contract was signedas to completely void the contract.

iii. Unconscionability is the absence of meaningfulchoice on the part of one party with terms that areunreasonably favorable to the other party.

1 This case is a textbook exampleiv. Ordinarily one who signs an agreement without

full knowledge of its terms may be held to assumerisk that he has entered a one sided bargain but…

v. Plaintiff here had little choice in the matter—shemay have expected her stereo set to be repossessedwhen she was unable to pay but every stick offurniture she had purchased in the past as well?

vi. Test to apply:1 Are the terms so extreme as to appear

unconscionable according to the mores andbusiness practices of the time?

f. Jones v. Star Credit Corp.i. Door to door salesman sold a freezer to plaintiffs.ii. Where extreme disparity in purchase price and

maximum retail value may constituteunconscionability as a matter of law.

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1 In other words, the plaintiff got hosed!g. Carnival Cruise Lines v. Schute

i. Court found forum selection clause on passengerticket to be just fine.

ii. Dissent focused on the lack of bargaining power thedefendant had.

iii. The Supremes placed a heavy burden on a partywishing to strike a clause in a contract—plaintiffdid not meet the burden

1 Must have shown the clause to beunreasonable.

F. Illegality1. Concern with illegality is to protect the public at large from

imposition by both parties on matters of important publicpolicy.

2. Court’s ideas of public policy come from the legislature andtheir own feelings

3. Contracts that are entered into illegally, contain illegalprovisions, or are performed illegally are not enforceable.

4. There is a longstanding tradition that contracts arising out ofco-habitation are against public policy—we have moved awayfrom this type of moralism.

5. Under what circumstances are covenants not to competeenforceable?

a. Must be writtenb. Part of the employment contractc. Based on reasonable considerationd. Reasonable in duration and geographic limitationse. Not against public policy

6. Hopper v. All-Peta. The court found that the clause not to compete here was

all right for the most part.b. Court modified the duration of the contract from 3 yrs to

1 yr.c. Damages were not awarded—contract damages must be

pretty definite.d. This case is distinguishable from CAB above because of the

way the contract was imposed on the employees.7. Over burdensome clauses and how to get rid of them

a. The whole contract can be thrown outb. “Blue pencil rule”—the court can eliminate things it

doesn’t likec. Modification—if the scope of the clause is too broad the

court will simply modify it.8. Inducing Official Action

a. Aka Influence peddlingb. Most are unenforceable as contrary to public policy—i.e.

bribing a public officialc. Courts will not enforce an illegal agreement!d. Sirkin v. Fourteenth Street Store

i. Plaintiff seller bribed the purchasing agent ofdefendant. When the scheme came to light, thedefendant refused to pay for the goods that werethe result of an illegal deal.

ii. Court said the illegality of the deal barred theplaintiff’s recovery and the importance of crackingdown on commercial bribery was too important.

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iii. Note the tension here between the court’s rulingand the unjust enrichment doctrine—the seller stillgot the merchandise and they didn’t have to pay.

e. McConnell v. Commonwealth Pictures Corp.i. Plaintiff entered into a contract with the defendant

to promote movies.ii. Plaintiff turned around and bribed some people to

get his job done without the defendant’sknowledge.

iii. Defendant refused to pay.iv. The court held that the contract between plaintiff

and defendant was not illegal BUT bribery wasdirectly used to obtain the benefit so, the contractis unenforceable.

v. The principle of refusing to enforce illegal contractsdoes not apply to every minute detail of a contract,there must be a direct connection between thecontract and some important public policy (like,don’t bribe people).

f. Licensing Lawsi. Courts will uphold contracts entered into with

unlicensed vendors so long as the purpose of thelicensing statute is to produce revenue and notprotect public health, safety, or morals

ii. It is not significantly against public policy for thesepersons to be unlicensed.

iii. Contracts with unlicensed lawyers, doctors, liquorsellers, structural engineers, etc. will most likelynot be enforced.

iv. Courts are becoming much less concerned aboutthe public welfare and more concerned aboutunjust enrichment—more plaintiffs are winning.

g. Degree of involvementi. if the plaintiff’s involvement with the illegal activity

is minor, the courts are more likely to enforce.h. In Pari Delicto

i. Equally blameworthyii. A defense to a claim of illegalityiii. Saying, the other guy is more guilty than me.

9. Restitution in Illegal Contractsa. In representing an unlicensed engineer (for example)

argue:i. Licensing statute should not preclude recoveryii. Even if the contract is unenforceable, to avoid

unjust enrichment, engineer should recover forbenefits conferred by his service

iii. Always think of avoiding unjust enrichment, thenthink, restitution.

VI. Third Party BeneficiariesA. Some types of contracts should benefit third parties and those third

parties should be allowed to sue if the contract is breached.1. Life insurance is such a contract—the contractor has died and

named a beneficiary who is a third party to the contract and ifthe life insurance company doesn’t pay up, the beneficiary maysue.

B. Lawrence v. Fox1. Fox owes a debt to Holly; Holly owes debt to Lawrence; Holly

says to Fox, “don’t bother to pay me, just give the moneydirectly to Lawrence.” Fox doesn’t pay and Lawrence sues.

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2. Fox argues that Lawrence was not a party to the contract.3. Court found the money Fox received from Holly was sufficient

consideration for his promise.4. The court says that parties to a contract have the power to

create rights enforceable by a person not a party to the originalcontract and one of those rights is the right to sue for breach.

C. Restatement First §1331. Definition of Donee Beneficiary, Creditor Beneficiary,

Incidental Beneficiary:a. Donee Beneficiary: Promisee intends to give the

beneficiary the benefit of the promised performance; aright against the promisor is conferred (a gift to thebeneficiary).

b. Creditor Beneficiary: Performance of the promise willsatisfy an obligation of the promisee to pay a debt to thebeneficiary (Lawrence v. Fox).

c. Incidental Beneficiary: Someone who doesn’t fall underthe Donee or Creditor umbrella but should be allowed tohold the promisor to the contract.

D. Restatement Second § 3021. Intended and Incidental Beneficiaries

a. Sets out the test for whether a party is a beneficiary or notb. Is the beneficiary’s right to performance necessary to

effectuate the intentions of the parties?E. Municipal Contract and Public Services

1. Moch v. Rensselaer Watera. Business owner brought suit, his building burnt down and

there was insufficient H2O pressure at the hydrant to putthe fire out.

b. Plaintiff argued he was a third party beneficiary to thecontract between the city and the water company.

c. Cardozo found that there is no duty by the city to protectits citizens against fire and therefore no additional dutyarose out of the city’s contract with the water company.

d. Plaintiff was not a third party beneficiary2. Kornblut v. Chevron Oil

a. Plaintiff’s husband died as the result of a heart attackwhile waiting by the side of the road for 2 hours forChevron to arrive and help him fix a flat.

b. Plaintiff argued that she was a third party beneficiary tothe contract between the highway authority and Chevronin which Chevron agreed to provide service to a disabledcar within 30 minutes.

c. Users of the toll road were, indeed, intended beneficiariesof the contract, but the death of motorist was not areasonably foreseeable result of the breach.

d. Damages from breach must be reasonably foreseeable.3. Koch v. Consolidated Edison

a. As the result of a “blackout” in New York City, theplaintiffs sued as third party beneficiaries on the contractbetween the state of NY and the electric company.

b. The court found the third parties here were exactly theclaimants for whom the contract was entered into tobenefit and so the suit was allowed.

c. Again, damages were to have been reasonably foreseeable.d. This case is often cited for the elaboration of negligence

law in Tort—when these cases are brought in Tort, itdoesn’t matter if the parties are beneficiaries to a contract.

F. Davis v. United Airlines

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1. Plaintiff sued UA for discharge due to his epilepsy. In a firstcause of action under the “Rehabilitation Act” the court foundDavis had no private right to action under this legislation.

2. Plaintiff now says he is the third party beneficiary of a contractbetween the US government and UA.

3. Federal law looks to the Restatement Second §302 for theguidelines allowing the plaintiff to sue and finds that:

a. Recognition of the right to performance would NOTeffectuate the intentions of the parties

b. Circumstances do not indicate the promisee intended togive the 3rd party the benefit of the promise.

4. This case illustrates that sometimes a 3rd party claim is made ina creative way to attempt to avoid injustice.

VII. Assignment and DelegationA. Most contract rights having commercial value (i.e. money) are

transferable.1. Rights are assigned

a. Like a debt or judgment owed to you2. Duties are delegated

a. Like a debt or a judgment owed by you.B. What rights are assignable?

1. Restatement Second §317a. Assignment of a Right

i. If the assignment is not precluded by statute, it isgenerally OK.

ii. Right to buy or sell goodsiii. Assignment must not change the performance of

the obligor in any meaningful way1 Personal service contracts are assignable

but if what was a pleasure to do at one timebecomes drudgery, the performance haschanged.

iv. Assignment must not be precluded by the contract2. Intent to assign a debt must be manifested either orally or in

writing.C. When may a duty be delegated?

1. Restatement Second § 318a. Delegation of Performance of Duty

i. If the delegation is not against public policy, it isgenerally OK

ii. If the promisee still has an interest in whether thepromise is performed then it is generally OK

iii. If the person to whom the debt is delegated doesn’tperform, the original debtor is still liable

2. Duties by physicians, attorneys, entertainers are not delegable3. If the delegated duty is not performed, the person who

delegated is not off the hook with the exception of when aNovation contract is entered into.

4. The promisee may sue the third party directly—third partybeneficiary.

VIII. Remedies for BreachA. A breach may damage a party in 5 ways:

1. May deprive party of expected return performancea. The difference between what the party expected and what

was actually received is the LOSS IN VALUEi. I.e. you owed me $100 and I only got $50. Loss in

value is the $50 I am still owed.2. The breach may cause other damage

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a. Additional loss like personal injury, damage to property,expenses from trying to remedy things—OTHER LOSS

i. I.e. you owed me $100 and only paid me $50. Iowed the same $100 to Lenny the Loan Shark andhe broke my kneecaps when I couldn’t pay. Otherloss is my broken kneecaps.

3. The non-breaching party may have expected a profita. Profit that is lost by the breaching of a contract is

ANTICIPATED PROFIT.i. I.e. I agree to buy 10 items from you at $5 each and I

have decided to sell the items for $15 each. Youare unable to provide them. I had anticipatedprofits of $100.

4. Breach may have a beneficial effect on the injured partya. It may save some money—this is the COST AVOIDED

i. I.e. you agreed to mow my lawn weekly at the cost of$10 a week for a year. You came once and I paid$10 but you never showed up again. I avoided$510 in costs on the contract.

5. Breach may have the beneficial effect of allowing the injuredparty to reallocate funds that would have gone to the contractinstead.

a. The breach may allow another use of capital—this is theLOSS AVOIDED

i. I.e. because you breached the contract to mow mylawn, I was able to use the $510 I saved to put in anew hedge instead.

B. Calculating expectation damages—the fundamental damages of contractlaw.

1. 2 ways to figure out the injured party’s damages:a. Damages equals Loss in Value less Cost Avoided

i. LV-CA=Damages1 I.e. I have agreed to do some landscaping

for the total contract price of $500. Ibought $200 worth of plants when youbreached and still had $100 worth to buy.The loss in value is the $500. The costavoided is the $100 I still had to spend.Damages=$500-$100 or $400. Thisincludes the money I already spent plus theprofit I expected.

b. Damages equals Cost of Reliance plus Anticipated Profitsi. CR+AP=Damages

1 I.e. same as above except to calculate thedamages, my cost of reliance was the $200I already spent on plants and myanticipated profit was the $200 I hadplanned to make. Damages=$200+$200or $400. Note that the end result is thesame.

2. A little damages review:a. Note that expectation damages puts the non-breaching

party in the position he would have been in had therebeen no breach.

b. Note that reliance damages puts the non-breaching partyback where they were before the contract wasbreached—not where they expected to be.

c. Restitution damages avoid unjust enrichment.C. Sullivan v. O’Connor

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1. On the breach of a patient/doctor contract, the court said thatexpectation damages were impossible to calculate.

2. Reliance damages were awarded, putting the plaintiff in statusquo.

a. These damages included pain and suffering for the thirdoperation she was forced to undergo.

D. Vitex v. Caribtex1. Contract entered into for the processing of wool. Plaintiff had

re-opened shop in preparation for the defendant’s wool toarrive. Defendant breached.

2. Court awards expectation damages and uses LV-CA tocalculate.

3. Defendant argues that overhead for the operation of the factoryshould be subtracted from the total of damages. Court says thatthis is ridiculous—overhead is always taken out of gross profits.It is not a part of the cost avoided on any particular contract.

a. The reason no overhead should be included—it is not costavoided, the plaintiff still has to pay employees, payelectricity, etc. regardless of the defendant’s breach.

E. Loss Volume Sellers1. In order to be a loss volume seller, the seller needs to show:

a. Absent breach, it would have sold 2 itemsb. Seller could have produced the second itemc. It would have been profitable for the seller to do so

2. Davis v. Diasonicsa. Plaintiff breached the contract it made with defendant to

purchase an MRI unit. Plaintiff sued for the return of itsdeposit less a penalty.

b. Defendant argued it was a loss volume seller and not onlywas the plaintiff not entitled to its deposit back, theplaintiff was also liable for the balance on the unit.

c. Even though the MRI unit was sold to a third party, thecourt agrees with Diasonics that a second MRI unit mayhave been sold absent plaintiff’s breach and the case isremanded.

F. Problem of Losing Contracts1. Other types of recovery available when the contract was one

that would have lost money for the non-breaching party.2. US v. Algernon Blair

a. The non-breaching sub-contractor sued the breachingcontractor. Because the contract would have lost himmoney before the breach, he wanted something other thanexpectation.

b. The contractor argued that the sub shouldn’t get anythingbecause they would have lost more if the contractorhadn’t breached.

c. Restitution damages were awarded herei. Avoided the unjust enrichment to the contractor

(getting work he never paid for)ii. Sub-contractor got fair value of his work.

3. Acme v. Israela. Court awarded reliance damages to gun manufacturer

who undertook expense to prepare to manufacture gunsfor defendant.

b. When defendant breached, the court put plaintiff back instatus quo.

4. Keohe v. Rutherforda. On a losing contract, the court awarded a Pro Rata share

to a paving contractor when the city breached.

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b. The court took the amount of money the contractor spent,divided it by the amount of money he expected to spendand multiplied the result by the contract price.

i. (Costs Incurred/Cost of Reliance)*Cost of Contractii. This results in the contractor eating the same

percentage of the loss that he would have hadthere been no breach.

5. To calculate the damages on a losing contract:a. Work out what the expectation would beb. Then work out the other types of damages

i. Relianceii. Restitutioniii. Pro Rata

G. Limits on Damages1. Non-breaching party has a duty to limit damages or to mitigate

thema. Don’t keep going after the contract is breached. Stop.

2. Restatement Second § 350a. Avoidability as a Limitation on Damages

i. Damages are not recoverable for loss that the non-breaching party could have avoided withoutundue risk, burden or humiliation

ii. If non-breaching party makes a good faith effort toavoid damages and it is impossible, recovery is notbarred.

3. Rockingham v. Luten Bridgea. Defendant was contracted to build a bridge. Plaintiff

breached the contract and informed the defendant that heshould stop building. Defendant finished the bridge andbrought suit.

b. Court found that the defendant had a duty to mitigate thedamages suffered by stopping when he was told to.

c. Injured party must do nothing to increase the damages.4. Parker v. Twentieth Century-Fox Film Corp.

a. Shirley McLaine caseb. When 20th Century Fox breached the contract to make a

movie and offered plaintiff a role in a different movieinstead, the plaintiff refused and sued for the expectationdamages on the first contract.

c. Court found that an employee does have a duty to mitigatedamages:

i. Must make reasonable effort to obtain other,comparable employment

ii. Must accept reasonably similar employmentd. The employment offered by the second contract was not

reasonably similar when the genre of the movie wascompletely different and the terms of the newemployment contract were inferior.

e. Court awarded expectation damages.5. Avoidability and Problems of Defective Performance

a. The performance in these cases is complete, the contractwas breached by substandard or defective performance.

b. The problem here is to determine the proper measure ofperformance:

i. Do we award the cost to complete correctly (redoingwork probably involved here)?

ii. Do we award the diminishment in value by thesubstandard performance?

c. Jacob & Youngs v. Kent

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i. Redding Pipe caseii. Defendant specified the brands of almost every

component of his custom built home including theplumbing pipe. When he discovered the plaintiff’suse of a different brand, he refused to pay for thebalance of the contract. Plaintiff sued.

iii. Cardozo said that the difference in the pipes usedwas a trivial and innocent breach and it does notpreclude action on the part of the breaching party.

iv. The court awarded diminishment of the value ofthe home by the substandard performance.

1 The court ruled that the diminishmentwas nothing.

d. Groves v. John Wunder Co.i. Plaintiff leased his land to defendant for 7 years.

Defendant intended to take sand and gravel fromthe land with strict conditions that the land be leftin good condition

ii. Defendant deliberately breached contract by takingonly the best gravel and leaving a hole in theground—the plaintiff brought suit.

iii. The court used really strong language to chastisethe defendant for his willful breach. The cost toput the land back the way they found it was worthmore than the land itself, but the court instructedthe lower court to award “cost of performance”greater than the cost of the land.

e. Peevyhouse v. Garland Coali. Plaintiff leased land for extraction of coal with the

provision that the land would be restored after themining was done. The restorative work was notperformed and the plaintiff sued.

ii. Court found that the provision to restore the landwas incidental to the purpose of the contract andbecause the cost of restoration was sodisproportionate to the diminution of the landvalue, the court awarded diminution in value.

iii. The court also said that the jury may have given thesubjective diminution in value and not theobjective but that was OK.

6. Foreseeabilitya. Hadley v. Baxendale

i. Plaintiff owned a mill and when the mill broke, hearranged for a new mill shaft and paid for deliveryby a courier in advance. An employee of the millcommunicated the urgency to an employee of thecourier company but the mill shaft was muchdelayed.

ii. Plaintiff sued the courier company for their lostprofits while awaiting the new shaft.

iii. Court overruled a lower court’s award of £50 indamages saying the damages were not foreseeable.

iv. Damages must be:1 Fairly and reasonably considered as

arising from the breach—arise out of thebreach itself.

2 Damages must reasonably have beensupposed to be in the contemplation of theparties—reasonably foreseeable.

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b. Restatement Second § 351i. Unforeseeability and Related Limitations on

Damages1 Damages are limited to those the

breaching party would have reason toforesee when the contract was made.

2 Loss may be foreseeable because it arisesin the ordinary course of events

3 Loss may be foreseeable as a result ofspecial circumstances that the breachingparty knew about

4 Court may limit foreseeable damages as itwishes

c. Spang Industries v. Aetna Insurancei. Plaintiff was to deliver steel for a bridge but the

delivery was significantly delayed causingdefendant’s surety client to suffer damages.

1 Damages included overtime and addedshifts in order to get the work done beforewinter hit.

ii. Court found that the damages were reasonablyforeseeable based on the breaching party’ssignificant experience in the NY constructionbusiness.

d. Bockman Printing v. Baldwin-Greggi. Plaintiff bid on printing jobs in reliance that

defendant would deliver the newly designed“double chopper folder” machine on time

ii. Defendant was unable to make the machine workand plaintiff sued.

iii. Court said that the defendant could not reasonablyforesee that he plaintiff would bid on jobs based ona new, unproven design.

7. Emotional Disturbancea. Courts are reluctant to award damages based on

emotional disturbance resulting from contract breachb. Restatement Second § 353

i. Loss due to emotional disturbanceii. Recovery is barred unless the breach causes a

physical harm or the emotional disturbance was aparticularly likely result from breach

c. Brown v. Fritzi. Plaintiff sued for emotional distress over the sale of a

home when the sellers fraudulently misrepresentedthe property.

ii. Court said that because the damages were sought ona breach of contractual relationship, recovery wasbarred. If the seller’s actions were sufficientlyoutrageous, the plaintiff could recover underpunitive damages.

d. Lamm v. Shingletoni. Plaintiff paid defendant to inter her first husband in

a watertight vault. During a heavy rain, the vaultrose above the ground and in the presence of theplaintiff opened the vault and discovered the coffinto be wet.

ii. Plaintiff suffered “considerable shock” and thedefendant refused to clean the mud out of the vault

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and said, “to hell with the whole damnedbusiness.”

iii. The plaintiff sued for breach of contract and sherecovered for severe emotional distress

iv. The court held that because the contract wasextremely personal in nature, the contractualobligation was connected with matters of mentalconcern and the sensibilities of the party to whomthe duty is owed are concerned, this is a rareexception to the rule against emotional damages.

8. Certaintya. Damages need to be relatively certain to be recoverableb. Normally, lost profits are pretty uncertainc. Fera v. Village Plaza, Inc.

i. Defendant breached contract to provide rental spacein retail mall.

ii. Court awarded lost profits here because anestablished business had records that could betaken into evidence that shows what the expectedprofits were.

iii. This is an exception to the general ruled. Evergreen Amusement v. Milstead

i. Defendant contractor was sued for delay in openingof drive-in theatre (scheduled June 1, opened mid-August).

ii. Court would not allow lost profits because the lossfrom a new business is uncertain.

9. Liquidated Damages and Penaltiesa. Liquidated damages are agreed to by the parties at the

time the contract is signedb. Restatement Second § 356

i. Liquidated damages must be reasonable in the lightof the anticipated or actual loss caused by thebreach and damages must be difficult to prove.

ii. Unreasonably large liquidated damages clauses areunenforceable as against public policy.

c. Wasserman’s Inc. v. Township of Middletoni. Plaintiff entered into lease with the city for a piece of

property and agreements were made that if the citybreached and took back the property, they wouldpay a pro-rata reimbursement of theimprovements and 25% of the lessee’s averagegross receipts for a year.

ii. Defendant breached and refused to pay the agreedupon damages.

iii. Court found that the contract was not one in whichthe damages were difficult to ascertain

iv. The damages were not reasonable estimate of lossby the parties

v. Liquidated damages are assumed to be reasonableunless, in hindsight, they are found to beunreasonable.

vi. Court found that the liquidated damages clause wasnot enforceable but that the defendant must payactual damages to plaintiff.

d. Dave Gustafson & Co. v. Statei. Plaintiff entered into contract to resurface highway

that paralleled an older road. The state withheldpayment of part of the contract price for liquidated

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damages for a delay of 67 days at $210 per day.Plaintiff sued for the money.

ii. The court assumed the liquidated damages clausewas fair and because the damages for a delay inhighway construction were impossible to measure,the parties had made a fair endeavor to fix the sumfor damages.

C O N T R A C T SSpring 1997Professor Mooney

I. Finding the Law of the ContractA. Determining the Subject to be Interpreted--(PAROL EVIDENCE)

1. Gianni v. R. Russell & Co.: π agreed not to sell tobacco andpay an increased rent in ∆’s building, but agreed because hethought he would have the exclusive right to sell sodas. Thestipulation was not contained in the lease, and court held thatit could not be admitted into evidence. Promise to refrain wasincluded, so the exclusive rights should have been. Writing isassumed to set forth the entire agreement. But see: Hatley v.Stafford (ORS 41.470 (1864) held classical view of parolevidence, but Or SC “wiggled” its way around by holding thatthe legislature intended to enact the common law parolevidence rule as it existed then and as it would evolve into thefuture).2. Masterson v. Sine: πs were conveyed property from brother,who went into bankruptcy. ∆ tried to get the land, but πs saidthat the land was supposed to stay in the family--even thoughthe stipulation was not included in the lease agreement. Courtallowed the oral evidence because contract does not explicitlyprovide that it contains the complete agreement, and the caseis not one in which the parties “would certainly” have includedthe collateral agreement in the deed. Burke’s Dissent:assignability is assumed, it is a legal contention and thereforemust be explicitly listed as non-assignable to avoid the parolevidence rule.3. Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co.: “Once a person enters into a written agreement he

builds around himself a stone wall, from which he cannot escape bymerely asserting he had not understood what he was signing.” However, inthis case πs signed agreement that omitted ∆’s promise to fill in thestripped land. Because ∆s had filled a portion, the court held that theparol evidence could be admitted. Mutual mistake.

4. R2d § 209: Integrated Agreements : (1) writingconstituting a final expression of terms of an agreement; (2)

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court must first determine whether or not the agreement isintegrated before it can decide whether or not to admit parolevidence; (3) unless other evidence shows that the writing didnot constitute a final expression, it should be considered anintegrated agreement.5. R2d § 213: Effect of Integrated Agreement on PriorAgreements (Parol Evidence Rule): (1) binding integratedagreement discharges prior agreements that are inconsistent;(2) completely integrated agreement discharges agreementsthat are within its scope; (3) integrated agreements that arevoidable or not binding does not discharge a prior agreement.It may, however, be effective to render inoperative a termwhich would have been part if the agreement if it had not beenintegrated.6. R2d § 214: Evidence of Prior or ContemporaneousAgreements and Negotiations: Parol evidence is admissibleto establish (a) that the writing is not integrated, (b) that theagreement is completely or partially integrated, (c) themeaning of the writing, (d) illegality, fraud, duress, mistake,lack of consideration, or other invalidating cause, (e) groundfor granting or denying rescission, reformation, specificperformance, or other remedy.7. R2d § 215: Contradiction of Integrated Terms: wherethere is a binding agreement, either completely or partiallyintegrated, evidence of prior agreements or negotiations is notadmissible in evidence to contradict a term of the writing.8. three-part test to admit oral evidence (Mitchell v. Lath):

a. the agreement must in form be a collateral oneb. it must not contradict express or implied provisions

of the written contract.c. it must be one that parties would not ordinarily be

expected to embody in writing.8. no-oral-modification clauses: fairly easy to get around,especially if party can prove reliance on an oral modification.

B. Interpreting Contract Language1. in order to show your client’s interpretation is the properone, change the statement slightly so the court will see it isvirtually synonymous.

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2. ambiguous vs. vague: ambiguity will often lead to arescission of the contract because the courts will be unable todetermine whose interpretation is correct. Vaguenessrequires courts to figure out what a certain word or phrasemeans.3. Frigaliment Importing Co. v. BNS International Sales Corp.:The chicken case. Does “chicken” as the parties used thatterm include birds suitable only for stewing? Issue is how todetermine whose definition is correct using an objectivemethod of interpretation of a vague contract. Court looks atthe following: the contract itself, trade usage, Department ofAgriculture definitions, the price of the chicken, the parties’conduct. π bore the burden of proof and failed.4. objective and subjective theories of contractinterpretation--should an objective or subjectiveinterpretation be used to interpret contract language?5. Raffles v. Wichelhaus: The Peerless case. Contract to shipgoods, but there were two ships of the same name. Held thatthere was no contract because there was no meeting of theminds. The case was ambiguous. Subjective interpretation isvery rare, and usually used in “proper noun” situations.6. Oswald v. Allen: Swiss Coin Collection or all the SwissCoins? “When any of the terms used to express an agreementis ambivalent, and the parties understand it in different ways,there cannot be a contract unless one of them should have beenaware of the other’s understanding.” Dichotomy betweenambiguous and vague.1. rules in aid of interpretation

a. the statutory analogy: interpreting contracts can belike interpreting statutes--look to the transactionalhistory.b. purpose interpretation: look at the series of recitalsat the beginning of the contract (“whereas”) to see thesurrounding circumstances and objectives of the parties.c. maxims: contra proferentem--levels the playing field.When one party has very significant control, byinterpreting the language against that person, they haveslightly less advantage in interpretation.

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expressio unius est exclusio alterius: to express one isto exclude the rest.d. public interest: examine public policy interestse. plain meaning: catching on, much to Mooney’s distress.Invoked by the party who drafted the language.f. one should never render a piece of contract languagemeaningless. This usually only works for large contracts.Find a way in which your adversary’s interpretationwould render the contract altogether meaningless.

2. Hurst v. WJ Lake & Co.: horse meat scraps could not be lessthan 50% protein, but some tested 49.53-49.96. Court allowsevidence of custom and assign to the words their commonmeaning only, even though the contract is non-ambiguous on itsface.

C. Filling Gaps--when and why will a court imply a term? Whatmeaning will a court give to an implied term? (“good faith” or “bestefforts”) What do these terms mean in particular? (History-- in ‘70’simplied obligation of good faith and fair dealing was becoming acelebrity in the world of contract litigation and courts were accepting itto level the playing field. In the ‘80’s courts became frightened, and thelegislature also stepped in.)

1. Eastern Air Lines, Inc. v. Gulf Oil Corporation: ∆s accuse πsof fuel freighting and therefore breaching their requirementscontract for lack of good faith. Court looks at the establishedcourse of performance and dealing among the parties prior tolitigation, as well as trade custom, to determine that there isno breach. UCC 2-306; R2d § 204.2. Wood v. Lucy, Lady Duff-Gordon: ∆ claimed that π did nothave to promise to use reasonable efforts to perform hisduties, but court holds that good faith can be implied so thecontract does not fail.3. percentage leases: minimum rental plus percentage of

profits4. Dickey v. Philadelphia Minit-Man Corp.: ∆ entered intopercentage lease with π and then decided to minimize itsoperations. Court is trying to decide if there is an impliedobligation to continue to conduct their business if failing to doso results in a diminution in profits and therefore rent

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payment. Court holds that the minimum rental fee wassubstantial, and the ∆ used legitimate business judgment indeciding to limit its business.5. Market Street Associates v. Frey: π suing for specificperformance because ∆ did not give reasonable considerationto its offer. The duty of good faith does not include a duty offull candor, but here π was dishonest in its dealings by notraising an issue once it realized ∆ did not remember.6. Bloor v. Falstaff Brewing Corp.: express contract term that∆ would use “best efforts” to promote and maintain high salesof π’s beer. Court defines that “best efforts” are really“reasonable efforts.” Court holds that π merely has to showthat ∆ did not care about sales volume and was content toallow sales to plummet, burden then shifts to ∆ to show thatthere was nothing significant it could have done to promoteπ’s sales that would not have been financially disastrous. Inthe discussion of damages, the court was sensible in notrequiring mathematical certainty. But see: R.C. Cola: bestefforts clause is not per se breached by a mere undertaking ofa competitive product line. It depends on the circumstancesand Frito-Lay: a covenant cannot be implied if the parties haveeither expressly dealt with the matter in the contract or haveleft the agreement intentionally silent on the point.7. Zilg v. Prentice-Hall, Inc.: ∆ publishing company challengedas not having used best efforts to promote π’s book. Held thatthere was no breach of good faith, and best efforts need not beapplied, therefore ∆’s actions was not a breach.8. Sheets v. Teddy’s Frosted Foods: at-will employee suing onthe grounds of wrongful termination based on implied contractof employment. Court finds for π on the basis that he wasfired for conduct looked upon favorably by public policy.(History--courts in the ‘60’s and ‘70’s were pro-employee, butin the ‘80’s court moved to public policy exceptions to at-willemployment contracts, giving employers a way out.)

II. Performance and BreachA. Conditions:(1) Have the parties made a particular event or

nonevent a condition of one party’s duty or both parties’ duties? (2) Hasthe condition been satisfied? (3) If not, what is the legal effect of the

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nonoccurrence of a condition?1. effects of conditions

a. R2d § 224: Condition Defined: a condition is anevent, not certain to occur, which must occur, unless itsnon-occurrence is excused, before performance under acontract becomes due.b. Luttinger v. Rosen: court reads the condition in thecontract very literally. A condition precedent is a factor event which the parties intend must exist or takeplace before there is a right to performance. If thecondition precedent is not fulfilled, the contract is notenforceable.c. Internatio-Rotterdam, Inc. v. River Brand Rice Mills,Inc.: December notice was a condition precedentspecifically to the seller’s obligation to proceed underthe contract. There is some concern that we have to givedates their literal meaning so neither party is able totake advantage of market fluctuations.

2. problems of interpretationa. Peacock Construction Co. v. Modern Air Conditioning,Inc.: whether or not the language in the contract(payment by the owner) is a condition to the general’sobligation to pay the sub’s. Courts interpret this issueas a timing provision in cases like this one. Tradecustom that general will pay sub’s within 30 days ofwhen owner paid or should have paid. But see: GulfConstruction (under no circumstances shall a general berequired to make payment to a sub until funds have beenpaid by owner) and DEC Electric (same court 13 yearslater held that all payment provisions between Generalsand subs that concern time of the payment shall beconstrued as a matter of law. If ambiguous--reasonabletime).b. Mattei v. Hopper: Did the buyer have a way out whenthe condition of the contract was his satisfaction?Buyer has a good faith obligation to seek and evaluateleases. Two kinds of satisfaction conditions, eachimposing an obligation on the party whose satisfaction is

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required. But see: Neumiller Farms (cheaper chips showsthat the law requires a claim of dissatisfaction to bemade in good faith, rather than in an effort to escape abad bargain) and Devoine (cheaper cherries shows thatupon satisfaction clauses goods cannot be rejectedbecause the buyer found a cheaper source).

(1) if satisfaction is based on fancy, taste, orjudgment, buyer must use good faith.(2) if satisfaction is based on commercial value,fitness, or quality, buyer must meet reasonableperson standard.

c. Gibson v. Cranage: buyer had good faith obligation topurchase the portrait, conditional upon his satisfaction.This could have come out either way, but court wasprobably sympathetic due to the suspiciouscircumstances.

3. mitigating doctrines: conditions can sometimes causeinjustice, especially if they are one-sided.

a. prevention: ex. of prevention--home owner prevents areal estate agent from completing a sale; real estateagent is entitled to commission just as if the conditionhad been satisfied. See: Kooleraire Serv.: general rule isthat a party to a contract cannot rely on the failure ofanother to perform a condition precedent where he hasfrustrated or prevented the occurrence of the condition.But see: Sheer v. NRA: the prevention doctrine does notapply if the contract authorizes prevention.b. waiver and estoppel:

(1) waiver: intentional relinquishment of a knownright. Party must at least give notice that it willinsist on timely payments in order to avoid waiver.See: Mercedes Benz (implied waiver exists whenthere has been a course of dealing accepting thewaiver) and R2d § 84. Waiver is difficult to proveintent, may be retracted if gratuitous, parties mayinclude anti-waiver clauses.(2) McKenna v. Vernon: owner waived the condition

of architect’s certificates through the course of

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performance and therefore is not allowed to requireit later.

(3) estoppel: show that party reasonably relied onsome statement or nonstatement by the other sideto its detriment.

c. interpretation and forfeitureB. Constructive Conditions of Exchange (constructive conditions

begin their lives as promises!)1. Kingston v. Preston: three terms were involved here--(1)seller was to sell, (2) buyer was to pay over time, (3) buyerwas to put up some security. Buyer failed to put up securityand brought suit when seller refused to convey the business.Court held that the terms were dependent conditions. Thebuyer’s obligation to provide good and sufficient surety is aconstructive condition of the seller’s obligation to convey theproperty. Absent some express statement about the order ofperformance, courts will use the doctrine of constructivecondition to determine it. But remember old landlord tenantlaws which refused to recognize the covenants weredependant.2. Stewart v. Newbury: where a contract is made to performwork and no agreement is made as to payment, the work mustbe substantially performed before payment can be demanded.

C. Mitigating Doctrines1. substantial performance

a. Jacob & Youngs v. Kent: owner argued that thebuilder’s adherence to all the terms of the specificationsin the contract is a constructive condition of hisobligation to pay. CARDOZO answered owner’s conditionwith the doctrine of substantial performance--where thebuilder has substantially performed the constructiveconditions, then the owner has to pay.b. substantial performance in context: doctrine incommercial reasonableness which recognizes that therendering of a performance which does not exactly meetthe terms of the agreement will be looked upon asfulfillment of the obligation.c. “Wrinkles” in the doctrine of substantial performance

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(1) avoidance of the doctrine through carefuldrafting

(2) primarily applies to building contracts(3) applies to constructive conditions, not express(4) willfully breaching parties cannot invokesubstantial performance.(5) can argue that covenants are independent

d. R2d § 241: Determining a Material Failure:following circumstances are significant: (a) extent towhich the injured party will be deprived of the benefit hereasonably expected; (b) the extent to which the injuredparty can be adequately compensated; (c) extent to whichthe party failing to perform will suffer forfeiture, (d)likelihood that the party failing to perform will cure hisfailure, taking account of all the circumstances includingany reasonable assurances, (e) extent to which thebehavior of the party failing to perform comports withstandards of good faith and fair dealing.

2. divisibilitya. Gill v. Johnstown Lumber Co.: ∆ argued that contractwas a complete agreement and since π did not deliver allof the logs, ∆ did not have to pay. Court held thatcontract was severable/ divisible. “If the part to beperformed by one party consists of several and distinctitems, and the price is to be paid by the other is (1)apportioned to each item to be performed, or (2) is leftto be implied by law, such a contract will generally beheld to be severable.” Same idea here as losingcontracts, but not in quantum meruit or restitutionclaim.b. Pennsylvania Exchange Bank v. United States: courtheld that the contract was indivisible because it was afour stage contract which admittedly had sums attachedto each stage, but it was clear that the three preliminarystages were working up to the fourth, the result of whichwas the only stage that mattered. See also: May v. Oakley(“the case of the house divided”--where a contract iswithout description, it is not severable).

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c. defense against divisibility: if the part to beperformed by one party consists of several distinctitems and the price to be paid by the other is (1)apportioned to each item to be performed, or (2) is leftto be implied by law, such a contract will generally beheld to be severable.

3. restitution--this is the most useful way around thedoctrine of constructive conditions.

a. Britton v. Turner: π suing in quantum meruit to get thereasonable value of the services rendered, but ∆ arguedthat the year’s work was a constructive condition. Thiscase was a real turning point, because the court held thatπ should get paid for the value of services rendered--even a “mere farmworker” should. Recovery cannotexceed the contract price, therefore π could not takeadvantage of a higher market value of his worth. But see:Algernon Blair (difference is who breaches--buyer orseller)b. Kirkland v. Archbold: a breaching π is entitled torecover for services and materials unless (1) the workthat he has done has been of no benefit to the owner, (2)the work he has done is entirely different from the workhe was contracted to do, or (3) he has abandoned thework and left it unfinished.

D. Breach in the Course of Performance--it is often difficult todetermine who breaches first in a contract.

1. Walker & Co. v. Harrison: tomato on the dry cleaner’s sign.Contract included an acceleration clause in it. Lessor’sobligation to maintain the sigh was a constructive condition ofthe lessee’s obligation to pay for it. Court held that ∆’saccusation was legally correct, but we must apply theconstructive condition doctrine with common sense, so thefailure to clean the sign right away was a non-material breach.2. condition v. promise: courts use a slightly softer standardfor constructive conditions than express conditions. Doctrineof substantial performance does not typically apply.

3. K & G Construction Co. v. Harris: Constructive condition wasthe sub’s obligation to perform the work in a “workmanlike

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way” in order to receive the progress payments from thegeneral. There was also an obligation to finish the work.Court held that ∆ breached first when he hit the wall, andtherefore all the dominoes fall against him. This introduces animportant client counselling dilemma--try to always convincethe client to stay on the job unless it has totally deterioratedbecause they will not get more in court than they would have ifthey finished, and if the lose, they lose BIG.4. NW Lumber Sales v. Continental Forest Products: Oregoncase holding that a breach by one party of one contract doesnot justify the other party withholding performance on asecond contract between the two parties.5. hindrance and prevention

E. Prospective Nonperformance1. anticipatory repudiation

a. Hochster v. De La Tour: does π have an action forbreach if the contract was broken by ∆ beforeemployment began? Especially since π mitigated thedamages by getting another job. Court holds that a partycan sue early because we want to allow parties themaximum amount of flexibility when the other party hasbreached.b. Phelps v. Herro: seller π transferred real estate andstock to buyer ∆, ∆ was to pay in installments but onlymade one payment and then repudiated. Doctrine ofanticipatory breach has no application to moneycontracts.

2. periodic insurance payments--courts are reluctant toinvoke anticipatory repudiation in a situation based on “howlong will this person live” etc. Courts are reluctant to find acomplete anticipatory repudiation of the contract and willmake the person come back in every five years to reestablishwhatever is at issue.

III. Basic Assumptions: Mistake, Impracticability andFrustration

A. Mutual Mistake1. Stees v. Leonard: Mooney hates this case. It’s one of theincredible old classic cases that stands for the proposition

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that a party must keep its contracts even in the face ofquicksand and a twice collapsed building!2. basis of relief for mistake--the big issue here is where isthe seller safe? There are two ends of the spectrum (1)complete ignorance or (2) bare nondisclosure. Is there a safeharbor somewhere in between?

a. Sherwood v. Walker: ROSE THE 2D!!! Contract could berescinded because the “substance” of the thing sold wasdifferent than what the parties thought.b. Wood v. Boynton: π found a pretty rock and sold it to ajeweler for $1. When it was discovered that the rockwas an uncut diamond, the ∆ got to keep it.c. The Dover Pool & Racquet Club, Inc. v. Brooking:application of mutual mistake broadly. If there is a setof facts that fundamentally change the bargain, one ofthe parties will be allowed to rescind. See also:Kannavos v. Annino (one party knew of zoning changes anddid not disclose, so contract was voided).d. R2d § 152: When Mistake of Both Parties Makes aContract Voidable: (1) When a mistake of both partieswas made at the time of the contract, and the basicassumption has a material effect of the exchange ofperformances, the contract is voidable by the adverselyaffected party unless he bears the risk of the mistakeunder § 154. (2) To determine whether the mistake has amaterial effect, the court will look at reformation,restitution, or other relief.e. R2d § 154: When a Party Bears the Risk ofMistake: (a) the risk is allocated to him by agreement,or (b) he is aware that he has only limited knowledge butacts as if his knowledge is sufficient, or (c) the risk isallocated to him by the court on the ground that it isreasonable to do so under the circumstances.

B. Impracticability of Performance: began as impossibility, but thestandard has softened. Better for πs, but harder for courts to draw theline. The doctrine typically cuts when (1) there is a destruction orunavailability of the subject matter, (2) there is a death of a partywho has contracted to perform or receive personal services, or (3) there

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is a supervening prohibition by law. Impracticability comes AFTER thecontract has been made, where mistake comes before.

1. Taylor v. Caldwell: π suing for reliance, and the issue iswhether the party who was contracted to furnish a music hallis excused from performing that contract without the fault ofeither party. In a contract in which the performance dependson the continued existence of a given person or thing, acondition is implied that the impossibility of performancearising from the perishing of the person of thing shall excusethe performance.2. loss in relation to sales3. Transatlantic Financing Corporation v. US: Impracticabilityis usually used defensively, but here it is used offensively. (1)a contingency must have occurred, (2) the risk must not havebeen allocated, and (3) the occurrence of the contingency musthave rendered the performance impracticable. π did not meetthe third criteria--it was not impracticable just because itwould have cost some more money.4. foreseeability5. Canadian Industrial Alcohol Co. v. Dunbar Molasses Co.:similar to the Rockefeller case where the parties intendedthat the wood would be taken only from one particular piece ofland specified in the contract. Court held that the continuedexistence on the estate was a condition and impossibility wasapplied. Here, the fact that one source of molasses dried updid not excuse performance because the molasses could havebeen procured from another source since a particular sourcewas not named.6. Eastern Air Lines, Inc. v. Gulf Oil Corp.: ∆ invoked a

commercial impracticability defense. A price increase toexcuse performance must be more than merelyonerous, it must be “positively unjust.” Partyinvoking the doctrine bears the burden of showingthe extent to which he has suffered or will suffer.

7. Mineral Park Land Co. v. Howard: When contract was enteredinto, the parties contemplated and assumed that the landcontained the requisite quantity for gravel, but a good portionwas underwater. The difference in cost was so great that it

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made performance impracticable and “the situation is notdifferent from that of a total absence of earth and gravel.”8. Eastern Air Lines, Inc. v. McDonnell Douglas Corp.: excusabledelay clause was narrowly construed by the lower court toinclude only formal requests by the government, and ∆ had onlyreceived informal requests. Parties may contract to narrow orbroaden excuses available to a promisor. A foreseeablesuperseding event may even be allowed to proveimpracticability if the circumstances causing the breach havemade performance so different from what was anticipated thatthe contract cannot reasonably govern.

C. Frustration of Purpose1. Krell v. Henry: Rental of room to watch coronation, butcoronation was rescheduled. If the essential purpose forcontracting is frustrated, each party’s duty of performance isdischarged even if the performance is not impossible. But see:Swift Canadian Bacon (shows that a response to frustration isthat one party assumed the risk either expressly or implicitly).2. Chase Precast Corp. v. John J. Paonessa Co.: highwaycontract canceled, but π suing for anticipated profit. Doctrineof frustration of purpose may be used as a defense when anevent unforeseeable by either party, the risk of which was notallocated by contract, destroys the object or purpose of thecontract. When this occurs, the parties are excused from anyfurther performance under the contract.3. R2d § 265: Discharge by Supervening Frustration:Where, after a contract is made, a party’s principal purpose issubstantially frustrated without his fault by the occurrence ofan event the non-occurrence of which was a basic assumptionon which the contract was made, his remaining duties torender performance are discharged, unless the language or thecircumstances indicate the contrary.

UNIFORM COMMERCIAL CODEIV. Beginning the Study of Article Two

A. Introduction to the Uniform Commercial Code

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B. General Principles and a Few Definitions1. Relevant Code Provisions: 1-201, 1-205, 2-104, 2-105, 2-

208, 2-4032. Nelson v. Union Equity Co-Operative Exchange: π farmermeets the requirements of “merchant” definition and “betweenmerchants” under 2-104 because he is knowledgeable aboutthe business of crops, and meets the statutory elements.Because π was a merchant, the oral agreement confirmed inwriting satisfies the Statute of Frauds requirements under 2-201 and therefore must pay damages for breach.

C. The Scope of Article Two1. three fundamental principles underlie Article 2

a. good faith: 1-201(19) defines it as “honesty in fact”--a subjective standard. But when involving merchantsadd commercial reasonableness and it becomes objective.1-203 imposes the obligation of good faith on everyparty to a code transaction. Difficult, if not impossible,to contract around.b. commercial reasonableness: pervasive, a part of everymerchant’s duty of good faith.c. the facilitation of actual commercial practices byincorporating as central features of the law thosepractices themselves. As shown through the course ofperformance between parties, dealings between parties,and trade usage.

2. Relevant Code Provisions: 2-1023. Anthony Pools v. Sheehan: court must decide if a contract toinstall a pool is for goods or for services. Bonebrake test:whether the predominant factor, the thrust, the purpose,reasonably stated, is a transaction of sale with laborincidentally involved or vice versa. (The predominant purposetest). Gravamen test: whether the reason for the breach isdirectly related to the fault of the service or the fault of thegood. Also policy considerations. Once determined within thescope, the next issue is one of warranty.

V. Contract Formation Under the CodeA. Agreement in General, and the Battle of the Forms

1. Relevant Code Provisions: 2-204, 2-207

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2. Diamond Fruit Growers, Inc. v. Krack Corp.: ∆ included adisclaimer of liability in order acknowledgement form. Cannotinterpret 2-207 to give one party an advantage simply becauseit sent the first or last form, so issue becomes whatconstitutes assent. If the offeror does not give specific andunequivocal assent but the parties act as if they have acontract, the provisions of 2-207(3) apply to fill in the termsof the contract.3. Mooney’s Routes

a. Route A: 2-207(1) “before the comma”--B -(offer)->Scontract forms when seller accepts . If they send in

different terms (2) [which applies to Routes A & D] thedifferent terms become proposals for addition to thecontract. Occasionally those proposals can become a partof the contract (when between merchants and the contract isnot materially altered).

b. Route B: 2-207(1) “after the comma”--contractformed unless it is expressly conditional on offeror’sassent to different terms--if not it is considered acounter-offer. Contract forms on offeror’s assent tocounter-offer. Could engage in some conduct which showsassent.

c. Route C: 2-207(3)--cannot find either route A or B onthe papers, however both parties have acted as though thereis a contract (seller has shipped, buyer has accepted, etc) sothe code will say there is a contract formed by the conduct.Terms on which the parties agree and all the termsprovided by Article 2 gap-fillers. (implied warranties)

d. B/C Hybrid: one of the early issues in this analysis asto whether the counteroffer is expressly conditional or

not. Offeror does something to suggest that they haveassented to offeree’s counteroffer. (Diamond Fruit)

e. Route D: Mooney’s creation, a hybrid--pre-existingcontract (often oral) and one party sends confirmation.Analyzed in many ways like route A. Confirmations aretreated as proposals like route A. Any different term isrun through the gamut of (2).

B. The Statute of Frauds: UCC 2-201

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1. compare/contrast with common law: almost not included inthe UCC, only three definite requirements of the writing, fourtypes of situations do not require writing, definition ofsignature.2. Distribu-Dor, Inc. v. Karadanis: ∆ refused to sign contract,stating “my word is my bond” but then decided to go withanother company after π had already ordered special mirrors.Because mirrors were not readily resalable, the contract fitswithin 2-201(3)(a). “Strict adherence to the statute of fraudshas been abandoned in favor of certain limited exceptions topromote equity and fair dealing between parties.”

C. The Parol Evidence Rule: UCC 2-2021. Snyder v. Herbert Greenbaum & Associates, Inc.: Multipleissues. First, whether contract for carpet and installation iswithin the scope of Article 2 (yes). Second, ∆ induced π intocontract through misrepresentation: false representationsabout material facts which the rescinding party relied on andhad a right to rely on them. Misrepresentation renders acontract voidable (no). Since the contract was not voidableunder misrepresentation, ∆s offered 5 documents that wereprior contracts. Court holds that documents were properlyexcluded because the contract was intended to be a completeand exclusive statement of contract terms. “Inconsistency”defined as absence of reasonable harmony in terms of thelanguage and respective obligations of the parties. Unqualifiedunilateral cancellation by ∆s not reasonably harmonious tocontract terms.

VI. General Obligations and the Concept of TitleA. “Gap Filler” Provisions

1. Relevant Code Provisions: 2-305, 2-306, 2-308, 2-309, 2-310

2. Feld v. Henry S. Levy & Son, Inc.: output contract for allbread crumbs produced by ∆ was breached when ∆ quitproducing. Good faith requires that party continues supplyingunless put in genuine peril (i.e.--bankruptcy); the mere factthat the sale was not as profitable as was anticipated is notgood faith.

B. Code Warranties

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1. Relevant Code Provisions:2-313, 2-314, 2-315, 2-316, 2-719, 2-318, 2-607, 2-725

2. express warranties UCC 2-313a. five important issues

(1) whether seller has actually made a warranty;“puffing” is a defense.(2) at common law, π had to prove reliance. UnderUCC, warranty only has to be “part of the basis ofthe bargain.”(3) privity (2-318)(4) express warranties cannot be disclaimed. Under

2- 316(1) courts must reconcile in favor of thewarranty.

(5) watch for a merger clause--seller may make anoral express warranty but exclude it throughwritten merger clause in contract.

b. sample or model(1) sample: comes out of the production run(2) model: made prior to production

c. Barton v. Tra-Mo, Inc.: π purchased tanks from ∆ afterseeing models. UCC 2-313(1)(c) states than an expresswarranty is created when a sample or model is made aspart of the basis of the bargain, leading the purchaser tobelieve that the entire order will conform. ∆ tried toargue that the items were not really models, but thecourt does not believe its argument. π wins for breachof express warranty by model.

3. implied warranties UCC 2-314, 2-315a. Blockhead, Inc. v. The Plastic Forming Co., Inc.: π buyer

was experienced in plastics and the wig case industry. πrejected improvements, and approved models and designs.No 2-315 warranty in this case, an implied warranty forfitness for a particular purpose did not occur because thewarranty depends upon the relative skill, knowledge, andexperience of the two parties. Only happens when buyer goesto seller asking them to select everything. No breach ofthe warranty of merchantability because it was effectivelydisclaimed. 2-316(3)(b) if a buyer examines goods or has

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an opportunity to and fails, there is no implied warranty inthe case of any defects coming up after inspection. Asubsidiary issue is whether or not the ∆ qualifies a s aSUPERmerchant--∆ argued that he was not because he had

never made wiglet cases before, but court holds that heis an expert in plastics.

b. Valley Iron & Steel Co. v. Thorin: Hoedad case. Buyerrequested that the hoedad be durable. They were not, andbuyer declined to pay for them. Trial court found that

buyer was at fault. Buyer’s defense was breach ofwarranty. Issue 1: Is there a merchantability warranty?Depends on whether or not the seller was a merchant ingoods of this kind. The “goods” that the statute was talkingabout must be understood more broadly than just “hoedadcollars” but rather do you make things of a similar natureout of metal? That makes seller a SUPERmerchant, and animplied warranty exists. What about the fitness warranty?Dicta here, but they say there is a warranty for aparticular purpose--knew what the hoedad was for andbuyer left it to seller’s expertise to choose the proper

material. Seller really was asked to select the material.Particular purpose--where you have specially

manufactured goods, the ordinary purpose counts as aparticular purpose under 2-315.

4. limitations on warranties UCC 2-316a. K & M Joint Venture v. Smith International, Inc.:

Machine was warranted, but accessories were not. 2-316(3)(a) disclaimer of implied warranty through the use ofthe term “as is.” Then changed terms that everything was“as is.” a route “d” case--oral contract, and then one partysends a confirmation with a different term. Proposal foraddition to the contract that would not become part of itbecause it too materially altered it. 2-316(3)(d)--on thesefacts that to a reasonable buyer the “as is” applies only toaccessories and not the machine. This is not an effectivedisclaimer of warranty with respect to the machine. BUTup jumps 2-607 to knock π out of the box (3): buyer mustnotify within reasonable time of a breach. Comment #4:

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seems to provide a minimal notice o b l i g a t i o n . Notification need only be such as informs the seller- -notification here was inadequate because at no time did the

buyer mention BREACH. Some courts have said thatwhere a party claims unreasonable delay in notificationthat party has to establish that the delay somehowprejudiced it. Did the parties think there was a warrantyat all? A lot of what the buyer did suggests that thebuyer thought the repairs were on its own account.

b. Murray v. Holiday Rambler, Inc.: motor home waswarranted to be free from defects in parts and workmanship;seller disclaimed any other warranty. 2-316(2) impliedwarranties are knocked out. Remedy limitation: repair orreplace in the case of breach. 2-608: buyer’s revocation ofacceptance of the goods. ∆ said revocation was notavailable because of the remedy limitation clause. The courtdoes not sustain the remedy limitation because under 2-719(2)the essential purpose here failed (repair or replace). What isthe essential purpose? “Where the seller is givenreasonable opportunity to correct the defect or defects, andthe vehicle nevertheless fails to operate as should a newvehicle free of defects, the limited remedy fails of i t sessential purpose.” There remained only the question of

whether or not the standard of 2-608 has been met:legally the right thing to do is GIVE NOTICE EARLY of intent torevoke acceptance, but at the same time allow them theopportunity to fix the goods. 2-715 consequential damages,reduced from $2500 to $500.

5. warranty and Restatement of Torts 2da. Flory v. Silvercrest Industries, Inc.: in non-personal

injury cases, courts have struggled with the relationshipbetween tort law and contracts. In the state of Arizonawere not going to allow a breach of warranty actionagainst a remote seller because of lack of privity. Itwould in personal injury cases, however. The court comesup with a theory that M wouldn’t put a lot of stock in:although there can be no UCC warranty action, there isperhaps a breach of warranty theory outside the code which

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does not require privity. M doesn’t get it. If this is asale of goods, the code applies to this action. A sizable piece

of the warranty award was affirmed against Alamo (thedealer) and the case is remanded for trial on the non-UCCbreach theory that apparently makes no sense at all. Thiscase is here to show that π’s lawyers have problemsinterfacing contract and tort law. You can plead all causesof action OR look at the authorities in your jurisdictionand see where your state is, particularly regardingprivity requirements. (Oregon has a privity requirement innon-personal injury actions)

6. non-UCC regulation of warrantiesa. Atlas Auto Rental Corp. v. Weisberg: Everybody is lyinghere. If π had taken a bad check from Schwartzman, he

would have had voidable title. 2-403(1)(b). ∆ said hepaid $900, but only a deposit of $300 to show that he hadpurchased for value. There is a question about whether ornot S had voidable title, but ∆ is unable to use the voidabletitle defense because he didn’t purchase for value. ∆cannot use the entrusting defense, because π did notentrust his goods to a merchant who deals in goods with thiskind. Definition of “value” is very broad and i n c l u d e sanything sufficient to be consideration. The value p r o b l e mhere is a good faith problem. ∆ here was a merchant a n dtherefore must prove reasonable commercial standard.VII. Risk of Loss

A. Introduction--at common law, title orientation governed risk ofloss. The UCC provides a much easier method.

1. an insurable interest under the code (2-501)2. types of delivery terms (2-509, 2-510)3. Ninth Street East, Ltd. v. Harrison: who had the risk of loss

at the time the goods disappeared? Because the FOB term wasadded after contract, assume it was not a part of the deal, butstill seller wins. BUT 2-503 Comment 5--> presumption underthe code for a shipment contract. Risk passed when the goodswere delivered to the carrier. Same result if it had been adestination contract. Buyer’s last gasp argument: π filing withcarrier, rejected by court. Seller should have written a letter

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to buyer stating that the goods are gone and we will file a claimand apply it to your account, but we are not waiving our rights,etc.

B. UCC 2-509: Risk of Loss Absent Breach1. Ellis v. Bell Aerospace Corp.: seller had not sufficiently

relinquished dominion and control. 2-509(3) case--risk remainswith merchant. Facts are close, but it does seem sensible that thebuyer did not receive the goods. What about the negligenceclaims? The court pushed it aside. However, in these cases,negligence becomes important. If risk had passed to buyer, thenthe buyer may have a good claim to recover the value of thehelicopter in a negligence claim against the pilot. Possiblynegligence may trump risk of loss. It is at least possible that theseller can recover if he can prove the buyer’s negligence caused thecrash.

2. Consolidated Bottling Co. v. Jaco Equipment Corp.: contractincluded the language “f.o.b. purchaser’s truck.” Long delay in

delivery and then vandals broke in and damaged the goods. πargued that it was holding the goods within the meaning of 2-503(1) and therefore the risk had passed. This argument is not awinner in any event because if (4) does not apply, so (3) wouldand because the seller is a merchant, risk remains with him. Courtdecides that the resolution of this case depends on 2-509(4); thelanguage “f.o.b. purchaser’s truck” (2-319(1)(c)) was a “contraryagreement.”

C. UCC 2-510: The Effect of Breach on Risk of Loss1. William F. Wilke, Inc. v. Cummins Diesel Engines, Inc.: courtapplies 2-510(1) because the goods were not conforming, andtherefore risk remained with seller and buyer had right of

rejection. 2-509(3) could have also worked here because seller wasa merchant and had not officially delivered the goods yet.(“This is my baby.”) There is also a possible negligence overlayfor both parties. Also, there is no actual breach because under2-607 the buyer has not given adequate notice of breach.

2. Mulitplastics, Inc. v. Arch Industries Inc.: 2-510(3) case--buyer did not take delivery within a reasonable time and thereforebreached. Risk of loss placed on the breaching party to the extentof the other party’s deficiencies of insurance. Seller entitled

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to recover the contract price. On the question of whether or not itwas a breach-- court held that 2-610 (anticipatory repudiation)

does not apply. (Subrogation was also and issuehere)

VIII. Performance and Breach Upon DeliveryA. 2-507, 2-511 provide concurrent conditions; at common law

these likely would have been constructive conditionsB. Buyer’s Rights Prior to Acceptance: Inspection and Rejection

1. buyer’s right to inspect (2-513)2. buyer’s right to reject (2-602)

a. Max Bauer Meat Packer, Inc. v. Wunderlich: 2-602(1),2- 606, 2-709. ∆ tried to argue that the first half of theday’s delivery was too frozen and so they could not havereworked the whole order. Court quite sensibly looked atprejudice and the fact that the second half could have beenfixed but for the delay.

b. Zabriskie Chevrolet, Inc. v. Smith: court held for ∆ anddeclared that the buyer was not bound to the transaction.Under 2-316--warranty disclaimer was insufficientlyconspicuous. 2-606 court declared that buyer had not

accepted the car. Court says that the attempted cure wasineffective-- this seller will not be allowed to force thedeal onto the buyer by forcing the new transmission.Buyer’s confidence is shattered and a reasonable buyer wouldnot want to proceed with the transaction.

C. Anticipatory Repudiation (2-609, 2-610)3. Ellis Manufacturing Co., Inc. v. Brant: court held that under

2-609 the contractor had no reasonable ground for insecurity.and its withholding the goods constituted a breach and buyercould go out and buy new goods and sue for the difference.IX. Seller and Buyer Remedies Under the Code

A. Seller’s Remedies1. action for the price, UCC 2-7092. seller’s resale remedy, UCC 2-7063. seller’s market-contract damages, UCC 2-708(1)4. lost volume seller, UCC 2-708(2)

a. Snyder v. Herbert Greenbaum & Assoc., Inc.: explainswhy the phrase “due credit for . . . proceeds of resale”

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language in 2-708(2) does not apply to a normal lost-volume seller case. Statutory history shows that itapplies to parts assemblers/sellers. Credit need not bemade against the lost profits by the proceeds of resale,if the π/seller has sustained his burden of proving he isa lost volume seller.b. Nederlandse Draadindustrie NDI BV v. Grand Pre-Stressed Corp.: π ordered cement from ∆, contractualrelationship broke down over a period of time. ∆ did notshow that items were defective under 2-607, and sinceit did not do that and also requesting that deliverieswere adjusted so ∆ leaves here. π seeks damages under2-708(2) and since π showed that it had sufficientcapacity to supply the contract items and more foranother order, it wins on this issue. See also: Davis v.Diasonics and Vitex v. Caribtex.

B. Buyer’s Remedies1. buyer’s right to specific performance or replevin, UCC 2-

716a. Copylease Corp. of America v. Memorex Corp.: π seeksspecific performance as a remedy because ∆’s toner is abetter product than any other. Court recognizes a need tobalance state law against ordering specific performancewith 2-716. On remand, π must show the uniqueness ordegree of difficulty in covering against the difficultiesof enforcement which have caused courts to refrain fromgranting specific performance.

2. buyer’s right to cover price-contract price damages, UCC 2-712

a. Farmer’s Elevator Co. of Elk Point v. Lyle: ∆ tried toargue that π had waited too long to cover, but courtholds that the purchases were made within acommercially reasonable time. Comment: “It isimmaterial that hindsight may later prove that themethod of cover used was not the cheapest or mosteffective.” There was a second purchase that may haveoffended the commercially reasonable time, but since itwas cheaper than the first purchase, the court finds that

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∆ was not prejudiced.3. buyer’s market price-contract price damages, UCC 2-713

a. Cargill, Inc. v. Stafford: phone conversations thatturned into contracts--contract one was barred by thestatute of frauds (2-201), but contract two was not. The

issue then becomes when the buyerlearned of the breach--was it at thetime of the repudiation or at the timeof performance? Court finds that itshould be at the time of breach, butthen remands to determine whether ornot π should have covered. (Why wouldthey do this when there is no obligationto cover?)

4. recovery for breach relating to accepted goods, UCC 2-714a. City of New York v. Pullman Inc.: 2-714 value of goods

as warranted-value of goods delivered. What is the cost torepair the goods? Special circumstances discussion isover the top. Look at footnote 7--what is the moreappropriate repair procedure.

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1

CONTRACTS OUTLINE, Mooney Spring 2002 PAROL EVIDENCE RULE

1. The Issue: When an agreement has been put in writing, one party claims there was also and earlier oral or written agreement, or a contemporaneous oral agreement, that was not included in the writing but was intended to be part of the K. In such cases, the admissibility of the alleged additional agreement turns on the applicability of the parol evidence rule.

2. Rules: a. Mooney: Restatement 209 + 215: Where parties have intended a writing as the

final expression of all or part of their agreement, evidence of any other prior or contemporaneous term is not admissible to contradict the writing.

b. Justice Traynor: When the parties to a written K have agreed to it as an “integration” – a complete and final embodiment of the terms of an agreement – parol evidence cannot be used to add to or vary its terms…when only part of the agreement is integrated, the same rule applies to that part, but parol evidence may be used to prove elements of the agreement not reduced by writing.

i. “Credibility test” – parol evidence should only be excluded if it would mislead the trier of fact.

3. Reasons for Rule: a. Juries may tend to favor the underdog. (Mooney doesn’t agree). b. People might make up agreements that never happened. c. Certainty in K interpretation. d. Ability for people to rely on what is written to know what their legal obligations

are. 4. Integration:

a. A complete integration is where the parties intended the written K as a final and complete statement of the agreement in writing.

b. A partial integration is where the parties intended the writing to be a final expression of part of the agreement.

i. Formal intent: Traditional view was that a writing would be treated as an integration if taken as a whole and on its face the writing appears to be an instrument that complete ly expresses the parties’ agreement (writing not only the best, but only evidence of intent). Gianni v. Russel & Co.

ii. Actual intent: Modern view is that a writing is deemed to be an integration only if the parties actually intended it to be an integration. Court will consider any relevant evidence to determine intent. Masterson v. Sine, R 209.

c. UCC comment 3 2-202: Only if the parol term would certainly have been included in the writing, if agreed upon, then it must be kept from the trier of fact (this likes the parol evidence rule less than the restatement).

5. Merger Clauses: Provisions in a written K that the written K is the entire K between the parties, or is the final, complete and exclusive statement of all the terms the parties have agreed upon.

a. Traditional approach: These clauses are determinative on the question of whether the writing is an integration. Still the majority rule.

b. Modern courts (minority) will sometimes say it is just one factor in determining whether it is an integration.

c. Defense can claim unconsionability.

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6. Defenses: Can have a D for the K itself:, even if it is completely integrated. Fraud, duress, mistake, illegality.

7. Exceptions: a. Separate consideration: Even if a writing is an integration, parol evidence is

admissible if the written integration and the alleged parol agreement are each supported by separate consideration.

b. Collateral agreement: Parol evidence is often admissible if the alleged parol agreement is “collateral” (i.e. related to the sub. matter but not part of the writing).

c. “Naturally Omitted Terms”: Widely accepted modern rule, R216, is that parol evidence is admissible if it concerns a term that would naturally be omitted from the written agreement. A term will be treated as naturally omitted if:

i. The term does not conflict with the written integration; and ii. The term concerns a subject that similarly situated parties would not

ordinarily be expected to include in the written agreement. 1. Two approaches: (1) Whether an abstract reasonable person

would have omitted the term in question from the writing, (2) Whether the actual parties might have naturally omitted the parol agreement from the writing. Masterson v. Sine. This is the majority view.

8. Gianni v. Russell, 1924: P claims and oral agreement (in addition to a lease) where P agreed not to sell tobacco in exchange for exclusive rights to sell soda in the building. D denies the oral agreement took place. D rented another space to a drug company that sold beverages.

a. Issues: i. Whether the parties would have naturally included the additional term in

their K? Held: Yes, because it embraces the field of the alleged oral K. ii. P’s argument: Whether the exclusive rights to sell soda was a separate

and ind. agreement and therefore not barred by parol evidence? Held: No. This term would have been a part of the main agreement and there was no consideration for the separate agreement.

9. Masterson v. Sine, 1968: P conveyed their ranch to D by a written deed. The deed provided an option to repurchase at a designated price. There was a separate oral agreement that the option was personal to P. P’s trustee wanted to establish their option.

a. Held: Evidence of the oral agreement is not barred by parol evidence. b. Rule: Parties’ intent needs to be considered. Case rejects classical Gianni rule

that a writing that looks complete is presumed to be complete. Traynor says that an agreement can’t prove completeness in and of itself.

i. Traynor also uses collateral agreement to say that the parol is parol evidence in a partial integration case (said this is a completely separate agreement).

10. Bollinger v. Central Pennsylvania Quarry 1967: Parties entered into oral agreement where they agreed D would deposit his waste on P’s property, but would cover the waste when one. Written agreement did not include clause, P did not read before signing.

a. Rule: A court can reform a K for a mutual mistake in integration. Escribinor’s error.

INTERPRETING CONTRACT LANGUAGE

1. General Rule: Where the interpretation of an expression (words or conduct addressed by one party to another) is in issue, the expression should be given an objective

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interpretation (interpretation of a reasonable person standing the addressee’s shoes). In 99% of cases, the court will look for an objective K interpretation.

a. Vague v. Ambiguous i. Vague: When its applicability in marginal situations is uncertain.

ii. Ambiguous: Two entirely different connotations, so that it may be appropriate or inappropriate.

2. Exceptions: a. When an expression is susceptible of two equally reasonable meanings

i. i.e. John is married to two women. He leaves his house to his wife. Which does he mean?

ii. i.e. Raffles v. Wichelhaus: Two ships called the Peerless. Both reasonable interpretations. In this case, no K is formed.

b. Both parties have the same subjective interpretation (this will govern even if their interpretation is not the reasonable meaning of the term). Theoretical, if this happened, a dispute would most likely not arise.

c. One party knows of the other’s different interpretations: If A knows B’s interpretation, then B’s interpretation is determinative.

3. Frigaliment Importing Co. v. BNS International Sales Corp., 1960: Young v. Old Chickens case.

a. Issue: Whether the word “chicken” includes stewing chickens as well as broiler chickens?

b. Use of the word “chicken” was too vague. Court found that P did not sustain their burden of persuasion that the K used “chicken” in a narrower sense (i.e. young chicken as opposed to all kinds of chickens, inc. old).

4. Raffles v. Wichelhaus 1864: Peerless case. a. Parol evidence may be given for the purpose of showing that D meant one

Peerless and P another. It would be an imposition to hold P to a K he did not enter into.

5. Oswald v. Allen 1969: Swiss coins case. P thought he was buying both D’s collections for $50,000, P thought only one.

a. Rule: When any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there is no K unless one of them should have been aware of the other’s understanding.

b. Interesting, borderline case according to Mooney. c. Mooney would ask the client to look at the contract and see the description of the

coins – was it capitalized (indicating it was a specialized collection), or not capitalized (indicating it was just all of the Swiss coins).

d. COASE THEOREM: Tells us the result of the litigation will not effect who comes out with the coins. It doesn’t affect allocation, but it does effect distribution of wealth.

i. This will effect rather dramatically how much the buyer has to pay for the coins. If he wins the case, he gets them for $50,000. If she wins the case, and they renegotiate, they will cost him a lot more.

6. Hurst v. W.J. Lake Co. 1932: Meat scraps case. Trade usage indicated that 50% protein meant 49.5% or more. Meat contained 49.53-49.96%.

a. Rule: Trade usage is applicable, even when an instrument is non-ambiguous on its face (trade usage trumps mathematical usage).

7. Rules in Aiding Interpretation a. Plain meaning rule: Many courts apply this rule with much investigation into

what parties reasonably understood term to mean.

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b. Public interest: Not widely recognized. Environmental disputes often make this argument (Peevyhouse – court upheld K to further public interest, not really to help the Peevyhouses).

c. Expressio unius: To express one is to exclude others. d. Nascitu a sociss: It is known from its associates. e. Contra Proferentum: Against its author or proffer. This works for K underdog.

8. Evidence to present: a. Evidence internal to the K b. Dictionary evidence c. Foreign Language Evidence d. Evidence from Government statutes or regulations e. Trade usage evidence, Course of dealing, Custom f. Evidence of the likely, and almost inevitable, subjective intention of both parties.

Ex. Chicken/Broiler - Subjectively both should have known because they would have been operating at a loss.

American courts in general interpret contracts objectively, so even if the Frigaliment case showed that the plaintiff subjectively thought they were buying fryers, the case would have come out the same.

This prevents dissembling (fibbing) and having to find subjective intent. FILLING GAPS

1. Restatement 205, UCC 1-203): In every K, there is an implied obligation on both parties to act in good faith and with fair dealing on a K.

2. Rule: Good Faith obligation means that party A will not do anything to reduce the reasonable expectation of party B and jeopardize the expectation (or fruits of the K).

3. Reason court will find an implied term in a K: FAIRNESS, to insure the legal system looks at what is fair.

4. Dalton v. Educational Testing Service: Implied obligation of good faith and fair dealing imposed on the Education Testing Service (obligation to review material presented by Dalton that exculpates him from their allegations).

a. The obligation in theory, is that A prevents B from depriving A of the fruits of the K that is expected,

b. If the party gives discretion in someway, the implied obligation of good faith and fair dealing prevents the party from giving discretion arbitrarily,

c. However, the implied obligation cannot be inconsistent with express terms. i. Typical limitation

ii. If ETS form had said ETS will have total discretion in determining whether or not to report the score, then Dalton would have a hard time convincing the court to allow him to submit his information.

iii. In this case, the form said that the student would have the opportunity to provide additional information.

5. Burger King v. Weaver: No implied obligation of good faith to not put a second franchise next to the first franchise.

a. In this jurisdiction, the court will not use the implied obligation of good faith to add a term or otherwise vary the express terms (Dalton just said you can’t contradict a term, didn’t mentioning adding a term)

6. Eastern v. Gulf: Gulf breached K with Easter, claiming Eastern violated their K by not acting in good faith b/c of fuel freighting practices. In reality, Gulf was trying to weasel out of their K with Eastern because oil prices had shot up and they wanted more money.

a. Issues:

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i. 1st: Consideration (lack of mutuality) ii. 2nd: Remedies: Whether Eastern could appropriately obtain specific

performance. iii. Good Faith. Governed by UCC b/c it is the sale of goods.

b. UCC 1-201(19): Defines good faith (subjective definition) – honesty in fact c. UCC 2-103: Sale of Goods: Merchants have a higher good faith standard, they

have to be not only subjectively operating on good faith, they have to objectively be operating on good faith as well.

d. Throughout the entire commercial code, there is a narrow definition of good faith e. UCC 2-208: Course of performance – how did these parties perform the K up

until the time the dispute arose. i. In this course of performance, this fuel freighting when on for years and

years. Trade Usage. 7. Commercial leases: Often have a certain base rent per month plus a certain percentages

of gross receipts. Problem arises when tenant wants to stop the business altogether and just pay minimum monthly rent, or it wants to cut back and the receipts go down. The leaser argues that there is a good faith obligation on the part of the defendant. Implied term: Best Efforts. This is similar to what is found in Wood v. Lucy Lady-Duff Gordon.

8. Zilg v. Prentice Hall: Nature of an implied obligation on the publisher is to act in good faith, it is not to exert best efforts on behalf of the book.

a. Trial court held that there was a bad faith decision to “privish” the book (meaning they fulfilled technical requirements to publish, but did not do more than that. Mooney agrees with this opinion, although the decision was reversed.

b. Court of appeals: The obligation to act with good faith in promoting the initial promotional activities was fulfilled, and the K language dictates that a business decision by the publisher to limit the size of a printing or advertising budget is not subject to second guessing by the trier of fact whether it is sound or valid.

c. There are two ways Zilg could have shown breach of K: i. Demonstrate that the initial printing and promotional efforts were so

inadequate as not to give the book a reasonable chance to catch onto the reading public.

ii. Show that even greater printing and promotional efforts were not undertaken for reasons other than a good faith business judgment.

9. WOOD’S RULE: If an employee was terminable at-will, then an employer could fire her anytime for any reason.

a. Heydey of progressive contract law: Late 60’s, early 70’s - protection of employees increased. Three grounds employee might assert:

i. Something in a conversation or in an employment manual that at least by implication if not explicitly, gave her the right to be fired only for cause.

ii. Public Policy exception: You cannot fire someone for exercising a right that involves some important public policy. You cannot fire a Whistle-blower, for example.

iii. There is, in every employment K, an implied obligation of good faith and fair dealing (employers tend to vehemently oppose this one). There has to be some reasonable reason for firing a person.

b. 80’s and early 90’s saw all three of the above grounds wither considerably. i. Some states passed statutes that say there is no obligation of good faith

and fair dealing in any employment. ii. Employment lawyers began to put disclaimers in employee manuals.

iii. Even the public policy ground has been narrowed considerably.

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c. Sheets v. Teddy’s Frosted Foods 1980: Violation of public policy exception to firing at-will.

i. Employee should not be put in a position whether to risk criminal sanction or to jeopardize his continued employment.

10. Balla v. Gambro 1991: Lawyer case. a. General rule: In-house counsel does not have a claim under tort of retaliatory

discharge. b. Appellee was required to abide by the rules of professional conduct, so public

policy was adequately safeguarded without extending the tort of RD. c. Extending the tort of retaliatory discharge to in-house counsel would have an

undesirable effect on the attorney-client relationship (would destroy trust). d. Inappropriate for the employer/client to bear the economic burden their counsel’s

adhering to their ethical obligations. i. Two influential courts – CA and Massachusetts went the other way:

Because an attorney is obliged to inform someone when clients are engaging in illegal conduct, they should have protection.

CONDITIONS

1. In General: A K may expressly provide that a party does not have a duty to perform unless some condition is fulfilled. In such a case, the party’s failure to perform will normally be justified if the condition was not fulfilled.

2. Definitions: Condition means either: a. An event or state of the world must occur or fail to occur before a party has a

duty to perform under a K, or b. An event or state of the world - the occurrence or non-occurrence of which

releases a party from its duty to perform under a K. 3. R2d 244: A condition is an event, not certain to occur, which must occur, unless its

nonoccurrence is excused, before performance under a K becomes due. 4. R2d 217: Conditions – a reasonable well-accepted exception to the parol evidence rule.

One is permitted to use parol evidence to show the party’s agree to a condition precedent to the effectiveness of a K.

a. The alleged parol condition cannot contradict a writing in order for the exception to apply

5. Three kinds of questions around conditions: a. Have the parties made a particular event or non-event a condition of one party’s

performance or both parties’ performance? b. Has the condition, if it is one, been satisfied? c. If it hasn’t been satisfied, what’s the legal effect of the non-occurrence of a

condition? 6. EXAMPLE: Sarah promises to carry Carl’s goods in her ship from London to Gibraltar.

Carl promises to pay her for that service $5000. In addition, the parties agree that in some fashion Sarah will get the good there in 25 days. Two ways to word the 25 day term:

a. Sarah could promise to get the goods there in 25 days. If she’s late, then she has breached her promise and will be liable for damages.

b. Parties will word the term as a condition. “It shall be a condition of Carl’s obligation to pay that Sarah get the good there within 25 days.” If she’s late, she hasn’t breached, she just doesn’t get paid. This excuses Carl’s performance.

c. It is almost always more equitable to construe language as a promise than as a condition.

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7. Luttinger v. Rosen, 1972: P contracted with D to purchase property and paid deposit of $8500. K was conditioned upon P obtaining 1st mortgage in amount of $45,000 for not less than 20 years at 8.5% financing. P contacted one institution and was unable to get 8.5%. Offered to pay the extra, but D refused and kept the money. Court ordered that D give back the money because P had tried to meet the condition and had been unable.

a. Hornbook rule in K law: One has to satisfy a condition absolutely. No doctrine of substantial performance. Mooney thinks this might be collapsing.

8. Peacock Construction Co. v. Modern Air Conditioning 1977: D is a contractor who had two subs. K contained a provision that said D would pay the subs within 30 days after full payment by owner.

a. Court held this language was not a condition – simply a timing provision. Meaning of language is not that subs will be paid if/when contractors are paid. Sets a normal time for payment. If payment is not forthcoming at that time, there is still a legal obligation to pay.

b. Arguments (for sub): i. General Contractor is in a much better position to say know the credit

standing of the owner. ii. Sub-contracts are almost always drafted by the gen. Language is

supposed to be construed against the party drafting. iii. Trade usage – this is how courts intend to interpret these, and this is how

the parties in the construction business tends to construe these contracts. 9. Gibson v. Cranage 1878: P solicited D’s business, offered to paint portrait of dead

daughter. Said he wouldn’t have to pay for it if not satisfied. D was not satisfied with the product. P re-did the picture, and D wouldn’t look at it. Court held for D.

a. Repeat of Mattei and Hopper: Condition to act in good faith. b. Two categories of satisfaction condition:

i. Subjective (if taste or fancy is involved), so long as party exercises their judgment in good faith, that is the only obligation.

ii. Objective: If the requirement of the party’s satisfaction has something to do with mere economic utility, mechanical fitness, or marketability, a condition of satisfaction is interpreted to be fulfilled by a performance that would satisfy a reasonable person.

iii. As a lawyer, advise your client to look at the portrait and reassert lack of satisfaction.

10. Mitigating Doctrines a. Prevention:

i. General Rule: A party to a K cannot rely on the failure of another to perform a condition precedent where he has frustrated or prevented the occurrence of the condition.

b. Waiver, Estoppel, and Election i. Waiver - R2d 84

1. Traditional definition: The intentional relinquishment of a known right.

2. Usually waiver is not explicit. Typical scenario: If your rent payments are due to me on the 3rd, but I accept late payments consistently, I can expect payments on the 3rd. You can retract the waiver, however.

ii. Estoppel, R2d 84(2), UCC 2-209(5) 1. A party that, without consideration, has waived a condition that

is within the other party’s control before the time for occurrence of that condition can retract the waiver and reinstate the req. that

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the condition occur unless the other party has relied to such an extend that the retraction would be unjust.

iii. Election: A party that chooses to disregard the nonoccurrence of a condition is bound by an election to treat this duty as unconditional.

1. Common for insurers. c. Impossibility: Impossibility or impracticability excuses the fulfillment of a

condition if fulfillment of the condition is not a material part of the agreed exchange and forfeiture would otherwise result.

d. Fulfillment of the condition would cause a disproportionate forfeiture: Then fulfillment of the condition may be excused unless the fulfillment of the condition was a material part of the exchange.

CONSTRUCTIVE CONDITIONS

1. Constructive Conditions of Performance: Most important and common type of constructive condition to the duty of each party to a K to render performance is that the other party has rendered its performance or made tender of its performance.

a. Essentially, the promise is acting as a condition. b. Example: Steve and Jim make a K under which Jim will paint Steve’s house by

May 30, and Steve will pay Jim $3,000 on June 1. It is then an implied condition to Steve’s duty to pay $3000 that Jim shall have painted the house.

i. Dual legal effect: If Jim fails to paint Steve’s house by June 1, (1) the failure is a breach of K for which Jim will be liable, and (2) The failure is a nonfulfillment of an implied condition to Steve’s duty to pay on June 1, so Steve does not come under that duty.

2. Kingston v. Preston, 1773: D hired P as an apprentice. Said that if P was to give him sufficient security, then D would convey him the business. P failed to give good security, therefore there was no obligation to perform.

a. Today we would say “the seller’s argument is that the buyer’s obligation to post a surety is a constructive condition of my obligation to convey my business.”

3. Stewart v. Newbury 1917: Construction case. a. Rule: If parties don’t provide otherwise, builder has to finish the work before the

owner has to pay. MITIGATING DOCTRINES FOR CONSTRUCTIVE CONDITIONS Fundamental inquiry: What sort of conduct by one party gives rise to a cause of action for breach by another party, or gives to another party the right to withhold its own performance?

1. The doctrine of constructive conditions provides that if the plaintiff breached the duty, provides that if the performance is a constructive condition of the other’s duty, then the plaintiff is itself in the wrong.

a. In other words, if the P breached a duty of the performance that should have proceeded the other performance or promise.

2. In a sizable number of instances, when a breaching P despite its own breach may nonetheless sue on the contract. Three ways around the doctrine of constructive conditions:

a. Doctrine of substantial performance or substantial completion (Redding Pipe Case – even though the contractor breached its portion of the K, the owner may not withhold its performance because the owner substantially performed) – Jacobs & Young v. Kent.

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b. Doctrine of divisibility (severability): Gill v. Johnstown Lumber (agreement to deliver logs. Lost some in a flood, sued for those delivered): If the parties in the K provide that part performance will result in partial payment (i.e. I’m supposed to build you two houses each for $100,000, I build one and walk away), the P can sue on the contract to get paid for the performance they did complete.

c. Doctrine of restitution: Where a K is unenforceable for some reason (usually mistake, impracticability of performance or frustration of purpose), but during the course of performance a substantial benefit was conferred upon one of the parties. Algernon Blair: The aggrieved party may (in a losing K situation) may want something other than expectation, may want restitution.

i. Restitution for a defaulting P: This has met the most resistance from courts. It seems wrong to allow someone who has committed a significant breach of K to come before the court and claim anything. Britton v. Turner (worked for 10 months of a 1 year K, then walked off the job. Ct. held employee may recover benefit to employer less damages employer suffers by reason of early termination).

ii. In restitution you are not suing for the K rate, but the value of the benefit conferred.

iii. Quantum meriut – synonymous with restitution. BREACH IN THE COURSE OF PERFORMANCE

1. Non-material breach is a 4th way around the doctrine of constructive conditions: Yes, I breached, but I can still sue you for your later, more serious breach because my breach was not material and did not justify your breach.

2. An actual breach of K, at the time performance is due, always gives rise to an immediate COA for damages. However, not every breach also excuses the other party’s duty of performance. Whether a breach by one party excuses the other party’s duty to performance depends if the breach is “material.”

a. Example: Contractor contracts to build a $1 million building, and puts on some of the wrong doorknobs, the Contractor will be liable for damages, but the Owner won’t be excused from performing (paying).

b. Each case is decided on its fact of whether it is a material breach. 3. Relevant factors:

a. The extent to which the breaching party has already performed (more likely to be a material breach at the outset).

b. Whether the breach was willful, negligent, or the result of purely innocent behavior.

c. The extent of uncertainty that the breaching party will perform the remainder of the K.

d. The extent to which, despite the breach, the nonbreaching party will obtain (or has obtained) the substantial benefit he has bargained for.

e. The extent to which the nonbreaching party can be adequately compensated. f. Hardship on breaching party if the breach is considered material.

4. Repudiation: An otherwise minor breach, accompanied by a refusal to render any further performance, will be considered a major breach.

a. UCC 2-609: A victim of a minor breach should request assurances of adequate performance in the future. If the other side doesn’t respond appropriately, you can safely say they have repudiated.

5. Walter & Co. v. Harrison 1957: P sells signs. Sold one to D, with agreement P would clean it. The sign rusted and had tomato splatters. D stopped paying.

a. Issue: Who made the material breach? Held: D.

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b. P’s breach was minor. D should have written P a letter that said they were holding payments in escrow until P cleaned up the sign.

6. K & G Construction Co. v. Harris, 1960: D breached its covenant to perform in a workmanlike manner, and P thereafter declined to make good its return covenant to pay. D refused to perform further, causing damage to P

a. This case involves periodic payments, which involves a series of alternative constructive conditions. Thus, P’s refusal to pay D was justified and not a breach, since the payment was conditioned on D’s performance which was not forthcoming.

7. Responses to the Defense “I’m not liable to you for my non-performance because you did not complete some performance that is a constructive condition of my performance.”

a. Yes, but I substantially performed. b. Yes, but this K is divisible and you have to pay me at the K rate for the portion I

DID complete c. Yes, but I’m entitled to restitution of the K for the amount of the benefit I’ve

conferred on you in order to avoid unjust enrichment d. Yes, but my breach of the constructive condition was not material, and therefore

it does not excuse your failure to act. 8. Separate K doctrine:

a. NW Lumber Sales, Inc. v. Continental Forest Products, Inc.: You cannot breach one K because of the other party’s breach in a different K. Neither the UCC or general K law gives a party the right to breach a K performance because the other party has breached another K between them.

b. Seller should invoke 2-609, and said you neglected to pay for the lumber we already sent to you, we demand an adequate performance for K #3 to make sure you’re not going to stiff us again.

ANTICIPATORY REPUDIATION

1. Anticipatory Repudiation (AR): If either party to a K, in advance of the time set for performance, repudiates the K, the repudiation excuses the other party from performing. In addition, the innocent party may generally treat the AR as a present material breach, and bring an immediate action for the entire value of the promised performance.

2. Acts are sufficient (Stewart v. Newbury – walking off the job was repudiation). 3. Insistence on terms not contained in the K constitutes an AR. 4. Requirement of Unequivocal Repudiation: Only an express or implied unconditional

refusal to perform will constitute AR. A party’s language must be sufficiently positive to be reasonably interpreted to mean that the party will not or can not perform.

5. Hochster v. De La Tour, 1853: P contracted with D to act as a courier during his European vacation. D changed his mind prior to leaving, and refused to compensate P. P sued prior to time for performance.

a. Held: The man who wrongfully renounces a K into which he has deliberately entered cannot justly complain if he is immediately sued for a compensation in damages by the man whom he is injured. The renunciation may be treated as a breach of K.

b. Important point: Every jurisdiction in the US says this is still good law. You may go out and get a new job, and sue early.

c. Damages would be his wages from June 1 (day he was to start working) -July 4 (July 4th is when he begins the job he got to mitigate the damages).

d. This rule is in UCC 2-610. e. Principle justification: Make sure victim has freedom to reorganize their affairs

and take another job prior to the time performance was due.

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f. Exception to rule: Installment contracts. i. i.e. Seller has finishing delivering tulip bulb, and all that’s remaining is a

series of installment payments by the buyer over a period of time. Most courts hold that the seller may not sue early for all remaining installments, but must wait until each installment becomes due.

ii. Remember when drafting an agreement such as this one to add and “acceleration clause”: These causes state a default on any one payment on this K shall cause all remaining payments under this K due.

iii. 2nd way to get around this situation is a declaratory judgment: Declaration by the court that buyer breached and payments will become due at the times stated in the K (allows you to go back to court simply on motion without having to file new complaint every time).

MUTUAL MISTAKE

1. Definition: A mistake by both parties to a K concerning a basic assumption of fact on which the K is based.

2. Defenses: a. The mistake was not “basic enough” (R2nd 152). This should come down to a

question of value. b. Argument that the parties actually considered the possibility of a major gain or

loss, and took it into account for the sell. This is an extremely common response. Assumed risk by virtue of trade usage.

c. It’s not a mutual mistake because I had an inkling that this was an authentic Picasso painting. I didn’t know it, but I had an inkling.

i. Spectrum: No knowledge------------ Perfect knowledge • If you have perfect knowledge, you have a duty to tell the

person. The K will be undone. • If you have no knowledge, the K will be undone on a basis of

mutual mistake. • The middle might be protected ground – no duty to tell with just

a hunch, but also is not exactly a mutual mistake. 3. Restatements Second

a. 151: Defines mistake as “a belief that is not in accord with the facts.” b. 152: For a mistake of both parties at the time the K was made, as to a basic

assumption, has a material effect on the aggrieved exchange, the K is voidable unless parties seeking to void it bore the risk of that mistake.

c. 154: Party bears the risk where the party is aware at the time of K that she has only limited knowledge with respect to the facts, but treats her limited knowledge as sufficient. A type of conscious ignorance.

i. i.e.(a) I don’t think these paintings are very valuable, although I know they might be, so I’ll just go ahead and sell them for not very much. (b) I know I should have them authenticated, but that’s time consuming at costs a lot of money, so I won’t do it. (c) The court allocates the risk to one party on the ground its reasonable to do so.

d. 158: Provides that either party may have a claim for restitution following a rescission on the ground of mistake. A slightly more progressive, or forward looking, Subsection 2 of 158 says the court may grant relief on such terms as justice requires to protect a party’s reliance interest.

i. ex. Brenner v. Kehl. e. 153: Unilateral mistake.

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i. ex. Elsinore – K made an innocent clerical error, owner should be put in status quo, would be unconscionable to hold contractor to mistaken bid.

4. Estate of Nelson v. Rice 2000: Rice bought two paintings for $60 at an estate sale. Turned out they were worth $1 million.

a. Held: By selling the paintings, the seller assumed the risk they were much more valuable. (R2nd 154)

5. Stees v. Leonard 1874: P and D enter into K to build a building. Every time construction rose to the 3rd floor, the whole thing would collapse. D claimed this was b/c the building was on quicksand.

a. Held: D contacted to “erect and complete the building,” meaning he was bound to do so no matter what the circumstances.

i. Performance Specification: Requires a contractor to product a specific result with specifying the means for achieving the result.

ii. Design specification: Specifies the design, materials, and methods, and impliedly warrants their adequacy.

b. This case embodies older, harsher view, that parties must always perform agreements they enter into.

c. Defenses: i. Fundamental defense: Both parties made a mutual mistake as to a matter

that is fundamental to the performance of the contract. Court holds that anything the person agrees to do, promises to do, the person must do it no matter what.

ii. 2nd defense: D followed the specifications and they were faulty. Party agreed fundamentally to just follow the expectations, so it’s not their fault. While this didn’t work in this case, this can be a successful defense. Especially true in government contracts

iii. 3rd argument: D said there was a prior agreement that the owner would excavate the land. Court refused to admit this evidence because of the parol evidence rule (just like Gianni and Russell). This is a very bad ruling.

d. Legal doctrines on behalf of the owner to assist your argument that rescission is inappropriate:

i. Assumption of risk is a typical response to a claim of mutual mistake. ii. The argument would be this is the kind of risk that builders assume.

Sometimes construction turns out to be less expensive than anticipated, and sometimes more. But, agreeing to build a building for $100,000 the builder assumed that risk.

iii. A common instance of this type of case occurs where the parties knew that the relevant assumption was doubtful.

6. Brenner (Renner?) v. Kehl 1986: P contracted with D to buy land. P made it clear they wanted to grow jojoba, D thought their was plenty of water. There wasn’t. Seller’s appeal award of consequential damages on grounds of mutual mistake:

a. Rule: Absent fraud or misrepresentation, a party who rescinds a K based on mutual mistake may not recover consequential damages. However, when a party rescinds on a K on the ground of mutual mistake he is entitled to restitution for any benefit he has conferred by way of part performance or reliance.

i. Reliance is a slightly more progressive remedy. Sub. 2, Rnd 158. 7. Older test: Mutual mistake was a D if the mistake concerned the “substance” or

“identity” of the K’s subject matter (K was then voidable). If it was only an accident or a collateral attribute, K was no voidable.

a. Example: K to sell cow both parties believed to be barren. Prior to delivery, seller realized cow was pregnant, and thus more valuable. Under the older test,

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the K would be rescinded b/c the parties made a mutual mistake as to the substance of the K’s subject matter (cow was a breeding cow rather than a barren cow).

8. Modern Rule: If the K is entered into under a mutual mistake concerning a basic assumption of the fact, the K is voidable by the adversely affected party if the mistake has a material effect on the agreed exchange and the adversely affected party did not bear the risk that the assumption was mistaken.

a. Example: On May 5, seller contracts to sell her famous race horse. The horse died on May 4, unbeknownst to either party. The K is voidable by the buyer b/c both parties were mistaken as to a basic assumption that the horse was alive. The mistake is material.

IMPRACTICABILITY OF PERFORMANCE

1. General Rule: Performance of a K will normally be excused if the performance has been made impracticable. The impracticability must involve the occurrence of an even whose nonoccurrence was a basic assumption on which the K was made, and the adversely affected party must not have assumed the risk of that K occurring. R2d261

2. SELLER’S DEFENSE 3. Taylor v. Caldwell, 1863: D contracted with P to rent a music hall for four days for

entertainment. The music hall burned down at not fault of either party prior to the rental days. P sued for breach.

a. Held: The music hall, having ceased to exist, without fault of either party, excuses both parties from K.

b. Remedy P was seeking: (1) Reliance - out of pocket expenses, put us back to go, (2) Expectation – profits expected to make on series of four concerts. Did not sue for expectation b/c there is no way to prove what the receipts would have been.

c. If D made a promise to absolutely perform at the music hall, there would be a K; but if the court finds an implied condition (such as, the music hall must be there), and the condition is impossible to fulfill, then the parties are excused.

4. Transatlantic Financing Corporation v. US 1966: P, chartered by D, contracted to a ship a full cargo of wheat from TX to Iran. Shipment was contemplated to go through the Suez Canal, but a war broke out, closing the canal. P had to go 3000 extra miles.

a. Held: K was not impossible (or impracticable). b. Definition: A thing is legally impossible (or impracticable) when it is not

practicable and can only be done at an excessive and unreasonable cost. c. Impracticability Test:

i. A contingency – something unexpected – must have occurred. ii. The risk of the unexpected occurrence must not have been allocated

either by agreement or by custom. iii. Occurrence of the contingency must have rendered performance

commercially impracticable. d. Analysis of Transatlantic under the test:

i. An unexpected contingency did occur in this case. ii. At the time they entered into the K, we knew Egypt had nationalized the

canal, and it was very foreseeable that the canal would be closed. Circumstances indicate that P was willing to assume abnormal risks.

iii. Sometimes a very great increase in cost will cause a court to say that a contract is impracticable. This doesn’t apply here, because this was only

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a fraction of the K price – no nearly enough to declare something is commercially impractical.

5. Note on Forseeability: Though anticipating a possible turn of events, “the parties may not have thought it sufficiently important a risk to have made it a subject of their bargaining.” Should be factor in whether or not the party now claiming the D should have assumed the risk.

6. Force Majeure Clauses: When, during the negotiation of a K, a party anticipates on a more evens that it cannot readily prevent and that might impede its performance, it may introduce this generic term intended to excuse it from performing if the impediment arises. These clauses must be drafted very carefully.

7. UCC 2-615: Doctrine of Commercial Impracticability. a. Eastern v. Gulf (our old friends!): Gulf used impracticability D. b. Held: Ct. thought the events of the oil crisis were reasonably foreseeable, and

the fact it occurred was not an unexpected contingency. Even beyond that, if it WERE unforeseeable, increased cost alone is not enough. The court can’t even tell from the evidence if Gulf has experienced any real economic problems.

c. Rules: i. The unforeseen cost increase that would excuse performance “must be

more than merely onerous or expensive. It must be positively unjust to hold the parties bound.”

d. Unprofitable does not mean impossible. A mere showing of unprofitability, without more, will not excuse performance of a K.

8. Typical impracticability subject matter: a. Supervening prohibition by law (what you contracted to do is now illegal). b. Death of one party in a personal services K (excuses performance of both

parties). c. Destruction of the subject matter of availability of something in the K (Taylor v.

Caldwell). 9. Example: Farmer makes a K with grain elevator to sell his wheat crop. Grain elevator

makes 2nd K with Wheaties to resell the wheat. Draught occurs, no wheat. Is farmer liable for breach b/c grain elevator had to purchase at a higher price?

a. Farmer’s D: Impossibility of performance or commercial impracticability. b. Issue for court: Was K for a particular quantity of wheat, or specifically for the

farmer’s wheat. c. If its for the farmer’s wheat, then performance is impossible and D works. If it is

for a specific quantity, performance is not impossible and then farmer is liable for breach.

FRUSTRATION OF PURPOSE

1. General Rule: Performance may be excused under the doctrine of frustration where the purpose or value of the contract has been destroyed (or substantially frustrated) by a supervening event that was not reasonably foreseeable at the time the K was entered into. R2d 265

2. Slippery slope – courts reluctant to invoke this D. 3. BUYER’S DEFENSE: This is b/c it is always possible for the buyer to fulfill his

promise to pay, even if he will essentially gain nothing for his money. 4. Krell v. Henry 1903: D paid deposit to P for the use of his apartment so he may watch a

coronation. The King became ill, delaying the coronation. D refused to pay balance, P sued. D counterclaimed for his money. D wins on frustration of purpose grounds.

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a. Rule: Where the object of one of the parties is the basis upon which both parties contract, the duties of performance are constructively conditioned upon the attainment of that object.

5. Remedies: In general, any benefit one party has conferred on another will be returned (D will get his deposit back).

UNIFORM COMMERCIAL CODE ARTICLE I

1. UCC 1-102: The Code is to be liberally construed and applied to promote its underlying purposes and policies:

a. To simplify, clarify, and modernize the law, b. To permit the continued expansion of commercial practices by validating trade

custom and usage as well as parties’ express agreements, c. To make the law uniform among the various jurisdictions.

2. Three fundamental principles underline much of Art. II: a. Good Faith b. Commercial Reasonableness (pervasive, a part of every merchant’s good faith

duty). c. Facilitation of actual commercial practices through the incorporation of course of

performance, course of dealing, and usage of trade. i. Course of performance (2-208) – how you and I actually perform under

this K. ii. Course of dealing (1-205)– how you and I performed under prior K’s.

iii. Usage of trade (1-205)– how others in the industry understand K practices

3. Good Faith a. 1-201 (19) Honesty in fact:

i. Subjective Test ii. No matter how absurd a person’s contention is, if they really believe

their contention is true, they made the assertion in good faith. b. 1-203: Imposes the obligation of good faith on every party to a transaction

governed by any portion of the UCC. c. 2-103: Supplements the general UCC Good Faith definition, by stating under

Art. II, Good faith for merchants includes not only honesty in fact, but also the observance of reasonable commercial standards of fair dealing in the trade.

i. Merchant defined in 2-104. ii. Can parties get rid of a good faith obligation?

iii. While generally code provisions are variable by agreement, you cannot disclaim good faith or commercial reasonableness. You can set standards by which you just good faith, provided that the standards set forth in the K are not manifestly unreasonable.

4. Nelson v. Union Equity 1977: Court held defendant farmer meets the requirements of “merchant” definition under 2-104 because he is knowledgeable about the business of crops, and meets the statutory elements. Because D was a merchant, the oral agreement confirmed in writing satisfies the Statute of Fraud requirements under 2-201 and therefore must pay damages for breach.

a. 2-104 A person is a merchant if: i. They deal in goods of the kind, OR

ii. By his occupation he holds himself out as having knowledge or skill peculiar to the practices involved in the transaction

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1. SUPERMERCHANT: You have to be a merchant by the goods prong of merchant (i.e. Blockhead (wiglet case): D was a merchant, not because he had ever made wiglet cases, but because the “goods” he dealt with were blow-molded items). Look for the broadest definition of the goods you are talking about (i.e.

iii. Cmt.2: For purposes of dealing with the statute of frauds (2-201), firm offers, confirmations, and modifications, a merchant is deemed to be almost every person in business (even a university). Mooney thinks the merchant standard should be held to someone who answers his mail.

iv. For purposes of 2-314 (implied warranty of merchantability) or cases of merchant good-faith (2-103), they are talking about supermerchants.

b. Merchants (lower level): When the code says merchants or between merchants, this is what they mean.

c. Merchant who deals in goods of this kind is a supermerchant (higher level). d. Courts are widely split on whether farmers are merchants under the UCC.

THE SCOPE OF ARTICLE II

1. UCC 2-102 states the general rule that Article Two applies to “transactions of goods.” a. This applies to all transactions and goods, not just those by merchants. b. Only Super-merchants make merchantability warranties, only they can transfer

an entrusters title in an ordinary course of business, but a code GENERALLY applies to everyone (Joe Schmo sells Jack Black his golf club)

2. 2-105(1): Defines “goods” as all things…movable at the time of identification to the K other than money, investment securities, and things in actions.

3. Anthony Pools v. Sheehan 1983: P built a pool for D, which D claims had a defective diving board. The K between the parties had been a hybrid transaction, meaning part goods and part services.

a. Predominant purpose test: Whether the predominant factor is a transaction of a sale of goods with labor incidentally involved or vice versa.

b. Gravamen test: Whether the reason for the breach is directly related to the fault of the service or the fault of the good.

c. Policy considerations: If the test results in classifying the transaction as a K for services there would be no UCC based, implied warranties on the diving board and this would be contrary to the legislative policy. §2-316 (1) declares a seller of consumer goods may not contractually disclaim implied warranties.

i. Holding: K in goods, implied warranty applies. 2-316: Two functions: 1) This is a K in goods, and the implied warranty applies, 2) knocks down disclaimers on implied warranties.

CONTRACT FORMATION UNDER THE CODE

1. K formation is generally simpler than under common law. 2. UCC 2-204(1): A K for the sale of goods may be made in any manner sufficient to show

agreement, including conduct by both parties which recognizes the existence of such a K. 3. The Code constitutes a single, broad inquiry (as opposed to the offer/acceptance):

Whether the parties have, in a reasonable manner, demonstrated agreement. o An offer may be accepted “in any many and by any medium reasonable in the

circumstances unless the offer unambiguously states otherwise. UCC 2-206(1)(a).

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o A “unilateral” K may be accepted by a mere promise to perform the requested act.

o Under certain circumstances an option K is enforceable without separate consideration. UCC 2-205.

o 2-204 still requires an agreement of a meeting of the minds between the negotiating parties.

4. Mirror Image Rule: Unjust results: o Sometimes permits a party to renege entirely on an agreement, on the ground that

the K documents did not match exactly o “Last shot doctrine” gave the party sending the last communication sole control

over the K terms (receiving it would infer acceptance). This permitted sellers to disclaim all warranties with accompanying invoices.

5. UCC 2-207: Eliminates the mirror-image rule. (KNOW 2-207 – TESTED HEAVILY) 6. Three routes to K formation under UCC 2-207:

a. A definite and seasonable expression of acceptance. b. Written confirmation sent within a reasonable time. c. Conduct by both parties which recognizes the existence of a K is sufficient to

establish a K for sale although the writings of the parties do not otherwise establish a K.

7. Conditional Nature of the assent must be “directly and distinctly stated or expressed rather than implied or left to inference.”

a. Does UCC 2-207 apply to “different” as well as “additional terms? Courts and commentators disagree.

8. Diamond Fruit Growers, Inc. v. Krack Corporation 1986: KC manufactured cooling units that contained steel tubing. Bought its tubing from DFG for 10 years. KC would send a purchase order, and DFG would send back an acknowledgement that included a disclaimer for all liability. P sued KC for a leaking cooling unit. KC brought 3rd party suit against DFG.

a. Held: Because KC’s conduct did not indicate unequivocally that KC intended to assent to DFG’s terms, their conduct did not amount to the assent contemplated by 2-207.

b. Reasoning: Public policy of the Oregon’s adoption dictates that the last-shot rule is to be abolished. The section is to be interpreted so as to give neither party to a K an advantage simply because it happened to send the first, or in this case, the last form. UCC 2-207 was designed to abolish that rule, and to allow D2’s argument to prevail, though it is compelling, would go against public policy.

STATUTE OF FRAUDS

1. UCC 2-201: A K for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a K for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.

2. UCC drafters concluded the benefits requiring a writing would outweigh the detriments. a. Contributes to the business habit of requiring a writing. b. Prevents fraud by deliberate overreaching. c. Prevents innocent mistakes.

3. All the UCC requires for enforcement is that a writing provide “a basis for believing that the offered oral evidence rests on a real transaction.”

4. UCC 2-201 dispenses entirely with the writing requirement in four types of situations:

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a. Between merchants, if a confirmation is received within a reasonable time and is sufficient against the sender, it is also sufficient against the party receiving it, unless that party objects within 10 days.

b. When a seller has mad a substantially beginning in the manufacture of “specially manufactured” goods, or has committed itself to buy goods from a 3rd party, it may enforce an oral K for them if it cannot resell them in an ordinary course of business.

c. If a party judicially admits the existence of the alleged K (pleading, pre-trial discovery, or in live testimony), she may be held to it. UCC 2-201(3)(b).

d. To the extent that the seller has received and accepted payment, or the buyer has received and accepted the goods, the Statute is no bar. UCC 2-201(3)(c).

i. Generally, however, partial payment of acceptance does not remove the entire K from the Statute, only the portion paid for or accepted.

5. STATUTE OF FRAUDS REQUIREMENTS: a. Must evidence an existing K. b. Must be signed (1-201(39)) – any name, mark, or symbol adopted with the

intention to authentic a document. c. Writing must specify a quantity (though not necessarily a price) – this is because

a court can always find a price out of the market price. 6. Comment 1 – indicates which was the court is to tilt. 7. Sub. (2)- Farmer case….a writing good against the person who sends it is good against

the person receiving it if they don’t object. 8. Distribu-Dor, Inc. v. Karadanis, 1970: Sale of certain mirrors and tub and shower

enclosures for Tahoe Inn. Tub enclosures not specially manufactured, but mirrors and shower enclosures are spec. manufactured..

a. Held: An express K existed for the sale of the mirrors, recovery for breach of which, under UCC 2-201 3(a), is not barred by the statute of frauds.

b. Reasoning: This was a K for specially manufactured goods, not suitable for resale in the ordinary courts of the seller’s business, and the seller had already started in the manufacture of the attempt to procure the goods.

c. Tub enclosures: Court found these enclosures did not fall under the specially manufactured exception – but once a part of a K is taken out of the statute by 3(a), then the whole K will be taken out.

i. 3(c) contemplates that only the goods which have been accepted, or for which payment has been made.

ii. But, 2-201 3(a) has different language – if the goods have BEGUN to be manufactured, the statute of frauds defense is lost. Therefore, 3(a) is an all or nothing deal.

9. In all of these cases, there are two distinct defenses: a. I never entered into a K – never considered myself bound, etc. b. Even if we did enter into the K, there was no objective meeting of the

minds…the K is unenforceable because there is no signed writing. THE PAROL EVIDENCE RULE

1. UCC 2-202: A writing intended by the parties as a final expression of all or part of their agreement may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement; however, such a writing may be “explained or supplemented”

a. by the course of dealing, usage of trade, or performance,

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b. where it is only a partial integration (i.e. not intended as a “complete and exclusive” statement of the parties agreement), by evidence of consistent additional terms.

2. By and large, the UCC analysis is virtually identical to the common law analysis: a. Is the writing integrated? b. Is it integrated in whole or in part? c. If its not, the rule doesn’t apply. d. If it integrated completely (enforceable understandable merger clause, for

example), then Subsection A says it can still be explained or supplemented (by course of dealing or usage of trade or course of performance). In addition, under 2-203 (supplementary principles of law and equity), the 2-214 evidence can come in (evidence of fraud, duress, mistake, etc).

e. If it is a partial integration – parties intended this is as a final, if not complete statement – then consistent additional terms can be introduced, Subsection B.

3. Snyder v. Herbert Greenbaum & Associates: Contract for carpet and installation. 3 issues:

a. Whether D was entitled to rescind the K b/c P has misrepresented a material fact, which D relied on in forming the K. (held – no – estimate was not a fact, but an opinion).

b. Whether court should have allowed into evidence certain documents as proof of a prior oral agreement that all K’s between the parties could be cancelled unilaterally prior to performance. (held – no – this clause would have been written into the K, K was a complete integration). Mooney thinks this is a shaky interpretation.

c. Whether damages should be 2-708(2) – lost profits – or 2-708(1) – K/market differential formula. (2-708(2)) is appropriate b/c P may be a lost volume seller, and part of the K is for services, so he may not otherwise recover for those services). Mooney likes this assessment.

4. Additional class notes: a. 2-107: Helps draw the line between goods and real estate.

i. The code only applies to goods. Well, what about minerals in a mind, or standing timber? Are those goods?

ii. Certain kinds of things are goods if they seller severs something and turns it over. If they buyer has to sever something, it is reality (i.e. if the seller chops down the tress, it’s a good, if the seller does it, it’s realty).

b. 2-205: In some contexts, it reverses the rule of Dickensen v. Dodds: An offer by a merchant in a signed writing that says it will remain open for a period of time, does remain open even without separate consideration. (Firm offers)

c. 2-207: Additional terms in offer and acceptance. d. 2-209(1): A modification does not need consideration to be binding. These

modifications need to be made in good faith to be enforceable. 1-103: Duress argument against it.

i. Oral modifications are ok, unless it falls under the statute of frauds, or is not made in good faith.

ii. A modification, if it fails for either of these two things, a modification can operate as a waiver (i.e. agreeing to a modification can be considered a waiver of a written no oral modification clause).

e. 2-210: (1) is most important part – a party may DELEGATE its duty unless the other party has a substantial interest in performance by that party itself. (Virtually identically to the Restatement section on delegation). (2) A party may assign a right unless doing so would materially change the duty of the other

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party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of maintaining a return performance.

GENERAL OBLIGATIONS AND THE CONCEPT OF TITLE

1. “Gap Filler” Provisions: Express agreements often include common omissions such as K duration, payment, delivery date, and price.

a. UCC 2-204(3): “Even though one or more items are left open a K for sale does not fail for indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for giving an appropriate remedy.

b. 2-305: When parties fail to agree of price, 2-305 provides one. i. How do we know there is a K when the price term is missing?

ii. Intent of the parties. (1) Parties if they so intent can conclude a K for sale even though the price is not settled.

iii. (3): When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the K as cancelled or himself fix a reasonable price.

c. UCC 2-306(1): No quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

i. An outputs seller may not tender an unreasonably disproportionate quantity (outputs contracts), and a requirements buyer may not demand an unreasonably disproportionate quantity (requirements contracts).

ii. Reasoning: No great hardship on the seller to give her whole output to the buyer. This protects the buyer in an output K from having huge amounts dumped on him.

d. UCC 2-306(2): Best efforts requirements for exclusivity requirements. e. 2-311 states that, unless otherwise agreed, the buyer has the right to specify the

assortment of goods. f. 3-308 (a): Unless otherwise agreed the place for delivery of the goods is the

seller’s place of business or if he has none, his residence. g. 2-309: Termination of a K by one party requires that reasonable notification be

received by the other party. Hamilton v. Delta h. 2-307-2-310: Requires parties to comply with ordinary, reasonable commercial

practices. i. 310(a): Buyer pays where buyer receives shipment.

1. Need to understand difference between delivery and receipt. A party receives goods when the party actually touches them (they arrive). A delivery depends on the term of the K, usually when the seller gives the goods to a carrier.

i. When a party asserts a “gap filler” claim, other party may raise defense of trade usage, course of dealing, or course of performance.

j. 2-311: K does not fail for definiteness when a party can specify certain particulars for performance (argument used in Fairmount Glass).

2. Hamilton Tailoring Co. v. Delta Airlines, Inc. 1974: P contracted with D to make all of their uniforms (requirements K – i.e. Eastern v. Gulf). D changed their uniforms, and gave P a year notice that they would not longer buy from them.

a. Court held that the notification was not reasonable under 2-309(3). There was little, if any chance, that P could obtain a substitute agreement in that time, plus D kept ordering shorter uniforms and canceling orders.

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b. Trade usage can be introduced under 2-309, cmt. 1 to show agreement for time. P used trade usage here to show that in the uniform industry, it is customary for the customer to make a settlement wit the manufacturer on a reasonable basis for the leftover inventory at hand.

3. Feld v. Henry 1975: P contracted with D to sell bread crumbs. Provision of right to cancel with 6 month notice. It became unprofitable for D, so he said he’d continue if P would give 1 cent more a pound. P refused, D dismantled machine.

a. Issue: Whether the outputs K carried an implication that the seller has to continue its business throughout the term of the K, or may it cease production.

b. Holding: Under 2-306, an outputs seller has a good faith obligation to continue to have output, but that’s all.

c. Who is going to win on remand? Probably the P buyer, because (1) the K did contain a 6 month termination provision, therefore the seller is not locked in forever, (2) the seller’s failed effort to extract a price increase.

4. Output or requirements contract: Feld v. Henry S. Levy & Sons a. Seller has good faith obligation b. Buyer did not give up right to buy elsewhere. c. 2-306(1) d. The party the statutory language is seeking to protect is the buyer. The seller has

the good faith obligation to continue (producing bread crumbs) in this case. Buyer already has obligation under K to buy those bread crumbs.

5. Exclusive dealing K: Wood v. Lucy Lady Duff Gordon a. Seller gives up right to sell elsewhere. b. Buyer must use best efforts (in this case, to market Lucy’s fashions. c. 2-306(2). d. Comparable to requirements K - statute attempts to protect seller. Places on

buyer an obligation to operate in good faith. 6. Requirements K: Eastern v. Gulf, Hamilton v. Delta

a. Seller did not give up right to sell elsewhere b. Buyer must purchase in good faith

CODE WARRANTY

1. Code Warranty (UCC 2-312-2-318) litigation arises typically in two contexts: a. Commercial - where the loss often is purely economic, b. Consumer – where the loss also commonly includes personal injury from a

defective or otherwise substandard product. 2. To prevail in an action for breach of warranty, a buyer must:

a. Establish that the seller warranted the goods under 2-313, 2-314, or 2-315 b. Prove that the goods delivered did not conform to the warranty, and that, as a

result, it suffered damage. 3. A seller will respond by invoking some combo of:

a. 2-316 (Authorizing certain warranty disclaimers), b. 2-719 (permitting certain remedy limitations), c. 2-318 (requiring a measure of “horizontal” privity, d. 2-607(3) (requiring that the buyer give reasonable notice of the breach, and 2-

735 (the Art. 2 statute of limitations). 4. Express v. Implied warranties:

a. Express (UCC 2-313), created by: i. Affirmation or promise,

ii. Description, iii. Providing a sample or model.

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b. Implied: i. Merchantability (UCC 2-314)

1. (1) applied into every sale of goods by a “merchant with respect to goods of that kind.”

ii. Fitness for a particular purpose (UCC 2-315) 1. Arises when a seller had reason to know of a buyer’s particular

purpose for the goods AND hat the buyer is relying on the seller’s skill or judgment to select the goods.

2. One important rationale for imposing implied warranties on certain sellers is the likelihood that parties themselves, had they considered such terms, would have included them in their agreement.

5. Keith v. Buchanan 1985: P purchased boat from D, after seeing brochures claming it was seaworthy. P had own friends look at it, who pronounced it seaworthy as well. Turned out it wasn’t seaworthy. Held:

a. The representations regarding seaworthiness in the brochure were affirmations of fact relating to the quality or condition of the vessel. This created an express warranty.

b. The representations regarding seaworthiness were part of the basis of this bargain (old rule was that buyer had to rely on seller’s warranties).

c. There was no implied warranty of fitness for a particular purpose because P did not rely on the skill and judgment of D in selecting a suitable boat, but relied on his friends.

6. Rules: a. Fact/Opinion: Statements made by a seller during the course of negotiation over

a K are presumptively affirmations of fact unless it can be demonstrated that the buyer could only have reasonably considered the statement as a statement of the seller’s opinion.

i. Factors that indicate opinion are: (1) lack of specificity in the statement made, (2) statement made in unequivocal manner, (3) statement which reveals the goods are experimental in nature.

b. Reliance: The buyer’s demonstration of reliance on an express warranty is not a prerequisite for breach of warranty, as long as the express warranty involved became part of the bargain.

i. Reliance is not altogether dead – some states interpret the UCC to follow the Uniform Sales Act which required the buyer to rely upon the seller’s interpretation.

7. Express warranties 2-313, five issues: a. Whether seller has actually made a warranty, “puffing” is a defense. b. Reliance (see above) c. Privity (2-318) d. 2-316(1): Express warranties cannot be disclaimed.

i. Cmt. 1: The disclaimer drops out when the disclaimer is inconsistent with the express warranty.

ii. Autzen v. John Taylor Lumber Sales (note case): Buyer is not completely barred from recovering if express warranty happens after the K, it is just extremely difficult.

e. Watch for merger clause – seller may make an oral express warranty, but exclude it through written merger clause in K.

8. Warranty v. “Puffing” a. Whether the representations compared goods to other goods b. The specificity of the representations

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c. Whether they related to the goods’ quality d. Whether they were “hedged” e. Whether the goods were experimental f. The buyer’s actual or imputed knowledge of the goods’ condition g. The nature of the claimed defect h. Whether the statement was written or oral.

9. Barton v. Tra-Mo, Inc., 1984: P purchased tanks from D after seeing models. 2-313(1)(c) states that an express warranty is created when a sample or model is made as part of the basis of the bargain, leading the purchaser to believe that the entire order will conform. D tried to argue that the items were not really models, but the court thought they were retarded. P wins for breach of express warranty by model.

10. Sample v. Model a. Sample: Actually drawn from the bulk of the goods which is the subject matter

for the sale. b. Model: Offered for inspection when the subject matter is not at hand and which

has not been drawn from the bulk of goods. 11. Blockhead, Inc. v. Plastic Forming Company, Inc. 1975: P buyer was experienced in

plastics and the wig case industry. P rejected improvements and approved models and designs.

a. Warranty of Fitness: No 2-315 warranty in this case. An implied warranty of fitness for a particular purpose did not occur because the warranty depends upon the relative skill, knowledge, and experience of the two parties. Only happens when buyer goes to seller asking them to select everything.

b. Warranty of Merchantability: No breach of warranty of merchantability because it was effectively disclaimed. 2-316(3)(b) if a buyer examines the goods or has an opportunity to and fails, there is no implied warranty in case of any defects coming up after inspection.

c. Subsidiary issue: Whether or not the D qualifies as a supermerchant for purposes of 2-314?. D argues that he was not because he had never made wiglet cases before, but the court holds that he is an expert in plastics.

12. Valley Iron & Steel Co v. Thorin: D asked P to make iron collars. P said they could, and indicated they would have to be made out of a strong material in case they hit rock. D bought a whole bunch, and 80% of them broke. D declined to pay. P sued for restitution (value of benefit of goods provided), D’s defenses were breach of implied warranties of merchantability and fitness.

a. Warranty of Merchantability: P breached, because he was a merchant (merchant of products of similar metals, even if they have never made the collars) – for determining who is a supermerchant, need a broad definition of the goods.

b. Warranty of Fitness: P breached. When you have specially manufactured goods, the ordinary purpose of such goods may be equivalent to their particular purpose for purposes of warranty. Crucial judgment turned on seller saying, “well, these might hit rock, so they need to be made of strong material.” Buyer made intended purpose known, material was left to the discretion of the seller.

c. Interesting 3rd issue: Trial court found the buyer was at fault somehow. Appellate court gently points out that fault is irrelevant in most warranty litigation.

13. Delano Grower’s Cooperative Winery v. Supreme Court Wine Co., Inc. Rotten sweet wine case.

a. Was a breach of merchantability warranty here (8000 cases of sweet wine were unmarketable).

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b. 2-208 – interesting statutory argument: Even if there had been a trade usage that buyers of this wine should add sulfur, these parties course of dealing would trump this trade usage.

c. 2-607(3) – Introduction into notion that a typically seller’s D is that buyer did not give notice of alleged breach of warranty in required reasonable time.

d. 2-308 – Buyer’s supreme effectively revoked its acceptance of the 8000 cases, so it was no longer responsible for the K price.

14. ISSUES TO FOLLOW ON TEST: a. Is the seller a supermerchant? Does he deal in goods of this kind? 2-104. b. Are the goods merchantable under 2-134(2)? This is never an easy

determination (“fair average quality, pass without objection into trade”). c. Did seller breach warranty of merchantability? d. Is the item being used for its ordinary purposes, or for a particular purpose? Is

item specially manufactured (there, its ordinary purpose is its particular purpose)? Warranty of fitness 2-315.

e. Did seller breach warranty of fitness? f. What defenses are available?

i. Warranty disclaimer 2-316? Was it conspicuous? Remember, can’t disclaim an express warranty under sub. 1.

ii. Remedy limitation 2-719? Will warranty fail of its essential purpose if this is enforced.

iii. Trade usage (2-208)? Can buyer come back with course of dealing response (such as in Delano)?

iv. 2-607(3): Did buyer give effective notice of the alleged breach in required reasonable time?

g. Damages: Formula A: Loss in value (K price) – Cost Avoided SELLER DEFENSES TO WARRANTY LIABILITY

1. Warranty Disclaimer: UCC 2-316 (major defense) a. (1) A seller may not disclaim an express warranty b. (2) A disclaimer of the merchantability warranty must mention merchantability

and be conspicuous (if in writing), a disclaim of the fitness warranty must be conspicuous and in writing.

2. Remedy Limitation: UCC 2-719 (major defense) a. (2) Invalidates any remedy limitation that causes a warranty to fail of its essential

purpose. b. (3) Provides that a limitation of PJ damages in a sale of consumer goods is

“prima facie” unconscionable. 3. Notice Requirement: UCC 2-607(3)

a. Requires a buyer to “notify” a seller within a “reasonable time” of any claimed warranty breach, or be “barred from remedy.” Buyer bears the burden of proof (4).

4. Cate v. Dover 1990: P purchased from Beech Tire Mart 3 lifts manufactured and designed by Dover. They never worked property.

a. D’s defense: Warranty disclaimer. b. Ct’s response: Disclaimer was not conspicuous to a reasonable person under 2-

316(2). c. Rule: The Code appears to recognize that actual knowledge of the disclaimer

would override a question of conspicuousness. 5. Moscatiello v. Pittsburgh Contractors Equipment Co. v. Curbmaster: Paving machine

case. K has disclaimer of implied warranties which was one the front of the K and

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referring to terms and conditions on reverse side. Also has a clause the limited remedies to incidental and consequential damages.

a. Held: Disclaimer of implied warranties was inconspicuous, as well as misleading. 1-201(10) – defines conspicuous.

i. Rule: A term is conspicuous when it is “so written that a reasonable person against whom it is to operate ought to have noticed it…language in the body of a form is conspicuous if it is in large or other contrasting type or color.”

b. Held: Remedy limitation is not enforceable b/c it is unconscionable (2-719(3), 2-302).

i. A clause in a K is considered unconscionable and unenforceable if there is “an absence of meaning choice on the part of one of the parties together with K terms which are unreasonably favorable to the other party. (Skelley Wright – from William’s and Walker Thomas…..most oft repeated description of unconscionability).

6. These cases are a-typical. Generally, warranty disclaimers challenged as inconspicuous will be upheld, and less that 10% conclude on facts before them that K provisions are not enforceable.

7. Review 2-316(3)(a)-(c): Prob,6, pg. 164 – review for test. 8. Cox v. Lewiston Grain Growers, Inc., 1997: The seeds that failed to germinate.

a. Held: Warranty disclaimer is unenforceable. i. The rule states that disclaimers are disfavored in the law and ineffectual

unless specifically negotiated between the buyer and seller. (The “Berg) rule. The Berg rule should apply due to the specific requirements of the sale. No negotiations occurred regarding the disclaimer or exclusionary clause contained in the delivery ticket.

b. Held: The exclusionary clause was unconscionable. i. In determining conscionability the court must consider:

1. The manner in which the K was entered (formation) 2. Whether the parties had a reasonable opportunity to

understand the terms of the K, and 3. Whether important terms were hidden in fine print.

c. Held: Insurance payments could not reduce the damages award against D. i. Rule for Collateral Source: Payments received by the injured party

from a source independent of the tortfeasor will not reduce recoverable damages by the tortfeasor.

9. 9. A progressive minority of courts not that UCC 2-316(2) applies to either exclusion or modification of the merchantability warranty, and so require both warranty disclaimers and remedy limitations to be in writing and conspicuous.

a. A majority of court will enforce an inconspicuous remedy limitation. 10. What attack can a buyer make on a remedy limitation under 719(3)

a. Unconscionability b. This court concluded that the remedy limitation on these facts, even though it is a

commercial case, is unconscionable. (Cox) 11. Issue of limited remedies must often arises in cases of repair or replace.

a. If you’ve taken your car back time and time again to have the steering wheel fixed and it doesn’t work, you have a pretty good argument that the remedy has failed of its essential purpose. Therefore, the remedy should be to replace the car or give you compensation for having to drive a car with a broken steering wheel.

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b. In this case, the court decided that the remedy limitation in the delivery ticket fails of its essential purpose because it deprives buyer of a substantial value of its bargain.

NOTICE

1. UCC 2-607(3) requires that a buyer notify the seller of any alleged warranty “within a reasonable time.”

a. Comment 4 allows a retail consumer somewhat more time to notify, but for a merchant a reasonable time may by very short indeed (some courts say 10 days for perishable products).

b. Notice given immediately upon discovery of breach ordinarily satisfies the requirement.

c. Manner and content can be important – oral notice is ordinarily sufficient, may have to specify “breach.”

d. Occasionally, direct notice from buyer to seller is not required at all: When seller has actual knowledge of the defect of the particular product, or is deemed to have been reasonably notified by the filing of the buyer’s complaint.

2. Warranty and Restatement of Torts: A careful attorney in product liability cases will join a warranty claim with claims for negligence and SL, perhaps to avoid either a statute of limitations defense or the “economic loss” doctrine (many courts bar tort recovery for mere economic loss, as opposed to PJ or property damage).

3. Magnuson-Moss Warranty Act of 1975 requires that every consumer goods seller making a written warranty disclose that warranty fully and conspicuously in simply and readily understood language. It does not, however, compel a seller to make a written warranty. If a seller DOES make one, whether full or limited, it may not disclaim any implied warranty (if it only makes a limited warranty, it may restrict the duration of the implied warranties).

4. 2 kinds of cases when filing the lawsuit satisfies notice: a. When seller has actual knowledge of the problem. b. If it is a consumer sale that has resulted in PI.

5. When considering if buyer gave adequate notice for breach, think about: a. Prejudice test: Would the seller been able to fix the problem if they had found out

earlier, has the car been driven too much to recognize the problem, etc. b. Effective policy argument: Even if we had given notice two weeks earlier, it

wouldn’t have mattered. c. If consumer is actually a merchant (i.e. using a car for business purposes, getting

tax breaks), that person should be held to a higher standard. TITLE

1. When does title pass? a. Only parties interested in this are insurance companies and taxing authorities. b. 2-401(2): Unless otherwise explicitly agreed, title passes at the time of delivery

to the seller. c. 2-308: GAP FILLER – unless otherwise agreed, delivery is at the seller’s place

of business. 2. When does good title pass to a buyer?

a. 2-403: Voidable title (sub. 1), Entrusting (sub. 2) 3. Problems – Pg. 180 Problems 8-11 (KNOW THESE EXAMPLES) 4. Voidable title is created by bad checks – can be transferred to good faith purchaser for

value.

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5. Difference between a good faith purchaser for value (voidable title analysis) and an ordinary course of business (entrusting analysis):

a. A good faith purchaser for value can buy from anybody. Two requirements: You be in good faith (1-201(9)), and you have to give value (1-201(44))

b. If you are in an entrusting analysis, you have to buy from a merchant who deals in goods of this kind. A buyer in the ordinary course of business is only buying from a supermerchant.

c. GOOD TITLE CANNOT EVER BE TAKEN FROM A THEFT. d. UCC allows good faith purchasers to obtain title more than the common law did.

This is because 1) The seller or entruster is in a better position to judge the merit of the intermediary than the purchaser, and 2) Stream of commerce. We don’t want buyers from supermerchants worrying all the time about whether they are going to get good title.

6. Heinrich v. Titus-Will Sales Inc. 1994: P contracted with Wilson, an unlicensed broker (held himself out as being a licensed broker) to sell a truck. Wilson negotiated with D for the purchase of the truck. Wilson paid D with a bad check. They accepted it and gave him a truck. Check bounced, demanded truck back. Wilson told P it needed repairs, took the truck back to D. P asked D to give it back and D refused.

a. D’s arguments/Ct response: 1. Wilson is not a merchant b/c no inventory, nor a license. [not necessary

under UCC to have either). 2. P was not a buyer. [P was a buyer b/c he acted in good faith. Wilson’s

illegality does not taint status]. 3. Truck was entrusted to Wilson after P had already paid Wilson (timing

issue). [Req. entruster to retain the burden of the risk, even when the entrustment occurs after a 3rd party purchase for value, supports underlying policies]

b. Policies: 1. Protects the buyer who relies on the merchant’s apparent legal ability

to sell goods in the merchant’s possession. 2. D was in a better position than P to protect itself against another

dealer/broker who may fail to pay for the goods. 3. Flow of commerce – a timing requirement would cause some delay.

c. Voidable Title - For P to prevail under this section, P must establish that 1. D delivered the truck to Wilson under “a transaction of purpose.” 2. Wilson paid D for the truck with a bad check. 3. Heinrich was a good faith purchaser for value. [req: good faith 1-

201(9), give value (any form of consideration) 1-201(44)] d. Entrusting theory: Court says you need three elements:

1. Entrusting 2-403(3) 2. Intermediary needs to be a merchant who deals in goods of this kind. 3. Buyer needs to be a buyer in the ordinary course of business.

e. This will be on the exam – always do both voidable doctrine and entrusting theory analysis.

RISK OF LOSS

1. At CL, and under the Uniform Sales Act, risk of loss or destruction typically rested o the party holding “title” to the goods when casualty occurred.

2. Under the UCC, risk of loss rules are both more flexible and more functional.

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a. In general, the UCC places risk of loss on the party most likely to take precautions against loss (usually the one with possession or control of the goods or the one most likely to insure.

b. 2-509 (Risk of loss absent a breach), 2-510 (Effect of breach on risk of loss) 3. Insurable Interest Under the Code

a. Under UCC 2-501, buyer obtains insurable interest in goods upon their “indentification” to the contract. At that point, they buyer may insure the goods (even if its long before delivery)

4. Types of Delivery Terms (2-309, 2-320) a. Shipment contract – free on board (FOB), place of shipment

i. Under a shipment K, the buyer pays the shipment cost and the risk passess to the buyer when the goods are duly delivered to the carrier

b. Destination contract – FOB place of destination i. The seller pays the shipment cost, and the risk does not pass to the buyer

until the goods are “duly so tendered at the destination as to enable the buyer to take delivery.”

c. C.I.F. and C. & F Terms: i. CIF: price includes in a lump sum the cost of goods and the insurance

and freight to the named destination. C&F: Price inc. cost and freight to the named desination.

d. Examples. i. FOB seller’s plant: Risk passes when goods go into carrier’s hands.

(Shipment K). ii. FOB buyer’s plant: Risk passes when goods are duly so tendered at the

destination as to enable buyer to make a delivery. (Destination K). iii. FAS USS Iowa, Portland, OR: Shipment K. [319(2)] – goods delivered

alongside the vessel. iv. FAS RR car at seller’s plant: Inside the RR car.??? v. CIF Buyer’s plant: Shipment K, don’t be misled by the term “buyer.”

[2-320, cmt 1) vi. Ship to buyer’s plant: Shipment K [2-503, cmt. 5 – ambiguous terms].

vii. No delivery term: Not explicitly a destination K, code preference for shipment K when there are ambiguous terms.

5. Windows Inc., v. Jordan Panel Systems Corp. 1999: Contract for specially made window, to be “shipped to NYC.”

a. Appellate court held the buyer had assumed the risk of the loss because of the ambiguous terms in the K.

i. The K must expressly specify a particular form of shipment. There is a strong preference for shipment K’s, so if you want it to be another type of contract, you have to have specific terms (such as FOB seller’s place), or some other terms that say the seller will assume the risk until the goods are in the seller’s hands.

ii. Just specifying the address of where to be shipped does not do this. 6. Cook Specialty Company v. Schrlock 1991: Press brake fell out of truck during

shipping. Insurance purchased by seller was not adequate to cover cost. a. Goods are being transmitted to the buyer by common carrier, so it is a 2-

509(1)(a). i. This is FOB place of shipment, so this is a shipment K.

ii. Where does it seems as though the risk of loss is going to be? o Buyer (once item is in carrier’s hands).

b. Buyer’s 2nd argument about why it shouldn’t bear the risk:

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i. 2-504: In a shipment K where the risk of transit will be on the buyer, the seller has certain obligations towards the goods…particularly obligations having to do with the K it makes with the carrier.

ii. Because the seller breached its 504 obligation, risk remains on the seller (2-510).

c. Issue boils down to whether or not the seller made a proper K under 2-504? i. Court found that the seller made an adequate K.

ii. Risk, therefore, was on the buyer when the item was damaged. d. 2-504, cmt. 3 states that it is improper for the seller in a shipment K to agree to

an inadequate insurance. Why did the court find the insurance to be proper? i. It is NOT improper for the seller to fail to investigate the extent of the

insurance. ii. Here, the seller did not agree to a $5000 policy, it simply failed to

investigate the insurance. 7. Bill of lading – receipt (“document of title” -warehouse receipt is also a document of

title) indicating what the goods are, the consignor of the goods, where they are supposed to be delivered, etc.

8. Jason’s Foods, Inc. v. Peter Eckrich & Sons, Inc 1985: Fire in warehouse that burned all of D’s ribs. P transferred the ribs on 1/13, bailee clerk mailed receipt to D on 1/17 or 1/18. D received receipt on 1/24. Ribs burned on 1/17. Court held risk of loss had not passed b/c acknowledge of the bailee of the buyer’s right of possession occurs when the acknowledgement has been given to the buyer (509(2)(b)).

a. Court reasons by saying this was the intent of the drafters of the UCC, because otherwise the code does not explicitly say that the acknowledge has to be to the buyer.

9. Schock v. Ronderos: Mobile homes case. Risk had passed to buyer b/c they had prepped the home for removal.

a. 2-509(3) case: Appellate court affirmed that the risk was on the buyer, because the seller was not a merchant. Risk passed to buyer on TENDER of delivery.

b. Tender of delivery occurred on payment for and acceptance of the mobile home. Sellers had disconnected the electricity and prepared the mobile home to be moved. Their failure to remove the sofa and piano did not result in an uncompleted tender of delivery.

c. Side note: Seller cannot be a bailee. 10. 2-510: Effect of breach on risk of loss

a. 2-510 shifts risk of loss to breaching party, who but-for the breach would not have had the risk of loss.

b. 2-510 (1): If tender or delivery of goods so fails to conform to the K as to give a right of rejection, the risk of their loss remains on the seller until cure or acceptance.

c. SIDE NOTE: Wild card of negligence here and in a lot of cases. Even if a party bears the risk of loss through 2-309 or 2-510, if that party can show that the other party’s negligence caused the damage, then negligence will trump the risk of loss.

11. Wilke v. Cummins Diesel Engines, 1969: Government generator case. Delivered it way before due, did not run specified field tests. Did not constitute and effective delivery, risk of loss remained on seller.

a. The delivery of the generator to the job sit, while identifying the goods to the K, did not amount to a delivery of the goods or the performance of obligations conforming to the K.

b. UCC 2-206(2) provides that “goods or conduct including any part of a performance are “conforming” or conform to a K when they are in accordance

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with the obligation under the K.” Non-conformity cannot be viewed as a question of the quantity and quality of goods along, but of the performance of the totality of the seller’s contractual undertaking.

c. Mooney thinks this should be a 2-509 (3) case: Seller was a merchant and hadn’t officially delivered the goods yet (“this is my baby”) T here is also possible negligence overlay for both parties (trumps UCC Risk of loss). Also, there is not actual breach b/c under 2-607 the buyer has not given adequate notice of breach.

12. Muliplastics, Inc. v. Arch Industries, Inc 1974: P and D contracted for P to make pellets for D. D refused to release purchase orders. P continued to house the goods from 8/20-9/22. There was a fire, and the goods were destroyed.

a. Under 2-510(3): Risk passes to the breaching buyer for a reasonable time. b. There was a breach, and 8/20-9/22 was a reasonable time. c. 2-709(1): Seller is entitled to recover K price. d. Subrogation also an issue here.

i. HYPO: B owes S the price of the destroyed goods under 2-709 (Multiplastics). 2-709 says one instance in which the buyer has to pay the price is when the goods have been lost or destroyed after risk of loss has passed (reasonable time).

1. What if seller is insured, and the insurance company pays the buyer’s obligation to the seller. Can the insurance company use subrogation to step into seller’s shoes and have a COA against B?

2. No, in cannot. 2-510, cmt. 3 says that the rules of (2), (3), that shift risk of loss only to the extent of insurance deficiency (of the other party), are not intended to be disturbed by subrogation principles

PERFORMANCE AND BREACH UPON DELIVERY 2-507(1): Delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. 2-511(1): Tender of payment is, unless otherwise agreed, a condition to the seller’s duty to tender and complete any delivery.

• Comment 2 says explicitly these are concurrent conditions • Practical effect: Neither party may sue for breach without properly tendering his own

performance. • Check bounces = no payment 2-511(3)

1. Buyer’s Right to Prior Acceptance: Inspection and Rejection

a. A buyer may inspect goods to make sure they conform to the K 2-513(1). i. In general, a buyer of goods has a right to inspect the goods prior to

paying for them. ii. A buyer may, however, agree explicitly or by including in their K a

method of payment inconsistent with prior inspection, contract away their right. 2-513(3).

b. If inspection reveals a non-conformity to the K, buyer may reject the goods. 2-601 He may also refuse to pay the K price and invoke a variety of Art. 2 remedies (2-711)

c. By accepting the goods, the buyer loses his rejection right, obligates itself to pay the K price and assumes the burden of proving a breach (2-607).

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d. In some cases, acceptance can be revoked – but the standard is stricter than for initial rejection. 2-608.

e. Payment required BEFORE inspection does not constitute an acceptance of goods or impair the buyer’s right to inspect or any of his remedies. 2-512(2).

i. Even if buyer relinquishes pre-payment inspection right, the buyer can still reject the goods after payment (2-601) (question is just who will be plaintiff in the lawsuit).

ii. OUTLINE PRE-PAYMENT EXPECTION PROBLEMS – PP. 228. 2. Buyer’s Right to Reject

a. 2-601: If the goods or the tender of delivery fail in any respect to conform to the K, the buyer may reject.

i. This differs from CL, there is no substantial performance doctrine (Jacob & Kent v. Young). This is a nearly perfect performance.

ii. 2-103: There is a good faith obligation to perform iii. 2-508: Seller’s right to cure. iv. 2-612: A buyer may not reject a shipment under an installment K unless

the non-conformity “substantially impairs” its value. v. 2-504: Obligation of seller in the shipment K to make an adequate K to

the carrier. Buyer may reject the goods ONLY if material loss or delay ensues – the fact that the seller did not insure does not allow seller to reject the goods without material loss.

b. Limitations: i. Good-faith obligation: UCC 1-201(19), 1-203 (cmt. 19), 2-103.

ii. Subject to the provisions of 2-612, which provides that a buyer may not reject a shipment under an installment K unless the non-conformity “substantially impairs” its value.

iii. A buyer may not reject goods if (1) it already accepted them, or (2) the seller has a right to cure non-conformity. 2-607, 2-508.

3. International Commodities Export Corp. v. North Pacific Lumber Co. 1991: Moldy beans case. Buyer attempted to reject goods 9 months after receipt.

a. Buyer could not reject the goods because they had accepted them. They accepted them in three ways:

i. After an opportunity to accept signified acceptance of the goods. Said they would retain them despite non-conformity and would try to sell them.

ii. Failed to make an effective rejection of the goods (2-606(2)). iii. Buyer exercised dominion over them. It tried and ultimately did resell

these beans b. What is the most important legal effect of the buyer’s accepting the goods?

i. Once the buyer accepts the goods, under 2-607, it bears the burden of establishing that the tender was defective at the time risk passed.

ii. If the seller DID breach, the aggrieved buyer has to keep the goods, but can sue for breach – Value of good beans minus the value of moldy beans

4. Bowen v. Foust 1996: Heating and cooling unit case. P pled that after paying D the agreed sum, they discovered that the equipment D installed was not the equipment specified in the bid and did not work.

a. Buyer revoked its acceptance under 2-608. b. Court accepted that P acted quickly upon discovery of non-conformity. c. Buyer has right to throw goods back on seller by revocation of acceptance and

recover money (2-711).

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d. Seller claims they wanted to cure under 2-508, but ct. held that seller never offered to cure.

e. Side note: Argument in response from the seller saying “it’s too late” to revoke: Doesn’t matter…it would not have changed anything if we had started this suit from day 1: No prejudice on the seller (goods would not have decomposed or been overused).

5. Zabriskie Chervrolet, Inc. v. Smith 1968: Lemon car case. a. Right to cure is not limitless. 2-508 Court held that attempted cure in this case

was ineffective. Seller will not be allowed to force the deal onto the buyer by forcing the new transmission. Buyer’s confidence is shattered and a reasonable buyer would not want to proceed with the transaction.

6. Right to cure 2-508 analysis: Two issues: a. Does seller have a right to cure? b. If so, what constitutes an effective cure?

ACCEPTANCE AND RECOVATION OF ACCEPTANCE

1. Buyer’s Acceptance of the Goods, UCC 2-606(1) provides that acceptance occurs when:

a. After a reasonable time to inspect, the buyer signifies acceptance to the seller, b. The buyer fails to make an effective rejection, or c. The buyer does any act inconsistent with the seller’s ownership.

i. Buyer can still sue for damages under 2-714, even if they are stuck with the goods.

ii. Auction – moving from auction yard to own house constitutes acceptance. Miron v. Yonkers Raceway.

2. Buyer’s Revocation of Acceptance a. Upon acceptance, a buyer loses its right to reject. UCC 2-607 b. However, it may still revoke its acceptance, and following an effective

revocation it has approximately the same rights and duties as if it had rejected. 2-608

c. 2-608 Requires that: i. The non-conformity “substantially impairs” the value of the goods and

that ii. The buyer accepted the goods either (a) without discovering the defect

because discovery was difficult or (b) assuming reasonably, but incorrectly, that the seller would cure the defect.

d. Revocation must occur within a reasonable time, as described in sub. 2. 3. 2-605: Under some circumstances, a rejecting buyer has an obligation to specify what it

thinks is wrong with the goods 4. Kesner v. Lancaster: K to sell a tractor. Seller assured buyer that the equipment was in

good shape. Seller gave cursory inspection, seemed fine. Turned out the tractor was defective. The tractor needed a lot of repairs. P had successful revoked because the defect substantially impaired the value of the goods under 608.

a. No perfect tender rule with revocation, you have to find substantial impairment. b. Buyer has to show substantial impairment, has to accept goods without discovery

of the defect, and revocation has to be within a reasonable time (608 allows more time than 601).

5. 2-610: Anticipatory repudiation. a. If your client has reasonable insecurity about the performance, it can demand a

reasonable assurance of adequate performance by the other side. If the other side does not do it, then without much risk you can declare anticipatory repudiation.

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b. Hornell Brewing Co. v. Spry: Canadian beverage distribution case: 1. A K did exist (even without a distributorship agreement). 2-206: K can be

made in any manner to show agreement, 2-207: K can be shown with conduct.

2. Three issues under 2-609: a. Did Hornell have reasonable ground for insecurity? b. Did Hornell make a 2-609 demand for adequate assurance or did it

just call up and say what are you going to do (this is often the most litigated point).

c. Were the assurances given, adequate under the circumstances? 3. HELD: Adequate assurances were not forthcoming, so D had created an

anticipatory repudiation under 610, so P was free to leave the K. REMEDIES Code Remedies – 2 goals:

1. Aggrieved party may be put in as good a position as if the other party had fully performed (no consequential or special or penal damages except as specifically provided). 1-106(1)

2. Encourage a non-breaching party to minimize its damages by obtaining substitute performance. Thus, the Code places few restrictions on an aggrieved sell attempting to resell (706) and encourages an aggrieved buyer to mitigate losses through “cover” (712).

a. Code permits seller to recover the difference between the resale price and the K price together with any incidental damages…but less expenses saved in consequence of the buyer’s breach. 706(1)

b. Seller need not establish a specific market price for the goods. c. Cmt 2: Failure to act property under this section deprives the seller of the

measure of damages here provided and relegates it to that provided in Sec. 2-708. d. If seller cannot recover the entire K price under 2-709 or the price minus a resale

under 2-706, the appropriate damage measure will likely be the “difference between the market price at the time and place for tender and the unpaid K price together with any incidental damages….but less expenses saved in consequence of the buyer’s breach.” 2-708(1).

2-703: Catalogue of seller’s remedies 2-711: Catalogue of buyer’s remedies Issues:

1. When and where to measure the market price 2. What items to inc. in the damage measure? 3. When do we have a lost-volume seller?

SELLER REMEDIES Three remedies for seller:

1. 2-709 Full K price a. Most often involves seller efforts to demonstrate that the goods are not

marketable at any price. b. 2-709 provides that a seller may recover full K price in three instances:

i. When the buyer has accepted (2-606) and retained the goods ii. When conforming goods have been lost or damaged after risk of loss has

passed to buyer (2-509)

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iii. When the seller has tried and failed to resell the goods, or “circumstances reasonably indicate that such efforts will be unavailing.” (i.e. potato case where the market was bad and the seller couldn’t be expected to resale).

c. Question whether buyer has accepted the goods for purposes of 2-709: i. Buyer who makes a “procedurally effective” rejection does not accept.

ii. Buyer making a procedurally ineffective rejection, regardless of substantive merit, does accept the goods under 2-606.

iii. Buyer revoking acceptance (2-608) likely must be correct both procedurally AND substantively.

d. Advise your client (seller) to resale (706) because it is easier to prove difference between K price and resale price + incidental fees then it is to show you reasonably attempted to resale.

2. 2-706 Resale – difference between K price and resale price a. Most sellers will invoke 2-706 b. If non-breaching seller resales the goods in good faith and in a commercially

reasonable manner, and in accordance with fairly minimal statutory obligations, then than aggrieved seller may recover the difference between the K price and the lower resale price + incidental damages, minus damages saved.

i. Incidental expenses (allowable under 2-710) ii. Don’t forget shipping costs

c. (2) If seller makes profit on the resale, he does not have to share with the breaching party.

d. Advise client to act as if its their own money (this will make it a commercially reasonable care).

e. Goods resold has to be the exact same goods you were going to sale to breaching party.

f. If seller is going to resale privately, the only notice it has to give is the intent to resale privately. You don’t have to give notice of particular sale or date. If seller is going to resale publicly (i.e. auction), notice of time and place has to be givern

g. If seller resales unreasonably (for way below market price), can’t get remedies under 2-706, but can get them under 2-708.

3. 2-708 K market penalty (seller is entitled to recover difference between K price and market price at time and place of tender).

a. (2): Lost volume seller i. 2-708(2): If the damages measure of 2-708(1) is inadequate to put the

seller in as good a position as performance would have done, the seller may proceed under sub. 2 and recover “profit (including reasonable overhead),” that it would have made from seller’s full performance, plus incidental damages, and minus payments or proceeds of resale.

ii. Lost P seller: On whose sales volume declined because of the breach. b. (1): Third major remedy (although Mooney thinks this should be used rarely –

seller should resale under 2-706, or if it cannot, recover the K price under 2-709). c. Place of tender: Shipment K: Buyer’s city, Destination K: Seller’s City. d. The statutory formula will not always yield an amount equal to the seller’s actual

loss. 4. Conflict: 2-706(6) says that seller doesn’t have to share windfall from these statutory

formulas. This conflicts with 1-106, where it says if the seller is not damaged at all, damages should be minimized.

1. 2-706(6) arises more in case of resale. It says seller doesn’t have to give money to the buyer, but doesn’t say anything about taking money from the buyer.

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5. 2-704: Permits a reasonable completion of ½ finished goods. Risk: Can lose even more money if you are unable to resale goods after you have finished. You want to notify the buyer of your plans to resale.

6. Nederlandse v. Grande 1979: Concrete manufacturing case with steel strand. D wouldn’t pay for the strand they ordered. Issue: Was P a lost volume seller? YES. Could recover under 2-708(2).

BUYER’S REMEDIES Buyer’s Right to Specific Performance or Replevin 2-716 (2-709 parallel this remedy for the seller)

1. 2-716: Specific performance shall be granted where the goods are unique or in other proper circumstances.

2. Cmt. 1: Without intending to impair the court’s sound discretion in the matter, this article seeks to further a more liberal attitude than some courts have shown in connection with specific performance of K’s of sale.

3. Cmt. 2: Output and requirements K’s involving special markets or sources are now the “typical commercial specific performance situations.”

a. One strong indication of other proper circumstances for awarding specific performance is the buyer’s inability to recover.

b. Eastern v. Gulf (Eastern couldn’t cover because fuel prices had shot up). c. Copylease v. Memorex (claimed it could not reasonably cover by obtaining an

alternative source of toner because other brands of toner are distinctly inferior to the Memorex product – goods were unique or “noncoverable”).

4. Sub. (3): Authorizes a buyer to replevy the K goods in two situations: a. When they have been identified to the K and the cover is unavailable and b. When they have been shipped under reservation and the buyer has tendered full

payment. Buyer’s Right to Cover Price – K Price Damages UCC 2-712 (2-706 parallels this remedy for the seller)

1. 2-712: Authorizes a buyer whose seller has breached to “cover” by “making in good faith and without unreasonable delay any reasonable purchase of goods in substitution for those due from the seller.”

2. Sub (2): If buyer does so, he may recover from the seller the “difference between the cost of cover and the K price together with any incidental or consequential damages…but less expenses saved in consequence of the seller’s breach.”

a. Good Faith: b. 1-201(19): Honesty in fact c. 2-103 (merchants): Req. they observe reasonable commercial standards of fair

dealing in the trade. 3. Cmt. 2: The test of proper cover is whether at the time and place the buyer acted in good

faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective.

a. Buyer must also make a reasonable purchase. Considerations inc. time constraints, market fluctuations, and available supply (was buyer purchasing as if it was with their own money?)

b. Farmers Elevator Company of Elk Point v. Lyle (Doctrine of equitable estoppel to prevent a party to an oral agreement from invoking the statute of frauds).

c. Most courts agree that uncertainty under 2-712 should be resolved against breaching sellers.

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d. Hardest case is when the buyer covers by purchasing somewhat better, somewhat more expensive goods. If no other substitute goods were available, the buyer should still be permitted to use the cover price-K price formula.

e. A non-covering buyer can get damages from other remedies (i.e. a market price-K price damage computation), but they may not recover consequential damages that cover would have prevented.

Buyer’s Market Price-Contract Price Damages 2-713 (2-708(11) – parallels this remedy for the seller).

1. 2-713: Permits buyers who do not cover or seek specific performance to recover “the difference between the market price at the time when the buyer learned of the breach and the K price together with any incidental and consequential damages provided by this article.

a. Computing damages: (1) Determine the property date and place for fixing damages.

b. Date issue: If the seller’s performance is due by a specific date, use that date. If the buyer does not learn until later, use the second date. Most difficult case is if the seller repudiates earlier. The sounder position is to use the date of the breach (the later date).

i. Cargill, Inc. v. Stafford 1977: Wheat case, seller repudiates. Holding: A buyer may urge continued performance for a reasonable time. At the end of a reasonable period he should cover if substitute goods are readily available. If sub. goods are readily available and buyer does not cover within a reasonable time, damages should be based on the price at the end of the reasonable time rather than on the price when performance is due. If a valid reason exists for failure or refusal to cover, damages may be calculated from the time when performance is due.

1. Statute of Frauds exception to confirmation 2. 2-201 Merchant exception (Trial court said this doesn’t apply for

2 reasons: 1) Wasn’t received within a reasonable time, 2) seller objected to its terms within 10 days – weak argument)

3. Trial court decided there was no enforceable K under 1st K. 4. Court decided 2nd K would be enforced. 5. DAMAGES: MOONEY SAID THIS CASE COMES OUT

WRONG. c. Location issue: Sub 2: Market price is to be determined as of the place for

tender or, in the case of rejection after arrival or revocation of acceptance, as of the place of arrival.

i. Cmt 1: Market price should be determined at the market in which the buyer would have obtained cover had it sought relief.

d. Time for measuring relevant market price is when the buyer learns of the breach. 708 is time and place of tender.

e. Of buyer rejects the goods following delivery, then the time and place is the place of delivery.

Recovery for Breach Relating to Accepted Goods 2-714

1. 2-714: A buyer who accepts defective goods, and does not revoke acceptance, may nonetheless sue for breach.

2. Sub. (1): B may recover damages “as determined in any manner which is reasonable. 3. Sub (2): The most common such case, a breach of warranty regarding the goods, the

measure of damages will normally be the “difference at the time and place of acceptance

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between the value of the goods accepted and the value they would have had if they had been as warranted.”

a. “Value of goods as accepted”: i. Actual value to the particular buyer (which is usually $0, so the judgment

rescinds the K), or ii. Their market value sold “as is.”

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Contracts Outline

I. Contract is an agreement between 2 parties to do something the law will enforce

A. Applicable law 1. Common Law

a. Restatement – persuasive rather than mandatory 2. UCC

a. Movable Goods 3. When a K has mixed goals, UCC or Common Law?

a. Predominant purpose: i. Goods UCC ii. Services Common Law

B. Types of Ks

1. Bilateral a. Exchange of mutual promises

2. Unilateral a. The offer requests performance rather than a promise b. Promise to pay upon completion of the requested act c. Once act is complete, K is formed

3. Option K

II. Pre K Liability 1. Detrimental Reliance

a. Acting in justifiable reliance on an offer may be enough to make it binding

b. Absence of Condisderation is not fatal i. Reasonable reliance = consideration

c. Misrepresentation 2. No offer / acceptance, but still remedy

a. If 1 party confers a benefit on another, restitution i. Example: Down payment

III. Offer and Acceptance A. Nature of Assent

1. Assent – manifest intent to be legally bound a. Objective Theory: Bound by the intention corresponding to

the reasonable interpretation / understanding of the words / actions

b. Mental assent is not required for the formation of K c. No manifestation of intent if just downloading (Specht)

2. Knowledge of Offer Necessary

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3. Volitional Acceptance required (Carbolic Smokeball) 4. Some degree of motivation by the offer 5. Agreement or mutual assent is required

a. To avoid obligation, at least 1 party must express intention of not being bound until a writing is executed

6. Obviously ludicrous offer is not an actual offer (Pepsi Harrier Jet) 7. Mirror Image Rule

a. Acceptance must be on offeror’s exact terms i. NOT Last Shot Rule

b. ANY variation would be a counter-offer c. Problems:

i. May be incentive to work the market ii. Once performance begins, may be a dispute over

terms 8. Last Shot Rule

a. Last version of K prevails 9. Mailbox Rule

a. Acceptance begins as soon as letter is sent i. UNLESS offer stipulates that acceptance is not

effective until received b. Revocation effective upon offeree receiving info

B. Power of Acceptance 1. Conferred by the offer 2. Master of offer can dictate what the offer says

a. How or when master wants acceptance 3. Termination of power of acceptance

a. Lapse of the offer i. If expressly limited in original offer ii. Reasonable time depends on the transaction

Nature of price fluctuation, industry standards, relationship between parties, type of thing being offered

iii. Ordinarily an offer made in face to face conversation only stands until the conversation has ended

b. Revocation of offer i. Any time before acceptance

c. Offeror’s death / Incapacity d. Offeree’s rejection

i. Effective when received by the offeror ii. Rejecting counter-offer

4. Must make an effort to reach offeror to let him know of acceptance (in manner set forth in K OR:)

a. Communication

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b. By acting / beginning performance c. EXCEPTION I: Do not have to give explicit acceptance if it

is obvious or reasonable to think that offeror does not expect explicit acceptance

d. EXCEPTION II: If it is a situation where completion of a duty is enough to satisfy acceptance, no explicit acceptance is necessary i. UNLESS – the offeror is very far away and won’t hear

of completion of duty for a while, acceptance must be explicitly communicated

5. Silence as Acceptance a. Conduct / performance can be construed as acceptance b. Usually only allow if only offeror has benefited from full

performance c. OR if offeror tells offeree that silence will be acceptance

and offeree relies on that statement d. Long-standing relationship understood acceptance

6. ACCEPTANCE MUST BE:

a. Definite b. Unequivocal c. Unchanged from the offer

i. Usually any changes are considered rejecting counter-offer

d. Unconditional i. “Subject to…” maybe promise, but not acceptance

C. UCC 2-206 – offer may be accepted by any medium reasonable in the

circumstances 1. If offeror wants to limit acceptances, may still do so, but must

do so unambiguously 2. May be accepted by either performing the requested act or by a

timely promise to do so D. Gentleman’s Agreements

1. Parties to an agreement, by express provision prevent courts from enforcing their promises

E. Terms

1. Open terms – not yet agreed upon 2. Closed terms – agreed upon 3. When a K has mixed goals, UCC or Common Law?

a. Predominant purpose: i. Goods UCC

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ii. Services Common Law F. UCC

1. Designed for quick, easy transactions a. Shipping equals acceptance

2. Does not have to have ALL details to be sufficient offer 3. UCC 2-206(b)

a. Shipment of non-conforming goods does NOT constitute ACCEPTANCE if seller sends as accommodation to buyer

b. As long as seasonable c. Counter-offer

4. Revocability a. UCC 2-205

i. ‘Firm offer’ makes offer irrevocable ii. Only merchants can make irrevocable offers

G. Preliminary agreement

1. Agree to agree 2. When there are negotiations back and forth and one party

changed their mind 3. Formal K Contemplated – intent to be legally bound

a. Expressed reservation about not being bound in the absence of writing

b. Is there partial performance of K? c. Whether all terms of alleged K have been agreed upon d. Whether agreement at issue is usually committed to writing

H. Pre K Liability

a. Detrimental Reliance i. Acting in justifiable reliance on an offer may be

enough to make it binding ii. Absence of Condisderation is not fatal

Reasonable reliance = consideration iii. Misrepresentation

b. No offer / acceptance, but still remedy i. If 1 party confers a benefit on another, restitution

Example: Down payment I. Offer

1. Restatement § 24 2. Manifest intent to be legally bound

a. Offeror dictates terms of the offer 3. Master of offer can dictate what the offer says

a. How or when master wants acceptance

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4. Promissory a. CAN revoke any time before acceptance under common law

i. Time restriction on offer does not make it irrevocable within that limit unless there is consideration for keeping offer open

b. Cannot change offer after acceptance c. Quoting prices is NOT an offer

i. Catalogs, advertisements MUST have an affirmative promise to be considered an offer – fur stole case

ii. Invitation / solicitation for offers by buyers 5. Definite and Certain

a. Leaves nothing to negotiate b. Not an offer if just replying to offer for negotiations

6. Completeness of Terms a. If general language – not offer

7. # of offerees a. If parties are specifically named offer (in general) b. If parties are indefinite NOT an offer (in general)

8. Revocation a. Direct revocation

i. Effective when received Contrast with mailbox rule

b. Indirect revocation – Restatement § 42 i. Definiteness of information ii. Reliability of source

J. Irrevocable offers:

1. Consideration a. Required to keep offer open (deposit)

2. Option Ks a. Separate consideration req’d to keep option open

3. Reliance a. Detrimental Reliance b. When offeror could reasonably expect that the offeree

would rely to her detriment on the offer, it will be held irrevocable as an option K for a reasonable length of time

4. Firm Offers – without consideration by merchants a. UCC 2-205 b. May not exceed 3 months

5. Unilateral Ks a. Seller not looking for promise looking for performance b. Partial performance irrevocable

i. Example: Reward

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ii. If performance has begun – detrimental reliance Preparation to perform is not applicable

c. Acceptance = complete performance by offeree i. As opposed to Bilateral K where there are 2 promises

and 2 performances

IV. Deviant Acceptance A. Battle of the Forms – UCC 2-207

1. (1) Definite & Seasonal expression of acceptance or confirmation operates as an acceptance of offeror’s terms even if it has different / additional terms

a. If unmatching terms are wildly unmatched, may be not an acceptance

b. Proviso – does acceptance fall within UCC proviso? i. Acceptance expressly made conditional on assent to

additional or different terms ii. Must track proviso language almost EXACTLY

Language of proviso – is it a rejecting counter-offer? Is there performance? If no, no K [STOP] if performance, GO TO (3)

2. (2) Additional terms are proposals for addition to K a. Actual acceptance is required [otherwise it would be ‘last

shot rule’] b. K Between Merchants – terms are considered proposals for

addition to the K and are automatically included in K unless: i. Offer expressly limits acceptance to the terms of the

offer ii. OR Material alteration

Consent to it can’t be presumed Limits warranties or limits time for recourse Burden of proof on the party introducing the

additional terms to show that it is not a material alteration

Surprise or hardship Not an industry standard

iii. OR Objection ‘We object in advance to any terms on your form

that are different from our terms’ [STOP]

3. (3) If no K under (1), but parties act as if they have K, performance = K, and terms of K are whatever matches plus UCC gapfillers

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4. Look to modified terms under 2-209

a. (1) – Modifications i. No additional consideration necessary ii. Must be in good faith

5. Mirror Image Rule does not necessarily apply – Restatement § 59

a. Can accept different terms than offered 6. Last Shot Rule does not necessarily apply

a. K formation and K terms do not necessarily happen at the same time

b. Favors a “first shot rule” 7. K could form from conduct

a. Writing not necessary b. Terms & gapfillers c. If party has conditional terms, can refuse to perform until

terms are met i. If he performs, may not get conditional terms

8. Different vs. Additional Terms (Litronic): a. Majority Rule – Knockout Rule

i. Replace different terms with UCC gap fillers This is rule in IL – holding on this case

b. Minority Rule – i. Use the original terms of the offer and ignore the

different terms c. Preferred Rule (Judge Posner)

i. Treat different terms like they were additional terms and perform 2-207(2) analysis

This is rule in CA B. Mirror Image Rule

1. Acceptance must be on exact terms of the offer C. Last Shot Rule

1. Once performance begins, the last K offered stands

V. Validation A. Works as a Seal

1. Evidentiary – proof that there is a K 2. Cautionary – show that the promisor gave it some thought 3. Channeling – instant enforceability

B. Consideration

1. Bargained-for exchange – agreement is motivated by the exchange AND

2. Legal benefit to the promisor

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3. OR Legal detriment to the promisee a. Did the person really want this, or was it a sham? b. LOOK FOR unequal bargaining power unfairness

4. Definite and Substantial reliance a. Must be definite

i. Time – Not just ‘until I no longer want to’ ii. Price – ‘Prevailing Rate’ is definite enough

b. Illusory promise is no consideration i. Promise conditioned on satisfaction is not illusory since

one cannot reject them unless dissatisfied Good faith is necessary – UCC § 1-304

c. Partial consideration is no consideration d. Past consideration is no consideration

i. Material benefit is exception to past consideration e. Gift is NOT considered “legal” detriment

i. Not all conditional gifts are consideration ii. Act or forbearance by the promisee must be of benefit

to the promisor f. Conditional promises can be consideration

i. Homeowner’s insurance – only get $ if house is damaged

g. Courts don’t want to judge the value of promise i. Peppercorn ii. Offer something for $ YES iii. Offer $ for something NO iv. Offer $ for $ NO

h. Output K i. However many you make, I’ll buy them ii. No quantity requirement iii. There is Consideration because the buyer has to buy

ALL of output and the seller has to sell ALL output to buyer

5. Consideration is whether the bargain was adequate at the time the promises are made, not whether there has been adequate performance after the fact (Tuckwiler)

6. Pre-existing duty rule

a. If you have a preexisting obligation, promising to do it does not amount to a legal detriment (Alaska Packers)

b. BUT – if parties modify something and it is signed, then that is fine

c. If there is additional consideration, then it is okay d. UCC § 2-209(1) – parties can modify an agreement in

good faith

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i. Does not need consideration e. If there is an unanticipated problem in the K, which the

parties in good faith decide to modify, then it’s fine as long as the modification is fair and reasonable

f. Rescission & Modification i. If both parties rescind and modify for a new K, then

preexisting duty is gone C. Consideration in at-will employment Ks

1. At-will employees can be fired at any time for any reason (good or not)

2. If K is adjusted, both sides have to gain from change for it to be enforceable

a. Raise additional responsibilities*** b. Retirement pkg. cont’d work

3. Rescission and Modification a. Employee has agreement to work for $90/wk b. Ee gets offer from another for $115/wk c. Er then says, I’ll give you $100/wk if you stay d. Both rescind original K removes preexisting duty for $90 e. Enter in a new K for $100/wk

D. Detrimental Reliance – sometimes a substitute for consideration

1. Promisor foresees reliance a. Promisor must know facts b. Must intend that his conduct is to be acted upon or acts

must be such that other party has the right to believe it is so intended

2. Promisee actually relies a. Promisee must be ignorant of true facts b. If both parties know true facts, will not be detrimental

reliance 3. Promisee relies to his/her detriment

Results in an injustice whose only remedy would be the court’s action

E. Moral Obligation

1. Not usually enforced 2. Material Benefit Rule

a. If promisor gets a huge material benefit, even if there is no bargained-for exchange, can still be enforceable i. Not all states agree

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VI. Formation Defects A. Indefiniteness

1. Usual terms a. Parties b. Subject Matter c. Quantity d. Time for performance e. Price

2. Agreements to agree – too indefinite 3. “A fair share”

B. Statute of Frauds – unenforceable if oral

1. Ks within the Statute of Frauds a. Executor b. Suretyships

i. When both debtor and surety/guarantor are obligated to creditor/guarantor AT THE SAME TIME (collateral)

ii. Main purpose exception If guarantor’s main interest is to benefit his

interest, K does not need to meet the statute Not as concerned with the suretyship when the

guarantor gets something out of the deal iii. Novation

Guarantor removes debtor’s obligation’s entirely No longer a suretyship

c. Marriage d. Land e. 1 year

i. Interpreted very liberally ii. If it COULD be performed within 1 year, given

unlimited resources, may not fall within SOF iii. Death

Not full performance Early Termination

iv. At-will employment Could get fired or quit within a year If either party COULD stop performance within a

year, does not fall within SOF v. Lifetime Ks not within SOF

f. Goods > $500 UCC § 2-201 – 106 & 7 SOF for goods ONLY must include: i. (1) Evidence a K confirmation, acceptance

Signed by promisee

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- Signature is any authorization that identifies the party to be charged

Quantity Writing sufficient to indicate that a K was formed

ii. (2) Between merchants – if wrong party signs If receiver of goods knows contents & satisfies

(1) Has 10 days to object or it will stick

iii. (3) If no (1), but in other respects would be enforceable, would be enforceable (orally) if:

(a) Specially manufactured good which can’t be resold to someone else and it’s already begun to be made (reliance)

(b) OR ∆ has testimony that K was made judicial admissions

(c) OR if K otherwise valid but there’s no writing, enforceable with respect to goods, if [partial] payment has been made and accepted, or delivery has been made and accepted full or partial performance [expectation]

g. Others (vary by statute)

2. Satisfying the Statute of Frauds i. Writing

Under Common Law, ALL terms & essential elements must be in writing

Identity of the party sought to be charged K’s subject matter Recital of consideration (in most states) Signature of party to be charged or his agent

ii. Performance Full

- Generally full performance removes bar of SOF

Partial - Services - Land - Goods

iii. Judicial admission iv. Detrimental Reliance

3. Other issues

a. Modification i. Must satisfy SOF

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Example: in UCC price is not required, so if modified, price would not fall within SOF

ii. NOMO – No oral modification clause can say that any changes, modifications, etc. have to be in writing and signed by both parties

UCC § 2-209(2) iii. Waiver & Retraction – did parties intend to waive their

rights under NOMO or others UCC § 2-209(4) & (5) If waiver is relied upon, it is irrevocable

iv. Authorization b. Remedies

i. Usually the reasonable value of the services or part performance rendered or restitution of any other benefit that has been conferred

Reliance or restitution

C. Capacity to K 1. Infant in the eyes of the law

a. Infant can K for necessities b. Even if emancipated, still may not be able to K for non-

necessities c. Remedy: Usually Restitution

i. Equity is the issue 2. Person with mental disabilities 3. Intoxicated individuals 4. Women (back in the day)

D. Duress & Undue Influence

1. Duress a. Can be physical, emotional or economic b. Impermissible pressure during the initial bargaining or

attempted renegotiation (look to preexisting duty rule for renegotiations) i. “threat” must be unlawful ii. Baseless claim issue iii. Wrong party is the one pressuring

If 3rd party is the one doing the pressuring – no duress

iv. Partial payment c. No duress if you are just threatening to sue for some legal

claim d. K is voidable when free will is precluded

2. Undue Influence

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a. Over-bargaining or over-pressuring in the bargaining process i. Not necessarily unlawful

b. Usually in a confidential relationship i. Power relationship

c. Elements: i. Discussion of transaction at an unusual or

inappropriate time ii. Consummation of the transaction in an unusual place iii. Insistent demand that the business be finished at once iv. Extreme emphasis on untoward consequences of delay v. Use of multiple persuaders on the dominant side

against a single servient party vi. Statements that there is no time to consult financial

advisors or attorneys d. Not very common

E. Fraud & Misrepresentation

1. Fraud a. Misstatement or omission with duty of fact b. Scienter or materiality

i. They knew it, and it was material c. Justifiable

i. Did the person justifiably rely on untruth or 1/2 truth d. Reliance

2. Duty to disclose a. Generally, no duty to disclose if at arms length (buyers and

sellers) i. POLICY: encourage people to seek info & can’t hold

sellers responsible for disclosing every possibility ii. Caveat emptor

b. Some jurisdictions say that if there is a latent defect (not visible) that there is a duty to disclose

c. In OR, you have to give the buyer a list of disclosures – say that you know or don’t know x, y, or z about the house

d. Prenuptial agreements i. Not at arm’s length, so there is a duty to disclose all

financial info ii. Still a duty to read

e. Opinions can be material when not dealing at arm’s length i. Dancing case – teacher knew more

F. Duty to Read

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1. When it does not actually appear to be a K, not obligated to read it

a. Circle of assent does not cover if doesn’t look like a K 2. Misrepresentation

G. Unconcionability

1. Procedural a. How the K was negotiated b. Was there fraud

2. Substantive a. Where the terms of the K are grossly unfair

3. CA requires both Procedural and Substantive sliding scale 4. Usually extreme cases 5. In commercial cases it doesn’t usually work

a. BUT franchisees are more sympathetic because of the unequal bargaining power i. Power to de-brand them ii. Gas station franchisees are more protected

6. Remedy a. Could void entire K b. Sever unconscionable part

H. Illegality & Public Policy

1. Disfavors negligence waiver 2. Assent does not cover what’s on the back of ticket if it doesn’t

look like a K 3. Against public policy to advance business interests of people that

are involved in ‘bad things’ (ie drug paraphernalia) a. Hiring a hit man b. Paying the mob c. Hiring someone to commit a tort d. Clean hands doctrine

i. “He who comes into equity must come with clean hands”

ii. Examples: agreements in restraint of trade, gambling Ks, usurious Ks, agreements obstructing administration of justice, relating to torts

4. In Pari Delicto – if both parties are equally at fault with regard to the contractual dispute

5. Public Policy for licensed workers a. No license – illegal K b. No permit – legal K

6. Covenant not to compete a. Ancillary to employment

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b. Ancillary to sale c. Blue pencil rule d. Rule of reason

i. If it’s REALLY unreasonable, won’t be enforced ii. But there’s an incentive to make it especially

restrictive since the courts will just fix it e. All-or-nothing

i. If any term is unreasonable, the whole thing is unenforceable

VII. K Terms

A. Ks of Adhesion 1. Standard form K on a take it or leave it basis 2. Not usually negotiable 3. Policy

a. If duty to read allows party to absolve themselves from negligence, may be unenforceable (close to unconscionable)

4. Doctrine of Reasonable Expectations a. If K is vague, unintelligible or ambiguous, will be

interpreted favorably to what the weaker party expected it to mean

5. Must look like a K 6. Circle of Assent / Blanket Assent

a. Assent to every term that might not be outlandish

VIII. Remedies (Preview) A. Limitations on Damage Awards

1. Foreseeable 2. Unavoidable

a. Duty to mitigate damages 3. Certain

a. Losses were certain and not speculative 4. Compensatory 5. Caused by a breach

B. Restitution 1. “Does justice require enrichment to be disgorged?”

a. Disgorge profits, fees, deposits, etc. 2. Not only relied on promise, but conferred a benefit on promisor

(payment or profit usually) 3. Least common 4. Usually when there is no K but benefit is conferred in pre-

contractual stage when parties believe K is imminent C. Expectation

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1. Try to put injured party in the position as if there were no breach (looking forward)

2. Meant to fill expectations that arise 3. Usually $, but could be specific performance IF product is unique

or rare (land) 4. Usually the most substantial 5. “Cover” – If had to go elsewhere to buy another widget – would

be the difference between negotiated price and price paid elsewhere

D. Reliance 1. Looking back, to put the person in the position from BEFORE the

promise 2. Incurred expenses in preparation for the K, missed opportunities

– out of pocket loss 3. Now worse off than if the promise had not been made 4. Usually only remedy for breach of agreement to negotiate in

good faith E. Equitable Relief – Specific performance / Injunction

1. Success on the merit a. Or likelihood of success on the merits for injunction

2. Irreparable injury 3. Satisfy balance of the equities

a. Hardship on the ∏ is greater than the hardship on the ∆ 4. Public Interest Balancing Test

Contracts Outline I. Applicable Law

A. Common Law

1. Restatement – persuasive rather than binding

B. UCC

1. For Movable goods

C. If the K has mixed goals, UCC or CL?

1. Predominant Purpose

a. Goods UCC

b. Services CL

II. Formation Defects

A. Mistake

1. Definition

a. Belief that is not in accordance with the facts

b. The facts at the time of K are misunderstood

i. NOT the same as a bad prediction

2. Mutual Mistake

a. Elements

i. Mistake has to go to a basic assumption on which the K was made

ii. Mistake has to have a material effect on the exchange

iii. Avoiding party cannot bear the risk of the mistake

- K allocates risk to 1 party

- Party has a chance to be informed, and treats lack of

information to be sufficient

- Circumstances suggest that the party bears the risk

- Custom puts risk on party

· If seller undervalues something, custom says that the

risk of undervalue is borne by the seller

· If a buyer overvalues something, custom says that the

risk of overvalue is borne by the buyer

- If BOTH parties bear the risk and mistake – can rescind the K

· If both parties hire an expert to do an appraisal and

that person’s opinion is relied upon by both, neither

took on the risk

3. Unilateral Mistake

a. Above elements Plus

i. Enforcement of the K would be unconscionable

ii. OR non-mistaken party knew / caused the mistaken party to be

mistaken

4. Ways around Mistake

a. ‘As Is’ clause

i. K in which both parties assume that the place is fit for human

habitation / merchantable

- Buyer bears the risk of the loss

5. Restitution

a. Result of a mistake is that the K is voidable

b. BUT, if a party has paid $ on reliance

i. Down payment – party gets down payment back

ii. Unjust enrichment

III. K Terms A. Doctrine of Reasonable Expectations – Rest. § 211(3)

B. Parol Evidence

1. Rest § 213 – 216

a. A binding integrated agreement discharges prior agreements to the extent

that it is inconsistent with them

b. A binding completely integrated agreement discharges prior agreements to

the extent that they are within its scope

c. An integrated agreement that is not binding or that is voidable and avoided

does not discharge a prior agreement

2. Rule

a. Is there a final expression of one or more terms of the agreement [writing]

i. If yes go on

ii. If no no PER

b. PE is not admissible to contradict one of those terms

c. Is this a complete integration? Writing is complete and exclusive of the

terms of the agreement

i. If yes PER disallows adding, varying, or contradicting

3. Compare with SoF

a. Must have a final writing

i. If no writing, no issue

4. Evidence of prior or contemporaneous agreements & negotiations

a. Agreements & negotiations prior to or contemporaneous with the adoption of

a writing are admissible in evidence to establish

i. That the writing is or is not an integrated agreement

ii. That the integrated agreement is completely or partially integrated

iii. The meaning of the writing, whether or not integrated

iv. Illegality, fraud, duress, mistake, lack of consideration, or other

invalidating cause

5. Rationales

a. If the extra promise were so important, it would be in the final writing

b. Guards against fraud

6. Tests for integration

a. Appearance

i. Does the writing look like it’s complete?

- This one has been largely rejected

b. Separate consideration – Rest.

i. If there is separate consideration to support the extrinsic

c. Natural omission – Rest.

i. Would it be natural to leave the term out?

ii. Family Ks – tend to be more squishy, so might be more likely to leave

terms out of a K within family

d. Certain inclusion – UCC

e. Writing - Wigmore

Extrinsic Evidence UOT COD COP Not integrated All Parol Evidence is OK Consistent OK Partially integrated – complete as to one or more terms

Consistent Add’l Terms OK – may not vary on extrinsic evidence though

Consistent OK

Complete Integration No Parol Evidence Consistent OK (unless carefully negated by merger clause)

UCC § 2-202(b) § 2-202(a)

7. PER – UCC

a. Express Language

i. Language of the K

b. Course of performance

i. UCC § 1-303

ii. Same parties, same K

- How have the parties interpreted course of performance

c. Course of dealings

i. UCC § 1-205

ii. Same parties in an earlier K

- Last time they K’ed, that is a relevant, good indication of what

they meant this time around

d. Usage of Trade

i. Different parties, different K, but same trade industry

e. Consistent or Inconsistent?

i. Some courts consider terms consistent unless the extrinsic evidence

flatly negates or contradicts an express term in the K

ii. Other courts take a more holistic approach, considering proffered

terms consistent if they are “reasonably harmonious” with the

language and the respective obligations of the K parties

8. Ways around PER

a. Interpretation

b. Formation Defect

c. Reformation

d. Subsequent modification

e. Where PER doesn’t apply

C. Interpretation

1. In General

a. Plain meaning from the document

b. Objectively discernable meaning

i. Objective manifestations tend to be favored

2. What were the parties intending?

a. Rest § 201 – when both parties mean A, if they make a valid K, the K will be

for A, even if there is ambiguity

b. When there are 2 different parties subjectively thinking two different things,

then there is no K

3. Two-step Process:

a. Is the K clear enough? Is there a plain meaning?

i. Are there any terms of art? Interpretive maxims?

b. If the language is ambiguous, look at extrinsic evidence for explanation and

questions of interpretation will go to the jury

4. General Rules of Interpretation

a. Purpose of the parties

i. Read the K language looking for the purpose of the parties

b. Consistency

i. Words used more than once should be interpreted the same each time

c. Terms of Art

i. Respect terms with established legal meanings, or established

meanings in trade usage settings

d. Reasonable / Lawful interpretations are preferred over unreasonable and

absurd ones

i. Drafters intent & public policy

e. Public Interest

f. Handwritten is preferred over typewritten, if there is a conflict

g. K should be read consistently throughout

h. If there is general language & specific language

i. Usually specific controls

ii. BUT – atty general and wiretapping – he says that it should be

general

5. Other rules

a. Pacific Gas (CA Rule) – every word is naturally ambiguous and if we don’t

look at extrinsic evidence, we are relying on a judge’s personal experience

and definitions

i. To bring in extrinsic evidence, you have to show relevance to prove a

meaning to which the language is reasonably susceptible

ii. Problem: this holding essentially makes all Ks liable to attack through

extrinsic evidence – but it is still a minority rule

b. Sometimes a party might want to make something intentionally vague so

that it can be interpreted however you want later – but it is bad drafting to

use something that can have two different meanings

c. ∏ usually bears the burden of proof

6. Maxims of K Interpretation

a. Read things against the drafter

i. Contra preferentem

ii. Ks of adhesion – uneven bargaining power

b. Read different parts of a K as a whole, giving effect to each

i. In pari material

c. Matters of the same kind should be treated similarly

i. ejusdem generic

d. The expression of one thing is the exclusion of another

i. expression unius est exclusio alterius

ii. If K says, you may have cats & dogs – may not have hamster

e. It is known from its associates

i. noscitur a socils

IV. Special K Terms & Gap Filling A. Arbitration

1. K determines

a. How to define dispute

b. Who decides the dispute

c. On what basis

d. With what procedure

2. Enforcement

a. Federal Arbitration Act – courts will enforce arbitral awards

b. Courts give great deference to the arbitration provision in Ks

i. To the extent that there is any ambiguity K law applies

3. Ways around Arbitration

a. Public Policy Argument

i. Still pretty hard to overturn arbitrator’s decision

4. Usually considered an independent agreement, so if a party repudiates, usually

cannot repudiate as to the arbitration agreement

B. Good faith & fair dealing

1. Elements

a. Inherently subjective

i. Credibility

ii. Guesswork about what the outcome should have been

b. Not bad faith

c. Must cooperate with K partner – must not do something to prevent them

from enjoying the K

i. Deprivation of something that they are entitled to under the K

d. Good faith does NOT trump terms that are explicit in the K – it is a gap filler,

not a K creator

2. Rules

a. Brother’s Keeper Rule – must act as though you’re the other party’s keeper

and act accordingly

b. Law of the jungle – anything goes

c. In the middle (Posner) – can’t exploit someone’s ignorance, but can take

advantage sometimes Market Street v. Frey

3. Remedy

a. Breach of K

b. Some jxs will not hear the case if this is the only breach

4. Good faith and the UCC § 1-201(19)

a. Definition

i. “Honesty in fact in the conduct or transaction concerned” 1-201(9)

b. Express terms

i. Implied covenant of good faith and fair dealings is present in all Ks as

if it was written there by the parties 1-203(3)

ii. Good faith, diligence, reasonableness and care may not be disclaimed

by agreement, but parties may by agreement determine the

standards by which performance such obligations are to be measured

as long as the standard is reasonable

c. Course of Performance

d. Course of Dealings

e. Usage of Trade

f. As long as implied terms do not flatly negate the K terms

i. UCC allows considering UOT, COD, COP, wty, GFFD in implied terms

as long as they don’t negate express K terms

ii. Alternate standard – reasonably harmonious

C. Best efforts

1. Default rule that K implies good faith provision

a. Use such efforts as would be made by a reasonable person under the same

circumstances

b. Best efforts are really just adequate efforts

i. COD, COP, UOT – apply as to what is ‘best efforts’

- As long as they are consistent with K terms

c. So, basically just adequate efforts and good faith are all that’s req’d

i. Some courts say that it should be the same efforts as if it were your

line of work

ii. Others say same efforts to another customer that you don’t hate

2. Express terms always trump implied terms

D. Terminable-at-will

1. Woods Rule – unless parties to employment Ks specify a specific amount of time or

if they specify that termination must be for cause, then relationship is terminable at

any time for any reason or no reason at all

2. Distributorships and franchises are usually explicit as to duration and termination, if

not, then courts will decide

3. Exceptions

a. Public Policy

i. Perjury

ii. Jury Service

iii. Union

iv. Worker’s Comp

v. Whistle Blower

- OSHA

- Sarbanes Oxley

- Title VII

b. Good Faith & Fair Dealing

i. Not gotten a lot of play in at-will employment cases

ii. Usually watered-down

iii. UNLESS – opportunistic firings or uneven application of rules

c. Implied K (modification)

i. Off-hand or casual remarks

ii. Employee handbook

E. UCC Warranties 1. Madison Moss Warranty Act – If you say warranty, it means a full warranty unless it

says specifically ‘limited warranty’

a. Applies to consumer goods

2. Title

a. § 2-312

i. Warranty for title is in the K that the title is good and transfer rightful

and that it is free from liens or encumbrances

ii. The buyer can’t have reason to believe that the seller does not claim

title

b. § 2-403(1) – good faith purchaser for value gets good title if transferor has

voidable title

i. Voidable title is title that is not good because of a bad check or

something like that

ii. Void is different – it is bad like stolen

iii. Nemo dat qui non habet – can’t give what you don’t have

c. § 1-205(2) – Usage of Trade

i. A usage of trade is any 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

- So, no wty for watches bought in the bathroom at the bus

station

3. Quality

a. Express – § 2-313 – representation about the quality of a product

i. Affirmation of fact/promise

- Not puff, opinion or commendation

ii. Relate to the goods

iii. Basis of the bargain (reliance on express wty)

- If statement has any substance that might have played some

part in the buyer’s decision to buy, the burden is on the seller

to prove that the buyer did not rely

- If oral jury decides

- If written judge decides

b. Implied – automatically in the K unless the seller does something to get rid

of them (disclaimer)

i. Not express – oral or written

ii. Merchantability § 2-314

- At a minimum goods will work: must be fit for the ordinary

purpose for which it is used

- Seller must be a merchant with respect to those goods

- Food –

· Some say that if it is a natural substance as opposed to

a foreign object – no liability

· Others permit recovery if the biter’s reasonable

expectation is that it would have been removed

iii. Fitness for a Particular Purpose § 2-315

- Buyer relies on the seller’s j’ment or skill in deciding

4. Disclaiming §§ 2-316(2) and 2-316(3)

a. Express warranties are nearly impossible to disclaim § 2-216(1)

i. The proper way to avoid liability for an express warranty is no to

make it in the first place

ii. Ways around it:

- Incomplete integration, parol evidence

- If there is complete integration, prior oral disclaimers should

be excluded

- BUT – this usually doesn’t work

b. Must be conspicuous and easily explained

c. Must mention the word merchantability

d. Warranties of title can’t really be disclaimed

5. Damages

a. § 2-719 – may limit damages

i. (2) – excluding consequential damages is okay unless exclusive term

falls in its essential purpose

ii. (3) fine unless it is unconscionable & personal injuries are by

definition unconscionable

b. Most jxs require any remedy limitation to be conspicuous in order to be

effective

V. Conditions

A. Definitions

1. An event not certain to occur, which must occur, unless its nonoccurrence is

excused, but before performance under a K becomes due, to activate an existing K

duty

a. K is formed and then one party’s performance is dependent upon the

condition happening or not

b. Can be anything except TIME

c. Conditions should be very clear to be enforceable

2. Examples

a. Sale of a house

i. Passing inspection

ii. Getting the mortgage

b. Life Insurance

i. Loss within the policy

B. Kinds of Conditions

1. Subject matter

a. A condition cannot be something like Time or something that is certain to

occur

2. Promise vs. condition vs. promissory

a. Promissory condition – not a condition at all, it is a promise

b. Because law does not like forfeitures, if there is a question whether there is a

promise or a condition, the court will err on the side of promise

i. For promises, can get $ damages

ii. For conditions, you are relieved of your duty to perform

3. Express Condition

a. “If” “provided that” “on the condition that”

b. When there is ambiguity, courts prefer to find things as mere promises

rather than conditions less hardship

i. Ex/ subcontractor getting paid upon the completion of pool is mere

promise – even if not finished, should probably be paid at least part of

what is owed

ii. Someone asking to open a mine, and getting paid upon opening might

be conditional because there is more of a risk that it might not

happen

- Look to intentions of the parties

4. Implied Condition

a. May not be in the K, but it can be reasonably surmised that one party’s

action would be dependent on the condition occurring

5. Constructive Condition

a. Opposite of express conditions

b. Can be implied

c. Constructive – implied in law, created by courts to make a K work

i. Analysis

- Performance – independent or dependent (conclusory)

- Breach – material or immaterial

- Has there been substantial performance?

· If yes, then that constructive condition has been

satisfied

· But, there may be a claim for damages if the

substantial performance is not complete

6. Condition Precedent

a. Event that has to occur before performance becomes due

b. If one end of the bargain takes substantially more time to do (like painting a

house vs. payment for the painting) you should make this a condition

precedent

c. Can bargain around this

7. Condition Subsequent

a. Extinguishes a duty that has already arisen

b. Event that terminates a duty

c. Most common – insurance company relieved of duty to pay if you quit

paying your premium

8. Conditions Concurrent

a. Events that must occur simultaneously

b. Very common

C. Issues

1. Interpretation

2. Conditions of satisfaction

a. Depends on how subjective the beholder has to be

i. Painting/literature (more subjective) – beholder can decide on his/her

own whether satisfaction condition is met

ii. Painting a barn (more objective) – there is an objective acceptability

b. 3rd Party Satisfaction

i. Typically in the construction context

ii. Contractor gets paid as long as the architect says that the work was

done or completed to specs

iii. As long as architect is unbiased, good faith is the standard, but it is

still subjective – more discretion

iv. NY – it is objective – could bring in other architects to judge whether

it was a good job

3. Excusing conditions (Prevention)

a. Good faith and fair dealing is part of every K

i. Cooperating and not preventing a party from getting what they are

entitled to under the K

ii. If on prevents a condition from happening, the court may excuse it

- Ex/ seller backed out, prevented the condition (sale) from

happening; brokers can say that seller prevented the

condition, so they don’t owe him money, but he still has to pay

commissions

- Ex/ life insurance – some guy applied in the a.m. for life

insurance, obligation to insure him was conditioned on getting

the okay from the actuarial algorithm; in the p.m. he dies.

Insurance co says that he would not have met the condition,

but they didn’t even run it, so since they prevented him from

meeting the condition, they lost the benefit of the condition

4. Satisfying conditions

5. Waiving conditions

a. If condition exists only for one party’s benefit, that party can waive that

condition on performance and go ahead without it

i. Party does not have to insist on a condition that would only benefit

them, they may waive that condition

ii. Must be voluntary

iii. Can unwaive or retract waiver so long as the other party has not

relied on the waiver

D. Mitigating Doctrines

1. Prevention

a. If one prevents the occurrence of a duty, one will be precluded from

asserting the non-occurrence of the condition

2. Waiver

a. Excuse of non-performance – if one wants to waive a condition, that’s fine

i. As long as waiver happens before the condition fails

ii. Election happens after

E. UCC Conditions

1. Perfect Tender Rule § 2-601

a. Whether delivery is perfect or not

b. If not perfect, then the buyer can send it back on delivery

c. If goods or tender of delivery are imperfect in any way, the buyer doesn’t

have to perform

i. NOT substantial performance

ii. Buyer can

- Reject

- Accept & sue for damages

- Accept some and reject others

iii. If time of performance hasn’t yet arrived, the seller has until the time

of the K to cure/fix any mistakes

2. If buyer has already accepted the goods, and only later buyer discovers defect, then

§ 2-608

a. If there is non-conformity, then goods have to substantially impair their

value to the buyer

3. Larger, multi-delivery K installment K § 2-612

a. As policy we want to encourage long-term relationships

b. If there is a nonconformity with regard to one shipment, buyer can only send

it back if the goods substantially impair the value of that installment

c. Buyer can only claim breach of the whole K when there is a breach that

substantially impairs the value of the whole K

VI. Substantial Performance

A. If something is completed, if the deviations are trivial and insignificant, the K is fine

B. If someone substantially performs, you are not relieved of your obligations to perform, but

you can get damages for the difference between the K and performance

C. Applies only to Constructive Conditions – if something is expressly a condition of the K, it

usually must be satisfied exactly

1. Specifications in building Ks are not express

2. Every sings specification is a condition precedent to my obligation to pay NOT

allowed

D. Willful deviation can preclude a finding of substantial performance

VII. Breach

A. At common law

1. Maybe the time of performance hasn’t come, but there might be something that

suggests that the party will not perform

2. Materiality

a. Not entitled to damages unless the breach is material

i. Similar to substantial performance – did you get substantially what

you bargained for? Did the breach destroy the value for you?

b. Rest 2d § 241 – Circumstances significant to determine whether a breach is

material

i. Has there been substantial performance or not?

ii. The injured party would be denied benefit of what he expected

- Departure from K trivial or significant

iii. Can injured party be compensated?

iv. Failure to perform = forfeiture?

v. Likelihood of cure

vi. Good faith

3. Substantial Performance

4. Restitution for breach

a. Divisibility and Restitution

i. If one did not breach on ALL terms, and it can be divided, person

should be compensated on the ones where there was performance

ii. Sort of Prorate the K price according to where there was performance

B. Under UCC

1. Perfect Tender Rule (old rule)

a. Whether delivery is perfect or not

b. If not perfect, then the buyer can send it back on delivery

c. If goods or tender of delivery are imperfect in any way, the buyer doesn’t

have to perform

2. Perfect Tender Rule (old rule) – if there is any deviation, material or immaterial,

buyer could reject

3. New Rule § 2-601 – allows buyer to

a. accept fully

b. reject fully or

c. accept some and reject others

4. § 2-501 allows seller a chance to cure the defect

a. If time of performance hasn’t yet arrived, the seller has until the time of the

K to cure/fix any mistakes

5. Revocation of acceptance – If buyer has already accepted the goods, and only later

buyer discovers defect, then § 2-608

a. If there is non-conformity, then goods have to substantially impair their

value to the buyer

6. Installment Ks

a. If breach is made after performance and only payments are required in

installments, repudiation does not accelerate those payments

b. In general, breach of one K in a series of Ks does not mean breach of all

c. But, could cause acceleration of installment payments

VIII. Excuses for Non-Performance A. Formation Defect (see above)

1. Mistake

B. Suspending Performance

1. Is there an uncured breach by the other party?

a. Was it a breach of duty of an exchange of promises of performance

(dependent/independent)

2. Is the breach material?

a. Does it justify self-help?

i. Termination

ii. Suspension by the party

- As opposed to seeking a remedy from the court

b. If the breach is material

i. Injured party’s obligations are then lifted can suspend

c. If the breach is immaterial

i. Injured party still has to perform – cannot suspend

ii. But, may still have a claim for damages

d. Rest. § 241 – Materiality

i. Is the injured party going to obtain a substantial benefit which

he could have reasonably anticipated?

ii. Can the injured party be compensated by damages?

iii. Had the party failing to perform made preparations for

performance?

iv. Hardship in terminating the K

v. Motivations of the Parties

- Willful breach

- Negligent

- Innocent

3. If the breach is immaterial, but you guess that it is material & suspend

performance, you are the one that has breached, probably materially

a. Should tread lightly

4. Usually have to give the other party a chance to cure – can’t just suspend

performance immediately

a. JX split as to after-suspension-acquired facts

C. Anticipatory Repudiation

1. Elements

a. Before the time that performance is due, someone repudiates by doing

something in their language, being sufficiently positive to be reasonably

interpreted that they cannot or will not perform

i. Language is construed broadly

- Written

- Oral

- Actions

b. May not have to wait until they actually breach to sue

i. If 1 party repudiates and their end of the bargain is dependent on the

other performing, can be treated as a present total breach

- Depends on whether other party would have been able to

perform (material)

ii. Might be better to mitigate or seek relief immediately because if you

don’t, repudiator may not be liable for excess damages

c. Anticipatory repudiation, must be by clear, unequivocal, and voluntary

expression of intent to discontinue K § 2-611

2. After Repudiation

a. Repudiating party can retract or renounce repudiation up to a point

i. Can no longer retract once the recipient relies on repudiation OR

accepts repudiation

ii. Receiver of repudiation has right to create a window within which the

repudiator has to retract

- Locus Poenitentiae – window of time where one has to retract

repudiation

3. NOT repudiation

a. Failure to take required preparations is not anticipatory repudiation – even if

it makes performance impossible

b. Expressing doubt about performance is not enough for repudiation

c. Repudiation does not relieve someone of an arbitration clause

4. One-sided K – repudiation doesn’t apply

5. Recurring payment

a. Missing a payment doesn’t necessarily create a breach of the whole K

b. May kick in an accelerated payment – term in K that creates an obligation to

pay the whole rest of the K upon missing a payment

6. UCC § 2-713

a. If seller breaches, buyer can learn of breach when

i. There is a repudiation

ii. Repudiation plus a commercially reasonable time

iii. When performance is due under the K

iv. Buyer is responsible for mitigating damages

b. If buyer intends to repudiate § 2-610

i. Must notify seller of intent to repudiate

ii. Resale – seller gets difference between K price and resale price plus

incidentals & consequentials less mitigation

iii. Hypo Resale

c. 2-713, 2-723, 2-611

D. Demanding Adequate Assurances

1. UCC § 2-609

a. Must be reasonable grounds for insecurity

i. Then there is the right to demand adequate assurances

- 2d version requires demand to be in writing, but no one has

adopted it yet

ii. May suspend performance, if commercially reasonable, until

assurances are given

iii. If there are no adequate assurances given within a reasonable time,

constitutes repudiation

2. MUST have reasonable ground

a. May not use the demand to rewrite the K

b. UOT

c. COD

d. General K interpretation

E. Damages for Repudiation

1. CL – at the time of the breach

2. UCC – whatever is a commercially reasonable time

a. Between repudiation & failure to perform

b. For non-delivery

i. Incidentals

ii. Consequentials

3. Exception: if breach is made after performance such that only duty is to finish

paying in installments

F. Impossibility, Impracticability, & Frustration of Purpose 1. Issue – Excuse for non-performance

2. Impossibility

a. Subject matter is no longer there

i. Fire

b. Failure of the agreed upon means of performance

i. If both parties depend on a 3rd party & the 3rd party goes under (if

goods are unique enough)

c. Death or Incapacity

d. Intervention of law

e. Delay by action of law

3. Impracticability

a. Changed circumstances

b. If due to those changed circumstances performance would be unbearable

from a commercial perspective, one is excused

4. Frustration of Purpose

a. If before performance is due, party’s purpose in entering into the K is

destroyed, courts will sometimes discharge one from performance

5. History

a. Traditional Rule – basic assumption that performance will be possible

b. Force Majeure Clause

i. Expressly excuses performance by Acts of God, labor unrest, etc.

ii. Largely redundant now given the modern law

- Only purpose they might serve is that it might be clearer and

enlarge upon the situations where performance is not possible

6. Modern analysis

a. Transalt. Freighting v. US

i. Suez Canal closed, transatlantic had to go around the Cape of Good

Hope; cost $43K more

ii. Shipper asked for more $$ in attempt for good faith modification of

the K

b. Analysis (UCC 2-615 & CL)

i. An unexpected contingency occurs

ii. Non-occurrence was a basic assumption on which the K was made

iii. Party seeking to invoke excuse cannot have assumed the risk

Promisor not being able to perform

7. Compare with Mistake

Mistake Imposs/Imprac/Frustration Belief not in accordance with the facts Contingency – something unexpected Basic assumption of the K Non-occurrence was a basic assumption of K Material effect of the risk Render performance ‘commercially impossible /

impracticable’ (or frustrating party’s purpose) No assumption of risk No assumption of risk

8. Frustration of purpose

a. Excuse for non-performance

b. When something out of the party’s control happens that sort of defeats the

purpose of them performing

no longer of value to the promisee

9. Rarely successful

a. Narrow K excuse for non-performance

b. Cannot have been caused by the party seeking the imposs/imprac defense

10. Total excuse or equitable reform

a. Commercial imposs/imprac – not that it is totally impossible to perform, just

that performance has little or no value remaining

IX. Third Party Issues

A. 3rd Party Beneficiaries

1. History

a. Privity requirement – no longer req’d

b. Lawrence v. Fox

i. Holly owes Lawrence; Holly gives $$ to Fox for Lawrence; Fox doesn’t

pay; Lawrence sues Fox

ii. Court says okay even though he is not a signatory

2. Modern Analysis

a. Intention to benefit

i. Both parties intend the 3rd party to benefit Req’d

- Ex/ Life insurance: both the insured and the insurer intend for

the beneficiaries to benefit

ii. Unintended / Incidental beneficiaries not enforceable

- Ex/ t-shirt seller and the bad call

b. Rest 1st § 133

i. Intent to benefit 3rd party

- Donee beneficiary – 3rd party beneficiary isn’t owed anything,

but rather, the parties or one of the parties intended to bestow

a kind of gift

- Creditor beneficiary – sort of an automatic intention

- Incidental beneficiary – cannot sue; are not intended by the

parties of the K to have a legal right to sue

c. Rest 2nd § 302

i. Parties intend to confer benefits on 3rd party

- Performance of the promise will satisfy an obligation of the

promisee to pay money to the beneficiary

- Donees and other creditor beneficiaries that are not included in

above

ii. Incidentals – cannot sue

d. Public beneficiaries

i. The larger the public gets for public beneficiaries, the less likely the

parties will have intended to confer legal right to sue on all of them

3. Other issues

a. Product liability & privity

b. Vesting

i. Rest 3d § 311

- If the 3rd party justifiably relies

- If the 3rd party sues

- Manifests assent to the promise at the request of the promisor

or promisee

c. Promisee’s right to enforce

i. Promisee may sue the promisor for not conferring benefit on

beneficiary

d. ∆ against promisee

i. 3rd party can sue the promisee for not conferring the benefit

B. Assignment & Delegation

1. Nature: What, When, etc.

2. Assignability

a. Unilateral present transfer of K rights to a 3rd party

i. Obligor can’t say anything about it

ii. Must be present, not like “I will…”

b. Can be for consideration or not

i. If yes, irrevocable

c. Can be written or not

d. Gift assignment – can be revoked

3. Effect of assignment

a. Any right can be assigned unless

i. The right of the assignor would materially change the duty of the

obligor

ii. It would materially increase the risk of the obligor

iii. It would materially impair the chance of the obligor to obtain a return

performance

iv. Or, materially reduce the value of the return performance

b. ∆ against assignee

4. Delegatability

a. Someone who has a duty then delegates duty to someone else

i. If services are fungible (or $$) it’s fine

5. Efect of delegation

a. May not delegate if

i. The identity of the person is important

ii. The K says no delegation

iii. If the duty has to do with special skills/qualities of a specific person

b. Recipient can sue either the delegating party or the delegate

6. Compare: Novation

a. The only way to get the delegating party out of the picture would be to get a

novation

X. Remedies

A. Damages

1. Direct

a. Cover

b. Resale

c. Cost

2. Indirect

a. Incidental Damages – costs incurred in ascertaining that there was a breach

i. Ex/ cost of finding another job

b. Consequential damages – costs incurred indirectly as a result of breach

i. Damages are not recoverable for loss that the party in breach did not

have reason to foresee as a probable result of the breach when the K

was made

ii. Ex/ lost profits

iii. Under CL, incidental is also a consequential damage

c. UCC - § 2-715 – Incidental/Consequential Damages

i. Incidental damages resulting from the seller’s breach include

expenses reasonably incurred in inspection, receipt, transportation

and care and custody of goods rightfully rejected, any commercially

reasonable charges, expenses or commissions in connection with

effecting cover and any other reasonable expense incident to the

delay or other breach

ii. Consequential damages resulting form the seller’s breach include

- Any loss resulting from general or particular requirements and

needs of which the seller at the time of K had reason to know

and which could not reasonably be prevented by cover or

otherwise; and

- Injury to person or property proximately resulting from any

breach of warranty

3. Substantial performance

a. If SP – and the person is not going to undo and redo sub-par work, then the

difference in value is usually what’s awarded

b. If NOT SP – diminished value is used

Common Law UCC Repudiation Same Same Breach Substantial Performance /

Materiality Perfect Tender Rule Substantial impairment

Options Total / partial breach Perfect Tender Rule / Cure Remedies Expectation

Reliance Repudiation

Remedies Roundup

B. 3 Interests

1. Expectation

a. Elements

i. Try to put the injured party in the position they would have occupied

if there had been no breach looking forward

ii. Meant to fill expectations that arise

iii. Usually the most substantial

b. Formulas

i. ED = Loss in Value + Other Loss – Cost Avoided – Loss Avoided

- LIV = cost of the K

- OL = other costs of K

ii. ED = Cost of Reliance + Profit – Loss Avoided + Other Loss

- These should not include overhead and other costs that injured

party would have incurred with or without a K

c. Cover – If had to go elsewhere to buy another widget the difference

between negotiated price and price paid elsewhere

2. Reliance

a. Definition

i. Looking back, to put the person in the position from BEFORE the

promise was made

ii. Now worse off than if the promise had not been made

b. Calculation

i. Incurred expenses in preparation for the K, missed opportunities – out

of pocket loss

ii. Usually the only remedy for breach of agreement to negotiate in good

faith

3. Restitution

a. Definition

i. Does justice require enrichment to be disgorged?

ii. Not only did the person rely on a promise, but a benefit was conferred

on the promisor

b. Calculation

i. Least common

ii. Usually when there is no K, but benefit was conferred in pre-K stage

when parties believe K is imminent

C. Equitable Relief

1. Specific Performance

a. Usually only required when ONLY that performance will suffice

b. Not required when $ can cover the harm

2. Injunctions

a. Success on the merits

b. Public necessity

c. $ damages would be inadequate

D. Limitations

1. Foreseeable

a. Damages are limited to those that arise naturally and are contemplated by

the parties at the time of contracting Hadley Rule

b. Elements

i. Arise Naturally

- Probability vs. Possibility

ii. Communicated to the ∆

iii. Time of Contracting

iv. Contemplation of the parties

c. UCC governed by Hadley

i. § 351(3)

- Stop-gap measure

- Assume that Hadley applies

- Court can limit damages for foreseeable loss by allowing

recovery on reliance if justice so requires to prevent

disproportionate compensation

d. Tacit agreement test – did the parties tacitly agree that these kinds of

damages would be recoverable?

i. What did the parties actually view as their responsibilities?

ii. This test has not gained favor

iii. Involves speculation

2. Unavoidable

a. Mitigation

i. Affirmative – proactive steps to avoid damages

- May have to do something in the alternative to avoid damages

- BUT, do not have to do something that is not substantially

similar to performance under the original K

· Ex/ Shirley MacLaine case – did not have to take the

other role to mitigate damages because it was not

substantially the same

ii. Negative – stopping performance when you find out that the K has

been breached

- Cannot recover for more than what could have avoided by

simply stopping work

- Can’t just rack up more and more expenses and then sue for

more money

3. Certain

a. Does not have to be 100% certainty – just has to be out of the realm of

conjecture

i. Ex/ brand new business can not collect for loss profits – no way of

knowing what lost profits would be

4. Compensatory

a. Emotional Distress

i. Usually not awarded in Ks; Could probably apply a separate tort claim

and bring emotional distress claim, but not for BoK

ii. No punitive damages in Ks

5. Caused by the Breach

E. Other Issues

1. Lost volume sellers

a. Resale is not enough

b. Without breach, would have sold more

i. Ex/ MRI machine – were able to sell the one, but if buyer had not

breached, would have sold 2 machines

2. Losing Ks

a. Should not be allowed to get more in reliance than in expectation

i. So, if they would have expected to make less money than they spent

on reliance, they are entitled to no damages even in the event of a

breach

ii. Injured party should not be better off just because there was a breach

- BUT – this is not the case with restitution restitution is like

suing outside of the K for unjust enrichment where the injured

party has conferred a benefit on the breaching party and

should be compensated accordingly

3. Liquidated damages

a. Purpose:

i. To coerce the promisor into performing the promise

- BUT – should be about compensation, not about coercion

ii. To provide a convenient method to determine the amount to be paid

in the event of a breach

iii. To put a limit on the amount of the loss to be borne by the breaching

party

- Could be better for the breaching party

- If there was no actual loss, then there is no compensation

usually would be unenforceable

b. Rules

i. Must be reasonable estimate of actual damages

- Reasonable in relation to estimated/forecasted amount OR the

amount of actual damages (UCC & Rest 2d)

· So, even if the stipulated damages were totally

excessive at the time of K-ing, but they end up being

actual damages, that’s okay

· BUT this is not how most jxs do it

ii. Damages are uncertain at the time of K-ing

iii. [Parties agree to stipulate damages in advance] – in some states

c. UCC § 2-718

i. Only 1 factor: whether liquidated amount is reasonable in light of the

anticipated or actual harm caused by the breach

d. Good so that parties can decide up front how much it will cost if there is a

breach

i. May not even need to sue each other

ii. May NOT be meant as a penalty for breach

- BUT calling something a penalty does not mean that it’s

automatically a penalty

· Just like calling something a K doesn’t make it a K and

calling something a worksheet doesn’t make it a

worksheet

Warranty of Title § 2-312 (1) There is in a K for sale a warranty by the seller that

(a) the title conveyed shall be good, and its transfer rightful; and (b) the goods shall be delivered free from any security interest or other lien or

encumbrance of which the buyer at the time of K has no knowledge (2) A wty under (1) will be excluded or modified only by specific language or by

circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have

Express Warranty of Quality § 2-313

(1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which

relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise

(b) Any description of the goods which is made part of basis of the bargain creates an express warranty that the goods shall conform to the description

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty

Implied Warranty of Merchantability § 2-214

(1) Unless excluded or modified, a warranty that the good shall be merchantable is implied in a K for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale

(2) Goods to be merchantable must be at least such as (a) pass without objection in the trade under the K description; and (b) in the case of fungible goods, are of fair average quality within the description;

and (c) are fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by the agreement, or even kind, quality, and

quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may

require; and (f) conform to the promise or affirmations of fact made on the container or label if

any (3) Unless excluded or modified, other implied warranties may arise from COD of

UOT Implied Warranty: Fitness for a Particular Purpose § 2-315 Where the seller at the time of K has reason to know any particular purpose for which the goods are req’d and that the buyer is relying on the seller’s skill or j’ment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied wty that the goods shall be fit for such purpose.

Disclaimers: Exclusion or Modification of Warranties § 2-316

(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence, negation or limitation is inoperative to the extent that such construction is unreasonable.

(2) Subject to subsection (3), to exclude of modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”

(3) Notwithstanding subsection (2) (a) Unless the circumstances indicate otherwise, all implied warranties are excluded

by expressions like “as is”, “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty; and

(b) When the buyer before entering into the K has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and

(c) An implied warranty can also be excluded or modified by COD or UOT Limitation of Remedy (Damages) § 2-719

(1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for

those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer’s remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and

(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy

(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act

(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

Bjerre Fall 2002 1 of 25 Overview What is a contract? A promise or set of promises for an exchange of goods, services, and behavior. Law recognizes a duty to perform, and provides a remedy for a breach [specific performance OR damages]. Contracts focus more on business deals, then on personal matters/promises. Importance of contracts: 1. Need to decide when promises are going to be enforceable

a. Ensure stability, certainty, predictability 2. Economic theory: world becomes a better place when a contract is made 3. Efficiency: there are limited resources so let’s move them where they’re needed Purposes of contracts: [Sometimes formalities good in Form v Substance conflict] 1. Cautionary fcn: makes people think twice before making their promise. Protects fair-minded people who

make a contract 2. Channeling fcn: gives courts guidelines to know hen to enforce/not enforce a promise 3. Evidentiary fcn: provides evidence of people’s intent [whether contract made or not] Moral Obligation: 1. CL: Courts refuse to allow morality to play a role in legally enforceable contracts

a. Morality varies individually b. Moral obligation to follow through on every promise, so every promise would be binding

Autonomy v Paternalism: 1. Autonomy: freedom to contract. People agree on their own terms 2. Paternalism: Courts intruding on this freedom to protect a party in a contract from its own specified terms Theories of Obligation: 1. Contract – if has consideration 2. Quasi-Contract – if unjust enrichment can be avoided (no promise actually made) 3. Promissory Estoppel – if a person relies on a promise made w/o bargain or consideration = a promise

which causes reasonable, foreseeable detrimental reliance Some definitions: 1. Consideration: Something of value received by a P’r from a P’e 2. Benefit: privilege/profit/gain 3. Bargain: an agreement between parties for the exchange of promises or performances. A bargain is not

necessarily a contract because the consideration may be insufficient or the Tx may be illegal 4. Promise: the manifestation of an intention to act or from acting in a specified manner, conveyed in such a

way that another is justified in understanding that a commitment has been made; a person’s assurance that the person will or will not do something

5. Gratuitous Promise: a promise made in exchange for nothing; a promise not supported by consideration 6. Reciprocal Conventional Inducement: directed by each other toward the others; generally accepted rule

or custom; the benefit or advantage that causes a P’r to enter a contract – a consideration will induce a promise (which is considered of value to the P’e), and a promise will induce for supplying the consideration (which is of value to the P’r)

7. Detriment: the relinquishment of some legal right that a promise would have been otherwise been entitled to exercise

8. P’r: maker of promise 9. P’e: recipient of promise

Bjerre Fall 2002 2 of 25 Types of Contracts: 1. Unilateral: ONE side is making a promise [other side is performing an act]

a. Ex. Hamer v Sidway : kid never “promised” to forbear, he just did b. P’e is one who gets assurance of future, but P’r doesn’t [only gets what he wants]

2. Bilateral: both sides make a promise a. Basic premise is that a promise can be consideration for another promise (Get RCI by each

other’s promise) b. Both sides are P’r and P’e since each get assurance about future c.

3. Comparison: P’e better off in a unilateral. P’r from a unilateral better off since now have future assuarances

Conditional Promise: Conditional if its performance will become due only if a particular conditional event occurs 1. Doesn’t mean promise is unenforceable until the event occurs, but only that the event must occur before

P’r must perform 2. Where party makes bilateral promise, it can be protected by making its own promise conditional on

performance by other party 3. Where promises not performed at same time, like service contract, usual rule is that work is made a

condition of payment

Elements of a Contract: 1. Consideration 2. Offer 3. Acceptance CONSIDERATION 1. Traditional Theory

a. Detriment to P’e [P’e must do something he doesn’t have to do, or forebear from doing something he can legally do. Inconsequential if P’e also benefits from harm Hamer v. Sidway] OR

i. Bjerre feels that giving up something illegal/legal are both fine for consideration since giving up a freedom of action

b. Benefit to P’r 2. Modern Theory: RSC §71: For consideration, a performance or a return promise must be bargained for.

Bargained for if its sought by P’r in exchange for his promise and is given by P’e in exchange for that promise. – Both parties must seek something from the other. Query: Has there been an exchange [A quid pro quo “this for that”]?

a. Based on Holmes RCI theory: Each = motive for other; law only recognizes the state motive not necessarily the “real” motive unless same

b. Ex. Hamer v Sidway under modern. Still works since both induced other. DOES NOT MATTER IF IT’S A BENEFIT/DETRIMENT TO ANYONE, ONLY IF ITS ENOUGH TO INDUCE EXCHANGE [Focus = relationship between promise and consideration]

i. This weeds out some errors of the bargain approach which doesn’t focus on relationship between promise and consideration

Consideration considerations: 1. Need a bargained for exchange [§71] 2. Don’t care about actual motives, only care about whether intent is to induce

Bjerre Fall 2002 3 of 25 Things that are not consideration: [Think of Form v. Substance theme] 1. Past performance : not bargained for, already get it [Feinberg: no consideration since pension for past

consideration instead of future employ] 2. Moral obligation 3. Mere pretense (peppercorn) – under strict RCI would qualify, but law beyond that, still a hard test since

need all the facts [Ex. P. $1 for a Porsche; Even P. $2k if continue to work could be a mere pretense if not serious about work continuation]

4. Illusory promises: sounds like a promise has been made, but really hasn’t [Form of promise, but not substance of one]

a. Levels i. Unrestricted termination clause makes K illusory : no consideration b/c party w/ right to

terminate is not bound; “at any time” or “for no reason at all” sure signs of no consideration

1. [Strong v Sheffield: no consideration since did not specify a forbearance length “completely unfettered”. Even though did get a forebearance, never got any assurance of one. Consideration is to be tested by agreement, not what was done under it] [Could have been a valid unilateral K ??]

ii. Restricted termination clause – doesn’t necessarily render K illusory [either includes a notice before termination or doesn’t include terms such as “at any time” or “for any reason”

iii. Satisfaction Clause – doesn’t necessarily render a K illusory (Satisfaction could be equated to “good faith” (subjective) or reasonable person strd) (objective), therefore has substance and isn’t illusory]

1. Mattai: promised to buy land if could satisfactorily find buyers – court used subjective test here and upheld K

iv. Requirements/Output Clause – doesn’t necessarily render a K illusory [They are valid if requirements can be objectively determined to be reasonable]

1. Eastern court determined the term require to mean “require in good faith”, therefore, not illusory since, although not specifically specified, “require in good faith” could be determined as reasonable

b. RSC §77 : a promise or apparent promise is not consideration by its terms, the promisor or purported promisor reserves a choice of alternative performance

5. Gratuitous promise – promise made w/o consideration [Many of above entail a gratuitous promise] 6. Conditional gratuitous promise not consideration [but fine line exists] (if you go around the corner, I’ll

buy you an overcoat – no inducement because P’rs motive is not to get tramp to go around the corner. If could snap fingers and get him a coat, just as well)

a. “If…then” not good way to distinguish between contracts & gifts REWARDS: 1. By RSC §71(2) : if one does not know of reward, not induced by it = no consideration. If knew of reward,

then induced by it so consideration. a. As long as know of reward but have another motive, court will presume partially taking

advantage of it, so consideration Can the court interpret a contract’s language? YES [Substance v. Form; Aids in autonomy, right to contract] 1. Court can Imply in fact a contract and enforce what was implied and not written into contract. Language

must always be interpreted. “A promise may be lacking, and yet the whole writing may be instinct with obligation” [Cardozo in Lucy]

a. Ex. Lucy contract is upheld since Lucy bound by Ps “good faith, reasonable efforts” to sell, although not said in so many words, is implied

Bjerre Fall 2002 4 of 25 At-Will E’e Contracts: Amount to an unrestricted termination/illusory promise since can terminate/quit “at any time” 1. Consideration for a RC as part of work can be valid if:

a. For promotion b. Before hired as part of deal c. For a guaranteed amount of employment time d. Bjerre disagrees with this but CAB said After started work AND Actual continuation of

employment [Not valid since still made w/ less bargaining power, not a free exchange] – even though had “substantial” employment, turning a bi-lat into a uni-lat K, still iffy, contradicts Strong v Sheffield. HOWEVER, could have succeeded under PE

2. E’e bound to handbook terms even if unbargained for, giving after hire, may not have read/received it [Policy: continued performance of duties = acceptance and necessary consideration w/ bank getting more stable/productive work-force] [Some courts say this]

3. E’r can’t unilaterally change/modify terms to reduce E’e rights w/o providing consideration [Some courts say this]

PE & Quasi K General: 1. Only applies if K/promise lacks consideration making it invalid 2. Central element of K = consideration

a. PE like detriment to P’e w/o bargain b. Quasi-K like benefit to P’r w/o bargain

Sometimes society deems it necessary to enforce “gratuitous promises”: Must ask: 1. Society better off when an exchange happens 2. Exchange is voluntary assurance that one is getting what they want

a. Whole mechanism missing with GPs – does not lead to a bettering of society PROMISSORY ESTOPPEL Definition: The basic fcn is to make a K enforceable if: 1. Promise is made w/o consideration 2. Reliance on the promise [Reliance doesn’t = consideration but this doctrine will preclude an individual

from not claiming consideration] 3. RST §90 PE binding when:

a. P’r should “reasonably expect” [or reasonably foresee] [objective] promise to induce action or forbearance from P’e [or 3rd person]; AND

b. Which does induce such action or forbearance [P’e “relies” on promise]; AND c. Injustice only avoided by enforcement of promise. [Detriment] d. [Limited may be granted as justice requires]

When can get PE? 1. If relying on promise leaves you worse off [Ricketts: grandpa promised niece $2k gratuitously, she quits

relying on money : PE upholds this] 2. If rely on promise and condition changes during time of reliance [Feinberg: they gave her pension “gift”

for life. At first, she quit on own, but over time she got older and sicker]

Bjerre Fall 2002 5 of 25

a. Hypo: Probably couldn’t get PE if P discussed quitting for 7 months prior since was not planning on “relying” on money. Could argue changed mind about retiring before promise, but still tough case.

3. No PE if fail “reasonable” test [Alden v Presley: executor disavowed promise so no longer foreseeable that she should still rely on it. (Gift to pay off house if get divorced)]

4. Family Promises 5. Promises to Convey Land: Promise to convey land on which P’e relied by moving onto the land and

making improvements 6. Charitable subscriptions: possible to enforce a promise by finding an exchange amount among

subscribers for benefit of (and enforceable by) the charitable organization; or by finding the charity had to do something in exchange for the subscriber’s promise

a. RST §90 RD2 : charitable subscriptions don’t require that promise induce reliance Policy: society has deemed it important to encourage charitable contributions

QUASI-CONTRACT Other names: 1. Restitution : means you got something and so you need to give something back of value in order to avoid

injustice These 3 all mean same: 2. Constructive Contract 3. Contract implied-in-law 4. Quantum meruit Definition: “IMPLIED BY LAW” K is not based on the intent of parties, imposes an implied promise based on what most people would want. Its a “legal fiction” 1. Use to avoid unjust enrichment 2. Based on what reasonable person would want done 3. Different then taking K and to “IMPLY IN FACT” what the parties intended

a. “K or promise implied by law…very different [then] contract in fact, whether express or implicit. A K implied by law rests on NO EVIDENCE. It has no actual existence”

Elements: 1. D was enriched; AND 2. Unjust to keep that benefit w/o paying for it. 3. [No requirement a promise has been made] 4. [Need to determine what does it mean to have injustice? When is there injustice?] Who deserves claim? 1. Officious intermeddler: NO [midnight house-painter] 2. Volunteer: Gratuitous act so NO 3. Deserving Claimant: that is not just unjust for D to retain

a. Professional are not presumed to be acting gratuitously to create an incentive for them to offer their services

i. Ex. MD helping unconscious person = implied contract since reasonable to assume would have wanted service performed had been conscious

b. Non-Pros are presumed to be acting gratuitously, UNLESS i. Extended period of time

ii. Very burdensome (Mills v Wyman could be a quasi-K [son got ill, father later said would pay for services and didn’t)

Bjerre Fall 2002 6 of 25 Limits: 1. Quasi-K should not be used as a way around a K supported by consideration that was actually made [i.e.

to make up for no performance, dissatisfaction, etc. on actual K] a. Can’t let Quasi-K run “wild” or would undermine actual Ks

2. If governs same subject matter, express K overrides recognition of an implied-in-K contract 3. Exhausted all remedies against party which contracted [and Bankruptcy as well]

a. MAJ: Tough luck [risk of bness, could have demanded money earlier] -- would need to weigh these factors against court intervention/power of quasi-k [Bjerre likes this]

b. MIN: If still has not received reasonable value for service, may be able to recover from 3rd party after has exhausted all other remedies against person with whom contracted [Ex. A contracts w/ B to provide service to C : A goes after C cause didn’t get paid from a bankrupt B] [Subrogation]

c. Factors to Weigh i. How much govt. intervention do we want

ii. How much power quasi-K should have d. Hypo based on (Callano: D gets shrubs at house for free)

i. What if no money left in estate so resources “exhausted” would court reach different conclusion?

1. Bjerre says no based on court’s dicta [argue either way] 4. Generally presumption that married people act gratuitously [outside of contract law] but can have

exceptions: a. When evidence of person’s expectation of compensation AND extraordinary/ unilateral effort by

one spouse benefits other spouse, then restitution appropriate (Pyeatte: Put through law school case, agreed P goes school next but K too indefinite)

b. Unmarried couples may have chance at restitution “BARGAINING PROCESS” The nature of assent: 2 theories 1. Objective: literal interpretation of K excluding actual “intent” of P’r and P’e [reasonable person standard]

a. Preferred by modern courts since reliable b. Some courts still will take some subjective elements into account [objective standard = floor not a

ceiling] i. Ex. If person has x-tra actual knowledge, court will take into account

c. Person can’t say was merely jesting if his conduct/words warrant a reasonable person to believe he intended a real agreement [Undisclosed intention’s immaterial] [Lucy sold farm when drunk] – remember x-tra, subjective knowledge can still be taken into account

2. Subjective: looks beyond Ks language to determine “intent” of P’r and P’e [“meeting of the minds” standard]

Intent to be bound: [not intent to make exchange like in consideration] Negotiation: Do Both parties Intend to be Bound? 1. Types of contracts:

a. Type I : “agreement” on all terms of K and want to formalize in writing – both sides bound b. Type II: “commitment” on certain terms but still leaves open for good faith negotiations.

Commitment to negotiate in good faith i. Good faith breached when using trickery, etc.

2. Rule: Agreements to negotiate in good faith are enforceable if: [Note: only assures good faith negotiations, not successful negotiations]

a. Whether both parties manifested an intention to be bound by agreement? b. Whether terms of agreement are sufficiently definite to be enforced?

Bjerre Fall 2002 7 of 25

c. Whether there is consideration? 3. Court reluctant to enforce since reasonable person would not expect parties to be bound:

a. Optimistic statements by MDs to patients b. Statements between intimates for social purpose

i. Not binding since lacks contractual intent to be bound [rely on each other’s good will] ii. Ex.

1. No recovery for broken wedding reception plans 2. No recovery for injuries resulting from crash heading to a hunting trip since P =

“guest” 4. Should weigh:

a. Freedom to contract: make K’ing available to those who’ll take pains to clarify idesas as to what they want K about

b. Freedom from contract: no make K’ing so easy as to hook unwary signer or causual promisor Gentlemen’s Agreements: Comes up in “letter of intent” situations • Best idea: MAKE intent clear! “Parties don’t intend to be bound by K” • Keeps K law out of agreement/negotiations • Gives parties some certainty Formal K Contemplated What if parties agree on essential details but leave details to be worked out for a K they are both expecting to sign. What if one party then refuses to sign? 1. CL has 2 widely accepted principles:

a. Absent an expressed intent that no K shall exist, mutual assent [even oral/informal] to exchange acts/promises is sufficient to create a binding K

b. To avoid obligation of a binding K, at least one party must express intention not to be bound until a writing is excuted

2. Is written/oral terms binding? a. Depends on what the parties intended [what would reasonable person think] b. Factors to consider:

i. Did one party reserve right not to be bound? ii. Any partial performance of K?

iii. All terms of alleged K were agreed upon? iv. Is agreement at issue the type of K usually committed to in writing? v. Detail level of agreement

OFFER General: 1. Confers power on another to make a K 2. Offer is a voluntary proposal of an exchange; Offeror = master of offer. Offeree has power to accept.

Acceptance creates a K 3. O’r has power to:

a. Specify offer b. Usually specify what constitutes acceptance – can be as narrow as they want c. Can choose if it’s a Unilateral or Bilateral K

4. RSC §24 : Offer defined: “An offer is the manifestation of willinginess to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invalid and will conclude it”

Bjerre Fall 2002 8 of 25 5. Things looking at:

a. will basically be looking at utterances to decide if they are offers b. will try to decide if an offeror is proposing an exchange; is this a proposal for an intent to be

bound in a legally binding exchange? [reasonable person standard] c. What offeree reasonably understands is important

Factors to evaluate whether is/isn’t an offer: 1. How people estimate 2. It would not “be possible” 3. Not specify who to sell to 4. How real estate deals work 5. Absence of detail [General language may not be offer] 6. Absence of specified quantity

a. Generally, Mere Price Quote does not equal an offer, the absence of quantity specification is a very important circumstance that usually declares no offer

7. Reasonable expectation created? a. Was there a promise, undertaking, or commitment to K?

i. Look beyond the language since no magic words or wooden tests [Owen: no reasonable person thought that there was an offer]

1. Use of word “quote” does not automatically make it mere price quote ii. More likely to be beyond mere price quote if made in response to an inquiry about cost

and specifies time/quantity limits [Fairmount Glass Works] b. Was there Certainty and definiteness in the essential terms? (However, open terms in Ks don’t

render Ks unenforceable per se) c. Was the offer communicated to the offeree?

8. Offer can only be accepted by party invited to furnish consideration 9. Oral agreements are enforceable 10. Offers can be limited by conditions 11. Mistake: Offeror not bound if the offeree knew or should have known of the offeror’s mistake at the

time of acceptance 12. If contractor asks for bids from sub-contractors, usually construed as the sub-contractor’s making the

offer [contractor not obligated to take highest bid] Advertisements and relationship to offers 1. General rule, ads not offers, but rather an invitation by seller to buyer to a an offer to purchase 2. If ad is clear, definite, explicit and leaves nothing to negotiation, it could be an offer

a. “First come first served” in one ad was held as an offer 3. Rule prevents problems w/ demand if ads were considered an offer 4. Consumer Protection against False Advertising

a. Federal: FTC Act declares “unfair or deceptive practices unlawful” b. State: many have similar protection

5. Directness to certain person still doesn’t mean offer – look at all the circumstances 6. Online proposals to sell goods more likely to be treated as offers than printed ads Acceptance General: Taking advantage of the offer. Using power given by O’r to make a K. Once an acceptance is made, then both parties are bound. 1. Once O’e accepts offer, it firms up exchange 2. If close calls; courts usually default to no offer – don’t want to push people into Ks

Bjerre Fall 2002 9 of 25 Notice & Acceptance: Acceptances need to be communicated to O’r EXCEPT when it is inferred that O’r does not need communication [express or implied] 1. Notice needed unless O’r dispenses w/ it [express or impliedly]

a. If notice dispensed w/ by O’r then performance is sufficient for acceptance b. Ex. Carbolic : accept offer of getting sick was meant to be implied or would have gotten 1000’s

of useless postcards 2. Bilateral K,

a. Acceptance: return promise given, then return promise is binding b. Notice required [Policy: acceptance = communicative act and need to specify their obligations]

3. Unilateral c. Acceptance: performance d. Notice: no notice required unless performance not evident

What is not acceptance? 1. Mere doing of act does not guarantee acceptance

a. Policy: We want people to know if they are in a K 2. Silence [could be ok if agreed to by parties or if past actions indicated this was acceptable] 3. Made by person not designated by O’r 4. Changing the terms [counter-offer] 5. Not notified O’r “in some reasonable time” Termination of the Power of Acceptance Offers can be terminated by the parties or by law Types: 1. Lapse of the offer, OR

a. Expiration of offer’s acceptance period i. Offer lasts as long as O’r wants

ii. If no time, lapses after reasonable time under circumstances 2. Revocation, OR

a. CL: offer freely revocable before accepted when offer made w/o consideration [if had consideration, would be an option K]

b. Revocation must be communicated to O’e or reasonable steps taken to do so i. O’r can revoke a general offer in same way made general offer known, don’t need to tell

every person about it c. If revocation happens between offer/acceptance, power of acceptance is revoked [does not matter

if O’e received info directly or indirectly] i. RSC 43: O’es power to accept terminated if O’e indirectly learns that O’r has taken

definite action inconsistent w/ an intention to enter into proposed K d. Iffy language will be interpreted as revocation [benefit of doubt to O’r since don’t want to force

people into Ks] e. Revocation generally held to be effective when received [§42] f. EXCEPTION: “Firm Offer” or Option K [Irrevocable Ks for a time]

3. O’r death or incapacity, OR a. Rule generally holds regardless of whether o’e learns of it b. Same rule is true for O’e c. EXCEPTION: doesn’t terminate o’es power of acceptance under an option K [Policy: O’e gave

some sort of consideration to get time] 4. O’e rejection

Bjerre Fall 2002 10 of 25

a. Act by O’e which puts an end to an ordinary offer [O’e can’t then go back and accept] i. Words/conduct of o’r must be sufficient for reasonable person to interpret as a revocation

b. Counter-offer (changing offer not acceptance – it’s a counter-offer BECAUSE OF MIRROR IMAGE RULE

5. Destruction of subject matter or illegality could lead court to terminate offer MIRROR IMAGE RULE: O’e has agreed to exactly what is offered 1. CL insists acceptance must be on terms proposed by offer w/o slightest variation. Anything else is

rejection of original offer and acts as a counter-offer 2. Exceptions:

a. If sent a reply said neither accepting/rejecting just merely inquiring what is price at another unspecified quantity [No rejection/counter-offer since made clear]

b. What if said “would you consider X quantity for Y price” – still might not be rejection c. If say considering offer for higher quantity, but also counter-offers lower quantity : Here, could

negate counter, but original still on the table 3. Mitigations to rule:

a. Implied Term: additional or different term in the acceptance only a clarification of meaning of original offer

b. Precatory Acceptance: acceptance of o’r terms w/ an additional offer to modify original K 4. If a dispute: party how sent the last form before performance began usually prevailed MAIL-BOX RULE: 1. Acceptance/Rejection:

a. Assumes that dispatch of acceptance is crucial point at which K is made – after which O’r power to revoke is terminated, O’es power to reject has ended, and risk of transmission are on the O’r

b. Once dispatched, too late to change mind c. Policy: puts burden on O’r to rely on revocation in mail and if received before O’e mailed so will

keep O’r from selling goods to others in interim 2. Revocation

a. Ineffective if received after an acceptance has been properly dispatched b. Generally held to be effective on receipt only, not on dispatch [See §42] c. Policy:

i. Risk of transmission on O’r; Makes O’rs duty of performance conditional upon receipt of the acceptance

ii. Disadvantages to receipt rule: while letter is in transit, O’e is free to watch the market & speculate while O’r is unable to revoke

3. Option Ks : EXCEPTION : Acceptance under an Option K is not operative until received by O’r 4. Electronic Medium: RSC §64

a. Telephone or any instantaneous 2-way medium = like done in presence of person b. Email: effective when “received” even if no-one aware of it – so when system receives it

5. RSC §40: Time when rejection or counter-offer terminates the power of acceptance. Rejection or counter-offer by mail or telegram doesn’t terminate the power of acceptance until received by the offer, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the O’r before he receives the rejection or counter-offer.

a. Note: If O’e 1st decides to reject/counter-offer and mails, but then decides to accept the original offer and sends notice of acceptance – what happens depends on what gets there 1st. If acceptance does, then original offer accepted, if rejection/counter offer does, then acceptance becomes counter-offer

Bjerre Fall 2002 11 of 25 OPTION Ks : promise made by O’r that effectively limits the O’r power to revoke 1. Options can be created by:

a. Consideration [mere peppercorn can be consideration] b. Firm offers c. Reliance by O’e

2. Rejection: doubtful that holder of a power to accept under an option K puts an end to it by rejecting the “offer” if still within time limits since they have consideration

3. One promise can be consideration for multiple other promises PRECONTRACTUAL LIABILITY : no party safe by relying on prospect of a contract, but could incur liability before K formed in some circumstances R. § 87: Option Contract: (1) An offer is binding as an option contract if it (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer (PEPPERCORN DOESN’T APPLY HERE), and proposes an exchange on fair terms within a reasonable time; or (b) is made irrevocable by statute. (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. A court has some discretion in determining circumstances of whether there has been an acceptance in borderline cases to protect the reliant party. A party whose reliance has conferred a benefit on the other may have a claim to restitution to prevent unjust enrichment even though no contract has resulted. §45 of Restatement: (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it (2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. (partial performance becomes consideration for an option contract—completion of terms of offer = acceptance) Unilateral Ks allow partial performance; bilateral Ks don’t Offer for exchange NOT meant to become a promise [Can’t use PE w/ offers] [??? Review this] Drennan combines elements of 45 [partial performance] & 90 [PE] to create what later becomes 87(2) [offer causing reliance becomes an option K] 1. Think about 87(2) v 45? Overlap? 2. What’s the relationship between consideration & reliance? Requirement of Definiteness Definition: Contract too indefinite will not be enforced. FCNS: 1. For court to determine if K broken, it must 1st know w/ sufficient specificity just what the K terms are 2. Implicit in principle is P’es expectation interest is to be protected

Bjerre Fall 2002 12 of 25 3. In calculating damages, must know scope of promise to put person in same position in absence of a

breach Courts will first interpret a K before concluding its too indefinite. Will look at: 1. Prelim. negotiations / prior communications 2. External sources like trade regs 3. Trade usages 4. Reference to prior history between parties 5. Implied terms supplied by law – “reasonable efforts” = sufficiently definite if content can be determined

by some external standard 6. It is enough if K provides means of making its terms sufficiently definite by time performance is called

for such as: a. Output & requirement Ks (Eastern Airlines; Lady Duff) b. Prevailing rate (in Toys)

Why be imprecise? 1. Too lazy to take time: prefer to rely on terms that court will supply if dispute arises 2. Reluctant to raise difficult issues for fear of losing deal 3. Don’t foresee problem 4. Prefer not to disclose info. they feel will give other party advantage Note: Court will rarely find indefiniteness as sole reason to not enforce K. Even if finds indefiniteness unreasonable and K unenforceable P may still be entitled to recover under PE or Quasi-K theory for RESTITUTION [party who has performed under an agreement that is unenforceable for definiteness is entitled to restitution [Ex. Pyeatte: wife pays for law school – K indefinite but still allowed Restitution under Quasi-K theory] Relational K/Complete Contingent – common in employment Ks between business who deal w/ one another regularly – when all relevant risks can’t be assigned optimally due to unknown future contingencies (Eg output K) – allows for more indefiniteness Restatement § 33 Certainty:

(1) Even though a manifestation of intent is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

Statute of Frauds Definition: Makes certain Ks unenforceable because they are ORAL, but general rule is that oral Ks are enforceable [Controversial: many legislatures have enacted but many courts have blocked their enforcement]. Idea is to protect Ds against fraudulent promises never made. However, doesn’t protect against a fraudulent D. What Ks are required to be written? 1. Suretyship: has to do w/ paying debts 2. An agreement not to be performed within one year from making of it 3. Sale of/interests in real estate : [Lucy: scrawling on paper napkin ok for written]

a. Are leases covered? CA says if longer than one year, then need to be in writing

Bjerre Fall 2002 13 of 25 POSSIBLE 4. Omission of material term [like price] for a sale-of-goods MAY be disqualify it Important to remember about signatures and documentation: 1. Only ESSENTIAL terms need to be in writing 2. Does not to have to be formal [can be a letter, napkin] and could be oral first, then written down 3. Can be a “one way street” [Enforceable in only one direction]: K is enforceable when signed by the

party to be charged. Therefore, only needs to be signed by D, not P a. Rationale: Trying to make sure no fraud by D, don’t need Ps signature for this b. Good policy for both to sign though

4. Though writing & signing a set of promises is powerful evidence of the making of an agreement, it isn’t conclusive. “The fact that parties have EXPRESSED an agreement in a signed writing is no assurance that they have CONTRACTED about the matter” – Agreement must still be enforceable

How have courts minimized their impact? 1. Partial performance doctrine 2. Monarco v Lo Greco. 2 ways to overcome Statute of Frauds

a. Unjust enrichment (Quasi-K); OR b. Unconscionable injury/detrimental reliance (PE)

3. RSC §139 – PE can overcome Statute of Frauds if injustice can only be avoided by enforcement of the promise [RSC says to look at: availability/adequacy of other remedies, definite/substantial character of action/forbearance; extent action/forbearance shows evidence of making & terms of promise [or if terms established by other clear/convincing evidence; reasonableness of action/forbearance; P’rs foreseeability of action/forbearance]

ELECTRONIC SIGNATURES: St. of Frauds could really hammer this so legislature made statute saying that e-signatures will suffice 1. E-Sig in Global and National Commerce Act (15 USC 7001):

a. 101(a)(1) : E sig treated like any other sig b. 101(a)(2): Fact a signature is E shouldn’t be used to deny its legal effect [goes right at statue of

frauds] 2. Definitions:

a. E Record: K or other record created, generated, sent, communicated, received or stored by E means

b. E Sig: An E sound, symbol or process, attached to or logically associated w/ a K or other record and executed or adopted by a person w/ intent to sign the record

i. Ex. Clicking “I agree” = going through a process so = a sig. FORM V SUBSTANCE check-up : Generally, courts moving towards substance over form [sometimes will ignore form if there is enough substance] 1. Consideration: Promise you care for $1

a. Form = exchange under old law; Modern courts look to substance and says this is a gift 2. Statute of Frauds = Erosion is part of shift 3. Form not completely worthless [Note consideration serves these same 3 Fcns]

a. Evidentiary Fcn: writing a form of evidence of existence of a K b. Cautionary Fcn: brings a seriousness to K c. Channeling Fcn: channels K into enforceability or non-enforceability [Makes enforceability more

straight-forward. Let’s parties know a contract has been made and can rely on this]

Bjerre Fall 2002 14 of 25 POLICING THE BARGAIN Definition: Deals w/ bargaining abuses. Although a K may meet formal requirements for enforceability, such as assent, consideration and compliance w/ statutes of fraud, there are cases where the law may nonetheless refuse to enforce the bargain Main types: 1. Status of parties – disqualifies certain classes of people from committing themselves to a K

a. Historically: Minors, married women, mentally infirm 2. Behavior of parties – how they bargained in fact 3. Substance of bargain – courts can enforce highly unequal deals, but courts have found ways to disfavor

particularly lopsided deals Court’s tools: 1. Conventional controls 2. Rescission for fraud 3. Unconscionability 4. Strict construction of harsh terms Policy reasons for doing this: 1. Courts not paymaster to thieves 2. Won’t increase value to recipients 3. K adversely impacts society as a whole – “public policy” considerations 4. Keeps w/ general substance over form theme I. STATUS CAPACITY: Deals w/ those how have less than full power to contract. Lack of capacity is both a benefit and burden to this class of people. 1. Minor/infancy: [Called: Contract is Voidable by Infant] General rule is K of minor [usually 18 or 21],

other than for necessaries, can disaffirm/AVOID at his option. So K is voidable/not void by minor, not by adult whom contracted with.

a. Applies to emancipated/unemancipated b. Minor can disaffirm within reasonable time after reaching majority age [ability could be lost

through parental consent] c. Restitution after disaffirmance, minor can:

i. Goods: get restitution of payments already made on goods but must return goods ii. Services: Split: Some Jx say service provider screwed; others feel minor should not be

allowed to be put in a superior position d. EXCEPTIONS:

i. Statutory or Ks that deal w/ duties of imposed law (like marriage) ii. Necessaries: like buying food

e. Rational: i. Doctrine, no matter how unreasonable, protects minors against bad judgment and being

taken advantage of [Even if child lies of age, court would argue he doesn’t know the ramification of his lies – others do allow deceit]

ii. Court doesn like K but feels there needs to be bright line rule f. Burden: Puts burden on those considered “infants” but that are not children since may not be able

to contract g. What else could legislature do?

Bjerre Fall 2002 15 of 25

i. Allow parties to submit proposed K to court removing infant’s disaffirmance ii. Establish a rebuttable presumption of incapacity replacing strict rul

iii. Statutory procedure allowing minors to petition a court for removal of disabilities 2. Elderly: some statutes popping up to protect elderly (generally over 60) against deceit 3. Mental Infirmity – If don’t have mental ability [cognition] to understand a Tx, then K is avoidable [even

if have the volition] a. Differs from “actually” understanding K (not avoidable) from “ability” to (avoidable)

4. Intoxication Person: Only offsets K if so drunk as to have drowned reason, memory, judgment…rendering party incompetent (Martin v Harsh)

5. Married Women: used to be considered tied to man, but not anymore II. BEHAVIOR OF PARTIES Overreaching – Conventional Controls. Courts have traditionally been insistent that no advantage should be gained through gross unfairness in the process of bargaining. Focus is on: Duress, Fraud & Mistake 1. Generally: To recover monies paid in duress, must act promptly in making claim EXCEPT if to do right

away creates fear stoppage/delay 2. Duress: impermissible pressure/wrongful threat precluding free will exerted by one party over another

either during the initial bargaining or during attempted renegotiation 3. Physical Duress: “I’ll kill you unless you sign” 4. “Economic Duress” or “Business Compulsion” – Improper threat coupled w/ a lack of reasonable

alternative a. What constitutes economic duress

i. Y 1. Immediate possession of goods is threatened ; OR 2. If one party to K threatened breach of agreement by withholding goods unless

other party agrees to some further demand 3. No reasonable alternative

ii. N 1. mere threat

a. However, threat to immediately stop delivery construed as depriving D of free will [Austin Instrument]

2. Threatened party can obtain goods from another supplier; AND ordinary breach remedies not adequate

b. Improper threat need not be illegal is standard not rule, could be a breach of a pre-existing condition

i. KEY: Whether or not threat is improper because it was not made for a Legitimate Commercial Reason

ii. Remember HALE. Separate threats from improper threats – coercion can’t be used to distinguish 2

c. K is not void per se, but voidable by coerced party d. Narrowly construed or it would threaten many Ks

PRE-EXISTING DUTY RULE: designed to protect against duress If both parties RESCIND – as though they create a new K to dissolve old K – resolves both of a preexisting duty.

1. Pure formalism looks to create consideration for 2nd K [looks for any consideration for new undertaking, no matter how insignificant like a horse, hawk or robe]; in reality all, in substance, that is happening is that P gets more money to do same actions under old K

Bjerre Fall 2002 16 of 25

2. Modern trend is toward recognition of promises whose legitimacy the strict consideration doctrine has placed in doubt, so long as the sincerity of the obligation is clear and the commitment is freely made [not under duress when modified], rather than if had consideration to modify and create a 2nd K

Summary comparison of Pre-Existing Duty Rule v. Economic Duress Standard: 1. Pre-existing duty rule is traditional way of resolving injustice relying on consideration – this rule is dying 2. Economic Duress standard: modern standard replacing pre-existing rule – by getting at the same issue,

not through consideration but whether “improper threat” and “no reasonable alternative” 3. Standard: flexible but unpredictable RSC §89 : Modification of Executory K A promise modifying a duty under a K not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the K was made; or (b) to the extent provided by statue; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise CONCEALMENT and MISREPRESENTATION Overall, no duty imposed on 1 party to tell other party any info. However, if he does speak w/ reference to a specific point, voluntarily or at other’s request, he is bound to be honest and divulge all material facts Nondisclosure: traditional rule is that this is not a ground on which to void a K. 1. Policy:

a. Serves as an incentive for buyers to become knowledgeable. b. Promotes specializing – gaining advantage off special knowledge

2. Ex. House has termites but don’t tell a house buyer about it; K? NO; (Kannavos: house used for apts. If D made NO reference to house as apt. [wholly silent], then no duty to disclose

Misrepresentation: subset of tortious fraud 1. Elements:

a. Misstatement of b. Material Fact – Pretty important fact c. Reasonable relied on by other party – not a license to be foolish so if rely on a completely

unreasonable offer, may not be void d. [Knowledge of doing this] TORT ELEMENT e. [Intent to mislead] TORT ELEMENT

2. As a rule, party to contract may avoid it even if other party obtained its assent by an innocent misrepresentation

3. What misstatements may constitute a misrep? a. ½ truths. Need to weigh b. Omissions. Need to weigh c. Not correct a prior statement [if facts change from a prior statement, compelled to say it] d. Confidential relationship: has to do w/ trust when one party expecting other to give full disclosure

to other – 99% disclosure here may be treated as misstatement e. Information available to public/lack of due diligence could influence court, but still can recover if

reliance on fraudulent representation f. Presence of lawyer could influence court

Bjerre Fall 2002 17 of 25

g. Fragmentary info may be as misleading as active misrep h. Deception needn’t be direct

4. What if made after signing? Jx divided. One says can’t stamp an affirmative misrep., even after signing an executory K when elements of fraud are present

5. Example: a. If asked if there are termites and say “no”, void K? YES b. If seller in a K signs off there are no termites and he knows there are, void K? YES

III. SUBSTANCE OF THE BARGAIN Contracts of Adhesion: Boilerplate Ks. Take it or leave it K presented to many others. They are, generally: 1. Enforceable 2. Lack negotiation, understanding when one accepts them Other features: 1. Rules are same as other contracts w/ crucial difference that they are not consented to 2. Contingent terms: term doesn’t matter except in rare circumstance. Most people, therefore, don’t worry

about [Ie. Choice of forum clause] 3. Unilateral modification: one side has right to modify K, as long as done in good faith 4. Court less likely to enforce if given after receipt of stub [except car rental agreements, etc. say otherwise] 5. K needs to give people adequate notice, or there is no intent by P to be bound 6. Medium used to convey a contract of adhesion makes no difference 7. Although there is a duty to read K [irrelevant if have K or not], RSC §211(3) provides somewhat of an

exception for Ks of Adhesion – if there are provisions in K which a reasonable person wouldn’t expect to be there, then particular provision won’t be enforced

a. Rest of K is enforceable b. Is a common-sense safe-guard

Standard Form Contracts –Restatement §211—This § is inconsistently applied: (1) Except as stated in sub (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing. (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, w/o regard to their knowledge or understanding of the standard terms of the writing. (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement. Benefits: 1. Allows cheaper Ks 2. Once you get form together, all subsequent use of K is free 3. Ultimately, benefits end-users since price savings is passed 4. Adv. of lessons/experience and enables a judicial interpretation of one K to serve as interpretation of all

Ks 5. reduces uncertainty 6. saves time and trouble 7. simplifies planning and administration 8. makes risks calculable 9. increases security when taking foreseeable risks

Bjerre Fall 2002 18 of 25 10. Robust economy 11. Greatest good for greatest # of people Problems 1. Libertarian: can infringe on our liberty 2. People don’t read them 3. May be a means for one party to impose their will on other 4. One party is a “repeat player” & that gives that party an unfair advantage 5. Unequal bargaining power between parties 6. Person has no choice over terms 7. Timing problem: Ex. May want to rent car, then get handed K terms AFTER have already paid and

gotten keys Theory from Status to K ; K to Status Overall: ability to bargain for K gives you power to raise status, but modern trends encompassing lack of bargaining power have effect of reducing power to K. Therefore, even though there are more Ks in existence, less and less bargaining power Side 1: Pg 369 Side 2: Kessler, we are not free under Ks of Adhesion. What to query? Reasonable person under all circumstances What if something is objectionable? Try for §211(3) What if something is missing? Doctrine of Reasonable Expectation: if reasonable person would reasonably expect something to be in K, but its not, then court to include it. Generally found in insurance Ks. [Example: For home fire insurance: garage not included for fire. Would reasonable person expect it to be?] Bjeree feels its a growth area – will extend beyond insurance Ks in future Examples: 1. Parcel stub not K since main function is for getting bag back [film stub would probably be same thing] 2. Signs on wall: clothes left at dry cleaners 30 days will be thrown at? Reasonable person test 3. For insurance: usually goes in favor of insured

a. Doctrine of reasonable excpectations: when insurance sold in circumstances that discourage detailed inquiries, reasonable expectations of the buyer should be honored even though policy terms don’t support them

PUBLIC POLICY: Concerned w/ the protection of the public at large against the imposition by BOTH parties of K. Times when K law and all other law come into conflict. [Affects Quasi-K; PE and Ks enforceability] Overall, How are contracts affected by outside/PP? Normall, we either enforce a K or we don’t, so this is unusual since parties make the rules in a K. PP is a reason outside of K law to invalidate a K. No general rule to follow. When will courts refuse to enforce an agreement, fairly/freely entered by both parties because will contravene “public policy”? 1. Illegal Ks: Ks that violate specific law: court won’t force an agreement to do what law explicitly

prohibits [Like a K to do a hit] 2. Activities closely related to illegal acts: (Ex. Can’t K to split spoils of a robbery. Usually not enforceable

unless legislature has specifically sanctioned enforceability)

Bjerre Fall 2002 19 of 25 3. Gambling: CL says gambling illegal, so only statutes making certain aspects of it are enforceable. If no

carve-out, not enforceable 4. Covenants not to compete: must be [MAJ] reasonable under circumstances (industry/time/geography). If

K is deliberately unreasonable, oppressive, or overreaching, covenant would be invalid. 5. Restraints on alienation (alienation: to sell, give away, or transfer items to another) 6. Surrogacy Ks – Baby M case. Best interest of child primarily 7. Usury (charging more interests on loans then law permits). Generally statutes in each state set a

maximum interest rate and anything over that is usurious (good K writing – if have a high interest rate, add a clause to state that if the state rate is usurious, will fall back on max the state will allow)

8. Prenuptial agreements [if have offer/acceptance/consideration courts will uphold] a. Prenups/alimony as matter of PP weren’t enforceable b. Current, under regular K law and ok if

i. Made reasonable provision/good deal for spouse OR ii. Entered after full/fair disclosure of general financial positions

c. Paternalism: law protecting people from their own actions. Whole concept is contrary to AUTONOMY [foundation of contract law] – parties know best what they need/want

d. Simeone court against bi. Since based on paternalism, not K law so says only ii, like normal, is test for a valid K

e. Threat of “sign this or I won’t marry you” is not the kind of threat we protect under Duress doctrine

For bad K clause, court has 3 choices: 1. “All or nothing rule” : [old rule] court either enforces K as written or rejects altogether [trend is away

from this] 2. Blue pencil: modify to extent that a grammatically meaningful reasonable restriction remains

a. Pro: simple, prevents court from re-write b. Con: K still fails if offending provision can’t be stricken; form over substance

3. Rule of reasonableness: unless circumstances indicate bad faith from E’r, court will enforce covenants not to compete to the extent that they are reasonably necessary to protect E’rs interest w/o imposing hardship on E’e

a. Pro: Acknowledges reality that courts are interpreting the K b. Con: Courts usually don’t like to make Ks [will do especially for non-compete clauses]

4. HOWEVER, if reasonable evidence that K is unreasonable and oppressive, then covenant is invalid UNCONSCIONABILITY Principle one of prevention of oppression & unfair surprise and not of disturbance of the allocation of risks because of superior bargaining power “Shocks the conscience”, rarely used, usually inequity of bargaining power. 1. Uncon = Absence of meaningful choice by one party [procedural] & K terms which are unreasonably

favorable to the other party [substantive] [Watkins: lady buys items, but doesn’t own 1 till owns them all] a. Meaningfulness of choice can be negated by inequality of bargaining power b. Manner which K entered relevant [“reasonable opportunity” to understand terms, or important

terms hidden?] c. Test: whether terms are so extreme as to appear unconscionable according to the mores and bness

practice of the time and place? 2. Very fact-specific inquiry and no general rules 3. Some equality Ok, it is gross equality that court’s don’t like 4. Usually both substantive and procedural uncon must be met in order to prove uncon

Bjerre Fall 2002 20 of 25

a. Substantive element alone in some Jx may be sufficient. Uncon [Gateway: computer mediation term unreaonable]

5. Unequal bargaining power don’t apply when the parties are 2 companies or corps w/ access to legal advice.

Substantive Unconscionability – fault/unfairness in bargaining outcome [Con to uncon here: undercuts private right of contract in a manner that is apt to do more social harm than good since right to freely and voluntary K is sacred]. Egs. [CHECK LIST/ CONTRADICTS PART OF BJERRE’S] 1. Fault/unfairness in bargaining outcome 2. High price of item/service/interest rater 3. Apportionment, dragnet of repossession clauses : payments apportioned to all items so none of them are

paid off before all are; buy several things, but don’t off one before pay off all 4. An arbitration clause’s term Procedural Unconscionability – fault or unfairness in the bargaining process – absence of meaningful choice. [Policy: ok for con since means not free and unvoluntary] EGs. 1. Fork K of adhesion (not inherently uncon, but factor to consider) 2. Unequal bargaining power 3. Education level of parties 4. Setting of Tx

a. Level of need for the item b. Sharply limited choice

5. High pressure sales 6. Emotional manipulation 7. Knowing advantage-taking 8. Difficult/Complex AND/OR hidden in fine print language 9. Timing Policy: 1. Paternalistic – interferes w/ freedom to K 2. Institutional Competence: Q of law for judge – but should legislature be the ones to address this?

Sometimes statutes in place to protect consumer 3. Counterproductive? Some argue that effect is to give people w/ bad credit or low financial resources less

opportunity to K (lenders will be less likely to lend to high risk people if their Ks invalidated by doctrine) DAMAGES FOR BREACH OF CONTRACT Types of remedies: 1. Equitable Remedies: will usually ONLY get if Damages are inadequate

a. Specific Performance: Ordered to perform K. i. If performance would require very intense and sophisticated supervision, usually won’t be

ordered ii. Court won’t order performance of K personal in nature

iii. Won’t be ordered when party claiming breach has adequate remedy at law iv. Laclede Gas Co. : A requirements K. Hard to calculate damages because they fluctuate –

specific performance = ok b. Injunction: Court orders not do something

2. Modern age [This is most important]

Bjerre Fall 2002 21 of 25

a. Damages : Goal is to make P was well off it there would have been no breach. Pay P enough money so that they will be “indifferent” between getting money or specific performance

3. Tort v K Damages: Tort damages put you back to where you would have been. K damages put you forward into position you would have been [since K would have been to your advantage]

MONEY DAMAGES

1. Expectancy Damages : overall goal – put the parties in as good a position had there been no breach. Based on circumstances – not on “reasonable” person

1. P has burden to prove 2. P entitled to benefit of the bargain – enough to put the party in the position she would have been had the

K been completed; pulls the P forward 3. Non-breaching party should be indifferent Re: whether K performed or the money damages 4. Profit 5. Purpose not to implement a benefit but to remedy a harm

a. Almost NEVER give punitive damages 6. Allows for efficient breach

a. Nobody worse off, but somebody better off due to a breach of K b. Pareto Superior: world is in a better state – efficient breach example since everyone better off

afterwards c. Lets things get to people who value them the most d. Doesn’t make sense to impose penalties for breach e. Works when taking advantage of imperfect information

1. “Perfect Market” efficient breach wouldn’t work since B1 knows how much B2 would pay so his subjective value would immediately go up. Therefore, S would not profit from this Tx.

7. Foreseeability and expectancy damages = default rules GENERAL DAMGE FORMULA: Value of Ds promise – Ps cost to get what is promised 1. Overhead = continuous expense of the bness, irrespective of the outlay of a particular K

a. In a claim for lost profits, overhead should be treated as part of gross profits and recoverable as damages, and should not be considered as part of seller’s cost [Vitex v Caribtex]

i. Overhead = part of damages because reallocation of overhead cost results in loss of profit from other Ks. Therefore, overhead is included in amount D has to pay.

2. Restitution

• The dollar of damage = the value of the unjust enrichment. • The court makes its own determination of its value—must be reasonable • Used in situations of quasi –K-(Cotnam v. Wisdom—damages for the medical care Harrison

received from Dr. Wisdom). • However, a valid K doesn’t preclude the use of restitution. If a party makes a bad K and

would not be in a better position if the K was completed, and the K was breached before completion, the losing party/ non-breacher can recover restitution damages

• Usually K price is not ceiling to what may be recovered (“the sore thumb to the sore thumb rule.”)

US v. Algernon Blair Subcontractor made horrible deal, general contractor breached on the contract. Subcontractor was allowed to recover the reasonable value of the work they had performed (equipment rental costs) up until the day of the

Bjerre Fall 2002 22 of 25 breach. The promissee, upon the breach, has the option to forego any suit on the K and claim only the reasonable value of his performance. OK b/c court wants to punish the breacher, and the breacher shouldn’t be able to benefit from the breach.

3. Restoration • Restore a party to the position she was in before the harm. Put the P in the position she would

have been in if the promise had never been made (and detrimentally relied upon). • This is used in Promissory Estoppel situations • Eg: Ricketts v. Scothorn—damages of the wages she lost from quitting her job in reliance on

her Grandfather’s promise Notice how Q-K and PE are opposites DIMINUTION IN VALUE v. COST OF PERFORMANCE When breach after partial performance, and cost of fulfilling K is greater than value of doing so, which so be awarded? Overall, the difference of which test to use has to do w/ SUBJECTIVE VALUE owner places should determine [High subjective value, then cost of performance; low subjective value, then diminution of value]

(a) Groves—regrading cost of performance = 60K, diminution of land value only 12K for not being regraded—court awarded cost of performance because breach was willful.

i. Awarding cost of performance should reflect owner’s subjective value of property. Court here says no evidence of subjective value. Bjerre disagrees.

ii. Awarding cost of performance almost punitive here which goes against K theory iii. Awarding diminution of value fits better w/ expectancy theory of making P ‘whole’

again

(b) Peevyhouse—regarding strip mine company failed to restore a farm as required by K. Restoration cost = 29K, value of doing so only $ 300. Court awards diminution of value b/c breach merely incidental to K’s purpose.

i. Groves court would have awarded cost of performance because breach was wilfull ii. Subjective value of restoration not considered here---Bjerre thinks bad outcome

LIMITING DAMAGES 1. Mitigation/Avoidability

a. After P receives a breach notice, its his duty to do nothing to increase the damages, can’t continue to perform, then recover based on full performance

i. Rationale: P interested only in profit, so if gets this anyway on breach, could use time more wisely otherwise

b. P has a duty to mitigate, if don’t, D not liable to other side if continue to perform for that continued work

c. Non-breacher must actively look to mitigate by looking for a replacement K i. “Reasonable substitute” : non-breacher not obligated to take an inferior or different Tx –

must be “substantially similar” ii. P must make reasonable efforts to find alternative Tx [reasonable determined under

circumstances]. NO duty to take it, but it doesn’t mean shouldn’t take it since court will assume that since it is there you should have taken it

1. B<P x L [B= cost of step; P = Probability ; L = breached money trying to avoid]

Bjerre Fall 2002 23 of 25

iii. D is responsible for reasonable costs incurred in reasonable efforts (idea that D should be responsible because effort taken for Ds benefit to reduce Ds damages)

iv. Even if deal is for less profit, then can still sue for difference v. Example: Hypo: Buyer breaches K for sale of care for $5k. Seller sells to another for $4k.

Seller can recover $1k from breaching buyer + costs of reasonable efforts to find substitution

d. RSC 350: Avoidability as a Limitation on Damages i. Damages not recoverable for loss that the injured party could have avoided w/o undue risk,

burden or humiliation ii. Injured part is not precluded from recovery by the rule stated in (i) to the extent that he

has made reasonable but unsuccessful efforts to avoid loss e. EXCEPTION: Lost Volume Seller: seller is not just as well off from mitigating their damages

because they would have made 2 profits instead of only one. i. Elements of LVS

1. Had capacity [Necessary condition = could hire more workers/rent more space/etc.]

2. Would have filled it in absence of breach [Possible to do and advantageous] [Sufficient condition]

3. Profitable [Suffcient] a. Bjerre doesn’t think profit element as important.

i. If not profitable, D then has no reason to point to this as something that would have mitigated damages by P in 1st place – would still owe. Also could get other benefits other than profits from a Tx [NO PROFIT = NO SUBSTITUTE TO FIRST SALE – 2nd SALE IS SIMPLY MITIGATING DAMAGES]

ii. Thus, 1 & 2 most important to worry bout b. Personal services (like movie start) classic non-LVS since can’t perform

both at same time; Construction company = classic LVS since can hire more workers to do more jobs]

ii. Diminishing Returns 1. An example of when P wouldn’t have a LVS argument 2. A time when you’ll have to pay more to produce more (like overtime charges kick-

in) – so even though you could have produced more, you wouldn’t have 3. Can’t recover as a LVS if you would have lost money on second sale [NO

PROFITS so no LVS] 2. Foreseeability : unforeseeable damages not recoverable. Would a reasonable person have foreseen the

damages? a. Rule from Hadley [mill crank delivery case]

i. What a reasonable person would foresee (objective) OR ii. If K made under special circumstances and communicated to D (subjective)

b. RSC 351(3): allows court to limit disproportionate rulings c. Drafters of contract can eliminate any confusion by writing: “In the event of a breach, we will not

be responsible for consequential damages” Consequential damages: Damages not “arising naturally’ but only as a result of “special circumstances under which the K was actually made” 1. Beyond mere loss in value of promised performance (direct damages) and resulting from impact of the

breach on other Tx or endeavors dependent on the K 2. Lost profits one kind of consequential damage

Bjerre Fall 2002 24 of 25 3. Example of other kind:

a. D limited to damages for fee that would cost competent person to install a transformer, not for the consequential damages that resulted to repair it

3. Certainty: P has to prove their case

• speculative damages are not recoverable, they have to be certain enough • P has to show certainty of the damages, cannot ask the jury to speculate • Complete certainty is not required: a “reasonable certainty” is the standard. • Emotional damages usually not recoverable due to too speculative

New business and speculative profits: 1. Old rule : new bness can’t prove lost profits because too speculative 2. New rule: courts moving away from this a bit since some new bness might have lots of proof about

profits. IF have enough certainty, will allow for lost profits [Showing resale Ks, experts saying new whiz kids, market showing tremendous demand in your bness] [Fera v. Village Plaza: reflects this trend]

PENALTY v LIQUIDATED DAMAGES CLAUSE Basic rule: penalties not enforceable but estimates of actual damages are enforceable [Liquidated damages clause] Increasing Damages Lake River Corp v. Carborundum Co. Per the contract, doesn’t take into consideration Lake River’s saved costs. The damages clause provides that Lake River will be overcompensated. Overcompensation is a penalty.

• Basic rule: Penalty clauses not enforceable; contracts can be drafted to limit damages, but not to expand damage

• Per Posner and academics: this is a dubious rule: can be the genuine self-interest of parties to enter into Ks the breach of which will penalize them

• When ALL costs are up front, take-or-pay clause might well be a reasonable liquidation of damages [K revenues would then be an excellent measure of damages from breach”

• Policy. Should this be the rule? o Pro: when parties are powerful, competent, penalties should be enforced. o Con: could have the effect of deterring some efficient breaches.

• Tricky lawyering: instead of a penalty, can you deny a party a bonus for breach? Liquidated Damages Clause Flip-side.

1. “At the time of contracting, the parties may wish to avoid disputes and uncertainty over damages if a breach occurs. Such a provision has the effect of liquidating anticipated damages in the event of a possible breach, and is known as a ‘liquidated damages’ clause.

Bjerre’s test (from the text pg 1123): (a standard—not a rule)

1. reasonable estimate 2. need for an estimate (actual damages difficult to prove—eg. Shirly Mclean.

Bjerre Fall 2002 25 of 25 This amount will be more like actual damages and not penalty damages. “reasonable estimate at the time of contracting of the likely damages from breach, and the need for estimation at that time must be shown by reference to the likely difficulty of measuring the actual damages from a breach of contract after the breach occurs. If damages would be easy to determine then, or if the estimate greatly exceeds a reasonable upper estimate of what the damages are likely to be, it is a penalty” Ks that specify a single sum in damages for ANY breach and this fixed sum greatly exceeds actual damages, then it’s a penalty NOTICE: All the stuff we studied re: damages = a default rule. It can all be avoided by adding a liquidated damages clause to your K. Damages Equation Restatement § 347: Damages = Plaintiff’s loss in value caused by the D’s non-performance (This is determined by deducting the contractual value of what the plaintiff received from what she was promised) Plus: Any other loss (includes consequential and incidental damages) Less: Any cost or loss the P avoided by not having to perform

1

Contracts Outl ine

Philosophical Foundations for Enforcing Promises ............................ 3

CONSIDERATION & THE BARGAINING PROCESS..................................................................................3 Unilateral contracts ............................................................................................................................... 3

Gratuitous Promises / Nudum pactum..................................................................................................................................... 3 Reliance / Promissory Estoppel ................................................................................................................................................. 3 Equitable Estoppel: ..................................................................................................................................................................... 4 Action in the Past: ....................................................................................................................................................................... 4 Moral Obligation does not invoke requirement ..................................................................................................................... 4 Peppercorns .................................................................................................................................................................................. 4

Bilateral contracts ................................................................................................................................. 4 Illusory Promises ......................................................................................................................................................................... 4 Implied Promises (in a specific contract to a specific person).............................................................................................. 4 Quasi Contract: (contract implied in law).............................................................................................................................. 5

Exceptions: Promises Enforceable without consideration:..................................................................... 5

The Bargaining Process ................................ ................................ ... 6

OFFERS..........................................................................................................................................6 When is an offer made? .............................................................................................................................................................. 6

Not Quite Offers: ................................................................................................................................... 6 Price Quotes & Invitations to make an offer........................................................................................................................... 6 Advertising.................................................................................................................................................................................... 6 Letters of Intent ........................................................................................................................................................................... 6 Oral Contracts ............................................................................................................................................................................. 6

ACCEPTANCES ................................................................................................................................7 Silence is not an acceptance ....................................................................................................................................................... 7

When do offers Lapse? ......................................................................................................................... 7 Lapse in General.......................................................................................................................................................................... 7 Revocation..................................................................................................................................................................................... 7 Option contracts .......................................................................................................................................................................... 7 Communication Breakdowns: ................................................................................................................................................... 8 Partial Performance:................................................................................................................................................................... 8 Agreements to Agree & Definiteness........................................................................................................................................ 8

Counter Offers ...................................................................................................................................... 8 Last Shot Doctrine ....................................................................................................................................................................... 8

SUMMARY TABLE.............................................................................................................................9 Hypos From Class ................................................................................................................................ 9

Defenses to Contracts ................................ ................................ .... 11 Reasons Why a Contract may be voidable ............................................................................................................................ 11 Definiteness ................................................................................................................................................................................. 11 Statute of Frauds: Written & Oral Contracts ...................................................................................................................... 11

2 Promissory Estoppel as the alternative to the statute of Frauds. ...................................................................................... 11 Electronic Signatures ................................................................................................................................................................ 12

POLICING THE BARGAIN..................................................................................................................12 Minority ...................................................................................................................................................................................... 12 Duress - Coercion....................................................................................................................................................................... 12 Mental Capacity......................................................................................................................................................................... 12 Pre-Existing Duty: ..................................................................................................................................................................... 12 MisRepresentations & NonDisclosure.................................................................................................................................... 12

Adhesion contracts ..............................................................................................................................13 Unconscionability....................................................................................................................................................................... 13 Public Policy ............................................................................................................................................................................... 14 How to Modify Contracts ......................................................................................................................................................... 14

Remedies for Breach ................................ ................................ ....... 15

SPECIFIC PERFORMANCE ...............................................................................................................15

MEASURING DAMAGES...................................................................................................................15 Theories of Breach: the Holmsian Heresy ............................................................................................15

The $90 Radio Example: .......................................................................................................................................................... 15 Calculating Damages...........................................................................................................................16

Expectancy Damages................................................................................................................................................................. 16 Losing Contracts........................................................................................................................................................................ 17

Limitations on Damages.......................................................................................................................17 Duty to Mitigate ......................................................................................................................................................................... 17 Limitations on Consequential Damages................................................................................................................................. 17

Certainty of Damages ..........................................................................................................................18 Penalty Clauses & Liquidated Damages................................................................................................................................ 18

Analyzing a Contracts Question ................................ ...................... 19 Was there a Contract ................................................................................................................................................................ 19 Was it breached? ....................................................................................................................................................................... 19 What were the consequences? ................................................................................................................................................. 19 Available Remedies ................................................................................................................................................................... 19 Key Definitions: ......................................................................................................................................................................... 19

3 Philosophical Foundations for Enforcing Promises

CONSIDERATION & THE BARGAINING PROCESS Principles:

“Reciprocal Conventional Inducement” - Holmes There must be something extracted - something sought

Restatement § 71 Page 180

Test: Was there something exchanged? It could even be a promise – doesn’t look to the value,

Unilateral contracts

Cases where one party makes a promise and the other party . . . either performs, or just relies.

Cases:

Hammer v. Sidway: What is valuable consideration? A detriment to either promisor, or promisee. Forbearance counts as consideration

Gratuitous Promises / Nudum pactum

Principles: Gr. Promises are not enforceable. Exception: promisee reasonably relied upon the promise.

Cases:

Feinberg v. Pfeiffer: Worked 37 years, offered pension. Gratuitous? Yes ∴ not enforceable. But promise enforced per reliance theory

Kirksey v. Kirksey: Brother-in-law offered place to live.

Broadnax v. Ledbetter: Gratuitous Performance Captured criminal, but didn’t know about reward. Capture was not “induced by the reward” ∴ gratuitous.

Reliance / Promissory Estoppel Restatement § 90: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

Estopped from taking back promise if: 1) A promise was made 2) you could have reasonably expected reliance when you made the promise. 3) the promise was actually relied upon. 4) And if injustice can only be avoided by enforcement.

Rickets v. Scothorn: Quit her job in reliance on offer by grandfather for $2,000 + 6% interest.

Feinberg v. Pfeiffer: Worked 37 years, offered pension. Gratuitous? Yes ∴ not enforceable. But promise enforced per reliance theory

Drennan v. Star Paving: Can’t do it for the amount we said Promissory Estoppel: Must perform also see under offers.

4 Equitable Estoppel:

When one party has made a statement of fact, and the other has relied upon it.

Dickenson v Dodds: may have gone the other way had this doctrine been in effect then. π reasonably relied on the statement of fact that he wouldn’t sell the property until Fri.

Action in the Past:

Feinberg v. Pfeiffer again – her previous service did not qualify.

Moral Obligation does not invoke requirement

Mills v. Wyman: Cared for sick son – Father offered to pay then revoked. Gratuitous – Even though it’s morally right it’s not enforceable.

Peppercorns

Principles: If one party wants to back out: Not enforceable.

Test: Are the party making a real exchange?

Exception: Enforceable in the case of option contracts

Bilateral contracts

When promises are the exchange for other promises. This is the most common kind of contract – don’t usually go out and do it right away.

Conditional Promises: the promise will only become good if . . .

Illusory Promises

Principle: Promises that aren’t actually worth anything don’t qualify as consideration.

Strong v. Sheffield: Promissory note in exchange for an illusory promise “I won’t collect on my debt until I want to.” Not enforceable.

Termination Clauses: E.G.: if the building burns down – landlord no longer obligated to provide housing. Unrestricted termination clauses – can cancel at any time – make the promise illusory.

At Will Employment: Initially this seems like just an illusory promise – they usually have unrestricted termination clauses.

It considered like a lot of one day exchanges. When they change the handbook, and then you go to work – you’re accepting the new information.

Central Adjustment Bureau v. Ingram: does a promise not to compete have force when only exchanged for a technically illusory (at-will employment) promise? Yes: as the employment (i.e.: expected performance) continues, the promise becomes increasingly binding.

Employee Handbooks: Adhesion contracts?

Implied Promises (in a specific contract to a specific person)

Principle: If the parties fail to include a promise in the contract the court can interpret it.

Wood v. Lady Duff: His performance was implied. New Holding: The court can interpret contracts and enforce what they thought the parties meant, rather than just what was there.

5 Schott v. Westinghouse: Suggestion Box idea for a better circuit breaker

Expected to be paid – also no pay would be unjust enrichment.

Definiteness: Pyette v. Pyette: Wife put Husband thru law school, Husband divorced and refused to reciprocate. Not definite enough for the court to decide, but it was unjust enrichment (quasi – contract) and ∴ he owes – back to jury for how much.

Quasi Contract: (contract implied in law)

Principle: when you do something for someone they ought to pay what they owe. τελος: avoidance of unjust enrichment.

Distinction from Implied promises or promises implied in fact: Lady Duff implication was in fact.

A.K.A.: - Contract implied in law - restitution - constructive contract Constructive Employment – not contract, but keep getting paid Constructive eviction – wasn’t kicked out, but the lights are out, and snow is coming thru the roof. - quantum meruit (gets as much as he deserves.)

Tests: 1) Was it gratuitous? I.e.: not professional

2) Was it meddling in the situation?

Callano v. Oakwood 1) Was the Δ enriched? 2) Would retention of the benefit without payment be unjust?

Cotnam v. Wisdom: thrown from streetcar, Drs. Operate. There is a right to collect – how much is up to the jury & it should be decided based on how much the service was worth, not what the Δ could pay.

Pyette v. Pyette: Wife put Husband thru law school, Husband divorced and refused to reciprocate. Not definite enough for the court to decide, but it was unjust enrichment (quasi – contract) and ∴ he owes – back to jury for how much. Usually promises between spouses are not enforceable, but in this case the effort by one spouse was so extrodinary that the court said their was a quasi contract.

Contractor’s Claims: Sub-contractor (S) built a bathroom on HomeOwner’s (H) house per instructions from Contractor (C). then C goes bankrupt & doesn’t pay. S can only get re-paid by H when every avenue against C is exhausted.

Exceptions: Promises Enforceable without consideration:

1) Promise to pay a debt that has expired per statute of limitations or after bankruptcy

2) Re-affirmation of a promise made as a minor.

Principle: The promisor is not making a new promise, but “abandoning the defense” of bankruptcy, infancy etc.

Restatement § 82 & 83

6 The Bargaining Process

OFFERS When is an offer made?

When an offeree reasonably thinks an offer has been made. Lucy v. Zehmer: Just kidding about the farm offer - Ct: offer is good because Lucy reasonably thought the offer had been made.

The offeror is the “master of the contract” offeror has the power to make the terms offeree has the power to make them binding.

Not Quite Offers:

Price Quotes & Invitations to make an offer

Owen v. Tunnison: “I would need at least $16,000 to sell it” Ct: this was only an invitation to make an offer.

Test: If he had said I couldn’t sell it for less than $16, 221.07 then it might be considered an offer.

Harvey v. Facey: Will you sell us the property? How much will you sell for? Answer 900£ : Then he didn’t want to sell Court: he only answered one question. Very formalistic, leans toward status quo. Ignores implications of statement, and possibly also local knowledge, e.g.: the property was for sale.

Fairmount Glassworks: Reply gave specific quantities and specific price & said “For immediate acceptance” Ct: this language is an offer.

Tests: Specificity in price & time The more specific a statement is the more likely it is that it’s an offer.

Policy: Courts lean toward status quo

Advertising

Generally advertising is an invitation to make an offer. Exception: Very specific advertising can be an offer

Lefkowitz: fur stole for $1 to 1st person thru the door.

Carbolic Smoke Ball: Was specific enough Usual req’t for acceptance waived.

Letters of Intent

People want to understand each other very well, but they don’t want to be bound by it. Common with stock underwriting.

Channel Home Centers: Letters of Intent are valuable as consideration.

Oral Contracts

If you work out a deal orally – it’s binding unless . . . one person also says “and I don’t want to be bound until we write this down.”

Definition:

Offer: A statement or other act in which one person gives another the power to make a contract.

Must be an expression of will or intention.

7 ACCEPTANCES

An acceptance is a communicative act Offeror must be notified that the offer has been accepted.

Once the acceptance is made the contract is binding.

Bilateral contracts: you accept with a promise: More of a communicative Act

Unilateral contract you accept with an action. Doing of the action is generally notice.

Carbolic Smoke Ball: Req’t of Notice waived – it would be unreasonable to have expected that everyone would notify them.

Mirror Image Rule: Have to accept exactly what the offeror offered.

Silence is not an acceptance

Because we don’t want offerors to coerce us into doing something. You can waive this rule by receiving consideration: CD clubs.

Regular conduct – creating an expectation. Have always paid – can expect that you’ll pay again

Hobbs v. Massasoit Whip: Just sent eelskins to a whip making company Silence and retention for a long enough time = acceptance.

When do offers Lapse?

When a person would reasonably expect it to. Depends on the circumstances – a house maybe long term, stock maybe 30 seconds.

Face to Face conversations: If only an offer is made, no acceptance, and no specific lapse time it lapses at the end of the conversation.

Lapse in General

Loring .v City of Boston: 1837 reward for setting fires expired by 1841

Revocation

Restatement § 63

Offers can be freely revoked

Dickenson v. Dodds: A revocation can be simply an action inconsistent with the intent to go forward. A revocation can be good when it comes from a reasonable source, even if it’s not the offeror. Was close to, but not an option contract – no specific consideration given for the option.

Option contracts

A contract in which the offeror promises bindingly not to revoke for a specific amount of time. Usually req’s “earnest money” Peppercorns are OK here.

Toys v. FM Burlington: Toy store in a shopping mall An offer cannot expire within the option period. Even if price negotiations are ongoing. Choosing not to exercise your option doesn’t bar your ability to accept within the space of the option.

Not revoked upon death of the offeror.

8 Drennan v. Star Paving

An offer (usually freely revocable if revocation is rec’d before acceptance) is enforced even though revocation is technically rec’d prior to acceptance. – essentially it suggests that it’s an option contract even though no consideration is made.

Promissory Estoppel – can’ revoke the offer once it’s been relied upon.

Restatement § 87(2)

Issue 2: Mistake in an offer – the offer is still binding assuming it was all in good faith – reasonable person test applies here.

Holman Erection Co.: Sub-contractor’s bid used in main bid. Then contractor did not use that sub-contractor – were they req’d to? No – contractor not req’d to use the sub-C they included in the bid.

Implied Option Contracts: Expire when a reasonable person would expect them to.

Communication Breakdowns:

Is there recovery for work done prior to contract? Sometimes.

Songbird: No recovery for good ideas

Precision Testing: Allowed recovery for design of an environmentally sound car.

Partial Performance:

Brooklyn Bridge hypo: Once you start the performance the offeror is bound.

Agreements to Agree & Definiteness

Generally not allowable because they are too indefinite. Court doesn’t know how to enforce such a contract.

Channel Home Centers: an exception – just enough definiteness they just agreed to negotiate in good faith – they were able to show that the other side wasn’t negotiating in good faith they were leasing it out to someone else.

Counter Offers

A rejection of the previous offer, and a whole new offer. Once a counter offer is made the other offer is considered to be revoked.

Precatory offers: acceptance of the offer as is with a recommendation to change.

Last Shot Doctrine

When companies know they’re going to agree they send forms back and forth. The last form mailed before performance begins is the controlling contract.

9

SUMMARY TABLE

Default Rules Option rules

Promises are not binding without real consideration

Mere pretense of consideration is sufficient to hold an option open

Death of offeror terminates the power to Accept

Death of offeror during the option period has no effect on the ability of the offeree to form a Contract by exercising the option.

Acceptances:

Mailbox Rule: Acceptances are effective when mailed if they are mailed before any rejections or revocations.

Exception: § 40: If a Rejection is mailed first & rec’d first an Ac, even if mailed prior to the rj rec’d, is just a counter offer.

Overtaking rejections are not valid unless they are relied upon – apply the estoppel rules to see if reliance is valid.

Acceptances:

Acceptances under options are not effective until rec’d. § 63 they must be rec’d before the end of the option.

Rejections:

Rejections are binding when rec’d unless an Ac has already been rec’d

Rejections:

Rejections aren’t binding until the option expires.

Offeree can reject during the offer time and then accept later as long as it’s within the Option time.

Revocations:

Are effective when rec’d.

Revocations:

Can’t revoke (without incurring breach of contract penalties.)

Hypos From Class

Contract is made when acceptance is mailed: This contract is in force: 1 - Offer 2 – Acceptance Mailed – Contract Made 3 – Revocation 4 – Acc Arrives

Revocations are in force when they are rec’d 1 – Offer 2 – Revocation Mailed 3 – Acceptance Mailed – Contract Made 4 – Revocation Arrives - 5 – Acceptance arrives

So if you want to revoke – go and do it in person.

10 Trade off: Certainty/Flexibility

The more of one you get, the less of the other.

Acceptances are in force when mailed. Called “an overtaking rejection” 1 - Offer is made 2 – Acceptance is mailed at this point the Contract is made 3 – Offeree calls and rejects by phone 4 – Acceptance Arrives

It’s too late to reject – the acceptance is effective.

But … What if the offeror goes off and makes another contract in reliance on that statement. Equitable estoppel … when you’ve made a statement of fact, and someone relies on it you can’t go back on your word.

Overtaking Acceptance: Rejections are effective when received 1 – Offer 2 – Rejection is mailed by USPS 3 – Acceptance is mailed – this is the point at which contract is made. 4 - acceptance arrives by FedEx. 5 – Rejection arrives by U.S. Post.

The one that happened first controls Contract is made when the acceptance is mailed.

Restatement § 40: Non-Overtaking Acceptances

The time when a rejection or counter offer terminates the power of acceptance.

Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror,

but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer

unless the acceptance is received by the offeror before he receives the rejection or counter-offer.

Non-Overtaking Acceptance 1 – Offer 2 - Rejection Mailed 3 - Acceptance Mailed 4 – Rejection Arrives – this limits the power of the traveling acceptance: It turns the acceptance into a mere counter-offer. 5 – Acceptance Arrives

It turns the acceptance into a counter offer. The affect of the acceptance is limited: It becomes nothing but a counter offer.

Estoppel is not an issue here because § 40 does not deal with reliance. But it does allow for it. If the offeror relies on the first received rejection They are still perfectly free to reject the counter offer.

11 Defenses to Contracts

Reasons Why a Contract may be voidable

Void or Voidable? Void: no court will enforce it. Voidable: one side can withdraw, but the other can’t. e.g.: minority, mental infirmity, unconscionability, duress,

Definiteness

When is an agreement definite enough to be enforced? Did both parties intend to be bound?

Relational contracts are looser Transactional contracts must be more clear.

Evidence (e.g.: pre-contractual documents are used) can be used to interpret the intent.

Pyette v. Pyette found it was too indefinite.

Channel Home Centers – just shy of too indefinite.

Draftsman told “you’ll get a fair share of my profits” Usually enforceable based on trade customs preliminary negotiations, etc.

Statute of Frauds: Written & Oral Contracts

Some contracts need to be written down to be valid. Suretyship: promises to pay another’s debt Real Estate Promises that won’t be performed within a year.

Courts don’t like statute of Frauds.

If one signature is on a contract the contract can only be enforced against the signing party. Not every last detail needs to be written out. Writing can be evidence of te contract. It doesn’t need to be entirely written out itself.

Letter of Memorandum sent a few days later re-capping the conversation is sufficient to satisfy statute of frauds.

Monarco v. Lo Greco: although it was a real estate deal it was enforceable based on promissory estoppel & restitution – he was owed a part of the farm.

Rationales: Evidentiary – proves that the contract existed Cautionary – makes people think twice before entering into a contract Channeling function: convenient way of separating enforceable contracts from non-enforceable contracts.

Bjerre note: Consideration achieves all of these as well.

Promissory Estoppel as the alternative to the statute of Frauds.

Promissory Estoppel is a last resort – you should write clear contracts in the first place.

§ 139 (p. 185 Supp.)

Test for whether injustice can only be avoided by enforcement: 1) availability of other remedies 2) definite and substantial character of the action in relationship to the remedy sought 3) the extent to which the action corroborates evidence of the making of the contract.

12 4) the reasonableness of the action or forbearance 5) the extent to which the action or forbearance was foreseeable by the promisor.

Electronic Signatures

§ 101 – intent to be bound must be manifested.

E-signature: an electronic sound, symbol or process. Doesn’t necessarily have to be unforgeable.

POLICING THE BARGAIN Minority

Age: bright line rule: under age kids can void their contracts. Doesn’t matter if the item is damaged – restitution must be made for loss in value, but can’t refuse to take it back.

Exception for necessities – but it must be a real necessity Not even available for housing if there is a parent who is willing to house the minor.

Can void a contract only after a reasonable time after reaching majority. Continued bill payment implies an affirmance of the contract.

Kiefer: Even though he misrepresented his age, and had reached the age of majority, the contract is still voidable.

Duress - Coercion

“A wrongful threat pre-cluding the exercise of freewill”

Physical – is a defense

Economic Duress: Not allowed in Crim – allowed in Contracts

Austin v. Loral: Defense contractor – Gov’t is major buyer Subcontractor stopped working at the last minute, and said pay us more or else Contractor couldn’t go elsewhere & still deliver on time – they exhausted other avenues They agreed to the contract, but as soon as the parts were delivered they stopped paying Ct: they were under economic duress – the contract is voidable.

Mental Capacity

Mental Capacity: Volitional: Capacity to control you actions Cognitive: Capacity to understand your actions. Inebriated people: Must be “really out of it” – KC

Modern approach: use either cognition or volition

Ortelere v. Teacher’s Retirement: Contract was ruled avoidable per volitional incapacity.

Pre-Existing Duty:

Watkins & Son v. Carrig: Hit rock 1/3 way through excavation – asked for 9x the prive to remove Owner agreed – Does he have to pay? New contract was enforceable, even though no new consideration was given – pre-existing consideration. He relinquished the right to the old contract.

MisRepresentations & NonDisclosure

NonDisclosure usually not a problem – we want to encourage people to go out and get specialized knowledge.

13 Duty to Disclose:

When you know the other party has made a mistake of fact. When false implications are made – affirmative representations must be accurate When new information becomes available.

When a contract is voidable due to Misrepresentations: Facts weren’t accurate Must be a material fact (not opinion) that was misrepresented. the other side must rely on it. The statement must in fact be false. Does not matter whether you knew it was false.

Can use misrepresentations to allocate the burden of uncertainty: Put in the contract that there’s not cockroaches, then if there is seller pays to remove them.

Kannavos v. Annino: It was true that they could rent the apts, but they didn’t mention that it was illegal. Court: it was Fraud.

Adhesion contracts

Take it or leave it

Contracts are valid to the extent that they don’t go against anything that was actually bargained for.

Are not enforceable when both parties don’t’ know and intend for the contract e.g.: stuff piggybacking on a receipt if a reasonable person would not expect it.

§ 211 – know esp (3) 1) Claim checks & stubs are not binding if a reasonable person would not view them as a contract. 2) it doesn’t matter if you read it or not (law doesn’t want to encourage willful blindness) 3) Generally they are enforceable, but random unexpected clauses are not

Carnival Cruise Lines: Forum Selection Clause enforceable R: All passengers benefit when the Co. knows what law they will have to defend under.

Unconscionability

“Shocks the conscience”

Procedural & Substantive unconscionability.

Test: 1) terms unreasonably favorable to one side 2) lack of meaningful choice for the other.

Restatement § 208

Like a public policy choice - it tries to prevent people from taking “strong advantage” of others.

Walker Thomas Furniture Co.: Contract included a dragnet clause – get everything included an apportionment clause – never pay anything off.

Coase Theorem: If you change the balance of power (e.g.: make apportionment clauses illegal) it will economically efficiently rebalance some other way. (e.g.: more aggressive collections.)

Gateway 2000: Form in box with new computer, Arbitration in Chicago ICC rules ($10,000 to initiate) Substantive element alone makes the contract unconscionable. No procedural unconscionability

14 Public Policy

Contracts are void if they go against public policy Contracts for illegal actions, gambling, usury (illegally high rates of interest)

How to Modify Contracts

Generally enforceable as long as the terms are reasonable.

Central Adjustment Bureau: Non-compete clauses (probably often modified) Unreasonably broad they are adjusted to what’s reasonable.

Blue pencil rule.

15 Remedies for Breach

Two basic kinds of Remedy: Equitable Remedies: Specific Performance, Injunction Remedies at Law: $$ (preferred by courts – easier to supervise)

Two ways to calculate damages: - Diminution of Value - Putting it back the way it was – Completion of the K. e.g.: Gravel Pit Case

Breach of Contract is Strict Liability: If you said you’d sell your car & a tornado takes it away – you’re still liable.

No Punitive Damages for breach R: We want people to enter contracts

How damages are calculated: Contracts: Expectancy Damages Promissory Estoppel: Reliance Damages. Quasi Contract – Quantum Meruit

SPECIFIC PERFORMANCE Not preferred by courts – hard to supervise

Don’t like to force actions (too reminiscent of slavery) Exception: land is usually considered unique, and not as easily translatable into $$.

Sp Perf is an equitable remedy Court will not order an equitable remedy when there is a remedy at law available.

Lumley v. Wagner: Opera Singer – Injunction: can’t sing anywhere else in town Didn’t require singing at π’s venue – too hard to supervise The extent to which courts go to create supervisable orders.

Laclede Gas Co. v. Amoco Oil: Court ordered Sp. Perf. for public policy: keep propane is residences. The performance req’d was definite enough that it could be supervised.

MEASURING DAMAGES

Theories of Breach: the Holmsian Heresy

Breach of Contract is Strict Liability: If you said you’d sell your car & a tornado takes it away – you’re still liable.

No Punitive Damages for breach R: We want people to enter contracts

The $90 Radio Example:

A Radio might be for sale Current owner values it at $90 Buyer 1 values it at $110 Buyer 2 values it at $130

If CO & B1 make a contract to exchange at $100 they both benefit by $10.

If B1 then meets B2 and sells it for $120

But what if seller meets B2 before the exchange takes place, and breaches the contract and sells to B2 for $120.

Pacta sunt servanda:

Promises should be observed.

16 Seller makes $30 profit,

but pays $10 to B1 for expectancy in breach. but is still $20 ahead.

Why are these breaches tolerated? The Holmsian Heresy The radio does the best social good by being in the hands of B2. We want the radio to be in the hands of the person that values it the most.

Arguments against the “right to breach”

Pacta sunt servanda: Promises should be observed It just seems like the right thing to do.

Transaction Costs are difficult to calculate.

Assumes that all people value $$ the same. Such theories leave poor people with very little.

Fuller & Purdue: Kinds of Damages: Restitution is most important Reliance is next most important Expectancy is least – so why do we award it?

1) Credit based society – assume people have what they’re expecting

2) Make plans relying on out expectations & pass opportunities relying on those expectations which are difficult to articulate.

3) If we make people prove their reliance people will be fearful of relying – because it’s so hard to prove.

Transaction Costs – sort of built in to the expectancy – it would be too difficult to add them all up.

Calculating Damages

Two ways to calculate damages: - Diminution of Value - Putting it back the way it was – Completion of the K.

Groves v. John Wonder Co.: Should the gravel pit be regarded at a cost higher than the cost of the land? Court orders the cost of regarding. R: put the π in the position he would have been had the contract been completed. Accounts for subjective value of land. (but was there even evidence of such here? He turned around and sold it as soon as it was regarded!)

How damages are calculated: Contracts: Expectancy Damages Promissory Estoppel: Reliance Damages. Quasi Contract – Quantum Meruit

Expectancy Damages

Principles: Put the π in the position they would have been in had the contract been performed. “the making of the contract is the securing of the benefit.”

Two ways to calculate damages: - Diminution of Value ($$ - remedy at law) Peevyhouse v. Garland Coal Mining: Only given change in value of family farm. - Putting it back the way it was – Completion of the K. (equitable remedy – sp. perf.) e.g.: Groves v. John Wonder Co.: Gravel Pit Case

17 Simple Case Hypo:

Painter promises to paint the house. Homeowner promises to pay $5,000 Next best price available: $7,000

If the painter decides not to paint what damages are owed for breach? $2,000 (or whatever the difference is between $5,000 and the next best price available.)

Reasoning: “the making of the contract is the securing of the benefit.” Rhetoric: The expectancy is $2,000.

Vitex v. Caribtex: Only directly applicable variable costs included in expectancy calculation. R: They would have spent the same fixed costs with or without the contract.

Incidental Reliance: as opposed to essential reliance Damages above & beyond the loss of profit from the contract - actions taken in reasonable expectation that the contract wouldn’t be breached. E.G.: rent a fruit stand & order fruit – if rental contract is breached, fruit rots – who pays for fruit? The breachor – assuming it was reasonable for him to assume that the renter would rely on the furuit stand and purchase the fruit.

Losing Contracts

What if the expected profit was negative? You pay for the value received (assuming the stoppage was in good faith) Quantum Meruit

Algernon Blair: “The standard of measuring the reasonable value of the services rendered is the amount for which such services could have been purchased from one in the π’s position at the time and place the services were rendered.” The contract price acts as a ceiling.

Limitations on Damages

Duty to Mitigate

Two Methods: - Stop the Loss Luten Bridge - Find another transaction – Parker v. 20th Century Fox (Shirley McClain Case)

20th Century Fox: You must put forth a reasonable effort to get a substantially similar position It must be of similar quality.

Exceptions: Lost volume sellers – no duty to mitigate

M & R v. Michaels: Contractors are assumed to be lost volume sellers, but π can rebut that. They had plenty to fill their time, but still were compensated for expectancy.

Limitations on Consequential Damages

They must be foreseeable & relatively certain

Hadley v. Baxendale: Mill shaft case Can only collect what was reasonably foreseeable by the Δ at the time the Contract is made it must arise naturally from the breach.

Modern Response: Disclaimers of liability for consequential damages.

18 Certainty of Damages

Speculative Expectancy Damages: E.g.: if my house was painted it would be in Home & Garden, and I would get a movie role . . . Sp. Damages are an evidence issue: Court is conservative in assignment.

Incidental Reliance: as opposed to essential reliance Damages above & beyond the loss of profit from the contract - actions taken in reasonable expectation that the contract wouldn’t be breached. E.G.: rent a fruit stand & order fruit – if rental contract is breached, fruit rots – who pays for fruit? The breachor – assuming it was reasonable for him to assume that the renter would rely on the furuit stand and purchase the fruit.

Penalty Clauses & Liquidated Damages

Ne penalties allowed. You only get expectancy

R: Punitive damages don’t allow efficient breach - it makes the π better off with the poor contract with the breach

Good estimate of things that are hard to prove Lost profits & emotional damages.

Lake River v. Carborundum: If they had just designed the penalty to pay for the cost of the bagging machine & expected profit they would have been fine.

Take or Pay Clauses: Generally not enforceable – damages are limited to actual damages.

Even new businesses can now show certainty of profits.

Emotional damages are based on a reasonable person. Objective -

19 Analyzing a Contracts Question

Was there a Contract

Mutual Assent Was an offer made? Was it definite/certain enough to be enforced? Was it properly accepted?

Alternatively: Quasi Contract Reasonably relied upon promise

Consideration Was there mutual reciprocal inducement? Was something actually exchanged? - or was one promise illusory

Alternatively was there a reasonable expectation of reliance?

Defenses to Contract Illegal Subject Matter Minority Capacity Duress Statute of Frauds Misrepresentation Adhesion Contracts Unconscionability

Was it breached?

Must be a material breach actually causing damages

What were the consequences?

Available Remedies

Contracts: Expectancy Damages Promissory Estoppel: Reliance Damages. Quasi Contract – Quantum Meruit

No punitive damages The Holmsian Heresy

Duty to mitigate damages

Key Definitions:

An offer vests in the offeree the power to create a contract by making an acceptance.

I. Types of Enforceable Promises

A) Promises w/ Consideration- The most common reason given for enforcing a promise is that there is consideration for it. Consideration is a concept with a long history, and stems from similar bases of enforceability in English common law. At one time consideration was defined as a benefit to the promissor or a detriment to the promissee. This definition, however, tended to be both over and under inclusive of promises that should be enforced. The reason why contracts with consideration should be enforceable is that consideration indicates that there has been an exchange. Generally, it is believed that exchange is good, and benefits both parties and society as a whole. Thus when judging whether consideration exists, it is most appropriate, instead of looking to benefit or detriment to either party, to consider whether an exchange has been made. This is the modern construction of the definition of consideration. Contracts with consideration are generally enforceable. 1) Elements of Consideration

a) Exchange- Consideration for a promise must be given specifically in exchange for that promise. Actions taken before the promise was made cannot constitute consideration for the promise.

i) Feinberg. Pfeiffer- Case of an office worker near retirement who was promised a retirement pension. The Court found that her service to the company up until the promise could not be construed as consideration for this promise, and ruled that the promise was not enforceable based on consideration ii) Mills v. Wyman- Promise was made by father of man whom promisee had done a great deal to help, in gratitude of those acts by the promisee. It was ruled that promisee’s actions were not consideration for the promise because they were not performed in exchange for the promise, or they did not “induce” the promise.

b) Bargain- It is not enough that an action be done in response to a promise. It must be the case that the action be done or a promise made be done because it was bargained for by the promissor. The promise must be induced by the action, AND the other way around.

i) Kirksey v. Kirksey- Case where brother promised sister a place on his farm “if she would come down and see him”. The court ruled that his promise was not enforceable because it was without consideration. He was not induced

to promise her a place on his farm by the prospect of her coming down to see him on his farm, it was found, but rather it was simply a description of a situation in which he would offer her his gift.

2) Promises as Consideration- Promises as well as payment or performance can be consideration for a promise. The promise is consideration, generally, if the performance promised would be consideration. That said, the promise must actually be a promise, in other words an oath to do some specific thing. In addition, promises may be interpreted by Courts to entail certain things not directly spoken or written by the promissor.

a) Strong v. Sheffield- Wife of debtor promised to pay her husband’s debt if creditor forbore on husband’s debt. However, creditor did not promise to forbear for any length of time, but rather to forbear collection until such time as he wished to collect upon it. This meant that the creditor could have collected at any time after promise was made. Thus, it was ruled that creditor’s promise could not be consideration for wife’s promise to pay, because the promise made was not really a promise, and because the thing promised “to forbear until he didn’t want to anymore” was not bargained for by the promissor. Statements like the one made by the creditor in Strong are known as illusory promises. b) Wood v. Lucy, Lady Duff-Gordon- Case of Lucy, a fashion designer, who entered into agreement to lend her endorsement exclusively to Wood, in exchange for half of all profits Wood may receive for items sold with her endorsement. Lucy sued Wood for breach because he failed to use her endorsement. Court found that Wood’s promise to give her half of all profits implied that he would actually use that license. c) Central Investment Bureau v. Ingram- Employment Contract involving non-competition agreement between Central and employees. Issue was whether there was valid consideration for employee’s promise not to compete. Court ruled that employee who had signed agreement near beginning of employment was bound because performance of continued employment was adequate consideration. Court also ruled that another employee was bound to his promise even though he signed the contract sometime after being employed, because the performance of continued employment had been tacitly accepted by the employee.

3) Exceptions to the Consideration Requirement- In some cases courts negate the requirement for consideration. These promises are special because they affirm an obligation that promissor rightfully should have anyway. a) Reaffirmance of unenforceable promise made as a minor b) Reaffirmance of cancelled debt.

B) Promises Relied Upon by Promissees

1) Restatement § 90- This section provides a closely adhered to rule for reliance. The section provides that a promise is enforceable if: (1) The reliance by promissee was foreseeable; (2) The promissee was justified in relying on the promise; and (3) Injustice would be avoided by enforcement of the promise. 2) Ricketts v. Scothorn- Granddaughter sued Grandfather for recovery of funds promised to her. Grandfather promised to give her the money so that she wouldn’t have to work anymore. She soon quit her job in expectation of payment by grandfather. Court ruled that promise was enforceable because granddaughter relied on the promise and because it would be unjust under the circumstances not to enforce the promise.

C) Restitution- Sometimes damages are awarded without a promise having been made at all. This happens when one party is “unjustly enriched” at the expense of the other or when a contract is “implied in fact”. In limited circumstances, this can lead to an obligation on the enriched party to recover the loss for the enriching party.

1) Cotnam v. Wisdom- Court ruled that doctor could recover fair fees for services rendered to a life-threatened stranger. The court relied upon the legal concept of a contract implied in fact in its decision. This argument is buttressed by the consideration that the patient would have agreed to pay for the services had he been conscious, and also by the public utility inherent in allowing doctors/hospitals to recover for services rendered to unconscious people. Since the occasion arises so often that patients come to a hospital, for instance, unconscious and seriously injured, it would create a serious and intolerable financial hardship for medical professionals not to allow recovery in such circumstances. This might cause a serious disruption in the economics of medicine and result in a worsening of the level of care or dramatic increase in the price for those who ARE conscious when they decide to receive medical treatment. a) NOTE: Generally, restitution is not allowed for services rendered in an emergency context. Services by medical

professionals, for reasons mentioned above, are an exception to this rule. 2) Callano v. Oakwood Parks Homes Corp- Landscapers installed shrubberies for purchaser of home, who died before the sale went through. Ownership reverted to seller of home, and seller sold the property with the shrubbery. The landscapers sued under a claim of unjust enrichment to Oakwood Parks Homes. Court ruled that landscapers were not entitled to Oakwood parks because Oakwood was not in any way responsible for the actions of the landscapers. Court mentioned that had there been fraud involved on the part of Oakwood, Callanos may have been able to recover, but refused to allow recovery in this case.

a) Note: Third party beneficiaries are generally not allowed to “substitute” when another party is unjustly enriched but cannot pay. There must be some sort of direct relationship between party enricher and enrichee.

3) Pyeatte v. Pyeatte- Case of agreement between married couple that wife put husband through law school in exchange for the husband putting the wife through graduate school afterwards. Court ruled that terms were too indefinite to provide a remedy under contract law, but that restitution was appropriate. Court distinguished the case from other invalid claims for restitution in marriage contexts for tasks ordinarily assumed to be conferred gratuitously by married couples, like housework, etc.

II. The Bargaining Process- Every contract is formed through a process whereby two parties agree to make an exchange. The process is starts with an offer, which must be sufficiently definite and of a certain form, depending on the situation. Once this offer is made, a power is bestowed on the offeree to make a contract by accepting the terms of the offer. After acceptance, the contract is binding and both sides are bound by the contract unless they agree together to amend or destroy the contract.

A) Assent, generally- A contract is above all an agreement. So, a valid contract must be agreed to by both parties, with intent to be bound. That said, there is no way to accurately judge the mental state of another party, and so the fairest way to deal with this requirement is to look to the observable actions and words of the parties that would indicate their intent to bound, or lack thereof. It is important to note, however, that often courts sometimes take into account the subjective knowledge of each party and what they in particular would be justified in understanding from the actions of the other party, see Lucy.

1) Lucy v. Zehmer- Case of contract for sale of land, written on the back of a restaurant check. Zehmer claimed the contract was in jest, but the evidence suggested that Zehmer did nothing to suggest to Lucy that the

sale was in jest, and so the court ruled that Lucy was entitled to sue on the contract. 2) Unfinished Agreements- The rule generally is that unless one party specifies to the contrary, parties may be held to contracts that remain in the stages of final negotiation, depending on the particulars of the deal. 3) Genleman’s Agreements- In certain situations, parties wish to negotiate terms while still holding out on their decision to go through with a deal. In such situations, the parties will stipulate that an offer, for instance, is not an offer but rather a “letter of intent”. 4) Special Circumstances- In some special situations intent to be bound is inferred to be missing unless it is particularly specified. Examples of this are doctor’s promises to patients and spouses promises to each other.

B) Offer- Generally contract formation is affected through two steps: an Offer made by one party including all relevant terms of the final agreement, followed by an acceptance by the second party on those terms. Negotiation often consists of an initial offer, followed by several counter-offers, with each of the offers and counter-offers creating for the other party the power of accepting the offer or counter-offer and binding both parties. There is a balance of power here between the power of the offeror to insist that the agreement meet her terms and the power of the offeree to accept or not accept those terms. 1) Owen v. Tunison- Disputed sale of land. Issue was whether words in a letter from Tunison to Owen to the effect that “I would not be able to sell for less than ______” amounted to an offer to Owen to make a binding contract for sale of the property. Court ruled in favor of Tunison, because his words were thought by the court likely to have been a suggestion for an offer and not an offer itself. In point of fact, Tunison did not even say he would sell the land if the buyer met the price stipulated, but rather that he would not sell it at a lower price.

2) Harvey v. Facey- Suit for breach of contract based on alleged contract for sale of tract of land, Bumper Hall Pen. Harvey contended that a series of telegrams amounted to a contract for sale. First telegram was: “Will you sell us Bumper Hall Pen? Telegram lowest cash price”. Response was “Lowest Price for Bumper Hall Pen 900 Pounds” Harvey construed this response as an offer to sell the property to him. Court rejected Harvey’s claim because Facey did not answer the question in his response of whether he would sell to him, but rather answered only the question as to the price. It was ruled that Facey did not intend to confer power on Harvey to close the deal.

3) Fairmount Glass Works v. Crunden-Martin Woodenware Co.- Alleged contract for sale of Mason jars. Issue was whether a response to a request to offer a price for ten carloads of mason jars was an acceptable offer to create a contract. The court held that the response’s nature, including all relevant terms of the deal plus the words “for immediate acceptance” constituted an offer per request of the first letter, and that the deal was made available to Crunden-Martin for acceptance. 4) Advertisements- Advertisements are a special brand of offer, and are generally not taken to be offers to make a binding contract. The reasoning behind this is partially that offers are supposed to reflect an intent to be bound. It is utterly unreasonable to suppose that a store, for instance, intends to be bound contractually to every person who wants a given thing at a given price from their store. If this were so, the store would be taking on the responsibility of being contractually obligated when a customer wanted something that was out of stock or that they had decided not to sell anymore. There are special cases, however, of advertisements worded in such a way as they could be construed as an intent to be bound, because they contain language specific to a particular class of people and/or create an incentive to perform a particular task in order to qualify for the offer. In these circumstances an intent to be bound is forced upon a company because it would be reckless to take away such an offer.

a) Lefkowitz v. Great Minneapolis Surplus Store- Case of advertisement concerning mink stole. Ad stipulated the amount of stoles and also “first come, first served.” Lefkowitz was first to respond to the offer and was not given the stole at the price offered and sued. Court ruled that specificity of amount, price, and stipulation that the first to accept would be the given the stole at that price meant that Lefkowitz could reasonably infer an intent to be bound on the part of the store.

5) Mistake in an Offer- A mistake in an offer will void that offer if the offerree has reason to know that the offeror was in error.

C) Acceptance- With some exceptions, The offer determines what the offeree must do to accept the offer. The situation determines whether an acceptance creates a binding contract. There are very few rules with no exceptions.

1) Silent Acceptance- Though generally the offeror has the power to create the terms of acceptance, this power does not extend to mandating that silence equal acceptance. Silent acceptance binding an offeree would be contrary to the universally accepted tenet that there must not be a contract where there was definitely not a meeting of the minds. For, even though objective considerations have replaced the subjective for proof purposes, even the objective considerations are designed with the express

purpose of coming as close as possible with limited evidence to allowing contracts where there is a subjective meeting of the minds. Even this rule, however, has its exceptions 2) Carlill v. Carbolic Smoke Ball- The carbolic smoke ball was a “medical” device. In an advertisement, the makers of the ball indicated that it had deposited 1000 lbs. in a bank for the purposes of dispensing 100 lbs to anybody who had used the ball for two weeks as recommended and then contracted influenza. Court ruled that Carlill’s performance as stipulated in the ad constituted acceptance of the offer, and that it wasn’t necessary for her to inform CSB that she had accepted the offer.

D) Termination of Power of Acceptance- The power of acceptance is eliminated by (1) lapse of the offer, (2) by its revocation, (3) by the offeror’s death or incapacity, or (4) by the offeree’s rejection.

1) Lapse- The length of time an offer is available for acceptance is determined either by the offer itself or by reasonableness under the circumstances. For example, items whose price tends to fluctuate require a shorter time limit for acceptance, whereas the opposite is true for items with more stable values, such as real estate. a) Face to face rule- Generally, offers given in a face to face conversation, unless otherwise specified, do not extend past the end of the conversation.

2) Revocation- Generally, an offeror is free to revoke until the offer is accepted. a) Option contracts- Option contracts get their name from their special nature vis-à-vis revocation. Option contracts specify an amount of time in which the offer will be available, and the offer must stay open during that time. Option contracts must have consideration, but generally even a mere pretense of consideration is valid.

b) Indirect Revocation- As shown in Dickinson, revocation need not be expressed by the offeror herself. Any reliable information tending to indicate that the offeror no longer intends to be bound by his original offer will cause the offer to lapse. This is consistent with the idea that even though a meeting of the minds does not necessarily have to occur, that a contract can nevertheless not be formed when there DEFINITELY ISNT a meeting of the minds.

c) Dickinson v. Dodds- Case of an option contract without consideration. Dodds sent a letter to Dickinson with an offer and a p.s. stipulating that the offer would be left open until 9 am on a certain day. Dickinson, taking Dodds to be bound by this option, did not act on his acceptance right away. However, hearing that somebody else was about to buy the property, he hurried to meet t he 9 am deadline. He met him before 9 am, then sued for breach when Dodds denied to convey the property. Court ruled that the promise to leave the offer open was without consideration and that as such Dodds was free to sell the land to somebody else, and also that the offer lapsed when Dickinson heard about the other negotiations, since at that point he was no longer under the impression that Dodds had his terms in mind and was prepared to sell them to him under those terms; in other words, the it was unreasonable for him to think that the offer still stood.

d) Toys, Inc. v. Burlington- Case involving Toy store who rented space in a mall on a five year lease w/ an option to renew for another five years. Agreement stipulated an option to renew for five years if notice of intent to renew was given a year in advance of expiration of original lease. A letter of intent was given, but an argument ensued over rental price for the next five years. Lessor contended that Lessee did not meet the deadline for renewal and that the option in the original contract was without consideration. This case shows, first, that one promise or performance by a party can be consideration for multiple promises by the other party. In this case, the payment of rent was the consideration for both the promise to rent the space and the promise to keep the offer to renew open until a year before expiration. Court held that validity of acceptance was not a matter of law and sent it back for trial, but ruled conclusively on the matter of consideration.

3) Death or Incapacity- Generally, death or incapacity of the offeror voids the offer, but option contracts remain valid past death, until the normal time of expiration.

4) Rejection- A rejection is a response by the offeree clearly indicating that they do not wish to bind themselves to the terms of the offer. A rejection takes away the power of the offeree to create the contract until a new offer is given. Rejections include “counter-offers”, because a counter-offers act simultaneously as rejections of the old offer and as a new offer. There is often dispute over which party in a negotiation was the last offeree and was therefore entitled to set the final terms of the contract for acceptance. The question of whether a response is a counteroffer or an acceptance is informed by the “mirror image rule”. A failure to accept any terms of the offer, under this rule, makes the response

a counter-offer rather than an acceptance. If the parties begin performance under the contract, the party that made this last response is entitled under law to the terms it specified in its counter-offer.

a) Mailbox Rule- The mailbox rule is the generally adhered to rule that the acceptance of an offer is valid upon mailing it. Or, placing it in the mailbox. The rule was crafted to give offerees an assurance that their acceptance would count, regardless of how late the offer was received, etc. REVOCATIONS are not subject to the mailbox rule, and are not effective until received. Similarly, rejections are not valid until received. Courts generally hold that BOTH PARTIES ARE BOUND by the mailing of an acceptance letter, and not just the offeror. In other words, telephoning a rejection to the offeror after mailing an acceptance does not invalidate the acceptance. MAILBOX RULE DOES NOT APPLY TO OPTIONS. i) Restatement sec. 40- Mailbox rule does not apply to acceptances sent after a rejection has already been sent. Rather, in this situation it depends which correspondence arrives first. If rejection arrives first, then acceptance is only a counter-offer.

E) Precontractual Liability- This is where the “Brooklyn Bridge Hypothetical” applies. In a case where performance is sought in exchange for a promise, beginning to perform concludes the contract and not finishing the performance. This rule makes sense, since the performance sought in exchange for a promise may sometimes be long and drawn out, and can require long periods of time and great expense to complete. It would be unfair to allow the promissor to have the power to revoke the whole time. In addition liability is conferred in situations where the terms of an offer are detrimentally relied upon, as in the case of the subcontractor’s bid in Drennan v. Star Paving, below. In cases such as Drennan, it is ruled that an implied promise (given the situation) not to change the terms of the offer is detrimentally relied upon by the offeree. Enforceability is governed by the same analysis as ordinary detrimental reliance, as set out by RESTATEMENT, SEC. 90.

1) Drennan v. Star Paving Co.- This case involved a subcontractor who made a mistaken bid to the general contractor, who in turn relied on false bid in its bid to a school district. It was ruled that contractor could recover difference between false bid and next highest bid based on detrimental reliance on the terms of the original offer, since Drennan’s acceptance of the offer was in good faith and all the requirements of Restatement sec. 90 were evident, i.e. Detrimental Reliance, Avoidance of injustice, foreseeability of reliance. It was essentially ruled that under the circumstances there was an implied promise not to revoke on the part of

the subcontractor that did not require consideration because it was relied upon by Drennan. 2) Channel Home Centers v. Grossman- Dispute focused on a letter of intent signed by Grossman, owner of a property, and CHM, a prospective tenant. CHM became interested in the site and gave notice of their intent to rent the property. CHM then sent a letter of intent to negotiate solely with CHM, while requesting that CHM send a letter of intent back in order that Grossman might show it to banks from whom he hoped to receive financing. Court ruled that this exchange of letters of intent may have been a valid contract, and reversed a summary judgment for Grossman on the validity of the contract. This case shows that courts may find a valid contract to have been made despite the fact that neither side believed that the negotiations were finished and neither side had signed an official agreement. The type of contract that may have been found here, however, does not bind the parties to a lease agreement, but rather to an agreement to continue negotiations in “good faith”.

F) The Definiteness Requirement- There is a minimum amount that must be apparent in the words or letters exchanged by the parties to determine to a reasonable level what agreement was meant. Perhaps “definiteness” is not the right word, because in most cases something far from definite is required. It must simply be clear what kind of agreement was meant by the parties, on a more specific than general level. This, along with a prior history between the parties or of each of the parties with the kind of contract at issue or other such informative evidence, is usually enough for a court to find sufficient definiteness in an agreement. The court’s attitude towards this issue is informed by their general positive attitude towards contract as well as by a knowledge that contracts are rarely perfect anyway. Courts prefer that an contract be enforced that imperfectly reflects the actual intent of both parties than that no contract be enforced at all. Even obviously vague phrases like “reasonable time” and “good faith” are found to be sufficiently definite, given either prior history of the specific parties or even the general behavior of the terms in contracts generally.

III. Statutes of Frauds- A statute of frauds is a statute governing the enforceability of certain kinds of contracts. These statutes have been met with uncertainty and confusion by the courts, and they tend to be enforced grudgingly and sparingly, since there is much doubt as to whether the statutes encourage more fraud than they prevent, since one party’s knowledge of the statute encourages that party to use that knowledge to lead another party to ruin through oral agreements he intended to breech. A) Types of Contracts Ordinarily Subject to Statutes of Frauds 1) Suretyship Contracts

2) Sale or Lease of Land to last more than 1 year. 3) Agreements not to be Executed for More than One Year

4) Contracts between Married Couples 5) Loans over a certain Amount, ex: 50000 dollars

B) Exceptions to Statutes of Frauds- Courts sometimes find exceptions to a requirement for a contract to be in writing in cases where injustice would be committed if statute were applied.

1) Monarco v. Lo Greco- Case involving rights to a property promised by a couple to the son from another marriage of the wife. The son worked on their farmland and was only kept there upon the promise to leave the substantial value of the property to him in their will. Despite this promise, husband never entered this promise into his will and instead left the property in full to his son. Trial court entered summary judgment for husband’s son. Appeals court found error in the judgment, ruling that oral agreement should stand despite statute of frauds’ forbiddance, because both (1) The oral promissee had changed his position to his detriment in reliance on the promise, and (2) the promissor would have been unjustly enriched if the promise had been found unenforceable pursuant to the statute. Evidence of either one is enough to negate the statute.

a) General Rule for Estoppel of Statute of Frauds- The general rules for estoppel of enforcement are similar to the general rules for reliance on a promise (Restatement, sec. 90) and unjust enrichment.

IV. Policing the Bargain A) Status of Parties

1) Mental Infirmity- Generally, mental infirmity of any kind is judged to void the contract if the mental infirmity caused the party not to reasonably understand the terms of the contract and the other party has reason to know of the infirmity. In extreme cases, it is not necessary for the other person to know of the infirmity. This is true of intoxicated parties as well.

a) Ortelere v. Teachers’ Retirement Bd.- A controversial case involving a schoolteacher who decided to exercise an option in her pension with school to receive a large loan and to receive larger monthly installments until death rather than receiving a smaller monthly stipend and leave the entire remaining portion for her husband upon her death. Court ruled that her decision was so egregiously inappropriate that it could be inferred that her decision was caused by her illness, and thus ruled that her decision to change the method of payment was void.

2) Infancy- In most jurisdictions, there is a “magical age” over which people are held responsible enough to enter into contracts and under which the opposite. Unless the contract is for “necessaries”, any contract signed by one under this age of majority is avoidable. An infant may disaffirm their contracts at any time up to and a reasonable time after reaching the age of majority.

a) Keifer v. Fred Howe Motors, Inc.- Child purchased automobile under false pretense of being 21 years or older. Court allowed child to disaffirm the contract, return the car, and recover payments on it. A dissent argued that a car for a parent under 21 years old should count as a “necessary” in today’s society, and that therefore infant should not have been allowed to disaffirm.

3) Others

B) Preexisting Duty- It is an extension of the general rule of consideration that a promise is without consideration that is made in return for a promise or performance that the promissee is already bound to do. Depending on the circumstances, the line between a new promise for a new promise and a new promise for the old promise is blurred.

1) Alaska Packers’ Ass’n v. Domenico- Alaska Packers appealed judgment in favor of workers who struck on board a ship for higher wages and received them. It was ruled that the new contract bargained for on the ship was void because it contained a new promise for payment in exchange for work already promised to be done by the sailors. As such, it was ruled that there was no consideration for the new promise, and that the extra wages should be returned by the sailors to Alaska Packers. 2) Watkins and Son v. Carrig- Case similar to Alaska Packers in which contractor bargained for increase in price when adverse conditions were found in a basement to be excavated. Homeowner agreed to price increase, but later claimed that it only owed the original amount because the promise to pay the higher amount was without consideration. Judge ruled that this was a case of rescission of the earlier contract in favor of a new, more fair contract, and that as such it was a new promise for new work instead of a new promise for old work. 3) Difference between Alaska and Watkins- How is the difference in these decisions to be accounted for? One idea is that the first situation was one of duress, and that the second was not. This idea has some weight, although the first situation would not be a classic case of duress, since a contract was already signed. Alaska was in a position to sue the workers for damages from their not working, probably, and so really did not have an excuse to sign the contract. Some courts and commentators have

explicitly adopted the rule that a modification made under duress is not valid, or that a modification is invalid unless lack of duress is proven.

C) Duress- Despite having the outward signs of a valid contract, an agreement must be voided if it is found that the agreement was made while one party was under the pressure or threat of the other.

1) Austin Instrument v. Loral Corporation- Court ruled on whether an agreement to an increase in price was made under duress and therefore invalid. Austin Instrument was subcontracting for Navy contractor Loral Corporation. Austin Instrument threatened to delay delivery of goods already promised to Loral unless Loral agreed to substantial price increases and to award Loral exclusive right to manufacture the parts for the next contract with the navy. Court ruled that Loral’s agreement was made under duress because they were in a position where they had no choice but to comply with Austin’s demands, because of their pressing obligations to the Navy, since according to Austin there was no other source available from which they could receive the parts owed to them by Austin on schedule.

D) Concealment and Misrepresentation- Here courts ask themselves the question of what people can be expected to reveal to their adversaries in a negotiating context, and also what they are expected not to do, e.g. misrepresent or mislead. In answering this question, courts come down somewhere between requiring a party to behave with utmost scruples and allowing the worst kind of deviance and dishonesty to the detriment of the opposing party. Importantly, rescission is not usually granted for “bare non-disclosure” of a factor of which one is aware. 1) Kannavos v. Annino- Annino put property up for sale, advertising it as a rental property, with the knowledge that the property was not zoned as a rental property. Kannavos rented the property and then attempted to rescind the deal. Court ruled for Kannavos, holding that the representation by Annino that the building may be rented out amounted to misrepresentation regarding a crucial element of the deal, and that as such the case met the requirements of misrepresentation. Contract rescinded.

2) Elements of Misrepresentation

a) False Statement b) Reasonable Reliance c) Statement Must Be about a Material Fact

d) Exceptions to False Statement Rule can Apply when a Represenation Can Be Construed as a Half-truth Instead of a Simple Failure to Disclose e) Another exception applies with Special Relationships, like Lawyer/Client, Doctor/Patient, etc. where Disclosure is Expected. f) Misrepresentation Extends to Awareness of Mistake of Adversary.

E) Unconscionability- Unconscionability is a relatively new policy that allows courts to deal with contracts that, if allowed, would tend to have a profoundly negative influence on the public at large. This is a new and controversial development in contract law, and has been met with skepticism. The main reason given for its development is the shift in the role of contracts in everyday life from protector of the interests and freedom of the individual to protector of the interests of a privileged class, usually corporations. The instrument of this shift has been FORM CONTRACTS. Whatever the reason, courts today are willing to take into account the terms of the contract along with the relative bargaining strength of the parties in concluding that the terms of a contract are UNCONSCIONABLE. IMPORTANT NOTE: SUBSTANTIVE AND PROCEDURAL UNCONSIONABILITY- The most common rule for unsconscionability is that a contract may only be found unconscionable if it is, at least to some extent, both PROEDURALLY and SUBSTANTIVELY unconscionable. For instance, unconscionability becomes an issue most often in “adhesion contracts”. Adhesion contracts are examples of contracts which have a procedural unconscionability element. “Procedure” refers to the extent to which the process of contract formation differs from the ideal situation of equal bargaining partners coming to a fair agreement. Adhesion contracts, by their definition, depart from this format. However, not all adhesion contracts are found unconscionable. It is arguable that there is such thing as a “fair” adhesion contract, and such contracts would promote the public good by allowing agreements fair to both parties to be made in the most convenient manner possible, saving time for the 99 percent of people who will not be unhappy with the transaction in question. Thus there is a separate requirement of substantive unconscionability, which refers to the unfairness in the terms of the contract. Importantly, it is also the case that substantive unconscionability alone is not enough (except in extreme peppercorn cases) for a finding of unconscionability. If both parties are on equal footing in a negotiation, it is in the public interest to let the results of the negotiation stand, lest these sorts of negotiations be discouraged generally, a most tragic result. This of course is a far more controversial and tricky

thing to deal with. Though both of these factors must be found, more of one may make up for a lack in the other. 1) Boilerplate “Contracts”- Boilerplate contracts offered usually by businesses that are assumed to be agreed to by a certain action. The classic case involves a contract written on the back of a stub given for receipt of a load of laundry at a dry-cleaning establishment. The terms of such “contracts” are heavily scrutinized, and it is most certainly not the case that their terms are generally valid. Usually, the terms will be adhered to, but not if the terms are such that if the customer had known about them she would not have agreed to enter into it. Judges’ response to boilerplate contracts often fall under the category of “procedural” methods of dealing with unconscionable contracts, because the faults often found with them center on failure for one party to assent to the terms of the contract, thereby causing it to lack one of the essential qualities of a contract, regardless of substance. This method is attacked by some, who feel that there are negative consequences resulting from dealing with unconsionability problems by altering procedural rules. a) Restatement sec. 211- Terms in a boilerplate contract are generally assented to if it the party manifests his assent in a way in which he would tend to know to be such an assent. This is an entirely objective measurement. However, terms for which it is adjudged that the person would not have assented had he known about them are voidable.

2) Carnival Cruise Lines, Inc. v. Schute- Dispute centered around validity of a forum selection clause in a cruise passage contract. Majority ruled that clause was not unconscionable because passenger had ample opportunity to read the contract and did not have to agree to the terms and because the terms themselves were not unreasonable, since it required that the suit be litigated in a state of the United States. Dissent argued, however, that the clause should have been thrown out, partially because the contract was only given to the passengers after the ticket had been purchased, at which time the ticket was non-refundable. Besides this procedural issue, the dissent took issue with the majority’s decision on the reasonableness of the forum, since the forum, Florida, was a great distance away from Washington, the home of the passenger, and the costs of litigating such a great distance away were arguably too great and unreasonable. 3) Williams v. Walker-Thomas Furniture Co.- Case involved a woman who purchased a great many things on credit from a rent-to-own establishment. The establishment included in its rental contracts an apportionment clause and a dragnet clause, which effectively made it impossible to pay off any of the items purchased until all were paid off.

Woman purchased a stereo set and missed payments on it. According to the contract, Walker-Thomas was allowed to come and take back all of the items purchased previously by Williams, some of which should have been long paid off were it not for the apportionment clause. Court reversed summary judgment for furniture company because it was not clear whether the contract was unconscionable as against public policy. In its opinion, the court cited the rule on unconscionability include two elements: (1) the absence of meaningful choice on the part of one of the parties, and (2) terms unreasonably favorable to the other party. 4) Brower v. Gateway 2000- Case involving boilerplate contract shipped with computer upon catalog purchase. The term locked the purchaser into binding arbitration with a firm of the computer company’s choosing. This term was ruled unconscionable, but only because the price and location of the arbitration firm was unreasonable, and inappropriate in a contract of adhesion. It is important to note that it was only this problem that the court found unconscionable. It was willing to accept everything else in the contract, despite the fact that none of it was bargained for. The court demonstrated a tendency to put the onus on purchasers to read contracts and realize the implications of the terms therein. Caveat Emptor. 5) Armendariz v. Foundation Health Services- Debate in court centered around the unconscionability of a mandatory arbitration clause imposed on employee, Armendariz, in an adhesive employment contract. Having decided quickly on the procedural element, the court went on to consider the substantive unconscionability of the contract. The court found that the a “modicum of bi-laterality” must exist in arbitration contracts, and that such was not present in the case-at-bar. Particularly, the contract mandated arbitration for employee’s claims arising out of wrongful termination, whereas employer’s claims arising out of the same transaction were not so limited. This was found to be unconscionable, enough so that it made up for the general advantages to the public in allowing arbitration in such situations. In addition, the contract allowed for only back-pay damages to be awarded to the employees in arbitration for wrongful termination, whereas there was no such limitation on the employer’s claims.

F) Public Policy Considerations- On rare occasions courts make and enforce rules pertaining to particular types of contracts that are by their nature against public policy. Such types of contract include contracts to commit crimes and contracts in restraint of trade, and used to include unreasonable pre-nuptial agreements. Courts are reluctant to exercise their power to uphold public policy by refusing to enforce contracts, and the situations are limited in which the issue comes into play.

1) Central Adjustment Bureau, again- In its musings on reasonableness of the terms of the non-compete, court considered which method would be appropriate to deal with the unreasonableness of the contract. In the end, the “blue pencil” method was chosen. Usually, courts deal with unfair terms by altering them to make them reaosonable or throwing them out altogether. 2) Simeone v. Simeone- Court refused to throw out an arguably unfair prenuptial agreement, deciding that it was no longer a special issue of public policy to protect women against unfair prenups, since such a policy is contrary to the overriding policy to promote equality among the sexes.

V. Remedies A) Specific Performance- The common law approach to remedies is to award damages in money terms unless it would be impossible to provide an adequate remedy otherwise.

1) Klein v. PepsiCo, Inc.- Disputed contract centered around sale of a Gulfstream jet by PepsiCo to Klein. Trial court found that specific performance was warranted because there were few jets on the market of the kind, and that obtaining a new one would be an extreme hardship. Appeals Court vacated this judgment, arguing that the plane was not unique enough to warrant specific performance, and that a monetary award would suffice for damages, especially since the buyer intended to sell the plane immediately at a profit.

B) Expectancy Damages-

1) Vitex v. Caribtex Corp.- Suit by Caribtex to recover part of damages awarded to Vitex for breach of contract. Contract was for payment for processing of wool. The question concerned whether reasonable overhead costs should be deducted from the gross profits on the transaction. Court ruled that such costs should not be deducted, for several reasons. The most compelling is that overhead costs are normally covered by the price imposed in each transaction, so that a loss of the overhead portion of the price of one transaction would result in a net loss for the company or a need to increase its price for other transactions, which it should not have to do. It was ruled that the damages awarded should only be reduced by expenses incurred for that particular job. Also, it was found that overhead would have remained constant, regardless of the contract, meaning that the only expenses related to the contract were for the specific job. In addition, the portion of overhead relating to the job might be likened to a loss incurred.

C) Limitations on Damages

1) Avoidability- Breach is not necessarily “bad”, in a moral sense. Rather, the only “bad” thing would be to keep parties to contracts from experiencing the benefits of those contracts, because it might discourage parties from entering into those contracts. Thus, parties who breach are not treated as criminals. This explains the court’s attitude toward avoidability. Avoidability says that when the other party breaches, there is a duty owed by the other party to leave up with performance of the contract. There is no right to continue the contract and actually attain the end result, just as there is no right to specific performance. And parties

must take care not to incur additional unnecessary expenses post-breach, for these expenses are unnecessary for purposes of upholding the values that contract law upholds.

a) Rockingham County v. Luten Bridge Co.- A typical example

of unrecoverable expenses for work continued after breach. Bridge was contracted by the county to be built for a road that it later decided would not be built. It notified the Bridge constructor to this effect, but bridge constructor continued work on the bridge anyway, then sued to recover payment for work done on the bridge post-breach. Court refused to award these damages, reasoning that such damages are inappropriate because there is no right to payment for the work, but rather only to receive the eventual benefit of the contract, and that continuance of a breached contract is wasteful.

b) Parker v. Twentieth Century-Fox Film Corp.- Film actress sued to recover payment under a contract to act in a film that the film company decided not to make. Fox argued that Parker should not recover because she was given an opportunity to mitigate the damages by Fox (to act in another movie) which she refused to take. Court rejected Fox’s argument, reasoning that in order to mitigate the damages the movie must have been a perfect substitute for the movie originally contracted for, and that the new movie was substantially different in substance and did not amount to a legal substitute.

c) Groves v. John Wunder Co.- Plaintiff appealed judgment thought to be less than appropriate. Contract was for excavation of ground, and landowner was paid certain sum for excavation rights and promised that the ground would be leveled after the excavation. Defendant willfully breached the contract. Trial court ruled that Groves’ damages for Wunder’s breach should be the difference in value between the land value leveled and unleveled, which left the plaintiff with a substantially smaller sum than the price required to relevel the ground. Court overruled trial court’s ruling, reasoning that plaintiff is owed exactly what he wanted,

regardless of the capriciousness of his wishes, and that defendants should not be able to choose not to perform their end of a contract, based on their view of the desirability of the outcome.

2) Foreseeability- Damages for “consequential damages” are limited to those damages foreseeable upon formation of the contract. Foreseeability of this kind may result either from common knowledge or specific knowledge conferred upon one party by the other of the consequences of breach. If these possible consequences are not disclosed, damages can not be recovered for them. Even if possible consequences are disclosed, damages can only be recovered for those exigencies that arise naturally from breach. Courts must exercise considerable discretion in determining which damages fall under this categorization, much as in “proximate cause” analysis. Also like “proximate cause” analysis, foreseeability plays a huge role in determining which exigencies should be covered. NOTE: Parties may contract around this general rule by determing beforehand which exigencies are recoverable and which are not.

a) Hadley v. Baxendale- Contract for conveyance of driveshaft for steel mill. Judge ruled that consequential damages were inappropriate for failure to meet delivery time, because conveyors were not notified as to the possible consequences of breach.

3) “Losing Contracts”- Losing contracts are those which, had they been performed, would have resulted in a loss for the injured party. Under rules based on expectancy costs, these parties would be left with a loss. Sometimes, however, this loss may be recovered through restitution. The argument is that work done on a contract is benefit conferred, and that a reasonable price should be paid for that benefit. A “reasonable price”, obviously, should (at least) include the costs to the conferrer of conferring the benefit. A court might feel squeamish in certain circumstances where the conferrer’s business was especially wasteful, but in most cases restitution makes sense.

b) U.S. v. Algernon Blair, Inc.- Subcontract for supplies for metal work on a Navy hospital. Court ruled that restitution was proper for benefits already conferred by the subcontractor, up to the costs of conferring those benefits, regardless of the expectation of expected result of performance by the subcontractor.

D) Liquidated Damages

Agreement- A contract is an agreement between two people. For two parties to truly “come to an agreement”, both parties must have the same idea of what they are agreeing to and must be clear that they are agreeing. The rules pursuant to these elements are geared towards enforcing agreements that have these elements, but are focused necessarily on the outward signs of the inward qualities of an “agreement”.

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CONTRACTS Parol Evidence Rule (PER) In general, the PER bars evidence that certain agreements made prior to or concurrent with the signing of the contract from being included in the agreement. I. Generally

A. Covers extrinsic statements – statements made that are outside the K. B. Applies only where the later expression of the agreement is in writing. C. When a later express of intent is oral, the jury usually determines whether the parties intended whether the intent was that the oral agreement supersede any previous agreement D. What a later agreement is in writing, the judge determines if it should supersede. E. Only allowed when statements supplement the writing and are not contradictory to the agreement.

II. Total and Partial Integration A. Partial vs. Total Integration

1. Partial – If the parties did not intend to include all details of the agreement, than it is considered partially integrated

a) Authoritative as to what it addresses b) Allows extrinsic statements (oral or written) to be used to supplement or modify, but not contradict, the agreement

2. Total – If the full intent of the parties is captured in the document, it is considered total integration.

a) Authoritative as to all aspects of the agreement b) Complete – covers the whole agreement

3. Unintegrated – statements can supplement or contradict a) Not authoritative b) Not complete

III. Summary: the PER provides that evidence of prior agreement may never be admitted to contradict an integrated writing, and may furthermore not even supplement an integration which is intended to be complete.

A. Gianni v. Russell & Co. 1. Facts: π enters into lease with Δ. Lease states that π will not sell tobacco. π contends, but it is not stated in agreement, that he was to have exclusive right to sell soft drinks in exchange for higher rent, etc.

a) Traditional approach – Looks only at what is in the writing. The exclusive right was not in the writing. Thus, the statements (exclusive right) were not enforceable. b) Benefits of traditional approach

(1) More immune to attack (2) More certain (3) Bjerre believes this is too closed and ignores credibility.

B. Masterson v. Stine 1. Facts: Δs owned a ranch as tenants in common and conveyed it to π by grant deed, reserving an option to purchase it back w/i 10 years for the same consideration plus depreciated value of improvements. π went bankrupt and

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bankruptcy trustee attempted to enforce option. Δ stated there was an extrinsic statement stating the option was not assignable or transferable.

a) Modern approach – Allows the extrinsic statements to be considered part of the K because they supplemented and did not contradict the words of the K. It must be determined whether the parties intended the written agreement to be the complete and full embodiment of the terms. b) Benefits of modern approach

(1) More subjective (2) More fair if power is imbalanced (3) Better reflects intent of parties.

c) Against – Too flexible. C. Integration Clauses/Merger Clauses

1. TOOL: Can add an integration clause to the K to express the intent of the parties that the K represents the entire agreement. This is a clause indicating that the writing constitutes the sole agreement between the parties.

a) E.g. - “this agreement constitutes the entire agreement of the parties, there being no other agreements or understandings pertaining to the purchase.” b) Not necessarily effective, but does add credence to the K. c) Only protects against statements made prior to or concurrent with the agreement.

D. Modifications Clauses

1. Tool: Can explicitly indicate the intent that no oral modifications made prior to or subsequent to the K will be enforceable.

a) Effects provisions varied during conversations after a K has been made.

2. Generally enforceable. An oral modification is enforceable under TX law even if the K forbids oral modifications. 3. Subsequent agreements supported by consideration are OK. 4. UCC – A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded.

a) §2-209 - No oral modification clauses cannot be modified or rescinded (but under subsection 4, what may fail to be effective as modification or rescission may nevertheless be effective as a waiver under 5.

5. Requires real assent from both parties IV. Exceptions

A. Mutual Mistake 1. Bollinger v. Central Pennslyvania Quarry Stripping and Construction

a) Facts: Parties enter into K whereby Δ is to remove topsoil, deposit refuse and then replace topsoil. The K did not include the condition that topsoil be replaced. Δ initially replaces topsoil and then refuses to replace it. π remonstrates (formally protests) and files action for reformation.

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b) K was reformed to make it correspond to the intent of the parties. This must be a mutual mistake. The mistake was evidenced by the Δ’s initial actions to replace the topsoil.

2. Requirements: a) Both parties must be mistaken b) About “written” words/contents of the K.

B. Collateral Agreements 1. Test: would this be “naturally and normally” included in the agreement or be a separate agreement. If not naturally and normally included, then it is a collateral agreement. 2. Collateral agreements are related to the idea of supplementing a non-integrated clause; sometimes it is difficult to determine whether an agreement is collateral or should have been included in original K. 3. Gianni – Exclusive right not a collateral agreement b/c would have been included in original agreement.

C. Fraud

1. Fraud in the inducement a) Fraud in why you are signing b) Is NOT about the contents of the K c) Makes the K voidable

2. Fraud in the execution a) One side intends to deceive the other about the words written or not written – or b) “knowing misstatement w/ intent that other person will rely on it.”

(1) Remedy: Reform K. Interpretation Interpretation deals with how the parties may show the meaning of the terms contained in a writing. I. Ambiguity v. Vagueness

A. Ambiguity – Language could have one of two separate meanings. 1. Usually interpreted in favor of the P with less power in the K 2. Raffles v. Wichelhaus

a) Facts: Parties made a deal to buy cotton from the ship Peerless. There were 2 ships named Peerless. The seller and buyer had different views on which ship was agreed to. b) Held: No K. There was no mutual assent, thus no meeting of the minds. c) Rule: Where neither P knows or has reason to know of the ambiguity or where both know or have reason to know, the ambiguity is given the meaning that each intended it to have.

B. Vagueness – Various shades of one meaning 1. eg – green, chicken 2. Frigaliment Importing Co. v. B.N.S. International Sales Corp.

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a) Facts: π ordered “chicken” from Δ, intending to buy young chicken suitable for broiling and frying, but Δ believed, in considering weights and prices, that the order was for older chicken suitable for stewing. b) Rule: The P who seeks to interpret the terms of the K in a sense narrower than their general use bears the burden of persuasion. c) Lesson: For interpretation, we look outside the K to find meaning. Can look to trade usage or incorporation by reference.

II. Traditional v. Modern Approach

A. Traditional: Plain meaning test (aka four-corners approach) 1. Provides that the meaning of any writing which appears to be clear, complete and not ambiguous on its face will be determined w/o resort to any extrinsic evidence. 2. Adv. – certain and objective 3. Dis. – Bjerre does not like it. He believes language should always be viewed in context.

B. Modern: Allows parties to introduce evidence of what they subjectively thought the terms in the writing meant. C. Steuart v. McChesney – Traditional Approach

1. Facts: Δ’s provided a right of first refusal to π to purchase a farm for m.v. as maintained by the county. Δ obtained two offers much higher than county m.v. 2. Court looked to language of the K. Bjerre – court failed to recognize the definition of a right of first refusal. Such a clause provides the optionee a right to meet the terms of a 3rd party offer.

D. Pacific Gas & Electric v. G.W. Thomas Drayage & Rigging – Modern Approach

1. Facts: Δ entered into agreement w/ π to remove and replace the upper metal cover of π’s steam turbine. Δ had agreed to accept responsibility for work and “indemnify π “against all loss, damage, expense and liability resulting from … injury to property.” Black’s definition of Indemnify - To reimburse another for a loss suffered because of a third party’s act or default. During the work, the cover fell and damaged the turbine. 2. Held: Offered evidence as to meaning of indemnify was allowed to void the plain meaning. 3. Rule: The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.

E. Stanley Fish

1. Language can never be fully understood outside of the context in which it was written. The modern approach takes into consideration the intent of the parties in making the agreement.

F. Delta Dynamics

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1. Facts: parties entered into a K for π to provide and Δ to sell a min # of locks over a 4-year period. Δ did not meet the minimum. 2. Held: When the K does not address an issue, it does not mean that issue is precluded. Here extrinsic evidence should be considered and included.

III. Maxims

A. Maxims are not decisive and are not rules. They are merely factors weighing in the interpretation of a document.

1. Contra Preferentum – Terms are interpreted against the author or profferor. Ambiguous terms are generally held against the drafter. Is generally given lesser weight when both parties are represented by counsel.

a) Motivates the drafter to eliminate ambiguities 2. Ejusdem Generis – adj. Latin for "of the same kind," used to interpret loosely written statutes. Where a law lists specific classes of persons or things and then refers to them in general, the general statements only apply to the same kind of persons or things specifically listed. Example: if a law refers to automobiles, trucks, tractors, motorcycles and other motor-powered vehicles, "vehicles" would not include airplanes, since the list was of land-based transportation. 3. Expressio unios est exclusion alterius – Latin for “the expression of the one thing is the exclusion of another. 4. Noscitur a sociis – Latin for it is known from its associations.

IV. Trade Usage

A. Looks to the usage of the word as used by people in the trade. B. Incorporation by reference – good method of avoiding litigation C. Sources of meaning in the UCC

1. Course of performance – refers to the way the parties have conducted themselves in performing the particular K at hand. 2. Course of dealing – looks at the pattern of performance between the parties under past contracts. 3. Usage of trade – any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation.

D. Hurst v. W.J. Lake & Co. – Modern Approach 1. Court used trade usage to determine that 50% horse-meat meant 49.5%.

E. Parol Evidence Rule Implications 1. Trade usage may be introduced to help interpret the meaning of a writing even if it is a complete integration. §2-202(a). Sources are thus not effected by the parol evidence rule.

V. Aids in interpretation

A. Statutory analogy B. Purpose interpretation

1. examination of the law before enactment of the statute 2. ascertain the “mischief or defect for which the law did not provide relief” 3. analyze the remedy provided by the legislature to “cure the disease.” 4. determine the true reason for the remedy 5. apply the statute as to suppress the mischief and advance the remedy.

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C. Public interest – where K’s that involve performance that would be in violation of some strongly rooted public interest, often expressed in a statute, may be held to be unenforceable.

Filling Gaps Where the K may not be completely definite as to all essential terms, the courts may supply the missing terms where it is apparent that the parties wanted to bind themselves. I. Terms

A. Implication – the process of when the court inserts a term into a K where none exist. B. Interpretation – Process by which a court determines the meaning that the parties themselves attached to their language

1. §227 (1) - The preferred interpretation avoids the harsh results that might otherwise result from the non-occurrence of a condition and still gives adequate protection to the obligor under the rules… relating to promises for an exchange of performances.

C. Construction – process by which a court determines the legal effect of the language D. Default rules – implied terms are subject to agreement by the parties.

II. Process A. Determine whether there is a gap B. Fill the gap

III. Purpose of gap filling

A. Secure expectations of parties during performance B. Deal with extraordinary circumstances not anticipated in formation of K.

IV. Restatement §203

A. “When the parties to a bargain sufficiently defined to be a K have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.” B. Duty of “good faith” – Wood v. Lucy Lady Duff-Gordon – the court supplied the requirement that the π make good faith, reasonable efforts to promote the Δ’s fashions. C. Duty to continue business – Going out of business can nullify a K.

1. Requirements and output Ks – Generally, the buyer in a requirements K is required merely to exercise good faith in determining his requirements and the seller assumes the risk of all good faith variations in the buyer’s requirements event to the extent of a determination to liquidate or discontinue the business. 2. Courts look to the primary purpose for which the parties entered the K. If the primary purpose appears to be achievable by both sides even though the business is discontinued, then discontinuance will not be treated as a breach.

V. UCC

A. Reasonable price (§2-305); a place for delivery (§2-308); time for shipment or delivery (§2-309(1)); time for payment (§2-310(a))

VI. Nanakuli Paving & Rock v. Shell Oil A. Facts: π entered into 2 long-term agreements to have all asphalt requirements filled by Δ. K did not mention price protection, although it was common practice.

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B. UCC 1-205(4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. Thus, express terms have precedent over trade usage. C. Yet, the court allowed trade usage because it was interpreted to be a gap problem.

VII. Background patterns

A. Trade Usage – What companies in the industry are doing. B. Course of Dealing – Commonality of previous conduct by the parties to the K. C. Course of Performance – What the parties do in the course of performing the K.

VIII. Relation to parol evidence rule

A. The court may supply a “reasonable” omitted term even if the K is a completely integrated one. In such a situation, evidence of the parties prior negotiations or oral agreements may be given as evidence of what is “reasonable,” but may not for the purpose of supplying the omitted terms itself.

IX. Anti-trade usage clauses

A. Not effective – what if there is an unstated exception to the no trade usage clause? B. An inherent problem exists b/c trade usage is meant to resolve language problems.

Conditions A condition is a triggering event. An event which must occur before a particular performance is called a “condition.” In general, some or all performances of a bi-lateral K will be conditional on the happening of some event. I. Classification of Conditions

A. Precedent/Subsequent distinction 1. Condition precedent – Any event, other than a lapse of time, which must occur before performance under a K is due.

a) Non-occurrence discharges a contractual duty 2. Condition subsequent – event which operates by agreement of the parties to discharge a duty of performance after it has become absolute.

a) E.g. – insurance suit which requires that a claim be brought within a certain time, otherwise it is discharged. b) Non-occurrence discharges a contractual duty

3. Concurrent condition – exists only when the parties to a K are to exchange performance at the same time.

B. Express and constructive conditions

1. Express conditions may be implied-in-fact a) An express condition is a condition on which the parties agree.

2. Constructive conditions – condition not agreed on by the parties (even by implication), but which the court imposes as a matter of law, in order to insure fairness.

a) E.g. – Court requires a painter to perform the work before being paid. b) Constructive discharge – did not fire the ee, but made conditions such that it was unbearable to work there.

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3. Importance of distinction – Important in relation to performance of a condition. Strict compliance with express conditions is ordinarily necessary before the other person’s duty of performance arises. By contrast, substantial compliance is ordinarily adequate to satisfy constructive conditions.

C. Luttinger v. Rosen

1. Court held that condition of buyers obtaining a mortgage at 8.5% not met when the best rate available was 8.75% even though sellers offered to make up the difference. Thus, buyers need not perform. 2. This is an example of strict construction/interpretation of express condition.

D. Kingston v. Preston

1. Owner of silk store did not have to sell business to apprentice who failed to come up with security required under the K. 2. Covenant was dependent, so Δ did not have to perform until he rec’d deposit 3. Rule: Breach of a covenant by one P to a K relieves the other P’s obligation to perform another covenant which is dependent thereon, the performance of the first covenant being an implied condition precedent to the duty to perform the second covenant.

E. Dependent v. Independent Covenants

1. Dependent – covenant that is contingent upon another covenant/condition being performed 2. Independent – covenant that is not dependent upon the other condition being performed.

a) E.g. Promise to paint for a promise to pay $. Under the default rules, the promise to paint would be independent and the promise to pay would be dependent.

3. Stewart v. Newbury – Default rule for sequence of performance a) Where K is made to perform work and there is no agreement as to timing of payment, party cannot discontinue work until substantially completed before demanding payment. b) Rule: Where a K is made to perform work and no agreement is made as to payment, the work must be substantially performance before payment can be demanded. This is a default rule.

F. Doctrine of substantial performance.

1. If a party has materially breached his duty, he has not substantially performed, and the other party is discharged. 2. Consequences: where a party breaches the K by deviating from its terms, but nonetheless performs well enough that the breach is not material, the other party always has a claim for damages resulting from the breach. 3. Jacob v. Young & Kent

a) Owner of home being built had to pay contractor even though “Reading” pipe was not installed b/c a pipe of similar quality was substituted. b) Important to evaluate whether the condition, even though dependent, can be viewed as independent and collateral when the departure is

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insignificant. Here, difference was insignificant and the inclusion of the non-spec pipe equates to substantial performance. c) Rule: For damages in construction K, the owner is entitled merely to the difference between the value of the structure if built to spec and the value it has as constructed.

4. Factors used in determining whether departure is significant: a) Purpose to be served (intent of the parties) b) Desire to be gratified c) Excuse for deviation (willfulness) d) Cruelty of enforced adherence (are goods resalable?) e) This is no bright line rule – it is a standard.

G. Divisibility

1. See below. II. Mitigating Doctrines

A. Doctrine of Prevention – One that prevents the occurrence or a condition of the duty may be precluded from later asserting the non-occurrence of that condition

1. The general rule is that a P to a K cannot rely on the failure of another to perform a condition precedent where he has frustrated or prevented the occurrence of the condition. Kooleraire Service & Installation Corp .v. Board of Eduction.

B. Waiver – the excuse of the nonoccurrence of a condition of a duty.

1. §84 – requirement that a condition occur may be eliminated by agreement between the parties. Waivers can sometimes be retracted. 2. Tool: Anti-waiver Clauses – states no action or inaction by that P shall amount to a waiver of any condition of any duty of that P. Good to include b/c they can always be waived later. 3. Waiver after K – Waiver occurs after K formation, but before the condition fails to occur. Since the party by “waiving” the condition has in effect modified the K, consideration for the waiver is normally required. However, consideration is not required when:

a) Condition is not a material part of the bargain. b) Promissory estoppel – If the party’s manifestation of waiver induces the other party to change his position in reliance on the waiver, the courts will also hold the waiver binding even w/o consideration.

4. Retraction of Waiver – Can occur, even if oral. See Rest. 2d §84(2) a) Estoppel - If the waiver was relied upon, then estoppel will preclude retraction. b) Election - A choice binding upon the party that makes it, even w/o reliance by the other party.

5. Waiver after non-occurrence – After a condition has failed to occur, the party whom the condition was intended to benefit may choose to ignore the non-occurrence, and continue with his performance. Once the waiver after breach has occurred, it may not be retracted.

a) Acceptance – If a person retains benefits under a K after learning that the condition of the K has not been met, he will be held to have waived the condition.

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(1) Only applies where the benefits rec’d by the promisor and the performance that the promisor owes, are part of the same exchange.

b) Election – When a condition fails to occur, the beneficiary has the option to (1) waive the condition in which he retains the right to sue later for damages; or (2) terminate performance and sue for breach. This is an election. Once the election is made, he will not subsequently be able to change his mind and cancel the K.

III. Divisibility

A. Test: 1. Is there value in the things/performance independently, or only as a whole – look to the intent of the parties 2. Measure of damages: The rate of recovery comes from the K rate, not the full K price, but the rate for each of the mini-Ks, minus the damages for the mini-Ks not met. 3. Divisibility is a way around the potential harshness of constructive conditions.

B. Gill v. Johnstown Lumber Co. 1. Δ contracted with π to move logs. Court held that consideration for delivery, as set forth in the K, was apportioned among several items at different rates per item. As such, the K was divisible. 2. Rule: If the part to be performed by one P consists of several and distinct items, and the price to be paid by the other is (1) apportioned to each item to be performed, or (2) is left to be implied by law, such a K will generally be held to be severable.

IV. Restitution A. Defined as the value to the Δ of the π’s performance. May be awarded to the π both in a suit on the K and in a suit brought in quasi-K. B. Calculation of value – Market value of benefit rendered to the Δ, regardless of how much the π was injured by the Δ’s breach. C. Britton v. Turner

1. π was under K to labor for Δ for one year and to be paid $120 for the work. π, w/o cause, left Δ’s employ after 9.5 mo. Court held for π in the amount of $95 based upon the π having completed 65% of the work (as opposed to having worked 65% of the K time). 2. Rule: A defaulting P, although unable to recover on a K, may recover under a quasi-contractual theory the reasonable value of his services less any damages to the other P arising out of the default.

Breach I. Breach in the course of performance

A. Factors in determining whether material breach (§275) 1. the extent to which the injured P will obtain the substantial benefit which he could have reasonably anticipated; 2. the extent to which the injured P may be adequately compensated in damages for lack of complete performance;

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3. the extent to which the P failing to perform has already partly performed or made preparations for performance; 4. the greater or less hardship on the P failing to perform in terminating the K (means the hardship to Walker if Harrison terminates); 5. the willful, negligent or innocent behavior of the P failing to perform 6. the greater or less uncertainty that the P failing to perform will perform the remainder of the K.

B. This is a standard. It is unpredictable and not hard and fast. Must balance the factors in determining the outcome. C. Walker & Co. v. Harrison - Δ drycleaner entered into an agreement w/ π whereas π would construct and install a neon sign to be leased for 36 months to Δ. Maintenance of the sign was to be performed by the π. π failed to maintain the sign and Δ refused to make monthly payments. Held: Failure to service sign not a material breach. If the breach is not material, then the breach does not void the K. Especially when it is noted that π had serviced the sign after receiving the letter from Δ.

1. Concept similar to substantial performance: Substantial performance = a breach that is not material.

II. Total v. Partial Breach A. Total breach: Must be a material and severe breach.

1. allows wronged party to sue immediately for damages based on the entire k. Damages usually calculated to put the wronged party in the position he would have been in had the k been completed.

B. Partial Breach: non-material breach 1. Does not relieve the wronged party from continuing to perform under the K. 2. Aggrieved party has an immediate right to sue for damages stemming from breach.

a) Beware of WAIVER – treating a breach as partial can be rescinded unless estoppel or election.

III. Anticipatory Repudiation A. Def – when a party makes it unmistakably clear, even before his performance under K is due, that he does not intend to perform. B. Allows other party to suspend, and perhaps cancel, his own performance. C. Repudiation – “a party’s language must be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform.

1. Ambiguity – courts are becoming increasingly willing to find that an ambiguous statement by a party that he does not intend to perform constitutes a repudiation. 2. Modern view: Rest. 2d §250: Categories that may constitute repudiation

a) Statement of intent not to perform b) Action by the promisor making performance impossible c) Indication by promisor or via some other means that promisor will be unable to perform, although he desires to perform.

3. Expressions of doubt likely not considered AR. D. Hochster v. De La Tour - In April, π contracted to serve as Δ’s employee beginning on 6/1. One 5/11, Employer wrote to π that he had changed his mind and declined π’s services. On 5/22, π brought this action for breach of K.

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1. Court allowed suit before the repudiator’s time for performance arrived. Rationale:

a) Δ made it impossible for π to perform b) Relationship btw parties implies promise that neither will do anything inconsistent w/ the relationship. c) By allowing π to recognize breach, he can mitigate damages by finding another job or stopping his own performance.

E. Limitations on AR 1. Does not apply to installment K’s where one party has fully performed and all that remains is for the other party to pay.

a) must sue for each payment not made – after it is due b) This is default rule – can be contracted around by acceleration clause.

2. Will not apply whenever one party has fully performed F. Retraction: General rule is that repudiation can be retracted. Exceptions:

1. When that repudiation has been relied upon. 2. When the other person accepts the repudiation, as the end of the contract

IV. ALLIE HAS BASIC ASSUMPTIONS – GAP FILLERS – p 335 of emmanuels Third-party Beneficiaries I. Doctrine of Third-party beneficiaries

A. Relevance: situations where one party makes a K the main purpose of which is to benefit not himself, but a third party. B. Must be an intended beneficiary (as opposed to an “incidental beneficiary) to receive the right to sue. Categories include (§302(1)):

1. Payment of money: performance will satisfy an obligation of the promise to pay money to the beneficiary; or 2. Intended benefit: circumstances indicate that the promise intends to give the beneficiary the benefit of the promised performance.

C. Factors to determine intended beneficiary – whether the promise intended that the 3rd party have the benefit of the K.

1. Reliance: If beneficiary is reasonably relying on the K as having been intended to confer a right on him. 2. To whom performance runs: If performance is to run directly from the promisor to the third party. 3. Beneficiary’s assent or knowledge unnecessary for right to sue.

D. Doctrine abandons the requirement for privity and consideration. E. Lawrence v. Fox - Fox (Δ) promised Holly for consideration that he would pay Holly’s debt to π. Held: A third party for whose benefit a K is made may bring an action for its breach. Thus, no privity of K required. F. Incidental beneficiary: Examples

1. B contracts with A to landscape B’s land. C, B’s neighbor, cannot sue. 2. B contracts with A to buy new car manufactured by C. C is an incidental beneficiary and cannot sue.

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G. Getting around the rule: 1. no benefit/no inurement clauses 2. “no one can enforce this K except parties hereto.” 3. No inurement clauses theoretically can be gotten around, but are good evidence of intent to not create 3rd party beneficiary.

Assignments and Delegation I. Assignment and Delegation Generally –

A. Deals with attempts by a party to an existing K to substitute another in his stead. B. Assignment distinguished from delegation

1. Assignment – when a party to an existing K transfers to a third person his rights under the K. 2. Delegation – when the existing party appoints a third person to perform his duties under the K.

C. Distinguished from third-party relationships in that the rights or duties are transferred after the contract has been formed. In third-party, the beneficiary must be contemplated at the time of K formation.

II. Assignment of Rights

A. No consideration is required. Thus, a party who is owed $$ under an existing K may assign it to a 3rd party gratuitously, and neither the assignor nor the original obligor can avoid the assignment on the grounds there was no consideration. B. Assignor’s right extinguished: Upon occurrence of a valid assignment, assignor’s rights under the K are extinguished and may thereafter only be exercised by the assignee. C. Revocability: Assignments are revocable unless reliance or payment made. D. Anti-assignment clauses generally unenforceable.

III. Delegation of Duties A. Continued liability of delegator: When performance of a duty is delegated, the delegator remains liable. Rest. 2d §318(3). B. Not enforceable if they hurt the oblige C. Non-delegable duties:

1. K’s involving particular skills (eg. Promisee’s own particular skills, artistic performances, consulting, etc.)

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THE UCC GAP FILLERS: Article 2 involves K’s for the sale of goods. It provides a series of gap-fillers. I. §1-102 Purposes; Rules of Construction, Variation by Agreement

A. 1-102(3) The effect of provisions of this Act may be varied by agreement, except as otherwise provided in this Act and except that the obligations of g/f, diligence, reasonableness and care prescribed by this Act may not be disclaimed by agreement, but the parties may by agreement determine the standards by which the performance of such obligations to be measured if such standards are not manifestly unreasonable.

II. §2-305(1) Open Price Term

A. The parties, if they so intend can conclude a K for sale even though the price is not settled. In such a case the price is to be a reasonable price at the time of delivery if:

1. nothing is said as to price; or 2. the price is left to be agreed by the parties and they fail to agree; or 3. the price is to be fixed in terms of some agreed market or other standard as set or recorded by a 3rd party and is not so set or recorded.

III. §2-309 Absence of Specific Time Provisions; Notice of Termination

A. 2-309(1): The time for shipment or delivery or any other action under a K if not provided in the Article or agreed upon shall be a reasonable time.

1. C1: Reasonable time should be based on good faith and commercial standards set forth in §1-203, §1-204 (See next section), and §2-103.

a) §1-203: Keeps people from acting w/o good faith b) §1-204(1): Any time not manifestly unreasonable (higher std) may be fixed by agreement. What if we add “we agree that 6 mo notice of termination would be reasonable notice.” The judge would likely provide summary judgment for such a clause b/c it has been agreed to in the K. The clause is aka a Safe Harbor c) §1-204(2): defines a reasonable time as “what a reasonable time for taking any action depends on the nature, purpose and circumstances of such situation.” d) §2-103: Definitions

2. C2: Payment time, where not agreed, is based on time of delivery. For inspection issues see §2-513. 3. C4: Time of delivery, when open: unreasonably early offers or demands for delivery are not final positions which amount to breach. 4. C5: When time is open, notification before a K may be treated as breached is req’d. When both parties are silent, the reasonable time is considered to enlarge.

B. 2-309(2): Where the K provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.

1. C7: Reasonable time of duration is limited by the circumstances. When K is has been carried on over years, the reasonable time will not term until notice.

C. 2-309(3): Termination of a K by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing w/ notification is invalid if its operation would be unconscionable.

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1. Flexible under all the circumstances. Considers commercial practice. D. Hamilton Tailoring v. Delta Air Lines – At issue are questions about duration and advance notice of termination. See §2-309(3): reasonable here means π gets to sell the rest of the uniforms to Δ. If π were making generic uniforms, reasonable time could be shorter.

IV. §1-204 Time; Reasonable Time; “Seasonably” (p13)

A. Whenever this Act requires any action to be taken w/i a reasonable time, any time which is not manifestly unreasonable (higher std) may be fixed by agreement. (this § mirrors, but is more specific than §2-309(3)) B. A reasonable time for taking any action depends on the nature, purpose, and circumstances of such action. C. An act is taken “seasonably” when it is taken at or w/i the time agreed or if no time is agreed, at or w/i a reasonable time. D. Potential clause: “we agree that 6 mo notice of termination would be reasonable notice.” Judge would likely provide summary judgment for such a clause b/c it has been agreed to in the K. The clause is aka a Safe Harbor Clause.

V. §2-308 Absence of Specified Place for Delivery (p43)

A. Unless otherwise agreed: 1. (a) Place of delivery is seller’s place of business, or his residence if he has no place of business 2. (b) in K for sale of identified goods which both parties know to be in a different place, that place is the place for their delivery. 3. (c) docs of title may be delivered through customary banking channels.

VI. §2-306 Output, Requirements and Exclusive Dealings (p 41)

A. 2-306(1): Output K’s: 1. Protects the buyer who is bound by exclusivity. Output means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate. Quantities higher or lower than the usual must be purchased by B as long as the quantity is not unreasonably disproportionate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

a) No unreasonably disproportionate quantity to the stated estimate by be tendered or demanded. b) If S keeps the quantities artificially low prior to K inception, B would not be responsible for the full quantity during the K terms b/c S had not acted in good faith.

B. 2-306(2): Exclusive Dealing: Applicable to of distributorships (higher standard – g/f and hard work)

1. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes, unless otherwise agreed, an obligation by the seller to use best efforts to supply the goods by the buyer to use best efforts to promote their sale.

a) Seller to supply and buyer to promote. 2. Seller: promises to sell only to B – bound by gf but not by best efforts.

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a) Note that Bjerre believes S bound by gf although section appears to require best efforts. b) Benefit to S: Seller gains representation in new territory.

3. Buyer: can buy from multiple sellers, not obligated to buy all S’s output, is bound to use best efforts to promote goods.

Warranties I. Types

A. Express §2-313 B. Implied

II. Elements needed to recover on a breach of warranty action: A. existence of a warranty B. Δ breached the warranty C. breach was the proximate cause of the loss sustained.

III. §2-313 EXPRESS WARRANTIES (p46)

A. General 1. Amorphous: statement can be oral or written 2. Key: statement must be a basis of the bargain. 3. Difficult to tell whether an express warranty or puffery. 4. C1: Express warranties rest on dickered aspects of the bargain.

B. Washington SC Test distinguishing between a warranty and mere puffery: (p 96) 1. Whether the representations compared the goods to other goods; 2. the specificity of the representations; 3. whether they related to the goods’quality; 4. whether they were “hedged”; 5. Whether the goods were experimental; 6. the buyer’s actual or imputed knowledge of the goods’ condition; 7. the nature of the claimed defect; and 8. whether the statement was written or oral

C. Approaches to determine whether there is a warranty: 1. Was statement verifiable? (not an opinion: eg get 32 mpg) 2. What would a reasonable buyer think was meant? Factors:

a) Complexity of goods b) Specificity of statement

D. Question of privity of contract. More specifically, a question of Vertical privity. 1. Vertical privity – Where goods travel from the manufacturer to the consumer. 2. Horizontal privity – Eg. Mother buys a computer from Apple dealer for daughter. Can daughter recover from dealer.

a) See §2-318. E. §2-313(1): Express warranties by S are created as follows:

1. 2-313(1)(a): Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates EW that goods shall conform to affirmation or promise. 2. 2-313(1)(b): Any description of the goods made part of the basis of the bargain creates EW that goods shall conform to description. 3. 2-313(1)(c): Any sample or model made part of the basis of the bargain creates an EW that the whole of the goods shall conform to the sample or model.

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a) See Barton v. Tra-Mo, Inc. (p102): This § coincides with §2-314 (Implied warranties).

F. §2-313(2): Seller does not have to use formal words to create a warranty, however an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.

1. Puffery - statements that should not be construed to create a warranty IV. §2-318 Third Party Beneficiaries of Warranties Express or Implied

A. States can choose from 3 alternatives: 1. Alternative A: A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

2. Alternative B: A seller's warranty whether express or implied extends to any natural person who may reasonably be expected to use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section. 3. Alternative C: A seller's warranty whether express or implied extends to any person who may reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section with respect to injury to the person of an individual to whom the warranty extends.

B. Use Choice of Law provision in K to avoid confusion of laws V. Post-sale warranty

A. Device of modification B. K becomes modified by the statement by comment made after the sale C. It can still be a warranty and can still be part of the basis of the bargain, but modification depends on the assent/intent of both parties.

VI. IMPLIED WARRANTIES

A. Are supplied by the law (not by the parties) and are not about the intent of the parties B. Are gap-fillers C. Are not opt-in. They exist regardless. But they can be opted-out of. This puts the burden of expressing intent on those who want to opt out. Everyone is in unless they opt out. D. Particular Purpose v. Ordinary Purpose: Sale of pork – there is a lot of pork infected with trichonosis. Cooking properly will kill the trichonosis. The usual purpose of pork is to be cooked and eaten. Thus, if purchased with trichonosis, there is no breach of the implied warranty of merchantability. On the other hand, if the grocer knows you will be eating it raw, then there is an implied warranty of fitness for a particular use.

VII. §2-314 Implied Warranty of Merchantability

A. General: Like a guarantee that goods are fit for the ordinary purposes to be used and will pass in trade w/o objections. B. Applies only when the seller is a merchant of the goods involved in the dispute.

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C. 2-314(1): A warranty that the goods shall be merchantable is implied if the seller is a merchant with respect to goods of that kind.

1. Merchant – See §2-104 (1) and (3) p 18. D. 2-314(2): To be merchantable, goods must be at least such as

1. (a): pass w/o objection in the trade under the K description; and 2. (b): if fungible good, are of fair average quality w/i the description:

a) C7: (a) and (b) to be read together. 3. (c): to be fit for the ordinary purposes for which such goods are used; and 4. (d) run, w/i the variations permitted by the agreement 5. (e) are adequately contained, packaged and labeled per the agreement 6. (f) conform to the promises or affirmation of fact made on the container or label

II. §2-315 Implied Warranty of Fitness for Particular (vs. general) Purpose

A. An implied warranty that goods are fit for a particular purpose is created when: 1. seller has reason to know the particular purpose; and 2. seller knows that buyer is relying (and buyer is relying) on the seller to choose goods for a particular purpose.

a) Rarely happens b) Standard situation: buyer asks question regarding what to buy: seller tells buyer what to buy and B buys it per S’s recommendation. c) If seller found liable, also liable for consequential damages.

3. C1: B need not bring to S actual knowledge of the particular purpose for which the goods are intended or of his reliance on S’s skill and judgment, if circumstances are that S should know. 4. C4: normally only applicable if S is a merchant with the appropriate “skill or judgment,” but it can arise as to nonmerchants where this is justified by the particular circumstances. 5. C5: Brand name: If B himself insists on a particular brand he is not relying on S’s skill and judgment so no warranty results.

B. Reliance can be negated by reliance upon π’s own experts. Keith v. Buchanan. C. Compared to §2-314: 314 only applicable to merchant sellers. D. C6: Exclusion or modification of IWFPP must be excluded or modified by a conspicuous writing (see §2-316)

III. §2-316 Exclusion or Modification of Warranties

A. §2-316(1): Express Warranties: 1. Subject to parol or extrinsic evidence (§2-202), negation or limitation is inoperable to the extent that such construction is unreasonable. 2. Consistency: Courts attempt to construe language creating an express warranty and language negating or limiting the warranty as consistent. If they are inconsistent, then the court will find an express warranty. 3. Reasonably consistent: Look at all the circumstances.

B. §2-316(2): Implied Warranties: Safe Harbor Provision 1. Disclaimer of IWM:

a) Can be modified orally or in writing b) Language must mention “merchantability” and must be conspicuous (if in writing)

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(1) §1-201(10): Conspicuousness: when a reasonable person against whom it would operate would notice it. A standard.

c) This is the drafting rule 2. Disclaimer of IWFPP:

a) Can only be modified in writing (but argue that orally can be prevented from ever arising) b) No need for particular language, but disclaimer must be conspicuous.

3. Disclaimers can have 2 forms: a) Complete: prevent warranty from being in the K at all. b) Limited: Limiting the time for the warranty, or limiting consequential damages.

C. §2-316(3): Is the same for both IWM and IWFPP: 1. This is a standard (factors should be weighed and balanced) and much more flexible than (2) 2. Notwithstanding (2);

a) Unless contrary circumstances, implied warranties are excluded by expressions like “as is,” “with all faults,” or other such language. b) When buyer prior to entering K has examined the goods or the sample or model as fully as desired or has refused to examine the goods, there is no IW. c) IW can be excluded or modified by course of dealing, course of performance, or usage of trade.

D. Cate v. Dover Corp 1. Disclaimer, although written in all-caps, was not conspicuous b/c the entire text was in all caps.

E. Moscatiello v. Pittsburgh Contractors Equipment 1. Δ sold π a broken paving machine. Back of K had clause disclaiming implied warranties. Disclaimer was in same font and buried in rest of wording. Ct held the disclaimer invalid b/c not conspicuous. §2-316(2). Ct also held limitation of remedies clause invalid b/c it was unconscionable b/c π suffered consequential damages. Bjerre says it is wrong b/c it equates unconscionability with conspicuousness. Unconscionability focuses on a lack of choices. Limitation of remedies is a standard legal tool. 2. Yet, minority of courts hold that limitation of damages constitutes a modification of the IWM, and thus must be in writing and conspicuous in order to be effective. Moscatiello could have made this statutory 2-step and have good holding and good reasoning. 3. It is possible to limit a remedy w/o modifying an implied warranty if the limitation is not regarding the quality of the goods. Eg. Delivery time.

IV. §2-312 Warranty of Title and Against Infringement; Buyer’s Obligation Against Infringement (p 46)

A. Warranty of title (gap-filler). The law assumes that the seller has rightful title to the goods being sold, and that this title will xfer to the buyer upon sale.

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V. DAMAGES A. §2-714 Buyer’s Damages for Breach in Regard to Accepted Goods - Default

1. 2-714(1): Where B has accepted goods and given notification (§2-607(3)), he may recover reasonable damages for any non-conformity 2. 2-714(2): Measure of damages for breach of warranty is the difference between the value of the goods accepted at time of delivery and what they would have been had they been as warranted. 3. 2-714(3): Incidental and consequential damages under §2-715 may be also be recovered.

B. §2-715 Buyer’s Incidental and Consequential Damages

1. 2-715(1): Incidentals include reasonable expenses of inspection, receipt, transportation, care and custody, commercially reasonable charges, expenses or commissions.

a) C1: Intent to provide reimbursement for the buyer who incurs reasonable expenses in connection with rightfully rejected goods; list provided not exhaustive.

2. 2-715(2): Consequential damages from seller’s breach include: a) any loss resulting from gen’l or particular requirements or needs.. b) injury to person or property proximately resulting from breach.

C. §2-718 Liquidation or Limitation of Damages; Deposits

1. 2-718(1): Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.

a) C1: Similarly, an unreasonably small amount would be subject to similar criticism and might be stricken as unconscionable.

2. 2-178(2): Where seller justifiably withholds delivery b/c of B’s breach, B is entitled to restitution of any amount by which the sum of his payments exceed:

a) amount to which S is entitled by virtue of liquidating terms b) in absence of such terms, 20% of the value of the total performance for which B is obligated under the K or $500, whichever is smaller.

3. B’s right to restitution under (2) is subject to offset for: a) S’s right to recover damages under this Article b) Amount or value of any benefits rec’d by B directly or indirectly from K.

4. Where S had rec’d payment in goods their reasonable value or the proceeds of their resale shall be treated as payment for the purposes of (2); but if S has notice of B’s breach before reselling goods rec’d in part performance, his resale is subject to the conditions laid down in this article.

D. §2-719 Contractual Modification or Limitation of Remedy

1. Subject to (2) and (3) of this and preceding section, a) Agreement may provide for remedies in addition to or in substitution for those provided in this article (UCC Art. II).

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b) Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive

2. Where circumstances cause remedy to fail in its purpose, remedy may be provided in this Act. 3. Consequential damages may be ltd or excluded unless the limitation is unconscionable. Limitation of consequentials for personal injury in the case of consumer goods is prima facie unconscionable.

E. §2-719 hypo: Sweater manufacturer limits the merchantability for 10 days. After 3 weeks the sweaters fade and show obvious defects. Under §2-719(2), the limitation of remedy “fails of its essential purpose: and is thus unenforceable. F. Cox v. Lewiston: Limitation of liability

1. π purchased defective seed from Δ. WA law, unlike the UCC, says disclaimers in consumer cases are not effective.

G. Magnuson-Moss Warranty Act (p178) – Federal legislation passed to encourage rational, informed consumer choices.

1. Applicable to consumer cases. 2. Does not require a written warranty, but if a seller makes one, it may not disclaim any implied warranty.

Risk of Loss I. General

A. The risk of loss is based on the terms of the K. B. If mandated by the statute to buy insurance and you don’t, then you are liable. C. UCC rules are gap fillers; use when parties don’t specify risk of loss, or unclearly specify risk of loss in K. D. Beyond risk of loss, UCC covers:

1. who pays insurance 2. how much insurance 3. who pays for shipping 4. who bears the loss 5. whether insurance is required

E. These §’s are applicable once K is complete; prior to that the goods and R.O.L. are still the seller’s responsibility.

II. §2-501 Insurable Interest in Goods; Manner of Identification of Goods

A. 2-501(1): B obtains a special property and an insurable interest in goods by identification of goods to a K even though the goods so identified are non-conforming and he has the option to return them. ID can be made at any time specified. Otherwise it occurs:

1. (a): when K is made if it is for sale of goods already existing and identified 2. (b): if K is for sale of future goods other than those is (c), when goods are shipped, marked or otherwise designated by S as those under the K

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3. (c): when crops are planted or otherwise growing or the young conceived if K is for the sale of unborn young to born w/i 12 mo after contracting for sale…

B. 2-512(2): S retains an insurable interest in goods so long as title to or any security interest in the goods remains in him… default… insolvency… notification of substitute C. 2-512(3): Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

III. §2-613 Casualty to Identified Goods (p 82)

A. Where K requires for its performance goods identified when K is made, and the goods suffer casualty w/o fault of either party before the risk of loss passes to B, or in a proper case under a “no arrival, no sale” term (§2-324) then

1. if total loss, the K is avoided; and 2. if partial loss or goods have so deteriorated as to no longer conform to K the buyer may demand inspection and at his option either treat the K as avoided or accept the goods with due allowance from the K price, but w/o further right against the seller.

IV. DELIVERY TERMS

A. §2-319 FOB and FAS Terms 1. 2-319(1): Unless otherwise agreed, FOB (Free on Board) at a named place, even though used only in connection with stated price is a delivery term which:

a) FOB place of shipment: S must at that place ship the goods in accord with §2-504) and bear expense and risk of putting them into possession of carrier. Risk of loss transfers once goods are with carrier. S carries expense and risk of loss to carrier. b) FOB place of destination: S must at his own expense and risk transport the goods to that place and there tender delivery (§2-503). Risk of loss transfers once goods reach destination. S carries expense and risk of loss to destination.

(1) 2-503: tender of delivery requires that S “put and hold conforming goods at B’s disposition.”

c) When under either (a) or (b) the term is FOB vessel, car or other vehicle, S must additionally at his own expense and risk load the goods on board. If FOB vessel, B must name the vessel and in an appropriate case S must comply with this Article on the form of bill of lading (§2-323)

2. 2-319(2): FAS (Free alongside) – 2-319 (2) – unless otherwise agreed, B must make pymt against tender of the req’d docs and S may not tender nor B demand delivery of the goods in substitution for the docs. Used in int’l deals.

a) FAS is classified as a destination or shipping K based on where the risk xfers. If the risk xfers at a location closer to S, than it is a shipment K. b) FAS destination – xfers occurs at point where goods are put on dock.

3. 2-319(3): Unless otherwise agreed, under FOB vessel or FAS the buyer must make payment against tender of required docs and S may not tender nor buyer demand delivery in substitution for the docs.

B. §2-320 CIF and C & F Terms (p59) B bears ROL.

1. 2-320(1): CIF (Cost, insurance, and freight) – price includes the cost of the goods, insurance and freight to named destination.

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a) In case of loss, B pays S and is reimbursed by insurance co. 2. 2-320(1): C&F (Cost and freight) – Same as CIF w/o insurance. 3. 2-320(2): Unless otherwise specified, CIF destination requires S at his own expense and risk to:

a) (a): put goods into possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and b) (b): load the goods and obtain a receipt from the carrier showing the freight has been paid or provided for; and c) (c) obtain a policy or cert of insurance for payment of loss to B.

4. 3-320(3): Unless otherwise agreed, C&F has the same effect upon S (obligations and risks) except obligation as to insurance. 5. 2-320(4): Under CIF/C&F, unless otherwise agreed, B must make payment against tender of docs and S may not tender nor B demand delivery in substitution of the docs.

C. §2-509 Risk of Loss in the Absence of Breach (p 67)

1. 2-509(1): SHIPMENT K: Where K requires or authorizes S to ship goods by carrier. Note there is a strong presumption favoring a shipment K when terms are ambiguous.

a) (a): if it does not require delivery to a particular destination, ROL passes to B when goods are duly delivered (see Cooke) to the carrier even though the shipment is under reservation (§2-505); but b) (b): if it does require delivery to a particular destination and goods are duly tendered while in possession of the carrier, the ROL passes to B when goods are so duly tendered as to enable B to take delivery.

(1) Bjerre: (b) generally requires some showing of specific intent to shift ROL to S. See Windows below.

2. 2-509(2): DESTINATION K: Where goods are held by a bailee to be delivered w/o being moved, ROL passes to B:

a) (a) on his receipt of a negotiable doc of title covering the goods; or b) (b) on acknowledgement by the bailee of B’s right to possession.

(1) →official doc (eg whse receipt) not necessary. (2) See Jason’s below.

c) (c): after his receipt of non-negotiable doc of title or other writing to deliver in §2-503(4)(b).

3. 2-509(3): Catch-all: e.g. S delivers himself: ROL passes to B on his receipt (§2-103 means physical receipt) of goods if seller is a merchant (§2-104); otherwise the right passes to B on tender of delivery (§2-503).

a) See Schock and Chopper illustration below. 4. 2-509(4): Provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval (§2-327) and on effect of breach on ROL (§2-510).

D. Windows, Inc. v. Jordan Panel Systems Corp. – §2-509(1) 1. Jordan (B) seeks consequential and incidental damages from Windows (S). The windows were sent, but were damaged in transit. K terms were to deliver to NYC.

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2. Held: B bore ROL during shipment. Even if a K says to deliver to a particular address, it is not enough to get to 2-509(1)(b). The K is silent about ROL. Where the terms are ambiguous (or silent), there is a strong presumption that the K is a shipment K. As a shipment K, under 2-509(1)(a), ROL passes once the goods have been shipped. Explicit terms (FOB, FAS, CIF, etc.) suffice to change this presumption. See §2-308 (Absence of specified place for delivery) 3. Bjerre: this is wrong; all delivery K’s requires some destination. The distinction is not expressed in the statute. 4. Primary point: ROL depends upon what the K says. The rules we learn are default rules when the issue is not specified in the K. The destination of a shipment is not a marker of who bears the ROL. Don’t be misled by words of the statute.

E. Cook Specialty Co. v. Sherlock - “Duly Delivered” (p204) 1. K for buying and selling of a press brake. Terms are FOB MSI’s (S) warehouse. It is a shipment K b/c it explicitly says so. Brake fell off truck somewhere in transit. 2. Under §2-509(1), goods are not “duly delivered” unless the K satisfies §2-504. 3. Held: Under §2-504(a) S must make a K for transportation as may be reasonable having regard to the nature of the goods. Utilization of a substandard carrier may not be considered reasonable (e.g.: can’t send perishables w/o refrigeration).

F. Jason’s Foods, Inc. v. Peter Eckrich & Sons - §2-509(2)(b)

1. Case illustrates how delivery may not equal receipt. S sells goods (ribs) to B. The ribs are kept at the same warehouse so upon tender, the goods never change location. The warehousemen changes the ownership in their records and issues a transfer ticket. 2. Held: B must be notified (not S), though does not have to be formal notification (e.g.: can be a phone call).

G. Schock v. Ronderos – Nonmerchant Tender of delivery

1. π purchased mobile home from Δ. MH stayed on Δ’s property after purchase awaiting removal of some of Δ’s possessions and detachment of electricity, etc. During that time, MH was destroyed by high winds. 2. Held: §2-509 – ROL in absence of breach – (3) risk passes to B on receipt of goods if S is a merchant, otherwise risk passes to B on tender of delivery. According to §2-503, tender of delivery requires that S “put and hold conforming goods at B’s disposition.” Here, b/c B removed skirting, tie down, and the blocks as well as took the steps, those actions were considered an “exercise of possession.” Thus, S had tendered delivery and risk of loss had passed.

H. Chopper hypo: π purchased a chopper from merchant Δ, but delayed taking delivery two months. With B’s consent, S arranged storage at a nearby airport. Court held that risk of loss remained with S b/c it had remained “under the practical control of S and had not been rec’d by B w/i the meaning of 2-509(3). A merchant seller cannot xfer risk of loss to B until B has actually rec’d goods.

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I. §2-504 Shipment by Seller (p 65)

1. Where S is required or authorized to send the goods to B and K does not require him to deliver them at a particular destination, then unless otherwise agreed, he must:

a) (a): put the goods in the possession of such a carrier and make such a K for their transportation as may be reasonable having regard to the nature of the goods and other circumstances; and

(1) particularly applicable to livestock, items requiring refrigeration, etc.

b) (b): obtain and promptly deliver or tender in due form any document necessary to enable B to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and c) (c): promptly notify B of the shipment

2. Failure to notify B is a ground for rejection only if material delay or loss ensues.

J. §2-308 Absence of Specified Place for Delivery (p 43) Default rule

1. Unless otherwise agreed: a) (a): place for delivery is seller’s place of business or if he has none his residence; but b) (b): in a K for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and c) documents of title may be delivered through customary banking channels.

K. §2-503 Shipment by Seller (p 64)

1. Tender of delivery requires that the seller put and hold conforming goods at B’s disposition and give B any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this Article, and in particular

a) Tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable B to take possession; but b) Unless otherwise agreed, B must furnish facilities reasonably suited to the receipt of goods.

2. Where the case is w/i the next section respecting shipment tender requires that S comply with its provisions. 3. Where S is required to deliver at a particular destination tender requires that he comply with (1) and also in any appropriate case tender documents as described in (4) and (5) of this section. 4. Where goods are in the possession of a bailee and are to be delivered w/o being moved

a) Tender requires that the seller either tender a negotiable doc of title covering such goods or procure acknowledgement by the bailee of B’s right to possession of the goods; but

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b) Tender to B of a non-negotiable doc of title or of a written direction to the bailee to deliver is sufficient tender unless B seasonably objects, and receipt by the bailee of notification of B’s rights fixes those rights as against the bailee and all third parties; but ROL of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until B has had a reasonable time to present the doc or direction, and a refusal by the bailee to honor the doc or to obey the direction defeats the tender.

5. Where the K requires the seller to deliver docs a) He must tender all such docs in correct form, except as provided in this Article w/ respect to bills of lading in a set (see §2-323(2)); and b) Tender through customary banking channels is sufficient and dishonor of a draft accompanying the docs constitutes non-acceptance or rejection.

L. §2-511 Tender of Payment by Buyer; Payment by Check

1. Unless otherwise agreed tender of payment is a condition of the seller’s duty to tender and complete any delivery. 2. Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it. 3. Subject to the provisions of this Act on the effect of an instrument on an obligation (§3-802), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.

M. Do §2-507 and §2-511 contradict? NO – payment and delivery are supposed to occur at the same time.

1. CL rule is that doers go before payors. But the UCC tweaks this: the fall-back interpretation is that both should happen concurrently. Payment and delivery are concurrent conditions.

N. §2-507 Effect of Seller’s Tender; Delivery on Condition

1. Tender of delivery is a condition to the Buyer’s duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the K. 2. Where payment is due and demanded on the delivery to the buyer of goods or docs of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.

Acceptance and Rejection of Goods Must separate receipt from acceptance Receipt, under §2-103(1)(c), is defined as taking physical possession of the goods. Acceptance, under §2-606, refers to a manifestation by B of willingness to take the goods as performance of S’s obligation sufficient to allow S to demand performance of B’s obligation. Now, that K has been created we turn to whether the goods of the K have been accepted. Rejection of Goods I. §2-601 Buyer’s Rights of Improper Delivery (“perfect tender”)

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A. if goods fail to conform to K (§1-201(11) defines K), B may: 1. Reject the whole; 2. Accept the whole; or 3. Accept any commercial unit(s) and reject the rest –

a) §2-105(6) defines commercial unit as that which commercial usage designates them as a single whole. Look at quantities for ordering.

B. Can only rightfully reject if the goods fail to conform to the K → interpret K. 1. §1-103 – Art 2 contains a lot of rules about laws, but where it does not speak, we can still apply common law. 2. Use tools like trade usage, maxims, gap fillers, etc:

a) trade usage to be considered. Egg hypo – 250k palates of eggs ordered arrive at store. Some are broken. Likely will not be able to reject the whole b/c trade usage likely provides for a limited # of broken eggs. b) §2-202 Parol or Extrinsic Evidence

(1) Essentially like CL, but trade usage, course of dealings, or course of performance is admissible to explain or supplement a writing even if it is intended as a final expression of the agreement as long as reasonably consistent w/ K terms.

c) §1-205 Course of Dealings and Trade Usage d) §2-208 Course of Performance e) §2-308 Gap Filler for Place of Delivery f) §2-309 Gap Filler for Time of Delivery

C. This is a strict rule. D. Limited by Good Faith Obligation of §1-203 Obligation of Good Faith

1. Every K or duty w/i this Act imposes an obligation of g/f in its performance or enforcement. 2. Rejection is not good unless it is done in good faith.

II. §2-612 “Installment Contract: Breach III. §2-106 Conforming:

A. S has BOP of proving conformity if goods rejected B. B has BOP of proving nonconformity if goods accepted

IV. §2-602 Manner and Effect of Rightful Rejection (p 70)

A. 2-602(1): Rejection must be w/i a reas time after delivery or tender. 1. Reasonable under the circumstances 2. Rejection must be clear and unequivocal

B. 2-601(2): Rejection ineffective unless B seasonably notifies S. Acceptance of Goods I. §2-606 What Constitutes Acceptance of Goods

A. 2-606(1): Acceptance occurs when B: 1. (a): after a reasonable opp to inspect the goods signifies (orally or written) to S that goods are conforming or that he will retain in spite of non-conformity.

a) Signify: payment or initialing by B may be support of acceptance, but is not dispositive

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2. (b): fails to make effective rejection (§2-602 above) w/i reasonable time after having opp to inspect.

a) Reasonable opportunity to expect depends upon the goods. 3. (c): does any act inconsistent with S’s ownership

B. 2-606(2): Acceptance of a part of any commercial unit is acceptance of that entire unit.

II. La Villa Fair v. Lewis Carpet Mills A. πB purchased carpet from the ΔS. It was kept at a warehouse for 9 months before being taken out and installation attempted. Upon installation, it became evident that the carpet did not meet the agreed upon specifications. B. Held: Inspection did not equate to acceptance under §2-606 b/c S was aware that goods would be shipped to a whse for storage. Industry practice is to delay inspection until ready to use. Also, carpet in orders like this is generally stacked versus unrolled in storage. C. Held2: Cutting and unrolling of carpet did not equate to acceptance (see §2-606(1)(c)) b/c the defects were not apparent until installation. After cutting the carpet, it became apparent when matching the carpet pieces that the quality and dye varied D. Held3: K did not express time for performance, thus S was not denied a right to cure.

1. Bjerre disagrees under §2-309(1): time for action … shall be a reasonable time III. Societe Nouvelle Vaskene v. Lehman Saunders, Ltd. – Time for Rejection

A. ΔB ordered and received apparel from πS. It was received in August and October 1970. It was priced and put on the sales floor in 11/70. A letter was sent to S 12/7 complaining that the goods did not meet appropriate sizes. C. Under §2-602(1), notice of rejection must be given within a reasonable time, otherwise it has been accepted (§2-606(1)(b)). These were seasonal goods and a note on the receipt stated that B had 5 days w/i receipt to reject and it was noted that trade custom requires 5-10 days. Finally, such goods were generally inspected upon receipt.

V. §2-608 Revocation of Acceptance in Whole or in Part (p 75)

A. 2-608(1): B may revoke acceptance of a lot or commercial unit whose non-conformity substantially impairs its value if acceptance

1. (a) on reas assumption that its non-conformity would be cured and it has not seasonably been done so 2. (b) w/o discovery of the non-conformity if his acceptance was reasonably induced either by the difficulty of discovery b4 acceptance or by S’s assurances.

B. 2-608(2): Revocation of acceptance must occur w/i a reas time after B discovers or should discover non-conformity. It is not effective until B notifies S. C. 2-608(3): B who revokes has the same rights and duties w/ regard to goods involved as if he had rejected them.

VI. Erling v. Homera, Inc.- Revocation of Acceptance

A. B purchased mobile home from S. After some time of living in the MH, problems with condensation in the roof appeared. S and the manufacturer of the siding attempted to correct the problem to no avail. At this point, B has already accepted. Can B revoke acceptance?

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B. Under §2-608, B may revoke acceptance if non-conformity substantially impairs its value. In comparison, §2-601 (rights on improper delivery) is pretty much any little non-conformity.

VII. §2-513 Buyer’s Right to Inspection of Goods VIII. §2-508 Cure by Seller of Improper Tender or Delivery; Replacement (p 66)

A. 2-508(1) Where any tender or delivery by S is rejected b/c of non-conformity and the time for performance has not expired, S may seasonally notify B of his intention to cure and may then w/i K time make a conforming delivery.

1. C1: Qualified by K time. K modifications modify time for cure. B. 2-508(2) Where B rejects a non-conforming tender which S reas believes would be acceptable S may have further reas time to substitute a conforming order.

1. C2: Intent of (2) is to protect S from a surprise rejection by B. 2. C2: No replacement clause is strictly upheld 3. C3: “further reas time to substitute” meant to protect B. 4. C4: Existing trade usages permitting variations but w/ price allowance are not covered in this section.

IX. Zabriskie Chevrolet v. Smith – Revocation of Acceptance A. Δ purchased a car from π. W/i 7/10ths of a mile of the lot, the car died. Δ put a stop payment on his check and told π that the deal was revoked. π attempted to cure by replacing the transmission with a transmission from a car on the show-room floor. B. Acceptance: No acceptance b/c goods were complicated and B did not have reas time to inspect. §2-606(1)(a)

1. Also, 2-608(1) permits revocation of acceptance when there is a non-conformity which substantially impairs the value of the lot or commercial unit. 2. General rule: rescission will not be permitted for a slight or casual breach of K, but only for such breaches as are so substantial as to defeat the objective of the parties.

C. Rejection: Valid rejection. Refusal to pay was seasonable notice. D. Cure: §2-508 prevents B from forcing the seller to breach by making a surprise rejection of the goods b/c of some minor non-conformity at a time at which S cannot cure the deficiency within the time for performance. Thus, this § would not be applicable. A cure of a substitution that is not within the agreement is not valid. The cure intended under the Code, as applied here, does not equate a substituted transmission of unknown lineage with a new factory transmission.

1. §2-508(1) – if S wants to fix, communicates that desire, and is able to execute w/i a reasonable time, it should have the opportunity to do so. The rationale is that contracts should be held together.

X. Rozmus v. Thompson’s Lincoln Mercury: Held that a non-conformity fixes w/i minutes by tightening two loose engine mounting bolts was proper cure.

INSTALLMENT CONTRACTS: SHOULD NOT BE ON FINAL Installment Contracts: consequences:

1. B cannot reject a delivery simply b/c it does not include all of the goods covered by the K

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2. S can demand payment of the price for goods delivered, if price can be apportioned, even if all goods have not yet been delivered; and

3. B’s right to reject the goods is governed by the special rule of §2-612 rather than §2-601. Graulich Caterer, Inc. v. Hans Holterbosch, Inc. – Cancellation by B of installment k F: π contracted with Δ to supply German food for World Fair tent. π had provided samples in order to obtain the k. The first order was far below the quality of the samples and the Δ rejected them. The same thing happened with the second order. H: The second order substantially impaired the value of the whole k and resulted in a breach of the whole. §2-612(3). If the breach goes to the whole contract, then B may cancel the whole k. §2-711(1) Flood v. M.P. Clark, Inc. – Cancellation by S of installment k. F: S contracted to sell lots of potatoes to B for a set price. The terms of payment were upon receipt of invoice. B was late in making payments, so S put B on COD. S argues that B’s failure to pay substantially impaired the value of the k and therefore constituted a breach under §2-612(3). H: Court found it was not a breach b/c S continued to sell (albeit via COD) to B. Thus, as the first may have been, S’s actions subsequent to the breach did not call on the breach. As such, S is now in breach for not continuing to sell to B. Cherwell-Ralli, Inc. v. Rytman Grain Co. – F: B entered into installment k with S; S to provide goods upon weekly orders to B. B soon became delinquent in payment. The Presidents of each company spoke and a check was issued for all amounts owed. B put a stop payment on the check b/c it was uncertain that S could continue to fill the order. S stops delivering and sues B for all amounts owed relating to past shipments. TC finds for S. B appeals that its acts did not constitute substantial impairment of the whole k. H: Affirmed. Under §2-703(f), an aggrieved seller is expressly permitted to cancel the remainder of an installment k. While, §2-612(3) states that a k is reinstated if S “brings an action with respect only to past installments.” Yet, S’s intent to cancel k was clear. Further, B’s argument that it feared that S would be unable to complete the k is unavailing b/c S closed its shop due to surplus inventory versus a shortage. I. §2-609 Right to Adequate Assurance of Performance (p76)

A. 2-609(1): A K imposes an obligation on each party to ensure execution of the K w/o impairment. When reasonable grounds for insecurity arise the other party may in writing demand adequate assurance of performance and may suspend performance until such assurance is rec’d

1. C2: 3 measures available a) Aggrieved P can suspend own performance and any preparation therefore b) Aggrieved P is given right to requires adequate assurance that other P’s performance is forthcoming. c) Aggrieved P may treat the K as broken if his reasonable grounds are not cleared w/i a reasonable time.

2. C3: Reasonable grounds and Adequate assurance are defined by commercial rather than legal standards.

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a) Statements that merely create the appearance that there is the potential that the K will be completed are NOT sufficient to trigger anticipatory repudiation.

B. 2-609(2): Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance shall be determined according to commercial standards.

1. C3: a B of precision parts has reasonable grounds for insecurity “if he discovers that his seller is making defective deliveries of such parts to other buyers with similar needs.”

C. 2-609(3): Acceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance. D. 2-609(4): After receipt of a justified demand such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the K. Failure to provide assurance w/i a reasonable time (not to exceed 30 days) after receipt of a reas demand constitutes repudiation (repudiation = breach)

1. C5: Party has a 30 day limit to provide assurance. 2. A false assurance could provide the court with information that you were not enabling the other party to mitigate damages.

E. Can get in trouble is used too strongly 1. By demanding assurances when you don’t have reasonable grounds for insecurity. May constitute a breach b/c no good faith. 2. By demanding assurances when the assurances are more than you need (party is entitled to some, but not everything.

Contract Formation HUGE differences between CL and UCC in approach to K formation Yet, keep in mind that under §1-103, the CL fills in the UCC. I. §2-204 Formation in General (p 26)

A. The inquiry becomes whether the parties have, in any reasonable manner, demonstrated agreement. B. 2-204(3) is most important. (1) and (2) don’t change anything from the CL. C. Difference from CL

1. need definiteness for a K to be enforceable 2. only need the intent of the parties to make a K 3. K need to provide a reasonable basis for giving relief.

D. 2-204(1): A K for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a K.

1. C: can be oral, written or otherwise 2. This is a broader approach than the CL. The inquiry becomes whether the parties have, in any reasonable manner, demonstrated agreement. 3. An offer may be accepted in any manner and by any medium reasonable in the circumstances, unless the offer unambiguously states otherwise. §2-206(1)(a)

E. 2-204(2): An agreement sufficient to constitute a K for sale may be found even though the moment of its making is undetermined F. 2-204(3): Even though one or more terms are left open a K for sale does not fail for indefiniteness IF the parties have intended to make a K and there is a reasonably certain basis for giving an appropriate remedy.

1. Indefiniteness: Use commercial standards in determining this factor.

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2. The more terms left open, the less likely it is that the parties intended to make a K.

II. §2-205 Firm Offers

A. An offer by a merchant in a signed writing by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time stated for a reas time; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

1. Option K is enforceable w/o separate consideration. §2-205. 2. Change from Dickenson v. Dobbs 3. C2: “Signed”: includes initialing, handwritten memo on writer’s letterhead purporting to confirm a firm offer, an authorized telegram or a typewritten signature.

III. §2-206 Offer and Acceptance in Formation of K

A. An offer can be accepted by either: 1. a promise to perform; or 2. performance

a) Yet, shipment of non-conforming goods does not constitute an acceptance if S seasonably notifies B that it was an accommodation.

IV. §2-207 Additional Terms in Acceptance or Confirmation; Battle of the Forms

A. Battle of the Forms: original offer v. acknowledgment. B. Section abolishes the mirror-image rule C. Is there a contract?

1. See §2-207(1) – There can be a K with an expression of acceptance even though that acceptance does not mirror the offer, unless expressly made conditional on assent. Parties may want to reserve the mirror-image rule. B’s assent must be something definite.

a) Compared to CL – Mirror-image rule (1) CL doctrine insists that an acceptance must be on the terms proposed by the offer w/o the slightest variation. Anything else is a rejection of the og offer, and acts as a counter-offer. (2) Exceptions to mirror-image: precatory acceptance and implied term.

D. If so, what is its terms? 1. See §2-207(2) - “dickered terms” – the concepts people really pay attention to can materially alter a contract and do not qualify as acceptance.

a) As opposed to “boilerplate terms” – standard, preprinted language that you do not have to think about upon every occurrence of an agreement. b) C1 Eg – “ship by x,” “rush,” “ship draft against bill of lading inspection allowed.” c) C2 - Any additional term must be regarded as a proposal for an added term unless acceptance is made conditional.

(1) (2)(a) is limited to the offereror. d) Between merchants (See §2-104(1)), add’l terms become part of the K unless:

(1) offer expressly limits acceptance to terms of offer

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(2) terms materially alter (see below) the agreement (a) This is a standard that must take into consideration all the circumstances. (b) (2)(a) device preserving mirror-image rule: An Offeror could include “Acceptance is limited to the terms of this offer” (c) C4: Clauses that materially alter

(i) Clauses negating standard warranties such as that or merchantability or fitness for a particular purpose in cases where such a clause would normally apply (ii) Clause requiring a guarantee of 90 or 100% deliveries in a case such as a K by cannery, where trade usage allows greater leeway (iii)Clause reserving to the seller the power to cancel upon B’s failure to meet any invoice when due (iv) Clause requiring that complaints be made in a time materially shorted than customary or reasonable.

(d) C5: Clauses that don’t materially alter – slight alterations

(i) Clause fixing a reasonable time for complaints or inspection w/i customary and reasonable limits (ii) Clause providing for interest on overdue invoices or fixing std credit terms (iii)Clause limiting right of rejection for defects falling w/i customary trade tolerances

(3) notification of object was already given or is given w/i a reasonable time.

(a) Another way of making a non-material term a material term.

e) Compared to CL - Last shot rule. (1) Performance is construed as acquiescing to the others last offer unless yours was last.

2. Look at clauses independently. E. Consider in light of §2-719(3) – Consequential damages may be limited or excluded unless limitation is unconscionable (very high std). Section is only applicable where a limitation of remedies clause is in a K, whether it will be enforced. F. Also in light of §2-315 – implied warranty of particular purpose.

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V. Diamond Fruit Growers v. Krack Corp.

A. Tubing supplied by TPD was ascertained as 30% at fault. K with TPD limited its liability for consequential damages to a refund of the purchase price or replacement of the tubing. This limitation was on a form acknowledging the Δ’s order for tubing. Δ and TPΔ had discussed the terms previously, but had not explicitly agreed to them. TPΔ asserted this constituted assent to the terms. B. Held: If the parties act as if they have a K, the provisions of §2-207(3) apply to fill in the terms of the k. Application of § 2-207(3) is appropriate in that situation b/c by going ahead with the transaction w/o resolving their dispute, both parties are responsible for introducing ambiguity into the k. The seller is most responsible for the ambiguity b/c it inserts a term in its form that requires assent to additional terms and then does not enforce that requirement. B/c the conduct did not indicate specifically and unequivocally the Δ’s intent to assent to terms, that conduct did not amount to the assent contemplated under §2-207(1).

VI. Hill v. Gateway 2000, Inc.

A. Hill buys computer over the phone. Gateway sent K terms containing arbitration clause in box w/ computer. B. Judge mistakenly says §2-207(2) irrelevant when there is only one form. Bjerre disagrees w/ the judge here b/c Gateway could have made acceptance conditional on additional terms, but that would have had to be expressly stated during the phone call. Issue of “rolling Ks” or “layered Ks” “buy now, terms later” – very controversial and in flux.

1. Arguments for: a) Don’t want to bore people w/ terms over the phone

2. Against: a) Paternalistic to say people not sophisticated enough to deal w/ these terms.

Statute of Frauds §2-201 Statute of Frauds – formalistic concern (outward manifestation of an agreement); permissive section -

1. K for sale of goods for $500 or more is not enforceable unless there is some writing sufficient to indicate that a K for sale has been made between the parties. Dispenses with writing requirement in sections (2) and (3):

• Signature: Needs to be signed by the party it is to be held against. Purpose is to avoid parties from having to be concerned about people may fraudulently make-up (say an oral K existed) a K and attempting to enforce it.

• A notation (eg – b agrees/smiley face) by either side can serve to support that the agreement exist.

• E-sign Act: absolutely applicable to UCC. Is account name on e-mail a signature? Most likely.

• §1-201 (39) – signed includes “any symbol executed or adopted by a party with present intention to authenticate a writing.”

• Examples:

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i. Business card with terms on back: some courts have interpreted this to be adequate as a signature.

ii. Letterhead: can be interpreted as a signature. • C1: Detail required is minimal. Eg – Identification of which party is buyer and

which seller not required. Only required term that must appear is the quantity term. No default rule about reasonable quantity in the UCC.

• Even though is satisfies the SOF, it does not prove the terms. Must look to other sections for gap fillers. Oral aspects of K can be enforced if it can be proven by party attempting to hold other responsible.

2. 2-201(2): Between merchants (both parties req’d to be merchant), if a confirmation is received w/i a reasonable time and is sufficient against the sender, it is also sufficient against the party receiving it, unless that party objects w/i 10 days.

• See Nelson v. Union Equity (p 10) • Relates to §2-207(2) formulation where only applies when both parties are

merchants. • §1-201(26): A person receives notice when: it comes to his attention; or duly

delivered at the place of business through which such communications would ordinarily be delivered.

i. So, if a kid steals it from the recipients mailbox, it has been delivered. 3. 2-201(3)(a): Specifically manufactured goods – When a seller has made a substantial

beginning in the manufacture or committed itself to buy goods from a third party, it may enforce an oral contract for them if it cannot resell them in the ordinary course of business.

• Echoes promissory estoppel i. Reasonably foreseeable

ii. Reliance to the detriment of a party. • Reason: prevent a buyer from backing out.

4. 2-201(3)(b): May be held when a party judicially admits the existence of the alleged K. 5. 2-201 (3)(c): When seller has received and accepted payment, or buyer has rec’d and

accepted the goods. • See §2-606; Acceptance of goods. • Comment 2 – Partial performance can substitute for writing requirement ONLY

for goods which have been accepted or payment made. Could §2-201(2) this be used as a trap? A fake business could send out hundreds of confirmation letters.

• Sending the letter makes it enforceable against the sender. §2-201 is meant to address the problem of the receiving party not holding the letter to enforce it while not being held to have entered into an agreement. Keeps the π from getting kicked out of court based on SOF grounds. There are still a lot of other defenses available. This just denies the SOF defense.

Distribu-Dor, Inc. v. Karadanis Door distributor entered into an oral agreement to supply mirrors and tubs to Δ. Δ said there was no agreement and b/c the total purchase price was over $500, any oral agreement that could be construed from the discussions would be void for the statute of frauds.

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Held: There was an agreement b/c the mirrors were specially manufactured and were not suitable for sale to others without substantial modification. As such, they fall w/i §2-201(3). Bjerre side-note: What if §2-103(3) did not apply – look at §1-103: unless Act applies, apply principles of, inter alia, estoppel. Also, b/c there was an agreement, the tubs were a component of that agreement. §2-708 – Seller’s Damages for Non-acceptance or Repudiation 1. damages are calculated as the difference between the market price at the time and place for

tender and the unpaid K price plus any incidentals less expenses saved as a result of the breach.

2. If (1) does not put seller in position has performance would have done, then seller is due credit for such shortfall.

Nelson v. Union Equity Co-operative Exchange – Merchant analyzed and 2-201 SOF Facts: Union entered into an oral agreement with Nelson on a futures K for the purchase of wheat at a specified price. Written confirmation of the agreement was sent the same day by Union to Nelson. Held: Under §2-201(2), this was an exception to written agreement IF Nelson is a merchant. Issue: Is Nelson, a farmer, a merchant? Held: Under §2-104(1) – Yes, he is a merchant. See official comment 2: For purpose of this section, almost every person in business would, therefore, be deemed to be a “merchant” under the language “who.. by his occupation holds himself out as having knowledge or skill peculiar to the practices involved in the transaction. Merchants with respect to goods of that kind or hold yourself as having knowledge of those particular goods. Look to the profession. If his occupation holds out that he is or should be knowledgeable about a topic, he will generally be held as a merchant. Eg is an auto mechanic; he will be held to be a merchant if he buys or sells a car. Mechanic would not be a merchant if he purchases it for his personal use. Applicability of the Code §2-102 says Article 2 applies to “transaction in goods.” Goods (§2-105(1)) are “all things… movable at the time of identification to the K” other than money, investment securities, and things in action. Distinction is between goods and services. RE is not included. Mobile home set in plot is RE. Mobile home on wheels. Hybrids: Two different approaches

• Predominant purpose: the thrust, the purpose, reasonably stated, is a transaction of sale with labor incidentally involved.

o All or nothing classification. • Gravamen: Look at transaction in pieces. Where consumer goods are sold which

retain their character as consumer goods after completion of the performance promised to the consumer, that good will be treated as a good sold.

Anthony Pools v. Sheehan (p23) Although the K was primary for the services of Anthony, the diving board still retained its character as a consumer good. Thus, under the gravamen test adopted by the court, an implied warranty of merchantability could not be disclaimed for the diving board under §2-314.

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I. FINDING THE LAW OF CONTRACT → INTERPRETATION

a. Broad Questions to consider: i. What parts of the [alleged] contract may the court consider? ii. What pieces of outside evidence (written and oral negotiations) may be admissible?

b. Parol Evidence versus Contract Interpretation Issues → i. PE refers to things that were expressly said or written down during the negotiations

between the party – and the issue at trial is whether these agreements should be allowed as part of the final written contract.

ii. K Interp refers to things that were not necessarily said during negotiations, but rather were implicitly assumed or accepted by both (or one) parties – and the issue at trial is whether evidence should be allowed to determine what a specific term or provision means (when it is unclear)

c. PAROL EVIDENCE RULE i. Reasons for PE rule:

1. encourages an careful and accurate drafting of Ks 2. puts parties on notice to include all terms in written K 3. written agreements are more accurate than oral agreements 4. if PE allowed, witnesses may give inaccurate testimony to defraud others

ii. Reasons against PE rule: 1. confusing and causes too much uncertainty 2. substantial injustice may result if court does not allow controversial evidence

to be reviewed. iii. Steps to consider in analyzing a PE Rule problem:

1. Did parties intend to adopt written contract as the final expression of all terms in the agreement? (i.e. is the agreement integrated?).

2. If agreement is integrated → what level of integration is present? 3. Once you establish the level of integration, determine what types (if any) of

“extrinsic statements” are admissible. iv. Governs unwritten statements made during negations that are alleged by one party

to be part of the final written expression of the parties’ agreement 1. If K is not in writing, PE does NOT apply. 2. PE does not bar evidence to show K is not valid. 3. PE does not bar evidence to show fraud in the inducement.

v. Integration Levels → Q: Does “extrinsic evidence” support or contradict writing? 1. Completely Integrated Agreement → R2d §214

a. Authoritative and complete expression of ALL The final terms of the agreement between the parties.

b. Written agreement is seen as dispositive and complete c. “extrinsic statements” can NOT be offered as evidence regardless of

purpose (to support or contradict writing) 2. Partially Integrated Agreement →

a. seen as authoritative only as to those provision that are included in the final version of the written agreement

b. “extrinsic statements” can be offered as evidence to support and/or supplement the writing, but NOT to contradict it.

3. Unintegrated Agreement a. Not authoritative and not complete b. PE rule basically does not apply and any “extrinsic statements” are

admissible to support or contradict the agreement. vi. Tests to determine Integration Level:

1. Face of the agreement test: (old, not current view): if written agreement “appears” to be full and complete, no PE allowed. Look at language in K to determine parties’ intent.

2. Merger [Integration] Clause: Parties can stipulate via provision in K that agreement is fully integrated – but this is not always dispositive.

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a. Best to put a merger clause in K → at minimum it can be used as evidence to show intent to have fully integrated K.

b. See note 3, p. 565 text. 3. UCC 2-202: excludes PE only if parties have certainly made agreement a final

expression of the terms of the K. 4. Any relevant evidence: many courts today will allow evidence to determine

the level of integration. Credibility is a huge factor. Q: Would the terms/K “naturally and normally” be one that is integrated?

vii. Factors to consider when determining integration level: look for intent to be bound 1. degree of inter-relatedness between subsidiary and main agreement 2. subject matter – is subsidiary agreement same subject matter as main K? 3. time of execution – was subsidiary agreement was meant to be performed at

the same time? 4. scope of subsidiary agreement – was it within the scope of the main K?

d. Exceptions to PE Rule: i. Collateral Agreements: R2d: will admit evidence of collateral agreements only if the

parties would have naturally made them as separate agreements from the K at issue 1. this makes it so both parties do not have to consider all agreements between

them when they put the immediate agreement in writing. ii. Mistakes/Omissions: see R2d §214, Bollinger.

1. in order to be admissible, evidence of mistake must be: a. MUTUAL b. about WORDS in the agreement

2. Or be a result of fraud on behalf of one of the parties. iii. [No] Oral Modification Clauses:

1. parties can include provision that says: no subsequent [mutual] oral modifications → but this is NOT dispositive

2. PE Rule only governs statements made prior to or contemporaneous to a written agreement; therefore, the PE Rule does not cover subsequent oral modifications.

3. Common Law: ANY prior agreement (including an oral modification clause) can be modified by a subsequent agreement.

a. must prove: (1) modification and (2) reliance on modification. 4. 2-209: “a signed agreement which excludes modification or rescission except

by a signed writing cannot be otherwise modified or rescinded.” e. Relevant Case

i. Gianni v. Russell [p. 566]: No PE allowed when written integrated K 1. If terms of K seem to satisfy goals of K, then it is complete and final. If there

is an subsidiary oral promise that is so intertwined with the written K that the written K cannot operate without it, then it is admissible.

ii. Masterson v. Since [p. 570]: Can use PE to supplement if K not fully integrated 1. court determined that K was only partially integrated, so evidence was

allowed to show whether option K was assignable (because there was no express provision in the K relating to assignability). PE Rule allows evidence to supplement, but not contradict the writing.

iii. Bollinger [p. 578]: PE followed to prove mutual mistake 1. court allowed “extrinsic evidence” to show mutual mistake (i.e. both parties

failed to include the oral agreement in the final written expression). 2. this is an exception to the PE Rule → if a party contends that there was an

oral agreement that existed prior to the written K, and both parties assented to it, but it simply was omitted by mistake from the final agreement, court will examine evidence to determine if the contention is true.

a. Irrelevant whether agreement is fully/partially integrated. b. Same exception applies if fraud was present.

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II. CONTRACT INTERPRETATION a. Vagueness & Ambiguity

i. Vagueness = application in marginal situations is uncertain (“shades of meaning”) ii. Ambiguous = able to have two or more reasonable interpretations which make it

appropriate and inappropriate at the same time. 1. Patent: ambiguity is readily perceivable from face of terms/document 2. Latent: facially the terms appear to be certain, but in application, unforeseen

ambiguities arise. a. If both parties have their own interpretation of the terms, but neither

is aware of the other parties view → this is a mutual mistake of material terms, and the K is invalid.

i. See Raffles v. Wichelhaus [p. 582] b. If both parties are unaware of the ambiguity, but later discover it, the

K is valid IF terms comport with mutual understanding of terms. c. If one party is aware but one is not → K is valid and “innocent” parties

terms are applicable. iii. Ambiguity of Terms vs. Syntax:

1. Terms: words have more than one meaning 2. Syntax: the grammatical structure is confusing

iv. A certain amount of vagueness is acceptable to allow for flexibility due to future uncertainties – but ambiguity is NEVER tolerable.

v. Resolution of issues in Court 1. Ambiguity and Vagueness problems →

a. if ambiguous, and there is no rational basis for court to choose one of the offered interpretations, then there is no K.

2. if vague, court will objectively interpret K and enforce b. Rules & Guidelines for Interpretation

i. Plain Meaning Rule (old rule) = look at the plain meaning of word(s) without regard to the intent of the drafters/parties.

1. Steuart v. McChesney, PA S Ct, 1982 → court enforced K according to plain meaning, even though it was apparent that it was contrary to the intent of the parties. This rule forces parties to be clear in drafting the express terms.

ii. Objective Interpretation = courts will look at the objectively reasonable intent of the specific parties, rather than the subjective intent claimed by one of the parties.

1. Objective interpretation promotes reasonable certainty re: K interpretation iii. Modern Approach → Circumstances of K = court will consider whether the

language of the K is “fairly susceptible” to multiple interpretations, even if it appears to be clear and unambiguous on its face.

1. Traynor developed this doctrine in the case PG&E [p. 597] → he disregarded the traditional approach which said you have to look at whether the terms are clear on their face – and PE is only allowed where terms are not.

a. He said the test for whether PE should be allowed in a case to determine how a K should be interpreted is whether the language of the K is fairly susceptible to multiple interps. PE is allowed to prove which is correct.

2. Hurst case [p. 597] → trade usage can be used to interpret Ks. 3. 1-205(3) = custom & trade usage can govern K interp. These may

supplement or qualify terms of K, but if the express terms in K contradict custom/trade usage, then the terms of the K win out.

iv. Tools for Interpretation 1. Internal references in K = writing may reference other documents, which can

aid in interpreting the intent of the parties. 2. dictionary meaning 3. common usage. 4. trade usage 5. Market realities

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6. subjective intent (only useful when both parties agree) 7. maxims of construction (not dispositive, but used as support)

a. see class notes p. 9 c. GAP FILLING [p. 611]

i. Possibly applications: 1. gap exists because parties failed to consider an issue 2. gap exists because parties failed to include an exception 3. gap exists because the language of the K does not apply to this situation

ii. R2d §204 = where two parties haven’t agreed to a term that is essential to the fulfillment of the K, the court supplies term(s) reasonable under the circumstances.

iii. Terms implied in Fact: when the conduct or words of a party imply a promise or agreement that will then be enforced by the court.

1. PE is allowed to negate this type of terms. iv. Terms implied in Law: when the court supplies terms to the agreement (default rules

from UCC and CL when K is silent). 1. PE is NOT allowed to negate these implied terms.

v. 1-205(4) re: which terms prevail 1. express terms > trade usage 2. course of dealing > trade usage

vi. Good Faith requirements: 1. Merchants: 1-203 → requires “honesty in fact” (subj, considers motive) and

observance of reasonable commercial standards (obj, considers actions). 2. Non-Merchants: requires only “honesty in fact”

III. PERFORMANCE AND BREACH [Ch. 7] a. Conditions → “triggering events” R2d §224 = uncertain events that must occur (unless

nonoccurrence is excused) before performance is due. i. Issues to consider:

1. does the language of the K create a condition? 2. has the condition been satisfied? 3. if it has not been satisfied, what is the legal effect?

ii. R §227(1) → re: types of conditions 1. Condition = something that must occur before performance is due.

a. Effect of breach = non-breaching party does not have to perform their part of the conditioned agreement (remainder of K is unaffected).

2. Duty/Promise = something that must be done before performance is considered complete.

a. Effect of breach = non-breaching party is entitled to damages. 3. Both = when condition satisfies the duty as well.

a. Effect of breach = non-breaching party is entitled to damages and does not have to perform their part of the conditioned agreement.

4. If K is unclear, court will usually interpret it as a duty rather than a condition. iii. Condition Precedent = an event that must occur/exist BEFORE the parties will be

bound by the K. 1. Luttinger [p. 665] → P conditions acceptance of sale of house on ability to

obtain financing. Was not, so no K. iv. Satisfaction Clause = parties can expressly agree to give one party the right to judge

the acceptability of the other party’s performance. 1. right can be expressly limited; otherwise court may interpret right as granting

full discretion to judging party (limited only by good faith/reasonableness). a. Reasonable review: (Obj std) R2d §228: would reasonable person in

judging parties position be satisfied by performance? b. Good Faith review: (Subj std): satisfaction depends on taste, fancy,

etc. Claim of dissatisfaction must be in good faith rather than in an 2. Mattei [p. 677] → court applied GF review for real estate transaction 3. Gibson → court said complete discretion may be allowed.

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v. PREVENTION: 1. party that is subject to the condition cannot prevent the occurrence of it and

then claim they do not have to perform. GF duty exists to not prevent it. vi. WAIVER:

1. party whose performance is subject to the condition can decide to forego their right to subject their duty on that condition and continue under the terms of the K as if it occurred.

a. Waiver can also be implied from conduct (such as payment, etc). b. Non-waiver clause: says no [in]action may amount to a waiver, but

these are not always honored. c. RE: Retraction of Waivers → General Rule = waivers can be

retracted prior to the [non]occurrence of the event UNLESS: i. Estoppel: seller [reasonably] relies on waiver; or ii. Election: (applies to duties) party’s whose duty is conditional

may treat duty as discharged (after non-occurrence of event) and treat performance as completed → BOUND by this choice.

b. Constructive Conditions [p. 699] i. Usually refer to the order of performance in a contract → GOAL = alleviate the risks

associated with performing first under a bilateral K. ii. Avoids the injustice of forcing the non-breaching party in a bilateral K to perform and

then seek damages for the breach. Rather this allows the court to infer a constructive condition that excuses non-breaching party from performing.

iii. Usually the DOER has to perform before the PAYER. 1. easier to force a party to pay then it is to force a party to perform

iv. R2d §232 = existence of dependency between exchanged promises is presumed to exist when parties enter into a bilateral agreement unless contrary intent is express.

1. This is a default rule and can be changed by express agreement of the parties 2. Comment E = generally a party is not required to pay until work is completed,

but many Ks today have satisfaction clauses, as well. v. Kingston v. Preston [p. 693] → J. Mansfield created constructive conditions

1. three types of covenants: a. (1) Mutual and Independent → either party may recover for breach if

the other party fails to perform; no excuse for D that P did not perform i. I don’t think these really exist anymore.

b. (2) Conditions and Dependent → performance of one depends on prior performance of the other; thus, until prior performance is complete, the other party is not liable.

i. This is the DEFAULT rule at Common Law. c. (3) Concurrent Mutual Conditions → if one party is ready to perform

when required and the other is not or refuses, this is a breach. i. UCC makes this the DEFAULT.

vi. UCC 2-507(1) and 2-511(1) = tender of delivery and payment are concurrent conditions – law does not require that one occur before the other, but rather they should occur simultaneously.

c. MITIGATION DOCTRINES [p. 707] i. Substantial Performance = permits recover for performance that is not complete

but is considered substantial (considering all the circumstances). Arises most often in construction contracts, because it is virtually impossible to make a building perfect.

1. parties are free to agree that any contract must be performed exactly as specified in the agreement.

2. Most Ks, however, do not do so → they allow for some deviations; D is required to pay for the deviations, though, rather than be forced to fix them.

3. Cardozo TEST (from Jacobs v. Youngs & Kent) a. Purpose of Covenant (emotional attachment or subjective value?) b. Desire to be gratified (was it explicit that conditions were necessary?) c. Excuse for deviation (willful breach? R2d §241 says no Sub Perf if so)

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d. Cruelty of enforcement (burden on D if forced to perform exactly under K or burden on P if specified performance is not received)

4. See R2d §241 = factors to consider when determining if breach is material 5. Application:

a. If Constructive Condition: may be satisfied by substantial performance b. If Express Condition: must be satisfied completely as required

ii. Divisibility/Severability [p. 720] 1. Q: is the overall performance of the K more desirable or is each divisible part

of equal value? 2. R2d §240 = says to determine whether the elements of performance on both

sides can be paired up with each other. a. If so → K is divisible. b. If not → K must be performed entirely.

3. Apportionable amounts may be expressed in K or implied by court. iii. Restitution = one party confers benefit on another, so the conferring party is

entitled to be fairly compensated for the value of that benefit. 1. must show that it would be unjust to allow the other party to keep the benefit

without compensating you for it (but compensation cannot exceed terms of K) 2. this is seen as a separate action, rather than an action under a K → the terms

of the K are irrelevant: look at the value of the benefit conferred. 3. harder to get relief if performance is not complete (especially if failure to

completely perform was willful), unless it is divisible. 4. Quantum Meruit = “as much as she deserved”

d. ANTICIPATORY REPUDIATION/BREACH → R2d §250 i. Refers to a situation where one party indicates (thru language or conduct) that they

intend not to perform [except on conditions which go beyond the terms of the K]. 1. language/conduct must be “sufficiently positive to be reasonably interpreted

to mean that the party will not [or can not] perform. ii. The doctrine encourages the non-breaching party to mitigate damages iii. Hochster v. De La Tour [p. 741]: anticipatory repudiation is the same as a breach –

the non-breaching party has a choice to wait until the time of performance to sue for damages or to sue for damages immediately and find other opportunities.

iv. General Rule = repudiations can be retracted 1. Exceptions =

a. Reliance: if the party relies upon the repudiation, then it cannot be retracted.

b. Renounce K: if non-repudiating party receives notice of repudiation and thereafter renounces the K, then the repudiating party is precluded from retracting. Say: repudiation is final. See R2d §256

v. General Rule = repudiation accompanied by a breach by nonperformance can give rise to a claim for damages as for total breach

1. Exception = installment contracts → if most of the duties under a K are performed and most installments have been paid, then the recipient of repudiation will have to wait until the installments come due before she can sue for relevant damages.

2. See p. 745 or Restatement 2d §§243(3), 253 3. But this exception is almost always avoided via acceleration clauses

a. basically says on any default, creditor may declare all amounts remaining payable immediately

vi. no Anticipatory repudiation for unilateral Ks vii. No AR when one party has already performed

e. BREACH IN THE COURSE OF PERFORMANCE i. Fundamental Q: was the failure to perform a material breach? ii. The judge will weigh the factors to consider whether the breach was material or

whether it was merely a partial breach.

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1. partial breach: aggrieved party has to continue performance, but they have the right to collect damages.

2. material breach: R2d §243(1) = non-breaching party may either → a. (1) continue performance and treat it as a “partial breach” b. (2) stop performance and treat breach as “total breach” which

discharges their remaining duties under the K and gives rise to a claim for damages – BUT if circumstances allow for a “cure” then non-breaching party is expected to allow for it before treating it as “total”

3. FACTORS judge will consider → taken from Walker Co. v. Harrison [p. 722] a. Extent to which injured party obtains substantial benefit b. Extent to which damages will adequately compensate injured party c. Extent of partial performance or preparation d. Relative hardship (failing to perform vs. breach) e. Nature of the breach (intent: willful or innocent) f. Amount of uncertainty as to whether the party will perform the rest of

their duties under the K 4. This “modern” approach is essentially the same as the R2d §241

a. Uses “good faith” and “fair dealing” rather than “nature of breach” b. Does not include “extent of partial performance”

5. Also, consider R2d §242 (Bjerre likes this “standard” better) a. Extent to the delay will make finding other arrangements hard b. Failure to perform on a certain day is not necessarily a material breach

unless the parties intended for that deadline to be significant. iii. Connection between material breach and substantial performance → the two

concepts are similar: if there is a material breach, there is no substantial performance, but if the court finds substantial performance, then the breach is not material → a similar analysis is done under each doctrine.

iv. Prevailing View: you can use evidence that you were not aware of at the time of the breach as a justification for the breach (most often applied in employment context).

IV. THIRD PARTY BENEFICIARIES → R2d §§302, 309, 311 a. Fundamental Q: was the agreement intended to benefit a 3d party?

i. 3d party beneficiary has no part in making K but was intended to have right to an action if the K is not maintained.

ii. Does not require privity of K. b. Donee Beneficiary: 3d party who received a gift as a result of someone else’s K – they can

sue to enforce their right to receive the gift. c. Creditor Beneficiary: 3d party who had some right to a debt owed by a contracting party

and was supposed to be repaid as a result; can sue to enforce right to receive payment. d. Incidental Beneficiaries: 3d party who may enjoy benefits as result of K but has no

enforceable interest in the performance of the K. e. Lawrence v. Fox → to create a 3d party beneficiary, contracting parties must intend to

confer a benefit upon that person. i. Need not be privity of K between contracting parties and 3d party beneficiary.

f. No Inurement Clause = expressly stated: no 3d pty beneficiaries. g. ASSIGNMENT & DELEGATION → “delegate duties” and “assign rights”

i. Assignment: refers to the transfer of a right to a 3d party after the K is created. 1. All that is required is a clear intent to transfer the right → NOT revocable.

ii. Parties involved: 1. Assignee = 3d party to whom the right is transferred 2. Assignor = party who transfers her rights under a K to a 3d party 3. Obligor = party who, following assignment, must render performance to the

assignee rather than the assignor. iii. Generally ALL rights can be assigned EXCEPT those which:

1. materially alter the obligor’s duty (i.e. personal services). 2. materially vary the risk (e.g. insurance policies). 3. materially impair the obligor’s chance to obtain return performance.

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UNIFORM COMMERCIAL CODE DEFINITIONS General Definitions 1-201 p. 9 Course of Dealing 1-205 p. 14 General Defs for Sales 2-103 p. 17 Good, Commercial Unit 2-105 p. 20 Several very important 2-106 p. 21 SUBSTANTIVE PROVISIONS Supp. General Principles 1-103 p. 8 Statute of Frauds 2-201 p. 22 Parol Evidence Rule 2-202 p. 25 Formation 2-204 p. 26 Firm Offers 2-205 p. 27 Offers & Acceptance 2-206 p. 29 Additional Terms 2-207 p. 29 Cours of Perf. for K 2-208 p. 32 Modification 2-209 p. 33 Open Price Term 2-305 p. 39 OBLIGATIONS Delivery 2-307 p. 43 Notice of Termination 2-309 p. 43 WARRANTIES Express 2-313 p. 46 Implied: Merchantability 2-314 p. 49 Implied: Fitness 2-315 p. 53 Exclusions 2-316 p. 54 PERFORMANCE Sellers Tender of Delivery 2-503 p. 64 Effect of Sellers Tender 2-507 p. 66 Cure by Seller 2-508 p. 66 BREACH, REPUDIATION, EXCUSE Improper Delivery 2-601 p. 69 Rejection 2-602 p. 70 Buyer’s Options to Salvage 2-604 p. 72 Acceptance 2-606 p. 72 Effect of Acceptance 2-607 p. 73 Revocation of Acceptance 2-608 p. 75 Right to Assurance 2-609 p. 76 Anticipatory Repudiation 2-610 p. 80 Installment Contracts 2-612 p. 82 REMEDIES Buyer’s Remedies 2-711 p. 91 Buyer’s Substitute/Cover 2-712 p. 91 Buyer’s Damages: Accpt 2-714 p. 93 Deduction of Damages 2-717 p. 95

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I. UNIFORM COMMERCIAL CODE a. UCC Article 2 is written by the American Law Institute and the National Conference of

Commissioners on Uniform State Laws i. Commissioners are appointed by every state ii. Oregon has 3 – including Bjerre

b. 1-102(1) → CONSTRUE THE UCC LIBERALLY TO SATISFY POLICIES/GOALS c. 1-102(7) → Lays out the Purposes and Policies behind the UCC

i. to “simplify, clarify, and modernize commercial law” ii. to permit the continued expansion of commercial practices by validating trade

customs and usage as well as parties’ express agreements iii. to make the law uniform among the various jurisdictions (for predictability)

d. Core Terms to be familiar with: i. 1-201(3) → “Agreement” = bargain of the parties found in their language or by

implication from other circumstances ii. 1-201(11) → “Contract” = the total legal obligation which results from the parties’

agreement as affected by the code and any other applicable rules of law iii. 1-201(19) → “Good Faith” = honesty in fact in the conduct of transactions

concerned (Merchants → GF = honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade).

iv. 2-105(1) → “Goods” = all things which are movable at the time of ID to the K for sale other than the money in which the price is to be paid, investment securities, and things in action (i.e. services).

v. 2-104(1) → “Merchant” = person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practice or goods involved in the transaction. Also applies to agents of merchants.

1. Comment 2 → “merchant” roots in the “law merchant” concept of a professional in business. May be based on specialized knowledge as to the goods and/or as to the business practices.

2. only applies to merchants in their “mercantile capacities” 3. Warranties, etc. require professional status as to the particular kind of goods,

whereas the simple business practices (contracts, etc) do not. vi. 1-201(25) → “Notice” = person has notice of a fact when (a) they have actual

notice, (b) receive a notice, or (c) has reason to know it exists. vii. 1-201(25) → “Notifies and Receipt of Notification” = effective from the time it is

brought to the attention of the individual conducting the transaction. Due diligence show in routine of communicating information.

1. person “receives” notice when (a) it comes to his attention, or (b) it is duly delivered at the place of business thru which the K was made.

viii. 2-103(1)(c) → “Receipt of Goods” = taking physical possession of them. II. WHEN DOES UCC ARTICLE 2 APPLY?

a. 2-102 → SCOPE = applies to transactions of goods i. see definition of “goods” above

1. real estate not covered 2. movable goods only – not services

ii. “Hybrid Transactions” = those which include BOTH goods and services 1. two methods of dealing with them (jurisdiction split)

a. Predominant purpose = whichever one dominates the transaction will be used as the basis for judging it

b. Gravamen = the basis of the complaint itself determines the nature of the transaction involved.

III. CONTRACTS FORMATION a. 1-103 = concepts of law and equity (such as fraud, duress, misrepresentation, coercion,

mistake, etc. are still applicable in the sale of goods [when UCC is silent]. b. 1-203 = GOOD FAITH requirement in every K for the sale of goods c. 2-204(1) → K for sale of goods made in any manner sufficient to show agreement,

including conduct that recognizes existence of K.

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d. 2-204(3) → K even if one or more terms are left open e. 2-205 → “Firm Offers” = by merchant, signed, held open (not revocable) without

consideration for period stated in offer f. 2-206(1) unless expressly stated otherwise

i. (a) acceptance can be in any manner reasonable under circumstances ii. (b) offer inviting prompt shipment can be accepted by promptly shipping, but if

goods are non-conforming this is not an acceptance if buyer notifies seller g. 2-206(1)(b) → lets offeror accept by performance or promise to perform. h. 2-206(2) → if performance actuates acceptance (i.e. unilateral K) then offeree must notify

offeror of acceptance/performance or it is invalid. i. BATTLE OF THE FORMS: Generally it is agreed that there are THREE methods of K

formation under 2-207: i. Offer + Acceptance → under 2-207(1) ii. Offer + Acceptance that is EXPRESSLY conditioned on assent to additional terms

(which essentially amounts to a counteroffer) → under 2-207(1)’s “unless” clause iii. Conduct of Parties which recognizes the existence of the K → under 2-207(3) i. DIFFERENT TERMS: anything that relates to a provision/term that is already

expressly included in the offer. iv. ADDITIONAL TERMS: anything that relates to any provision that is NOT expressly

included in the original offer. j. At CL, offeree’s response to an offer operated as an acceptance ONLY if it was the precise

mirror image of the offer. Any new/additional/different terms would make the response an effective counteroffer.

k. 2-207 [p. 29] → eliminates the “mirror image rule” and “last shot rule” i. 207(1) answers Q: Is there a K?

1. any expression of acceptance or written confirmation will act as an acceptance of K even if additional or different terms are contained therein

2. “unless clause” in this provision allows parties to retain the “mirror image” rule and the “last shot” rule if they so choose – by requiring that any different or additional terms must be expressly assented to (essentially a counteroffer)

a. Good draftsman tips: say “expressly conditional on acceptance of the additional or different terms contained herein. . .”

ii. 207(2) answers Q: What are the terms of the K? 1. initially, additional terms are simply proposals for additions to the K 2. Between MERCHANTS: if BOTH parties are merchants →

a. The additional terms automatically become part of the K - UNLESS: i. acceptance is expressly conditioned on assent to them ii. if they materially alter the agreement (see comments 4, 5).

1. if more than one additional terms, then if one materially alters the agreement, it will be lost, but others remain.

iii. prior notice or rejection within reasonable time. b. Different terms cancel each other out.

3. Non-MERCHANTS: if ONE or both of the parties are NOT merchants → a. Additional or different terms are NOT part of the agreement unless the

party expressly agrees to them. b. If the additional terms are rejected, a K is formed with all the terms

that both parties have agreed to. iii. 207(3) ONLY applies when K is created thru conduct

1. “knock-out” provision = terms consist of only those which BOTH parties have agreed upon. Both different and additional terms are eliminated

2. Gaps are filled according to default rules (see below). iv. Overall: Conflicting terms (different terms) → most courts use the “knock out” rule

and exclude both parties versions, and then fill the gaps accordingly. l. Ways the power of acceptance can be terminated:

i. Rejection ii. Counteroffer

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iii. Lapse of time iv. Revocation v. Death or incapacity

m. “dickered terms” → those terms that the parties negotiate over n. “boilerplate” → the typical terms contained on the forms that are usually not discussed. o. Relevant Cases:

i. Diamond Fruit Growers → this was created thru conduct (so under 207(3)) ii. Gateway v. Hill → “rolling contracts”

1. The judge says Gateway is the master of the offer (offer = sending comp, acceptance = keeping it more than 30 days). The K is not really “formed” at the time of offer/acceptance, but rather the terms that are included in the form contract that is included in the box are considered the terms, and what will be the K is actually decided later.

2. Bjerre doesn’t like this, because it goes against our autonomy. He thinks when the Hills call Gateway and say “send me a computer” this is the offer to buy, and Gateway’s shipment is the acceptance, and the terms in the form are construed as proposals for additions to the K.

IV. OUTPUT / REQUIREMENT / EXCLUSIVE DEALING Ks a. 2-306 [p. 41] → requires good faith, fair dealing, etc.

V. GAP FILLER PROVISIONS → applied by court unless otherwise agreed on by parties.

a. 1-203 → Good faith requirement throughout. b. 1-204 → reasonableness is defined by circumstances; wholly fact-dependant.

i. Parties cannot agree in K on time for performance that is manifestly unreasonable. c. 2-204(1) → K for sale of goods made in any manner sufficient to show agreement d. 2-204(3) → even if one or more item omitted, K does not fail for indefiniteness if the

parties have intended to make K and there is a reasonably certain basis for providing an appropriate remedy

e. 2-305 → (reasonable) price (at time of delivery) if parties fail to specify one f. 2-306 → output K = “best efforts” and “good faith” g. 2-307 to 2-310 → parties must comply with reasonable practices h. 2-308 → default RoL = shipment K i. 2-509(3) → RoL passes to buyer on tender of delivery j. 2-309(1) → reasonable time k. 2-309(3) → reasonable notice l. 2-311 → unless otherwise agreed, buyer has right to specify assortment of goods m. 1-201 → “agreement” = bargain of the parties in fact as found in their language or by

implication from other circumstances including course of dealing, trade usage, etc n. 2-305(1)(b) → court will supply price if parties expressly agree to leave it open to be

agreed upon later, but are unable to agree at a later date. o. 2-714(3) → buyer can get consequential and incidental damages

VI. SAFE HARBOR PROVISIONS a. 1-204(1) → time (6 months is considered reasonable, but parties are free to agree to any

other time that is still reasonable) b. 1-102(3) → “safe harbor” enabling statute

VII. MODIFICATION

a. § 2-209 → MODIFICATION OF SALES K: A modification of a K for the sale of goods is binding without consideration.

i. No-oral-modification clauses: A no oral modifications clause in a sales K will normally be enforced.

VIII. STATUTE OF FRAUDS

a. 2-201 [22] → a K for the sale of goods >$500 must have writing sufficient to indicate that a K for the sale of goods has been made AND signed by defendant AND state the quantity.

i. 1-201(39) = defn of “signature”

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b. Exceptions: 2-201 i. (2) → Between merchants, a confirmation from seller to buyer is sufficient to

enforce the agreement against either (unless buyer objects within 10 days). ii. (3)(a) → “specially mfr’d goods” that cannot be resold – either substantial

production has begun or seller has committed to buy goods from a 3d party. 1. estoppel principle, essentially – but narrower than CL rule

iii. (3)(b) → estoppel: if party “judicially admits” to K, she may be held to it. 1. also applies if party admits to a set of facts that could constitute a K

iv. (3)(c) → SoF does not bar any payment for goods or goods that have been received and accepted goods (see 2-606 for acceptance rules).

1. partial payment/acceptance only removes part of K from SoF c. 2-209 → Modification/Rescission

i. (1) does not require consideration ii. (2) a signed K which excludes oral modifications is binding iii. (3) if original K is under SoF, modification/rescission must be as well iv. (5) even if there is a “no oral modification” clause, if p1 orally modifies and p2 relies

on this, then p1’s actions will likely be seen as a “waiver” of the right to the “no oral modification” clause.

d. Confirmation letters can convert an oral agreement to a “written agreement” between merchants → but it only counts against the sender at first, but if receiver does not object within 10 days then it can be enforced against them as well.

IX. PAROL EVIDENCE & INTERPRETATION OF SALES K

a. 2-202 → actual text for UCC’s parol evidence rule = similar to CL principle b. Three special sources used in interpreting the terms of a contract (in priority order):

i. 2-208(2) → Course of performance: Refers to the way the parties have conducted themselves in performing the particular contract at hand.

ii. 2-208 (2) → Course of dealing: Refers to how parties acted with respect to past Ks. iii. 1-205 (2) → Usage of trade: Any 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.

1. Thus the meaning attached to a particular term in a certain region, or in a certain industry, would be admissible.

iv. Used to interpret even a complete integration: “course of performance,” “course of dealing,” and “trade usage” may be introduced to help interpret the meaning of the writing even if the writing is a complete integration.

1. That is, these sources aren’t affected by PE rule – because the writing may still be explained by evidence from these three sources.

v. 2-208(2) → Custom can’t Contradict Express Terms. 1. However, if these customs can reasonably be harmonized with the writing,

then the customs may be shown and may become part of the K. vi. 2-208(2), 1-205 → Priorities: express contractual provision controls over a course

of performance, which controls over a course of dealing, which controls over a trade usage.

X. CONSTRUCTIVE CONDITIONS

a. Sales of goods when no order agreed upon: If each party’s promised performance can occur at the same time as the other’s, the court will normally require that the two occur simultaneously = "concurrent conditions."

b. 2-507(1), 2-511(1) → Tender of performance: Courts say that where the two performances are concurrent, each party must "tender" (conditionally offer) performance to the other.

XI. RISK OF LOSS

a. Generally: this issue arises when goods are damaged in transit i. CL → whoever held title to goods when damaged had the risk of loss.

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ii. Code places risk on the party most likely to take precautions against the loss (usually the one with possession or control of the goods or the one most likely to insure)

iii. General solution is to go by what the K says to determine who carries the risk at what point.

iv. Whoever bears the RoL may have a claim against the carrier, but its often difficult b. 2-319 → Types of Delivery Terms [58]

i. (1)(a) → Shipment Contract (F.O.B. = “free on board” → place of shipment) 1. Seller need only place the goods in carrier’s hands (at own risk/expense) 2. Buyer pays shipment costs 3. Risk passes to Buyer when goods are duly delivered to carrier

ii. (1)(b) → Destination Contract (F.O.B. place of destination) 1. S must at own expense and risk transport goods to that place and there duly

tender the goods to buyer. a. S bears risk until goods tendered at B’s destination

iii. (1)(c) → FOB vessel (buyer must name vessel) 1. Seller must deliver goods to carrier and place them on board

iv. (2) FAS vessel (free along side) at a named port (rarely used) 1. S must deliver at his own expense and risk alongside the vessel 2. S must obtain and tender receipt for goods in exchange for Bill of Laiding

v. (3) buyer must provide instructions for delivery if under (1)(a), (1)(c), or (2) c. 2-320 → CIF means the price includes in a lump sum the cost of the goods and the

insurance and freight to the named destination. i. C&F means that the price includes cost and freight to the named destination. ii. Problems arise when there is inadequate insurance iii. Seller pays for insurance, but in case where insurance is inadequate, buyer has the

RoL. This provision only requires seller to pay for “usual amount” of insurance. d. 2-509 Risk of Loss in Absence of Breach [67]

i. (1)(a) → re: shipment K 1. K requires or authorizes Seller to ship goods by carrier when a particular

delivery destination NOT required 2. RoL passes to Buyer when goods are duly delivered to carrier

ii. (1)(b) → re: destination contracts 1. contract requires seller to ship to a “particular destination” (this will be

specified in K usually as “Buyer’s place of business” rather than a specific address → look for indication of who the parties wanted to bear RoL).

2. Seller must deliver goods to carrier → RoL passes to buyer when goods are tendered as to enable buyer to take delivery.

iii. (2) Where goods are held by bailee for delivery without being moved, RoL passes: a. On receipt of negotiable document of title covering goods, or b. On acknowledgement by bailee of B’s right to possession, or c. After receipt of non-negotiable document of title or other written

instruction to deliver. iv. (3) → “catchall” provision

1. RoL passes to buyer on receipt of goods if S is merchant; otherwise risk passes to B on tender of delivery

a. No use of carrier (S delivers using company van, B picks it up himself) e. 2-510 Effect of Breach on Risk of Loss

i. (1) if goods fail to conform to K, RoL remains on S until cure or acceptance ii. (2) Where B rightfully revokes, treat RoL as having rested on S the entire time. iii. (3) Where B repudiates or breaches before RoL is passed to him, S may treat risk as

resting on B for a commercially reasonable time. f. 2-511 and 2-507 → discusses concurrent conditions (different from common law)

i. buyer must tender payment, and at same time, seller must tender goods. g. 2-501 Insurable Interest

i. B obtains insurable interest in goods upon their “identification” to the K. At that point, long before delivery, B may protect itself against risk by insuring goods.

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h. Concurrent Conditions – the goods in a way belong to both parties, but the ct must decide who will take liability

CHART [Default Rules] SELLER’s DUTY BUYER’s DUTY RISK OF LOSS

SHIPMENT K Deliver goods to carrier Pays shipping costs Passes when seller delivers goods to carrier

DESTINATION K Pays shipping costs Accept goods when they are tendered

Passes when the goods are tendered to the buyer by the carrier

*Explicit language in the K always overrides these default terms.

XII. REJECTION & ACCEPTANCE/RECEIPT a. 2-601 [69]: “perfect tender rule” → if the goods fail in ANY respect to conform to the terms

of the K, the buyer may: (1) reject the whole, (2) accept any commercial unit(s) [defined under 2-105(6)] and reject the rest, or (3) accept the whole.

i. *Distinguish from CL, where “substantial performance” was allowed so minor non-conformance was not actionable in most cases.

b. 2-307 [43] → unless otherwise expressly agreed, seller must tender all goods at once. i. Buyer not obligated to accept partial performance ii. Buyer and seller can expressly agree to create “installments K” though (see below)

c. REJECTION = 2-602(1) [70] → must notify the seller within a reasonable time. i. Buyer can ONLY reject goods that are (1) non-conforming and (2) have not been

previously accepted (revocation of acceptance is dealt with below) ii. If buyer rejects, the burden of proving that the rejection was wrongful rests on the

seller, who must show (1) goods were conforming and (2) properly tendered. iii. Wrongful rejection may result in breach of K iv. 2-602 → rightful rejection

1. (2)(b) if before rejection, buyer has taken possession, he is under a duty to hold them with reasonable care and permit S to remove them.

v. 2-603 → B’s duties as to rejected goods 1. if B rejects goods and S does not have a local agent, B is under duty to follow

any reasonable instructions from S and in absence of such instructions B must make reasonable efforts to sell goods if they are perishable or threaten to decline in value.

vi. *NOTE: SELLER has chance to “cure” if goods are non-conforming (see 2-508(2)) d. ACCEPTANCE = 2-606 [72] → THREE different ways a buyer can accept goods:

i. (1)(a) buyer chooses to retain goods after a reasonable opportunity to inspect 1. buyer is given reasonable opportunity to inspect goods before she must

decide whether to accept them [unless K expressly says otherwise] 2. occurs when buyer “signifies” she will take possession: implies communication 3. 2-512 → if payment is required before acceptance, B 4. 2-513 → B’s inspection rights

a. Note: payment does not preclude inspection of goods. b. PAYMENT ≠ ACCEPTANCE

ii. (1)(b) buyer fails to make effective rejection after reasonable opportunity to inspect 1. “reasonable time” is determined by nature of goods and facts of the case.

iii. (1)(c) buyer takes actions inconsistent with seller’s right to ownership 1. Q to ask: has buyer done anything to make others think the goods are hers?

e. ACCEPTANCE vs. RECEIPT i. 2-103(1)(C) → [17]: “receipt” = the physical taking of possession of the goods ii. 2-606 → “acceptance” = recognition that the goods are conforming (or buyer will

accept the non-conforming goods) and that the seller has discharged her obligations under the agreement. “Acceptance” does not require physical possession.

1. 2-607(1) → buyer MUST pay for any goods that she accepts. 2. 2-607(3) → B must seasonably notify S of breach or be barred from remedy.

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a. 2-714 [93] → However, if the buyer incurs any harm as a result of her acceptance of any non-conforming goods, she may have a cause of action against the seller to recover damages.

b. 2-717 [95] → upon proper notification, buyer may deduct any amount of damage that she has incurred as a result of seller’s breach from cost of goods.

f. REVOCATION OF ACCEPTANCE → i. 2-608 → once a buyer has accepted, she may desire to revoke this acceptance if she

discovers a defect that was not discoverable at the time of inspection [not applicable if buyer accepts non-conforming goods per 2-607(2) UNLESS buyer reasonably assumed non-conformity would be cured].

ii. she must prove that the non-conformity of the goods “substantially impairs the overall value of the agreement.” [burden is on buyer]

1. this is a higher standard than must be met for the original rejection, but the buyer has more time for revocation.

2. must notify S of revocation in reasonable time after B discovers or should have discovered the defects.

3. defect must not result from B’s actions iii. Effect of revocation: same as rejection (buyer does not have to pay for goods). iv. “substantially impairs value” = fact-finder determination.

1. see Zabriski Chevy g. SELLER’S RIGHT TO CURE → novel UCC concept (does not exist at CL)

i. 2-508(2) → even if goods are non-conforming, the seller has a right to “cure” 1. seller must notify buyer of her intent to cure AND replace non-conforming

goods with conforming goods BEFORE the term of the K expires; OR 2. if Seller reasonably thought that goods, even though non-conforming, would

be accepted, she may be allowed a reasonable time after the term of the K expires to remedy the breach (still must “seasonably” notify buyer).

3. Cure is precluded if there is an express “NO replacement” provision in K. 4. “shaken faith doctrine” → if S continually ties to cure but fails, B does not

have to allow them to continue. h. INSTALLMENT CONTRACTS

i. 2-612 [82] → covers the “right to reject” an installments K, NOT 2-601. 1. (1) K which requires or authorizes seller to deliver goods in separate lots,

each which requires a separate acceptance [even if K says that “each delivery is a separate contract” it is still an installments K].

2. (2) Buyer may reject any installment that is non-conforming IF the non-conformity “substantially impairs the value of that installment” OR if seller does not cure (and it does not fall under sub3).

3. (3) Buyer may cancel of the whole IF it “substantially impairs the value of the entire K” – but buyer reinstates the K if she accepts the non-conforming goods due to lack of notice of cancellation, OR brings an action with respect to any of the past installments, OR demands performance of future ones.

i. RIGHT TO ADEQUATE ASSURANCE OF PERFORMANCE: If a party’s words/conduct do not constitute an outright repudiation of their duties under the K, but suggest that the party might not perform, the other party may demand assurances that they will perform.

i. 2-609 [79] → 1. (1) if P1 is reasonably insecure about P2’s performance, P1 can in writing

demand some sort of adequate assurance that performance is forthcoming. a. If commercially reasonable, P1 may suspend any performance for

which she has not received due return. 2. (4) upon receiving this demand, if the p2 fails to provide adequate assurance

within a reasonable time not exceeding 30 days, this is a repudiation of the K. ii. there are two ways to get in trouble when invoking this provision [either of which

would result in the demanding-party being liable if they refuse to continue under the K when assurance is denied]:

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1. you can demand assurance when you do not have reasonable grounds 2. even if you have reasonable grounds, you can demand specific assurance that

is more than adequate under the circumstances. iii. Issues/Questions to ask → [questions of fact]

1. do I have reasonable grounds? 2. is my demand more than adequate? 3. is the time I required reasonable?

iv. 2-610(a) → expresses mitigation requirement in occurrence of repudiation j. Retraction of Repudiation → 2-611(1) usually no longer available if/when other party:

i. sues for breach ii. reasonably relies on the repudiation iii. states that she regards the repudiation as final

k. 2-703, 2-708 → Seller’s remedies if buyer breaches.

XIII. WARRANTIES a. Overview:

i. 2-317 [57] → (1) express and implied warranties will be construed as consistent with each other whenever possible, but if this is unreasonable, then the intent of the parties shall determine which dominates.

1. (c) express warranties displace inconsistent implied warranties EXCEPT the implied warranty of fitness for a particular purpose.

ii. To bring a successful claim for breach of warranty, buyer must: 1. Establish that seller warranted goods under UCC 2-313, 2-314, or 2-315. 2. Prove that the goods delivered failed to conform to the warranty 3. Prove the buyer suffered damages as a result of this non-conformity

iii. Seller’s defenses: UCC 2-316, 2-719, 2-318, 2-607(3), and 2-725. iv. Warranties can be created in a variety of ways, including orally. v. Code warranty litigation arises in one of two contexts:

1. Commercial, where the loss is often purely economic 2. Consumer, where the loss commonly includes personal injury

b. EXPRESS WARRANTIES: 2-313(1) [46] → i. (1) express warranties created when

1. (a) affirmation or promise by seller becomes basis of bargain 2. (b) any description of goods becomes basis of bargain 3. (c) any sample/model is used that becomes basis for bargain

a. Sample: a good/unit taken from the bulk of goods buyer will receive. i. Comment 6 says there is a strong presumption that a warranty

is created when a sample is used. b. Model: a good/unit that is the same as the goods buyer will receive,

but not from the bulk of the goods. i. May require expert testimony to prove that model was intended

to provide a literal description of the items. i. In deciding if an Express Warranty exists, court must determine:

1. Whether S’s statement constitutes an affirmation of fact or promise or description or whether it was mere puffery

a. What would a reasonable person think of S’s statements? Are they guaranteeing that the product will conform to statements?

2. Whether the statement was part of the basis of the bargain 3. Whether the warranty was breached.

ii. Reliance vs. “basis of the bargain” 1. No particular reliance need be shown in order to weave the affirmation into

the fabric of the agreement → “reliance” presumption (see comment 3). a. Seller therefore has burden to prove that reliance did NOT exist

i. Difficult presumption to overcome, because it has to become “a” basis for the bargain, not “the” basis for the bargain

b. B’s atty should still offer evidence to support reliance

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2. Even if S makes statement that no reasonable person would rely on, this does not overcome the presumption that he created a warranty.

3. Keith v. Buchanan → if B knows that the product does not conform to the affirmation of fact before the contract is made, if S can prove this, then S can show that the affirmation was therefore NOT a basis of the bargain.

iii. 2-313(2) → Non-Warranties: No warranty formed from personal opinions, affirmation of value, commendation, or other mere puffery.

1. Indications of opinion statement: a. Lack of specificity b. Statement made in equivocal manner c. Statement reveals that goods are experimental in nature

iv. Post-sale warranty – The fact that the statement is made after the sale doesn’t affect the warranty because it could be taken as a modification of K (especially if made right after sale)

v. If there is a written disclaimer of an express warranty that is contradictory to the express warranty, then the warranty will be enforced.

b. IMPLIED WARRANTIES: i. Ordinary vs. Particular purposes (see Thorne, Blockhead, comment 2 [p. 53])

1. this is a question of fact, and really depends on how you characterize it. 2. TEST: B does not need to meet a unique, one of a kind requirement to get

IWFPP. Question is of degrees – even if others put the good to the same use, the key is whether B’s use is sufficiently different from the goods customary use to not be ordinary.

ii. 2-314 [49] → Implied Warranty of Merchantability 1. (1) Always implied if merchant deals in goods of the kind unless excluded 2. (2) Goods, to be merchantable, must at least: (these are all “AND’s”)

a. Pass w/out objection in the trade under the K description; and b. If fungible goods, are of fair average quality w/in description; and c. Are fit for the ordinary purpose for which such goods are used; and d. Run of even kind, quality, and quantity; and e. Adequately contained, packaged, or labeled; and f. Conform to promises/affirmations of fact made on the container/label

3. “merchantable” is a common sense standard – just compare it to all other similar goods. E.g. cigs are merchantable, even though they are dangerous.

4. “merchantability” ≠ expectation. iii. 2-315 [53] → Implied Warranty of Fitness for a Particular Purpose

1. Rationale: Parties themselves, had they considered such terms, would have included them in the agreement

2. Requirements = a. seller must know the particular purpose the buyer seeks

i. Particular purpose is a specific use by B which is peculiar to the nature of his business, whereas ordinary purposes go to uses generally used (see comment 3).

b. seller must know that buyer is actually relying on seller’s special knowledge and skill

i. B’s reliance can be affected by own knowledge/skill ii. Constructive knowledge of B’s reliance is enough.

c. Note: does NOT require that seller is a merchant of goods of the kind iv. 2-312 [46] → Warranty of Title

1. Promises that title is good and transfer is rightful 2. S is basically saying that what he is selling is his and the transfer is lawful 3. Implied by a matter of law. Intent of parties irrelevant. 4. If S sells you car, but D has actual title to it, then D owns the car, but you

have a cause of action against S.

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c. BREACH, REMEDIES, and DEFENSES: i. Breach: To bring a successful claim for breach of warranty, buyer must:

1. Notify S of breach in reasonable time 2. Establish that seller warranted goods under UCC 2-313, 2-314, or 2-315. 3. Prove that the goods delivered failed to conform to the warranty 4. Prove the buyer suffered damages as a result of this non-conformity

a. This causation requirement is tough to prove. ii. Remedies:

1. 2-711(1) → use if S fails to deliver, repudiates, or B rightfully rejects or revokes acceptance for goods involved [or whole if installment K]. B may cancel K, recover price paid and also:

a. (a) cover and have damages paid per 2-712 b. (b) recover for non-delivery per 2-713

iii. Seller typically invokes some combination of → 1. 2-316 – authorizes certain warranty disclaimers 2. 2-719 – permits certain remedy limitations 3. 2-318 – requires a measure of “horizontal privity”; the common law

requirement of “vertical privity” 4. 2-607(3)(a) – requires that B give reasonable notice of breach 5. 2-725 – Article 2 statute of limitations.

d. EXCLUSION OR MODIFICATION OF WARRANTY i. 2-316 Warranty Disclaimer

1. (1) Express Warranty Disclaimers: Words that create a warranty and words or conduct that tend to limit warranty are construed when reasonable as consistent with one another.

a. If unreasonable, then the limiting language is inoperable. b. S usually may NOT disclaim any express warranty

2. (2) Implied Warranty Disclaimers: S may easily disclaim either or both implied warranties (opting out of what the law would usually imply)

a. Disclaimer of merchantability warranty must i. mention “merchantability” and, ii. if in writing, be conspicuous

b. Disclaimer of fitness warranty must appear in a conspicuous writing c. Disclaimers of warranty of fitness MUST be in writing and conspicuous,

whereas disclaimers warranties of merchantability must simply mention “merchantability” and if it is in writing, must be conspicuous.

d. Bjerre suspects that it has to do with how the warranties are created = i. warranty of merchantability arises when the seller is a

merchant of goods of the kind, but the buyer is not necessarily relying on the seller in any way

ii. warranty of fitness arises when the buyer relies on the expertise of the seller, so any disclaimer ought to counteract this reliance that is unique to this situation

3. (3)(a) Aside from this, all implied warranties are excluded by expressions like “as is” or “with all faults” or other language suggesting no warranty (“safe harbor” provision)

4. (3)(b) If B examines product fully or refuses to examine, no implied warranty regarding defects that examination should have shown.

a. S making product available not enough. 5. (3)(c) also consider course of dealing/performance, and/or trade usage. 6. Conspicuousness = when it is so written that a reasonable person against

whom it is to operate would be able to notice it. a. Question of law b. TEST: Whether attention can reasonably be expected to be called to it c. Actual knowledge overrides need for conspicuousness of disclaimers d. Good Draftsman Tip: Avoid fine print

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e. Must be conspicuous related to the rest of the document. f. “warranty” in big bold letters is not enough; must mention “disclaimer”

7. Express warranty is more difficult to disclaim than implied warranty 8. Post-sale warranty disclaimer: not effective b/c not bargained for.

ii. 2-719 → Contractual Modification or Limitation of Remedy 1. (2) Invalidates any remedy limitation where the circumstances cause a

warranty to fail its essential purposes 2. A limitation of personal injury damages in a sale of consumer goods is “prima

facie unconscionable” 3. (3) Consequential damages may be limited or excluded unless the limitation

or exclusion is unconscionable. a. UCC does not say that inconspicuousness is unconscionable.

4. Moscatiello v. Curbmasters – K contained warranty disclaimers and limitation of remedy in miniscule print.

a. Majority will enforce inconspicuous remedy limitations. b. Bjerre said that this case was wrong – too low of a threshold.

iii. 2-607(3) Requires B to “notify” S within a “reasonable time” of any claimed warranty breach or be barred from any remedy.

1. Comment 4 allows retail consumer more time to notify, but for merchant, a reasonable time may be short.

2. Notice need merely inform S that the “transaction is still troublesome and must be watched

3. Notice must inform S that the transaction is claimed to involve a breach 4. No particular type of notice required.

iv. Vertical v. Horizontal Privity 1. Chain of commerce goes from manufacturer → distributor → retailer →

consumer 2. Vertical Privity: The connection between parties in that chain 3. Horizontal Privity: person who gets merchandise is not directly involved in K,

so there is no vertical privity. a. 2-318 – alternative ways of dealing with horizontal privity

v. 2-725 Statute of Limitations in K for Sale 1. Action for breach of K for sale commenced within 4 years after cause of

action. e. Non-UCC Regulation of Warranties

i. Magnuson-Moss Warranty Act 1. Doesn’t compel S to make a written warranty, but if S does make one,

whether full or limited, it may not disclaim any implied warranty 2. Purpose: to encourage rational, informed consumer choices 3. Full Warranty must comply with standards. 4. Conspicuous disclaimer of liability for consequential damages permitted if it

doesn’t invalidate or restrict any right or remedy under state law. 5. Any written warranty not meeting minimum standard must be labeled Limited

Warranty II. Convention on Contracts for the International Sale of Goods (CIS)

a. 1986 U.N. Convention on Contracts for the International Sale of Goods (CISG) b. Art I(1)(a) – Convention applies to K for sale of goods between parties whose “places of

business” are in different “States” c. Art I(1)(b) – Convention applies when the rules of private international law lead to the

application of the law of a Contracting State, but this is not effective in the US b/c US took exception to it.

d. Place of business determinative rather than nationality residence, or place of incorporation i. Place of business that has closest relationship to the contract and its performance.

e. Doesn’t apply to: i. Consumer transactions ii. Contracts predominantly for services

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iii. Real estate iv. Liability for death or injury v. Defenses such as duress, fraud, unconscionability

III. REMEDIES a. S’s REMEDIES

i. 2-703 → S’s options where B wrongfully rejects or revokes, or fails to make payment due, or repudiates on part or whole. For goods directly affected [or for whole K if installment K [2-612]] S can:

1. 2-703(a) w/hold delivery of goods 2. 2-703(b) stop delivery by any bailee per 2-705 3. 2-703(c) use 2-704 section for unidentified goods to K 4. 2-703(d) resell/recover damages per 2-706 5. 2-703(f) recover damages for non-acceptance [2-708] or price [2-709] 6. 2-703(g) cancel

ii. 2-708 → S options for non-acceptance/repudiation 1. 2-708(1): market price v unpaid price 2. 2-708(2) : profit lost [use if 2-708(1) inadequate]

a. [Distribu-Dor v Karandis “word is my bond case” – “Middleman” can get profits under 2-708(2) instead of using (1). (1) only applies in case where specific goods are of such a character that their rejection makes possible to S a sale to another person. Here no new sale possible. Uncertainty as to existence/nature/cause of damages is fatal but not as to amount of damages [law allows for a reasonable basis of computation to be used to calculate damages and allow best approx can make]. “Innocent party won’t be denied recovery simply because precise proof of amount of damage is not available.”

b. B’s REMEDIES i. 2-711

1. 2-711(1) Use if S fails to deliver, repudiates or B rightfully rejects or revokes acceptance for goods involved [or whole if installment K]. B may cancel K, recover price paid and also:

a. 2-711(1)(a) cover and have damages paid per 2-712 b. 2-711(1)(b) recover for non-delivery per 2-713

2. 2-711(2) If S fails to delivery or repudiates, B may also ii. 2-711(2)(a) recover identified goods per 2-502

1. 2-711(2)(b) get specific performance/replevin per 2-716 2. 2-711(3) For rightful rejection or revocation B gets security interest for

goods in control that made payments for, other expenses incurred for [can resell per 2-706]

iii. 2-714 B Damage for Breach of Accepted Goods 1. 2-714(1) If B accepted/gave notice he can recover for damages for non-

conformity 2. 2-714(2) Warranty breach damages are value would have been when

accepted w/o breach 3. 2-714(3) Proper case – incidental /consequential can be recovered per 2-

715 iv. 2-717 B, after notifying S, can deduct for damage resulting from breach from what

remains owed to S under that K v. 2-719 K modification / limitation of remedy

1. 2-719(1)(a) agreement can provide remedies in addition to or substitute of those provided in UCC

2. 2-719(2) – if circumstances cause remedy to fail of its essential purpose, then remedy had as in UCC

3. 2-719(3) – Consequential can be limited/excluded unless limitation/exclusion uncon. Limiting personal injury for consumer goods is prima facie uncon. Limiting damage where loss is commercial is not.

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II. AVOIDABLE DAMAGES

a. CL: Where P might have avoided a particular item of damage by reasonable effort, he may not recover for that item if he fails to make such an effort. This is sometimes called the "duty to mitigate" rule.

b. Reasonableness: The "duty to mitigate" only requires P to make reasonable efforts to mitigate damages. For instance, P does not have to incur substantial expense or inconvenience, damage his reputation, or break any other K, in order to mitigate.

c. 2-715(2)(a) UCC: for sales Ks, it is really only the buyer who has a practical duty to

mitigate. i. B: If the S either fails to deliver, or delivers defective goods which the B rejects, B

must cover for the goods if he can reasonably do so – he may not recover for those damages (e.g., lost profits) which could have been prevented had he covered. (If B does not cover when he could have done so, he will still be entitled to the difference b/n the market price at the time of the breach and the K price, but he’ll lose the ability to collect consequential damages that he might otherwise have gotten.)

ii. S: S has much less of a duty to mitigate, when it is the B who breaches by wrongfully rejecting the goods or repudiating before delivery. S can choose b/n reselling the goods (and collecting the difference b/n resale price and K price), or not reselling them (and recovering the difference b/n market price and unpaid K price); S may also be able to recover lost profits.

CONTRACTS II

I. Common Law Rules

A. Parol Evidence Rule

1. Gianni v. R. Russell & Co. (SC of PA, 1924) In this case, the Court applied the traditional parol evidence rule, which stipulates that a written document governs all aspects of the agreement in the document, as well as all others that “relate to the same subject-matter, and are so interrelated that both would be executed at the same time and in the same contract...” The contract governed the use of a storeroom for purposes of operating a convenience-store. Gianni argued that a prior oral agreement induced him to sign the deal. The prior agreement stipulated that Gianni had an exclusive right to sell soft-drinks in the portion of the building owned by defendant. The court found that the exclusive soft drink license was just the kind of thing that would naturally be included in a written agreement dictating accepted uses of the property, especially since the restriction on selling tobacco and other uses were included.

2. Masterson v. Sine (SC of CA, 1968) This case represents the modern view on parol evidence. The modern rule usually allows evidence of the intent of the parties in order to determine whether the written agreement was intended to be a final agreement, as opposed to the old rule that looked to the document itself exclusively. The rule, as Justice Traynor framed it, is that the agreement should only be excluded when the fact finder is likely to be misled, or if the rule is not “one that might naturally be made as a separate agreement by parties situated as were the parties to the written agreement.” Essentially, the modern rule allows for evidence to be presented as to whether the agreement was intended to be integrated, or a final expression. There is a presumption that a reasonably complete-looking document is integrated, but it can be refuted by evidence to the contrary. Then the Court will go on to determine whether the document is a complete integration of the agreement. In doing so, the Court will, again, generally allow all evidence to be presented before deciding whether or not the written agreement was intended to be complete. If it is decided that the agreement is complete, then the contract must be interpreted solely by the written contract.

3. Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co. (SC of PA, 1967)

In this case, parol evidence was allowed to be considered in the same jurisdiction as Gianni, albeit 40 yrs later, where there was “undisputed evidence” that tended to suggest that the written agreement actually differed from the actual agreement of the parties. The contract was for quarry strip-mining, and the extrinsic agreement was for the mining

company to relevel the land after mining it. The “undisputed evidence” was that the mining company, from the beginning, had replaced the land, and stopped only later. Why, the Court reasoned, would they have done this, unless they thought they must?

4. NO ORAL MODIFICATION CLAUSES- These are usually not binding, and even when they are, they are subject to actions in estoppel.

B. Interpretation of Contracts

1. Restatement 2nd § 201. Whose Meaning Prevails Link to Case Citations

(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.

(2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

(a) that party did not know of any different meaning attached by the other, and

the other knew the meaning attached by the first party; or (b) that party had no reason to know of any different meaning attached

by the other, and the other had reason to know the meaning attached by the first party.

(3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

2. Restatement 2nd § 202. Rules In Aid Of Interpretation Link to Case Citations

(1) Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.

(2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.

(3) Unless a different intention is manifested, (a) where language has a generally prevailing meaning, it is interpreted in

accordance with that meaning; (b) technical terms and words of art are given their technical meaning

when used in a transaction within their technical field.

(4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.

(5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.

3. Frigaliment Importing Co. v. B.N.S. International Sales Corp. (NY, 1960) In this case, there was a dipute over the definition of the term “chicken.” Plaintiff sued to enforce his meaning of the contract. Plaintiff understood chicken to mean only one type of more valuable chicken, whereas defendant understood it to mean any type of chicken, including “stewing” chicken. The Court heard evidence from both parties, and came to the conclusion that the “objective” meaning of the word chicken coincided with defendant’s contention, and that defendant was not aware that defendant’s subjective meaning was intended. The objective meaning was allowed to control, and the suit was dismissed.

4. Oswald v. Allen (NY Fed., 1969) This case involved a misunderstanding between a coin buyer and seller. The coin seller referred to her collections as 1) The Swiss Coin Collection; and 2) The Rarity Coin Collection. When the buyer came to visit the shop, he was shown Swiss coins from #2. The contract called for the sale of “All of buyer’s swiss coins.” By this the seller understood #1, and the buyer understood, literally, “all of her swiss coins,” including those of #2 collection. The court rescinded the contract, finding that the ambiguity in their respective understandings of the contract was irresolvable.

5. Function of Judge and Jury- Courts are often split on whether a given interpretation is a question of fact or law. All agree, however, that interpretation must be a question of law when the interpretation deals with complex subjects which the jury might not understand. In general, the situation must dictate the decision. The more questionable the facts are, the more likely the jury will be given the job. 6. Pacific Gas and Electric Co. v. G.W. Thomas Drayage & Rigging Co. (SC of CA 1968)

In this case, The Court overturned a lower court’s decision to rely on the “plain meaning rule” in a case involving indemnity for an accident. While the holding of the case is somewhat unclear, the Court obviously disapproves of the idea that one meaning may be taken from a text, without any consideration of the circumstances under which it was employed. The Court casts doubt, essentially, on any claim to know the

“real” meaning, and mentions in a footnote that “even if the plain meaning rule were in force..002E” seeming to indicate that the plain meaning rule should be abolished entirely. The decision in this case means that the Court must at the very least consider evidence about the circumstances surrounding the case, and decide whether those circumstances would possibly allow for a different meaning. Only after doing so may a court exclude evidence from the fact-finder of a particular meaning intended by one of the parties.

7. Restatement 2nd § 203. Standards Of Preference In Interpretation Link to Case Citations In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable: (a) an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect; (b) express terms are given greater weight than course of performance, course of dealing, and usage of trade, course of performance is given greater weight than course of dealing or usage of trade, and course of dealing is given greater weight than usage of trade; (c) specific terms and exact terms are given greater weight than general language; (d) separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated. 8. Trade Usage- See sec. 203’s hierarchy of interpretive tools...

a) Hurst v. W.J. Lake & Co. (SC of OR, 1932) Hurst was a case involving the trade in “horse meat scraps.” The contract called for meat containing “not less than 50% protein.” The trial court granted summary judgment to the plaintiff because the meat was less than 50% protein, even though it was more than 49.5% protein. On appeal, the Court ruled that the trial court erred by excluding trade usage evidence, tending to show that in the trade, 50% always means at least 49.5%.

9. Steuart v. McChesney Case involving a right of first refusal, which stipulated that upon a bona fide offer for a certain house, this person would have the right to buy first. Strangely, the document also stipulated what price he would be able to pay. The price was the county assessor’s price for tax purposes. Even more strangely, the contract differed from an ordinary right of first refusal, in that normally an absolute right is not conferred upon the buyer

by any bona fide offer, but rather the owner is simply precluded from selling to anyone else. The strangeness of these circumstances made this case, in the opinion of Bjerre, one in which the “plain language rule” should not apply, and evidence should have been allowed to show how the contract ought to be interpreted.

C. Gap-Filling Provisions/ Default Rules

1. Good Faith-

a) Dalton v. Educational Testing Service (NY App. 1995) Dalton involved a young man who took the SAT twice, receiving a score 410 points higher the second time. The Educational Testing Service disputed this score, and per the contract exercised its right to cancel the score, giving the student several options. One of the options was the chance to submit evidence for the board to review, explaining the discrepancy in scores and/ or proving that the same person took both tests. Dalton took this opportunity. The lower court found that ETS had breached its obligation to use good faith in examining the materials submitted by Dalton, and ordered that the score be released. The Court agreed that ETS had breached the good faith requirement by not considering his evidence, but disagreed about the remedy. The contract did not force ETS to release the test score on upon admission of extra evidence, but instead compelled them merely to use good faith in taking the evidence into account. This result is controversial because it arguably has little to no real effect in this case.

b) Burger King Corp. v. Weaver (FL Fed. 1999) Here, in a very recent case, the Court refused to enforce a claim of breach of Good Faith and Fair Dealing which did not refer to breach of a specific provision, but to vague behaviors by the defendant which could be construed as demonstrating lack of good faith. The Court held that such breaches of “good faith” are not cognizable in Contract law. Instead, the Court held, the plaintiff must show that the defendant failed to exercise good faith in conforming to a specific term of the contract. It also held that the “good faith” interpretations of any provision must not interfere with the specific provisions of the contract.

2. Express Conditions- It is not the case that obligations under a contract are absolute, and that each party must go through with them no matter what. This is because of the doctrine of conditions. Generally, an obligation under a contract is conditional if: a) the parties agree that it will be conditional, or b) the parties do not explicitly agree, but the situation is one in which the obligation is expected to

be conditional, e.g. paying for a service...if the service is not rendered, you do not have to pay.

a) Luttinger v. Rosen (SC of CT, 1972) This case involved both good faith and conditions. It was a real-estate contract, which called for the purchase of a home on express condition that the buyer’s obtained financing at a certain rate. The buyers chose to check at only one institution, but the facts supported the idea that that bank was the only institution reasonably likely to give them the financing. The sellers offered to make up the difference between the bank financing and the agreed upon rate, but the buyers refused. The Court held that the buyers had used “due diligence”, an offshoot of good faith, in attempting to secure the financing, and that it was unreasonable to expect them to accept the financing supplement offer of the sellers.

b) Restatement 2nd § 227. Standards Of Preference With Regard To Conditions Link to Case Citations (1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. (2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control. (3) In case of doubt, an interpretation under which an event is a condition of an obligor's duty is preferred over an interpretation under which the non- occurrence of the event is a ground for discharge of that duty after it has become a duty to perform. c) The “Sail with the next wind” Problem- There are three ways in which Duties and Conditions may be allocated in a contract for each party. Take for example the duty or condition of a party “sailing with the next wind.” A contract involving this obligation can make it either a duty, a condition, or both. If it is a duty and not a condition, then the sailor can fail to sail with the next wind, and the opposing party would receive resultant

damages, but the other party would be obligated to perform her part of the contract. If it is a condition, then the other party does not have to perform his end of the bargain, but can not obtain damages. If it is both, the sailor is liable for damages and the opposing party does not have to perform the conditional obligation. Courts tend to construe language in a contract, in the absence of clear language or usage, as assigning a duty and not a condition or both. Another way to put it, is that “Forfeiture” is discouraged in interpretation. d) Gibson v. Cranage (SC of MI, 1878)

This case construed the obligation of the customer of a painter to be conditional, as per the contract, on the customer’s subjective satisfaction with the painter’s performance. The artist brought suit for damages, but the Court found for the defendant. The Court held that in a case where the contract calls for a subjective satisfaction, that that satisfaction is an absolute condition on any obligation. It was not, however, held to have been a duty of the painter’s to paint a satisfactory painting. e) Mattei v. Hopper (SC of CA 1958)

This case involved a real estate transaction. The transaction called for the purchase of a tract of land, conditional on buyers’ procurement of a satisfactory set of lessees for the property. Buyer sued to enforce the contract, but trial court found that buyer’s obligation was illusory, and that therefore there was no contract. The Court held that the obligation was not illusory, but that there was a good faith requirement which must be met by the buyer, so that while the set of lessees must “satisfy” him, he must try to obtain such a set in good faith, meaning presumably that he is not able to arbitrarily decide that the lessees are unsatisfactory.

f) Objective v. Subjective Standards for one-sided conditions- Courts decide on a case to case basis whether to employ an objective or a subjective standard in cases like Mattei, in which a duty is conditional on their “satisfaction”, or other such subjective term. In cases where dissatisfaction can only reasonably be premised on a certain set of particular qualities, objections must be limited to these qualities. In cases where this is not the case, courts will either allow the subjective requirement, rescind the agreement (although I haven’t found an example of this), or require a different obligation like “good faith”, rather than reasonableness. This is what happened in Mattei. The lower court wanted to rescind the contract, but the Supreme Court found that this was not appropriate, and that consideration could be found, as long as the

buyer was obligated to use “good faith” in attempting to procure lessors he could be satisfied with. It must be said that in certain cases it would be hard to distinguish between good faith and reasonableness. g) Doctrines Which Mitigate the Effect of Conditions-

i) Prevention- Prevention will be found when the party, whose duty is conditional does something that affects whether the condition will be met. This activity does not have to be purposeful. The NRA case in the book shows this, where the “taking over” of the board who had to certify something by outside forces did not prevent prevention doctrine from applying. Also, the prevention does not have to be directly caused by the obligor. It is enough if the obligor was an indirect, but substantial cause. ii) Waiver- Parties may agree to waive the conditionality of the duty. Whether a waiver by the obligor may be rescinded, is the difficult question. The general rule is that a waiver may be revoked by the obligor if the waiver was given before the condition occurs, unless the other party substantially relied on the waiver. On the other hand, if the waiver cannot be revoked if it happens after the condition is met. NOTE: Anti-Waiver Clauses are Controversial...This may be more than a default rule in some States.

3. Constructive Conditions (Conditions as Gap-Filling)

a) Kingston v. Preston (King’s Bench, 1773) Here the venerated Lord Mansfield gave a decision that became a cornerstone of the doctrine of constructive conditions. The contract was between the owner of a business and his apprentice. It called for the transfer of the business to the apprentice after a certain amount of time, and also for the apprentice to pay security for the transaction “at and before” the transfer was to take place. The Court found that making the owner’s duty unconditional would completely frustrate the purpose of the provision in the contract calling for security to be paid, and thus finding an independent covenant would frustrate the true intent of the parties.

b) The Importance of Time of Performance- When a Contract calls for duties to be performed at specified times, the duty to be performed later is often found to be conditional on the performance of the earlier. Furthermore, constructive conditions are created in certain

circumstances where time of performance is assumed, such as in employment contracts. In employment contracts, it is assumed that the worker must work first, and then be paid by the employer, if neither is specified. In fact, it is a general default rule that in contracts that require a doing and a paying, that the doing must be done first, and that the paying is conditional on the doing. c) Stewart v. Newbury (NY App. 1917)

This was a contract for construction of a building. The written agreement contained no specified payment method, and there was a dispute as to whether the parties had agreed in a telephone conversation that payments would be made according to custom, which was, in this case, 85% every month until the building is completed, whereupon the rest would be paid. The Court gave the question of whether the agreement about payment method had been made to the jury. The issue on appeal was whether the judge had erred in his instructions to the jury. The judge at trial instructed the jury that, if the jury did not find that the agreement on payments was made, then they must find that the buyer was responsible to make payments at reasonable times. The jury returned a verdict for the contractor. The Court reversed, because the law does not call for payments “at a reasonable time,” but rather for payment upon completion of performance...see rule above: doer must do, before payer must pay. d) Concurrent Conditions- A concurrent condition is one that operates on both parties at the same time. Concurrent Conditions are found in contracts where it is unclear what the time of performance for each party must be. In these cases, each party’s duty is conditioned on the other’s performance, such that neither party has a claim until somebody performs their part of the deal. For instance, if a buyer arranges to sell grain at any time within the next 1000 years, then neither party has a claim until they themselves perform. But once a party performs, then they have a claim against the other party. However, this rule is subject to special treatment when the remedy is specific performance. When specific performance is called for, a court may make a judgment, even though neither of the parties has perfectly performed, at the request of one of the parties. The example from the book is a purchaser of land that paid a certain amount to the judge, because she was not sure what the actual price was. The Court found this to be satisfactory, finding that since the action was for specific performance, that more lenient “equity” rules should apply.

e) Substantial Performance- This is a doctrine that ONLY APPLIES TO CONSTRUCTIVE CONDITIONS, AND NOT TO EXPLICIT CONDITIONS. In cases involving Constructive Conditions, failure of one party to perform perfectly will not always result in the abdication of the responsibility of the other party, as with express conditions. However, the breach must not be willful. If the breach is found to be willful, the plaintiff may be completely excused from its duty. Damages in these cases are decided based on the diminution of value in the contract based upon the failure of the party to perform. Thus, in Jacob and Youngs, the damages were the difference in value between the Reading Pipe and the pipe used. The test of whether a party has substantially performed is a very mushy one, and is a question of law. Each situation is considered by itself, although some jurisdictions have specific values for damages, exceeding which substantial performance cannot be found. For instance, one State has held that if the damages reduce the value of the performance by more than 10%, that the party has not substantially performed.

4. Divisibility- This is a doctrine that mitigates somewhat the damages received in certain cases, when the other party has partially performed, and what has been performed is a complete service unto itself.

a) Gil v. Johnstown Lumber Co. (SC of PA, 1892) This case involved a contract to drive logs downstream to a mill. It called for a certain amount per thousand feet of log. The trail court found that the contract was unseverable. The Court reversed, finding that the contract was for driving logs to the mill, and that the plaintiff should be paid for the length of as many logs as did make it, since the value of those logs is not dependant on the other logs having made it.

5. Restitution- The standard rule, still, is that most contracts are not apportionable in the way that the next case was held to be. However, the trend is toward the more equitable position.

a) Britton v. Turner (SC of NH, 1834) In this case, the Court upheld a jury verdict for an employee who contracted with employer to work for a year, but left after 9 ½ months. The Court upheld the verdict as

an extension of the equitable doctrine of restitution, which already allowed for payment of restitution in cases of incomplete construction contracts, even in case of breach by the contractor. The Court compared the two, saying that in both cases the opposing party “accepted” the work. Even in this case, the Court mentioned that an express term included in the contract that the work must be done in full, would have defeated a claim for restitution.

6. Material Breach and Repudiation

a) Walker & Co. v. Harrison (CS of MI, 1957) This was a contract for installation and maintenance of a neon sign. Soon after the sign was installed, the sign was vandalized, and the store owner called the sign company to complain. After a week or so of failing to perform maintenance to the sign, Harrison sent a telegram, stating that he felt the failure to maintain the sign was a material breach, and that he would no longer be making payments. Walker and Co. sued on the contract. The Court found that the breach by Walker was not material. Materiality of breach is a complicated and subjective area, and involves a holistic fact-based approach, with only fairness as a guide. Interestingly, Harrison was found to have materially breached the contract, because he repudiated his obligations and breached by not paying rent on the sign. These two, when taken together, add up to an automatic cause of action for the other side. Walker & Co.’s breach, on the other hand, was not accompanied by a repudiation, and so the materiality of the breach came into question. b) EXCEPTION: An exception to the general rule of repudiation + non-performance exists in the specialized case where performance by the non-breaching party has been completed, and the breach consists only of failure to pay scheduled payments. In these cases, repudiation along with breach does not equal material breach. HOWEVER, this is only the default rule, and the inclusion of an ACCELERATION CLAUSE.

7. Anticipatory Repudiation

a) Hochster v. De La Tour (Queen’s Bench, 1853) This case involved an employment contract between a courier and a traveler. The courier was to prepare for a trip, where he would accompany employer and

peform any tasks he might require of him. Before the contract was to begin, employer gave him unequivocal notice that he would not need him any longer. The Court found that this released employee of any obligations, mostly because the opposite result would put too large a burden on him. If he had to wait until the time of the contract, he could be sued if he had entered into a contract for other work. Yet, if he did not try to find other work, then he would be hurt by all that time where he was unemployed. This rule is consistent with mitigating damages, also, because the employee can find other work, instead of waiting to start and then suing for damages inherent in having to wait to find other employment.

D. Disruption of Basic Assumptions of Contracts

1. Mistake- Mistake is used by courts in very specific situations where 1) BOTH parties are mistaken about a given fact that is a basis of the contract; 2) The effect on the contract is material; and 3) No recourse can be had to accommodate the difference, such as arranging for extra consideration by the advantaged party. Materiality of the disruption is to be determined on the basis of all of the facts. 2. Impracticability- This involves cases where an intervening factor affects a material circumstance of the transaction, and makes performance by one of the parties impracticable. The event must not be the fault of the disadvantaged party. Again, the fact that the non-occurrence of the condition was assumed in the formation of the contract can be disputed by the language of the contract or the circumstances surrounding the contract. 3. Frustration of Purpose- This differs from impracticability only in that performance does not become impracticable, but rather the entire purpose of the contract is subverted by an event, the non-occurrence of which was assumed by both parties. The prototype example of this situation is an agreement to rent an apartment during a parade. If the parade is cancelled, the contract will be rescinded.

E. Third Party Beneficiaries

1. Lawrence v. Fox Lawrence v. Fox illustrates the near-universal rule that third-party beneficiaries may sue to enforce a contract of which they are not a party.

The test in these situations is one of intent. If the intent of the two parties is to enter into a contract in which the performance of one party will advantage the position of another party, usually by obtaining means to pay a debt, then that third party may sue to enforce the contract.

F. Assignment & Delegation- NOTE: 1) This is only a default rule; 2) When a duty is assigned, the assignor remains responsible for the duty.

1. Macke Co. v. Pizza of Gaithersburg, Inc. (MD App. 1970). This case involved a contract between pizza shops and a vending machine operator. The original vending machine operator sold his business to a separate company, and the rights and duties were assigned with the sale. The pizza companies argued that they should not have to continue the deal, because they had decided expressly that they did not want to deal with Macke Co., and that was why they signed with the original vending company. The Court found that when the quality of performance is materially the same, a duty may be delegated. AGAIN, THIS IS ONLY A DEFAULT RULE.

II. UCC Article II Rules

A. Default Rules for Requirements Contracts, Notice of Termination, Trade Usage, and Open Price Terms

1. UCC § 2-306. Output, Requirements and Exclusive Dealings. (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale. 2. UCC § 2-309. Absence of Specific Time Provisions; Notice of Termination. (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.

(2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. 3. UCC § 1-205. Course of Dealing and Usage of Trade. (1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (2) A usage of trade is any 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. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. (3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. (4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. (5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance. (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.

4. UCC § 2-305. Open Price Term. (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account. 5. Hamilton Tailoring Co. v. Delta Air Lines, Inc. (OH Fed. 1974) pg. 84

This was an oral requirements contract, in which Hamilton supplied uniforms for Delta’s stewardesses on a requirements basis. At the end of the relationship, Delta gave Hamilton 1 year notice that it was discontinuing the contract. No agreement then or before was made regarding reasonable time for notice OR for what, if any, arrangements would be made for sale of leftover uniforms. Hamilton brought suit against Delta, claiming that Delta failed to give reasonable notice, under 2-309(3), and/or failed to conform to the contours of the agreement established by trade usage, under 1-205(3). The Court held that neither of these claims was incorrect as a matter of law, and thus denied summary judgment to Delta. Hamilton supplied evidence of trade usage over 30 years of experience in the industry, and Delta was unable to prove unequivocally that the time it had given was reasonable, since it was apparent that Hamilton had devoted extensive efforts to preventing overstock, and yet was left with such a huge stock of uniforms at the end of the deal.

6. § 2-716. Buyer's Right to Specific Performance or Replevin.

(1) Specific performance may be decreed where the goods are unique or in other proper circumstances. (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. 7. Eastern Air Lines v. Gulf Oil Corporation (FL Fed. 1975)

Here the Court decided a corporate “requirements contract” dispute. Gulf Oil wished to get out of the contract, because its terms, based on an obsolete and misleading price index, rendered inaccurate by extenuating circumstances, were harmful to its business interests. Gulf brought suit to rescind the contract, arguing that the contract is invalid for want of mutuality of obligation and vagueness. However, UCC 2-306 conflicts with both of these ideas, in allowing for requirement or output contracts in all cases, where the requirements or output is such as may occur in “good faith.” “Good Faith” means honesty in fact, and, exclusively in the realm of merchant-merchant transactions, observance of reasonable commercial standards of fair dealing in the trade. The Court held that the contract was a valid requirements contract under 2-306. In addition, the Court ordered specific performance under 2-716, which offers a rather lenient guideline for ordering specific performance, namely in any case where goods are unique, or in other proper circumstances.

8. UCC 2-306 Problem...Mr K’s Barbecue Sauce- This problem created more problems than it solved. Essentially, the only solid things that came out of the discussion were that: 1) Exclusive Dealing in (2) and Requirements and Output Contracts (1) are two different things, and shouldn’t be conflated; and 2) Exclusive Dealings contracts may cover only a limited area, such as the Pac NW. NOTE: Some jurisdictions have outlawed requirements contracts that are not exclusive. DOUBLE NOTE: THESE ARE DEFAULT RULES!!!!!!!!!!!!!!!!!!!!!!!! Good Drafting can clear up all the confusion resulting from this section.

B. Default Rules (and some absolute rules) on Warranties and Damages under Article II

1. UCC § 2-313. Express Warranties by Affirmation, Promise, Description, Sample. (1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. 2. § 2-314. Implied Warranty: Merchantability; Usage of Trade. (1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. (2) Goods to be merchantable must be at least such as (a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promises or affirmations of fact made on the container or label if any. (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade. 3. § 2-315. Implied Warranty: Fitness for Particular Purpose. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless

excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose. 4. § 2-316. Exclusion or Modification of Warranties. (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof." (3) Notwithstanding subsection (2) (a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and (b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. (4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719). 5. § 2-317. Cumulation and Conflict of Warranties Express or Implied. Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply:

(a) Exact or technical specifications displace an inconsistent sample or model or general language of description. (b) A sample from an existing bulk displaces inconsistent general language of description. (c) Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose. 6. Keith v. Buchanan (Cal.App., 1985)

This case involved a dispute over an alleged express warranty of the seaworthiness of a boat. The case relies on the text of UCC 2-313. The lower court dismissed the claim of warranty. The basis of the warranty was a brochure that plaintiff perused in deciding whether to purchase the boat. 2-313(1) provides that any representation or affirmation of fact regarding the product that becomes a basis of the bargain shall be construed as a warranty of the truth of that representation or affirmation. The Court cited precedents establishing the fact that a brochure advertising the product can be the form in which such representations appear. The Court’s next task was to decide whether the affirmations contained in the brochure were, as a matter of law, not part of the basis of the bargain. The Court held here that the Court must assume that such representations are part of the basis of the bargain, unless other evidence tends to suggest that it was not. RELIANCE NEED NOT BE SHOWN.

7. Notes on UCC 2-313 and Express Warranties

a) Advertisements can and often do create warranties b) Ordinarily, “Bargain” means pre-sale, especially for disclaimers c) Causation must be shown in order to recover damages.

8. Barton v. Tra-Mo, Inc. (Or App 1984) This case sheds light on the provisions in 2-313, the express warranty section, which deal with express warranties created through the use of “samples” or “models.” For the purposes of the statute, it makes no difference whether the object is a sample or a model, as long as the usage of it was such that it became part of the basis of the bargain. At trial, the Court granted a directed verdict, since the pleadings alleged that “samples” were shown under 2-313, whereas it was clear that they were not samples. Court found that the pleading should have been allowed to be amended, and that the jury could have found that the items tested were ‘models’, under 2-313.

9. Implied Warranties of Merchantability and Fitness for a Particular Purpose 10. § 2-104. Definitions: "Merchant"; "Between Merchants"; "Financing Agency".

(1) "Merchant" means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. 11. Blockhead, Inc. v. The Plastic Forming Company, Inc. (Conn. Fed. 1975)

This was a breach of warranty case, alleging breach of both implied and express warranties under the UCC. The Implied Warranty of F for a P.P. was barred because Blockhead’s agent was knowledgeable about wiglet casings and the manufacturing processes by which they are made. 2-315 depends on a reliance on the skill of the seller for recovery. The implied warranty of Merchantability was barred because, under 2-316, a warranty claim is excluded if, under inspection, the buyer was or should have been aware of the defect in question. The Court held that, under the circumstances, Blockhead’s agent, a knowledgeable person in this area, should have been aware of the defects, if there were any. In addition, the Court dealt with the express warranty claim by pointing out that the plaintiff failed to present any evidence that the cases shown to him were samples or models under the code. A major problem with the Court’s reasoning in this case, is that the Court assumes that the cases shown to Blockhead were samples or models under 2-316, yet demands that plaintiff prove they were such for the purposes of the express warranty claim, under 2-313. These stances are inconsistent.

12. Valley Iron and Steel Co. v. Thorin This case involved a specialized metal piece constructed by Valley Iron for Thorin’s use. The issue on appeal was whether Thorin’s counter-claims of breach of warranty should have been accepted by the trial court. The Court decided that they should have been. The trial court dismissed the claims because it held that, as a matter of law, Thorin had not given Valley Iron and Steel enough information for them to know what the purpose of the product was. The Court held that this was not true as a matter of law, because the buyer had discussed the purposes of the metal object with the seller, and the object was used for an ordinary purpose.

13. Lessons From Valley Iron and Blockhead- The most important lesson is that Courts differ on whether to treat 2-314 and 2-315 as mutually exclusive or inclusive. In other words, case law from the specific jurisdiction must be consulted to determine whether either or both may be used as a basis. 14. Keith v. Buchanan II

In the second section of the “Buddy Ebsen” case, the Court upheld a final judgment that there was no implied warranty of fitness for a particular

purpose, because the buyer had not relied on the seller, but instead on his own experts, including the fabulous yeoman Ebsen.

15. Defenses to Express Warranties under Article II 16. § 2-719. Contractual Modification or Limitation of Remedy. (1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not. 17. § 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over. (1) The buyer must pay at the contract rate for any goods accepted. (2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity. (3) Where a tender has been accepted (a) The buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and (b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation.

(4) The burden is on the buyer to establish any breach with respect to the goods accepted. (5) Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over (a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound. (b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. (6) The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection (3) of Section 2-312). 18. Cate v. Dover Corporation (SC of TX, 1990)

In this case, summary judgment was granted to defendant, Dover Corporation, on an action for breach of the implied warranty of merchantability, UCC 2-314. Product was a heavy lifter. The trial court granted the motion pursuant to UCC 2-316, which allows for a disclaimer of implied warranties. In the case of an implied warranty of merchantability, 2-316 calls for a disclaimer to mention merchantability, and in case of a writing, that the written disclaimer be conspicuous. The trial court held that the disclaimer was effective under 2-316 as a matter of law. The Court reversed, arguing that the disclaimer did not meet the test of conspicuousness, because the disclaimer was hidden amongst numerous bold affirmative statements of warranty, and was not otherwise made conspicuous, e.g. colored differently, etc. Defendant argued that the disclaimer was effective regardless, because the buyer had actual knowledge of the disclaimer. Although the Court did not rule on this point, because it found no evidence to support it in this case, it did announce that it would be proper to allow for a disclaimer in cases where the buyer had actual knowledge, even when the disclaimer is not conspicuous. The Court culled this doctrine from the structure of 2-316, specifically the fact that section 4 allows for effective disclaimer when such is implied from trade usage, course of performance, or course of dealing.

19. Separate Opinions in Cate, and the State of the Law of Disclaimer of Warranties

a) Public Policy- As was pointed out in Cate, a number of States have undertaken measures to limit a seller’s ability to limit her liability. These measures include ruling certain disclaimers per se unconscionable, regardless of conspicousness, requiring extra specificity or clarity in the enumeration of disclaimers, and even eliminating section 2-316 altogether from their State’s enaction of the code. b) Standards of Conspicuousness- The dissent in Cate disputed the majority’s ruling as to the proper standard for conspicuousness, and in particular whether actual knowledge by the buyer will substitute for conspicuousness. The dissent’s arguments were: 1) that it was an unfaithful reading of the statute that undermined its intentions; 2) That it would cause a parade of “swearing matches” to determine actual knowledge where this should be unnecessary; and 3) That an objective standard encourages forthrightness and helps to further the goal of the statute.

20. § 2-714. Buyer's Damages for Breach in Regard to Accepted Goods. (1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable. (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered. 21. § 2-715. Buyer's Incidental and Consequential Damages. (1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

(2) Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty. 22. Moscatiello v. PCEC (SC of PA)

This case involved the sale of a faulty road paver. Seller attempted to disclaim all warranties in their contract with buyer, and to limit any incidental or consequential damages in the result of breach of warranty. The disclaimers were obviously not conspicuous, because they were contained in VERY small print on the back of the contract, under a heading that alluded to “terms and conditions” and not to a disclaimer of warranty. The interesting portion of the case had to do with the enforceability of the damages limitations. Whereas most damage limitations clauses are enforceable, as long as they do not limit personal injury damages, 2-719, such a clause is not enforceable if it is found to be unconscionable. As the Court quotes in Mosatiello, unconscionability springs from “an absence of meaningful choice for one of the parties, coupled with terms which are unreasonably favorable to the other party.” It is very questionable in this case whether the terms of the contract were unconscionable. Moscatiello was a professional who presumably had some meaningful choice as to whom to make business deals with, and also presumably had some kind of bargaining power in the deal. And, while he was no doubt hurt by the limitations of damages, it does not follow that the terms were unreasonably favorable. Nevertheless, the Court ruled in favor of the trial court, probably because they were ruling on a j.n.o.v. motion, and the standard of review was very strict.

23. Chatlos Systems, Inc. v. National Cash Register Corp (2nd Cir. 1980) This case involved a first-instance interpretation of UCC 2-719(2) and (3). The contract was between a Computer manufacturer and consumer, and contained an exclusive warranty provision and a limitation of damages under that warranty. The warranty was limited in scope to “correcting errors in any program or routine” and limited in time to sixty days. The Court upheld the trial court judgment that this limitation of the warranty caused the warranty to fail of its essential purpose. The trial court also ruled that the warranty’s failing in its essential purpose caused the agreement’s clause limiting damages to fail as well. It treated the warranty and the limitation of damages under the warranty as one unit. The

Court did not agree with this view. Instead, the Court reasoned that the two things were separate and could exist completely apart from each other, and that, as a result, a damages limitation clause should not automatically be struck down with the warranty on which it would have operated. Other Courts, however, choose the opposite course. About whether “failing of the essential purpose” causes the limitation to fail absolutely, or whether 2-719(3), which allows consequential damages, is the proper section to refer to even if it fails of its essential purpose (sub-section 2).

C. Notice under 2-607(3)- This statute leaves a lot of grey area for court’s to define. Courts have further refined the statute by interpreting it as treating merchants and non-merchants differently. The statute says only that notice must be given within a reasonable time after buyer discovers or should have discovered the defect. Courts often hold that merchants “should have discovered” a defect in a relatively short period after the deal, whereas consumers are given a longer time by default. Courts differ significantly as to what manner of information constitutes notice of breach. One line of cases holds that specific words must be used, while another line holds that the notice may be substantially more vague. Finally, actual knowledge of the particular defect in the particular product in question may make notice unnecessary in some courts. D. Sources of Contract terms, other than Express Agreements and Code Default Rules

1. § 1-205. Course of Dealing and Usage of Trade. (1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (2) A usage of trade is any 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. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. (3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. (4) The express terms of an agreement and an applicable course of dealing or

usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. (5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance. (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter. 2. § 2-208. Course of Performance or Practical Construction. (1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1-205). (3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance. 3. § 1-201. General Definitions. (3) "Agreement" means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this Act (Sections 1-205, 2-208, and 2A-207). Whether an agreement has legal consequences is determined by the provisions of this Act, if applicable; otherwise by the law of contracts (Section 1-103). (Compare "Contract".) (11) "Contract" means the total legal obligation which results from the parties' agreement as affected by this Act and any other applicable rules of law. (Compare "Agreement".)

4. Nanakuli Paving and Rock Co. v. Shell Oil Co. (U.S. 9th Circ. 1981)

This case involved the interpretation of the appropriate active terms of a Contract between a Paving Contractor and a seller of “asphalt.” The express terms of the contract called for the price of the asphalt to be at Shell’s posted price at time of delivery, F.O.B. Nevertheless, the Court found that a proper interpretation of the UCC mandates that, unless a term is “completely negated” by the terms imposed by trade usage, course of dealing, and course of performance, that such terms resulting from any of these may be entered into evidence. On Appeal, Shell argued that Nanakuli had not entered enough evidence on the trade usage issue. The Court disagreed, finding that they had entered enough evidence for a jury to find that it is universal practice in the Asphalt trade in Hawaii to price protect. Shell also argued that its former willingness to price protect on the only two prior occasions in non-escalable contracts should be held to be a waiver as a matter of law. The Court disagreed with this too, and with Shell’s interpretation of UCC 2-208, which says that ONE performance shall not count, but goes no further. Again, the Court also disagreed with Shell on their argument that the price term constructed through trade usage and course of performance is inconsistent with the express price term. Of Course, the express term would apply in this case. But the Court also disagreed with this, finding that the price term could in fact be construed as consistent with the rule that, only in non-escalable contracts, that the price shall be protected.

E. Risk of Loss

1. UCC § 2-613. Casualty to Identified Goods. Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale" term (Section 2-324) then (a) if the loss is total the contract is avoided; and (b) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller 2. § 2-503. Manner of Seller's Tender of Delivery.

(1) Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this Article, and in particular (a) tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but (b) unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods. (2) Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions. (3) Where the seller is required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section. (4) Where goods are in the possession of a bailee and are to be delivered without being moved (a) tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but (b) tender to the buyer of a non-negotiable document of title or of a written direction to the bailee to deliver is sufficient tender unless the buyer seasonably objects, and receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non- negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender. (5) Where the contract requires the seller to deliver documents (a) he must tender all such documents in correct form, except as provided in this Article with respect to bills of lading in a set (subsection (2) of Section 2-323); and (b) tender through customary banking channels is sufficient and dishonor of a draft accompanying the documents constitutes non-acceptance or rejection. 3. § 2-504. Shipment by Seller. Where the seller is required or authorized to send the goods to the buyer and the

contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must (a) put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and (b) obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and (c) promptly notify the buyer of the shipment. Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues. 4. § 2-509. Risk of Loss in the Absence of Breach. (1) Where the contract requires or authorizes the seller to ship the goods by carrier (a) if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (Section 2-505); but (b) if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery. (2) Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer (a) on his receipt of a negotiable document of title covering the goods; or (b) on acknowledgment by the bailee of the buyer's right to possession of the goods; or (c) after his receipt of a non-negotiable document of title or other written direction to deliver, as provided in subsection (4)(b) of Section 2-503. (3) In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. (4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval (Section 2-327) and on effect of breach on risk of loss (Section 2-510). 5. Default Rule For Shipment Terms- Although it provides no support for this, the Court in the Windows case claims that there is a strong preference for Shipment Contracts under the UCC...Shipment Contracts are those in which the seller is responsible only to put the good in the hands of the shipper, and the buyer

bears the risk of loss thereafter. UCC 2-504 actually provides some support for this position. 6. Windows, Inc. v. Jordan Panel Systems Corp. (U.S. App 2nd Circ. 1999)

In this case, seller ordered windows from buyer, and in a confirmation letter stated that: “all windows to be shipped properly crated/packaged/boxed suitable for cross country motor freight transit and delivered to New York City.” The goods were damaged in transit. The Court held that the UCC provisions dictated a finding of a shipment contract here (2-504), and that since it was a shipment contract, that the seller should not bear the risk of loss (2-509), because the contract did not call for delivery at a specific destination, but rather gave only the city. The Court declined to consider the earlier grounds on which the case was decided (2-613), choosing instead to use the provisions more specifically applicable to the situation.

F. Title

1. § 2-401. Passing of Title; Reservation for Security; Limited Application of this Section. Each provision of this Article with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this Article and matters concerning title become material the following rules apply: (1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2-501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this Act. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the Article on Secured Transactions (Article 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicity agreed on by the parties. (2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading

(a) if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but (b) if the contract requires delivery at destination, title passes on tender there. (3) Unless otherwise explicitly agreed where delivery is to be made without moving the goods, (a) if the seller is to deliver a document of title, title passes at the time when and the place where he delivers such documents; or (b) if the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting. (4) A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a "sale". 2. § 2-501. Insurable Interest in Goods; Manner of Identification of Goods. (1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs (a) when the contract is made if it is for the sale of goods already existing and identified; (b) if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers; (c) when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested within twelve months or the next normal harvest season after contracting whichever is longer. (2) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified. (3) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

G. Acceptance, Rejection and Tender

1. § 2-507. Effect of Seller's Tender; Delivery on Condition. (1) Tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract. (2) Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due. 2. § 2-511. Tender of Payment by Buyer; Payment by Check. <Text of current version of section. For text of earlier version of section, see ante.> (1) Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery. (2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it. (3) Subject to the provisions of this Act on the effect of an instrument on an obligation (Section 3-310), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment. 3. Buyers have a right to inspect prior to acceptance of the goods (§ 2-513)- Acceptance of the goods by the buyer is a prerequisite to the seller’s ability to sue for the purchase price. The fact that the purchase price has already been paid does not affect the buyer’s right to revoke acceptance after inspection. 4. § 2-513. Buyer's Right to Inspection of Goods. (1) Unless otherwise agreed and subject to subsection (3), where goods are tendered or delivered or identified to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival.

(2) Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected. (3) Unless otherwise agreed and subject to the provisions of this Article on C.I.F. contracts (subsection (3) of Section 2-321), the buyer is not entitled to inspect the goods before payment of the price when the contract provides (a) for delivery "C.O.D." or on other like terms; or (b) for payment against documents of title, except where such payment is due only after the goods are to become available for inspection. (4) A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance becomes impossible, inspection shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which avoids the contract. 5. Buyer’s Right to Reject Goods- The UCC adheres in most circumstances to the “perfect tender” rule. However, this is not an absolute, as the name would imply. The Good Faith obligations may prevent buyers form rejecting based on “trifling” non-conformities, especially if the buyer were a merchant, in which case the good faith standard demands that parties conform to “reasonable commercial standards of fair dealing in the trade.” Also, Installment Contracts differ from normal goods contracts, and rejection requires that non-conformity “substantially impair” its value. Also, a buyer may not reject goods if 1) She has already accepted them or 2) the seller has a right to cure the non-conformity. See UCC 2-607(2) and 2-508. 6. § 2-601. Buyer's Rights on Improper Delivery. Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest. 7. § 2-608. Revocation of Acceptance in Whole or in Part. (1) The buyer may revoke his acceptance of a lot or commercial unit whose non- conformity substantially impairs its value to him if he has accepted it (a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or

(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances. (2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them. 8. § 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over. (1) The buyer must pay at the contract rate for any goods accepted. (2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity. (3) Where a tender has been accepted (a) the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and (b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation. (4) The burden is on the buyer to establish any breach with respect to the goods accepted. (5) Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over (a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.

(b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. (6) The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection (3) of Section 2-312). 9. § 2-606. What Constitutes Acceptance of Goods. (1) Acceptance of goods occurs when the buyer (a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or (b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or (c) does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. (2) Acceptance of a part of any commercial unit is acceptance of that entire unit. 10. International Commodities Export Corp. v. North Pacific Lumber Co. (US DC of OR 1991)

In this case defendant made arrangements to purchase beans from China. The beans were inspected by the plaintiff upon receipt by the shipper, and were found to conform to specifications. Upon receipt of the beans, defendant discovered that some were dirty and not white enough. Defendant complained but did not explicitly reject the goods. Instead plaintiff attempted to have them approved by the FDA. The FDA refused to approve them, and they sat in a warehouse. Finally, almost a year after the agreement had been made, the defendant attempted to revoke his acceptance of the goods. The Court found that his revocation was not timely (2-606(1)(a). Also, the Court found that the burden was on the defendant to prove that the beans did not meet specifications when delivered to carrier. Defendant also failed to give proper notice.

11. § 2-508. Cure by Seller of Improper Tender or Delivery; Replacement. (1) Where any tender or delivery by the seller is rejected because non- conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.

(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. 12. Bouen v. Foust (MO App. 1996)

In this case, the trial court awarded plaintiffs a refund of the full purchase price of heating/cooling equipment purchased from defendant. The heating/cooling apparatus was found at trial obviously to have failed to meet the specifications in the contract, so the buyers had a right to reject. However, defendant argued that the rejection was ineffective because 1) they had already accepted the merchandise, and 2) They had not give the chance to cure the defect. The Court held that UCC 2-608 gave the plaintiffs the right to reject the goods, because they did so within a reasonable time, and because they did not do so any later than they “should have realized” that the goods were defective. Defendants also argued that plaintiffs should have given them the chance to cure the defect under 2-508. However, the Court rejected this argument because the defect was obviously unable to be cured by the defendant, because the defect involved large and obvious defects that made the product completely different than what was promised.

13. REJECTION OF INSTALLMENT CONTRACTS- 2-612 14. PARTICULARS ABOUT MANNER OF OBJECTION 2-602-4

REMEMBER Design Plus Store Fixtures v. Citro...Table Case a) § 2-602. Manner and Effect of Rightful Rejection. (1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. (2) Subject to the provisions of the two following sections on rejected goods (Sections 2-603 and 2-604), (a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and (b) if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection (3) of Section 2-711), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but

(c) the buyer has no further obligations with regard to goods rightfully rejected. (3) The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this Article on Seller's remedies in general (Section 2-703).

15. Kesner v. Lancaster (SC of WV, 1989)

Buyers generally have two options if they wish not to accept a good under the UCC. The two methods are covered by UCC 2-606 and UCC 2-608. UCC 2-608 covers what constitutes rejection, while UCC 2-608 covers revocation of acceptance. Acceptance is governed by the “perfect tender” rule, generally, while revocation of acceptance may only take place when the good is substantially impaired by the flaw or when the seller has made representations to the effect that the flaws will be cured, and this causes the buyer to accept. In Kesner, the Court used these rules in holding that the buyer of a loader was entitled to revoke acceptance of it. The facts were as follows. The buyer conducted a superficial inspection of the loader prior to purchasing it, and found that it looked sturdy and the engine ran well. The buyer accepted the loader pursuant to 2-606. After attempting to use it, it broke down after only one use. A closer inspection revealed that there were several severe problems that would have cost quite a bit to fix. The seller argued, nevertheless, that the lower Court erred in not granting summary judgment to him on the basis that the loader was not substantially impaired by the defects found, under 2-608. The Court explained that there is a subjective and an objective side to the “substantial impairment” language of 2-608. The seller also argued that the buyer was not able to revoke because he had been given an opportunity to inspect and should have discovered the defect. However, the Court held that the buyer’s inspection was reasonable, and that therefore 2-608 was available to him.

16. § 2-609. Right to Adequate Assurance of Performance. (1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.

(3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance. (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. 17. Hornell Brewing Co. v. Spry (NY App 1997)

In this case, a brewing company utilized the Anticipatory Repudiation provision of UCC 2-609, in order to justify cutting off its sole distributor in Canada, with whom the company had had a relationship for only a few months. The Court held that the actions of the defendant demonstrated a lack of credibility that justified non-performance by Hornell, under UCC 2-609.

H. Contract Formation Under the UCC

1. § 2-207. Additional Terms in Acceptance or Confirmation. (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. 2. Diamond Fruit Growers v. Krack Corp. (1986)

This case involved a “battle of forms” between Krack, a manufacturer and Metal-matic, a supplier of tubing for its machines. Krack sent a purchase order for the tubing, which did not include a term about limitation of damages. When Metal-Matic sent back its corresponding form, it did contain a limitation on Metal-Matic’s liability, stating that it would not be

responsible for consequential damages. The case used 2-207 to resolve the issue. The Court held that: 1) The response by Metal-Matic was a definite and seasonable expression of acceptance, but that a contract was not formed because Metal-Matic’s acceptance was conditioned expressly on Krack’s acceptance of the additional terms provided by Metal-Matic. Thus, no contract was formed under 2-207(1). However, the Court held that a contract was formed under 2-207(3), which provides that a contract may be formed by conduct. In such cases, it goes on, the terms of the contract will be a mixture of those terms on which the writings of the parties agree, plus any default rules under the UCC that apply.

3. Hill v. Gateway 2000, Inc. (7th Cir. 1997) This case dealt with whether a contract may be formed including all of the seller’s terms, when a seller sends a package containing a product and includes inside the package a contract, which provides that the failure to return the product within 30 days will result in the formation of a contract. The Hills argued their case on the basis of UCC 2-207, contending that the terms included in Gateway’s insert were not an automatic part of the agreement, because they were not merchants. According to Easterbrook, this section does not apply when there is only one writing. For Easterbrook, cases such as these are decided on the separate basis of whether a contract may be formed when an insert inside the packaging of a product represents the offer, which itself states that a failure to respond will constitute an acceptance. It is not necessary for the case to be decided this way, and Easterbrook followed his own opinion in ProCD in order to decide it, not getting into the fineries of the arguments.

I. Statute of Frauds- overall, the S of F in the UCC is similar to the common law, but there are some differences.

1. § 2-201. Formal Requirements; Statute of Frauds. (1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. (2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within

10 days after it is received. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606).

J. Consideration and “other quaintnesses”

1. § 2-205. Firm Offers- Something about this will almost certainly be on the test! This is very different from the common law. If an offer is “firm”, the offeror can be held to it in absence of any consideration whatsoever. The only proviso is that it cannot last more than three months An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

2. § 2-209. Modification, Rescission and Waiver. (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (?

(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

CONTRACTS CHECKLISTFall 1996Mooney

Lance LeFever

- Does a K. exist?- Is there Cn., restitution, or reliance for enforcement?- Was the Cn. bargained for?- Is there an objectively manifested offer?- Is there objectively manifested acceptance?- Was the offer terminated before acceptance through

lapse, revocation, rejection, or death?- Was there acceptance by partial performance prior to

termination?- Was the offer and acceptance reasonably certain enough

to show an intent to K. and sufficiently definite toascertain breach and fashion remedy?

- Does Statute of Frauds apply?- Is this a K. for transfer of real estate, surety sub-K

for debt of another, K. for sale of goods > $500, K. notto be performed w/i 1 year, K. upon cn. of marriage?

- Assuming it applies, what pieces of paper will satisfyS/F?

- Assuming it applies and no writing satisfies, whatcircumstances might prevent party from asserting S/F?

- Is the K. voidable?- Did a party lack capacity to K. (drunk, age)?- Unequal exchange (generally not a defense)?- Does pre-existing duty rule apply, fraud, mistake,

duress, misrepresentation?- Is the K. unconscionable

- What rights and obligations does the K. create?- Is K. for benefit of a 3rd party, and do circumstances

indicate parties intended 3rd party to have enforcementrights?

- Were K. rights assigned?- What likely consequences follow from the breach by one or

more of the parties?- Formula A or B for expectation?- Losing K. problem?- Avoidability, foreseeability, Certainty problems?- Liquidated damages problem?

CONTRACTS OUTLINE

A K. is a promise or a set of promises for the breach of which thelaw gives a remedy, or the performance of which the law in someway recognizes as a duty. R2§1

I. WHAT PROMISES WILL THE LAW ENFORCE?A. Historical

1. Common law rootsa. writ of covenant (written promise under seal)

b. writ of debt - fixed sum of money for alreadyreceived goods or services (benefit topromisor)

c. writ of assumpsit - damages for injury toperson/property out of consensual undertaking(detriment to promisee)(1) A promise for a promise will support

assumpsit. Strangborough v. Warnerd. Through 18th Cent.

(1) "Equitable" theory of K.s (AKA "Portia,""Belmont") - K. must be inherently fairor no/partial enforcement.

e. 19th Cent. - Mid 20th Cent.(1) "Will" theory of K.s (AKA

"Conceptualist," "Shylock," Venetian") -parties have "willed" a K. and courtswill enforce it.

(2) "Peppercorn" theory of Cn. - Courts willnot enquire into adequacy of Cn. if thereis a "peppercorn" to support it.

(3) Caveat Emptor - "let the buyer beware"(4) "Meeting of the minds" theory of K.

formation: parties actual agreementcritical to enforcement.

f. Mid 20th Cent. - Return to "Equitable" theory,except for a somewhat recent lapse to "Will"theory.

B. Consideration - To constitute Cn., a performance (act,forbearance, or change to a legal relation) or a returnpromise must be bargained for (sought by promisor inexchange for his promise and given by the promisee inexchange for that promise). R2§71. It is the essence ofDoctrine of Cn. that, by the terms of the agreement, itis given and accepted as the motive and inducement tothe agreement.1. PURPOSE: Cautionary and evidentiary.

a. Cautionary - time taken to make exchangeindicates a weighing and thoughtfulness onissue.

b. Evidentiary - promise more likely than not tohave occurred when supported by Cn..

2. Consideration for a promise may be (R2§71(3)):a. A return promiseb. A performance which is

(1) an act other than a promise(2) a forbearance(3) creation, modification, or destruction of

legal relation.3. Detriment need not be a "detriment in fact," but

merely abandonment of a known legal right. Hamerv. Sidway

4. Abandonment of invalid legal claim may be Cn. if a)relinquishing party subjectively believes (goodfaith) it may be valid; and b) claim is objectively

reasonable. Fiege v. Boehm. R2§74 abandonsrequirement of objective reasonableness, imposesrequirement that claim be at least "doubtful"because of facts or law, lesser standard.

5. Cn. may not be an action taken which is inherentlya condition precedent to the acceptance of agratuitous promise. Kirksey v. Kirksey.

6. Past Consideration/Moral Obligationa. Past services are not bargained for, and,

generally, cannot count as Cn. Feinberg v.Pfeiffer Co.(1) Restriction eased somewhat to be

enforceable "to the extent necessary toprevent injustice." R2§86.

b. Moral obligations arising from care of deadson in the past cannot be Cn. for a subsequentpromise. Mills v. Wyman.(1) EXC: Subsequent promise to pay a debt

expired under statute of limitations,R2§82, Subsequent promise to pay a debtdischarged in bankruptcy, R2§83.

c. Court will imply a prior request for past Cn.where the Cn. is material and substantiallysaves life of another. Webb v. McGowin.

C. Restitution as an Alternative Basis for recovery1. Implied K.s ( or quasi-K's or quantum meruit (value

of services)) are a "mythical creation of the law"to allow for recovery of professional services (adeserving claimant, not officious intermeddler) inemergency situations. Cotnam v. Wisdom.a. Restitution for implied K. is limited to the

value of the benefit which is acquired, viewedfrom the perspective of the recipient. Hillv. Waxberg.

b. Theory of restitution in implied K. is toprevent unjust enrichment. Callano v. OakwoodHomes.

c. π may not recover from a third partybeneficiary under an implied K. theory ofunjust enrichment, especially when alternatemeans are available to recover losses.Callano.

d. Measure of recovery for restitution is EITHER:(1) what it would have cost to obtain

services from person in claimant'sposition; or

(2) Increase in value to the other party'sproperty. R2§371.

D. Unsolicited Action1. Reliance and the Bargain requirement

a. Act of moving a condition precedent to theacceptance of the promise, may not constituteCn., is not reliance. Kirksey v. Kirksey

b. Phrasing of an offer that expresses

indifference as to the result may indicate anintent not to bargain. Kirksey.

c. Non-competition K. enforceable if reasonable.C.A.B. v. Ingram.

d. Mere promise of continued employment is notCn. for agreement subsequent to originalemployment K., but promise + actualsubstantial performance in reliance=Cn. C.A.B.

e. Employee handbook not a K. because itspromises are not bargained for as aninducement to employee promise of performance.Bankey v. Storer

f. Unbargained for partial performance of offermay be accepted by completing performance.R2§51.

E. Reliance as an alternative basis for enforcement(AKA Promissory estoppel)

a. A gratuitous promise which is relied on bypromisee to her detriment is enforceable.Ricketts v. Scothorn.

b. A gratuitous promise is binding if(1) promisor should reasonably expect it to

induce action by promisee or 3rd party;(2) promise does induce action; and(3) injustice can be avoided only by

enforcement, remedy to be limited asjustice requires (to the extent reliedupon). R2§90. Charitable subscriptionsor marriage settlement binding w/o proofof action or forbearance. sub (2)

c. Gratuitous promise which results in action orforbearance to promisee's detriment may beenforceable by expectation remedy whereinjustice cannot be otherwise avoided.Feinberg v. Pfeiffer

d. Purpose of R2§90 is to prevent injustice, notwork justice. Cohen v. Cowles Media

e. Gratuitous promise of continued supply, evenin a terminable at will relationship, mayconstitute promissory estoppel whendistributor relies on a seriously intendedpromise, reliance on it was foreseeable andreasonable. D&G Stout v. Bacardi.

f. When reliance results in loss of value ofborderline business, appropriate remedy isreliance (diff. in lost sale value of goingconcern instead of expectation of futureprofits). Bacardi

F. Promise for a Promise1. Has the party now suing bound itself

sufficiently enough to support cn. for thepromise it is now suing upon?

2. A promise for a promise will support assumpsit.Strangborough v. Warner.

3. A promise which is bargained for is Cn. only if thepromised performance would be cn. R2§71.

4. Definitions:a. Unilateral promise: duty on side of promisor;

right on side of promisee;b. bilateral promise: duty and right on both

side.c. Power: capacity to form a binding

relationship.d. Condition: an even which must occur before

promise becomes enforceablee. Explicit - actual promise by parties at the

time of creationf. Implicit - created by court in absence of

explicit statements in light of statements attime and subsequent conduct.

5. An express promise to hold note until demanded isillusory because it promises nothing of substance.Because promise is express, substantial performanceon promise is not part of cn. Strong v. Sheffielda. Termination clause: terminable at will usually

illusory (EXC: employment); if it includes atime period, usually upheld

6. Promise is illusory if promisor retains choice ofalternative performance unlessa. each alternative would be cn. alone; orb. one alternative would be cn. and events voided

other, non-cn. alternatives. R2§77.7. Satisfaction clauses of two types:

a. commercial value, fitness, utility: usestandard of reasonable person.

b. judgement, fancy or test: must be exercised ingood faith (implied promise). Mattei v. Hopper

c. breach of good faith obligation is a breach ofK. for which other party may seek damages

8. Conditional satisfaction clauses not illusory wherethey are not unfettered grants of discretion.Mattei v. Hopper

9. Concealed offer: I'll buy all the gas I need fromyou if you promise to give it: appears to bepromise but not definite and certain: no obligationto buy any gas: concealed offer because, unlessrevoked, buyer sends order for specific amount,terms now definite and certain; arguablerequirements K. leads to concealed offer argument.

10. A requirements K. is not invalid for want ofdefiniteness because it imposes a good faithobligation to rq. amt. of fuel normally requested,measured against prior requirements of the goingbusiness concern. UCC 2-306 imposes no requirementthat price not be unreasonably disproportionate inrequirements K. Eastern v. Gulf.

11. Requirements K. invalid where it does not provide areasonable foreseeable standard for measuring

requirements; may not be requirements K. because“special BB glue” requirements illusory. SchlegelMfgring v. Coopers Glue.

12. Promise for sole marketing rights in return for 1/2resulting profits did not expressly create duty toseek and market goods, but a good faith obligationto do so may be implied. Wood v. Lucy, Lady Duff-Gordon

II. The Bargaining Process.A. The Nature of Assent

1. Objective theory of intent: parties to a bargainare bound by the outward manifestation of assent,measured from the standpoint of a reasonableperson. Lucy v. Zehmer

2. Telegram cases: seller bound by telegraph co.'serroneous transmission of offer. Ayer v. WesternUnion; contra Western Union v. Cowin

3. Frolic & Banter Rule: Objective theory of intentN/A where purchase price of sale should indicate toa reasonable person that proposed K. is a "frolicand banter." Keller v. Holderman

4. Mistake by one party to convey subjective intent tochange a condition of the agreement during ongoingnegotiations does not relieve it of obligations:obj theory. Laserage Technology v. Laserage Labs

5. Mutual assent=K. in absence of expressed intent notto be bound; to avoid being bound, at least oneparty must express intent not to be bound absentwriting. Consarc Corp v. Marine Midland Bank

B. The Offer: Classic notion = meeting of the minds1. An offer is the manifestation of willingness to

enter into a bargain, so made as to justify anotherperson in understanding that his assent to thatbargain is invited and will conclude it. R2§24.

2. Seller's letter not an offer communicating adefinite intent to be committed to K. because"would not be possible to sell w/o $16000"indicates a starting point of negotiations. Owenv. Tunison

3. Telegram not an offer communicating a definiteintent to be bound by K. because "lowest price forBumper Hall Pen $900" does not convey a willingnessto sell at that price to this particular buyer.Harvey v. Facey

4. Letter a definite communication of intent to bebound by listed terms because "we quote you xprice" in reply to buyers definite request foroffer, in conj. w/ add'l terms for immediateacceptance, indicates willingness to be bound: keyis specific potential buyer. Fairmount Glass v.Grunden-Martin Woodenware.

5. Doctrine of Mistake: offer rescindable when:a. material issue;b. clerical (as opposed to judgmental) error;

c. prompt notification of mistake;d. unconscionable to enforce; ande. status quo ante can be restored w/o prejudice.

R2§153; Elsinore Elementary v. Kastorff.6. Mistake burden on offering party when

a. allocated to party by agreement;b. party aware of limited knowledge but acts

anyway; orc. reasonable to allocate risk to party. R2§154

7. Doctrine of mistake does not extend to extremedisparity in bids, to imply knowledge on part ofofferee that bid was a mistake, where offereeneither knows nor has reason to know of mistake.Heifetz v. Kiewit

8. Advertisements:a. In general, newspaper ads do not constitute an

offer. Craft v. Elder & Johnston Co.C. The Acceptance

1. Acceptance is a manifestation of assent by theofferee in a manner invited or required by theoffer; Acceptance by performance requires at leastpart of request be performed or tendered;acceptance by promise requires offeree completeevery act essential to making promise. R2§50.

2. Requirement of notice in unilateral K.: acceptanceby promise must be preceded by reasonably diligentattempt by offeree to notify offeror. R2§56.a. Notice of acceptance generally required in

unilateral K., but may be dispensed w/ whereofferor, by terms of offer, manifests anintention to dispense w/ requirement ofnotice. Carlill v. Carbolic Smoke Ball Co.

3. Offer accepted, and indemnity clause enforceable,where terms of offer ("should") refer to asuggested, not required, method of acceptance.Allied Steel v. Ford Motor Co.

4. Shipment of requested goods=acceptance of order forprompt or current shipment. UCC 2-206; R.2d § 32;R.2d § 62.

5. Silence and inactiona. Generally, silence and inaction alone not

acceptance unless:(1) offeree takes benefit offered;(2) offer contemplates and offeree intends to

accept; or(3) prior dealings. R2§69.

b. silence + retention of seller's goods + priorbusiness relationship indicating this wasregular practice of parties=acceptance. Hobbsv. Massasoit Whip co. (sealskins); AmericanBronze Corp. v. Streamway (retention ofbuyer's order).

c. silence + retention of seller's goods notacceptance where retention of goods was for

storage only and imposed no further duty onholder. Heiting & Sons v. Jack's Bean Co.

D. Termination of the Power of Acceptance1. Lapse of an offer

a. Offer may lapse, if not stated, after areasonable time, depending on circumstances.

b. Offer made in face to face communicationordinarily lapses at close of conversation.Akers v. Sedberry; contra Caldwell v. Spears &Sons

c. Reward for capture of arsonist advertised inpaper for a week not recoverable four yearslater because it was intended to excitevigilance of community to stop immediate harm.Loring v. City of Boston

d. Offer on TV show lapsed at end of show.Newman v. Schiff

2. Revocation and Rejectiona. Definitions:

(1) Revocation: a withdrawal of the power ofacceptance by offeror.

(2) Rejection: a termination of the power ofacceptance by offeree.

(3) Option K.: agreement to hold open aspecific offer to a specific party for afixed period of time. Toys v. FMBurlington Co.

b. Jury question whether option K. acceptedaccording to terms of its offer when actionsof offeree indicate subsequent bargaining torenegotiate better position. Toys

c. Jury question whether party may have waived,or rejected, its potential rights under optionK, where subsequent actions may be soinconsistent w/ intent to renew as toconstitute waiver. Toys

d. Option K. not supported by separate cn. forperiod of option is only an unenforceableoffer. Dickinson v. Dodds; R.2d § 89

e. An offer is revocable by a 3rd partycommunication in conjunction w/ actioninconsistent w/ offer. Dickinson

f. Offeree's power of acceptance is terminatedwhen the offeror takes definite actioninconsistent with an intention to enter intothe proposed K. and the offeree acquiresreliable information (but not necessarily trueinformation) to that effect. R2§43

g. Pre-offer financing may not be cn. for optionK. because not bargained for. Ragosta v.Wilder

h. Equitable estoppel N/A to withdrawal ofunenforceable option because E.E. applies tofacts, and no facts stated were incorrect or

not known to buyer. Ragostai. The Mailbox Rule

(1) Offeror may not revoke offer afterofferee mails acceptance. Adams v.Lindsell

(2) Acceptance made in manner and mediuminvited by offer operative as soon as putout of offeree's possession, regardlessof actual receipt by offeror. R2§63(a).

(3) Acceptance under option K. not operativeuntil actually received by offeror.R2§63(b).

(4) Revocation of offer not operative untilactually received by offeree. R2§42.

(5) Rejection not operative until received.R.2d § 40

3. Death/incapacity of offerora. Not covered in class

E. Acceptance varying offer1. not covered in class

F. Precontractual Liability1. Contractor's proposal & extensive work an

appropriate basis for implied K. where workresulted in benefit to person seeking K., but whonever gave contractor the K. Hill v. Waxberg

2. Restitution for implied K. is limited to the valueof the benefit which is received, from theperspective of the recipient. Hill v. Waxberg

3. Option K. created by part performance: Whereoffer invites an offeree to accept by rendering aperformance and not promise, an option K. iscreated when the offeree tenders or begins theinvited performance or tenders a beginning of it.R2§45 (unilateral).

4. An offer which offeror should reasonably expect toinduce action or forbearance of a substantialcharacter on the part of offeree before acceptanceand which does induce such action or forbearance isbinding as an option K. to the extent necessary toavoid injustice. R2§87(2)

5. Subcontractor's submission of an erroneous bidincludes an implied subsidiary promise to keep bidopen for a reasonable time, for which the generalcontractor's reliance on it in submitting thewinning bid constitutes Cn. Drennan v. Star Paving

6. Promissory estoppel: A promise which promisorshould reasonably expect to induce action on partof promisee or a third person and which does inducesuch action is binding if injustice can be avoidedonly by enforcement; w/ remedy limited as justicerequires. R2§90.

7. Distributors liable for promises they reasonablyshould have expected to induce action on part ofhopeful franchisee, and for which injustice can be

prevented only by enforcement of promise. Goodmanv. Dicker

8. Reliance/Promissory Estoppel principles n/a wherethere is already a valid K., supported by Cn.,which is terminable at will. Prince v. MillerBrewing

9. Promissory estoppel a basis for recovery of lostwages where employee quits old job, turns downother job offers, to take job terminable at willoffered by new employer who terminates him beforehe begins. Grouse v. Group Health

10. Promissory estoppel may be appropriate grounds forrecovery where owners promise may have inducedbuyer to take action of a definite and substantialcharacter, and injustice may be avoided only beenforcement. Ragosta v. Wilder

11. Promissory estoppel basis for enforcement ofpromises made during course of failed franchisenegotiations which induced action and createdinjustice. Hoffman v. Red Owl

12. Lost profits not recoverable under promissoryestoppel "reliance" theory of recovery becauseprofits are expectation. Hoffman (Bad law -profits recoverable under reliance - profits notexpectation unless they are profits from K.)

13. Letter of intent to lease not unenforceable"agreement to agree" because promises in letterbenefit both parties, and create binding agreementto negotiate for lease in good faith. Channel HomeCenters v. Grossman

G. The requirement of Definiteness: two elements; 1)intent to K.; 2) alleged K. sufficiently definite toascertain breach and fashion a remedy.1. Promise to pay "a fair share of my profits" an

unenforceable moral obligation because a fair sharecan mean virtually anything. Varney v. Vitmars

2. Offer cannot be accepted so as to form a K. unlessthe terms are reasonably certain; terms reasonablycertain if they provide a basis for determining theexistence of breach and for giving of appropriateremedy; one or more terms left open or uncertainmay be indication manifestation of intent is notoffer or acceptance. R2§33.

3. Language that rent "shall be renegotiated to thethen existing rate w/in the mall" is definite &certain enough to be enforceable because it refersto the then existing rate. Toys

III. The Requirement of Writing for Enforceability: Statuteof Frauds.A. Statute of Frauds Requires writing for

enforcement of promises for:1. agreement upon cn. of marriage;2. transfer of real estate;3. K. not to be performed w/in one year;

4. surety sub-K. for debt of another;5. K. for sale of goods > $500. UCC 2-201, NJ Stat.

Ann. 25:1-5.B. Problems of Statutory Scope

1. The Suretyship clausea. Classic surety K.: In order to induce bank C

to loan to A, B promises to pay if A defaults.b. Look alikes not w/in S/F:

(1) A is not bound to pay, but B offers topay;

(2) A&B both to receive benefit from C; B isco-principal

(3) MAIN PURPOSE DOCTRINE: B is actingprimarily to further his own economicinterests

(4) Novation or "New" K.: B substitutes infor A w/ C's consent.

(5) B promises to A rather than C2. Contracts not to be performed within one year

a. Must be no possibility that K. can beperformed w/i one year. If K. can beterminated w/i one year by external operation,then w/i S/F.

b. Examples: Y promises to care for X:(1) for X's life - S/F N/A(2) for 5 years - w/in S/F(3) for X's life but not exceeding 5 years -

S/F N/A(4) For 5 years but if x dies, K. Term - w/in

S/F.C. Requisites of Writing and Signing

1. May be in several sets of papers. Marks v. CowdinD. Dispensing with the requirement of a writing

1. A party may be estopped from asserting S/F wherestrict enforcement of S/F would result in either:a. unconscionable injury to promisee; orb. unjust enrichment to promisor. Monarco v. Lo

Greco.c. Reliance on verbal promise sufficient to

defeat requirement of a writing. MonarcoIV. Policing the Bargain.

A. Capacity1. Drunkenness: To be voidable on account of

drunkenness, party must be so drunk as to be unableto comprehend the nature or consequences of the K.Martin v. Harsh; Lucy v. Zehmer

2. Minors:a. General rule: child's K. voidable if

disaffirmed w/i a reasonable time of reachingage of majority

b. Necessaries exception: food, clothes, shelter:intent of rule to prevent minor from makingimprovident purchases.

c. Ratification exception: If after reaching age

of 18 minor affirms his obligation, thusremoving power of disaffirmation. (what ifchild continues payments/driving car after 18?- what is reasonable period?)

d. Restoration: if disaffirmed, minor must paysomething back, sometimes under K. theory ofrestitution, sometimes under tort theory ofdeceit. GEN RULE: minor must give backeverything they still have. (but what aboutreasonable rental value?)

B. Unfairness1. Inequality of exchange not basis for voiding K.;

"parties of sufficient mental capacity for themanagement of their own business have the right tomake their own bargains." Hardesty v. Smith

2. Inequality of exchange + oppressive restrictions onowner's use of land make K. unenforceable in equityaction for specific performance. McKinnon v.Benedict

3. Analysis of sufficiency of Cn. must be viewedprospectively (at time made). Tuckwiller v.Tuckwiller

4. Mere massive profit on sale of goods does notcreate inequality of exchange. Black Industries v.Bush

5. K. voidable as against public policy only 4situations:a. K. for penalty in guise of liquidated damages.

R.2d § 356b. K. to induce public official to act;c. K. to do illegal act;d. K. for collusive bidding on public contract.

Black IndustriesC. Overreaching: Traditionally: fraud, mistake, duress,

even innocent misrepresentation: remedy; recision oravoidance at instance of victim1. Pressure in Bargaining: Pre-Existing Duty

rule: must be reasonable temerity in face ofthreat; pressure in bargaining is OK, but questionis to what degree; duress not threat of legalright; but may not threaten at will.a. Party not entitled to relief from K. for

coercion where that party's hands not cleanfrom coercive behavior, either. Undersea Eng.& Const. V. Int'l Tel. & Tel.

b. Theory of restitution appropriate basis forrecovery of money gotten through extortion,oppression, or undue advantage of victim'ssituation. Moses v. Macferlan

c. The Pre-Existing Duty Rule: tensionbetween R2§73 and 89.(1) Performance of a legal duty owed to a

promisor which is neither doubtful northe subject of honest dispute is not cn.,

but a similar performance is cn. if itdiffers from what was required by theduty in a way which reflects more than apretense of bargain. R2§73

(2) Promise modifying a duty under a K. notfully performed (executory K.) on eitherside is binding(a) if modification is fair and

equitable in light of circumstancesnot anticipated by parties when K.made; or

(b) if provided by statute; or(c) to the extent that justice requires

enforcement in view of materialchange of position in reliance onpromise. R.2d § 89

d. Coerced new K. unenforceable where employergiven no cn. for increasing wages and wagehike induced by unjustified refusal to performprior K. Alaska Packers Ass'n. v. Domenico

e. Old K. may be rescinded by agreement ofparties, and a new one substituted in itsplace on more favorable terms, where partiestear off signatures of old K. Schwartzreichv. Bauman-Basch

f. New K. unenforceable because claimant failedto prove old K. was first rescinded/revoked.Arzani v. People

g. Reliance not appropriate basis for recovery insituation governed by classic K. supported bycn. Arzani

h. Parties may modify (change a portion notrescind K.) a material element of K. by mutualoral assent w/o new cn. where mutual mistakeexists as to subject matter of materialelement; pre-existing duty rule N/A. Watkins &Son v. Carrig

i. Parties may not K. to reduce sum owed underformer K. because payment of sum already owedcannot be cn. Foakes v. Beer

j. Pre-existing duty rule N/A for promise to paymoney to go forward w/ marriage because it isreally a promise not to conspire tovoluntarily to rescind K. DeCicco v. Schweizer

k. K. may be voidable on grounds of duress whenit is established that the promisor was forcedto agree by means of promisee's wrongfulthreat precluding the exercise of free will;party claiming duress must show no realisticalternative, acted reasonably, & fought w/some temerity. Austin v. Loral

l. Accord (agreement to pay less) andSatisfaction (actual payment of lesser amount)a subset of Pre-existing duty rule; defenses

cn. and duress.m. Accord & Satisfaction a q. 1) was there an

agreement between parties to accept payment asin full; 2) was there cn., essentially asecond K. to settle claims under prior K.?

n. Accord & satisfaction requires a manifestationof assent to debtors offer, not shown whereoffer was in fine print & creditor did notnotice it. Kibler v. Garret & Sons

o. Payment of sum by debtor + explicitdeclaration of conditions of its acceptancebinds creditor when accepted. Hudson v.Yonkers fruit

p. UCC 1-207: used to be able to reserve rightsunder attempted accord; intended to keep wholetransaction going; some cts seized on it toundermine common law accord and satisfaction;UCC 1-207 now amended.

2. Concealment and misrepresentationa. So long as there is no false statement, mere

silence or "bare nondisclosure" of defectivemerchandise is not actionable. Swinton v.Whitinsville Sav. Bank

b. Recision of K. appropriate remedy where thereis nondisclosure of information coupled w/misrepresentations bearing on info notdisclosed (half truths). Kannavos v. Annino

c. Misrepresentation of material fact ground forrecision even if innocent; misrepresentationof law not ground for relief, but is groundswhere gross disparity in bargaining position;party must exercise certain minimal diligencein justifiable reliance on it; materialmisrepresentations of law or opinion notactionable unless created by fiduciary duty(confidential relations)

d. Confidential relations grounds for avoidancewhere there was a prior history of trust andconfidence between parties; factors aredisparity in age, education, businessexperience; where confidential relationexisted and party asserting K. rights is onein whom confidence was placed, claimant mustshow bargain was "fair, conscientious, andbeyond the reach of suspicion." Young v. Kaye

D. Unconscionability and Problems of AdhesionContracts1. Doctrine of strict construction prohibits

enforcement of exculpatory clause in lease forinjuries on sidewalk where injury actually occurredon lawn. Galligan v. Arovitch

2. If a K. or term thereof is unconscionable at thetime it was made the court may refuse to enforcethe K, or it may enforce the remainder of the K w/o

the unconscionable term, or it may so limit theapplication of the unconscionable clause to avoidan unconscionable result. R2§206; UCC 2-302.

3. UNCONSCIONABILITY is the absence of meaningfulchoice on the part of one party w/ terms that areunreasonably favorable to the other party; cross-collateralization clause unconscionable where buyerowed virtually nothing on some of items originallypurchased. Williams v. Walker-Thomas

4. Exculpatory clause not unconscionable b/c not 1)against public policy or 2) relationship of partiesmilitates against it during acute housing shortage;freedom to K., legislative problem. O'Callaghan v.Waller & Beckwith.

5. Damages limitation on parcel stub not enforceablebecause it does not give notice of its contents toholder; issuer had reason to know party would notmanifest assent if knew of provision. Klar v. H&MParcel Room

6. Exculpatory clause in adhesion K. for vehiclepurchase is void as against public policy eventhough a semi-public corporation; exculpatoryclause concealed; seller not insulated by buyer'sfailure to read K. Henningsen v. Bloomfield Motors

7. Extreme disparity in purchase price vs. maximumretail value may constitute unconscionability as amatter of law. Jones v. Star Credit Corp

8. Forum selection clause enforceable because it isnot result of unfair bargaining position orunreasonable decision to locate litigation in Fla.Carnival Cruise Lines v. Shute

9. Franchise relations may be unconscionableE. Illegality

1. Meretricious relationship between parties a groundfor refusal to enforce, except where businessportion of relationship can be separated fromparties' personal relationship. Thomas v. LaRosa

2. To be enforceable, non-competition K. must be 1)written; 2) part of employment K.; 3) based onreasonable Cn.; 4) reasonable in duration &geographic limitation; and 5) not against publicpolicy. Non-competition K. not against publicpolicy because legislature has not placed limits onsuch K. Hopper v. All-Pet Animal Clinic

3. K. to pay for services to obtain or defeatlegislation by means other than arguments addressedto reason is an illegal K. Campbell Cty. v. Howard& Lee

4. Money paid to bribe judge not recoverable under K.theory. State v. Strickland

5. Illegality may be set up as a defense to K.enforcement even though party may be alleging hisor her own culpability. Early Detection Ctr. v.Wilson.

6. Unilateral illegal conduct is enough to void K. ifthere is a direct connection between the illegalconduct and the obligation sued upon, regardless ofthe culpability of the other party. McConnell v.Commonwealth Pictures

7. Lack of licensing not a bar to recovery if purposeof licensing is revenue raising; if purpose isprotection of public welfare, lack of licensing isa bar to recovery; uncertified engineer may recoverexpectation for work done. Town Planning & Eng.Ass. v. Amesbury

V. Third Party BeneficiariesA. Action may be maintained upon a contract, in an

appropriate case, by a person who had no part increating it: a "third party beneficiary K," i.e.; lifeinsurance creates donee beneficiary (AKA creditor orintended beneficiary) who has right of enforcement.Incidental beneficiary is a 3rd party who may enjoyadvantage through enforcement but has no enforceableinterest in enforcement.

B. 3rd party entitled to bring suit for K. to which he isnot a party if he is the beneficiary of the subject ofthe K; promise to pay money to 3rd party is implied bytaking of money from debtor. Lawrence v. Fox

C. Unless otherwise agreed between promisor and promisee, abeneficiary of a promise is an intended beneficiaryif recognition of a right to performance in thebeneficiary is appropriate to effectuate the intentionof the parties and either1. the performance of the promise will satisfy an

obligation of the promisee to pay money to thebeneficiary (creditor beneficiary); or

2. the circumstances indicate that the promiseeintends to give the beneficiary the benefit of thepromised performance (donee beneficiary)

3. An incidental beneficiary is a beneficiary whois not an intended beneficiary.

D. "No legal duty rests upon a city to supply itsinhabitants with protection against fire," thus, noadd'l duty arose as a result of city's K. w/ company toprovide water for fire hydrants. H.R. Moch Co. v.Rensselaer Water Co.

E. Users of toll road intended beneficiaries as to servicerequirements of toll road, but death of motorist notforeseeable as a result of breach. Kornblut v. ChevronOil Co

F. 3rd party claim recoverable where 3rd party is preciselythe claimant for whose benefit legislation was enactedand for whom the service was to be rendered. Koch v.Consolidated Edison Co

G. Two part test for 3rd party claims: 1) recognition of aright to performance in the beneficiary will effectuateintentions of parties; 2) circumstances indicate thepromisee intends to give the beneficiary the benefit of

the promised performance. Legislation the action isbased on do not recognize a private right of action, andprovide a separate scheme for such claims. Davis v.United Airlines

VI. Assignment and DelegationA. Most contract rights having commercial value are

transferable. Assignment: creditor may institute a dutyrunning directly from its debtor to a 3rd party, theassignee. Delegation: seller's delegation of its duties(and accounts receivable) upon sale of a business.

B. Delegation deals with duty: may delegate unlessperformer has interest in performance by specificperson; delegation does not extinguish duty on part ofperson delegating duty unless extinguished by novation

C. K. rights may be assigned unless1. The assignation would material change the duty of

the obligor, burden or risk imposed by the K., ormaterially impair his chance of return performance,or materially reduce its value to him; or

2. The assignment is forbidden by statute or isotherwise inoperative on public policy grounds; or

3. assignment validly precluded by K. R2§317D. It is essential to an assignment that the obligee

manifest an intention to transfer the right to anotherperson without further action or manifestation ofintention. R2§324.

E. Gratuitous assignment is revocable unless a signedwriting is delivered by assignor, or delivery of awriting of a type customarily accepted as a symbol or asevidence of a right assigned, and terminates if assignormakes another, inconsistent assignment, dies or givesnotice of revocation. R2§332

F. Insuree's comment to wife that he didn't want formerwife (named beneficiary) to have benefits of lifeinsurance policies not a manifestation of intent toirrevocably assign benefits. Cassiday v. Cassiday

VII. Remedies for Breach.A. Measuring Expectation: goal is to put the injured

party in the position it would have been in had the K.been performed.1. Formula A: Loss in value - cost avoided2. Formula B: Cost of reliance + anticipated

profit3. Patient entitled to reliance damages only in breach

of physician-patient K.; reliance damages mayinclude pain & suffering from unforeseeable,uncontracted for third operation to put patient instatus quo ante. Sullivan v. O'Connor

4. Overhead should be treated as part of grossprofits, recoverable as damages, and are not to beconsidered as part of seller's costs; overhead nota cost avoided because it was not avoided by breachof K. Vitex Mfgring v. Caribtex

5. Lost volume seller entitled to loss in value (K.

price) minus cost avoided (cost of making 2dmachine) for lost volume seller under UCC 2-708(2)(resale formula: diff between resale price andmarket price); resale of machine under resaleformula (UCC 2-706) applicable only if no remedy aslost volume seller and machine sold as scrap; lostvolume seller must establish 1) would have made 2ndsale absent breach, 2)could have produced 2nd unit,3) it would have been profitable to do so. DavisChemical v. Diasonics

B. Problems of Losing Contracts1. Possible types of recovery for breach in losing K:

a. Expectation under formula A or B (B easier)b. Restitution: amount of market value of

services provided. US v. Algernon Blair;R2§371

c. reliance: amount of expenses minus losses hadK. been performed. R2§349. (jurisdictionssplit on whether K. price the ceiling).

d. Pro Rata: absorb portion of loss correspondingto portion of work done (cost ofreliance/total anticipated cost times K price)Kehoe v. Rutherford

e. Burden shifting: party in breach has burden toshow costs avoided by injured party as aresult of breach. Albert & Son v. ArmstrongRubber

2. Subcontractor entitled to restitution damages underR2§371 where his K., had it been completed, wouldhave been a losing K. under expectation damages.United States v. Algernon Blair

3. Restitution interest may, as justice requires, beeither:a. the reasonable value to other party to obtain

services from another; orb. the extent to which the other party's property

has been increased in value. R2§371.C. Limitations on Damages

1. Avoidabilitya. damages are not recoverable for loss the

injured party could have avoided w/o unduerisk, burden, or humiliation. R2§350

b. Injured party has a duty to do nothing toincrease the damages flowing from breach.Rockingham Cty. v. Luten Bridge

c. Wrongfully discharged employee has duty to 1)make reasonable efforts to obtain otheremployment and 2) accept reasonably similaremployment; employment not reasonably similarwhere movie role is both different and rightsunder employment K. inferior. Parker v.Twentieth Century Fox

2. Avoidability and Problems of Defective Performancea. Problem is to determine which appropriate

measure of recovery: cost to completecorrectly by redoing work (ceiling) ordiminishment in value of the work done by thedefect (floor).

b. Diminution in value appropriate remedy forbreach of K. to publish books. Freund v.Washington Square Press

c. A trivial and innocent breach does notpreclude action by breaching party; diminutionin value appropriate remedy for trivial breachof home construction (in this case, zero).Jacob & Youngs v. Kent

d. Cost to complete appropriate remedy forwillful breach of K. to level gravel pit (inthis case, $45,000 more than dim. in value);breach efficient but ct. came to wrongconclusion. Groves v. John Wunder Co.

e. Diminution in value appropriate remedy forbreach of strip mining restorative workprovision where the K. provision was merelyincidental to the main purpose of the K. andthe cost to complete grossly disproportionateto the diminution in value; jury may havemeasured subjective, not objective, diminutionin value. Peevyhouse v. Garland Coal & Mining

3. Foreseeabilitya. Damages for breach should be those as 1) may

fairly and reasonably be considered as arisingnaturally from breach; or 2) may reasonably besupposed to have been in contemplation ofparties. Hadley v. Baxendale

b. Damages are foreseeable if they usually occur(1) in the ordinary course of events; or(2) the breaching party had reason to know of

special events that would cause damages;lost profits not foreseeable if court sodetermines. R2§351

c. Steel supplier's experience with bridgeconstruction creates reasonable assumptionthat it knew its delay would necessitateurgent construction, and make overtime coststo do a "crash pour" a foreseeable damage.Spang Industries v. Aetna Ins.

d. Designer could not foresee buyer would enterinto other K.'s to market designer's productbecause double chopper-folder a new, unprovendesign. Bockman Printing v. Baldwin-Gregg

4. Certaintya. Royalties from sale of books not proven w/

sufficient certainty, because there is noguarantee they would have sold; artisticroyalties speculative and generally hard toprove w/ sufficient certainty. Freund

b. Damages not recoverable for loss beyond an

amount that the evidence permits to beestablished with reasonable certainty. R2§352.

c. The general rule is that an old business hasprior records to show lost profits but a newbusiness generally cannot prove lost profitswith any certainty; new business here can showlost profits with sufficient certainty becausethey have experience in the field, evidence ofother similar store, and liquor controlcommission expert. Fera v. Village Plaza

D. Liquidated damages and penalties1. Liquidated damages may be only at an amount that is

reasonable in light of the anticipated or actualloss caused by the breach and the difficulties ofproof of loss. An unreasonably large liquidateddamage is an unenforceable penalty. R2§356(1).

2. To be enforceable, liquidated damages must be forK. of a kind in which it is hard to ascertaindamages; must be a reasonable estimate of loss byparties; liquidated damages are presumptivelyreasonable; some courts require that the liquidateddamages must, in hindsight, be unreasonable.Wasserman's v. Township of Middleton

3. Liquidated damages reasonable because damages fordelay in hwy. construction impossible to measure;parties made a fair endeavor to fix sum for damagesin case of delay. Gustafson v. State

Rees Page 1 of 46 CONTRACTS COURSE OUTLINE – know case names for Prof. Mooney’s classes. USE LAW OFFICE MEMO design for answering essays Per Prof – need to separate into packages by content: consideration, restitution and be able to draw up details of cases, Rest to show all knowledge covered in class about that package. Need to be able to write everything you know about the subject. State claims, support and defenses, support or negate. State remedies and how the court will determine which remedy is applicable. Always start with “The first issue likely will be” Usually if he wants damages info, he will had numbers to the questions. Make sure to keep performance and promise separate – prof want to make sure that clear that difference b/t the two. Don’t have to quote restatements, just paraphrase and list R2§#.

1. Objective test of an offer? 2. Is offer definite enough? 3. What would find persuasive? Cases, common sense, possible testimony 4. Option K / Consideration

INDEX & Long exam outline Essential Elements... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. . ... ... ... ... ... ... ... ... .. . ......5 Does a K exist? LACC (legality, agreement(offer & accept), consideration, capable parties) Voidable K’s...Rest §7. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... . .. ... ... ... ... ... ... .. . ... ...5 Merchant of Venice 5 Chapter one: Bases for Enforcing Promises... ... ... ... ... ... ... ... ... ... ... ... ... ... . .. ... ...5 Assent : Rest §17 Mutual understanding of an agreement + consideration Rest §20: misunderstanding = no mutual assent Objective test for assent 6 Lucy v. Zehmer: drunken sale of farm: use objective test of reasonable offeree 6 Consideration.. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...7 Historical Developments ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...7 Hamer v. Sidway: uncle/nephew’s vices/forbearance... ... ... ... ... ....... ... ...8 Rest§71:bargained-for; no peppercorns... ... ... ... ... ... ...... ... ... ... ...8 Fiege v. Boehm: paternity/good faith belief... ... ... ... ... ... ... ... ... ... ….. ...8 Rest§74: good faith belief .... ... ... ... ... ... ... . ... ... ... ..... ... ... ..... ..8 Feinberg v. Pfeiffer, part I: cont’d work not in reliance... ... ... ... ... ... ... ...8 Mills v. Wyman: father promise to pay Mills for caring for son ... ... .. ... ... ... ...8 Dementas v. Estate of Tallas (old truck for errands/past action not cn) .. ..... ...11 Webb v. McGowin: past act substantial material benefit & subsequent promise....8 Kirksey v. Kirksey: “move to the farm & raise kids” –gratuitous promise. .. ...8 CAB v. Ingram.(non-compete covenant).. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..8. Strong v. Sheffield: wife promises for husband; illusory promise .... ... ... ... ...9

Mattei v. Hopper: satisfaction clause/leases ... ... ... ... ... ... ... .... ... .. ... ... 8. Eastern Air v. Gulf Oil... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...9

Wood v. Lucy: exclusive sales Lady’s designs. ... ... ... ... .. ... .... ... ...... ... ...10 UCC 2-306: good faith... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...10 Promissory Estoppel/ Reliance as Consideration Rickets v. Scothorn: (gdghter quits work on reliance) ... ... .. ... ... ... ... ... ... ...10 Rest §90: Promissory Estoppel (PRIAFER) ... ... ... ... ... ... . ... ... ... ... ... ... ...10 Feinberg v. Pfeiffer, part II (quits job in reliance) ... ... ... ...... ... ... ... ... ... ... .10 Cohen v. Cowles Media (test if injustice to be prevented) ... ... ... ... ... ... ... ...10 D&G Stout v. Bacardi (gives up better offer in reliance) ... . ... ... ... ... ... ... ...10 Restitution: an alternative for consideration... ... ... ... ... ... ... ... ... ... ... ... .. ... ... ... ... ... ... ...10 Rest §271: how to measure remedy... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...10 Cotnam v. Wisdom (MD’s & roadside emergency) ... ... ... ... ... ... .. ... ... ... ... ... ... ...11 Pyeatte v. Pyeatte (wife pays for husband to go to law school) ... ... ... ... ... ... ... ... ...11 Dementas v. Estate of Tallas (old truck for errands/no expect of pay) ... ... ... ..... ...11 Chapter Two: Bargaining Process... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .11 Offer... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...12 Rest §24: definition of offer... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. ... ... ...12

Rees Page 2 of 46 5 elements of an offer 12 How to distinguish offer from preliminary proposal (5 elements) 12 Rest §26: preliminary negotiations 12 Mistake... ...... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .12 Elsinore School v. Kastorff (contractor clerical error in bid) ... ... ... ... ...... ... ...12 Rest §154: Who has liability for mistake? ... ... ... ... ... ... ... ... ... ... ... ... ... ...12 Rest §153: When does mistake allow to avoid? ... ... .. ... ... ... ... ... ... ... ... ...13 Donovan v. RRL (jaguar: specific ads) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...13 Unilateral K’s and Notice... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...... ...13 Carlill v. Smoke Ball Co ... ... ... ... ... ... .. ... ... ... ... ... ... ... ... ... ... ... ... ... ...13 Bishop v. Eaton (notice to Greenland) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...13 Rest §54 (timely notice) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...13 UCC 2-206(2): lapse if no reasonable notice Lefkowitz v. Great Minn Store (man buys ladies things) ... ... ... ... ... ... ... ...13 Rest §46 (revoke ad by same medium) ... ... ... ... ... ... ... ... ...14 Definiteness Owen v. Tunison (note to sell for $16k, no specific offer) ... ... ... ... ...14 Harvey v. Facey (notes to buy Bumper Hall Pen – no offer) ... ... ... ...14 Fairmont Glass v. Crunden (ten car loads – specific) ... ... ... ... ... ... ...14

Acceptance Allied Steel v. Ford (indemnity holds Allied liable) ... ... ... ... ... ... ... ... ... ... ... ... ...15 Silence... ... ... ... ... ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...15 Rest §69: when silence/inaction can be acceptance... . ... ... ... ... ... ... ... ..15 Hobbs v. Massasoit Whip Co (eelskins for whips)

Termination of Power of Acceptance... ... ... ... ...... ... ... ... ... ... ... ... ... ... ... ... ...15 Lapse... ... ... ... ... ... .... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...16 Akers v. JB Sedberry: face to face offer lapses at end conversation Loring v. City of Boston: offer lapses after reasonable time Rest §41: time by objective std of reasonable man in offeree’s position Revocation... ... ... ... .... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...16 Exceptions OPTION K’s – Irrevocable offers 16 Dickinson v. Dodds (reliable 3rd party) ... ..... ... ... ... ... ... ... ... . ... ... ... ...16 Rest §43:revoked when find out no longer offering, even if by 3rd party 16 Rest §90: PRIAFER 10 Ragosta v. Wilder.(specific performance req’d).. ... ... ... ... ... ... ... ... ... ... ...17 Rejection./counter-offer. ... ... ... .... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...17 Mirror Image Rule Ardente v. Horan: offer rejected b/c conditions added Death/Incapacity: Rest §48... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...17 Precontractual Liability 18 Quantum Meruit (recovery = as much as deserved) Unjust enrichment (restitution) Rest §45: option K created when performance begins in unilateral 16 Revocability of subcontractor’s bids Drennan v. Star Paving Co: sub bound via implied subsidiary promise to general 19 Rest §87: when option K created by preparations in bilateral 19 Hoffman v. Red Owl (relies on promise to detriment) 19 Cyberchron v. Calldata (heavy equip K, no K b/c no deliver, but reliance) 19 Tribune Type I and Type II Definiteness Varney v. Ditmars: fair share of profits too indefinite Westinghouse: not too indefinate Baker v. Citizens: 7 days not enough time to forbear calling in loan Farmers v. Maixner: 2 mos may be reasonable forbear of suit Toys v. Burlington (mall option lease) Chapter Three: Statute of Frauds...Use Monarco ANYTIME a SofF problem. ... ... ... ... ... ... ... ...20

Rees Page 3 of 46 MY LEGS (writing required) 21 Rest §131: essential terms, subject matter & enough to show a K made UCC 2-201: only qty of goods & info to show a K made SWAP (exceptions) 21 Suretyship Exceptions (5) 21 Amelioration of the Statute Estoppel Rest §139: PRIAFER for statute of frauds cases Monarco v. Lo Greco: farm for 20 yrs work 23 Part Performance Johnson Farms v. McEnroe: like kind exchange property; bad faith 22 Restitution Chapter Four: Policing the Bargain... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...23 Capacity 24 Keifer v. Fred Motors : minor could return b/c vehicle a necessity 24 Unfairness 24 Rest §79 (no requment of equivalency in values exchanged) 24 McKinnon v. Benedict (RV park v. view) 25 Rest §367: when specific performance may be refused 25 Overreaching Duress: 26 Alaska Packers v. Domenico 26 Rest §73 - Pre-Existing Duty Rule 26 Rest §89 – how to make modification binding 26 Rescission and Modification... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .26 Schwartzreich v. Bauman.(clothing designer – modification not ok)..27 Watkins & Son v. Carrig (bedrock – ok to modify) 27 Scope of Pre-Existing Duty Accord & satisfaction claim: part of debt paid for forgiveness of rest 27 Foakes v. Beer...(landlady v. doctor for loan interest) De Cicco v. Schweizer..($ for Count to marry dghter) Duress in Business 28 Austin v. Loral (subk refuses to ship w/o higher price) 28 Test for economic duress 28 Victim’s Options 28 Undue Influence: Relative status of the parties 28 Odorizzi v. Bloomfield School (wrongful homosex chgs) Test 28 Fraud 28 Swinton v. Bank (termite house – no duty) 28 Kannavos v. Annino (apt not zoned properly - duty) 29 Rest §161 29

Misrepresentation Unconscionability 29 UCC 2-302: unconscionable K’s will not be upheld 33 Std form (adhesion) contracts O’Callaghan v. Waller: exculpatory clause bars tenants recovery for injury Gallagin v. : exculpatory as matter of law v. public policy Factors to consider when determining if clause void 30 Klar v. H&M Parcel room: clause on bag check does not bar recovery Rest §211 30 Graham v. Scissor-Tail: arbitration clause w/i reasonable expectations of producer Henningsen v. Bloomfield Motors: disclaimed warranty unconscionable Duty to read and duty to disclose Rest §80 31 Carnival Cruise v. Shute: should enforce forum selection clause

Rees Page 4 of 46 The Bremen: clause ok 31 Unconscionability Rest §208 (Unconscionability) 32 Defense of doctrine 32 Objection 32 Williams v. Walker-Thomas Furniture (uncon K not upheld) 33 Scott v. US (unconscionable bargain given only equitable damages) 33 Jones v. Star Credit (uses 2-302 to show uncon) 33 UCC 2-302: Unconscionability 33 Armendariz v. Foundation Health-arbitration clause 34 Public Policy 34 R2d §178: when term unenforceable due to public policy 35 Bovard v. American Horse: ct refuses to enforce illegal K (drug para) 35 In pari delicto: D can use illegality of K as defense 35 P’s response to illegality defense: 35 Moran v. Harrisa: factors used in Bovard Clean hands doctrine 35 XLO Concrete v. Rivergate: “Club”; D can’t use illegality as defense 35 Factors to review Rejoinders to defense of violation of public policy 36 Bribing Officials Commercial Bribery Licensing Judicially created public policy R2d §179 (restraint of trade and impairment of family relations) 36 Hopper v. All Pet : court modifies non-compete 36 CAB v. Ingram, II : ok for judge to modify non-compete 37 R2d §184 (enforce to extent reasonable) Simeone v. Simeone 37 Chapter Five: Remedies... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...37 Specific Performance 38 Klein v. Pepsico 38 Laclede Gas Co. v. Amoco Oil Co 38 UCC 2-716 39 Northern v. Bliss 39 Expectation R 2d §347: measuring expectation damages Formula A (loss in value – cost avoided = damages) 39 Formula B (Cost of reliance + profit = damage) Vitex: UCC 2-708 39 UCC 2-706 Laredo v. H&H Meat 40 UCC 2-712 “cover” damages 40 Losing contracts 41 US v. Algernon Acme Process Limitations on Remedies Avoidance R2d §350: Avoidance as limitation on damages 41 Rockingham Cty v. Luten Bridge Parker v. 20th Century Fox 42 Avoidability and cost to remedy defect 42 Jacob & Youngs v. Kent 42 Groves v. Wunder 42 Peevyhouse v. Garland Coal 42 R2d §348: Alternatives to loss in value of performance 43 Foreseeability Hadley v. Baxendale 43 R2d §351: court may limit foreseeable loss if disproportionate

Rees Page 5 of 46 Kenford v. Cty of Erie 43 Redgrave v. Boston Symphony: P has burden of proving foreseeability Emotional Distress 44 R2d§353: emotional R2d§354: punitive if recoverable in tort as well Certainty 44 R2d§352: reasonable certainty the std Fera v. Village Plaza 44 Liquidated Damages and Penalties Wasserman’s v. Middletown 44 R2d§356.test b/t liquidated damages or penalty 44 Gustafson v. State Third Party Beneficiaries 44 Rest 2d §302: Defines intended and incidental beneficiaries Assignment & Delegation 45 Essential Elements:

1. An oral or written agreement (offered, accepted lawfully) 2. 2 or more legally competent persons 3. an exchange relationship (consideration, terms bargained for) 4. at least one promise 5. enforceability

FIRST THREE QUESTIONS TO ASK: 1. Does a contract exist b/t 2 or more parties? 2. If so, what rights and duties are created by it? 3. What are likely consequences from failure of 1 or both parties to perform? 1. Does a K exist? LACC: Legality of object; Agreement (offer & acceptance); Consideration; Capable parties Kinds of k’s:

• Unilateral: promisee at no time legally bound to perform. One makes a promise on condition that other performs; other can accept by promise to perform or by actual performance.

• Bilateral: both have promised something for the other’s promise Voidable K’s (§7): one or more parties can avoid the legal relations created by the K

• 5 Grounds: minority; K induced by fraud, mistake or duress; breach justifies other party to end K • Usually only one party has power to avoid • If both enter into a k by mutual mistake or both are minors, either can void • Minors have power to void a K, so all their K’s are voidable • Void K’s: not really a K at all (null) b/c law provides no remedy or duty of performance for the promise or

agreement

Merchant of Venice Portia: equity; fairness; actually reads more literally than Shylock to come up with can take the flesh but spill no blood or would be murder; in fact by making an agreement that would lead to death of citizen, Shylock has committed a violation. Shylock: classical – certainty or injustice? Impersonal, testimony doesn’t matter, only written K – pound of flesh next to Antonio’s heart. Refuses settlement of $ from B, then asks for that after Portia’s argument, but too late. Gets nothing, plus has to give wealth to Antonio and the city. Antonio: signs loan for B. so B has $ to woo his future wife. Antonio unable to pay due to reported mishaps with his ships; Shylock says doesn’t want the $ anyway, wants the flesh b/c Antonio his enemy & he has plotted this all along. Happy ending for all. Chapter one: Bases for enforcing promises: I. ASSENT Rest §17: formation of a K requires a bargain in which manifestation of mutual assent to the exchange and a consideration. Rest §20: can be no mutual assent if misunderstand material elements of the bargain or if know the other misunderstands

Rees Page 6 of 46

1. Subjective: Assent policy: contractual obligation should not be imposed on a person who did not in fact agree to be bound.

a. If too heavily stressed, policy of protecting reliance undermined. b. Must be tempered by goal of protecting expectations of one who reasonably relied on the appearance of

assent. c. 19th c : looked at each party’s actual understanding as a prerequisite to a K.

2. Objective (Learned Hand): Classical: 19th -20th: refuses to see any relevance in the subjective state of mind of the

parties and employs strict objective or external test for assent. If agreement apparent by reasonably interpreted manifestations, a contract formed on terms reflected in manifestations.

a. Could lead to injustice where subjective evidence could cast light on meaning of manifestation.

3. Modern law: Assent is legally sufficient if each party, by the deliberate use of words or conduct, manifested agreement to be contractually bound.

a. Rest §50: acceptance is a manifestation of assent to the terms in a manner invited or required by the offer, can be performance or promise.

Objective test in modern law:

1. subjective aspect – prescribes legal std for determining assent and 2. evidentiary aspect – regulates what evidence is admissible to prove intent

1. Legal standard

a. Manifestation of assent is interpreted from the stdpt of reasonable person in the position of the party to whom manifestation made.

b. We ask how the words or actions should have been understood if interpreted reasonably. i. Balances assent with reasonable reliance.

2. Evidentiary:

a. Objective – signatures, spoken words, behavior b. Subjective – testimony by a party as to what he thought, intended or believed when acting or speaking.

Questionable value and was completely excluded by classicists. Usually only given weight today if matches objective info.

Duty to read: accountability principle to read document before signifying agreement with its contents. Lucy v. Zehmer Zehmer signed a hand written statement selling a farm to Lucy. Zehmer claimed a joke, Lucy got funding the next day and hired an atty to see if title good, then told Zehmer ready to close. Zehmer refused, Lucy sued for specific performance.

o Party relying on the K cannot be expected to read the mind of a party whose acts lead to the conclusion that they did intend to be bound by the K.

1. Offer written and signed by both D’s, after lengthy discussion and several prior discussions. 2. Completeness of K, including the examination of title. 3. Taking possession of offer w/no apparent request by D’s to give it back. 4. Appears a good faith offer and a good faith acceptance, followed by execution and apparent delivery of a K. 5. Mental assent of the parties is not necessary for formation of a K if the words or acts of one party have but

one reasonable meaning. 6. Law imputes to a person an intention corresponding to the reasonable meaning of the words and acts.

Mix of objective (based on the written statement and actions) and subjective (allowed testimony).

Notes: 1. What if price for farm $50 instead of $50k? This would have been evidence of a joke and court may have

refused to acknowledge it as consideration. 2. How is use of bad check different from the use of a peppercorn? Bad check isn’t even nominal

consideration. Looks more like fraud or misrepresentation (or a mistake). Intent to be bound:

• Promisor may not be bound if the promise by content or circumstances make it clear not serious enough to make them bound

• Optimistic statements by MD’s aren’t binding • Statements b/t intimates or for social purposes are probably not binding

Rees Page 7 of 46 • If goods (UCC) is there an intent to be bound?

II. Consideration: what promises should the law enforce? CL: writs of covenant, debt, and assumpsit used to enforce promises. 1588 Strangborough v. Warner: a promise for a promise will support assumpsit.

1. Historical review of Enforceability: i. Covenant/Seal: used to enforce contracts made under seal

• Once a written promise sealed and delivered, covenant available to enforce it. • Why is consideration important?

i. Evidentiary: providing trustworthy evidence of the existence and terms of the contract

ii. Cautionary: making parties aware of significance of their acts. (limits frivolous suits)

• UCC wipes out every effect of the seal re: contracts for sale. • Half of states have abolished enforceability for covenant and others are limited.

ii. Debt: (NARROW SCOPE) enforced some types of unsealed promises to pay a fixed sum of money, incl.

promise to repay loans and promise to pay for goods or work that had been done. • Quid pro quo: something for something; mutual consideration which passes b/t parties to a contract, and

which renders it valid and binding. • Promisor’s obligation in debt was considered to rest upon receipt of a benefit from the promise.

iii. Assumpsit: a promise by which one assumes or undertakes to do some act or pay something to another. (FIRST MODERN K & EMERGED FROM TORT LAW) • Grew from cases where promise sought to recover damages for physical injury to person or property on the

basis of a consensual undertaking. • Example: ferryman overloaded boat & horse drowned as trying to cross river. • Underlying theme of misfeasance: the improper performance of some act which causes detriment to the

promisee. • In latter half of 15th c courts extended to nonfeasance – where promisor had done nothing in pursuance of

the undertaking/act. Still promisee had to have incurred a detriment in reliance on the promise. • By end 16th c a 2nd major extension – PROMISSORY LIABILITY MORE PREVALENT AND

FLEXIBLE: held that a party that had given only a promise in exchange for the other’s promise had incurred a detriment by having its freedom of action fettered, since it was bound in turn by its own promise.

• In this way, began to enforce exchanges of promises • By early 17th C, assumpsit had become a general basis for the enforcement of promises (doing away with

debt). • Consideration had come to be the term to express the sum of the conditions necessary for such an

action. o Idea of a benefit to promisor comes from debt; or o Idea of detriment to promisee comes from assumpsit

Historical developments: Use to get a sense of general thought of the time of case.

1. Until 1800’s: Equitable and Fairn: equity and good conscience seller should recover based on this alone. Portia a. Sound price doctrine: sound price warrants sound commodity b. Makes sense b/c very few markets or fluctuations in prices. c. Few contracts for future delivery d. Ethical stds help insure inds would use property for community values and sense of stability. e. Can be seen as flexibility and fairness, or chaos.

2. 1800-1900: Will theory: no longer fairness and equity, but fact that parties willed a bargain should be upheld.

Shylock a. Commercial class began to develop, promissory notes started, more individuality. b. Doctrine of nominal consideration “peppercorn theory”: promisee must incur some detriment or give some

consideration, even if very small . c. Created risk takers b/c courts no longer inquired into adequacy of consideration. d. “let the buyer beware” e. breakdown of traditional social stds – individualism replaced community focus f. hardened, impersonal ideas about contract law g. should ask if this serves to enhance the wealthy and powerful? h. Can be seen as certainty, or injustice.

Rees Page 8 of 46 3. 1930’s: Began a shift back to something similar to equitable, though will theory still predominates.

Many K’s fall into one of 5 categories: sale of goods, real estate, construction, employment, or family. Family K’s frequently informal and lacking in detail. Traditionally, courts reluctant to enforce, but enforcement is increasing today. Consideration: legal detriment to promisee or benefit to promisor AND 2. bargained for exchange Hamer v. Sidway (NY 1891): Uncle promises nephew $ if abstains vices for 6 yrs; nephew does and executor refuses to pay the assignee. P wins b/c 1) consideration can be either a benefit to promisor OR detriment to promisee and 2)legal detriment can include forbearance of a legal activity (abstinence).

• The bargain theory of consideration: to be effective, the benefit or detriment must also be bargained-for- must, by the terms of the agreement, be given and accepted as inducement for the promise. §71

• This was a unilateral K: Consideration (cn) was nephew’s 6 yrs of abstinence, not his promise to abstain – performance as consideration.

• Generally, law will not enforce gratuitous promises. Consideration needed for cautionary and evidentiary policies. Many courts reluctant to inquire in to adequacy of cn. Eg, Seattle stadium case. Unless cn is mere pretense (peppercorn) §71.

Fiege v. Boehm, (MD 1956): Boehm promises child support if Fiege does not assert [invalid] paternity claim. Finds out not the father & renigs;

• Court applies 2 part test: P wins b/c 1) she believed honestly & in good faith had a valid claim (subjective) and 2) the claim was reasonable. (objective)

• Rest 2d: §74: only need to show good faith • Stairway to heaven problem: result similar to Fiege in case of legal uncertainty.

Bargaining: bargaining for something of value is required for consideration…can’t bargain for past acts o Restmt 2nd §71: a performance or return promise must be bargained for.

Feinberg v. Pfeiffer, partI: unable to prove consideration by saying that she continued to work after the promise of a pension was made. HELD: her working was not bargained for and is therefore not consideration. Lacked mutuality of obligation.

• Mutuality of obligation: o Both parties must be bound, or neither is bound o The undertakings on both sides must be real and meaningful when consideration = promises on

both sides (both must really intend to carry out their promise)

o Point: the one with the clause can’t just say for no reason they aren’t satisfied & want out of the K; has to be more objective and reasonable than that to show they had good faith in committing to the contract in the first place.

Mills v. Wyman: stranger cares for son who dies, father promises to pay and doesn’t.

• no K b/c action in past no consideration/bargain for the promise to pay. • Classical doctrine that past consideration isn’t considered bargained for.

Webb v. McGowin: employee falls & disabled to prevent boss from being hurt.

• due to 1)substantial material benefit received and 2)subsequent promise to pay, a valid K b/c a detriment and legal fiction that bargained for to allow justice.

Kirksey v. Kirksey: brother in law asks Kirksey to come and he will give her land; held detriment to Kirksey was just a condition of accepting the gift rather than bargained for consideration, so no K.

o Gratuitous promise not enforceable b/c promisor is not trying to get anything from promisee. Central Adj Bureau, Inc. v. Ingram , (1984) All three D’s signed covenants of non-competition with CAB. All rec’d promotions and/or raises during emp, incl Ingram moving to 5th highest paid employee. D Ingram started the formalities of his business(apply license and incorp) in debt collection prior to resigning from CAB, and collected client lists and confidential info from CAB to use in his own business=>intent to compete. Used personal contacts made while at CAB to solicit CAB customers. P wins.

• Length of time of emp makes K binding.

Rees Page 9 of 46 • A covenant signed prior to, contemporaneously with or shortly after emp begins is part of orig agreement

and therefore is supported by adequate consideration. • Generally, restrictive covenants in emp K’s enforceable if reasonable. Reasonableness applies to

consideration, geography and time. • Mutual promises of the parties as to cont’d emp form a binding bilateral K w/ promise of employment =

sufficient consideration. • Performance of the promise of working supplied the mutuality and consideration to make K binding. Ray

Moss • IF full or substantial performance by one party to a bilateral K, the other party cannot refuse performance

after rec the promised benefits. • Length of emp = substantial performance. • In addition, consideration found in promotions and salary increases.

CONCURRING / DISSENTING OPINIONS

Covenants fail for lack of consideration • State Ray Moss indicated that if no covenant not to compete in orig emp agreement, then any subsequent covenant

must have consideration other than cont’d emp under a K terminable at will. • CAB did not present covenants until D’s had begun work. At that point, no longer the subject of free bargaining. • Disagree with reasoning that consideration found in promotions and salary increases b/c of fundamental doctrine

that for an act to constitute consideration for a promise it must have been bargained for and given in exchange for that very promise.

• Not reasonable to conclude that promotions & salary increases given years after signing of covenants were bargained for and given in exchange of those covenants.

Promise as consideration:

• Promise can be express or implied from conduct or circumstances of the transaction Strong v. Sheffield: Strong promised not to go to banks w/note & would go to Sheffield for payment ‘whenever he needed $’: No agreement to forbear collection and no promise by Strong to do anything (no detriment) = no K.

• Illusory promise: o If the promise of one has qualifications or limitations so strong that they negate it o No obligation of one to do anything b/c of all the ‘loopholes’

Mattei v. Hopper: agree on price land, Mattei (P) adds clause re: getting leases, Hopper tries to say no K b/c of this. Mattei wins.

Satisfaction clauses – 2 types: 1. Based on value, quality…Std of a reasonable person used to determine (ie., appraisal of a house,

market value of goods); or 2. question of one’s judgment – if promisor says not satisfied and this is in good faith (ie., really did try to

obtain leases and couldn’t; really tried to have land/house pass inspection, but it doesn’t, etc)

Eastern Air Lines, Inc. v. Gulf Oil Corp. (1975) P Eastern and D Gulf have had a contractual obligation for some time. D threatens to discontinue providing fuel if P did not pay more than the most recent contract. D claims no K b/c no mutuality of benefit. D’s claims rests on the situation at the time of a particular method for determining price in the K, and unusual (but foreseeable) international circumstances causing dramatic increases in their cost. P wins.

• Binding and enforceable requirements K under UCC 2-306 1. the K is not too indefinite and does not lack mutuality of obligation b/c party determining qty (Eastern)

must estimate and operate in good faith so that output will be reasonably foreseeable. (as per UCC 2-306 (1)

2. K in question has an estimate. 3. Parties have consistently over the years relied on each other to act in good faith in purchase and sale of

the required qty of fuel spec in K.

1. Price fluctuations: under fixed price requirements K, seller runs risk that if mkt price rises, the buyer’s requirements will escalate.

a. How to draft that seller might use to reduce this risk? Based on the output of the seller rather than the requirement of the buyer.

Rees Page 10 of 46 Wood v. Lucy(1917) : Lady Lucy employs Wood to sell her name and merchandise exclusively, then she sells on her own. Held: Valid K b/c Wood in good faith that he would uphold his end of bargain and produce income (otherwise the agreement b/t them doesn’t make sense).

o Implied promise of Wood to carry out his agreement and promise has value and was bargained for. o UCC 2-306(2): a lawful agreement by either for exclusive dealing imposes an obligation by seller to use

best efforts to supply goods and best effort by buyer to promote their sale. Promissory Estoppel (reliance) as a basis for enforcement

• Promise which foreseeably and reasonably induces reliance on the promise is consideration • Promissory Estoppel: if person made a promise, prevents them from later stating that promise shouldn’t count as

consideration. A substitute for consideration that renders gratuitous promises enforceable. • The act of reliance on the promise (to promisee detriment) provides substitute for consideration and differentiates

from bargained-for consideration. Ricketts v. Scothorn: Ricketts given note for $ from gfather. He paid 1 yr, later died. Scothorn, executor, refuses to pay. Held: Valid consideration due to Ricketts reliance on the promise.

o actions that induce a change of position for promisee establish promissory estoppel. Policy: equity and fairness in upholding wishes of decedent.

o §90 (PRIAFER) – Promise, Reasonable, Induces, Action, Forbearance, Enforcement, Remedy o Estoppel. The conventional estoppel case concerns a representation of fact made by one and relied on by the other;

the estopped party is prohibited from alleging or proving facts that would contradict the truth of his own earlier representation if the other party has taken action in reliance on that representation. Cases like Ricketts concern not a factual representation, but a promise and the estoppel idea is used to preclude asserting the defense of lack of consideration. Therefore no right to a trial by jury b/c doctrine of promissory estoppel is essentially equitable in nature.

Feinberg v. Pfeiffer , partII: Feinberg left work b/c relied on the promise of a pension. Detriment was her giving up a good job. Cohen v. Cowles Media Co (1992) P, an assoc of a gubernatorial candidate, tells reporters damaging info about opposing candidate upon their promise to keep his name confidential. P wins.

• He gave information (consideration) after bargaining for and receiving a promise of confidentiality. It would be unjust not to uphold the promise.

• test is not whether the promise should be enforced to do justice, but whether enforcement is required to prevent an injustice.

D&G Stout v. Bacardi: Stout gave up sale of business offer relying on Bacardi’s promise to keep working with them. Bacardi backs out day after. Stout wins, b/c promise seems to be for reasonable amt of time and Stout reliance. Reliance damages (amt of detriment)

PER PROF 2 Main issues in Promissory Estoppel:

1. Promise made or not? 2. IF so, was reliance on the promise reasonable and foreseeable? 3. IF both 1 and 2, sometimes question of which remedy most appropriate?

a. expectation or reliance Restitution: Unjust Enrichment: As an alternative basis for recovery

• EXAM: In any instance where it’s too indefinite to form a K, but one has given benefit during preliminary

negotiations, need ask if restitution can be an alternative method of remedy • 1)no actual agreement or agreement doesn’t qualify as a K, 2) benefit conferred results in unjust enrichment, 3) K is

implied in law for the purpose of having a remedy (quasi-contract) • Remedies: 1) market value of goods/services or 2) net ultimate economic gain (either subjective = value of gain to

def based on needs; or objective = actual market value of gain) o Rest §271 1. reasonable value or 2. extent of increased value or advanced interests

Rees Page 11 of 46 • Unjust enrichment: 1)claimant must have intended to charge (based on objective reasonable person test – likely to be

determined by circumstances) and 2) must not have imposed it on the recipient (except for emergency, request or acceptance) [officious intermeddler]

Cotnam v. Wisdom (1907): famous case: MD’s attempt to save Cotnam’s client & he dies. Cotnam refuses to pay.

o implied contract & purpose to prevent unjust enrichment. o Remedy should be reasonable or market value of services b/c would have offered services regardless of victim’s

ability to pay. o Emergency: 1) immediate action required, 2) advance assent impractical and 3) claimant has no reason to

believe recipient didn’t want the action to be taken.

• Contract implied in fact: from facts and circumstances parties intended a contract but wording of promises inaccurate and court merely interprets what parties intended.

• Contract implied in law: a fiction of the law: quasi-contract, restitution, quantum: one who is unjustly enriched should make restitution to the other.

Pyeatte v. Pyeatte: famous case b/c one of first allowing restitution b/t spouses. He promised to pay her grad school after she paid his law school. He divorces after law school & says no K b/c too indefinite. Court agrees, but awards to her based on restitution b/c of expectation of compensation and her extraordinary or unilateral effort for his benefit.

o Traditionally, restitution cases b/t spouses fail b/c services of each presumed to be gratuitous. Not limited to the contract price: The main use of the restitution measure is that, in most courts, it is not limited by the contract price. If the work done by P prior to D’s breach has already enriched D in an amount greater than the contract price, this entire enrichment may be recovered by P. This makes restitution sometimes very attractive, compared with both reliance and expectation measures. Example: Contractor agrees to build a house for Owner for $100,000. After Contractor has done 90% of the work, Owner repudiates. At trial, Contractor shows that Owner can now resell the mostly-built house for $120,000, not counting land. Contractor will be permitted to recover the whole $120,000 on a restitution theory, even though this sum is greater than the contract price (and thus greater than the expectation damages would be), and greater than the reliance measure (actual expenditures by Contractor). Dementas v. Estate of Tallas (1988) [old truck for errands case] Tallas wrote and notarized a note promising $50k to Dementas for services performed. Died w/o leaving Dementas as an heir as promised in the note. Dementas files claim for $ w/estate, which it denies. Court found note to be gratuitous promise and unenforceable.

• there must be consideration, not past consideration, to establish a contract. Even if moral obligation were valid in Utah, would not prevail b/c appears clear Dementas performed the duties w/ no expectation of payment.

• What result under the Model Obligations Act? May not show intent to be legally bound. i. Could state that intends to be legally bound in the note or could alter the will to show the gift.

ii. Why should this promise not be enforced? Gift, no bargain, no detriment to promisee b/c acts in past, no moral obligation b/c the acts spread over time and appears clear Dementas never expected payment at the time of giving the services.

CHAPTER TWO: Bargaining Process

o IF a benefit and/or detriment, but not BARGAINED FOR, then no exchange and no K. o Actions in past cannot be consideration unless promisor receives 1. substantial material benefit and 2. subsequently

agreed to pay for the act. (court finding an exception in service of justice; ie. Webb v. McGowin) o Bargain theory of exchange – must have detriment to promisee or benefit to promisor and detriment/benefit in

exchange for the promise. Bargain requirement would disallow past performance b/c promisor is then not looking to obtain anything from promisee.

**1. Is there a benefit to promisor and/or a detriment to the promisee? **2. Is there a bargain/agreement? [Idea that courts protect individual freedoms; however, by enforcing whatever contract people agree to –indemnity K’s, US is allowing big business to determine via coercion of smaller companies/individuals what freedoms actually are in a practical day to day setting.] Nature of Assent

Rees Page 12 of 46 III. Offer

• An act where one person gives the other the power to create contractual relations b/t them • Rest 2nd §24: offer is the manifestation of willingness to enter into a bargain, made so that the other person will

understand that his assent to that bargain is invited and will conclude it. o Offer must contain 5 elements either express or implied:

Must be communicated to be manifested Must indicate a desire to enter into a contract (specify performances to be exchanged and terms.

Offeror has control of what terms will be. Offeror may also prescribe the manner and time for effective acceptance.

Must be directed at some person or group of persons. Must invite acceptance. Must create the reasonable understanding that upon acceptance, a contract will arise w/o any

further approval being required from the offeror. When are offer and acceptance issues presented?

1. Was a contract formed? 2. What terms were included in the contract? 3. Which jurisdiction governs the contract? Governed by juris where it was formed.

How to distinguish an offer from a preliminary proposal? (suggestions, not firm list)

1. Words used in the communication are the primary indicators of intent. 2. Comprehensiveness and specificity. 3. A communication not specifically directed to a particular person will generally not be seen as an offer. 4. Relationship of the parties. 5. Common practices or trade usages if members of same community or trade.

Rest §26: Preliminary negotiations: a manifestation of willingness to enter a bargain is not an offer if the receiver knows or should know that the offeror doesn’t intend to conclude a bargain until he has made a further showing of assent.

• Mistaken bids: contractor made error in a bid submitted for a project o Bid shopping – contractors may shop around before or after the project award among the subcontractors for

lower prices. o May result in decrease in competition b/c subcontractors will pad their bids so can lower them later when

bid shopping occurs =>inflates contractor’s bid to disadvantage of owner o May result in increase in competition – subcontractors driven to bid so low that they operate at a loss and

may use substandard work and materials – to disadvantage of owner. o Owner can fight post-award bid shopping by requiring general contractor to list prospective subcontractors

in their bid. More common in government K’s. -------------------------------------------------------------------------------------------------------------------- Elsinore Union Elementary School District v. Kastorff Supreme Ct CA, 1960 Kastorff submitted bid to make additions to school. Next day realized made mistake, notified architect and Board in writing. After receiving the letter, the board voted not to release. They sent written notification that award to him. Kastorff returned the contract with letter explaining error and again asking for release. Board rec’d more bids & sought action to hold Kastorff resp for difference in $. They claim that a bargain was made. Lower court found for school. Kastorff appealed, quoting case law that where a contractor makes a clerical error in a bid on a public work he is entitled to rescind. In Kemper, bid submitted as honest mistake of computation and not negligence, had acted promptly to notify of mistake and to rescind, city board accepted bid w/knowledge of the error. City had suffered no damage. Notes p 149

1. Revocability: ordinarily a general contractor’s bid on a construction contract is an offer that is revocable before acceptance. Governments often do not allow this.

2. Courts that have granted relief for mistakes have relied on clerical rather than judgment errors.

a. Rest 2nd §154: A party bears the risk of a mistake when i. The risk is allocated to him by agreement of the parties, or

Rees Page 13 of 46 ii. He is aware, at the time the K is made, that he has only limited knowledge with respect to the facts

to which the mistake relates but treats his limited knowledge as sufficient, or iii. The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to

do so.

3. If offeree knows or has reason to know of the offeror’s mistake at the time of acceptance, the offeror is not bound. However, if the offeree is not familiar enough with the work to know if there is a mistake, is not considered knowledge. (ie., contractors bid very low & accepted; court upheld b/c offeree didn’t know details/costs of kitchen work so couldn’t know the bid too low).

4. Rest 2nd §153: Where a mistake about a basic assumption about the K of one at the time a K made has a material

effect on the agreed exchange that is adverse to him, the K is voidable if he does not bear the risk of the mistake under rules in §154, and

a. The effect of the mistake is such that enforcement of the K would be unconscionable, or b. The other party had reason to know of the mistake or his fault caused the mistake.

pg 150 Donovan v. RRL Corp, CA Supreme Ct, 1999 Donovan reads ad by Lexus for Jaguar, Vin # given, price. He goes for test drive and said would buy. Sales rep says ad price error and gave correct price. Donovan refused to pay and sued for breach. (1) dealer's advertisement to sell specific, unique automobile for an erroneous price was an offer to sell which customer could accept by tendering the advertised price, and (2) dealer's unilateral mistake did not vitiate the offer. Unilateral Contracts and Notice Necessity of giving notice is less clear if offeror invites acceptance by performance and not a promise

• If the person making the offer, expressly or impliedly indicates that it is sufficient to act w/o communicating acceptance, performance is sufficient acceptance w/o notification.

Notes p. 161:

1. Acceptance in Carlill v. Smoke Ball Co was contracting flu after using ball per directions. i. Which act bargained for? Using ball

ii. Condition of catching flu was the specific even to instigate reward by the ball co. iii. Yes promise was conditional upon person catching flu

2. Bishop v. Eaton (1894) from US to Greenland? is leading case on necessity of notice of acceptance of a unilateral

K. i. Normally no requirement to notify b/c doing act sufficient and knows bound when sees results of

act; however, if act is such that knowledge will not quickly come to the promisor, promisee is bound to give notice w/i a reasonable time after doing that which shows acceptance. Rest 2nd §54.

3. None by section i, but if too long of time lapsed, offeree would need to notify b/c nothing specific in the ad stating

no notice necessary. Seems to imply no notice necessary – is this enough? If bishop signs note and before sent notice, Frank calls and revokes. Is revocation effective? No, one day to notify someone in a diff country doesn’t seem reasonable; could only revoke if Bishop waited too long to try to notify Frank of the acceptance AND if the brother hadn’t told Frank that it was done. All hinges on how long between signing and revoking – reasonable time necessary.

Rest 2nd §54: Necessity of notification to offeror

i. Where offeror invites offeree to accept by performance, no notice necessary unless offer requests one.

ii. If an offeree who accepts by performance has a reason to know that offeror won’t learn of the performance w/I a reasonable time, the duty of offeror to honor the K is gone, unless:

1. the offeree tries w/reasonable diligence to notify or 2. the offeror learns of the performance w/I a reasonable time, or 3. the offer indicates that notification of acceptance is not req’d.

UCC 2-206(2): where the beginning of a req’d performance is a reasonable mode of acceptance an offeror who is not notified of acceptance w/i a reasonable time may treat the offer as having lapsed before acceptance.

Rees Page 14 of 46 Lefkowitz v. Great Minn Surplus Store P (Lefkowitz) responded to store add and was first person there for the item as the ad stipulated. Store refused to sell to him b/c offer intended for women only.

o If the advertisement addressed to the general public is clear, definite and explicit and leaves nothing open for negotiation.

o Performance was promised (sale of stole) in return for something requested (first person w/ $1). o While an advertiser has the right at any time before acceptance to modify his offer, he doesn’t have the right, after

acceptance, to impose new or arbitrary conditions not contained in the published offer. o *general offer, addressed via ad, can be revoked in similar notice as original ad (if there is no better way to do it),

even if all the potential offerees don’t see the revocation. Rest 2nd §46 Owen v. Tunison Owen sent offer and Tunison sent note saying couldn’t sell for less than 16K cash. Owen sent msg accepting. Later D said didn’t want to sell.

o Needs to include the words “I offer to sell”. 1. Doesn’t appear to court that Tunison sent an offer to sell. 2. At most was an intent to open negotiations.

o Need to be sure that written agreements are very clear as to their purpose.

Harvey v. Facey (day of September 11 terrorist attack destroying WTC) Harvey sent telegram asking if Facey 1. willing to sell and 2 for what price. Facey answers with price only. Harvey sends response that will buy at that price. Facey refused and Harvey sued for specific performance.

o Does the listing of an acceptable price consist of an offer to sell? No offer to sell. Only tells what price would be acceptable, doesn’t show intent to sell.

1. P (Harvey) asked 2 specific questions of Facey. 2. Facey only answers #2, therefore at most this is an offer by the D’s and Facey would have to accept to be a

K. 3. No implied contract.

Notes: 1. For Harvey: Yes, I want to sell Bumper Hall Pen. I offer it to you for 900 pounds. a. For Facey: No, I do not want to sell Bumper Hall Pen to you. 2. Generally, an offer can be accepted only by the person the offerer has invited to furnish consideration.

Fairmount Glass Works v. Crunden Crunden (P) sues Fairmont for damages from breach. Key phrase in letters back & forth about an apparent purchase are Fairmont telling Crunden “we quote you…(price and sizes)…for immediate acceptance”. Fairmont says amt too indefinite (ten car loads) and that language of acceptance different so they are not bound.

o Is an offer binding when offeror says “for immediate acceptance” Yes. This language taken in context implies and offer.

1. Normally quoting a price is not held to be an offer. 2. The language of ‘for immediate acceptance’ moves this beyond a price quote to what appears intended as

an offer. 3. Ten car loads was normal expression in the trade at that time, so not indefinite. 4. The D declined to furnish the goods before it rec’d the letter w/ slightly different language, so cannot base

its argument on the difference in language.

Notes: 1. If the Fairmont letter had been quoting for immediate delivery w/o the first Crunden letter, it would

still seem to be an offer b/c so specific. 2. This was not offer b/c no definite amt in offer “ in full car load lots” doesn’t say ‘in ten car loads’.

Rees Page 15 of 46 IV. Acceptance: voluntary act of the offeree creating the contract. Once accepted, offeror is no longer able to withdraw w/o liability. Only the person to whom offer made can accept it – not assignable. However, an assignee can accept an option offer b/c it is a K and assignee’s can perform K’s. Unilateral: only way to accept is to perform. Acceptance:

• must be a volitional act, performed freely, deliberately and with intent to enter a contract on the terms of the offer. Determined objectively based on if a reasonable person in the offeror’s position would have understood the manifestation as acceptance.

• only the offeree may accept the offer. • acceptance must correspond exactly with the offer (classical view) • nonconforming acceptance is actually a counteroffer, which voids original offer.

Indemnity agreement: one party undertakes contingent liability for a loss threatening another -regularly enforced, even when loss is one attributable to fault of promisee (indemnitee) Allied Steel and Conveyors, Inc. v. Ford Motor Co. 1955 Ford ordered machinery from Allied with an attachment re: broad indemnity provision for Allied to be resp for negligence of its employees and of Ford’s emp. Allied starts the work and one of their employees enjured due to negligence of Ford’s employees.

o Allied accepted conditions by starting work with Ford’s knowledge =>K. The form did not indicate an exclusive means of acceptance and performance is acceptance.

Notes: Would result have been different if offer had stated exclusive means of acceptance? Probably not b/c refers to

case law that if Allied began performance and Ford acquiesced, Ford estopped to object to K. So Allied couldn’t expect to do the same thing themselves. Also, other case law cited that acceptance may be implied from acts, Allied started and Ford allowed and some employees apparently even helped with Allied’s work (ie., injured P).

3. Safeguards: a. Pretrial discovery to reveal prior inconsistent statements or other evidence b. Confidence in a jury’s ability to discern when a witness is untruthful c. Fact that the man whose intent is at issue may well be a corporation or other org leading to the possibility

of conflicting sources re: intent, such as testimony from disaffected former employees. Silence

• Not ordinarily seen as acceptance • If offeror says “unless I hear from you w/I 48 hrs, you will be deemed to have accepted my offer” --- can’t hold

offeree who fails to reject. o Rest 2nd §69: silence and inaction operate as acceptance only:

Where offeree takes the benefit with reasonable opp to reject it and reason to know it was offered with expectation of compensation (affirmative duty to act)

• Little boy mowing lawns and people then give him$; D sees this, allows boy to mow his lawn, then refuses to pay. K valid.

Where offeror has stated or given offeree reason to understand that assent may be manifested by silence or inaction, and offeree by being silent intends to accept.

Where b/c of previous dealings it is reasonable that the offeree should notify the offeror if he does not intend to accept.

• Hobbs v. Mssasoit Whip Co – seller sends eelskins, as has done previously, but this time buyer refuses to pay = had a duty to act & silence =K

Unsolicited merchandise – are not liable for it if do not use it. However, UCC indicate that things received in the mail w/o request are gifts. Katz idea that ‘right to be let alone’. Freedom from contract may be more important than freedom of contract. Termination of the Power of Acceptance

Rees Page 16 of 46

• After an offer made, giving the other the power of acceptance, that power can be terminated: 1. by lapse of the offer, 2. by revocation, 3. by offeror’s death or incapacity, or 4. by offeree’s rejection

Lapse:

• expiration of acceptance period • if period not stated – lapses after a reasonable period of time • reasonable time depends on circumstances

Akers v. JB Sedberry, 1955: Akers offers resignation in conference w/employer. Conf continued & few days later employer accepts; sued breach K & won. Offer made by one to another in a face to face conversation is deemed good only to close of conversation. Loring v. City of Boston, 1844: City run in papers ad for reward for apprehension & conviction any one setting fire to city bldg in 1837. In 1841, P caught & had convicted a person. No reward, b/c no longer notorious/ not reasonable time. Rest 2nd §41: in general the question is what time would be thought satisfactory to the offeror by a reasonable man in the position of the offeree. Revocation:

• basic rule in common-law: offeror can terminate offer any time before accepted • effective upon receipt • exceptions:

o is if a firm offer (only merchants) or o option contract (or offeree’s part performance or detrimental reliance = temp irrevocable)

(irrevocability is the defining element of an option contract) o rest §45: if begin performance of a unilateral K, irrevocable for a reasonable period of time o reliance §90 (PRIAFER) o rest §87: in bilateral, preparations create temp irrevocable if PRIAF

Option or Irrevocable Contracts

• promise by an offeror that limits the offeror’s power to revoke is an option contract • usually expresses, directly or indirectly, a fixed period within which offeree must ‘pick up’ the option • three ways to create: consideration, ‘firm offers’ under UCC, and reliance in unilateral or preparations in

bilateral by the offeree • consideration: CL says must have at least nominal, otherwise, revocable

REST §87 says must have OR must have a writing that says there was at least nominal consideration, even if the consideration never paid

Dickinson v. Dodds – no consideration for the option Court of Appeal, England, 1876 Dodds gave Dickinson a note on Wed saying would sell property and that offer open until 9am Friday. No consideration for the offer = no option. Dickinson hears from reliable source that Dodds selling to someone else. Tries to accept.

• No consideration for the promise, so Dodds free to end the offer at any time up to acceptance. • Rest 2nd §43: Ability to accept offer ends if offeror manifests lack of intent to continue the offer – even if

finds out via reliable 3rd party Problem, p179 A offers to sell B Greenacre for $1k, to remain open 5 days. On day 4, B rec’d info from cty that had rec’d deed for Greenacre from A to C. Info reliable, B believed it, but thinking potential for error, notified A of acceptance on 5th day. Info from cty was wrong, but A refused to perform. Contract? No b/c no consideration so no option k = revocable up to time of acceptance. A has given a specific offer for specific property, amt and to remain open specific time. B accepts within time frame. No indication that A took definite action inconsistent w/ intent to enter proposed K b/c info from city was wrong. Different from Dickson, b/c there the offeror did take action.

Rees Page 17 of 46 No, IF A had turned a deed into the city and B found out about it, but the deal fell through, then would no longer be a K b/c A took inconsistent action and B learned of it via reliable means. UCC 2-205: Firm Offers: offer by merchant to buy or sell goods in signed writing which gives assurance that offer held open is no revocable for lack of consideration during that time, or if no time indicated then for a reasonable time. Can never exceed 3 months. Must be signed by offeror if offeree provides such a writing. Ragosta v. Wilder – reliance in unilateral (no reliance found, only preparations) Ragosta sent an offer to buy property with check for $2k and started financing. Wilder sent counter-offer, w/performance as acceptance. Wilder revoked prior to performance, but P’s say started performing. No k.

• Could only be accepted by performance. P’s had not given consideration so no K or option K. P’s had not performed (giving D the $88k) as per the offer and did not establish elements for equitable estoppel, so Wilder could withdraw offer. What they did perform (getting financing) was not the invited performance, nor even preliminary prep to perform b/c they did it before he sent an offer.

4 elements of equitable estoppel: 1. party to be estopped must know the facts; 2. party being estopped must intend that this conduct be acted upon or acts must be such that the party asserting estoppel has a right to believe it so intended; 3. latter must be ignorant of the true facts; 4. party asserting must rely on conduct of party to be estopped to his detriment. Preparations in Bilateral may create a temporary irrevocable offer

• §87: if PRIAF before acceptance and which does cause AF, binding as option to the extent necessary to avoid injustice: Drennan v. Star Paving: sub-contractors

Death or incapacity: depends on if offeree learns of the death/incapacity; practically rarely a consideration as most often offeror is a corporation Rest §48: offeree’s power of acceptance is terminated by offeror’s death or incapacity. Problem: p185 Earle comes in to see if has claim v. executor of his Aunt. He has written note from her that if he goes to her funeral, he should receive $5k. He tells you on at least 2 occasions she said if he came she would pay expenses plus $5k. He went. Answer: Yes. K. Bargain he would come to funeral (detriment in time, expenses) and she would pay $5k plus expenses. He performed according to the agreement. Conditional promise – he has to perform before he receives the $. Like Hamer v. Sidway. Rejection: Counter-offer kills offer. “I’ll sell to you for $10” “no, but I’ll give you $8”. “no way”. “ok I’ll buy for 10”. No K b/c rejected the original offer. Mere inquiry: “would you take $8?” “no way”. “ok I’ll buy for $10”. K b/c never rejected the offer. Operation of Law – offer was for something illegal, or the thing becomes illegal Mirror image rule: acceptance must be on terms proposed by the offer w/o the slightest variation (common law). Anything else a rejection and counter-offer.

Ardente v. Horan, RI 1976 Buyer rec’d offer to buy property; returned with conditions and $. Rejected, no K b/c acceptance can’t have conditions, must be definite and unequivocal.

Exceptions:

1. Implied term: if court finds that the condition was actually implied in the original offer. 2. IF additional term is only a wish, but not command. 3. If both parties assume bound and carry out agreement w/ no lawsuit.

Typical disputes:

1. one party claims no K while other says a K exists 2. some performance and dispute as to performance so parties differ as to which terms control.

Notes: Last shot rule: last to complete offer or counter-offer prior to performance is controlling.

Rees Page 18 of 46 Rejection of an irrevocable offer Rest 2nd §37: power of acceptance under an option K is not terminated by rejection or counter-offer, by revocation or by death or incapacity of the offeror, unless requirements are met for the discharge of a contractual duty. Humble ex: Humble gave consideration for an option K. Prior to expire date of option, wrote to owner for better terms. Then wrote again saying would take orig terms. K? Yes, b/c the counter-offer rule is not applicable in option K. Mailbox Rule: Rest§63

• Once acceptance put in mail/posted, offeror cannot rescind and offeree cannot reject the offer; except OPTION which is effective when received by offeror. Rest 2nd §63

• Revocation only effective on receipt, not on dispatch Forms and UCC Precontractual Liability Typically, neither party to contract is bound until an offer has been accepted and K formed. Until then, neither party safe in acting in reliance on the prospect of a K. US firm in giving parties freedom to negotiate w/o risk of precontractual liability imposed by law. Judicial reluctance to read an offer as a contract. Assumption that party entering negotiations in the hope of gain from a K bears the risk of loss resulting if other party breaks off negotiations. UNIDROIT: Principles of international commercial transactions. Similar to Restatements, but international in scope and incorporate principles from common law, civil law. Generally applicable only if the parties agree to them. Exceptions.

• Option K under Rest 2nd §45 – if offeror invites acceptance by performance, option K created when offeree begins the invited performance.

• Problem avoided if the offer seeks a promise as acceptance and either a promise is given or one can be inferred from

offeree’s conduct. Quantum Meruit (like unjust enrichment): recovery = “as much as deserved”; implied contract 1)valuable services rendered or materials furnished 2) planned to charge 3) services/materials accepted, used and enjoyed 4) D knew P sought to be paid Unjust enrichment: 1) benefit to D by P; 2) D knows of the benefit; 3) acceptance or keeping benefit by D makes inequitable to keep w/o payment of its value From Hornbook: Four areas courts willing to impose Precontractual liability: 1. unjust enrichement resulting from the negotiations = restitution 2. a misrepresentation made during the negotiations = reliance damages 3. specific promise made during the negotiations (made to interest the other in negotiations and that the other has relied on – ie Hoffman v. Red Owl) 4. agreement to negotiate in good faith. Duty to make restitution of benefits rec’d during negotiations the most fundamental ground for Precontractual liability.

• If during negotiations one party has given a benefit to the other, the recipient may be required to make restitution • Restitution leaves uncompensated for reliance. • Misrepresentation another avenue for reliance remedy, but rare and only if one engages in fraud.

Hartford Whalers Hockey v. Uniroyal: Whalers provided

Rees Page 19 of 46 Brooklyn Bridge hypo: If you walk across the BB I’ll give you $20. You start to walk and I revoke. Under classic K law, not bound b/c revoked prior to acceptance (which was complete performance) – unsatisfactory. §45: creates an irrevocable offer (option K) when begins performance and must remain open a reasonable time. (unilateral K) Drennan v. Star Paving Co: LANDMARK CASE: CA Supreme, 1958 Subcontractor Star provides bid to general, Drennan. Drennan rec’s the project and goes to notify Star; Star rep revokes b/c they made a mistake before Drennan can say they got it; Drennan spends months and $ to get an alternate. Traynor states D’s mistake should not bar recovery – loss should fall on party who caused it. B/c they knew turning in bid to general was likely to be accepted, didn’t state bid revocable =>an implied subsidiary promise that will not revoke for a reasonable time, general bound and shouldn’t pay for their mistake. No consideration needed b/c uses reliance as a substitute for consideration. Drennan had no way of knowing their bid was a mistake & he tried to mitigate damages. Rest§90: merely acting in justifiable reliance on an offer may serve to make the promise binding. Court takes §45 implied K and states should also find in a bilateral K b/c of justice factors (ie., the injustice of Brooklyn Bridge hypo) & promissory estoppel of §90 => mixes to come up with what later becomes

o §87: Option K binding if in writing & signed, gives nominal consideration, and proposes fair exchange w/i reasonable time or PRIAF (promise reasonably induces action/forbearance) before acceptance is binding as option K to extent needed to avoid injustice.

Promissory Estoppel plus limited remedy as per §90: Hoffman v. Red Owl Stores : Reliance on preliminary promise – gave up bakery, bought and sold a grocery, moved based on promise would be able to contract for a Red Owl franchise; court says §90 ought to apply to more commercial situations to give some remedy even where promise is indefinite. **an expansion of promissory estoppel to create a c/a from failed negotiations (prior to this, only a means to get damages from a gratuitous promise). Cyberchron v. Calldata “heavy computer” case No K – relied on promise that terms would be worked out – no K, no restitution b/c no product delivered. But reliance remedy like in Hoffman, costs really incurred on reliance = the remedy. Channel Home Centers v. Grossman “gross fraud in the mall” case Mutually binding obligation to negotiate details in good faith.

1. intent to be bound? 2. was agreement definite enough? 3. consideration for promise to proceed in good faith. Could have found consideration just in both promising to negotiate

From notes: Tribune Type I contract: fully binding preliminary agreement; preliminary only in that parties want a written memorial of it; all terms have been agreed, parties have agreed to be bound, recognizes that a K has been made. Tribune Type II contract: binding preliminary commitment: parties agree on certain major terms, and commits them to obligation to negotiate the open issues in good faith. Definiteness To have a K, must have both 1. parties agreed to be bound and 2. agreement definite enough to be enforced. Cardozo: “Indefiniteness must reach the point where construction becomes impossible” Definiteness functions: 1. For court to determine if a K has been broken, must know what specific terms of K were 2. Promisee’s expectation interest – to calculate damages to put promissee in position in which it would have been had the promise been performed, must be able to determine the scope of the promise with precision. Example: Varney v. Ditmars, NY 1916, refused recovery on ground that matter was pure conjecture “employer’s promise to pay a fair share of the profits”. Court must interpret the agreement before finding too indefinite to enforce.

Rees Page 20 of 46 Look to : preliminary negotiations, prior communications, references to external sources of terms (ie., gov regulations), trade usages; course of dealing b/t parties prior to transaction or course of performance after their agreement may also provide terms. Implied terms, ie., Wood v. Lucy. “reasonable efforts” or “good faith” sufficient if can be determined via an external std. It is enough if the agreement provides the means for making its terms definite by the time that performance is called for; ie., cotton cases wouldn’t know how much until cotton harvested; output and requirements K’s the same. Also K’s that have particulars of performance to be specified by one of the parties (satisfaction clauses?) Relational contracts: encompass most generic agency relationships. A K is relational to the extent that the parties are incapable of reducing important terms of the arrangement to well-defined obligations. 67 Va.L.Rev. 1089 (1981) Goetz & Scott Offers of Job security: An oral promise which has as its effect the alteration of an ‘at will’ employment relationship must contain terms that are ascertainable and definitive in nature to be enforceable. Sayres v. Bauman, 425 SE2d 226 (W.Va. 1992) Restitution: party who has performed under an agreement that is unenforceable for indefiniteness is entitled to restitution. Problem: Forbearing on a claim: would Sheffield have been bound if she had written to Strong: “I will be resp for my husband’s debt if you will not bother him about it for a reasonable time” and if Strong had done nothing about the note for 2 years? Baker v. Citizens, MN 1984: 7 days was not a reasonable time; a promise to forbear from calling in a debtor's outstanding loans, whether verbal or implied, can be sufficient consideration to support a mortgage and a loan guarantee by a third-party guarantor Farmers v. Maixner, ND 1985: left to trial court to decide if 2 mos reasonable; agreement to forbear bringing suit in return for personal guarantee constituted good consideration. Toys v. Burlington, Vt 1990: Toys entered into lease in a mall owned by Burlington. Lease for 5 years, with option to renew for another five years w/price to be negotiated, they notified of intent to use, couldn’t agree on price, Burlington ad & Toys had to find alternate site. Defendant moved for summary judgment, arguing that: (1) the option provision in the lease is actually an unenforceable agreement to agree – court says no it was binding option (2) even if a valid option existed, it was never effectively exercised by plaintiff – court says a matter of fact issue b/c Toys waffled so long – leave to jury (3) if plaintiff had a right of renewal, it waived it through its conduct -- Jury has to decide. Notes. 1. What consideration supported the option? Reliance by Toys on the renewal of the lease. What did exercise of option require? Notice 1 yr in advance. Could have drafted rent terms more clearly? Could have given specific amts, or could have based on rate of inflation index or some other business indicator. Chapter Three: Statute of Frauds Basic rule: a k w/i scope of statute may not be enforced unless a memorandum of it is written and signed by the party to be charged (against whom enforcement is sought) Dble edged: prevents scoundrel from enforcing a bogus K, but may prevent enforcement of a genuine oral K. 1. Does K fall w/i statute? 2. If yes, is the K reflected in a writing that satisfies the statute? If yes, enforceable 3. If no, does case fall w/i one of the exceptions that permit enforcement despite noncompliance?

Rees Page 21 of 46 1. What type falls w/i statute? (MY LEGS)

• Marriage • Year : K’s that performance can’t be completed w/i 1 year of being entered into

(if any possibility that performance could be completed w/i a year, doesn’t fall under statute) • Land • Goods if $500 or more (UCC §2.201) • Surety – answer for debt of another w/ gratuitous purpose (not for own gain)

2. Is K reflected in writing that satisfies the statute? Courts finding less & less

• A written memorandum: no formal requirement beyond this, can even be lost by the time of the litigation – prior existence and contents can be proven by oral testimony; technological analogs of writing can be held to satisfy the statute provided they serve its evidentiary purpose.

• Rest 2d §131: essential terms stated w/ reasonable certainty & enough to show a contract made & what the subject matter is. UCC §2.201: only the quantity of goods sold must be noted, beyond that “sufficient to indicate a k for sale has been made b/t the parties”.

• Must be signed by party against whom K is to be enforced: the party disputing the K; a signature is any mark or symbol w/intention of authentication “x” or initials enough. UCC §1.201 and Rest §134. Can be stamped signature; some cases even allowed letterhead.

• Exception to signature: UCC§2.201(2): (don’t have to know this, just extra info) 1. Both parties are merchants 2. w/i reasonable time one sends written copy to other w/signature of sender 3. recipient knows contents 4. recipient doesn’t give written objection w/i 10 days.

3. Exceptions SWAP

Specially manufactured goods (UCC) not suitable to anyone else, beginning made Written merchants confirmation (UCC): 2 merchants, 1 sends another letter saying this confirms our deal – binds

recipient (plaintiff’s signature binds defendant); unless w/i 10 days send back letter denying. Merchants have to respond back.

Admissions – to extent that admit the agreement in court or pleadings .make oral (unenforceable) promise for 100 casebooks at $10. Send and decide don’t want and send back,

statute of frauds as defense. Call as witness: Did you make a deal to buy 100 casebooks: If say yes, admission – lawyer can object that irrelevant and immaterial – all cases judges will say answer it. Objection 2 – privilege of self-incrimination (terrible b/c limited to criminal). Objection 3 – privilege of statute of frauds, if make answer what is use of statue? This works only in KY. Every other juris says no privilege of statue of frauds, judge says answer. ONLY way to get out is to LIE. Works b/c no ADMISSION to the deal. Handle by pre-trial motion to dismiss due to statute of frauds, so never get to trial and the admission.

Performance – to extent have performed, enforceable. But not to entire contract, just to extent performed. [circumstances following K formation provide evidence that a k was made, so that it is too technical to insist on compliance w/ the statute protection of the interests of a party who suffered a detriment in justifiable reliance on the oral K Suretyship: FIVE EXCEPTION fact patterns (IF A is the borrower, B is potential surety, and C is bank)

1. A is not bound to C =>B promise to C is original and not a surety 2. A & B both receive and derive benefit from goods from C – partners, no surety 3. Main purpose doctrine: B’s primary purpose is for own benefit = no surety

a. Power v. NFLP: Power agreed to take over the debt only to try to get the license to sell NFLP cards. Win based on promissory estoppel

4. Novation: creates new K – makes promise to original B and no surety 5. Promise is to A rather than C

a. Langman v. Alumni: they promised the donor not the bank, so no surety IF K is unenforceable for noncompliance, must raise an affirmative defense to deny existence of K. One unenforceable, restitution available. Whether or not orig K subject to statute, if a modification makes it fall w/i, the modification must be in writing. Amelioration of the Statute:

• Effect of non-enforcement when statute of frauds applies, may be limited by: o Part performance

Rees Page 22 of 46 o Estoppel o Restitution

All in §139. • Reason? Law should not permit a P to commit fraud by taking advantage of statute of frauds.

§139: basically promissory estoppel/reliance for statute of frauds cases: 1)promise 2) D should reasonably expect to induce action or forbearance and 3) such occurs. 5) Enforceable if that is the only way to avoid injustice; 6) remedy limited as justice requires. To determine if injustice can be avoided only by enforcement: other remedies (esp cancellation and restitution)?; definite and substantial nature of action or forbearance in relation to remedy sought; does action/forbearance show there was a promise or is there other clear evidence of the promise?; reasonableness of the action/forbearance; was action/forbearance foreseeable? PRIAFER: P(promise) R(reasonably) I (induces) A(action) F(forbearance) E (enforceable to avoid injustice) R (remedy limited as justice requires) PART PERFORMANCE/ Reliance

1. Past performance exception: parties may begin performance after forming a K, which may provide reliable evidence that a K was made.

a. The performance satisfies the function of the statute b. Generally require some prejudice to have be suffered in reliance c. Some courts recognize only if one party has completely performed. d. UCC §2.201 incorporate for sale of goods: only for what has been done

i. Seller has started making goods that are specially made for the buyer that would be difficult to resell

ii. Enforcement only to extent goods made and accepted or goods delivered and accepted Johnson Farms v. McEnroe, ND Supreme Ct, 1997 Johnson has oral agree to buy McEnroe farm, McEnroe wants like-kind exchange. Exchanged 1 prop for ½ of the farm. Converted to an option K (until April) for rest. M renigs when thinks can sell rest for more $. Johnson wants specific performance based on part performance or return of $ pd above price agreed to for ½ (restitution c/a if part performance loses). Gets to go to trial b/c part performance enough evidence to take to jury to decide. Doctrine of part performance: 3 acts that can make oral K enforceable:

1. paying the K price, 2. taking possession, 3. making improvements. 2. generally need 2 of the 3, but one may be enough. 3. Is the part performance consistent ONLY w/inducement by existence of the alleged oral agree?

*This case interesting b/c normally improvements need to be putting a structure/something lasting on the property; but in this case court permitted the platting (~$6k value) to be enough. Why is past performance an exception:

• Performance is probative of that agreement existed • Otherwise, P suffered cost w/o compensation • D would have enjoyed unjust enrichment

Rest 2d §139: called reliance rather than part-performance; evidentiary element also part of the rationale. REMEDY: generally only restitution; reliance is rare unless a definite benefit given to D (in this case the court suggesting giving the $6k as reliance damages is very rare b/c that gave no benefit to D, just a prep move by P. Restitution problematic: some cases say part-performance is part of law of restitution. Real property transactions: Requirements for part-performance vary from state to state.

• Some indication that part performance can lead to specific performance, but not to damages • Restricted to cases of equitable relief

SIDEBAR: What is the consideration for the option? Original option doesn’t need consideration b/c part of the original deal (?) What is consideration for the extension of the option? None. The waiver by D of not ending the option is good enough for the extension. Promissory Estoppel

Rees Page 23 of 46 Rest 2d §139: compliments §90; adaptation of promissory estoppel for statute of frauds. The forbearance or actions corroborate the existence of an agreement.

Opposing view states that take risk if agree to oral k and do not get it in writing; to ameliorate would make statute of frauds meaningless. (Ozier v. Haines) Monarco v. Lo Greco, CA Supreme Ct, 1950 (FAMOUS CASE PER PROF) “20 yrs on the farm” case Spouses agree to leave their property to Lo Greco (Christie) in exchange for his working on the farm. Christie gives up other opportunities; works on farm ~20 yrs, but prior to death step-father decides to leave his ½ to his other son (Monarco) who has not participated in the business at all. Issue: Is Monarco estopped from relying on statute of frauds to defeat the oral K? MOST (incl this state) will not apply statute if elements of unjust enrichment or detrimental reliance. Held: Yes. Both unjust enrich and detrimental reliance in this case – Step-father (and Monarco) unjustly enriched by Christies 20 yrs of work; Christie relied on the promise of the land to give up other opportunities = unconscionable injury. Neither damages for breach nor value of services rendered adequate. Remedy: Court may enforce the agreement if this is the only way to avoid injustice (§359 specific performance available if other damages inadequate to protect expectation interest). ***This case important b/c: prior to this in estoppel cases there had to be a representation that the Statute was being abided by (we don’t need writing in this case, I’ll give you the writing later, etc); in this case the judge says that is irrelevant, people are really relying on the underlying promise that is in the K, not the assurances of meeting Statute of frauds requirements.

2. Judicial admission exception: a. Permits enforcement despite noncompliance if the party admits there was a K in some court

manner (pleading, testimony)

3. Reliance: estoppel and promissory estoppel a. Equitable estoppel to protect reliance on a false factual assertion (limited); ie one says a signed

written and other acts in reliance on that b. Promissory estoppel: one justifiably relies on oral K as a promise and suffers some detriment. CL

and §139. i. §139: promise reasonably expected to induce reliance

ii. justifiable and substantial reliance iii. need to enforce to prevent injustice

CHAPTER FOUR: POLICING THE BARGAIN: what kind of promises will law enforce

• Some situations where K may meet formal requirements such as assent, consideration and compliance w/ statute of frauds, but still refuse to enforce

• Fraud, threats, Bargaining abuses • To some extent based on moral conviction • Legislature, courts and administrative agencies must work together to protect consumers

Three types of policing concerns: Generally, cn is present and issue is more elusive as below:

1. Status of parties – disqualifies certain classes of persons from entering K’s (minors, married women and mentally infirm by hx)

a. Is it innate (age) or b. Based on circumstances (consumer protection)

2. Behavior of parties – how did they bargain.

a. Duress or fraud b. Differences in bargaining power c. Public protection policy – Ie., K to kill; shouldn’t allow this behavior

3. Substance of the bargain – inequality in the bargain itself

a. Generally courts will not inquire as to value of consideration

Rees Page 24 of 46 b. However, there are a # of limiting principles to prevent routine enforcement of unequal bargains

Five areas: 1. Capacity 2. Unfairness 3. Overreaching 4. Unconscionability 5. Public policy Capacity Person who shows assent has full legal capacity unless:

• Under guardianship • Infant (minor) • Mentally ill or defective • Intoxicated

Often lack of capacity just renders K’s voidable. Variation in law from state to state; protecting minors from themselves v. protecting creditors General rule: infants K is voidable during infancy and after a reasonable time w/i reaching majority ORS 109.510 – majority = 18. Thought to be a privilege = minors K is voidable but not void – option for minor to enforce, but other cannot enforce v. minor Exceptions by statute in some states. Insurance, banking, educ loans are examples Broader judicial creation for necessaries: food, clothing, shelter – some minors really need to buy these so law should make K’s enforceable so merchants will sell them; not too large an expenditure, so protection need lessened 2 common issues: 1. ratification: if minor reaffirms obligation after reaching majority, then bound (disputes arise in implied ratification – usually involves passing of time – how long is too long to disaffirm before bound?) Usually more time allowed if other side has finished performance; however, if continue to receive/buy goods, then should be held to shorter time b/c more harm to merchant if don’t disaffirm early 2. restoration requirement: even if court allows to disaffirm, what do have to return to merchant? Usually based on restitution (give back benefit rec’d) or tort of deceit (if K had a representation that at least 18 & lie about that):: general law – all states say minor must return anything still has (car); whether minor must give more varies from state to state and case to case; sometimes depends if minor is P or D – P sues D for purchase price b/c P wrecked car – generally no restoration; if she pays cash, wrecks, sues to get $ - generally will have to pay for depreciation in value (if any $ left over will get back)—not as sympathetic if minor has cash Kiefer v. Fred Motors Minor had right to return vehicle; recovers entire purchase price. Did not have to pay depreciation (restoration) b/c dealer didn’t estab tort of deceit (even though signed saying 21 when bought car). Dissent: For minor, vehicle was a necessary and thus right to disaffirm should not have existed. Mental illness: party who does not understand nature and consequences of actions lacks contractual capacity: §15 (not on exam) Generally court will look to substantive fairness of deal if question of one taking advantage of one mentally ill. Unfairness: Conventional Controls

• Lesson: hard to win one of these cases • Inequality of exchange in the bargain • Is it proper for courts to see that neither suffers disproportionate gain or loss? • Rest 2d §79: if requirement of a consideration is met, there is no addt’l requirement of equivalence in the values

exchanged. • Implicit judgment that a promise should be enforced whether or not something of equal value was given for it. • Regardless, several limiting principles:

o Duty of good faith and fair dealing in K performance and enforcement (but not in K formation) (Rest2d 205) What about Channel and Red Owl (Precontractual liability to act in good faith – generally not until something more – note of intent to negotiate in good faith in Channel, extensive actions by Hoffman due to Red Owl promises)

o Traditional equity courts often refused to enforce if exchange highly disproportionate o In cases at law, lack discretion to weigh equities and must look to other reasons, such as conflict with estab

public policy or manipulating doctrine of consideration to serve ideal of fairness, including deciding if any bargain has even been made

Rees Page 25 of 46 McKinnon v. Benedict, WI Supreme Ct, 1968 [367-Mckinnon-RV Park-No Specific Performance if cn grossly inad; terms unfair; sharp dealing; disproportionate hardship] McKinnon (D) [lots of business exp] loans $5k & promises to help drum up business to Benedicts (P) [jeweler w/no $] to purchase a resort. In return they promise not to develop the area next to his property for 25 yrs. 4 yrs later (shows good faith attempt, no misrepresentation of their intentions), when resort failing, they start to build a RV park. McKinnon sues for specific performance b/c $ damages inadequate. 2.. Found consideration (interest on $5k loan instead of loan itself) to be so inadequate as to be unconscionable. 1. Benedict unable to deal at financial arm’s length & due to necessity, agreed to oppressive terms.

• Two public policy arguments: 1. Equitable principal that K’s that are oppressive will not be enforced in equity and 2. restrictions on use of land is disfavored[#2 today going out of favor]. Restrictions on use of land should be resolved in favor of free use of the property.

• Court looks at both the time of the K formation (1 & 2 above) and the time of the litigation (hardships too great) • For specific performance rquest, must claim $ damages inadequate • K fails to meet test of reasonableness that is needed for enforcement of rights in an action in equity; too one-sided • Injunction should not be granted if that would shock the conscience of the court – if inconveniences & hardships

outweigh benefits. (PORTIA type gain – hardship to Antonio far greater to gain of Shylock) • Rest2d§367: specific enforcement of a K may be refused if the consideration is grossly inadequate or terms

otherwise unfair, or enforcement will cause unreasonable/disproportionate hardship or loss to D or it was induced by sharp practice, misrepresentation or mistake

• Alternate view: Corbin on K’s: although a K is harsh, oppressive and unconscionable it may be enforceable at law; but court has discretion not to enforce equitable remedies against one who suffers.

______________________________________________________________________________ • Specific performance is not a matter of right as damages are, but may be withheld at court’s discretion: unusual to be

enforced. • Coase Theorem: [Coase godfather of law & economics]: legal entitlements do not impact resource allocation; when

few transaction costs, whether trees cut or not doesn’t depend on outcome of case: ie., if worth $10 to Mk if $5k to B, negotiate a deal to keep the trees. [[not on test]] Coase Theorem only works when no transaction costs (costs in this case)and when parties happy to get together to negotiate (by this time they were probably angry); while legal entitlements in cost free transaction world do not impact allocation of resources, do impact distribution =>makes big difference to the 2 parties – if MK wins, keeps trees and $;

• Says free bargaining will always decide • Problem: 1. imaginary world of free bargaining & putting price on legal entitlement difficult; 2. legal

entitlement greatly effects distribution of wealth – rich would always win Tuckwiller v. Tuckwiller, 1967, p317 “old lady dies on family farm and nepharious executor” case Old lady had Parkinson’s, asked neice to care for her to her death, signed agreement stating such and that would leave farm to her. Neice leaves job & starts to care for her. Old lady ill, has ambulance drivers witness the paper, dies few days later w/o chging will.

• Test for determining if K unfair or if consideration is sufficient is prospective, based on circumst at time. • Although prior service cannot serve as consideration, it can be considered in determining if K is fair and cn is

adequate • Once essential fairness of K and adequacy of consideration found, fact that real estate answers that legal remedy (at

discretion of court) can be specific performance as easily as damages. Black Industries v. Bush, 1953, p320 “unhappy middleman” case Black (D) arranged to supply parts made by Bush (P) to Hoover & Standby, which in turn would use them to fulfill govern K. Black’s compensation would be difference in price chgd by Bush and price paid by Hoover & Standby. Black pd to get parts to make product. Bush did not perform the order. Bush’s defense is K is void for public policy b/c Black’s profits were so great and passed on to gov and public in form of increased prices. Bush asks for summary judgment: Court says no.

• In order to declare a K, entered into freely and w/o fraud, void as against public policy, the K must be invalid on the basis of recognized legal principles. 1. K by D to pay P for inducing public official to act a certain way; 2. K to do an illegal act, 3. K which contemplates collusive bidding on a public K.

Rees Page 26 of 46 • Rule: relative values of the consideration in a K b/t business men dealing at arm’s length w/o fraud will not affect

the validity of the K. Rest 81 Overreaching

• Shouldn’t allow advantages from gross unfairness in bargaining • Duress, fraud, mistake • Ordinary remedy is to allow the victim to rescind or avoid the K • Duress: wrongful act or threat that overcomes the free will of a party/impermissible pressure

Violence or threats; imprisonment; taking or keeping property; threats to breach K Usually remedy is restitution (undo unjust enrichment)

o Victim can sometimes compel restoration - $ pd and property transferred o Promise obtained by duress may not be enforced v. victim o Economic coercion recognized (threats to a person’s property) o Limits:

1. *Victim must show at least some resistance 2. Substance of threat: threats to business interests, life & limb, making someone an offer they

cannot refuse 3. Nature of threat: criminal or tortuous injury threatened 4. *However,it is NOT duress to threaten legal action (that is legally okay to do) (Chouinard v.

Chouinard) o Limits to threats of lawsuits: have to have a basis for the c/a for it to be ok o Some threats of lawsuits may be duress, as in Pacelli: mid-marriage property agreement not ok

Example: employer gets a benefit from employee under threat of discharge, where employee can be fired at will.=> unjust & inequitable threat However, not duress to threaten to fire an at will employee.

Typically, D will raise pre-existing duty rule or duress to try to avoid enforcement of modification of K. Prof says duress today a better argument than pre-existing duty rule.

Alaska Packers’ v. Domenico, US Ct Appeals, 1902 Emps agree to be pd $50 for fishing; get to the plant and demand $100 or won’t work. Co rep signs agreement b/c no other way to get fishermen. Co only pays on original. Upheld.

o Classical doctrine: Pre-Existing-Duty Rule: §73: performance of an owed (executory) duty is not consideration if it was already owed the promisor: duty must be legal (not voidable, ie by a minor)

• Unless doubtful or honest dispute about the duty or • Even a pretense of new consideration for the modification • Must be executory: if duty executed and $ paid, then can claim under duress, but

not pre-existing duty o Basically, refused to perform & coerced higher pay.

• Exception from case: if co voluntarily waived the emps breach of first K o Minority: can modify K with just consent as consideration(AL)-basically does away w/pre-existing duty

rule o Minority: others say chg must be in writing & signed, no extra consideration needed (seal/covenant idea) o Rest §89: can modify a promise in K if not fully performed (executory):

Fair in light of unanticipated chg of circumstances Provided for in statute Justice requires enforcement b/c of chg in circ. due to reliance on promise See Rest §89 for several examples (Arzani v. People of NY – how 89 came into being: union asks sub for higher $, contractor agreed w/sub to pay ½, sub pays, contractor reniggs & upheld based on pre-existing duty-court says no termination of 1st K and no consideration for the oral agreement = unenforceable). 89 will trump 73 if your facts fit it. [as 90 can trump 71]

Persuasive agreements all focus on duress, not just the pre-existing duty. Rescission and modification:

Rees Page 27 of 46 IMPORTANT question: was the modification due to free & fair bargaining and were both parties happy with the new deal? Schwartzreich v Bauman, 1921 (a rest §89 example) S contracted to work for $90/wk. Gets better offer of $115 prior to starting work, B (needed S) offers $100 wk. They sign new agreement and destroy old. New is binding. No duress.

o An existing K is terminated by consent of both parties (rescission) then a new one can be executed in its place. (this is still good law)

o Make sure a rescission; even better bargain higher pay for an added duty = new consideration for the modification Watkins & Son v. Carrig, 1941 , p333 P (Watkins) excavating cellar for Carrig. Solid rock encountered; D agreed orally to higher price, relying on this P does work. Court goes through each exception and finds for P. “fundamental justice and reasonableness” in a close case. (§89 supports this)

• Parties agreed to rescind the written terms in favor of the oral. D says didn’t rescind and then create new K, says all one transaction =>modification w/o consideration.

1. =this court says that on these facts, a modification is a partial rescission 2. Any mutually agreed upon rescission is in itself a K

Courts reasoning for P and info to use to trump §73: • the special price was fair and the D rec’d reasonable value for it • a result accomplished by proper means = no duress • changed circumstances make it okay • meets reasonable needs of standard and ethical practices of men in their business dealings

Per prof: a classic mistake case: K was to excavate easy ground; turns out both mistaken, on those facts can rescind on ground of mutual mistake; this court turned down the mistake Rest §89 says should use the unanticipated chg of circ (better offer) reasoning, as rescission followed by immediate re-K for new promises is fiction and could lead to unfair modifications. **use both arguments as appropriate b/c get to same conclusion per Prof. Scope of PreExisting Duty Rule

o Consideration is only a test of the enforceability of an executory promise o Means that when payment made or performance given, recipient can’t be required to make restitution on the ground

that nothing was given in exchange.

1.Controversy in which part of debt paid as agreement for forgiving the rest Commonly known as accord & satisfaction: Accord (agreement to take lesser amt) Satisfaction (payment of the lesser amt) Three ways to defend against accord & satisfaction claim: 1.§73-no consideration for the modification: no compromise

2.agreement response: Kibbler case, print too small on check that said “pd in full”-not likely to win [full payment ck – is for less than promised amt –often if cash it, will be upheld under accord & satisfaction] –Prof refers to his new conceptualism article, that this is one more example of those w/$ protecting themselves

3.duress: most likely to win

Foakes v. Beer: (1884-England): Beer, creditor, had judgment v. Foakes (debtor). Agreed to forgo interest; he pd principal. Later she recovered the interest. “payer of a lesser sum cannot be satisfaction of the whole” =>in agreeing to pay the interest judgment, he did no more than he was supposed to do in the first place.

Controversial case: businessmen recog future value of $ better than no or less $ 2. Less common problem, does rule apply when pre-existing duty is owed not to promisor but 3rd party

De Cicco v. Schweizer: (1917 NY): Prior to wedding, parents agree to give bride $ every year for life. Stopped paying, couple assigned to 3rd party (de cicco). Cardozo found orig agree was to try to induce the groom to marry her. Said neither able to withdraw alone, but together they could terminate by mutual consent. The consideration then, was that they did not do so, but married in reliance on the promise. (Rest 73 ex)

o This case later cited by Cardozo as a start of promissory estoppel. o Brillant Cardozo end run around consideration doctrine

Rees Page 28 of 46

McDevitt v. Stoakes: gambler offers jockey $ to win the race; not upheld b/c jockey already had duty to the owner to try to win.

o Most gambling K’s aren’t enforced, this distinguishes it from De Cicco, an honorable family bargain o Unlike de cicco, doesn’t induce jockey not to break his promise to owner

Duress in Business -economic duress or business compulsion Austin Instrument v. Loral Corp, 1971 Loral (D) contract w/Navy and awarded Austin subcontract. Later, Loral rec’d 2cd Navy K and told Austin would award them only parts on which they were low bidder. Austin replies by saying 1)Loral has to award them all the parts and 2) Loral has to pay more for the parts under the 1st contract, incl those already shipped. Austin stopped delivery on the 1st K. Loral could not find another supplier and acceded to the demands. Once all rec’d under both K’s, Loral notified Austin it would seek recovery for the price increases. Austin first sued for an amt remaining under the 2cd K. Same day, Loral sued for the price increases on the 1st K based on economic duress. Trial: Austin won and Loral’s c/a dismissed. Appellate confirmed. Highest court reverses and remands for damages to be calculated for Loral. Say that a question of law that lower courts did not apply correctly to the facts, say no dispute about the facts. Says classic case of duress.

• K is voidable for duress when party forced to agree to it by wrongful threat that limits his free will • Existence of economic duress: proof that 1) immediate possession of needful goods is threatened, 2)could

not obtain the goods from another source and 3) the ordinary remedy for breach would not be adequate. Dissent: there was a dispute about the facts. Austin says they stopped shipments only for a routine vacation period. Both agree a registry of other suppliers that Loral chose not to use. Say Loral may not have been reasonable and may have created the duress by not using one of those. Victim’s Options: must victim resist the duress and find a reasonably satisfactory remedy for any resulting injury. Pawnbroker case – D says P could have gone to law to regain property instead of overpaying debt. But court said P might have had such an immediate want of his goods that an action would not be satisfactory. Since then, allowance made for the delay to go to court. Status of the Parties: Undue influence -inability to bargain at arm’s length Ordorizzi v. Bloomfield School, 1966 P arrested for homosexual activities, resigns after principal threatens to make chgs public. Chgs dismissed, tries to rescind resignation b/c duress and undue influence. Dismissed, reversed – only says a c/a present.

• Undue influence = overpersuasion, coercive in nature, overcomes the will w/o convincing the judgment, taking advantage of mental or psychological vulnerability of other

• Very rarely see outside family context • Test: 1. subjective: a. undue susceptibility in one and b. excessive pressure by other, and

2. objective pattern: several of following elements present: 1. discussion of transaction at unusual or inapprop time 2. holding transaction in unusual place 3. insistent demand that business be finished at once 4. extreme emphasis on consequences of delay 5. use of multiple persuaders v. single 6. absence of 3rd party advisors 7. statements that no time to consult financial or legal advisors

• Often these types of cases involve confidential relationship of some kind

o Must show bargain 1)fair, 2)conscientious and 3)beyond the reach of suspicion to defend v. undue influence

Fraud: obligation to disclose info to the other when bargaining: concealment and misrepresentation Swinton v. Whitinsville Sav. Bank, MASS supreme ct, 1942 D (bank) sold Swinton house that bank knew to have termites. P spends $ for repairs and termite control to save the house. Chg of concealment. D wins b/c court doesn’t want to impose on every seller or buyer so as not to take away bargaining

Rees Page 29 of 46 advantages. Plus slippery slope of making seller liable for every thing wrong. Could defend v. that by offering line of suggestions for limits.

• Rule of nonliability for bare nondisclosure (relick of classical K law) No fiduciary duty No half truth

Now, some statutory protections and some courts require that dangerous conditions be disclosed. • Bare nondisclusre rule has fallen largely into disfavor and no longer exemplifies dominant American values. Unlikely

seller would get away with this today. Kannavos v. Annino, MASS supreme, 1969 Annino & realtor know apt bldg converted in violation of city zoning. Kannavos buys apt bldg from Annino, after Annino’s realtor advertised it as an apt bldg & discussed the income/expenses. Clear he intended to use it as rental. City brings action, Kannavos sues to rescind. Trial court overruled demurrer and granted rescission. Annino appeals, affirmed.

• Different from Swinton: 1. Kannavos could have found out the condition via public records, whereas in Swinton, no way to find out w/o experts – this is in favor of the seller; 2. Once sellers said anything about the apts or took affirmative action that was misleading, they were bound to be honest (speak fully and fairly) about all material information.

• P is not barred from recovery when they rely on fraudulent representations, even if they did not use due diligence to find info.

• If total silence, assume Swinton rule would have applied – not an explicit reaffirmation of Swinton – unsure if Swinton would be decided in the same way now

Variations: 1. What if no ad, but bldg divided into 8 apts; seller knew buyer likely to use it as rentals: 2. What if not divided into units, but seller knows buyer intends to divide it into units & is unaware of zoning problems: Should think hard about putting seller’s into those obligations. Rest §161: A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only: a) he knows disclosure of the fact is necessary to prevent some previous assertion from being a misrep or from being fraudulent or material

Misrepresentation: §159

• Even innocent misrep can allow rescission – Yorke v. Taylor (told wrong value of property) • Concealment and nondisclosure are varieties and grounds for rescission • Must be about a material element • Some degree of diligence req’d by one who relies on another’s statement • Must be a misrepresentation of fact, not opinion

Unconsciounability ***most interesting chapter of book per Prof.

• relatively new concept: out of growth of very large firms, and use of std contracts • doctrine w/o content – requires courts to delve deeply into facts of cases and make subjective determinations – no

bright lines as in classical • politically controversial • gained notoriety under UCC 2-302: K that will shock conscious of the court will not be enforced: allows more direct

policing o prior to 2-302, courts used adverse construction, manipulated rules of offer & acceptance, contrary to

public policy arguments, contrary to dominant purpose of the K. • elements of substance and process: absence of reasonable choice combined w/ unreasonable power on the other side • use of strict construction: court twists language into something that it was not intended to be, see p367 • **normally will not win – will limit the scope by finding a delineation b/t cases in order not to follow precedents

Std form (adhesion) contracts: elements of status, behavior and substance remain a focus of concern

• Avoid juridical risk: danger that court or jury swayed by irrational factors to decide against a powerful D. • Dangers: offer means for stronger to impose its will upon weaker, may be no opportunity to bargain (take it

or leave it K), used by party w/ advantage of time and expert advice v. party w/no real opp to really understand clauses

• Must determine if party can reasonably be held to have seen understood and assented to the unfavorable terms and thus be bound by them

Rees Page 30 of 46 O’Callaghan v. Waller: (1958, ILL) Tenant fell on property of landowner. D says an exculpatory clause bars tenant from recovery. Trial finds for P, appellate overturns and supreme says clause is good.

• K’s where one seeks to relieve self of consequences of his own negligence are generally upheld, unless: 1. would be v. settled public policy to do so, or 2. something in the social relationship that prevents upholding it Ex: common carriers, shippers of freight

Dilemma between freedom of contract v. protection of others: • Freedom of contract is basic to our law. But when that freedom expresses itself in a provision designed to

absolve one of the parties from the consequences of his own negligence, there is a danger that the standards of conduct which the law has developed for the protection of others may be diluted.

• Also a judicial unwillingness to step into std form K’s and exculpatory clauses, think should leave it to legislature

• Dissent: should really look at how many people it will effect (public/private are just labels)

o The distinction can result in injustice: disparity in bargaining power too great o “judges need not be more naïve than other persons” : no freedom of K

• Factors to consider when determining if clause should be deemed void:

1. importance the subject has for physical and economic good of group agreeing to release; 2. their relative bargaining power; 3. amt of free choice actually available when agreeing to the exemption; and 4. existence of competition among the group to be exempted.

Note: most states now provide by statute exculpatory clauses re: landlord negligence in residential leases are ineffective. Typical reasons favoring legislature

• Political legitimacy: judges typically unelected whereas legislators are elected • Legislatures can act more systematically • Judges less equipped to understand these problems than are legislators, who have committees, interest groups,

researchers etc Judges instead

• What about this particular client • Anthony Lewis (NY Times columnist): a judge may be more equipped to decide a difficult divisive

question, can look very deeply into one particular case & therefore may understand the overall situation better than a legislature that takes broader but more superficial view.

Klar v. H&M Parcel room: clause on bag check does not bar recovery Patron leaves pkg, receives but doesn’t read claim ck. 3rd party comes to retrieve, has been delivered elsewhere. Sues. Court finds the ck was for the purposing of claiming parcel, not to form a K.

• must give adequate notice and receive assent • Rest §211: if one gives assent, but the other knows he wouldn’t have if he had known the K contained a

particular term, that term is then NOT part of the agreement.

***today claim-stubs probably enforceable: looks like notice b/c they put up signs and mark in bright bold letters the disclaimer – courts then willing to say taking the ticket is acceptance ***hospitals cases are really hard: about to check-in for an emergency & hospital makes one sign negligence release clause – tend to favor the plaintiffs b/c they really have no choices against a hospital **sports cases: high risk - almost uniformly being upheld b/c of inherent risk of the sport (scuba, skydiving) – sometimes if can prove gross negligence will throw out exculpatory clause – either b/c doesn’t specify gross negligence or it’s against public policy Graham v. Scissor-Tail: arbitration clause w/i reasonable expectations of producer Graham contracts with Scissor-Tail to produce several concerts. Arbitration clause. Clause held ok. K was unconscionable on other grounds: that the arbitrator was too biased toward performer.

• 2 judicially imposed limits on contracts of adhesion in CA: 1. must fall w/i reasonable expectations of the weaker or adhering party 2. cannot be unduly oppressive or unconscionable

Rees Page 31 of 46 Adhesion K: term signifies a stdzd K, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opp to adhere to the contract or reject it.

• Most states will not enforce just b/c a contract of adhesion • CA is odd in saying a two part test 1. is it an adhesion contract, then 2. does it fall outside the judicially

imposed limits above

Review by Prof: dilemma of Unconscionability: freedom of K v. dilution of protection of others Henningsen v. Bloomfield Motors(1960-landmark case): disclaimed warranty unconscionable Henn bought new car, wife injured when steering fails 10 days after car delivered. Small print clause on back of purchase K that D says disclaimed the implied warranty. [normally would allow damages for pers injury caused by defective parts]. Trial for P’s; Supreme of NJ affirmed.

• In absence of fraud, one who doesn’t read a K before signing is still bound. o K should be result of free bargaining of parties w/same economic equality o However, this case a std form K for mass use, buyer takes it or leaves it and must take it to buy an auto

• Reason those offering services of public or quasi-public nature held to fair dealing (and understanding consent if offeror trying to limit liability) is b/c public generally has no other means of fulfilling the specific need represented by the K

o This is the case here b/c AMA std K for majority of the dealers = gross inequality of bargaining power o Must be arm’s length negotiation on the subject of the clause – where there is no competition, no where

else for consumer to find that product w/o the clause, can be no arm’s length Notice: Public policy not clearly defined; however limitation of liability not upheld if unfairly procured: if not

brought to buyer’s attention and he wasn’t made aware of it, or if not clear and explicit (not understandable); takes away significant rights buyer would otherwise have

o In this case no dispute that didn’t call attn to the exculpatory clause, it was in small print and there were no words indicating a limited warranty

o Wouldn’t have been hard for co. to bring it to public’s attn if they wanted to Understandability: Was written in such a way that no reasonable person would understand that exculpatory clause

prevented claims for personal injury Difference from O’Callahan:

• there she conceded notice; here doesn’t look as if even aware of the clause Law review article: Slawson, 84 harv L Rev 529, Std form K’s: these K’s are akin to a law but haven’t been democratically imposed; only way to manage for courts to take place of legislature and represent the party w/no power DUTY TO READ:

• CL: in absence of fraud, one who signs a written agreement is bound by its terms whether he read and understood it or not, or whether he can read or not (Cohen v. Santoianni,1953)

• Exceptions include std K’s that are unintelligible=will not be enforced as a matter of law • Various legislative interventions to make clearer – bold print, colors, etc.

o Fight is to what extent is it ok for legislation to control terms of K and who has power to influence them? Usually those w/ most bargaining power

FORUM Selection Clauses 1. Courts have traditionally expressed hostility to choice of forum clauses 2. Rest §80: ok unless unfair and unreasonable 3. The Bremen v. Zapata (1972): Factors that made reasonable to uphold clause: 1) b/t companies of 2 diff nations; 2)must be freely bargained for, 3)must be capable of litigating in the forum, 4)must not deprive P of day in court; 5)forum clause should control absent a strong showing that it should be set aside. 5) Clause was a vital part of the agreement. District & appellate denied motion to dismiss based on the clause, but Supremes vacated & remanded for above reasons, basically it was a very complex deal involving int’l travel and appropriate to assume that forum carefully bargained for and figured into costs. Carnival Cruise v. Shute: should enforce forum selection clause *unusual b/c Supreme Ct rarely gets involved w/private K cases Shutes buy tickets from WA vendor, Mrs. injured in int’l waters, sues in WA district ct. D says forum selection should control. District upholds clause, appellate reverses; Supremes uphold clause. 1. reasonable forum clause may serve these purposes: i. cruise line has special interest in limiting fora b/c passengers from all over ii. dispels any cost/time re: deciding where can sue

Rees Page 32 of 46 iii. saves passengers $ by limiting litigation costslower ticket prices 3. FL is not a remote alien forum (as The Bremen) and not a local dispute better decided in WA than FL appellate had said they were infirm and forcing them to go to FL would disable them from suit 4. doesn’t meet heavy burden of proof req’d to set aside the clause. 5. No indication of fraud, overreaching; P’s given notice; PPB is in FL; didn’t use to try to discourage legitimate claims. Supremes say lower courts misread Bremen to say that if those factors were not met, couldn’t uphold. Bremen was upheld b/c a complex int’l deal and would expect full bargaining on forum selection, and court would look for negotiation in a similarly complex deal, whereas just common sense in Carnival that people would not negotiate a similar clause for a routine purchase of tickets sold to people from many different states. Dissent (stephens/marshall): Court didn’t look to the facts. They paid, then rec’d the tickets w/the clause. Another clause said they couldn’t get their $ back, so their choices were 1. cancel their vacation and lose their vacation $ or 2. take the chance that no injury would occur.

• Common law subjects terms in K’s of adhesion to a reasonableness std. • Traditional K theory wouldn’t allow w/o showing P knew and voluntarily consented to terms • Traditional rule that seek to limit place or court of c/a are invalid as against public policy • Forum selection clause would have clearly been unenforceable prior to The Bremen. • The general prohibition v. stipulations that lessen, weaken or avoid right to trial should be construed to apply to

manifestly unreasonable stipulation in these passenger’s tickets. Class review by Prof: how to balance freedom of K w/ fairness and decency in exchange transactions. No clear rules in area of adhesion K’s: Extract arguments parties make, criteria courts adopt, factors that have led past courts to their decisions on the facts in each instance – those go into outlines & be able to apply. Unconscionability: Primarily in consumer contexts; more reluctant in commercial K’s. Equitable origins, decided by judge. Both UCC and Rest characterize as a matter of law.

UCC 2-302 comment: principle is one of the prevention of oppression and unfair surprise; need to abuse greater power; otherwise, just the fact that one party more powerful does not make uncon. (only to sale of goods-one of most controversial sections in UCC 2; comment 1 to pacify those who opposed: prevention of oppression & unfair bargaining power, not the disturbance of advantages of superior bargaining power)primarily procedural (duress, fraud), NOT substantive (imposing terms on other) courts have paid little attn to the last comment b/c can’t turn blind eye to substance of terms R 2d §208: If K or term is unconscionable may make K or that term unenforceable, or may limit the use of the term in order to prevent an unconscionable result. (applies to all K’s) States that theoretically possible to have a K oppressive as a whole, even if no weakness in bargaining process and no one term which is unconscionable. Defense of the Unconscionability doctrine: In order to try to reconcile w/ bargaining process, 1967 Prof. Leff offered a split:

• Procedural Unconscionability: fault or unfairness in the bargaining process (naughty bargaining conduct per Leff)

• Substantive: fault or unfairness in the bargaining outcome – unfairness of terms Much of case law has emphasized element of unfair surprise, which prevents knowing assent and thus no bargain. Now also includes unfairness of terms. Suggested norms by Eisenberg, 1982, p402

1. Since bargain principle rests on fairness & efficiency, can apply specific unconscionability if there is no fairness or efficiency.

2. Specific uncon closely related to how relevant market deviates from competitive market 3. Distinction b/t procedural and substantive uncon is too rigid to help develop specific uncon norms.

Objection to Unconscionability: Epstein, 1975

• Principle of freedom of K central to classical K doctrine • Only two reasons not to enforce k:

• Proof of some defect in K formation process (duress, fraud, undue influence), OR • Incompetence of the party against whom agreement to be enfoced.

• Uncon can police these two and increase admin of K law • Use in substantive dimension (terms) undercuts right to K and does more social harm than good

Rees Page 33 of 46 • Same if view from public policy: public policy requires that those of age & competent understanding have

the liberty of K and that K’s entered freely and voluntarily should be enforced by courts.

TEST under UCC and REST 208: 1. Bargaining unfairness; bargaining behavior (procedural) and 2. Unfair or oppressive terms (substantive).

Generally need both, but if one overwhelmingly strong, may uphold, ie outrageously unfair terms. However, also needs at least some procedural problem b/c courts can’t adjust a K just b/c one overpaid, underbid or otherwise made a bad deal. Most common substantive reason is unfair terms, however, if terms fair, but undue pressure in the process, could still be voidable. Campbell Soup v. Wentz, VERY unusual case. Uncon b/c market dramatically chgd & unfair to hold the carrot farmer to $30/ton when market chgd to $90/to. Threw out the whole K b/c several terms uncon of lg buyer Campbell v. small farmer Wentz. Williams v. Walker-Thomas Furniture, 1965, US Ct Appeals, LANDMARK CASE [no court wants to leave poor unsupported, but also don’t want to leave them unable to access goods or be overly paternalistic] Furniture store used a contract that allowed purchases on time, with store retaining ownership until completely paid. However, also said that any payments would be split “pro rata” between all purchases made, so that buyer never paid anything in full, and company could repossess any merchandise not completely paid for if buyer defaulted. Cross-collateralization (dragnet) clause – allows store to retain security interest in each item until every one paid in full. Williams says they are unconscionable K’s; D’s imply ok b/c buyer agreed to the terms; Trial and DC appellate upheld K’s, saying Congress should enact legislation to protect buyers b/c no statutes or case law to prevent sharp and irresponsible dealings. Remanded by US Ct of Appeals b/c possible to have unconscionability, but lower court needs to decide if this particular clause was uncon.

• Ct Appeals says court does have power to refuse to enforce unconsc K’s. Other juris have done so. Supreme of US in Scott v. US: If a K is unreasonable and unconscionable, but not void for fraud, court can give equitable damages to party who sues for breach damages, but not FULL damages b/c would be uncon to do so.

• Most famous definition of uncon 1) absence of meaningful choice (procedural) + 2)terms which are unreasonably favorable to other party (substantive).

• Meaningful choice can be negated by gross inequality of bargaining power (procedural) • If little bargaining power and thus little real choice, signs unreasonable K w/little or no knowledge of its

terms, cannot have given consent (an exception to the duty to read & understand before signing of §70). • To determine reasonableness or fairness, primary concern must be terms of the K considered in circ

existing when K made. Critics say that by disallowing is paternalistic & therefore no business will sell to this class of people b/c of the risk. Possible Defense by company: show freedom of choice, that K was well known to her, not hidden in fine print (procedural); price ok b/c willing to offer to people w/poor credit & deserve compensation for providing that service therefore not fundamentally unfair (substantive). Price Unconscionability- just a few cases Jones v. Star Credit Corp, NY appellate, 1969 Home salesman sold welfare recip a freezer for $900, which had value of $300 at the time sold. Issue: is transaction and K unconscionable under 2-302 of UCC? Yes. Already paid enough to allow for profit of merchant and fairness to purchaser. UCC 2-302: 1. if court as matter of law finds K or any clause uncon at time made, may refuse to enforce the K or the clause or limit or modify the clause to avoid uncon result.

• Price is a term that can be reviewed for unconscionability. • Limited financial resources of purchaser, known to sellers, should be considered. • Value disparity leads to conclusion that knowing advantage was taken of P’s. • Meaningfulness of choice essential to making of a K, can be negated by gross inequality of bargaining

power. • Merchants can build in some $ to account for risk of lending, but not this much.

Rees Page 34 of 46 Frostifresh v. Reynoso : other famous price uncon as matter of law case: SP speakers deceived into buying home freezer at high price wanted to keep the freezer. Appellate said Reynoso had to pay net cost of freezer, plus reasonable profit, trucking, service and interest charges. P.412 In both cases, company came out well. Will not act as deterrent. Critics want to punish = very controversial. Commercial cases:

• Courts less willing to find uncon when bargaining position more likely to be equal and where experienced traders less likely to be unfairly surprised by terms. (ie., Continental Air v. Goodyear)

• However, Gianni Sprot v. Gantos, held uncon b/c large business in garment industry able to impose clauses on small indep manufacturers.

• Franchise agreements: one area where imbalance found w/some regularity Arbitration Agreements: Supremes held generally enforceable under Fed Arbtration Act, Circuit City v. Adams, 2001; more and more common and upheld. Armendariz v. Foundation Health, CA supreme, 2000 2 employees signed arb clause at app and later when employed, 1 yr later terminated; filed under FEHA due to discrimination. Co sought to enforce arbitration clause, P’s say can’t make them arbitrate antidiscrimination claim, that some terms uncon and the uncon terms render entire arb agree unenforceable. Trial – for P and invalidated K. Appellate reversed, saying damages terms uncon and contrary to public policy, but rest should be enforced (severable-takes out offensive part). Supreme reversed and upheld trial court. No need to severe b/c arbitration clause itself is unconscionable. US Supremes have held arb clause ok if meet min requirements: 1) neutral arbitrator, 2) adequate discovery, 3) written decision that permits limited judicial review, 4) limits on costs of arbitration Uses Scissor-Tail test: If k is adhesive, then fist look at statutes and then look to judicial test: 1)must be w/i reasonable expectations of weaker party; 2) cannot be unduly oppressive. CA uses procedural (oppression or surprise due to unequal bargaining power) and substantive (overly harsh or one-sided) elements.

• Arbitration agree limited to employee claims re: wrongful term • Arb imposed in adhesive context lacks fairness and mutuality if it requires one party, but not the

other, to arbitrate all claims arising out of the same transaction. • Compounded by limiting damages for employees, but not employer

Don’t overuse Unconscionability: [e&e advice]

• courts only have statutory power to grant relief for uncon for sale of goods. Despite Rest 208, common law has some courts reluctant to extend uncon to cases that do not involve equitable relief.

1. even when available, most commonly used in consumer transactions when unworldly ind has entered bad K b/c of high pressure or other bad marketing practices by large, sophisticated bus. Sometimes applied b/t commercial entities, only rarely.

2. Concerned w/improper bargaining and unfair terms, but discrepancy in bargaining power is relevant, even though not primary focus of uncon. Must abuse the power, not just have it.

Public Policy

• Should not enforce b/c contrary to public policy – both P and D harm society if upheld • Prof thinks waning somewhat: immoral reasons no longer strong, used to be a major leg • Two primary types:

1. Violate specific laws – illegal. a. Even if the law is not specific to formation of a K, if there is a criminal code

prohibiting the behavior, understood as clear expression that K’s are unenforceable for policy reasons.

i. Exceptions: usury and gambling statutes make K’s in violation of them VOID.

2. Statutes silent, but courts derive policy from legislation related to the subject of the agreement. Courts intuit that v. public policy.

Rees Page 35 of 46 • Illegality precludes enforcement and restitution. §197 [LOOK UP} • R2d§178: Promise or other term is unenforceable on grounds of public policy if 1) statute provides or 2) the interest

in its enforcement is clearly outweighed in the circ by a public policy v. enforcement of such terms. Factors for court to consider:

i. In weighing interest in enforcement: 1. parties justified expectations 2. any forfeiture that would result if enforcement denied and 3. any special public interest in the enforcement of the particular term.

ii. In weighing public policy v. enforcement: 1. strength of the policy via legislation or judicial decisions 2. likelihood that refusal to enforce will further the policy 3. seriousness of any misconduct involved & how deliberate it was 4. directness of the connection b/t misconduct & the term.

*****Professor LIKES §178!!!! Bovard v. American Horse, ct of appeals, 3rd district, CA, 1988 Ralph bought AH from Bovard, signing promissory notes. Bovard sues for non-payment. Trial revealed AH made jewelry and drug paraphernalia. Ct held that though manu of the para not illegal, against public policy b/c marij illegal. Cn contrary to public policy and K illegal and void. Bovard appeals. Court used Moran and R2d§178 factors, decide little reason to enforce (D got back all the legal equipment so no unjust enrichment) and strong public policy reason not to enforce. Upholds as illegal and void.

• Contrary to public policy is question of law • When court learns K is illegal, has duty to refrain from enforcing it • Deciding if violates public policy is subjective.

Therefore courts cautious in applying; An “unruly horse, carries one into unknown and uncertain paths”

Must be entirely plain that violates public policy (balancing with freedom of K) Factors from Moran v. Harris to consider:

• Nature of conduct • Extent of public harm • Moral quality of conduct in light of stds of community

• In pari delicto: in circumstances of equal fault, the D’s position is more compelling. D can use illegality as a defense to suit to enforce an illegal K P’s response to illegality defense: 1)In pari delicto defense:P sues on K; D responds illegality defense; P then says not in pari delicto (I’m innocent) Liebman v. Rosenthal – allowed recovery b/c Rosenthal much more guilty than Liebman (Jew bribed official in war torn Germany to sneak out jewelry, he refuses to return jewelry) 2) Degree of involvement of this K so low and so remote from public policy, should enforce anyway. -------------------------------------------------------------------------Fri class ends--------------- Review: when does public policy trump freedom of K?

1. Often appear under illegality, traditional label 2. Two primary sources of public policy: 1)statutes; 2) judicially created (covenants not to compete infringing on

restraint of trade, ie CAB) 3. Defense is diminishing and probably a good thing b/c many of decisions appear based on outdated views of morality

(unwillingness to enforce K’s of cohabitants) 4. Restitution is a possibility in this area, even if court refuses to enforce K on its terms, to prevent unjust enrichment

(have to be careful so that doesn’t undermine the fundamental public policy) Courts sometimes use a clean hands doctrine: “he who comes into equity must come with clean hands”. Other courts use it to say the court has to keep clean hands by protecting its integrity. -like McKinnon v. Benedict – court wouldn’t uphold when one extracted very unfair deal XLO Concrete v. Rivergate, NY, 1994 XLO, subcontractor, and Rivergate, general, K for construction project. XLO fully performed and Rivergate refused to pay, saying K part of an extortion and labor bribery operation “Club”. Court says reject D’s defense that K should be held illegal per se under the Donnelly Act (state antitrust law). Needs to go to trial b/c too much info they don’t have that needs to be decided. Balance b/t unjust enrichment and enforcing K’s

• Antitrust defenses not favored b/c of danger of unjust enrichment; upheld only when judgment would result in enforcing conduct made illegal by antitrust act (Donnelly Act)

Rees Page 36 of 46 • However, cts must look to overriding general policy of not letting people get benefit for nothing when they claim to

be purchasing the benefit. • Thus, K legal and doesn’t call for illegal conduct is not voidable simply b/c it resulted from an antitrust conspiracy. • Factors to look at:

o If K price excessive and fails to reflect market price o Unlawful use of market power to inflate K price and resulting anti-competition must be assessed

o Is there unjust enrichment? o Would allowing illegality defense void whole K or allow recovery under quantum meruit

(restitution)? o In pari delicto? Relative culpability, bargaining power, knowledge of parties should be considered

[if in pari, D can use illegality as a defense] o Public policy: is it mitigated by statutory remedies? IF so, statutes can apply; D’s argue will be then that

those statutes are all the legislature wanted to be applied (not too persuasive-risky to infer from silence that legislature intends K’s to be enforced)

Rejoinders to defense of public policy: 1. In pari delicto 2. Degree of involvement is too remote from the illegality 3. in locus penitentiae: if can convince court has repented and done everything possible to undue negative effects.

Bribing Officials: State v. Strickland: Briber could not recover damages for breach of K to commit a crime “parties of that ilk are left where they are found, to stew in their own juice” Proper line:

o K to pay for services to obtain or defeat legislation by other means than use of argument is illegal K. (ie., using personal or political influence apart from appeal to reason)

Commercial bribery:

o To make unenforceable, must be direct connection b/t the illegal transaction and the obligation sued upon. o Problem w/denying recovery, is one is unjustly enriched.

Licensing Laws General Rule:

1. IF licensing statute is merely a revenue measure or merely an economic reg (to ensure adequate but not too adequate supply of a service or product) K entered by an unlicensed person likely to be enforced. Penalty of operating w/o license will be sufficient punishment w/o adding on penalty of refusing to enforce the K’s. B/c no strong public policy.

2. On other hand, if licensing statute is for protection of public’s health, safety or morals, then ordinarily will not enforce K by unlicensed person. Strong public policies. Ex, attorneys.

a. Restitution an option if clear value conferred

Judicially created public policy o No clear statute, and court must be satisfied that strong public policy can be articulated o Guiding principle to protect some aspect of the public welfare o R2d§179: Public welfare policies against 1. restraint of trade and 2. impairment of family relations o Overlap with unconscionability great in judicially created public policy: ie., Simeone case

Hopper v. All Pet Animal Clinic, Wy, 1993 Hopper vet signed no compete. Not to practice small animal med w/i 5 miles of Laramie for 3 yrs. Fired and started another practice. All Pet sued for injunction and damages. Supreme: B/c 3 yrs unreasonable, remand for modification to enjoin for 1 yr from date of termination and uphold district findings damages not proven.

o CL policy v. K in restraint of trade one of oldest and most firmly estab. R2d§185-88. o Initial burden on employer to prove reasonable and fair & necessary for business interests o Freedom to K and freedom to work in conflict o Rule of reason (R2d§188): restraint reasonable only if

1. no greater than req’d to protect employer o geography, time and practice scope limits must be reasonable

2. no undue hardship imposed on employee 3. is not injurious to public

o Loss showing unfair competition: 187 of their clients went to Hopper’s new practice + over 50% of her new practice based on small animal medicine

Rees Page 37 of 46 o Practice restriction: reasonable b/c she could practice large animal or in another part of cty o Public will not suffer if enforced o Durational limit should be reasonably related to legitimate interest which employer seeking to protect: 1 yr

reasonable, 3 yrs not.

Karpinski v. Ingrasci: scope of prohibited activity oral surgery/dentistry. {{NEVER USE AND/OR}} Too broad b/c parties were both oral surgeons, so prohibiting general dentistry went beyond scope of protecting employer. Provided that if covenant broken, $40k liquidated damages court says cannot have both injunction and unrelated sum. Could still prove actual damages. DeMuth v. Miller, 1995, p. 440; covenant not to compete upheld Fired due to rep gay org on TV. Court upholds covenant, saying no violation of public policy. The sep issue of discrimination in work place should be addressed w/legislature. Howard v. Babcock, 1993, covenant not to compete upheld Attys agreed to reduce partnership shares if they left (covenant not to compete). 3 left and sued for full share amt. Court upheld. States law practice no longer learned profession and much more like a business, therefore no special reason why not to compete just b/c law. CAB v. Ingram, II, TN, 1984 Chancellor found terms of non-compete unreasonable and modified. Issue: did Chancellor have authority to modify to make reasonable? Held: Yes.

o Historically, all or nothing at all approach; reason that courts modifying gives courts power to make private agreements and that is not ok.

o Then moved to blue pencil judicial modification, to strike only the offensive words of the term to make it reasonable.

o Critics say may destroy the intent of the K and emphasizes form over substance o Prof says a ridiculous rule

o More recent is Rule of reasonableness: unless circ indicate bad faith on part of employer, a court will enforce the K to the extent reasonably necessary to protect the employer’s interest w/o imposing undue hardship on the employee when public interest not harmed.

o In adopting, still maintain in general courts can’t create new K’s; exception in non-compete area o Opposition/dissent: will allow employers to insert oppressive terms w/knowledge court will correct if it

goes to trial; further employer often given atty costs, so they have no reason not to litigate; may provoke needless litigation

R2d§184: as long as term is fairly bargained for, it will be enforced to extent reasonable Simeone v. Simeone, PA, 1990 Couple with prenup separates. Husband says limited to $25k per the K and he already pd during the 2 yr separation. She says 1)not a reasonable provision, 2)she wasn’t fully informed of what rights she was giving up, 3)duress b/c presented 5pm night before wedding. Trial and appellate upheld prenup. Supreme of Pa says must uphold.

• Geyer: (1987) prenup valid if 1. made a reasonable provision for the spouse (substantively reasonable) or 2. entered after a full and fair disclosure of financial positions of both and statutory

rights being sacrificed (procedurally reasonable). • Court says no longer valid b/c assumes women weaker and law has advanced to recognize equal states of men

and women; would be too paternalistic to uphold Geyer • Consideration of knowledge of parties and reasonableness of their bargain is inappropriate • Prenups should be evaluated same as any K • Looking into reasonableness would undermine purpose of prenups • Reluctant to interfere w/power of persons to put what they regard as acceptable distribution of their property

into a K • No duress b/c ample evidence that she had 6 months to consider & talk about it

Dissent: so unfair that should not be enforced by a court. CHAPTER FIVE: REMEDIES FOR BREACH R2d§344

1. Expectation interest: (what expected to have) being put in as good a position as if the K had been performed; this is the default generally-§347;

Rees Page 38 of 46 2. Reliance interest: (what spent) being reimbursed for loss caused by reliance on the K by being put in as good a

position as if the K had not been made 3. Restitution interest: (what gave to other party) restoring any benefit conferred on the other party.

Measured by either (per §371) 1. reasonable value to the other party or 2. extent of increase in value

4. Equitable remedy: Specific performance(R2d§359): only if damages would be inadequate to protect expectation interest.

I. Specific Performance

• Equitable remedies: injunction or specific performance o Generally courts grant substitutional relief (money damages). o Modern trend toward awarding more frequently (UCC 2-716)

• CL courts generally did not grant specific relief • Must show 2 items in pleading

o 1) Adequacy test developed: equity would stop if remedy of damages was adequate o 2) Equitable remedies are discretionary

• Major Exception: real property (land) b/c each parcel ‘unique’ • Other Exception: heirloom cases (ie., Picasso or some very unique) • Court will not order specific performance for personal service

o To avoid involuntary servitude or disputing parties having to work together • Court will only grant injunctive relief if employee’s services are unique or extraordinary • b/c of special skill (opera singer) or 2) b/c of special knowledge of the employer’s business (CAB)

Klein v. PepsiCo, US Ct of Appeals, 1988. Klein wanted to buy used corp jet. Klein made offer, subject to factory inspection satisfactory to Klein plus a definitive K. Accepted the offer by telex, noting $100k downpay to be wired. District court found a K formed at this point. Inspection revealed needed repairs; PepsiCO agreed to pay for repairs (district court finding). The PepsiCo Chair then decided to pull the plane from the market (1 day before closing). Issue on appeal:

1. Was a K formed? -appellate court will only reverse if district made clear error .

Defense: PepsiCo claims no K b/c 1) parties did not intend to be bound until a written memorandum. Therefore, argues right to withdraw. [district

based K on Janus’ acceptance and conduct of parties] 2)condition of satisfactory inspection was not met. Since unwilling to accept plane as is, condition not satisfied. [district said this satisfied when PepsiCo agreed to make the repairs].

no clear error re: if a K existed and affirmed.

District ordered specific performance. Prof says this is accurate b/c going to be very difficult to determine market price of this plane. Some utility in offering party precisely what bargained for unless a reason not to do it (ie., personal services). Issue on appeal:

2. If a K, is specific performance appropriate? o No. Only allowed if goods unique and they are not based on testimony o Just b/c he couldn’t find one at the same price is no reason to justify specific performance.

remand for trial on damages: 1. Not unique, 2. Damages not inadequate Laclede Gas Co. v. Amoco Oil Co, 1975 Laclede v. Amoco for breach of K, seeking injunction. Written agreement, w/specific terms: Amoco supplier, Laclede distributor. L should give A 30 days written notice to stop if expected chg in business (propane to natural gas). L had right to cancel clause. No provision for Amoco to cancel. Amoco exp a shortage and limits all customers to 80%, Laclede objects, bad relations start. Later Amoco notifies of increase price, Laclede objects. Amoco sends letter terminating agreement due to lack of mutuality. District: K invalid due to lack of mutuality b/c Laclede had right to terminate but Amoco didn’t (=lack of consideration), denied injunction. Reversed. -unclear if Laclede will be able to continue to obtain propane from 2 other K’s after those K’s end -important b/c uses propane to meet demand at peak times -testimony they probably couldn’t get similar long-term K specific performance proper

Rees Page 39 of 46 UCC 2-716: seeks to further a more liberal attitude that some courts have shown toward specific performance of K’s of sale. Specific perf no longer limited to goods which are already specific or made so at time of K. Test of uniqueness must be made in terms of total situation.

• Output or requirements K’s involving particular or peculiarly available source/mkt present typical commercial specific perf situation (In the past only heirlooms or priceless works of art)

• May also be granted in other proper circumstances (inability to cover demand is strong evidence of other circ)

Northern DW Ind Dev v. Bliss, 1968 General contractor to modernize for 27mil. N sought specific perf to speed up work; Court denied b/c impractical and not spec circ or in public interest.

• Perf of K for personal services, even if unique, will not be enforced Efficient breach: If A can breach K w/B and thus gain enough extra $ for itself to pay off B (putting in situation would have been in) and still retain $ for itself, then efficient breach b/c A has gained value. Some scholars think this is good and efficient. P466. Free Market Value Idea: prof likes this: Review: 4 fact patterns re: should court grant specific relief instead of damages: Yes – Laclede & Walgreen; No – Klein & construction case Measuring Expectation: Expectation interest: (what expected to have) being put in as good an economic position as if the K had been performed; this is the default generally § 347 Measure of Damages in General Subject to the limitations stated in §§ 350-53, the injured party has a right to damages based on his expectation interest as measured by (a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform. Formulas most valuable in construction or service K’s and owner breaches[should always come out the same under either formula] Formula: (A): damages = loss in value (+ other loss) – cost avoided – loss avoided Example 1: K = $1k; cost $900: repudiates prior to performance-even if 5 mins after make K Loss in value $1k – cost avoided $900 = $100 damages. Example 2: same, breach after part performance. $500 spent. Loss in value $1K – cost avoided $400 = $600 damages. Example 3: finished Loss in value $1k – cost avoided $0 = $1k damages. Loss in value is not always K price, ie., construction K’s where payments for progress: Pd 300, loss in value 1k-300= 700 – 400 cost avoided = 300 damages (+300pd = the 600 as above) ----------------------------------------- Formula (B): damages = cost of reliance + profit – loss avoided + other loss Cost of reliance + profit = damage (per prof) Example 1: Cost reliance $0 + avoided profit $100 = $100 damages. Example 2: Cost reliance $500 +100 avoided profit = $600 damages. Example 3: Cost reliance $900 + 100 avoided profit = $1k damages. 1. If supplier injured & breach of recipient’s promise to pay: must determine supplier’s cost avoided, since loss in value is the $ the recipient failed to pay. 2. If recipient injured & breach is supply: must determine recipient’s loss in value, since cost avoided is the $ it has not yet paid. Not: use 2-708 only if can’t use 2-706. 2-706: Vitex Manu v. Caribtex, 1967, p472

Rees Page 40 of 46 Vitex closed its plant in Virgin Islands. Caribtex negotiated and agreed with Vitex to have Vitex process wool for Caribtex to import to US (able to avoid tariff if processing increased value by 50%). Caribtex breached b/c unsure they could avoid the tariff. Vitex had re-opened plant and made all necessary prep & demanded Caribtex supply the product. Then sued. Court calculated damages of diff from gross profits and projected costs to get lost profits. [Formula A: K price of $31k = loss in value – what costs would have been $10k = cost avoided = 21K damages]. Caribtex says court should have included overhead of Vitex as a cost (which would reduce amt of lost profits). Wrong at simplest level b/c overhead costs are NOT avoided. Court says no and affirms. 2-708: measure of damages for non-acceptance or repudiation by buyer is diff b/t mkt price and unpaid K price plus any incidental damages, less expenses saved in consequence of buyer’s breach. If this measure inadequate to put seller in as good a position as performance would have, then measure of damages is profit (including reasonable overhead) which seller would have made from full performance plus any incidental damages w/allowance for costs reasonably incurred and credit for payments or proceeds of resale. Example: formula A: if had already spent $5k as start-up costs, 31K-5K(cost avoided b/c 5K already spent)=26K damages **do not include overhead costs in cost avoided b/c costs go on and aren’t avoided. (basically, they would have included this built into the loss in value price, don’t subtract it out, so it’s still in damages awarded) HOWEVER, 2-708 would allow recovery of overhead by seller. Basically, court is saying if they changed it at all, they would make Caribtex pay overhead rather than subtract from Vitex’ damages. Laredo Hides v. H&H Meat, 1974, p476 Laredo agreed to buy hides from H&H output K for 3-12/72. Laredo sent payment, which was delayed, H&H found to have unjustifiably cancelled K at that point. Laredo had K w/tannery and had to buy product on open mkt to meet. Mkt price steadily increased. Judge trial = D wins. P appeals. Court reverses and calculates damages, using UCC 2-712. Laredo acted promptly and reasonably to find a ‘substitute transaction’. Damages = diff b/t cover price and K price, plus incidental costs of higher transport costs. Cover price was market price in this case. UCC 2-712: (will not be on exam) 1)After breach buyer may “cover” by making in good faith and w/o unreasonable delay any reasonable purchase or K to purchase goods in substitution for those due from seller. 2)Buyer may recover from seller as damages the diff b/t cost of cover and the K price, plus any incidental damages, less expenses saved due to seller’s breach. 3)failure of buyer to use cover doesn’t bar him from other remedies. Notes: 4 & 5 on pg 479 UCC 2-706 K price – resale Personal services K: Important per professor 1) piano teacher loses 1 K’d student and replaces with another – no damages b/c didn’t lose anything 2)contractors are different – law assumes they have infinite capacity, and if one breaches with them, they can recover b/c law assumes they could have finished that K and a replacement K. R.E. Davis Chemical Corp v. Diasonics, US Ct Appeals 7th, 1987, p480 Davis K to buy diagnostic equip from Diasonics. Davis pd $300k deposit. Prior to entering agreement w/ Diasonics, Davis made K’s to estab med facility to use the equip. Those K’s breached w/ Davis, then Davis breached w/Diasonics. Diasonics later resold the equip. Davis sued for restitution of the deposit. Diasonics claimed entitled offset as a “lost volume seller”, having lost profit from one sale when Davis breached. Therefore, entitled to lost profit of K w/Davis under 2-708 as expectation damages. Trial court awarded Davis $300 plus interest, less Diasonics’ incidental.

• majority states lost volume sellers can recover lost profits under 2-708. • Idea that could have sold the “resale based on breach” PLUS the contracted item if the K had not

been breached • Appellate reverses and District needs to calculate Diasonics damages based on sale to Davis and sale to

resale buyer (if Diasonics can show capacity to make both sales, that it would have been profitable to make both sales, and that it would probably have made the second sale absent the breach

Notes: In practice, outcome may turn on who has burden of proof on issue of lost volume. Courts generally put burden on seller. Two arguments: (from Islamic Rep of Iran v. Boeing, 1985). 1. Market is one in which supply exceeds demand.

Rees Page 41 of 46 2. Most juris: under 2-708, seller need only show that it could have supplied both to the breacher and the resale purchaser. Losing Contracts Classical courts tended to force expectation on losing contractors. Learned Hand, Albert & Sons, put burden of proof of cost avoided on breaching party. Intended in messy cases to give benefit of doubt to non-breaching contractor. US v. Algernon, 1973, p488 Grants restitution instead of expectation (this was a progressive move). Partial performance, $37 k owing for that performance, but court finds would have lost more. If had used expectation: Formula B: cost of reliance $37k+ anticipated profit (- a number > $37k) = 0. Basically, if granting expectation would cost more than I owe you, don’t owe anything. Restitution: allows to recover value of benefit conferred. Acme Process – one case that granted reliance damages, lot of start-up, but hadn’t delivered any guns to Israeli gov; Israeli breached. Expectation wouldn’t be adequate; restitution not possible b/c no deliver; sued for reliance – cost of reliance. Review: Vitex teaching application Formula A and don’t include overhead in cost avoided. Make sure pro rata share of overhead is in the final damages so that doesn’t make all the other contracts of the year less profitable. LV-CA=D Davis: when to use formulas: CR +AP=D: loss volume seller these formulas apply: difference b/t seller who has only one car to sell, buyer breaches, sells next day for less – don’t need formulas – just diff in orig K price and sales price. BUT lost volume seller – use formula to give lost profit b/c lost 1 sale when person breaches, even though made the second “resale”. Formulas contractor or supplier of services, doesn’t fit well for buyer of goods. Laredo: 2-712: cover price less contract price = damages; in sale of goods case; burden on seller to prove cover unreasonable Algernon: use restitution No majority rule. Consider various possibilities: How to calculate losing contracts: Formula A & B What alternatives: restitution, reliance How to convince court Learned Hand places burden on breaching party Limits on Damages Avoidability, foreseeability, certainty (contract damages to be recoverable must be reasonably certain) Avoidability: Sometimes said injured has a duty to mitigate damages, really incurs no liability for failure to mitigate, however, injured party is precluded from recovering for loss that it could reasonably have avoided. [but if talk in terms of duty to mitigate, everyone will understand] R2d §350: Avoidability as a limitation on damages 1) Damages are not recoverable for loss injured could have avoided w/o undue risk, burden or humiliation; 2) Injured party can recover to extent he has made reasonable but unsuccessful efforts to avoid loss. Rockingham Cty v. Luten Bridge Co, 1929, p492 Cty entered K w/Luten. One month later notified refused K (b/c public pressure not to build). Luten continued, then sued for full contract price. Appellate reverses trial grant to P, saying:

• After cty gave notice, while K still executory, P could not proceed to build it and recover K price. • After P rec’d notice, should have treated as breached and sued for damages (including lost profit). LV-CA=D or CR

+AP (on entire contract)=D • Further claim of restitution, but court denies b/c no benefit to Cty

o If had been a benefit to cty, avoidability will trump restitution b/c basic principle can’t do something after breach that increases damages

• Williston: 1)P cannot hold D liable for damages which could have been avoided o Why? Work useless to D, but he has to pay full price; P may recover his profit & spend his time elsewhere

American law rejects constructive service common in England (if stand ready & willing to work all year, but co. doesn’t need the work – get paid for whole year)

Rees Page 42 of 46 In America:If fired, have 2 obligations before can collect whole years pay: 1. must try to find another job; 2. if someone offers alternative employment, I have to take it if comparable to job originally held. The second job $ will be deducted from the original contract. Harder: if head coach fired, would have to take similar but lesser jobs? No firm answer, lawyer should advise reasonable possibility if doesn’t take the job, firing co. can deduct from the original co. anyway. Generally, items like moving expenses don’t figure into circumstances court considers. Parker v. 20th Century Fox, 1970 (Shirley Maclaine case) In order to reduce damages, at least in movie star case, employer has to show substitute employment comparable substantially similar, not inferior and substantially different. 2)In general, employee has duty to mitigate damages by seeking comparable employment. (not in this case) 3)Avoidability and Cost to Remedy Defect

• Cases of defective, rather than incomplete, performance raise problems of avoidability • Incomplete – can usually arrange to have someone else complete, so that damages are cost to complete the work

rather than loss in value. Ie., blder breaks K by failing to finish roof of bldg; damage is cost to have roof completed, not loss from inability to use bldg

• Total cost to remedy a defect, where undoing some work is included, may be greater than loss in value, creating a windfall if the damage is awarded, but the work not undone and re-done.

• Balance of cost to complete with loss in value • Cost to complete is standard remedy; but if blder’s perf defective – more difficult to decide – sometimes loss

in value b/comes right measure – almost always when loss in value less than cost to complete (ie., Jacob & Youngs case).

Jacob & Youngs v. Kent, 1921 – still a leading authority on both issues P built country house for D and wants last of payment. D refuses, b/c P didn’t use the kind of pipes required by the K. D discovered and required the work be re-done, P refused b/c meant demolishing and re-doing. P wins and is affirmed.

• 1st issue: can builder recover on K even though he breached? Normally, no. However, is promise to pay K dependent on blder’s promise to build on specifications or is indep, meaning owner has to pay even if bldr breached. Where breach trivial and innocent, then the two promises are indep and blder can recover, even hasn’t fully completed as per K substantial performance

• 2nd issue: what are owner’s damages b/c of breach? Cost to complete or diff value? Measure should be difference in value, which is nominal or nothing b/c similar pipes were used and defect was insignificant in relation to the project; breach not willful, but carelessness

• Generally cost of replacement is damage, to allow owner to complete the work, UNLESS it is grossly & unfairly out of proportion to the good to be gained, then difference in value is more appropriate

• Both issues – equity and fairness more important • Dissent: D had a right to contract for what he wanted and to receive it.

Groves v. John Wunder Co., MN, 1939, p513 Groves leased to Wunder land for gravel excavation, with stipulation Wunder grade the land a certain way. Wunder didn’t. Cost to do so $60k, adding value of $12k to the property. D’s should be liable for reasonable cost of doing what they promised to do, were paid to do, and willfully didn’t do. Posner: Groves court wrong – inefficient use of resources to grant 60 for 12.; efficient breach idea. Would consider specific performance. Prof says $12k is right number here. Peeveyhouse v. Garland, OK, 1962 Peeveyhouse leased their farm for coal mining to Garland, Garland to do restorative work at end of lease. Didn’t do it. Cost $29k, would increase in value $300. Says Groves the only case allowing cost of performance when that cost greatly exceeded loss in value. Says restorative incidental to the main K. Gives diminution in value of the $300. Prof says this case diff from Groves b/c Groves investment property & here the family farm. Ought to try to find actual damage to the aggrieved party in all cases – Groves $12k b/c just an investment & that’s the value; here try to find “indifference point” – at what number will they be indifferent to either getting the land restored or the money. 4th remedy: subjective diminution in value – don’t care about market price, care about value to person of having their farm damaged. Jury found $5k, and this probably realistic. - what about value to future generations, to environment: maybe higher $ to force strip miners to refurbish as they

promise – so far courts don’t explicitly mention this. A good argument for the P.

Rees Page 43 of 46 Dissent: says not incidental, but central to the bargain. Note: OK Supreme in 1994 give a solution: parties can specify measure of damages in the K. Issue of economic waste in all three cases: should breach be excused b/c of economic waste? Prof. seems to say yes. R2d §348: Alternatives to loss in value of performance 2) if breach results in defective or unfinished construction and loss in value not proven sufficiently, may recover a) diminution in market price or b) reasonable cost of completing or remedying defects if that cost not clearly disproportionate to probable loss in value to him. Don’t increase; mitigate if possible; cost to complete or diminishment in value; Posner specific perf; Prof subjective diminution in value Foreseeability Hadley v. Baxendale, 1854 Hadley owned mill; shaft broke; had to stop operations until rec’d new one. Sent broken one as model via Baxendale carrier service; dispute in facts re: if clerk notified of situation or not. Due to negligence, Baxendale delayed delivery by several days; Hadley sues for lost profits during those days. Baxendale says damages too remote and they should not be liable. New trial needed; judge should use this rule:

where 2 parties have made a K which one has broken, damages should be those 1) fairly and reasonably flow normally from the breach itself, or 2) those that reasonably were contemplated by both at the time of the K as a probable result of breach (incl spec circ). Exception: if special circumstances known by D’s, then would be damages ordinarily following from the breach under the special circ.

No loss of profits can be used here b/c court found D not aware of the special circ. Consequential Damages: not arising naturally, but only as a result of special circumstances; ie., personal injury in auto breach – damages both diff in how auto actually is and how warranted to be, plus consequential damages of personal injury. R2d §351: court may limit damages even for foreseeable loss if in circ justice requires to avoid disproportionate compensation. Tacit agreement test: only recover in breach K action those damages the breaching party would have agreed to pay if had asked it at time entered into K. narrows range of K damages. Fell into disfavor. (Prof doesn’t like this test). UCC rejects. Foreseeability not as big a problem today: damages need only be reasonably foreseeable. Delchi v. Rotorex, 1995 Rotorex agreed to provide compressors. Not made to specs. -can recover expenses incurred that would not have been incurred if product made to specs, in addition to lost profits. -lost profits on future K’s: harder to recover, 2 defenses: foreseeability and certainty. Kenford v. Cty of Erie, 1989 Cty supposed to build stadium, Kenford to donate land & sues for loss in value of property around area. Court says no b/c 1) not foreseeable: cty did not contemplate assumption of the liability for these damages (close to a tacit agreement test); Kenford took his own risks and 2) b\c damages too speculative.

• Foreseeability limits liability for unassumed risks and diminish risk of business attempts. • Seems to be a movement back to tacit agreement – under tacit, damages foreseeable b/c everyone knew they would

be buying the property w/plans for increased value –maybe a taxpayer protection decision, doubt this will foreshadow movement back to tacit agreement (no indication they would have agreed to pay, even though foreseeable-stronger argument for defendant, even stronger than Hadley v Baxendale)

P. 533 problem: More modern trend in foreseeability: bldg bridge, steel supplier very late in delivery, contractor faced w/ hiring extra crews to accelerate to finish on time or winter the job and start next spring. Chose the first. Incurred large telescoping (acceleration) costs & sued for those as consequential damages for late delivery; defense not foreseeable; court says anyone involved in construction in upstate NY would foresee – contractor wins. Like Delchi Carrier – perfectly foreseeable under Hadley v. Baxendale stds. Redgrave v. Boston Symphony P has burden of proving by preponderance that harm foreseeable and w/i contemplation of parties.

Rees Page 44 of 46 Emotional Distress Courts reluctant to award

• R2d§353: excluded unless breach also caused bodily harm or K or breach is of a kind that serious emotional disturbance was a particularly likely result

• Rule: Generally, only if 1) personal in nature (burying body) and 2) breach will necessarily or reasonably result in mental suffering, and 3) parties should know from nature of K that such suffering will result from breach

• Most common in actions for breach of employment K’s – generally find reasons to refuse • Punitive damages awarded only in most unusual circ when D acted in extreme deviation from reasonable stds of

conduct • R2d§354: punitive damages only recoverable if conduct causing breach also a tort where punitive damages available

Certainty

• R2d§352: precludes recovery for loss beyond amt evidence establishes w/ reasonable certainty • Often certainty and foreseeability go together. • Courts tend to be sympathetic w/clients who tried hard to estab certainty • P.536 Hendricks case: future losses of K’s not entered into, foreseeable, but not certain enough to recover.

Fera v. Village Plaza, 1976

• New business/interrupted business distinction: if already estab, reasonable prediction can be made re: future based on past. If no history, profits often too uncertain for recovery. (Corbin on K’s)

However, in this case, trial court noted the extensive testimony on both sides re: new business’ future, and MI supremes affirmed b/c say matter of fact and trial court decided.

Evergreen: K to construct drive-in. Contractor delayed several months, so theatre couldn’t open until 1 year later. Court denied any lost profits from that year. Prof. says very strict, b/c reasonable that could have used 2cd & 3rd year profits to estimate what that year’s profits would have been. Liquidated Damages and Penalties -K damages to compensate parties for breach, not to create damages that penalizes or pushes unduly into performing. Aggrieved party just gets put into place would have been w/o breach. -general std, liq dmages must 1) constitute good faith & reasonable estimate of anticipated damage at time K was entered into (foresight). 2) even in hindsight, must bear reasonable relation to actual damages. Some suggestion 2cd part falling away. Wasserman’s v. Middletown, 1994 Wasserman & town of Middletown entered into commercial lease for town owned property. Clauses: 1) if town canceled would pay Wasserman’s a pro-rata reimb for improvement costs (this is okay) & 2) damages of 25% of Wasserman’s ave receipts for 1 year (this is problem). Town cancelled and sold, refused to pay damages. Affirmed, but reversed for trial on damages. Problem: need to decide if ok liquidated damages clause or a not-ok penalty clause-good defense that gross receipts have nothing to do with calculating actual damages

• Liquidated damages: sum agrees to pay if breaks some K promise, arrived at by good faith effort to estimate actual damages that will probably occur due to the breach – legally recoverable as agreed.

• Penalty: fixed, punishment, threat designed to prevent a breach – unlawful. 3 possible standards: 1. Reasonableness of forecast of either anticipated or actual losses the test to determine b/t the two. R2d§356.

Deemed presumptively reasonable & party challenging must prove unreasonableness. 2. Must be reasonable in light of both anticipated and actual damages. Prof favors. 3. Reasonable in light of anticipated. Better for those wanting to uphold, b/c hindsight doesn’t count. Gustafson v. State, 1968 P contractor, sued state for liq damages state had withheld b/c P had completed project late. Old road kept open throughout; P argument liq damages doesn’t bear reasonable relation b/c no damages b/c old road open all along; court still sustained liq damages b/c thought reasonable since state used a table for all across the state, thought a good faith effort to estimate damages. State’s argument: why do you think we paid you to build the new road? Better, more convenient for citizens. Can’t tell w/certainty how much inconvenience, but fact bldg evidence it is better for state/citizens. • Where liquidated damages are fair and reasonable attempts to fix just compensation for anticipated loss caused by

breach, they are enforced. 3rd Party Beneficiaries

Rees Page 45 of 46 Rest 2d §302: Intended beneficiary if right to performance is appropriate to carry out intent of contracting parties and 1) performance of the promise satisfies an obligation to pay $ to the beneficiary OR 2) circ indicate the promisee intends to give beneficiary the benefit of promised performance. Incidental beneficiary is one who is not an intended beneficiary. Big Issue: Did contracting parties intend this contract they made to benefit a 3rd party in a significant way? Argument re: is appropriate as matter of public party to all non-contracting parties to sue? Two interesting: 1. Lawyer promises testator in such a way that portion of estate to favored nephew. Fails to do it properly, nephew sued lawyer as 3rd party beneficiary – court said appropriate case for 3rd person to be able to sue, however, all lawyer promised was not to be negligent & nephew loses. Now rule different, intended beneficiaries can sue if lawyer messes up will. Incidental beneficiary: car salesperson commission is too incidental to be considered 3rd party intended beneficiary. 2. Municipal cases: Cardozo, 1930’s, NY: A city contracted w/water co to provide water to fire hyd & homes in the city; large fire, several bldgs burned b/c couldn’t get enough pressure. Mock’s bldg burned sued water theory couldn’t estab neg; sued as 3rd person beneficiary to promise to keep water at certain pressure. Decided he could not recover; said K had 2 parts: 1 water to ind residents, 2 certain level pressure; residents intended beneficiaries 1st and not 2cd. Gymnastics – worried about crushing liability problem to make water co liable to all citizens. Still difficult problem Assignment & Delegation A and B have K. When can A assign rights to C? R2d §317: Contract right assignable, unless the assignment 1) would materially increase B’s burden of performance or its risk of not receiving return performance or 2) precluded by contract itself or precluded by statute. Valid assignment to C requires manifestation of intent to transfer the right (usually not a serious issue). Generally, right to buy & sell goods assignable. Personal in nature, probably not assignable. Ie., painting a portrait, golf lessons. If A sells company to C and B doesn’t want to work for C for some reasonable reason. Is a gratuitous assignment enforceable? Does A have right to revoke the contract right she assigned to C? R2d§332: What’s legal standard What do need to do to make one When is gratuitous assignment revocable? When may B delegate his duties to D? Or, when must A accept performance of B’s obligation from D? R2d§318: One may delegate, unless promisee (A) has substantial interest in having B perform the duties. B is still liable to A, unless a novation created whereby A agrees to new contract with D. Question for exam: A landlord, B tenant. B sublets to D. Even if duty to pay rent delegable to D, B is still responsible, unless A agrees B is not responsible = novation between A and D. D is liable to B and to A b/c D liable to B and A is an intended 3rd party beneficiary. EXAM -better to analyze via cases and restatements -packages: offer (lucy; owen v. tunison; Fairmont glass; Harvey v. facey); is action consideration or condition of accepting a gratuity (Kirksey), what was intent, was bargained for? (like tiffany emerald case); certainty; foreseeability (Hadley, rest, delchi, kenford) remember to write as objective law office memo. Formula a & b: expectation: Vitex; party promised to do something, has been kicked of job (the other has breached). How to calculate damages to get back to where would have been w/o the breach.

Rees Page 46 of 46 - when calculate, may find a losing contract, then determine alternatives for damages (reliance, restitution)

don’t leave a question until you’ve accounted for every fact…

CONTRACTS OUTLINE, Mooney Spring 2002 Allyssa Walton PAROL EVIDENCE RULE

1. The Issue: When an agreement has been put in writing, one party claims there was also and earlier oral or written agreement, or a contemporaneous oral agreement, that was not included in the writing but was intended to be part of the K. In such cases, the admissibility of the alleged additional agreement turns on the applicability of the parol evidence rule.

2. Rules: a. Mooney: Restatement 209 + 215: Where parties have intended a writing as the

final expression of all or part of their agreement, evidence of any other prior or contemporaneous term is not admissible to contradict the writing.

b. Justice Traynor: When the parties to a written K have agreed to it as an “integration” – a complete and final embodiment of the terms of an agreement – parol evidence cannot be used to add to or vary its terms…when only part of the agreement is integrated, the same rule applies to that part, but parol evidence may be used to prove elements of the agreement not reduced by writing.

i. “Credibility test” – parol evidence should only be excluded if it would mislead the trier of fact.

3. Reasons for Rule: a. Juries may tend to favor the underdog. (Mooney doesn’t agree). b. People might make up agreements that never happened. c. Certainty in K interpretation. d. Ability for people to rely on what is written to know what their legal obligations

are. 4. Integration:

a. A complete integration is where the parties intended the written K as a final and complete statement of the agreement in writing.

b. A partial integration is where the parties intended the writing to be a final expression of part of the agreement.

i. Formal intent: Traditional view was that a writing would be treated as an integration if taken as a whole and on its face the writing appears to be an instrument that complete ly expresses the parties’ agreement (writing not only the best, but only evidence of intent). Gianni v. Russel & Co.

ii. Actual intent: Modern view is that a writing is deemed to be an integration only if the parties actually intended it to be an integration. Court will consider any relevant evidence to determine intent. Masterson v. Sine, R 209.

c. UCC comment 3 2-202: Only if the parol term would certainly have been included in the writing, if agreed upon, then it must be kept from the trier of fact (this likes the parol evidence rule less than the restatement).

5. Merger Clauses: Provisions in a written K that the written K is the entire K between the parties, or is the final, complete and exclusive statement of all the terms the parties have agreed upon.

a. Traditional approach: These clauses are determinative on the question of whether the writing is an integration. Still the majority rule.

b. Modern courts (minority) will sometimes say it is just one factor in determining whether it is an integration.

c. Defense can claim unconsionability. 6. Defenses: Can have a D for the K itself:, even if it is completely integrated. Fraud,

duress, mistake, illegality. 7. Exceptions:

a. Separate consideration: Even if a writing is an integration, parol evidence is admissible if the written integration and the alleged parol agreement are each supported by separate consideration.

b. Collateral agreement: Parol evidence is often admissible if the alleged parol agreement is “collateral” (i.e. related to the sub. matter but not part of the writing).

c. “Naturally Omitted Terms”: Widely accepted modern rule, R216, is that parol evidence is admissible if it concerns a term that would naturally be omitted from the written agreement. A term will be treated as naturally omitted if:

i. The term does not conflict with the written integration; and ii. The term concerns a subject that similarly situated parties would not

ordinarily be expected to include in the written agreement. 1. Two approaches: (1) Whether an abstract reasonable person

would have omitted the term in question from the writing, (2) Whether the actual parties might have naturally omitted the parol agreement from the writing. Masterson v. Sine. This is the majority view.

8. Gianni v. Russell, 1924: P claims and oral agreement (in addition to a lease) where P agreed not to sell tobacco in exchange for exclusive rights to sell soda in the building. D denies the oral agreement took place. D rented another space to a drug company that sold beverages.

a. Issues: i. Whether the parties would have naturally included the additional term in

their K? Held: Yes, because it embraces the field of the alleged oral K. ii. P’s argument: Whether the exclusive rights to sell soda was a separate

and ind. agreement and therefore not barred by parol evidence? Held: No. This term would have been a part of the main agreement and there was no consideration for the separate agreement.

9. Masterson v. Sine, 1968: P conveyed their ranch to D by a written deed. The deed provided an option to repurchase at a designated price. There was a separate oral agreement that the option was personal to P. P’s trustee wanted to establish their option.

a. Held: Evidence of the oral agreement is not barred by parol evidence. b. Rule: Parties’ intent needs to be considered. Case rejects classical Gianni rule

that a writing that looks complete is presumed to be complete. Traynor says that an agreement can’t prove completeness in and of itself.

i. Traynor also uses collateral agreement to say that the parol is parol evidence in a partial integration case (said this is a completely separate agreement).

10. Bollinger v. Central Pennsylvania Quarry 1967: Parties entered into oral agreement where they agreed D would deposit his waste on P’s property, but would cover the waste when one. Written agreement did not include clause, P did not read before signing.

a. Rule: A court can reform a K for a mutual mistake in integration. Escribinor’s error.

INTERPRETING CONTRACT LANGUAGE

1. General Rule: Where the interpretation of an expression (words or conduct addressed by one party to another) is in issue, the expression should be given an objective interpretation (interpretation of a reasonable person standing the addressee’s shoes). In 99% of cases, the court will look for an objective K interpretation.

a. Vague v. Ambiguous i. Vague: When its applicability in marginal situations is uncertain.

ii. Ambiguous: Two entirely different connotations, so that it may be appropriate or inappropriate.

2. Exceptions: a. When an expression is susceptible of two equally reasonable meanings

i. i.e. John is married to two women. He leaves his house to his wife. Which does he mean?

ii. i.e. Raffles v. Wichelhaus: Two ships called the Peerless. Both reasonable interpretations. In this case, no K is formed.

b. Both parties have the same subjective interpretation (this will govern even if their interpretation is not the reasonable meaning of the term). Theoretical, if this happened, a dispute would most likely not arise.

c. One party knows of the other’s different interpretations: If A knows B’s interpretation, then B’s interpretation is determinative.

3. Frigaliment Importing Co. v. BNS International Sales Corp., 1960: Young v. Old Chickens case.

a. Issue: Whether the word “chicken” includes stewing chickens as well as broiler chickens?

b. Use of the word “chicken” was too vague. Court found that P did not sustain their burden of persuasion that the K used “chicken” in a narrower sense (i.e. young chicken as opposed to all kinds of chickens, inc. old).

4. Raffles v. Wichelhaus 1864: Peerless case. a. Parol evidence may be given for the purpose of showing that D meant one

Peerless and P another. It would be an imposition to hold P to a K he did not enter into.

5. Oswald v. Allen 1969: Swiss coins case. P thought he was buying both D’s collections for $50,000, P thought only one.

a. Rule: When any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there is no K unless one of them should have been aware of the other’s understanding.

b. Interesting, borderline case according to Mooney. c. Mooney would ask the client to look at the contract and see the description of the

coins – was it capitalized (indicating it was a specialized collection), or not capitalized (indicating it was just all of the Swiss coins).

d. COASE THEOREM: Tells us the result of the litigation will not effect who comes out with the coins. It doesn’t affect allocation, but it does effect distribution of wealth.

i. This will effect rather dramatically how much the buyer has to pay for the coins. If he wins the case, he gets them for $50,000. If she wins the case, and they renegotiate, they will cost him a lot more.

6. Hurst v. W.J. Lake Co. 1932: Meat scraps case. Trade usage indicated that 50% protein meant 49.5% or more. Meat contained 49.53-49.96%.

a. Rule: Trade usage is applicable, even when an instrument is non-ambiguous on its face (trade usage trumps mathematical usage).

7. Rules in Aiding Interpretation

a. Plain meaning rule: Many courts apply this rule with much investigation into what parties reasonably understood term to mean.

b. Public interest: Not widely recognized. Environmental disputes often make this argument (Peevyhouse – court upheld K to further public interest, not really to help the Peevyhouses).

c. Expressio unius: To express one is to exclude others. d. Nascitu a sociss: It is known from its associates. e. Contra Proferentum: Against its author or proffer. This works for K underdog.

8. Evidence to present: a. Evidence internal to the K b. Dictionary evidence c. Foreign Language Evidence d. Evidence from Government statutes or regulations e. Trade usage evidence, Course of dealing, Custom f. Evidence of the likely, and almost inevitable, subjective intention of both parties.

Ex. Chicken/Broiler - Subjectively both should have known because they would have been operating at a loss.

American courts in general interpret contracts objectively, so even if the Frigaliment case showed that the plaintiff subjectively thought they were buying fryers, the case would have come out the same.

This prevents dissembling (fibbing) and having to find subjective intent. FILLING GAPS

1. Restatement 205, UCC 1-203): In every K, there is an implied obligation on both parties to act in good faith and with fair dealing on a K.

2. Rule: Good Faith obligation means that party A will not do anything to reduce the reasonable expectation of party B and jeopardize the expectation (or fruits of the K).

3. Reason court will find an implied term in a K: FAIRNESS, to insure the legal system looks at what is fair.

4. Dalton v. Educational Testing Service: Implied obligation of good faith and fair dealing imposed on the Education Testing Service (obligation to review material presented by Dalton that exculpates him from their allegations).

a. The obligation in theory, is that A prevents B from depriving A of the fruits of the K that is expected,

b. If the party gives discretion in someway, the implied obligation of good faith and fair dealing prevents the party from giving discretion arbitrarily,

c. However, the implied obligation cannot be inconsistent with express terms. i. Typical limitation

ii. If ETS form had said ETS will have total discretion in determining whether or not to report the score, then Dalton would have a hard time convincing the court to allow him to submit his information.

iii. In this case, the form said that the student would have the opportunity to provide additional information.

5. Burger King v. Weaver: No implied obligation of good faith to not put a second franchise next to the first franchise.

a. In this jurisdiction, the court will not use the implied obligation of good faith to add a term or otherwise vary the express terms (Dalton just said you can’t contradict a term, didn’t mentioning adding a term)

6. Eastern v. Gulf: Gulf breached K with Easter, claiming Eastern violated their K by not acting in good faith b/c of fuel freighting practices. In reality, Gulf was trying to weasel out of their K with Eastern because oil prices had shot up and they wanted more money.

a. Issues: i. 1st: Consideration (lack of mutuality)

ii. 2nd: Remedies: Whether Eastern could appropriately obtain specific performance.

iii. Good Faith. Governed by UCC b/c it is the sale of goods. b. UCC 1-201(19): Defines good faith (subjective definition) – honesty in fact c. UCC 2-103: Sale of Goods: Merchants have a higher good faith standard, they

have to be not only subjectively operating on good faith, they have to objectively be operating on good faith as well.

d. Throughout the entire commercial code, there is a narrow definition of good faith e. UCC 2-208: Course of performance – how did these parties perform the K up

until the time the dispute arose. i. In this course of performance, this fuel freighting when on for years and

years. Trade Usage. 7. Commercial leases: Often have a certain base rent per month plus a certain percentages

of gross receipts. Problem arises when tenant wants to stop the business altogether and just pay minimum monthly rent, or it wants to cut back and the receipts go down. The leaser argues that there is a good faith obligation on the part of the defendant. Implied term: Best Efforts. This is similar to what is found in Wood v. Lucy Lady-Duff Gordon.

8. Zilg v. Prentice Hall: Nature of an implied obligation on the publisher is to act in good faith, it is not to exert best efforts on behalf of the book.

a. Trial court held that there was a bad faith decision to “privish” the book (meaning they fulfilled technical requirements to publish, but did not do more than that. Mooney agrees with this opinion, although the decision was reversed.

b. Court of appeals: The obligation to act with good faith in promoting the initial promotional activities was fulfilled, and the K language dictates that a business decision by the publisher to limit the size of a printing or advertising budget is not subject to second guessing by the trier of fact whether it is sound or valid.

c. There are two ways Zilg could have shown breach of K: i. Demonstrate that the initial printing and promotional efforts were so

inadequate as not to give the book a reasonable chance to catch onto the reading public.

ii. Show that even greater printing and promotional efforts were not undertaken for reasons other than a good faith business judgment.

9. WOOD’S RULE: If an employee was terminable at-will, then an employer could fire her anytime for any reason.

a. Heydey of progressive contract law: Late 60’s, early 70’s - protection of employees increased. Three grounds employee might assert:

i. Something in a conversation or in an employment manual that at least by implication if not explicitly, gave her the right to be fired only for cause.

ii. Public Policy exception: You cannot fire someone for exercising a right that involves some important public policy. You cannot fire a Whistle-blower, for example.

iii. There is, in every employment K, an implied obligation of good faith and fair dealing (employers tend to vehemently oppose this one). There has to be some reasonable reason for firing a person.

b. 80’s and early 90’s saw all three of the above grounds wither considerably.

i. Some states passed statutes that say there is no obligation of good faith and fair dealing in any employment.

ii. Employment lawyers began to put disclaimers in employee manuals. iii. Even the public policy ground has been narrowed considerably.

c. Sheets v. Teddy’s Frosted Foods 1980: Violation of public policy exception to firing at-will.

i. Employee should not be put in a position whether to risk criminal sanction or to jeopardize his continued employment.

10. Balla v. Gambro 1991: Lawyer case. a. General rule: In-house counsel does not have a claim under tort of retaliatory

discharge. b. Appellee was required to abide by the rules of professional conduct, so public

policy was adequately safeguarded without extending the tort of RD. c. Extending the tort of retaliatory discharge to in-house counsel would have an

undesirable effect on the attorney-client relationship (would destroy trust). d. Inappropriate for the employer/client to bear the economic burden their counsel’s

adhering to their ethical obligations. i. Two influential courts – CA and Massachusetts went the other way:

Because an attorney is obliged to inform someone when clients are engaging in illegal conduct, they should have protection.

CONDITIONS

1. In General: A K may expressly provide that a party does not have a duty to perform unless some condition is fulfilled. In such a case, the party’s failure to perform will normally be justified if the condition was not fulfilled.

2. Definitions: Condition means either: a. An event or state of the world must occur or fail to occur before a party has a

duty to perform under a K, or b. An event or state of the world - the occurrence or non-occurrence of which

releases a party from its duty to perform under a K. 3. R2d 244: A condition is an event, not certain to occur, which must occur, unless its

nonoccurrence is excused, before performance under a K becomes due. 4. R2d 217: Conditions – a reasonable well-accepted exception to the parol evidence rule.

One is permitted to use parol evidence to show the party’s agree to a condition precedent to the effectiveness of a K.

a. The alleged parol condition cannot contradict a writing in order for the exception to apply

5. Three kinds of questions around conditions: a. Have the parties made a particular event or non-event a condition of one party’s

performance or both parties’ performance? b. Has the condition, if it is one, been satisfied? c. If it hasn’t been satisfied, what’s the legal effect of the non-occurrence of a

condition? 6. EXAMPLE: Sarah promises to carry Carl’s goods in her ship from London to Gibraltar.

Carl promises to pay her for that service $5000. In addition, the parties agree that in some fashion Sarah will get the good there in 25 days. Two ways to word the 25 day term:

a. Sarah could promise to get the goods there in 25 days. If she’s late, then she has breached her promise and will be liable for damages.

b. Parties will word the term as a condition. “It shall be a condition of Carl’s obligation to pay that Sarah get the good there within 25 days.” If she’s late, she hasn’t breached, she just doesn’t get paid. This excuses Carl’s performance.

c. It is almost always more equitable to construe language as a promise than as a condition.

7. Luttinger v. Rosen, 1972: P contracted with D to purchase property and paid deposit of $8500. K was conditioned upon P obtaining 1st mortgage in amount of $45,000 for not less than 20 years at 8.5% financing. P contacted one institution and was unable to get 8.5%. Offered to pay the extra, but D refused and kept the money. Court ordered that D give back the money because P had tried to meet the condition and had been unable.

a. Hornbook rule in K law: One has to satisfy a condition absolutely. No doctrine of substantial performance. Mooney thinks this might be collapsing.

8. Peacock Construction Co. v. Modern Air Conditioning 1977: D is a contractor who had two subs. K contained a provision that said D would pay the subs within 30 days after full payment by owner.

a. Court held this language was not a condition – simply a timing provision. Meaning of language is not that subs will be paid if/when contractors are paid. Sets a normal time for payment. If payment is not forthcoming at that time, there is still a legal obligation to pay.

b. Arguments (for sub): i. General Contractor is in a much better position to say know the credit

standing of the owner. ii. Sub-contracts are almost always drafted by the gen. Language is

supposed to be construed against the party drafting. iii. Trade usage – this is how courts intend to interpret these, and this is how

the parties in the construction business tends to construe these contracts. 9. Gibson v. Cranage 1878: P solicited D’s business, offered to paint portrait of dead

daughter. Said he wouldn’t have to pay for it if not satisfied. D was not satisfied with the product. P re-did the picture, and D wouldn’t look at it. Court held for D.

a. Repeat of Mattei and Hopper: Condition to act in good faith. b. Two categories of satisfaction condition:

i. Subjective (if taste or fancy is involved), so long as party exercises their judgment in good faith, that is the only obligation.

ii. Objective: If the requirement of the party’s satisfaction has something to do with mere economic utility, mechanical fitness, or marketability, a condition of satisfaction is interpreted to be fulfilled by a performance that would satisfy a reasonable person.

iii. As a lawyer, advise your client to look at the portrait and reassert lack of satisfaction.

10. Mitigating Doctrines a. Prevention:

i. General Rule: A party to a K cannot rely on the failure of another to perform a condition precedent where he has frustrated or prevented the occurrence of the condition.

b. Waiver, Estoppel, and Election i. Waiver - R2d 84

1. Traditional definition: The intentional relinquishment of a known right.

2. Usually waiver is not explicit. Typical scenario: If your rent payments are due to me on the 3rd, but I accept late payments

consistently, I can expect payments on the 3rd. You can retract the waiver, however.

ii. Estoppel, R2d 84(2), UCC 2-209(5) 1. A party that, without consideration, has waived a condition that

is within the other party’s control before the time for occurrence of that condition can retract the waiver and reinstate the req. that the condition occur unless the other party has relied to such an extend that the retraction would be unjust.

iii. Election: A party that chooses to disregard the nonoccurrence of a condition is bound by an election to treat this duty as unconditional.

1. Common for insurers. c. Impossibility: Impossibility or impracticability excuses the fulfillment of a

condition if fulfillment of the condition is not a material part of the agreed exchange and forfeiture would otherwise result.

d. Fulfillment of the condition would cause a disproportionate forfeiture: Then fulfillment of the condition may be excused unless the fulfillment of the condition was a material part of the exchange.

CONSTRUCTIVE CONDITIONS

1. Constructive Conditions of Performance: Most important and common type of constructive condition to the duty of each party to a K to render performance is that the other party has rendered its performance or made tender of its performance.

a. Essentially, the promise is acting as a condition. b. Example: Steve and Jim make a K under which Jim will paint Steve’s house by

May 30, and Steve will pay Jim $3,000 on June 1. It is then an implied condition to Steve’s duty to pay $3000 that Jim shall have painted the house.

i. Dual legal effect: If Jim fails to paint Steve’s house by June 1, (1) the failure is a breach of K for which Jim will be liable, and (2) The failure is a nonfulfillment of an implied condition to Steve’s duty to pay on June 1, so Steve does not come under that duty.

2. Kingston v. Preston, 1773: D hired P as an apprentice. Said that if P was to give him sufficient security, then D would convey him the business. P failed to give good security, therefore there was no obligation to perform.

a. Today we would say “the seller’s argument is that the buyer’s obligation to post a surety is a constructive condition of my obligation to convey my business.”

3. Stewart v. Newbury 1917: Construction case. a. Rule: If parties don’t provide otherwise, builder has to finish the work before the

owner has to pay. MITIGATING DOCTRINES FOR CONSTRUCTIVE CONDITIONS Fundamental inquiry: What sort of conduct by one party gives rise to a cause of action for breach by another party, or gives to another party the right to withhold its own performance?

1. The doctrine of constructive conditions provides that if the plaintiff breached the duty, provides that if the performance is a constructive condition of the other’s duty, then the plaintiff is itself in the wrong.

a. In other words, if the P breached a duty of the performance that should have proceeded the other performance or promise.

2. In a sizable number of instances, when a breaching P despite its own breach may nonetheless sue on the contract. Three ways around the doctrine of constructive conditions:

a. Doctrine of substantial performance or substantial completion (Redding Pipe Case – even though the contractor breached its portion of the K, the owner may not withhold its performance because the owner substantially performed) – Jacobs & Young v. Kent.

b. Doctrine of divisibility (severability): Gill v. Johnstown Lumber (agreement to deliver logs. Lost some in a flood, sued for those delivered): If the parties in the K provide that part performance will result in partial payment (i.e. I’m supposed to build you two houses each for $100,000, I build one and walk away), the P can sue on the contract to get paid for the performance they did complete.

c. Doctrine of restitution: Where a K is unenforceable for some reason (usually mistake, impracticability of performance or frustration of purpose), but during the course of performance a substantial benefit was conferred upon one of the parties. Algernon Blair: The aggrieved party may (in a losing K situation) may want something other than expectation, may want restitution.

i. Restitution for a defaulting P: This has met the most resistance from courts. It seems wrong to allow someone who has committed a significant breach of K to come before the court and claim anything. Britton v. Turner (worked for 10 months of a 1 year K, then walked off the job. Ct. held employee may recover benefit to employer less damages employer suffers by reason of early termination).

ii. In restitution you are not suing for the K rate, but the value of the benefit conferred.

iii. Quantum meriut – synonymous with restitution. BREACH IN THE COURSE OF PERFORMANCE

1. Non-material breach is a 4th way around the doctrine of constructive conditions: Yes, I breached, but I can still sue you for your later, more serious breach because my breach was not material and did not justify your breach.

2. An actual breach of K, at the time performance is due, always gives rise to an immediate COA for damages. However, not every breach also excuses the other party’s duty of performance. Whether a breach by one party excuses the other party’s duty to performance depends if the breach is “material.”

a. Example: Contractor contracts to build a $1 million building, and puts on some of the wrong doorknobs, the Contractor will be liable for damages, but the Owner won’t be excused from performing (paying).

b. Each case is decided on its fact of whether it is a material breach. 3. Relevant factors:

a. The extent to which the breaching party has already performed (more likely to be a material breach at the outset).

b. Whether the breach was willful, negligent, or the result of purely innocent behavior.

c. The extent of uncertainty that the breaching party will perform the remainder of the K.

d. The extent to which, despite the breach, the nonbreaching party will obtain (or has obtained) the substantial benefit he has bargained for.

e. The extent to which the nonbreaching party can be adequately compensated. f. Hardship on breaching party if the breach is considered material.

4. Repudiation: An otherwise minor breach, accompanied by a refusal to render any further performance, will be considered a major breach.

a. UCC 2-609: A victim of a minor breach should request assurances of adequate performance in the future. If the other side doesn’t respond appropriately, you can safely say they have repudiated.

5. Walter & Co. v. Harrison 1957: P sells signs. Sold one to D, with agreement P would clean it. The sign rusted and had tomato splatters. D stopped paying.

a. Issue: Who made the material breach? Held: D. b. P’s breach was minor. D should have written P a letter that said they were

holding payments in escrow until P cleaned up the sign. 6. K & G Construction Co. v. Harris, 1960: D breached its covenant to perform in a

workmanlike manner, and P thereafter declined to make good its return covenant to pay. D refused to perform further, causing damage to P

a. This case involves periodic payments, which involves a series of alternative constructive conditions. Thus, P’s refusal to pay D was justified and not a breach, since the payment was conditioned on D’s performance which was not forthcoming.

7. Responses to the Defense “I’m not liable to you for my non-performance because you did not complete some performance that is a constructive condition of my performance.”

a. Yes, but I substantially performed. b. Yes, but this K is divisible and you have to pay me at the K rate for the portion I

DID complete c. Yes, but I’m entitled to restitution of the K for the amount of the benefit I’ve

conferred on you in order to avoid unjust enrichment d. Yes, but my breach of the constructive condition was not material, and therefore

it does not excuse your failure to act. 8. Separate K doctrine:

a. NW Lumber Sales, Inc. v. Continental Forest Products, Inc.: You cannot breach one K because of the other party’s breach in a different K. Neither the UCC or general K law gives a party the right to breach a K performance because the other party has breached another K between them.

b. Seller should invoke 2-609, and said you neglected to pay for the lumber we already sent to you, we demand an adequate performance for K #3 to make sure you’re not going to stiff us again.

ANTICIPATORY REPUDIATION

1. Anticipatory Repudiation (AR): If either party to a K, in advance of the time set for performance, repudiates the K, the repudiation excuses the other party from performing. In addition, the innocent party may generally treat the AR as a present material breach, and bring an immediate action for the entire value of the promised performance.

2. Acts are sufficient (Stewart v. Newbury – walking off the job was repudiation). 3. Insistence on terms not contained in the K constitutes an AR. 4. Requirement of Unequivocal Repudiation: Only an express or implied unconditional

refusal to perform will constitute AR. A party’s language must be sufficiently positive to be reasonably interpreted to mean that the party will not or can not perform.

5. Hochster v. De La Tour, 1853: P contracted with D to act as a courier during his European vacation. D changed his mind prior to leaving, and refused to compensate P. P sued prior to time for performance.

a. Held: The man who wrongfully renounces a K into which he has deliberately entered cannot justly complain if he is immediately sued for a compensation in

damages by the man whom he is injured. The renunciation may be treated as a breach of K.

b. Important point: Every jurisdiction in the US says this is still good law. You may go out and get a new job, and sue early.

c. Damages would be his wages from June 1 (day he was to start working) -July 4 (July 4th is when he begins the job he got to mitigate the damages).

d. This rule is in UCC 2-610. e. Principle justification: Make sure victim has freedom to reorganize their affairs

and take another job prior to the time performance was due. f. Exception to rule: Installment contracts.

i. i.e. Seller has finishing delivering tulip bulb, and all that’s remaining is a series of installment payments by the buyer over a period of time. Most courts hold that the seller may not sue early for all remaining installments, but must wait until each installment becomes due.

ii. Remember when drafting an agreement such as this one to add and “acceleration clause”: These causes state a default on any one payment on this K shall cause all remaining payments under this K due.

iii. 2nd way to get around this situation is a declaratory judgment: Declaration by the court that buyer breached and payments will become due at the times stated in the K (allows you to go back to court simply on motion without having to file new complaint every time).

MUTUAL MISTAKE

1. Definition: A mistake by both parties to a K concerning a basic assumption of fact on which the K is based.

2. Defenses: a. The mistake was not “basic enough” (R2nd 152). This should come down to a

question of value. b. Argument that the parties actually considered the possibility of a major gain or

loss, and took it into account for the sell. This is an extremely common response. Assumed risk by virtue of trade usage.

c. It’s not a mutual mistake because I had an inkling that this was an authentic Picasso painting. I didn’t know it, but I had an inkling.

i. Spectrum: No knowledge------------ Perfect knowledge • If you have perfect knowledge, you have a duty to tell the

person. The K will be undone. • If you have no knowledge, the K will be undone on a basis of

mutual mistake. • The middle might be protected ground – no duty to tell with just

a hunch, but also is not exactly a mutual mistake. 3. Restatements Second

a. 151: Defines mistake as “a belief that is not in accord with the facts.” b. 152: For a mistake of both parties at the time the K was made, as to a basic

assumption, has a material effect on the aggrieved exchange, the K is voidable unless parties seeking to void it bore the risk of that mistake.

c. 154: Party bears the risk where the party is aware at the time of K that she has only limited knowledge with respect to the facts, but treats her limited knowledge as sufficient. A type of conscious ignorance.

i. i.e.(a) I don’t think these paintings are very valuable, although I know they might be, so I’ll just go ahead and sell them for not very much. (b) I

know I should have them authenticated, but that’s time consuming at costs a lot of money, so I won’t do it. (c) The court allocates the risk to one party on the ground its reasonable to do so.

d. 158: Provides that either party may have a claim for restitution following a rescission on the ground of mistake. A slightly more progressive, or forward looking, Subsection 2 of 158 says the court may grant relief on such terms as justice requires to protect a party’s reliance interest.

i. ex. Brenner v. Kehl. e. 153: Unilateral mistake.

i. ex. Elsinore – K made an innocent clerical error, owner should be put in status quo, would be unconscionable to hold contractor to mistaken bid.

4. Estate of Nelson v. Rice 2000: Rice bought two paintings for $60 at an estate sale. Turned out they were worth $1 million.

a. Held: By selling the paintings, the seller assumed the risk they were much more valuable. (R2nd 154)

5. Stees v. Leonard 1874: P and D enter into K to build a building. Every time construction rose to the 3rd floor, the whole thing would collapse. D claimed this was b/c the building was on quicksand.

a. Held: D contacted to “erect and complete the building,” meaning he was bound to do so no matter what the circumstances.

i. Performance Specification: Requires a contractor to product a specific result with specifying the means for achieving the result.

ii. Design specification: Specifies the design, materials, and methods, and impliedly warrants their adequacy.

b. This case embodies older, harsher view, that parties must always perform agreements they enter into.

c. Defenses: i. Fundamental defense: Both parties made a mutual mistake as to a matter

that is fundamental to the performance of the contract. Court holds that anything the person agrees to do, promises to do, the person must do it no matter what.

ii. 2nd defense: D followed the specifications and they were faulty. Party agreed fundamentally to just follow the expectations, so it’s not their fault. While this didn’t work in this case, this can be a successful defense. Especially true in government contracts

iii. 3rd argument: D said there was a prior agreement that the owner would excavate the land. Court refused to admit this evidence because of the parol evidence rule (just like Gianni and Russell). This is a very bad ruling.

d. Legal doctrines on behalf of the owner to assist your argument that rescission is inappropriate:

i. Assumption of risk is a typical response to a claim of mutual mistake. ii. The argument would be this is the kind of risk that builders assume.

Sometimes construction turns out to be less expensive than anticipated, and sometimes more. But, agreeing to build a building for $100,000 the builder assumed that risk.

iii. A common instance of this type of case occurs where the parties knew that the relevant assumption was doubtful.

6. Brenner (Renner?) v. Kehl 1986: P contracted with D to buy land. P made it clear they wanted to grow jojoba, D thought their was plenty of water. There wasn’t. Seller’s appeal award of consequential damages on grounds of mutual mistake:

a. Rule: Absent fraud or misrepresentation, a party who rescinds a K based on mutual mistake may not recover consequential damages. However, when a party rescinds on a K on the ground of mutual mistake he is entitled to restitution for any benefit he has conferred by way of part performance or reliance.

i. Reliance is a slightly more progressive remedy. Sub. 2, Rnd 158. 7. Older test: Mutual mistake was a D if the mistake concerned the “substance” or

“identity” of the K’s subject matter (K was then voidable). If it was only an accident or a collateral attribute, K was no voidable.

a. Example: K to sell cow both parties believed to be barren. Prior to delivery, seller realized cow was pregnant, and thus more valuable. Under the older test, the K would be rescinded b/c the parties made a mutual mistake as to the substance of the K’s subject matter (cow was a breeding cow rather than a barren cow).

8. Modern Rule: If the K is entered into under a mutual mistake concerning a basic assumption of the fact, the K is voidable by the adversely affected party if the mistake has a material effect on the agreed exchange and the adversely affected party did not bear the risk that the assumption was mistaken.

a. Example: On May 5, seller contracts to sell her famous race horse. The horse died on May 4, unbeknownst to either party. The K is voidable by the buyer b/c both parties were mistaken as to a basic assumption that the horse was alive. The mistake is material.

IMPRACTICABILITY OF PERFORMANCE

1. General Rule: Performance of a K will normally be excused if the performance has been made impracticable. The impracticability must involve the occurrence of an even whose nonoccurrence was a basic assumption on which the K was made, and the adversely affected party must not have assumed the risk of that K occurring. R2d261

2. SELLER’S DEFENSE 3. Taylor v. Caldwell, 1863: D contracted with P to rent a music hall for four days for

entertainment. The music hall burned down at not fault of either party prior to the rental days. P sued for breach.

a. Held: The music hall, having ceased to exist, without fault of either party, excuses both parties from K.

b. Remedy P was seeking: (1) Reliance - out of pocket expenses, put us back to go, (2) Expectation – profits expected to make on series of four concerts. Did not sue for expectation b/c there is no way to prove what the receipts would have been.

c. If D made a promise to absolutely perform at the music hall, there would be a K; but if the court finds an implied condition (such as, the music hall must be there), and the condition is impossible to fulfill, then the parties are excused.

4. Transatlantic Financing Corporation v. US 1966: P, chartered by D, contracted to a ship a full cargo of wheat from TX to Iran. Shipment was contemplated to go through the Suez Canal, but a war broke out, closing the canal. P had to go 3000 extra miles.

a. Held: K was not impossible (or impracticable). b. Definition: A thing is legally impossible (or impracticable) when it is not

practicable and can only be done at an excessive and unreasonable cost. c. Impracticability Test:

i. A contingency – something unexpected – must have occurred.

ii. The risk of the unexpected occurrence must not have been allocated either by agreement or by custom.

iii. Occurrence of the contingency must have rendered performance commercially impracticable.

d. Analysis of Transatlantic under the test: i. An unexpected contingency did occur in this case.

ii. At the time they entered into the K, we knew Egypt had nationalized the canal, and it was very foreseeable that the canal would be closed. Circumstances indicate that P was willing to assume abnormal risks.

iii. Sometimes a very great increase in cost will cause a court to say that a contract is impracticable. This doesn’t apply here, because this was only a fraction of the K price – no nearly enough to declare something is commercially impractical.

5. Note on Forseeability: Though anticipating a possible turn of events, “the parties may not have thought it sufficiently important a risk to have made it a subject of their bargaining.” Should be factor in whether or not the party now claiming the D should have assumed the risk.

6. Force Majeure Clauses: When, during the negotiation of a K, a party anticipates on a more evens that it cannot readily prevent and that might impede its performance, it may introduce this generic term intended to excuse it from performing if the impediment arises. These clauses must be drafted very carefully.

7. UCC 2-615: Doctrine of Commercial Impracticability. a. Eastern v. Gulf (our old friends!): Gulf used impracticability D. b. Held: Ct. thought the events of the oil crisis were reasonably foreseeable, and

the fact it occurred was not an unexpected contingency. Even beyond that, if it WERE unforeseeable, increased cost alone is not enough. The court can’t even tell from the evidence if Gulf has experienced any real economic problems.

c. Rules: i. The unforeseen cost increase that would excuse performance “must be

more than merely onerous or expensive. It must be positively unjust to hold the parties bound.”

d. Unprofitable does not mean impossible. A mere showing of unprofitability, without more, will not excuse performance of a K.

8. Typical impracticability subject matter: a. Supervening prohibition by law (what you contracted to do is now illegal). b. Death of one party in a personal services K (excuses performance of both

parties). c. Destruction of the subject matter of availability of something in the K (Taylor v.

Caldwell). 9. Example: Farmer makes a K with grain elevator to sell his wheat crop. Grain elevator

makes 2nd K with Wheaties to resell the wheat. Draught occurs, no wheat. Is farmer liable for breach b/c grain elevator had to purchase at a higher price?

a. Farmer’s D: Impossibility of performance or commercial impracticability. b. Issue for court: Was K for a particular quantity of wheat, or specifically for the

farmer’s wheat. c. If its for the farmer’s wheat, then performance is impossible and D works. If it is

for a specific quantity, performance is not impossible and then farmer is liable for breach.

FRUSTRATION OF PURPOSE

1. General Rule: Performance may be excused under the doctrine of frustration where the purpose or value of the contract has been destroyed (or substantially frustrated) by a supervening event that was not reasonably foreseeable at the time the K was entered into. R2d 265

2. Slippery slope – courts reluctant to invoke this D. 3. BUYER’S DEFENSE: This is b/c it is always possible for the buyer to fulfill his

promise to pay, even if he will essentially gain nothing for his money. 4. Krell v. Henry 1903: D paid deposit to P for the use of his apartment so he may watch a

coronation. The King became ill, delaying the coronation. D refused to pay balance, P sued. D counterclaimed for his money. D wins on frustration of purpose grounds.

a. Rule: Where the object of one of the parties is the basis upon which both parties contract, the duties of performance are constructively conditioned upon the attainment of that object.

5. Remedies: In general, any benefit one party has conferred on another will be returned (D will get his deposit back).

UNIFORM COMMERCIAL CODE ARTICLE I

1. UCC 1-102: The Code is to be liberally construed and applied to promote its underlying purposes and policies:

a. To simplify, clarify, and modernize the law, b. To permit the continued expansion of commercial practices by validating trade

custom and usage as well as parties’ express agreements, c. To make the law uniform among the various jurisdictions.

2. Three fundamental principles underline much of Art. II: a. Good Faith b. Commercial Reasonableness (pervasive, a part of every merchant’s good faith

duty). c. Facilitation of actual commercial practices through the incorporation of course of

performance, course of dealing, and usage of trade. i. Course of performance (2-208) – how you and I actually perform under

this K. ii. Course of dealing (1-205)– how you and I performed under prior K’s.

iii. Usage of trade (1-205)– how others in the industry understand K practices

3. Good Faith a. 1-201 (19) Honesty in fact:

i. Subjective Test ii. No matter how absurd a person’s contention is, if they really believe

their contention is true, they made the assertion in good faith. b. 1-203: Imposes the obligation of good faith on every party to a transaction

governed by any portion of the UCC. c. 2-103: Supplements the general UCC Good Faith definition, by stating under

Art. II, Good faith for merchants includes not only honesty in fact, but also the observance of reasonable commercial standards of fair dealing in the trade.

i. Merchant defined in 2-104. ii. Can parties get rid of a good faith obligation?

iii. While generally code provisions are variable by agreement, you cannot disclaim good faith or commercial reasonableness. You can set

standards by which you just good faith, provided that the standards set forth in the K are not manifestly unreasonable.

4. Nelson v. Union Equity 1977: Court held defendant farmer meets the requirements of “merchant” definition under 2-104 because he is knowledgeable about the business of crops, and meets the statutory elements. Because D was a merchant, the oral agreement confirmed in writing satisfies the Statute of Fraud requirements under 2-201 and therefore must pay damages for breach.

a. 2-104 A person is a merchant if: i. They deal in goods of the kind, OR

ii. By his occupation he holds himself out as having knowledge or skill peculiar to the practices involved in the transaction

1. SUPERMERCHANT: You have to be a merchant by the goods prong of merchant (i.e. Blockhead (wiglet case): D was a merchant, not because he had ever made wiglet cases, but because the “goods” he dealt with were blow-molded items). Look for the broadest definition of the goods you are talking about (i.e.

iii. Cmt.2: For purposes of dealing with the statute of frauds (2-201), firm offers, confirmations, and modifications, a merchant is deemed to be almost every person in business (even a university). Mooney thinks the merchant standard should be held to someone who answers his mail.

iv. For purposes of 2-314 (implied warranty of merchantability) or cases of merchant good-faith (2-103), they are talking about supermerchants.

b. Merchants (lower level): When the code says merchants or between merchants, this is what they mean.

c. Merchant who deals in goods of this kind is a supermerchant (higher level). d. Courts are widely split on whether farmers are merchants under the UCC.

THE SCOPE OF ARTICLE II

1. UCC 2-102 states the general rule that Article Two applies to “transactions of goods.” a. This applies to all transactions and goods, not just those by merchants. b. Only Super-merchants make merchantability warranties, only they can transfer

an entrusters title in an ordinary course of business, but a code GENERALLY applies to everyone (Joe Schmo sells Jack Black his golf club)

2. 2-105(1): Defines “goods” as all things…movable at the time of identification to the K other than money, investment securities, and things in actions.

3. Anthony Pools v. Sheehan 1983: P built a pool for D, which D claims had a defective diving board. The K between the parties had been a hybrid transaction, meaning part goods and part services.

a. Predominant purpose test: Whether the predominant factor is a transaction of a sale of goods with labor incidentally involved or vice versa.

b. Gravamen test: Whether the reason for the breach is directly related to the fault of the service or the fault of the good.

c. Policy considerations: If the test results in classifying the transaction as a K for services there would be no UCC based, implied warranties on the diving board and this would be contrary to the legislative policy. §2-316 (1) declares a seller of consumer goods may not contractually disclaim implied warranties.

i. Holding: K in goods, implied warranty applies. 2-316: Two functions: 1) This is a K in goods, and the implied warranty applies, 2) knocks down disclaimers on implied warranties.

CONTRACT FORMATION UNDER THE CODE

1. K formation is generally simpler than under common law. 2. UCC 2-204(1): A K for the sale of goods may be made in any manner sufficient to show

agreement, including conduct by both parties which recognizes the existence of such a K. 3. The Code constitutes a single, broad inquiry (as opposed to the offer/acceptance):

Whether the parties have, in a reasonable manner, demonstrated agreement. o An offer may be accepted “in any many and by any medium reasonable in the

circumstances unless the offer unambiguously states otherwise. UCC 2-206(1)(a).

o A “unilateral” K may be accepted by a mere promise to perform the requested act.

o Under certain circumstances an option K is enforceable without separate consideration. UCC 2-205.

o 2-204 still requires an agreement of a meeting of the minds between the negotiating parties.

4. Mirror Image Rule: Unjust results: o Sometimes permits a party to renege entirely on an agreement, on the ground that

the K documents did not match exactly o “Last shot doctrine” gave the party sending the last communication sole control

over the K terms (receiving it would infer acceptance). This permitted sellers to disclaim all warranties with accompanying invoices.

5. UCC 2-207: Eliminates the mirror-image rule. (KNOW 2-207 – TESTED HEAVILY) 6. Three routes to K formation under UCC 2-207:

a. A definite and seasonable expression of acceptance. b. Written confirmation sent within a reasonable time. c. Conduct by both parties which recognizes the existence of a K is sufficient to

establish a K for sale although the writings of the parties do not otherwise establish a K.

7. Conditional Nature of the assent must be “directly and distinctly stated or expressed rather than implied or left to inference.”

a. Does UCC 2-207 apply to “different” as well as “additional terms? Courts and commentators disagree.

8. Diamond Fruit Growers, Inc. v. Krack Corporation 1986: KC manufactured cooling units that contained steel tubing. Bought its tubing from DFG for 10 years. KC would send a purchase order, and DFG would send back an acknowledgement that included a disclaimer for all liability. P sued KC for a leaking cooling unit. KC brought 3rd party suit against DFG.

a. Held: Because KC’s conduct did not indicate unequivocally that KC intended to assent to DFG’s terms, their conduct did not amount to the assent contemplated by 2-207.

b. Reasoning: Public policy of the Oregon’s adoption dictates that the last-shot rule is to be abolished. The section is to be interpreted so as to give neither party to a K an advantage simply because it happened to send the first, or in this case, the last form. UCC 2-207 was designed to abolish that rule, and to allow D2’s argument to prevail, though it is compelling, would go against public policy.

STATUTE OF FRAUDS

1. UCC 2-201: A K for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a K for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.

2. UCC drafters concluded the benefits requiring a writing would outweigh the detriments. a. Contributes to the business habit of requiring a writing. b. Prevents fraud by deliberate overreaching. c. Prevents innocent mistakes.

3. All the UCC requires for enforcement is that a writing provide “a basis for believing that the offered oral evidence rests on a real transaction.”

4. UCC 2-201 dispenses entirely with the writing requirement in four types of situations: a. Between merchants, if a confirmation is received within a reasonable time and is

sufficient against the sender, it is also sufficient against the party receiving it, unless that party objects within 10 days.

b. When a seller has mad a substantially beginning in the manufacture of “specially manufactured” goods, or has committed itself to buy goods from a 3rd party, it may enforce an oral K for them if it cannot resell them in an ordinary course of business.

c. If a party judicially admits the existence of the alleged K (pleading, pre-trial discovery, or in live testimony), she may be held to it. UCC 2-201(3)(b).

d. To the extent that the seller has received and accepted payment, or the buyer has received and accepted the goods, the Statute is no bar. UCC 2-201(3)(c).

i. Generally, however, partial payment of acceptance does not remove the entire K from the Statute, only the portion paid for or accepted.

5. STATUTE OF FRAUDS REQUIREMENTS: a. Must evidence an existing K. b. Must be signed (1-201(39)) – any name, mark, or symbol adopted with the

intention to authentic a document. c. Writing must specify a quantity (though not necessarily a price) – this is because

a court can always find a price out of the market price. 6. Comment 1 – indicates which was the court is to tilt. 7. Sub. (2)- Farmer case….a writing good against the person who sends it is good against

the person receiving it if they don’t object. 8. Distribu-Dor, Inc. v. Karadanis, 1970: Sale of certain mirrors and tub and shower

enclosures for Tahoe Inn. Tub enclosures not specially manufactured, but mirrors and shower enclosures are spec. manufactured..

a. Held: An express K existed for the sale of the mirrors, recovery for breach of which, under UCC 2-201 3(a), is not barred by the statute of frauds.

b. Reasoning: This was a K for specially manufactured goods, not suitable for resale in the ordinary courts of the seller’s business, and the seller had already started in the manufacture of the attempt to procure the goods.

c. Tub enclosures: Court found these enclosures did not fall under the specially manufactured exception – but once a part of a K is taken out of the statute by 3(a), then the whole K will be taken out.

i. 3(c) contemplates that only the goods which have been accepted, or for which payment has been made.

ii. But, 2-201 3(a) has different language – if the goods have BEGUN to be manufactured, the statute of frauds defense is lost. Therefore, 3(a) is an all or nothing deal.

9. In all of these cases, there are two distinct defenses: a. I never entered into a K – never considered myself bound, etc.

b. Even if we did enter into the K, there was no objective meeting of the minds…the K is unenforceable because there is no signed writing.

THE PAROL EVIDENCE RULE

1. UCC 2-202: A writing intended by the parties as a final expression of all or part of their agreement may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement; however, such a writing may be “explained or supplemented”

a. by the course of dealing, usage of trade, or performance, b. where it is only a partial integration (i.e. not intended as a “complete and

exclusive” statement of the parties agreement), by evidence of consistent additional terms.

2. By and large, the UCC analysis is virtually identical to the common law analysis: a. Is the writing integrated? b. Is it integrated in whole or in part? c. If its not, the rule doesn’t apply. d. If it integrated completely (enforceable understandable merger clause, for

example), then Subsection A says it can still be explained or supplemented (by course of dealing or usage of trade or course of performance). In addition, under 2-203 (supplementary principles of law and equity), the 2-214 evidence can come in (evidence of fraud, duress, mistake, etc).

e. If it is a partial integration – parties intended this is as a final, if not complete statement – then consistent additional terms can be introduced, Subsection B.

3. Snyder v. Herbert Greenbaum & Associates: Contract for carpet and installation. 3 issues:

a. Whether D was entitled to rescind the K b/c P has misrepresented a material fact, which D relied on in forming the K. (held – no – estimate was not a fact, but an opinion).

b. Whether court should have allowed into evidence certain documents as proof of a prior oral agreement that all K’s between the parties could be cancelled unilaterally prior to performance. (held – no – this clause would have been written into the K, K was a complete integration). Mooney thinks this is a shaky interpretation.

c. Whether damages should be 2-708(2) – lost profits – or 2-708(1) – K/market differential formula. (2-708(2)) is appropriate b/c P may be a lost volume seller, and part of the K is for services, so he may not otherwise recover for those services). Mooney likes this assessment.

4. Additional class notes: a. 2-107: Helps draw the line between goods and real estate.

i. The code only applies to goods. Well, what about minerals in a mind, or standing timber? Are those goods?

ii. Certain kinds of things are goods if they seller severs something and turns it over. If they buyer has to sever something, it is reality (i.e. if the seller chops down the tress, it’s a good, if the seller does it, it’s realty).

b. 2-205: In some contexts, it reverses the rule of Dickensen v. Dodds: An offer by a merchant in a signed writing that says it will remain open for a period of time, does remain open even without separate consideration. (Firm offers)

c. 2-207: Additional terms in offer and acceptance.

d. 2-209(1): A modification does not need consideration to be binding. These modifications need to be made in good faith to be enforceable. 1-103: Duress argument against it.

i. Oral modifications are ok, unless it falls under the statute of frauds, or is not made in good faith.

ii. A modification, if it fails for either of these two things, a modification can operate as a waiver (i.e. agreeing to a modification can be considered a waiver of a written no oral modification clause).

e. 2-210: (1) is most important part – a party may DELEGATE its duty unless the other party has a substantial interest in performance by that party itself. (Virtually identically to the Restatement section on delegation). (2) A party may assign a right unless doing so would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of maintaining a return performance.

GENERAL OBLIGATIONS AND THE CONCEPT OF TITLE

1. “Gap Filler” Provisions: Express agreements often include common omissions such as K duration, payment, delivery date, and price.

a. UCC 2-204(3): “Even though one or more items are left open a K for sale does not fail for indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for giving an appropriate remedy.

b. 2-305: When parties fail to agree of price, 2-305 provides one. i. How do we know there is a K when the price term is missing?

ii. Intent of the parties. (1) Parties if they so intent can conclude a K for sale even though the price is not settled.

iii. (3): When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the K as cancelled or himself fix a reasonable price.

c. UCC 2-306(1): No quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

i. An outputs seller may not tender an unreasonably disproportionate quantity (outputs contracts), and a requirements buyer may not demand an unreasonably disproportionate quantity (requirements contracts).

ii. Reasoning: No great hardship on the seller to give her whole output to the buyer. This protects the buyer in an output K from having huge amounts dumped on him.

d. UCC 2-306(2): Best efforts requirements for exclusivity requirements. e. 2-311 states that, unless otherwise agreed, the buyer has the right to specify the

assortment of goods. f. 3-308 (a): Unless otherwise agreed the place for delivery of the goods is the

seller’s place of business or if he has none, his residence. g. 2-309: Termination of a K by one party requires that reasonable notification be

received by the other party. Hamilton v. Delta h. 2-307-2-310: Requires parties to comply with ordinary, reasonable commercial

practices. i. 310(a): Buyer pays where buyer receives shipment.

1. Need to understand difference between delivery and receipt. A party receives goods when the party actually touches them (they

arrive). A delivery depends on the term of the K, usually when the seller gives the goods to a carrier.

i. When a party asserts a “gap filler” claim, other party may raise defense of trade usage, course of dealing, or course of performance.

j. 2-311: K does not fail for definiteness when a party can specify certain particulars for performance (argument used in Fairmount Glass).

2. Hamilton Tailoring Co. v. Delta Airlines, Inc. 1974: P contracted with D to make all of their uniforms (requirements K – i.e. Eastern v. Gulf). D changed their uniforms, and gave P a year notice that they would not longer buy from them.

a. Court held that the notification was not reasonable under 2-309(3). There was little, if any chance, that P could obtain a substitute agreement in that time, plus D kept ordering shorter uniforms and canceling orders.

b. Trade usage can be introduced under 2-309, cmt. 1 to show agreement for time. P used trade usage here to show that in the uniform industry, it is customary for the customer to make a settlement wit the manufacturer on a reasonable basis for the leftover inventory at hand.

3. Feld v. Henry 1975: P contracted with D to sell bread crumbs. Provision of right to cancel with 6 month notice. It became unprofitable for D, so he said he’d continue if P would give 1 cent more a pound. P refused, D dismantled machine.

a. Issue: Whether the outputs K carried an implication that the seller has to continue its business throughout the term of the K, or may it cease production.

b. Holding: Under 2-306, an outputs seller has a good faith obligation to continue to have output, but that’s all.

c. Who is going to win on remand? Probably the P buyer, because (1) the K did contain a 6 month termination provision, therefore the seller is not locked in forever, (2) the seller’s failed effort to extract a price increase.

4. Output or requirements contract: Feld v. Henry S. Levy & Sons a. Seller has good faith obligation b. Buyer did not give up right to buy elsewhere. c. 2-306(1) d. The party the statutory language is seeking to protect is the buyer. The seller has

the good faith obligation to continue (producing bread crumbs) in this case. Buyer already has obligation under K to buy those bread crumbs.

5. Exclusive dealing K: Wood v. Lucy Lady Duff Gordon a. Seller gives up right to sell elsewhere. b. Buyer must use best efforts (in this case, to market Lucy’s fashions. c. 2-306(2). d. Comparable to requirements K - statute attempts to protect seller. Places on

buyer an obligation to operate in good faith. 6. Requirements K: Eastern v. Gulf, Hamilton v. Delta

a. Seller did not give up right to sell elsewhere b. Buyer must purchase in good faith

CODE WARRANTY

1. Code Warranty (UCC 2-312-2-318) litigation arises typically in two contexts: a. Commercial - where the loss often is purely economic, b. Consumer – where the loss also commonly includes personal injury from a

defective or otherwise substandard product. 2. To prevail in an action for breach of warranty, a buyer must:

a. Establish that the seller warranted the goods under 2-313, 2-314, or 2-315

b. Prove that the goods delivered did not conform to the warranty, and that, as a result, it suffered damage.

3. A seller will respond by invoking some combo of: a. 2-316 (Authorizing certain warranty disclaimers), b. 2-719 (permitting certain remedy limitations), c. 2-318 (requiring a measure of “horizontal” privity, d. 2-607(3) (requiring that the buyer give reasonable notice of the breach, and 2-

735 (the Art. 2 statute of limitations). 4. Express v. Implied warranties:

a. Express (UCC 2-313), created by: i. Affirmation or promise,

ii. Description, iii. Providing a sample or model.

b. Implied: i. Merchantability (UCC 2-314)

1. (1) applied into every sale of goods by a “merchant with respect to goods of that kind.”

ii. Fitness for a particular purpose (UCC 2-315) 1. Arises when a seller had reason to know of a buyer’s particular

purpose for the goods AND hat the buyer is relying on the seller’s skill or judgment to select the goods.

2. One important rationale for imposing implied warranties on certain sellers is the likelihood that parties themselves, had they considered such terms, would have included them in their agreement.

5. Keith v. Buchanan 1985: P purchased boat from D, after seeing brochures claming it was seaworthy. P had own friends look at it, who pronounced it seaworthy as well. Turned out it wasn’t seaworthy. Held:

a. The representations regarding seaworthiness in the brochure were affirmations of fact relating to the quality or condition of the vessel. This created an express warranty.

b. The representations regarding seaworthiness were part of the basis of this bargain (old rule was that buyer had to rely on seller’s warranties).

c. There was no implied warranty of fitness for a particular purpose because P did not rely on the skill and judgment of D in selecting a suitable boat, but relied on his friends.

6. Rules: a. Fact/Opinion: Statements made by a seller during the course of negotiation over

a K are presumptively affirmations of fact unless it can be demonstrated that the buyer could only have reasonably considered the statement as a statement of the seller’s opinion.

i. Factors that indicate opinion are: (1) lack of specificity in the statement made, (2) statement made in unequivocal manner, (3) statement which reveals the goods are experimental in nature.

b. Reliance: The buyer’s demonstration of reliance on an express warranty is not a prerequisite for breach of warranty, as long as the express warranty involved became part of the bargain.

i. Reliance is not altogether dead – some states interpret the UCC to follow the Uniform Sales Act which required the buyer to rely upon the seller’s interpretation.

7. Express warranties 2-313, five issues:

a. Whether seller has actually made a warranty, “puffing” is a defense. b. Reliance (see above) c. Privity (2-318) d. 2-316(1): Express warranties cannot be disclaimed.

i. Cmt. 1: The disclaimer drops out when the disclaimer is inconsistent with the express warranty.

ii. Autzen v. John Taylor Lumber Sales (note case): Buyer is not completely barred from recovering if express warranty happens after the K, it is just extremely difficult.

e. Watch for merger clause – seller may make an oral express warranty, but exclude it through written merger clause in K.

8. Warranty v. “Puffing” a. Whether the representations compared goods to other goods b. The specificity of the representations c. Whether they related to the goods’ quality d. Whether they were “hedged” e. Whether the goods were experimental f. The buyer’s actual or imputed knowledge of the goods’ condition g. The nature of the claimed defect h. Whether the statement was written or oral.

9. Barton v. Tra-Mo, Inc., 1984: P purchased tanks from D after seeing models. 2-313(1)(c) states that an express warranty is created when a sample or model is made as part of the basis of the bargain, leading the purchaser to believe that the entire order will conform. D tried to argue that the items were not really models, but the court thought they were retarded. P wins for breach of express warranty by model.

10. Sample v. Model a. Sample: Actually drawn from the bulk of the goods which is the subject matter

for the sale. b. Model: Offered for inspection when the subject matter is not at hand and which

has not been drawn from the bulk of goods. 11. Blockhead, Inc. v. Plastic Forming Company, Inc. 1975: P buyer was experienced in

plastics and the wig case industry. P rejected improvements and approved models and designs.

a. Warranty of Fitness: No 2-315 warranty in this case. An implied warranty of fitness for a particular purpose did not occur because the warranty depends upon the relative skill, knowledge, and experience of the two parties. Only happens when buyer goes to seller asking them to select everything.

b. Warranty of Merchantability: No breach of warranty of merchantability because it was effectively disclaimed. 2-316(3)(b) if a buyer examines the goods or has an opportunity to and fails, there is no implied warranty in case of any defects coming up after inspection.

c. Subsidiary issue: Whether or not the D qualifies as a supermerchant for purposes of 2-314?. D argues that he was not because he had never made wiglet cases before, but the court holds that he is an expert in plastics.

12. Valley Iron & Steel Co v. Thorin: D asked P to make iron collars. P said they could, and indicated they would have to be made out of a strong material in case they hit rock. D bought a whole bunch, and 80% of them broke. D declined to pay. P sued for restitution (value of benefit of goods provided), D’s defenses were breach of implied warranties of merchantability and fitness.

a. Warranty of Merchantability: P breached, because he was a merchant (merchant of products of similar metals, even if they have never made the

collars) – for determining who is a supermerchant, need a broad definition of the goods.

b. Warranty of Fitness: P breached. When you have specially manufactured goods, the ordinary purpose of such goods may be equivalent to their particular purpose for purposes of warranty. Crucial judgment turned on seller saying, “well, these might hit rock, so they need to be made of strong material.” Buyer made intended purpose known, material was left to the discretion of the seller.

c. Interesting 3rd issue: Trial court found the buyer was at fault somehow. Appellate court gently points out that fault is irrelevant in most warranty litigation.

13. Delano Grower’s Cooperative Winery v. Supreme Court Wine Co., Inc. Rotten sweet wine case.

a. Was a breach of merchantability warranty here (8000 cases of sweet wine were unmarketable).

b. 2-208 – interesting statutory argument: Even if there had been a trade usage that buyers of this wine should add sulfur, these parties course of dealing would trump this trade usage.

c. 2-607(3) – Introduction into notion that a typically seller’s D is that buyer did not give notice of alleged breach of warranty in required reasonable time.

d. 2-308 – Buyer’s supreme effectively revoked its acceptance of the 8000 cases, so it was no longer responsible for the K price.

14. ISSUES TO FOLLOW ON TEST: a. Is the seller a supermerchant? Does he deal in goods of this kind? 2-104. b. Are the goods merchantable under 2-134(2)? This is never an easy

determination (“fair average quality, pass without objection into trade”). c. Did seller breach warranty of merchantability? d. Is the item being used for its ordinary purposes, or for a particular purpose? Is

item specially manufactured (there, its ordinary purpose is its particular purpose)? Warranty of fitness 2-315.

e. Did seller breach warranty of fitness? f. What defenses are available?

i. Warranty disclaimer 2-316? Was it conspicuous? Remember, can’t disclaim an express warranty under sub. 1.

ii. Remedy limitation 2-719? Will warranty fail of its essential purpose if this is enforced.

iii. Trade usage (2-208)? Can buyer come back with course of dealing response (such as in Delano)?

iv. 2-607(3): Did buyer give effective notice of the alleged breach in required reasonable time?

g. Damages: Formula A: Loss in value (K price) – Cost Avoided SELLER DEFENSES TO WARRANTY LIABILITY

1. Warranty Disclaimer: UCC 2-316 (major defense) a. (1) A seller may not disclaim an express warranty b. (2) A disclaimer of the merchantability warranty must mention merchantability

and be conspicuous (if in writing), a disclaim of the fitness warranty must be conspicuous and in writing.

2. Remedy Limitation: UCC 2-719 (major defense) a. (2) Invalidates any remedy limitation that causes a warranty to fail of its essential

purpose.

b. (3) Provides that a limitation of PJ damages in a sale of consumer goods is “prima facie” unconscionable.

3. Notice Requirement: UCC 2-607(3) a. Requires a buyer to “notify” a seller within a “reasonable time” of any claimed

warranty breach, or be “barred from remedy.” Buyer bears the burden of proof (4).

4. Cate v. Dover 1990: P purchased from Beech Tire Mart 3 lifts manufactured and designed by Dover. They never worked property.

a. D’s defense: Warranty disclaimer. b. Ct’s response: Disclaimer was not conspicuous to a reasonable person under 2-

316(2). c. Rule: The Code appears to recognize that actual knowledge of the disclaimer

would override a question of conspicuousness. 5. Moscatiello v. Pittsburgh Contractors Equipment Co. v. Curbmaster: Paving machine

case. K has disclaimer of implied warranties which was one the front of the K and referring to terms and conditions on reverse side. Also has a clause the limited remedies to incidental and consequential damages.

a. Held: Disclaimer of implied warranties was inconspicuous, as well as misleading. 1-201(10) – defines conspicuous.

i. Rule: A term is conspicuous when it is “so written that a reasonable person against whom it is to operate ought to have noticed it…language in the body of a form is conspicuous if it is in large or other contrasting type or color.”

b. Held: Remedy limitation is not enforceable b/c it is unconscionable (2-719(3), 2-302).

i. A clause in a K is considered unconscionable and unenforceable if there is “an absence of meaning choice on the part of one of the parties together with K terms which are unreasonably favorable to the other party. (Skelley Wright – from William’s and Walker Thomas…..most oft repeated description of unconscionability).

6. These cases are a-typical. Generally, warranty disclaimers challenged as inconspicuous will be upheld, and less that 10% conclude on facts before them that K provisions are not enforceable.

7. Review 2-316(3)(a)-(c): Prob,6, pg. 164 – review for test. 8. Cox v. Lewiston Grain Growers, Inc., 1997: The seeds that failed to germinate.

a. Held: Warranty disclaimer is unenforceable. i. The rule states that disclaimers are disfavored in the law and ineffectual

unless specifically negotiated between the buyer and seller. (The “Berg) rule. The Berg rule should apply due to the specific requirements of the sale. No negotiations occurred regarding the disclaimer or exclusionary clause contained in the delivery ticket.

b. Held: The exclusionary clause was unconscionable. i. In determining conscionability the court must consider:

1. The manner in which the K was entered (formation) 2. Whether the parties had a reasonable opportunity to

understand the terms of the K, and 3. Whether important terms were hidden in fine print.

c. Held: Insurance payments could not reduce the damages award against D. i. Rule for Collateral Source: Payments received by the injured party

from a source independent of the tortfeasor will not reduce recoverable damages by the tortfeasor.

9. 9. A progressive minority of courts not that UCC 2-316(2) applies to either exclusion or modification of the merchantability warranty, and so require both warranty disclaimers and remedy limitations to be in writing and conspicuous.

a. A majority of court will enforce an inconspicuous remedy limitation. 10. What attack can a buyer make on a remedy limitation under 719(3)

a. Unconscionability b. This court concluded that the remedy limitation on these facts, even though it is a

commercial case, is unconscionable. (Cox) 11. Issue of limited remedies must often arises in cases of repair or replace.

a. If you’ve taken your car back time and time again to have the steering wheel fixed and it doesn’t work, you have a pretty good argument that the remedy has failed of its essential purpose. Therefore, the remedy should be to replace the car or give you compensation for having to drive a car with a broken steering wheel.

b. In this case, the court decided that the remedy limitation in the delivery ticket fails of its essential purpose because it deprives buyer of a substantial value of its bargain.

NOTICE

1. UCC 2-607(3) requires that a buyer notify the seller of any alleged warranty “within a reasonable time.”

a. Comment 4 allows a retail consumer somewhat more time to notify, but for a merchant a reasonable time may by very short indeed (some courts say 10 days for perishable products).

b. Notice given immediately upon discovery of breach ordinarily satisfies the requirement.

c. Manner and content can be important – oral notice is ordinarily sufficient, may have to specify “breach.”

d. Occasionally, direct notice from buyer to seller is not required at all: When seller has actual knowledge of the defect of the particular product, or is deemed to have been reasonably notified by the filing of the buyer’s complaint.

2. Warranty and Restatement of Torts: A careful attorney in product liability cases will join a warranty claim with claims for negligence and SL, perhaps to avoid either a statute of limitations defense or the “economic loss” doctrine (many courts bar tort recovery for mere economic loss, as opposed to PJ or property damage).

3. Magnuson-Moss Warranty Act of 1975 requires that every consumer goods seller making a written warranty disclose that warranty fully and conspicuously in simply and readily understood language. It does not, however, compel a seller to make a written warranty. If a seller DOES make one, whether full or limited, it may not disclaim any implied warranty (if it only makes a limited warranty, it may restrict the duration of the implied warranties).

4. 2 kinds of cases when filing the lawsuit satisfies notice: a. When seller has actual knowledge of the problem. b. If it is a consumer sale that has resulted in PI.

5. When considering if buyer gave adequate notice for breach, think about: a. Prejudice test: Would the seller been able to fix the problem if they had found out

earlier, has the car been driven too much to recognize the problem, etc. b. Effective policy argument: Even if we had given notice two weeks earlier, it

wouldn’t have mattered.

c. If consumer is actually a merchant (i.e. using a car for business purposes, getting tax breaks), that person should be held to a higher standard.

TITLE

1. When does title pass? a. Only parties interested in this are insurance companies and taxing authorities. b. 2-401(2): Unless otherwise explicitly agreed, title passes at the time of delivery

to the seller. c. 2-308: GAP FILLER – unless otherwise agreed, delivery is at the seller’s place

of business. 2. When does good title pass to a buyer?

a. 2-403: Voidable title (sub. 1), Entrusting (sub. 2) 3. Problems – Pg. 180 Problems 8-11 (KNOW THESE EXAMPLES) 4. Voidable title is created by bad checks – can be transferred to good faith purchaser for

value. 5. Difference between a good faith purchaser for value (voidable title analysis) and an

ordinary course of business (entrusting analysis): a. A good faith purchaser for value can buy from anybody. Two requirements:

You be in good faith (1-201(9)), and you have to give value (1-201(44)) b. If you are in an entrusting analysis, you have to buy from a merchant who deals

in goods of this kind. A buyer in the ordinary course of business is only buying from a supermerchant.

c. GOOD TITLE CANNOT EVER BE TAKEN FROM A THEFT. d. UCC allows good faith purchasers to obtain title more than the common law did.

This is because 1) The seller or entruster is in a better position to judge the merit of the intermediary than the purchaser, and 2) Stream of commerce. We don’t want buyers from supermerchants worrying all the time about whether they are going to get good title.

6. Heinrich v. Titus-Will Sales Inc. 1994: P contracted with Wilson, an unlicensed broker (held himself out as being a licensed broker) to sell a truck. Wilson negotiated with D for the purchase of the truck. Wilson paid D with a bad check. They accepted it and gave him a truck. Check bounced, demanded truck back. Wilson told P it needed repairs, took the truck back to D. P asked D to give it back and D refused.

a. D’s arguments/Ct response: 1. Wilson is not a merchant b/c no inventory, nor a license. [not necessary

under UCC to have either). 2. P was not a buyer. [P was a buyer b/c he acted in good faith. Wilson’s

illegality does not taint status]. 3. Truck was entrusted to Wilson after P had already paid Wilson (timing

issue). [Req. entruster to retain the burden of the risk, even when the entrustment occurs after a 3rd party purchase for value, supports underlying policies]

b. Policies: 1. Protects the buyer who relies on the merchant’s apparent legal ability

to sell goods in the merchant’s possession. 2. D was in a better position than P to protect itself against another

dealer/broker who may fail to pay for the goods. 3. Flow of commerce – a timing requirement would cause some delay.

c. Voidable Title - For P to prevail under this section, P must establish that 1. D delivered the truck to Wilson under “a transaction of purpose.”

2. Wilson paid D for the truck with a bad check. 3. Heinrich was a good faith purchaser for value. [req: good faith 1-

201(9), give value (any form of consideration) 1-201(44)] d. Entrusting theory: Court says you need three elements:

1. Entrusting 2-403(3) 2. Intermediary needs to be a merchant who deals in goods of this kind. 3. Buyer needs to be a buyer in the ordinary course of business.

e. This will be on the exam – always do both voidable doctrine and entrusting theory analysis.

RISK OF LOSS

1. At CL, and under the Uniform Sales Act, risk of loss or destruction typically rested o the party holding “title” to the goods when casualty occurred.

2. Under the UCC, risk of loss rules are both more flexible and more functional. a. In general, the UCC places risk of loss on the party most likely to take

precautions against loss (usually the one with possession or control of the goods or the one most likely to insure.

b. 2-509 (Risk of loss absent a breach), 2-510 (Effect of breach on risk of loss) 3. Insurable Interest Under the Code

a. Under UCC 2-501, buyer obtains insurable interest in goods upon their “indentification” to the contract. At that point, they buyer may insure the goods (even if its long before delivery)

4. Types of Delivery Terms (2-309, 2-320) a. Shipment contract – free on board (FOB), place of shipment

i. Under a shipment K, the buyer pays the shipment cost and the risk passess to the buyer when the goods are duly delivered to the carrier

b. Destination contract – FOB place of destination i. The seller pays the shipment cost, and the risk does not pass to the buyer

until the goods are “duly so tendered at the destination as to enable the buyer to take delivery.”

c. C.I.F. and C. & F Terms: i. CIF: price includes in a lump sum the cost of goods and the insurance

and freight to the named destination. C&F: Price inc. cost and freight to the named desination.

d. Examples. i. FOB seller’s plant: Risk passes when goods go into carrier’s hands.

(Shipment K). ii. FOB buyer’s plant: Risk passes when goods are duly so tendered at the

destination as to enable buyer to make a delivery. (Destination K). iii. FAS USS Iowa, Portland, OR: Shipment K. [319(2)] – goods delivered

alongside the vessel. iv. FAS RR car at seller’s plant: Inside the RR car.??? v. CIF Buyer’s plant: Shipment K, don’t be misled by the term “buyer.”

[2-320, cmt 1) vi. Ship to buyer’s plant: Shipment K [2-503, cmt. 5 – ambiguous terms].

vii. No delivery term: Not explicitly a destination K, code preference for shipment K when there are ambiguous terms.

5. Windows Inc., v. Jordan Panel Systems Corp. 1999: Contract for specially made window, to be “shipped to NYC.”

a. Appellate court held the buyer had assumed the risk of the loss because of the ambiguous terms in the K.

i. The K must expressly specify a particular form of shipment. There is a strong preference for shipment K’s, so if you want it to be another type of contract, you have to have specific terms (such as FOB seller’s place), or some other terms that say the seller will assume the risk until the goods are in the seller’s hands.

ii. Just specifying the address of where to be shipped does not do this. 6. Cook Specialty Company v. Schrlock 1991: Press brake fell out of truck during

shipping. Insurance purchased by seller was not adequate to cover cost. a. Goods are being transmitted to the buyer by common carrier, so it is a 2-

509(1)(a). i. This is FOB place of shipment, so this is a shipment K.

ii. Where does it seems as though the risk of loss is going to be? o Buyer (once item is in carrier’s hands).

b. Buyer’s 2nd argument about why it shouldn’t bear the risk: i. 2-504: In a shipment K where the risk of transit will be on the buyer, the

seller has certain obligations towards the goods…particularly obligations having to do with the K it makes with the carrier.

ii. Because the seller breached its 504 obligation, risk remains on the seller (2-510).

c. Issue boils down to whether or not the seller made a proper K under 2-504? i. Court found that the seller made an adequate K.

ii. Risk, therefore, was on the buyer when the item was damaged. d. 2-504, cmt. 3 states that it is improper for the seller in a shipment K to agree to

an inadequate insurance. Why did the court find the insurance to be proper? i. It is NOT improper for the seller to fail to investigate the extent of the

insurance. ii. Here, the seller did not agree to a $5000 policy, it simply failed to

investigate the insurance. 7. Bill of lading – receipt (“document of title” -warehouse receipt is also a document of

title) indicating what the goods are, the consignor of the goods, where they are supposed to be delivered, etc.

8. Jason’s Foods, Inc. v. Peter Eckrich & Sons, Inc 1985: Fire in warehouse that burned all of D’s ribs. P transferred the ribs on 1/13, bailee clerk mailed receipt to D on 1/17 or 1/18. D received receipt on 1/24. Ribs burned on 1/17. Court held risk of loss had not passed b/c acknowledge of the bailee of the buyer’s right of possession occurs when the acknowledgement has been given to the buyer (509(2)(b)).

a. Court reasons by saying this was the intent of the drafters of the UCC, because otherwise the code does not explicitly say that the acknowledge has to be to the buyer.

9. Schock v. Ronderos: Mobile homes case. Risk had passed to buyer b/c they had prepped the home for removal.

a. 2-509(3) case: Appellate court affirmed that the risk was on the buyer, because the seller was not a merchant. Risk passed to buyer on TENDER of delivery.

b. Tender of delivery occurred on payment for and acceptance of the mobile home. Sellers had disconnected the electricity and prepared the mobile home to be moved. Their failure to remove the sofa and piano did not result in an uncompleted tender of delivery.

c. Side note: Seller cannot be a bailee. 10. 2-510: Effect of breach on risk of loss

a. 2-510 shifts risk of loss to breaching party, who but-for the breach would not have had the risk of loss.

b. 2-510 (1): If tender or delivery of goods so fails to conform to the K as to give a right of rejection, the risk of their loss remains on the seller until cure or acceptance.

c. SIDE NOTE: Wild card of negligence here and in a lot of cases. Even if a party bears the risk of loss through 2-309 or 2-510, if that party can show that the other party’s negligence caused the damage, then negligence will trump the risk of loss.

11. Wilke v. Cummins Diesel Engines, 1969: Government generator case. Delivered it way before due, did not run specified field tests. Did not constitute and effective delivery, risk of loss remained on seller.

a. The delivery of the generator to the job sit, while identifying the goods to the K, did not amount to a delivery of the goods or the performance of obligations conforming to the K.

b. UCC 2-206(2) provides that “goods or conduct including any part of a performance are “conforming” or conform to a K when they are in accordance with the obligation under the K.” Non-conformity cannot be viewed as a question of the quantity and quality of goods along, but of the performance of the totality of the seller’s contractual undertaking.

c. Mooney thinks this should be a 2-509 (3) case: Seller was a merchant and hadn’t officially delivered the goods yet (“this is my baby”) T here is also possible negligence overlay for both parties (trumps UCC Risk of loss). Also, there is not actual breach b/c under 2-607 the buyer has not given adequate notice of breach.

12. Muliplastics, Inc. v. Arch Industries, Inc 1974: P and D contracted for P to make pellets for D. D refused to release purchase orders. P continued to house the goods from 8/20-9/22. There was a fire, and the goods were destroyed.

a. Under 2-510(3): Risk passes to the breaching buyer for a reasonable time. b. There was a breach, and 8/20-9/22 was a reasonable time. c. 2-709(1): Seller is entitled to recover K price. d. Subrogation also an issue here.

i. HYPO: B owes S the price of the destroyed goods under 2-709 (Multiplastics). 2-709 says one instance in which the buyer has to pay the price is when the goods have been lost or destroyed after risk of loss has passed (reasonable time).

1. What if seller is insured, and the insurance company pays the buyer’s obligation to the seller. Can the insurance company use subrogation to step into seller’s shoes and have a COA against B?

2. No, in cannot. 2-510, cmt. 3 says that the rules of (2), (3), that shift risk of loss only to the extent of insurance deficiency (of the other party), are not intended to be disturbed by subrogation principles

PERFORMANCE AND BREACH UPON DELIVERY 2-507(1): Delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. 2-511(1): Tender of payment is, unless otherwise agreed, a condition to the seller’s duty to tender and complete any delivery.

• Comment 2 says explicitly these are concurrent conditions • Practical effect: Neither party may sue for breach without properly tendering his own

performance. • Check bounces = no payment 2-511(3)

1. Buyer’s Right to Prior Acceptance: Inspection and Rejection

a. A buyer may inspect goods to make sure they conform to the K 2-513(1). i. In general, a buyer of goods has a right to inspect the goods prior to

paying for them. ii. A buyer may, however, agree explicitly or by including in their K a

method of payment inconsistent with prior inspection, contract away their right. 2-513(3).

b. If inspection reveals a non-conformity to the K, buyer may reject the goods. 2-601 He may also refuse to pay the K price and invoke a variety of Art. 2 remedies (2-711)

c. By accepting the goods, the buyer loses his rejection right, obligates itself to pay the K price and assumes the burden of proving a breach (2-607).

d. In some cases, acceptance can be revoked – but the standard is stricter than for initial rejection. 2-608.

e. Payment required BEFORE inspection does not constitute an acceptance of goods or impair the buyer’s right to inspect or any of his remedies. 2-512(2).

i. Even if buyer relinquishes pre-payment inspection right, the buyer can still reject the goods after payment (2-601) (question is just who will be plaintiff in the lawsuit).

ii. OUTLINE PRE-PAYMENT EXPECTION PROBLEMS – PP. 228. 2. Buyer’s Right to Reject

a. 2-601: If the goods or the tender of delivery fail in any respect to conform to the K, the buyer may reject.

i. This differs from CL, there is no substantial performance doctrine (Jacob & Kent v. Young). This is a nearly perfect performance.

ii. 2-103: There is a good faith obligation to perform iii. 2-508: Seller’s right to cure. iv. 2-612: A buyer may not reject a shipment under an installment K unless

the non-conformity “substantially impairs” its value. v. 2-504: Obligation of seller in the shipment K to make an adequate K to

the carrier. Buyer may reject the goods ONLY if material loss or delay ensues – the fact that the seller did not insure does not allow seller to reject the goods without material loss.

b. Limitations: i. Good-faith obligation: UCC 1-201(19), 1-203 (cmt. 19), 2-103.

ii. Subject to the provisions of 2-612, which provides that a buyer may not reject a shipment under an installment K unless the non-conformity “substantially impairs” its value.

iii. A buyer may not reject goods if (1) it already accepted them, or (2) the seller has a right to cure non-conformity. 2-607, 2-508.

3. International Commodities Export Corp. v. North Pacific Lumber Co. 1991: Moldy beans case. Buyer attempted to reject goods 9 months after receipt.

a. Buyer could not reject the goods because they had accepted them. They accepted them in three ways:

i. After an opportunity to accept signified acceptance of the goods. Said they would retain them despite non-conformity and would try to sell them.

ii. Failed to make an effective rejection of the goods (2-606(2)). iii. Buyer exercised dominion over them. It tried and ultimately did resell

these beans b. What is the most important legal effect of the buyer’s accepting the goods?

i. Once the buyer accepts the goods, under 2-607, it bears the burden of establishing that the tender was defective at the time risk passed.

ii. If the seller DID breach, the aggrieved buyer has to keep the goods, but can sue for breach – Value of good beans minus the value of moldy beans

4. Bowen v. Foust 1996: Heating and cooling unit case. P pled that after paying D the agreed sum, they discovered that the equipment D installed was not the equipment specified in the bid and did not work.

a. Buyer revoked its acceptance under 2-608. b. Court accepted that P acted quickly upon discovery of non-conformity. c. Buyer has right to throw goods back on seller by revocation of acceptance and

recover money (2-711). d. Seller claims they wanted to cure under 2-508, but ct. held that seller never

offered to cure. e. Side note: Argument in response from the seller saying “it’s too late” to revoke:

Doesn’t matter…it would not have changed anything if we had started this suit from day 1: No prejudice on the seller (goods would not have decomposed or been overused).

5. Zabriskie Chervrolet, Inc. v. Smith 1968: Lemon car case. a. Right to cure is not limitless. 2-508 Court held that attempted cure in this case

was ineffective. Seller will not be allowed to force the deal onto the buyer by forcing the new transmission. Buyer’s confidence is shattered and a reasonable buyer would not want to proceed with the transaction.

6. Right to cure 2-508 analysis: Two issues: a. Does seller have a right to cure? b. If so, what constitutes an effective cure?

ACCEPTANCE AND RECOVATION OF ACCEPTANCE

1. Buyer’s Acceptance of the Goods, UCC 2-606(1) provides that acceptance occurs when:

a. After a reasonable time to inspect, the buyer signifies acceptance to the seller, b. The buyer fails to make an effective rejection, or c. The buyer does any act inconsistent with the seller’s ownership.

i. Buyer can still sue for damages under 2-714, even if they are stuck with the goods.

ii. Auction – moving from auction yard to own house constitutes acceptance. Miron v. Yonkers Raceway.

2. Buyer’s Revocation of Acceptance a. Upon acceptance, a buyer loses its right to reject. UCC 2-607 b. However, it may still revoke its acceptance, and following an effective

revocation it has approximately the same rights and duties as if it had rejected. 2-608

c. 2-608 Requires that:

i. The non-conformity “substantially impairs” the value of the goods and that

ii. The buyer accepted the goods either (a) without discovering the defect because discovery was difficult or (b) assuming reasonably, but incorrectly, that the seller would cure the defect.

d. Revocation must occur within a reasonable time, as described in sub. 2. 3. 2-605: Under some circumstances, a rejecting buyer has an obligation to specify what it

thinks is wrong with the goods 4. Kesner v. Lancaster: K to sell a tractor. Seller assured buyer that the equipment was in

good shape. Seller gave cursory inspection, seemed fine. Turned out the tractor was defective. The tractor needed a lot of repairs. P had successful revoked because the defect substantially impaired the value of the goods under 608.

a. No perfect tender rule with revocation, you have to find substantial impairment. b. Buyer has to show substantial impairment, has to accept goods without discovery

of the defect, and revocation has to be within a reasonable time (608 allows more time than 601).

5. 2-610: Anticipatory repudiation. a. If your client has reasonable insecurity about the performance, it can demand a

reasonable assurance of adequate performance by the other side. If the other side does not do it, then without much risk you can declare anticipatory repudiation.

b. Hornell Brewing Co. v. Spry: Canadian beverage distribution case: 1. A K did exist (even without a distributorship agreement). 2-206: K can be

made in any manner to show agreement, 2-207: K can be shown with conduct.

2. Three issues under 2-609: a. Did Hornell have reasonable ground for insecurity? b. Did Hornell make a 2-609 demand for adequate assurance or did it

just call up and say what are you going to do (this is often the most litigated point).

c. Were the assurances given, adequate under the circumstances? 3. HELD: Adequate assurances were not forthcoming, so D had created an

anticipatory repudiation under 610, so P was free to leave the K. REMEDIES Code Remedies – 2 goals:

1. Aggrieved party may be put in as good a position as if the other party had fully performed (no consequential or special or penal damages except as specifically provided). 1-106(1)

2. Encourage a non-breaching party to minimize its damages by obtaining substitute performance. Thus, the Code places few restrictions on an aggrieved sell attempting to resell (706) and encourages an aggrieved buyer to mitigate losses through “cover” (712).

a. Code permits seller to recover the difference between the resale price and the K price together with any incidental damages…but less expenses saved in consequence of the buyer’s breach. 706(1)

b. Seller need not establish a specific market price for the goods. c. Cmt 2: Failure to act property under this section deprives the seller of the

measure of damages here provided and relegates it to that provided in Sec. 2-708. d. If seller cannot recover the entire K price under 2-709 or the price minus a resale

under 2-706, the appropriate damage measure will likely be the “difference between the market price at the time and place for tender and the unpaid K price

together with any incidental damages….but less expenses saved in consequence of the buyer’s breach.” 2-708(1).

2-703: Catalogue of seller’s remedies 2-711: Catalogue of buyer’s remedies Issues:

1. When and where to measure the market price 2. What items to inc. in the damage measure? 3. When do we have a lost-volume seller?

SELLER REMEDIES Three remedies for seller:

1. 2-709 Full K price a. Most often involves seller efforts to demonstrate that the goods are not

marketable at any price. b. 2-709 provides that a seller may recover full K price in three instances:

i. When the buyer has accepted (2-606) and retained the goods ii. When conforming goods have been lost or damaged after risk of loss has

passed to buyer (2-509) iii. When the seller has tried and failed to resell the goods, or “circumstances

reasonably indicate that such efforts will be unavailing.” (i.e. potato case where the market was bad and the seller couldn’t be expected to resale).

c. Question whether buyer has accepted the goods for purposes of 2-709: i. Buyer who makes a “procedurally effective” rejection does not accept.

ii. Buyer making a procedurally ineffective rejection, regardless of substantive merit, does accept the goods under 2-606.

iii. Buyer revoking acceptance (2-608) likely must be correct both procedurally AND substantively.

d. Advise your client (seller) to resale (706) because it is easier to prove difference between K price and resale price + incidental fees then it is to show you reasonably attempted to resale.

2. 2-706 Resale – difference between K price and resale price a. Most sellers will invoke 2-706 b. If non-breaching seller resales the goods in good faith and in a commercially

reasonable manner, and in accordance with fairly minimal statutory obligations, then than aggrieved seller may recover the difference between the K price and the lower resale price + incidental damages, minus damages saved.

i. Incidental expenses (allowable under 2-710) ii. Don’t forget shipping costs

c. (2) If seller makes profit on the resale, he does not have to share with the breaching party.

d. Advise client to act as if its their own money (this will make it a commercially reasonable care).

e. Goods resold has to be the exact same goods you were going to sale to breaching party.

f. If seller is going to resale privately, the only notice it has to give is the intent to resale privately. You don’t have to give notice of particular sale or date. If seller is going to resale publicly (i.e. auction), notice of time and place has to be givern

g. If seller resales unreasonably (for way below market price), can’t get remedies under 2-706, but can get them under 2-708.

3. 2-708 K market penalty (seller is entitled to recover difference between K price and market price at time and place of tender).

a. (2): Lost volume seller i. 2-708(2): If the damages measure of 2-708(1) is inadequate to put the

seller in as good a position as performance would have done, the seller may proceed under sub. 2 and recover “profit (including reasonable overhead),” that it would have made from seller’s full performance, plus incidental damages, and minus payments or proceeds of resale.

ii. Lost P seller: On whose sales volume declined because of the breach. b. (1): Third major remedy (although Mooney thinks this should be used rarely –

seller should resale under 2-706, or if it cannot, recover the K price under 2-709). c. Place of tender: Shipment K: Buyer’s city, Destination K: Seller’s City. d. The statutory formula will not always yield an amount equal to the seller’s actual

loss. 4. Conflict: 2-706(6) says that seller doesn’t have to share windfall from these statutory

formulas. This conflicts with 1-106, where it says if the seller is not damaged at all, damages should be minimized.

1. 2-706(6) arises more in case of resale. It says seller doesn’t have to give money to the buyer, but doesn’t say anything about taking money from the buyer.

5. 2-704: Permits a reasonable completion of ½ finished goods. Risk: Can lose even more money if you are unable to resale goods after you have finished. You want to notify the buyer of your plans to resale.

6. Nederlandse v. Grande 1979: Concrete manufacturing case with steel strand. D wouldn’t pay for the strand they ordered. Issue: Was P a lost volume seller? YES. Could recover under 2-708(2).

BUYER’S REMEDIES Buyer’s Right to Specific Performance or Replevin 2-716 (2-709 parallel this remedy for the seller)

1. 2-716: Specific performance shall be granted where the goods are unique or in other proper circumstances.

2. Cmt. 1: Without intending to impair the court’s sound discretion in the matter, this article seeks to further a more liberal attitude than some courts have shown in connection with specific performance of K’s of sale.

3. Cmt. 2: Output and requirements K’s involving special markets or sources are now the “typical commercial specific performance situations.”

a. One strong indication of other proper circumstances for awarding specific performance is the buyer’s inability to recover.

b. Eastern v. Gulf (Eastern couldn’t cover because fuel prices had shot up). c. Copylease v. Memorex (claimed it could not reasonably cover by obtaining an

alternative source of toner because other brands of toner are distinctly inferior to the Memorex product – goods were unique or “noncoverable”).

4. Sub. (3): Authorizes a buyer to replevy the K goods in two situations: a. When they have been identified to the K and the cover is unavailable and b. When they have been shipped under reservation and the buyer has tendered full

payment. Buyer’s Right to Cover Price – K Price Damages UCC 2-712 (2-706 parallels this remedy for the seller)

1. 2-712: Authorizes a buyer whose seller has breached to “cover” by “making in good faith and without unreasonable delay any reasonable purchase of goods in substitution for those due from the seller.”

2. Sub (2): If buyer does so, he may recover from the seller the “difference between the cost of cover and the K price together with any incidental or consequential damages…but less expenses saved in consequence of the seller’s breach.”

a. Good Faith: b. 1-201(19): Honesty in fact c. 2-103 (merchants): Req. they observe reasonable commercial standards of fair

dealing in the trade. 3. Cmt. 2: The test of proper cover is whether at the time and place the buyer acted in good

faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective.

a. Buyer must also make a reasonable purchase. Considerations inc. time constraints, market fluctuations, and available supply (was buyer purchasing as if it was with their own money?)

b. Farmers Elevator Company of Elk Point v. Lyle (Doctrine of equitable estoppel to prevent a party to an oral agreement from invoking the statute of frauds).

c. Most courts agree that uncertainty under 2-712 should be resolved against breaching sellers.

d. Hardest case is when the buyer covers by purchasing somewhat better, somewhat more expensive goods. If no other substitute goods were available, the buyer should still be permitted to use the cover price-K price formula.

e. A non-covering buyer can get damages from other remedies (i.e. a market price-K price damage computation), but they may not recover consequential damages that cover would have prevented.

Buyer’s Market Price-Contract Price Damages 2-713 (2-708(11) – parallels this remedy for the seller).

1. 2-713: Permits buyers who do not cover or seek specific performance to recover “the difference between the market price at the time when the buyer learned of the breach and the K price together with any incidental and consequential damages provided by this article.

a. Computing damages: (1) Determine the property date and place for fixing damages.

b. Date issue: If the seller’s performance is due by a specific date, use that date. If the buyer does not learn until later, use the second date. Most difficult case is if the seller repudiates earlier. The sounder position is to use the date of the breach (the later date).

i. Cargill, Inc. v. Stafford 1977: Wheat case, seller repudiates. Holding: A buyer may urge continued performance for a reasonable time. At the end of a reasonable period he should cover if substitute goods are readily available. If sub. goods are readily available and buyer does not cover within a reasonable time, damages should be based on the price at the end of the reasonable time rather than on the price when performance is due. If a valid reason exists for failure or refusal to cover, damages may be calculated from the time when performance is due.

1. Statute of Frauds exception to confirmation 2. 2-201 Merchant exception (Trial court said this doesn’t apply for

2 reasons: 1) Wasn’t received within a reasonable time, 2) seller objected to its terms within 10 days – weak argument)

3. Trial court decided there was no enforceable K under 1st K. 4. Court decided 2nd K would be enforced. 5. DAMAGES: MOONEY SAID THIS CASE COMES OUT

WRONG. c. Location issue: Sub 2: Market price is to be determined as of the place for

tender or, in the case of rejection after arrival or revocation of acceptance, as of the place of arrival.

i. Cmt 1: Market price should be determined at the market in which the buyer would have obtained cover had it sought relief.

d. Time for measuring relevant market price is when the buyer learns of the breach. 708 is time and place of tender.

e. Of buyer rejects the goods following delivery, then the time and place is the place of delivery.

Recovery for Breach Relating to Accepted Goods 2-714

1. 2-714: A buyer who accepts defective goods, and does not revoke acceptance, may nonetheless sue for breach.

2. Sub. (1): B may recover damages “as determined in any manner which is reasonable. 3. Sub (2): The most common such case, a breach of warranty regarding the goods, the

measure of damages will normally be the “difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted.”

a. “Value of goods as accepted”: i. Actual value to the particular buyer (which is usually $0, so the judgment

rescinds the K), or ii. Their market value sold “as is.”

11/19/06 3:06 PM

THEMES Reasonable contract Preventive Lawyering Bargaining power Freedom to and Freedom from contract Conduct, content and status Substance v. form Verbal v. oral Voidable, void, enforceable Equitable v. legal remedy Market self regulation v. government regulation Policy concerns –incentives for future behavior, social justice Deal in affirmative, explicit terms Duty to mitigate damages (might as well) Courts will not measure utility Expectation Interest –encourages contracts Efficient Breach Autonomy v. Paternalism (excusing people from their contractual obligations v. making them live with the consequences) Benefit of the Bargain Void: a contract is void when a party excercises its right not to perform Voidable: a contract that one party can avoid –misrepresentation Unenforceable: preferred term for contracts that are “void” due to duress, etc Invalid: same as a contract being declared unenforceable Interpretation: what was the intent of the parties at the time of formation Definiteness –is it definite enough to be enforced? I. FORMATION –is the contract indefinite/ambiguous terms? A.) Offer –the offeror is “master of the offer” §2-206

1.) So long as there has been no acceptance, offeror can revoke his offer: offers are freely revocable

A) General Test: “Would a reasonable person in the offeree’s position would have understood the offeror’s action as manifesting contractual intent?” –includes prior history of parties

1) Watch for:

What is inducing the offer? What does the offeror want? (could be a gift)

What’s the content of the communication? –oral, written, what terms?

• Specify the terms, costs, quantity? 2) It’s if not an offer if: (unclear phrases)

a) fair, appropriate, reasonable • signal that there is no contract, no

manifestation of commitment b) customary, standard

• depends on whether those terms actually apply to the situation

3) It is an offer if: a) requirements, all, only, solely

• signal manifestation of commitment • examples of requirement contracts

Note: context in which the contract was made also matters; ie: in an office v. at a bar

B) Revocation of the offer results when 1) One of the parties dies

Offers die when people die 2) Lapse of time

A delay will kill an offer –they don’t last forever Offers expire after a reasonable time –note the

dates bwt the offer and the acceptance 3) Change/rescion in the offer

It is a two party game Both parties must be informed of the revocation

• The person to whom the offer was made must be made aware of it.

C) Irrevocable Offers 1) The Option Contract, if:

a) there is an additional promise not to cancel the promise b) there is some payment (consideration) for that promise

note: the payment must induce the option contract c) if the contract is for an action, options contract begins once performance begins (see 3)

2) If the offer has been relied on in a way that is reasonable and foreseeable

a) Subcontractor puts forth a cost assessment to the main contractor, he cannot revoke that offer

3) Where you have an offer to enter into a unilateral contract and performance has begun, the offer cannot be revoked

a) Unilateral contracts result from offers that require performance as the only means of acceptance

• Offer for an act • The offer expressly requires performance

b) If after the offer, performance has begun, the offer cannot be revoked

• The other party has begun relying on the contract

B.) Acceptance –Is the response acceptance? 1) Who accepted the offer?

o Only the person to whom the offer was made can accept the offer.

2) How can an offer be accepted? –Mirror Image Rule a) The terms of the offer can control the method of acceptance.

1) Requesting an action or beginning performance (showing up for work), requesting it in writing. 2) Default rule: any reasonable method of acceptance will constitute acceptance 3) Was there a specific method/means of acceptance communicated? 4) What was the time table for acceptance? 5) Does the acceptance Mirror the Offer?

b) Rules governing acceptance 1) If it was an offer to enter into a bilateral contract, beginning performance counts as an implied promise to perform, and therefore, acceptance

2) If the offer was an offer to enter into a unilateral contract than the start of performance is not enough, it is not acceptance, there is no contract 3) Distinguishing btw unilateral and bilateral contract formation

Where the law is heading: no contract is unilateral It is unilateral only if the offer says the offer

requires performance for acceptance c) Silence as acceptance

Silence does not constitute acceptance, except: 1) By explicit prior agreement of the parties, or 2) Implicitly where the nature of the relationship dictates the outcome

d) Rejection and ineffective responses Indirect Rejection

1) Counter Offers –“Mirror Image Rule” • Acceptance must mirror the terms of the

offer o If acceptance doesn’t mirror the offer,

it is a rejection of the offer o Ie: If the response includes a different

price • Kills the initial offer

2) Conditional Acceptance • I accept so long as… • Key words: if, provided, but, so long as

3) Additional Terms • I accept and… • When the response adds a term, it is an

indirect rejection • Ie: Writing in permission to keep a pet in a

lease for an apartment e) Mailbox Rule:

1) With all communications, except an acceptance, it is effective only when it is received.

2) An acceptance is unusual in that it is effective when it is sent. How it gets tested, how to spot it

1) where the two parties are not in the same place, not meeting face to face, when the agreement is being made 2) as a result, there is a delay in communication (mail) 3) there will be inconsistent communication

C.) Consideration –without it, the contract is unenforceable 1) A bargained for exchange, a requested act or promise, or forbearance (the act of no acting)

o Hamer v. Sidway; forbearance as consideration 2) General Test: Consideration must be objective, warm fuzzy feelings don’t count –beware a mere pretense of consideration

o Tip: If no objective consideration, could be a case for Promissory Estoppel?

3) What makes promises binding 1) Did the defendant ask for anything in exchange for her promise? 2) Did the plaintiff promise to voluntarily incur a detriment in exchange for the other party’s promise? 3) Did the other party forebear? Did they restrain themselves from doing something they had a right to do?

4) Three Main Consideration Issues a) Amount of consideration

The courts do not get involved in measuring utility b) Past consideration situation

Past acts cannot form the basis for a contract in the present

Past acts were not induced by the other party’s present day promise

c) Contract Modification Preexisting Duty Rule

1. Modifications must be supported by new and additional consideration

Note: good faith agreements to change in price where the contract is for a sale of goods, do not require additional consideration

2. Beware of mere pretenses of additional consideration –band that offers another half hour of play time for extra $1000, or not at all

• See Alaska Fisherman 3. Bottom line: courts will not condone such coercion. That’s why these cases come under Duress today, Preexisting Duty is no more.

5) Unilateral v. Bilateral Contracts a) Unilateral: promise for an act –acceptance is effective only upon complete performance of the act

1. Therefore, no consideration until complete performance, and thus no contract

Example: sign for reward for lost puppy 2. Promisor remains master of the offer and can revoke the offer at any time 3. Potential for implied options contract, once performance begins 4. Implied option contract means that the offeree can quit at any time and sue for restitution –there never was a contract, so it wouldn’t be a breach

b) Bilateral: promise for a promise, instant commitment and consideration

D.) Intent to be Bound

1) Would a reasonable person make such an offer or enter into such a contract? 2) Advertisements are not offers, but “invitations for an offer” 3) Familial contracts often not enforceable

o See Balfour v. Balfour o Also, public policy concerns over letting couples litigate such

“contracts” 4) Social Contracts –presumed condition, which is understood, of the other party’s capacity and desire at the moment to attend/socialize

5) Freedom to Contract also grants Freedom from Contract o Autonomy and voluntary action are paramount throughout

the process, without it, how can we know if there is any benefit to the bargain?

6) Does one promise induce the other? E.) Form and Formalism

1) The necessary pattern of conduct or ceremony which people must follows to trigger a particular legal relationship

o Re-enforces the party’s commitment to the promise 2) Such formalities protect those of an overly benevolent nature from letting their generous impulses ruin their lives

o Examples of Form: Contract Trust Will (completed) Gift Seal (old school –hot wax stamped with your initials)

3) Formalism - a) Pejorative, a legal system that pays too much attention to formal aspects b) Goal of modern contract law: to get at the intention of the parties at the time the contract was formed

Substance over Form! See Wood v. Lady Duff

Cardoso: Without an implied promise, the transaction cannot have such business “efficacy, as both parties must have intended that at all events it should have”

• They wouldn’t of gone into the contract, if such a promise hadn’t been understood

II. SHEAR PROMISES A) Its Not a Contract

• Illusory Promise

1) Looks like a promise, sounds like a promise, but does not actually commit the promisor

The other party would be liable for breach, but not the promisor

See Wood v. Lady Duff Illusory promise nonetheless establishes

consideration for the contract, via interpretation B) Enforceable Promises –challenges the sacred converse of Freedom to Contract: Freedom from Contract, as well as Pareto Superior basis for all voluntary exchanges, since they are not voluntary

• Promissory Estoppel (equitable remedy) 1) Elements:

a) A promise which, the promisor could reasonably foresee reliance by the other party, and b) Enforcing the promise is the only way to prevent injustice

See Ricketts v. Scothorn 2) Remedy: Damages proven by demonstration of reliance and consequential damages, HOWEVER, the remedy will only be awarded in so far as justice requires (could be zero $)

Note: The remedy will never be for more than the amount promised

3) Promise is enforceable despite lack of consideration, due to the reliance induced by the promise 4) §90.1

Note: unlike contract remedies, this is a discretionary remedy that will be applied in so far as justice requires

C) Conditional Gift –seems like consideration, but its really not

1) The Question: are the strings attached to the gift, in fact, consideration?

o Note the circumstances o Remember: Consideration must be objective

2) If the condition imposed by the promise is substantial, can qualify for promissory estoppel

3) Examples: o Williston’s tramp case, pg.227

Walking around the corner is a condition on the gift, not a contract

There was no consideration because the tramp’s action did not induce Williston to give away the coat

If he had had it in his arms, he would have given it to her

o Kirksey v. Kirksey Family invited out, under a conditional gift offered to

the family, he was free to revoke the promise at anytime

Because the uncle never asked for anything in return for her moving out, so there was no consideration

III. UNENFORCEABLE CONTRACTS –Social Controls on Freedom to Contract (Public Policy Concerns)

• Not Pareto-Superior (one party is left worse off by the exchange) • Traditional rule: caveat emptor (let the buyer beware) • Instances where the market’s self-regulation fails, and the

government must step in • Commonly Unenforced Contracts

a) Contracts in restraint of trade b) Contracts that impair family relations c) Promises to commit a tort d) Promises to violate a fiduciary duty e) Promises to interfere with another’s performance of a contract f) Terms that exempt a party from liability any intentional, reckless or negligent tort or legal consequences of misrepresentation, duress g) Restitution is usually also unavailable unless “denial of restitution would case disproportionate forfeiture”

• Tha Process: o Is there a contract

o If yes, is it enforceable? –for each: conduct, content, status (the Why?; the list below is the What?)

Does it violate the statute of frauds? Capacity issues?

Minor, intoxication, retarded? Duress? Unconscionable? Void for public policy?

Contracts for Illegal acts Special Contract? (list)

A) Mistake, Misrepresentation, and Nondisclosure 1) Misrepresentation communication of a falsehood

a) A misrepresentation is made by the other side, b) the misrepresentation was of a material fact c) the other party reasonably relied on the misstatement

1. Consequences: the contract is avoidable 2. Ie: teenage with a fake ID buys a car and wrecks it; dealer can recover under fraud, even though kid has a capacity defense

See Vokes v. Arthur Murray Inc –reliance on an expert’s opinion

3. Contract law generally does not focus on the knowledge of the falsity or the intent to mislead

2) Mistake is where a person on her own somehow got a mistaken idea as to the facts of the deal Without action by the other party

a) Mutual Mistake –typically renders the contract unenforceable 1. Mistake must be material, and such that reasonable care could not have caught it, and there was no reliance on the part of the offeree

If the offeree has relied, the offeror is bound 2. Reliance by the other party can negate invalidation by mistake 3. In short: the offeree should have reasonably recognized that the offeror did not intend the offer they had made

The contract was nonconsensual to begin with

See STS Transport Service v. Volvo White Truck –the mistake was reasonable, and the other party could not have reasonably thought the offer was as made by Volvo White was what they intended

The offer failed the objectivity test Note: Inconsistent with the principles of contract law in that this releases a party from an otherwise, binding contract.

It is the offeror’s responsibility to know their offer, yet this excuses them for that responsibility

Very Paternalistic 3) Was the Mistake Material? –how ‘big’ is the mistake?

a) If the mistake is about what something is, then the fact is material, and provides grounds for non-enforcement b) If the mistake is about what something is worth, then the fact is not material, and not grounds for non-enforcement

Note: Material facts are not the same as predictions or opinions. Also, opinions carry different weight depending on who delivers them –reliance on experts tends to be reasonable reliance.

Furthermore: opinions by third parties not involved in the contract are not grounds for misstatement.

Promises are traditionally not considered grounds for voidability/invalidation.

4) Omission as Misrepresentation a) The duty to disclose.

Very uncommon in contracts. More of a torts thing. b) The offending party must have known of the defect prior to the contract.

So, knowledge is an element. You can’t omit information you don’t know.

c) Possible Exception: if the defect is readily observable upon inspection

See Obde v. Schlemeyer –not readily observable, but conscious non-disclosure

5) In Sum

a) Kronman: we want to protect the investment people make in researching information. People who invest in producing the information should reap the booty of the investment.

Burden to know the value of a piece of property is on the seller.

If the knowledge reduces the value of the property, and the seller knows, there is a duty to disclose.

6) Nondisclosure as Misrepresentation a) Active concealment, prevents the other party from finding out. b) When a previous disclosure has become false. c) Half-truths. You must disclose the full truth. d) If the parties are in a confidential relationship

Undue Influence; your guard is down, so you expect more candor

See Vokes v. Arthur Murray Inc e) Generally: if there was any significant deceit, the contract could be voidable. f) Tip: Deal in Expressed statements affirming various aspects of the deal –Preventive Lawyering g) Policy Perspective: The seller is in a better position to find out the truth

B) Problems with the substance of the deal

1) Is the subject matter of the contract illegal? o Might not be criminal, civil violation

2) Public Policy o Paternal contracts o Covenants not to compete

C) Problems with how the deal was made

1.) Factors to consider: a) Status of the parties b) Substance of transaction (is it a bad deal), c) Conduct during the deal

2.) Duress:

o Economic duress: environment was such that the party that signed the contract they would not have signed otherwise

o preface your answer with: the concept of econ duress is a new and evolving concept and there is very little case law supporting economic duress

Two key factors: 1) one of the two people, must have made an improper threat, and 2) there is no reasonable alternative

• “absence of meaningful choice” See RL Mitchell v. CC Sanitation Note: the party making the improper threat must have also had a hand in eliminating the other party’s lack of reasonable alternatives –if you are responsible for your lack of reasonable alternatives, the court will not find duress

See Selmer • Posner: the settlement holds because the

other side was not responsible for the contractors financial

2.) Undue Influence (a step down from duress) o Two factors

1) Unfair persuasion 2) Domination

o See Vokes v. Arthur Murray Inc –commercial exchange, but nature of relationship suggests potential for undue influence

2.5.) Duress and Undue Influence o Both have a “bad guy” and a “weak and vulnerable guy” o The approach: discuss both parties,

If individuals: undue influence If commercial entity: duress

3.) Misrepresentation o In contract law misrepresentation need not be intentional, the

question rather, is whether the misrepresentation was material.

o If it is enforceable, the contract is not enforceable

o See Vokes v. Arthur Murray Inc –expert opinion 4.) Nondisclosure

o One party withholds information o Classic view: not a problem o §161, example: house had cockroaches

nondisclosure of information that would be difficult for the other party to obtain can be grounds for unenforceability

5) Unconscionability o Contracts formed with an absence of meaningful choice on

the part of one the parties together with contract terms which are unreasonably favorable to the other party

Determined on case by case basis Very high bar Typically for low income individuals See Williams v. Thompson Furniture

a) Substantive Unconscionability: unreasonably favorable terms of the contract b) Procedural Unconscionability: meaningful choice Note: If the substantive factors are “egregiously oppressive”, they can override a lack of unconscionable procedurally

Does it “shock the conscience”? See Gateway Computers See Vokes v. Arthur Murray Inc

b) Factors for Analysis Content: terms Conduct: absence of meaningful choice; sneaking the

contract into the box Status: as the business, they dictate the terms

c) Even though there is §2-302, it applies in all contracts, including common law contracts d) Unconscionability is tested as of the time of the contract

Where the terms oppressive? e) a court can find either the entire contract unconscionable or it may find only part of the contract is unconscionable and enforce it accordingly

E) Problems with whom the deal was made

1.) Factors to consider: a) Status of the parties

Is one party impaired? Difference in bargaining power? b) Substance of transaction (is it a bad deal)

Terms of the contract c) Conduct during the deal

Manner and circumstances in which offer and acceptance are exchanged

2.) Mental Capacity, §15 o The ability to understand and appreciate the nature of one’s

actions If one party could not understand the contract, it is

voidable; that is, it is not automatically void. The incapacitated party is given the option of

whether or not to go ahead under the contract. Policy Incentive: parties will not contract with mentally

incapable parties o Another factor: Volition

The ability to control one’s actions. The other party must have been able to reasonably

infer §15.1.b The book’s example: an addict who sells something with

grossly inadequate consideration, will not be held to the deal.

3.) Intoxication, §16 o Voidable if you didn’t have the ability to understand or control

your actions, if the other person had reason to know that the other party was intoxicated

The critical factor is the conduct of the capable party, in that they took advantage of the incapacitated party

However, there is also a degree of blame attributed to volitional intoxication

4.) Infancy, §

o Voidable, unless the minor wants to perform, but he can back out at any time.

Status as child all that matters (bright line rule) Conduct: maliciously dealing with children Reason to know whether party is a minor not

important; burden is on the other party to find out for sure if the

No possibility for compensatory damages, only restitution of the chattel in its current state, and the other guy must pay back any payments made on the chattel

5.) Necessaries: an exception to the rule; if a minor must contract for a need –food, shelter, medical care, clothing –that contract is not voidable

o Consideration and Infants: pg.237 F) Statute of Frauds –when you need to put it in writing

• Based on a statute, varies by state • Written to prevent false claims of contract

o Requires certain contracts to be in writing o Incentive for “preventative lawyering” –put everything in

writing • Steadily chipped away at –reliance will satisfy the Statute of Frauds • Vocabulary:

o “within the statute”: the contract/situation is covered by the statute of frauds

means your problems are just beginning 1.) Six types of contracts covered by the statute of frauds

a) If it is a sale of goods for $500 or more The only UCC provision with a $500 figure

b) If it is a transfer of an interest in real estate that has a duration of more than a year

1) agreement to sell Black Acre for $300 –within the statute 2) an easement for two years –within the statute 3) one year lease –not within the statute

For real estate, the statute applies where it is more than one year

c) Services contracts not capable of being performed within a year of the date of the contract

1) Anytime a contract has a fixed duration greater than one year, the contract is within the statute

Lifetime deals are not within the statute Note the difference between date of agreement

and date when performance of the contract is set to occur

• The question is whether it can be completed, not will you have to work on it for over a year.

2) Anytime the contract is based on completion of a task, it is not within the statute

Capable=theoretically possible given unlimited resources

d) Promises to answer for the debt of another Guarantees to answer for the debt of another Note: Suretyship –if a third party answers for the debt of another out of incentive for personal gain, there needn’t be form to be enforced

The incentive suffices to assuage fears of fraud e) Promises in consideration of marriage

Pre-nups or post-nups f) Promises by an estate representation

To pay the debts of an estate 2.) “Satisfying the Statute”

A) Tips for the test 1) The fact pattern will probably have an oral agreement 2) Could state that there was a written agreement

Statute of frauds not an issue 3) Tells us about the written agreement

Raises a question as to whether the written agreement was sufficient

B) So: Was the written agreement sufficient?

1) Was the written agreement signed and by whom? To be effective, it must have been signed by the

defendant. Essential terms written on letterhead, business

card, etc. can suffice. 2) What are the contents of the agreement?

a) all material terms test b) must be able to answer: Who is making the agreement and What each party is agreeing to do.

• A statement “I accept” is not enough. C) Oral agreements and performance

1) Transfers of interest in real estate Oral agreement will suffice if there has been

partial performance for 2 of the 3 a) partial payment b) possession of the land by buyer c) improvement to the land by the buyer

o See Powell and Rodman 2) If it is a services contract

Part performance is never enough to satisfy the statute of frauds

• Unless one party relied o See Mcintosh v. Murphy Note: reliance must negatively impact the party

D) Modern Considerations 1) Emails suffice if you type your name at the bottom 2) Electronic signatures

3.) Benefits and Costs of the Statute of Frauds a) Benefits:

1) Prevents fraudulent allegations of contracts 2) Evidentiary: proof of the promise (contract) 3) Cautionary Effect: parties are more thoughtful about their promises, “makes you think twice” 4) Channeling: declares whether behavior is either Binding or Non Binding

5) Ensures the expectancy interest of the aggrieved party b) Costs

1) A true oral contract could be rejected, *basically, the risk of fraudulent denials of contracts that really do exist, thereby denying the expectancy interest of the aggrieved party

2) The reason why courts chip away at the statute of frauds –equity/justice demands it

IV. SPECIFIC TYPES OF CONTRACTS DISCUSSED A) Franchises –Bargaining Power

1) The dynamics between the parties are the same as family contracts in that they are continuing relationships

a) Relational contracts versus discrete contracts b) Relational contracts are much more complex c) Remember Memorex, the court is hesitant to get involved

2) Problems: a) Before statute was created, franchisor could cancel, at will and without cause b) Franchisee had no Bargaining Power

3) Wisconsin’s Solution: WFDL a) Consequences of WFDL: contracts now include a lengthy description of what counts as grounds for just cause in termination, as a prophylactic measure against future litigation.

Possible Defense that arises from such long contracts: No one reads them, nor can anyone be reasonably expected to read them, and even if they did, they are impossible to understand.

b) CB: the law has always been there intervening, its intervention just changed. There is never a case where law does not intervene.

4) Alternative concerns: o The Franshisor has considerable interest in its image, cannot

be ignored B) Employment Contracts

1) Default rule: employment at will 2) Rebuttable presumption

a) Not at will if employee gives special consideration to employer 1. Requires a special kind of proof 2. Must be of economic benefit to the employer

See Mcintosh v. Murphy • Also chips away at Statute of Frauds

Note: presumptions are based on the absence of evidence 3) Benefits and Detriments of At Will Employment

Benefits: a) The threat of firing is a strong incentive to get workers to work hard (good for employers) b) If an employer fires folks irrationally, he will loose bargaining power with future and other employees

Bottom line: both parties want to treat each other well out of their own self-interest

c) Allows adjustment of businesses in order to adapt to the new market d) By preventing barriers to exit, it prevents barriers to entry –it is much easier to get a job in a market system e) Fairness and Reliance cuts both ways

Firm and employee rely on one another more over time

• “Firm Specific Human Capital” Cannot expect business to operate at a loss

Costs: a) Bargaining Power is tied in large part to a party’s alternative options b) Most employees are at a disadvantage, in that they are easily replaceable

4) Covenants Not to Compete –balancing test, weigh considerations of time and space

a) Employment contracts b) Sale of a business c) Balancing Freedom to Contract with Restraint to Trade d) Reasonableness factors: scope, duration and geography

1) Does the covenant reasonably protect a legitimate business interest? 2) Is it unduly harsh and oppressive to the employee? 3) Is it injurious to the public’s interest?

In short: balancing test. Weigh the considerations of time and space.

e) Additional effects 1) Employee feels trapped 2) Employer abuses their position 3) Blue penciling is not always a good option

See Fullerton v. Torborg Paternalism/Substance over Form

f) Strictly construed against the employer 1) Blue penciling only condones abusive behavior by employers

Not enforcing them at all would set the proper incentive

2) The courts will not enforce contracts that are malicious, excessive and abusive

C.) Standard Form Contracts (Contracts of Adhesion)

1) Drafted by one side, adhered to by the other a) Counter to the traditional notion of negotiation and subsequent creation of a contract b) Consequently, any ambiguity in the contract language will construed against the drafter

Contra proferntum (will be construed against the person who wrote the contract)

c) Examples: legislation 2) Efficient, mass production of contracts 3) Extensive contingency terms

a) Example of Preventive Lawyering 4) Enforceability of Standard Form Contracts

a) Bottom Line: They are enforceable b) Reasonably inferred terms will be enforced

See C and J Fertilizer v. Allied Mut. INS. Co.

5) Cross-Collateral Clause –“add-on clause” a) Permits repossession of material goods in repayment of a debt

Litigation is a default rule. By stipulating repossession in the event of breach (default), the parties are trying to avoid litigation

b) Restricts the creditor to recovering the principal, interest, and costs –anything extra goes back to debtor

6) Pro-Rata Clause a) Nothing is paid off until everything is paid off b) Great source of muscle for creditors

See Williams v. Walker-Thomas Furniture Co. D.) Third Party Beneficiaries

1) A contract between two people, for the intended benefit of a third party, such that the third party can enforce the contract 2) Types of Beneficiaries

a) Creditor b) Donee beneficiary

3) History a) Originally, there had to of been privity of contract for a non-party to enforce the contract

3) Examples: a) Life Insurance

Dad buys insurance with the intention of benefiting daughter (third party) when he dies

b) Trust Fund Benefactor creates a trust to be managed for the intent

of a third party until a certain date E.) Assignment and Delegation -§317,8,9

1) Brings in a third party beneficiary when the original contract did not contain one 2) Third party assuming rights/duties of original party, toward obligee 3) Assignment: Transfers the original party’s rights to a third party

a) Assignor assigns their rights to Assignee

b) Example: the doctor becomes the owner of the right to collect from the insurance company

Patient=Assignor; Doctor=Assignee 4) Delegation: Transfers the original party’s duties to a third party

a) Delegator transfers their duties to Delegatee b) Example: Pizza Cleaners transfers their obligation to clean Pizza ovens to Macke Cleaners

Pizza Cleaners=Delegator; Macke=Delegatee 5) Combination of assignment and delegation: “Assigning the Contract” 6) Generally, any service not specified in the contract (nuances, etc) will not be enforced/delegated

a) CB: This is crap. Consider the importance of the unspoken services within a relational contract. Form v. Substance.

See Macke v. Pizza of Gaithersburg Macke refused to leave a key to the tools with the

pizza shop. 7) Limitations:

a) Personal services may not be assigned b) Where the third party has a substantial interest in having that person perform or control the acts required c) You can only challenge the assignment if it would materially affect your rights and obligations

V. REMEDIES FOR BREACH –§2-703

• Can’t change the world through contract law. • Trivial things (small breaches) ought not trigger large consequences

Types of Breach: • Non-performance: one party doesn’t do what they said they would

do • Repudiation: stating that one will not perform

Note: damages must be provable cannot include specific or unforeseeable consequences

• Types of Breach: a) non-performance b) repudiation: stated refusal to perform

A.) Specific Performance • The court orders the breaching party to perform

o Permits renegotiation of the contract • Courts are generally reluctant to do this, however, it is becoming

more popular o So long as judicial administration of the performance would

not be too burdensome Continuing relations are out; See Memorex

• Three Situations Where it is Common: 1) Rule for real estate deals:

a.) In contracts for the sale of real estate where the seller breaches, the buyer can get specific performance

Each piece of real estate is special, money damages are never adequate

2) Services contracts b.) A contract to perform services is never specifically enforceable c.) Alternative: injunctive relief. Do not permit the defendant to provide the same services for anyone else

3) Sale of goods a.) Specific Performance is available only when the goods are unique

Works of art, antiques, or custom made B.) Money Damages –Legal Remedies

1) Punitive damages: generally not recoverable for breach of contract o Punishes the breaching party o Discourages efficient breaches and contract formation in

general 2) Liquidated damages: a contract provision that sets the amount of compensatory damages should a party breach

a.) The question will then be whether the liquidated damages is valid. b.) Liquidated damages will not be permitted when they amount to punitive damages

Is the amount a reasonable estimate of what compensation is deserved?

Would it leave the aggrieved part better off than if the contract had been performed?

If the amount is any single set sum, it is probably punitive. –one size cannot fit all.

If it is flexible, it is more likely to be a valid liquidated damages provision

See Carborundum 3) Incidental Damages: damages independent of the contract, but incurred as a result of the breach

a) Costs of seeking a commercially reasonable substitute exchange -§2-715

4) Expectation Interest a) Principle goal of modern contract damages b) Puts the aggrieved party in the same economic position as if the contract had been performed (recover costs & profits) c) Locked in the time of signing –regardless of what happens to the market price d) Legal fiction of paramount importance: encourages reliance on contracts e) Exception:

Lost Volume Seller: a seller with essentially inexhaustible supplies such that she can meet all market demand

Bjerre: More stuff to sell than you have customers See Retail Marine v. Neri

5) Reliance Interest a) We are putting the plaintiff in the same position as if there had never been a contract

See Security Stove v. American Railways b) Expenses incurred in performance of the contract

6) Restitution Interest a) Avoiding unjust enrichment of a party by requiring payment at the reasonable market price for wealth conferred on one party by the other in reliance on the contract

Note: in Stove, the stove company’s damages do not unjustly enrich anyone

b) Full performance limitation: if the plaintiff has performed all duties, and the only performance not rendered is fixed monetary sum owed by defendant, the only remedy available is liquidated sum (fixed quantity of money) per breach of contract –looses right to sue off the contract

Liquidated sum is the expectancy interest in the contract; liquidated damages are compensatory damages stated in the contract as a remedy

c) The breacher is due restitution damages insofar as the aggrieved party is due expectancy and reliance damages

Subtract one from the other The aggrieved party has to mitigate, (substitution

contract) might well eat-up the breacher’s restitution damages

Note: restitution is the only remedy available to a breaching party

7) Limitation on money damages a) Damages must be proved with reasonable certainty

Incidental damages (added costs from finding substitute contact)

b) Avoidable damages: a plaintiff cannot recover for damages she could have avoided –§2-706; §2-712

Not so much a duty as a “you might as well” Methods of Mitigation:

1) Substitute transaction (protects against lost profits)

• Substitute must be “substantially similar” • Any resale must be made in good faith and

be commercially reasonable; §2-706.1 o See Shirley McLane

• Resulting award is the contract/market differential, or the difference between the market price and the resale price

2) Stopping Performance • See Luten Bridge Co

c) Consequential Damages: ripple effects from a breach; §2-715.2a

1) In order to recover for Consequential damages, the damages must have been foreseeable with reasonable certainty by both parties at time of the contract

See Hadley v. Baxendale, the miller was denied his lost profits

2) Or, If the consequences naturally arise from the breach Tip: Consequential damages are special damages

They are special and unique to that particular plaintiff

You will only recover if you tell the other party so that the damages are guaranteed foreseeable, then they are recoverable

Most contracts prohibit consequential damages Note: generally only awarded to buyers, what sellers do with their money is unforeseeable

d) Measure of Damages: -§2-708.2 The Profit+Reasonable Overhead Reasonable Overhead: (Direct Costs only)

Direct: the materials and labor specifically related to performing the job

Indirect: regular costs of keeping the office open; ie: lease payments, office personnel (not specifically working on the job)

• costs that don’t stop when the job stops • Indirect Costs are unreasonable to include

as damages

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I. Bases for Enforcing ContractsA. Traditional Contract Theory

1. Policya) people agree to a voluntary exchange; each gives something

to the other2. All contracts allocate risk3. Elements:

a) Bargained for(1) inducement

(a) “please” test - will you give me the addressplease and I’ll do this… vs. give me theaddress and I’ll do this….

(b) (Kirksey v. Kirksey - bro-in-law: if youcome and see me I’ll let you have a place tolive) - no consideration, no inducement to gether to move

(c) past consideration - no “bargain” for(Feinberg v.s Pfeffer Co. - promise ofpension not inducement for past work)

b) Consideration(1) Detriment to promisee

(a) forbearance - (Hamer v. Sidway - nephewforbore on his legal right to drink) or

(2) benefit to promisor(3) what can be consideration?

(a) performance - unilateral(i) 1 promisee, 1 promisor

(b) promise - bilateral(i) both are promisees and promisors(ii) both want assurances about the

future(c) Contracts implied in fact

(i) There, but not stated(ii) Ct. interprets intentions of parties(iii) Wood v. Lucy - designer hires sales

agent to use “reasonable efforts” - noexplicit promise by sales agent butct. found implied contract

(iv) damages = what was intended(d) Moral Obligations - EXCEPTION!!! Only

avail in certain jurisdictions(i) Webb v. McGowin - vic promises to

pay $15 every 2 wks to man who

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threw himself off a roof w/ a 75lbblock to save his life - enforceableagainst estate b/c vic received amaterial benefit.

(4) what is NOT consideration?(a) peppercorns

(i) Restmt 1 - peppercorn enough(ii) Restmt 2 - peppercorn not enough(iii) except - enough for option contracts

(b) Illusory Promises (Strong v. Sheffield - unclesaid he’d promise to forbear as long as hefelt like it - back door) - 2 tests:(i) subjective - good faith

(a) Mattei v. Hopper - π agrees tobuy land from r subject togaining “satisfactory” leases.Passed good faith test bytrying to get good leases

(b) contracts w/ unrestrictedtermination clauses areusually illusory - alleged inEastern Airlines v. Gulf Oil -but Eastern acted in goodfaith even though mv reporterstopped reporting true mv ofoil - didn’t go crazy buyingup a lot of it.

(ii) objective - reasonable person(c) Past Performance - no inducement(d) Gratuitous Promises(e) Unenforceable w/o Reaffirmation:

(i) Infancy(ii) Bankruptcy(iii) Statute of Limitations expired

4. Damages - expectancy (what was bargained for)B. Promissory Estoppel - Restatement §90

1. Different from Equitable Estoppela) Issue is promise, not facts (e.g. bank lies abt avail bal. = EE)b) Could be basis for a suit instead of just used as a defense

against payment2. Elements

a) promiseb) induces detrimental reliance

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(1) act(2) forbearance

c) reliance is reasonably forseeable(1) Presley - no reasonable reliance b/c mother-in-law

knew she wasn’t getting the money b/f she broughtdivorce suit.

d) unjust (not that important)3. 4 categories of PE:

a) Family promisesb) Promises to convey landc) Promises coupled w/ gratuitous bailments (e.g. borrowing

friend’s car)(1) Feinberg v. Pfeiffer - not enforceable under trad

theory but enforceable under PEd) Charitable subscriptions

4. Damagesa) c/b reliance interest vs. expectancy (full amt. of promise)b) depends on the court - but bias toward reliance

C. Quasi-Contracts - Contracts implied in law (no consideration needed)1. Policy

a) designed to prevent unjust enrichmentb) and in cases where people are unable to enter into an

agreement2. Requirements:

a) Conferred benefitb) W/b unjust to keep w/o pymnt

(1) Benefactor not officious:(a) benefactor doesn’t have resp, but accepts it

anyway(b) in an intrusive way

(2) Benefactor not gratuitous3. Damages - based on fair market value of services rendered

a) Cotman v. Wisdom - surgeon entitled to normal amounthe’d charge for working on the vic, even though he died -not dependent on vic’s financial status

4. Can’t be used to get around traditional contract theorya) Callano v. Oakwood Park Homes - gardener contracted by

buyer who died b/f paying him for shrubs. Sues the builderfor unjust enrichment. He could’ve sued the estate of thebuyer.

II. The Bargaining ProcessA. Offers

1. Policy:

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a) Freedom to contract vs. Freedom from contracting(1) Courts usually err for freedom FROM contracting

(a) Lucy v. Zehmer - Lucy reasonably believedZehmer was serious about selling his farm.But if Zehmer was a good friend and knew (areas pers in his position) he was joking,w/nb enforceable

(b) Freedom to Contract: tortious interference -restitution for pirating business e.g. Penzoilvs. Texaco

b) Creates power to contract2. What constitutes an offer:

a) language(1) m/b specific (e.g. terms)(2) but open term contracts - are enforceable

b) intent of parties: reasonable person test(1) express reservation of right to NOT be bound(2) partial performance(3) all terms agreed on?(4) is contract type that is usually written

3. What is not an offer:a) gentlemen’s agreementsb) price quotes - merely invitations to negotiate

4. Offers can be limited by:a) conditionsb) offeror can choose acceptee

B. Acceptance1. Unilateral

a) do somethingb) no notice required unless performance not evident

(1) Carbolic Smoke Ball - no notice but ct. said it hadbeen waived b/c w/b unreasonable given volume

2. Bilateral - most K’s are this typea) promise somethingb) notice required

3. Mistakesa) offeror not bound if offeree knows of mistakeb) reasonable person test

4. What is NOT an acceptance?a) if made by person not designated by offerorb) silencec) changing the terms

(1) mirror-image rule

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C. Termination1. Lapse - reasonable time2. Rejection - by offeree3. Revocation - by offeror ANY time before acceptance

a) receiving info abt actions taken by offeror inconsistent w/intent to go forward is sufficient for revocation(1) Dickenson v. Dodds - told by agent that Dodds was

courting other buyerb) option contracts for promise to not revoke

(1) must be supported by consideration - at least apeppercorn

c) offers to lg #’s of people(1) offeror must take reasonable efforts to notify of

revocationD. mailbox rule - fallback if not explicit in contract Rstmt §63(a)

a) acceptance effective when sent, not receivedb) revocations are effective when receivedc) exceptions:

(1) doesn’t apply to a substantially instantaneous 2-way communication

(2) for option contracts, acceptance only effective whenreceived (Rstmt §63(b))(a) b/c gives notice to offeror that contract was

acceptedd) policy

(1) rule is better for offeree b/c increases his certainty(2) offerors are more able to bear the burden - more

likely to pursue absence of reply to offerE. Simultaneous, inconsistent contracts (e.g. to two people) are enforceableF. Precontractual Liability

1. Can offeree be liable for gaining benefits from offer w/o acceptingit?a) hypo: shopping around for stereos

(1) no quasi-K b/c no unjust enrichment by salesmanb) can go either way - some say K is enforceable some not

2. Can offeror revoke a unilateral K b/f offeree has a chance tocomplete acceptance?a) Brooklyn Bridge Rule

(1) acceptance isn’t given until performance iscompleted ∴ offeror can still revoke

b) Restmt §45 - contradicts BB Rule(1) implied option contract to not revoke offer is

created once performance has begun

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(2) option allows offeree to fulfill K by completingperformance or to choose not to.

c) Preparing to accept an offer(1) Drennan Case - basis for Restmt §87

(a) Created an implied (quasi) promise to notrevoke by subcontractor which didn’t needconsideration(i) unlike option contract like §45(ii) contradicts Hand: “an offer is not a

promise until there’s consideration”(b) Used promissory estoppel to enforce

implied promise based on detrimentalreliance by general contractor

(2) Hoffman - (the furthest PE has ever gone)(a) nobb brvfgt t regular PE b/c no promise(b) not Star Paving case b/c not even a definite

offer(c) won anyway on PE

(3) Intent to be bound - Channel: letter of intent tonegotiate enough to bind LL b/c he used it to securecredit, began surveying it, etc. (Bjerre disagrees -doc who promises ‘perfect’ nose doesn’t intend tobe bound but does it to solicit business)

G. Definiteness1. Indefinite K’s Unenforceable:

a) Must know what specific performance to order or whatdamages s/b paid

b) Language of K can make it definite. (e.g. using the word“reasonable)

c) Marlon Brando hypo: do something for a future favor - tooindefinite to enforce

d) agreements to agree not enforceable but agreements tonegotiate (e.g. Channel, Texaco v. Getty [formal Kcontemplated]) are.

2. Uncertainty OK in “relational K’s” - e.g. employment - pay $X for“work”.

3. Method to definiteness is OK too - Toys: lease agreementprovided for renewal at “prevailing rate” provided a definite way todetermine a rate. ∴ it’s not too indefinite.

H. Statute of Frauds - exception to rule that oral K’s are generally enforceable(now obsolete or very narrow)1. Applies to:

a) surety K’s (someone promises to pay someone else’s debt)

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b) K’s concerning landc) agreements not performed w/i a year (unless impossible to

fulfill in a year)2. requirements

a) K m/b in writing(1) must contain essential terms(2) can be made after initial promise (e.g. Hamer v.

Sidway)b) K m/b signed by r ONLY (not the π)

III. Policing the Bargain - tools used by cts. to prevent K’s from being enforced eventhough all requirements are satisfied - most K’s aren’t in danger ofunconscionabilityA. Damages not specific performance when K is weighted on one sideB. When to evaluate the agreement - at the time it was made

• Tuckwiller - Niece quit job to care for elderly aunt in exchange forher farm. The aunt died b/f niece could do it. At time K was made,not unconscionable. Should look forward from time K was made,not backward and reflect what happened afterward. Otherwise itwould decrease K making.

C. Concerns after K is reached1. Status of parties

a) Capacity(1) infancy - under 18 when K made

(a) can be disaffirmed w/I a reasonable time afterbecoming an adult

(2) mental infirmity - subjective(a) cognitive - inability to understand K(b) volition - not sufficient willpower to

contractb) Behavior of parties

(1) Duress - Austin v. Loral - 2 K’s w/ subcontractorfor Naval hospital. Sub threatens to stopperformance on 1st unless higher bid on 2nd isaccepted(a) threat - π stood to lose current and future

govmt K’s.(b) victim has no reasonable alternative

(i) inability to get goods elsewhere - π’sattempt to contract “approved”vendors reasonable

(ii) breach of K wouldn’t be adequateremedy, b/c would still lose futureK’s.

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(2) Preexisting Duty Rule - if r already bound to dosomething, new K for same thing not enforceable b/cno consideration(a) Shwartzreich v. Bauman-Bash

(i) Old offer of $90 rescindedsimultaneously while new K was putin place - ∴ rule didn’t apply

(b) not that potent anymore(3) Misrepresentation -

(a) Baseline Rule - parties don’t have to shareinformation - inequality of info is ok (e.g.Fiege v. Boehm) Exceptions:(i) confidential relation (one depends on

the other) and one being dependedupon uses info vs. the other e.g.lawyer/client

(ii) Correction (to correct something thatturns out to be false) e.g. seller sayshouse is termite free must informbuyer if that changes.

(iii) half-truth: if you reveal _ the truth,you’re obligated to reveal theremainder• Kannaavos v. Annino: Sold

house as investment propertywhen they knew it wentagainst code

(b) Limits to misrepresentation(i) Misrepresentation m/b of material

fact - “somewhat” important goodenough(a) doesn’t incl high-pressure

sales(b) or false advertising

(ii) complainant must show justifiablereliance

(c) Intent(i) no intent necc - even an innocent

mistake is grounds for rescission(ii) a tort action (deceit) can be brought if

intentional(d) Important planning tool for business

lawyers is stmt of representation

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2. substance of Ka) Unconscionability

(1) Standard Form Contracts(a) efficient, reduces costs ∴ reduces prices(b) BUT signer prob doesn’t understand what

they’re signing(2) Policy - unconscionable contracts

(a) Paternalistic? Interferes w/ freedom tocontract - people don’t trust them

(b) Institutional competence - Question of lawfor judge - should legislature be the ones toaddress this? Some statutes in place(i) prohibiting dragnet clauses(ii) usury statutes - prevent outrageous

interest rates(iii) disclosure statutes - addresses

misrepresentation(c) expands the core notions of other policing

doctrines and expands them (Williams v.Walker-Thomas)(i) capacity re: uneducated(ii) duress - poor have limited shopping

options(iii) misrepresentation: no, but std form

K’s are confusing(3) π must show both:

(a) substantive unconscionability - unfair terms(b) procedural unconscionability - absence of

meaningful choice(i) inequality of bargaining power(ii) manner of entering into K unfair (e.g.

high pressure sales)b) Illegality/Public Policy - Not just illegal, if K unreasonable

also unenforceable(1) CAB - broad noncompeting covenants go against

public policy even though K is enforceable underother theories(a) employability - employee shouldn’t have to

leave career he’s trained in(b) competition - we want this

(2) If no clause, ct. has 3 choices:(a) strike agreement totally - employer gets no

protection

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(b) reshape terms(i) cts usually don’t do this b/c they

don’t like to “make a K” for theparties

(ii) but w/ noncompeting covenants theydo

(c) blue-pencil approach - very artificial(i) ct. won’t put in words but will take

things out (can strike parts of deals)(3) Baby M - policy = babies s/b w/ their moms

IV. Damages for Breach of KA. Determining what they are

1. Traditional K Theory - Expectancy2. PE - sometimes expectancy, sometimes amt. of harm to π3. Quasi - reasonable benefit to r

B. Expectancy - Benefit of the Bargain (enough to put injured party where itwould have been had promise been performed)1. compares current state of world w/ some other state2. pulls π forward to get “benefit of bargain”

a) Benefit = Value of svc - Cost of getting it - π’s avoidablecosts or losses

b) What costs does it include?• Vitex: Ct. saidOH costs shouldn’t be counted in b/c

you’re not paying OH to induce perf for K, but togenerally operate the business

• BUT UCC says damages should include profits(incl OH) by excluding OH from costs

3. Policy - we don’t want to punish r for breaching b/c sometimesthat’s good (the law is weak here b/c it detracts from value ofmaking people perform their K’s)a) efficient breach - everyone’s better off, no one’s worse off

(antique radio hypo)4. Losing contracts

a) Algernon Blair: π would’ve lost $ if K had gone through.Wants to recover for mv of svcs (Quasi K) instead of tradexpectancy damages which says he’d get nothing. Ct. saysOK b/c(1) wants to punish r for breaching(2) r who breached shouldn’t be able to benefit from the

breachb) Usually K price is ceiling that c/b recovered

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5. Diminution of Value vs. Cost of Performance - (breach after partialperformance) when cost of fulfilling K is greater than value of doingso, which s/b awarded?a) Groves - regrading (COP) = $60k, diminution of land value

only $12k - ct. awarded COP b/c breach was willful.(1) Awarding COP should reflect owner’s subjective

value of property. (But here no evidence ofsubjective value ∴ Bjerre disagrees)

(2) Awarding COP almost punitive here which goesagainst contract theory.

(3) Awarding DV fits better w/ expectancy theory ofmaking π “whole”

b) Peevyhouse - strip miner failed to restore farm as req by K.Restoration cost $29k, value of doing so only $300. Ct.awards DV b/c breach merely incidental to K’s purpose.(1) Groves ct. would’ve awarded COP b/c breach was

willful(2) Subjective value of restoration not considered here,

∴ Bjerre disagrees w/ outcomeC. Limiting damages

1. Duty to mitigatea) “duty” - misnomer - π can choose not to, but damages will

be reduced as if he had (e.g. Luten Bridge)b) substitute transaction - requires more than just stopping -

must find “reasonable” substitute (e.g. Shirley MacLaine)(1) What is reasonable = steps likely to generate some

recoupment(2) hypo: buyer breaches K for sale of car for $5000

(worth $4,000). Seller sells to other for $4,500.Can recover $500. (plus cost of finding sub)

c) loss volume seller - Diasonics (would’ve sold 2 MRImachines, so ∴ not a substitute transaction

2. Foreseeabilitya) Traditional Theory/Hadley v. Baxendale* (mill needs crank

shaft - comes late, seeks lost profits from common carrier)(1) Two types of Damages:

(a) direct damages - contemplated by bothparties, arising naturally from broken K

(b) consequential - not foreseeable(2) Expands liability - consequential damages

recoverable(3) But m/b w/i limits: m/b direct!

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(4) Case sets forth rule but holding seems inconsistent(see below - lost profits)

b) Restatement (same thing) - damages recoverable ifforeseeable(1) r m/h reason (considers all circumstances) to foresee

damages(a) e.g. Hadley - no knowledge of special

circumstance(b) e.g. Shirley MacLaine - foreseeable that she

couldn’t get a substitute transactoin(2) as probable result of breach(3) at the time K was made

(a) allows r to protect himself - e.g. Fedexc) Lost profits are generally foreseeable

(1) unless extraordinary(2) parties provided for in K no liab even for

foreseeable consequential damagesd) Changes in mkt price are foreseeable (e.g Vidalia Onions)e) Inability to make substitute transactions unforeseeable

3. Certainty

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D. Liquidated Damages - K states what damages will be if breached (e.g. leaseagreeemnts)1. Penalty clauses are NOT enforceable2. Liquidated Damages ARE enforceable

a) if actual expectancy damages are difficult to establish orprove

b) AND amt specified in K is a reasonable estimate

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Contracts Outline Mooney, Spring 2008 I. FINDING THE LAW OF THE CONTRACT (Chapter 6)

A. What pieces of the contract may the court consider? Parol evidence rule: Mooney’s Combination of Restatement 209 & 215 where parties have intended a writing as the final expression of all or part of their agreement, evidence of other prior or contemporaneous terms is not admissible to contradict the writing.

EXAM PROCESS for PAROL EVIDENCE 1. Determine the subject matter to be interpreted (Parol Evidence)

a. Have the parties agreed to the contract as a final and complete integration, or embodiment of the terms?

i. Gianni - 4 corners test: look at the agreement on its face. Is the provision embodied in the written contract somewhere? If so, the agreement is a complete integration. If not, it wasn’t part of the agreement. In Gianni, the term in dispute was mentioned in the case, so the evidence of prior negotiations regarding that term was inadmissible. ii. Modern courts look for a merger clause. A merger clause says something like: “this writing is the final statement of the party’s agreement - it is completely integrated.” Difficulty is that a merger clause could be inserted by one party and not really agreed to by the other, or neither party knows it’s there. Merger clause not always conclusive. Good idea to get other side to initial it if you put it in there, to show everyone knew and agreed. iii. Masterson - evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled by them. Based on credibility. iv. Naturally test: in an agreement which might naturally be made as a separate agreement, parol evidence should be allowed. No complete integration. Restatement test. v. Certainty test: if terms would certainly have been included in the document, evidence of their making must be precluded - parol evidence not allowed. Complete integration. UCC test.

b. What evidence may the court admit? i. If the agreement is not integrated, any evidence may be admitted. (Very rare) ii. If the agreement is completely integrated, only admittable evidence is that which:

a. explains a written term (trade usage of a word, like in Hurst or Frigaliment), or b. shows fraud, duress, mutual mistake, illegality, or anything that would defeat the entire contract. Sect 214 Rstmnt.

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iii. If the agreement is partially integrated, everything under Sect 214 Rstmnt can come in, as well as any consistent additional terms. Contradictory evidence is excluded.

c. What if the contract contains a no oral modification clause? i. The Traditional Common Law Rule: No oral modification clauses are not effective. As Justice Musmanno said “the hand that pens the writing may not gag the mouths of the assenting parties.” And, even when these clauses were honored, the party the clause was being used against could defeat the effect of the clause by showing reliance on the oral agreement. ii. Under the UCC: No oral modification clauses are generally honored, but again, the party against whom the clause was being used could defeat the effect of the clause by showing a waiver and/or by arguing that the other party should be estopped from using it because there was reliance on the oral agreement. iii. If a court doesn’t want to enforce no oral modification, try restitution for unjust enrichment. Value of benefit conferred.

2. Interpret the contract language once you know what’s in and what’s out a. what is the meaning of a particular term?

i. Frigaliment (unsuitable chicken case): what the parties said, not what they meant, is the essence of the K. To enforce a particular meaning of a term, one must prove trade usage between tradesmen, or prove that the other party had actual knowledge of the common term (if not between tradesmen).

A. Between tradesmen, trade usage of terms should be used over common usage. Hurst.

b. what if the contract is subject to two equally possible interpretations and neither party had notice of other party’s interpretation?

i. Raffles: two different ships called “Peerless” never valid K b/c no meeting of the minds. ii. Oswald: never any valid K for Swiss coins because no “meeting of the minds.” iii. Therefore, such a contract is typically held invalid. When there is no sensible basis for choosing between conflicting understandings. When language is ambiguous rather than vague (two distinct meanings).

c. what tools can aid the court in interpretation in order to avoid holding K invalid? i. considering the purpose of parties in entering into K ii. public interest supported by one interpretation over another? iii. maxims: A. the expression of one thing is the exclusion of another B. of the same kind

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c. proferentem: K should always be interpreted against its author (except for lawyers, etc. who should have known better)

d. Evidence parties may introduce to aid in interpretation: Internal to the contract (terms from one section to another)

dictionary evidence foreign language evidence evidence from statutes and regulations trade usage evidence evidence of one or both party’s likely subjective intent

3. Supply other terms as needed; FILLING THE GAPS

a. Good Faith: R2d 205 - Every contract contains implied covenant of good faith and fair dealing with respect to performance and enforcement. i. Dalton (SAT scores case):

A. implied with each pledge of a promisor (every contract) to exercise good faith is that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. B. neither party will exercise discretion, when discretion is called for, arbitrarily or irrationally, C. no duty under implied good faith obligation to act inconsistently to expressed contract terms.

ii. Good faith has limits. A. See Zilg (publisher’s case): Good faith doesn’t mean “best efforts.” B. See Burger King (franchise limits): Acting in good faith can never mean adding a duty that’s not in the contract that would expressly conflict with duties in the contract.

b. Course of Performance: UCC 2-208 - An established course of performance between parties, also when it is an established usage of trade, becomes part of the terms of the contract when it was not objected to by the other party. The practical interpretation of the contract through performance is the best indication of the intent of the parties. c. Limitations on Wood’s Rule (At Will Employment): Wood’s Rule says courts have presumed employment to be at will and employee can be dismissed at any time for any reason. Modern courts have put some limitations on that at-will employment for public policy reasons.

i. Sheets: at will employment may not be terminated when employee acts in interest of certain public policy reasons, such as:

A. refusing to commit perjury B. filing workers comp claim C. engaging in union activity

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D. calling employer’s attention to possible criminal violations

ii. Balla: in-house counsel do not have the limitations defense because they simply are required to do the right thing. No “Hobson’s Choice” to try to decide what to do (get fired v. do the right thing)

A. strong public policy to allow ppl to fire their attorneys at any time B. does this really make sense? Shouldn’t we especially be protecting those who are required to “do the right thing”?

II. PERFORMANCE AND BREACH (Chapter 7)

A. Part I: did parties make event or non event an express condition of one party’s duty to perform

1. Issue 1: did the parties make an event an express condition of one’s duty to perform?

a. Promise v. condition: If a contract is ambiguous as to whether condition was promise or condition, court will find promise over condition to avoid what could be a serious forfeiture.

i. Ship owner/cargo example: A. If Sarah promises to get cargo to Carl in Cadiz in 25 days and she breaks the promise and the cargo arrives in 30 days, then Carl still has to pay for the cargo, but may sue Sarah for damages caused by the late delivery. B. If delivery w/in 25 days is a condition of Carl’s duty to pay, then if cargo arrives in 30 days, Sarah gets nothing because Carl’s duty to pay never arose.

ii. Courts may determine the intention of parties as a matter of law when the nature of the transaction lends itself to judicial interpretation.

A. Peacock: construction K/subK case. A custom of the trade that subcontractor will not usually assume risk of owner not paying. Receiving payment by the owner is not a condition to the general contractor’s duty to pay subcontractor. GeneralK has duty to pay subK no matter what.

iii. Remember, as always, parties can change outcome with contract terms.

2. Issue 2: has the condition been satisfied?

a. Luttinger: obtaining a mortgage with the maximum interest rate was a clear condition precedent to performance of the contract. No obligation to accept a condition substitute.

i. if it is a condition, that condition has been satisfied only if it is exactly, specifically satisfied.

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b. Gibson: picture of deceased daughter case. Where the condition is satisfaction with aesthetic value of the item in question, the defendant is bound only to act in good faith in determining whether the contract has been satisfied. c. Mattei: if item in question is something of mere utility, commercial fitness, the condition of satisfaction is considered objectively under the reasonable person standard.

3. Issue 3: if there is a condition and it has not been satisfied, then what is the legal effect? a. Other party’s duty to perform does not arise (see Cargo Ship Hypo) 4. Issue 4: is there some mitigating doctrine that will soften the condition and help court reach a more just result?

a. prevention: if one party prevents the other from performing his duty, that party cannot invoke that condition as an excuse for non performance. b. waiver: if one party waives a condition in a contract, then that party cannot use that condition as an excuse for not performing.

i. Defined as intentional relinquishment of a known right. c. estoppel: Where waiver is difficult to establish, consider estoppel. Has party reasonably relied on some sort of representation by the other side that it will not insist on literal enforcement of the condition? that reliance acts as the fundamental reason for invoking estoppel, and as the consideration for representation.

i. McKenna v. Vernon: Party waived condition by accepting several payments w/o insisting on the certificate which had been a condition.

d. forfeiture: the denial of compensation that results if the non-occurrence of a condition causes the obligee to lose his right to the agreed exchange after he has relied substantially on the expectations of that exchange.

B. Part II: is each party’s duty to perform a constructive condition (any condition not express) to the other’s duty to perform?

1. What is a constructive condition? If you and I have a contract that I will mow your lawn for $25, your duty to pay me does not arise until I have actually mowed the lawn. My mowing your lawn is a constructive condition to your duty to pay me. 2. Kingston: Servant to take over business under K term of “sufficient security.” Under modern law, each party’s performance is deemed constructive condition on other party’s duty to perform. So w/o plaintiff showing good security as required by contract, the defendant is not required to transfer his business. 3. Stewart: where a construction contract makes no provision for installment payments (or otherwise), work must be substantially complete before payment can be demanded.

C. Part III: if so, is there a way around the constructive condition? mitigating doctrines

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1. prevention (see above) 2. waiver (see above) 3. estoppel (see above) 4. substantial performance

a. where if work has substantially been completed, worker can sue on the contract. A small breach won’t excuse owner’s right to sue if the work has otherwise been substantially completed. Jacob and Youngs v. Kent

5. divisibility a. Gill: log driving case. A contract is “severable” if the part to be performed by one party consists of several and distinct items, and the price to be paid by the other is apportioned to each item to be performed or is left to be implied by law. If party has completed some portion of the work, that party is entitled to be paid for completing that divisible part.

i. A contract is entire if consideration is to be paid in single and entire dose.

b. Microwave Tees case: a multi-step contract is not automatically divisible and if the completion of the first steps is meaningless w/o completion of the last step, the contract is not divisible.

6. restitution: If you can’t sue on the contract because of a constructive condition (because you haven’t completed your performance), think about the possibility of suing for quantum meruit or restitution because you have conferred a benefit on the other side. If a contract is unenforceable but one side has conferred a benefit, restitution may be available.

a. Damages formula: P gets the reasonable value of the benefits conferred on D, minus the damages to D arising from the breach. Contract price is ceiling on recovery.

7. non material breach: if one party’s breach was not material, it still gives rise to a cause of action for damages (small damages), but does not justify the other side withholding its performance.

D. Was there a material breach of the K? If so, then it gives rise to cause of action for damages, and it justifies nonperformance by the other party

1. Each case is decided on its fact of whether it is a material breach. 2. Relevant factors from Rstmt 1sec. 275:

a. The extent to which the breaching party has already performed (more likely to be a material breach at the outset).

b. Whether the breach was willful, negligent, or the result of purely innocent behavior.

c. The extent of uncertainty that the breaching party will perform the remainder of the K.

d. The extent to which, despite the breach, the nonbreaching party will obtain (or has obtained) the substantial benefit he has bargained for.

e. The extent to which the nonbreaching party can be adequately compensated.

f. Hardship on breaching party if the breach is considered material.

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3. Walker & Co v. Harrison: Rental agreement between parties for Walker to rent out a neon billboard with a clock which it was to construct and pay for on its own, and to maintain on its own. There came to be some stuff on the sign, like a tomato, rust, cobwebs and maybe some writings, and D asked P to clean it off per agreement. P never answered and did not do it. D stopped paying. a. who made the material breach? D, by not paying. b. P’s breach in not cleaning the sign right away was minor. 4. K & G Construction Co. v. Harris: Bulldozer wreck case. D breached its covenant to perform in a workmanlike manner, and P thereafter declined to make good its return covenant to pay. D refused to perform further, causing damage to P

a. failure to perform in a workmanlike manner and failure to accept responsibility for knocking down the house was a material breach of the constructive condition to perform work in a workmanlike manner, and so it excuses genk’s obligation to make installment payments.

5. Separate contract doctrine. When there are multiple individual contracts between parties, and one party breaches one or more of the individual contracts, it does not excuse the other party from performing on the other separate contracts that were not breached. Remember: court could decide it was all one contract, and determine who committed the first material breach of the contract with several parts. Then the doctrine of constructive conditions would apply.

III. ANTICIPATORY REPUDIATION - an announcement of intention not to perform A. Mooney’s 6 Questions to Consider for anticipatory repudiation:

1. what constitutes an anticipatory repudiation? 2. Is recipient of repudiation free to make other arrangements? 3. can recipient go to court immediately, even before the time for performance has come?

4. can the recipient ignore the repudiation and await performance? 5. what are the consequences if the recipient urges retraction of the repudiation? 6. can a party that has repudiated withdraw the repudiation?

B. Hochster v. De La Tour: P contracted with D to act as a courier during his European vacation. D changed his mind prior to leaving, and refused to compensate P. P sued prior to time for performance.

1. Issue in that case was whether a party could sue before the contract had actually been breached. There was a repudiation but not a breach and repudiations were not common in those days. This case held that yes, you can sue early so that the aggrieved party can be free from his obligation to go on and mitigate damages. 2-610 for sale of goods cases talks about this.

C. Exception: If the aggrieved party has fully performed and the only remaining duty of performance of the party who has breached is to pay money in an installment, failure to pay one or more installments does not give rise to damages for TOTAL breach. Can’t sue for remaining payments.

1. Have to sue each month or however long between installments. Can only sue for months that are actually in default.

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i. To avoid this, a seller should put in an acceleration clause, which are almost always upheld in court, RSTMT 2d 243(3), or use the procedure of declaratory judgements so that court declares that paying party owes the money then performing party doesn’t have to sue for each payment, can just file a motion.

IV. MUTUAL MISTAKE (chapter 8)

A. Definition: A mistake by both parties to a K concerning a basic assumption of fact on which the K is based. B. Issue 1: is it a breach or a mutual mistake?

1. breach could give way to damages. Mutual mistake as to the identity of the thing sold can give way to rescission so no damages are awarded

C. Issue 2: Did one party have knowledge that precludes “mistake”? 1. A party bears the risk of mistake when he is aware at the time the contract is made that he has only limited knowledge with respect to the facts to which the mistake related but treats his limited knowledge as sufficient

i. If you have perfect knowledge, you have a duty to tell the person. The K will be undone. ii. If you have no knowledge, the K will be undone on a basis of mutual mistake. iii. The middle might be protected ground – no duty to tell with just a hunch, but also is not exactly a mutual mistake.

2. Safety Zone: Is there a level of knowledge which can defeat mutual mistake, because you weren’t really mistaken, but you didn’t have enough knowledge to be guilty of concealment because you just had an “inkling?” Mooney says there should not be a zone of safety. If the transaction is fundamentally unfair, then restitution or specific performance should be available.

D. Restatement Sections: 1. Rstmnt 2d 152 - described doctrine of mistake as to basic assumption, material effect, voidable contract, risk bearing 2. Section 154 - assumption of risk - he who bears risk cannot rescind, limited knowledge with respect to facts or court imposed 3. Section 158 - relief including restitution - following rescission of mutual mistake restitution may be available, court may grant other relief as sees fit

4. Section 153 - Unilateral mistake. E. Cases: 1. Pregnant cow case (Sherwood) and diamond mistake case (Wood)

2. Stees v. Leonard: P and D enter into K to build a building. Every time construction rose to the 3rd floor, the whole thing would collapse. D claimed this was b/c the building was on quicksand.

i. When a party binds himself to a contract, he must perform its terms unless prevented by God, the law, or the other party to the contract. No hardship will excuse him from doing what he has expressly agreed to do. Mutual mistake doesn’t matter - builder must do what K’ed to do.

3. Renner v. Kuhl - Jojoba case. P contracted with D to buy land. P made it clear they wanted to grow jojoba, D thought there was plenty of water. There

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wasn’t. Seller’s appeal award of consequential damages on grounds of mutual mistake.

i. The general idea is that if a court agrees to rescind a contract based on mutual mistake (which they did here), a party that has conferred a benefit on the other side can say that other side should reimburse me for extent of benefit by way of restitution if the benefit is significant. ii. A party who rescinds a K based on mutual mistake may not recover consequential damages.

F. Responses to a Mutual Mistake claim: 1. mistaken assumption is not basic enough. Thing sold should be fundamentally different, although today’s standard is probably lower than this. 2. the effect of the mistaken assumption was not material enough. This is primarily a value question. Imbalance in the exchange. 3. argue that other side had assumed the risk. That side took into account the nonexistence of the basic assumption and that party expressly or impliedly assumed the risk (see section 154). When a party has some idea that it has only limited knowledge and decides to go ahead on the basis of that. Less inclination on part of courts to undo transaction where seller has been harmed, where there is a very large gain, than when there’s been a very large loss. 4. Zone of safety argument - did one party have an inkling that Thing was other than presented? An argument that a little bit of knowledge does not fit adequately into mistake, but on the other hand wasn’t enough knowledge to be grounds for concealment. Not full of merit but worth trying. This is weak in Wood (jewelers) because he’s a professional. 5. Remember: restitution is more likely to be granted than reliance, but reliance is possible.

V. IMPRACTICABILITY

A. Definition: a Seller’s Defense based on changed conditions. Performance of a K will normally be excused if the performance has been made impracticable. The impracticability must involve the occurrence of an event whose nonoccurrence was a basic assumption on which the K was made, and the adversely affected party must not have assumed the risk of that K occurring. R2d261 B. Doctrine of commercial impracticability - where an unforeseen even occurs that renders performance impracticable, courts often hold party is excused. Three kinds of cases typically:

1. destruction or unavailability of subject matter of contract (Taylor v. Caldwell) 2. death of a party who contracted to perform or receive personal services

3. supervening provision by law. after entering into contract, a law is passed prohibiting the acts you contracted to perform.

C. Cases: 1. Taylor v. Caldwell: Renting music hall and gardens case. Music hall burned down before musicians arrived, so lessor couldn’t perform (impracticable). Musicians sued.

i. Held: music hall burned down through no fault of either party, so both parties are excused from performance. Court found implied condition

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that parties shall be excused if performance becomes impossible because the Thing perished without default of contractor ii. Therefore, no reliance or expectancy damages (too hard to calculate expectancy damages based on how many people would have come to concert, etc.).

2. Transatlantic Fiancing Corp v. US: TFC had to go around the Suez Canal because it was closed and wanted to recover the additional costs of the runaround. TFC argues that the contract requires an implied term that the voyage was to be performed in the usual and customary route (court agrees), which was via Suez. When the Suez closed, however, that performance became impossible. TFC argues that it conferred a benefit on the US by delivering otherwise, and claims relief under quantum meruit.

i. Held: K was not made impossible or impracticable. No excessive increase in costs to shipper and it was foreseeable. ii. Test for impracticability: a. a contingency, something unexpected, must have occurred MET

b. the risk of the unexpected condition must not have been allocated either by agreement or custom MET - not allocated although questionable in this case c. occurrence of the contingency must have rendered performance commercial impracticable NOT MET

iii. See UCC 2-615 3. Eastern v. Gulf (hate this case): Gulf used impracticability defense.

i. Held: events of the oil crisis were reasonably foreseeable, and the fact it occurred was not an unexpected contingency. ii. If it were unforeseeable, increased cost alone is not enough. It must be positively unjust to hold the parties bound.” iii. Unprofitable does not mean impossible. A mere showing of unprofitability, without more, will not excuse performance of a K.

D. Forseeability: Even if they anticipated a possible turn of events, “the parties may not have thought it sufficiently important a risk to have made it a subject of their bargaining.” Should be factor in whether or not the party now claiming the D should have assumed the risk. E. Force Majeure: Clause introduced to contract when a part anticipates events that it cannot readily prevent, and that might impede its performance.

1. Watch for ejusdem generis - or a general clause at the end of a force majeure that says something along the lines of “and anything else like that which might come up.” draft them carefully to include a little generic clause like this. 2. These are mostly used for sellers to protect themselves. Some kind of clause that would excuse you from performing given certain circumstances that might come up

F. Increased cost alone is not enough! You need a hugely multimillion dollar liability for increased cost to really matter. G. This defense is really hard to establish!

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VI. FRUSTRATION OF PURPOSE A. General: always a buyer’s defense. Buyer says yes I can pay, but purpose for entering contract has disappeared, so it would be unfair to make me pay for it. Courts reluctant to allow this. B. Rstmt 265: draws a hard line re: frustration. Principal purpose must be substantially frustrated. Not just a decrease in advantage. There is an assumption of risk element to be considered. Only for when party’s performance becomes virtually worthless C. Rstmt 272: talks about restitution for frustration or impossibility. Parties can attempt to recover restitution in cases where justice requires it. Maybe even reliance. D. Cases:

1. Krell v. Henry: P and D contracted for D to rent a flat for two days, which were the days the coronation was to take place. Nothing in contract expressly about coronation or purpose for renting flat. King got sick and no coronation happened, so D declined to pay rent over the deposit he paid.

i. Held: rental was for purpose of watching coronation parade. This was foundation of K and parties ought to be discharged. ii. Rule: ascertain the substance of the contract, and then ask whether that contract needed for its foundation the assumption of the existence of a particular state of thing. If so, this limits the operation of general words, and if contract becomes impossible by reason of non-existence of thing assumed by both parties as the foundation, there will be no breach.

2. Cab case: This seems analogous to Krell. Mooney says only difference is that there was an availability of other cabs so passenger wasn’t too put out when cab didn’t come for him. 3. Chase Precast Corp v. John J. Paonessa Co.: Paonessa (genK) contracted under 2 contracts w/ Chase (subK) to replace strips of grass with cement median barriers as per its contract w/ xportation department. Citizens brought suit to stop installation, and upon notification Chase stopped installment, having produced ½ the barriers, for which it was fully paid by Paonessa. Chase suffered no out of pocket expense. Brought suit to cover anticipated profits from breach (CRAP formula: Cost of reliance + anticipated profit), and Paonessa indemnified Commonwealth if it should be found liable.

i. Held: Trial court ruled for Defendant under doctrine of impossibility of performance. Appellate court affirmed, saying frustration of purpose was more proper doctrine. ii. Issues to decide in a frustration of purpose case (like impossibility): a. foreseeability of supervening event, b. allocation of risk of occurrence of event, and c. degree of hardship to promisor

END FARNSWORTH MATERIALS

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BEGIN UCC MATERIALS I. ARTICLE I - general intro to code A. The code governs all transactions in “goods.” (102)

B. 1-102: Code is to be “liberally construed and applied to promote its underlying purposes and policies as 1. to simplify, clarify, and modernize commercial law;

2. to permit the continued expansion of commercial practices by validating trade custom and usage as well as the parties’ express agreements; and 3. to make the law uniform… among the various jurisdictions”

C. Three Fundamental Principles of Article II 1. good faith 2. commercial reasonableness

3. the facilitation of commercial practice by interpreting into the law course of performance, course of dealing and trade usage

D. Good Faith: 1. 1-201 (19): honesty in fact – a subjective test i. no element of objectivity or reasonableness ii. hard to prove that subjectively someone is not acting in good faith

2. 1-203 imposes obligation of good faith on any party in any transaction governed by the UCC 3. 2-103 supplements the general UCC definition by stating that under Art II good faith for merchants means honesty in fact and the observance of commercial reasonableness i. 2-104 defines “merchants”

E. Nelson v. Union Equity: Defendant farmer meets the requirements of “merchant” definition under 2-104 because he is knowledgeable about the business of crops, and meets the statutory elements. Because D was a merchant, the oral agreement confirmed in writing satisfies the Statute of Fraud requirements under 2-201 and therefore he must pay damages for breach. F. Merchants and Supermerchants under 2-104

1. A supermerchant: is the first half of the definition under 2-104(1). A person who deals in goods of the kind. A higher level than just plain merchant. 2. A merchant: is the second half (after the “or”) of the definition. A person who holds himself out as having knowledge or skill particular to transaction. This is going to be most commonly used. As Mooney says, a merchant is someone who should be opening his mail.

II. ARTICLE II - Form, Formation and Adjustment of Contract

A. PART 1 - SCOPE OF THE CODE 1. 2-105: defines goods as all things movable at time of identification to K for sale. 2. 2-102: this section of UCC applies to all transactions of goods, and not just those by merchants. Often the reason parties fight about it involve whether the code’s warranty implications apply.

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i. Only supermerchants make merchantability warranties, only they can transfer an entrusters title in an ordinary course of business, but the code generally applies to everyone selling stuff. ii. Defendant will say it was not a transaction in goods, but rather services contract so code doesn’t apply, so implied warranty of merchantability doesn’t apply and you must prove negligence to recover, or SL tort.

3. Anthony Pools v. Sheehan: AP built pool for Ps, who claim the skid resistant material didn’t go all the way to the edge of the diving board, breaching an implied warranty of merchantability and claimed use of defective diving board was unreasonably dangerous - strict tort liability. D claims that this was contract for services, and should be exempt under 2-316 for disclaimer of warranties.

i. 2-314 - supermerchant (merchant who deals in goods of this kind) warrants that goods it sells will be of good quality ii. 2-316 - a seller of consumer goods may not contractually disclaim implied warranties iii K on its face is hybrid, mixed for sale of services and goods. Test for whether it’s goods or services is:

a. Predominant factor test: Whether the predominant factor is a transaction of a sale of goods with labor incidentally involved or vice versa. 1. Most states use this test still - called bone-break test. b. Gravamen test: Whether the reason for the breach is directly related to the fault of the service or the fault of the good (if it’s a part that breaks, it comes under the UCC). c. How to choose which test to use: policy considerations: If the predominate factor test results in classifying the transaction as a K for services, then there would be no UCC-based implied warranties on the diving board and this would be contrary to the legislative policy. (2-316)

B. PART II: CONTRACT FORMATION UNDER THE CODE 1. 2-204 K made be made in any manner

2. 2-205 firm offers now do not need to be supported by consideration in order to bind, only that they are expressed as firm offers in signed writings. 3. 2-206 acceptance may now be rendered in any reasonable manner, rather than required in a “like” manner. 4. 2-207 eliminates mirror image rule MOONEY’S FAVE. Mirror image rule had two bad consequences:

i. Parties plainly thought they had a K and often acted as such, but all of a sudden one wanted to get out and they could just because the acceptance didn’t mirror offer. ii. The other kind of problem was the “last-shot” rule. Buyer sends offer, seller sends non-mirror image acceptance, parties think they have a K, one party wants to get out. Court doesn’t want to find no K, so they say the non-mirror image acts as a counter offer, and the original offeror assented

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to counter offer by its conduct. He who “fires the last shot” controls the terms of the deal.

5. Four routes to K formation under 2-207: i. Two questions: 1. is there a K?, 2: if so, what are its terms? ii. Route A: 2-207(1) before comma. An acceptance operates as an acceptance forming a K even if it’s not a mirror image. Buyer sends offer, seller sends acceptance w/ new terms. Still a K. Terms are offeror’s terms, buyer’s terms because seller has accepted the offer.

a. What about the new terms? (2) governs. New terms are proposals for addition to K. If a K between merchants, sometimes these new terms can become automatically part of K and be added in, provided they pass through filter of (2). b. This route could be called 1st shot rule because it allows party sending offer to control the terms.

iii. Route B: SubS(1) after comma. Buyer sends offer, seller sends paper back w/ express condition of B’s assent to all terms in S’s new form. This is a counter offer by S. This preserves the old last-shot rule. Gets to be a K when B expressly assents to conditions in S’s counter offer. S controls terms. When B assents, the K exists. iv. Route C: Conduct sufficient to establish K even though writings don’t support. SubS (3). Both parties act like there’s a K. No one party controls terms - “neutral terms.” All terms agreed upon are in, and terms they didn’t agree on might be put in automatically by (3).

a. Code will supply implied warranty under 2-314 in this case. v. Route D: Buyer and seller meet at place and conclude an oral deal. Each goes back to her plant and one party sends a confirmation (or both do). There is now a K (oral). Terms are terms parties agreed on orally, and that’s all unless there’s something in confirmation other side agrees to or that can come in automatically if it doesn’t materially alter.

i. What if one confirmation has a new term in it that wasn’t discussed? We treat a new term in a confirmation the same way we treat a new term in an acceptance under Route A. A proposal for addition to K that must go through filter of (2).

6. Diamond Fruit v. Krack: Krack had an ongoing contract with Metal-Matic to supply its tubing. Course of dealings had Krack sending a yearly PO for what they wanted, followed by release POs (offer) to MM as they needed tubing, followed by an acknowledgement (acceptance) from MM and shipment of tubing. MM’s response disclaimed all liability for damages and limited MM’s liability for defects in tubing to refunds or replacement or repair of tubing. This disclaimer was printed on the back of MM’s acknowledgement form, with words on the front instructing reader to review the back for terms and conditions. It said acceptance of offer was expressly conditional on offeror’s acceptance of these additional terms.

i. what constitutes assent to additional terms? a. Court considers policy of neutrality. Says 2-207 does away with CL’s last-shot rule, which states that the

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counterofferor/offeree gets all its additional terms in just because it “fired the last shot” (see above). Says 2-207 doesn’t allow either party to unilaterally impose terms on the other. (I think this is wrong! it DOES allow parties to unilaterally impose - see routes to K formation above). Court says both parties could have negotiated all terms but failed to do so, so neither party gets its terms. b. 2-207(3) should be applied because it’s more equitable to be neutral than just giving one side all its terms. ROUTE C. Conduct of parties did not indicate assent to additional terms.

7. Hills v. Gateway: The Hills ordered a computer and it came in a box with a K from Gateway containing an arbitration clause, which said it governed if not returned w/in 30 days. Hills complained after 30 days and filed not in accordance w/ arb. clause.

i. a K need not be read to be valid, and that arbitration clauses must be enforced save upon such grounds as exist at law or in equity for revocation. People who accept take the risk of unread terms. Therefore, by keeping the computer longer than 30 days, the Hills accepted the arbitration clause

C. STATUTE OF FRAUDS 1. 2-201 governs. Must have writing to embody a sale for more than $500. Section is meant to be less susceptible to abuse than SoF statute previously. 2. Requirements: i. Writing must evidence an existing K

ii. Writing must be signed iii. Writing must specify a quantity, though not necessarily a price because a court can always find a price out of the market price

3. There are five softenings of SoFs to minimize scoundrels being able to hide behind statute:

i. c1: all you need to satisfy statute is a piece of paper that constitutes a basis for believing parties entered into K (don’t need full and complete text of whole agreement)

a. writing must contain some reasonable evidence of oral K b. must be signed c. must specify quantity (don’t need price)

ii. 1-201 (39): merchant’s exception to signing iii. sub 3a - specially manufactured goods don’t need signed writing because of real opportunity for injustice iv. sub 3b - judicial admission exception v. sub 3c - if seller has accepted payment or buyer accepts goods, that party loses SoF defense

a. partial payment of acceptance does not necessarily remove the entire K from the SoF, only the portion paid for or accepted

4. Distrubu-dor v. Karadanis: Ps and Ds contracted for Ps to supply mirrors and tubs for Tahoe Inn under construction by Ds. During some price negotiations,

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numbers were sent back and forth on a paper, which P then signed and D refused to sign, saying “my word is my bond.”

i. Held: this was a K for specially manufactured goods, to which SoF 201 (3)(a) doesn’t apply, so there didn’t need to be a writing for K to be valid. ii. Even though the tubs weren’t particularly manufactures and mirrors were, they can be included since they were part of the whole K and there’s no justification in holding part of the K enforceable and another not. Once part of the K is taken out under (3)(a), the whole K is taken out.

D. PAROL EVIDENCE UNDER UCC

1. 2-202 governs. i. C1 says there shall be no presumption of complete integration in sale of goods case, so there’s no more cases like Gianni that hold if a writing looks complete on its face then court shall conclude it is. Goes along w/ Traynor in Masterson to say you have to look elsewhere to see if it’s complete. ii. C3 gives a test for complete integration which says if you show parties certainly would have included it in the writing had they agreed to it then you have a complete integration. Companion to naturally test.

2. Approach to parol evidence problem under the code is the same as that for a parol evidence problem under CL. i. is it integrated?

ii. is it a complete or partial integration? iii. if it is not integrated at all, rule doesn’t apply. iv. if it’s completely integrated, look at 2-202(a) for course of dealings or trade usage v. you can always get in interpretive evidence, and you can admit evidence of fraud, duress, mistake 1-103 vi. if it’s a partial integration, 2-202(b) applies for consistent additional terms

E. PARTS III and IV of ART II: GENERAL OBLIGATIONS AND CONCEPT OF TITLE (most important are implied warranties)

1. Gap-Filler Provisions i. 2-305: Open Price Term: Parties can conclude a sale even though

price is not settled. Price is a reasonable price at time of delivery if (1)(a): nothing is said as to the price, etc.

a. wrongful interference by one party may justify cancellation by other

ii. 2-306: Output, Requirements and Exclusive Dealings: (1) Ouputs…actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (2) Exclusive

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dealings…obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

a. Output v. Requirements K v. Excl. Dealing K: which party are we trying to protect?

A. In an exclusive dealing K, we are protecting the person who gave away the exclusive right to the other party. Other party’s obligation is to use best efforts. (Wood v. Lucy) B. In a requirements K, other party’s obligation is to use good faith, because seller hasn’t given away its right to sell elsewhere. Seller in RK is not in as desperate a situation as seller in EDK. (Eastern v. Gulf) C. Output K where seller says it can only sell to buyer all of its output, party we’re trying to protect is buyer, who can buy K goods elsewhere. Seller has to have output in good faith. (Feld v. Henry)

b. Feld v. Henry S. Levy & Sons: P and D contracted for P to buy “all” of D’s bread crumbs for a stated period of time, automatically renewable, w/ cancellation clause. A month before the initial agreement was to expire, D stopped making crumbs and dismantled its equipment. It told P it would make crumbs again is the price went up, but D had sold all its equipment.

A. 2-306 says every contract of this type imposes an obligation of good faith performance. B. Output K is not too indefinite and does not lack mutuality. C. Impending bankruptcy of seller would justify termination of bread crumb making, but just a decrease in profit would not.

iii. 307 - delivery usually in a single lot iv. 308 - place for delivery v. 309 - time for K performance and termination vi. 310(a) - time for payment @ time of receipt by buyer vii. 311 - K does not fail for indefiniteness simply because one party can specify particulars of performance

2. Code Warranties i. 2-312 through 2-318 govern.

ii. To win a breach of warranty case, P must show: a. seller warranted items b. goods did not conform to warranty c. P suffered damage as a result

iii. Express warranties: 2-313 c.1 test is whether the language or samples or models are fairly to be regarded as part of the contract. Created by (Keith v. Buchanan factors):

a. any affirmation of fact or promise made by the seller to buyer (must be more than “mere puffing.”

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b. Any description of the goods which is made part of the basis of the bargain c. Any sample or model which is made part of the basis of the bargain

iv. Implied warranties: a. merchantability 2-314 - most important. Seller must be supermerchant.

b. fitness for particular purpose 2-315 - very rare! A. Seller may disclaim under 2-316. B. Reliance is important (Keith) C. To prevail, a P must show: 1. that seller knew of particular purpose

2. that seller knew buyer was relying on seller’s skill to provide for that purpose

3. that buyer did in fact rely on that skill v. Keith v. Buchanan - EXPRESS WARRANTY, no implied. P Keith bought a boat from D at a boat show, after relying on advertising brochures and salesman’s promise it was a seaworthy vessel. He also had some friends inspect it and tell him it would suit his needs, though he had a lot of experience on boats and had done some previous research himself. vi. Braton v. Tra Mo: The parties negotiated to use a substance for fuel tankns, high-density polyethylene. The material was demonstrated to P by dropping it from forklift, and D’s plant manager told P it was really strong and he thought “it would do the job.” D manufactured 5 test tanks and subjected them to tests. Issue of whether test tanks were “samples” or “models.” Court finds they were models and therefore subject to 313 comment descriptions.

a. What is a Sample: Actually drawn from the bulk of the goods which is the subject matter for the sale. b. What is a Model: Offered for inspection when the subject matter is not at hand and it has not been drawn from the bulk of goods.

c. Were models part of basis of bargain? YES. d. Did D breach by making non-conforming goods? YES vii. Blockhead v. PFC: Wiglet case. Seller was merchant w/ respect to blow-molded products, and that’s the definition of goods here, not wiglet cases in particular, so he was a supermerchant.

a. Buyer loses on 314 because he inspected the goods to his full satisfaction (2-316(3)(b)), and because he gave his own specs for how they are to be made. b. Also, there really was no “particular” purpose. The wiglet cases were never intended for any purpose other than their ordinary purpose, which was to carry wigs c. Also, no proof that product did not really conform to models presented. Some variation to be expected.

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viii. Any time you see the buyer looking at the goods or samples or models of goods before the contract, you need to think about: a. it may create an express warranty by sample or model, and

b. it may negate the implied warranties as seen in Blockhead. c. So you might be able to make two different arguments when samples or models are inspected by buyer.

ix. Valley Iron Steel v. Thorin: Buyer wants some hoedads made to sell at it’s store, so asks Valley Iron to make some based on a model it brought in. Buyer asked seller what to make them out of, and Valley Iron said Iron, buyer said OK, but then it wasn’t strong enough and they were breaking all over the place. It turned out they needed to use steel instead of iron. Buyer sold a bunch of these hoedads to others, and refused to pay Valley Iron for defective ones. Seller brought suit for rest of contract price.

a. Fitness W: when goods are specially manufactured, their particular purpose is their ordinary purpose.

1. VI breached b/c they had reason to know Thorin was relying, Thorin did rely, and goods were not fit.

b. Merchantability W: VI was supermerchant because he dealt in goods of iron, even though not particularly hoedads. c. 2-608 right to revoke acceptance: allows a buyer who has taken goods in stock to revoke its acceptance and push goods back on seller. Court exercises this remedy, so D doesn’t have to pay for 80% that were defective, but does have to pay for 20% that weren’t defective.

x. Delano v. Supreme (MOONEY’s fave case): Fresno mold wine case. a. 314 merchantability: the wine could not pass in the trade w/o objection and was not fit for the ordinary purpose (drinking). b. 2-607(3) sufficiency of notice of breach: Notice is sufficient if it fulfills purposes of notice and allows seller to infer that buyer is asserting its legal rights under 608. Even just oral notice is sufficient in most cases. Good notice here. c. 2-608 Supreme gave effective revocation of acceptance. d. DAMAGES:

1. 1-106 - remedies to put party as in good a position as if other party had fully performed. This may include (consequential) loss of profits and (incidentals) reasonable expenses.

i. Consequentials are those that cannot be reasonably prevented and arise naturally from the breach or which are reasonably contemplated by the parties.

2. 2-715 - lost good will. Such damages don’t require mathematical certainty.

3. Breached Warranty Package:

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i. Is the seller a supermerchant? 2-104 ii. Are the goods merchantable under 2-314(2)? “fair average quality, pass without objection into trade.”

iii. Did seller breach warranty of merchantability? 2-314. iv. Is the item being used for its ordinary purposes, or for a particular purpose? When item specially manufactured its ordinary purpose is its particular purpose. Warranty of fitness 2-315.

v. Did seller breach warranty of fitness? vi. What defenses are available?

a. Warranty disclaimer 2-316? Was it conspicuous? Can’t disclaim an express warranty under sub. 1. b. Remedy limitation 2-719? Will warranty fail of its essential purpose? c. Trade usage 2-208? Can buyer come back with course of dealing response (like Delano tried)? d. 2-607(3): Did buyer give effective notice of the alleged breach in required reasonable time?

vii. Damages: Formula A: Loss in value (K price) – Cost Avoided 4. Seller’s Defenses to Warranty Liability i. 2-316(2), (3) - warranty disclaimers for seller

ii. 2-719(1), (2), (3) - where seller concedes there is a warranty, he says for breach of warranty there are limited remedies.

a. Buyers use (2) and (3) a lot to try to defeat the limits. b. (3) buyer has BoP on unconscionability.

iii. 2-607(3) - lack of adequate notice of breach. Buyer who claims breach must give reasonable notice of the breach to the seller.

a. Question: did alleged delay somehow damage the seller? For the most part, this is a technical defense that courts don’t take too seriously in most cases.

iv. Cate v. Dover: Cate bought some lifts from a retail shop that Dover manufactured, and even though they had been repaired, they never worked right.

a. Seller may disclaim an implied warranty of merchantability under 316 so long as it does so conspicuously (defined in1-201(1), c.10). b. In this case, disclaimer was in the same type face and rather hidden, so seller did not effectively disclaim. c. Mooney agrees with concurrence, who says legislature should abolish all disclaimers for implied warranties of merchantability and fitness. 2-316(2) is bad. Large percentage of Ks are form Ks and most buyer never read an implied warranty disclaimer. unequal bargaining power. Unless there is real evidence shows that buyer really did have actual knowledge of disclaimer.

v. Moscatiello v. Pittsburgh Contractors v. Curbmaster: Cememnt paver purchase. When the K was drawn up, PCEC had disclaimer and

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limits on the reverse side. M had never dealt with them before and was not on notice of these disclaimers and limits. M never got any warranty from C. The paver never worked right for the 5 months M used it, and product was not satisfactory to PennDot. a. Disclaimer was not conspicuous (1-201) b. not fit for its ordinary purpose (314) c. Limitation of remedies was unconscionable (715, 302) vi. Cox v. Lewiston Grain Growers: The seeds that failed to germinate. a. Warranty disclaimer is unenforceable.

1. Berg Rule: disclaimers are disfavored in the law and ineffectual unless specifically negotiated between the buyer and seller. The Berg rule should apply due to the specific requirements of the sale. No negotiations occurred regarding the disclaimer or exclusionary clause contained in the delivery ticket.

b. The exclusionary clause was unconscionable. 1. Determining Conscionability: A. The manner in which the K was entered

B. Whether the parties had a reasonable opportunity to understand the terms of the K, and C. Whether important terms were hidden in fine print.

c. Insurance payments could not reduce the damages award 1.Rule for Collateral Source: Payments received by the injured party from a source independent of the tortfeasor will not reduce recoverable damages by the tortfeasor

d. First K has to pass Berg’s Rule, then it has to pass 719: 1. limitation will not be enforced if the remedy fails its essential purpose

5. Notice Requirements: i. Governed by 607(3). a. buyer must notify seller w/in reasonable time

b. Comment 4: a retail consumer somewhat more time to notify, but for a merchant a reasonable time may by very short (some courts say 10 days for perishable products).

ii. Two issues of notification: a. timing (was it reasonable?)

b. content of notification (oral OK, might have to say word “breach.”

6. Concept of Title: i. when does title pass?

a. this is much less important under the code than it was at CL or under USA

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b. the only people really interested in this are third parties like insurance co.’s, not B and S c. unless otherwise agreed, title passes at time of delivery by seller 2-401(2), where delivery does not necessarily equal receipt of goods by buyer. d. See Di Rocco, pg 198: did seller complete delivery of truck by delivering it to painter at request of buyer? Yes, so buyer’s insurance had to pay.

ii. when can the seller pass good title to the buyer? 2-403 a. voidable title - sub 1: seller had voidable title and can pass good title to buyer (buyer only has to buy in good faith, not OCB) b. entrusting title - sub 2: orig. owner of goods entrusted them to seller and buyer in ordinary course of business can purchase them c. You cannot pass title through a thief!

iii. Heinrich v. Titus Will: H wanted to buy a truck, so he contracted with W for W to purchase a truck for H. W contracted w/ TW to buy from them. TW gave W the truck on a bad check, and W gave truck to H. When TW found check bounced, they wanted truck back, and W took truck back from H and gave to TW.

a. In order to prevail under 403(2), (3) - entrusting case, P must show:

1. that TW entrusted the truck to Wilson and thus empowered Wilson subsequently to transfer all rights to P (Yes, TW did entrust truck) 2. Wilson was a merchant dealing in automobiles (Yes, W held himself out to be a dealer and was treated like one by both parties) 3. P bought the truck from W as a buyer in the ordinary course of business (Yes, H was buyer in good faith)

b. In order to prevail for voidable title doctrine, P must show: 1. TW delivered to Wilson “under a transaction of purchase” (dispute in this case, court holds W did purchase) 2. Wilson paid TW for the truck with a bad check (No dispute) 3. Heinrich was a good faith purchaser for value (dispute in this case - court holds that H did purchase for value and TW conveys title to Wilson under UCC)

iv. Three general policies support 403(2): a. protects innocent buyer

b. the entruster is in a better position than innocent buyer to protect against risk that intermediary won’t pay c. facilitates flow of commerce by allowing purchasers to rely on merchant’s apparent right to sell, don’t want buyers to be hesitant to purchase for risk of loss of title

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7. Risk of Loss: i. FOB - Free on Board. 2-319. a. 319(1)(a) - FOB place of shipment = shipment K

i. If a K is FOB place of shipment, 319(1)(a) and 509(1)(a) - risk of loss absence breach - goods are shipped at buyer’s expense and risk. There is a strong presumption in ambiguous Ks that K is a shipment K.

b. 319(1)(b) - FOB place of desintation = destination K c. 319(1)(c) - FOB a vehicle like RR car. Seller must actually load goods onto the vehicle at buyer’s risk.

ii. CIF - Cost, Insurance & Freight. 2-320. C of goods, insurance and freight are all included in K price. The seller must deliver goods to carrier, must obtain receipt from carrier (bill of lading), seller must pay freight, must purchase insurance payable to buyer, and must send all of the relevant paperwork to the buyer. Once seller has done this, risk passes to buyer from place of shipment. The implication of a CIF K is that buyer has to pay for the goods without inspecting them, when paperwork arrives at buyer. iii. Windows v. Jordan Panel: Press brake fell out of truck during shipment. Question of whether was a destination or shipment K, court holds it a shipment K and that R of L was on buyer.

a. Buyer has recourse against shipping co. for goods damaged in transit. 509(1)(a).

iv. 509 - principle Risk of Loss section, deals w/ 4 different types of Ks. v. Cook Specialty Co. v. Schrlock: Terms were FOB MSI’s warehouse. K was FOB shipment, and therefore buyer bears risk of loss. MSI completed its part by putting goods on reasonable carrier, and at such time risk passes to buyer.

a. Buyer argued that seller used unreasonable carrier. This is a 504 argument. If seller had used unreasonable methods of shipment, goods would not have been duly delivered to carrier and then R of L wouldn’t shift to buyer at that point b. seller didn’t have to make sure the insurance was adequate, only would be inadequate if seller agreed to inadequate valuation of goods. Seller here did not deliberately and knowingly underinsure goods.

vi. Jason’s Foods v. Peter Eckrich: Risk of loss passed when passage of title was acknowledged by buyer, not by seller. Risk of loss did not pass w/o acknowledgement by buyer.

a. 502(b) case because goods were being held for buyer in warehouse that burned. Title had passed, but not Risk of Loss.

vii. Schock v. Ronderos: Mobile home case. Location or status of title is not relevant to which party bears loss - risk of loss was on buyers once tender of delivery made. 509(3). Buyers could have removed home at any time. a. Tender of delivery defined in 503.

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viii. 2-510: risk generally remains on person in possession, even tho they may be innocent. But if the innocent party’s insurance is deficient, then risk will shift to the breaching party. ix. Wilke v. Cummins: Diesel generator case. Location of title isn’t that important. Delivery of the goods that were nonconforming - kept Risk of Loss on seller under 510(1).

a. Mooney says this could have been a 509(3) case, and then the issue would have been if goods had ever been “received.” b. Remember that negligence is always a possible override onto risk of loss rules. If risk had passed to Wilke, if W can show that even though risk has passed that freezing occurred b/c of neg. on part of Cummins, then W would win. Try 1-103 for this argument.

x. Multiplastics v. Arch Industries: After M made the, they asked AI for releases, which AI refused to give citing labor difficulties and vacations. M kept trying to get in touch, and AI eventually agreed but never did pick up pellets. Finally one day, M’s plant was destroyed by fire, and the pellets weren’t covered by insurance, so they sued to recover K price. Buyer’s breach.

a. M tendered delivery when they notified AI to pick up and AI had reasonable time to get them under 510(3). b. D argues for defenses of waiver and estoppel. D stupidly argues that P was basically agreeing with their refusal to accept delivery by continuing to make attempts to get them to accept delivery (waiver). Court doesn’t buy it. Court also doesn’t find any estoppel. 1. Two elements of estoppel:

A. one party must do or say something which is intended or calculated to induce another to believe in the existence of certain facts and to act on that belief B. the other party must change his position or do some act to his injury as a result which he would not otherwise have done (reliance)

8. Buyer’s and Seller’s Rights After Delivery

i. 2-507 and 511: mirror images of each other, saying seller’s tender of goods is a condition of buyer’s obligation to pay, and conversely buyer’s tender of payment is a condition of seller’s obligation to deliver. Concurrent conditions.

a. Neither party has to perform first absent any contract provisions. You have to go at the same time. Seller may not sue unless it has demonstrated a willingness and ability to deliver goods, and buyer may not sue unless it shows it can and will pay for goods.

ii. 513 - inspection rights for buyer. This section says that usually, the buyer has the right to inspect goods before paying for them.

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iii. 601 - buyer’s right to reject. Seller can recover only if it tenders goods that conform perfectly. a. There are 5 exceptions to the perfect tender rule: 1. good faith (can’t reject in bad faith), 2-103 2. seller’s right to cure, 2-508

3. installment contracts, where buyer can only reject an installament if nonconformity substantially impairs the value of that installment, 2-612(2), 612(3) says you can only cancel the K if any nonconformity substantially impairs the value of the entire K 4. failure by seller to conform to its obligations under 2-504 only constitutes rejection grounds if material delay or loss ensues 5. buyer’s right to reject is bound necessarily with buyer’s accepting the goods. Once buyer accepts under 2-606, it can no longer reject them (could revoke acceptance under 608).

iv. International Commodities Export v. North Pacific Lumber: Moldy beans - buyer rejecting 9 months after receiving them. Buyer’s rejection was untimely, revocation untimely, buyer acted like they owned the goods (inconsistent with notion that P still owned) and in fact resold them, and did not give effective notice of revocation of acceptance.

a In this case, buyer accepted goods under 606(1)(a). b. Therefore, the burden is now on buyer to show nonconformity under 607(4). c. Since buyer didn’t reject, he tries to say he revoked under 608. But it came too late, and really didn’t give any notice, so it doesn’t fly.

d. A buyer may also accept by failing to make an effective r ejection 606(1)(b) - points to 602 saying if buyer rejected too late.

e. 606(1)(c) if buyer does any act inconsistent w/ seller’s ownership, buyer accepts.

v. Bowen v. Foust: Air conditioner compressor case. a. Buyer revoked its acceptance under 2-608.

b. Buyer has right to throw goods back on seller by revocation of acceptance and recover money (2-711). c. Seller claims they wanted to cure under 2-508, but ct. held that seller never offered to cure. 508 only allows a fix by replacing w/ conforming goods.

vi. An aggrieved buyer has two big avenues of remedy: a. throwing the goods back onto seller (rejection), getting money plus damages back. If you can effectively reject under 601 or revoke under 608. b. if buyer waited too long or otherwise can’t revoke or reject, then buyer is stuck with goods but not without remedy if goods don’t

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conform - 714 - which says buyer can sue for whatever damages it can show.

9. Breach, Repudiation and Excuse (Buyer’s actions) i Buyer’s duties toward rejected goods: 602, 603, 604.

ii. Buyer accepts under 606 iii. Design Plus v. Citro, Citro v. Decolam: Installment K between buyer DP and supplier C, who subKed with Del. Buyer probably sued under 714. a. 612- rejection of installments or entire K b. 602- rejection requirements c. 603 c1. gives three options absent instructions from seller p ost-rejection: 1. store them 2. reship back to seller 3. resell to another iv. Buyer rejects under 602 if they have not yet accepted (607). v. If buyer has accepted, they may still revoke under 608. vi. Kesner v. Lancaster: nonconforming tractor case. Buyer is arguing that he revoked his acceptance after learning tractor didn’t work.

a. Court says requirements for revocation under 608: 1. substantial impairment of value (unlike rejection’s fail in any way test) 2. acceptance was based on assumption cure was coming, or based on a difficult to discover nonconformity before acceptance

3. reasonable time for revoking 4. notice vii. 609 - helps decide who committed the first material breach viii. 610 - anticipatory repudiation, test in c1: a. has party demonstrated clear intention not to perform? and

b. if so and such nonperformance would substantially impair value to other side, then there’s anticipatory repudiation.

10. Seller’s Remedies i. 703 is catalog of Seller’s remedies: ii. 709 - seller can sometimes recover full K price a. allows recovery only when: 1. buyer has accepted and retained goods (big one), or

2. conforming goods have been lost or damaged after R of L passed to buyer (Multiplastics), 3. when seller has tried and failed to resell the goods, or circumstances reasonably indicate such efforts would fail

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iii. 706 - most frequently invoked remedy, seller can resell the goods and get difference between K price and resale value. Advise seller clients to resell if possible because this is the easiest calculation.

a. If aggrieved seller resells the goods in good faith, in a commercially reasonable manner, and in accordance with req’s in 706 (notice), then seller can recover difference between K price and resale price plus any incidental damages under 710, less expenses saved. b. And if seller makes a profit on resale, (6) says seller may keep that profit. c. (3) requires reasonable notification of intent to sell for a private sale, not including time and place. In a public resale, (4) governs. Seller must give notice of time and place specifically. More notice required for public resale because there are few bidders so you have to give them extra notice.

iv. 708(1) - contract market remedy, if seller doesn’t resell or resells inappropriately and cannot recover full K price, it’s entitled to diff between K price and presumably lower market price v. 708(2) - lost volume seller, where if preceding remedies don’t make seller whole, he is entitled to full profit he would have made.

a. Don’t ADD in overhead, just don’t subtract it either. It just comes in if you don’t subtract the overhead costs. Just don’t worry about it. Just remember LV-CA!!! Not loss in profits, just unpaid contract price.

11. Buyer’s Remedies: i. 711 - catalog of buyer’s remedies

ii. buyer may cover his loss (buying sub. goods) 712 for difference between cover price and K price

iii. buyer may recover diff between K price and market price 713 a. What’s the correct date for measuring market price?

1. the date is when the buyer learned of the breach (not time of tender). The reason for this is meant to protect a buyer who doesn’t learn of a breach until after time of tender might have passed.

b. what about when repudiation occurs before the date of tender due?

1. There’s some judicial authority for this, but the better view is to use when buyer learned. Drafters most likely intended to use “breach” rather than “repudiation.” This was done because of pre-code cases which led to an opposite result.

c. What’s the correct place for measuring market price? 1. 713(2) says market price is determined as of the place of tender, or after goods have arrived, as of the place of arrival.

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d. Cargill v. Stafford: Wheat buying case, 2 separate transactions, 1 valid K.

1. Mooney says this case came out the wrong way. Should have been a Route D case, not a B or C as court treats it. 207 allows additional terms. 2. Damages under 713: Time to calculate market price is date when buyer learns of the breach, which is the date for performance.

i. buyer in a rising market might have a good faith obligation to cover before the last date for performance

iv. Buyer’s right to specific performance or replevin - 716 v. Copylease v. Memorex - Inability of Copylease to find adequate replacement (to “cover”) may present an exception to the bar to recovery and count as a uniqueness circumstance under 716. vi. Farmers Elevator v. Lyle: Buyer of corn on an oral K resold the corn to someone else, based on anticipation of receiving corn from seller. To make good on that resale, buyer bought two other batches of corn from two other people.

a. court invoked a modern view of estoppel against statute of frauds 1-103, and the cover remedy itself under 712, which has a good faith reasonable requirement on buyer, w/o unreasonable delay b. Good faith req see Comment 2, 712. Argument to make to court in justifying a buyer’s cover is that the buyer should spend money and make the contract as though it were its own money. If the cover K is one buyer would have made if seller hadn’t breached, then go ahead.

vii. 714 - buyer’s damages for breach after accepting goods. a. Remember an aggrieved buyer has two routes to go down (reject or revoke and throw back on seller or keep goods and sue).

viii. 715 - ability of non-breaching buyer to recover incidental and consequential damages

ix. 719 - limitation of remedy x. Always an argument by seller that it couldn’t foresee kinds of damages that buyer is now claiming.

Virginia Ryan Page 1 July 24, 2009

Choice of Law The UCC applies to Ks for the sale of goods in excess of $500. All other Ks are subject to the common law of the state in which they were formed/performed. Formation Offer and Acceptance Whether an offer has been made is judged on an objective standard, i.e. from the perspective of the hypothetical reasonable person. Advertisements and price quotations are generally not offers. If a communication is ambiguous, Courts generally look at the language and surrounding circumstances to determine whether an offer has been made. R2d 50 defines acceptance as a manifestation of assent to the terms of an offer, in a manner invited or required by the offer. UCC 2-206 states that unless otherwise indicated, an offer invites acceptance in any manner reasonable under the circumstances. The following actions are considered acceptance: express notice, partial performance, shipment of goods, any method established by the offeror. Preparation for performance, silence, and non-conforming shipment of goods are generally not acceptance. The power of acceptance may be terminated by lapse, revocation, death or rejection. Validation Consideration is a benefit to the promisor or a detriment to the promisee. Relinquishment of a legal right is consideration, regardless of whether it is “detriment in fact”. R2d 79 states that the actual value of the consideration is immaterial, but there is a growing tendency of policing the fairness of bargains. Past actions generally cannot serve as consideration, unless enforcing the promise is necessary to prevent injustice. R2d 86. A return promise may constitute consideration, so long as it is not illusory; i.e. it actually binds the promisor to something definite. Reliance can substitute for performance under the doctrine of Promissory Estoppel. A promise made without consideration may be enforced in order to prevent injustice. R2d 90 holds binding those promises which the promisee should reasonably have expected the promisee to rely on, if the promisor did in fact rely on it to her detriment. Formation Defects

Virginia Ryan Page 2 July 24, 2009

Statute of Frauds To be enforceable, the following kinds of Ks must be in writing and signed: suretyship, Ks that cannot be performed within one year, sale of land, sale of goods exceeding $500, authorization of an agent, and wills. The three main issues in a Statute of Frauds case are 1) whether the statute applies; 2) if it does apply, whether it has been satisfied; and 3) whether there is any doctrine that will preclude the statute’s application. Ways to Avoid the Statute of Frauds: Part performance will take a contract outside the statute of frauds if the performance is consistent with the existence of the alleged contract. Reliance: the statute is circumvented if reliance is reasonable, foreseeable, and detrimental. Restitution: An action for restitution is never within the reach of the Stat. of Frauds b/c it is not an action on a contract. Not covered - a court may decide that a situation is not covered by the statue at all. Fraud, Duress and Unconscionability Lying, cheating, coercion, and otherwise behaving like an asshole during k formation are not allowed, and will invalidate the k. Mistake Mistake is “a belief not in accordance with the facts.” An optimistic but wrong prediction about the future is not a mistake in k law. If mistake is proven, the k is void and both parties are relieved of all obligation. Mistakes may be bilateral or unilateral, but succeeding under unilateral k is much more difficult.

K Terms Steps to K Interpretation:

Elements of Mistake

1. A belief not in accordance with the facts 2. Relating to a basic assumption of the k 3. Having a material effect on the k 4. Where no party has assumed the risk. Factors:

a. the language of the k b. circumstances/custom c. whether a party treated limited knowledge as sufficient

5. For unilateral mistake, additional requirement: a. enforcement would be unconscionable OR b. other party knew of/caused the mistake

Virginia Ryan Page 3 July 24, 2009

1. First, consider the plain meaning and context of the language. 2. Next, factor in any terms of art, including legal terms and usage of trade. 3. In case of ambiguity, apply the maxims of k interpretation.

Implied Terms

• See Warranties below. • There is an implied covenant of Good Faith and Fair Dealing in every contract. • Best Efforts: Implied duty to work as hard for the contracting party as you would

work for any other party you didn’t dislike. OR Market a product as if it were your product. Mostly applicable in percentage lease or exclusive rights cases.

• A satisfaction clause is read to be objective with respect to utilitarian things, but subjective with regard to things that require personal taste (such as art).

• In employment law, there is an implied term that allows termination at any time for any (or no) reason. (Wood’s Rule)

Maxims Ejusdem generis = “of the same kind” A list of items followed by an ‘etc.’ will be construed as including only things closely similar to the items already listed. Expressio unis est exclusio alterius = “the inclusion of one thing excludes all others” Especially relevant to force majeure clauses. Contra proferentem = Ambiguities in the language will be construed against the party who drafted the k. En pari materia = read the different parts of the k as a whole, giving effect to each. Noscitur a sociis = it is known from its associates Consistency = words used more than once should be interpreted the same way each time. Term of Art = words with an established legal or industry meaning should be given that interpretation. Handwritten Terms Control = If there are handwritten and typewritten terms that conflict, the handwritten term is controlling because it is assumed to be a later alteration of a typed term.

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Warranties Implied Warranties Every k for sale of goods includes an implied warranty of merchantability UCC 2-314. If a seller has reason to know of buyer’s particular purpose for an item, and the buyer relies on the seller’s judgment that the item is fit for that purpose, then there is an implied warranty of fitness UCC 2-315. Super Merchants (UCC 2-314) have extra implied responsibilities. Warranty of Title A k for sale of goods includes an implied warranty of title, i.e. that the seller has good title to the item being sold and it is not stolen. UCC 2-312. If the title is voidable, a good faith purchaser may obtain good title. R2d §403(1). Express Warranties An express warranty is an affirmation of fact or a promise. Mere puffing (“best burgers in town”) does not constitute a warranty. An express warranty must have some bearing on the quality of the goods. It will be presumed that the buyer relied on the warranty when making the purchase; it is the seller’s burden to prove that he did not. UCC 2-313. Disclaiming Warranties Implied warranties may be disclaimed, but the disclaimer must be conspicuous. It is very difficult, if not impossible, to disclaim an express warranty. R2d §316(1)

Wood’s Rule If an employment k doesn’t specify the length of employment, the presumption is that the employment is terminable at will by either party – for good cause, no cause, or even bad cause. This is the default rule and operates unless the k explicitly states otherwise. Exceptions:

1. Public Policy a. Perjury - employer cannot fire you for refusing to lie. b. Jury Duty – cannot be fired for fulfilling civic duty. c. Statutes – cannot be fired for asserting rights under a statute (OSHA,

Title VII, whistleblower, etc.) 2. Good Faith and Fair Dealing

a. Opportunism b. Rules must be applied evenly.

3. Implied Promise – employer makes some kind of statement that implies that continued employment is guaranteed.

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Battle of the Forms An acceptance is effective when dispatched; a rejection or revocation is effective when rec’d; all else can be deduced from those rules, with two exceptions:

1. The overtaking rejection case

2. The non-overtaking acceptance case. K of adhesion Contract of Adhesion: standardized contract drafted and imposed by one party on another. Contracts of adhesion are not per se unenforceable. They are only unenforceable if:

• One of the stated terms falls outside of the other party’s stated expectations. • One of the terms is substantively unduly oppressive or unconscionable.

Parol Evidence Rule Extrinsic evidence, such as evidence of conversations or negotiations, is not admissible to add to, vary or contradict the terms of a final, integrated writing. The rule usually comes into play when a party tries to add or change a term to an established k. Ways Around the Parol Evidence Rule:

• Depreciation value and consideration already paid are usually exempt from the PER because they generally do not vary the terms of the k.

• Evidence of formation defects are exempt. • If clear and convincing evidence shows mutual mistake or a scrivener’s error,

the k may be reformed without regard to the PER. • PER doesn’t apply to subsequent modifications – only to extrinsic evidence prior

to or contemporaneous to the writing. • PER does not apply to oral ks or un-integrated writings.

Parol Evidence Rule and the UCC

Integration Complete integration = parties agree that writing is a complete, exclusive statement of the k, in which all terms have been formalized. PER is in full effect – no extrinsic evidence can be used to add or vary a term. Partial Integration = some terms have been formalized, some have not. PER applies to the formalized terms, but more terms may be added. No Integration = no writing has been adopted as a final expression of any term. PER does not apply.

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UCC does not have a PER per se, but does deal with issues in a similar way. Under UCC §2-202, these things will always be allowed as evidence of a k’s terms, regardless of integration:

1. Course of performance = how parties behaved under the k; what their actions indicated about the interpretation of the k.

2. Course of Dealing 3. Usage of Trade

Conditions A condition is an event which is not certain to occur, which must occur (unless it is excused) in order to activate an existing contractual duty. Interpreting Conditions A party seeking a performance might ask the other party to undertake a duty to render that performance, might make its own performance conditional on the other party rendering that performance, or might do both. If it is unclear whether a term should be considered a condition or a promise, the court will generally err on the side of a promise in order to avoid forfeiture. If a duty, the breaching party still pays damages and makes the other party whole, if a condition, cancels entire contract (potentially very harsh). Courts have a strong preference to avoid forfeiture – even if the drafter has taken pains to make clear that forfeiture is intended, R2d §229 states that a condition may be excused to avoid “disproportionate forfeiture.” Constructive Conditions of Exchange The commitments exchanged by the parties can be “dependant covenants”, that is, one party’s duty to perform is an implied condition of the other party’s duty to pay. A party’s failure to perform not only puts that party in breach, it excuses the other party from performing their duty. Precedent, Subsequent, and concurrent Conditions

Kinds of conditions: 1. Express – stated outright in k 2. Implied in Fact 3. Constructive – will be read in by the court

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Concurrent conditions are those that must occur at the same time, such as in dependant covenants – for example, payment and delivery being required to happen at the same time. A condition precedent, once satisfied, makes a contractual obligation spring into existence. A condition subsequent is like a condition precedent, but it activates an existing contractual obligation. If I am approved for a mortgage, I will buy your house = precedent. I will buy your house, but I must first be approved for a mortgage = subsequent. Snierson says not to worry much about the difference between precedent and subsequent - both shift burden to perform from one party to another. Mitigating Conditions The harsh effect of a non-occurrence of a condition can be mitigated in these ways:

1. Prevention: If you prevent a condition from occurring in order to avoid performing your duty, you cannot escape your duty by arguing that the condition never occurred.

2. Waiver: the parties may agree that performance will still happen even if the condition does not occur or is delayed.

a. Estoppel: A party that has waived a condition may retract that waiver before the time when the condition was to occur, unless the other party has not substantially relied on the waiver. However, a waiver that occurred after a condition was due cannot be retracted.

3. Election: when a condition has not occurred, a party may choose to perform regardless, or may choose to cancel the k altogether. This choice is binding, even without reliance by the other party.

Time For Performance Parties may designate the time for performance, but if K is silent, default rules will apply. the most common default rule: Concurrent Conditions and Tender If performance by both parties was supposed to occur at the same time, and one party does not perform, the other party may sue only if they have performed or were ready to perform. In a K for sale of goods, delivery and payment are concurrent conditions. Tender of delivery is a condition to the buyer’s duty to accept and pay for the goods, and tender of payment is a condition to the seller’s duty to deliver. Under the UCC, a check is sufficient tender of payment, so long as the party tendering the check seems solvent, or unless the seller demands cash and gives sufficient time for the buyer to procure it. Nonoccurrence of a Condition

The doing must take place before the giving.

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Nonoccurrence of a condition generally relieves a party of an obligation to perform. However, if you cause a condition not to occur in order to escape your obligation, you will be in breach. Breach Generally, when a party does not perform, they breach the k and are liable for damages. However, there are several mitigating doctrines which may relieve the breaching party of some or all liability. Suspending Performance and Termination Sometimes a breach of performance entitles the injured party to suspend their own performance and/or terminate the K. To determine whether a party may suspend or terminate, a four part analysis is used:

1. 1. Is there an uncured breach by the other party? 2. Is the breach of a performance upon which the other party’s performance

depends? (Dependant covenants) 3. Was the breached performance supposed to come before the injured party’s

performance? 4. Was the breach material or partial?

Determining materiality is the most difficult step in the analysis, and a number of factors will be considered, as stated in R2d §241.

Suspension and Termination, Cont. If the breach is determined to be partial, then the injured party may not suspend or terminate, and must continue to perform under the k. However, the injured party will be entitled to damages. If the breach is material, the injured party has the choice either to terminate the k or to treat the breach as partial and continue to perform. Snierson Says: A prudent party will treat a breach as partial because if the injured party treats the breach as material and terminates, and the court later determines that the

Factors of Materiality – R2d §241

1. To what extent will the injured party be deprived of the benefit which he

reasonably expected? 2. To what extent can the inured party be adequately compensated? 3. How severe will the forfeiture of the breaching party be? 4. What is the likelihood of the breaching party curing the breach? 5. Did the breaching party conform with standards of good faith and fair

dealing?

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breach was partial, the injured party will then be in breach. Treating a breach as material may be a costly gamble. Hindrance and Prevention When one party prevents the other from performing, the non-performing party is excused. Sometimes, simply hindering the other party from performing will have the same effect. In many situations, a party has an implied obligation to cooperate with the other party, and to do whatever is necessary to enable him to perform. Mitigating nonperformance Substantial Performance Substantial performance deals with the case in which the breaching party has finished performing and the injured party refuses to pay because the performance is defective or incomplete. If a party’s performance departs from contractual requirements in only insignificant ways, the party will be considered to have substantially performed, and will be entitled to payment, less any loss in value caused by the departure from requirements. This doctrine is most commonly used in construction cases, where a builder has varied in a minor way from plans or requested materials. Note: if a party willfully and fraudulently varies from the terms of a k, he cannot benefit from substantial performance. In order to be considered to be considered substantial, the performance must fulfill several requirements:

Substantial Performance and the Perfect Tender Rule In a k for sale of goods, if delivery differs in a more-than-trifling aspect, the buyer can refuse the goods, claiming breach. However, the UCC softens this by providing that the breach may be cured if the time for performance has not yet expired. If the buyer has already accepted the goods, they can only revoke acceptance if the non-conformity substantially impairs the value of the goods to the buyer. Installment Ks and Non-Conforming Goods

Factors of Substantial Performance

1. Departure from requirements was innocent mistake,

not willful. 2. Harm was minor/trivial. 3. Purpose to be served by the K was fulfilled – owner

got more or less what he bargained for. 4. How much forfeiture would the losing party suffer? 5. Is the breach easily compensated for?

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If the k is for installments, then non-conformity of one installment does not breach the entire k unless that non-conformity substantially impairs the value of the entire K. Divisibility If a K consists of several distinct items or performances, and the price to be paid is apportioned to each item, the K will generally held to be severable. Therefore, non-delivery of a single item will not breach the entire K. However, if the payment is isngle and entire, then the K must be entire, although it may consist of several distinct and independent items. Snierson says, “It’s almost like 10,000 mini Ks bundled together, so with respect to 5800 of those Ks, he performed, and the rest he did not perform” (referring to Gill v. Johnstown Lumber). Divisibility may be useful when there has been partial performance, but the performance has been less than substantial. Restitution Restitution is another way to mitigate the severe effect of a less than substantial performance. Rather than holding the breaching party liable for the total value of the k, the performing party is paid for any work done, but he is liable for any unperformed work or loss in value. The logic is that the performing party is entitled to restitution for the benefit he has conferred on the other party. To allow the other party to receive full damages plus that benefit would be unjust enrichment. Prospective Nonperformance Anticipatory Repudiation Repudiation is a statement of intention not to perform except on conditions which go beyond the K. In order to constitute repudiation, a party’s language must be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform. When repudiation is not accompanied by breach because it has happened before the time for performance has arrived, it is called an “anticipatory repudiation.” When an anticipatory repudiation occurs, the party receiving the repudiation is not required to begin to “cover” until the time for performance comes about. The party receiving the repudiation does not have to wait until the time for performance to sue, but he must allow the repudiating party a little time to reconsider. Exception for One-Sided Contracts If one party has fully performed and the only duty remaining is the payment of installments, non-payment of one installment cannot be treated as a repudiation of the entire K. Responses to Repudiation

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The recipient of repudiation can choose to treat the repudiation as breach or not. If the recipient disregards the repudiation, the rights of the parties may be determined as if the k had been ended, or as if the repudiation had never occurred, depending on the case and the court. The modern view is that the recipient of a repudiation may urge its retraction without becoming committed to further performance if it is not retracted. See UCC 2-610(b), R2d § 257. Retraction of Repudiation The repudiator has the power to retract prior to any change of position by the other party, but not afterwards. All that is required to close the door to retraction is definite action indicating that the anticipatory breach has been accepted as final. This definite action may be either filing of a suit or a firm declaration that unless within a fixed time the breach is repudiated, it will be accepted. Under UCC 2-611 and R2d §256, it is enough that the aggrieved party has indicated that he considers the repudiation final – no step in reliance is needed. This is in the interest of creating certainty for the injured party. Assurance of Due Performance The UCC, under certain circumstances, gives extra rights to the party who fears a breach may occur. Under the common law, a party had no right to demand reassurance that the other party would perform. However, the UCC and R2d create an exception – when an obligee reasonably believes that the obligor will commit a breach, he may be entitled to demand assurance of performance. (UCC 2-609, R2d §251) This exception is most often used when a seller has promised to supply goods for later payment, and it appears that the buyer is in financial distress. Usually, the demand for assurances must be in writing; however, an oral demand may suffice so long as the demand provides a “clear understanding” of the insecure party’s intent to suspend performance until adequate assurances are provided. However, UCC 2-609 does not give the alarmed party the right to redraft the k.

On rare occasions, a party may be excused from a k obligation if an obstacle arises that was not taken into account at the time of formation. If the obstacle existed when the k was made, but was not known to the parties, then mistake may excuse non-performance (see Formation Defects). If, however, an unforeseeable event occurs after the k is made and impedes performance, impracticability may apply. Similarly, if a turn of events has thwarted a party’s object in making the k, frustration of purpose may relieve the party’s obligations. Impossibility and Impracticability

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If an unforeseeable event occurs after the k is made and impedes performance, impracticability excuse nonperformance. Frustration of Purpose Performance remains possible but the expected value of performance to the party seeking to be excused has been destroyed by an unforseen event. Frustration of purpose has a high threshold, like impracticability. If you can get any other use from the k, you probably will not succeed in escaping the k. Biggest difference between mistake and frustration of purpose is that mistake happens at the time the k is formed, whereas with frustration, everything is fine at the time of k formation, but later events cause the problem. Factors Indicating Assumption of Risk

1. The language of the K 2. Circumstances and Custom 3. Whether a party treated limited knowledge as sufficient.

Remedies for breach fit into two broad categories: equitable and substitutive. Equitable damages include injunction and specific performance, and are rarely awarded. Substitutive relief is money damages, and is the default. There are three interests that remedies serve: expectation, reliance, and restitution.

3 Requirements of Impracticability 1. Something unexpected must have occurred. 2. The risk of the unexpected occurrence must not have been allocated either by agreement or custom. 3. Occurrence of the contingency must have rendered performance commercially impracticable.

Elements of Frustration

1. An unexpected contingency 2. Affecting a basic assumption of the K 3. Completely/mostly frustrating a party’s purpose 4. No assumption of risk by the party seeking to escape K

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Specific Performance Specific performance = actually getting what you k’d for. Courts are reluctant to grant specific performance, especially when performance of a service is the relief requested because it would be difficult to supervise, and because there is a danger of creating involuntary servitude. Specific performance is available only when money damages would not sufficiently compensate the injured party; i.e. when there is something so unique and individual about the k’s object that a replacement could not be purchased. One area where specific relief is common is in k’s for real estate, as all land is considered unique. SP may also be considered appropriate where determining an amount of money damages would be costly and inaccurate. Expectation Interest This looks to put the injured party in the position he would have occupied had there been no breach. This involves considering the estimated costs and benefits created by the K. The general rule is that sentimental or fanciful values will not be compensated – only values that can be proven with sufficient definiteness may be recovered. The Formulas

Reliance

Formula B Damages = cost of reliance + profit – loss avoided + other loss

Ways Breach May Affect the Injured Party (Damages Variables)

Loss in Value: deprivation of the expected return performance (what should have been received less what, if anything, was actually received). Other Loss: loss of anything other than expected return; physical damage to person or property, expenses incurred in an attempt to salvage the transaction. Cost Avoided: a beneficial effect where the injured party is saved additional expense that continued performance would have incurred. Loss Avoided: a beneficial effect where the injured party is able to avoid some loss by salvaging and reallocating resources that would have been devoted to performance.

Formula A

Damages = loss in value + other loss – cost avoided – loss avoided

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Reliance compensates the amount actually lost by relying on the promise of the K. It is generally easier to determine than expectation damages, but is usually less than expectation damages. Restitution Looks to correct an unfairness, such as unjust enrichment. See Mitigating Nonperformance above. Lost Volume Sellers If the seller could have made more product and sold it in the time that was spent dickering with a buyer who breaches, the seller can get lost profits for the goods that they could have made and sold in that time, regardless of whether or not the seller was able to sell the goods intended for the buyer to someone else. Losing Ks Reliance damages cannot be greater than expectation damages. If a party was going to lose money on a K, that loss will be taken into account when damages are awarded. Limitations on Damages Avoidability – The Duty to Cover An injured party is not allowed to recover for loss that it could reasonably have avoided. Where there is a market for goods, a buyer’s damages are based on the assumption that the buyer could reasonably have avoided greater loss by obtaining substitute goods on the market. If the injured party has “covered”, they may recover the difference between the cost of the cover goods and the k price, plus incidental or consequential damages. UCC 2-713. If a party fails to cover, its damages will still be based on the difference between market price and K price. However, a party is not required to cover by purchasing different or inferior goods. An Exception to the Avoidability Rule Manufacturers may complete manufacture of goods upon the buyer’s repudiation if to do so would avoid more loss than halting manufacture based on a “reasonable commercial judgment”. UCC 2-704(2). The rationale is that the goods may be resold to another buyer. Recovery can be based on the goods as completed, even if the “reasonable commercial judgment” turned out to be wrong. Efficient Breach and Cost to Remedy Defect When performance of a contractual duty would be much more expensive than the value such performance would produce, a party may choose to breach and pay the difference in market value. Some courts will allow this, especially if provision breached is incidental to the main purpose of the k. Others will not, feeling that to do so would be to reward bad faith and deliberate breach of K. Foreseeability

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Only foreseeable damages, i.e. those reasonably within the contemplation of the parties at the time of k, may be recovered. Unforeseeable consequential damages can not be recovered. The parties don’t have to foresee the exact mechanism of the damage, just the general kind of damage that might occur. Emotional distress damages arising from a breach of k are usually not allowed, as emotional distress is usually not foreseeable, and is difficult to measure in monetary terms. Certainty A plaintiff must be able to prove damages with “reasonable certainty”, i.e. they must be shown by clear and satisfactory evidence. There are several methods that may be used to prove business losses.

Liquidated Damages and Penalties Liquidated damages are an amount stipulated in a k that will be paid in event of a breach. While liquidated damages may be a convenient method of assessing damages to speed the litigation process, their real purpose may sometimes be to scare the other party into performing. Drafters must take care that a liquidated damages amount is based on estimated actual damages; purely punitive damages are not allowed. Liquidated damages are somewhat disfavored, but will be upheld if at the time the K was made, it appeared that damages would be difficult or impossible to estimate, and that the amount bears a reasonable relation to probable damages. Second Look Rule Under UCC 2-718, damages may be a reasonable estimate at the time of k formation, or a reasonable approximation of actual damages at the time of breach.

Methods to Prove Lost Profits

1. Yardstick comparison with profits of similar businesses. 2. Profit history of plaintiff’s predecessor or successor. 3. Comparison with similar businesses owned by the plaintiff. 4. Use of economic and financial data and expert testimony.

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Third Party Beneficiaries When a K is made with the intent to benefit a person not a party to the K, that person has the right to sue under the K. A third party beneficiary is created at the time of K formation.

Assignment Assignment is the present unilateral transfer of rights under a K to a third party. Very specific language is needed to create an assignment. “I hereby assign” works. “I will transfer” or “please pay x” does not create an assignment. Assignment happens after k formation, may be written or not, and may be for consideration. Gift assignments are generally revocable. R2d §317, UCC 2-210 Delegation The transfer of an obligation to perform a duty or condition under a k to a third party. Most duties may be delegated, unless the other party has a strong interest in having a particular person perform the duty. However, a delegation does not relieve the obligation of the delegating party. If the third party fails to perform, the original party must. R2d §318, UCC 2-210

Third Parties Under Restatement 1st Donee Beneficiary: Purpose of the K was to make a gift to the third party either of money or of performance under the K. Creditor Beneficiary: Purpose of the K is to satisfy a debt owed by a party to the third party. Incidental Beneficiary: K did not intend to benefit third party, any benefit would be accidental. This party has no rights under the K.